Professional Documents
Culture Documents
MARKETING13
MARKETING13
AND
COOPERATIVE MARKETING IN TRADITIONAL RURAL AREAS
By Zvi Galor
www.coopgalor.com 1990
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 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 means by which you dispose of the output of a farm, of factories,
mines, quarries, forests, fisheries, hunting, oil, as well as everything
imported." The following is added by way of explanation: From the
seller’s viewpoint, marketing is the ability of the marketing system to
transfer everything produced from the producer to the consumer, (with
minimum hindrances for the highest possible return and wages. On the
other hand, from the consumer’s viewpoint, marketing is simply the ability
to transfer goods in which he is interested, in the form and the manner he
desires, and at the lowest price to him. By making a synthesis of these
two viewpoints, it should be clear to us that marketing is in fact a series
of foregone decisions, based on a suitable market survey, as to what are
the goods one should produce or import, and in what quantities.
In fact, these definitions teach us the basic concept of marketing. Inside
any marketing system, we find the producer on the one hand, and the
consumer on the other hand; and in between ¥them we find the
mechanism which causes the products and services to pass from the
producer's side on to the consumer’s side.
2
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]:
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
3
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)
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.
4
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.
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).
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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].
6
As the distance in transportation becomes shorter and the quantity for
transfer increases, so the cost of transportation, which comprises part of
the cost price of the product, diminishes considerably.
(c) Sales: Cash sales are convenient to the producer. Credit sales are also
convenient as they increase the range of customers; however, the risk of
unpaid debts and the interest involved in credit terms, may lead to these
sales being written off as Bad Debts.
(d) Storage of the surpluses during times when demand is higher than
supply. The cost of storage is influenced by the following factors:
- Construction costs
- Maintenance and depreciation (labor & financing expenses)
- Volume of products produced, due consideration being taken of the
storage capacity.
- Special conditions for storage of various products (perishable
food, liquids, etc.).
- Average, burglary and losses.
(e) We can add also factors that have an impact on demand. The more
plentiful the products offered to the market, the harder it will be for the
consumer to take a decision, viz. in regard to:
- Advertising
- Presentation of the product
- Trademark.
(f) To sum up: the selling price of a product is determined by the law of
supply and demand. The price the producer receives is lower than the
selling price. The price of the product sold implies the evidence of all the
abovementioned factors, as well as the profit of the middlemen,
wholesalers and retailers.
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 firm’s 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 firm’s 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
7
of resources so as to provide a supply answering an existing demand. The
firm should decide what to offer, and how to pick the suitable market in
which to offer its supply. The combination of all the variables of which the
firm decides to make use constitutes what we call "the marketing mix."
The firm management must find out and establish its optimum marketing
mix. The component parts are many: how much of our resources are we
going to invest in production; how much should be devote to product
development and future planning, and how much to present production;
how much should be spent on publicity; the advertising budget must be
divided between the different forms of media, between various products,
between areas of distribution, between methods of distribution, and
between potential customers.
The firm must decide what is going to be the final price of the product, the
amount of discounts granted to middlemen, what are going to be the sales
areas, and the type and number of intermediary agencies.
Other considerations facing the firm include the types of packaging, the
trade name, possibilities of obtaining credit, repair service for products
sold, product warranty, subjects which should figure in publicity, promotion
frequency, messages communicated, gadgets for salesmen, points of sale,
and gifts to customers.
To sum up, the firm's marketing task is to combine all the variables of the
marketing mix into an effective marketing program. A good program
should take into account all the components for each and every product.
Every variable of the marketing mix is interchangeable with another. For
instance, if we can grant a reduction in the price of a product, perhaps we
can do with less promotion outlay. Similarly, the placement of more
salesmen could perhaps be an alternative to an increase in the sales
promotion budget.
The firm knows that all the marketing mix components are expensive, and
the main question is how much of each variable it is worthwhile to apply,
and how much money to spend on each of them. The firm faces the
traditional problem of choice, in view of financing limitations, out of an
almost infinite number of possible combinations of the variables.
8
The firm’s 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.
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].
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 farmer’s 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 farmer’s
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.
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
A marketing cooperative is set up in order to market and sell the surplus
produce of its members, being such a surplus, as they cannot consume
themselves. Marketing cooperatives generally sell agricultural produce,
but there are also those, which sell fish produce or handicrafts [23].
There are also other definitions of cooperative marketing. Margaret
Digby defines a marketing cooperative as a system in which a group of
farmers join together in order to carry out part or all of the processes
involved in bringing the produce from the producer to the consumer. The
Bank of India defines a marketing cooperative as a society of farmers,
organized for the purpose of helping the members to market their
produce, so as to obtain higher profits than is possible by way of private
marketing [24].
In order to save expenses for middlemen who benefit from the producer in
various fields, such as: bad weight, very low prices and loans at high rates
of interest.
When the system in force is archaic, it does not meet the requirements at
all, involves many middlemen or compensates very weakly for the
producer's work. Thus, a marketing cooperative must offer its members a
more efficient service than that in force, so that its members obtain a
greater profit from their work.
What products shall we produce and sell on the market? Whet, experience
in regard to production? What species are marketable every season,
quantities and qualities that are preferred? What are the perishable items
that can be stored and under what conditions? What is the present
marketing system? What system of payment is practiced for the
producers? Is any advance payments allowed just after the crop, or will
payments be effected only after the sale of the products? What is the best
marketing circle of the production? Does the product undergo a process
for its improvement? To have a sound knowledge of the medium of the
improvement.
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to meet the requirements and to comply, at least partially, with the
interests of all.
When the cooperative has determined the exact quantities, which it will be
able to sell, it is in its own interest to make agreements for sates in
advance. A sound sale crowns the producer's work. This is the reason
why the establishment of a cooperative is a necessity to the farmer. The
cooperative prevents unhealthy competition between its members, sorts
out the products conscientiously and directs the supply towards the
demand.
The cooperative has to cope with all the abovementioned problems when
selling its production. Other problems also arise, such as: A small supply
of different products; thereby small quantities for sate. The production of
vegetables and poultry must be sold several times each week. As the
agricultural cooperatives are far away from the market, transportation
costs go up. Bad roads and high transportation costs further increase the
cost price of the product. [25]
The marketing cooperative was created in order -to push up the selling
price as much as possible and to increase the return to the member’s -For
their output [26]. The cooperative offers its members an improved
bargaining position in regard to services such as transportation, and is
capable of affecting a better sale. The better the service the more
members will be keen to join the cooperative. More members in the
cooperative will enable a reduction in the price for various services, as well
as in running costs. The cooperative makes it possible to maintain
services such as storage, bulk transport, extended credit, markets survey,
cooperative education, which the single farmer is generally unable to
achieve [27].
12
The cooperatives were troubled by grave management problems, and in
parallel by lack of skilled manpower.
Agricultural villages form the base of this structure, whereby every fifteen
villagers make up a secondary level unit. All secondary level cooperatives
are organized into a third level cooperative. Though these cooperatives
have made significant achievements, they are also faced with weighty
problems. The first problem is credit. The farmer would like to sell his
produce for cash, and this requires the cooperative to have command of
considerable liquid resources, for which it must obviously pay dearly. One
of the solutions to this problem is, of course, to sell the farmers' produce
on a commission basis [30]. But as is the case in India, so in Bangladesh,
the cardinal problem of the marketing cooperative is the lack of any link
between marketing and credit [31]. Further problems in Bangladesh are
the great distances between the cooperative branches and the farmers in
the villages. The management of those cooperatives is not professional,
and many of the societies are in fact reduced to waiting for things to
happen [32].
The carob marketing societies in Cyprus have also been successful, and
so have other marketing societies. Among the reasons for this success
we may note the fact that the farmer was more exploited in the past. The
marketing cooperative, on account of its size advantage, has attained
lower marketing costs than the private traders, on top of the high level of
management [34].
13
concerns marketing? The system has tailed in all that concerns transfer of
information, packing, transport and storage [35].
14
link producers directly to consumers. The second solution consists in
supply centers for agricultural produce, which are owned by the consumer
cooperatives, the latter belonging to the consumers. In this example the
consumers have organized themselves in order to acquire their consumer
goods directly from the producers.
The last stage in our model is the stage at which selling takes place
directly from the producer to the consumer. This is the preferable stage
because it produces the best results of all, both as far as the producer is
concerned, as well as for the consumer. An example of this is direct
selling outlets, which have been set up by moshavim and kibbutzim at
roadsides all over the country, which sell their produce directly to the
public. This solution is beset with problems and is not always possible of
implementation - but this is the solution we strive for.
Figure 2.
15
7. A Marketing Cooperative in Israel - The Tnuva Case Study
16
Agricultural marketing cooperatives throughout the world are mostly
concerned with the marketing of agricultural produce of individual
producers who run their farms on their own. These farmers cooperate
mostly for the sake of marketing their produce. Tnuva, the biggest
marketing cooperative in Israel, is a cooperative of the second degree,
which markets the agricultural produce of its members, which are the
primary cooperatives [37]. Tnuva was founded in 1926, when the
agricultural produce marketing division was detached from Hamashbir
Hamerkazi. Hamashbir Hamerkazi served as the central cooperative for
the supply of basic provisions, and belonged, as it still does today, to the
moshavim and to the kibbutzim. It must be stressed that Tnuva was
founded, like other marketing cooperatives, from below, and not by decree
of government or other authorities, from above. Membership in Tnuva was
and remains to this day open to any Moshav and kibbutz, or to any other
agricultural cooperative in Israel. The member joining is not required to
invest money in buying a share, but has to fulfill other obligations. A
Tnuva member is required to market all his agricultural produce through
the cooperative, without exception, for the following two reasons: In order
to prevent competition with other Tnuva members, and in order to tighten
the link between credit and marketing [38].
The first goal is attained when the cooperative sells the produce
transferred to it. Tnuva has always endeavored, as a general policy, to
obtain the maximum return for the produce of the farmer member [40].
In addition to the abovementioned commission, Tnuva further deducted a
very low commission, usually much less than 1%, from each sale affected.
Tnuva named this deduction, "member's contribution towards the
purchase of Tnuva shares" [41]. The money thus collected was intended
17
for investment in the cooperative. We have here two Phenomena
investment in the cooperative. We have here two significant phenomena:
- In spite of the fact that it is the primary cooperatives that are the Tnuva
members, not the individual people, the above monies are deducted from
the individual. Tnuva forms a direct link with the member of the primary
cooperative, not with the primary cooperative as a unit. The farmer
member became acquainted with Tnuva directly in everything regarding
the sates organization, the marketing, prices, and deductions, but so far as
the democratic system of the second-degree cooperative was concerned,
he was quite definitely out of touch. Representatives at the Tnuva
institutions were usually delegated at the executive level of the
cooperative to which he belonged. The individual member had very little
say in this in practical terms.
One of the main problems with which Tnuva is confronted is the price
problem. Tnuva sells its produce at market prices, particularly as regards
fruits and vegetables, as well as any other product not under government
control. On the other hand, the size of the cooperative (Tnuva is the
fourth largest company in Israel) enables it also to regulate the prices
of agricultural produce and thus to be of service to the consumers as well
[44]. Tnuva's price policy, and the fact that Tnuva is a cooperative, has
generally helped to reduce the gap between the price received by the
producer and the price paid by the consumer. The argument in Israel in
the past was that this gap is relatively small, on account of the marketing
being done by cooperative. We may perhaps add that Israel's limited
geographical extent, in consequence of which transportation distances are
short, certainly also contributes in this respect. Verlinski lists a number of
18
measures by which the gap may be reduced [45], such as maintaining a
higher quality, grading and packaging, maximum efficiency in wholesale
transportation, as well as suitable retail packages, and centralized retail
marketing, which enables increased turnover and the reduction of costs as
well as improved service.
How can we in practice estimate the price of a product from the producer
up to the consumer? This path is quite long and has been described as
follows [46]:
Rice passes the farmer's gates on its way out. The dispatched rice has not
yet been threshed and cleaned up. To the price of the rice at the farm
gate we must add the cost of transport to the village collection depot, as
well as additional expenses such as sacks, etc. This gives us the price of
the rice at the village collection depot. To this price we must add the
transport costs to the rice station, the cost of weight toss due to the drying
of the rice, the storage cost which depends on how long is it going to be
stored, material losses of waste and damage, general expenses of the
rural station, as well as the profit made by the people who run this
station. Rice transported to the rice station for threshing will undergo a
price increase by the costs of threshing, storage, additional drying,
transport to the wholesaler, packing costs, general expenses and the profit
of the threshing station. This is the price of the rice when it is passed on
the wholesaler. To this price we must add the average storage costs at the
wholesaler, waste and material losses, cost of transport to the retailer,
general expenses of the wholesaler and his profit. The retailer will add to
this price his general expenses as well as the profit he hopes to receive
and thus we finally reach the consumer price. This chapter concerning
Tnuva may be concluded with a quotation from Nahum Verlinski, one of
the first directors of Tnuva, who wrote in the 6's [47]:
19
Another important aim of cooperative marketing is to promote the long-
term 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."
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].
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].
20
existence of competitors reduces marketing risks, reduces prices as well,
and indirectly also reduces credit prices.
Storage enables a better correspondence to be obtained between supply
and demand, and it is also always possible to deal with surplus produce. A
monopolistic Board can divide the total supply between different markets
so as to secure a higher mean price than could be obtained by fixing one
standard price for all markets. Moreover, the ability to pay the farmer an
average price over a long time period makes it possible to restrain
fluctuations in the farmers' income, and to exploit efficiently resources in
the production process. The board has a better access to marketing
information and consumer tendencies [50].
For example, in New Zealand, oranges are all marketed through production
and marketing boards. The function of such boards is to acquire the entire
local citrus crop and fix a price for 96 it. The board according to grading
of the marketed fruit fixes the prices. 14 days after the fruit is received,
the board must inform the grower of its grading, and have the price to be
paid. Payments to the grower are made on a monthly basis. The board
expenses are covered by deducting a certain percentage from the value of
the entire quantity marketed by each producer [51].
21
choice for the farmer, but to smuggle his produce somewhere else. Where
he can obtain for it the highest return.
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.
We have seen in the first chapter that marketing which used in the past to
be production oriented, is today a system, which focuses on the diagnosis
of the requirements of the targeted market and the means by which these
requirements may be supplied. One may wonder if the traditional farmer,
producing his traditional goods, within the fabric of a system, which does
not allow much leeway or irregularity, would be capable of adopting the
marketing orientation of our times. In other words, when we build a
marketing program, when we plan the marketing of the traditional farmer,
or even of an agricultural cooperative which is set up within a traditional
village, should be construct a program based on production as it is, or on
planned and improved production, which would endeavor to define the
optimum distribution of the target and increasing quantities turned out by
improved production. On the other hand, we can come to the traditional
farmer and tell him: We are going to focus on establishing the market
requirements; and based on the market requirements, we are going to
lay out a production program for you which wilt answer those
requirements.
23
to the second formula. Is this formula applicable in the framework of a
rural traditional society? Two examples from Israel may perhaps provide an
answer to this question. The first example relates to the grapes of a
Moshav called Lachish. This Moshav was founded towards the end of the
end of the fifties in the Lachish region. The Moshav is based on mixed
farming, but one of the main production branches is grapes for eating.
The terrain is flat highlands, with soil suitable for vine growing. The
Moshav employed specialists in the cultivation of vines, and succeeded
in acclimatizing a new strain of edible grapes, which belongs to the
Sultanina family - these are grapes without pits. The new strain proved to
be resistant. And it gave very high yields per unit areas. It had introduced
to the Israeli market. The problem was how to market the Moshav Lachish
grape. In other words, the starting point was that here the production was
already a fact of life and now the output should to be marketed. It was
known to the marketing planners at the Lachish grape had some singular
qualities – it ripens in the season in which the competition Is relatively
slight, and the supply may be as high as one-fifth of the total consumption
of edible grapes in Israel The program consisted in a publicity campaign,
or a marketing program, which stressed the quality of the Lachish grapes,
and especially the fact that they had no pits. The grapes were packed in
small transparent uniform plastic containers. They were given a trade
name, and the Moshav hired a marketing specialist who took care of the
produce sales throughout the various markets in Israel. This campaign has
been very successful [57]. Here we have an example in which a
procluct1ve agricultural system sets up for itself a marketing apparatus, to
assist it in selling its produce.
24
Here we have an example demonstrating how a given agricultural
production forms the framework from which a marketing program is
derived, which if successful establishes also the success of the farmer. It
should be noted that had a market survey been performed at the time, the
current data would have indicated that the market was saturated with
wine, with large stockpiles. The successful program of the Golan vineyards
created new types of demand, which had not existed before, and this
made for great success. In view of all this, we ask ourselves once more:
How should we construct a marketing program for traditional rural areas.
We shall try to answer this question in the following chapters.
What are those expenses made up of? In the first place, we have the
direct operational expenses. These are the expenses involved in running
the cooperative. They include wages, current expenses, maintenance,
insurance, marketing losses, and any other expense necessary for the
upkeep of the system. In addition, we have to deduct from the return also
the indirect expenses, the price of financing the founding of the
cooperative. Many cooperatives all over the world recover the price of
investment in the cooperative by deducting a certain commission from any
sale by the cooperative. This gives rise to very serious problems. Take for
example a cooperative dairy, which must market the produce of two
members. Suppose, for the sake of argument, that in this cooperative
there are just those two members. The cooperative has a dairy, which
takes care of the conveyance of milk produced by the two members. A
certain sum has been invested in -the dairy, which enables each member
to market as much as he produces. The dairy price is deducted and is
gradually returned within five years. Out of every liter of milk passing
through the dairy, a certain sum is deducted, in order to return the
investment. In our example, over five years, one farmer markets 1.000
25
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.
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.
26
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.
Figure 3.
27
9.3 Marketing Planning
The first phase of our program will consist in preparing for the peasant a
farm plan, which will increase his income, raise his productivity, and
reduce the extent of disguised underemployment in which he lives. The
farm plan takes into account such factors as the free working days
throughout the year of the farmer and his family members, the cultivated
plot at his disposal, the crops he is able to grow, how many working days
are required for each type of crop, and what is the financial return per
working day for each type of crop. Based on all these data the peasant
prepares an optimum plan, which will enable him to keep himself and his
family members employed to the maximum possible extent throughout
the year, as well as to grow crops which will give him a higher financial
return, to cultivate a larger plot, and to obtain a higher income per
working day.
28
It is obvious that this situation is what every peasant desires, especially in
the traditional village, but such a situation does not exist in isolation. Any
change at the production stage depends by close reciprocal link on the
three factors mentioned above - credit, inputs supplies, and marketing.
In the traditional system, the marketing was usually done by a series of
middlemen, who left very little return in the peasant's hands and in his
pockets. In a development system one must give the peasant an answer,
which will let him market his produce, and receive the maximum return.
One of the efficient ways of doing this when it is properly executed is the
cooperative way. In order to produce, the peasant needs suitable credit to
acquire the necessary inputs. The peasant also needs a channel through
which to market his produce with the maximum efficiency.
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
30
a truck, or by renting the transportation capacity, which exists in the
vicinity.
As mentioned above, the farmer can only produce when he receives credit.
In the traditional system he used to get credit from the local moneylender.
Such money generally costs very much and the farmer is damaged as a
rule. Development enterprises in third world countries have set
themselves a goal of providing suitable credit to farmers participating in
various projects in general and cooperatives in particular. For example,
the coffee growers of the Ivory Coast receive a credit from the national
agricultural development bank in this country. This credit is intended to
31
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.
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
32
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].
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
33
lower pay to the member gives rise to dissatisfaction of the member as a
result of which he may turn to private marketing.
34
Setting up marketing cooperative in traditional rural areas is a very
difficult operation. The difficulties are many and varied but in front of them
all on the scale of difficulties we have the most important factor, which is
the member himself.
The cooperative is the member, and depends on its members for its
existence. When the members do not understand and do not know what
the cooperative is, what are its function, what it is capable of giving to the
member, and what one may not expect from it there is no chance for the
existence of this with this cooperative. Side by side with this, we must
remember that we would like to introduce a variety of components in the
cooperative, as described in the foregoing. The vast majority of these
components represent processes of modernization and innovation, and
they are designed for members who are in fact traditional peasants, who
live in traditional villages.
10. Conclusion
35
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.
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
36
14) Galor Zvi: "Introduction to Cooperation"
International Institute for Development, Cooperation and Labour
Studies (Afro-Asian Institute). Tel Aviv 1982 Ch. IV.
15) Forman. S. and Riegelhaupt "Market Place and Marketing System:
Towards a Theory of Peasant Economic Integration" -
Joint reprint series No. 36. School of African and Asian studies and
Institute of Development Studies at the University of Sussex. Taken
from Comparative Studies in Society and History Vol XII No. 2 April 1970
P. 114.
16) ibid. P.P. 189-193
17) Mathur, ibid, P. 346
18) ibid. P.P. 347-348. See also: Agrawal. ibid. P.P. 18-19,
Abbot, ibid. P.P. 50-115, and Wall David: "The International Banana
Market"
Journal of Economic Studies Vol III NO. 3-4 Dec 1968 P.P. 54-61
19) Galor. Z. (1982). ibid
20) Ottenson. ibid. P.P. 82-86
21) For another discussion on Marketing Mix see: Matcom (ILO):
Marketing of Agricultural Produce
International Labour Organisation. Geneva 1982, Topic 3
22) International Federation of Agriculture Producers: Improving
Marketing and Farm Inputs Supply in Developing Countries: A Plan of
Action for Farmers' Organizations Farm Leaders' Seminar, Bonn, Federal
Republic of Germany. April 1986. P.P. 3-4
23) Galor, Z (1982), ibid. ibid
24) Definitions brought by Mathur. ibid P.P. 349-350
25) Galor. Z (1982), ibid. ibid.
26) Hardis. I.W.: "Cooperative Theory and Market Implications:
A selected review". P. 49 In: Anschel, ibid.
27) Whetham. E.M.: "A Comparison of Marketing Structures Agriculture
Produce In Developing Countries". P.P. 26-27
In Digby. M. and Mccready, K.J. (Ed): Book of Agriculture Cooperatives 1970
Basil Blackwell, Oxford. 1970
28) Hyden. G: "The struggle for success -in cooperation: Kabuku Noan-i
UJamaa Cooperative Society. Tanzania". P.P. 212-213
In Webster. F.H. (Ed): Year Book of Agricultural Cooperation, 1977
Parchment. Oxford, 1977
29) Andreou. P. et Islam, M.M.: "La commercialisation coop
Bangladesh".
Revue des etudes cooperatives No. 199 Paris 1980 P.P. 111-115!
30) Patel, M.S.: “ Cooperative Marketing in India”
Review of International Coopearation. Vol. 69, No. 2 1976. P. 52.
31. Galor Z. "Towards the Cooperative Development Traditional Rural
Areas". IIDCLS. Tel Aviv 1985
32) Further discussion on problems in marketing cooperatives, see:
- - Callar. D: The Social and Cultural Factors Involved in Production by
Small Farmers in Wedza Communal Area, Zimbabwe, of Maize and Its
Marketing.
Unesco. Paris. RRD 17. Dec 1982 P. 61
37
- Vinyor. T.R.: Les facteurs socioculturels qui orientent la production
et la commercialisation de certaines denrees alimentaires par les
petits fermiers dans les petits fermiers dans la Republique populaire du
Benin
Unesco, Paris. RRD16. Aout 1982 P.P. 64-69 i
- Semana. A.R.: The social and cultural factors involved in small scale
farmers food crop production and marketing in Malawi
Unesco. Paris. RRD 20. August 1983. P. 15
- Macbailey. F.E.: The social and cultural factors involved in production
by small farmers in Cameroun of plantain and cassava and their
marketing
Unesco, Paris, RRD 21, Sept. 1983 P. 41 1983 P. 41
33) Tayeh. A.K.: "Cooperative Olive Oil Processing and Marketing in
Jordan". P.P. 67-68
In: Digby. M. (Ed): Year Book of Agricultural Cooperatives 1969
Basil Blacwell. Oxforrd1969.
34) Andrew, P.: "The Cooperative Marketing of Carobs in
Cyprus". P. 233
In: Webster. F.H. (Ed): Year Book of Agricultural Cooperatives 1976
Oxford, 1976
See also: Paris, A: "Une enquete sur les cooperatives Cypriotes de
commercialisation des agrumes et autres fruits de tables"
Revue des Etudes Cooperatives Paris. NO. 183. 1976. P.P. 45-54
35) Granier, J.C.: "La Commercialisation des fruits et legumes en Algerie:
Revue des Etudes Cooperatives Paris, No. 194 1978. P.P. 69-88
36) Galor, Z. (1985), ibid
37) Preuss, W.: Cooperation in Israel and the World
Rubin Mass. Jerusalem, 1960, P. 235
38) Verlinsky. N.: "Tnuva. The Cooperative Marketing Society for
Cooperative Produce"
Afro-Asian Institute (N.D. - Around the Sixties) PP. 4-5
39) Vitels, H.: A History of the Cooperative Movement In Israel Book
Six: Central Agricultural Cooperative
Valentine Mitchel, London. 1970 P. 339
40) Verlinsky. ibid. P. 6
41) Vitels. ibid. P. 293
42) ibid. P. 344
43) Verlinsky. ibid. P.P. 11-12
44) Preuss. ibid. P. 237
45) Verlinski. ibid P.P. 13-14
46) Farm's Leaders Seminar: ibid. P. 16
47) Verlinsky. ibid. P. 18
48) Izraeli, D. and a1.:"Marketing Boards and Societal Marketing:
In: Journal of Rural Cooperation Vol IV NO. 2 1976. P. 105
49) ibid, P. 107
50) Whetham. ibid. P.P. 27-28
51) McGhie, A. T. S. : "Recent Development In Producer Market-ing
Legislation in New Zealand" P. 159
In: Year Book of Agricultural Cooperative, 1964 Basil Blackwell. Oxford.
1964
38
52) Izraeli, ibid. P.108
53) Storm, R.: "Government-Cooperative Groundnut Marketing in
Senegal and Gambia"
Journal of Rural Cooperation Vol. V No. 1. 1977. P. 30
54) Izraeli. ibid P. 110
55) Galor Z.: "Man and Development" Published by IIDCLS. Tel Aviv. 1986.
56) Galor, 1986. ibid.
57) Interview with Asa Oren, member of Moshav Lachish. 1988
59) Galor, Z. "Interest and Surplus in the Cooperative". To be published in
International Cooperative Review December. 1989
60) Galor. 1986. ibid.
61) Vinyor. ibid. P. 68
62) ibid. P. 69
63) Interview with Mr. Kouassi from the B.N.D.A. of Ivory Coast. done in
Israel. 1988
64) Mathur. ibid. PP. 366-367
65) Fualdes, J: "Les commercants et leurs cooperatives"
Revue des Etudes Cooperative Mutualistes et Associ ati ves.
Paris, No. 22 1987, P. 19
66) Galor. 1989, ibid.
39