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ANALYSIS AND EVALUATION OF MARKETING SYSTEMS OF


TEMPERATE VEGETABLES IN WEST JAVA
Witono Adiyoga

Indonesian Vegetable Research Institute


Jl. Tangkuban Perahu 517 Lembang
Bandung - 40391

In accelerating the pace of economic development, the effort of building an effective


marketing system is absolutely necessary. With the increased in the population and per capita
income, marketing plays a crucial role in ensuring that consumers have access to affordable food,
while farmers obtain returns that provide enough incentives for continuing their participation or
involvement in agricultural activities. Signals about changes in supply and demand will be sent by
the marketing process and may be used as guidance in allocating production factors into
desirable economic optimization (Bruce and Kilby, 1975). The signals may also guide production
and supply to fulfill consumer requirements in terms of place, time, form and ownership.
Improving marketing is a very important but rather neglected aspect of vegetable
development in Indonesia. So far, emphasis is usually placed on increasing vegetable production,
with the goal of improving farm income, nutritional status of consumers and act as a base for rural
development (Setiadi, 1995). There are those who hold the view that marketing is an adaptive set
of activities to be given secondary consideration in vegetable development planning strategies
with primary consideration being directed toward the expansion of vegetable production.
However, markets do not necessarily develop automatically and the lack of a well-functioning
market can increase risks and costs for farmers and other market participants. An effective
marketing system needs to be developed hand-in-hand with the development of vegetable
production in order to reap the full benefits for farmers and consumers. It will contribute toward
achieving some of the basic goals of agricultural development, including raising agricultural
income, optimal allocation of agricultural resources, increased self-sufficiency in food and
attainment of price stability. However, there is also a question of whether spontaneous
development of marketing firms, in the absence of facilitating policies and programs, will provide
efficient and equitable linkages between producers ands consumers (Hayami and Kawagoe,
1993).
Kohls and Uhl (1998) indicate that the vegetable marketing system has been influenced
by a number of production, product and market characteristics: perishability, large price and
quantity variations, seasonality, alternative product forms, bulkiness of product and geographic
specialization of production. They also point out the characteristics of marketing infrastructure, for
example the wholesale vegetable market: taking long-distance shipments from shipping point
firms, breaking them into smaller lots, and selling to food retail firms and the institutional away-
from home market. Furthermore, Rhodes and Dauve (1998) mention that the most visible and
generally the most costly part of agricultural marketing are the physical functions: transportation,
storage and processing. These are some factors that have complicated the vegetable marketing
system in Indonesia. The existing conditions suggest that some important issues and challenges
in the Indonesian temperate vegetable marketing system that should be addressed proportionally
within the context of creating a more efficient marketing system are: (a) to ensure fair returns to
vegetable producers and consumers, (b) to stabilized the supply of quality vegetable products for
consumers, (c) to stabilize prices of vegetable products at reasonable levels, (d) to reduced
distribution costs for vegetable products, (e) to provide adequate wholesaling and retailing
facilities, and (f) to secure safety and hygiene for fresh vegetables.
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As Indonesian economy continues to grow, vegetable and/or food marketing will have a
greater role to ensure that the economic growth is not accompanied by sharp rises in the prices of
vegetable and/or foodstuff. To ensure non-inflationary growth, efficient marketing is vital to
ensure optimal distribution of consumer good and services to relieve any pressures in prices at
the consumer level. This will have to be brought about by an efficient and effective distribution
system, and will ensure sufficient availability of goods at the location required and satisfy
requirements in terms of variety and quality.

METHODOLOGY

To understand the system of vegetable marketing we conducted a rapid appraisal of the


vegetable marketing system in West Java (Holtzman, Lichte and Tefft, 1995). This included field
visits to Langensari village (in Lembang Sub-District) and Margamulya village (in Pangalengan
Sub-District), representing the two biggest vegetable production centers in West Java, to conduct
semi-structured interviews with key informants, including farmers and traders. Interview topics
included (i) respondents' characteristics, (ii) brief description on vegetables farming systems (iii)
marketing aspects of vegetables. There were 26 respondents and 27 respondents were
respectively interviewed in Lembang and Pangalengan. Some packers were also visited to obtain
information on their marketing method that is considered to have less uncertainty (they knew
exactly where to supply and the quantity demanded). Possible constraints and prospects for
improvements to marketing vegetables, especially temperate vegetables, were also identified.
Secondary data were collected to assess trends in vegetable harvested area, yield and prices.
This study is actually a continuation of the first year work/project on the same topic. Field
visits were conducted to the same location as the first year work. Rapid appraisals were carried
out to collect data (Holtzman, Lichte and Tefft, 1995) from farmers in Langensari village (in
Lembang Sub-District) and Marga-mulya village (in Pangalengan Sub-District), representing the
two biggest vege-table production centers in West Java. Semi-structured interviews with farmers
were conducted mainly to elaborate farmers’ preference on the temperate vegetable marketing
system improvements. There were 25 respondents were interviewed from each location
(Lembang and Pangalengan).
Additional visits were also carried out in collecting data on market infrastructure to
wholesale markets (Pasar Caringin and Gedebage) and retail markets (Pasar Ciroyom and
Sederhana) in Bandung. A market staff/official and two vegetable traders were interviewed from
each market by using a semi-structured questionnaire. Secondary data were collected to provide
some supports in clarifying the existing market regulations currently applied.

RESULTS

I. Review of existing temperate vegetable production and marketing systems

1. General Situation

Langensari (Lembang) and Margamulya (Pangalengan) villages are two of the most
intensive highland vegetable production area in West Java. Almost all agricultural land available
in those two villages is used for growing vegetables. Sufficient water is available all year round.
Mixed or multiple cropping (“tumpang-sari”) is a common practice in these areas, and the
cropping intensity index is ranging between 250-300%.
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Langensari is situated about 20 km north of Bandung, while Margamulya is


approximately 50 km south of Bandung. The road system in those areas is fairly well-developed,
and the majority of vegetable fields is close to a road or a track that is accessible to truck or small
vehicle during most of the year. The approximate vegetable supply from Langensari is 50
tons/day (max.), while from Margamulya is 100 tons/day (max.). About 50% of vegetables from
Langensari are shipped to Jakarta and Bekasi, and the remaining amount is supplied to Bandung
and local markets. Meanwhile, the most part of total vegetable produce (75%) from Margamulya
is mainly marketed to Jakarta. Some vegetables from both Langensari and Margamulya are also
shipped to other islands, such as Sumatra and Kalimantan, and even exported to Singapore,
Malaysia and Brunei.

2. Farmer and Vegetable Cultivation Characteristics

The age structure of surveyed farmers is dominated by a relatively young group (25-40
years old). This may imply a group of farmer that is potentially responsive to innovation or new
technology. Most farmers have an elementary school background that may suggest the need for
additional informal education (extension or training) to strengthen their knowledge and capacity.
On the other hand, most farmers have more than 10 years experience in cultivating vegetables.
This indicates that growing vegetables have been functioning as the main source of income for
quite long time. It also reflects farmers’ familiarity in growing vegetables that may have a
significant role in the process of farm decision-making (especially concerning the
adoption/rejection of new technology) and risk management. Most farmers in both areas, operate
small farms (< 0.5 ha) and the proportion of farmers in Langensari cultivating vegetables on very
small farms is larger than that in Margamulya. In practice, the distribution of farm landholding in
these areas tends to be less ideal in terms of the possibility of maximizing economic efficiency.
However, it should be noted that with respects to the question of land productivity, there is
considerable evidence to suggest that over a significant range of small farm sizes, a negative
correlation exists between farm size and land productivity. Information on land tenure status
indicates that the number of farmers owning and renting farm land at the same time is quite
significant. This implicitly shows that some farmers who cultivate their own land are still trying to
enlarge their landholdings. In other words, this may confirm that farmers, in general, have been
unable to achieve comparable scale advantages. In consequence, they may find themselves in
one of two unenviable positions: producing at high cost or earning a low family income. Owning
and renting farm land at the same time may also be considered as a risk management strategy.
Spatial parcel or plot diversification could reduce plot-yield covariation and aggregate production
variability.
Providing suitable climate conditions, farmers in both Langensari and Margamulya are able
to grow many kinds of vegetable crops which are mostly temperate vegetables. Table 2 indicates
the importance of some vegetables (highlighted) in each area as considered by farmers. In
Langensari, farmers grow cauliflower, tomato, chinese cabbage, kidney bean and cabbage as
their main crops. Chili pepper and hot pepper are considered secondary, and the other remaining
crops, such as potato, chinese mustard, lettuce, bunching onion, chinese kale and broccoli are
considered minor. Meanwhile the main crops grown in Margamulya are potato, chinese cabbage,
cabbage and tomato. Hot peppers that are actually in strong competition (in terms of supply) with
those from low land production centers, seem to show an increasing trend both in production and
planted area.
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Tabel 1 Farmer’s Characteristics


Characteristics Langensari Margamulya
(%, n=26) (%, n=27)
Age:
22-30 11.5 14.8
31-40 38.5 33.3
41-50 23.1 25.8
51-60 23.1 18.5
> 60 3.8 7.4
Years of formal education:
< 6 years 11.5 11.1
6 years 50.0 37.1
9 years 15.4 22.2
12 years 19.3 29.6
16 years 3.8 -
Years of experience in growing vegetables:
<5 7.7 -
5-10 23.1 33.4
11-15 19.2 14.8
16-20 19.2 14.8
21-25 11.6 11.1
> 25 19.2 25.9
Size of landholding:
700 – 2000 m2 30.8 3.7
2001 – 4000 m2 23.1 7.4
4001 – 6000 m2 26.9 37.1
6001 – 8000 m2 3.8 14.8
10000 m2 7.7 14.8
20000 m2 7.7 7.4
> 20000 m2 - 14.8
Land tenure status:
Owned 19.2 14.8
Rented 53.9 18.5
Owned and rented 26.9 66.7

Table 2 Crops currently and/or previously cultivated by farmers


No Crop Langensari Margamulya
(%, n=26) (%, n=27)
1 Cabbage (Kubis) 73.1 96.3
2 Tomato (Tomat) 92.3 92.6
3 Potato (Kentang) 19.2 100.0
4 Cauliflower (Kubis Bunga) 100.0 -
5 Kidney bean (Buncis) 80.8 22.2
6 Chinese cabbage (Petsai) 84.6 100.0
7 Chinese mustard (Sawi) 15.4 -
8 Lettuce (Selada) 11.5 -
9 Hot pepper (Cabai Merah) 34.6 55.6
10 Chili pepper (Cabai Rawit) 42.3 -
11 Bunching onion (Bawang Daun) 7.7 7.4
12 Chinese kale (Kailan) 3.8 -
13 Broccoli 3.8 -
14 Carrot (Wortel) - 29.6
15 Shallot (Bawang Merah) - 11.1
16 Chinese radish (Lobak) - 3.7
17 French bean (Kacang Merah) - 18.5
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There are several factors considered by farmers in choosing a particular crop to grow. At
least eight factors are perceived by farmers that to some degree may affect their decision before
planting. Those are: (a) expectation of high price, (b) expectation of high yield, (c) mastery of the
cultural practices, (d) capital availability, (e) land suitability, (f) response to market demand, (g)
influence from neighboring farmers, and (h) habit/routine. Table 3 and 4 show the importance of
each factor in determining the planting of some main crops as perceived by farmers in Langensari
and Margamulya. Data indicate that there is a similar pattern between farmers’ perceptions in
Langensari and Margamulya with regard to these factors. The two most important factors are land
suitability and the mastery of cultural practices that simultaneously reflect their habit/routine.
Other factors, such as capital availability, expectation of high price, and expectation of high yield
are considered to have lower importance. Farmers argue that the response to market demand is
not as important as other factors because there is a biological lag between time of planting and
harvesting/selling. By the time they harvest their crop, the market demand may have already
changed. This may indicate that despite their long experience in cultivating vegetables, since the
uncertainty is so high, they are still having difficulty to predict the market demand.

Table 3 Factors influencing the determination of planting particular crop as perceived by farmers in
Langensari
Langensari
No Factors (%, n=26)
Cauli-flower Tomato Chinese Kidney bean
cabbage
1 Expectation of high price 57.7 46.2 23.1 26.9
2 Expectation of high yield 61.5 26.9 30.8 34.6
3 Mastery of the cultural practices 84.6 53.8 65.4 65.4
4 Capital availability 65.4 34.6 50.0 57.7
5 Land suitability 100.0 61.5 80.8 76.9
6 Response to market demand 65.4 38.5 30.8 30.8
7 Influence from neighboring farmers 3.8 - 3.8 3.8
8 Habit/routine 76.9 38.5 23.1 34.6

Table 4 Factors influencing the determination of planting particular crop as perceived by farmers in
Margamulya
Margamulya
No Factors (%, n=27)
Potato Chinese Cabbage Tomato
cabbage
1 Expectation of high price 81.5 44.4 77.8 55.6
2 Expectation of high yield 74.1 25.9 51.9 37.1
3 Mastery of the cultural practices 100.0 66.7 88.9 66.7
4 Capital availability 70.4 51.9 59.2 40.7
5 Land suitability 100.0 85.2 92.6 74.1
6 Response to market demand 66.7 22.2 33.3 22.2
7 Influence from neighboring farmers - - - -
8 Habit/routine 100.0 59.3 77.8 48.1
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In the past, vegetable production has been mainly increased by cultivating more land, but now
there is limited scope for this since unused land is rapidly diminishing. More recently there has been
greater emphasis on increased yield per unit area that may be more appropriate in the more
developed, temperate countries. In the developing, tropical countries, such as Indonesia, emphasis
has been on growing more crops per year, or multiple cropping. Table 5 shows that cropping
systems applied by farmers in Langensari are slightly different to those in Margamulya. Most farmers
in Langensari apply multiple cropping, while farmers in Margamulya prefer to apply mono cropping.
This may clarify two things. Firstly, most farmers in Langensari have smaller land holdings than
farmers in Margamulya as indicated earlier. Under this circumstance, the choice of multiple cropping
seems to be more relevant to them, since a higher total yield and greater gross return per unit area
can be obtained. In other words, multiple cropping may help farmers to cope with land shortages.
Secondly, most farmers in Margamulya seem to have stronger urging and more access to crop
specialization that is in accordance with their commercial orientation. Within this context, farmers
perceive that mono cropping is commercially more feasible and the efficiency of resource use is
technically more reachable than multiple cropping. These clarifications are supported by farmers’
reasons in choosing mono cropping or multiple cropping. Most farmers in Langensari choose multiple
cropping since it may reduce the risk of total yield loss and optimize production from small plots.
Meanwhile, most farmers in Margamulya apply mono cropping based on some considerations that it
may optimize the yield of a particular crop and avoid competition or interference from other crops.
Since the environmental resources necessary for growth are usually in limited supply, competition
almost always takes place at some stage in the plant development.

Table 5 Cropping system and some reasons behind farmers’ choice


No Cropping Systems and Reasons Langensari Margamulya
(%, n=26) (%, n=27)
1 Cropping system:
Solely mono-cropping 15.4 51.9
Solely multiple cropping 57.7 11.1
Both monocropping and multiple cropping 26.9 37.0
2 Reasons for monocropping:
Optimize the yield 19.2 40.7
Avoid competition for lights and nutrients 11.5 44.4
More affordable in terms of its required capital 11.5 3.7
3 Reasons for multiple cropping:
Reduce the risk of total yield loss 30.8 14.8
Reduce price risk 23.1 25.9
Optimize land use of small plots 30.8 14.8

Table 6 shows some examples of mono cropping and multiple cropping applied by farmers
in Langensari and Margamulya. It is also indicated that multiple cropping system applied by
farmers in Langensari has more variation than that in Margamulya. Especially for multiple
cropping, the first mentioned crop is considered as the main crop or the crop that is firstly planted
which then followed by other crops in inter-cropping/sequential cropping.
There is a high variation in whole year cropping pattern among farmers in both areas as
shown in Appendix 1 and 2. Basically, vegetables are planted and harvested every month all year
round. It is interesting to note, especially in Margamulya, the case of planting the same crop in
two consecutive seasons is quite common. For example, potato is in 4 cases followed by potato
and cabbage is in 3 cases followed by cabbage. This implies a relatively limited range of crops
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Table 6 Examples of mono cropping and multiple cropping systems


Cropping System Langensari Margamulya
Mono cropping Cabbage Cabbage
Tomato Tomato
Potato Potato
Cauliflower Chinese cabbage
Kidney bean Carrot
Shallot
Multiple cropping Tomato+Cabbage Tomato+Chinese cabbage
Tomato+Hot pepper
Tomato+Chinese cabbage Hot pepper+Chinese cabbage
Tomato+ Chili pepper
Tomato+Kidney bean Hot pepper+Bunching onion
Cauliflower+Chinese cabbage Potato+Hot pepper
Cauliflower+Kidney bean
Cauliflower+Tomato Potato+French bean
Cauliflower+ Chili pepper
Cauliflower+Bunching onion Potato+Hot pepper+Chinese cabbage
Chinese cabbage+ Chili pepper
Cabbage+ Chili pepper
Kidney bean+Chinese cabbage+Bunching onion
Tomato+Chinese cabbage+ Kidney bean
Tomato+Cabbage+Kidney bean
Tomato+Cabbage+Chili pepper

which are grown together with a cropping intensity of 3-4 crops per year, results in frequent use of
the same field for the same crop. There has been a strong suspicion that such practice leads to a
high disease level, especially in the case of potato production.
Table 7 shows that except for cabbage, the yield for some vegetables (the same crops
grown in the two areas) in Margamulya is significantly higher than that in Langensari. This may
explain two possibilities. First, the yield in Langensari is lower because it is recorded for a
particular crop that is intercropped with other crops (for example, tomato that is intercropped with
cabbage and chili pepper). Second, the yield in Margamulya is higher because the crop is
cultivated more intensively by applying monocropping system.

Table 7 Yield of some important vegetables in Langensari and Margamulya


Langensari Margamulya
Crop Min. Max. Av. Min. Max. Av.
(kg/ha) (kg/ha) (kg/ha) (kg/ha) (kg/ha) (kg/ha)
1 Potato (Granola) 10, 714.3 15, 714.3 13, 214.3 12, 500.0 35, 714.3 23, 839.1
2 Cabbage (Green Coronet) 18, 181.8 46, 428.6 29, 742.9 17, 619.1 42, 857.1 30, 325.9
3 Tomato (Arthaloka) 11, 904.8 35, 714.3 21, 373.6 23, 809.5 42, 857.1 31, 349.2
4 Chin. Cabbage (Eikun) 12, 500.0 17, 142.9 14, 375.1 17, 857.1 34, 375.0 27, 395.8
5 Cauliflower (Cempaka) 11, 904.8 28, 571.4 18, 521.9 - - -
6 Hot pepper (Hot Chili) - - - 7, 815.5 21, 428.6 14, 006.7
7 Chili Pepper (Local) 7, 142.9 14, 285.7 9, 333.1 - - -
8 Kidney bean (Local) 5, 952.4 8, 333.3 7, 359.3 - - -
9 Carrot (Local) - - - 17, 857.1 34, 000.0 24, 428.6
10 Shallot (Menteng) - - - 9, 523.8 15, 587.4 12, 555.6
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3. Marketing systems in different production areas

3.1. Innate and market-related commodity characteristics

3.1.1. Commodity characteristics

There are certain inherent characteristics of vegetable crops that make special demands
on marketing systems. They tend to be bulky; their weight and volume are closely related to their
monetary value (especially when compared to many manufactured goods). Some crops, such as
potato and shallot, retain their quality for quite some time, but leafy vegetables, such as chinese
cabbage, lettuce, cabbage and bunching onion are very perishable and will rapidly begin to decay
if they are not consumed or kept in special storage.

Table 8 Relative perishability of some vegetables grown in Langensari and Margamulya as perceived by
farmers/traders
Crop Relative Crop Relative Crop Relative
Perishability Perishability Perishability
Cabbage *** Chinese mustard **** Broccoli **
Tomato ** Lettuce **** Carrot ***
Potato * Hot pepper ** Shallot *
Cauliflower ** Chili pepper ** Chinese radish ***
Kidney bean ** Bunching onion **** French bean **
Chinese cabbage **** Chinese kale ***
Note: * = low; **** = high

Harvested vegetables coming from the field usually need sorting in some way so that
traders/consumers can choose the kind of produce they want. The characteristics used for sorting
may include size, shape, ripeness/maturity or some other qualities that influence the commercial
value of the products. The other facilitating function in marketing is grading, which simplifies and
makes easier and less costly the movement of goods through the marketing channel. Grading
actually refers to the sorting of products into the various categories (referred to as grades)
established by the standards for quality. Table 9 indicates that most farmers in Langensari and
Margamulya practice the product sortation. Basically, they sort the harvest to separate between
marketable and unmarket-able produce by using some quality factors, such as decay, bruises
and dirt (except in “tebasan” system). In terms of grading, only few farmers in Langensari indicate
practicing this activity, while most farmers in Margamulya grade their harvest, especially for
potato. Field observation shows that farmers grade their potato based on its size and uniformity.
Other important quality factors, such as flavor, texture, color and aroma, are not used, since they

Table 9 Sorting and grading activities practiced by farmers in Langensari and Margamulya
No Activities Langensari (%, n=26) Margamulya (%, n=27)
Sorting Never 30.8 11.2
Sometimes 11.5 25.9
Always 57.7 62.9
Grading Never 92.3 33.3
Sometimes - 18.5
Always 7.7 48.2

may be subjective and very difficult to measure. For example, potato grades and their respective
unit price (Rupiah/kg) in Margamulya are: AL (Rp. 2, 000 – Rp. 2, 300), AB (Rp. 1, 800 – Rp. 2,
000), ABC (Rp. 1, 600 - Rp. 1, 800), DN (Rp. 1, 200 – Rp. 1, 400), TO (Rp. 800 – Rp. 1, 000),
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and ARES (Rp. 500 – Rp. 700). It is interesting to note that the grading system is not commonly
applied to other vegetable crops. In the mean time, there is evidence that only if the farmer sells
on the basis of grades will the fullest benefits of the grading system as a method of consumer-
producer communication be realized. The wider the practice of selling on a graded basis, the less
is the possibility of fraud and deceit during transaction. However, it is probably also true that not
all farmers stand to gain from selling on a graded basis. The farmers who produce the higher
quality products would gain at the expense of those producing the lower quality products. In
producing high quality products, more careful and often more expensive handling is usually
required. In some instances the extra cost would probably outweigh the extra returns. In this
situations farm selling on a graded basis has little attraction, as it is in the case of other vegetable
crops (except potato that is considered to be financially important for vegetable producers,
especially in Margamulya).

3.1.2. Consumption patterns

Vegetable consumption in Indonesia is approximately 38 kg/capita/year in 1996. This is


much smaller than the FAO recommendation for vegetable consumption, that is 65 kg/capita/year
(Sutrisno, 2000). In general, demand for and consumption of vegetables has been growing in
Indonesia as incomes have increased over the past decade. The income elasticity of demand for
most vegetables exceeds one. By the mid-1990s, per capita consumption of vegetables is 30
percent greater than during the 1960s (Stringer, 1998). Percentages of monthly average per
capita expenditure for vegetables are 8.83 (1987), 8.86 (1990), 8.73 (1993), 8.96 (1996), and
8.94 (1999). Based on three scenarios of income elasticity (0.3, 0.6 and 0.9), the growth of
vegetable demand in 2000-2005 is projected 2.7, 4.1 and 5, 5% per year, respectively. Demand
for vegetables is estimated to increase from 5, 835, 000 t in the year of 2000, to 7, 131, 000 t in
the year of 2005 (Jensen, 1992).
How are these indicators reflected at the farmers’ level? In the last three years, most
farmers in Langensari perceive that there is an increasing trend in demand for vegetables.
Farmers estimate that the demand increases by 10-30%. However, most farmers in Margamulya
perceive that the demand for vegetables is relatively stable. Farmers also indicate that festive
seasons and special ceremonial events are often important factors that influence vegetable
consumption and demand. There are at least four key festive seasons in Indonesia that may
change consumer purchasing habits. Those festive seasons are Christmas, Chinese New Year,
Ramadhan and Idul Fitri. The increase in consumption is usually anticipated by farmers through
planting vegetables that are mainly reserved for these events. This anticipation often tends to
cause excessive supply, if it is not very well-planned.

Table 10 Trends in demand for vegetables in the last 3 years as perceived by farmers
Trends in demand Langensari (%, n=26) Margamulya (%, n=27)
Increasing 73.1 25.9
Decreasing 3.8 11.1
Relatively stable 23.1 62.0

3.1.3. Supply situation

There are 18 vegetable crops regularly recorded for their planted area and production
every year. Those are shallot, garlic, chinese cabbage, carrot, bunching onion, cabbage, potato,
hot pepper, tomato, eggplant, french bean, yard long bean, kidney bean, cucumber, kangkong,
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spinach, chinese mustard, chinese radish and chayote. It is noted that most of these crops are
grown in highland area, so that the data may also represent the vegetable supply from the two
areas that are being studied. Table 11 indicates that there is a decrease in planted area between
the year of 1998 and 2000, from 60, 238 ha to 56, 603 ha, respectively. However, the total
vegetable production between those two years is increasing, from 634, 259 t in 1998 to 948, 300 t
in 2000.

Table 11 Planted area and production of some vegetable crops in West Java, 1998-2000.
Planted Production
Crops 2000 1999 1998 2000 1999 1998
(ha) (ha) (ha) (ton) (ton) (ton)
1. Shallot (Bawang Daun) 3,819 3,618 4,787 30,953 38,943 26,161
2. Garlic (Bawang Putih) 125 162 214 952 1,647 1,762
3. Bunching onion (Bawang Daun) 2,318 2,783 2,494 21,609 16,317 14,627
4. Potato (Kentang) 18,131 19,758 19,765 352,893 309,178 177,902
5. Cabbage (Kubis) 11,211 15,270 13,759 274,838 314,033 192,612
6. Chinese cabbage (Petsai) 3,911 3,230 3,453 80,566 63,905 59,546
7. Carrot (Wortel) 941 1,589 499 27,844 5,777 23,678
8. Chinese radish (Lobak) 331 7,024 0 0
9. French bean (Kacang Merah) 2,887 3,559 0 15,850 23,357 0
10. Yard long bean (Kacang Panjang) 1,138 1,038 1,677 4,510 4,069 7,760
11. Hot pepper (Cabai Merah) 3,527 6,384 3,614 17,138 32,987 10,335
12. Tomato (Tomat) 4,133 4,559 4,431 76,288 80,406 71,007
13. Eggplant (Terung) 286 427 847 1,672 1,292 2,392
14. Kidney bean (Buncis) 1,802 2,085 2,678 11,876 14,663 24,373
15. Cucumber (Mentimun) 891 649 902 11,038 11,098 10,414
16. Chayote (Labu Siam) 487 483 574 11,390 8,432 9,654
17. Kangkong (Kangkung) 354 219 295 615 634 845
18. Spinach (Bayam) 311 139 249 1,245 535 1,193
Total 56,603 65,952 60,238 948,300 927,273 634,260
Source: Agricultural Office of West Java Province, 2002

Graph 1 Growth of vegetable production in Kabupaten Bandung, 1998-2000

1000000 948,300
927, 273

800000

634, 260
Production (t)

600000

400000

200000

1998 1999 2000


0
1 2 3

Source: Agricultural Office of West Java Province, 2002


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Graph 1 shows that a significant increase in vegetable supply between 1998 and 1999 is followed
by a slight increase in the following year. Daily total supply of vegetables from Langensari and
Margamulya is estimated at 50 t and 100 t, respectively.

3.1.4. Price relationships and seasonality

Price functions as a director of the vegetable economic activity, serves as a rationing


mechanism for product produced during one period of the year, and becomes a barometer and
measure of the behavioral dimensions at work in the market of vegetables. Because the factors
influencing demand and supply are continuously changing, it may be expected that the time path
of vegetable prices will show variations. Under competitive conditions, fluctuations in prices may
be caused by the shifts in vegetable supply and demand. Comparing the variability of prices at
different marketing levels can be indicative of the locus of price instability. Table 12 compares the
variability in monthly prices at the farm-gate and wholesale levels of potato, tomato, cabbage and
chinese cabbage in West Java during 1995-1999. The results show that the magnitude of
variation in producer or farm-gate prices for all commodities is consistently higher than that of
wholesale prices. This may imply that producers/farmers have to deal with higher price risk than
traders. Viewing from other perspectives, this may be consistent with a competitive market in
which in the short run the supply of the farm commodity is relatively inelastic compared with
consumer demand (Tomek and Robinson, 1981).

Table 12 Variation in farm gate and wholesale prices of some important vegetables in West Java, 1995-1999

Prices (Rp/kg) Grand Mean Standard Deviation Coefficient of Variation (%)


FG WS FG WS FG WS
Potato 1 336.2167 1 596.5167 780.4411 881.6165 58.4 55.2
Tomato 548.0333 1 114.1667 427.2543 602.2284 77.9 54.1
Cabbage 527.9667 691.1833 396.8134 471.1467 75.2 68.2
Chinese cabbage 318.2000 501.8833 195.7623 201.6459 61.5 40.2
FG = farm-gate prices; WS = wholesale prices
Source: Calculated from Vademekum Pemasaran, 1990-1999

Regardless of the trend and irrespective of what phase of the cycle developing, the
seasonal moves in price will be key determinants of the success of the decisions within the
marketing year. An approximation to the seasonal pattern of prices can be made by removing the
effects of trend and then calculating the average price by months. By expressing the average
price for each month as a percent of the overall average, a useful approximation of the seasonal
pattern can be generated. Table 13 shows the seasonal pattern of monthly farm-gate prices for
some important vegetables in West Java during the period of 1995-1999. It suggests prices of
potato, for example, in February have averaged 20.0 percent below the yearly average price, and
prices in December have averaged 22.0 percent above the yearly average price. This may
indicate that during the period of 1995-1999, the price of potato is the lowest in February and the
highest in December. Even though there are some slight differences among vegetables being
studied, a common or similar pattern is also identified. The price of most crops decreases in
January-February; starts to increase in March-May; begins to decrease again in June-September;
and reaches the highest in November-December.
12

Table 13 Seasonal pattern of farm-gate prices of some important vegetables in West Java, 1995-1999
Farm Month
gate prices J F M A M J J A S O N D
Monthly average price (Rp/kg)
Potato 1170 1098 1224 1350 1334 1267 1409 1215 1290 1391 1617 1681
Cabbage 480 390 579 652 715 575 429.2 368.8 383.3 410 624 754
Tomato 496 448 736 697 778 528.8 274.2 284.8 369 366 649 948
Chi. cabbage 208.4 181.2 381 427 401 308 267.2 269.2 251 315 434.6 408.6
Cauliflower 705 710 677 596 824 707 832 752 822 984 1088 1094
Monthly average as % of overall average a

Potato 0.85 0.80 0.89 0.98 0.97 0.92 1.02 0.88 0.94 1.01 1.17 1.22
Cabbage 0.91 0.74 1.09 1.23 1.35 1.08 0.81 0.70 0.72 0.77 1.18 1.42
Tomato 0.91 0.82 1.34 1.27 1.42 0.96 0.50 0.52 0.67 0.67 1.18 1.73
Chi. cabbage 0.65 0.56 1.19 1.33 1.25 0.96 0.83 0.84 0.78 0.98 1.35 1.27
Cauliflower 0.86 0.87 0.83 0.73 1.01 0.87 1.02 0.92 1.01 1.21 1.33 1.34
a Calculated by dividing each monthly average by the overall mean of potato prices : Rp. 1 377.22
cabbage prices : Rp. 530.13
tomato prices : Rp. 548.03
chi. cabbage prices : Rp. 321.08
cauliflower prices : Rp. 816.05
Source: Calculated from Vademekum Pemasaran, 1990-1999

3.2. Marketing institutions and policies

3.2.1. Marketing system participants and organization

Those characteristics of the organization of the market that seem to exercise strategic
influence on the nature of competition and pricing within the market is defined as market structure
(Bain, 1969). Certain features of a market will heavily influence the conduct of firms in a market
environment. These features are several and unique to the product and institution involved.
However, there are at least four market structure characteristics that are mutually important
determinants of the type of conduct that prevails in all markets. Those characteristics include: (i)
the number and size of firms engaged in marketing; (ii) the nature of the product as viewed by the
buyers; (iii) entry and exit conditions; and (iv) the status and availability of knowledge about costs,
prices and market conditions among the participants.
Marketing outlets for vegetable produce from Langensari and Margamulya mainly consist
of local, Bandung and Jakarta markets. Unfortunately, there is no reliable data available
concerning the number of local and regional traders involved in vegetables marketing in those
areas, since the West Java Regional Trade Office does not require vegetable traders to register.
Traders, both local and regional, usually are not specializing in one particular crop, but handling
several vegetable crops simultaneously. It should be intuitively clear that the number of traders or
firms in the market will influence how the traders/firms behave. From field observation and farmer
interviews, it is indicated that there is no single trader or firm in Langensari and Margamulya that
may conduct itself in such a manner as to maximize profits without concern about other
traders/firms trying to undercut that price. In this situation, each trader or firm involved in
vegetable marketing may strive to increase his/its share of the market and may use a number of
sales tactics.
Table 14 shows the crop and variety of vegetables mostly grown by farmers in
Langensari and Margamulya. It is indicated that for each location, the vegetables sold in the
market is basically homogeneous. This implies that most buyers feel that the product of one
seller is virtually no different from that of another seller. For example, a farmer selling potato will
find it difficult to convince potato traders that his or her potato is any better than another farmer's
13

potato, except as would be measured by obvious grade differences. However, there is one case
in which few farmers grow potatoes from Atlantic variety as chips material. In this case, potato
product differentiation exists -- products are distinguished from one another in the eyes of the
buyer through actual product variations. It is possible for those farmers to exercise some market
monopoly power over price since they sell a differentiated product. These farmers do not need to
fear that an undercutting price will completely erode the market for their product.

Table 14 Crop and variety of vegetables mostly grown by farmers

No Crop Variety
Langensari Margamulya
1 Cabbage Green Coronet Green Coronet
2 Tomato Arthaloka Arthaloka, TW 375
3 Potato Granola Granola
4 Cauliflower Local (Cempaka, Soluna, Blaster) -
5 Kidney bean Local -
6 Chinese cabbage Eikun Eikun, Ito

The vegetable market environment basically allows traders or firms to enter or exit the
market freely. Some factors that may influence entry and exit include absolute cost advantage
and unique managerial and technical competence held by existing traders or firms. A growing
number of marketing firm (packers) enters the market is frequently slowed down by the one that
exits. In Lembang, there are at least ten firms (packers) involved in vegetable marketing and two
of them go out of business in the last two years.
Buyers or sellers will likely make more rational decisions if they have useful and timely
information at their disposal. In West Java, daily wholesale price information for vegetables is
regularly announced through radio and disseminated through information boards, especially at
the assemble markets in production centers. But market knowledge extends beyond information
concerning prices and technical product quality. It also includes knowledge of the actions that
competitors and traders or firms take, as well as reasonably informed judgments about future
market conditions. Within the context of vegetable marketing, at some points, the existing market
knowledge held by market participants (buyers and sellers) has permitted them to make informed
decisions in the market environment in which they operate.
Of the several characteristics listed previously, the two most important are the number of
traders or firms and the nature of the product. Information obtained on these two characteristics
indicates that the market structure for vegetables in West Java could be categorized as closely to
pure competition (both for the seller side and buyer side): there are a relatively large number of
traders with low barriers to entry into the vegetable trading business and the product is relatively
homogeneous.

3.2.2. Marketing system operation or behavior

One of the more difficult marketing decisions is knowing when to accept a price and when
to wait for something better. In vegetable marketing, most crops are traded and prices through
individual negotiation, that is a simple bargaining process between individual buyers and sellers
for each transaction (Dahl and Hammond, 1977). In its pure form, with equal market power and
equal information for the participants, it is the implicit procedure of the competitive market model.
Formal rules are usually not in evidence. Growers would like to sell their produce at the highest
14

possible price, but no one knows when this price will be offered (since the buyers try to obtain the
lowest possible price). No marketing strategy can insure the highest possible price. A market
strategy that attempts to achieve an acceptable price has a better chance of success than one
that aims for the highest price (VanSicle, 2000). Therefore, growers must know what price level is
consistent with and acceptable profit for the total farming operation. Careful attention to market
trends will help farmers to decide whether to accept a price or to wait for something better.
Both in Langensari and Margaluyu, some farmers quite often sell their produce before
harvesting (“tebasan”, without weighing), usually for cabbage, chinese cabbage and cauliflower.
One to three weeks before harvesting time, traders visit the farmer’s field, estimate the yield,
negotiate the price, pay in cash or provide a down-payment, and take care of all farming activities
until the crop is harvested and marketed. Farmers carry out this selling method to tackle an
immediate or sudden need of cash and to speculate in capturing high price and avoiding further
expenses. Meanwhile, other farmers prefer to sell their produce by weighing during harvest
because of the expectation of getting higher price through bargaining.

Table 15 Selling method, transaction and buyers


No Description Langensari (n=26) Margamulya (n=27)
Σ % Σ %
1 Selling the produce:
Not weighing before harvesting (tebasan) 3 11.5 - -
Weighing during harvesting (kiloan) 16 61.5 11 40.7
Not weighing and weighing 7 27.0 16 59.3
2 Reasons for not weighing (tebasan):
Cash payment (money received at once) 6 60.0 9 56.3
Cost saving (harvesting labor) 2 20.0 3 18.8
Time saving 2 20.0 4 24.9
3 Reasons for weighing (kiloan):
More profitable 5 21.7 9 33.3
Expecting better price through bargaining 11 47.8 13 48.1
Obtaining actual yield estimate 7 30.5 5 18.6
4 Place of transaction:
Local market 2 7.7 13 48.1
Field 2 7.7 6 22.3
Farmer’s house 9 34.6 4 14.8
Trader’s warehouse 13 50.0 4 14.8
5 Transaction:
Directly with traders 24 92.3 24 88.9
Through intermediaries 2 7.7 3 11.1
6 Most often traders to sell the produce to:
Local assembly traders 15 57.7 16 59.3
Non-local/regional assembly traders 8 30.8 11 40.7
Wholesale traders 3 11.5 - -
7 Difficulty to get buyers:
Never 20 76.9 16 59.3
Sometimes 6 23.1 11 40.7

Table 15 also indicates slight differences on the place of transaction mostly chosen by
farmers in Langensari and Margamulya. Farmers in Langensari prefer to do the transaction in
their house and in the trader’s warehouse, while farmers in Margamulya choose local assembly
market (Pasar Pangalengan) and their field. This seems to be reasonable since there is no
assembly market available in Langensari/Lembang and the volume of transaction may be
relatively smaller as compared to Margamulya/Pangalengan. Only few farmers sell their produce
15

through intermediaries or commissioners. Most of them sell the vegetable produce directly to both
local assembly traders and/or regional assembly traders. Farmers indicate that occasionally it is
difficult to get buyer, especially when the supply is excessive and the price is low for some
unstorable crops, such as cabbage and tomato.
The flow of vegetables from producers (in Langensari and Margamulya) to consumers is
facilitated by the process carried out by marketing channels. A variety of well-established
although informal marketing channels for the distribution and sale of vegetables exists in the two
locations. Those channels are relatively simple and short due primarily to the fact that marketing
services required are not much. The following types of middlemen and their principal functions
are identified from the existing marketing channels.

1. Field petty assembly traders

These small-scale, itinerant traders are village-trotting daily to visit the field and make a
bid. They buy and assemble relatively small volume vegetables directly from farmers and sell
them to rural assembly traders. They may finance their operation by themselves or occasionally
act as commissions agents. As commission agents, they actually do not buy vegetables, but
assemble and ship them to the rural assembly traders for a commission or fee.

2. Contract traders

These traders buy vegetables from farmers on a contract basis that involves negotiations
for sale even before vegetables (e.g. cabbage, chinese cabbage, cauliflower) in the field reach
their optimum age to be harvested. The contract traders estimate the total value of the crop by
multiplying the estimated quantity to be harvested by the expected price at harvest time. Once
the trader and farmer have agreed on the price, the contract trader takes over the care of this
particular crop in the field. In other words, all expenses in preparing the produce for market are
borne by the buyer. The buyer also assumes any pre-harvest and post-harvest risks. Contract
buyers may either finance operations on their own, or be financed by a financier-rural assembly
trader or financier-wholesaler.

3. Rural assembly traders

The major marketing functions of this type of trader are to assemble a relatively large-
volume of vegetables and ship them to distant consumption centers. They may either reside at or
travel to farms to purchase, transfer, and later sell vegetables to another locale. Their activities
may involve the purchase of truckloads of vegetables from one or more growers and/or
encompass the purchase of small lots of vegetables from several growers at the same time.
Besides assembling and shipping vegetables, this type of trader may also provide a cash
advance or guarantee before harvest, recruit and pay qualified workers for sortation and grading,
supply necessary marketing materials, and arrange vegetable transportation from the field. Some
big assembly traders also involve in vegetable production. They may either fully finance their
vegetable production by themselves or run the production activity on a sharing basis (with
farmers). The sharing scheme is based on the contribution of each party to the vegetable
production expenses.

4. Regional/inter-regional traders

This type of trader resides outside the production center and visits Langensari or
Margamulya to buy vegetables, and ship them to the wholesale or retail markets. They bring their
16

own or rented truck and go to the field for directly buying vegetables from rural assembly traders
or farmers. They usually establish a prior contact with farmers or commission agents before the
transaction occurs.

5. Wholesalers

These are the merchants in Bandung or Jakarta who receive vegetable shipments from
producers, rural assembly traders, and other shippers. They have permanent stalls in the urban
markets and sell mainly to retail merchants or secondary wholesalers. Most of the vegetables
they handle are sold on a whole-sale basis. Wholesalers may at the same time undertake the
function of assembling or retailing. The two most important factors that influence the volume of
purchases are capital and contacts. Cash availability is absolutely necessary for outright
purchase of vegetables. Meanwhile, the established contacts that have a mutual respect for one
another based on years of doing business together can facilitate regular purchases and buying on
a short-term credit.

6. Retailers

These traders constitute the last link in the vegetable marketing chain. They sell
vegetables in an unaltered form, or directly as purchased. Thus, they just buy and sell fresh
vegetables. Moreover, they generally buy vegetables in small lots of 25 kg - 100 kg per week.
Limited working capital dictates the retailers to adopt such purchase arrangement partly to limit
spoilage losses due to lack of proper storage. In addition, small and frequent purchases may also
help them to minimize inventory costs and the risk of being caught with considerable supplies
after a sharp decline in prices.
Typical marketing channels in Langensari and Margamulya are as follows:

• producers - rural assembly traders - inter-regional traders - wholesalers - retailers -


consumers.

• producers - rural assembly traders - wholesalers - retailers - consumer.

• producers - field petty assembly traders or commission agents - rural assembly traders -
wholesalers - retailers - consumers.

• producers - contract traders - rural assembly traders - retailers - consumer.

• producers - packers - retailers - consumer

It is estimated that the first and second channels absorb approximately 70% of total
vegetable supply either from Langensari or Margamulya. The remaining 30% is marketed through
the third, fourth and fifth channel. Closer look to the various vegetable marketing channels in
Langensari and Margamulya suggests the dominant role of rural assembly traders to bridge the
producers and consumers. The volume of vegetables that is assembled and shipped by this type
of traders is ranging between 5 - 25 tons per day. In total, approximately 15 - 50 tons (minimum)
and 75 - 150 tons (maximum) of vegetables are delivered from Langensari and Margamulya to
urban markets daily. Vegetables from those production centers are mostly marketed to Jakarta
(the main consumption center) and local and Bandung markets. Rural assembly traders are
mostly well-informed about the price development in big city markets. They usually have contact
persons in those markets. Based on this information, they are not only able to set up the buying
17

price of vegetables from farmers, but also to decide to which market their vegetables will be sold.
Farmers indicate that the traders' advantage in having more access to price information
frequently weakens their bargaining position.
Figure 1 is actually self-explained in describing the flow of vegetables from Langensari and
Margamulya to consumers in Bandung and Jakarta. The one that seems inadequately elaborated
yet is the existence of some packers both in Lembang and Pangalengan which begin to play
important role in bridging the vegetable producers and consumers. Those packers collect the
vegetable produce from farmer cooperator or from the harvest of their own production.

VEGETABLE
GROWER

CONTRACT OR LOCAL REGIONAL ASSEMBLY PACKER


ASSEMBLY TRADER TRADER

WHOLESALER WHOLESALER
IN BANDUNG IN JAKARTA

RETAILER IN BANDUNG RETAILER IN JAKARTA SUPER MARKET


RESTAURANT HOTEL

VEGETABLE
CONSUMER

Figure 1 Marketing channels of vegetables from producers in Langensari and Margamulya to consumers in
Bandung and Jakarta.

The following is an elaboration of a packer in Lembang that have been operated since
1997. Vegetable produce is collected from farmer cooperators which are recruited on the basis of:
(1) willingness to continually supply (daily) a certain amount of specific vegetable ordered by the
firm, (2) agree with the payment arrangement, such that three weeks delivery will be
compensated or paid in the next following week, and (3) agree with the price that is reviewed
once a week and the contract that is renewed every six months.
Produce that comes from the field will be washed/cleaned, sorted, graded, weighed,
wrapped/packed, and labeled. For example, (a) chinese mustard is sorted, old leaves are thrown
away, weighed for 1 kg/unit, tied, labeled, and packed into a plastic container, (b) tomato is
washed/cleaned, graded into 12 fruits/kg, put on a styrofoam plate and wrapped with plastic,
labeled and packed, (c) potato is washed, graded into grade A, B and C, weighed for 1kg/unit, put
18

into a special plastic net, and packed in a container. The produce is then transported and
delivered to supermarkets, restaurants and hotels in Jakarta by using a refrigerated truck. The
firm supplies a relatively small amount of vegetables daily that consist of both “common” and
“sophisticated” vegetables. The following is an example of vegetable delivery to Jakarta (by
March 5, 2002).

No Crop Quantity (kg) No Crop Quantity (kg)


1. Tomato 321 10. Red sweet pepper 17
2. Cherry tomato 30 11. Yellow sweet pepper 10
3. Potato 140 12. Cabbage 192
4. Celery 37 13. Chinese mustard 45
5. Chinese cabbage 338 14. Baby chinese mustard 17
6. Cauliflower 76 15. Peterseli 6
7. Zucchini 88 16. Lettuce 271
8. Green sweet pepper 37 17. Pumpkin 200
9. French bean 5

The selling price per unit is calculated from the buying price that is added by the costs for
compensating product loss, grading, sorting, packing, transporting and profit margin. These are
some examples for some vegetables delivered:

Crop Buying Loss Grading Sorting Packing Trans- Profit Selling


price porting margin price
Rp/kg
Potato 2 800 170 85 85 140 145 225 3650
Cauliflower 4 000 240 125 125 200 200 260 5150
Tomato 2 700 168 81 81 135 135 150 3450
Lettuce 4 000 240 120 120 200 220 300 5200
Green sweet pepper 8 000 480 240 240 400 400 640 10 400
Red sweet pepper 11 000 660 330 330 550 550 880 14 300
Yellow sweet pepper 11 000 660 330 330 550 550 880 14 300

The manager informs that if there is a supply shortage from farmer cooperator, the firm will buy
from wholesale market in Bandung and carefully select the product that still conforms to the
required quality. It is also indicated that there is an increasing trend in demand for high quality
vegetables, especially from super-markets and grocery stores.
Two common measures used to evaluate marketing performance are: (1) the farmer’s
share of the consumer’s expenditure, and (2) the marketing margin. These measures are often
misunderstood and consequently misused. For example, the marketing margin may be high
because marketing activities are being carried on at high cost. But, the margin may also be high
because the marketing system is providing many services. A price markup or marketing margin is
the difference between the price paid in purchasing a commodity and the price received when the
commodity is sold, or simply the difference between prices at two market levels (Calkins and
Wang, 1978; Kriesberg and Steele, 1972). Margins represent the price charged (marketing cost
and profit) for a collection of services provided in preparing the produce for market. The size of
marketing margin is largely dependent on a combination of (a) the quality and quantity of
marketing services provided, (b) the costs of providing such services, and (c) the efficiency with
which those services are undertaken and priced (Scarborough and Kydd, 1993).
19

Table 16 shows that at farm-gate level, the magnitude of variation in monthly prices of
potato is lower than that of tomato, cabbage and chinese cabbage. This may reflect that the price
of potato is relatively more stable than those three other crops, since potato is less perishable.
However, further analysis suggests that this indication does not occur at the wholesale level. It
should be noted that the variation in margin for tomato and chinese cabbage is lower than the
variation in their farm-gate prices. This may imply that for these two crops, market tends to
operate in such way so that the margin is more stable than the farm-gate price. Meanwhile, for
potato and cabbage, the variation in marketing margin is higher than the variation in farm-gate
and wholesale prices. This comparison suggests that, in the short run, traders absorb a
substantial share of the variability in potato and cabbage prices. This may indicate that traders do
not have a strong enough bargaining position such that they can pass on the effects of shifts in
supply and demand to producers and consumers.

Table 16 Farmers’ share and marketing margin of some important vegetables in West Java, 1995-1999

Potato Tomato Cabbage Chi cabbage

Farm-gate price (Rp/kg)


Grand Mean 1 336.2 548.0 527.9 318.2
Standard Deviation 780.4 427.3 396.8 195.8
Coefficient of Variation (%) 58.4 77.9 75.2 61.5
Wholesale price (Rp/kg)
Grand Mean 1 596.5 1 114.2 691.2 501.9
Standard Deviation 881.6 602.2 471.1 201.6
Coefficient of Variation (%) 55.2 54.1 68.2 40.2
Farmers’ share of wholesale price (%)
Grand Mean 0.8287 0.4597 0.7527 0.6109
Standard Deviation 0.1121 0.1312 0.1483 0.1831
Coefficient of Variation (%) 13.5 28.5 19.7 30.0
Marketing margin (Rp/kg)
(wholesale price – farm-gate price)
Grand Mean 260.3 566.1 163.2 183.7
Standard Deviation 242.4 264.0 142.6 105.0
Coefficient of Variation (%) 93.1 46.6 87.4 57.2
Source: Calculated from Vademekum Pemasaran, 1990-1999

Furthermore, the magnitude of variation in wholesale prices is generally lower than that of the
marketing margin and farm-gate prices. This also indicates that, in short term, the market is
operating to increase wholesale price stability. These indicators undisputedly lead to the need of
improvements in the marketing system that should put more emphasis to solve high instability in
prices at producer’s level.
In general, the farmer’s share for all crops is quite high, which reflects the existence of
high competition among participants in vegetable marketing. The magnitude of variation in
farmer’s share is consistently lower than that of marketing margin. Farmer's share and marketing
margin are usually negatively correlated, that is the farmer’s share will increase when marketing
margin decrease. This implicitly implies a strong linkage between production and marketing sides
of the vegetable system.
The process by which buyers and sellers arrive at specific price for a given lot of produce
in a given location is known as price discovery (Kohls and Uhl, 1980). This is a human process,
beset by errors in judgment and fact, and subject to the available information, trading skills and
relative bargaining power of buyers and sellers. Consequently, prices discovered in this way tend
to vary widely for different transactions. Table 17 shows that farmers in Langensari and
Margamulya primarily use their knowledge of current/recent price applied in the market as their
20

guidance to discover the price. It is interesting to note that the main source of price information is
other farmers or traders. This may suggest the ineffectiveness of price information service
publicly disseminated trough printed and/or electronic media.
Farmers have identified some factors and agreed that the most important factor
influencing the price discovery is product quality. In Langensari, the rank of importance is then
followed by type of traders, transaction place, and good relationships with traders. Meanwhile, in
Margamulya, the rank of importance is followed by product quantity, type of traders, link with
credit-provider traders, and place of transaction. It is interesting to notice that more farmers in
Margamulya are involved with credit-provider traders. There is greater possibility that such
relationships may lower their bargaining power in the process of price discovery.
Only few farmers in Langensari and Margamulya are paid directly (in cash) for vegetable
produce they sell. Later or delayed payment seems to be a common practice in vegetable
marketing. At least there are two forms of delayed payment: (1) all payment is delayed for 2-10
days after transaction, and (2) buyer provides 20-50% down-payment and pays the rest after the
produce sold out, or pays 2-14 days after the transaction occurs.

Table 17 Pricing and payment in vegetable marketing in Langensari and Margamulya


No Description Langensari (n=26) Margamulya (n=27)
Σ % Σ %
1 Guidance for discovering the price during transaction:
Calculation of per unit cost and expected profit 2 7.7 2 7.4
Knowledge of current/recent price in the market 24 92.3 25 92.6
2 Source of information concerning market price:
Printed and/or electronic media - - - -
Other farmers 3 11.5 3 11.1
Traders 12 46.2 7 25.9
Other farmers and traders 11 42.3 17 63.0
3 Factors importantly influence the determination of agreed/final price:
Product quantity 5 19.2 23 85.2
Product quality 26 100.0 27 100.0
Transaction place 13 50.0 8 29.6
Type of traders 20 76.9 20 74.1
Good relationships with particular traders 10 38.5 6 22.2
Link with traders who provide credits 1 3.8 11 40.7
4 Payment system mostly used:
Cash 2 7.7 2 7.4
Paid later 3 11.5 18 66.7
Cash and paid later 21 80.8 7 25.9

3.2.3 Marketing constraints and suggestions for improvement

Growers in Langensari and Margamulya have identified some constraints in vegetable


marketing that are categorically classified into seven groups. Farmers in both areas fully agree
that the most important constraint is the competition of supply of similar vegetable produce from
other regions that causes higher price uncertainty. Excessive supply, especially for some crops
that are also suitably grown in low and medium altitudes (e.g. tomato, hot pepper), often causes a
drastic drop in prices. As consequence of individual negotiation, farmers also feel that the price
offered by buyers/traders is frequently too low. Meanwhile, even though it may shorten the
marketing chain, selling the produce directly to the market is considered high cost (handling and
transportation costs) and unfeasible, especially due to a relatively small amount of selling volume.
The effectiveness of price information service publicly disseminated through printed and/or
21

electronic media is also questioned since it is frequently unreliable to be used as guidance for
bargaining. There are three other constraints, such as choice of trader, quality requirement, and
handling costs that are considered by farmers as low of importance.

Table 18 Some constraints to market the vegetable produce as experienced by farmers


No Description Langensari (n=26) Margamulya (n=27)
Σ % Σ %
1 Sometimes there is no choice of selling the produce to certain traders - - 2 7.4
2 Price offered by traders tends to be low 17 65.4 20 74.1
3 Price information is not reliable/accountable enough to be used as 14 53.8 11 40.7
guidance for bargaining
4 Selling produce directly to the market needs high cost and may not be 16 61.5 15 55.6
feasible related to the produce volume sold
5 Quality requirements asked by traders is occasionally difficult to satisfy 8 30.8 10 37.1
6 Sortation and grading tend to be costly and reduce the expected profit 2 7.7 5 18.5
7 Competition in the supply of similar produce from other regions tends to 26 100.0 27 100.0
increase price uncertainty

Considering those marketing constraints, farmers also propose some suggestions to


improve the existing marketing system. It is interesting to note that farmers in Langensari and
Margamulya consistently indicate the same suggestions in terms of their rank of importance. Most
farmers prefer the possibility of establishing contract systems in vegetable production and
marketing to minimize the risks. With no intention of inviting government intervention to the
market, farmers indicate the needs of clear and fair market regulations that may improve the
system functioning. In the contrary to individual negotiation as commonly practiced, farmers begin
to be aware of collective marketing that may guarantee more fairness in price discovery and
reduce marketing risks. Farmers also suggest that additional information on how many (quantity),
what (crop), and when the product is demanded should be included in market price information
service which publicly disseminated through media. Finally, supply adjustment, for example, by
establishing some special vegetable production areas, is also perceived by farmers as one
solution in avoiding excessive supply and improving farm planning.

Table 19 Suggestions for improving vegetable marketing system as perceived by farmers


No Description Langensari (n=26) Margamulya (n=27)
Σ % Σ %
1 Applying contract systems that may reduce marketing uncertainties 22 84.6 27 100.0
2 Establishing collective marketing e.g. through cooperative or farmer 15 57.7 20 74.1
groups
3 Providing market information that includes not only price, but also how 10 38.5 15 55.6
many(quantity), what (crop), and when the product is demanded
4 Initiating supply/production adjustments announced and regulated by 10 38.5 15 55.6
local boards to avoid excessive supply and improve farm planning
5 Establishing clear and fair market regulation to improve the system 18 69.2 21 77.8
functioning

Mixed or multiple cropping (“tumpangsari”) is a common practice in Langensari (Lembang)


and Margamulya (Pangalengan) villages, and the cropping intensity index is ranging between
250-300%. The approximate vegetable supply from Langensari is 50 tons/day (max.), while from
22

Margamulya is 100 tons/day (max.). About 50-75% of vegetables from Langensari and
Margamulya is shipped to Jakarta and Bekasi, and the remaining amount is supplied to Bandung
and local markets. Some vegetables from those areas are also shipped to other islands, such as
Sumatra and Kalimantan, and even exported to Singapore, Malaysia and Brunei.
Farmers in Langensari grow cauliflower, tomato, Chinese cabbage, kidney bean and
cabbage as their main crops. Chili pepper and hot pepper are considered secondary, and the
other remaining crops, such as potato, Chinese mustard, lettuce, bunching onion, Chinese kale
and broccoli are considered minor. Meanwhile the main crops grown in Margamulya are potato,
Chinese cabbage, cabbage and tomato. Other crop that seems to show an increasing trend both
in production and planted area in Margamulya is hot pepper.
Eight factors perceived by farmers that affect their decision before planting a particular
crop are: (a) expectation of high price, (b) expectation of high yield, (c) mastery of the cultural
practices, (d) capital availability, (e) land suitability, (f) response to market demand, (g) influence
from neighboring farmers, and (h) habit/routine. The two most important factors considered by
farmers in both areas are land suitability and the mastery of cultural practices. Other factors are
considered to have lower importance. Farmers argue that the response to market demand is not
as important as other factors because there is a biological lag between time of planting and
harvesting/selling.
There is a high variation in whole year cropping pattern among farmers in both areas.
Basically, vegetables are planted and harvested every month all year round. In Margamulya, the
case of planting the same crop in two consecutive seasons is quite common. This implies a
relatively limited range of crops, which are grown together with a cropping intensity of 3-4 crops
per year, results in frequent use of the same field for the same crop. There has been a strong
suspicion that such practice may leads to a high disease level, especially in the case of potato
production.
In general, the yield for some vegetables in Margamulya is significantly higher than that in
Langensari. This may be explained by: (a) the yield in Langensari is lower because it is recorded
for a particular crop that is intercropped with other crops, and/or (b) the yield in Margamulya is
higher because the crop is cultivated more intensively by applying monocropping system.
Most farmers in Langensari and Margamulya sort the harvest to separate between
marketable and unmarketable produce by using some quality factors, such as decay, bruises and
dirt (except in “tebasan” system). In terms of grading, only few farmers in Langensari indicate
practicing this activity, while most farmers in Margamulya grade their harvest, especially for
potato. Field observation shows that farmers grade their potato based on its size and uniformity.
Other important quality factors, such as flavor, texture, color and aroma, are not used, since they
may be subjective and very difficult to measure.
Farmers estimate that the demand increases by 10-30%. However, most farmers in
Margamulya perceive that the demand for vegetables is relatively stable. Farmers also indicate
that festive seasons and special ceremonial events are often important factors that influence
vegetable consumption and demand. There are at least four key festive seasons in Indonesia that
may change consumer-purchasing habits. Those festive seasons are Christmas, Chinese New
Year, Ramadhan and Idul Fitri.
There is a significant increase in vegetable supply between 1998 and 1999, followed by a
slight increase in the following year. Daily total supply of vegetables from Langensari and
Margamulya is estimated at 50 t and 100 t, respectively.
The magnitude of variation in producer or farm-gate prices for all commodities is
consistently higher than that of wholesale prices. This may imply that producers/ farmers have to
deal with higher price risk than traders. Viewing from other perspectives, this may be consistent
with a competitive market in which in the short run the supply of the farm commodity is relatively
inelastic compared with consumer demand
23

Even though there are some slight differences among vegetables being studied, a common
or similar price pattern is also identified. The price of most crops decreases in January-February;
starts to increase in March-May; begins to decrease again in June-September; and reaches the
highest in November-December.
Unfortunately, there is no reliable data available concerning the number of local and
regional traders involved in vegetables marketing in those areas, since the West Java Regional
Trade Office does not require vegetable traders to register. Traders, both local and regional,
usually are not specializing in one particular crop, but handling several vegetable crops
simultaneously. Field observation and farmer interviews indicate that there is no single trader or
firm in Langensari and Margamulya that may conduct itself in such a manner as to maximize
profits without concern about other traders/firms trying to undercut that price.
It is indicated that for each location, the vegetable sold in the market is basically
homogeneous. This implies that most buyers feel that the product of one seller is virtually no
different from that of another seller. It is impossible for farmers to exercise some market
monopoly power over price since they sell a homogeneous product.
The vegetable market environment basically allows traders or firms to enter or exit the
market freely. Some factors that may influence entry and exit include absolute cost advantage
and unique managerial and technical competence held by existing traders or firms. A growing
number of marketing firm (packers) enters the market is frequently slowed down by the one that
exits. In Lembang, there are at least ten firms (packers) involved in vegetable marketing and two
of them go out of business in the last two years.
In West Java, daily wholesale price information for vegetables is regularly announced
through radio and disseminated through information boards, especially at the assemble markets
in production centers. But market knowledge extends beyond information concerning prices and
technical product quality. It also includes knowledge of the actions that competitors and traders or
firms take, as well as reasonably informed judgments about future market conditions. Within the
context of vegetable marketing, at some points, the existing market knowledge held by market
participants (buyers and sellers) has permitted them to make informed decisions in the market
environment in which they operate.
Both in Langensari and Margaluyu, some farmers quite often sell their produce before
harvesting (“tebasan”, without weighing), usually for cabbage, Chinese cabbage and cauliflower.
One to three weeks before harvesting time, traders visit the farmer’s field, estimate the yield,
negotiate the price, pay in cash or provide a down-payment, and take care of all farming activities
until the crop is harvested and marketed. Farmers carry out this selling method to tackle an
immediate or sudden need of cash and to speculate in capturing high price and avoiding further
expenses. Meanwhile, other farmers prefer to sell their produce by weighing during harvest
because of the expectation of getting higher price through bargaining.
Farmers in Langensari prefer to do the transaction in their house and in the trader’s
warehouse, while farmers in Margamulya choose local assembly market (Pasar Pangalengan)
and their field. This seems to be reasonable since there is no assembly market available in
Langensari/Lembang and the volume of transaction may be relatively smaller as compared to
Margamulya/Pangalengan.
Only few farmers sell their produce through intermediaries or commissioners. Most of them
sell the vegetable produce directly to both local assembly traders and/or regional assembly
traders. Farmers indicate that occasionally it is difficult to get buyer, especially when the supply is
excessive and the price is low for some unstorable crops, such as cabbage and tomato.
Typical marketing channels in Langensari and Margamulya are as follows:
• producers - rural assembly traders - inter-regional traders - wholesalers - retailers -
consumers.
• producers - rural assembly traders - wholesalers - retailers - consumer.
24

• producers - field petty assembly traders or commission agents - rural assembly traders -
wholesalers - retailers - consumers.
• producers - contract traders - rural assembly traders - retailers - consumer.
• producers - packers - retailers - consumer

It is estimated that the first and second channels absorb approximately 70% of total
vegetable supply either from Langensari or Margamulya. The remaining 30% are marketed
through the third, fourth and fifth channel. Closer look to the various vegetables marketing
channels in Langensari and Margamulya suggests the dominant role of rural assembly traders to
bridge the producers and consumers. The volume of vegetables that is assembled and shipped
by this type of traders is ranging between 5 - 25 tons per day.
A packer in Lembang collects vegetable produce from farmer cooperators which are
recruited on the basis of: (1) willingness to continually supply (daily) a certain amount of specific
vegetable ordered by the firm, (2) agree with the payment arrangement, such that three weeks
delivery will be compensated or paid in the next following week, and (3) agree with the price that
is reviewed once a week and the contract that is renewed every six months.
Produce that comes from the field will be washed/cleaned, sorted, graded, weighed,
wrapped/packed, and labeled by the packers. For example, (a) Chinese mustard is sorted, old
leaves are thrown away, weighed for 1 kg/unit, tied, labeled, and packed into a plastic container,
(b) tomato is washed/cleaned, graded into 12 fruits/kg, put on a styrofoam plate and wrapped with
plastic, labeled and packed, (c) potato is washed, graded into grade A, B and C, weighed for
1kg/unit, put into a special plastic net, and packed in a container. The produce is then transported
and delivered to supermarkets, restaurants and hotels in Jakarta by using a refrigerated truck.
At farm-gate level, the magnitude of variation in monthly prices of potato is lower than that
of tomato, cabbage and Chinese cabbage. This may reflect that the price of potato is relatively
more stable than those do three other crops, since potato is less perishable. However, further
analysis suggests that this indication does not occur at the wholesale level.
Variation in margin for tomato and Chinese cabbage is lower than the variation in their
farm-gate prices. This may imply that for these two crops, market tends to operate in such way so
that the margin is more stable than the farm-gate price. Meanwhile, for potato and cabbage, the
variation in marketing margin is higher than the variation in farm-gate and wholesale prices. This
comparison suggests that, in the short run, traders absorb a substantial share of the variability in
potato and cabbage prices. This may indicate that traders do not have a strong enough
bargaining position such that they can pass on the effects of shifts in supply and demand to
producers and consumers.
Furthermore, the magnitude of variation in wholesale prices is generally lower than that of
the marketing margin and farm-gate prices. This also indicates that, in short term, the market is
operating to increase wholesale price stability. These indicators undisputedly lead to the need of
improvements in the marketing system that should put more emphasis to solve high instability in
prices at producer’s level.
In general, the farmer’s share for all crops is quite high, which reflects the existence of high
competition among participants in vegetable marketing. The magnitude of variation in farmer’s
share is consistently lower than that of marketing margin. Farmer's share and marketing margin
are usually negatively correlated, that is the farmer’s share will increase when marketing margin
decrease. This implicitly implies a strong linkage between production and marketing sides of the
vegetable system.
Farmers in Langensari and Margamulya primarily use their knowledge of current/recent
price applied in the market as their guidance to discover the price. It is interesting to note that the
main source of price information is other farmers or traders. This may suggest the ineffectiveness
of price information service publicly disseminated trough printed and/or electronic media.
25

Farmers have identified some factors and agreed that the most important factor influencing
the price discovery is product quality. In Langensari, the rank of importance is then followed by
type of traders, transaction place, and good relationships with traders. Meanwhile, in
Margamulya, the rank of importance is followed by product quantity, type of traders, link with
credit-provider traders, and place of transaction.
Only few farmers in Langensari and Margamulya are paid directly (in cash) for vegetable
produce they sell. Later or delayed payment seems to be a common practice in vegetable
marketing. At least there are two forms of delayed payment: (1) all payment is delayed for 2-10
days after transaction, and (2) buyer provides 20-50% down-payment and pays the rest after the
produce sold out, or pays 2-14 days after the transaction occurs.
Farmers in both areas fully agree that the most important constraint is the competition of
supply of similar vegetable produce from other regions that causes higher price uncertainty.
Excessive supply, especially for some crops that are also suitably grown in low and medium
altitudes (e.g. tomato, hot pepper), often causes a drastic drop in prices.
As consequence of individual negotiation, farmers also feel that the price offered by
buyers/traders is frequently too low. Meanwhile, even though it may shorten the marketing chain,
selling the produce directly to the market is considered high cost (handling and transportation
costs) and unfeasible, especially due to a relatively small amount of selling volume.
The effectiveness of price information service publicly disseminated through printed and/or
electronic media is also questioned since it is frequently unreliable to be used as guidance for
bargaining.
Some improvements suggested by most farmers in Langensari and Margamulya:

• the possibility of establishing contract systems in vegetable production and marketing to


minimize the risks.
• the needs of clear and fair market regulations that may improve the system functioning.
• farmers begin to be aware of collective marketing that may guarantee more fairness in
price discovery and reduce marketing risks.
• additional information on how many (quantities), what (crop), and when the product is
demanded should be included in market price information service which publicly
disseminated through media.
• supply adjustment, for example, by establishing some special vegetable production areas,
is also perceived by farmers as one solution in avoiding excessive supply and improving
farm planning.

II. Temperate vegetable marketing infrastructure and policy

Reviewing marketing infrastructure has two main areas of concern, which are:
• the rural context - which is primarily concerned with the infrastructure needs of producers for the
assembly and marketing of surplus produce to urban areas and, sometimes, for export; and
• the urban context - which is concerned with the wholesale and retail distribution of food
products to consumers within an urban area and with further distribution to other urban areas
and for export.
An efficient and adequate marketing system is a precondition for agricultural diversification,
providing better prices to producers and the availability of competitively priced produce to
consumers. Physical improvement is usually addressed in two ways: by providing improved
market infrastructure (both urban and rural) and by improving rural access roads. In the case of
markets, it is usual to place the main emphasis on the improvement of fresh produce marketing
26

with the focus primarily on rural assembly markets and urban wholesale or semi-wholesale
markets.
Temperate vegetables in West Java are normally channeled through the following types of
market:
a) Rural Assembly Markets:
Rural assembly market is found in Margamulya, Pangalengan, where greater quantities of
produce are traded, either by the producers themselves or by traders. This assembly market
(combined with local rural markets) is situated at a central place in Pangalengan and besides
the village's access road. Produce is predominantly bought by traders or collection agents
on their own behalf or on behalf of urban wholesalers. However, this type of market is not
found in Langen-sari, Lembang. Rural assembly traders in this location are not facilitated by
market infrastructure.
b) Wholesale Markets:
As previously mentioned, vegetables from Langensari and Margaluyu are mostly marketed to
Bandung and Jakarta. Two wholesale or semi-wholesale markets located in Bandung are
Pasar Caringin and Pasar Gedebage. These markets are mainly supplied by West Java
assembly centers in the rural areas or directly from farms, either by traders or by large
farmers. Transactions are predominantly handled. Meanwhile, those markets in Jakarta are
Pasar Induk Kramat Jati (PIKJ), located in the south-western part of Jakarta, and another market
called Pasar Cibitung in the town of Bekasi located on the eastern outskirts of Jakarta. Jakarta is
a market of growing importance for vegetables, as it is a fast expanding city with around 11.5
million inhabitants and a growth rate of approximately 4.3 per cent per annum for the 1990 to
1995 period. Both markets receive trucks of vegetables from all over Java and Sumatra. PIKJ is
geared mainly for distribution to retailers such as grocers (warung), street vendors and peddlers.
c) Retail Markets:
Retail markets are found at both village level and city level. In Bandung, there are approximately
40 retail markets, mostly provided by the municipal government. These markets attract traders,
farmers and consumers and generally are highly price competitive, with a large number of
buyers and sellers. Vendors mainly market vegetables in these urban markets. These vendors
collect around 50 to 200 kg of several kinds of vegetable for sale.
d) Other Markets:
There is a growing market, especially in Lembang, for selling vegetables through packinghouses
to institutional buyers and supermarkets. There are about 7 pack-ing houses currently operated
in Lembang area. Delivery for these packinghouses usually is on contract-basis with a fixed price
and pre-determined delivery conditions, such as timing, quantity and quality of the product.
Contracts are usually on a long-term basis, with a revision of the price and delivery conditions at
specified intervals (e.g. every two weeks). In packinghouses, the grading and sorting of the
produce is carried out according to the needs of the supermarkets or institutional buyers such as
restaurants and hotels.

2.1. Characteristics of some main wholesale and retail markets

The social institution that forms the linkage between producer and consumer will include the
assemblers, wholesalers and retailers who work in trading systems which enable producers to sell in
small quantities and purchasing by traders and wholesalers to be made in bulk. Without wholesalers,
retailers would need to purchase directly from rural area, involving many minor transactions. With
both rural assemblers and wholesalers, the number of transaction is reduced and the marketing
process is simplified. In this case, retailers do not need to put much concern on any of the sorting, re-
assembly, or distribution functions and may concentrate solely on selling to consumers.
27

Caringin and Gedebage Wholesale Markets facilitate the economic function of buying and
selling by allowing the forces of supply and demand to converge in establishing a single price for a
particular vegetable crop. In these wholesale markets, wholesalers may also perform storage and
warehousing function, as well as allowing economies of scale to be obtained in the transportation of
vegetable produce from farm to market.
Ciroyom and Sederhana Retail Markets are two relatively important retail markets in Bandung
at which there is a public gathering of buyers and sellers at a known time. These markets involve a
large number of transactions of relatively small quantities of vegetables on a face-to-face basis
between a seller and buyer. In these markets, buyers have opportunity to immediately and easily
compare vegetable prices between different sellers of the same crop.
It should be noted, however, that both wholesale (Caringin and Gedebage) and retail
(Ciroyom and Sederhana) markets are still in the first stage of market development. A wide range of
produce, not only vegetables, is traded in those markets. They still have a role in the marketing of
fresh produce, including vegetables, fresh meat and fish. It seems that the only difference between
wholesale and retail market is still the volume or quantity traded.
As shown in Table 20, Caringin operates under the management of Market Cooperative.
Considering the local socio-economic and political factors, this format seems to be quite close to the
ideal form. However, it should also be considered as one possibility in managing a market and
should be viewed critically viewed, as it may not answer the need for effective management. The
cooperative format is often the most appropriate for a grouping of producers. It facilitates the
concentration of produce at collection centers and the organization of joint transport to market.
Meanwhile, a cooperative of traders may be counter-productive, self-interest dictating behavior,

Table 20 Characteristics of some main wholesale and retail markets in Bandung


Characteristics Pasar Caringin Pasar Gedebage Pasar Ciroyom Pasar Sederhana
Market type Wholesale Wholesale Retail Retail
Management Private (Koperasi Pasar Private (Joint mana- Bandung City Office of Bandung City Office of
Induk Caringin/Caringin gement: PT Ginanjar Market Management Market Management
Main Market and Koperasi
Cooperative) Pasar/Market
Cooperative)
Size of market area ± 13 ha ± 13 ha ± 1 400 m2 ± 12 980 m2
Distance to ± 25 km ± 35 km ± 22 km ± 20 km
Langensari, Lembang
Distance to Margaluyu, ± 40 km ± 50 km ± 42 km ± 45 km
Pangalengan
Market staff/ personnel 26 (permanent) 19 (permanent) 12 (permanent) 10 (permanent)
(person) 50 (contract) 32 (contract) 6 (contract) 18 (contract)
Sales method Direct transaction Direct transaction Direct transaction Direct transaction
(bargaining/negotiation) (bargaining/negotiation) (bargaining/negotiation) (bargaining/negotiation)
between buyer and between buyer and between buyer and between buyer and
seller seller seller seller
Method of payment Cash payment Cash payment Cash payment Cash payment
1-2 days delayed 1-2 days delayed
payment payment
Facilities Stalls Stalls Stalls Stalls
Warehouse Warehouse Office Warehouse
Storage Storage Parking lot Storage
Cool room Cool room Phone Office
Office Office Bank
Bank Bank Parking lot
Parking lot Parking lot Phone
Phone Phone Electricity generator set
Electricity generator set Electricity generator set
28

which is detrimental to the needs of both producers and consumers. Often, a buying and selling
scheme is created, keeping prices down for the producers and high for the retailers and consumers.
Nevertheless, there are exceptions to this behavior, since some of the most efficient markets in the
developed countries are run by the wholesalers themselves. A similar institutional arrangement is
applied to Pasar Gedebage, in which Market Cooperative jointly operates the wholesale market with
PT Ginanjar (a limited-liability company).
In the case of wholesale market, it is important for both producers and buyers to be provided
with an environment where price formation can occur. In these circumstances, the public sector may
not necessarily provide the best management system, as the motivations of public sector bodies are
often quite unrelated to agriculture. Thus, if the major function of a market is related to wholesaling,
the ideal form of management is more likely to be one where private sector is the main driving force
in providing long-term management. However, this is unlikely to be suitable for small-scale, mixed-
function markets where the main role is that of providing retail facilities. As shown in Table 1, Pasar
Ciroyom and Sederhana operate under the management of local authorities. Although in the long
term some form of privatization of market services may be appropriate, in the short term a local/city
council or local government market office is likely to be the most appropriate body to manage a retail
market.
A key factor in determining how a market will operate is the sales method it will adopt. The
four markets being studied, both wholesale and retail markets sell vegetables by private treaty or
direct transaction or negotiated sales. The traders with produce for sale rent a market stall from a
market authority display their produce and await an offer from an interested potential buyer. The
bargaining begins and depending on the supply and demand situation, coupled with the quality of the
produce, the private bargaining continues until an agreement is made between the two parties.
Traders indicate that the success of this sales method is largely dependent on their knowledge of the
current market supply and price situation.
Which sales method is adopted will mainly depend on local custom and the type of produce
being sold. It is not uncommon to have a number of sales methods at the same market. There is a
suggestion from the local government through the wholesale market management to explore the
possibility of applying the auction system. This system has the advantage that it can avoid the
occurrence of wholesaler’s rings, and if well organized, can facilitate the sales of large number of
very small-scale consignments. However, the market management and most traders seem to be
reluctant to respond since there are still so many technical and institutional constraints that have not
been solved yet. They perceive that private treaty is the most flexible and suitable method for them,
since it requires minimum management and is well adopted for the sale of small lots, particularly
vegetables.

2.2. Volume of transaction in some main wholesale and retail markets

Cash or direct payment is the most common payment method applied in both wholesale and
retail markets, especially if the traders act as sellers. In some cases, however, when the traders act
as buyers, they are still able to pay for their purchase 1-2 days after the transaction takes place
(consignment system).
The volume of transaction may reflect the operational performance of a market. It is very
unfortunate that the written documents (secondary data) on the volume of transaction (both cross-
section and time series) are not available and unable to be gathered during the survey. For that
reason, one-day volume of transaction for some markets is estimated from interviews with market
officials and traders.
The data confirm the market observation that those markets, especially the wholesale, are
operating as mixed-function markets, in which they are not specializing in trading only vegetables.
29

Table 21 Estimated one-day volume of transaction in some main wholesale and retail markets (05/11/2002)
Crop Pasar Caringin Pasar Gedebage Pasar Ciroyom
(wholesale) (t) (wholesale) (t) (retail) (t)
Potato 80.0 3.0 5.0
Cabbage 80.0 6.0 5.0
Hot pepper 30.0 5.0 0.3
Tomato 100.0 - 5.0
Carrot 30.0 4.0 0.5
Chinese cabbage 50.0 - 0.5
Shallot 40.0 5.0 0.3
Cauliflower 10.0 5.0 0.5
Eggplant - 3.0 -
Cucumber - 3.0 -
Yard long bean - 1.0 -
Kidney bean - 2.0 0.5
Chayote - 5.0 -
Lettuce - 3.5 -
Garlic - 5.0 -
Bunching onion - - 0.2
Celery - - 0.2

Data also indicate that Pasar Gedebage is losing its function as one of wholesale market for
vegetables in Bandung. In the mean time, further interview reveals that Pasar Caringin was actually
established for trading non-fresh produce, while Pasar Gedebage was assigned to trade fresh
produce, including vegetables. In its development, however, market officials and traders in Pasar
Gedebage indicate that there is a continuing decrease in vegetable transactions. Vegetables from
production centers are mostly marketed to Pasar Caringin because it could be accessed more easily
from the highway. Buyers also prefer to purchase vegetables from Pasar Caringin because it is
located much closer to the city or consumption center. This actually creates some sanitary and waste
management problems in Pasar Caringin, since the existing facilities is initially provided to support
the trading of non-fresh produce. Meanwhile, during the survey, the management and traders in
Pasar Gedebage indicate that they have pleaded the local government to make some market
regulations that may enable them to operate back as vegetable wholesalers and improve the
operational efficiency of this market.

2.3. Fees and retributions charged in some main wholesale and retail markets

For the wholesale markets that are privately managed, it is the responsibility of the
management to determine the amount of retribution. These are the retributions that are currently
charged to the traders:
• stalls : Rp. 1 000
• cleaning : Rp. 1 000
• security : Rp. 1 000
Meanwhile, the basis for determining the amount of retribution in publicly managed retail
markets is a retribution decree published by local authority. These are the ranges of retributions that
have to be paid by traders in retail markets:
30

minimum : Rp. 900



maximum : Rp. 2 000

average : Rp. 1 200

The decree uses some criteria for deciding the amount of retribution charged to the traders.
Those criteria are (a) type of stalls, (b) type of produce sold, and (c) class of market. For example, in
some retail markets, it is not uncommon that some traders display their produce along the street to
the market. It happens because the number of stalls available could not adequately accommodate all
traders involved. Each trader who does not have a permanent stall is charged daily as much as Rp.
500. In terms of the produce sold, traders who sell fresh meat are charged Rp. 400-Rp. 600, while
traders who sell vegetables have to pay as much as Rp. 200-Rp. 300. Pasar Ciroyom and Pasar
Sederhana are classified as the first class retail markets. Lower amount of retribution is applied to
those retail markets that are classified as second and third class. It is quite surprising that the
targeted amount of retribution to be collected by each market is relatively small. For example, the
targeted daily retribution for wholesale market is Rp. 500 000-Rp. 600 000, while for retail market is
Rp. 200 000-Rp. 400 000.

Table 22 Retribution applied to some main wholesale and retail markets


Pasar Caringin Pasar Gedebage Pasar Ciroyom Pasar Sederhana
Wholesale Wholesale Retail Retail
Types of retribution • Charged to traders • Charged to traders • Charged to traders • Charged to traders
and collected and collected and collected and collected
everyday: everyday: everyday: everyday:
o Stalls o Stalls o Stalls o Stalls
o Cleaning o Cleaning o Cleaning o Cleaning
o Security o Security o Security o Security
• Charged to all • Charged to all • Charged to all • Charged to all
transportation vehicle transportation vehicle transportation vehicle transportation vehicle
entering the market: entering the market: entering the market: entering the market:
o Parking o Parking o Parking o Parking
Retribution collector • Market Management • Market Management • Market Management • Market Management
for stalls, cleaning for stalls, cleaning for stalls, cleaning for stalls, cleaning
and security and security and security and security
• City Parking Office for • City Parking Office for • City Parking Office for • City Parking Office for
parking parking parking parking
Average range of Rp. 3, 000 Rp. 3, 000 Rp. 700-1, 500 Rp. 900- 2, 000
retribution (Rp/day)
Criteria used in Stall ownership Stall ownership • Type of produce sold • Type of produce sold
determining the • Type of stalls • Type of stalls
amount of retribution

2.4. Laws and regulations applied in some main wholesale and retail markets

In relation to agricultural marketing, the role of laws and regulations may fall into three
important purposes (Cullinan, 1999):
• Provide the essential legal framework for the marketing system without which market could
not function (e.g. rules about economic behavior, currencies and negotiable instruments
such as checks)
• Seek to promote, guide and discipline the operation of markets (e.g. laws dealing with
competition, uniform weights and measures, product quality standard, and tax)
• Restrict the operation of the market in some way in order to avoid what are perceived as
socially undesirable consequences (e.g. environmental and consumer protection legislation)
31

The reasons for regulating who may participate in a market vary, and may include: the
expectation of improving the quality of traded commodities, collecting revenues from taxing economic
activity, or securing the economic advantage for a particular special interest group. This often
provides a useful way for authorities to exert a degree of control over participants in the market in the
public interest, and to collect useful information for statistical analysis and planning. All traders,
basically those who own a permanent stall must register their business and obtain a permit from local
authorities. Meanwhile, those who do not have permanent stall and display their produce along the
street, usually are not having a permit. They are not formally registered, but they have to pay for daily
retribution. Lack of consistence in implementing this regulation tends to increase the number of
unregistered and temporary traders who display their produce along the street, outside the market,
which unavoidably worsen the sights and disturb the traffic.
One of the most common ways of attempting to improve the quality of produce offered for sale
is to introduce standards or grading requirements. Since the grading system has not been applied to
all vegetables traded, there is no legislation enforced to penalize producers and traders who
misgrade or adulterate produce. Legislation No. 32/98 is applied by local authority, especially to test
the pesticide residue on agricultural produces, including vegetables. The tests are conducted and
officially controlled by the City Office of Agriculture. Because of the budget constraint, the
implementation of these tests is still random and irregular. Commodities that pass the test are
supposed to be labeled. However, this labeling system has not been applied yet and there is no price
difference between tested and untested vegetables. Furthermore, market observation indicates that
the unclear follow-ups of this test have made the legislation ineffective. Traders are reluctant to follow
the test, because there is a strong perception among them that the test is merely another way for
local government to collect retribution or income.

Table 23 Laws and regulations applied in some main wholesale and retail markets
Laws and regulations Wholesale Market Retail Market
Pasar Caringin and Pasar Pasar Ciroyom and Pasar
Gedebage Sederhana
Regulating participation in markets All traders are registered Some traders are registered
Applicable to the commodities traded
• Controls on quality • Random test on pesticide residue • None
• Packaging and labeling • None • None
Affecting supply
• Movement of produce • None • None
• Storage of produce • None • None
• Type of commodities traded • Division of specialty between fresh • None
and non-fresh produce
• Volume of commodities traded • None • None
Price controls • None • None
Regulating market manipulation • None • None
Regulating transaction between participants • None • None

Legal regulation can exert a significant effect on the supply of produce to the markets,
including the imposition of controls on the movement of produce or types of commodity traded.
Restriction on the movement on vegetables is implied on the differentiation of commodities traded
between Pasar Caringin (non-fresh produce) and Pasar Gedebage (fresh produce). From a
regulatory perspective, this legal restriction is in fact difficult and expensive to enforce. There is
always a strong incentive to move produce to market that is more accessible and offers more
possibilities to provide higher profit. This may explain some changes on the function of Pasar
Caringin and Pasar Gedebage that is completely in opposite to the initial plan.
32

Even though desired, especially by producers, price controls or floor prices seem to be very
unlikely applied for vegetables. In the absence of this legislation, the prices of vegetables could be
expected to fluctuate in response to changes in supply and demand. Controlling prices may create
significant incentives for traders to circumvent the law. The nature of the market and the possibility of
traders’ speculation point towards the likelihood of very high associated regulatory costs. For
vegetables, the costs seem to outweigh the benefits claimed for such policy since it involves an
elaborate infrastructure, an array of ancillary rules to avoid circumvention of official prices, and a
large number of officials to monitor and enforce the system.
Transactions in vegetable markets are mostly conducted face-to-face and the produce and the
price are exchanged simultaneously. These markets seem to provide the least possibility for
participants to manipulate the functioning of the markets to their advantage. Therefore, laws to
regulate market manipulation and transactions between participants are not urgently needed.

2.5. Suggestions proposed by market officials and traders to improve some main wholesale and
retail market efficiency

In summary, the proposed suggestions are basically aimed to improve the performance of the
wholesale market that may cover:

• Increased confidence and trust in its use and acceptance of its fees and charges
• Increased operational efficiency, including:
• Efficient handling of the arrival, unloading and loading of produce
• Discipline in the market in the internal movement, storage and display of produce, which
could be achieved trough enforceable tenancy agreements, and widely accepted and
implemented market regulations
• Cleanliness and hygiene
• Effective provision of services, such as loading and unloading services, produce movement,
electricity, garbage and solid waste disposal, communication facilities and warehousing
• A pleasant and safe trading and working environment in which private treaty or private
trading could operate profitably
• The extent to which the market meets general community needs by ensuring:
o A regular supply of produce in the necessary quantity and quality
o Transparency in price setting through free competition between traders
• A better service and relationship of the market management authority with market users,
including wholesalers, buyers, market operators and service providers

These suggestions are mostly also applied for the retail market. However, there is a specific
suggestion emphasized by market official and traders in retail market to enforce of stricter regulation
in registering and providing permit to traders. Relatively weak enforcement of this regulation has
encouraged unregistered traders to enter the market, which cause market overcrowding, difficulty in
handling the waste, difficulty in controlling the produce quality and hygiene, and increased traffic
congestion in the vicinity of the market site.
33

Table 24 Suggestions proposed to improve the wholesale market operational efficiency


Caringin Wholesale Market Gedebage Wholesale Market
Physical infrastructure • Renew or renovate old stalls • Renew or renovate old stalls
• Improve the sewage system • Improve the drainage and sewage systems
• Harden and widen the on-site roads • Improve the solid waste disposal and its
management
• Improve the electrical supply, building and
street lighting
Implementation of market • Carry out firm sanctions or punishments for • Enforce the market regulation consistently
regulation or legislation those who violate the laws • Increase the awareness of all market
• Increase the awareness of market participants to the importance of obeying
participants to the importance of obeying market regulations by involving them in the
market regulations by involving them in the process of making those regulations
process of making those regulations

Human resources capability • Provide both on-the-job training and • Improve the professionalism, especially
professional development, including market staff, in managing a wholesale
participation by selected market market
management staff in specific outside training
Method of transaction • Introduce the auction system • Support the private treaty system with some
regulations that may protect market
participants from being defrauded by
unscrupulous sellers or from buyers that do
not pay
Collecting market retribution • Improve control or supervision mechanism • Increase market retribution by encouraging
• Introduce a computerized system
more traders to come in and register

Supporting factors and services • Establish a special terminal for loading and • Enforce the regulation for public
unloading transportation that has been assigned to
• Initiate a market-owned transportation pass by the market area to consistently
services for goods and passengers follow its route

III. Assessment of farmers’ preference on marketing system improvements

Interviewed farmers are basically those who have experience in growing vegetables more
than five years. Thus, they have enough familiarity to deal with the existing marketing system. None
of the farmers in Langensari indicates that the existing marketing system always generates profit for
them. Almost half of the farmers interviewed suggest that the system more often has caused loss
than profit, while the other farmers indicate the other way around. Basically, the marketing system
has been observed by farmers in Langensari to provide equal chance between generating profit and
causing loss. Even though few farmers in Margamulya indicate that the system always provides
profit, the majority of farmers tend to suggest an equal probability of gaining and losing. This implies
a high risk in growing vegetables that may endanger the farm sustainability (medium or long-term
survival of the vegetable farms).
Based on their experience, most farmers in Langensari and Margamulya perceive that the existing
marketing system more often generates profit to traders. This is a quite typical perception of farmers
or producers towards traders. Furthermore, it may also reflect the perception that traders, in some
cases, deal with lower risks as compared to producers. The outcome of their decision to get into
business (buying and selling) is much more predictable than that of farmers who have to wait 2-3
months after they decide to grow a crop. This implies that farmers have to face more uncertainties
than traders do. However, some traders argue that the structure of the existing marketing system, in
which tight competition occurs in most cases, a lower risk does not always guarantee higher
probability to gain.
34

Table 25 Farmers’ perceptions on the effectiveness of existing marketing system


Langensari, Margamulya,
Lembang Pangalengan
(n=25) (n=25)
Σ % Σ %
Based on your experience and observation, how is the influence of existing vegetable
marketing system on the chances of farmers to gain or to lose?
Always providing profit - - 2 8
Always causing loss - - - -
More often causing loss than providing profit 9 36 6 24
More often providing profit that causing loss 10 40 4 16
Equal chance between providing profit and causing loss 6 24 13 52
Based on your experience and observation, how is the influence of existing vegetable
marketing system on the chances of traders to gain or to lose?
Always providing profit 1 4 1 4
Always causing loss - - - -
More often causing loss than providing profit - - - -
More often providing profit that causing loss 18 72 20 80
Equal chance between providing profit and causing loss 6 24 4 16
Based on your experience and observation, how is the influence of existing vegetable
marketing system on consumer satisfaction?
Always providing satisfaction 5 20 6 24
Always causing non-satisfaction - - - -
More often causing non-satisfaction than providing satisfaction 3 12 3 12
More often providing satisfaction that causing non-satisfaction 15 60 11 44
Equal chance between providing satisfaction and causing non-satisfaction 2 8 5 20
Are you (producers/farmers) satisfied with the existing vegetable marketing system?
Yes 4 16 6 24
Not yet 21 84 19 76
Do you think the existing vegetable marketing system still needs some improvements?
Yes 25 100 25 100
No - - - -
Do not know - - - -
Do you think the improvement of government regulations is still necessary to increase
the vegetable marketing system efficiency?
Yes 25 100 25 100
No - - - -

Most farmers perceive that the existing marketing system has been satisfying to consumers, in
a sense that the system, in most cases, is able to deliver demanded vegetables (quantity and quality)
at reasonable prices. Moreover, farmers indicate that consumer satisfaction may also be reflected by
growing and continuing demand for vegetables from time to time.
Only few farmers are satisfied with the performance of existing marketing system, while most
others have not been satisfied yet. All of respondents agree that the system still needs some
improvements, in which government regulation or legislation is perceived to play an important role.
Table 7 shows a list of regulation or legislation perceived by farmers based on its rank of importance.
There is no significant difference in terms of the regulation importance as perceived by farmers in
Langensari and Margamulya. As perceived by farmers, these regulations are arranged in their
importance sequence as follow:
1) Imposition of regulation to control the amount of supply and market destination for a
particular period of time
2) Establishing and implementing laws that regulate transactions (place, volume, quality and
loss) and payment methods (cash or delayed payment) or laws that avoid quality fraud,
price speculation, and other practices that may harm the interest of market participants
35

3) Assembly and wholesale traders should have a permit or license to carry out vegetable
trading
4) Establishing and implementing regulations on quality standard (standardization and
grading) for traded vegetables
5) Establishing and implementing regulations on produce safety (e.g. refusing vegetable
produce that has pesticide residue above the tolerated threshold) for traded vegetables
6) Establishing floor prices for key vegetable commodities, such as potato, tomato, and
hot pepper

Table 26 Farmers’ preference on the importance of regulation or legislation


Regulation or Legislation Rank of Importance
Langensari (n=25) Margamulya (n=25)
Permit or license to carry out vegetable trading 3 3
Produce quality standard 4 4
Produce safety 6 6
Supply and market destination for a particular period of time 1 1
Transactions and payment methods 5 2
Quality fraud, price speculation, and other practices 2 5
Floor prices for key vegetable commodities 7 7

Farmers also suggest some non-policy (non-regulation) actions that may be taken to improve
the marketing system. These are farmers’ preferences on the proposed actions:
1) Providing and improving physical infrastructures, for example, establishing vegetable
specialized assembly market in your area
2) Establishing collective marketing e.g. through cooperative or farmer groups
3) Providing market information that includes not only price, but also how many (quantity),
what (crop), and when the product is demanded
4) Initiating supply/production adjustments announced and regulated by local boards to
avoid excessive supply and improve farm planning
5) Introducing the auction system in the rural assembly market to guarantee highest price
for the best quality produce
6) Applying contract systems that may guarantee price stabilization and supply continuity
7) Introducing and setting up the supply chain that may reduce the number of
intermediaries
8) Initiating easier access that may provide more incentives to participate in the export
market

Table 27 Farmers’ preference on the importance of non-policy (non-regulation) actions


Topic Langensari (n=25) Margamulya (n=25)
Σ % Σ %
Physical infrastructures 25 100 24 96
Transaction methods 18 72 20 80
Production arrangement 17 68 22 88
Marketing methods 25 100 24 96
Market information 24 96 24 96
Supply/production adjustments 24 96 20 80
Supply chain integration 5 20 2 8
Marketing outlets 1 4 3 12
36

IV. Relating farmer preferences to the existing market conditions in formulating


recommendations for improving temperate vegetable marketing systems

The marketing system of temperate vegetables in West Java is reasonably com-petitive as


reflected by many buyers and sellers and multiple selling options for farmers. There is a number of
marketing options available to the farmer, such as:
(a) farmers go themselves to the local assembly market, either with their own or a rented
vehicle, where they sell to traders who supply wholesale markets;
(b) traders buy the field (standing crop purchase) and deliver to wholesale markets;
(c) traders collect from farmers at or close to farm gate and deliver to wholesale markets;
(d) field-traders collect from farmers and sell to the retail market or to traders for delivery to
wholesale markets, and;
(e) farmers sell, either through an agent or directly, to a packinghouse which prepares
shipments for institutional buyers, supermarkets or export.
Thus, the market structure suggests the effective competition in most cases. Nonetheless,
the study indicates that there are still many rooms for improving the functioning of the existing
marketing system. Market participants, especially producers and traders, point out some
suggestions that seem to be relevant within the context of long-term effort to improve marketing
efficiency. However, those suggestions should be carefully sorted out in a way that is realistically
appropriate under the existing marketing system circumstances.

• Imposition of regulation to control the amount of supply and market destination for a particular
period of time
o This is the most preferred regulation suggested by farmers. Restrictions on the movement of
commodities are usually difficult and expensive to apply. There is always a strong economic
incentive to move produce to areas in which prices are higher, in contravention of the law.
With the recent implementation of governmental decentralization policy, this may create
problems and conflicts between regions (“kabupaten”), since each region is competing to
maximize its local/regional income. There would be also the need for high level state/region
enforcement since officials would be required to inspect all movement of produce to ensure
compliance. In such condition, wide spread attempts to circumvent the law could be
expected and this would also create opportunity for rent-seeking behavior by officials and
others. Thus, even though preferred by farmers, it seems to be realistic to consider this
regulation as inappropriate under the existing circumstances.

• Establishing and implementing laws that regulate transactions (place, volume, quality and loss)
and payment methods (cash or delayed payment) or laws that avoid quality fraud, price
speculation, and other practices that may harm the interest of market participants
o It is time for the authorities to consider enforcing this regulation in ensuring the stable supply
and demand in the marketplaces through proper transaction and smooth marketing of
vegetable produce. Considering a growing development of vegetable markets, it is a
challenge for the regulators to develop effective regulatory mechanisms to control such anti-
competitive behavior. This regulation can provide for dispute resolution procedures on
quantities, grades, and prices. Traders’ association should develop a code of practice with
which all members must comply. This code should include dispute-resolution arrangements.

• Assembly and wholesale traders should have a permit or license to carry out vegetable trading
o As long as this regulation is enacted for fulfilling public interest (e.g., improve produce
quality, tax economic activity), it may be worth to consider. Mean of a system registration or
licensing of various market participants regulates involvement in vegetable trading.
37

Depending on the nature and location of their business, the traders may also require
obtaining sanitary and zoning permits and a license to sell certain commodities. However, a
negative effect, for example the number of licenses issued may be restricted for the purpose
of repressing unlicensed traders, who are then obliged to bribe officials in order to continue
operating, should be avoided.

• Establishing and implementing regulations on quality standard (standardization and grading) for
traded vegetables
o There should be a continuous effort to improve the quality of vegetables to maintain their
competitiveness, both in domestic and export markets. The most common way to
achieve this objective is by establishing standards or grading requirements. Standardized
grades would assist in increasing farm income, give consumers more options, and permit
traders to base their purchase on samples, and improve the usefulness of market
information. But equally important, grades are essential for developing the export trade.
The regulation should be consistently enforced with a clear sanction or penalty for those
who do not comply with a particular requirement. However, it should be noted that
education of farmers and traders rather than official controls might be most effective in
ensuring produce standards.

• Establishing and implementing regulations on produce safety for traded vegetables


o Given the potential health risk from toxic residues and unsanitary vegetables,
enforcement of existing phytosanitary regulations should be strengthened. Strict
adherence to these regulations is necessary to further develop the export market. It
should be noted, however, that the effectiveness of this regulation in domestic market is
mostly influenced by the level of consumers’ awareness on healthy food, which will be
reflected from their demand on clean produce. Education for producer, trader and
consumer is an important element in improving regulatory compliance.

• Establishing floor prices for key vegetable commodities, such as potato, tomato, and hot pepper
o Fixing prices is the clearest example of the use of regulatory mechanisms to intervene in
the market in order to ensure that the allocation of goods occurs on the basis of socio-
political objectives rather than on the basis of preferences expressed by the market.
Such legal rules may be characterized as an attempt to prescribe a result as opposed to
affecting the structure of the market or regulating conduct within the market. Experience
on rice suggests that the high cost of even partial implementation of price control policies
inevitably raise the question as to whether the benefit claimed for such policies outweigh
the cost. The cost would include regulatory costs, compliance costs and any
consequential negative effects. Under the existing marketing circumstances and
considering the status of vegetable crops in the Indonesian food system, this may
provide enough justification to why establishing floor prices for vegetables is very
unlikely.

•Providing and improving physical infrastructures, for example, establishing vegetable


specialized assembly market in your area
o The condition of existing marketing system has justified the needs to improve the market
physical infrastructures. It has been actually responded by the West Java Provincial
Governmental Office to establish some new market facilities, called the agribusiness terminal
or sub-terminal, in some vegetable production centers, such as Garut and Ciwidey. The
market development is started in 2002, which is presumably initiated by a prior thorough
study. This prior study is absolutely necessary, since experience shows that many
38

developments of market infrastructure have been too large or have failed to attract users and,
consequently, have not been economically, financially or socially viable. The expansion of
existing markets or construction of new ones is a complex process. It requires substantial
capital investment. These investment decisions should be based on a review of marketing
conditions, an analysis of the demand for facilities and a financial assessment. The users of
the new facilities should be involved in the market design from the outset and there should be
prior agreement on operating procedures and fee levels. This requires consultation and
awareness campaigns targeted to farmers, suppliers, transport operators, traders, market
employees and local authorities.

• Establishing collective marketing e.g. through cooperative or farmer groups


o Considering some success experiences from other countries, such as Thailand and
Taiwan, this farmers’ expectation is worth to pursue. Experiences from other countries
suggest that village-based cooperative marketing organizations will increase farm income
by providing participants with increased market power, reducing the price risk of
individual farmers, and permitting them to enjoy a portion of the marketing margin. It
should be noted that such organizations are difficult to organize and manage effectively.
Consequently, some organizational assistance will probably be required of government;
but it is critical that farmers, not government control the cooperatives.

• Providing market information that includes not only price, but also how many (quantity), what
(crop), and when the product is demanded
o Actually, Indonesia has one of the most developed market information services. A price
monitoring system was set up in the early 1950s and transformed to the present service
between 1978 and 1985, with technical assistance from the German Government
through the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ). A decade
after completion of the technical assistance, the market information service (MIS)
continues to function efficiently and plays an important role. However, the service is less
strong in its subsidiary role of providing analysis for planning and policy purposes. The
annual compilation of market information (Vademekum) is very detailed but no analysis is
provided and meaningful analysis in other reports is also lacking. Reports generated by
the MIS unit and the provinces are poorly circulated. Well-prepared, widely circulated
reports could lead to an increased impact for the MIS. An important positive aspect of the
service is that it provides daily information. "Market Information" should not be confused
with "Marketing Information", the latter being a much wider concept, which is likely to
include details on potential market channels, payment requirements, packaging, quality
and a whole range of other information, including market information. Farmers’
preferences indicate a strong demand for marketing information that should be seriously
considered.

• Initiating supply/production adjustments announced and regulated by local boards to avoid


excessive supply and improve farm planning

o This proposed action may only be realized if it is supported by strong local institutional
infrastructures. Strengthening farmers’ association as the backbone for promoting
farmers’ interest, advancing their knowledge and skill, increasing their production,
improving their living conditions and developing rural economy, is becoming a necessary
requirement for this purpose.
39

• Introducing the auction system in the rural assembly and wholesale markets to guarantee
highest price for the best quality produce
o There is a perception that auction may represent a better and more credible transaction
method than negotiation. This method aims to attract a large number of buyers who wish
to purchase vegetables at a competitive price. Most vegetable farmers undoubtedly
prefer transparency in prices. Latest development indicates that the government has
considered this proposed action to be facilitated in the agribusiness terminal or sub-
terminal as an alternative method for trading vegetables. It should be noted that the
auction method might only be applied if the regulations on quality standard
(standardization and grading) are consistently enforced.

• Applying contract systems that may guarantee price stabilization and supply continuity
o This proposed action might only be applied in some particular cases, for example a
production contract between farmers and packers or processing companies. Standard
form contracts are easier to use where quality standards have been established that
enable buyers and sellers to accurately and easily define quality by reference to the
appropriate standard. In fact, standard form contracts and quality standards is essential
to enable the development of more sophisticated marketing mechanisms.

CONCLUSION

o In West Java, the marketing system for temperate vegetables is characterized by the
prevalent role of traditional private sector market intermediaries. In the domestic market, the
bulk of vegetable produce is mostly channeled through traditional marketing, ranging from
farm level collectors, inter-regional traders, and wholesalers in the urban center, other than
through the establishment of farmers’ markets. The study suggests that the marketing and
distribution system of temperate vegetables in West Java are reasonably competitive. The
structure of these markets, with their many buyers and sellers and multiple selling options for
farmers, suggest effective competition in most cases. Nonetheless, many improvements still
need to be proportionally addressed to create a more efficient marketing system that has the
capacity to ensure fair returns to vegetable producers and consumers, stabilize the supply of
quality vegetable products for consumers, stabilize prices of vegetable products at reasonable
levels, reduce distribution costs for vegetable products, provide adequate wholesaling and
retailing facilities, and secure safety and hygiene for fresh vegetables.

o In view of the rapid environmental changes surrounding the food distribution and wholesale
market system, West Java urgently need modern central and regional wholesale markets. The
new or improved wholesale markets should play its role of accumulation of stocks, price
formation, redistribution, market information, account settlement, food hygiene and safety
inspection, efficiently. The transaction methods should be regulated and monitored closely, in
a very transparent and cohesive manner, so that openness, fairness, and equitable become
the norms and ethical values in wholesaling business. To achieve these objectives, it is
recommended that the local government should introduce Market Law. The law would provide
for long-term and medium-term measures to systematically promote the reorganization of
wholesale markets as a core center of food marketing in the province. By the law the
government should be able to control the establishment of wholesale markets, to assure their
adequate and wholesome operation, to assure transparency in the transaction methods, to
assure their smooth production and distribution of vegetables and contribute to the
40

stabilization of food supplies. As at present a new concept to be called “Terminal Agribisnis” or


“Agribusiness Terminal”, incorporating all food marketing activities and support-services, has
been formulated and initiated for its operation. This might be a good case to apply the
proposed actions to improve the temperate vegetables marketing system in West Java.

o Government should maintain a flexible regulatory framework to accommodate the


development of more efficient marketing systems. The complexity of future systems will
preclude direct government intervention lest efficiency be reduced. Further adjustments in the
prevailing marketing system will be necessary to accommodate complex changes in future
market channels, institutions, volumes, and composition. The followings are farmers’
suggestions that are considered to be relevant to the effort of improving temperate vegetables
marketing system in West Java:
 Establishing and implementing laws that regulate transactions (place, volume, quality and
loss) and payment methods (cash or delayed payment) or laws that avoid quality fraud,
price speculation, and other practices that may harm the interest of market participants
 Establishing and implementing regulations on quality standard (standardization and grading)
for traded vegetables
 Establishing and implementing regulations on produce safety for traded vege-tables
 Providing and improving physical infrastructures, for example, establishing vegetable
specialized assembly or wholesale market
 Establishing collective marketing e.g. through cooperative or farmer groups
 Providing market information that includes not only price, but also how many (quantity),
what (crop), and when the product is demanded
 Initiating supply/production adjustments announced and regulated by local boards to
avoid excessive supply and improve farm planning
 Introducing the auction system in the rural assembly and wholesale markets to
guarantee highest price for the best quality produce

References

Cullinan, C. 1999. Law and markets: Improving the legal environment for agricultural marketing.
FAO Agricultural Service Bulletin No. 139. Rome.
Johnson, Bruce F. and Peter Kilby. 1975. Agriculture and Structural Transformation: Economic
Strategies in Late-Developing Countries. New York: Oxford University Press.
Hayami, Yujiro and T. Kawagoe. The Agrarian Origins of Commerce and Industry: A Study of
Peasant Marketing in Indonesia. London: Macmillan, 1993.
Setiadi, T. 1995. Peluang pasar kentang di Indonesia. Makalah disampaikan pada Seminar
Agribisnis Kentang. Agribusiness Club, Jakarta 18-19.
Kohls' R. L. and N. U. Joseph, 1998, Marketing of Agricultural Product, Prentice
Rhodes, V. J. and J. L. Dauve, 1998, “The Agricultural Marketing System.” Holcomb Hathaway
publishers.
Holtzman, J. S. J. A. Lichte, and J. F. Tefft. 1995. “Using rapid appraisal to examine coarse grain
processing and utilization in Mali, in Prices, Products, and People: Analyzing Agricultural
Markets in Developing Countries (G.J. Scott, ed.). Boulder, CO: Lynne Rienner Publishers.
41

Appendix 1 Vegetable cropping pattern in Langensari


1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6

To To Co Co
Ca Ca

Ch Cm Cm To Ch To Ca Ca

Cb Hp Cb Hp
To To

Ca Ca To To
Cc Cc

Ca Ca Co Co
Ca Ca

Cb Cb Ca Ca
Co Co

Ch Kb Kb Ch Ca Ca Eg Eg

Po Po Hp Hp
To To

Cb Cb To To Ca Ca

Ca Ca Co Co To To

Cb Cb To To Po Po

To To Ca Ca Kb Kb

To+Kb To+Kb Ca+Cm Ca+Cm Co Co

Ca Ca Cb Cb To+Kb To+Kb

To = Tomato Co = Corn Ca = Cauliflower Ch = Chilli


Cm = Chinese mustard Cb = Cabbage Hp = Hot pepper Cc = Chinese cabbage
Kb = Kidney bean Eg = Eggplant Po = Potato Cr = Carrot

Planting Harvesting

Note: In some cases, the second line is provided to depict cropping pattern in the same parcel, in which two different crops are planted in the same time, but not inter-cropped.
42

Appendix 2 Vegetable cropping pattern in Margamulya


1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6

Po Po Hp+Cc Cc Hp Po Po

Po Po To To Po Po

Po Po Cc Cc
Cr Cr Cc Cc

Po Po Cb Cb
To To Po Po

To To Po Po Cb Cb

Cb Cb To To Po Po

Cb+Cc Cb+Cc Hp+Cc Hp+Cc Po+Kb Po+Kb

Cb+Cc Cb+Cc Kb Kb Po Po

Cb Cb Po Po Po Po

Po Po Po Po Cb Cb

Cb Cb To To Po Po

Cb Cb To To Po Po

Cb Cb Po Po Cc Cc
Po Po

Cb Cb Po Po Po Po

Cb+Cc Cb+Cc Po+To Po+To Po Po

To = Tomato Co = Corn Ca = Cauliflower Ch = Chilli


Cm = Chinese mustard Cb = Cabbage Hp = Hot pepper Cc = Chinese cabbage
Kb = Kidney bean Eg = Eggplant Po = Potato Cr = Carrot

Planting Harvesting

Note: In some cases, the second line is provided to depict cropping pattern in the same parcel, in which two different crops are planted in the same time, but not inter-cropped.

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