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close this book Agricultural extension
close this folder Providing agricultural support services
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View the document Marketing agricultural products

Marketing agricultural products

OVERVIEW

The extensionist is often in a good position to help farmers understand and participate more successfully in the marketing system. One of the largest and most uninviting arenas the small-scale farmer enters by virtue of change is the marketplace. In it, she is subject to the forces of supply, demand, big business and government policies and regulations. Here, if anywhere, the farmer needs the direct assistance an extensionist can provide.

There are two main ways in which extensionists can help small-scale farmers successfully approach the market system: by organizing largescale cooperative groups aimed at gaining local or regional price advantages, or by securing favorable prices through timely marketing. Refer to Chapter Five, ORGANIZING COOPERATIVE ACTIVITY, to learn about cooperative marketing.

The process of helping farmers secure price advantages through timely marketing involves four steps:

I. Establish who controls the crop/animals at harvest and under what conditions:

A. Advance sales: farmers may receive payment in advance for a crop, thereby obligating it to a buyer.

B. Contracted sales: farmers may contract to sell a crop to a buyer at a certain price for certain quality and quantity.

C. Loan or credit restrictions on sale: farmers may have to sell a harvest when a loan payment is due.

D. Tenancy or rent restrictions on sale: farmers may have to sell or give part of a harvest to a landowner or local leader due to tenancy terms, rent due or local custom.

II. Establish an estimate of price fluctuations during various seasons of the year (see Price Data TOOL).

A. Find out the average low price during the month when 75% of all producers sell.

B. Find the average high price over a time when price is highest.

C. Make sure the high and low prices are equivalent-same grade product in the same condition at the same point in the marketing process.

D. Subtract low price from high price to get an approximate seasonal price difference.

III. Estimate the costs of holding products off the market

A. Estimate the average length of the "holding period" between the middle of the period of average high price and average low prices.

B. Estimate roughly the cost of holding each product (bushel of rice, pound of beef) off the market (e.g. - storage facility cost or depreciation; storage losses; handling costs, etc)

C. Estimate the profit or loss to the farmer by holding a crop out of the market. (This depends on the difference between the cost of holding out and the anticipated seasonal price rise).

Net Benefit

Estimate price rise - estimated holding cost = Net Benefit (per unit of crop)

IV. Decide to hold crop or sell

Before a farmer can contemplate marketing strategies, her crop must be free at harvest of any restricting arrangements. If the crop is free at harvest, and if the net benefit of holding the crop out of the market place is significant (more than 25 percent), then the extensionist can advise the farmer to hold her crop out until the price rises to the seasonal average high price.

There are other strategies for successfully participating in the market system. They are listed as one of the TOOLS, "Interventions by Farmers in the Market System". This tool also serves to illustrate the points raised in this subchapter.

ILLUSTRATION

1. A Farmer's Eye View of the Marketing System (ICE reprint)

THE FARMER HAS A VESTED INTEREST IN:

BECAUSE IT DETERMINES:

AND HE PROBABLY KNOWS IT'S RELATED TO:

BUT HE PROBABLY DOES NOT KNOW IT IS RELATED TO:

MARKET ACCESS

Which commodities he can produce.

Transport facilities, quotas, "monopoly" control.

Effects of government policies.

MARKETING STANDARDS(WEIGHTS, GRADES) THE AVAILABILITY AND QUALTY OF DIRECT MARKETING SERVICES (weighing, timeliness of payment, credit, other).

How he prepares his crop for market. His choice of buyers for his crop.

Local custom. Buyers' preferences. His personal relationship with the buyer. The buyer's honesty. The buyer's resources.

Legislation. Processors' preferences. Buyer's management ability. How much it costs the buyer to perform marketing functions.

OVERALL MARKETING EFFICIENCY

Marketing margins and the price he receives.

How efficiently the transport and assembly functions are performed.

Management and technical skills. Productivity of labor. Many and varied costs. The less visible market functions.

COMPETITIVENESS OF THE SYSTEM

Marketing margins and the price he receives. His choice of buyers.

Number of potential buyers, and alternative markets. The buyers' financial and political power.

Control of financing. National policies. The subtler forms of influence.

THE MARKET, EQUATING SUPPLY AND DEMAND (price determination)

More than any other factor determines the prices he receives for his products, planting and harvesting schedules, and his farm enter price mix

Orderly marketing. Seasonal factors. The size of the total crop. Distant demand factors beyond his control.

National policies. How much of the consume rprice is absorbed by the marketing process. Internal supply and demand. Costs of holding the crop.

 

TOOL

 

Checklist for collecting price data (ICE reprint)

SOURCES OF DATA: (current)

• actual sales

-reported by farmers

-reported by local people

-reported by handlers of products

• reports by ministries, market publications, etc.

(historical)

• recent memory

-as above

• official reports and studies as above

 

ANALYZING DATA:

• collect data from sources

• convert all data to common units of value

• check prices to eliminate abnormally high or low prices

• make sure information on prices is relevant to the community in which farmer/clients live.

• establish average prices by observing them over a regular period of time (2 or 3 weeks).

 

TOOL

Interventions Farmers Can Make In The Market System

Farmers can influence four factors which affect the prices of their products over a short period of time:

• Time of sale

• Choice of Buyer

• Collective or individual marketing

• Condition of the product

Farmers can learn about their options concerning these four factors with extension workers. Often the prie of a product is lower near normal harvest time, so holding the product in storage is often a way to gain a higher price. Storage depends on perishability, facilities, farmer's ability to wait for income, etc. The choice of buyers is often limited for small-scale farmers, due to transportation costs. Collective marketing is advantageous when costly transportation is a means to a higher price. Collective marketing involves thorough planning of harvest, handling & storage as well as price and profitsharing agreements. The extension worker can help point out the need for these considerations and can facilitate the process of dealing with them.