AGRICULTURAL & COMMODITY MARKETING COURSE CODE MKTM-4062

WALEWENGEL LAMBIYE

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CHAPTER 1: BASICS OF AGRICULTURAL MARKETING

Chapter Objectives
At the end of this chapter, students will be able to:
 Internalize the evolution of agricultural marketing
 Define agricultural marketing
 Understand the importance of Agricultural Marketing  Explain the role of agricultural
marketing to LDCs
 Explain the basic characteristics of agricultural products
 Understand the problems encountered in marketing of agricultural products in LDCs
 Understand relationship between agriculture and the food marketing system
 Conceive the suggested solutions to improve agricultural marketing
 Differentiate marketing of agricultural and manufacturing products
 Discuss enterprises are involved in the marketing of agricultural products in LDCs
1.1 Introduction
During the agrarian or backward economy the societies were largely self-sufficient which means
they were build their own homes, they were make their clothes, tools, etc. only for themselves. In
general the agrarian/backward societies had done everything important to their life by themselves.
Thus, there was no marketing because there was no an exchange. As time passes the society moves
from pure agricultural economy and self-sufficiency to an economy build around division of labor,
industrialization and urbanization. Consequently, individuals grow and produce more goods/foods
than he/she needed for him/her - self.
When they started to produce more than what they can consume, marketing had its beginning in
agriculture. It developed only after man was able to produce more food than he/she needed for
him/herself and only after he/she had found a way of exchanging the products of his labor for those
of others. Marketing come into existence in terms of barter trade when someone realized that
exchange adds value and produces more. This transition from "production for consumption" to
production for exchange" comes about slowly. In fact, the marketing economy of today is still a
part of this transition stage. So, the traditional marketing comes in to existence due to the two
reasons explained in this paragraph.

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The emergence of modern marketing is associated with the World War I which is the main reason
for the emergence of industrial revolution. Before the industrial revolution the world economy had
been dominated by small scale manufacturers where demand was exceeded supply. Then selling
products to nearby customer was an easy task of the manufacturers. Therefore, there was no need
of formally organized marketing efforts. Because, as you know marketing programs not only
demand effort and creativity but also budget for proper implementations of the planned programs.
Therefore, the then strategists didn‗t want to invest on such programs that don‗t add value on sales
which was not the then problem of producers.
But after the industrial revolution machine producer machineries were introduced. Because of this
the world economy slowly comes to be dominated by large scale manufacturers. Not only
production capacity of the existed companies was up-scaled, but also the number of firms which
engaged in production and delivery of similar product were dramatically increased. As a result of
this truth supply exceeds demand. Selling becomes challenging task and selling to nearby could
not enough to manage the over headed stocks of the manufacturers.
To simplify the challenging task of selling, different marketing functional areas, such as sales,
advertising and distribution were established. In general there was a need of well-organized
marketing efforts, i.e., the implementation of modern marketing practices. Now marketing is
unavoidable social, managerial, political, cultural and organizational concern of developed and
developing economies around the world.

Agricultural marketing covers the services involved in moving an Agricultural product from the
Farm to the Consumer. Numerous interconnected activities are involved in doing this, such as
planning production, growing and Harvesting, grading, packing, transport, storage, agro- and Food
processing, distribution, Advertising and sale. The term ‗commodity‘ is commonly used in
reference to basic agricultural products that are either in their original form or have undergone
only primary processing. Marketing had its beginning in agriculture. It developed only after man
was able to produce more food than he needed for himself and only after he had found a way of
exchanging the products of his labor for those of others. This transition from "production for
consumption" to production for exchange" comes about slowly.

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In fact, the marketing economy of today is still a part of this transition stage. With specialization in
production on the rise, agricultural marketing systems have increasingly become more complex.
Today, most producers and consumers of agricultural products live far apart meaning that a number
of middlemen are involved in the provision of crucial services to bring the product from the producer
to the final consumer. Therefore, this course is designed to develop your understanding and skills on
how best to manage marketing systems of agricultural commodities and products in an ever
changing, global environment.

The term agricultural marketing is composed of two words – agriculture and marketing.
Agriculture, in the broadest sense, means activities aimed at the use of natural resources for human
welfare, i.e., it includes all the primary activities of production. But, generally, it is used to mean
growing and/or raising crops and livestock. Therefore, we are confident to say agriculture is the
science and art of cultivating plants and livestock. Marketing encompasses a series of activities
involved in moving the goods from the point of production to the point of consumption. It includes
all activities involved in the creation of time, place, form and possession utility.
With specialization in production on the rise, agricultural marketing systems have increasingly
become more complex. Today, most producers and consumers of agricultural products live far
apart meaning that a number of middlemen are involved in the provision of crucial services to
bring the product from the producer to the final consumer. Therefore, this module is designed to
develop your understanding and skills on how best to manage marketing systems of agricultural
commodities and products in an ever changing, global environment.

1.2. What is Agricultural Marketing?

There are many concepts of agricultural marketing. Some writers have used the economists'
definition of production as a basis for the definition of the term agricultural marketing. The
economist's reason that man cannot create matters: he produces by changing matters in form, place,
and possession so that it might better suit his wants.
Other writers have limited their definition to include only the "sale of the product". This concept
probably originates from the word "market" – a place where the ownership of a product changes
hands, where goods are bought and sold. Here the producer may sell directly to the consumer, but
to do so he may have to package, store, transport, and advertise his products. Note that selling is
not marketing; it is one component /function/ of marketing.

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Based on the above concepts agricultural marketing can be defined as follows:
 Agricultural marketing is the study of all activity agencies, and policies involved in the
procurement of farm inputs by the farms and the movement of agricultural product from the
farms to the consumer.
 Kohls and Uhl define Agricultural marketing as; the performance of all business activities
involved in the flow of food products and service from the point of initial agricultural production
until they are in the hands of consumers.
 Thus agricultural marketing is the link between the farm and non-farm sector. It includes
organization of agricultural and material supply to processing industries, the assessment of
demand for farm inputs and raw materials, and the policy related to the marketing of farm
products to the consumer.
 Therefore, the term "agricultural marketing" as used in this course describes nothing more than
a series of services involved in getting agricultural goods/output from the point of production to
the point of consumption.
 Agricultural marketing generally means the marketing of agricultural products to the first
handler.
 Agricultural marketing is the process by which a farmer seeks to maximize the return from farm
production by providing buyers what they want and supplying it at a profit
• It has to be customer-oriented
• It provides all those participating in it with a profit.
 Agricultural marketing is the series of activities and services relating to moving Agricultural
product from the point of production to the point of consumption.
 Philip Kotler has defined marketing as a human activity directed at satisfying the needs and
wants through exchange process.
 American Marketing Association defined marketing as the performance of business activities
that directs the flow of goods and services from producers to users.
 According to Thomsen, the study of agricultural marketing comprises all the operations, and the
agencies conducting them, involved in the movement of farm-produced foods, raw materials and
their derivatives, such as textiles, from the farms to the final consumers, and the effects of such
operations on farmers, middlemen and consumers. For the sake of common understanding
agricultural marketing is the study of all the activities,

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 agencies and policies involved in the procurement of farm inputs by the farmers and the
movement of agricultural products from the farms to the consumers.
 Agricultural marketing has its own system which plays critical role in the smooth flow of
commodities and ensuring balanced benefits of the farm and non-farm societies. The
agricultural marketing system is a link between the farm and the non-farm sectors.

In short Agricultural marketing is the buying and selling of agricultural products. It covers a
range of activities, from farm-level transactions involving individual farmers and buyers, to
wholesale and retail trade between agricultural producers and consumers. The activities involved
in agricultural marketing include production, storage, transportation, grading and labeling of
agricultural products; advertising, financing and risk management services; consumer education;
market information exchange; pricing services; contracts between buyers and sellers; government
policies on agriculture industry development; new product development; market segmentation
analysis; strategic planning for marketing activities; customer service programs; public relations
initiatives.

1.2.1. Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production and
consumption, but also in accelerating the pace of economic development. It is the most important
multiplier of agricultural development. In the process of shifting from traditional to modern
agriculture, marketing emerges as the biggest challenge because of production surpluses generated
by the shift. The importance of agricultural marketing is revealed from the following; 
Optimization of Resource use and Output Management
An efficient agricultural marketing system leads to the optimization of resource use and output
management. An efficient marketing system can also contribute to an increase in the marketable
surplus by scaling down the losses arising out of inefficient processing, storage and transportation.
A well-designed system of marketing can effectively distribute the available stock of modern
inputs, and thereby sustain a faster rate of growth in the agricultural sector.  Increase in Farm
Income
An efficient marketing system ensures higher levels of income for the farmers reducing the number
of middlemen or by restricting the cost of marketing services and the malpractices, in the marketing
of farm products. An efficient system guarantees the farmers better prices for farm products and
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induces them to invest their surpluses in the purchase of modern inputs so that productivity and
production may increase. This again results in an increase in the marketed surplus and income of
the farmers. If the producer does not have an easily accessible marketoutlet where he can sell his
surplus produce, he has little incentive to produce more.  Widening of Markets
An efficient and well-knot marketing system widens the market for the products by taking them to
remote corners both within and outside the country, i.e., to areas far away from the production
points. The widening of the market helps in increasing the demand on a continuous basis, and
thereby guarantees a higher income to the producer.
 Growth of Agro-based Industries
An improved and efficient system of agricultural marketing helps in the growth of agro based
industries and stimulates the overall development process of the economy. Many industries like
cotton, sugar, edible oils, food processing and jute depend on agriculture for the supply of raw
materials.
 Price Signals
An efficient marketing system helps the farmers in planning their production in accordance with
the needs of the economy. This work is carried out through transmitting price signals.
 Adoption and Spread of New Technology
The marketing system helps the farmers in the adoption of new scientific and technical knowledge.
New technology requires higher investment and farmers would invest only if they are assured of
market clearance at remunerative price.
 Employment Creation
The marketing system provides employment to millions of persons engaged in various activities,
such as packaging, transportation, storage and processing. Persons like commission agents,
brokers, traders, retailers, weigh men, hamals, packagers and regulating staff are directly employed
in the marketing system. This apart, several others find employment in supplying goods and
services required by the marketing system.
 Addition to National Income
Marketing activities add value to the product thereby increasing the nation's gross national product
and net national product
 Better Living
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The marketing system is essential for the success of the development programmes which are
designed to uplift the population as a whole. Any plan of economic development that aims at
diminishing the poverty of the agricultural population, reducing consumer food prices, earning
more foreign exchange or eliminating economic waste has, therefore, to pay special attention to
the development of an efficient marketing for food and agricultural products.  Creation of
Utility
Marketing is productive, and is as necessary as the farm production. It is, in fact, a part of
production itself, for production is complete only when the product reaches a place in the form and
at the time required by the consumers. Marketing adds cost to the product, but, at the same time, it
adds utilities to the product. The following four types of utilities of the product are created by
marketing:
a. Form Utility: The processing function adds form utility to the product by changing the
raw material into a finished form. With this change, the product becomes more useful than
it is in the form in which it is produced by the farmer. For example, through processing,
oilseeds are converted into oil, sugarcane into sugar, cotton into cloth and wheat into flour
and bread. The processed forms are more useful than the original raw materials.
b. Place Utility: The transportation function adds place utility to products by shifting them
to a place of need from the place of plenty. Products command higher prices at the place
of need than at the place of production because of the increased utility of the product.
c. Time Utility: The storage function adds time utility to the products by making them
available at the time when they are needed.
d. Possession Utility: The marketing function of buying and selling helps in the transfer of
ownership from one person to another. Products are transferred through marketing to
persons having a higher utility from persons having a low utility.

1.3. Why is agricultural marketing important for LDCs such as Ethiopia?

In many countries, and virtually every less developed country (LDC), agriculture is the biggest
single industry. Agriculture typically employs over fifty percent of the labor force in LDCs with
industry and commerce dependent upon it as a source of raw materials and as a market for
manufactured goods. Hence many argue that the development of agriculture and the marketing
systems which impinge upon it are at the heart of the economic growth process in LDCs.

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Moreover as Kriesberg1 points out; in LDCs the consumer frequently spends in excess of fifty
percent of the household's income on basic foodstuffs - much of which is inadequate both in quality
and nutritional content. By contrast Americans spend approximately twelve percent of their total
disposable income on food.
In Western Europe the figure ranges from about sixteen to nineteen percent of disposable income.
Furthermore, whereas in developed countries the poor are relatively few in number, and therefore
it is economically possible to establish special food distribution programs to meet their needs, the
scale of poverty in most LDCs is such that the commercial marketing system must be relied upon
to perform the task of food distribution to poor and not-so-poor alike. This being so, it is imperative
that the marketing system performs efficiently.

Economic development itself provides the impulse towards more sophisticated and more efficient
marketing systems. Dixie2 suggests that as countries experience economic growth, their rate of
urbanization tends to increase substantially. Whereas the rate of population growth, in developing
countries, averages around three percent per annum, their cities and towns are increasing their
populations at about four percent per annum. In essence, this means that the number of people, in
urban areas, needing to be fed by rural people, will double within sixteen years. This has clear
implications for agricultural production and the marketing systems that direct that production and
distribute the output to the points of its consumption. Subsistence farming is likely to diminish in
importance as farmers respond to the increased opportunities that development and urbanization
create; farms are likely to decrease in number whilst increasing in size; and agriculture will
probably become less labor intensive and more capital intensive.

Dixie also highlights the potential contribution of agricultural and food marketing, towards
attempts to improve rural incomes in developing countries. The inequality of incomes between the
rural and urban areas draws people away from agricultural production and places great stress upon
the infrastructure and social services of a country's towns and cities. Nowhere was this more
dramatically demonstrated than in Nigeria when petroleum oil was discovered and then exploited
in the 1970s. A large number of jobs were created in the urban areas and people abandoned
agricultural production in large numbers.
Nigeria became a net importer of many agricultural products of which it had formerly been a net
exporter. For as long as the world price for petroleum remained high the economy thrived and
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could well afford the food import bill. However, as soon as the world price for oil fell, the food
import bill became a serious burden. Nigeria would only have avoided this scenario if it had been
able to motivate people to continue in agriculture and this would only have been possible if the
disparity between urban and rural incomes had been reduced. Rurally based enterprises, including
small-holdings, can greatly improve their earning potential by adopting a market orientation. They
can be encouraged to add value to commodities by adding to their utility. Value added products
normally carry a higher margin than raw commodities.
Another development which has in recent times increased interest in marketing practices is the
trend, in many developing countries, towards market liberalization as part of economic structural
adjustment programs (ESAPs).
The view that direct and indirect government participation in production and distribution had
brought about structural distortions in economies has become widely accepted. Measures intended
to correct these distortions include a return to market prices for all products and resources, the
encouragement of a competitive private sector and the commercialization, and sometimes
privatization, of all or some of the functions of marketing para-statals. All of this requires a better
understanding of marketing practices and processes within the country implementing ESAPs
(economic structural adjustment programs), in general, and within the agricultural marketing
parastatals affected, in particular.

1.4. What are the special characteristics of agricultural products that affect the way
they are marketed?
The special characteristics of agricultural products have pronounced influence on where and when
they are produced and marketed. Some of the major characteristics are as follows:
 Perishability
Most farm products are perishable by nature, all farm products, being parts of living organisms,
are good means for bacteria and are therefore perishable. However, the perishability may vary
from a few hours to a few days, weeks or months. The perishability makes it impossible to fix
the reserve price by the producer. Because of their perishability they are vulnerable to price
fluctuations (price decrease) so we need to have an effective and efficient distribution system.
The perishable character of farming products also influence the marketing of these product, it

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 require speedy handling and special refrigeration because quality control becomes a real and
costly problems.
 Bulkiness
In addition to being perishable, most farm products have a low value in relation to their volume
or weight. This bulkiness further complicates marketing. The cost of transportation generally
restricts the production of bulky and perishable items to areas near the market, so any
improvements or advances in the transportation system extend the profitable areas of
agricultural production. This characteristic makes the transportation and storage of agricultural
products difficult. It affects the marketing function concerned with physical handling. Products
that occupy a lot of space are more expensive to transport and store.
Bulkiness requires large storage capacity.
 Seasonality
Agricultural products are also subject to all the varying conditions of nature. Volume of
production varies with the weather, from one season to another, and from one region to another.
Some of the fluctuation in production can also take on the characteristics of cycles, which vary
in length with the biological process involved. For example, it takes about seven years to build
up sufficient numbers of beef cattle to depress their purchasing power, and it then takes a
similar number of years to liquidate enough cattle so the purchasing power will rise again.
Most farm products are seasonal in nature. They are grown in particular season. In harvest
season prices fall and their supply cannot be adjusted or made uniform throughout the year. In
order to balance this mismatch of demand and supply marketer of agricultural products need
to have appropriate storage and transportation facilities.
 Quality Variation
The quality of agricultural product is subject to many conditioning factors, the weather again
being not the least among them. Good quality and large yields go hand in hand. When yields
are poor, quality is frequently poor. Wide variations in quality tend to disorganize the market,
because wide price fluctuations, add to the costly storage, complicate grading and make
transpiration difficult.
 Raw Materials

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The outputs of the agricultural sectors are mostly raw materials for future production. The
marketing systems complete the production process that has begun on the farm and provides much
of the final food value that consumer's desire.
 Geographical concentration of production
The productivity of land for different types of farm product quite different, every land or region
tends to specialize in the production of commodities for which it is resource is best suitable.
Marketer must have good transportation.
 Irregular supply of agricultural products
The supply of agricultural products is uncertain and irregular because of the dependence of
agricultural production on natural conditions. With the varying supply, the demand remaining
almost constant, the prices of agricultural products fluctuate substantially more than that of
manufactured products.
 Small size of holding and scattered production
Farm products are produced throughout the length and breadth of the country and most of the
producers are of small size. This makes the estimation of supply difficult and also creates problem
in marketing.

1.5. What are the common problems encountered in marketing agricultural products
in LDCs?
Over the years, major changes came into effect to improve the agricultural marketing system. Many
institutions such as, the regulated markets, marketing boards, cooperative marketing institutions,
warehousing cooperatives etc., have been established primarily to help the farmers.
However, various studies indicated that modernization in agricultural marketing couldn‗t keep
pace with the technological adoptions in agriculture. The various marketing functions viz., grading,
standardization, storage, market intelligence, etc., need to be improved to meet the present day
requirements of the farmers. In improving the marketing system for food and livestock in
developing countries as Ethiopia, it is pertinent to understand the nature of marketing problems as
it is only by doing this that workable solution can be found to them. Indeed such knowledge of
marketing problems would give information as to why markets are not developing and what
measures are required to develop the markets. These problems include the following:

• Large Number of Middlemen

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The field of agricultural marketing is viewed as a complex process and it involves a large number
of intermediaries handling a variety of agricultural commodities, which are characterized by
seasonality, bulkiness, perishability, etc. The prevalence of these intermediaries varies with the
commodities and the marketing channels of the products.
Because of the intervention of many middlemen, the producer‗s share in consumer‗s birr (pocket)
is reduced.
• Small and Scattered Holding
The agricultural holdings are very small and scattered throughout the country, as a result of which
the marketable surplus generated is very meager. It is not an easy task organizing how the products
can be assembled for efficient marketing. Moreover there are many varieties of particular crops
such as teff (ጢጢ) and this poses problems in pricing.
• Forced Sales
The financial obligations committed during production force farmers to dispose the commodity
immediately after the harvest though the prices are very low. Such forced sales or distress sales
will keep the farmer in vicious cycle of poverty. Report has it that the farmer, in general, sells his
produce at an unfavorable place and at an unfavorable time and usually he gets unfavorable terms.
• Technological Development Problems in Farm Production
Evidence has it that technological change in performing certain farm operations brought in new
problems in agricultural marketing. For example, mechanical picking of cotton associated with the
problem of mixing trash with cotton; potato diggers are found to cause cuts on the potato; sugarcane
harvesters effects the problem of trash mix with the cane, etc. These problems lead to the reduction
of price for the farm products. Unless corrective measures are affected, the production technologies
accentuate the marketing problems.
• Lack of Transport Facilities
This problem has many dimensions. Lack of transport services refer to absence of the transport
service in reasonable agricultural marketing areas, seasonality of transport service, high freight
charges due to inadequacies, lack of all-weather roads and transport vehicles, unsuitability of the
present transport facilities for transportation of some products like fruits, vegetables, eggs, etc. In
some cases there are insufficient vehicles to carry goods from the farms to the rural markets and
from the rural markets to the towns. In other cases, transport accounts for a large proportion of
marketing costs. In some instances, there are no roads or where they exist, they might be seasonal.

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Feeder roads are usually few and, in most cases, have to be constructed and maintained by
communal efforts.
• Poor Handling, Packing, Packaging, and Processing Facilities
For efficient and orderly marketing of agricultural products, careful handling and packing are
required. Present packing and handling are inadequate. For instance, many times we see rough and
careless treatment in the packing and initial handling of fruits and vegetables. Green vegetables are
packed in heavy sacks which will be heated up quickly at the center, wilt and rot soon. Workers or
passengers are allowed to ride on top of a load of vegetables, which will result in physical damage.
Careless handling of fruits and insanitary handling of the produce are other problems. Poor
handling and packing expose the products to substantial physical damage and quality deterioration.
If there are no processing facilities, say, for tomatoes, it means all the harvested crops must be sold
within a given time and because there are packaging problems, quite a substantial part of the
produce may be lost before getting to the market. Not only do these losses cut down the supply of
products reaching the consumers, but also raise the price of the remaining portion, which must bear
all costs.
• Lack of Uniform Standardization and Grading
Inadequacies exist in scientific grading of the produce in the country. In the absence of
standardization and grading, adulteration is the consequence. Each middleman may adulterate the
produce to his short run advantage. This poses a problem in assigning prices to the commodities
as per the quality specifications. In most markets different types of measures are used. These range
from bags to cigarette tins. Weights are rarely used in marketing food and livestock products.
Pricing is usually haggling and the prices paid depend on the bargaining power of the buyer. It is
alleged that no proper relation exist between the prices and quality of the agricultural commodities
and this situation thwarts the farmers getting a remunerative price inconsistent with quality of the
product.
The transaction of such products hardly encourages the farmers and the consumers who are also
denied the privilege of buying a good in relation to the price he pays. Sometimes buyers pay prices
according to their social status. When weights are used, they are always debased or tampered with
and the true beneficiary in this situation of such inadequacies of standardization and grading are
the market intermediaries as they are at liberty to quote any commodity as offer low price.
• Inadequate Storage Capacity and Warehousing Facilities

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Inadequate storage facilities are the cause of heavy losses to farmers in many parts of the world;
and this result in serious wastage of foodstuffs, and increased costs to producers. There are no
scientific storage facilities for perishable products (fruits, milk, meat, vegetables, fish, etc.). The
storage loses of food grains occur at all stages between the farm level and the final level of
consumption. Such losses occur from physical damages due to pest infestations, rodents and quality
deterioration, discoloration and unpleasant odor which would make the product unfit for human
consumption. Most markets lack storage and warehousing facilities and the amount of wastage that
occurs due to the lack of these facilities often account for increasing cost of marketing and, hence,
retail prices.
• Adulteration of Produce and Malpractices in Market
In some cases inferior commodities are mixed with superior ones and are sold as superior
commodities. This is possible since there are no grades and there are no quality control measures.
Also the manipulation of weights and measures is still prevalent in the unregulated markets in spite
of the introduction of uniform system of weights. Arbitrary deductions in the name of sampling
are a common feature. Sale under cover is also another feature of these unregulated markets.
• Growth of Urban Centers
The growth of urban centers creates more marketing problems: concerned with inadequate supply
to meet the increase in size; the need to create new markets; storage and even parking problems
for prospective buyers who own cars.
• Communication Problem
One of the key elements of efficient agricultural marketing system is the availability of proper
communication infrastructure. Rural areas are inadequately placed with reference to posts,
telegraphs and telephone. The literacy rate being low among the farmers, it poses difficulty of the
communication tasks.
• Lack of Information about Production and Marketing
Some marketing problems can be traced to lack of information about production. For instance,
sellers may not be able to identify sources of supply of commodities, while producers may curtail
their production as a result of poor sales. Some broiler producers for instance, keep their birds for
longer periods because they cannot get people to buy them. On the other hand, sellers may not
know that such broiler farm exists. Market information, however, is essential for producers, traders,
consumers as well as the Government, if market mechanism has to work efficiently. The relevant

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market information deals with character and volume of supply of commodities, the present and
expected level of consumers‗ demand, current price quotations and future price trends for different
farm products and their probable impacts on prices. Market information is of two types‗viz.,
market intelligence and market news.
Market intelligence indicates a record of past information in relation to prices, market arrivals, etc.
It essentially helps to make decisions in future based on the past information. Market news on the
other hand, provides current information on prices, arrivals, etc. But in reality the farmers more
often than not, are in total dark as far as this information is concerned. The farmers do not know
the information on the existing prices of the products in the important markets. By and large, the
farmers rely on the price information furnished by the traders. The price information provided
generally is quite advantageous to the traders, rather than to the farmers.

• Lack of Farmers’ Organization

The farmers are scattered over a wide area without any common organization. In the absence of
such organization, farmers do not get anybody to guide them and protect their interests. On the
other hand, traders are an organized body. Thus, the marketing system, therefore, constitutes
unorganized farming community on one side and organized and powerful traders on the other side.
Under such situations, farmers will be generally exploited and do not get remunerative prices for
their produce.
• Inadequate Research on Marketing
Until recently, all efforts have been geared towards producing more without thinking about how to
market them. There is need to know about new technologies in food storage and preservation.
There is also need for research on consumer demands and preferences, handling and packaging.

1.6. What is the relationship between agriculture and the food marketing system?

The link between agriculture and food continually evolves. In primitive societies, the farmer
and consumer were either the same family or close neighbors who bartered their products and
service but as societies develop other linkages are added. Commodity traders, processors,
manufacturers who convert produce into food items and retailers, among others, are interposed
between the producer and consumer. A more recently introduced link into the chain is the scientist.
Scientists as breeders, plant biologists, nutritionists and chemists have made an immeasurable

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contribution to the development of agricultural production and food manufacture over the past 50
years.
It would appear that we have passed through the age of machines in agriculture, and the age of
chemicals, on to the age of biotechnology in agriculture. Biotechnology has great potential for the
developing countries since it is likely to be less capital intensive and more research and know-how
intensive. Thus its benefits can flow faster into the poorer countries that do not have the capital.
Therefore its impact could be faster, more widespread and more significant. As the link between
food and agriculture continues to evolve, we see the emergence of an agribusiness i.e. where
agriculture and food become a continuum.
Multinational companies like Cargill, Brooke Bond Liebig, and Del Monte are examples of
vertically integrated organizations with links all the way through from agricultural production to
retailing. There is a line of argument which says that it makes sense that those who are closest
should the consumer should assess his/her needs and interpret them back to the primary producer.
As disposable incomes increase, the food industry will increase the quality and diversity of the
products it produces. Food manufacturers will have particular expectations of agriculture as a
supplier of their raw materials, including:
 Quality:
To build a profitable business, food manufacturers seek to establish a preference for their products
by differentiating those products in some way which is meaningful to consumers. Then, in order
to enable consumers to recognize the differentiated product, manufacturers brand that product.
Manufacturers can then work on building consumer loyalty to these brands. Brand loyalty is
normally only established by delivering high quality consistently. As disposable incomes rise, the
market tends to develop more sophisticated needs and the quality of the raw material becomes even
more critical. Where agriculture is seeking to serve a food industry, that itself is seeking to meet
these more sophisticated needs and wants, it can expect to face increasing emphasis on quality.
Equally well, agriculture can expect to share in the better return for innovative improvements in
quality.

 Cost:

17 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Next to quality will come cost With an increased capability to search the world for raw materials,
the food industry is able to find the lowest cost source for any given level of quality. For the food
manufacturer, the country in which he/she manufactures, or markets, need no longer be the source
of agricultural produce. Improved transportation and communications mean that the world is
becoming his/her source of supply. This is a significant change in the competitive environment of
agriculture which the farming community has to realize, because they have, hitherto, been largely
condoned in their respective domestic markets.
 Non-seasonality:
Agricultural products were traditionally seasonal in their production and supply. Modern
technology and husbandry practices mean that food manufacturers need not have their production
schedules dictated by the seasons. Indeed, the capital intensive food industry cannot afford to incur
the high costs of underutilizing its capacity. This means that farmers will have to complete in terms
of reducing seasonality or fitting into a pattern of social competitiveness.
 Reliability:
A manufacturer who has invested heavily in building up his brand will be very keen to get reliable
supplies in terms of quality, timing and cost. Producers of agricultural produce will be increasingly
judged on their reliability in all of these respects.
 Processing:
Ease of processing will become an increasingly important expectation of the food industry. Like
all industries, reductions in the costs of capital equipment, wages and inventories are important
objectives. For example, farmers who can deliver on the ‗just-in-time‘ principle will contribute
towards reducing a manufacturer's working capital and space requirements. Farmers who can do
part of the secondary processing and/or performing functions such as the post-harvest treatment of
the crop or transporting will be adding another advantage. Crops that are specially bred or designed
to facilitate processing (e.g. seedless fruits, featherless chickens, coffee beans without caffeine,
low cholesterol meats) are another type of advantage that the food industry could expect from
agriculture. In short, the competitive advantage will rest with those able to add most value and can
differentiate what they are offering from that of other suppliers.

 Product differentiation:

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In competitive brand marketing, the food industry has to innovate continuously to create new
products that are different from and superior to existing ones of their own or competitors. The
scope of innovation has traditionally been at the processing stage. Whilst this will continue to be
an important area for innovation, manufacturers will increasingly tend to look for innovative
changes in the agricultural produce itself. This may be in terms of novel tastes, improved texture,
more attractive shapes, etc.
 Health aspects:
We have already said that in the more sophisticated food markets, healthy eating can become a
priority among consumers. Therefore, farmers will have to consider the health connotations of
what they choose to grow. There are two aspects of health to be taken into account. First, consumers
may be interested in the food itself i.e. low fat, low/no sugar or low/no salt. It would be a mistake
to think that health issues are confined to the more sophisticated food markets or to the wealthier
segments of the community.
Nutrition is important in all segments of the market. Even where the poor receive adequate amounts
of food to fend off starvation, they are often malnourished. Thus farmers have to be concerned
about the nutritional value of the produce they grow. Second, the consumer may be more, or
equally, concerned about the food production methods i.e. the avoidance of chemicals like
herbicides, pesticides etc. This may mean a change to the farmer's husbandry practices with
implications for the costs of production. The consumer and the food industry will expect the farmer
to produce without potentially dangerous chemicals, but at no extra cost to them. This will be
another challenge for agriculture.

1.7. What types of enterprises are involved in the marketing of agricultural products in
LDCs and what are their strengths and limitations?
The principal components of any marketing system are the institutions and enterprises of which it
is comprised. Three of the principal forms of enterprise to be found in developing countries are
discussed in this section. These are: private companies, marketing boards and co-operatives.
1. Private enterprise
Private enterprise has much to commend it, including a much higher level of financial
independence from government than public enterprises. Moreover, private enterprise is able to
adapt rapidly to changing circumstances and opportunities and is usually able to provide what
consumers want at a lower cost than public enterprises.
19 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
According to Abbott, successful indigenous private enterprises, in agriculture, have several
distinguishing characteristics. Those cited by Abbott apply particularly to enterprises that are
owner-operated.
 Personal initiative: - entrepreneurial spirit is in evidence when an individual shows a
willingness to accept calculated risks.
 Rapid decision making: - Decision making within private enterprise tends to be quicker,
because of the absence of a weighty bureaucracy, than in public enterprise equivalents
 Independence of spirit and persistence: - Entrepreneurs need a good deal of selfconfidence
i.e. they must be prepared to back their own judgments rather than rely on the views and
support of others. Moreover, it often takes a fair amount of time before market demand can
be built up and new markets penetrated and hence the need for tenacity
 Willingness to work hard, for long and/or irregular hours: - There is a direct
relationship between effort and the level of success in private enterprise. Rarely is the
entrepreneur able to rely on others covering for him/her and no-one pursues potential
business or seeks to solve management problems with as much vigor as the owner.
 Relevant experience and/or expertise: - Most successful private entrepreneurs have
experience and/or expertise which others are willing and able to ‗buy‘. This could be, for
example, the ability to judge the quality and quantity of meat a live animal will yield when
slaughtered
 An understanding of agriculture: - This of course, relates to agribusinesses and is essential
to those seeking to do business with farmers (or fisherman). Knowing how crops are grown
and mature and understanding the priorities of producers and the daily/seasonal pressures
they face are invaluable in agribusiness.
Abbott highlights several particular strengths of private enterprise, including:

• Low operating costs: - Nothing so concentrates the mind on cost control than ownership.
The private entrepreneur has every motivation to contain costs since to do otherwise erode
his/her profit margin.
• High levels of equipment utilization: - Since private enterprise has as its prime objective,
profit, everything is done to maximize the use of capital equipment, and thereby lower unit
costs e.g. concern is shown to keep factories operating at high levels of capacity utilization,

20 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 attempts are made to ensure that the firms' vehicles have economic return loads as well as
outward loads etc.
• Adaptability: - Decision making within private enterprise tends to be quicker, because of
the absence of a weighty bureaucracy, than in public enterprise equivalents.
• Limitation: - Stiff competition of market among private enterprise.
2. Marketing Board
Marketing boards are, in most instances a government agency and/or statutory organization having
the function of intervening in the marketing process, with a view to serving the cause of efficient
and orderly marketing. Less frequently they are voluntary organizations established by
farmers/producers. Put another way, marketing boards tend to be born out of government policy
rather than by consensus among commercial parties. This is especially true of marketing boards in
the tropics where their chief object is to improve the income of the smallholder, grower, and/or
livestock farmer. Marketing boards do not normally provide marketing services to large estates or
plantations. Prior to the adoption of structural adjustment and market liberalization nearly all
marketing boards served as ‗price stabilizing boards‘.
Another characteristic of marketing boards is their focus on durable products. Marketing boards
are normally given authority for ‗controlled‘ or ‗scheduled crops‘. In many countries fewer than
5 crops are controlled. These tend to be traditional crops like millet, sorghum, rice, maize,
groundnuts and palm oil and ‗colonial‘ crops such as cocoa, cotton, coffee, tea, tobacco and rubber.
Some governments have opted for boards that control more than one crop. In some cases, the
marketing board performs all of the marketing functions itself but in others it cooperates with
private enterprise by, for example, hiring storage facilities or appointing local buying agents. The
effectiveness of a particular marketing board is often viewed in terms of three factors:-
• Its contribution to orderly and efficient marketing
• The reduction in the capacity of intermediaries to manipulate margins at the expense of
producers and consumers
• The generation of producer-oriented monopoly power
In many cases the establishment of a marketing board was a reaction to situations where middlemen
and/or foreign buyers were perceived to hold monopolistic power over producers. Hence the role
of the marketing boards is frequently articulated as being one of organizing producers into

21 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

monopolistic agencies with real countervailing power; to reduce inefficiencies due to unwarranted
competition, and duplication of effort between intermediaries.
In theory at least, the marketing board contributes to orderly marketing by acting as an agent for
improving marketing practices, as a market regulator and as a provider of facilitating services. For
instance:
Change agent: - Marketing boards can establish marketing practices and procedures for raw and/or
processed products

Regulatory role:-Marketing boards may act as ―watch-dogs‖ over agreed marketing practices
and procedures e.g. credit arrangements, weights and measures, quality control etc.
Facilitator marketing: - boards may provide all or some of the facilitating services e.g. credit,
market intelligence and risk management. The last of these usually takes the form of the
guaranteeing of prices. In the case of tree crops prices are announced in advance of harvest. Prices
for annual crops are normally made known before planting or sowing.
The role of marketing boards in bringing about more efficient marketing is most often framed by
policy makers in terms of modifying the market structure. That is, trying to make what is perceived
to be an imperfect market structure more advantageous to producers. Of course, in doing so,
account ought to be taken of the effect on both consumers and other players within the marketing
system. This is not always done and the question is begged whether a market structure which is
organized to the principal benefit of one particular set of players is anything other than imperfect
to the others.
One particular way that a marketing board may act to modify an existing market structure is to
rationalize the system in an attempt to reduce inefficiencies seen to be caused by unwarranted
competition and duplication of effort between intermediaries. For example, there may be
duplication of transport, storage and processing facilities to the extent that capacity utilization
cannot rise to economic levels without extremely high charges to compensate. Marketing boards
may try to rationalize the system through, for example, a system of licenses.
Limitation
Some criticisms would best be addressed to those governing the activities of the board. For example
marketing boards are frequently used, by governments, as instruments of national policy,
including:

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 • the promotion of agricultural and rural development with social goals overriding
commercial objectives
• as instruments of fiscal policy
• as a mechanism for containing urban wages through price restraint on staple foods
• as a device to encourage farmers to grow and sell more food and export crops, by pushing
higher producer prices
• As a means of consolidating power by placing political appointees on to the Board11.
However, the argument in favor of giving producers real countervailing powers is strongest
in situations in which the marketing system is characterized by a myriad of largely
powerless producers and a relatively small number of powerful intermediaries. In these
circumstances, the price-makers are the middlemen and both producers and consumers are
price-takers.
In some countries the buying points are staffed by board employees, but the costs of running the
buying points and the associated transportation costs can become too high and some governments
seek alternative solutions such as transferring buying points to local co-operatives, and/or by
appointing licensed buying agents (LBAs)
3. Co-operatives
The co-operative enterprise has its origins in the 19th century and has become one of the most
ubiquitous examples forms of business/economic enterprise. Co-operatives exist in all countries of
the world and operate under diverse political systems: from communism to capitalism. The
majority of these co-operatives are, through their national apex organizations, ultimately in
membership of the International Co-operative Alliance (ICA), the representative world body of co-
operatives of all types.
The motivation to form co-operatives has three particular aspects:
• the need for protection against exploitation by economic forces too strong for the individual
to withstand alone
• the impulse for self-improvement by making the best use of often scarce resources
• The concern to secure the best possible return from whatever form of economic activity
within which the individual engages whether as a producer, intermediary or consumer. It
is the belief that each of these aspirations can most advantageously be pursued and secured
in concert with like-minded people that provides the stimulus to co-operative action. The

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 underpinning principles with are those of self-help, voluntary participation, equity,
democracy, and a common bond of common need and purpose. The cohesion of the group
is maintained by ensuring that individual members cannot secure power or gain advantages
at the expense of the others. Co-operatives reward participation in the co-operative venture
rather than rewarding capital Self-interest is a primary motivator in co-operative
enterprises, with economic gain being the primary objective. In these respects, cooperatives
differ little from capitalistic enterprises; selfinterest is simply pursued in a different way
from the capitalist enterprise. Thus, the rate of interest paid on share capital is fixed and
limited, and not subject to variation according to the amount of profit made. Secondly the
use and distribution of surplus is restricted to one or more of the following purposes:
• allocation to reserves, where it becomes collectively-owned capital and is thereafter
nondistributable
• for use on, or donation to, common-good, community project
• Distribution to members in proportion to the trade each member has done with the
cooperative. In other words, the distribution is made not in relation to capital held, but by
declaring a bonus or dividend per cash unit of trade done
 The Structure and organization of co-operatives
There are two principal forms of co-operative organizations: primary co-operatives and secondary
co-operatives. The basic unit in the co-operative systems is the primary co-operative. A primary
co-operative is one in which the shareholder are individuals; each of them having an equal share
in its control.
Primary co- In many cases, primary co-operatives will combine several
operatives functions e.g. an agricultural co-operative may provide consumer
supplies to its members. Primary co-operatives may also own and
run subsidiary enterprises related to their main functions, such as
a consumer co-operative with its' own manufacturing/processing
or servicing business.

24 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Secondary co- While a primary co-operative has individual persons as members,
operatives a secondary (or federal) co-operative is one in which other
cooperatives are the members. Apart from this basic difference
the structure and organization of both types follow a very similar
pattern.

 The control and management of primary co-operatives

The control structure of co-operatives is made up of three tiers. The General Meeting of Members
makes policy and through this meeting members exercise control. In most countries there is a legal
requirement to hold an Annual General Meeting which has the particular responsibilities of
receiving and deciding upon an audited statement of account, deciding how any surplus shall be
used and distributed, and of electing a committee.
The General Meeting of Members delegates the operational control of the co-operative to a
management committee (or board of directors), which controls the works of the co-operative on
behalf of the members. One member of this committee is elected chairman or president. A manager
(or secretary) is appointed by the management committee as the chief administrative officer of the
co-operative. He/she is responsible to the committee for the day-to-day control of the business. In
small co-operatives he/she may be a member elected to do the work without pay.  Federal or
secondary co-operatives
Secondary co-operatives (also variously described as ―union‖ or ―federal‖ co-operatives) can be
organized for many different purposes. It is quite possible, and quite common, for a primary
cooperative to be a member of several secondary co-operatives, depending on its needs and the
local co-operative structure.
Through the device of federation, co-operatives are able to organize very large-scale business
operations at the national - or even international - level without detriment to the democratic control
of the primary co-operatives by their own members. The secondary co-operative can, because of
its larger volume of business or its wider representational base, undertake functions, provide
services, and make representations, which would be beyond the capacity of all but the very largest
primary co-operatives. Secondary co-operatives are a form of vertical integration providing the
opportunity for economies of scale, scope for development and improved administration.
Secondary co-operatives can in turn form other secondary co-operatives - sometimes called tertiary
co-operatives. In many countries there is one apex federation representative of all other
25 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
cooperatives in the country and providing, at the national level, representative, advisory and
professional services to the co-operative movement as a whole. These national co-operatives can
then be affiliated to international organizations such as the International Co-operative Alliance. 
Control and management of secondary co-operatives

The control and management of secondary co-operatives is similar in form to that of primary
cooperatives. The shareholding members - the primary co-operatives - exercise policy control
through the General Meeting and elect a management committee to act on their behalf. The
management committee in turn appoints a chief officer to manage the operation under its direction.
The bye-laws of secondary co-operatives, as with the primaries, set down the organizational rules
and procedures and are subject to the approval of the responsible local authority. The operating
surplus of a secondary is also used and distributed following the same principles as a primary
cooperative.
The federal co-operative can tend to become the masters of their member co-operatives rather than
their servants. This situation can arise two reasons. Secondary co-operatives engaged in
manufacture and trade can usually only operate efficiently given a high level of integration between
their operations and those of their members. This requires a commensurate high level of discipline
or some form of contractual compulsion. Secondly, the operational size and volume of trade of
secondary's can be such, compared to individual primaries, that there is a strong tendency for them
to behave as the dominant partner in the relationship. It is a tendency that has to be monitored and,
where necessary, checked. The secondary co-operative has as its chief obligation, the provision of
services to member co-operatives.
 Strength
The potential of co-operatives is immense. Co-operatives appear well suited to the economic, social
and institutional needs of development in the rural economy. Co-operatives can provide the
mechanism to organize and mobilize people for self-help action in providing the services they
require as a farming and rural community. As self-administered rural institutions, cooperatives
have the capacity to reflect, and to respond to the needs of their members; and, at the same time,
to help foster attitudes of self-reliance and self-confidence within a framework of mutual
aspirations and mutual action. In the delivery of services to their farmer-members they can provide
an essential support to the development objectives of both the farmers themselves, and of national
development policy.
26 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
As business organizations co-operatives also have the capacity to act directly as development
agencies. In their steady accumulation of business assets, the expanding range of their services, the
acquisition and use of management skills, the employment of staff, they are involved in a positive
and measurable development function. Moreover, the flexibility of co-operative organization, for
example through the potential of secondary co-operatives, offers opportunities for collective action
in the development of agro-industrial enterprise to help support and strengthen local initiatives,
and to give a further boost to rural development. There are few countries where co-operatives are
not recognized as potentially important agencies of development.
 The weakness of co-operatives
Unfortunately, the potential of co-operatives, and the extent of their development, has, in many
cases, fallen for short of expectations. Low standards of performance, bad management, financial
failure, corruption and misuse of funds, use of co-operatives for political ends, have been common
features of co-operative enterprise in many countries. As a consequence, a great deal of
understandable criticism has been leveled at the co-operative system, and many, including some
members, have become cynical as to its ability to play an effective role in the development process.
There are a number of problems which inhibit co-operative development and adversely affect
performance, the more important of which are discussed below.
 Realism of objectives:
Commitment and purpose are two important ingredients in motivation. Achievement of purpose is
equally important. Objectives are expressions of purpose and expectation. To serve as motivators
and guides to action they have to be attainable. The resources available have to be adequate to
achievement of the objectives, and aspirations must be matched to ability. Neither members nor
others should expect too much of co-operatives, including expecting them to expand too quickly.
Most agricultural co-operatives in developing countries operate in commercial circumstances
which any form of business enterprise would find difficult. Like their farmer-members,
cooperatives have to operate in very marginal conditions. Their members are usually poor, often
subsistence farmers. High operating costs, low margins, relatively low turnovers, narrow stock
inventories, seasonal trading patterns, exposure to the consequences of crop failure, high credit
risk, fluctuating demand, are all familiar aspects of trading in such circumstances. Indeed, were it
not so, it could be expected that private enterprise would have moved in to exploit a profitable

27 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

market. It is not uncommon for co-operatives to be introduced to provide essential services because
other agencies have either failed, or refused, to do so.
Expecting too much of co-operatives is one fault, expecting too much too quickly is another. The
mistake is frequently made that once a co-operative appears to be reasonably well established,
injection of loan capital from some external source will permit it to rapidly expand its services.
Such hasty injection of loan capital can strain management resources, encourage unwise risktaking,
weaken financial judgment, lead to overstocked inventories and promote loss-making enterprise.
Co-operatives ought to be allowed to develop at a pace commensurate with the ability of members
to manage, control and finance the development. They should be permitted to expand steadily like
any other successful business enterprise, finding the resources to do so largely from surpluses made
in their own trading operations. Business capacity should not be strained, for example, to meet the
objectives of a government development policy. Revolution rather than evolution will only prove
detrimental to both the viability of the co-operative and to the attainment of the policy objectives.
 Conflict between economic and social purposes:
Economic success is basic to the achievement of co-operative purpose for, in the long run,
unprofitable enterprises cannot be sustained. However, co-operatives are constrained in the extent
to which they can mimic the objectives and practices of capitalist enterprise without abandoning
the fundamental values of the co-operative movement. For example, in the pursuit of business
growth there can be a strong temptation to weaken member control and concede greater control to
professional management, to make the creation of profit a paramount consideration, and to ignore
the concepts of equity and fair dealing. The creation of collectively-owned capital by reinvestment
of profits (surplus) is a highly important and desirable practice, but has its disadvantages in that if
the element of members' share capital as a proportion of the total capital structure becomes so
insignificant that professional management can afford to ignore it and so ignore member control
in making policy decisions. The outcome is an enterprise largely indistinguishable, except in name,
from a capitalist enterprise.
 Misuse of co-operatives to pursue political objectives:
Attempts to divert the purpose and resources of co-operatives to the support of particular political
objectives adversely affect the co-operative movement. Factional dissension among the group
distracts it from the achievement of its economic objectives. Members' meetings can become
political forums devoted to the advocacy of opposing views. In these circumstances many members

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can become disenchanted and lose interest, making it easy for a minority group to take control and
to attempt to run the co-operative to serve its own ends.
Co-operative principles require that membership should not be assumed to imply either political
commitment or obligation. Co-operative systems organized and tightly controlled by governments
as instruments of state economic policy are rarely conducive to the development of
democraticallycontrolled, member-owned co-operatives. They are created to serve the objectives
of politicians and planners; objectives which may or may not coincide with those of the members
who have little effective control of the enterprise.
 Management:
There has been a tendency to argue that a major cause of co-operative failure is the constraint
imposed on the exercise of management skills and authority by the democratic nature of the
enterprise. That being so, suggested that the authority of the General Meeting ought to be curtailed
leaving committees and managers to get on with the job of management. However, to do so would
deny the purpose of the enterprise that being to enable people to run their own business. The
solution lies in increasing and improving the level of member participation, not restricting it.
Moreover, the standard of management within co-operatives is often inherently poor. As has
already been said, co-operatives often come into being in markets and geographical areas
considered as marginal in terms of profit potential by most other forms of commercial business
enterprise. This being the case, the salaries, working conditions and work location that they are
able to offer fail to attract top quality managers.

29 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 CHAPTER 2: AGRICULTURAL MARKETING FUNCTIONS

Chapter Objectives

At the end of this chapter, students will be able to:

 Identify the agricultural marketing functions
 Examine the role of each agricultural marketing function
 Explain the role of agricultural functions on adjustment production and consumption of
commodities
2.1. Marketing Functions
A little earlier it was said that a marketing system has two distinct dimensions. One of those
dimensions is the institutions, organizations and enterprises which participate in a market and the
second is the functions that those participants perform. Kohls and Uhl6 have classified the
functions involved in agricultural and food marketing processes as under three sets of functions of
a marketing system.
A. Exchange Functions 1. Buying
2. Selling
3. Storage
4. Transportation
5. Processing
6. Standardization
7. Financing
8. Risk Bearing
9. Market Intelligence
Each of these functions adds value to the product and they require inputs, so they incur costs. As
long as the value added to the product is positive, most firms or entrepreneurs will find it profitable
to compete to supply the service
2.1. Storage
Storage: An inherent characteristic of agricultural production is that it is seasonal whilst demand is
generally continuous throughout the year. Hence, the need for storage is to allow smooth and as
far as possible uninterrupted flow of product into the market. Because he is dealing with a
biological product the grower does not enjoy the same flexibility as his manufacturing counterpart

30 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

in being able to adjust the timing of supply to match demand. It would be an exaggeration to suggest
that a manufacturer can turn production on and off to meet demand - they too have their constraints-
but they have more alternatives than does the agricultural producer. A manufacturer can, for
example, work overtime, sub-contract work, and over a longer time horizon, the manufacturer can
increase or decrease productive capacity to match the strength of demand.
In agriculture, and especially in LDCs, supply often exceeds demand in the immediate postharvest
period. The glut reduces producer prices and wastage rates can be extremely high. For much of the
reminder of the period before the next harvest, the product can be in short supply with traders and
consumers having to pay premium prices to secure whatever scarce supplies are to be had. The
storage function is one of balancing supply and demand.
Both growers and consumers gain from a marketing system that can make produce available when
it is needed. A farmer, merchant, co-operative, marketing board or retailer who stores a product
provides a service. That service costs money and there are risks in the form of wastage and slumps
in market demand, prices, so the provider of storage is entitled to a reward in the form of profit
Adjustment of supply and consumption is not entirely accomplished by price alone. Storage of
products for later use has long been accepted method of adjusting variable supplies to the yearlong
needs of consumers.
In broad term, the object of storage is to help balance supply and consumption. There are at least
four rather specific reasons for a storage program. Perhaps the most obvious of these is the seasonal
nature of most farm production. Products like strawberries have a relatively short harvest period
yet are used throughout the year. Others, such as eggs, is produced throughout the year, but the
level of production varies widely storage of these commodities is not for storage's sake alone.
Rather, it is storage to maintain a reasonably stable price for producers as well as for marketing
agencies and consumer.
A second reason for storage, and one that is often overlooked, is that there is a demand for different
products throughout the year. The fact that consumer are willing to pay for the storage job so as to
have products available for use in off seasons encourages other to perform the storage services.
Clearly, if there were no demand for product X or Y in December/January, no one would consider
processing and storing it during the spring months of plenty so that it would be available later.
A third reason lies in the time required to perform the various marketing service. Transportation
from areas of production takes time; so do processing, aging, and buying and selling. Figuratively
31 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
speaking, there is a pipeline from producer to consumers, and to keep this pipeline filled, stored
supplies must be available. Occasional minor variations in consumption or marketing are also more
easily handled if supplies can be either taken out of or put into storage. A fourth reason for storage
is listed by some marketing authorities; it is the so-called need for a carryover in to the following
season. This may result from price optimism, or an effort by planners to achieve an ever-normal
granary.
An inherent characteristic of agricultural production is that it is seasonal whilst demand is generally
continuous throughout the year. Hence the need for storage to allow a smooth and as far as possible,
uninterrupted flow of product into the market. Because he is dealing with a biological product the
grower does not enjoy the same flexibility as his manufacturing counterpart in being able to adjust
the timing of supply to match demand. It would be an exaggeration to suggest that a manufacturer
can turn production on and off to meet demand - they too have their constraints- but they have
more alternatives than does the agricultural producer. A manufacturer can, for example, work
overtime, sub-contract work, and over a longer time horizon, the manufacturer can increase or
decrease productive capacity to match the strength of demand.
In agriculture, and especially in LDCs, supply often exceeds demand in the immediate post- harvest
period. The glut reduces producer prices and wastage rates can be extremely high. For much of the
reminder of the period before the next harvest, the product can be in short supply with traders and
consumers having to pay premium prices to secure whatever scarce supplies are to be had. The
storage function is one of balancing supply and demand.
Both growers and consumers gain from a marketing system that can make produce available when
it is needed. A farmer, merchant, co-operative, marketing board or retailer who stores a product
provides a service. That service costs money and there are risks in the form of wastage and slumps
in market demand, prices, so the provider of storage is entitled to a reward in the form of profit.

2.1.1. Types of storage structure

 Underground Storage Structures
Underground storage structures are dug out structures similar to a well with sides plastered with
cow dung. They may also be lined with stones or sand and cement. They may be circular or
rectangular in shape. The capacity varies with the size of the structure. Advantages

32 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 • Underground storage structures are safer from threats from various external sources
of damage, such as theft, rain or wind.
• The underground storage space can temporarily be utilized for some other purposes
with minor adjustments; and
• The underground storage structures are easier to fill up owing to the factor of
gravity.
 Surface storage structures
Food grains in a ground surface structure can be stored in two ways - bag storage or bulk storage.
Bag storage
• Each bag contains a definite quantity, which can be bought, sold or dispatched without
difficulty;
• Bags are easier to load or unload.
• It is easier to keep separate lots with identification marks on the bags.
• The bags which are identified as infested on inspection can be removed and treated easily;
and
• The problem of the sweating of grains does not arise because the surface of the bag is
exposed to the atmospheres. Bulk or loose storage Advantages
• The exposed peripheral surface area per unit weight of grain is less. Consequently, the
danger of damage from external sources is reduced; and
• Pest infestation is less because of almost airtight conditions in the deeper layers.
• The government of India has made efforts to promote improved storage facilities at the
farm

Warehousing
Warehouses are scientific storage structures especially constructed for the protection of the
quantity and quality of stored products. Importance
1. Scientific storage
The product is protected against quantitative and qualitative losses by the use of such methods of
preservation as are necessary.
2. Financing

33 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Warehouses meet the financial needs of the person who stores the product. Nationalized banks
advance credit on the security of the warehouse receipt issued for the stored products to the extent
of 75 to 80% of their value.
3. Price Stabilization
Warehouses help in price stabilization of agricultural commodities by checking the tendency to
making post-harvest sales among the farmers.
4. Market Intelligence
Warehouses also offer the facility of market information to persons who hold their produce in them.
 Types of warehouse On
the basis of Ownership
1. Private warehouses: These are owned by individuals, large business houses or wholesalers
for the storage of their own stocks. They also store the products of others.
2. Public warehouses: These are the warehouses, which are owned by the govt. and are meant
for the storage of goods.
3. Bonded warehouses: These warehouses are specially constructed at a seaport or an airport
and accept imported goods for storage till the payment of customs by the importer of goods.
These warehouses are licensed by the govt. for this purpose. The goods stored in this
warehouse are bonded goods.

Following services are rendered by bonded warehouses:

• The importer of goods is saved from the botheration of paying customs duty all at one time
because he can take delivery of the goods in parts.
• The operation necessary for the maintenance of the quality of goods - spraying and dusting,
are done regularly.
• Entre-pot trade (re-export of imported goods) becomes possible.
On the basis of Type of Commodities Stored
i. General Warehouses: These are ordinary warehouses used for storage of most of food
grains, fertilizers, etc.
ii. Special Commodity Warehouses: These are warehouses, which are specially constructed
for the storage of specific commodities like cotton, tobacco, wool and petroleum products.

34 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 iii. Refrigerated Warehouses: These are warehouses in which temperature is maintained as
per requirements and are meant for such perishable commodities as vegetables, fruits, fish,
eggs and meat.
A complete listing of storage facilities would be lengthy. Certainly home freezers, refrigerators
storage cellars, store freezers and coolers, locker plants, grain elevators, common storage and
commercial coolers and freezers would be included.
The importance of storage varies considerably from product to product. Nearly all the grain is
stored on farms or at other points from the time of harvest until it is used.
The third type of cost is also carried by the owner of the product. It is somewhat less concrete than
the other two types, but it is nevertheless very significant. It includes such expense as decline in
value during storage and loss from shrinkage, deterioration, and rodent damage.
2.1.2. Risks in Storage:
Finally, it should be noted that there are different types of risks associated with the storage of farm
products. Such as price changes, quality losses, and quantity losses.
The storage of agricultural commodities involves three major types of risks. These are:
1. Quantity Loss: The risks of loss in quantity may arise during storage as a result of the
presence of rodents, insects and pests, theft, fire, etc.
2. Quality Deterioration: The second important risk involved in the storage of farm products
is the deterioration in quality, which reduces the value of the stored products.
3. Price Risk: This, too, is an important risk involved in the storage of farm products.
Prices do not always rise enough during the storage period to cover the storage costs.

Types and Amount of Storage Space

The types of storage used have changed greatly over the year. Probably the most elementary of
them is "storage" alive and slaughtering or harvesting as needed. Often this was associated with
the seasons, so that preservation was further accomplished by cold winter temperatures. Drying of
foods was another method used for storage and this continues to some extent today, but under the
most impressive name of dehydration. The smoking of meat, especially ox has long been used to
prepare meat for storage. Salt and sugar are used as preservatives for meat and fruits, and the
addition of cultures, as in some cheese and wines, can also be considered a kind of preparation for
storage.

35 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

A complete listing of storage facilities would be lengthy. Certainly home freezers, refrigerators
storage cellars, store freezers and coolers, locker plants, grain elevators, common storage and
commercial coolers and freezers would be included.
The importance of storage varies considerably from product to product. Nearly all the grain is
stored on farms or at other points from the time of harvest until it is used.
In general, storage is important for crops that are harvested and marketed within a short time. It is
less important for products marketed throughout the year but more plentifully at certain times than
at others, and least for products marketed in uniform quantities throughout the year.
2.1.3. Place and Time of Storage
Farm products are stored on farms in producing areas, in terminal markets, and in consumer centers.
In general, products that are low in value, or that have a large amount of waste to be removed
before they are marketed, are stored most advantageously in or near to the areas of production. Not
only are storage costs usually lower at these points, but transportation and many other handling
costs are held to a minimum.
Farm products, such as strawberries, that are highly perishable are often stored only while in route
to market or while they are in the hands of wholesalers and retailers. Others, such as wheat, are
stored all along the marketing channels, especially in the vicinity of processing plants. Because
long distances between producers and consumers are common and the marketing system is
complex, it is necessary that there be some storage in transit and at strategic points all through the
marketing system.
Length of storage may be considered from two viewpoints; first, in relation to the size and nature
of a crop; second, in relation to the time of production.
Size and Nature of Crop: the size and nature of a crop is a major consideration in storage. In general,
it is more profitable to store products for which demand is relatively inelastic than products for
which demand is relatively elastic. With products for which demand is relatively elastic,
consumption may be stimulated substantially by a price drop at harvest time and retarded sharply
by the higher prices that result from the addition of storage costs. With products for which demand
is inelastic, on the other hand, neither a sharp drop in price at harvest not a rise in price caused by
storage costs may appreciably affect consumption. Thus, as a rule, storage of inelastic – demand
products is much more essential than storage of elastic – demand products if any major degree of
price stability is to be expected.
36 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
A second point in regard to the size and nature of a crop is that it is often more profitable to store
perishable inelastic – demand products, such as cabbages and potatoes, when there is a short crop
than when there is a heavy crop.
Storage within the Year: the into-and-out of- storage movement of each product corresponds
closely to its harvesting and marketing patterns.
2.1.4. Cost of Storage
There are three types of costs involved in the storage of farm products. The first of these,
represented by commercial storage rates, includes the cost of handling and the cost of providing
space with the proper temperature and humidity. The second type of cost is interest on the amount
of capital invested in the stored products. Though this is often over looked, it is important cost,
which is carried by the owners of the products. The third type of cost is also carried by the owner
of the product. It is somewhat less concrete than the other two types, but it is nevertheless very
significant. It includes such expense as decline in value during storage and loss from shrinkage,
deterioration, and rodent damage. Finally, it should be noted that there are different types of risks
associated with the storage of farm products. Such as price changes, quality losses, and quantity
losses.
2.2. Transportation
Transportation is Physical movement of produce from the place of production to the final consumer
is called transportation. Transportation creates place utility. Transportation takes place through
different means like road, rail, air, and water.
The transport function is chiefly one of making the product available where it is needed, without
adding unreasonably to the overall cost of the produce. Adequate performance of this function
requires consideration of alternative routes and types of transportation, with a view to achieving
timeliness, maintaining produce quality and minimizing shipping costs.
Effective transport management is critical to efficient marketing. Whether operating a single
vehicle or a fleet of vehicles, transportation has to be carefully managed, including cost monitoring
- operations on different road types, fuel and lubrication consumption and scheduled and remedial
maintenance and repair. Skillful management of all aspects of vehicle operations can also make a
substantial contribution to efficient marketing especially with respect to optimum routing,
scheduling and loading and off-loading; maximization of shift hours available, maintaining the
vehicle fleet at an optimum size, taking account of time constraints on delivery, and collection
37 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
times and judicious management of vehicle replacement and depreciation. Transport managers also
have to weigh the advantages and disadvantages of owning, hiring or leasing transport.
One purpose of transpiration is to make farm products useful by transporting them from the farm
to the consumer. It is well known that all goods cannot be most economically produced at the point
of consumption. This is particularly true of agricultural products, which have pronounced regional
advantage of production.
In transporting agricultural products to market, the primary concern is cost and the time it takes to
move them from the farm to processing and consuming centers. The movement of goods within a
farm, processing plant, or market is a minor consideration. Most transportation of this type is
commonly classed as a production function.
Transportation time and costs influence the location of production centers, the market areas served,
the qualities and sizes of products shipped to market, the form in which they are marketed, and the
kind and type of transportation services used.
Transportation costs have played a tremendous part in the location of production. No matter how
fertile the land, suitable the climate, how generous the supply of cheap labor, production cannot be
profitably under taken if transportation charges to market exceeds market price less production
cost.
2.2.1. Nature of transportation
The availability of transportation facilities affect the storage capacities needed in the food industry.
The speed and flexibility of the transportation system can also affect inventory and other storage
costs throughout the food system. Transportation cost affects the location of food processing plants
and food distribution ware houses.
2.2.2. Alternative modes of transportation
Agricultural and food products are transported by virtually every sort of carrier. Except pipelines
however, rail and truck are the dominant modes of transportation for farm and food products.
 Road transportation:
It provides the most flexible schedules routes of all major transportation modes because they can
go almost anywhere. Trucks usually have small have small shipments of high value goods over
short distance. Trucks have a unique ability to move goods directly from farmers or where house
to consumers; they often used in conjunction with other forms of transport that cannot provide door
– to- door drivers
38 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
Merits: It is cheap, safe and flexible.
Demerits: It has got limited carrying capacity, slow speed, and unstable rates. 
Rail way Transport
Merits: Most suitable for heavy and bulky commodities. Long distance is quickly covered, cheap,
all weather friend transport,
Demerits: Inflexibility, non-suitable for local transport and lesser accessibility.
 Water Transport:
It is the cheapest method of shipping heavy, low-value, non- perishable goods such as ore, grain,
sand and petroleum products.
Merits: Cheapest means of transport, high carrying capacity, creator of international trade and
especially suitable for certain areas (forest products).
Demerits: Low speed, seasonal difficulties, longer journey required, international and political
problems and limited area of operation.
 Air transport
It is the most expensive mode of transportation. It used most often for perishable products such as
fruits and vegetables, flowers, for high value low bulky items and for products that must be
delivered quickly over long distance, such as emergency shipments. The capacity of air transport
varies depending on the nature of particular aircraft. Despite of being expensive, air transit can
reduce ware housing and packaging costs and losses from theft or damage.
Merits: Rapid speed, no barriers and boon to perishable commodities.
Demerits: High rate, low carrying capacity, dependence on climatic conditions and high rate of
accidents.
 Pipelines
Pipelines, the most automated transportation mode, usually belong to the shipper and carry the
shipper‗s products. Most pipeline carry petroleum products or chemical. It transports products
slowly but continuously and at relatively low cost.
 Other means
Transportation of agricultural product is also mainly done by horse, donkey, bullock or camel carts,
tractors etc. this is merely depends on the beneficiaries and of the animals. back of animals
depending up on the availability, quantity and other factors. Animal bake and trucks is the major
means of transport used by majority of Ethiopian farmers.

39 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Effects of transportation costs on location of production and markets
The advantage of specialization in production has long been recognized, but these advantages are
tempered by the size and extent of the market. Transportation cost and time limit the size of the
market that can be served from any one production point. As transportation costs are reduced, the
advantages of specialization are greater, and this leads to even more concentration of production
in particular locations. The location of production is therefore a problem of weighting against
transportation costs the economies that specialization makes possible.
In general, the economies of specialization in industry were gained by mass production in
largescale plants; in agriculture they were gained primarily by taking advantage of more fertile
lands and suitable climates for crop production. But there are only approximate reasons for the
location of production: there are many resisting forces at work, some of which significantly
influence both the location of production centers and the markets served.
Transportation costs have played a tremendous part in the location of production. No matter how
fertile the land, how suitable the climate and other natural resources, or how generous the supply
of cheap labor, production cannot be profitably undertaken if transportation charges to market
exceed market prices less production cost. In addition transportation cost has an effect on the
determination of which market areas are served. Thus, the markets that will be served by a
particular producing area will largely depend on the cost of transportation from that area relative
to costs from competing areas.
Transportation costs may be altered by a change in the form of the product marketed, there by
partially overcoming the importance of these costs in determining both the location of production
centers and the market area to be served. Often the relationship between the rates for different
forms of the same commodity is of greater concern to farmers than their over-all levels. Just as
transportation costs influence the form in which product will be marketed from a particular
producing area, they influence the size and qualities of a product that will be marketed or, for that
matter, harvested or produced. This may explain the reason of why products on the market from
distant areas tend to be more carefully sized and of higher quality than locally produced ones.
The principal concern with transportation in agricultural marketing is to establish knowledge of the
many services available that expedite the movement of farm products to market at the lowest cost
consistent with quality maintenance requirement. For this purpose he/she must choose between

40 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

several modes of transportation railroad, motor truck, air and water transport, taking into
consideration relative costs and services performed.
2.2.3. Transportation selection criteria
Agricultural marketer like any other marketers selects means of transportation on the bases of costs,
transit time, reliability, capability, accessibility and security. The choice of a transportation mode
may involve trade-off or exchange.
1. Cost: agricultural marketers compare alternative mode of transportation to determine cost
benefit. When speed is less important, marketers desire lower costs. Factors affecting the costs of
transportation are stated as follow.
• Distance: an increase in distance over which a commodity is transported the total
transportation cost increase, but the transportation cost per unit quantity of the product
decrease after a certain distance.
• Quantity of the product: the transportation cost per unit a commodity decreases with the
increase in the quantity of the product being transported. It will be less cost of transporting
full truck loads agricultural products than a few quintals of agricultural products.
• Condition of the road: the cost of transportation will be high if the road is graveled or
road at all.
• Nature of the product: the cost of transportation per unit is high for products having the
following characteristics; perishables (vegetables), bulkiness (straw cotton), fragility (e.g.
tomato), inflammable (e.g. petroleum), specialty require (e.g. Livestock and milk).
• Availability of return journey consignment: if goods are also available for transportation
when a truck is to return to its starting place, per unit cost of transportation is less.
• Risk associated: the transportation cost is less if the product is transported at the owner‗s
sender‗s risk than when the risk is on the agency transporting the product.
2. Transit time: refers the total time a carriers has been possession f goods including the time
requires for pick up& delivery, handling & moving b/n the point of origin to destination. Transit
time obviously affects agricultural marketer ability to provide product on time.
E.g. a carload of peaches may be shipped to a closer destination if the fruit is in danger of ripening
too quickly.

41 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

3. Reliability: the reliability of the mode of transportation is determined by the consistency
of the service provided. Agricultural marketers must be able to count the carrier‗s ability y to
deliver goods on time and in an acceptable condition.
4. Capability: refers to the ability the mode of transportation to provide appropriate
equipment and conditions for moving specific goods. For example, many agricultural products
must be shipped under controlled temperature and humidity.
5. Accessibility: a carrier ability to move goods over a specific rout or network (rail way,
truck, water etc.) are the measure of its accessibility.
6. Security: security is measured by the physical condition of goods up on delivery. Affirm
does not incur cost directly when goods are loss or damaged. Because the common carrier is usually
held liable. All transportation modes have a security problem, and marketers must evaluate the
relative risk of each mode.

2.3. Grading and Standardization

Standardization and grading of agricultural products help ensure quality and fair prices for both
buyers and sellers. Standardization is the establishment of consistent standards that apply to a
particular product, while grading is the classification of goods based on established standards. Both
involve the use of testing, measuring, and classification methods to ensure uniformity in terms of
physical characteristics and qualities.
The Environmental Protection Agency (EPA) sets standards for agricultural commodities entering
the market. Standards establish parameters such as pH levels, convert ability, replantation, or any
other industry-specific traits for a wide variety of commodities including fruits, vegetables, grains,
livestock, dairy products, wool and cotton among many others. Grading assists farmers by
providing them a better understanding of local supply needs in order to increase their potentials
profits from sales. This ensures buyers receive satisfactory goods at an equitable price. While
standardization helps protect consumers from potentially substandard quality goods by allowing
brands to set specifications so that all products produced meet minimum requirements for safety
or performance (e.g., maximum pesticide residue level). Grade stamps provide consumers with an
assurance that the product meets established quality parameters as specified by regulations or
market demands.
The standardization and grading systems are critically important aspects of international trade and
can eliminate misunderstandings between export markets & domestic production. They also allow
42 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
exporters the chance to offer competitive pricing in transportation costs & overall cost savings
through uniformity & accurate shipping weights/measures; all this contributes positively towards
promoting & increasing global trade efficiency worldwide!
2.3.1. Standardization
Standardization: Standardization is concerned with the establishment and maintenance of uniform
measurements of produce quality and/or quantity. This function simplifies buying and selling as
well as reducing marketing costs by enabling buyers to specify precisely what they want and
suppliers to communicate what they are able and willing to supply with respect to both quantity
and quality of product. In the absence of standard weights and measures trade either becomes more
expensive to conduct or impossible altogether.
In Addis Ababa other cities of Ethiopia such was the diversity of weights and measures used with
respect to grain within the country, that it was easier for some districts to conduct trade with
neighboring states in Ethiopia than it was to do business with other districts within Addis Ababa.
Among the most notable advantages of uniform standards, are:
• price quotations are more meaningful
• the sale of commodities by sample or description becomes possible
• small lots of commodities, produced by a large number of small producers, can be
assembled into economic loads if these supplies are similar in grade or quality
• Faced with a range of graded produce the buyer is able to choose the quality of
product he/she is able and willing to purchase.
Quality differences in agricultural products arise for several reasons. Quality differences may be
due to production methods and/or because of the quality of inputs used. Technological innovation
can also give rise to quality differences. In addition, a buyer's assessment of a product's quality is
often an expression of personal preference. Thus, for example, in some markets a small banana is
judged to be in some sense ‗better‘ than a large banana; white sugar is considered ‗superior‘ to
yellow sugar; long stemmed carnations are of ‗higher quality‘ than short stemmed carnations; and
white maize is ‗easier to digest‘ than yellow maize. It matters not whether the criteria used in
making such assessments are objective or subjective since they have the same effect in the
marketplace. What does matter in marketing is to understand how the buyer assesses ‗quality‘.

43 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 2.3.2. Grading
An efficient marketing system must move as large a quantity of product as necessary from producer
to consumer and deliver them in a good condition as possible commensurate with reasonable
marketing costs. There is little question but that the development of a system of describing products
by grade names has greatly contributed to efficiency in both production and marketing The
development of grading systems is closely associated with the growth of specialization in
agriculture. With specialization buyers and seller could no longer meet on a common ground to
bargain. A need thus arose for a simplified common language in which sellers could describe their
products to buyers who in turn, could use it to specify their requirements.
The need for grading systems is particularly peculiar to agriculture. Industrial goods are, for the
most part, produced to specification so that any desired number of quality variations can be
produced at will. Labeling serves to describe these variations adequately. A firm producing pencil,
for example, can set up a series of processes which turn out pencils, all of which are very similar.
Thus, the pencil manufacturer can effectively regulate not only the quality of the pencils he
produces but also the quantity of each grade he wishes to put on the market. No such systematic
control is possible with agricultural products. In agriculture, varying conditions of production even
on one farm and in one field or on one tree are so great that the crop has widely different
characteristics. Since the quality of agricultural products cannot be altogether controlled, grading
becomes particularly important.
Any one acquainted with the heterogeneity of farm products and the multitude of consumer likes
and dislikes can appreciate the tremendous job of describing in a few words the quality
characteristics of any one product. These characteristics are a bewildering combination of tangibles
and intangibles like color, odor, taste, length, weight, size, strength, cleanliness, decay, age,
maturity, and so on, indefinitely. If grades are to be useful, they must include and give proper
weight to such characteristics as are important in determining price. Obviously these will vary with
each product and user and can only be defined in a general way through experience. Therefore,
grading means the sorting of the unlike lots of the product into different lots according to quality
of specification laid down. The standardization function, however, involves the establishment and
maintenance of uniform measurements.

44 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 2.3.2.1. Purpose of Grading
Although grading was established primarily as a means of facilitating the exchange of goods
offered on the market by sellers' located farm from trading centers, it serves many other useful
functions. Some of these functions will be discussed as follow:
Most products are used in a variety of ways, many of which require products that have particular
characteristics. Firms manufacturing breakfast cereal need grains distinct from those the livestock
feed manufacturers use. Only certain kinds and grades of tobacco are suitable for cigarettes.
Grading serves to classify goods according to use, eliminates waste that would otherwise occur,
and, in general, simplifies the marketing system by making it possible for buyers to procure easily
goods that meet their particular requirements. In other words, by sorting out products of the best
quality, it is sometimes possible to find premium market for them that will return good prices,
which at the same time makes it possible to offer products of lower quality to persons with less
purchasing power.
Grades serve to facilitate price comparisons among markets, thereby giving both buyers and sellers
better information on which to base their decisions. Grading system also help to reduce the cost
of financing storage by making it possible to describe more exactly the market value of the stored
product and thereby eliminate much of the risk normally involved in quality differences.
Well-established and nationally administered grades greatly reduce the risks of fraudulent practices
in marketing. Grading in itself does not eliminate fraud, but it does serve to handicap somewhat
the operation of the unscrupulous handler. Grades are also sometimes used as the basis for
settlement of loss and damage claims when there has been negligence on the part of some handling
agency.
Sometimes producers, particularly small ones located far from central markets, like to combine
their products of similar qualities to obtain more favorable transportation rates or market outlets.
Such pooling of products is greatly facilitated by grading, which makes it possible to divide sale
produces more equitably.
2.3.2.2. Methods of Grading
Grading is meaningless unless it describes some aspects of the product that is connected with its
use. Cotton could be graded according to the type of soil on which it is grown, but such information
has no known utility and would therefore serve no purpose. Cotton is graded, therefore, according
to its color and its staple length, because these factors are important in its use and are elements
45 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
which influence price. But it must be recognized that there are other elements which might
influence price, but for which the grading cost would be prohibitive. For example, one might argue
that processors would pay a premium price for cotton, which was sorted by individual fiber lengths:
obviously, the cost of such grading would be enormously greater than any use we know would
warrant.
The illustration of cotton grading just given reveals two distinct methods of grading, both of which
are common in agriculture but which depend largely on the individual product and its end users.
For simplicity, the two methods can be distinguished as ―separative grading‖ and ―non separative
grading.‖ When separative grading is used, the product is divided into parts with different quality
characteristics: with non separative grading the product as a whole is simply classified and labeled.
The cost of grading and the amount to be gained by separating products in to lots of different
quality determine which method is to be used.
2.3.2.3. Grade Determination
The reason why a product is graded as it varies widely. For some products size may be the most
important characteristics affecting price, whereas may be judged not by one characteristic but by a
combination of money. For example, eggs are graded on condition of yolk, condition of white,
depth of air cell, shape, cleanliness of shell, and soundness of shell. Important quality factors in
grading poultry are amounts of flesh, fat, tenderness, conformation and bleeding. Therefore, when
a grade is assigned to any of these products, all its characteristics must be appraised and properly
weighted in accordance with their importance.
A final appraisal of quality factors is further complicated by the fact that many of them do not lend
themselves to objective measurement. Size can be expressed in absolute terms of inches, but color
or odor can only be subjectively measured by the senses.
One of the greatest criticisms of grading systems is that frequently the standards developed have
little or no relation to either price or use. Although the preference of buyers should be reflect in
grades, there is evidence that these are sometimes ignored. Perhaps the most serious shortcoming
of present day grading is that the selection of qualities for consideration and their determination of
their respective importance are not based on scientifically measured tests of buyer's preference.

46 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

2.4. Processing
Processing: Most agricultural produce is not in a form suitable for direct delivery to the consumer
when it is first harvested. Rather it needs to be changed in some way before it can be used. Kohls
and Uhl6 observe that: ―The processing function is sometimes not included in a list of marketing
functions because it is essentially a form changing activity.‖
However, it is for this very reason that processing ought to be included as a marketing function.
The form changing activity is one of that adds value to the product. Changing green coffee beans
into roasted beans, cassava into gari or livestock feed, full fruit bunches into palm oil or sugarcane
into gur increases the value of the product because the converted product has greater utility to the
buyer. How the form of produce is to be changed and the methods to be used in bringing about
such changes are marketing decisions. For example, some years ago when Ethiopia was looking to
expand its tea business, a prototype manufacturing plant was established.
The plant was capable of curing the tea and packing it in individual tea bags. At that point, tests
were undertaken in which the product was compared with others already on the market. The results
were encouraging. However, in the course of the marketing research, it was also discovered that
ninety percent of the black tea consumed is blended and not the pure variety placed in tea bags by
the Ethiopians. By going past the point of changing green leaf into high quality black tea, the
Ethiopians were entering a nice market which is not what they intended at all. Timely marketing
research would have directed Ethiopia to stop the form changing activity short of bagging since, at
that time; Ethiopia did not have the acreage of tea, nor the resources, to develop a tea blending
facility of its own. In the same way, a producer of fresh fruits may have pulping and/or canning
facilities but if potential buyers want the flexibility of using the fruits in a variety of ways, then
these stages of processing serve to reduce utility and value, rather than increasing them.
Of course, processing is not the only way of adding value to a product. Storing products until such
times as they are needed adds utility and therefore adds value. Similarly, transporting commodities
to purchasing points convenient to the consumer adds value. In short, any action which increases
the utility of the good or service to prospective buyers also adds value to that product or service.
2.5. Risk bearing
Risk bearing: In both the production and marketing of produce the possibility of incurring losses
is always present. Physical risks include the destructions or deterioration of the produce through
fire, excessive heat or cold, pests, floods, earthquakes etc. Market risks are those of adverse
47 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
changes in the value of the produce between the processes of production and consumption. A
change in consumer tastes can reduce the attractiveness of the produce and is, therefore, also a risk.
All of these risks are borne by those organizations, companies and individuals.
Risk bearing is often a little understood aspect of marketing. For example, when making judgments
as to whether a particular price is a ‗fair price‘ the usual reference point is the producer or supplier's
costs. However the risks borne are rarely taken into account by those passing judgments and yet,
almost inevitably, there will be occasions when the risk taker incurs losses. Stocks will spoil,
markets will fall, cheaper imports will enter the country, and consumer tastes will change, and so
on. These losses can only be observed if adequate surpluses were generated in previous periods.
Risk bearing must be acknowledged as a cost since what is uncertain is not whether they will occur,
but when they will occur.
2.6.Buying and Selling
Buying: The marketing concept holds that the needs of the customer are of paramount importance.
A producer can be said to have adopted a market orientation when production is purposely planned
to meet specific demands or market opportunities. Thus a contract farmer who wishes to meet the
needs of a food processor manufacturing sorghum-based malted drinks will only purchase
improved sorghum seed. He/she will avoid any inputs likely to adversely affect the storage and/or
processing properties of the sorghum and will continually seek new and better inputs which will
add further value to his/her product in the eyes of the customer. In making his/her buying decisions
his underlying consideration will be the effect upon the attractiveness of his/her output to the
markets he/she is seeking to serve.
The buyer's motive is the opportunity to maintain or even increase profits and not necessarily to
provide, for example, the best quality. Improving quality inevitably increases the associated costs.
In some cases the market is insensitive to improvements in quality, beyond some threshold level,
does not earn a premium price. Under such circumstances, the grower who perseveres and produces
a ‗better product‘, is not market oriented since he/she is ignoring the real needs of the consumer.
The most successful agribusiness is the one which yields the largest difference between prices
obtained and costs incurred.
Selling: Of the nine functions listed, this is probably the one which people find least difficulty in
associating with marketing. Indeed to many the terms marketing and selling are synonymous.
Kotler7 suggests that:
48 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
―Most firms practice the selling concept when they have over capacity. Their immediate aim is
to sell what they can make rather than to make what they can sell.‖
There is no denying that ‗high pressure selling‘ is practiced, where the interests of the consumer
are far from foremost in the mind of the seller. This is not marketing. Enterprises adopt the
marketing philosophy as a result of becoming aware that their own long term objectives can only
be realized by consistently providing customer satisfaction. Whereas selling might create a
consumer, marketing is about creating a customer. The difference is that marketing is about
establishing and maintaining long term relationships with customers.
Selling is part of marketing in the same way that promotion, advertising and merchandising are
components, or sub-components of the marketing mix. These all directed towards persuasion and
are collectively known as marketing communications; one of the four elements of the marketing
mix.

49 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

CHAPTER 3: THE MARKETING OF AGRICULTURAL COMMODITIES

Chapter objective
Up on completion of this chapter students will be able to:
 Explain the stages in a commodities marketing system
 Acquire the knowledge and skill of grain marketing
 Acquire the knowledge and skill of livestock and meat marketing
 Acquire the knowledge and skill of poultry and egg marketing
 Acquire the knowledge and skill of fresh milk marketing
 Know the local practice of agricultural commodities marketing
3.1. Stages in a commodities marketing system
A commodity marketing system encompasses all the participants in the production, processing and
marketing of an undifferentiated or unbranded farm product (such as cereals), including farm input
suppliers, farmers, storage operators, processors, wholesalers and retailers involved in the flow of
the commodity from initial inputs to the final consumer. The commodity marketing system also
includes all the institutions and arrangements that effect and coordinate the successive stages of a
commodity flow such as the government and its parastatals, trade associations, cooperatives,
financial partners, transport groups and educational organizations related to the commodity. The
commodity system framework includes the major linkages that hold the system together such as
transportation, contractual coordination, vertical integration, joint ventures, tripartite marketing
arrangements, and financial arrangements. The systems approaches emphasize the interdependence
and inter relatedness of all aspects of agribusiness, namely: from farm input supply to the growing,
assembling, storage, processing, distribution and ultimate consumption of the product.
The marketing systems differ widely according to the commodity, the systems of production, the
culture and traditions of the producers and the level of development of both the particular country
and the particular sector within that country. This being the case, the overview of the structure of
the selected major commodities marketed, which follows, is both broad and general. The major
commodities whose marketing systems will be discussed in this chapter are large grains, livestock
and meat, poultry and eggs, cotton, fruit and vegetables and milk. Table 3.1 identifies the main
stages of agricultural marketing and this provides a loose framework around which to structure the
discussion of the marketing of these commodities.
50 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
 Table 4.1 Stages of agricultural marketing

Stage Examples
Commodity buyers specializing in specific agricultural products, such
Stage 1:Assembly commodities as grain, cattle, beef, oil palm, cotton, poultry and eggs, milk

Stage Independent truckers, trucking companies, railroads, airlines etc.

2:Transportation
Stage 3:Storage Grain elevators, public refrigerated warehouses, controlled- atmosphere
warehouses, heated warehouses, freezer warehouses
Stage 4:Grading and Commodity merchants or government grading officials
classification
Food and fiber processing plants such as flour mills, oil mills, rice mills,
Stage 5: Processing cotton mills, wool mills, and fruit and vegetable canning or freezing plants

Stage 6: Packaging Makers of tin cans, cardboard boxes, film bags, and bottles for food
packaging or fiber products for
Stage 7: Distribution Independent wholesalers marketing products for various processing plants
and retailing to retailers (chain retail stores sometimes have their own separate
warehouse distribution centers)

3.2. The marketing of Grain

The principal participants in grain marketing systems are producers, marketing boards, grain
elevators, brokers, millers, livestock farmers, animal feed processors, millers, other food
manufacturers, grain exchanges and exporters.
The physical marketing system begins with the assembling and collecting points located in the
rural areas close to the producers. The next stage involves the storage areas at the national grains
marketing facilities owned and operated by appointed parastatals and/or private grain elevator; and
the grain milling companies which in some countries are privately owned and in others are
government enterprises. Although the size and methods of operation differ from country to country,
the local assembling and collection points usually have grains brought to them either directly by
the farmer-producers themselves or by rural entrepreneurs. Thus in the case of grain, the assembly
and storage functions are typically combined at this marketing stage. In countries where marketing
parastatals has been given a monopoly in grain trading, private traders are sometimes authorized
to buy grains from farmers (i.e. local buying agents) on behalf of the parastatals.

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A common feature of grain marketing systems is the co-existence of a government marketing
agency (parastatals) and a parallel private marketing channel with myriad's of private traders.
Public grain marketing agencies are government appointed para-statals assigned to control or
regulate the system. Prior to market liberalization marketing para-statals were recognized, in many
developing countries, as the ―official channel‖ of the maize marketing system, and were
responsible for setting the prices for major cereals (i.e. producer, into-depot, ex-depot, into-mill,
ex-mill and consumer or retail). Depending on the country, these agencies usually consisted of one
or more ministries related to cereals production and influencing public policies affecting food
production and consumption and a parastatal established to operationalize the regulatory provisions
of the public policies enacted for a given crop. In many developing countries parastatals remain
important players in the grain marketing system even though their role may have changed. In the
post-market liberalization era many, but not all, of these parastatals have either been disbanded or
have been assigned a specialized role such as acting as the buyer-oflast-resort or maintaining food
security reserves.
The second class of actor in the commodity marketing system is private agents. These include
private individuals operating in the system as petty assemblers, traders large-scale merchants,
millers (both large corporations and small rural operators), brokers and retailers of grain products.
The exact quantity of grain flowing through the private channel is often not known. However, most
of the agents in the channel operate in rural areas and penetrate the remotest areas of the rural areas
to purchase grains. A common justification for establishing parastatals is, that parastatals get to
hinterlands that private operators cannot or will not reach. However, lkpi2 claims that it is private
marketing agents that more often get to remote hinterlands to buy and collect maize from farmers
when the government agencies fail.
However, in those developing countries where national structural adjustment programme have not
yet been initiated, inter-provincial grain movement controls are so strictly policed that private
agents in the system cannot legally and profitably transport grain from one production zone to
another. For those countries that are already adjusting their economies structurally, market
liberalization is making or will soon make much restriction on commodity movement irrational
and new form of intermediary are coming into being. Among these are commissioning agents or
brokers. These entrepreneurs do not take title to the grain but take responsibility for selling the
grain. They act as agents for the grain seller who may be a farmer, a grain trader or grain elevator.
52 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
 3.2.1. Grain Storage
Whether storage takes place on the farm or in silos off the farm, increases in the value of products
due to their time utility must be sufficient to compensate for costs at this stage, or else storage will
not be profitable. These costs will include heating, lighting, chemical treatments, store management
and labor, capital investment in storage and handling equipment, interest charges and opportunity
costs relating to the capital tied up in stocks. Among the less tangible costs is the risks attached to
storage. These include shrinkage due to pilferage, pests, fungal growths and loss of quality due to
ageing. Another risk is that demand could fall with adverse effects on prices.
Since the advent of structural adjustment programmes and market liberalization, some grain
marketing parastatals have lost their monopoly of the market and consequently the volumes of
grains which they are handling has dropped substantially. This means that they no longer require
all of their storage capacity and a number of marketing parastatals now rent some of their storage
capacity to farmers, grain traders and other participants in the grain marketing system.
Two types of storage facility are commonly found, namely: the bulk storage facility where cereals
are stored in concrete and/or metal bins, and the bag storage facility where the crop is stored either
inside a warehouse or in the open and then covered by tarpaulin sheets. In comparative terms, the
advantage of a bulk over a bag storage system is that it is more efficient because it:
• Reduces congestion at the depots by not allowing for bagged maize to be dumped all over
the depot yard
• Reduces handling costs
• Saves foreign exchange on bags, tarpaulin and fumigation, and Lowers storage losses.
Its disadvantages are that:
• the initial invest is high, with a significant foreign currency component
• it is inflexible in terms of not being easily expandable to cope with changes in intake and
off-take levels
• it relies heavily on an efficient transport system because a silo complex is only
economically viable when throughout is at least 1.6 times its capacity3, and It needs
skilled manpower to run and maintain the entire system.
On the other hand, a bag system ideally overcomes the problems associated with a bulk system as
enumerated above. Its main disadvantages are:
• higher quality losses in storage due to insect pests and rodents
53 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
 • higher demand for foreign exchange associated with the purchase of bags Tarpaulin and
fumigation sheets.
The depot manager controls the day-to-day operations of the depot. The duties of the depot manager
include accepting, checking the quality, recording the quantity and storing the produce brought in
by the farmers. Each depot's record of accepted and stored produce are then sent to headquarters
for necessary action. With this information to hand, inter-depot or inter-district transfers can be
affected.
3.2.2. Grading of grains
It is important to have a grading system which accurately describes products in a uniform and
meaningful manner. Grades and standards contribute to operational and pricing efficiency by
providing buyers and sellers with a system of communicating price and product information. By
definition, commodities are indistinguishable from one another. However, there are differences
between grades and this has to be communicated to the market. By the same measure, buyers
require a mechanism to signal which grades they are willing to purchase and at what premium or
discount. Prices vary among the grades depending upon the relative supply of and demand for each
grade. Since the value of a commodity is directly, affected by its grade, disputes can and do arise.
In fact, the government may establish grading services to serve as a disinterested third party.
Grading typically occurs at the assembly stage or when a product moves into storage, during
storage, or just before it leaves storage. Grading is not normally a separate marketing stage,
although it has been separately identified in table 6.1 in this chapter. It is a function provided by
the storage firm or the commodity merchant or the government. Prescribed procedures for grading
are set forth by the trade members of commodity markets or else are stated in government‘s
regulations. Grading may be undertaken by a member of the trade specializing in a particular
commodity. Several lots of grain, oilseeds, and cotton are combined to produce a grade level
required for a particular sale. This gives rise to what are known as house grades. A merchant's
primary marketing advantage may be a reputation for house grades of consistent quality.
The absence of grades and standards restricts the development of effective and efficient marketing
systems. For example, for some time the government of Nepal has been trying to establish an
internal food marketing system. It has no nationally integrated market but due to its topography
and poor communication routes there is little inter-state trade. Instead each state has closer trade

54 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

relations with neighboring Indian states. There are substantial obstacles to achieving an integrated
national market as explained by Chong Yeong Lee.
―The lack of a unified measurement system also hampers the development of marketing. In Tarai,
grain is measured by weight (1 mand=37.3kg) and in the Hills and Inner Valleys it is measured by
volume (1 pathi = 4.54 litres). The same unit of weight, such as ―seer‖, is equivalent to 0.93kg of
meat in the Tarai area, 0.79kg in Kathmandu and 0.25kg in Pokhara.‖
Clearly, the confusion which this situation gives rise to, militates against the successful
development of a national market. Moreover, effective standardization is basic to an efficient
pricing process. Consumers use the price differentials they are willing to signal to suppliers what
they want with regard to produce quantities and qualities. If produce is not in well-defined units of
quantity and quality then the pricing mechanism fails as a device for communicating consumer
wants to suppliers. However, Dixie5 warns that any grading standards for domestic markets must
originate from the industry itself as and when it becomes apparent that the consumer is willing to
pay a higher average price for the sorted product. He points out that,
―Although national standards can probably be justified for export, when compulsory minimum
standards are introduced for the home market it will put up prices to the consumer‖, and that this
would,―…lower consumption and reduce the size of the local market‖.
Usually samples of different sizes (depending on the size of the load) are taken from each lot
delivered to the depot of the buyer and these are tested for compliance with the acceptance
standards. The results determine the grade into which the whole lot from which the sample came
is classified to determine the price to be paid to the grower. Typical variables used in grading grain
include:
• the moisture content of the grain
• the percentage of broken kernels
• degree of discoloration in the grain
• the percentage of material other than grain (MOG) in a sack or load
In Sub-Saharan Africa, for example, maize is received in 4 grades, A to D, with A being the highest
grade and D the lowest. The system allows for the farmer to dispute the grade awarded to his crop.
In such cases, the farmer has to submit a written request within a specific time to the depot through
which his crop was delivered.

55 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Typically, after grading is effected, the farmer is issued with a receipt showing details of the type,
quantity and grade of the maize delivered. The receipt constitutes an acknowledgment by the
agency that it is indebted to the farmer up to the value of the crop detailed on it. From that point
on, the marketing risk attached to the crop passes from the producer to the agency/parastatal. It is
relevant to point out that it usually costs the same amount to process a grain receipt for 1 tonne as
it does for 1,000 tonnes.
3.2.3. Grain Processing
Grain processing is about the most important activity from the final consumer's stand point within
the marketing chain of the crop. Grain, for human consumption, is usually milled into flour or
meal. Usually two types of maize flour are processed in each country, namely: the refined, white
and sifted (powdery) flour produced by industrial roller mills and the unrefined and colored maize
meal produced by hammer-mills. The highly refined grade of meal is generally consumed by urban
dwellers, while the hammer-mill grain meal is a low-grade ―whole maize meal‖ favored by rural
consumers and the urban poor.
In many countries, the milling industry is highly concentrated, usually with one major company
controlling over eighty percent of the maize mill trade. For example, in Kenya, maize milling is
controlled by the Mercat Group of Companies (Unga Ltd, etc) (90 percent): while in Malawi, it is
GRAMIL, a subsidiary of ARMARC which processes eighty three percent of the maize in that
country.
In Tanzania, the National Milling Corporation, (NMC) handled about eighty five percent of all
maize milled before it fell into financial difficulties in the early 1990s and was allowed to go out
of business; in Zimbabwe it is the National Foods which controls eighty percent of maize milling
in the country until progressive liberalization of the market increased the level of competition
during the first five years of the 1990s. Grains can also undergo secondary processing and be
converted into more sophisticated products such as baked foods, breakfast cereals, baby foods,
cooking oils, starches, sugars etc. A considerable amount of grain is also converted to animal feed.
Due to this versatility in end use, the marketing chain for grains tends to be long and complex.
3.2.4. Challenges for Grain Marketing Systems
Depot network and distribution of production problems arise because crop production is rarely
evenly distributed across a country. In most countries cereals production is concentrated in one or
two regions of the country, and the remainder are cereals deficit areas. In these circumstances it
56 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
usually becomes rational and necessary for the government agency handling grain distribution,
where there is one, to construct intake depots in the producing region(s), and storage depots in the
major consumption areas. But in most instances, post-independent governments in some of these
countries adopted rural income policies that made it mandatory for the whole country to be
provided with government agency depots within short distances of every producer. The aim was
to overcome political, social and economic injustices of the past. It was a policy which was also
pursued in the hope that smallholder farmers would be attracted into the cash economy. In the end,
this huge investment in infrastructure was economically unsustainable and most developing
countries are now locating storage facilities on the basis of economic efficiency.
Excess stock problems tend to develop because of relatively high producer prices which the
governments of the countries concerned establish in order to compensate farmers whose cost for
production are high. Unfortunately, these systematic increases in the producer prices usually bring
them to levels that are incompatible with international supply and demand conditions. To reduce
the effect of these high producer prices some governments in LDCs introduced artificial exchange
rates that later did more harm than good to the export economy of these countries. In addition, local
demand was low, being limited to only urban demand, for human consumption, and for livestock
feed production in rural areas.
Fluctuating grain supply problem results from the crops susceptibility to weather conditions which
determine the level of harvest and the export market supply. With each country's domestic demand
often varying along with the weather, LDC countries have been known to rapidly move from a
surplus to a deficit situation. In a country with high import parity and low export parity prices, the
increased risk of stockpiling seems to lower the real cost of storing the excess stocks and so causes
government to become indifferent toward streamlining supply with demand requirements. Low
levels of intra-regional trade between developing countries are explained by subsidies paid to
producers. This masks any competitive advantage in grain production that growers in one country
may have over those in neighboring countries. Where there is intraregional trade in grains, between
developing countries it is most often based on periodic shortages arising from drought civil strife.
As such, export demand is usually short-lived and often financed by donor agencies, and the
exporting country cannot make any long term plans to develop the trade.

57 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

 3.3.The marketing of livestock and meat
At the outset of this chapter it was observed that in an introductory textbook, such as this one, there
were severe constraints on the range of agricultural commodities which could be discussed and
that the author had to be highly selective. This is equally true of this section where the reader will
find that the discussion is largely confined to livestock and meat. There simply is not the
opportunity to extend the discussion, in this textbook, to the wide variety of animal by-products
that could be exploited after the meat has been utilized. The figure below lists the most important
categories of by-product and reveals that these account for almost two-thirds of the live weight of
an animal. The recovery, processing and effective marketing of these by-products can make a
significant difference to the level of returns to producers and, therefore, they are worthy of
discussion. Perhaps the only consolation is that the same figure also shows that the meat component
of an animal typically accounts for eighty to ninety percent of its value
In this section the livestock under discussion are cattle, pigs, sheep and goats. Poultry is treated
separately because the structure of this subsector, the scale of operation and methods of production
are distinctly different from larger farm animals.
Producer attempts to adjust livestock production in keeping with demand often result in adverse
market effects. The problem for livestock farmers is the inevitable lags, between changes in
demand and adjustments to supply. In order to expand meat supplies in response to anticipated
increases in demand, livestock producers must channel animals into the breeding herd rather than
the market. This pushes up meat prices over the short run. Conversely, when prices fall farmers try
to reduce production levels by selling off animals. The selloff increases meat supplies and further
reduces prices over the short run. Profits are further squeezed by the increase in costs in the form
of additional storage and interest charges. This practice of adjusting future production according
to present day prices, results in marked output and price peaks and troughs.
Periodically livestock prices drop below production costs and this retards the industry since
producers become discouraged.
The links between livestock and grains, with reference to both production and marketing, are close
and direct. Kohls and Uhl observe that:
―Livestock are protein converters, transforming vegetable protein into animal protein. These
‗protein factories‘ are a form of food processing. Moreover, livestock feeding can be viewed as an
alternative way for the grain farmer to market grain.‖
58 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
Thus, relative prices between grains for human consumption and that of animal feeds will have a
direct bearing upon one another. Moreover, the price of grains converted to feed will influence the
costs of meat production and, therefore, the price of meat. These interrelationships are as important
to government policy makers as they are to the participants in the livestock and meat marketing
systems. In many parts of the developing world governments commonly inflate producer prices for
grain, often above those on world markets, in order to encourage production. Consumers may or
may not be compensated through food subsidies but unless feed processors are also subsidized the
price of meat is likely to increase.
The complexity of livestock marketing systems varies greatly. In the most sophisticated systems
there is a high degree of specialization in the production and marketing of livestock and meat as
there is, for example, in the case of beef consumed in Japan.
The various operations involved in livestock production and marketing could be performed by one
farm and in many countries mixed farming, i.e. grain-livestock, is common place. Alternatively,
breeding, fattening, slaughtering and packing can be undertaken by specialized farms and other
forms of agribusiness. Specialization in production and marketing, helps in achieving economies
of scale, increases the return-on-investment and allows the enterprise to become highly
experienced in a narrow range of activities. This should mean that the consumer is supplied with
high quality products at affordable prices. It also means that because a producer is only involved
in a narrow. At the same time, specialized livestock and meat marketing systems are characterized
by longer channels and a high degree of complexity. Thus, there has to be good communications
and a steady flow of relevant information between market participants if they are to operate
effectively as a system. In countries where the communications infrastructure is poor or marketing
information systems have not been put in place it would be difficult for the system to become
highly specialized.
In contrast to the highly specialized and complex livestock and meat marketing systems to be found
in countries like Japan, there are much simpler, shorter and less sophisticated channels such as that
of Indonesia's marketing system for small ruminants10.
The Indonesian livestock and meat marketing systems is simpler because some of the production
and marketing functions are combined and carried out by fewer enterprises and some are not carried
out at all. For instance, there is no formal animal feed sector at the production end and the
slaughtering, cutting and boning is often done by the consumer. Put another way, the production
59 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
and marketing system is shorter, and simpler, because it offers fewer services to both producers
and consumers. As disposable incomes increase, in developing countries, meat consumption tends
to increase too and the demand for additional services gains in strength. According to Knipscheer
et al., 11 this is precisely the pattern which is emerging in Indonesia.
One major difference between the Japanese and Indonesian livestock systems is that in the case of
Indonesia, there is no nationally integrated livestock and meat marketing system. The system just
described pertains specifically to the East Java region. However, Knipscheer et al., have identified
a trend towards a nationally integrated livestock marketing system in Indonesia. Knipscheer et al.,
state that where there is a strong correlation between marketing margins and distances from the
primary area of supply then this represents compelling evidence of a high degree of market
integration.
3.3.1. Assembly of Livestock and Meat
Depending upon complexity of the particular marketing system cattle are assembled to serve one
of the following purposes; for slaughter, for fattening or for breeding herds. There are various types
of livestock assemblers and assembling institutions.

Farmers The level of farmer-to-farmer trade can be substantial. Where there is a

degree of specialization within the livestock and meat marketing system, for
example when some farmers concentrate on breeding or fattening, amount
of farmer-to-farmer trade can be very high.

60 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye

Rural traders Usually these are independent entrepreneurs. As described in the reference
to Indonesia's small ruminant marketing system, these may have established
business premises or simply travel around a defined geographical territory
buying from farmers and selling on to fatteners, auctions, order buyers,
abattoirs or terminal markets.

Local cooperatives Function largely as shipping agencies, collecting small lots from producers
and shipping them forward in economic sized batches to terminal markets.
Some have diversified and offer a broader range of services and often
merchandise their livestock direct to packers and other buyers.

Order buyers Purchase fattened stock on behalf of abattoirs and meat processors, from
farmers, local traders, auctions and terminal markets, in return for a fee.

Commissioning Do not take legal title to the livestock but obtain a commission when they
agents make a sale.

Auctions Public auctions offer livestock or deadweight meat for sale to the highest
bidder. Auctions are almost exclusively attended by the trade and not the
general public. In some countries there may be various types of auctions
operating. Some auctions serve breeders and those wishing to procure
animals for fattening. Other auctions are attended by retail butchers, meat
packers, traders etc.

Terminal Large central markets which both the trade and the public may patronise.
public The municipal authority or private organization providing the facilities of
markets the market does not engage in trade but profits from charging fees for the
use of these facilities. Farmers, and others, may trade on their own account
in these markets or may appoint commissioning agents.

Meat packers Some packing plants are located near terminal or auction markets and have
their own cattle buyers. These have combined the assembly and processing
functions.

3.3.2. The Grading of Livestock and Carcasses

At the primal level, there are three dimensions to grading. The first, relates to the differing values
attached to cuts of meat and the second to the quality of those cuts. The third dimension is that of
carcass yield. The first of these classes of criteria is, in some measure, objective. Depending upon
61 Agricultural & Commodity Marketing Module | BY Walewengel Lambiye
the country and the culture, different parts of the animal are more favored than others, or are in
shorter supply, and therefore attract higher prices. The measures of meat quality, and even yield,
are rather more subjective.
With respect to the second dimension of meat value i.e. the quality of the meat the European
Union's carcass classification system illustrates the point. This system gives particular importance
to the shape of the carcass, known as conformation-, and the amount of fat in the carcass.
Conformation influences the meat yielded by a carcass and the trend in Europe is towards reducing
the amount of fat in human diets and so the classification systems for meats rate low fat carcasses
higher than those with greater amounts of fat. The European system recognizes seven categories
of fatness (categories 4 and 5 being subdivided into higher and lower), and eight categories of
conformation. The leanest carcasses would be in category 1 and the best conformation class is E.
The idea of the EEC's carcass classification system is that it enables the marketplace to send clear
signals to producers with respect to the type of carcasses the market wants. Figure 6.6 shows how
conformation and fatness combine to influence the amount of salable meat in a carcass, in
percentage terms. The data was compiled by the UK's Meat and Livestock Commission (MLC)
using standard methods of butchering and trimming. For simplicity, data is given here for only
conformation class R and fat class 4L.
The MLC have also provided illustrative data to show the price differentials, expressed as
percentages that are paid to producers supplying various grades of carcass.
The figures show that in these markets, fatness has a greater influence on price than conformation.
Nevertheless, livestock and meat grades and their usage by the trade are often cited as a major
problem for developing countries who find it difficult to meet the specifications. However, as will
be seen in case 6.2, Botswana Meat Commission (BMC) has managed to do so and profits greatly
as a result.
Meat packers purchase most of their livestock on a live weight basis. This requires buyers to
estimate the carcass yield and quality of live animals in order to arrive at an offer price. Buying is
an art rather than a science, and there can be significant variations in buyer and seller estimates of
the value of a particular animal. This is a frequent source of conflict in the livestock marketing
channel. Moreover, the fact that reliable judgments of livestock can only be acquired over a period
of years, can act as a barrier to competition since the inexperienced are effectively barred from
entry to the distribution channel.
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For some products, grades are established in the processing plants. This is the case with meats such
as fresh poultry, beef, and pork. The government installs graders in the cattle auction floors on a
fixed-fee basis; the fees collected cover the salaries and other costs incurred by the government in
making the service available.
3.3.3. Livestock and Meat Processing
In contrast with all other sectors of the food industry, the meat packing industry is a process of
disassembling. Whilst other food manufacturers combine simple raw materials into a complex,
composite product meat packers breakdown a complex raw product livestock into its constituent
parts. This reverse manufacturing process nevertheless adds form utility to livestock products. An
animal carcass is in reality a bundle of products, each with different markets, demands and values.
On average somewhere between fifty five to sixty two percent of a beef animal's live weight is
recovered as meat products. For a pig's carcass the figures are seventy to seventy five percent. The
carcass yields other by-products of course such as hides, pelts, lard, offal, fertilizers and industrial
products.
In some tropical countries slaughtering facilities are closely supervised by government appointed
inspectors. This is not so much a system of quality control as a measure to ensure that only disease-
free animals are introduced into the human food system.
3.3.4. Livestock and Meat Consumption
Meats are a versatile food representing a variety of consumer attributes. Meats can be purchased
ready to eat, ready to cook or in forms requiring substantial preparation. Most meat is sold fresh,
in LDC's, but increasingly such processed items as canned meats are becoming available and these
are giving the consumer additional choice. Food processors can combine meats with other foods
to add further to consumer choice.
The income elasticity of demand for beef in particular, and other meats in general, tends to be
strongly positive in LDCs. As per capita incomes rise in developing countries, the demand for the
principal livestock products meat, milk and eggs also rises. Abbott12 quotes the example of Iran
when the population was growing at just under three percent and disposable incomes at five
percent. In the same period meat demand raises at around nine percent per annum.

Over the past 30 years livestock populations have grown substantially in LDCs as both disposable
incomes and the populations themselves have grown. Indeed, the developing countries have larger

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numbers of livestock than the developed countries but they produced only one-fifth of the world's
meat, milk and eggs. Moreover, a smaller proportion of stocks are slaughtered each year and yields
per animal are generally much smaller in the developing world. In addition to rising incomes, the
rate of urbanization is a fundamental influence upon the demand for livestock food products. An
example, again supplied by Abbott, is that of Dar Es Salaam where urban expansion of eight
percent doubled meat demand within nine years.

However there are constraints to the development of livestock industries in developing countries
in the form of traditional techniques of food preparation and shopping behavior. In many cultures
it is customary to cook meat for a very long time, especially if the favored dishes are curries and
stews and in these circumstances little interest is shown in paying premium prices for more
expensive cuts of meat. Therefore in many Asian and African countries butchers have no incentive
to add value to the product by dividing the carcass into various consumer cuts. Moreover, the
wealthier members of LDC societies often leave the shopping to servants and basic retailing
techniques continue to be acceptable. In the tropics the preference is for freshly killed meat.
Religious factors may also have some bearing on purchasing behavior. Muslim countries importing
from non-Muslim countries frequently prefer to receive supplies on-the-hoof to ensure that Halal
methods are employed in the slaughtering methods. Demand for meat tends to be highly seasonal
in tropical countries. It is greatly affected by religious festivals like Ramadan, the feast of the ld
(Moslem festival) and by the sale of cash crops in places like Ethiopia and Nigeria where demand
rises significantly following the coffee and groundnut harvests.

3.4.The Marketing of Poultry and Eggs

Poultry farmers have three distinct types of bird from which to select their flocks:

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Hybrid broilers In addition to pure chicken breeds, specialized breeders sell chickens which
are first crosses and multiple crosses The latter are known as hybrids. These
gain weight more quickly and lay more eggs than pure breeds and are
therefore generally used by poultry producers. They are only suitable for
commercial food production, having an excellent food/meat conversion
ratio. Mature females should weigh in excess of 2.75 kg. Young broilers
mature rapidly and are ready for market at 12 weeks of age.

Dual purpose birds These give good carcasses when slaughtered but only moderate egg
production. A mature female can be expected to weigh around 2.25 kg. This
type of bird has the advantage of rarely exhibiting cannibalism and is hardy
against disease. However, they do tend to go broody and egg production,
consequently, can fall off. Dual purpose birds are often recommended for
farmers new to poultry keeping. Their lower yields, both in meat and eggs,
is offset by their hardiness in relation to disease resistance and poor weather.

Lightweight birds These are bred for egg production. Lightweights have excellent food
conversion rates and rarely go broody. However, they do need good
management and, therefore, are only recommended to experienced poultry
keepers. They are a nervous bird and inclined towards cannibalism. A mature
female is likely to weigh less 2.25 kg.

Sugiyama13 suggests that poultry enterprises pass through distinct stages of development. These
are outlined in the following figure.

Table 6.2 Development stages of poultry enterprises

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Item 1st 2nd Stage 3rd 4th Stage 5th Stage
Stag Farm Stag Specialised Integrated
e Backyard flock e egg egg
poultry Commercial production production
poultry
farm
Subdivision Day-old Hatchery Feed Chicken Separate
of egg chick pullet production production meat enterprises re-
separate separate integrated as
production growing from from poultry production a business
feed farming farms becomes
production, independent
mixing of
culled hens poult
egg and ry
manure production
integrated in the form
on farms
of the
broiler
industry
Main Natural Artificial Feed Egg Controlled
management hatching hatching mixing processing environment
and sexing plant houses
characteristics
Type of Subsistence Mixed Joint egg Eggs Egg complex
farming farming farming and meat industry
production (single
commodity)
Labour Part-time Part-time Full-time Division of Separate
management daily work
of labour and random
work

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Building Free range Water Water Manure Egg belt
feeder feeder disposal automatically
equipment controlled
house

Within the developing world, poultry and egg businesses may be found at all five stages of
development, although numerically there are likely to be more at the first and second stages.
Among peasant farmers' poultry are allowed to find their own food and water and roost where they
can in the family compound. Under these conditions, it is not surprising that productivity is low
and mortality rates among the birds are high. Commercial broiler and layer enterprises need to have
a much higher level of technology and management. However, they too have their problems. In
developing countries, commercial producers are reliant, to varying extents, upon expensive imports
of breeding stock, i.e. hatching eggs and/or day-old chicks, animal health products and vitamin and
mineral additives for compound feeds.
3.4.1. Assembly 0f Poultry and Eggs
It is the case, in most developing countries, that the poultry and egg sector is highly fragmented.
Production is, for the most part, carried out by a large number of farmers, each with a very small
flock. A minority of farmers have sizeable flocks. Much of the production is sold on markets in the
immediate vicinity of the farm.
3.4.2. Egg Grading
The principal external features of an egg, which collectively determine its quality are shell texture,
color, shape and condition. In some countries standards have been established for each of these
external physical features for an egg. The internal condition of the egg is also of interest when
assigning a grade to eggs. These include the position of the yolk within the shell and its color; the
extent of blood spots, if any, and the translucence and firmness of the albumen (white). Egg shells
are porous and so another internal feature, which is critical to the quality of the egg, is the size of
the air cell inside the shell. Eggs which are stored or transported in high temperatures allow a great
deal of moisture to escape. This results in an enlarged air cell and consequent loss of weight.
Stewart and Abbott, report that in the Sudan for example, the extremely high summer temperatures
can spoil up to forty percent of the eggs before they can be consumed. In other cases, the problem
is not one of a total crop loss but of quality losses that may not become apparent until the egg is
used by the consumer.
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The internal condition of an egg can be established using destructive or non-destructive tests. The
most accurate interior test is to break the egg open on to a glass so that the contents can be
inspected. This of course would be done on a sampling basis. Alternatively the non-destructive test
of candling can be applied. This simply involves holding the egg before a strong lamp so that the
position of the yolk, size of the air cell etc. can be seen. By spinning the egg, in the hand, the
solidity of the albumen can also be observed. Stewart and Abbott illustrate the kind of quality
specifications which might be established as follows:
First grade The shell must be clean, unbroken and practically normal in shape and texture. The
air cell must not exceed 9.5 mm in depth and may move freely but not be broken
or bubbly. The yolk may appear off-center but only slightly enlarged, and may show
only slight embryonic development. No foreign objects may be present.

Second The shell must be unbroken but may be somewhat abnormal in shape and texture.
grade Only slight stains and marks are permitted. The yolk may appear dark and enlarged
and may show embryonic development but not at the blood vessel stage or beyond.
Blood spots less than 6 mm are permitted.

Third Other edible eggs, that is, those not rotted, sour, moldy or musty; not incubated to
grade the blood vessel stage, not containing insects, worms or blood spots 6 mm in
diameter, or diffused blood.

This suggested grading scheme underlines the fact that the assessment of egg quality is comprised
of both objective and subjective measures. Nonetheless, like all grading schemes, for whatever
agricultural commodity, the benefits of implementing a systematic and widely understood method
of describing the essential attributes, of the product, would be that sales can take place without
personal inspection, disputes are more easily settled and more precise price and supply information
can be made available.
3.4.3. Poultry Grading
The weight of a poultry carcass is a primary attribute when grading the bird. The weight of the
carcass will vary by breed, sex and age. It will also vary in accordance with the feeding regime of
the bird. The eating quality of poultry meat is of particular concern to consumers. Meat tenderness,
juiciness and flavor are the key criteria of quality in which consumers have an interest. Skin color

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is another determinant of quality but the preference for white or yellow carcasses varies around the
world.
The quality of poultry meat is greatly affected by methods of production. The nature of the feed
used has a major influence on the final product. Balanced rations high protein and energy sources
such as whole grains and fats, growth promoters such as antibiotics, chemical additives and vitamin
supplements. Overcrowding and a lack of veterinary care slows the rate of growth of the birds and
increases the incidence of disease and infestation by parasites which, in turn, adversely affect the
quality of dressed poultry. In the tropics, climatic conditions make it unsafe to keep poultry
carcasses, for more than a few hours after slaughter. For this reason, as well as traditions and
culture, consumers generally prefer to buy live or freshly slaughtered birds.
In the industrialized countries detailed standards and grades for dressed birds (i.e. feathers and
blood removed) have been established. These grading systems take account of conformation of the
carcass, the presence of pinfeathers, skin condition, integrity of bones, and carcass
color/discoloration. However, in most developing countries grading is more informal, less
systematic and more subjective. Possibly the two most important ‗quality‘ criteria, in the tropics,
are age and sex. Younger birds, although lighter, generally enjoy a price premium over older
poultry. In the same way, female birds are more highly valued than male birds of the same age.
These criteria apart, market intermediaries usually catch a sample of the birds on offer and feel the
breast flesh through the feathers and make a professional judgment as to the consumer appeal of
the bird.
Opportunities to apply uniform quality standards depend upon the widespread availability of
refrigeration. Live birds are difficult to classify save in the most general of ways; age range, sex,
type and subjective evaluation through the handling of the bird. Poultry carcasses are much easier
to classify with accuracy. Hence the statement that a prelude to the implementation of uniform
grading standards is the sale of carcasses becoming commonplace and this can only happen when
refrigeration is equally commonplace. Another barrier to the adoption of standardized grading
procedures is the size of the poultry enterprise. The great majority of poultry farmers, in developing
countries, are small-scale businesses and therefore unlikely to spare the time, or have a suitable
staff member capable of learning how to assess poultry quality in a consistent and systematic
fashion. Thus the diffusion of standardized grading also depends upon the structure of the industry

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within a given locality. In geographical areas where producers are predominantly small-scale, it is
unlikely that there will be sufficient impetus to develop grading standards.
3.4.4. Poultry and Eggs Consumption
In the industrialized world poultry, and to a slightly lesser extent eggs, is less of commodity than
they were at one time. Originally these products exhibited a high degree of homogeneity but
producers have since differentiated both of them. By manipulating the feed give to poultry.
Producers have been able to alter the taste characteristics and the appearance of the birds. Poultry
has also been differentiated by the way they are preserved, by offering different cuts of the birds,
by pre-cooking, coating in bread and in a variety of herbs. With product differentiation producers
and food manufacturers have taken the opportunity to brand their poultry and poultry products.
The differentiation of eggs has chiefly centered on boxing the eggs and branding them. Some
producers, and more particularly food companies, operating in developing countries, have followed
suit and have differentiated their poultry products. Eggs, however, continue to be marketed as an
undifferentiated commodity.

3.5.The Marketing of Fresh Milk

Whilst milk can be converted to a range of dairy products, such as cheese, butter, yogurt, dried
powders etc., these are not commodities. It is generally the case that the processing of milk into
these products involves a measure of product differentiation. That is, the methods, techniques and
technologies, used in manufacturing dairy produce, tend to impart unique characteristics to the
finished product. For this reason only milk will be discussed in this chapter.
Milk is an extremely important human food. Not only is it a relatively cheap source of protein, it
is also rich in minerals such as calcium and vitamins A, D and B2. The quality of milk is usually
judged according to its butterfat content. In addition, buyers are also concerned that it should be
free from diseases like tuberculosis.
The relationship between beef and dairy production is an important one. In many countries, beef
production is subsidiary to dairy production with sometimes as much as sixty to seventy percent
of cattle sold for beef being animals culled from the dairy herd. This can have a significant
influence on the characteristics and quality of red meat products since breeds and production
methods which give the best milk yields rarely give corresponding results in terms of beef
production; or vice versa. In Europe, for example, Friesian cows are a popular breed for milk
production. It has been discovered that by crossing the Friesian with the Canadian Holstein, milk
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yields can be increased substantially. However, this cross-breed gives relatively low meat yields
and a meat of inferior palatability. The relationship between the beef and dairy sectors is reversed
in some countries. For instance, in Kenya milk production is more a by-product of livestock
rearing. Whether it is dairy production which influences beef production, or the reverse, the
important point is that the products of one will be determined, to some extent, both in form and
quality, by what happens in the other sector; product development and technological change in one
will have implications for the other.
In all parts of the world milk production is seasonal but the peaks and troughs are higher in the
tropics. Production in the tropics peaks just after the rains when there is lush pasture available and
progressively declines the further into the dry season. As in the case of beef production, milk
producers have to take into account the lengthy biological lags when trying to match the supply
and to the demand for liquid milk. When there is an over-supply of milk then it might be possible
to channel some of the excess into making butter, cheese, yogurts and other processed dairy
produce. However, the market for these products is finite too and although dairy products can be
stored longer higher levels of capital are tied up and interest charges are higher for storing these
value added products, in comparison to milk.
3.5.1. Assembly of Fresh Milk
In the case of fresh milk, the assembly level resembles that of poultry. Milk goes directly from
dairy farms to the processing plant. Bulk tanker trucks, visit farms on a regular schedule and collect
the milk. It is then moved to a processing plant. Hauling may be done either by the dairy company's
own vehicles or by independent truckers under contract to the processor or the dairy farmer.
The collection of milk is most often undertaken either by a marketing board or a cooperative. In
the case of marketing boards many of these are now being turned from loss making parastatals into
commercial enterprises under economic structural adjustment programmes (ESAP). In the
foreseeable future some of these boards will be privatized either in whole or in part.
3.5.2. The Transportation of Fresh Milk
Whilst the tankers which carry the chilled milk from the farm to the factory are becoming ever
larger the major remain constraint remains that of the inadequate road infrastructure. During the
wet season many roads become impassable and the milk simply is not collected.
Whereas the trucks used to transport other agricultural commodities can be used to move a variety
of different types of product, milk tankers cannot. This affects the economics of milk
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transportation. A hauler moving grain in one direction can often get a return load since the type of
truck used can carry any kind of aggregate; be it an agricultural commodity or some other load
such as backfill for road building. Milk tankers, by contrast, travel empty in one direction and full
on the return journey.
3.5.3. Fresh Milk Grading
Fluid milk is usually separated into at least two grades. For the purposes of this discussion these
will be referred to as grades A and B. Grade A would be passed as fit for human consumption.
Grade B would be passed only for use in processed dairy products. Grade B milk is processed at
much higher temperatures than fluid milk passes through when being pasteurized and this is why
it can be approved for human consumption, albeit if only in the form of processed dairy products.
In general fluid milk attracts higher prices than milk destined for use in processed products. In part,
this is explained by the need to compensate market participants for the additional costs of marketing
a highly perishable product and moving and storing a very bulky commodity. The second
explanatory factor is the fact that fluid milk has a lower elasticity of demand than do processed
products.
Kiranga outlines the tests carried out by Kenya Cooperative Creameries on raw and processed
liquid milk. These are fairly standard throughout the world:
Raw milk obtained from farmers
Organoleptic test This simply means that the sense of smell is used to detect sour odors and
perhaps tasted too. Visual inspection reveals the presence of foreign matter

Lactometer reading This test is conducted to detect any adulteration of the milk like the adding
or skimming of fat

Reassuring test The bacterial count of the milk is measured giving an indication of the
standards of hygiene at the farm.

Butterfat Fat content is the principal criteria used in deciding the level of payment to
individual farmers. Raw milk is expected to have a fat content of at least
3.25%

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Processed milk at the factory
Level of acidity Not more than 0.15%
Butterfat content Not less than 2.25%
Solids other than Not less than 8.5%
fat
Total plate count Not more than 100,000 grams
Presence of Not more than 10 per gram
califorms
Efficiency of Phosphatase test
pasteurization
In many developing countries, milk processing has been monopolized by a marketing board or
other state marketing agency. Even where markets are liberalized the structure of the milk industry
has more often been oligopolistic rather than perfectly competitive.
Fresh milk consumption
In rural areas many households either own a cow to provide milk for their own households, and
perhaps to make some informal sales to neighbors, or they will purchase milk from a local farmer.
If there are localized cooling facilities, and health and hygiene laws permit, untreated milk will be
made available in local stores. In Zimbabwe, the Dairiboard, helped establish cooling facilities in
remote rural areas. In doing so, Dairiboard helped ensure that rural farmers could sell their milk
locally and guaranteed rural consumers a supply of milk. The move also helped Dairiboard reduce
its costs since it was previously charged with delivering milk to these remote territories. This
involved high transport costs and low volumes.

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In addition to these rural exchanges, four channels for distributing fresh milk can be
identified, as follows:
Depot Marketing boards, large cooperatives and large dairy companies often employ
salesmen their own sales force. These sales personnel operate out of depots.

Wholesalers As the number of sales outlets increases there emerges a need for intermediaries
to operate between the sales force and retailers. This is what happened in Kenya
as the number of small kiosks increased dramatically in response to urban
growth.17

Contractors Contractors are appointed to routes which in most cases would be uneconomical
for the marketing board, cooperative or dairy company to service itself.

Home In some urban centers there is a tradition of doorstep deliveries of milk

deliveries Following the commercialization of Zimbabwe's Dairiboard, this service was
privatized. Appointed former employees of the board were sold delivery routes
and thus became independent businesses in their own right..

In Middle Eastern and African countries, fermented milk rather than fresh milk has been the
traditional food. This may be consumed as a drink or as a relish with cereal porridge. Even in this
form, the main criteria of ‗quality‘ have been the butterfat content.

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