Monday, October 26, 2009

Marketing enterprises and channels

Enterprises of four types normally fulfill the roles of middlemen. These are:

· independent, locally-based private enterprises
· co-operatives
· marketing boards and other state enterprises
· transnational companies.

Independent, locally-based private enterprises operate with capital owned directly by the operators and their partners, or in some cases by shareholders. Although not always large in scale of operation, these make up the greatest number of agriculture and livestock enterprises. Great variety exists in their level and degree of sophistication. Sometimes foreign-owned operations may' occupy important roles in this niche, particularly in foreign trade of livestock products.

Co-operatives have the potential to improve marketing efficiency. They can reduce marketing costs. For example, a village livestock marketing co-operative could co-ordinate the production schedules of small farmers, so that sufficient animals would reach market age at the same time, allowing truck transport to markets and lowering per unit transport costs. Co-operatives can also be used to counteract imperfect competition (monopsony/oligopoly power) among buyers, by creating greater bargaining power among producers. Typically they are used to distribute credit or subsidised inputs. In Africa they have been more successful when they have confined themselves at first to one' simple function which is important to all members, attempting only later to expand their role. In order to be successful in the long run, a co-operative must be able to carry out marketing functions with lower cost or effort than available alternatives. If this ability is not perceived by members, co-operatives are likely to break down. Since the ownership of co-operatives, by definition, lies in the hands of those who use its services (and who are thus entitled to any profits), a distinction must be made between farmer-owned and -controlled co-operatives and parastatals. Parastatals are co-operatives in name only, since they are government controlled. They may serve as taxation mechanisms or to promote government support. Private co-operatives are likely to be more efficient than parastatals, because of ownership incentives. Some co-operatives are difficult to classify, such as the Kenya Co-operatives Creamery (KCC). Although nominally a private cooperative, the KCC acts as a parastatal because of government-sanctioned monopoly and regulatory powers.

Marketing boards and other state enterprises, although popular with many African governments, have been much criticised. They are set up by government direction with government capital. Major operating decisions are subject to approval by the responsible minister. Parastatals are slightly more independent. Although government financed, they are autonomous in terms of handling funds, recruiting staff and making operational decisions.

The objectives of establishing such public intermediaries are: to raise the bargaining power of agricultural producers via an imposed monopoly on sales; 'to set up needed market and processing facilities; to raise the scale of operation and thus to capture economies of scale; and to stabilise market supply and prices. They often fail to achieve these objectives because of inappropriate policies, poor management and lack of knowledge. Attempts to replace private markets usually fail because the detailed information necessary to operate may be too dispersed to gather. Managers succumb to patronage and corruption, and incentives for efficient operation are usually lacking. The Kenya Meat Commission (KMC) was, until recently, a parastatal set up to buy and process cattle and to market the products. Although potential economies of scale existed, these were not achieved because capacity was under-utilised and per unit costs were higher. Slaughterhouses built to handle peak seasonal supply are usually under-utilised during other seasons. Parastatals with a mandate to buy at fixed prices from all producers also suffer from high costs of cattle purchases in pastoral areas, where such sales are widely dispersed.

Transnational companies often succeed because of their access to processing technology and external markets. By definition, they operate in countries other than that of their headquarters. They can assist market development by facilitating the movement of skills and capital to areas where they are in short supply, potentially contributing to the levelling of commercial expertise.

When considering the relative advantages of each of these enterprises, attention must be given to the particular environment of livestock marketing in Africa. Its marketing structures are more complicated and differentiated than those in a developed country where production is much more specialised. Further, issues of equity and income distribution between producers are more acute and must be considered in the policy decision to promote certain types of enterprise.

All of the goods in a particular market are unlikely to pass through the same set of agents. Usually goods pass through a variety of market channels as a result of varying degrees of vertical integration existing in the same market.