Poverty in Rural Agriculture: Case for niche marketing
File picture of pepper being dried after the paddy harvest.
(Formerly Sri Lanka Export Development Board; former Consultant of the Commonwealth Secretariat, London and presently an importer of Sri Lankan groceries based in Melbourne) What Sri Lanka needs is a marketing system that would address market identification and marketability of produce based on the principle of competitive pricing, quality and services. The strategy proposed in this study revolves around the ‘activation’ of agricultural output via market identification and marketability analysis.
The ‘activator’ is the system identified as ‘Improved Marketing’, which initially would target 50 per cent of the annual agricultural (fruit and vegetable) production in a given period of five years. Activation of agricultural output is expected to activate supply of agricultural inputs and thereby bring about an ideal integration of agricultural outputs and inputs in a competitive environment. This system would help catch-up with the rest of the annual agricultural production once benefits are realised over time.
Primary shareholders would the rural farmers operating in socio-economically cohesive groups, linked to marketers who appreciate this ‘improved’ concept. The middlemen can join this system, upon accepting this ‘improved’ marketing mechanism. The public sector is encouraged to join as ‘improved’ marketers but the alienable task of the public sector is to support the ‘improved’ marketing of the private sector via the provision of required ‘public goods’.
The methodology of the proposed ‘improved’ marketing system for marketing of fruit and vegetables could be extended to other sectors of rural agriculture. Agriculture is weather dependent, and if the state is less attentive to the needs of small farmers and agro-based traders in rural Sri Lanka, this group getting trapped in the vicious cycle of economic ups and downs, would be unavoidable.
Productivity a core issue
Agricultural productivity, the key to rural prosperity, has been hampered by inadequate attention on inherent rural scenarios of labour movement rigidity (inability of farm labour to move from one sector to another), seasonality in production and perishability of produce, rural attitude towards ‘individualism’, limited access to agricultural credit coupled with rural indebtedness, land fragmentation and the traditional marketing system with the conspicuous presence of the ‘necessary evil’, the unpredictable middlemen. They have all contributed to the stagnant farm productivity, especially in the small (fragmented) farm sector. Various views have been expressed by experts to tackle this ‘rural behavioral syndrome’; often with a ‘foreign flavour’ not accustomed to rural Sri Lanka and not recognising the inter-connectedness of all these behavioral scenarios to the rural farm family. It is indeed a fault by respective Sri Lankan governments.
This article proposes an improved approach to marketing of fruit and vegetables; the methodology of which could be easily extended to other sectors in agriculture. It recognises the inter-connectedness of all rural behavioral scenarios in problem solving with greater emphasis towards an improved or advanced marketing system from that of the traditional marketing system. It is the view that for the success of the improved marketing system involving niche marketing, all rural behavioral problems got to be coordinated and resolved together in order to bring forth the ideal outcome to small farm families. The significance of this system is the building up of a closer relationship between the stakeholders including the supporting services along the supply chain.
This system had been tried out originally in the Export Production Village (EPV) concept of the Sri Lanka Export Development Board (EDB) in the 1980s and presently practiced by Sri Lankan supermarket chains and dedicated stake holders consisting of farmer groups and traders (inclusive of ‘dedicated’ middlemen), in combination with input-output supporting services. It must be mentioned that the failure of the EPV concept was because of the lukewarm treatment it received from the EDB with change of ‘thinking’ of the government hierarchy. It emphasises the importance of Government intervention with a set of well identified steady policies vis a vis on ‘public goods’.
Traditional marketing of fruits and vegetables:
‘Individualism’ of farmers prevails in the traditional marketing system where farmers act on their own in input purchase and in marketing. This situation is likely to increase the unit cost of inputs and reduce the unit price of output (farm produce) primarily due to the restricted ‘bargaining power’ of a small farmer arising from ‘individualism’.
Shift from traditional marketing
The traditional marketing system normally functions on spot marketing without any long term agreements, thereby the value addition is not recognized. Situations of ‘oligopsony’ where middlemen, as seen at Economic Centres and Wholesale Markets, collude, will further discourage value addition. As purchasing prices, down the marketing channel, are determined by daily supply and demand situations, without any consideration to future production that is expected to come to the market (lack of attention to futures marketing), the possibility exists for farm gate prices to be unrealistic.
This system fails to discourage significant post-harvest losses (30-40 per cent of the farm harvest) recorded in Sri Lanka. This will further stifle farm income. Nevertheless, the traditional marketing system, consisting of stakeholders, including middlemen, continue to play a significant role in supplying fruit and vegetables to Sri Lankans via the mainstream markets, ie – village markets, roadside vendors, grocery shops, etc. Even exporters tend to obtain their export supply by tapping at some point this traditional marketing channel.
Improved/advanced marketing methods:
In this process, a complete shut-down of the traditional marketing system is not advocated. A target has been set for improved marketing; to increase the intake of annual fruit and vegetable production from the present 8-10 per cent to 50 per cent within five years. In simple terms, the proposed improved marketing system is an attempt to redirect more fruit and vegetables to local and overseas markets via niche marketing against the present traditional local mainstream marketing system. The dedicated stake holders, namely the farmers, suppliers and traders (middlemen), agri-businesses, supermarkets, exporters and processors, have a responsibility to perform well: supply fruit and vegetables the way niche markets demand. Success of this niche-marketing philosophy should enhance demand driven production.
Advancing to the improved marketing system will incur significant changes; emergence of a breed of dedicated stakeholders consisting of farmers, suppliers, agri-businesses, supermarkets, exporters and processors along the shortened and more dynamic supply chain. Along with the dedication of the stakeholders, the oligopsony situation and individual approach of farmers should ease to that of oligopoly, a situation where farmers will act as a group. Prospects of group farming (group of farmers, producing to the needs of a particular dedicated buyer) will encourage adapting long term marketing strategies.
Niche marketing:
Niche marketing is a concept where comparative and competitive advantages in marketing are better exploited to provide a better deal to niche marketers and farmer groups. Prior knowledge of consumer behavior and the location identification of consumers and producers enable niche marketing to exploit comparative advantages. Product differentiation by way of demanded quality and agreed prices and service differentiation by way of timely supply, better product presentation and two way flow of product and market related information, are means of providing the competitive advantage in niche marketing.
Locally, similar consumer behavioral orientations suitable for niche marketing are evident in armed forces camps, tourist hotels, prisons, hospitals, retirement villages and in societies or communities with similar socio-economic background. Similarly, niche markets overseas could be identified among similar ethnic, cultural and economic standings. It should be noted that finding niches in the whole of the local or overseas mainstream markets are not practical and therefore, continuation of the traditional marketing system is also essential. With government intervention, the task is to find more and more niches and connect them to suitable niche marketers (groups of dedicated stake holders). Let us examine the potential that awaits groups of farmers and niche marketers. Inflow of demand (market) information and outflow of supply information will be evident in niche marketing.
Two-way flow of information is further strengthened by the flow of information on research and development, rural credit and crop insurance, input and equipment, markets and market behavior, technical and technological aspects, farmer education and training and including general information on well-being of stakeholders. Information sharing will strengthen the relationship between stakeholders and between niche marketing systems. Avenues will open for group farming (an oligopoly situation as against ‘individualism’), contract farming with formal and informal agreements, forward contracting, providing greater stability to pricing and quality supply, value adding, for instance contract farmers cultivating and presenting produce according to niche market demands and to reduce post-harvest losses by improved packing for instance in plastic crates.
Improvement in farm economies
Farm economies are bound to improve with niche marketing with the anticipated reduction in post-harvest losses on top of realistic integration of farm activities, vertically and horizontally. Vertical integration will bring the market and the farm closer, by the close involvement of dedicated farmer groups, traders (middlemen) and agri-businesses including exporters, thus preventing situations of oligopsony. Horizontal integration will enable farmer groups to purchase their requirements of farm inputs including farm household requirements in bulk, thus economizing on bulk buying and cost effective transport.
Farm surplus is an inherent problem; it is minimized in niche marketing as the production is ‘planned’ (according to prior information at the time of cultivation) and still, in the event of surplus, management of the surplus and the consequences will become a group effort by a group of dedicated farmers and niche marketers. Above all, group farming will strengthen the ‘bargaining power’ of farmers, even to bargain against the niche marketers, in one’s own group, would thereby create a scenario of competition between niche marketing groups dealing in similar products. Outcome of niche marketing can be seen as a ‘fair deal’ to both stakeholders – farmers and consumers.
Increase exports
Niche marketing has the added potential to increase exports because produce is supplied according to the demands of the overseas niche markets as directed by exporters. Farmer groups need not worry about price instability as the prices can be pre-determined to some extent before cultivation. This can cushion the farmer groups from natural disasters. Honouring the agreements between farmer groups and dedicated buyers at times of natural disasters, will be the strength of the ‘bond’. In these instances, actions of the dedicated buyers will be akin to a crop insurer.
The government ought to recognize such dedicated buyers. A major surplus is not expected as production is planned and producing to the export market is a continuous income generating process. Presently, Sri Lanka exports around 45,000 to 55,000 metric tons of agriculture products annually. Increasing exports have the dual purpose of earning more foreign exchange to the national economy and invigorating the ailing rural economy.
Government interventions:
The success of the state in business has seen mixed results. Instances of misallocation and misuse of scarce resources are many. It is not an exaggeration that appointment to government positions is not transparent while wage structures lag behind private sector wages. And as a result, the dedication that is expected to come from an efficient niche marketing operation may not happen. Additionally, fruit and vegetables are perishables and therefore much is expected from the niche marketers.
Under the present socio-political environment, whether government officers as niche marketers, can fulfill this task is debatable. However, the Marketing Department of Sri Lanka in a by-gone era, performed admirably in the traditional marketing system. Nevertheless, government intervention via ‘public goods’ is essential at least in well thought out areas, where misallocation and misuse of resources can be minimised and where there are no alternatives in the private sector. The following areas are recommended for government intervention
- Facilitation and planning:
Recognition from the government that efficient marketing is the ‘Engine of Socio-Economic Growth’ and therefore, recognition of the niche marketing system as a ‘Lead Project’. Appoint a specialized marketing body with powers to formulate and coordinate appropriate policies and incentives in liaison with parallel institutes and in coordination with stakeholders. This unit shall be under a high profile ministry suitable to deal with lead projects involving the rural economy.
Marketing body as provider/organiser
Design promotional activities, identify and organise niche markets and niche marketers and link them to compatible farming groups; provide training and required facilities and intervene in problem solving.
As a developer
Identify and coordinate rural infrastructure development ie – town and village markets; prioritise development of rural roads and storage facilities in order to provide accessibility to a network of niche marketer-farmer groups.
As input supplier
Create opportunities to establish “One Stop” procurement centres to cater especially in niche market-farmer group locations. Coordinate state rural credit and crop insurance, input and equipment supply institutions to function alongside similar private sector institutions. Involve Lak Sathosa as a provider of rural household groceries and intervene to defray losses of dedicated buyers, for honorring agreed prices especially at times of natural disasters.
As a research coordinator
Keep on feeding market signals to state research institutions for product development and for the development of demanded seeds and planting material. Socio-Economic Research on post-harvest grass root level surplus storage and transport techniques will be of much importance.
Promoter of state buyer
This is a sensitive area where use of state resources can be misallocated and misused. Nevertheless, Lak Sathosa is already a purchaser of the ‘last resort’ of fruit and vegetables under the traditional marketing system. If Lak Sathosa’s economic viability and social acceptability of buying and selling via its supermarket chain is proven, it will become a yardstick for Lak Sathosa to enter the improved marketing system as a niche marketer. Presence of Lak Sathosa will have the added impetus of competition between the state and the private sector niche marketers.
As a monitoring mechanism
Evaluate and report to the line ministry, the performance of the above activities, at least annually. Continued monitoring of target achievement (within a 5-year period, movement of at least 50 per cent of the annual production of fruit and vegetables via the niche marketing system) is paramount.
Conclusion:
This is an effort to provide a ‘fair deal’ to the stakeholders and a ‘fairer deal’ to producers and consumers, by an improved marketing system involving niche marketing. The concept is not new to Sri Lanka and it is ‘time tested’. It doesn’t replace the traditional marketing system but an attempt to improve it by the introduction of ‘dedicated’ stakeholders. Dedicated government institutions could also be stakeholders. A target has been set (a practical but a subjective judgment), at 50 per cent of the annual production of fruit and vegetables (estimated to be around 2.75 to 3.25 million metric tons including pulses and cereals) from the present level of 8-10 per cent, to move through the improved marketing system, within a period of five years.
This system recognises the inter-connectedness of farm input-output and support services and assumes that dynamic marketing is the ‘engine of socio-economic growth’. Therefore, it considers marketing as having the potential to resuscitate especially the small farms of Sri Lanka, consisting of approximately two million ‘active’ small holdings (having between 0.11 to 8 hectares per holding) occupying an area of approximately 1.45 million hectares.
(This article is based on a paper presented at the annual sessions of the OPA in September 2014 by the writer, who now lives in Melbourne. He says the contents address an important issue presently experienced in the rural economy of Sri Lanka and would be useful to policy makers, politicians, agri-businesses, farmers and consumers. He can be reached at nirmalal.dias@gmail.com)