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Improving the marketing system of vegetables    
By Dr All Muhammad Khushk and Muhammad Ibrahim Lashari

Vegetable consumption in Pakistan is low. People in the upper income strata consume above average, while the bulk of rural and a large percentage of urban population consume little vegetables.

Improving the marketing system of vegetables The per capita consumption estimate is about 35kg annually which is far below the minimum level necessary for basic nutrition. However, the growing family income is expected to increase the demand for vegetables as well.

For sustainable agriculture development an efficient marketing system is essential which not only affects the producer's income but also shapes the consumer's welfare.

Market efficiency does not depend only on farm production cost and yields but on the mechanism, wherein a product reaches to a consumer from the farm gate. The factors influencing the market efficiency include their perishable nature, quality, price and location.

In small towns assembly markets are situated near farm-gates where marketable surplus is brought in by farmers. Traders, shopkeepers and retailers participate as buyers in these markets. Most transactions involve small quantities.

Traders here are not approved by any government agency, although in some cases town committees charge an entry fee. Traders don't maintain record of transactions. Pricing is based on negotiations between the trader and the farmer.

Improving the marketing system of vegetables Since quantities are small, farmers don't mind small difference in prices. However, for large quantities they prefer wholesale markets, or compare prices before selling their produce. Better transport facilities and availability of large quantities of marketable surplus have made it feasible for farmers to take their produce to wholesale markets.

In an assembly market, agents perform work on commission by charging 10 per cent on sale revenue from sellers. They do not provide lodging, boarding, transport, telephone and entertainment facilities.

Usually they maintain contact with the commission agents in wholesale and terminal markets and receive price information from agents in various wholesale markets. On receiving a demand from a wholesale or terminal market, they arrange that quantity from agents for supply.

Wholesale markets located in a district town or a major sub-division town such as Hyderabad and Lahore are main assembly centres for vegetable surplus of surrounding areas. These have better storage, transportation, communication and working conditions for both buyer and seller.

Traders have permanent offices and auction floors here for transactions. Commission agents also provide lodging and boarding facilities to contractors and producers. Members of market committees monitor activities of traders in these markets.

Traders are required to keep records of their daily transactions and report them to their respective committees. Commission agents, wholesalers, retailers, shopkeepers and weighing men are also registered and licensed by these committees.

These measures have resulted in improvements. For example, replacement of old weighing gadgets with the semi-automatic scales are convenient and transparent for both buyer and seller.

Terminal markets are situated in urban centres. The Karachi market is one of the best examples. Most agricultural surpluses are ultimately routed to this market. Foreign trade is one reason. Traders here are usually the wholesalers who supply farm produce to firms and industries for processing and to retailers and shopkeepers.

Improving the marketing system of vegetables Marketing channels are concerned with the "marketable" or "marketed" surplus of farm commodities that enter into circulation and exchange. The purpose of exchange of commodities for money and vice versa is to have access to a variety of products.

Here, agricultural marketing channels refer to the outlets or routes through which commodities reach the final consumer. The existing vegetable marketing channels are producer, commission agent, wholesaler, and retailer.

The constraints to private sector activity in the marketing chain include bureaucratic delays and corruption; poor law and order, a slow, expensive and corrupt legal system; poor transport and communications, and poor dissemination of market information.

Regulation of these markets is governed by the Agricultural Produce Markets Act of 1939; under this Act a market committee comprised of the government officials and representatives of growers, traders and consumers. A market committee is established for every notified area.

It is responsible for arranging open auctions, supervision of weight and measures and prompt payments, licensing of all traders, allotment of shops or trading floors for new entrants, dissemination of market information and levying of market fees or taxes.

The government levies fees on agricultural produce, 15 per cent of which are retained by the local market committee with the aim to improve physical infrastructure of the market.

Collection of it is contracted out to private agencies that compete in an annual open auction. In reality, political influence and bribes determine the award of the contract. After obtaining contract, money is recovered by charging higher-than-the-government- scheduled fee.

The fee collecting agencies collude with local police in 'intimidating traders reluctant to pay such higher rates. Trucks are held at checkpoints resulting in the spoilage of produce.

Growers who transport and market their own produce are officially exempt from the market fees, but in practice pay the same as contractors. It is known that a proportion of this revenue is passed on to top hierarchy, while the fee collecting individuals are changed regularly.

All traders (growers are exempt) engaged in purchase, storage or sales of agricultural produce in notified market area are required to be licensed by the local market committee.

The power to issue, renew and cancel licenses provides means to obtain bribe from traders. This particularly applies to new entrants. The official criteria for obtaining a license are solvency, past experience, competency with no criminal convictions. But, in practice this is determined by a bribe, family and social ties and support from local commission agents association.

Improving the marketing system of vegetables Similarly, vegetable export is regulated and licensed by the Export Promotion Bureau (EPB). It was found during a survey that there were few permanent and licensed exporters, while others were operating on temporary and informal basis in collusion with the EPB.

Shops and auction floors in wholesale markets are the property of market committees. Limited in number, they tend to be fully occupied by commission agents and wholesalers.

New entrants to the market have to invest significant capital in a "goodwill" payment to existing shop holders (amount paid vary among markets, ranging from one to 2 million rupees) as well as a bribe to the committee for allotment.

Entry of new people as commission agent needs a license from the market committee. Once a license is received, the agent must register himself with the commission agents' association.

A wholesaler requires a license, space, experience and contacts to enter into the market. Retailers do not require a license but experience is more important. There are a large number of retailers and as a result each one faces strong competition in buying and selling of produce.

They usually buy fruit from wholesalers on credit for one to two days. A new retailer has to provide a third party guarantor to wholesalers to become entitled to buy produce on a credit basis.

Vegetable exporters require a license, experience, contacts and capital to enter into the business. An export license is the first condition for entry into the business. It was reported by exporters that there was no difficulty in obtaining a license from the Export Promotion Bureau (EPB).

A new entrant has to apply on the prescribed form along with the official fee. In practice a license will be ready within a week but some commission agents pay a bribe to the concerned official to obtain the license the same or next day.

However, barriers to entry for different market intermediaries reveal that the existing marketing system is potentially competitive with few barriers resulting from state intervention. Regulation of entry through licensing is weakly enforced in the country.

Marketing margins are the differences between prices at two market levels. Marketing margin analysis is commonly used to examine the differences between producer and consumer prices for the same quantity of a commodity.

Margins represent the price charged by marketing agencies for all services - buying, packing, transportation, storage and processing. Under competitive conditions market margins are the result of demand for services and equal to the minimum cost of services provided plus normal profit.

To measure market margins, data on price were obtained at different stages. It is difficult to come up with a unique solution for the price to be used. There are many complications in formulating the standard price of vegetable which can be summarized as: (a) day to day variation of prices, (b) varietal differences, (c) grade differences, (d) price variation over the season, (e) the basis for averaging various grades and varieties and (f) price differences in consumption and production areas.

Such problems have been resolved by collecting prices which may cover most of the above conditions. The price of onion, chilly and potato was collected on per 40kg basis. The tomato price was collected on a per crate basis; the average weight per crate is about 14kg.

Improving the marketing system of vegetables Prices were collected weekly throughout harvesting season from assembly and wholesale markets and from different market intermediaries. At the same time information on retail price was collected from the same city. Simple averages for all prices for different market intermediaries were calculated.

It is believed, particularly by growers, that middlemen take away large share of the profit. To investigate, absolute cash margins (ACM) for each market has been estimated.

The ACM or price spread is the difference between the price paid and received by each specific market intermediary. For vegetable producer's ACM was calculated as the sale price of the orchard and the total quantity harvested by the contractor.

The producer's share in consumer's rupee (on final retail price) was calculated on per bag 100kg in case of onion, chilies and potato and per crate/14kg in case of tomato. When producers sold their onion produce, the maximum producer received as his share in consumer's rupee was 64 per cent during early season and minimum 52 per cent in late season.

Tomato producers received 64 per cent in early season and 57 per cent in mid season. Chilly producers on average received 65 per cent in consumer's rupee and potato producers 56 per cent. 

Courtesy:The DAWN;

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