Food commodity systems: Organization. coordination, and performance

2.5 Recognizing that production and food marketing activities are interdependent, that those individuals and organizations performing such activities are themselves interdependent, and that such activities and economic entities are linked through a network of exchange relations and additional coordinating mechanisms, it is appropriate to view them as elements of a 'system' (Arthur et al. (1968). Faced with enormous problems in both conceptualizing and empirically studying national food systems, agribusiness and agricultural marketing analysts have focused their attention on individual commodity systems", defined by Marion et al. (1986) as: "small economic systems, . . . incorporating an interdependent array of organizations, resources, laws, and institutions involved in producing, processing, and distributing an agricultural commodity." Commodity systems may involve the production, processing, and marketing of only a single commodity or else that of a set of very closely related commodities (as in dairy product, poultry, oilseed, or citrus fruit systems).

2.6 Individual commodity systems exhibit widely different organizational characteristics, both within and among countries. Most commodity system studies by agricultural economists and agribusiness specialists describe both 'horizontal' and 'vertical' structural elements, the former being entry and competitive conditions prevailing at each industry stage (e.g. processing, retailing); the latter relating to the location/ timing/ clustering of marketing functions, inter-stage differences in size, seasonality, etc., the number of parallel marketing channels, and the incidence and forms of contractual or ownership integration. Government programs affecting the commodity's production and marketing are also described in most studies.

2.7 In commodity system analysis, a central focus lies on the problems and mechanisms for coordination (Goldberg (1968); Marion (1976)). Coordination is a general problem of arranging for interdependent conditional activities: a problem of linking the decisions and actions of different technical or ownership units when collective or overlapping tasks are performed. In food systems, a major challenge is that of 'vertical coordination: the process of harmonizing the decisions and actions of input suppliers, farmers, processors, and traders so as to match the supply and demand for food raw materials and products (in terms of quantity, quality, timing, and location) at the various value-adding stages (Mighell and Jones (1963). This process entails significant flows of information and other resources which define and shift incentives. It also entails the definition and redefinition of required, permissible, and impermissible patterns of behavior for system participants. In a food marketing context, the absence of effective vertical coordination is likely to result in resource misallocations, technical inefficiencies, and enhanced production and marketing risks.

2.8 Research on food marketing and commodity system performance has utilized a large number of indicators and norms. While, most food marketing work has given attention to dimensions of operationally and allocative efficiency, more selective coverage has been given to issues related to the longer term development patterns and the broader economic impact of commodity systems. When one assumes that marketing is a demand-driven process (as in the case of high-value foods), an analysis of performance should also gauge the quality of marketing services, whether through quantitative indicators or through the subjective views of marketing intermediaries or consumers.

2.9 When recognizing the importance of (vertical) coordination in the process of producing and marketing a highvalue food product, it is important to include measures or qualitative indicators of transaction costs when evaluating commodity system performance. Transaction costs--the whole array of costs associated with buying, selling, and transferring ownership of goods and services--may in some contexts be as significant as direct production costs and/or the costs of physical marketing functions such as storage and transport. Transaction costs include: a) the information costs incurred in identifying and screening different trading opportunities, outlets, and partners, b) the costs of negotiating exchange agreements, c) the costs of actually transferring goods, services, money, and ownership rights, d) the costs of monitoring trade conditions to determine whether the agreed ferms are complied with, and e) the costs of enforcing stipulated terms through legal, social or other means (Dahlman (1979); Williamson (1979); Leblebici (1985)). Despite their considerable importance, transaction costs have rarely been examined (or measured) in studies of food marketing in developing countries.