Formal and informal marketing channels in the marketing system for milk in Hai district

Kaynak (1986) defines a marketing system as "the sequence of transactions and commodity movements between the producer and the ultimate consumer". Such a sequence includes bulking (or assembly) and distribution. Alternatively, the marketing system may be defined as the process of creating form, time and space utility (Kohls and Uhl, 1985).

In this paper, a marketing system for milk involved all elements that influence, directly or indirectly, the movement, transformation and price of fresh milk once it leaves the point of production. These include: (a) collection of milk from dairy producers (b) the transformation system, if any, which processes and/or packages milk products for final consumption (c) the transportation system that moves milk and milk products between functions (a) and (b).

The marketing functions mentioned above were performed by market intermediaries. Three major market intermediaries can be distinguished in the marketing system for milk in Northern Tanzania:

Tanzania Dairies Limited (TDL), dairy cooperative and small milk traders. The common feature among these marketing agents was that they all purchased fresh milk from dairy producers and the major product which they distribute to consumers was liquid milk.

Depending on the involvement of the market intermediaries in the marketing of milk from the producer to the consumer, the following marketing channels were observed:

i) Producer - - >Consumer
ii) Producer - - >Small Milk Trader - - >Consumer
iii) Producer - - >Small Milk Trader - - >Retailer- - >Consumer
iv) Producer- - >Dairy Cooperative - - >Consumer
v) Producer - - >Dairy Cooperative - - >Retailer- - >Consumer
vi) Producer - - Tanzania Dairies - ->Consumer

The pattern of the milk marketing channels and parts played by each marketing intermediary are shown in Figure 1.

Figure 1.: Milk marketing Channels in HAI District.(Source: Survey, 1990.)

All milk that is sold through TDL (channel vi) is said to pass through a formal market. The informal market consists of direct sales to ultimate consumers (channel i), milk sales through small milk traders (channels ii and iii) and milk sales through dairy cooperative (channels iv and v).

Tanzania Dairies Limited is a parastatal organization, which according to the 1983 Livestock Policy is charged with the responsibility of (i) collecting fresh milk from dairy producers especially those in rural areas far from dairy processing plants, (ii) processing fresh milk into standardized milk and milk products, and selling and distribution of high quality milk and milk products to consumers in urban areas. TDL owns and operates seven milk processing plants located in Arusha, Dar es Salaam, Mbeya, Musoma, Tabora, Tanga and Utegi. The Arusha TDL milk processing plant which processes milk collected from Hai and other areas in Northern Tanzania is the relevant plant for the study. In Hai District, TDL has four milk collection centres located at Sanya Juu, Boma Ng'ombe, Kialia - Foo and Rongai.

Cooperatives in dairy production in Hai District emerged after the re-institution of cooperative societies in 1982. They emerged as organizations affiliated to the primary cooperative societies but membership to the dairy cooperatives is voluntary. Nronga, Ng'uni and Losaa cooperative societies were the only existing dairy cooperative societies in Hai District during the time of the field survey in 1990. The major activity of these dairy cooperatives was milk marketing. Only Nronga and Ng'uni dairy cooperatives were studied.

Small milk traders are those individuals who purchase relatively small quantities of milk from smallholder farmers and distribute them in markets elsewhere. Three different types of small milk traders were identified during the field survey in 1990. They were categorized on the basis of the. type of transport used in milk collection and distribution as those: (i) using bicycles (ii) using own vehicle, and (iii) using hired transport. The means of transport used determined the volume of milk that could be handled by the small milk traders.

Framework for Analysis and Methodology

Framework for Analysis

Economists have had difficulty in defining an aggregate norm for evaluating performance of marketing systems. No single criterion of performance seems to exist.

The marketing system for dairy products in Northern Tanzania is complex. The complexity stems from the mixed nature and differing objectives of the market intermediaries involved. The objectives of private small milk traders may be purely commercial i.e. maximize returns. In the case of TDL which is public organization, the objective of maximizing returns may be shared with a set of social and other non - commercial objectives. One of the objectives of TDL was to run the organization as a profit-earning entity but this objective has often been shared with social and non - economic objectives like providing employment.

When public marketing institutions are used to meet broader economic, social and other non -commercial objectives, it is unlikely that they can be required to operate according to market criteria without sacrificing some commercial objectives for non - commercial ones (Due, 1987). For the marketing system for milk in Northern Tanzania, these sacrifices affect not only the milk market intermediaries but also producers and consumers who are also participants in the milk marketing system (Figure 1). Each set of participants has expectations of objectives and these objectives may be conflicting. Whilst consumers frequently complain about high and fluctuating food prices, producers complain about low and fluctuating prices for farm products. Therefore, it is not sufficient to compare the operational efficiency of the market intermediaries in assessing performance of the marketing system. It is necessary to use a framework that takes into account all the market participants and their objectives or expectations. Furthermore, many of the issues that relate to changing the structure and conduct of the marketing system for dairy products are public policy issues as stated in the 1983 Livestock Policy document. The Tanzania dairy policy aims at stimulating development in the dairy industry in order to increase the incomes of dairy producers and attain self sufficiency in dairy production. It also aims at distributing high quality milk products to consumers at economical prices.

Given the foregoing, the framework for comparing the performance of the milk marketing channels consists of: (i) specifying general objectives which combines the expectations of objectives of the market participants and the aims of the Tanzania dairy policy; (ii) defining a set of performance indicators that represent the various general objectives specified in (i); and (iii) specifying a set of quantifiable measures that represent each of the indicators and provides the basis for the analysis.

The following are the specified overall objectives, indicators of performance and their quantifiable measures:

Objective 1: To stimulate and facilitate the efficient production, collection and distribution of high quality dairy products to consumers.

Indicator 1: Level and stability of producer prices. measures: Level, trend, variation in producer prices.

Indicator 2: Price spreads and marketing costs. Measures: Price spreads, marketing costs and margins.

Indicator 3: Quality of dairy products sold to consumers. Measures: Number and type of product forms and grades and buyer preferences compared to available grades or forms of dairy products.

Objective 2: To ensure adequate supply of dairy products to consumers at economical prices.

Indicator 1: Market share

Measure: Volume of milk passing through channels.

Indicator 2: Level and stability of prices of dairy products paid by consumers.

Measures: Level, trend and variation in prices of dairy products paid by consumers.

The first objective contains three concepts. The first, emanating from the desire to stimulate production, relates to the level, stability and adequacy of producer returns. Although time series data on prices received by producers from TDL were available, no price trend analysis was carried out because similar information was lacking for dairy cooperatives and small milk traders. The second, price spreads and marketing costs is concerned with the operational and pricing efficiency of the marketing intermediaries. The third, high quality dairy products to consumers is concerned with consumers' preferences compared to the available product forms and quality standards.

The second objective concerns consumers of dairy products in Northern Tanzania. Again, no trend analysis was carried out because of unavailability of time series data on milk prices paid by consumers.

In addition to the above indicators, the timeliness in effecting payments to producers was also used in comparing the relative performance of the market intermediaries. This variable is influenced by the activities of the market intermediary concerned, where lags and delays in effecting payments may exist on account of bureaucratic and administrative procedures. Delayed payments after selling milk was one of the marketing problems reported by the sample dairy producing households.