Professional Documents
Culture Documents
Marketing 13
Marketing 13
Marketing 13
AND
COOPERATIVE MARKETING IN TRADITIONAL RURAL AREAS
By Zvi Galor
www.coopgalor.com
1990
1. Introduction - What is marketing?
There exist today a wide variety of concepts of marketing and its nature.
The very definitions of marketing have also undergone considerable
development in the second half of the 2nd century, which is reflected in
the literature mentioned below. Today we encounter several basic
concepts of marketing and its nature. The five main marketing concepts
are listed below [1]: "The production approach - being a managerial orientation assuming that
customers would prefer products which are both accessible and affordable.
The main managerial function would then be the improvement of
production efficiency and of the distribution system. .
The product approach - being a managerial orientation assuming that
customers would prefer products of the highest quality for a given price.
The firm should accordingly devote its main resources to improvement of
product quality...
The sales approach - being a managerial orientation assuming that
customers would (or would not) acquire the firm's products, in proportion
to the efforts made by the firm to generate an interest in the product. The
firm should accordingly locate potential customers and try to convince
them, sometimes aggressively, that its products are something they
cannot do without...
The marketing approach - being a managerial orientation maintaining
that the key to the attainment of the firms objectives consists in the
determination of the needs and aspirations of the target market, and in
tailoring the organization so as to cater to consumers desires in a better
and more efficient manner than competing firms.
The marketing-social approach - being a managerial orientation which calls
for focusing upon the diagnosis of the needs of the target market and their
fulfillment; in parallel, public welfare should be upheld in the long term."
These approaches outline the general framework of theoretical and
practical thinking about marketing.
Let us now review the various
definitions of marketing as put forward in various studies over the last 3
years, in order to trace the development of this subject.
The first definition, in a study dating back to 1952 [2], refers to marketing
as a production-dependent activity. The definition states marketing is
1
The price of one product will differ from the price of another product
manufactured from the same raw material, by
the difference in
processing costs."
This concept also fits in with the discussion concerning the marketing of
agricultural products and the role of
the cooperative in this set-up.
Indeed, a definition of marketing with preference to the agricultural
system again stresses the importance of this marketing system as a link
between producer and consumer [7]:
"The performance of business activities directed towards, and incidental
to, the flow of goods and services from producer to consumer or user."
During the 80's the center of gravity of marketing definitions shifted from
its former midway position between the producer and the consumer, to
the side of the consumer. The consumer and society are the main issues
nowadays, and the manner of satisfying their needs. Successful marketing
is that which accounts for the consumer and its environment, as this is
outlined by the following definition [8]:
"Consumer satisfaction with social responsibility has been regarded as the
center around which all marketing activities should revolve".
Again we find that as opposed to the past concept of marketing, which
stressed the sale of products, the approach nowadays lays emphasis on
the satisfaction of consumer needs.
Figure 1
2. Agricultural Marketing
Now that we know what marketing is, and how the various approaches
have developed in understanding this process, let us examine and learn
what agricultural marketing is. Let us try to find out, if what holds for
marketing in general also hold for agricultural marketing, and for
marketing in traditional rural areas in developing countries. It is fairly
clear that when we consider
a marketing method suitable for
a
traditional agricultural society, it will have to be adapted to the pattern of
the traditional society for which the said program is intended (9)
Traditional rural areas are distinguished by a subsistence economy. In such
villages the production unit is the family, which produces the food for its
own consumption, and for the payment of rent or tax, at the equivalent
monetary value. Surplus is offered for sale only after a particularly plentiful
cultivation season. The family unit considered as a production unit, is
quite small and such units operate separately.
This situation makes it
difficult to concentrate the produce for efficient marketing. In certain
areas the vast majority of the population is not at all used to thinking in
terms of commerce and barter trading. Another characteristic of these
areas lies in the fact that many of the traditional peasants would be
prepared to switch over to the cultivation of market crops, provided a price
system is set up which gives them an incentive (10).
The traditional peasant in developing countries sells his produce at the
time and for the price, which are the least advantageous for him. He sells
in order to pay his debts, but the cycle is repeated, and he becomes
involved in new debts. In developing countries, the peasants sell a
"forced" surplus. The peasant is forced to sell a sizeable part of his
produce, sometimes much more than he would have sold if he had had the
choice.
In fact, the surplus marketed in the developing countries is
determined as follows: If we work out the total produce of the peasant,
deduct from this the familys own consumption, plus payments he makes
by handing over produce, as well as the payment of various debts, usually
to money-lenders, we finally obtain the amount left to the peasant for
marketing (11).
Maynard and Beckman in their study [12] list the main functions of
agricultural marketing. These include purchasing, sales, transportation,
storage, sorting and grading, financing, added risk, and marketing
information. Purchase and sale involve change of ownership. A thing sold
is also bought, and anything bought is also sold. Transportation involves
the
transfer from a place of surplus to a place of shortage this is the
geographical dimension, while storage involves the transfer from a period
of surplus to a period of shortage - the time dimension.
Mathur in his study of 1971 further extends the stages involved in
agricultural marketing [13]. He argues that marketing starts at the
peasant's field and includes the following: collecting produce surplus from
individual peasants, transportation to a nearby depot, sorting and grading,
stocking up, processing, storage, packing, transportation to consumer
centers, contact between producer and consumer, and sale to the
consumer.
Most of the operations of the potential marketing require capital, and are
carried out at a high risk. The agricultural produce
is
usually
transported in bulk. Storage and transportation are very costly. The
produce is seasonal, whereas the demand for it continues all year round.
The traditional peasant is a small marketing unit.
Hence produce
collection is complicated and expensive. Agricultural marketing involves
losses, damage, and quality impairment during storage and transportation.
It is difficult for the traditional Peasant to undertake the marketing
operations, and therefore most of these operations are carried out by
middlemen.
The obstacles in traditional marketing are the following: The marketing
circle is long and archaic. The marketing circle: stages through which the
products pass. Starting with the producer, and on until they reach the
consumer. Within the framework of a traditional market, the stages which
the products go through are extremely long and weighed down by a
plethora of middlemen.
The infrastructure of transportation is archaic, the roads are bad or do not
exist at all, producers are a long way from the market, and consequently
transportation costs are very high. The fact that there is no planning in the
production and the irregularity in supplying the market, causes either a
surplus or a seasonal scarcity of products on the market Imported products
compete with the local production. Lack of sorting, processing and of
warehouses and lack of organization of producers and consumers.
Mathur goes on to classify the traditional markets. In the first place, we
have the primary market. This market is at the village level. The market
does not function every day, but at fixed intervals of a few days. The
market usually serves an area of about 1 km radius.
Next we have the secondary market. This already operates day by day,
and the action is wholesale. The market is regional, located in the central
area of the region, close to arterial roads, and it embraces a wider radius
of activities.
The final market is the one in which the produce passes directly to the
consumer, or goes on to be processed, or to be prepared for transportation
to markets abroad. An example is a market located close to a harbor.
One must distinguish between the traditional market and the market
which functions regularly every day and also includes warehouses and
wholesale services, of private or state owners hip (15).
The local traditional market is usually maintained in areas where
transportation is almost impossible for the
rural population with its
limited means. And the goods and services are intended for local
consumption. The local market is usually located in a market place. This
is a site in which the goods offered change from season to season. Such
local market form a network, in which one market is linked to another
5
through the passage of goods, services and people. The local market is a
meeting place of occasional sellers, who set up at random in sales shacks,
and come together at fixed time intervals at that fixed site. This is where
goods and services are distributed between the villagers, who act both as
buyers and sellers (16).
Who are the market operators? - In the first place, we have the itinerant
village trader. He is the main operator in the primary market. Sometimes
he himself is the producer. In other cases, he is the one who transports
goods to and from the secondary markets. He attends to the storage and
sees first hand reaction to of the agricultural produce. In some cases, he
hands out advances on account of the produce, and thus finances the
peasants. The second type of trader forms the link between the village
level and the secondary market level. He sells produce on a commission
basis, which he collects both from the seller as well as from the buyer. He
often finances the village level, and thus forces the peasants to sell
through him.
The third type of traders are those who represent more serious purchasing
outfits. They operate on a commission basis. They take care of cleaning
up the produce, as well as processing it weighing, packing and dispatch to
centers of transportation.' these people have a large amount of capital at
their disposal and finance their business independently [17].
One further factor worthy of mention is the price of marketing, which
includes all the subsidiary expenses of the marketing process.
These
expenses usually give rise to the difference between the consumer price
and what the producer gets paid. The reasons for this are many. Farms
are widely dispersed and production units are too small. There is no
uniformity in the quality of the produce. Transportation is difficult, and
marketing information is faulty.
There is insufficient capital for the
processing and storage, and financing costs are high. Other factors which
raise the cost of agricultural marketing are e many and "'ed levies, the
failure to sort the produce which detracts from the return to the grower,
inefficient sales procedures, neglecting to weigh the produce, and delayed
payment to the grower. There are too many middlemen, and no regulation
of the distribution among markets [18].
The mechanism of market prices: This is composed of the following: The
price of a product is determined by the supply and demand in the market.
The supply represents the quantity of products offered the same day on a
certain regional market. The demand represents the willingness to buy
the same products by the consumers, the same day on the market. The
price of the product on the market is not the price that the producer
receives. The following expenses will be deducted from the price paid by
the consumer:
(a) Transportation costs - distance, the means of transportation, kind
of product transferred and its processing are factors which determine the
cost of transportation.
6
We deal here with the principles of marketing, and assume that what is
right for marketing in general also holds good for agricultural marketing.
In order to test this assumption, it is a good idea to examine an additional
component of the marketing system, which is the firm. The firm is the
decision-making bridge between the marketing it serves and the sources it
buys from. The firms expenses arise when it raises and receives capital,
labor, and other resources needed for production, while on the other hand
it provides a supply, for which it assumes there is a demand, in the market
it has chosen to serve [20].
The firms main problem is how to manage its resources in such manner
as
to maintain an optimum
relationship
between expenditure and
income. In other words, the firm must implement an efficient conversion
The firms main task is to put together the marketing mix of instruments
so as to achieve the maximum profit. The firm will discover that it has
achieved the maximum profit by applying the marginal profit approach. It
will put the optimum mix to the test, which should show that there is no
longer any improvement in net profit, neither upon a change in one of the
components of the mix, nor with a new combination at a higher rate of
expenditures.
In order to achieve such a high "level optimum, it is necessary to have a
clear estimate of the relationship between the cost and income for each of
the mixed variables, severally as well as jointly, with the other variables, in
order to gauge in what measure they serve the firm's purposes. One
needs to equalize the marginal net profit for every single one of the mixed
components, so that if the last dollar invested in publicity yields a further
marginal profit of $50, whereas the last dollar invested in personal sales
yields only $25, then if $1 is taken out of personal sales and invested in
publicity, it will certainly increase the net income of the firm.
We wish to reach a point at which the net return to the firm upon
variations in price, quality, product form and design, sales promotion,
distribution, and all the other components of the mix, will be the same.
The firm's marketing program should be not just balanced, it must be
balanced at the highest profitability level, and then we have the optimum
mix [21].
4. Constraints of Agricultural Marketing
Most small farmers do not possess suitable marketing means, and this is
the main handicap to increased production. Many of the farmers feel -that
they run -too high a risk of no-t being able to sell their produce at a fair
price. The traditional farmers need above all is to have faith in the
marketing system. It is possible to conclude, and we shall return to this
point further on, that one of the main ways of improving the farmers
productivity, does not consist merely in improving the inputs and the
production methods. It is important to secure a reliable market, a suitable
price, and a system by way of which the farmer can market his produce,
and at the same time receive the highest possible share of the price paid
by the consumer for that produce. [22]
When the farmer sets about marketing his produce, he faces many
constraints. Overcoming them will help us in restoring his self-confidence,
and will help him to develop. The first group of constraints is those due to
physical conditions. The primary condition is the general infrastructure,
which includes insufficient means of transportation, bad roads, and
undeveloped markets.
A further factor is the absence of agreed
standards. There are no agreed standard rates and measures, and in most
places the scales used are biased to the detriment of the farmer. The next
factor is the means of storage.
Insufficient storage space, and faulty
facilities give rise to losses. The lack of storage facilities prevents the
9
farmer from keeping over his produce until the season when its price rises,
resulting in loss of income.
Handling does not exist, or is in very
bad repair. Transport methods are outdated, and packing and containers
unsuitable. The points of unloading, loading and supply are unsuitable.
The supply inputs are unsatisfactory to the farmer. These are not provided
in the quantities requested, neither when they are needed, nor again are
they of the kinds and qualities required. The constraints of agricultural
marketing, which hamper the traditional farmer, also include components,
which are more specifically related to marketing.
Commercial efficiency is hardly accorded any attention, particularly by
government and semi-government institutions, and sometimes
also in
cooperative societies set up by the government. The farmer has a very
slim bargaining edge, and this fact is exploited by the private traders. The
traditional farmer has no financial means. Further constraints he faces are
related to the marketing price and the pricing policy. In many cases, the
price paid to the farmer leaves him no profit at all.
The input prices are too high in relation to the marketing prices. The price
fluctuations are excessive, and this in addition to high and unjustified
marketing levies as well as import taxes and exports taxes. The system of
payment and the manner of payment to the farmer is also significant usually the farmer receives payment too late, at too low a rate, not in
cash, and occasionally only part of the sum due.
This factor is bound up with the next factor, which is credit. Credit to
farmers is virtually non-existent.
When it does exist, it is insufficient.
When it is granted, the price for it is too high. Marketing information is an
important factor, which in most cases is not at the farmer's disposal.
Information concerning prices, markets and other data, is faulty and
deficient.
Information concerning supply and demand in markets at
various places is almost non-existent, which prevents the farmer from
rationally regulating the supply of his produce.
The government agrarian policy affects the farmer in a major way. Many
governments have a general policy of food imports, or received food
products through foreign aid, which reach that country at prices far below
the prices required by the farmer in return for his produce. Unrealistic
exchange rate policy results in unprofitable exports, and gives rise to
cheap imports, which compete with the local producer. Many governments
do not carry out a real agrarian reform policy, which could help out the
farmers. The small farmer finds himself in a vicious circle. Companies
and marketing organizations have no economic interest in providing
marketing services to a far ranging and non-uniform farmer population,
scattered in remote and hard to reach places. Without such services, the
small farmers will not take on the risk of stepping up production beyond
their proper consumption.
5.
Cooperative Marketing
10
11
13
concerns marketing? The system has tailed in all that concerns transfer of
information, packing, transport and storage [35].
6. Models of Marketing Cooperatives
Marketing is the process that an agricultural product goes through on its
way from the producer to the consumer.
Traditional marketing involves several intermediary stages within this
process. The result is, of course, that the consumer pays an exorbitant
price and the producer receives a very low price for his production.
Naturally, it is in the interests of both producer and consumer that the
number of steps in the marketing process be reduced as much as possible.
The result: the producer will earn more and the consumer will pay less.
The first form of marketing is the traditional marketing circle I he peasant
sells his production at a local market which is held in his village every 5 or
6 days - this is the first stage. The intermediary who buys this production
transports it. Usually on overloaded small open trucks covered with a
tarpaulin, to a regional market. Another intermediary will buy these goods
and transport them to an urban market. The production will then be sold
and distributed at the neighborhood markets where the retailers will come
to get their supplies for sale to the consumers. This way agricultural
produce has undergone too many stages from producer to consumer. All
intermediaries have benefited -From this process, but not the producer
nor the consumer.
The solution to this state of affairs: a marketing cooperative owned by the
producers. This cooperative's aims are to reduce to a minimum the
number of marketing stages between producer and consumer. In Israel,
the Tnuva cooperative is a marketing cooperative belonging to all
moshavim and kibbutzim, and today has the fourth largest turnover
among Israeli enterprises. Tnuva has organized a national network, which
takes upon itself the collection, transportation, storage, processing and
sale of approximately 75% of agricultural output earmarked for the local
market in Israel.
The setting up of Tnuva has reduced the number of
steps in the marketing circle, but not enough. Agricultural produce leaves
the farm, passes through "Tnuva" and is then sold in the local market and
in various small shops.
Another alternative reduces the number of steps even more.
This
alternative involves direct contact between the
marketing cooperative
owned by the farmers and the consumer cooperative owned by the
consumers. Thus, the sale of agricultural products takes place from one
cooperative to another, and in principle, the profitability for the producer
increases while the purchase price for the consumer decreases. This
situation, though far removed from the traditional marketing circle, does
not go far enough.
It is still necessary to try to eliminate superfluous
steps in the marketing circle. Two solutions have been found:
The first consists of consumer sale centers, belonging to the marketing
cooperative, an example of which is Tnuva in Israel. These sale centers
14
15
17
19
Another important aim of cooperative marketing is to promote the longterm interests of its members. One of the most important factors in this is
to relate prices to quality.
Israel farmers have realized the value of cooperative marketing years ago
and their degree of organization is high. Cooperative marketing covers
80% of local sales and an even higher proportion of agricultural exports.
The young states of Asia and Africa are based very largely on agriculture,
and cooperative marketing of their produce is therefore important to make
them independent of commercial interests, and to assist their
development in every aspect."
8. The Production, Marketing and Export Boards
One of the most important marketing institutions, and one which exists in
the vast majority of the world's countries, are the production and
marketing boards. This
is a central marketing organization serving a
specific industry (a specific product), which is intended to achieve a higher
efficiency and orderly marketing. The board is defined as an essential
organization, influenced and directed by the producers, set up by the
authorities, with the purpose of intervening in the various stages of
marketing [48].
Most production boards in developing countries are involved with the
producers' interests. The first boards, which were set up towards the end
of the 20's, sprung up as a result of the farmers struggle to increase their
own bargaining power and that of the cooperatives representing them, in
the confrontation with competitive intermediary outfits.
The overall trend was one of technological advance on the part of the
small farmers, who consequently reached a state of production surplus,
and thus became more than ever dependent on the various intermediary
outfits. The farmers set up marketing cooperatives in order to protect
their interests. Those cooperatives were successful, and thus contributed
to the stabilization of marketing conditions. This situation was beneficial
also for farmers who were unwilling to join the cooperatives.
The
preservation of members' loyalty became a major problem of marketing
cooperatives. The cooperatives accordingly turned to the government,
requesting that it form production and marketing boards vested with the
power of enforcement [49].
The marketing boards have a monopoly on the marketing of a product or a
number of products. The board buys goods from the farmers through
authorized agents at an agreed price, at official stations, and carries out
the grading.
The board organizes the necessary transportation. A
monopolistic
board may
undertake a variety of functions including
overseas publicity, research of new strains, the
improvement
of
cultivation methods and transportation techniques, etc.
The non-
20
21
choice for the farmer, but to smuggle his produce somewhere else. Where
he can obtain for it the highest return.
In other developing countries we encounter an inefficient internal
marketing system, inadequate transportation, produce collection, sorting
and packing and no immediate payment to the farmer, all leading up to
the farmer eventually selling his 99 produce to private middlemen, instead
of to the government marketing organizations. The farmer manages to
get his income. I| but the entire system of guided agricultural credit is
damaged, because it is unable to collect cultivation credits which were
extended to the farmers.
The researchers Izraeli and others suggested models of the development
of production and marketing boards [54]. The model presents a system of
marketing institutions, which starts with the situation in which we find
independent producers, who market their produce on their own and make
their own decisions. Each of them has the authority to decide by himself
and for himself. So far as he is concerned, his authority is quite extensive,
his surroundings, however, he has very little authority. The alternatives
are limited because his resources are limited, and he is subject to both
horizontal and vertical competition. Next we pass to a situation in which a
growing number of farmers cooperate in order to increase their power
relative to non-member producers. A framework of formal relationship is
set up to that end between the members, and a cooperative comes thus
into being. Each of the producers gives up a part of his autonomy, and
areas of joint operation are formed, whereby it is agreed that in these
areas the general decision must overrule the decisions of the individuals.
In this way the struggle of producers with one another is replaced by the
struggle of producers of one sector with other sectors.
Further formation of establishments amongst the producers, including
eventually other sectors, gives rise to new organizations, in which the
producers cooperate with the government, with the various intermediary
outfits, with the cultivation specialists, and also with representatives of the
consumers. Statutory recognition provides the impetus for the formation
of the marketing boards. These belong at first to one productive sector.
The process goes on, however, and gives rise to inter-sectorial production
and marketing councils. When these councils are formed, people are still
worried about the possibility that weak sectors, such as the consumers, or
society at large, are going to get hurt. In the final stage, production
councils are established which have a social interest, with the government
participating, and in which
national
welfare priorities are brought
forward. In Israel, this approach has been adapted in the establishment of
various production, marketing and export councils, whereby 50% of their
directorates are allotted to representatives of the various sectors, and the
remaining authority is in the hands of government, through
representatives of various public sectors.
9. The Planning of Marketing in Traditional Rural Areas
22
The third world countries consist mostly of rural areas, and the percentage
of the population living in rural areas is typically between 70 and 90
percent. The villagers are mostly farmers, but this is subsistence farming,
and cultivation, produce, credit and marketing are done after the
traditional fashion. The framework of society is traditional, as compared to
Western society, which is mostly urban.
One of the main goats of third-world countries is development [55]. Many
development efforts were made over the last 30 years, but not always with
satisfactory results. One of the main goats of these countries was the
development
of agriculture, the improvement of the level of food
production, both for internal use and for export, and the improvement of
the farmers standard of living. The agricultural development in general
largely revolves around four main points. At the center we have the
agricultural production processes. Production becomes possible when we
supply to the farmer suitable credit, the possibility of obtaining cheap
supplies of inputs, and the possibility of marketing his produce in a
manner satisfactory to him.
In the traditional system, production is
carried out by age-outdated methods, credit is expensive, and interest is
usurious. Inputs are expensive and scarce, and marketing exploitative and
controlled by middlemen [56]. The efforts of developing the agriculture in
traditional rural areas revolve in fact around these four points. It turns out,
that when the deed is done property, a cooperative can indeed give a true
and satisfactory answer to the problem of development of traditional rural
areas.
24
liters a day. While the other farmer only markets 100 liters a day. The
result is that in effect one member contributes to the return of the
investment ten times as much as the other member. When after five
years, the entire investment has been repaid, and the members are now
free of indirect expenses, since these have all been paid off, the second
member may step up his milk production, let us say to 500 liters a day.
And then make use of a facility the investment in which has been largely
paid by the first member. This is flagrant injustice.
In my opinion, the financing expenses of the cooperative must be entirely
disassociated from the operating costs. The financing expenses must be
paid by all members equally, or equitably, but definitely in a manner
totally disassociated from the operating system of the cooperative. That
process, in which a fixed commission is imposed on the member's
produce, which also covers the indirect expenses of the cooperative, is
wrong. When it is applied in a marketing cooperative, which includes
many members, by way of deduction of commission, or, by investments
out of surplus, we in fact create two kinds of equity. The one is small, it
belongs to the members, who may have paid for a minimum membership
share, while the other is enormous in extent, and cannot be attributed to
any member. The result is a feeling on the part of the members that they
are cut off from the cooperative, and sometimes they become indifferent
to what goes on there.
The price of service given by the cooperative must therefore only include
the direct expenses, plus a certain safety margin, intended to cover
unexpected expenses over certain time periods. This sum is in fact the
surplus of the cooperative. This sum belongs entirely and absolutely to
the members, and must be split up between them in proportion to the use
they make of the cooperative services.
In fact, a good marketing
cooperative will deduct from members the lowest possible sums as
coverage of unexpected expenses, and will hasten to return them as soon
as possible, in order not to let them be devalued by inflation.
9.2.1
benefit. The members will have a cooperative, which sells their produce
well, increases their income and has a manager who makes a lot of
money, but manages the cooperative efficiently, and is not distracted by
thoughts of how to embezzle its funds.
9.2.2
Figure 3.
27
9.3
Marketing Planning
28
29
cassava into gari or into tapioca, just to mention things being done
already, and then to get for them a higher price.
9.3.3. Packaging
The third component is a suitable packaging for a suitable product. A
proper, standardized package of standard weight and suitable quality will
bring a higher return to the farmer. A| description of the sale of corn in
Benin [62], which resembles the manner of doing this in other African
countries, relates how the trader is the one who brings the empty sacks to
the peasant, after threshing, to fill them up. The sack is supposed to
weigh 100 kg when full, and here the trader applies various tricks to get
more corn into the same number of sacks, to the peasants loss. Even
when the quantity sold is measured out, the buyer makes use of all kinds
of methods to change the standard measure to his advantage, and the
peasant comes out the loser again.
9.3.4. Transportation and Delivery
The next component of the marketing plant is transportation. The ability of
the cooperative to transport its produce on its own is generally considered
a great advantage. The cooperative can choose the most suitable means
of transportation, the transportation capacity employed as well as the
direction of transportation according to its needs and capabilities. We find
that many cooperatives in developing countries assume that the
development of the transportation function within the cooperative
framework means that the cooperative must purchase the vehicles, but
this is incorrect. It turns out that the purchase of a truck by the
cooperative is done
without conducting
the necessary economical
examination.
It is generally the case that the truck capacity is not put
to full use most of the year, except at harvest time. And then it is often
insufficient. An additional problem is truck maintenance. In most cases
the cooperative hires a driver, and such drivers receive a very low pay in
most countries of the world.
This driver will in most cases lack an
incentive to do his work. The driver s job carries a heavy responsibility.
The vast majority of roads in rural areas are in very bad repair.
Responsible driving on the part of the driver will prolong the life of the
truck. A driver, who receives insufficient wages, will not care at all if the
truck is going from bad to worse, and will not maintain it properly. The
cooperative might save a little on the driver s wages, but stands to lose a
fortune when the truck if finally wrecked. We find in many countries
throughout the world so called cemeteries of trucks and mechanical
equipment, and in most cases this is a result of a policy offering no
incentive and no suitable remuneration to the managerial and operational
personnel. Such a driver should be paid by the mileage driven, and in
accordance with the capacity transported, driver knows that a well kept
truck in good mechanical condition will enable him to transport more and
earn more. The cooperative must adopt in principle a policy of acquiring
transportation services at the cheapest possible outlay, either by acquiring
30
enable the farmer to pass the agricultural season without resorting to the
services of moneylenders.
The credit is intended to cultivate the
plantations. The problem used to be the repayment of this credit. The
Ivory Coast Government, operating through its bank, or through other
organizations, did not provide an efficient marketing system for the coffee,
which should have started with the farmer and ended at the export harbor.
Some stages were left out, which the farmer had to undertake on his own,
but the farmer was not organized to do this, or organized by inefficient
outfits. The farmers eventually found the answer themselves. They sold
the coffee, for cash, at their plantation gates, to private traders. In this
way, they managed to obtain for their produce the highest return possible
so far as they were concerned. The Ivory Coast Government, in adopting a
policy of extending credit without linking it tightly with marketing, and
without offering to the farmer efficient marketing solutions accessible and
satisfactory to him, was left practically without any means of recovering
this credit, which had to be considered lost credit [62]. A similar situation
exists also in other West-African countries.
An additional problem is the result of the lack of understanding by policy
makers of the subject of agricultural credit, in all its aspects. The farmer
receives advances and cultivation loans, which help him to pass the
agricultural season without resorting to the services of moneylenders.
This is the basic assumption of the makers of credit policy in various
places in the world.
However, the farmer has family, children and a wife. He must feed them
and provide for them also in the months in which plantations bear no crop.
And his cash flow is negative. All those project managers have foreseen
no problem here, and have not taken care to provide the farmer with
short-term subsistence advances. The farmer must find a financial source
to that end, and naturally he turns to the source, which is always at his
disposal, the moneylender. At harvest time, when the crop is ready for
sale, the very first name on the list, and the most pressing for repayment
is the money lender, which in most cases is also the marketing
middleman, and he is the one who receives the produce for sale, not the
project nor the cooperative. Again, the cooperative does not sell the
produce so that it has almost no possibility of recovering the credit
extended.
9.3.8. Terms of Payment
When does the marketing cooperative pay the cooperative member for his
produce, and what prices should be paid? - In the cooperative operational
system we have in fact a conflict of opposites. On the one hand the
members wish to obtain for their produce the highest possible price, paid
in cash if possible. On the other hand, the cooperative must first sell the
produce to obtain money for the member, and to that end it must compete
on the market so as to obtain the best possible results. A method of
payment, which is practiced by many marketing cooperatives, is the
commission method. The return is passed on to the producer, following
the sate, and after the deduction of the commission which consists of a
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certain percentage of the total sale value, and which is intended to cover
the cooperative expenses. This method has advantages, because it does
not involve the cooperative in any risk, and it enables the cooperative to
specialize. The method has also some drawbacks. It does not answer to
the wishes of the small farmer, who prefers to sell his produce to the
cooperative and to receive cash
payment in return.
It is difficult for
marketing cooperatives to compete with the private traders, who pay
cash. Therefore, many marketing cooperatives have resorted to the same
method, that is, they buy from the farmer at the full price, and pay cash.
This method is applied in the case of small farmers in traditional rural
areas [63]. Cooperatives generally prefer to be an organ that transfers
quantities for sate. The cooperative assures a steady supply, acceptance,
payment and making out of invoices [64].
It is most difficult for marketing cooperatives to sell on a commission basis
fresh vegetables and fruits produce, and indeed in many countries the
percentage of marketing cooperatives in this field, including Israel, is
relatively low.
Another problem bound up with this subject is that of minimum prices.
The minimum prices assured to the farmer, mostly the traditional "Farmer,
help to overcome his apprehension concerning unexpected turns for the
worse. On the other hand, minimum prices lead in cases of a market
dumped with the agricultural produce in question to a financial burden on
the cooperative, which is sometimes unbearable. It is important for the
cooperative to receive support on that issue from an external organization,
such as the Government, that will ensure it, and thus offer it security in
cases it is forced to pay. A cooperative unable to withstand this financial
burden, and which does not turn for support to an external organization, is
liable to find itself in a difficult crisis, which will ultimately injure the
members, and lead to a failure of the cooperative.
9.3.9. Financial Structure of the Marketing Cooperative as a Part
of the Marketing Plan.
The marketing plan must also include an appropriate financial structure
of the cooperative.
The
fourth
international cooperative principle
states that part of the cooperative surplus may be employed to finance
future investments in the cooperative. This is a fundamentally misleading
principle, which causes the distortion of the cooperative capital structure
[65]. This principle results in the formation in the cooperative of two
kinds of equity. This is also the case with Tnuva in Israel. This is an
unhealthy situation, which leads to disassociation between the members
and the cooperative.
Moreover, the cooperative and its management, knowing that the sources
for future investments are going to be found in the surplus, and not
directly be provided by the members, will do all they can to build up the
surplus, by paying less to the members in return for their produce. A
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lowest price it can, while to the consumer it sells at the very highest prices
it can obtain. The system includes a great many intermediary stages, and
each stage in the system takes its toll. In the traditional system we are
familiar with farmers going out and waiting at the roadside with their
produce for customers to come and buy whatever they need directly. We
have here a situation in which the farmer sells directly to the consumer,
without any middlemen. Both parties benefit. In Israel we are familiar
with the phenomenon of sates stores being opened by kibbutzim and
moshavim at the roadside, where they sell their produce directly to a
consumer passing by. This is another case of direct sale from the producer
to the consumer without intermediate stages.
The goal of the marketing cooperative in traditional rural areas is to do
whatever it can in order to reduce the number of stages to the necessary
minimum. The cooperative must endeavor to have its produce sold to
consumers with less and less middlemen intervening, and if it makes it this
will be a measure of its great success.
References:
1) Hornik, Jacob: Marketing Management: Systems, Theories and
Strategies
Everyman's University Press. Tel Aviv 1985 Vol. I P.P. 31-36
2) Maynard. H.H. and Beckman, T.N.: Principles of Marketing
The Ronald Press Company - New York Fifth Edition - 1952 P. 26
3) Locley. C.L. and Dirksen. C.J.: Cases in Marketing
Allyn and Bacon Inc. N.Y. (4th Printing) 1956 P.3
4) Chaturvedi, J.N.: The Theory of Marketing in Underdeveloped Countries
Kitab Mahal Publishers. Allahabad. 1959. P.3
5) Ottenson, F.S. Panchar, W.G. and Patterson, J.M.: Marketing the Firms
Viewpoint
The Macmillan Company, N.Y. 1966 P.82
6) Definition of R.A. King introduced in footnotes on page 85 in: Ruttan,
V.W. "Agricultural Product and Factor Markets in Southeast Asia" in:
Anschel. K.R. and A1 (EO): Agricultural Cooperatives and Markets in
Developing Countries
Praeger special studies in international economy and development
New York 1969.
7) Mathur. B.S.: Cooperation in India
Sahitya Bhawan. Agra-3 1971 P. 344
8)
Agrawal, G.R.: Institutions for marketing by women
asspecial
groups' problems and required improvements.
Centre for economic development
and administration, Tribhuvan
University, Kirtipur, Katmandu 1984, P.I
9) Abbot, J.C.: Marketing Problems and Improvement Programs
F.A.O. Marketing Guide No. 1. Rome 3rd Printing 1966 P.42
10) Ibid. P. 45-46
11) Chaturvedi. ibid. P.P. 6-9
12) Maynard. Ibid P.37
13) Mathur. Ibid, P.345
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