INFORMATION SHEET

Studying the Market and Choosing Buyers

Learning Objectives: After reading this INFORMATION SHEET, YOU MUST be

able to:
1. compare traditional and institutional buyers;
2. conduct interviews with different buyers;
Introduction

Within any given market chain, there are three main categories of buyers.
These categories of buyers and their common characteristics are:

1) Traditional local buyers

• Have no formal arrangements with farmers before buying their

product
• Take part in spot trading – prices change daily or hourly based on
supply and demand
• Are easily accessible to farmers in rural areas

2) Traditional regional buyers

• Have no formal arrangements with farmers before buying their

product
• Take part in spot trading – prices change daily or hourly based on
supply and demand
• Are accessible for farmers close to major trading and urban centers

3) Institutional buyers

• Have formal arrangements with farmers before buying their product

• Negotiate pricing – agreed before purchase

• Are accessible to farmers that can pre-plan as part of formal
arrangements, and sometimes supplier accreditation as well

In the face of current trends in globalization, institutional buyers are growing

and institutional value chains are increasingly accessible to smallholder
farmers. Such value chains include:

• Supermarkets and product wholesalers

• Fast food outlets, hotels and restaurants
• Food manufacturers and processors
 • Niche markets for specialty products like organically grown, fair-
trade products and direct consumer markets in the workplace

Institutional value chains have highly organized and integrated operations that
require coordination with trusted suppliers who can deliver the right product
quality and quantity at agreed schedules and at competitive prices.

Farmers are often eager to sell their product into institutional value chains
because of the opportunity they present to earn higher incomes. Institutional
buyers can also pose new challenges and risks for farmers that traditional
buyers do not. As a result, facilitators are encouraged to support farmers to
consider engaging with both traditional and institutional markets (Figure 20).

Facilitators will support farmer clusters to make the decision about engaging
with traditional and institutional buyers based on a strong understanding of
the potential risks and rewards of both buyer categories:

Traditional buyers

• Risk – Potential for significant losses if prices are low at the time of
sale, fluctuating quality standards and buyers stopping their buying
when there is oversupply

• Reward – Flexibility to sell when spot prices are high and willingness
to buy “all in” quality standards
Institutional buyers

• Risk – Potential losses if farmers cannot meet the terms of their

arrangement, and product non-acceptance

• Reward – Security of agreed-upon prices, quality standards and terms

of sale early in the season

By supporting farmers to sell to both traditional and institutional buyers,

facilitators can also help clusters to:

• Mitigate the risk of pole-vaulting (farmers withdrawing their product

from cluster agreements to sell to local buyers when prices are high);
and

• Improve their income security and stability by planning their

cultivation, marketing and sale at the beginning of the agricultural
season.

Buyer interviews

It is helpful to divide the buyer and BDS interviews into two sets of activities:

Interview preparation

• Communicate with the buyer or BDS provider to explain the purpose of

the interview and set an appointment for the interview

• Assign the LRT members the following roles for the actual interview
process: (a) two interviewers (working as a pair) (b) a recorder of the responses
and (c) observers of the buyer’s operational activities

• Review the Questions for Buyer Interviews, BDS Provider Interviews and
Tips for Conducting Interviews, edit the questionnaire as necessary and be
sure that the interviewers are familiar with the questions before meeting the
buyer

Actual interview

• Conduct the interview at a time and location convenient to the buyer or

BDS provider

• After the interview, summarize, discuss and analyze the interview

responses using the Buyer Comparison Table
The time required for a market visit for interviews depends on the number of
products, markets and distances between markets. Usually it takes two to
three days to conduct buyer interviews for one to two products, plus another
day for BDS providers.

BDS provider interviews

The LRT interviews BDS providers along a range of potential key services,
including farm input suppliers, financing, transport, packaging and other
services that support the marketing activities. In order to determine the critical
services to discuss, identify which services are needed to help farmers
transition from the Current Market Chain Map to the Future Market Chain
Map Brainstorm and interview about those services.

The LRT conducts BDS interviews using the same steps outlined above for
buyers, collecting detailed information and comparing available services with
the corresponding service charges. The important point to consider is that
farmers have to incorporate business development service costs as part of the
marketing costs. The farmers should not expect business development services
to be provided for free by the Site Working Group institutions or anyone else
because that is not a sustainable business approach.

QUESTIONS FOR BUYER INTERVIEW

TIPS FOR CONDUCTING INTERVIEW
BUYER COMPARISON TABLE