Agricultural Marketing Nzuri

Table of Contents
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1. INTRODUCTION ...................................................................................... 1
1.1 MARKET AND MARKETING DEFINED .................................................................. 1

1.2 TYPES OF MARKETS ........................................................................................... 1
1.3 HISTORICAL DEVELOPMENT OF MARKETING ...................................................... 2
1.4 MARKETING AND OTHER DISCIPLINES ................................................................ 3
1.5 BASIC APPROACHES TO THE STUDY OF MARKETING ........................................... 4
1.5.1 Commodity Approach ....................................................................................... 4
1.5.2 Functional Approach ........................................................................................ 4
1.5.3 Institutional Approach ...................................................................................... 5
1.6 MAJOR CLASSIFICATION OF COMMODITIES MARKETED ...................................... 5
1.6.1 Consumer’s Goods ........................................................................................... 5
1.6.2 Industrial Goods ............................................................................................... 6
1.7 THE ROLE OF MARKETING ................................................................................. 6
2 AGRICULTURAL MARKETING ................................................................. 11
2.1 AGRICULTURAL MARKETING DEFINED ............................................................. 12

2.2 DISTINGUISHING CHARACTERISTICS OF AGRICULTURAL PRODUCTION AND
MARKETING .................................................................................................... 14
2.3 FUNCTIONS OF AGRICULTURAL MARKETING .................................................... 16
2.3.1 Utility Generation Function ............................................................................ 20
2.3.2 Resource Allocation Function ......................................................................... 23
2.3.3 Welfare Generation Function .......................................................................... 25
2.4 THE ROLE OF GOVERNMENT IN THE MARKETING SYSTEM ................................. 26
2.5 COMMON MARKETING PROBLEMS IN DEVELOPING COUNTRIES ......................... 29
2.6 RISK ELEMENT IN AGRICULTURAL MARKETING ................................................ 29
3 MARKETING INSTITUTIONS AND COMMODITY CHAINS ................... 32
3.1 MARKETING INSTITUTIONS............................................................................... 32

3.2 MIDDLEMEN .................................................................................................... 32
3.2.1 Merchant Middlemen ...................................................................................... 32
3.3 COMMODITY CHAIN ......................................................................................... 40
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3.3.1 The Nature of Commodity Chain ..................................................................... 40

3.3.2 A Typical Commodity Chain for Agricultural Products ................................... 41
4 CO-OPERATIVES AND CROP BOARDS .................................................... 44
4.1 CO-OPERATIVE DEFINED .................................................................................. 44

4.2 THE RATIONALE OF COOPERATIVE ................................................................... 44
4.3 REASON FOR FORMATION OF CO-OPERATIVES................................................... 44
4.4 BASIC PRINCIPLES OF COOPERATIVES ............................................................... 45
4.5 WAYS OF FORMING CO-OPERATIVE MARKETING .............................................. 47
4.5.1 Government Coerced Co-operative Marketing ................................................ 47
4.5.2 Voluntary Co-operative Marketing ................................................................. 48
4.6 DISTINGUISHING FEATURES OF CO-OPERATIVES ............................................... 48
4.7 TYPES OF CO-OPERATIVES ............................................................................... 49
4.7.1 Machinery Sharing Co-operative .................................................................... 49
4.7.2 Production Co-operative................................................................................. 49
4.7.3 Marketing Co-operative .................................................................................. 50
4.7.4 Cooperation in Supply of Farm Requisites ...................................................... 51
4.7.5 Service Co-operative....................................................................................... 51
4.7.6 Processing Co-operatives ............................................................................... 51
4.7.7 Consumer Co-operative .................................................................................. 51
4.8 THE HISTORY OF CO-OPERATIVE MARKETING IN TANZANIA ............................. 51
4.9 FACTORS LIMITING GROWTH OF AGRICULTURAL MARKETING CO-OPERATIVES 52
4.10 THE FUTURE OF AGRICULTURAL MARKETING CO-OPERATIVES ......................... 53
4.11 CROP MARKETING BOARDS IN TANZANIA ........................................................ 53
4.11.1 The History of Agricultural Marketing Boards ................................................ 53
4.11.2 Classification of Agricultural Marketing Boards ............................................. 54
4.11.3 Functions of Marketing Boards ....................................................................... 55
4.11.4 Failures of Agricultural Marketing Boards ..................................................... 55
4.11.5 Justification for the Persistence of Agricultural Marketing Boards ................. 56
4.12 EVOLUTION OF GRAIN MARKETING ORGANISATIONS IN TANZANIA ................... 59
1.1 MARKETING MANAGEMENT.................................................................... 65
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5.1 THE MARKETING CONCEPT .............................................................................. 65

5.2 MARKETING AND PRODUCTION (SELLING) ORIENTATION CONCEPTS .................. 66
5.3 THE MARKETING MANAGEMENT PROCESS ....................................................... 69
5.4 MARKETING SYSTEM ENVIRONMENT................................................................ 70
5.4.1 External forces ............................................................................................... 70
5.4.2 Internal Forces ............................................................................................... 73
5.5 MARKETING STRATEGY PLANNING .................................................................. 74
5.5.1 Target Market ................................................................................................. 75
5.5.2 Marketing Mix ................................................................................................ 76
( A) NEW PRODUCT DEVELOPMENT AND PRODUCT MANAGEMENT ............................ 77
5.6 MARKETING DEPARTMENT IN AN ORGANISATION ............................................. 83
2.1 ANALYSIS OF AGRICULTURAL MARKETING SYSTEM ....................... 86
6.1 MARKETING EFFICIENCY DEFINED ................................................................... 87

6.2 MEASURES OF MARKETING EFFICIENCY ........................................................... 88
6.2.1 Technical Efficiency........................................................................................ 88
6.2.2 Pricing Efficiency ........................................................................................... 89
6.3 THE STRUCTURE-CONDUCT-PERFORMANCE-APPROACH ................................... 90
6.3.1 Market Structure ............................................................................................. 90
6.3.2 Market Conduct .............................................................................................. 92
6.3.3 Market Performance ....................................................................................... 93
6.4 ANALYSIS OF THE PERFORMANCE OF UTILITY GENERATION MARKETING
FUNCTIONS ...................................................................................................... 94
6.4.1 Storage or Temporal Utility ............................................................................ 94
6.4.2 Transport or Transport Utility ...................................................................... 100
6.4.3 Processing or Form Utility ........................................................................... 103
7 MARKETING INFORMATION SYSTEM AND RESEARCH .................... 107
7.1 MARKET INFORMATION SYSTEMS .................................................................. 107

7.1.1 Marketing Information System Defined ......................................................... 107
7.1.2 Benefits and Uses of an MkIS ........................................................................ 108
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7.2 MARKETING RESEARCH ................................................................................. 108

7.2.1 The Role of Marketing Research ................................................................... 109
7.2.2 Some Limitations of Marketing Research ...................................................... 110
7.2.3 Marketing Research Procedure ..................................................................... 110
7.2.4 Steps in Marketing Research ......................................................................... 111
7.2.5 Sources of Marketing Data ........................................................................... 111
7.2.6 Techniques for Primary Data Collection ....................................................... 111
7.2.7 Data Analysis Techniques ............................................................................. 112
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UNIT ONE
1 INTRODUCTION
1.1 Market and Marketing Defined
Market is one of those areas that one could get four different answers if he posed a question
seeking its meaning to four experts. Clearly, there are many usages of the term in economic
theory, in business in general, and in marketing in particular. The following definitions
extracted from literature will give you an idea about what market is:
(a) Market is a place where sellers and buyers meet, goods or services are offered for sale.
(b) Market is an area in which a businessperson plans to locate business and from which
he or she will draw customers.
(c) Market is demand made by a certain group of potential buyers for a product or service.
(d) Market is people with needs to satisfy, money to spend, and willingness to spend it.
(e) Market exists wherever a supply of goods is meeting the corresponding demand and
price is being determined.
From the above definitions it can be deduced that market is not just a place, area or product,
it is rather a condition that enables a group of potential customers with similar needs who
are willing to exchange something of value with sellers who can satisfy those needs.
1.2 Types of Markets
There are several types of markets depending on the criterion used:
(a) Location – e.g. Morogoro market, Kariakoo market, etc

(b) Product – e.g. Tomato market, used car market, etc
(c) Time – seasonal market e.g. December Christmas tree market, etc.
(d) Level - e.g. the retail food market, wholesale market etc
(e) Media- electronic market (E-commerce)
Similarly, marketing is defined in different way:
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(a) Basic definition: Marketing is the process of satisfying human needs by bringing
products to people in the proper form and at the proper time and place
(b) The product definition: Marketing is the performance of all the transactions and
services associated with the flow of a good from the point of initial production to
the final consumer
(c) The marketing firm’s definition: Marketing is complete management concept
through which the company sells itself as well as its line of products.
(d) Society’s definition: Marketing is all the processes necessary to determine
consumers’ surplus and societal needs and to conceptualise and effect their
fulfilment.
For the purpose of this course, the first definition is adopted with minor modification. Thus
marketing is a process of satisfying human needs by bringing products to people at the
proper time and place, and in the proper form they want them. Of course the process of a
commodity to change hands from a seller to a buyer at (a price) may need some
negotiations. This can be done face-to-face at some physical locations (e.g. farmers’
market), or it can be done indirectly through a complex network that links middlemen,
buyers, and sellers living far apart
NOTE:
Frequently the term “marketing” is used to include the activities involved in providing consumers
with such services as those offered by insurance, financial institutions (e.g. banks), accounting,
hotel, entertainment, etc. Although this is entirely justifiable, a consideration of services brings
so many complexities into an introductory course of marketing like this one.
1.3 Historical Development of Marketing
The role of marketing in the society dates back to the immergence of humanity. From the
earliest days men realised that different men could make different products, and that trade
could make products available in different places. Trade started from person to person, but
grew to involve different towns and different land.
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Marketing develops as a society and its economy develop. The need for marketing arises and
grows as a society moves from an economy of agriculture and self-sufficiency to an
economy built around industrialisation and urbanisation. In an agrarian economy, the people
are largely self-sufficient. They grow their own food, make their own clothes, and build their
own houses and tools. Marketing does not exist because there is no exchange. As time
passes, however, the concept of division of labour begins to evolve. People concentrates on
producing the items in which they excel, the process known as specialisation. This results in
their producing more than they need of some items. Whenever people make more than they
need or want more than they make, the foundation is laid for trade, and trade (exchange) is
the heart of marketing.
At first the exchange process is a simple one. The emphasis is largely on the production of
basics, which usually are in short supply, and the exchanges are very local - among
neighbours or perhaps among neighbouring villages. In the next step in the evolution of
marketing, small producers begin to manufacture their goods in large quantities in
anticipation of future orders. Further division of labour occurs, and a type of business
develops to help sell the increased output. The person doing this business, which acts as an
intermediary between producers and consumers - is called a middleman. In order to facilitate
communication and buying and selling, the various interested parties tend to settle near each
other. Trading centres are thus formed. There are nations today, including Tanzania, which
are going through these earlier stages of economic development
1.4 Marketing and Other Disciplines
Marketing is interdisciplinary in nature, but it draws heavily form economics. Economics is

engaged in the study of how the society produce, divide, exchange and use the things people
want, i.e. how human wants are satisfied. Wants clearly can not be satisfied without all the
other activities necessary to place tangible goods in the hands of consumers. Consequently,
as a branch of economics, a study of marketing draws on such economic concepts as the law
of diminishing returns, marginal cost, marginal revenue, specialization of labour etc.
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Apart from being inclined to economics marketing is also heavily indebted to many other
disciplines including psychology, which expand marketing knowledge about consumer
motivation, buying habits and advertising appeals. Indeed marketing managers of the future
will have to be thoroughly grounded in the concepts and knowledge of psychology. Other
fields include communication skills, sociology, mathematics, statistics and anthropology.
1.5 Basic Approaches to the Study of Marketing
Marketing is commonly studied through three basic approaches:

1. Commodity approach
2. Functional approach
3. Institutional approach
1.5.1 Commodity Approach
The commodity approach involves a study of how goods move from points of production to
the consumer or user on a commodity basis. For example, we might take a large number of
farm products and study how each of them is marketed. In such a study, we would note
where each product is produced. Who are the people engaged in buying and selling it, how it
is transported, and what problems of advertising, financing and storage are involved. By
repeating this procedure for different products e.g rubber, cotton, coffee, paddy, gold,
diamond, shoes, cars, radios, we could get a full picture of the field of marketing.
1.5.2 Functional Approach
A second approach to the study of marketing, known as the functional approach, is through
the classification and study of specialized activities or functions involved in transferring
goods to consumers. To illustrate: In the marketing of wheat, certain specialized activities
are performed. Someone must engage in selling activities, someone else in buying. Still
others assume responsibility for the transportation of wheat to those places where it is
desired or for its storage to meet future wants.
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By a careful investigation how each of these activities or functions is performer, together

with an analysis of the cost and problems involved, we might obtain an understanding of
marketing.
1.5.3 Institutional Approach
The third major approach to the study of marketing- the institutional approach – considers
the various middlemen and facilitating agencies, which perform the marketing functions.
This approach emphasizes the types of middlemen and agencies involved. To continue with
the wheat example, this approach would require an investigation of the operating methods,
problems, and costs of the local assembler who purchases the farmer’s grain, of the
wholesaler or interregional trader, who holds it until another buyer can be found, and of
truck owner and the railway company, which provides transport action.
Although there are still other approaches (such as the historical, cost, behavioural systems,
and managerial) through which the students may study marketing, the aforementioned
approaches – commodity, functional, and institutional – represent those which experience
has proved to be of greatest value, especially to the beginning student. Put another way, the
nature of marketing is such that it can best be understood if all three of these approaches are
used in covering various aspects of the subject.
1.6 Major Classification of Commodities Marketed
Marketing is performed for a great variety of commodities, extending from the primary raw
materials that must be placed in the hands of manufacturers to the manufactured and
agricultural goods, which end up in the consumer’s possession. Broadly speaking, these
goods may be divided into two major groups depending on the final buyer of the good:
consumer goods and industrial goods.
1.6.1 Consumer’s Goods
These are goods which find their final market among ultimate consumers, that is, persons
who use them to satisfy personal or household wants, e.g. bread, TV set, radio, shirts, cars,
bulbs, etc.
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1.6.2 Industrial Goods
These are goods destined for use in producing other goods, e.g. spare parts, raw cotton, steel,
metal sheets, iron bars, automobile batteries, etc. For simplicity, industrial goods are sharply
distinguishable from consumers’ goods in three ways: a) by the market in which they are
consumed b) by the purpose for which they are bought, c) by the methods by which they are
marketed.
As regards the market, industrial goods are consumed by enterprises that use them in
producing consumers’ goods or other industrial goods and services. Generally their markets
lies among companies engaged in manufacturing, mining and construction work, as well as
the service industries (hotels, theatres), public and private institutions (hospitals, schools),
commercial institutions (supermarkets, banks, office buildings), and government
institutions. The distinction based on purpose follows directly from that based on the
market: Industrial goods are bought to aid in the furthering of production, rendering services
or conducting business enterprises. Regarding the method, trade channels for industrial
goods are shorter than channels for consumers’ goods, so that fewer middlemen are involved
and direct sale is relatively more important.
Certain goods may be classified as either Consumers’ or industrial goods, depending upon
whether they are bought for the gratification of personal or household wants or for use in
business. For instance, an automobile battery sold for use in a family car is a consumers’
good, but one sold for use in hospital vehicle is an industrial good.
1.7 The Role of Marketing
To appreciate the role played by marketing, it is important to start by seeking an

understanding of its nature. Marketing, serves as the bridge between production and
consumption. It includes all the activities necessary to place tangible goods in the hands of
consumers (households & firms). In other words marketing does not include activities
involved in the process of creating the goods themselves i.e. production. In marketing of
agricultural products such as crops one would say marketing entails all activities involved in
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moving a product from a tree to a plate. The plate may be in the local area or abroad.
Examples of marketing task/ activities in Tanzania:
- The harvesting process of maize, coffee, cotton, tomatoes, etc.

- Trucks loaded with sacks of maize, cabbage, rice, tobacco, etc heading to town and
cities.
- Factories receiving raw materials.
- Milling machines and plants processing paddy, maize, cotton, milk, into other forms
desired by consumers.
- Consumer goods being loaded into trucks and mkokoteni (carts) and sent for sale
through dealers domestically and abroad.
- Salesmen housemen receiving money in exchange of goods from customers in
grocery store, pubs, shopping centres, etc.
- Matching-gays (machinga) moving up and down the streets of towns.
- Food vendors alongside roads selling bans, rice etc.
- Railway trains moving in and out from the cities carrying merchandise.
- Banks carrying out purchase transaction, etc.
If one considered all such activities taking place throughout the entire United Republic of
Tanzania, He would be amazed at their magnitude. The gigantic nature of marketing
activities is indicated by the fact that it involves the movement of commodities worth
billions of money annually. To accomplish the task, thousands of people are employed as
salesmen, advertisers, retailers, whole sellers, warehousemen, product planners, market
researchers, transporters, bankers, speculators, and others too numerous to mention. The
role of marketing in the economy can be summarised in the box below. A student is advised
to find explanation on each of the items in the box.
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The Role of Marketing
Positive contribution
 Feed the nation

 Improve life standard
 Employment
 Economic growth
It has some adverse effects too such as

 Spread diseases
 Destroy culture
 Widen the gap between the rich and the poor
 Social unrest
It is also widely recognised that marketing is vital in transforming primitive societies into
modern ones. This can be explained by the marketing induced development theory. The
theory explains the transition process from subsistence to commercial form of production in
the farming sector. Its basic paradigm holds that efficient marketing system generates prices
that induce economic development through influencing resource allocation. For this to
happen a farm household should be integrated into the main stream of the economy. That
means the farm household should stop being a self-sufficient, home–consumption oriented
production unit, which internally decides on production and consumption without relating to
any external market. That is demand and supply forces are adjusted internally. All needs of
the family are satisfied out of own production; whatever is needed may be produced even
though at high costs because the farm may be having a comparative disadvantage in
producing it. Figure 1 shows a transition process when a self-sufficient family is integrating
into the commercial marketing system. The inner ring shows the self-sufficient household,
which is composed of family, farm, resources and consumption goods.
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Product market
goods Products
Consumer
Re
ve
nu
re
e
itu
nd
pe
Produce
Ex
Farm Firms
Households Self-sufficient
Family household
Ho ts
use Resources cos
hol ut
inputs
d inc Inp
om
e
Prod uction
Resources
Factor market
Figure 1: A self-sufficient household integrating into the marketing system
The family uses resources at its disposal, for example labour and land, to work on the farm
and produce goods, which are in turn consumed by the family. Outside the household there
is the main stream of the economy, comprised of households, firms, factor market and
consumer goods market. When the household is exposed to the external world, it starts
producing not only to its local consumption but also to the needs of the others. The self-
sufficient household disintegrates and its components become absolved in respective
components of the economic system. The household joins other households, resources join
the factor market, consumption goods find their way to the consumer goods market and farm
joins firms. The household becomes part of the national marketing system.
Review questions
1. How would you describe marketing to someone who has no knowledge of the
subject?
2. Marketing, although a branch of economics is heavily indebted to many other
disciplines. Discuss and illustrate the validity of this statement.
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3. In not more than 500 words explain how market evolved, carefully comparing
marketing in the early days and marketing today.
4. Carefully, distinguish between industrial goods and consumers’ goods, using
examples in your explanation. Give examples of three products, which fit in both
classifications.
5. Discuss the role of marketing in the economy of your country. It is said that
marketing can transform primitive societies from subsistence-home consumption
oriented kind of production to market oriented societies. Discuss.
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UNIT TWO
2 AGRICULTURAL MARKETING
One of the biggest problems that countries in the transitional stage face is how to market
their hard grown agricultural products, both inland and for export. The aspect of professional
agricultural marketing is regarded as a way to overcome seasonal agricultural surpluses and
shortages of food supply and also as a means of generating more income.
The marketing of agricultural produce has its own unique problems and requires specialised
attention due to the bulkiness and perishable nature of the products involved. Most of these
products are basic foodstuffs, whose price and distribution are considered strategic by
governments and thus the establishment of statutory institutions is required within the
marketing of agricultural produce.
Successful marketing of agricultural products is dependent on the creation of conducive

circumstances as well as the provision of resources and services. The effective marketing
channels have to include infrastructure and facilities such as storage, handling, transporting,
processing, packaging and retailing services. It will include product location, timing, types,
quantity, quality, prices and any other information required by producers and consumers to
make beneficial decisions.
To further enhance the development of export marketing, one has to invest in the
entrepreneurial and technical skills of personnel from all facets of the marketing process,
including the capability to choose between different products, types, seasons, markets and
processing options to maximise farming income.
Research must be invested into product varieties, post-harvest handling, preservation,

processing, preparation and presentation. Development of public and private services
required by the producers to market products such as: marketing; financing; information
dissemination; market research; predictions and estimations dispute resolution;
representation and co-ordination is mandatory.
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2.1 Agricultural Marketing Defined
Agricultural marketing has been defined in various ways by different authors depending on
one’s school of thought. For the purpose of this course the definition by Kohls and Uhl
(1990) has been adopted. They define agricultural marketing as the performance of all
business activities (marketing functions) involved in the flow of goods and services from the
point of initial agricultural production until the same goods are in the hands of ultimate
consumers. The entire marketing process can be conceptualised by looking at the following
example:
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A farmer harvests wheat from his field
He sells wheat to the trader

The trader sells the wheat to the millers
The miller sells the wheat flour to the shop owner
The shop owner sells the flour to the bakeries
The bakeries sell bread to the retailer
The retailer sells the bread to the final consumer
From this example it can be noted that, at one extreme, there is a producer (farmer) and at
the other a consumer. All the intermediate activities are directly related to marketing.
Farmer Middle men Consumer
Marketing
Marketing decision should recognize the interdependence between the three key actors in
the system i.e. producer, middlemen and consumer. Economic conflicts always arise among
them:
 Consumers want to secure the highest food value at the lowest possible price.
 Producers are interested in getting the highest possible returns from the sale of their
products.
 Middlemen are seeking to earn the greatest profit possible.
A B C
Farm-gate price Middlemen’s profit Retail price

+ =
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From the diagram above, it can be noted that If A is to increase either:
C should increase while B constant

B decreases while C constant, or
B and C should both increase
This has a significant policy implication. Any policy aimed at improving the efficiency of
the marketing system should recognise and reconcile these conflicting tendencies. The
general feeling among traditional policy-makers is that middlemen are exploitative in nature.
They exploit producers and consumers. The issues that a reader may look into critically are
whether middlemen can be eliminated in the marketing system, and whether middlemen are
always exploitative and why. In other words; what would happen if middlemen were
eliminated in the system, and when do middlemen become considered exploitative.
2.2 Distinguishing Characteristics of Agricultural Production and Marketing
Agricultural marketing deserves a separate treatment from marketing of manufactured goods

because of the nature of production and commodity characteristics.
(i) Because of its central role in the economy of developing countries, agricultural
production and marketing is subjected to numerous policy distortions.
(ii) Agricultural production is to a great extent dependent on weather as well as
biological patterns of reproduction. All these in most cases are beyond the control
of the producer. Thus when consumer demand changes, a farmer may want to react
by changing his output through planting more or less or breeding more animals or
fewer animals. However the output realized is dependent on good or bad weather,
presence or absence of disease etc.
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(iii) Time lag - It takes long to change substantially the production of some
commodities. For example coffee, sisal must be planted several years in advance
before production can be realized. This in turn means that, during the time full
production is being awaited demand conditions may change. For example changes
in consumer’s tastes may find large amounts of agricultural resources being
devoted to the production of something that is no longer so greatly desired. This
may happen if high prices resulting from shortages of production destroy the
consumer market for that product.
(iv) Farmers may also find it difficult to improve the prices they receive through
independent or group activity. This is made worse by the fact that farmers are price
takers such that they cannot individually influence the price of their products
through decisions on their outputs. In order to increase the price they receive by
controlling supplies or through advertising programs they must act as a group e.g.
cooperatives. However the fact that farmers are so many, scattered, sometimes
ignorant, and are faced with different economic circumstances frustrates any
attempts to organize themselves and act jointly.
(v) There is always a free rider problem and pooling effect. These free-riders constrain
group efforts that require each member to sacrifice for the overall welfare of the
group when benefits of the group go to everyone regardless of their participation.
(vi) Cost-price squeeze problem - This is through the fact that competitive conditions
of agriculture tend to keep farm prices close to the cost of production. The falling
farm prices are not usually accompanied by falling farm cost. On the other hand
rising farm prices attract farmers more lucrative enterprises and tend to bid up
prices/cost of factors of production. To make things worse we find that buyers of
the farm products have superior bargaining powers as compared to farmers. This is
because these buyers are usually larger and have better marketing information than
farmers. Also through contractual buying food marketing forms tend to gain some
control over farm decisions as well as farm markets.
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2.3 Functions of Agricultural Marketing
The system of production and marketing in agriculture can be described as the interaction
and outcome of decisions by various actors (stakeholders) in pursuit of a number of specific
activities, each following certain economic principles. In this setting, the system of
production and marketing fulfils three basic functions: utility generation, resource allocation
and welfare generation. This is shown as interplay of actors and their activities in Table 1.
The actors are farmers, traders, consumers and public decision makers, each playing a
specific role in the system.
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Actors
Function Activity Private decision makers Public decision
(Economic Farmers Traders/Middlemen Consumer makers
principle)
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Transportation From farm to assembly From assembly markets From Public

(Profit markets to wholesale/retail retailer to investments
maximisation) markets home into roads, and
Utility communication
generation Storage In small stores/bags for Limited storage because systems
(Profit own consumption or turnover is more Hardly any
maximisation) sale important storage Public storage
Processing For own consumption Industrial milling and Rare or no

(Profit processing Partial processing
maximisation) processing
and cooking
Transaction and Opportunity First Intermediate Transaction Opportunity Market
price finding value of transaction transaction at retail value of organisation,
(Marginal produce in in trade markets: money not price policies,
cost=Price=Marginal consumed assembly sector: consumer spent price reporting
utility (MC=P=MU) at home or markets: various price
not sold producer market
price prices
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Priority setting
Direction High farm prices Low costs Lower
(Comparative consumer Physical
Resource advantage) prices infrastructure
allocation Specialisation or Specialisation or
diversification diversification Institutional
Intensity Increase in infrastructure
(Maximising quantity of
returns) Intensification, Improved capacity consumption Support
innovation utilisation system
Increase in
Extent (economies Increased production, Expansion of enterprise quality of
of scale) increased marketed consumption
surplus
Welfare Market intervention Increase in producer Increase in efficiency Increase in Policy

generation (Efficiency surplus vs. gains vs. taxation, fees, consumer formulation;
maximisation taxation/redistribution increasing competition surplus Vs trade off
subject to acceptable taxation, between
equity level support efficiency and
schemes equity
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Agricultural Marketing
2.3.1 Utility Generation Function
Utility generation is the most obvious function of the market, and has received great
attention from scholars. The activities involved in utility generation are transportation,
storage, processing, transaction or price finding and facilitation function.
2.3.1.1 Transportation
Transport generates utility in space (spatial utility). If a trader finds that a commodity in
location A is more valuable in location B, he will buy and transport it from A to B, thus
increasing its utility. However, if the cost of transporting the good exceeds the perceived
gain in utility, it will not be transported. Transportation involves variable costs of moving
the goods. This activity is carried out primarily by private decision makers at all levels
(farmers, traders and consumers). However, the fixed costs of transportation in providing
infrastructure such as roads and communication systems are generally borne by the public
decision maker (who may, of course, specifically charge user fees for example, levying toll
fees or market fees for the sake of sustainability of the infrastructure).
2.3.1.2 Storage
Storage generates utility in time (temporal utility). If to a farmer a product available at

harvest is more valuable at a later point in time, he will store it for later use or sale, thus
increasing its utility in time. However, if the cost of storing the product exceeds the expected
gain in utility, it will not be stored but used or sold immediately. Storage is often done in
privately owned warehouses on account of private owners. Storage in privately or publicly
owned warehouses on behalf of the public is found where the public has been given a
responsibility for stabilizing supplies and prices through public intervention and stocking of
reserves.
2.3.1.3 Processing
Processing generates utility in form. Normally, to a consumer a raw material, (for example
cereal grains), will be useful in a different form (for example flour). Therefore, some
middlemen submit the product to a process of transformation, thus increasing its utility by
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processing it. However if the cost of transforming the product exceeds the perceived gain in
utility, it will not be processed. Processing of goods is generally left to the private sector
where industrial processing by middlemen and food preparation at the household level are
the major transformation activities. Here the public sector generally sees very little scope of
intervening.
2.3.1.4 Transactions
Transactions generate utility in ownership. If a good is more useful to a buyer than to the
seller, then both will agree to exchange ownership at a price, which makes both participants
in the transaction better off. The seller receives money and the buyer receives the good.
However if the transaction costs of bringing buyer and seller together exceed the mutually
perceived advantage, the transaction will not take place. This price finding effect of an
ownership change contains valuable information, which should be treated as a public good.
The prices provide information on the marginal utility and marginal cost of production,
therefore it is of common interest that prices agreed upon between two negotiating partners
on most products be made publicly available and reported in such way that other decision
makers have access to and can make use of this information.
Transactions and price finding is clearly the domain of the private sector. At the level of
transactions between producers and traders prices are determined in assembly markets. But
farmers also take into account the opportunity value of grain not sold but kept for home
consumption. Thus farmers are aware that also for grain not sold, there is a price, which they
have to account for, thus consuming it so that marginal utility equals price. Similarly,
consumers who are purchasing food for consumption do so by keeping in mind the marginal
utility of money, which is not spent on food but on other items. However, support of price
finding and price reporting are major investments for the public policy makers, to provide
transparency and competition in the marketing system. This implies organizing markets in a
way that competitive price finding can take place at minimum costs and that price reporting
is done correctly and effectively.
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2.3.1.5 Facilitation Functions
These make possible the smooth performance of the exchange and physical functions. They
include:
(i) Standardisation and grading - Here uniform measurements are established and
maintained. These measurements could be in terms of quality or quantity. For
example, standardisation of maize may be based on weight per bag, percent of
damaged kernels, moisture content, and percent of foreign matter. Other bases of
standards are used depending on the type of good, eg fat content, size, colour, etc.
Once the standards have been established, the commodity is graded based on those
standards. Both hand and mechanical devices are employed in the grading or sorting
process. Frequently, grading is carried out on a sample basis. Standardisation and
grading are important to ultimate consumer and industrial buyers, since
(a) they desire goods of uniform quality, which they may purchase again and
again to satisfy their needs.
(b) the costs of buying and selling are decreased because the need for inspection
and samples is reduced.
(c) lower transportation costs result from the fact that only the grades worth
transporting are transported.
(d) lower storage costs result from space economisation by storing only the
grades worth storing.
(e) Make financing easier and less expensive, for financial institutions will loan
large amounts and at a lower interest rates on commodities of definitely
known grade.
(f) Improve market intelligence and reduce marketing risks. Market information
is of considerable more value when it applies to specific grade.
(ii) Financing - This involves advancing money in order to carry on the various aspects of
marketing. Since there is a delay between the time of purchase of raw materials and
22
the sale of the finished good capital is tied up in the operation. Thus some one must
finance the holding of goods when storage or delay on selling is involved. Commercial
bank or one tie up his/her own capital resources.
(iii) Packaging, Market research, Risk bearing, Market intelligence
2.3.2 Resource Allocation Function
The process of agricultural transformation consists of change in the cropping pattern.

Cropping pattern means the proportion of area under different crops. Allocation of area to
different crops (resource allocation) undergoes a change as a result of changes in relative
profitability of various crops, which is an outcome of improvements in productivity and
changes in relative price structure.
Price signals indicate the direction into which a farm enterprise should change its activities.
This implies specialization or diversification as the comparative advantage may indicate.
Further, the intensity by which an activity is pursued is decided such as to maximize returns.
The extent, to which an activity is followed, depends on the economies of scale inherent in
an operation. Thus decisions about direction, intensity, and extent of activities are implicitly
reflecting decisions on resource allocation. Causal relationships exist between these
decisions so that some of these decisions reinforce one another and generate self-
accelerating virtuous circular effects involving decision makers at all levels along the value-
chain as shown in Figure 2.
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Actors
Farmers Traders Consumers Public
High producer price Lower costs Lower consumer price
Specialization/ Specialization/ Increase in quantity Priority setting

diversication
diversification of consumption
Physical infrastructure
Institutional
Intensification, Improved capacity Increase in quality
infrastructure
innovation utilization of consumption
Support systems
Increased production, Expansion of
increased marker surplus enterprise
Figure 2: Virtuous circular effects of a marketing system
On the part of a farmer, if he receives a clear price signal, about a price of a product, which
he could sell in a market within his reach, he will immediately calculate and compare the
price with his own costs of production. If he finds, that the price is and will stay high enough
to promise him a profit, he will decide to redirect his production system by specializing (or
possibly diversifying) into the direction of this comparative advantage. Once having decided
to specialize or diversify he is likely to increase the intensity of land use, by utilizing the
proceeds from the market sales for purchasing inputs and for adoption of improved
technologies.
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Since farmers in the same village or region operate under similar agro-climatic conditions, it
is quite likely that the majority will choose to follow similar directions of specialization and
intensification of production with the results that at aggregate level in the region the density
of marketed surplus will increase. The increase in marketed surplus is likely to be very large
since a constant quantity is normally used for own consumption; it is only the residual,
which is being marketed. Any slight increase in productivity will dramatically increase this
residual.
On the part of traders, if they are faced with dramatically growing densities of production
and market arrivals they will expand their operation, because their utility generating
activities are all subject to considerable economies of scale, and of capacity utilization.
Likewise, traders will specialize or diversify according to comparative advantage. Increased
density of market surplus implies lower costs of processing and handling. Under the
pressure of competition, these cost savings are passed on to producers in the form of higher
farm-gate prices and to consumers in the form of lower consumer prices. Higher farm-gate
price implies more income to the producer, which permits further intensification. Lower
consumer price implies increased disposable income to the consumers, especially in urban
areas. Marketing services become a large portion of the consumer food bill and the
composition of the market basket shifts from low-cost, starchy foods toward high cost
livestock products, fruits and vegetables.
2.3.3 Welfare Generation Function
From the previous discussion, it has been shown that an efficient marketing system
generates gains (welfare) to the society in terms of reduced marketing costs and increased
output. These gains to the society are supposedly enjoyed by the key actors in the system.
Farmers benefit from increased farm-gate, traders enjoy increased profit margin, and
consumers benefit from reduced consumer price.
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2.4 The role of Government in the Marketing System
Marketing does not necessarily deliver a socially desirable distribution of income. The gains
may be enjoyed by producers, consumers or traders. Even within the same group of key
actors the gains from marketing cannot be distributed equally. For instance, in an openly
competitive market system the larger farmers will generally be better off (getting more
revenue on account of larger quantities sold, and accessing more credit on favourable terms
on account of more collateral) than his counterpart small farmer in the same village.
Similarly, those farmers in a favourably endowed region (good soil irrigation, roads
providing good market access) will on average be better off than their neighbours in a more
remote region with poor resources. Because of this market forces tend to accentuate the gap
between the rich and the poor.
In this case the public, through appropriate policies, should intervene in the production and
marketing process to bring equity and macroeconomic stability. If consumers are enjoying
the welfare gains, redistribution should take place in favour of producers, and the same
applies if the farmers reap the lion’s share in the welfare gains.
There are several ways by which the government may intervene in the production and
marketing system, apart from the use of taxation policy:
(i) Awareness campaigns to change farmers’ attitude - farming in developing countries is

carried out on traditional basis. People grow crops because they inherited them from
their ancestors. The situation could change if farmers were made to view farming as a
business entity, that is, they become market oriented. Personal aspirations and
opinions will determine how farmers view their farming activities. So the two
identifiable extreme positions include the production oriented and marketing oriented
tendencies. Production oriented means that the person looks at the major part of the
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business as being concerned with goods, which he wants to produce for personal
consumption (subsistence).
(ii) Market intelligence/Information - Market intelligence involves collecting, interpreting
and dissemination of data, which is necessary for smooth operation of the marketing
processes. The market information systems are designed to track the factors that can
influence the market for product so that changes can be anticipated. Information
provided may include price, places with excess supply, places with shortage (demand),
population, income levels, sales trends, emerging business opportunities domestically
and abroad, research results, etc. In Tanzania Marketing Development Bureau of the
Ministry of Agriculture supplies information. Other means of data dissemination
include Radio broadcast (Kariakoo market), Newspapers etc.
Once the knowledge of marketing and its problems is available to the farmer he/she
will be in a better position to make decisions concerning the operations of the farm.
The decision will be determined by answers to the following questions.
(a) What should a farm produce and prepare it for sale. This has to do with form
utility since different people desire different things e.g.
(b) some vegetable varieties are more desired by consumers than others.
(c) When and where to buy or sell. For example price of commodities will vary
depending on the season of the year. Thus production and storage
arrangements can be adjusted accordingly to take advantage of these
situations. Different channels of distribution, commodities are used so as to
maximize returns.
(d) How much of the marketing job should be done by the farmer either as an
individual or as a member of a group. For example transport can be hired or
27
be provided by the farmer himself. Also someone can be hired to do the

seedling or the farmer can do the task himself.
(e) What can be done to expand markets? This decision involves advertising
schemes and other techniques of influencing consumers e.g. reducing the
price relative to others.
(f) Which marketing arrangements are desirable?. The farmer can sell by
entering into a contract with a buyer or can sell directly to consumer without
using inter constrain group efforts that require each member to sacrifice for
the overall welfare of the group when benefits of the group go to everyone
regardless of their participation.
(iii) Grading and standards – provide standards as benchmarks for actors in the system. For
example definition of weights and measures used in the country, approving grades and
standards for various types of goods. In Tanzania, some of theses tasks are carried out
by Tanzania Bureau of Standards.
(iv) Investment in market infrastructure – e.g. roads, railways, market buildings,
telecommunication. All these reduce marketing costs
(v) Price stabilisation – e.g. price ceiling and price floor of important or basic goods.
Tanzania government determines the floor price for cash crops. Other price
stabilisation efforts may involve buying excess output and release it during shortage
periods, and setting production quotas.
(vi) Food security programs - e.g. Strategic Grain Reserve (SGR), subsidising inputs in
certain regions, and distribution of relief food.
(vii) Maintain law and order – e.g. property rights, contract enforcement, antitrust laws.
Antitrust laws prevent large-scale business from rising monopolies, which could buy
patents to prevent new products from reaching the market and engage in cutthroat
competition to eliminate competitors. Other examples include laws against damping
practice, cheating and selling harmful products, quarantines etc.
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2.5 Common Marketing Problems in Developing Countries
i) Barrier to entry due to overwhelmingly bureaucratic and unclear registration

procedures
ii) Lack of economies of scale in transport, storage, and processing
iii) Poor infrastructure including information dissemination on important marketing
parameters – that impedes physical flows of goods and leads to excessive price
differences between markets
iv) High rates of physical losses or spoilage, i.e. poor post-harvest handling.
v) Wide spread risk aversion attitude among actors
vi) Inadequate capital market to match supply and demand over time and space.
vii) Absence of standardised grades – varieties, qualities, weight, etc, which make
visual inspection necessary.
viii) Lack of legal means to enforce contracts, which inhibit distance trade
ix) Low effective demand as a result of low purchasing power (income) – this calls
for small retail transaction.
2.6 Risk Element in Agricultural Marketing
In the early days’ when producer market was restricted to his immediate small community,
market risks were nearly at minimum because the distance was short. In addition, the seller
was also the producer. But today, a producer and a buyer are typically geographically
separated from each other. In this situation, the marketing of goods involves a large number
of unavoidable risks, and thus increased marketing cost. Examples of marketing risks
include: physical deterioration, obsolescence, theft (shoplifting is common phenomenon in
large shops), damage, waste, bad debts, change in demand and supply with impact on price,
29
etc. It should be noted that Fresh fruits and vegetables, which are highly perishable, are
highly risky.
Risks in Agricultural Marketing can be dealt with in many ways. In some cases a person
may transfer some of his risk to others. For example, losses from fire, floods and theft may
be transferred to insurance companies. Also, with some commodities, it is possible to ensure
against losses due to price changes through hedging and futures market. To some degree,
some of the risks, which cannot be transferred to others, may be eliminated or minimised.
Thus the development of cold storage and refrigerated cars has reduced the risk arising
from perishability. The increase in quality and quantity of marketing information, that is,
market intelligence, is an additional important factor in reducing risk.
30
Cooperatives and Crop Boards
Review questions
1. In your own words explain the marketing functions. Discuss the importance of
standardisation and grading function.
2. Based on the library materials and other sources, prepare a list of 40 different non-
traditional crops which you think your country can produce and market profitably
domestically and abroad
3. What do you consider to be the main bottlenecks in your county’s agricultural
marketing system? Suggest ways to solve those problems
4. In your own words, explain why you think government intervention in the economy
is inevitable. Discuss the various ways by which the government may intervene in
the marketing system. Give illustration for each.
5. Discuss possible side effects of government intervention in the marketing system.
Use examples to support your argument
6. One of the ways by which the government may stabilise prices is through buying
excess produces during bumper season and injects them back to the system during
lean season. (a) Explain how this may work (b) What are the likely problem with this
approach to stabilise price?
7. In your own words, discuss the nature and ways of dealing with risks in agricultural
marketing.
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UNIT THREE
3 MARKETING INSTITUTIONS AND COMMODITY CHAINS
3.1 Marketing Institutions

Marketing institutions consist of those middlemen and facilitating organisations, which
perform the marketing functions discussed in the previous unit. Middlemen include, for
example, individuals, crop marketing boards, primary co-operative societies, co-operative
unions and farmers associations. Examples of facilitating marketing agencies in Tanzania
include the former marketing development bureau (MDB), chambers of commerce eg
T.C.C.I.A, C.T.I, rail roads or tracking companies, banks from which buyers borrow fund,
assembly markets, public warehouses and advertising agents. This course will limit its
coverage to middlemen; facilitating marketing agents will be left for advanced courses in
marketing.
3.2 Middlemen
A middleman is an individual or a business organisation operating between the producer and
the ultimate consumer or industrial user. Some middlemen actually take the title to the goods
in which they deal, while others aid in the buying and selling of merchandise without taking
title. Based on this, we have two types of middlemen:
(i) Merchant middlemen

(ii) Agent middlemen
3.2.1 Merchant Middlemen

These are middlemen who take title while performing marketing functions. They may be
divided into two groups: retailers and wholesaler. This classification of merchant middlemen
rests basically upon the markets to which these groups cater. Thus, retailers sell mainly to
the ultimate consume, whereas, wholesalers the main outlet is other middlemen (e.g.
retailers), industrial users (large private and public companies) or both. Retailing is further
subdivided into small independent shop/store and large-scale retailing (e.g. supermarkets).
32
Similarly, different types of wholesalers exist, but for the sake of keeping the course at a
manageable level will not be discussed in this course.
3.2.2.3 Retailers
(a) The Small Independent Retailer

The typical independent retailer is a small, non-integrated middleman lacking any
appreciable degree of specialisation in management or employees. The owner of the
business usually acts as its manager. If the shop happens to be very small, he or she may
perform all the essential functions himself.
(b) Large-scale Retailing: Supermarkets

One of the large-scale retail institutions, which are developing in Sub-Saharan Africa (SSB),
is the supermarket. They are proliferating fast beyond middle-class big cities into smaller
towns and poorer areas. Supermarkets are overwhelmingly transforming the food retail
sector in the region, with a lot of potentials and challenges in supplying them. By definition,
a supermarket is a departmentalised retail shop having annual sales worth several billions of
shillings in a variety of merchandise (cloth, soft drinks, liquor, meats, fruits and vegetables,
dairy products, etc), and in which the sale of commodities is on a self-service basis. The
major characteristics of a supermarket are:
i) Relatively low prices, due to economies of large size

ii) Minimum customer service, (operate on self-service basis)
iii) Ample parking area
iv) Increased departmentalisation
v) Skilful promotion in television, radios etc.
vi) Wide variety of merchandise (a one-stop shopping centre), though foodstuff
dominate
33
vii) Have a closer cooperation with manufacturers

viii) Owned by shareholders
ix) Part of a larger network of supermarkets
Although supermarkets operate profitably, they do face some problems, which include:
(i) Because of space requirement, it becomes difficult to find good location

(ii) Stiff competition among themselves and between other retailing shops
(iii) Start-up investment cost is exorbitantly high, it takes billions of shillings to stock
the store
(iv) Low purchasing power of the people in developing countries
(v) Lack of bargaining repels some customers
(vi) Because of self-service system, shoplifting is a significant source of losses
3.2.2.4 Wholesaling Agricultural Consumers’ Goods

Many farm products are particularly ready for the ultimate consumer when they leave the
farm. Among such products are fluid milk, eggs, poultry, and fresh fruits and vegetable. Of
course, some of these are used as raw materials in processing industries (fruit canning,
wineries, milk drying and evaporation, etc). This section will concentrate on the marketing
of farm products, which go to the consumer without any significant change in form. As
discussed previously, marketing of agricultural products is influenced greatly by the factors
involved in production and consumption.
Characteristics such as small-scale and seasonal production, widely distributed throughout

the country, variation in quantity and quality grown each year, owing to changeable weather
conditions and improved technology, bulkiness and perishability and others serve to
complicate the marketing problems for farmers and to necessitate the use of wholesale
middlemen of various types. Wholesalers dealing in agricultural consumers’ goods operate
in one or two, sometimes three different markets collectively known as central markets.
34
Central market is a broad concept and may mean something different to some scholars. But
it is simply a convenient place where buyers and sellers can meet one-on-one to exchange
goods and services. It can be categorised into three levels namely local or primary,
secondary, and tertiary markets. More often than not central and tertiary market
terminologies are used interchangeably.
As stated in previously, central market is a convenient place where buyers and sellers can
meets one-on-one to exchange goods and services. This is very typical in primitive market.
In our information age, central markets as exhibited in the western world, take a variety of
forms – ranging from suburb shopping centres to website that operate in a cyberspace such
as www.e-bay.com and www.amazon.com.
(a) Reasons for Development of Central Markets

Central markets help the exchange process. To understand this, imagine a small village of
five families – each with a special skill for producing some need satisfying product (assume
no money is involved). After meeting basic needs, each family decides to specialise. It is
easier for one family to make two pots and another to make two baskets. Specialisation
makes labour more efficient and more productive. It can increase the total amount of form
utility created.
If the five families, each specialises in one product, they will have to trade with each other.
As Figure 3 shows, it will take the five families 10 separate exchanges to obtain some of
each of the products. If the families live near each other the exchange process is relatively
simple. But if they are far apart, travelling back and forth will take time. Faced with this
problem, the families may agree to come to central market and trade on a certain day. Then
each family makes only one trip to the market to trade with all the others. This reduces the
total number of trips to five, which makes exchange easier, leaves more time for producing
and consuming, and also provides for social gathering.
35
A. Ten exchanges are required when a C. Only five exchanges are required when a
central market is not used middleman (intermediary) in a central market is
used
Pots Pots
Hats
Baskets Central
Hats Baskets
market
middleman
Hoes Knives Hoes Knives
Figure 3: Number exchanges when a central market is used and when it is not used
The monetary system simplifies trading. While a central place simplifies exchange, the
individual bartering transactions still take a lot of time. Bartering only works on double
coincident of wants, that is, someone else wants what you have and you want what someone
else has. A common monetary system changes all this. Sellers only have to find buyers who
want their products and agree on the price.
(b) Types of Central Market
Local or Primary Markets

The first step in assembling products from farmers is carried out in the local market. Such
markets are necessarily located near the farmers; consequently there are many of them. This
market may be merely an open-air meeting place, either at cross road point or at established
places in villages and towns, where farmers with products to sell may contact one or more
buyers. Or the meeting place may be the office of potential buyer located fairly close
together in a small town. Still, in other cases the market may be established, where special
facilities exist for handling the product; for instance, a local market for orange may grow up
around a large cold-storage warehouse. Sales at local markets usually result from direct
negotiation between buyers and sellers.
36
Secondary Markets
From local markets or directly from the large growers, agricultural consumers’ goods are
frequently concentrated still more by moving them into a smaller number of small central or
terminal markets. These markets are located in important transportation centres and, in
contrast with many local markets which lack special handling facilities, are well equipped to
perform all the handling functions, including storage, for the wide variety of products
entering them by tracks, rail or ship. Here, also, are found additional facilities such as
auctions and financial institutions.
Tertiary Markets
From the secondary markets products move to tertiary markets. Many agricultural
consumers’ goods move directly from the tertiary market to the retailer’s warehouse or to
retail shops, especially for large-scale retailers. However, in many cases, tertiary markets
constitute the main source of supply for many of the smaller secondary markets in
surrounding towns, although some of the products sold in such markets come directly from
the growers. It should be emphasized here that, with economic development secondary and
tertiary markets tend to be bypassed but cannot be eliminated (Figure 4). The reasons for
bypassing them are the following:
(i) the growth of large scale retailers (e.g. supermarkets) and large consumers (eg.
big hotels and restaurants), who can send buyers into local markets
(ii) improved roads and transportation by truck, which makes it convenient for the
farmers to deliver to retailers, and for the retailers to buy at the farm or in the
local markets
(iii) increased market intelligence among farmers
37
Ma
jo r f
lo w
s
Farmers of
goo
ds
thro
Local markets u gh
the
ma
Secondary rkets
market
Tertiary market
Retail markets
Consumer
Some flows bypass certain markets
Figure 4: Concentration and dispersion of agricultural consumers’ goods
3.2.2.5 Agent Middlemen

These are the middlemen who negotiate concerning buying and/or selling without taking
title to goods. Some of these include brokers, commission men, purchasing agents, selling
agents and auction companies. Only brokers, commission men and auction companies will
be discussed here.
Brokers
The broker is an important agent for such farm products as cotton, grain, and fruits and
vegetables. He or she represents either the buyer or the seller, but his relations with any
particular buyer or seller are not continuous. A typical broker takes no title to goods he sells
or buys. He serves his main purpose by bringing in buyer and seller together, and is paid a
commission for his service. Since he is usually well informed about market condition, he is a
38
valuable source of market information to his clients. However, his powers over prices and
terms are limited by his client (product owner or principle)
Commission Men
Commission men are often confused with brokers, but they are really a distinct group
because they actually handle the products whose sale they negotiate. They usually operate in
central markets, receive goods, which they prepare for market and sell, deduct their
commission and other charges from the proceeds of sale and remit the balance to the client.
Different from brokers, they may sell without having specific approval by the client.
Purchasing Argents
They differ from brokers in that they have continuous relationship with their principals and
operate only in buying side of the transaction. They often combine the orders of a number of
wholesalers and retailers to gain economies of scale. Some are paid on commission basis,
whereas others receive a flat fee per month. They are commonly known as resident buyers.
For their small clients they serve as a valuable source of information. Since they are
independent businessmen, they should be sharply distinguished from the purchasing officer
of an industrial enterprise, who is not in business for himself but is employed to buy for one
particular company.
Selling Argents
Selling argents are independent operators who function as the sales department for their
client or clients. They handle the entire output of their clients on continuous basis and have
unlimited sales area with a large degree of authority over prices and terms of sales. In
addition, they often render financial aid both to their clients and to those to whom they sell.
They are used often by small companies in the sales of industrial goods, clothing food stuffs,
etc.
Auction Companies
Auction companies in connection with agriculture, operate mainly in wholesaling fresh
fruits and vegetable, livestock, and leaf tobacco. They provide facilities through which
39
goods turned over for sale to them can be displayed to prospective buyers. At stated times
and under definite rules of trading, these goods are offered for sale and sold to the highest
bidder. Charges and commissions are deducted, and the balance is sent to the client. In
performing their selling functions, they provide some storage services, and at times they
extend credit to purchases, but their main activity is in negotiating sales.
3.3 Commodity Chain

The commodity on its way from the producer to the consumer follows what is known as a
commodity chain (sometimes referred to as channel of distribution, trade channel, value
chain, or supply chain), which adds value (utility) to the product. Commodity chains for
different products may have different lengths; depending upon how much utility a consumer
wants to have been added before he consumes the product. Generally, the more utility added
when transforming the raw material into a final consumer good, the larger the cost margin
and consequently the lower the farmer's share in the consumer price. Under the condition of
effective competition among traders, the margins of traders cannot exceed the actual costs
involved in the transformation process plus a normal profit margin. A normal profit margin
in this case refers to the level of profit, which is equivalent to the interest a businessman
would get if he deposited the money (used in business) in the financial institutions.
Competition among traders is a necessary condition for an efficient functioning of the
commodity chain.
3.3.1 The Nature of Commodity Chain

A commodity chain consists of middlemen and any other buyers or sellers involved in the
process of moving a good from producer to consumer. In other words, it is the route used by
a producer to move his product to the consumer. In the marketing of wheat, we find that the
following channel is common:
Farmer Local assembler interregional trader Miller
If we wish to add the trade channel for the flour made from the wheat, this might be
represented as follows:
40
Miller Baker
Finally, when the flour is turned into bread, the latter may reach the ultimate consumer
through this commodity chain:
Baker Wholesaler Retailer Consumer
From the foregoing examples, it is evident that a commodity chain is usually thought of as
extending from one producer to the next consumer who significantly changes the form of the
product regardless of whether this consumer is or is not the ultimate consumer. Thus the
commodity chain for wheat begins with the farmer and ends with the miller; that for the
flour begins with the baker and ends with the ultimate consumer. Thus, getting wheat from
the farmer to the consumer in the form of bread really involves three distinct products and
three commodity chains. Unless one thinks of a chain in this sense, it would be difficult to
trace, for example, the commodity chain for rubber and its products, which reach the
industrial user and ultimate consumer in many forms and through numerous kinds of
middlemen, the functions of whom vary from product to product.
3.3.2 A Typical Commodity Chain for Agricultural Products

There are numerous types of commodity chains the main ones being:
(i) Producer to retailer to consumer

(ii) Producer to wholesaler to Industrial user
(iii) Producer to wholesaler to retailer to consumer
(iv) Producer to agent to wholesaler to retailer to consumer
41
Of all, Producer to wholesaler to retailer to consumer, often referred to as the “orthodox”

channel, is the most widely used, not only for moving manufactured goods to consumers,
but also large quantities of agricultural commodities follow the same route. Each product
has its own distribution chain. The chain might be longer or short, depending on the number
of changes in the forms to be done on the product. Also, its links and extensions may differ
from one commodity to another. Several of these chains, including the input supply chains
form the marketing system, coordinated by price signals. In terms of number of actors
involved in different function along the chain, a typical commodity chain for a particular
commodity assumes an 8-figure shape, in the sense that there are a few input suppliers,
many producers, a few assemblers, very few wholesalers, a few retailers, and many
consumers (Figure 4). The shape is necessary for the system to operate sustainably. Think of
a situation where each farmer or consumer has his own (one) supplier! He or she will have
to meet all the cost involved in the marketing process.
Input suppliers
Producers
Assemblers
Transporters, Warehousemen, Processors
Wholesale
Retailers
Consumers
Figure 5: Relative numbers of actors along a typical commodity chain
42
43
UNIT FOUR
4 CO-OPERATIVES AND CROP BOARDS
4.1 Co-operative Defined

In general co-operatives are legally institutionalised voluntary organizations which are set
up to serve and benefit those who are going to use them and their group can compete within
the framework of other types of business organisation. Thus co-operatives are established on
basis of equal participation in terms of providing capital, management, distribution of profits
and liability when losses occur.
4.2 The Rationale of Cooperative

The aim of co-operation is to reduce the weakness of farmer operating individually in the
market since his/her influence on the market is severely limited by the relative smallness of
the scale of operation compared to the people with whom he/she is trading. Cooperation
brings about synergistic returns because of the increased scale of operations. Synergy is
sometimes defined as “2 + 2 = 5 effect” This takes place when the combined return on the
resources is greater than the sum of its parts. In the case of cooperation synergy would mean
that when farmers cooperate there is a combination of a variety of resources including
management and marketing competence. It is this pooling/combining effect, which will
result in increased returns enjoyed by the farmers for their products.
4.3 Reason for Formation of Co-operatives

1. Attempt to increase prices for products sold – the co-operatives has been used simply
as a bargaining association; based on the fact that, while the farmer as an individual
has weak bargaining power, this weakness is minimised by united efforts.
2. Absorbing the middleman’s profit – Co-operative marketing organisations, with a
few exceptions, serve to replace other middlemen in the channel of distribution. If
the formed organisation can be run efficiently as the private businessman, the profits,
which would be earned by the latter, will accrue to the former.
44
3. Reducing the cost of marketing - Like in any other business, vertical integration in
farmers’ co-operatives, is a factor in reducing cost. Co-operatives find that it is
advantageous to own the production, transportation facilities and processing, and in
some cases the retailing or wholesaling parts of the marketing system. Such kind of
integration reduces marketing costs through elimination of some of the traders.
4. Lowering the cost of production – In addition to their main function of performing
essential marketing activities in the sale of their members’ products, many co-
operative associations effect substantial savings in the cost of supplies, equipment,
and machinery to their members through purchasing them co-operatively. Similarly,
excessive transport charges on inputs and products can be reduced.
5. To provide marketing services which were not being provided before. This is
possible in Tanzania, where the transport system was nationalised for a long time
because private operators will not risk sending their vehicles to remote markets.
People must therefore co-operate to arrange for transport.
4.4 Basic Principles of Cooperatives

Cooperative societies have a long history. The first cooperative societies were attempted in
European countries long before 1844, the date at which modern cooperative movement
places its origin. These earlier cooperatives, however, were not successful, and they
gradually went out of business. It remained for a group of flannel weavers in Rochdale,
England, who organised as the Rochdale Society of Equitable Pioneers, to develop certain
basic principles which, when applied to the earlier-formed cooperative idea , led to the
success of cooperatives. These principles collectively known as the “Rochdale Plan”, are six
in number: open membership, democratic control, sales at prevailing prices and with
patronage dividends, limited interest on capital, sales for cash, and educational activities.
i. Open membership – The Rochdale Plan places no limitation on membership.

Whether or not a person joins a cooperative society is a voluntary matter; but if he
desires to join, the possibility is open to him regardless of his political and religious
views. To become a member, all he has to do is to subscribe to one or more shares
45
of the society’s stock. In many cases the full value of the stock need not be paid at
once but on an instalment plan or out of dividends.
ii. Democratic control – The Rochdale pioneers opposed the domination of a society
by a few individuals, and maintaining open membership was one way of avoiding
clique control. A more direct way of achieving this same end was found in limiting
the number of votes per member. In modern corporation, voting is based on the
number of shares held by the voter; but in a cooperative society, only one vote per
member is allowed, regardless of the number of shares. Furthermore, any member
may be elected to the board of directors, an additional safeguard against clique
control is provided, in some societies, by preventing re-election of a member to the
board until after a certain period has elapsed. Other societies however, have found
that in the interest of efficiency, it is wise to allow certain directors to be re-elected
indefinitely. This decision illustrates one of the many points where cooperative
principles and efficiency in operation come into conflict.
iii. Sale at prevailing prices and patronage dividends – Some of the cooperative
societies which failed in the years before the development of Rochdale principles
had attempted to pass savings to their members by selling at prices below those
charges by other merchants. This procedure had the obvious advantage of making it
clear to member that he was realising saving but, by not allowing for the
accumulation of adequate reserves, often led to failure. In addition, it gave non-
members the same price advantage as members. The Rochdale plan calls for sale at
going market prices so as to allow the society to make a profit (referred to as a
saving or a surplus in cooperative language) out of which reserves may be
accumulated. Any earning in excess of those needed in the business is returned to
members, thus returned in a lower net cost of merchandise for the members. These
dividends to members are paid according to patronage, on the theory that they
should go to those who make them possible by using the cooperative.
iv. Limited interest on capital – In contrast with the owners of common stock of a
modern corporation, members owning stocks issued by cooperative societies receive
a definitely limited rate of dividends - commonly 4-6 percent – because the
cooperatives prefer to return the bulk of their savings to members on a patronage
46
basis. Although limiting the return on capital invested in a cooperative makes it

more difficult to raise fund, a number of other ways to obtain money are open to the
cooperative. Weekly fees or annual dues may be collected. Members may make
loans to the society. Profits or savings may be retained. Once a society is
successfully established, borrowing in the name of the cooperative is possible just as
it is to the private firm.
v. Sales for cash – Although many cooperative societies transact part of their business
on credit basis, the original Rochdale plan called for all sales for cash. By
eliminating the cost of credit extension, the cooperative was to be in a better
position to sell at prevailing prices and return a large patronage dividend to its
members.
vi. Educational activities – From the beginning, the cooperatives have realised the
necessity of educational activities to foster the cooperative spirit, urge loyalty to
the movement, and encourage its development. Consequently, the majority of
present-day cooperatives make some efforts in this direction by using part of each
year’s profits for financing lectures, distributing literatures, and sponsoring classes
in cooperation.
4.5 Ways of Forming Co-operative Marketing

Co-operative marketing can take place in two ways:
1) The government can coerce the individual producers
2) Individuals can cooperate voluntarily
4.5.1 Government Coerced Co-operative Marketing

This takes place when the government, understanding the importance of cooperation, forces
farmers to unite in marketing of farm products. However, the sustainability of such cohesion
is often not sustainable. As we shall see later, this might be one of the reasons why co-
operative failed in Tanzania.
47
4.5.2 Voluntary Co-operative Marketing

In this case farmers cooperate on their own will having realised that the small output of their
typical farms, the great distance to the market, and the financial requirements involved are
among the factors limiting profitability of their farms. And thus, by joining together, they
can make it possible to perform all or part of the marketing functions on a more economical
basis. Also, apart from marketing their products, the organisation formed can assist them in
purchasing some of the supplies needed to operate their farms, such as fertiliser, seeds,
herbicides, machinery, and other services.
4.6 Distinguishing Features of Co-operatives

Agricultural marketing co-operative, although incorporated, differs from the ordinary
business corporation in several significant respects. These differences emanate from the
basic principles presented in section 4.3 above. They include:
(i) Democratic control by member patrons. Thus, each stockholder has but one vote,
regardless of the number of shares of stock he owns. In an ordinary corporation a
man owning of 51% of the stock obtains control (more say) over company affairs.
(ii) Some co-operatives will receive products for sale from both members and non-
members, but most of them restrict their business to members.
(iii) Services at cost for member patrons. That is, business operations are concluded in
order to approach a cost basis, such that, any returns above cost are returned to the
patrons. This means therefore overcharges or under-payments are returned to the
owner-patrons. In contrast business corporations tend to maximise returns over
costs for the benefit of the owner-investors.
(iv) Limited return on equity capital. Instead of returning the profits of the business to
the stockholders in relation to the number of shares held (just like ordinary
corporations do), co-operatives pay the stockholders a set rate of interest on their
shares and distribute the reminder as a patronage dividend. A patronage dividend is
paid to members in proportion to the sales or purchases, which members have made
through the co-operative.
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(v) In a co-operative venture the patron-owner invests money primarily in order to get
desired services. On the other hand in a non-co-operative business investors offer
their money in expectation of profitable return on it.
4.7 Types of Co-operatives

There are 7 most important types of co-operative organisations: they include machinery
sharing, production co-operative, marketing co-operative, supply of farmer’s co-operative,
service co-operative, processing co-operative and consumer co-operative
4.7.1 Machinery Sharing Co-operative

Here the farmers share many kinds of farm machinery and equipment. This would enable the
farm to take advantage of up to-date, efficient and labour–saving equipment at less than the
cost which would be required if the purchase were made independently such machines or
equipment in most cases could not be justified economically for an independent purchase.
For example, suppose there were 100 farmers, each owning 2 acres of land. It would be cost
ineffective for a single farmer to buy a tractor for farming his land. But if those farmers
joined effort and bought a tractor to farm their 200 acres, or they hired a tractor, the savings
could be immense. Some of the advantages of machinery sharing include:
(i) There is a reduction in capital investment requirements

(ii) The fuller use and availability of high capacity machinery results in reduced
running costs per hectare.
(iii) The money that is saved as a result of the reduced capital investment can be put
into other uses.
4.7.2 Production Co-operative

This requires a greater commitment from member. Here the machinery is shared and in
addition labour is pooled along pre-arranged lines to operate the production process in
unison. Such co-operatives may be introduced for production of livestock. For example the
farmer can have mixed grazing of many types of land e.g. cattle, sheep, goats, poultry etc.
The members also can decide to purchase jointly quality bulls or top quality heifers, which
49
individually may not be able to afford. Also substantial proportions of the farms are likely to
be committed to co-operative management and utilization such that production cooperation
should be entered into very carefully. Some of the guidelines (aspects) to be considered that
may contribute to the success of production coops are as follows:
1. Compatible membership. This should take into account the number of partners, their
location, farm size as well as the system of farming. Large and small-scale farmers
should not belong to the same association.
2. There should be sound organizational structure. This should be included in the
partnership agreement with a record kept of decisions made and with administration
and finance agreed upon by all members of the co-operative.
4.7.3 Marketing Co-operative

Here the farmers join together to market part or all of the produce of their farms. The basis
of co-operation is related to three major factors:
(i) The Bargaining power of the farmers

This is increased because individually the farmers are weak and disorganized in
relation to the buyers. Therefore the farmers can get favourable prices.
(ii) Market economies of scale
It is possible to reduce the costs of marketing by improving the efficiency of
existing services or achieving scale economies in certain operations e.g. can have
more vehicles for collection of produce, can have effective arrangement of farm
supplies/requisites
(iii) Marketing investment
Co-operation provides an additional investment opportunity so that marketing
covered by the co-operation is considered as an additional enterprise to those
already carried out by the farmers e.g. storage, buying posts, weighing scales. In
addition, agricultural marketing groups are a direct application of the theory of
horizontal integration. This involves bringing together units of production involved
in the same stage of the production process. Horizontal integration allows for
50
considerable economies of scale. This is because the materials required by the

group can be purchased in bulk, transport and distribution services can be
combined and the capital reserves of one unit can be used to finance the expansion
of another.
4.7.4 Cooperation in Supply of Farm Requisites

This involves buying in bulk e.g. from the factory in order to reduce costs by getting
requisites/inputs as efficiently and as economically as possible. There are savings essentially
coming from lower prices or from higher quality and better-adapted supplies and equipment.
4.7.5 Service Co-operative

These are organized in order to provide their members with improved services or with
services they could not otherwise obtain. These may include credit, insurance, electric
power, irrigation drainage etc.
4.7.6 Processing Co-operatives

These may be organized to engage in the packing or processing of the farmers product.
4.7.7 Consumer Co-operative

This is usually undertaken to reduce food costs. And by forming consumers co-operative,
the consumers participate fully in food retail decisions.
4.8 The History of Co-operative Marketing in Tanzania

The Co-operative movement in Tanzania has a long history. Between 1932 and 1967 co-
operative were owned and controlled by the members on democratic principles. After 1967,
co-operatives were perceived as vehicles for furtherance of socialistic policies. Since then
co-operatives have been characterised by excessive political interference. The worst scenario
was in 1976 when co-operative unions and agricultural marketing societies were dissolved
to give way to parastatal crop authorities to handle all agriculture marketing functions. This
had a disastrous impact on the sector.
51
By 1980 the problems related to the new set up had become so alarming that the government
decided to re-establish the co-operative movement in 1982. However, primary societies and
unions were hastily formed, without regard for economic viability or managerial capacity
while crop marketing and processing system collapsed. This chaos, coupled with external
pressure from financial supporters, led to the establishment of the 1991 Co-operative Act,
which provided for the formation of an independent, member-controlled, co-operative
movement based on co-operative principles.
The process of restructuring the movement is being carried out but at a slow pace. The
recently formed Ministry of Co-operatives and Marketing guided by the Co-operative
Development Policy (CDP) of 1997 will probably transform co-operative movement into
independent, voluntary and economically viable institutions for providing and dissemination
of agricultural inputs for the betterment of small-scale farmers.
4.9 Factors Limiting Growth of Agricultural Marketing Co-operatives

(i) Inefficient business methods - Success in co-operative marketing is lessened to a
considerable degree by a failure to adopt effective business methods. Because the yearly
cash income of many farmers is relatively low, it is difficult for them to grasp the
necessity of adequate salaries to attract capable managers. As a result, in many cases,
adequate accounting is neglected, sufficient capital is not raised, and reserves are
depleted by excessive payments of patronage dividends, etc.
(ii) Lack of co-operative spirit - An inherent limitation on the growth of co-operatives has
been the fact that many farmers have little desire to cooperate. They place a high value
on the freedom to sell to whom they like, in the quantity they please and at prices
arrived at through their own bargaining with buyers. This may explain why many
marketing co-operative members are entirely loyal to their associations – remember the
free riding problem discussed Unit 2.
(iii) Other factors include monetary benefits below expectations, lack of adequate
leadership, dislike of pooling arrangement, production and selling conditions
52
4.10 The Future of Agricultural Marketing Co-operatives
It is not uncommon for co-operative marketing to fail. Inefficient management, lack of

member interest, limited volume of business, insufficient capital, too few members, too
liberal extension of credit, and inadequate accounting and control are some of the reasons
for these failures. Despite many failures, agricultural co-operatives do possess merit as a
method of rising the income of many farmers by securing higher prices, by eliminating other
middlemen and absorbing their profits, by more efficient marketing, and by lowering
farmers’ production costs.
Looking to the future, agricultural marketing co-operatives should take four courses of
action:
(i) Gear up for more effective long range planning

(ii) Updating management know-how by attracting qualified personnel
(iii) Placing greater emphasis on the modern financial techniques
(iv) Developing more of their own applied research programs
4.11 Crop Marketing Boards in Tanzania
A marketing board is a legalised single government agency charged with the responsibility
of marketing nation’s total output of particular commodity. Marketing boards are one form
of direct involvement by governments in marketing. In other words, the boards are
marketing agencies/institutions with government power over essential export crops.
4.11.1 The History of Agricultural Marketing Boards

Agricultural Marketing Boards in Tropical Africa are a result of Great Depression and
World War II when colonial governments found their principal sources of revenue severely
depressed and both European and African populations financially stressed. Agricultural
Marketing Boards are essentially of British origin although French and Belgium Africa also
advocated them. The first Agricultural Marketing Boards were authorised partly in response
to wider belief that (a) they would increase prices, farm incomes and exports, (b)
government control would reduce marketing costs to the benefit of producers and
53
consumers. In Eastern and Southern Africa they were meant to protect white farmers against
natives and provide food to British territories in Asia during the Second World War.
Marketing Boards held back some of their proceeds from farmers to establish “stabilisation
funds that could be used to cushion the fall of their prices later. But these funds (initially
meant to develop agriculture) were used as government revenues and hence used in other
ways. Marketing Boards were also initially meant for exporting crops but by the 1960s
Agricultural Marketing Boards controlled even domestic trade. In more recent years,
governments have often felt compelled by their urban populations to reduce food prices
regardless of marketing costs, making losses on their accounts and paying out less to
farmers. This has led to increased movement of staples through illegal channels and
shortages in official ones.
4.11.2 Classification of Agricultural Marketing Boards

There are basically two types of marketing Boards
(a) Export marketing boards and

(b) Food marketing boards.
4.11.2.1 Cash Crop Marketing Boards

Exporting marketing Boards have the following features:
i) They are instructed to get the highest price possible for the crop they sell.
ii) They enjoy some protection from international commodity agreements such as the
international Coffee Agreement (ICA).
iii) They make use of the export parity pricing mechanism (that is, producers prices
are the difference between export price and domestic marketing costs).
iv) They have relatively more realistic crop yield forecasts because negligible
quantities of produce are consumed domestically.
v) For overvalued domestic currencies exported crops become less competitive in the
world market when the export price is converted into local currency at the official
exchange rate.
54
4.11.2.2 Food Crop Marketing Boards

Food marketing boards differ from export marketing boards because in that
i) Prices for food crops are mostly set by the government. This leads to smaller
marketing margins because most governments want to please both producers and
consumers.
ii) They face seasonal supply fluctuations while demand is always constant. This
necessitates the holding of stocks.
iii) They face uncertainty about farmers’ decisions on retention of produced food and
about the competition in dual marketing systems involving both the official and
open markets.
4.11.3 Functions of Marketing Boards

Seven basic functions are common to marketing boards
1) Market analyses and forecasts

2) Setting of domestic quotas and prices
3) Estimating export demand
4) Issuance of marketing permits
5) Establishment of producers’ marketing pools
6) Domestic licensing
7) Effecting payments to producers
4.11.4 Failures of Agricultural Marketing Boards

1) Several reasons have been advanced as causing the failure of AMBs. Most
prominent of them are:
2) Misuse of funds and inefficiency of operations
3) Monopoly power which leads to higher costs, corruption and poor physical
performance
4) Differential pricing over time, space and form
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5) Deficiencies are attributed to political favouritism in allocation of supplies

and selection of staff. This implies that inefficient performance of basic
functions of storage, transport and processing – and because bureaucracy
which inhibits on-the-spot- decision making will prevail.
6) Major failures of the food crop marketing boards has been in estimating
domestic supplies and requirements and inability to control more than a small
share of domestic transactions, especially in times of shortage giving room
for black market distribution.
4.11.5 Justification for the Persistence of Agricultural Marketing Boards

Despite these deficiencies and in efficiencies in the boards to date governments still
officially endorse the existence of AMBs. It has been argued that their presses are vital
because:
1. Bargaining power. African farmers are at a great bargaining disadvantage when

negotiating the sale of their crops to traders. It is expected that AMBs will increase
farmers bargaining capacity because of three reasons: First, international trading
firms may fail to collude with their rivals and to corrupt vigilant AMB officials as
they may with other government officials. Second, in well settled areas there are
enough buyers and markets so that collusion among wholesalers and assemblers is
difficult. Finally, ethnic monopolies tend to decrease dishonesty and unfair
competition.
2. Inertia: An elemental reason for the persistence of AMB after independence in
Africa is simply that they were already there acting as a source of employment.
3. Political Stability and National Unity: AMBs have acted as sources of investment for
many governments. In addition, they limit private domestic monopolies and assist in
maintenance of reserve stocks.
4. Disaster: Insurance against the disaster of food shortages resulting from war crop
failure.
5. The Poor: Case for the disadvantaged is also an appropriate task for government and
sometimes may be in a form of food supplements or subsidised prices.
56
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Case 1: Coffee Marketing Board

The marketing of coffee in the liberalised system is overseen by Tanzania Coffee Board (TCB), which was
established by an Act of Parliament in 1993. The functions of the board include; regulatory, supervisory,
advisory, monitoring, co-ordination and representation. Other functions include licensing all operators in
coffee business and also conducting coffee auctions. The new Act passed in 2000-01 for coffee enhanced
the regulatory and discretionary powers of TCB. Under the legislation, the coffee board has the power to
inspect, monitor, register, regulate and/or license producers, traders, processors, storage facilities, and
exporters. The additional regulatory powers were introduced largely to address perceived need to enhance
competition, promote fair trade, improve quality, and augment value. In pursuit of these objectives the TCB
has applied buying rules and introduced the ‘one licenses rule’ to maintain the integrity of the coffee
auction.
Under the TCB arrangement, the coffee marketing system is conceptually categorized into two groups
namely internal and external marketing systems. Internal marketing system involves buying of coffee from
farmers at designated buying posts. Following liberalisation of coffee trade in Tanzania, since 1994/95
coffee season, farmers became free to sell their coffee in cherry or parchment to any licensed coffee buyer.
Every coffee buyer is supposed to get a licence from Tanzania Coffee Board after fulfilling the basic
conditions underlying this type of business. For the purpose of monitoring coffee movements from farmers,
the buyer must send all parchment and/or cherry to licensed coffee processing factories and inform TCB
accordingly. Prices are purely based on negotiations between farmers and coffee buyers.
With regard to external marketing, all clean coffee in Tanzania is sold through auctions conducted centrally
by the Tanzania Coffee Board. Licensed coffee exporters participate in auctions held at the head office of
the Board in Moshi twice every month. The auctions operate by a fall of hammer and coffee is sold EX
licensed clean coffee warehouses. The seller in this case is coffee buyer whereas bidder is licensed coffee
exporter.
Recent Supplement to the Third Schedule Rules for Direct Export of Green coffee found in the Tanzania
coffee Industry Regulations, 2003 , has allowed direct export of higher quality coffees by producers
bypassing the auction, and have served to encourage production of higher quality coffee. Direct export of
coffee is defined as a contract for the sale and export of premium green coffee made between a qualified
seller and a buyer located outside of Tanzania. These include legally registered farmer groups and
associations, cooperative societies, individual farmers, and Companies of Non-Governmental Organizations.
The board has also sought to improve access to financing of inputs. In this case the Coffee Board has
offered to repay creditors of groups of growers who bring coffee directly to the auction. The Coffee Board in
collaboration with Tanzania coffee Association has introduced a coffee voucher program facilitating savings
and pre-payment of inputs.
Given the volume of work, which the TCB is supposed to do in order to get the desired quality coffee for
export, the existing manpower is not enough particularly in the areas of field operations and zonal officers.
Largely due to lack of manpower in TCB, quality control is very minimum. There is also a serious lack of
market information and in some cases unjustified deductions have been effected at farm level. That’s why
observers have reported problems attributed to the current activities of the board, including disruption of
marketing and exports, costs in excess of services received, and interference in growth of the private sector
in marketing. In addition, the ‘one license rule’, introduced to enhance competition and maintain integrity of
coffee auction, has served perversely to reduce competition. As coffee buyers cannot export, the number of
coffee buyers has declined. More that 50 percent of coffee transactions took place with only one buyer in
the market during the 2002/03 season (World Bank, 2005). Although the number of processing plants
increased following liberalization, capacity utilization and break-even operations are undermined by declining
production of raw coffee.
However, some achievements are registered in different parts of the coffee sector. For example the
processing capacity for coffee has increased enormously. Before 1988 there were only two (2) union-owned
coffee processing facilities. In 1988 two more Arabica (also union-owned) processing factories were added.
Since 1993 at least 12 new factories have been built. Coffee processing capacity in Tanzania now exceeds
72 tonnes an hour (40 tonnes an hour for Arabica and 32 tonnes an hour for Robusta. Furthermore, the
board is recognized to offer services that might not be provide by the private sector, and is perceived by
some participants to provide protection against monopsonistic behaviour by private marketing agents
(World Bank, 2005).
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4.12 Evolution of Grain Marketing Organisations in Tanzania
Official grain control in Tanzania dates back to the time of the Second World War when a
statutory Cereal Board to ensure bulk purchases of food grains was set up. The enactment of
the Agricultural Products Act (Control and Marketing) in October 1962 and the subsequent
establishment of the National Agriculture Products Board (NAPB) (under authority of this
act) in March 1963 was one of the first manifestations of the post-independence agricultural
policies in Tanzania. The Agricultural Products Act led to the institution of a three-tier single-
channel marketing system.
With respect to grain marketing, the NAPB became the apex of the system and had monopoly
power on commercial purchases of grain. The functions of the NAPB were limited to
purchases from Co-operative Unions or local Co-operative Societies and sales to licensed
grain millers. Under this arrangement Co-operative Unions were, either directly or through
their Primary Societies, appointed as agents of NSBP. The elimination of middlemen in grain
trading appeared to be the main objective of NAPB. As a further control, no transportation of
significant quantities of grain was allowed without the approval of the NAPB. By 1966 for
example, almost all purchases of maize acquired by the NAPB came through the co-
operatives.
In 1967 the major grain-milling companies had been nationalised and a National Milling
Corporation (NMC) was established. In 1973, the activities of NAPB were taken over by the
NMC. It is, however, worth noting that in the period prior to 1973 the main emphasis of
government intervention in agricultural markets was the consolidation of the three tier crop
marketing system consisting of Primary Co-operative Unions, Regional Co-operatives and
Marketing Boards. By 1973 some 2,300 Primary Societies had been formed, affiliated to 20
Regional Co-operatives, and there were 8 other Marketing Boards.
The role of the co-operatives in agricultural marketing was, in the early 1970s, associated to a
large extent, with the villagisation programme that started in 1973. By 1976, 13 million
people had been moved into villages. In 1976 the Villagisation Act was enacted and a legal
framework for villages to operate as production and marketing co-operates was provided.
59
Between 1973 and 1975 the agricultural Marketing Boards were reorganized into semi-
autonomous state institutions – the parastatal Crop Authorities. These changes arose out of
official dissatisfaction with the marketing performance of the NAPB and Co-operatives as
well as out of preoccupation with achieving food security and ensuring stable producers and
consumer prices. These institutional and organisational changes had significant implications
on crop marketing efficiency. To operate such a marketing system efficiently meant that
massive infrastructure and co-ordination abilities were required. But both were lacking at the
time the system was instituted.
In May 1976, a Government Task Force recommended the abolishment of the Co-operatives
on the grounds that they have failed to provide adequate crop purchasing services. Besides
economic/financial critique, the Task Force also agreed that the changes then being
recommended in Tanzania’s rural society had rendered the traditional co-operative structure
inappropriate. As a result of these problems a new marketing structure for food grain
marketing was devised.
In particular, the marketing arrangements proposed in 1976 emphasised the role of a singe
marketing system for the country with slightly different distribution procedures for Dar es
Salaam and other regions. Accordingly, after the Co-operatives were abolished in 1976 the
NMC (which assumed crop authority functions in 1973) became the sole authorised agency
responsible for grain marketing from the national to the village level. The NMC therefore
enjoyed the status of a single channel marketing agent buying grain directly from producers.
Despite the fact that policy changes were centred only on the official marketing system, a
parallel market operated by the private sector also developed simultaneously. During this
period, however, the open market was not official although its operations were not restricted
in some parts of the country. Official grain and flour supplies were concentrated in Dar-es-
Salaam city. These supplies were channelled through the NMC, which in turn distributed it to
consumers through the Regional Trading Companies (RTCs) and other institutions like
schools and the army. The NMC supplies in turn were secured from the NMC regional
60
branches, imports and Strategic Grain Reserve (SGR). The above explanation implies that
NMC was by far the largest parastatal institution which undertook marketing of food grins.
The NMC and RTCs constituted the official or legal marketing channels while private traders
and the local markets formed the parallel or unofficial channel.
In areas outside Dar-es-Salaam the major participants in the marketing system were the
farmers, the NMC regional branches, and the RTCs. The NMC and RTC branches operated in
regional and district centres with a central administration at the national level. While the
NMC had a legal monopoly of buying and selling food grains domestically as well as to
import and export food, the RTCs and Co-operative Unions operated exclusively in the
domestic markets. The private and village level/local markets operate independently. The
interaction of the official and parallel marketing outlets formed a complex grain management
institutional system. Due to limited supplies, the official markets were unable to satisfy all the
food demand of the urban population. The parallel markets, therefore, played an important
role in serving both the urban and rural consumers.
The multiple roles of NMC in processing, marketing, importing and exporting of grain and
serving as the agent of the government in handling SGR stocks strained its ability both
financially and in terms of skilled manpower and facilities. The result was inability of the
NMC to respond promptly in its grain marketing functions. Delay in paying farmers and
inability to move grain promptly after purchase became the chronic problems facing NMC.
The effect of these marketing inefficiencies was a discouragement of producers to market
grain through the official channel.
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62
Review questions for Unit Three and Four
1. Discuss the basic principles of cooperatives as stipulated in the Rochdale Plan.

2. What are the main differences between the agricultural marketing co-operative and
the typical business corporation
3. Discuss the factors responsible for the growth of co-operative marketing
associations in developing countries
4. Discuss the factors leading to the success and failures of marketing co-operatives
in your country.
5. Explain briefly the history of agricultural co-operative marketing in Tanzania.
6. Prepare a detailed outline of the steps that should be followed in organising a co-
operative marketing association in a particular commodity field such as grain,
cotton, coffee, dairy products, livestock. In doing so, consult library references
and/or nearby co-operative officials
7. Distinguish among the following kinds of co-operative marketing associations: (a)
Machinery sharing (b) Marketing co-operative and (c) Production co-operative.
8. Write an essay about the significance of small independent retail shops in the
economy of Tanzania. (Hints: what is the precise definition of a small retail shop,
63
or how small should a shop be to be classified as a small independent retail shop

(consider annual sales, total assets, number of employees, division of labour, forms
of ownership, etc), how much percentage of all retail units in the country do
independent retail shops account for? Of all retail sales in the country, how much is
accounted for by independent retail shops? What are the advantages and
disadvantages of small independent retail shops over large retail stores?
9. With the aid of a flow chart, explain in details a commodity chain for sunflower in
an area of your choice.
10. In your own words discuss the major characteristics of supermarkets. Suggest the
inherent disadvantages of supermarkets, and indicate what can be attempted to
rectify the situation.
11. There are general complaints among stakeholders in the farming sector, that
supermarkets and big hotels in Tanzania do not accept locally produced farm
products. Instead they get their supplies from abroad, mainly from South Africa.
To what extent is this observation valid, and what do you think can be done rectify
the problem.
12. There is a general feeling that middlemen are exploitative in nature. They exploit
producers as well as consumers and enjoy super profits. Suppose we designed a
policy to eliminate middlemen, do you think this would increase the efficiency of
the system and benefit both farmers and consumers?
13. Why should a typical commodity chain assume an 8-figure shape in terms of
number of participants in the system?
14. Discuss the rationale of rotational market days in rural communities
15. Using a commodity of your choice explain the meaning and functions of local,
secondary and tertiary market in your country.
16. By using example of one traditional cash crop and one food crop in Tanzania
explain the marketing system for agricultural products in Tanzania.
17. Compare the marketing system for tobacco and that for coffee in Tanzania. Which
one is more efficient? Why?
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UNIT FIVE
1.1 MARKETING MANAGEMENT
5.1 The Marketing Concept
To understand marketing management one needs to be conversant with the marketing

concept. Business people in the world have begun to realise that marketing is vitally
important to the success of a firm. This has evolved an entirely new philosophy in business.
It is called the marketing concept. The marketing concept is based on three fundamental
principles – Customer satisfaction, profitable sales volume and coordination of marketing
activities (Figure 6). This means:
(a) All company planning and operations should be customer oriented

(b) Profitable sales volume should be the goal of the firm and not just volume for sake of
volume alone
(c) All marketing activities in a firm should be organisationally coordinated
Customer Total company effort

satisfaction and coordination
The
marketing
concept
Profit (or another measure of long-

term success) as an objective
65
Figure 6: Fundamental principles of the marketing concept
In its fullest sense, the marketing concept is a philosophy of business that states that the
customers’ want-satisfaction is the economic and social justification for a firm’s existence.
Consequently, all company activities must be devoted to finding out what the customers
want and then satisfy those wants, while still making a profit over the long run.
Marketing concept is not a new idea – it has been around for a long time. But some
managers act as if they are stuck at the beginning of the production era when there were
shortages of most products. They show little interest in customers’ needs. These managers
still have a production orientation (selling) - making whatever products are easy to produce
and then trying to sell them. They think of customers existing to buy the firm’s output firms
existing to serve customers and – more broadly – the needs of the society. Well managed
firms have replaced this production orientation with marketing orientation. A market
orientation means trying to carry out the marketing concept. Instead of just trying to get
customers to buy what the firm has produced, a market-oriented firm tries to offer customers
what they need.
5.2 Marketing and Production (selling) orientation concepts
Many people including some business executives still do not understand the difference
between selling and marketing. They consider the two terms to be synonymous. In actual
fact the two concepts have opposite meanings.
Under the selling concept, a company makes a product and then uses various methods of
selling to persuade a customer to buy the article. In effect the company bends consumer
demand to fit the company’s supply. Just the opposite occurs under the marketing concept.
The company finds out what the customer wants and then tries to develop a product that will
satisfy that want and still yields a profit. In this case the company bends its supply to the will
of consumer demand. The contrast between selling and marketing can be summarised as in
Table 2 below.
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Table 2:Some difference in outlook between adopters of marketing concept and the
typical production orientated managers.
Topic Marketing orientation Production orientation

Attitude toward Customer needs determine They should be glad we exist,
customers company plans trying to cut cost and bringing
out better products
An internet website A new way to serve If we have a website customers
customers will flock to us
Product offering Company makes what it can Company sell what it can make
sell
Role of marketing To determine customer To determine customer
research needs and how well reaction, if used at all
67
company is satisfying them

Interest in innovation Focus on locating new Focus is technology and cost
opportunities cutting
Importance of profit A critical objective A residual, what’s left after all
costs are covered
Role of packaging Designed for customer Seen merely as protection for
convenience and as a selling the product
tool
Inventory levels Set with customer Set to make production more
requirements and costs in convenient
mind
Focus of advertising Need-satisfying benefits of Product features and how
product and services products are made
Role of sales force Helps the customer to buy if Sell the customer, don’t worry
the product fits customer’s about coordination with other
needs, while coordinating promotion efforts or rest of firm
with rest of firms.
Relationship with Customer satisfaction Relationship is seen as short-
customers before and after sale leads to term – ends when sale is made
a profitable long-run
relationship
Costs Eliminate costs that do not Keep cost as low as possible.
add value to customer
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5.3 The Marketing Management Process
Marketing management is the process of managing the marketing concept. The marketing
management process comprises of several components such as planning, organising,
staffing, communicating, motivating, directing, controlling and evaluating the effort of a
group of people toward a common goal. Management is involved in carrying out all of the
functions of marketing. It is the responsibility of management to make the various policy
decisions necessary for effective buying and selling. It must decide how to finance the
business and what risks to take. In view of the above, it can be realised that a company’s
success depends mainly on the quality of its management.
The various parts of the marketing organisation must be co-ordinated to ensure that policies
are followed, and management must constantly evaluate the results of its policies. For
simplicity the marketing management process consists basically of: (i) Planning a program
(ii) Executing the program, and (iii) Controlling the plans (measuring and evaluating results)
The planning stage includes setting the goals and planning how to reach them. Execution
includes forming and staffing the marketing organisation and directing the actual operation
of the organisation according to the plan. The evaluation stage is both a look back and a look
ahead of the implementation process. The three components of management are all
connected to show that the marketing management process is continuous (Figure 7).
Marketing planning
- set objectives
- evaluate opportunities
- creating marketing strategies
- prepare marketing plans
- develop marketing program
Control marketing plan(s) Executing plan(s)

- measure results
- evaluate progress
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Figure 7: The marketing management process
5.4 Marketing System Environment
A company’s marketing system must operate within a framework of forces that constitute
the system’s environment. These forces are either external or internal to the firm.
5.4.1 External forces
These generally refer to forces that cannot be controlled by the firm. The external
environment elements can be divided into two groups. The first is a set of broad (macro)
influences such as culture, laws, and economic conditions. The second is a set of
microenvironment (the market, suppliers and marketing intermediaries). Although these
(microenvironment forces) are external to the firms, the company can exert some influence
on them. Detailed discussion of these forces is not considered important in this course; a
reader may consult standard marketing text books. The following six interrelated
macroenvironmental forces have considerable effects on any company’s marketing system.
Yet they generally are not controllable by management.
5.4.1.1 Demography
Demography is the statistical study of human population and its distribution characteristics.
People are the main component of a market. Therefore, marketers should analyse the
geographical distribution and demographic composition of the population as a first step
toward understanding the consumer market. Demographic variables include population size,
population regional distribution, rural –urban distribution, density, race, marital status, age,
ethnicity, etc. All these will influence the way the company operates its marketing system.
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5.4.1.2 Economic Conditions

People alone do not make a market. They must have money to spend and be willing to spend
it. Consequently the condition of the economy is a significant force that affects the
marketing system. The most pervasive macroeconomic elements include economic growth
rate, interest rate, inflation rate, money supply, credit availability, level of disposal income,
etc.
5.4.1.3 Social and Cultural Forces

Social-cultural environment is a broad theme. For the case of this topic only three sets of
social forces that have significant marketing implications are highlighted. These include
lifestyle and social values; major social problems and consumerism (Table 3).
Table 3: Sets of social forces that have marketing implications
Lifestyle and social vale (consider these changes)

 From the thrift and savings ethnic to spending freely and buying on credit
 From a work ethnic to self indulgence and having fun
 From sexual chastity to sexual freedom
 From male –dominance to gender equality
 From emphasis on quantity of goods to emphasis on quality of goods
 From artificial to natural products
Major social problems

 Pollution of natural environment
 Safety in the products in occupations
 Conservation of irreplaceable resources
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 Marketing to low-income markets/customers
Consumerism
 Increasing consumer discontent on products/services
 Perceived injustices in the marketplace
5.4.1.4 Political and Legal forces

To an increasing extent a company’s conduct is being influenced by the political-legal
processes in society. The political-legal influences on marketing can be shown by the
following five examples. In each, the influence stems both from legislation and from
policies established by the government regulatory agencies. The examples include:
 General monetary and fiscal policies – government spending, money supply, and tax
legislation.
 Broad social legislation and associated policies set by respective agencies – civil
rights law, programs to reduce unemployment, environmental control laws, etc
 Government relationships with individual industries – subsidies in agriculture and
other industries, tariffs and import quotas, affect specific industries.
 Legislation specific related to marketing – marketers should know why the laws
were passed, what their main provisions are, and what is the current planning and
operational ground rules set by the courts and regulatory agencies for these laws.
 Providing information and the purchase of goods – designed to help business e.g.
source of secondary information, and the government is the single largest buyer of
goods and services, etc.
5.4.1.5 Technology
Technology has a tremendous impact on our lifestyle, our consumption patterns, and our
economic well-being. Consider for example the impact of technological development like
the automobile, airplane, television, computer, antibiotics, and contraceptive pills. Think
how human life in future might be affected by cures of incurable diseases such as cancer,
72
development of energy sources to replace fossil fuels, low-cost methods for making ocean
water drinkable, or even commercial travel to the moon. These developments would; start an
entirely new industry, radically alter, or virtually destroy existing industries, or stimulate
other markets and industries not related to the new technology.
5.4.1.6 Competition
In virtually all socio-economic systems, competition is a strong environmental force to be
recognised. People basically buy want-satisfying products or services. They can get the
products or services from a wide range of manufacturers. In other words, for any given
product a company is dealing in, there are a number of similar products and substitutes.
Therefore firms must compete for the consumer’s limited buying power.
5.4.2 Internal Forces
These are forces that a company has ability to influence them. To reach its marketing goals,
management has at its disposal two sets of internal, controllable forces: (1) the company’s
resources in non-marketing areas and (2) the components of its marketing mix. Company’s
non-marketing resources include financial and personnel capability, company’s location, and
its research and development (R&D) strength. The marketing mix forces have been
discussed earlier. Figure 8 gives a pictorial presentation of the marketing environment.
73
EXTERNAL ENVIRONMENT
Government Competitors Unions
INTERNAL ENVIRONMENT
Organogram
Shareholders
Public
Managerial approach
Marketing mix
Objectives Personnel
Creditors Customers Suppliers

Figure 8: Marketing system environment
Figure 8: Pictorial presentation of the marketing environment
5.5 Marketing Strategy Planning
Marketing strategy planning means finding attractive opportunities and developing

profitable marketing strategies. To be able to understand marketing strategy planning one
needs to know what a market strategy is. A marketing strategy specifies a target market and
a related marketing mix. It is a big picture of what a firm will do in a particular market.
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5.5.1 Target Market
The market for almost all products is not homogeneous. There are people with different
attributes that make them have different buying patterns. These are women, men, children,
old, young, sick, religious, education illiterate etc. If the
marketer assumes that there is no significant difference in the buying pattern of the people
for the product he is selling, he can go ahead and sell without regard to these attributes. Such
kind of marketing is called mass marketing and the process is called market aggregation.
However, if the marketer believes that the market is not homogenous he would divide the
market into groups of buyers with similar buying patterns (fairly homogeneous group of
customers) to whom the company wishes to appeal. Such a process is called market
segmentation.
By definition: Market segmentation is the process of dividing the total market into parts, or
groups, of buyers who have something in common with one another, which cause them to
have similar buying patterns.
Most of the widely used bases for segmenting the market are based on the three components
of effective demand – people with wants, with money to spend and willingness to spend
money
(a) People with wants – the market can be segmented on demographic bases such as
population geographical distribution (urban and rural), age, sex, family life cycle
(bachelor, young married couples, couple with children, older couples with older
children, other couples with no children (all children independent) older single, etc.
It can also be segmented along race, religion, nationality, education, occupation etc.
(b) With money to spend – In this case the segmentation is based on the distribution of
disposable income in which groups such as poor and rich customers can be formed.
(c) Willingness to spend money – The willingness to spent money is determined by two
main factors: sociological factors (ego pampering) and psychological
(Psychographic) factors such as personality, attitude etc.
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(d)
5.5.2 Marketing Mix
Marketing mix is a set of controllable variables the company puts together to satisfy the
target market. There are many possible ways to satisfy the needs of target market. A product
might have many different features. Customer service before or after the sale can be
adjusted. The packaging, brand name, and warranty can be changed. Various advertising
media – newspapers, magazine, cable, the internet – may be used. A company’s own sales
force or other sales specialists can be used. The price can be changed, discounts can be
given, and so on. With so many possible variables, is there ways to help organise all these
decisions and simplify the selection of marketing mixes? The answer is yes. It is useful to
reduce all the variables in the marketing mix to four basic ones – product, place, promotion
and price. These four elements are referred to as the four Ps of a marketing mix . Only when
all four elements of the marketing mix are right and correctly balanced with each other will
the customer receive in full measures the satisfaction they are seeking. The 4Ps of the
marketing mix are related and have a common focus on the customer, which is represented
as “C” at the centre in Figure 9.
Product
Price Place
Customer
Promotion
Figure 9: Marketing strategy showing the four “P” of a marketing mix
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5.5.2.1 Product
The product area is concern with the developing the right product “product” for target
market. This offering may involve a physical good, service or a blend of both. In addition,
strategies are needed for managing existing products over time, adding new ones, and
dropping failed products. Strategic decisions must also be made regarding branding,
packaging, size, product differentiation and other product features such as warranties. All
these are collectively referred to as product mix.
(a) New product development and product management
In a narrow sense a product is a physical thing carrying a commonly understood descriptive

name, such as shoes, apple, banana, steel, ball, etc. However, such perception of a product
omits/ignores certain attributes appealing to consumer buying patterns e.g. brands,
manufacturer, packaging, colour, etc. A broader interpretation recognises tangible and
intangible attributes of a product. Thus a definition of a product from this perspective is as
follows:
A product is a set of tangible and intangible attributes (including packaging, colour, price,
manufacturer’s prestige, retailer’s prestige, and manufacturer’s and retailer’s services) as
offering that leads to customer satisfaction. The key idea in this definition is that consumers are
buying more than a set of physical attributes.
(a) Categories of new product
There are 3 recognisable categories of new products as follows:
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Truly unique
Example: A cure for a disease, which no medicine is available e.g. Cancer, HIV, A machine
to simplify pancake making, or ugali making. Also in this category we can also include
products that are quite different from existing products but satisfy the same needs. e.g. TV
replacing radios, plastic replacing wood and metals, etc
Replacement for Existing Product
Examples include different coffee products replacing each other. Instant coffee replaced
ground coffee and coffee beans. Other examples include the different models of cars and
equipment fashions in clothes etc.
Imitative Products:
These are new to a particular company but not new to the market. The company simply
wants to capture part of an existing market.
(b) New Product Development Process

As a new product is developed, it progresses from the idea stage to the production and
marketing stages. In general, the development process follows certain steps. In each stage,
management must decide whether to move on to the next stage, abandon the product, or seek
additional information. The steps include (Figure 9):
1) Generation of new product idea

2) Screening of ideas to determine which ones warrant further study
3) Idea analysis and proposal development - Product features, Market demand,
Profitability analysis, Draw on action plan for developing the product.
4) Product development - translate idea on paper into a physical product. Small
quantities are manufactured and technically evaluated.
5) Test marketing - Commercial experiments in limited geographical areas are
conducted to ascertain the feasibility of a full-scale marketing program. Adjustments
are made to the product.
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6) Commercialisation – Full-scale production and marketing programs are planned and

a product launched.
1
GENRATE NEW
PRODUCT IDEAS
2
CONCEPT
Analyse
4
Yes Develop
Continue? PROTOTYPE
No
5
Yes LIMITED
End Continue?
Test market
PRODUCTION
No
6
Yes
End Continue?
Market
No FULL
PRODUCTION
End
Figure 9: The new product development process
79
(c) Reasons for Failure and Success of a New Product

Some products do fail while others succeed. Surveys show that the reasons for failure may
include:
1) Inadequate market analysis – over estimating potential sales of the new product and
misjudgement of what products the market wanted.
2) Product deficiencies- Poor quality and performance, product unable to offer any
significant advantage over competing items already on the market.
3) Lack of effective marketing effort - Failure to provide sufficient follow-through
effort introductory program, failure to train marketing personnel for new products
and new markets.
4) Higher costs than anticipated- Leading to higher prices and lower sales volume.
5) Poor timing of introduction –Product introduced too early or too late, or affected by
circumstance e.g. the MC Donald with the Mc Africa saga
6) Technical or production problem – Product designed and/or produced with defects
On the other hand, the reasons for success include:
1) Organisational changes aimed at strengthening new product planning

2) Better marketing research to evaluate market needs and prospects
3) Improved screening and evaluation of idea and products
4) Skilful advertisement.
(d) Product Management

Like human beings, products go through a life cycle. They grow (in sales), then decline, and
eventually are replaced. From birth to death, a product’s life cycle can generally be divided
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into five stages: introduction, growth, maturity, decline and abandonment. A typical pattern
of sale growth and decline for products is shown in Figure 10 below. Profit margin usually
starts to decline while a product’s sales volume is still increasing. Two points related to the
life cycle concept help to explain why product innovation is so important to a company. A
company’s present products become obsolete. They must be changed or replaced as their
sales volume and market share are reduced by competitive products.
Sales volume
TShs
Profit from another new

product is needed to sustain
company’s growth
Profit
Introduction Growth Maturity Decline
Life of product
Figure 10: The new product development process
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5.5.2.2 Place
Place is concerned with all the decisions involved in getting the “right” product to the target
market’s place. A product isn’t much good to the customer if it isn’t available when and
where it is wanted. A product reaches customers through a channel of distribution, which is
any series of firms (or individuals) who participate in the flow of products from producers to
final consumers or users. That’s why “place” component is sometimes refereed to as
distribution element of the marketing mix. Decisions have to be made on the routes to be
taken for example door to door (direct marketing), independent shops, supermarkets,
cooperatives, franchise, etc.
5.5.2.3 Promotion
Promotion is concerned with telling the target market or others in the channel of distribution
about the “right” product. Sometimes promotion is focused on acquiring new customers, and
sometimes it’s focused on retaining current customers. Promotion includes personal selling,
mass selling, and sales promotion. Personal selling involves direct spoken communication
between sellers and potential customers. Personal selling usually happens face-to-face, but
sometimes the communication occurs over the telephone. Personal selling entails individual
attention of each potential customer. This makes it very expensive. Mass selling is
communicating with large numbers of customers at the same time. The main forms of mass
selling are advertising (paid non-personal presentation) and publicity (unpaid non-personal
presentation). Mass selling may involve a wide variety of media, ranging from newspapers
and billboards and Internet. Sales promotion refers to those promotion activities – other than
advertising, publicity and personal selling that stimulate interest, trial or purchase by final
customers or others in the channel. This can involve use of samples, signs, catalogs,
novelties etc.
5.5.2.4 Price
In addition to developing the right product, place, and promotion, marketing managers must
also decide the right price. Price setting must consider the kind of competition in the target
market and the cost of the whole marketing mix. A manager must also try to estimate
customer reaction to possible prices. Besides this, the manager must know current practices
82
as to mark-ups, discounts, and other terms of sales. And if customers will not accept the
price, all of the planning effort is wasted. In summary, some of the factors that that influence
price setting include pricing objectives, price flexibility, discounts and allowances, legal
environment, geographical pricing, mark-up chain in channels, competition, cost, demand
and price of other products.
5.6 Marketing Department in an Organisation
To manage the marketing concept companies create a marketing department with

responsibility to for all (or nearly all) of the marketing functions. Such a department is run
by an individual labelled different names by different companies - “marketing manager”,
“director of marketing”, “vice president for marketing”, etc. This person usually reports
directly to the firm’s president or general manager and therefore is on the same level as the
production manager. Within the department will be found subdivisions carrying out such
activities as sales, advertising, product development, transportation, warehousing, marketing
research, pricing, product scheduling, customer relations, packaging, dealer relations and
marketing personnel (Figure 11). However there are great differences from company to
company as to the number of these activities which have been consolidated.
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President
Vice Vice Vice Vice president

president president president Human
production Marketing Finance Resources
Advertising Sales Marketing Sales Physical Managers of

manager promotion research manager distribution other marketing
manager manager manager activities
Vice
President
production
Figure 11: Basic company organisation embracing marketing concept
Revision questions
84
1. Explain what it means by marketing management, showing clearly the concept of

strategic planning.
2. Define the marketing concept in your own words and explain why the notion of profit is
usually included in this definition.
3. Distinguish between production orientation and marketing orientation, illustrating with
local examples.
4. Distinguish clearly between a marketing strategy and a marketing mix. Use examples.
5. Distinguish clearly between mass marketing and target marketing.
6. Explain, in your own words, what each of the four Ps in the marketing mix involves.
7. What is price, and explain different approaches in setting price for a product.
8. What id breakeven point. Explain how it can be determined graphically and
mathematically. Discuss at least two uses of breakeven analysis.
9. Why would a business scan marketing environment of a country when making decision
about relocation or expansion? Explain with examples
85
UNIT SIX
2.1 ANALYSIS OF AGRICULTURAL MARKETING SYSTEM
Following the powerful impact of marketing on human life there are various angles from
which agricultural marketing systems could be studied depending the discipline of the
scholar. Historians interested in the dynamic aspect of trade opportunities brought about by
marketing, may focus their study on cultural exchange, stimulation for innovations and
progress, as well as exploitation and suppression. Sociologists also interested in human
development point out the social implications of increased trade (for example
marginalisation of the ethnic minorities in rural areas, cultural contamination and spread of
diseases). Geographers' interest is at the spatial distribution of agricultural production and
concentration of human settlements, especially marketplaces and urban centres, and also
spatial and temporal patterns associated with periodic markets in the area influenced by
market infrastructure.
For economists, markets are implicitly or explicitly at the centre of interest. Agricultural
marketing to some economists may imply primarily the study of finding markets for new
products, in the sense of industrial marketing – thus implying essentially microeconomic
view. Other economists may concentrate on the study of marketing channels, in assessing
the cost-effectiveness in terms of operational efficiency and in terms of pricing efficiency of
such market channels – an emphasis placed by this Unit.
The collection and distribution of agricultural products, particularly food, is an important

mechanism for redistributing resources, wealth and power. Therefore, one of the main
driving forces for economic development is agricultural marketing in the absence of well–
functioning markets agricultural can experience severe drawbacks. An efficiently
functioning marketing system is a necessary condition in order to support economic
development. This chapter summarises:
(i) The meaning of market efficiency

(ii) Measures of market efficiency and
(iii) The structure-condition-performance approach for assessing market efficiency
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6.1 Marketing Efficiency Defined
The awareness that agricultural markets have a positive impact on the economic
development was already an important gain in the perception of policy makers. This
recognition evokes the necessity of an analytical tool that evaluated the performance and
efficiency of marketing systems. The construction of such a tool implies first a profound
method of how to analysis marketing systems.
Second, performance indicators need to be defined in order to measure the efficiency of a

marketing system.
The request for efficiency of a marketing system necessitates defining the attribute
“Efficiency”. Efficiency is an economic expression that sets input in relation to output.
However, this definition is rather difficult to apply as it fails to indicate how the input and
the output of a marketing system can be measured.
One way to measure market efficiency is to compare the market, which is to be analysed
with a perfectly competitive market. The objective is to examine whether elements which
are characteristic for a competitive market are present in the marketing system under study.
The perfectly competitive market includes the following set of conditions:
1. There are numerous traders on the supply and demand side of the market. This
prevents that monopolistic power is concentrated on one participant in trade. Thus,
the decision of a single market participant has no impact on prices.
2. All market participants are assumed to act independently and in an economically
rational way.
3. All participants have complete knowledge of offers to buy and to sell; they are
informed about forces likely to influence supply and demand.
4. All participants have equal access to market facilities at the same terms and
conditions.
5. Items of the traded commodity are homogeneous and divisible.
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If these five conditions characterise a marketing system, the market will perform efficiently
with no opportunity for excess profits. With the ultimate focus on comparing both markets,
we seek to identify a set of parameters that influences economic performance. Thus, the
performance of a perfectly competitive market will be opposed to the performance of the
market under study.
6.2 Measures of Marketing Efficiency
We now discuss the specific tools, which are commonly employed in assessing marketing
efficiency. But, what exactly is marketing efficiency? Since marketing efficiency, in general,
concerns change in output relative to inputs, efficiency in itself is an ambiguous notion.
First, there are problems in what is meant by efficiency; Second, there are problems in
relating a given unit of output to inputs made at some previous time; Third, there are
problems concerned with variability in the units of measurement; and finally, The
construction of yardsticks to measure efficiency presents formidable obstacles to rational
judgement.
In addition, distinction between social and personal efficiency has to be observed in

marketing. The return to individual business for its inputs of time, effort, and money may or
may not be consistent with the long-run interests of society.
Performance criteria are divided into two categories, those related to economic efficiency
and other performance objectives. The former includes technical, pricing and exchange
efficiency and the later includes innovation, inter-sectoral resource transfers, equity,
employment, food security and co-ordination efficiency. In this section we describe aspects
of technical efficiency and pricing efficiency.
6.2.1 Technical Efficiency

Technical efficiency refers to the performance with which resources are used in marketing,
in terms of physical output and input ratios. A technically efficient firm, or market, produces
the maximum possible output from the inputs used given locational and environmental
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constraints. Deviations from technical efficiency can stem from a variety of sources,
including a lack of knowledge of available technologies or inadequate management due to
lack of motivation, skills and/or personnel. In order to measure technical efficiency inputs
used and outputs realised must be identified and measured. Examples of measures of
technical efficiency in marketing are provided by the rate at which raw materials are
transformed into end-and by-products in processing and the extent of quantitative and
quantitative crop losses in handling, transport and storage.
6.2.2 Pricing Efficiency

This is also often referred to as operational or allocative efficiency. As much as pricing
efficiency is related to technical efficiency, one fundamental difference between the two is
that the latter caters for engineering optimal of output maximisation regardless of magnitude
of the incremental costs of production. For pricing efficiency, however, maximisation of
output is only a sufficiency but not a necessary condition of optimally. Allocative efficiency
presumes that the entrepreneurs’ objective function is one of profit maximisation and will,
therefore, provide goods and/or services at a level of output which ensures that the value of
marginal product (VMP) equals the marginal factor costs (MFC). Pricing efficiency is
evaluated in terms of:
a) price trends,
b) market integration which evaluates the relative movement of prices in
geographically separated markets, and
c) marketing margins of prices at different nodes of the marketing chain.
In additional to these types of efficiency the role of physical infrastructures and institutional
organisation to overall process of exchange and their contribution to efficient functioning of
markets must be considered. Potential sources of pricing inefficiency are lack of information
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and lack of standard and weights and measures. Efficiency in this case is taken to be a
function of the accuracy, timeliness, and availability of price information.
6.3 The Structure-Conduct-Performance-Approach
Performance in particular markets depends upon the market structure and the conduct of the
market participants. The structure-conduct-performance approach is one of the most
common and pragmatic methods of analysing marketing systems. This analytical method is
based on the theory that market structure and market conduct determines the performance of
a marketing system (Figure 12).
STRUCTURE CONDUCT
PERFORMANCE
Figure 12: The relationship between the Structure, Conduct and Performance parameters
All three parameters do not have a unidirectional, but rather have an interdependent
relationship. Hence, market structure does not only influence market performance but also
has an impact on market conduct. Furthermore, the performance also affects the
development of market structure and market conduct. The latter emits a similar effect on the
structure and the performance of the market systems.
6.3.1 Market Structure

Market structure is defined as the organisational characteristics which determine the
relations of the sellers in the market to each other, of buyers in the market to each other, of
the sellers to the buyers, and of the sellers established in the market to other actual or
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potential suppliers of goods including potential new participants which might enter the
market. In other words, market structure for practical purposes is defined through
organisational market characteristics, which seem to strategically influence the nature of
competition and pricing within the
market. The characteristics most emphasised as strategic aspects of market structure are:
(i) The degree of sellers and buyers concentration, indicated by the number of seller and
their distribution in the market. In food marketing, very large numbers of buyers and
producers along the marketing chain are suggestive of competitive conditions and,
therefore, the main focus in analysing market structure is on the number and size of
enterprises within the system. If at any point along the marketing chain only one or a
few buyers or sellers dominate the market in terms of volume of commodity handled,
uncompetitive behaviour is possible. Sellers and buyers concentration indices are the
common measures of market structure (Caves, 1992).
According to Scarbourough and Kydd (1992) the concentration index is defined as

the percentage of total industry sales accounted for by a few largest enterprises in the
industry. The computation of buyers concentration may proceed as shown in the
equation below,
 
 XP
Ci   100
 IP 
 
where C is index of concentration; XP is aggregate output of a few largest

enterprises in volumetric terms (kg); and IP is the total output of the industry in
volumetric terms (kg). The concentration ratio of over 50% is an indication of a
strong oligopolistic industry; of 33% - 50% a weak oligopoly and less than that, an
unconcentrated industry.
(ii) The degree of market transparency which refers to the availability of relevant
market information, its distribution among buyers and seller, and its adequacy in
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terms of price sharpening – quality comparisons and of risk reduction or uncertainty

about the future. It includes information about product differentiation among
various sellers – that is, the extent to which their commodities (although similar) are
perceived as not identical by buyers.
(iii) The condition of entry to the market, referring to the relative ease or difficulty with
which sellers may enter the market, this is generally determined by the advantages
those established sellers have over potential entrants.
(iv) Functions performed by the marketing system.
(v) The number of stages within the marketing system and its number of parallel
channels
(vi) The degree of vertical coordination
However, structure does neither include external factors to the market such as national
income or national policy, not does it comprise any internal factors commonly found in the
market. Internal features of the market setting are subject to personal behaviour of the
market participants. These characteristics will be addressed to the following paragraph about
market conduct.
6.3.2 Market Conduct

Market conduct refers to the patterns of behaviour which participants follow in adapting to
the markets in which they sell or buy. The market conduct can be studied under different
aspects. Significant dimensions of conduct include:
(i) Methods employed by single market participants or groups of them in determining

price and output.
(ii) Market participants’ product policy.
(iii) The sales promotion policy.
(iv) Product and sales-promotion policies among competing participants or firms
(means of co-ordination and cross-adaptation of price).
(v) The presence and the extent of predatory or exclusionary tactics directed against
established or potential entrants.
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(vi) Market participants’ co-ordination of activities, like efforts to influence the

cooperation at different stages of the marketing system, quality specification, and
prediction of supply, demand, and prices.
(vii) Market participants’ strategy to avoid risk.
(viii) Market participants’ innovativeness, e.g. their response to changed situations.
Obviously, it is difficult to measure the degree to which the conditions of a perfectly

competitive market have been met. However, operational approximations can be achieved
by using data on price-cost margins, the relationship of actual costs to technologically
feasible minima, price changes in different markets in the same period and so forth.
6.3.3 Market Performance

Market performance is defined as the way in which markets and marketing contribute to
various aspects of economic performance. A market system, or parts of it, can be said to be
economically efficient if:
- all firms are productively efficient

- the spatial distribution of firms, plant and infrastructure is organised to take advantage
of scale and locational economies, and
- the operation of exchange generates prices, which conform to a competitive standard.
Therefore, market performance refers to the economic result of the marketing system under
study. The following criteria as the principal dimensions of market performance:
1. The height of prices relative to the average cost of production.

2. The relative efficiency of production insofar as this is influenced by the size of
farms, (relative to the most efficient), their economies of scale and their extent of
excess capacity.
3. The size of sales promotion costs relative to the cost of production.
4. The product characteristics, including level of quality, and variety of product within
the market.
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5. The rate of progressiveness of the participants and industry in developing both

products and technologies, relative to evident rates of the attainability and relative to
the cost of progress.
6. The stability of output, prices and profits.
7. Waste and losses (after harvest, storage and processing)
Perfect commodity markets do not exist. Nevertheless, some characteristics of price

behaviour that could be expected in such a market can be used as performance measures for
markets that are less than perfect. The measures that can be derived as typical for an optimal
situation are:
1. The seasonal price rise of an agricultural commodity will be approximately equal to

the cost of storage.
2. The spread between prices in two markets will correspond with the difference of
costs that arise when moving supplies from one market to the other.
3. Prices in major markets will move in concert, except as the cost of transport between
them change.
4. Prices will change only when new information enters the system.
6.4 Analysis of the Performance of Utility Generation Marketing Functions
The cost at which storage, transport and processing are undertaken, and the level at which
they are priced, are both important in assessing the economic efficiency of the market. In an
efficient market, costs will be minimal, and prices charged for various functions will lead to
returns to an investment at a rate of normal profit. This chapter discusses the main activities
of an agricultural marketing system.
6.4.1 Storage or Temporal Utility

- It moves produce from surplus to deficit seasons;
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- Storage moves agricultural products from surplus to deficit years;

- It ensures a smooth flow of supplies at all times, especially when imports are in order
but not yet available domestically.
Storage objectives may also differ with the agent practicing storage. The government can
store for food security or price stabilization purpose (e.g. The Strategic Grain Reserve).
Private traders may store for later sales. Farmers are holding stocks for later sale as well as
for later consumption.
6.4.1.1 Seasonality and Storage

In a perfectly competitive situation, off-season prices should be just sufficient to cover the
costs of storage including and element of ‘normal profit’. Where there is no correspondence
between price difference and costs, research can be directed towards locating causes and
posing policy reforms. The simplest technique which can be used to assess the relationship
between costs and price changes is to calculate monthly price changes and compare those
with monthly unitary costs of storage.
6.4.1.2 Measuring Seasonal Price Changes

The most straight-forward way of assessing price changes is to calculate the difference
between prices at harvest time, and those obtained in each post-harvest month, or the
percentage increase from the minimum to the maximum over the year. The difference
between the current price and the expected price of a storable commodity must be equal to
the marginal cost of storage.
Most agricultural products are characterized by seasonality of production and marketing

patterns. For crops, seasonality arises from climatic factors and the biological growth
process of plants. Many crops are harvested once a year and, depending on perishability,
may be stored for sale through a marketing season. A ‘typical seasonal’ price pattern fro a
crop which is harvested once a ear is illustrated in Figure 13.
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The market price is low at the harvest time (since supply is large relative to demand) and
rises, as a function of the cost of storage, to a peak prior to the next harvest. As the market
anticipates the increased quantity and lower prices, which the new harvest will bring, price
tends to fall quite rapidly in the month or so before the next harvest. In the course of the
harvest year, the change in prices should be sufficient to induce a steady release of the
product from storage. Producers’ stocks would also exhibit a seasonal pattern in which
inventories would be highest at harvest but would be depleted during the crop year.
P2
Cost of storage t1 to t2
P1
t1 t2
Price
Time
12 months
Figure 13: Theoretical seasonal price behaviour
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6.4.1.3 Storage Costs

Production and consumption are usually separated in time and the creation of time utility in
bridging this gap is a productive activity that can be accomplished only at a cost in terms of
resources. Storage costs can be classified in different ways:
1. costs that vary with the volume of stocks and/or length of storage time and those
that are relatively independent of these;
2. operational costs; and
3. cost associated with quantity and quality of product losses.
If all costs are only classified as either fixed or variable then these costs categories are
exemplified as:
(a) Fixed costs

The costs of store maintenance or rental, salaries of permanent employees and of obtaining
market information will not vary with the size of stocks except for those on a per unit basis.
Similarly, handling (e.g. filling of store) and overhead expenses will not vary with the length
of storage.
(b) Variable costs

These include direct costs like interest rates on capital tied up in the stored grain and indirect
costs due to losses caused by pests, rodents and other sources of losses. Table 4 shows these
cost data requirements. On the basis of these cost categories the opportunity cost of tied-up
capital; interest on loans; commodity losses; payment for labour and facilities used; and
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normal profits, including payment for risk bearing, are the most important cost elements in
storage.
Table 4: Classification of storage costs

Classification
Type of cost (Fixed/variable)
Compound interest on loans Fixed
Opportunity cost of capital tied in inventories Fixed
Weight losses e.g. due to pest attack (or drying) Variable
Rates or quality deterioration Variable
Warehouse rental, or depreciation, rates Fixed
Depreciation on bags if reused; costs of bags if used only Variable
once
Labour costs: - carrying and stacking Permanent employees Variable
Price and rate of application of pesticides and other Fixed
chemicals, if used
The following summary can be used to calculate total per unit storage costs:
ph(r  i)
C s
12
Where C is monthly cost of storing one unit of crop, r is the rate of crop loss in storage over
a year, i is the annual rate of interest, ph is the unit market price at harvest time, and s is the
unit operating costs of storage per month.
6.4.1.4 Analysis of Temporal Efficiency

The cost relationships are shown in Figure 11. The diagram shows that the fixed costs (FC)
are constant over the storage period, while the variable costs (VC) slopes upwards in a linear
fashion. Price is shown as curve xy and is assumed to increase to increase to a maximum at
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time Tm and then begins to decrease as the subsequent harvest period (H 1) approaches
(Figure 14).
$/ton
Loss or Return
to storage
b
Total Cost TC
Quality and
Quantity Losses
VC
a
c Storage
operating costs
X y
Profit at harvest
FC
Transfer cost
Cost of Production
H0 T* Tm H1
Figure 14: Economic costs and Benefits of storage
The optimal storage in the diagram is given by T*, which yields net maximum returns to
storage of ab. At this length of storage, the difference between the price and the total cost of
storage is maximised, as indicated by the equality of the slopes of the cost and price lines.
To determine whether storage is profitable, the following expression is used:
Pm
1
Ph  Cm
Where Pm = post harvest release price; Ph = harvest price, and Cm =costs of storage till
release. If the left hand side of the equation is greater than 1, a storage gain has been
obtained and vice versa.
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6.4.2 Transport or Transport Utility

In a competitive and economically efficient market, at any one time, differences between
prices obtained in spatially separated markets for identical commodities are a function of
transport costs, including normal profit. Therefore, in assessing the economic efficiency of
spatially arbitrage and transport, inter-spatial price differences can be compared to the costs
of transport.
6.4.3.1 Measuring Price Differences in Space

Most assessments of the economic efficiency of food markets are concerned primarily with
the relationship between rural producer and urban consumer prices. The basic assumption in
inter-spatial price analysis is that crops bought in one place are sold in another, in the same
form, and within the same week, or month. Therefore, time series prices in two market
places, relating to the same varieties, grades, weights and types of commodities, within the
same month, week, or day, can be directly compared. Analysis of such data must be
combined with information on:
1. Prices in different places, collected by analysts;

2. Transport networks to check that the market places are physically connects;
3. The length of time taken to provide commodity at a place useful to consumers; and
4. The actual direction of physical flows at different times of year.
6.4.3.2 Calculating Unitary Transport Costs

The economic efficiency of transport is often assessed through comparing the unit costs of
moving commodity with the price differences per unit of the same commodity in different
places. Thus analysts may need to calculate unit transport costs. Transport cost is usually
calculated per ton per kilometre. Common types of transport modes used include headload,
bicycle, motorcycle, cart (intermediate means of transport-IMT), truck and railway. Each
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transport mode is associated with different transport cost implication – trucks and railways
have lower cost per ton per kilometre over long distance (Figure 15).
Inn calculating costs by distance, the costs are divided into a fixed element, related to
handling, insurance and taxes, and a variable one which increases with distance, including,
for example, fuel and wear and tear. Furthermore, variability in road conditions will affect
the per kilometre transport costs.
Although transport cost per ton decreases with distance in Tracks and railways, the
investment cost in infrastructure per km is higher in the two transport modes.
Data requirements for calculating transport costs are:
 Depreciation of the vehicle; or rent for a rented vehicle

 The opportunity costs of investment and working capital
 Interest charges on any money borrowed
 Fuel and oil
 Maintenance and spare parts
 Road, or vehicle, taxes and insurance
 A driver’s wage and other labour costs
 Tarpaulins, roping etc; crop losses; and the operative costs of buying, loading,
unloading and selling commodities.
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Track Railway
Headload
IMT
Cost/ton
Distance (km)
Figure 15: Relationship between transport cost and distance
In subsequent calculation of the unitary returns to transporting commodities, data on the

following is also essential:
 Volumes of commodities bought, carried and sold, over the period under
consideration;
 Number of kilometres travelled over the same period
 The gross returns to each unit of commodity bought, transported and sold, or the
price differences over the time period and geographical area under consideration.
6.4.3.3 Comparing Costs of Transport and Inter-spatial Price Differences

Comparing the costs of transport with inter-spatial price differences can provide insights
into the economic efficiency of the function, and into the degree of integration of markets
separated by distance. Once calculated, their returns to transport need to be explained,
whether they appear to be high or low relative to other economic activities. For example,
low returns may be the results of poor information, risk aversion, or poor managerial
decision making, rather than highly competitive conditions. High returns may be the result
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of poor information on the part of buyer and sellers, or they may be due to shortage of
vehicles relative to demand; the high risk of the operation; higher rates of depreciation than
estimated or oligopolisitc market structures.
6.4.3 Processing or Form Utility
In a perfectly efficient market, the prices of raw materials and their processed products
should be (a) perfectly correlated over time, and (b) differentiated according to the rate of
conversion, the costs of processing, and normal profits. In comparing costs with the
difference between raw material, and and-product prices, the simplest method is to calculate
unit costs and subtract these from gross unit returns.
Data on physical volumes, and monetary values, and/or prices, of all inputs and outputs are
required to assess the technical, operational and pricing efficiency of processing. In grain
marketing the focus is usually in milling, and in this instance the following need to be
defined:
 The type of technology used (to determine conversion ratios);

 Variations in management practices;
 Pre-milling processes;
 The rate at which raw materials are transformed into various end- and by-products;
 Rates of capacity utilization
 The ownership of mills; and
 The way in which milling services are obtained by others.
The most important costs which vary in relation to the quantity of commodity milled
include:
 Oil, diesel and/or electricity;

 Salaries of temporary workers; and
 Possibly packaging materials and chemical additives.
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Fixed costs include:
 Depreciation in buildings and machinery;

 Insurance, maintenance, repairs and spare parts;
 Salaries of permanent employees; and in some instance, storage facilities and costs.
Table 5: List of Structure-Conduct-Performance Parameters
Structure
List of all market participants involved in the trade
Distribution, share and important of each participant at different marketing levels
Functions each participant fulfils
List of trading locations
Sources of relevant market information
Availability and conditions of access to the sources of information
Conditions of entry to the market
System of reference for measures used in the market
Product and quality standards
Conduct
Strategy of production (share of food and/or cash crops, use of inputs etc.)
Strategy of selling and purchasing adapted by the various types of market participants
(e.g. tactics of gaining clienteles, application of credits, use of contracts).
Strategy of sales (parallel to the strategy of supply).
Methods of determining the price
Strategy of trade (profits of temporal or special arbitrage, strategy of risk, duration of
being actively involved in trade)
Strategy of competition.
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Innovativeness of market participants.

Performance
Spatial price difference corresponding with the costs arising when moving the
commodity between two markets.
The seasonal fluctuations of price approximate with the cost of storage.
Parallel movements of prices in nearby markets indicate a high degree of market
integration
Degree of standardisation of measures used in the trade (quality, volume and weight)
Equal access to relevant market information for all market participants.
Immediate transmittance of price changes.
Review questions
1. Explain how food storage operations contribute to time utility

2. It is sometimes said that food processing is an alternative to storage. Explain why
this is so.
3. How would improved co-ordination of food supplies and demand reduce the
costs of food storage?
4. Improvements in transportation efficiency are sometimes said to lower inventory
costs. Explain how this occurs.
5. What would be the best marketing strategy for a small food processor just
starting operations?
6. What are the roles of quality grades in the food industry?
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UNIT SEVEN
7 MARKETING INFORMATION SYSTEM AND RESEARCH
7.1 Market Information Systems
In the previous discussions we saw that, like any business, marketing firms face
environmental forces emanating from within and from outside the organization. These
forces are very dynamic. Marketing executives must be future oriented. That is, they must
1. anticipate changes
2. forecast the direction and intensity of these changes, and,
3. adjust their organization’s marketing programs to these changes.
To do all that, management needs information. To effectively manage this information, a

company needs a marketing information system- that is a major tool used by management to
aid in problem solving and decision making.
7.1.1 Marketing Information System Defined
Marketing information system (MkIS) is an interacting, continuing, future oriented structure

of people, equipment, and procedures designed to generate and process an information flow
to aid managerial decision making in a firm’s marketing program. Stated differently, a
marketing information system is:
1. The systems concept applied to information handling to
a) determine what data you need for decision making

b) generate (gather )this information
c) process the data ( with the aid of quantitative analytical technique)
d) provide for storage and future retrieval of the data.
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2. Future- oriented. It anticipates and prevents problems as well as solving them. It is

preventive as well as curative medicine for marketing problems
3. Operated on a continuing basis, not a sporadic, intermittent one
4. Wasted if the information is not used
MkIS is especially characterized by its use of a computer and personnel processing

quantitative analytical capabilities. A modern MIS would not be possible without a
computer because of the masses of data to be handled.
7.1.2 Benefits and Uses of an MkIS
1. Without a MkIS management is blind to the constantly changing effects of

the market forces
2. Without a MkIS, information flowing from different sources is frequently
lost, distorted or destroyed.
3. Using information provided by MkIS management can continuously monitor
the performance of products, markets, salespeople, and other marketing units
in greater units.
7.2 Marketing Research
Marketing research is a major component of a marketing information system. Marketing

activities are very dynamic. Because of that, producers and middlemen have to make
decisions on a variety of problems almost continuously. These decisions should be based
upon adequate, timely, and pertinent information, interpreted in the light of previous
experience, prevailing conditions, and probable future developments. Scientific research
furnishes the factual information which, when properly evaluated, enables the marketing
executives to take effective action to accomplish the desired objectives. Without a marketing
information system management is blind to the constantly changing forces-gambling.
Marketing research activities have been increasing tremendously. For example over 75% of
firms in developed countries have a research department. There is doubt whether potential
benefits of such researches are being fully realized because companies are collapsing every
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year while others are full of problems. The reason for that may be explained by lack of
adequate knowledge about the fundamental principles of marketing research and procedure.
Therefore, this topic will introduce you to some of these principles and procedures.
Definition:
Marketing research is the process of systematically gathering, recording, and analysing of
data/information and making recommendations for solving the marketing problem.
7.2.1 The Role of Marketing Research
In our previous discussions, you may have noted that management is responsible for
establishing general policies and make day-to-day decisions concerning the problems facing
the organization. These decisions will not prove satisfactory unless management:
1. clearly defines each problem and has the facts about it,
2. analyses these facts carefully to discover the relationship among them and to
interpret their meaning in the light of existing and likely future conditions,
3. weighs carefully alternative courses of action among the available, and
4. exercise sound judgment in arriving at decisions based on the evidence.
The functions of marketing research are to provide the necessary facts, analyse them, and
suggest the most likely course of action among the available alternatives. Final
responsibility for the action taken, however, lies with the management and not with
research.
To understand the role of marketing research in today’s economy a war analogy can serve
the purpose. In present-day warfare, it would be quite unthinkable for a commander to send
his troops into battle without a complete report from his intelligence staff. This report should
acquaint him with every important feature of the battleground- strength, weakness, position
of the opposing forces, i.e., facts of the situation, and suggestion of one or several possible
programs for the attack. In the market field, the research report should fulfil the same
functions as the intelligence report in the military area.
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7.2.2 Some Limitations of Marketing Research
1. Lack of understanding of its nature on the part of management. Until management

has greater knowledge and appreciation of the benefits of marketing research, and
willingly approves the expenditure of sufficient funds to enable careful studies,
marketing research will fail to realize its full potential.
2. Inadequate Methodology - Although continuous improvement in research
methodology and the utilization of newly developed tools is taking place, much
still needs to be done Almost all techniques are based on unproven assumptions.
3. Interval between inception of study and its completion, and resulting executive
impatience.
4. Difficulty of evaluating monetary value of results - In most instances, it is
important to translate the value received from marketing research into monetary
units, particularly in the short run. Many businessmen hesitate to make
expenditures when the results are so intangible.
5. Preclusion of absolute exactness - Since marketing research deals with a variety of
conditions which are highly dynamic, it is extremely difficult in many cases
impossible to assemble accurate data and interpret them with absolute exactness-
decisions have to be made with those available imperfect facts. All in all,
marketing research can never be used by management as a substitute for good
judgment.
6. More qualified research men needed - The successful performance of marketing
research requires that it must be carried out by qualified individuals. Currently,
there not enough of them. As a result, too much research is now being performed
by staff whose results lead business firms to look with mistrust at the whole field
of marketing research.
7.2.3 Marketing Research Procedure
Careful and logical procedure is fundamental to the success of any marketing research
project. The value of the results obtained will vary directly with the thought and preparation
that goes into the planning phase of the work. Regardless of the type of problem to be
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researched most research projects pass through fairly comparable steps in their formulation
and execution.
7.2.4 Steps in Marketing Research
1.Discovery and Definition of the Problem

2.Review of secondary materials available
3.Planning and gathering of primary materials
4.Summarizing and analysing data
5.Interpreting data and formulating recommendations
6.Preparing the research report.
7.2.5 Sources of Marketing Data
There are two types of data- secondary and primary data. Depending on whether data are
numbers or explanations, they may be qualitative or quantitative. Secondary data sources
include libraries, trade publications, Government publications, trade associations, business
firms and consultancy firms. Sources for primary data include company records, salesmen,
dealer competitors, consumers and industrial users.
7.2.6 Techniques for Primary Data Collection
1 Survey: gathering data by interviewing a limited number of people sample).Three

instruments are available for this kind of technique
a) Personal interview using a questionnaire (structured questions, normally with

predetermined responses)
b) Telephone survey- interview conducted on the telephone.
c) Mail questionnaire- involves mailing questionnaire to potential respondents
and having completed forms returned by mail.
(Discuss the pros and cons of each instrument)
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2 Observational method: data are collected by observing some actions of respondents.

No interviews are involved except as a follow- up to get additional information.
Examples: posing as a customer, or counting-mechanically or electronically. (Merits
and limitations of the observational method).
3 Experimental method- involves the establishment of a scale model or a controlled
experiment that simulates the real market situation as much as possible.(Merits and
limitations)
7.2.7 Data Analysis Techniques
Depending on the extent of computations performed on the data, we have two types of data
analysis:
a) Qualitative data analysis- minimum or no computations, i.e., only explanations of
the situation
b) Quantitative data analysis- subdivided into two: Descriptive and Causal relations-
e.g. correlation and regression.
Table 6: Contrasting characteristics of marketing research and a marketing

information system
Marketing Information System Marketing Research

1 Handles both internal and external data 1 Emphasis is on handling external
information
2 Concerned with preventing as well as 2 Concerned with solving problems
solving problems
3 Operates continuously- is a system 3 Operates in a fragmental intermittent
fashion- on a project-to-project basis
4 Tends to be future oriented 4 Tends to focus on past information
5 Is a computer- based process 5 Is not computer based
6 Includes other sub- systems besides 6 Is one source of information input for a
marketing research marketing information system
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Review questions
1. Using the steps in the research process from the text, describe how you
would go about investigating the feasibility of a flour shop in your town.
2. Evaluate survey, observation and experimentation as methods of gathering primary
data in marketing.
3. Why does a company need a marketing information system?
4. How does a marketing information system differ from marketing research?
5. Carefully evaluate the relative merits of personal, telephone, and mail surveys on the
bases of flexibility, amount of information obtained, accuracy, speed, cost, and ease of
administration.
6. Distinguish between ‘secondary’ and ‘primary’ sources of information and indicate
those you would use in investigating a profitable channel of distribution.
113
7. Based on library reading, prepare general rules which should be employed in the
preparation of the questionnaire. Design a questionnaire illustrating these rules to
determine consumer likes and dislikes for a specific product of your choice.
Reference
114
1. Stanton, J. W. (1981). Fundamentals of Marketing. Sixth Edition. McGraw-Hill, Inc.

U.S.A.
2. Dibb, S. Lyndon, S. William M. P. and Ferrell O. C. (1994). Marketing: Concepts and
Strategies. Second European Edition. Houghton Mifflin Company, U.K.
3. Anderson, W. (2004). Manual of International Marketing. Department of Marketing,
UDSM, Tanzania.
4. Philip, C. F. and Delbert J. D. (1968). Marketing: Principles and Methods. Sixth
Edition. Richard D. IRWIN, INC. U.S.A
5. Etzel, M. J. Bruce J.W. and William J. S.(1997). Marketing. Eleventh Edition. The
McGraw Hill Companies.
6. Perreault, W. D. Jr. E. Jerome McCarthy. Basic Marketing: A Global Managerial
Approach. Fourteenth Edition. McGraw Hill Companies Inc.
7. Kotler, P. (2003). Marketing Management. Eleventh Edition. Prentice-Hall Inc. India
8. Wilmshurst, J. Adrian M. (2002). The Fundamentals and Practice of Marketing.
Fourth Edition. Butterworth-Heinemann. U.K.
9. Ashimogo, G. C. (1996). Marketing of Agricultural Products. Lecture Notes
Compendium for Undergraduate Courses in Agricultural Economics and Agribusiness.
SUA, Tanzania.
115

Agricultural Marketing Nzuri

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Table of Contents

1.1 MARKET AND MARKETING DEFINED .................................................................. 1

2 AGRICULTURAL MARKETING ................................................................. 11

2.1 AGRICULTURAL MARKETING DEFINED ............................................................. 12

3 MARKETING INSTITUTIONS AND COMMODITY CHAINS ................... 32

3.1 MARKETING INSTITUTIONS............................................................................... 32

3.3.1 The Nature of Commodity Chain ..................................................................... 40

4 CO-OPERATIVES AND CROP BOARDS .................................................... 44

4.1 CO-OPERATIVE DEFINED .................................................................................. 44

1.1 MARKETING MANAGEMENT.................................................................... 65

5.1 THE MARKETING CONCEPT .............................................................................. 65

2.1 ANALYSIS OF AGRICULTURAL MARKETING SYSTEM ....................... 86

6.1 MARKETING EFFICIENCY DEFINED ................................................................... 87

7 MARKETING INFORMATION SYSTEM AND RESEARCH .................... 107

7.1 MARKET INFORMATION SYSTEMS .................................................................. 107

7.2 MARKETING RESEARCH ................................................................................. 108

1.1 Market and Marketing Defined

1.2 Types of Markets

There are several types of markets depending on the criterion used:

(a) Location – e.g. Morogoro market, Kariakoo market, etc

Similarly, marketing is defined in different way:

1.3 Historical Development of Marketing

1.4 Marketing and Other Disciplines

Marketing is interdisciplinary in nature, but it draws heavily form economics. Economics is

1.5 Basic Approaches to the Study of Marketing

Marketing is commonly studied through three basic approaches:

1.5.1 Commodity Approach

1.5.2 Functional Approach

By a careful investigation how each of these activities or functions is performer, together

1.5.3 Institutional Approach

1.6 Major Classification of Commodities Marketed

1.6.1 Consumer’s Goods

1.6.2 Industrial Goods

1.7 The Role of Marketing

To appreciate the role played by marketing, it is important to start by seeking an

- The harvesting process of maize, coffee, cotton, tomatoes, etc.

The Role of Marketing

 Feed the nation

It has some adverse effects too such as

Figure 1: A self-sufficient household integrating into the marketing system

Successful marketing of agricultural products is dependent on the creation of conducive

Research must be invested into product varieties, post-harvest handling, preservation,

2.1 Agricultural Marketing Defined

A farmer harvests wheat from his field

He sells wheat to the trader

Farmer Middle men Consumer

Farm-gate price Middlemen’s profit Retail price

From the diagram above, it can be noted that If A is to increase either:

C should increase while B constant

2.2 Distinguishing Characteristics of Agricultural Production and Marketing

Agricultural marketing deserves a separate treatment from marketing of manufactured goods

2.3 Functions of Agricultural Marketing

Transportation From farm to assembly From assembly markets From Public

Processing For own consumption Industrial milling and Rare or no

Welfare Market intervention Increase in producer Increase in efficiency Increase in Policy

2.3.1 Utility Generation Function

Storage generates utility in time (temporal utility). If to a farmer a product available at

2.3.1.5 Facilitation Functions

2.3.2 Resource Allocation Function

The process of agricultural transformation consists of change in the cropping pattern.

Farmers Traders Consumers Public

High producer price Lower costs Lower consumer price

Specialization/ Specialization/ Increase in quantity Priority setting

Figure 2: Virtuous circular effects of a marketing system