The term “market linkages” is often referred to in the literature on rural development. what precisely does it mean? The term linkage obviously implies a physical connection between the producer and the ultimate consumer. Linkages also involve financial transactions - the selling and buying of goods - and can be broadly defined in four different ways:
- by the form of financial transactions or type of intermediaries who undertake the transactions;
- by the channels through which transactions occur and the type of facilities used for transactions;
- by how they are linked together by transport and communications networks;
- by the spatial distribution of transactions - where they occur and whether this forms a pattern.
Purpose of facilitating market linkagesHowever, before describing these mechanisms it is important to understand what the market linkages are intended to achieve. They are meant to facilitate the flow of produce between the different levels of the marketing system. The input to the process is the agricultural production (the supply) and the output is the consumption of that produce by consumers (the demand).
This guide does not focus on the performance of the marketing system as such but assumes that if the system can be made more efficient it will be more competitive, will facilitate economic growth and will maximize benefits to farmers. Thus, the marketing process needs to be undertaken as efficiently as possible, at the lowest cost and with the minimum of losses occurring at each stage.
Marketing costs and margins
Costs are the key to competitiveness. marketing costs are the total costs for bringing produce from the farm to the ultimate consumer. margins are the costs that are added by transporters and traders to cover their expenses and to provide a profit for their services. They are added to the basic farmgate price of a product. An analysis of marketing channels can be used to examine what margins are incurred at different stages in the process and whether they are reasonable. As will be apparent later in this chapter, marketing costs and margins are also fundamental influences on the spatial distribution of the production areas and are heavily influenced by the cost of transport. In summary, the costs that make-up the marketing margins are as follows:
- the costs of sorting, washing, grading and packing the produce;
- transport costs: public transport, farmer’s transport or truck hire, or use of trader's vehicles; and
- trader’s overheads and profit.
TYPES OF MARKETING INTERMEDIARIES
The private sector is playing an increasingly active role in most developing countries in providing inputs, agro-processing and marketing services. Thus the linkage between the rural and urban areas is often provided through a network of traders or intermediaries, the costs of their activities being paid for through the marketing margins. The role of these intermediaries may overlap and in less-developed marketing systems their function may be unclear.
The relationships among producers, wholesalers, and retailers play an important role in the marketing of produce. Such linkages can create mutual trust among different functionaries in the marketing system, but may also cause a dependency relationship between parties and make it difficult for newcomers to enter the marketing process. Linkages are often based on village proximity (area based) or on family relationships developed over many years.
Conventional marketing intermediaries
- Petty traders and assemblers, who are specialized middlemen that purchase produce from farmers at the farm gate or local market, for selling to other traders, wholesalers and retailers. They may use their own transport or hire from a transporter.
- Independent collectors and commission agents, who take possession of produce from an individual or group of farmers and then sell the produce to a wholesaler, market trader or other middleman. for providing these services the collector (or commission agent) normally charges a percentage of the final sales price.
- Market agents, linked to specific markets who sometimes also act as brokers for wholesalers or as auctioneers at the market.
- Wholesalers and semi-wholesalers, located in markets or independent facilities, who may also function as retailers.
- Retailers, who buy either directly from farmers, from traders or wholesale markets, and sell the products to consumers through retail outlets.
Other types of marketing intermediariesContract arrangements
Sometimes, contracts may be arranged with an organization, such as a food processor or wholesaler, who makes an advance contract with a group of farmers to supply a specified product on a regular basis. The buyer usually provides seed and extension advice, sometimes credit, and also guarantees to procure the produce at harvest at an agreed price. Poultry farmers, for example, may develop a long-term relationship with poultry processing companies, who may provide baby chicks, feed, and medicines. when the broilers are ready for sale, they purchase them from the farmers at the prevailing market price or at a previously agreed price.
Other possibilities for linkages are direct agreements with organizations, such as:
- restaurants and hotel chains;
- cooperatives, particularly for grains and export crops, such as coffee and tea;
- supermarket and Chain stores; and
- institutions, such as schools, army or hospitals.
There is often scope for group marketing of produce to obtain better prices for farmers. for high value vegetables and fruits, especially for export, contract arrangements may be feasible.
There may be cases where these contract arrangements are extended to create a vertically integrated marketing process. Typically this might apply when farmers' groups enter into contracts with supermarket chains or exporters. The characteristics of such a system might include:
- organization of farmer groups;
- providing extension services and production inputs to the farmer groups, sometimes through NGOs;
- harvesting of crops and pre-sorting at farm level;
- transport from farm to a packing centre;
- final sorting and grading;
- packaging (including film wrapping of high value produce) or processing;
- pre-cooling and temporary storage in packing centre cool store;
- loading onto refrigerated truck from packing centre cool store;
- transport by refrigerated truck from packing centre to supermarket (or export) cool store; and
- sale from supermarket display and cooling cabinets.