X This internal working paper is prepared for STAFF USE ONLY. The views expressed are not necessarily those of the World Bank. AGRICULTURAL MARKETING MECHANISMS AND INSTITUTIONS: THEIR PERFORMANCE AND LIMITATIONS AGREP Division Working Paper No. 94 Prepared by John Abbott, (Consultant), Prefaced and Edited by David B. Flood (Consultant) under the direction of Clifford Lewis Economics and Policy Division Agriculture and Rural Development Department March 1985 'EXTNAME: Abstract (R)P: (JA-1) 01 Abstract In this paper, Mr. John Abbott reviews the evolution and performance of agricultural marketing boards since 1965, based on a report published that year by the Food and Agriculture Organization in which six types of marketing boards or parastatals were identified. (FAO Marketing Guide NO. 5). This papor returns to that typology as a basis for comparison. The report is divided into six main chapters. Chapters I and II deal with the subject of agricultural marketing. Chapter III traces the evolution from marketing boards to parastatal. Chapter IV examines the products and demographics of marketing in terms of implications on parastatal applications. Chapter V provides several case studies from Africa and South America on policy factors influencing the performance of parastatals. The closing chapter, VI, discusses parastatal prospects for the 1980s and concludes that a better understanding of marketing is required by both in-country policy makers and irvolved multi-lateral institutions. A summary of Mr. Abbott's framework and main arguments is provided after the introduction. The paper concludes with recommendations by Mr. Abbott for follow-up action. £2X,NAME: TOC (R)P: (JA-1) 01 -1- Table of Contents Page No. Abstract Table of Contents a . a . a a a . a . a . . . . . . . . . . . . 1 Preface . . . . . a a . a . a a a . . . . a . . . a a . a a . 2 Summary # . . .a a a a . . a . . . . . . a a a a . . . 6 Chapter I Marketing, Development and . a a a . . a a a . . 16 the Role of Government Chapter II Marketing Organization for . a. . . . . . 30 Rural Development Chapter III Marketing Boards to Parastatals, . . a a a . a . a 45 1965 to 1983 Chapter IV Commodity Analysis of Parastatal . . . . . . . . 64 Operations Chapter V Country Analysis of Use of Parastatals . a a a . 89 Chapter VI Prospectives for the 1980s . a a a a a a a . a . 111 Follow-up Action . . . . . a a . a. . a a . . a a . a . 142 References . a a . a a a a a a a a a a a a a a a a a a . a a a 144 TEXTNAME: Preface (R)P: (ja-1) 01 -2- Preface The need to rationalize the role of government in economic affairs is ever present. It seems a more pressing need in many developing countries where extensive demands on limited resources foster a much enhanced role for governments to allocate those resources for the public good, thereby creating a justification for intervention and public dector expansion. This intervention comes in the form of policies, and bodies to implement them. Nowhere is it more contentiously and problematically visible than in the agriculture of the third world, which is characterized by a plethora of state marketing enterprises. There are probably as many good reasons to create parastatal agricultural marketing enterprises as there are to abolish them. It is, however, somewhat ingenuous to argue, as some have, that parastatals should be abolished by virtue of their parastatality. They assume social obligations that no private enterprise could afford. The question is, do they realize these obligations at least cost to maximum benefit? This is a particularly pressing question now that financial stringencies make extraordinarily costly public enterprises simple targets for economic reformers. But it is a pressing question anyway because of other changes that have occurred in the structure of the international economy since 1965, when Mr. John Abbott, formerly Chief, Credit, and Marketing Services, the Food and Agricultural Organization, prepared the FAQ Marketing Guide No. 5, which identified six types of agricultural marketing parastatals. TEXTNAME: Preface (R)P: (a-1) 02 -3- Developing country reliance on foreign trade has increased dramatically since the 1960s. In 1965, the export earnings of developing countries totaled US$44 billion. By 1980, that figure increased by more than a factor of ten, to U.S. $ 498 billion (both dollar figures in 1980 current prices). The increased volume of world-wide trade that accompanied the commodities boom of the 1970s has resulted in a more competitive international marketplace. Rapid population growth in the third world is placing ever greater demands for more and better infrastructure to handle larger quantities of goods. In this context, then, what makes one parastatal more efficient than another? How can they be structured to afford higher returns to producers, place less demands on the federal budget, and stabilize prices all the while? Mr. Abbott was asked by the World Bank to explore these central questions. On the basis of his earlier work on parastatals, John Abbott was asked nearly two-decades later to assess the evolution and performance of state agricultural marketing enterprises. Mr. Abbott concludes that autonomy in operations is an important characteristic of the more efficient parastatals. This is an interesting conclusion because it cuts to the core of the parastatal debate: Are they commercial or political entities? And, if both, which role is to have precedence? * The. parastatal debate always has been clouded by an inability to separate third world commerce from third world politics. The cloud cover has lifted somewhat now because of economic recession and because of greater internationalization of national economies. The financial imperative of improved efficiency in marketing has served to isolate commercially unviable policies and procedures. TEXTNAME: Preface (R)P: (ja-1) 03 -4- This paper more-or-less restricts itself to examination of the mechanisms and institutions of agricultural marketing, as the title states. A crucially important aspect of the parastatal problem which is not much discussed in this paper is the role of the pricing policies, which are genezally implemented by parastatal marketing bodies are required to implement in developing countries. These pricing policies certainly influence agriculture and where they are inappropriate their influence can be decidedly negative. However price policies are the subject of other extensive studied in FAO, IFPRI and elsewhere. But this paper is intended more as an approach paper. It recognizes implicitly that operational performance is a dependent variable of government and administrative policies. There are, indeed, three sets of factors that influence parastatal performance: (i) macroeconomic factors, both in the international economy, in terms of world prices, interest rates, quota policies, and the like, and, at the national level, pricing, investment, wage labor, and industrial policy, to name a few; (ii) microeconomic factors such as local supply and demand situations,market structure, physical and financial infrastructure, and institutional/ organizational structure; and, (iii) procedural factors, which are largely a derivative of the preceding two sets of factors. In terms of this categorization, Mr. Abbott has addressed the microeconomic factors. Owing to the greater extent to which foreign governments participate it the international marketplace as buyers and sellers of goods and services and as borrowers of foreign capital, parastatal enterprises are increasingly viewed as commercial enterprises, at least by their creditors. tEXTNAME: Preface (R)P: (ja-1) 04 -5- Mr. Abbott despairs ideologically oriented agricultural marketing strategies. Indeed, he concludes this paper with some thoughts as to the applicability of industrial organization type analysis of parastatal enterprises. This, perhaps, represents a growing recognition that for now, at least, with the production gains of the so-called "Green Revolution" behind us, the second generation of problems concerns marketing. In iacreasingly monetized economies, agricultural marketing, the process of turning raw materials into money, pays the bills in agriculturally based developing countries. It is hoped that Mr. Abboott's analyses in this paper can be useful in guiding World Bank lending that involves parastatals, in helping client countries to shape more appropriate policies, and in specifying 8ome arguments which heretofore have been too vague in development dialogue. CEXT AME: 'ummary (R)P: (ja-1) 01 -6- SUMMARY 0.01 Marketing comprises the business activities associated with the flow of goods and services from production to consumption. Food and agricultural marketing begins with the planning of production at the farm and ends with the sale of goods to consumers or intermediate consumers. Supply to farmers of production requisites is considered to be part of the marketing process. 0.02 Marketing has a dynamic role in stimulating output and consumption, the essentials of economic development. On the one hand, it creates and activates new demands by improving and tratisforming farm products and by seeking and stimulating new customers and new needs. On the other hand, it guides farmers to new production opportunities and encourages innovation and improvement in response to demand and prices. It is the most important multiplier of economic development. 0.03 Regulation to minimize disagreements and reduce risks facilitates marketing, as do government provision of transport and other essential infrastructure, information, training, credit, and other support services. It depends, however,. on the existence of enterprises able to assemble, hold and distribute produce to the optimum advantage of producers and consumers. 0.04 Implicitly, these enterprises must be able to mobilize financial resources and qualified managerial, sales and technical personnel. In order, to realize these tasks efficiently, they must possess the initiative and willingness to accept business risks. These marketing enterprises must be able to match the competence of rival enterprises in other countries, with whom they compete in the international markets. IEXTNAME: Summary (R)P: (ja-1) 02 -7- 0.05 These eni-erprises may be individuals acting independently or in partnership, large private firms, cooperatives, mixed private and government bodies, autonomous state corporations, or departments of government. 0.06 A feature of the agriculture of most developing countries is the prevalence of very small farms. Chapter II compares alternative systems of marketing organization in terms not only of how they help the small farmer by reducing his market risk and providing a direct incentive, but additionally by furnishing supplementary services including technical advice, timely supply of suitable inputs, and credit. The following systems are reviewed. 1. Independent private firms operating within some institutional framework such as rural assembly markets, or an auction market or exchange with some government mechanism for cushioning extreme price fluctuations. 2. Specialized marketing/processing enterprises bringing new technology, economies of scale, and established market outlets in export markets or distant locations. 3. Development companies, land reform organizations or similar bodies providing all services under official supervision. 4. Farmers' associations or cooperatives. 5. Marketing,boards.or state trading agencies. 0.07 Henceforward, the primary focus is on the marketing board, or state corporation now termed generally parastatal. Six types distinguished according to their primary function and their role vis-a-vis existing marketing structures>are considered These are: TEXTtAME: Summary (R)P: (ja-1) 03 -8- 1. Advisory and promotional (not handling commodities) - provides market information, undertakes market research and promotion. 2. Regulatory (not handling commodities) - establishes and implements quality grades, packaging standards, quantity limitations on flows to particular markets; licenses and inspects producers and traders to enforce controls. 3. Stabilize prices without trading - negotiates prices fOr agreed periods between producers and processors/wholesalers, and smooths out fluctuations in price for export commodities at the producer level by operating a stabilization fund. 4. Stabilizes prices by trading alongside a free domestic market - operates a buffer stock which is authorized to buy and sell on open markets (mainly grains and pulses) when prices are below some minimum and above some maximum level. 5. Export monopoly trading - concentrates export bargaining power, determines market flows; may stabilize prices via a reserve fund. 6. Domestic monopoly trading - implements and administers equalization, stabilization and social pricing programs; provides facilities that would be uneconomic without a certain throughput. 0.08 The trend over recent decades has been for advisory and promotional enterprises (type 1) to be either replaced by general export promotion bureaus or incorporated into regulatory and/or export trading bodies. The regulatory board (type 2) also tends to be absorbed by TEXTNAME: Summary (R)P: (ja-1) 04 -9- government services or an operational parastatal board, but it is still seen to have a role. The non-trading price stabilization body (type 3) typically the caisse de stabilisation of francophone Africa, continues, but very much behind the scenes, with reserve fund accumulation in disfavor. Stabilization of domestic food grain prices by buffer stock management (type 4) in a free market has been a favorite of the aid agencies and food security programs. On a limited scale these enterprises still have a role in many countries. It is difficult for developing country governments to both control and operate this type of enterprise successfully. Export monop6ly parastatals (type 5) have been expanding in numbers, but for the wrong reasons, including resentment of aliens, political ideology and currency protection. Informed opinion is now building against them because of the low prices paid to producers and owing to deficiencies in export marketing (except where conditions are specifically favorable). Many developing country governments also cling to their domestic marketing monopolies (type 6) despite external advice to relax or abandon them, and evident high costs and market distortions. 0.09 The commodity situations - nature of products, its production base, eventual market, marketing and processing channels traversed-bearing on the convenience and practicability of parastatal applications are taken up in Chapter IV. 0.10 Promotional boards can be used for crops which pass through customs stations, processing plants and like facilities convenient for collection of a special levy. Regulatory systems are advantageous for crops where producers' returns can be improved by regulating qualities and quantities sold in particular markets; crops should pass through export TEXTS~IME1."ummary (R)P: (ja-1) 05 -10- points or centralized marketing systems where such controls can be enforced. 0.11 Prices to producers of cloves, cocoa, coffee, cotton, groundnuts, pepper, sugar and vanilla have been stabilized over seasons via domestic reserve funds without trading where exported by a limited number of enterprises. 0.12 Fluctuations in prices of wheat, rice, maize, sorghum, beans, and other bulk commodities that can be stored easily, and potatoes and onions where refrigerated storage is available economically, have been kept within predetermined limits by buffer stock operations in a free marketing structure. Buffer stocks can be (but generally are not) financially self-supporting when operating costs can be covered in profit margins. 0.13 Experience demonstrates that most crops for export including olive oil and wine (Tunisia), potatoes (Cyprus), citrus (Israel and Morocco) can feasibly be brought under a state monopoly. The advantages of a monopoly are the more significant where the monopoly exporter has a sufficient share of the total market to be able to influence the world price. The disadvantage is the tendency for costs to increase under monopoly arrangements. For certain crops such as bananas, control over the product from farm to retailers by a single management has competitive advantages. Domestic marketing monopolies are used most for food grains such as wheat, maize, and rice, where periodic surpluses generated from local production must be exported at a loss or production areas.cordoned off to facilitate buying for consumer programs. They can also be useful with meat, milk and other products where better marketing depends on the installation of large scale facilities only economic with monopoly TEXTNAME: Summary (R)P: (ja-1) 06 -11- protection. Periodically the monopoly arrangements should be relaxed to permit a competitive adaptation to new situations and capabilities. 0.14 Analysis of the use of parastatal marketing bodies on a country basis (Chapter V) shows that much the same level of development, of educated personnel, and of agricultural structure can still be associated with sharply contrasting approaches to the use of marketing parastatals. Factors influencing a country's approach include most prominently resentment of alien domination and familiarity with colonial models that favor adaptation to new concerns following independence and access to apparently ample funds. Socialist dogma has played a role, but Kenya, often seen as a liberal economy, is one of the countries with the largest number of parastatals. The desire of aid agencies, notably the World Bank, to find convenient counterpart bodies for "development" loans has also been a factor for parastatal expansion and proliferation. 0.15 It follows that developing countries, particularly in Africa, will be inclined to reverse trends towards parastatal marketing as and when: 1) Funds for government financing and ongoing subsidization of parastatals become scarce. 2) Misleading colonial models become more distant. 3) The competence and confidence of nationals in marketing management matches that of alien residents, or alternatively, governments recognize the advantages of letting efficient aliens operate in this area subject to conditions that they employ ethnic nationals as managers, take them as partners, or otherwise allow them an:acceptableparticipation, as'has- been the policy recently vis-a-vis the Chinese in Indonesia. METIAME: Summary (R)P: (ja-1) 07 -12- 4) They learn, by bitter experience or otherwise, that whatever advantages they may see in the pursuit of marxist teachings in other areas of economic activity, there are none to be gained from applying them to agriculture or to food and agricultural marketing. 5) Multilateral and bilateral aid agencies stand back from programmes of assistance that promote the continuation, expansion or proliferation of unproductive parastatals 'in marketing, however convenient they may be as counter-part agencies. 6) Domestic and export markets become more exigent or competitive, and more prepared to patronize enterprises that by evasion of official monopolies or more effective performance respond promptly, flexibly and imaginatively to their requirements. International aid agencies would do well to align their programs to support of such developments and changes. 0.16 First priority for the remainder of the 1980s seems to be the development of a better understanding of marketing among administrators and policy makers. Many see marketing operations only in terms of cooperative and government enterprise. They are blind to the positive contribution of the private entrepreneur operating under free market conditions. Widely prevalent is the disdain for the-details of marketing associated with certain social attitudes and traditions of education. 0.17 A cadre of qualified-marketing personnel able to assemble accurate information and protect national policy makers from ill advised "gut" reactions to temporary crises of supply and price is essential. TEXTNAME: Summary (R)P: (ja-1) 08 -13- Developing and staffing such a unit and securing it an authoritative position in the government will be an immediate goal. The training and selection of staff for such a unit requires attention. Practical experience of marketing operations and regular phases of field research should be built into their terms of references. The standing of this unit must be such that it supervises the parastatals, rather than being dominated by them. A corps of inspectors competent to examine the accounts and operations of the marketing parastatals is a logical adjunct for'the implementation of this responsibility. 0.18 Financial stringencies call for an increasingly critical look at parastatal operations and consideration of their contraction or replacement by less costly and more efficient alternatives. Promotional and research activities do not justify the maintenance of a special parastatal. These activities can be undertaken directly by large marketing enterprises or periodically by institutions dealing with a range of commodities. Regulation of quantities and qualities sold on particular markets can raise returns. Particularly where these markets are sophisticated and the enterprises involved are numerous, control will be advantageous in complying with international quota agreements. In this respect, sensible regulatory policies and practices can be a replacement for an export marketing monopoly. Effective regulation can also be achieved through a joint enterprise/government committee. 0.19 Stabilisation of prices for major crops at the farm level has great popular appeal. However, its advantages to farmers have not been substantiated. In many countries, stabilization funds have been siphoned off for other uses and have caused a wideningsof the margin between the fob price and the price paid to the farmer. TEXT&.AME: Summary (R)P: (ja-1) 09 -14- 0.20 An export monopoly has a positive potential where it brings under one management such a volume of exports that it can influence prices in the overall market. This has been the rationale for some developing countries regarding the monopolization of exports of long staple cotton, coffee, cocoa and some other products. Export monopolies can, however, obstruct adaptation to tIe changing needs of particular markets. For some products and marketing situations, integration from producer through to final distributor or manufacturer can have overriding advantages. 0.21 An intrinsic problem in the maintenance of a monopoly over long periods of time is the occurance of vested interests in its continuation and the inflation of costs. 0.22 For countries subject to sharp fluctuation in output of major food grains some supply and price stabilisation mechanism seems essential. The problem for their governments is to avoid becoming trapped into expanding such operations to the point that they obstruct normal trade movements and incentives to producers and require heavy subsidation. 0.23 In many countries, particularly in Africa, the attainment of independence in the 1960s, the commodity boom of the 1970s, aud access to international aid in generous amounts fostered a blossoming of commodity marketing institutions. Seeking rapid development many governments opted for direct intervention as against the slower pace of establishing indigenous enterprises and endowing them with consistent support services. The testing time for the parastatals has come with recession. The ultimate yardstick for the fate of a commercial entity (public or private) is the financial one. TEXTNAME: Summary (R)P: (ja-1) 11 -15- 0.24 Proposals for follow-up action include: 1) the refinement of criteria for assessing the performance of parastatal marketing bodies under various conditions and their testing through specific applications; 2) provision of intensive training programs for management and stiff of parastatals and for personnel of government departments concerned with their policies and supervisions, and 3) a realignment of international aid programs to focus on the building of alternative structures based on indigenous initiative and provision of effective support services by, national governments. TEXT9AME:Chapter1 (R)P': (ja-1) 01 -16- I. MARKETING, DEVELOPMENT AND THE ROLE OF GOVERNMENT 1.01 Marketing is defined in accordance with current academic practice as the business activities associated with the flow of goods and services from production to consumption. The marketing of agricultural products begins at the farm with the planning of production to meet specific demands and market prospects. It is completed with sale of the product fresh or processed to consumers, or to manufacturers in the case of raw materials for industry, Agricultural imarketing also includes inputs to farmers of fertilizers and other inputs for expanding production. (Abbott, 1979) 1.02 In their simplest form, the tasks and responsibilities involved in marketing may be summarized as follows; (a) Finding a buyer and transferring ownership, (b) Assembly and storage; (c) Sorting, packing and processing; (d) Providing the finance for marketing and taking the risks; (e) Assortment and presentation to consumers. These functions are undertaken by marketing enterprises and service agencies. These may be individuals acting independently, or they may be partnerships, large firms, cooperatives, mixed private and government bodies, autonomous state corporations or departments of government. Any one of these various legal and economic units may also act in several capacities at the same time. 1.03 If marketing is to play its proper role in stimulating development, there must be specific enterprises which will undertake responsibility for finding foreign or domestic buyers for various types TEXTNAME: Chapterl (R)P: (ja-1) 02 -17- and qualities of produce. They must be able to arrange assembly from farms, packing and presentation in appropriate containers, grading according to buyers' requirements, transport to buyers' depots or markets which they attend, storage when it is advantageous to time the supply to be put on the market, and processing to extend the time and range of sales outlets. The enterprises must provide the investment capital needed for fixed facilities, and the working capital to carry purchases from farmers until resale proceeds are received. Implicitly, these enterprises must be able to mobilize financial resources and qualified managerial, sales and technical personnel. In order to realize these tasks efficiently they must possess the initiative and willingness to accept busines risks. In export marketing, or substitution for imports in domestic markets, they must be able to match the competence of rival enterprises in other countries. Marketing and Development 1.04 Marketing enables the agricultural producer to step out of a subsistence straightjacket and grow produce for sale. Correspondingly, it permits an expanding proportion of a country's population to live in cities and buy their food nearby. Marketing also provides an incentive to farmers to grow produce for export., In this way it gives the farmers-more income so that they constitute a growing market for domestic industry. Marketing is.also the means by which they can earn foreign exchange to pay for imports. 1.05 Development means increasing specialization and intensification in the production of goods and services so that more and more goods have to be moved between one group of producers and another. As consumer incomes rise, demand becomes more discriminating and a greater variety of higher' TEXTNAME: dhapterl (R)P: (ja-1) 03 -18- quality goods are sought, particularly by expanding groups of higher income consumers in urban areas. The scale and complexity of operations are increased by the expansion of processing industries to meet over wider areas the demand for new forms of products. At a later stage, competitive promotion of sales through merchandising, advertising, and special services also assumes increasing importance. 1.06 The share of economic resources devoted to the various aspects of marketing grows in relative size and importance as development proceeds and more and more functions and services are needed for the handling of agricultural produce and inputs. The channels between producers and consumers must be continuously developed and broadened, otherwise production .will be constrained. 1.07 An efficient marketing sector does not merely link sellers and buyers and react to the current situation of supply and demand. It has a dynamic role in stimulating output and consumption, the essentials of economic development. On the one hand, an efficient marketing sector creates and activates new demand by improving and transforming farm products and by seeking and stimulating new customers and new needs. On the other hand, it guides farmers to ne production opportunities and encourages innovation and improvement in response to demand and prices. its dynamic functions are thus of primary importance in promoting economic activity and for this reason it has been described as "the most important 'multiplier' of economic development." (Drucker, 1958). 1.08 The complexities of these processes and their significance for economic progress have often been underrated, at considerable cost to economic development. Attention in national planning and-investment effort TEXTNAME: Chapterl (R)P: (ja-1) 04 -19- has too often been focussed on production, under the assumption that once crops were produced and roads and railways built the development of markets and the means of serving them would be a relatively straight-forward matter. 1.09 Associated with such attitudes has been the failure in many developing countries and aid programs to appreciate fully the relation of marketing to the planning and implementation of agricultural price policies, and the relative roles of private enterprises and public b6dies in marketing. In view especially of their limited resources of capital, management, and organizing ability, developing countries should endeavor to make optimum use of available resources. The role assigned to public bodies, cooperatives, and private enterprise should be determined in this light.- 1.10 Directly relevant is the restriction of competition involved in single channel marketing systems. These system assume that administrative decisions by officials of a marketing parastatal provide a cheaper and more efficient development mechanism than the initiatives of competing traders for securing the movement of goods from the farmers through processors and transporters to the final consumers. Complaints from farmers and consumers about the marketing arrangements for controlled commodities indicate considerable dissatisfaction.with theresults of restricting competition. The existence of competition allows a choicei both to producers and to buyers in the marketing chain. The existence of choice in turn encourages buyers and sellers to seek the best market and to risk innovations in marketing, transport and processing which reduce costs and provide better servicea The restricti,on of competition may,provide more,stable prices,to. TEXTNAME: Chapterl (R)P: (ja-1) 05 -20- farmers and to consumers, but this considerable advantage is offset by high costs in distribution and a rigid structure unfavorable to innovation and the taking of risks in developing new markets among local consumers, in meeting new needs, and in providing improved service. (Whetham, 1972) Role of Government in Marketing 1.11 It follows that a far sighted government will orient its overall policy to further the growth of enterpises able to fulfill these marketing responsibilities. Establishing and maintaining a favorable economic-and political climate is in this regard the major contribution of government. 1.12 The development of effective marketing systems can be assisted by regulatory and facilitating action on the part of governments. At times, selective direct interventions will be desirable. In particular, governments commonly: 1) Regulate in the public interest sales procedures and the provision of services; 2) Provide additional services that will facilitate the efficient performance of marketing activities; and 3) Intervene directly by fixing prices and establishing new marketing enterprises when they are judged necessary to protect and promote the interests of producers, consumers and the country as a whole. 1.13 Market regulation - The marketing process is streamlined by legal protection against fraud and by the establishment of uniform weights and measures and quality specifications. Of general benefit are measures which minimize disagreement among traders and reduce the need for individual inspection of sales lots. -Such measures reduce risks and costs, and extend TEXTNAME: Chapter1 (R)P: (ja-1) 06 -21- the market by making it possible to do business by letter and telephone, making markets more liquid. Minimum health and sanitation standards may be required for workers, premises, and handling procedures. This protects consumers and also helps the better trader in competition with less scrupu- lous rivals. Transport and other market operations may be regulated to reduce risks with vital services. Public storage and warehousing services are regulated with provision for insurance and safeguards against loss by fire and theft. Fertilizers and pesticides offered for sale should show the contents on the package, with penalties for misrepresentation. 1.14 The enforcement of such regulations requires a competent inspectorate. In practice, however, it is only worthwhile to attempt enforcement if the majority of traders and market users are likely to support it. 1.15 Facilitating services. Provision and maintenance of roads, bridges, and other transport means are the basic services to marketing expected of central or local government, together with communciation services. Provision of organized markets - local assembly, wholesale, retail - at convenient places may also be a central or local government responsibility. The assembly and dissemination of information on crop prospect7 and prices, and supplies in producer, wholesale, and retail markets,is another set of functions which favors a service role for governments on behalf of all market participants. Research to assess prospects and develop outlets in distant markets, and sales promotion to this end may also depend on government support, particularly banking systems oriented to meeting marketing financial needs may need government assistance. Provision of marketing training and extension-type;assistance merits public support on the same grounds as other educational programs. TEXTNAME: Tablel.1 (R)P: (ja-1) 01 Table 1.1: NEAR EAST: GRAIN MARKETING AND PRICING (Main Food Grain) Country Farmer Consumer Subsidy Government Government Responsibility Price Price Marketing Domestic Imports Organization Marketing Algeria (wh)* Fixed Fixed High Office Alg. Inter- Buys directly Monopoly prof. des CER. (O.A.I.C.) Cyprus (wh) Fixed Fixed Small Grain Commission Buys directly Directly Egypt (wh) Fixed Fixed High General Org. for Buys on free Directly 50% of car. Cooperatives market price Mauritania Free Free Small Office Mauritanien Trades alongside OMC (sorghum) des Cereales 1973 to stabilize prices Monopoly Pakistan Floor Ration at Small Provincial Food - ditto - price low price Depts. Somalia Fixed Fixed - Agric. Dev. Legal monopolysome Monopoly (sorghum) Corporation local free trade Sudan Floor - Agricultural Buys .to stabilize (sorghum) price Bank price Tunisia (wh) 'Fixed Fixed High Office C.realier Legal monopoly buys O.C.T. Tunisien 50%; Federated traders 50% Turkey (wh) Floor Stabilized Small Soil Products Trading alongside price Office (TMO) buys about 33% of marketed supplies Yemen A.R. Free Free - General Corpora- G.C.F.T. 40% of tion for Foreign import for sta. sale. TEXTNAME; TObi4elj, Q)V; J4-1) 02 Table 1.1: NEAR EAST: GRAIN MARKETING AND PRICING (Main Food Grain) Country Farmer Consumer Subsidy Government Government Responsibility Price Price Marketing Domestic Imports Organization Marketing Yemen P.D.R. Fixed Fixed Yes (Regional producer National Foreign coops sell to Trade Co. consumer coops) Internal Trade to Distrib. Iran (wh) Fixed Fixed High State Cereals Org. Buys on free market - Morocco Fixed Fixed Small Office National Trading alongside Monopoly (wh) Interprof. des Cer. buys about 20% of et des Legu. marketed supplies (O.N.I.C.L.) Syria (wh) Fixed Fixed Large Parastatals and Trading alongside Monopoly cooperatives *"wh' stanA fn-r whA EXfNAME: Chapterl (R)P: (ja-1) 08 -24- 1.16 Direct Government Intervention - Throughout history, governments have come under popular pressure to fix the prices of food and agricultural products to producers or consumers, or both. This is a normal response to producers facing prices that seem exceptionally low and to consumers when they are exceptionally high. With a free marketing system such situations are self correcting, but the process can be painful. Establishment of a degree of price stabilization becomes an obligation for many governments, at least for crops and consumer products that are politically sensitive, most notably for major food grains (see Table 1.1). How this can be organized without and with monopoly status for a government stabilizing enterprise will be examined in the following chapters. 1.17 Governments also come under direct political pressure to establish new marketing enterprises where those existing have been criticized for underpaying producers or overcharging consumers. This also has documented historical precedent going back to the Roman Empire and the Greek city states. Generally after a period of operation the public enterprise fades away when its own inefficiencies become apparent and the conditions which provided its establishment more distant. 1.18 More recently the need for a response to a strong group feeling of injustice has provided motivation for the many attempts of agricultural producer groups to establish their own cooperative marketing systems. Only a few, relatively, have been maintained. Between the many that are initiated and the few that continue lie important factors of market situation, the nature of the business attempted, and the social and character attributes of the people concerned. Historically, a similar EEXTNAME: Chapter1 (R)P: (ja-1) 09 -25- process of rise and fall of monopoly state enterprises, nationalized private enterprise, government ministries engaged in trading, offices de commercialisation, marketing boards, and state trading corporations, may be observed. 1.19 Pending more systematic research and analysis it is suggested that the present phase of extended government intervention in marketing in the African countries, particularly, reflects: (Abbott, 1983) (a) Popular reaction to foreign or alien domination of matketing functions affecting large sections of the population. (b) The promotion of marxist political philosophies by the USSR as a means of extending its influence in the third world. Marxist philosophy perpetuates the basic ignorance of its founder of the value consumers attach to their preferences and convenience. This is reflected in the labor theory of value. Focussing on inputs into production it neglects the values accruing to scarcity and convenience. (c) The influence on the political leaders of many countries of university economic teachings in their formative years reflecting,condittons.in developed, particularly European countries, that were irrelevant to those of their own country. (d) Lack of detailed knowledge in government structures of how marketing systems operate in practice because of social attitudes and inadequate domestic marketing research and training services. TEXT*AME:'Chapterl (R)P: (ja-1) 10 -26- (e) The administrative procedures and convenience of aid agencies committed to disburse specific sums within arbitrary time limitations, obligated to work with governments and inclined to prefer easy counterpart commitments by government agencies to the more time consuming and complicated alternative of lending to and assisting small scale private marketing enterprises. The weight these influences have had in many countries is 'itself a measure of the informational and political gap between those who are actually engaged in marketing and those who make policy decisions. (Spinks, 1973) 1.20 Thinking and attitudes of this order have overridden pragmatism in the establishment and maintenance of state enterprises in areas of marketing where they had not technical or practical advantage over private initiative alternatives. 1.21 Marketing improvement is a continuous process. Progressive adaptation of capacity, structure and technique are therefore needed to suit developments in production, consumer incomes, communications and general economic environment. Experience suggests that the most effective improvements are usually through adaptations of existing organizations, resources and methods. Proposals for large scale public investments, and still more the establishment of monopoly public enterprises, should be appraised very carefully to see whether they are likely to yield an attractive return on their cost in terms of more efficient marketing and more rapid development. That one may point to successful models elsewhere is not sufficient. It needs to be shown that the new arrangements will TEXTNAME: Chapter1 (R)P: (ja-1) 11 -27- suit the environment in which it will operate, and that the management capacity and techniques available will be sufficient, for example, to overcome traditional attitudes, competing loyalties, and the depradations of politicians. Thus, the European companies withdrew from produce buying in Sierra Leone in the 1950s because of the impracticability of controlling an extended network of local managers. This role was taken over by Lebanese and then African enterprises held together by family ties. (Van der Laan, 1975) Marketing Efficiency 1.22 Efficiency in marketing implies that the services desired by producers and consumers are provided at the lowest cost possible under prevailing conditions. Furthermore, the enterprises involved should be oriented to finding new ways of carrying out their tasks and improving their services. The most effective incentives for this are on the one hand financial rewards from attracting more business, and on the other hand the penalties of being left behind in competition. The pressure of such incentives can apply where enterprises are privately, cooperatively, or publicly owned. However, there must be scope for competition. If there is not competition, an enterprise is likely to continue in the same-way that it has followed in the past. 1.23 The obstacles to efficiency in marketing include the information and the resistance of established interests. In-built forces for efficiency will have their way, provided they are not held back by these impediments or by political or religious dogma. If a monopoly is maintained there should be a clear technical justification, for example, 'EXTNAME: Chapterl (R)P: (ja-1) 12 -28- that it permits a certain marketing function to be carried out more efficiently than otherwise would be feasible. To implement a particular price policy ;is not a sufficient justification for the establishment of a monopoly enterprise. Whether or not it is economically sound, a particular price policy can usually be implemented without such radical transformation of the marketing structure concerned. This will be demonstrated in Chapter V. 1.24 Agricultural development planners have argued for the establishment of cooperative systems, development authorities, or other bodies directly responsive to government instructions. At first, this simplified the task of the planner. He could leave aside the details of working out a system of assistance, incentives, and pressures needed to induce a structure of private marketing enterprises to help implement the plan. For the country, however, the risks of failure in plan implementation were magnified because so much depended on the performance of one institution, often untried and inexperienced (Abbott, 1967). 1.25 Agricultural marketing is complicated by the diverse nature of the products to be handled, and their perishability. A further complication is the scattered nature of agricultural production and, in most tropical countries, the very large number of separate production units. For these reasons, agricultural marketing calls for considerable individual initiative, decision-making, and skill. Effective marketing structures are generally flexible in operation and allow much scope for local knowledge and experience. TEXTNAME: Chapterl (R)P: (ja-1) 13 -29- Marketing conditions are continually changing; large numbers of producers and consumers are intimately concerned; and the interests of these two groups and of the people who earn a living from marketing often appear to conflicts. So agricultural marketing problems are often in the public eye. Many of these problems are solved by spontaneous action within a flexible economic system. Some, however, will call for government intervention. To handle these well, a government must have its own qualified information and policy analysis service at hand, and should not be overinfluenced by current political pressures. 1.27 Consideration of how alternative marketing structures can be helpful to poorer farmers will be the subject of the next chapter. Thereafter, this paper will focus on the delegation of authority to marketing boards and other parastatal bodies over the assembly and sale of produce from the broad range of farmers. First, it will analyse trends in Lhe use of parastatal bodies from the early nineteen sixties. This was the time when many African countries became independent. Successive chapters then analyse the use made of parastatals according to commodities and commodity marketing situations, and according to the political and commercial orientation of countries4 1.28 On the basis of these analyses, the final chapter will present some prospectives for the 1980s. rEXTNAME: Chapter2 (R)P: (ja-1) 01 -30- II. MARKETING ORGANIZATION FOR RURAL DEVELOPMENT 2.01 Rural development is concerned with the small farmer. In a world where a man owning three or four hectares of good land can sit back as a landlord and let three sharecroppers cultivate a hectare or so each, the small farmer is not easily defined in terms of land area farmed. Nor can the criterion be one of subsistence. The farmer who produces primarily to meet his own needs and those of his family must still sell something 'for cash. Otherwise he will be unable to buy fertilizer and pesticides and grow high yielding varieties of food grain. 2.02 The small farmer is not to be understood as the 'normal' farmer, but one who is handicapped by lack of economic resources and therefore by a reduced ability to take risks, compounded by a sense of social inferiority and by limited education and access to technical and economic information. (FAO, 1975). The beneficial effects of improved market conditions or prices are likely to filter down to such a farmer only after larger farmers have profited. Because the small farmer responds more slowly to external events, he may begin to supply a new outlet only after many others have already done so and when it bus become less profitable in consequence. Similarly, he is slow to take up fertilizer and other new production materials because he has to lay out cash in advance and is unsure of the returns. He is less likely to use publicly sponsored storage and warehousing facilities because of the procedures involved. At ordinary markets he recieves less favorable prices because of the small quantities he has to offer. Where there are government stabilized prices, many such small farmers still do not receive them because their produce is sold at rEXTNAME: Chapter2 (R)P: (ja-1) 02 -31- the farm, by the roadside, or in the village where it is frequently taken to the official buying station by somebody else. Yet establishing credit and intensive development support systems to serve many small suppliers directly is expensive both in financial and economic terms. 2.03 Analysis of the role of the marketing enterprise as a specific instrument for promoting the development of such small farmers in develiping countries was examined in some depth in "Consideration of Alternative Marketing Organizations to Serve Small Farmers" (Abbott, 1982). The following systems were compared in terms not only of how they help the small farmer by reducing his market risk and providing a direct incentive, but additionally in terms of furnishing supplementary services including technical advice, timely supply of suitable inputs, and credit. 1. Independent private firms operating within some institutional framework such as rural assembly markets, an auction market or exchange, with some government mechanism for cushioning extreme price fluctuations. 2. A specialized marketing/processing enterprise bringing new technology, economies of scale, and established market outlets in export markets or distant locations. 3. Development company, land reform organization or similar body, providing all services under official supervision. 4. Farmers' associations or cooperatives. 5. Marketing board or state trading agency. EXTNAME: Chapter2 (R)P: (ja-1) 03 -32- 1) Independent private traders operating in rural assembly markets stabilized for some major products by government implementation of preannounced minimum prices. 2.04 This is a modification of what in most developing countries is regarded as the traditional structure. It has been extended systematically in Brazil through COBAL, a government market promotion agency which provides market infrastructure and practical training. India, with assistance from the World Bank, has developed a similar system. In both countries this approach has yielded good results. Reaching further into rural areas with assembly market systems has given more small farmers confidence to produce additional output. Studies of the response of small and large farmers to an increased density of regulated assembly markets in India show an increase in farm output of two to four percent after*years of operating this type of system (Von Oppen, 1982). This gain came entirely from the small farmers; they were the ones handicapped previously by distance froi an outlet where pricing and services were competitive. Taking the average outlay on markets, including improvement of access roads, at US$400,000, the internal rate of return was about 40 percent. Banks were also extending their branch networks into the villages at the same time. This enabled more small farmers to obtain credit directly for inputs, or, alternatively, they were helped by traders at the markets who provided advances to attract business. 2.05 These small, individually run enterprises generally operate more flexibly and at less cost than larger, more elaborate mechanisms with bureaucratic procedures and heavier staff overheads. They may also be much closer to the small farmer and more sympathetic to his needs. The weakness rEXTNAME: Chapter2 (R)P: (ja-1) 04 -33- of the small trader in serving the small farmer often lies more in his limited capacity to provide technical and financial support. He may not himself have the knowledge and contacts to provide extension support, or to benefit from improved plant materials, advice in a specialized field or access to sufficient finance to cover the growers' seasonal needs for production materials, labor, etc. He also faces risks (over his resale prices and crop loan repayment obligations) against which he tries to protect himself through his target margin. 2.06 Farmers selling to a structure of small private marketing enterprises will nonetheless generally be dependent on the public sector for extension type assistance. Some private buyers will, however, advise regular suppliers on the variety of produce they should grow, the best time- for harvesting, and the handling and packing of the product to maintain quality. Some will provide specific seed and containers for packing, charging for those later when the product is sold. Provision of credit for production expenses and for consumption and ceremonial needs is a more common feature of the private trader's service in many developing countries. The driving force for this is primarily the trader's need to assure himself of supplies.to meet the needs of his regular outlets, and to maintain his-share of a competitive market. The president of the Banana Traderst Association of Delhi recently declared that he had Rs. 4 million out on credit to ensure regular supplies. Under such credit arrangements, earning interest on the loan is not the main consideration. Regarded as a handicap by the Government Marketing Department of Sri Lanka in buying vegetables and pulses to implement government price guarantees has been competition from independent wholesalers who advanced money to growers without charging interest. TEXTNAME: Chapter2 (R)P: (ja-1) 05 -34- 2.07 2) A marketing and processing enterprise supplying inputs, technical advice and credit to farmers under a contract that also offers a sure outlet for specific produce is very effective in stimulating output and promoting development. 2.08 International private marketing and processing enterprises have done much to foster development in the tropical countries. They are able to recruit skilled technicians and administrators from places where they are most plentiful. They can mobilize capital from the lowest-cost sources. Because of their direct contact with buyers in destination mar- kets, they are acutely conscious of competitive quality standards and tech- niques of presentation to the final consumer. It is largely due to these enterprises that export marketing of tea, coffee, sugar, bananas and rub- ber, for example, reached the scald it did by the middle of this century. 2.09 Because of the ease with which organized labor can put pressure on a foreign based employer, many transnationals, for example, the U.S. based multinational banana firms in Central America, now prefer to buy from farms run with family labor rather than operate their own large plantations. This approach favors small-scale production of cash crops since the firm will generally be prepared to provide all the technical and financial assistance the farmer needs to produce a crop meeting the firm's requirements. Repayment of advances is secured by the ability to deduct from the payment to the grower for his crops when they are delivered. 2.10 Under the typical production/marketing contract, enterprises buying for processing products such as tobacco, oilseeds, fruit and vege- tables, offer a full set of services on credit. Extension assistance is likely to exceed by far the quality of that available under the normal rEXTNAME: Chapter2 (R)P: (ja-1) 06 -35- service because it is tailored precisely to the needs of the market outlet served and the processes used. It is likely to be based on specific research and be backed up by the direct provision of seeds, pesticides, fertilizer on credit, etc., together with day-to-day advice on how and when to carry out production operations as well as harvesting and handling procedures. The critical issue for the small farmer is gaining and maintaining entrance in an integrated production and marketing system. If his yields or quality out-turn fall repeatedly below the norms of the operation, he may lose his contract. 2.11 A limitation of this approach is that it tends to focus on a particular crop. Typically, basic food crops, and the farmers who grow them, are not included in such a system. It-has been shown, however, that an anchor crop marketed through an organized channel which can be used to collect credit repayments may also carry repayments of credit advanced by the same organization for food crops that it may not market. Cotton bore this role in some land reform areas in Egypt. Tomatoes for processing constituted an anchor crop in a rehabilitation project in Iran. 3) Development authorities or companies providing services under official supervision. 2.12 Typically, these are established or authorized by governments to take charge of the planting, handling, and marketing of a particular crop within a designated area. Often this is an area of new settlement by smallholders. It reflects recognition from the start that rhese new farmers will need continuing assistance in all aspects of the production, harvesting, processing and marketing process. An early model was the TEXTNAME: Chapter2 (R)P: (ja-1) 07 -36- Gizera scheme for cotton production in 5udan. All services were provided centrally by the Gezira Board on credit, with deduction of the cost from the payment for the crop. The original settlers are now aristocrats of agriculture there. The Kenya Tea Development Authority is in like regard another very successful example. 2.13 Both these organizations have focussed primarily on the provision of production inputs, finance, and processing facilities, and on assuring a market outlet to small producers on equitable terms. Generally, they have left market development to others. Their sales policy has been to offer consistent qualities of product at open auction or by tender and to keep regular customers satisfied. 2.14 Companies operating under a system of government sponsorship and control have played a comparable role for coffee and cotton production and marketing in francophone Africa. 2.15 SOFITEX, the cotton company in Upper Volta, provides a full range of services to growers, collects the crop, and deducts the cost of inputs from the price paid. This scheme has been quite successful and about 70.000 to 80.000 ha of cotton have been cultivated each year from 1976; yields increased from 650 kg to about 900 kg per heatare, thereby enabling Upper Volta to produce 70.000 tons of seed cotton. (Beaucorps, 1981) 2.16 Against the comment that cotton production is favored over food crops it can be said that: a) Fertilizers applied to cotton also have an effect on the following crop, which is likely to be a food crop. b) An increasing part of fertilizers delivered for the next cotton crops is diverted in favour of food crops. TEXTNAME: Chapter2 (R)P: (ja-1) 08 -37- c) This system allows the small farmer to get some money which he can use for buying fertilizers, as well as other goods. 2.17 Most of the advantages of the contract system for the provision of extension, input services, and credit are equally obtainable under the development company or authority system. The company assumes the same responsibilities and requires the same commitment over the marketing of the crop. The central body may be concerned with one crop only or it may be responsible for several lines of output by farmers in a defined area; often one of new irrigation or settlement. Generally, the Government takes a greater role in the provision of capital and other resources and the commitment to help small farmers may be the stronger in consequence. Limitations are generally on the size of the area that can be covered. This results in inequities in the treatment afforded to small farmers within and outside the area served. 4) Farmers' associations or cooperatives. 2.18 Spontaneous collaboration by small farmers to economize on transport costs to a known market or to negotiate terms with a local trader requires no elaborate procedures. Nor does it offer much scope for patronage.. It is an efficient adaptation to a situation where a better price is available at some,distance or for produce bulked into larger unit quantities. 2.19 The easiest role for a new cooperdtive is as an assembling agent of a relatively durable product for an established marketing board. It has a sure outlet and no sales risk. From this base it can go on to distribute seed and fertilizer on credit and undertake other related activities. This certainly has been the'African model for coffee, cotton, and other agricultural crops. TEXTNAME: Chapter2 (R)P: (ja-1) 09 -38- 2.20 In principle, the government-sponsored cooperative established to serve all the farmers in a designated administrative area opens the way to major economies in the distribution of inputs, provision of credit, and assembly of produce. However, it can also be a potent vehicle'for political influence both as a basis for representation and via control over cooperative services and funds. In India, various district and state cooperative chairmen have had to be replaced by government officers until a suitable new candidate could be found. Polticial scheming has also become a serious limitation on marketing cooperatives as agents for rural development in Kenya. 2.21 For durability and efficient operation it seems best that cooperatives coincide with groups that already have their own internal bonds of loyalty and integrity. For a government, administrative conveni- ence is often a main consideration, whereas economic, cultural or racial homogeneity in the potential membership of a cooperative is vital. The cooperatives of Chinese farmers selling on the Hong Kong vegetable market, for example, coincide with clan groupings, even though larger units could market more economically. Such groupings have also been decisive in the shifting away from large production brigades in the People's Republic of China. 2.22 Marketing cooperatives may also be used to facilitate the provision of extension, input, and credit services. Ability to talk and demonstrate to a group of farmers already brought together for other rea- sons can greatly ease the task of the extension man. Cooperative pressure on the laggards to follow practices taken up by other members can reinforce his recommendations. Ability to order inputs in bulk reduces the cost of TEXTNAME: chapter2 (R)P: (ja-1) 10 -39- inputs to cooperative members. Assumption of local credit distribution and collection responsibilities as agent of a bank or other credit institution can reduce the cost of credit. Together with mutual guarantees, it can help small farmers obtain access to credit more easily. Despite these potential benefits, few cooperatives have been able to live up to such expectations in practice. Marketing boards and state trading organizations 2.22 In various developing countries marketing boards have demo- strated their ability to undertake major marketing operations. They have achieved a high standardization of quality and packaging and brought bene- fits from large-scale transport, processing and sales. The bargaining power of the farmer at the primary selling level has generally been raised where marketing boards or state trading agencies guarantee a fixed minimum price. 2.23 Export boards can become a convenie"t mechanism for taxing farmers. Maintained over a period of years, discrimination against the producers of a particular crop in this way can discourage its production. The declining share of groundnuts from northern Nigeria in the export market for oilseeds during the 19750-1960's and of cocoa from Ghana is attributed in part to such discrimination. However, the same kind of tax - for example, on exports - can also be levied where there is no board, as demonstrated by the export premium on rice exports from Thailand. Clearly, the net prices paid must be attractive in order for farmers to respond. 2.24 The issue for consideration in this analysis is: Will a marketing board, set up primarily to concentrate export bargaining power or stabilize prices, concern,itself very much with services geared to help small farmers? Several such boards have declined firmly to enter into the TEXTNAME: Chapter2 (R)P: (ja-1) 11 -40- provision of fertilizers, and the like, or the handling of credit repayments. Many have little concern for what happens before produce arrives at their buying stations, leaving the small producers dependent on local assembling agents and other intermediaries. 2.25 Marketing boards for specific crops often maintain research and extension services for growers of that crop, covering the cost from a levy on produce handled. Supply of inputs is undertaken much less often and supply of credit even less. The marketing boards tend to regard these activities as complicating their major responsibility, that is, moving the crop handled. These complications are multiplied if production ranges over a large national territory for which there is official marketing monopoly at the wholesale level. 2.26 There is scope for economies in the use of facilities and farmer contacts in combining fertilizer distribution and product marketing. On these grounds, fertilizer distribution is undertaken by the national grain and produce marketing boards of Malawi and Zambia. Indeed, savings may sometimes be achieved by using the same system of transport, storage, and marketing for both the farmer's produce and his input. The most important consideration, however, in view of the time constraints on fertilizer application, is that the distribution agency be motivated to get fertilizers to farmers at the time when they are needed. Effective motivations are financial rewards and the pressure of competition. Experience points to the advantages of alternative channels; delays are less likely. Fertilizer supplies provided by Malawi's ADMARK for the Lilongwe project area have been criticized for delays in ordering and not TEXTNAME: Chapter2 (R)P: (ja-1) 12 -41- having the right type of fertilizer available when needed. No supplies were provided for the 1981/82 maize crop in the Lilongwe area because of financing problems. Clearly, dependence on a single supply channel with no alternative enhances greatly the risk of interruption. Quality of Personnel. 2.27 For all these types of marketing and supply organizations, of course, performance depends on an adequate management and staff. This is particularly pertinent where services are available from only one institution, and where there is no competition to drive out inefficient competitors. Continuing programmes of retraining are essential, not academic training, but review at every level of how a particular job can be done better. 2.28 Since those who have been in charge of such organizations for some time may not see how performance can be improved, it is also vital for the overall operation and its policies to be examined periodically by a qualified committee of enquiry (or by outside consultants). In the membership of such a committee, representatives of small farmers with direct experience of operations at their level could have an important role. Price relationships and input/output consideration. 2.29 Cutting across all the marketing input supply systems is the price relationship between fertilizer, and the-crop to which it is-applied. If this is favorable then the organizations engaged in marketing and credit are likely to be successful. If it is not, they will have an up-hill battle. The importance of this relationship was illustrated by the first generation of IRD projects, the Intensive Development Areas in India. TEXTNAME: Chapter2 (R)P: (ja-1) 13 -42- Here the water technology, inputs, credit and above all the guaranteed minimum price for basic grains might be new, but the traditional output marketing system responded so quickly to the favorable production conditions so created that the projected cooperative marketing channels had little to do. 2.30 In Ethiopia, the impact of the value/cost ratio has shown up recently on a geographical basis. With fertilizer costing E$116 per quintal, ex-store, and the government minimum guaranteed price for tdff, the basic grain in the highlands, of E$40 per quintal, fertilizer sales moved very slowly, except in Shoa province. Here the proximity of the Addis Ababa consumption area enabled farmers to obtain 100 to 200 dollars per quintal for teff on the free market. Fertilizer supplies were taken up promptly. 2.31 The input-output price relationship must be favourable because otherwise investments, rural institutions, and infrastructure will be wasted. If this financial incentive is there private enterprise will come in to fill gaps and take advantage of opportunites. If the ratio is unfavorable, government created institutions may themselves need continuing subsidies while being unable to yield a positive return. Tentative conclusions 2.32 A summary of this analysis of the implications for small farmer development of alternative marketing systems is set out in the following table. None of these alternative marketing systems quite fits the needs of small farmers because: (1) Independent private marketing firms are likely to neglect or exploit them relative to large farmers. TEXTNAME: Chapter2 (R)P: (ja-1) 14 -43- (2) The increment in supply they offer is so small that specialized marketing/processing enterprises are unlikely to give them the special consideration they are likely to need except as a public relation gesture. (Findus undertook to contract with 120 small vegetable growers to supply part of its needs for a freezing plant at Cisterna in Central Italy although it could have met its total needs more conveniently and at lower cost buying from one or two large farms only. Del Monte agreed to take half its pineapples from small growers for its plant in Kenya but later sought release from this obligation when their supplies proved inadequate.) (3) A development company or authority can help them if they are located within the area it serves, but it can only be expanded to operate over a whole country at a high cost. (4) Cooperatives of small farmers tend to lack management expertise and durability. And, (5) A marketing board or state trading agency will be too much occupied with its overall operation to be able to concern itself.with weak suppliers.at thelocal,assembly level. 2.33 Can a special marketing channel be created and maintained to handle the produce of small farmers? 2.34, This was the role seen for the central marketing organization/ local cooperative system for buying grain from small farmers set up under the Swedish International Development authority integrated development project in Ethiopia in the 1960s. It cost substantially more to operate TEXTNAME: Chapter2 (R)P: (ja-1) 15 -44- than the competing channel. (Holmberg, 1977) Special marketing arrangements were established for some German aid supported projects. It was found that these also were too expensive to be maintained after the external assistance was concluded. 2.35 The most favorable conditions for organizing marketing specifically to help small farmers seem to be (a) where they or can be located, concentrated within one fairly compact area, or (b) where they can be helped to raise a product.of high unit value. The classic example of concentration is the grouping of small milk producers into the Amul cooperative system. At the start many of these producers had only one or two animals and lived on a day-to-day basis. Where the milk animal is fed and milked by hand the small farmer is not too disadvantaged. 2.36 Marigolds grown for processing into a colorant in Ecuador were a high value crop where small farmers had an advantage. The need to pick the flowers by hand and to go over the crop several times as they reach maturity favors the small grower with family labor. The high value of the dried flower heads justified the cost of specialized collection services to supply a central processing plant. 2.37 The establishment of special marketing machinery for small farmers does not seem practicable except where it concentrates on handling a specific crop or livestock items in which the small farmers have some production advantages. Examples are milk and crops offering high unit returns if picked selectively. In more general situations, close government supervision and the provision of support services to supplement marketing structure serving farming communities as a whole is likely to be the most practicable approach. In selecting these structures the above analysis, in terms of assistance afforded to small farmers, provides some pVactical guidance. TEXTNAME: III (R)P: (JA-2) 01 -45- III. MARKETING BOARD TO PARASTATAL, 1965-1983 3.01 By 1965, most of the tropical African countries had become independent and started their own processes of decision-making. The purpose of the following analysis is to highlight some changes in the application of marketing board/parastatal concepts that haveltaken place since 1965. 3.02 For our purposes, marketing boards are taken to be public bodies established by government action and delegated legal powers of compulsion over producers and handlers of primary or processed agricultural producers. They are distinguished from direct government services chiefly by a very considerable autonomy of management and procedure and by the inclusion in the directing committees of representatives of the products and handlers of the commodity concerned. They differ in principle from cooperatives by their legal status and by their power to enforce complience with their rules. This distinction becomes blurred, however, where cooperative systems are assigned an official role or the status of a trading monopoly. 3.03 'Marketing board' is, of course, a peculiarly British term. Originally signifying a body of people assigned certain powers and responsibilities, it has come to 'signify the secretariat or enterprise which they direct. In francophone Africa, bodies assigned a similar role are termed Office or Bureau de Commercialisation and Caisse de Stabilisation. In Tunisia there is an Office de Cereales, de 1'Huile and de Vin responsible for cereals, olive oil and wine respectively. Offices detStabilisation responsible for several export products, or for particular products only, are common in francophone Africa. TEXTNAME: III (R)P: (JA-2) 02 -46- 3.04 In Latin America the parallel to the marketing board is the Institute, for example, the Institute for Agricultural Marketing in Colombia, and the National Price Stabilization Institute in Dominican Republic. In the 1960s, the role of the marketing board in Latin America was often assigned to a development bank. The Banco de Fomento in Honduras was an early purchaser of grain to implement pre-announced minimum prices to producers and maintain buffer stocks against supply shortags. In Costa Rica, the National Production Council undertook this role. More recently the term Empresa has come into general use. ENAC, the Empresa Nacional de Almacenamiento y Comercializacion (National Storage and Marketing Enterprise) has been the grain and cotton price stabilising body for Ecuador. 3.05 In the English speaking countries there has been a corresponding growth of government owned and directed national trading corporations, that is, companies established to buy and sell a particular product or group of products. While the purpose of establishing such a corporation might be, as in the case of the Barbados Marketing Corporation for it to undertake marketing operations on a scale beyond the reach of existing private enterprises, it might also provide the simple replacement of foreign management and capital, as with many of the national corporations in agricultural marketing in Madagascar. 3.06 In recent years the agricultural marketing bodies established by governments, providing perhaps for some producer and commercial representation in their direction, but nevertheless dependent on the government for financing and subject to its policy directives, have become known as parastatals, that is, bodies for which the state is responsible but which are autonomous in day-to-day handling of funds, staff recruitment TEXTNAME: III (R)P: (JA-2) 03 -47- and operational decision making. These include national crop authorities. Some, such as the Kenya Tea Development Authority, undertook marketing to support a production program. Crop authorities in Tanzania may reflect World Bank interest in a counterpart agency that covered aspe(ts of production as well as marketing. 3.07 The term 'marketing board' may be our starting point. However, the distinction between the entities specifically termed marketing boards and the range of parastatals with similar powers and responsibilities illustrated above is not significant. This is certainly the view of developing country governments. The committee appointed by the President of Kenya to undertake a review of Kenya's statutory boards was asked to look at some sixty different bodies regarded as parastatals. Not all of these were concerned with food and agricultural marketing. However, among those that were, the Committee made no distinction between a regular producer board and an enterprise with 51 percent government capital such as the Kenya Seed Company. The critical issue for development is the impact these variously called enterprises have on agricultural producers, the body of consumers, and the economy of the country. 3.08 For our purposes, therefore, perhaps the-line should be drawn between those bodies delegated legal authority over producers, traders and consumers, and government trading enterprises given some specific protection or significant government assistance on the one hand, and government owned enterprises that trade on equal terms with other enterprises in an overall marketing structure, on the other. It is with the first two sets of parastatal marketing authorities and enterprises that we are concerned. rE:1'NAME:'III (R)P: (JA-2) 04 -48- Applications of the r4arketing board approach 3.09 The establishment of bodies termed marketing boards began in Britain and was widely followed throughout the British Commonwealth. This took it into the Caribbean, the Indian subcontinent, Malaysia, and the Pacific Islands, as well as into English speaking Africa. As we have noted, comparable authorities and enterprises have been established in Latin America, francophone Africa and elsewhere in the developing world. The Food Corporation of India, National Bureau of Logistics, Indonesia, Institute of Agricultural Marketing, Colombia, Office des Produits Agricoles du Mali, and National Agricultural Marketing Board of Zambia all have the same core responsibility of stabilizing supplies and prices of basic food grains. 3.10 Export regulation and monopoly trading boards are likewise in wide intercontinental use. First known in English speaking West Af7ica, they have since been taken up in various francophone African countries, Jamaica, Morocco, Israel, Burma and in the Pacific. For many years the Junta de Carnes has regulated the export of.meat from Argentina. The Copra Foundation had an export development role in Indonesia. 3.11 The FAO List of Marketing Boards for Agricultural Produce and Inputs in Developing Countries (FAO, 1981) is a fairly comprehensive reference. The 1981 issue shows 140 names and addresses for Africa, 108 for Asia, 43 for the Near East, 78 for Latin America, and 9 for the South Pacific. This compilation is based on responses to enquiries by letter using the definition set out in FAQ Marketing Guide No. 5. It includes a few bodies assigned by government marketing board type responsibilities that one might regard as exceptional, for example, the National TEXTNAME: III (R)P: (JA-2) 05 -49- Agricultural Cooperative Federation in the Republic of Korea, the National Coffee Federation of Colombia, and government marketing departments undertakiftg trading operations in Sri Lanka and Western Samoa. On the other hand, for some countries the listing is manifestly incomplete - six bureaus, caisses and offices for Madagascar as against the ninety parastatal bodies related to agriculture identified in a recent study for the World Bank. 3.12 The Madagascar picture is a compositive of successive influences caisses de stabilization for individual commodities on the French model, foreign marketing companies nationalized into government owned monopolies, authorities marketing rice on a regional basis, and the area development bodies established in conjuction with aid projects. Purposes of marketing boards 3.13 The goal stated in enabling legislation is almost always to improve the economic position of the agricultural producers concerned. In developing countries, where the main initiative has often come from the government, broader consideration, including the overall development of agricultural production, protection of consumers, expansion of export earnings, and extension of government control over important parts of a national economy, are involved. More specific objectives vary with the type of board and the conditions of its establishment. They include the following: (a) Providing sales promotion , research, and extension services. (b) Raising the bargaining power of agricultural producers on domestic or export markets. TEXTNAME: III (R)P: (JA-2) 06 -50- (c) Improving marketing organization and methods by regulating quality and packing standards, market procedures, and sales practices, by raising the scale'of operations and establishing needed marketing and processing facilities, and by achieving a more advantageous adjustment of the quantities and types of produce sold on particular markets. (d) Equalizing returns from sales in different markets or through different outlets. And, (e) Cushioning the impact upon producers and consumers of sharply fluctuating internal and external prices. 3.14 This is a statement from 1965. Situations contributing to the establishment of additional parastatals in some countries, particularly in Africa, in the 1970s include: (1) A conscious policy of buying out or taking over a foreign owned marketing enterprise(s) such as general import/export firms and specific commodity marketing/processing enterprises. (2) Concern to control foreign exchange leakages via the export marketing transactions of private enterprises. And, (3) A need to set up a suitable body to handle external aid in cash or kind for a particular area or program. Corresponding degrees of change in existing structures of marketing enterprises and channels could be expected. These are as follows: (1) Advisory and promotion boards (not handling commodities) undertake market promotion, research and advisory functions. (2) Regulatory boards (not handling commodities) establish and implement quality grades and packaging standards, license and TEXTNAME: III (R)P: (JA-2) 07 -51- inspect producers and traders, and apply quantitative and related controls. (3) Boards stabilizing prices without trading smooth out fluctuations in prices for export commodities at the producer level by operating a price stabilization fund. They may examine sales returns and determine prices and marketing margins. (4) Boards stabilizing prices by trading alongs de other enterprises buy and sell on open domestic markets when prices are below some minimum and above some maximum price levels. They may hold buffer stocks and control imports and exports. (5) Export a nopoly trading boards enhance export bargaining power, apply uniform quality grades, determine market flows, and stabilize prices by maintaining reserve funds. (6) Domestic monopoly trading boards are the sole authorized traders (and processors) of designated commodities in specified areas or marketing channels. The are intended to stabilize supplies and prices. 3.15 Is this categorization of marketing boards still significant? 1. Advisory and promotional boards. The main responsibilities of this type of board are to carry out market research and sales promotion on behalf of specific commodities including pilot programs to develop new uses and outlets. Such a board advises on product varieties, packing methods and grade standards, conducts quality analyses, and arbitrates on disputes. It does not own marketing installations or equipment, nor does it engage in trade, nor maintain direct controls over volume of sales or prices. The existing-pattern of marketing enterprises and channels remains TEXTNAME: III (R)P: (JA-2) 08 -52- unchanged. Compulsion is usually confined to a levy on sales to finance the board's operations. 3.16 In 1965, this was a significant category. The Ceylon Tea Propaganda Board was a model of the kind focussing specifically on sales promotion, maintaining "tea centres" in major foreign markets and conducting sales campaigns financed by a small levy on all tea. African examples were the Malagasy Export Bureau and the Rhodesian Tobacco Export Promotion Council. 3.17 In the FAO List of Marketing Boards of July 1981, there are no boards listed solely in this category. This function is now either combined with the direct sales activities of a commodity trading board or undertaken by a general export promotion bureau. In Sri Lanka, the foreign owned tea estates of 1965 have been nationalized. The Sri Lanka Tea Board now combines functions 1, 2 and 4 (from the preceding page) while still permitting processing, packaging and sales by foreign firms with established brands. 3.18 Tn many developing countries, Export Promotion Bureaus have been established with the support of the GATT/UNCTAD Internatinal Trade Centre, Geneva. They combine responsibility for promoting exports of all likely products, agricultural and otherwise, and are financed from duties on imports. They work closely with embassy staff in prospective importing countries organizing displays of the whole range of exports of the country at exhibitions, fairs, and the like. The economies of such an approach are evident. Faith in the advantages of more specialized commodity promotion is still evidenced in the wealthier countries, however - for example, the U.S. Feed Grains Council, Food from Britain, SOPIMPEX (France), and in TEXTNAME: III (R)P: (JA-2) 09 -53- Colombia where a Commodity Marketing and Development Fund to be financed by a three percent levy on rice was under consideration recently. 3.19 Regulatory boards. These are established to develop and apply uniform standards of quality and uniform packing procedures to export produce facing competition. They are also used to control the flow of produce on to particular markets and so avoid depressing prices. Enforcement is by licensing and inspection either by the board or by government services working in collaboration with the board. A contemporary example is the organization that determines weekly the quantities of tomatoes put onto the U.S. winter market from growers in the Mexican state of Sinaloa. Registered packing stations are each assigned a quota which they must then subdivide between the growers that supply them. 3.20 Some regulatory boards also provide laboratories for quality analysis, weighing, grading, storage, packing, and processing installation, and sales facilities such as central auction marketings. The existing marketing structure continues, subject to modification under the board's regulatory policy and possible obligations to use the facilities which it provides. 3.21 In Africa, the regulatory board is also declining in importance. In 1965, regulatory boards established at an earlier time often co-existed in Kenya, with an operational board undertaking sales and stabilization operations for the same product. This was considered a desirable separation of responsibilities. Recently under financing constraints, several regulatory boards have disappeared. The Kenya dairy board was abolished in March 1983, and its functions (and staff) absorbed in the Ministry of Livestock Development. In practice-the significant bargaining TEXTNAME: III (R)P: (JA-2) 10 -54- over the fixing of prices for milk was between the Kenya Cooperative Creameries, reflecting producers' interests, and the Office of the President concerned to maintain a balance with the interests of consumers. The end came when the Dairy Board sought an increase in its levy on milk from 5 to 8 cents per litre. This would have raised its budget from 10 to 16 million Kenya shillings (US$770,000 to $1,230,000). The Kenya Wheat and Pig Industry regulatory boards have also disappeared.3.22 The trend is not, however, entirely one way. Establishment of a Rubber Board with the objective of enlisting the expatriate Firestone Tire Company into improving links between growers and processory has been recommended for Liberia. 3.23 Boards stablising pr ces without engaging in trade. The original model for this is the caisse de stabilisation or stabilization fund of francophone Africa established for the major export crops. Exports continued through private enterprise channels. The caisse made a levy on the export returns of these enterprises during years of relatively high prices. From a reserve fund accumulated in this way it could then maintain prices to domestic producers in years of relatively lower world market conditions via supplementary payments to the exporters. 3.24 In the decade following independence several of the francophone African countries switched over to the former British West African model where a commodity board combined stabilization with monopoly export trading. Notable examples have been the Office des Produits Agricoles du Togo (OPAT) for coffee, cocoa, and certain other commodities, in Togo, and the Office Nationale de Cooperation et Assistance pour le Developpement (ONCAD) for groundnuts in Senegal. EEXTNAME: III (R)P: (JA-2) 11 -55- 3.25 Cameroun, unique in that it includes former British and French mandate territories, combines the two backgrounds. The English speaking Western Province exports through a monopoly board coffee assembled by a cooperative feedgrain. In French-speaking Cameroun, five or six long established, mainly alien managed, exporting firms are still in operation, supplemented by a coffee marketing cooperative federation which also exports directly. The caisse de stabilisation has continued. The caisse has also survived either for all agricultural exports or on a commodity-by-commodity basis in various other francophone African countries, even where monopoly commodity export boards have been set up subsequently. The boards trade on their own account and respond to the caisse de stabilisation like a private enterprise exporter. 3.26 It was suggested at the Meeting on Marketing Boards in Tropical Africa held in Leiden, 19-24 September, 1983 that the caisse can only continue where the national currency is relatively stable. This has been the case for the Francophone African countries which have stuck to the CFA franc. 3.27 The second model identified in the 1965 analysis was the board established,to negotiate prices with large processors, wholesale buyers, and distributors on behalf of producers and/or consumers. Such a board might also guarantee prices for a given volume of output, leaving additional output to find its own market. These latter programs are likely to involve the registration and inspection of individual producers and traders, and the supplementation, on the basis of individual returns, of prices obtained by them for specific quantities sold. They are most easily administered where the,,producers concerned are,specialized and relatively TEXTNAME: III (R)P: (JA-2) 12 -56- few in number. Existence of a convenient control point is also a factor. Such a board was used in East Africa by the pyrethrum growers when the expatriate firm Mitchell Cotts was the main processor. Generally such a structure has been replaced by a monopoly trading board also operating the plant. Management of quota systems for numerous small peasant producers is impractical. Recently, the Pyrethrum Board of Kenya was said to be withholding from the market stocks equivalent to two years total world demand. With all its capital and credit so committed it was unable to pay farmers for the current harvest. 3.28 Boards stabilizing prices by trading alongside other enterprises. Marketing boards, supply institutes, or departments of development banks were established in many Latin-American and Near-Eastern countries in the 1950s to maintain buffer stocks of basic foods such as grains and beans, and to stabilize internal prices to producers and consumers. These boards own marketing installations and equipment, and trade extensively on their own account. They may or may not have power to compel producers and traders to follow certain procedures, including adherence to fixed prices. They operate in competition with pre-existing marketing enterprises, buying from farmers through licensed agents or the board's own purchasing stations, and selling to existing wholesale distributors, to existing retailers, or, in some cases, through a board's own retail outlets or through retailers under special contract, the "fair price shops" in India for example. Such a board may need a monopoly of imports and/or exports to help implement its domestic stabilization program. 3.29 With international assistance such boards have been established in most Asian and African countries. Much consideration has been given to rEXTNAME: III (R)P: (JA-2) 13 -57- the proportion of the food grain which might effectively be marketed in a country to achieve the stabilization objectives. Ten to twenty percent is thought to be an economical level. Determining factors are the probable fluctuations in supply, the absorptive capacity of the private trade, and the distribution commitments of the government. Thus, 10 to 20 percent may not be sufficient in some of the Sahel countries. (Harriss, 1979). The Food Corporation of India normally buys some 14 million tons of grain, equal to about 20 percent of marketed output. This quantity is determined in practice by the price level at which a board undertakes to buy from producers and to sell to consumers. If the intake price is set too high the Board is likely to attract the bulk of the crop in a favorable season with correspondingly heavy demands up on it for storage and finance. 3.30 To maximize use of existing resources, price structures should provide an incentive for farm and commercial storage and reflect transport costs from production to consuming areas. Governments, however, come under political pressure to guarantee the same minimum price to all farmers at all seasons. This is only feasible with a monopoly. Any system that permits a parallel role for private trading must allow seasonal price variations to cover storage costs and place differentials to reflect transport charges. 3.31 Even so, a board trying to stabilize prices in a free market will not be able to cover its full costs from purchasing and marketing operations. Necessarily, it forgoes the profit opportunities open to commercial enterprises operating alongside. Giving it an import monopoly for some grain that can be sold domestically with a high profit margin is a favored-recourse. However, this builds-in an incentive-for the Board to rEXTNAME: III (R)P: (JA-2) 14 -58- perpetuate such imports, as as been the case with food aid in Bangladesh and some of the Sahel countries. The exclusive right to import was taken away recently from the Rice Board in Sierra Leone. Half of its imports were being allocated to influential politicians to distribute at their discretion. The other half was reserved for government personnel and the army. 3.32 Such boards have been seen as the appropriate agencies to hold reserves against national emergencies, in addition to the buffer stocks required to cushion inter-seasonal variations in supply. Governments have been slow to recognize the additional costs of holding such reserves. The effect has been to compound the operating deficit of some boards. 3.33 Export monopoly marketing board. Such a board is the sole exporter of a designated product or group of products. It may purchase directly from farmers who are conveniently located, or through agents which may be private or farmers' cooperatives. Sales are made locally by auction, tender, long-term agreements, or through a sales agency or broker on international markets. The board may own or hire marketing installations and processing facilities. Its price stabilization policy is normally based on preannounced prices to producers backed by reserve funds. 3.34 This type of board has been used widely in newly independent African countries, often to assure greater national control over main sources of foreign exchange and government revenue. Their numbers have continued to expand in countries like Madagascar via the nationalization of foreign owned commodity trading firms. In Nigeria, the original export commodity boards were reorganized first as three regional boards, then eleven state boards each handling several products, but selling through one TEXTNAME: III (R)P: (JA-2) 15 -59- export company. Now there are six. The grains, cocoa, groundnut, cotton, palm produce and rubber boards each have nation-wide responsibility for a group of crops, most of which are consumed domestically. Each board has its headquarters in a different state. 3.35 At a conference on the Marketing Board System held at Ibadan in 1971, the economists were critical of export monopolies while the administrators were positive (Onitiri, 1974). The export monopoly boards have incurred disfavor because reserve funds accumulated in periods of high world markets were not always retained to compensate producer prices when world markets were low. However, the same disincentive to producers can result from export taxation without a board. 3.36 A valid appraisal of this type of board will be in terms of specific product and export market characteristics, for example, whether it is better sold by brand or standard quality specifications, or in terms of the total share of the total market held, or the elasticity of demand and the advantages accruing to a national monopoly as against allowing a free run for the ingenuity of individual enterprise initiative. Currently there is a tendency to see monopoly boards as a barrier to the transmission back to producers of demand and consumer .preference signals from distributors in export markets. In the face of competition monoplies are passive. Thus, banana growers in Ecuador linked to individual exporters by direct contracts providing for finance, fertilizer, quality maintenance equipment, technical advice and a direct financial reward for adaptation to retail sales requirements, have maintained their share of the world market against transnational competition from Central America. Growers in Jamaica selling through a monopoly board have faced increasing rates of rejection with TEXTNAME: III (R)P: (JA-2) 17 -60- inadequate remedial assistance. Both bananas and coffee in Jamaica are now shifting from monopoly export board sales to integration with an import buyer via a production/marketing contract that provides the necessary finance and guidance for effective rehabilitation. In cocoa, the trend is towards establishment of processing enterprises in the producing country. This has gone fastest where there is no monopoly board. 3.37 Domestic monopoly marketing boards. These boards were originally developed as a means of maintianing the price of a commodity primarily produced for domestic consumption, but where surpluses over local needs at the desired price level had to be exported at lower prices (for example, maize in Kenya and Zimbabwe). These boards have also been empowered to fix prices for producers and retailers. Monopolies of exports and of wholesale trading in specified areas have also been given to organizations such as the Kenya Meat Commission as an incentive for investing in marketing and processing facilities considered advantageous and not furnished by enterprises operating on a smaller scale in a competitive structure. 3.38 The two Kenya examples have been the subject of continuing controversy. The movement controls imposed by the Cereals and Produce Marketing Board are an obstruction to the economical balancing of supply and demand. When the harvest is short there is massive evasion of the monopoly. In years of plenty the board has more produce to buy than it can handle, with heavy wastage in consequence. The Kenya Meat Commission is- now an anachronism weighed down by high overhead costs and low throughput. Ninety percent of the meat supply of Nairobi arrives through other lower cost channels. TEXTNAME: III (R)P: (JA-2) 18 -61- 3.39 In Kenya, such criticisms can be voiced. Many other African countries feature legal marketing monoplies seemingly assigned without due consideration of their implications for efficiency or maintained for the profits they afford to narrow sectional interests (Harriss, 1979). 3.40 ADMARK has been a fairly effective government policy instrument in Malawi. In practice, vis-a-vis the peasant producer, it has been a residual buyer. Its monopoly of substantial wholesaling, however, has permitted it to subsidize prices paid for rice and maize from incomd earned by marketing tobacco and groundnuts. Because of the difficulties and costs of importing maize into Malawi to cover a possible basic food deficit this policy may be considered justified. 3.41 There are other countries where a monoply marketing board has been used as an instrument for uniform producer and consumer pricing, irrespective of season and location. The result has been greatly increased transport and storage costs. The spread between producer prices for maize in Iringa and the prices paid by consumers in Dar es Salaam in 1967/68 under the marketing board/cooperative system was double that under the Asian traders system which it replaced. (Kriesel, 1971). The National Milling Corporation has since taken over from the Crop Marketing Board in Tanzania but is now in hopeless deficit. Similar policies applied in Mali through OPAM (Office des Produits Agricoles du Mali) changed the country from a major grain exporter to a net importer. 3.42 In Zambia, for instance, comparison of costs of tansport in an accessible and in a remote area showed that each hectare of maize grown on the farm costs the nation $35 in crop and input transport in the former location, and $160 in the latter. Net revenue to thenation is,$45 per Table 2.1RELATIVE ADVANTAGES FOR SMALL FARMERS OF ALTERNATIVE MARVETING STRUCTURES Sales position of Sales position of Seed/planting * Marketing small farmers vis-a small farmer vis-a Extension type materials Fertilizer Other Government Structures vis larger farmers vis buyer assistance provision supply Credit support required Independent Bargaining weight Advantage of access Advice based on May supply May supply Consumption Provision of market private firms can be used against to alternative local experience on credit on credit credit often infratucturen small farmer outlets available information services t maintenance of com- petition, some price stabilisation Marketing and Equitable prices Dependent but Can be direct and Direct supply Direct supply No Should negotiate processing if can.- make a secure if can meet intensive on credit on credit participationifor enterprise' contract product quality small farmers end requirements prices Development Equal prices Protected provided Can be direct Direct supply Direct supply No Major financial company/ can meet product and intensive on credit on Credit input or privileges authority quality usually required requirements Cooperatives Equal if Favourable pro- Collaborate with May arrange Direct supply May supply Continuing financial operates vided cooperative government service a supply on credit where support, supervi- successfully operates supported by sion and protection efficiently coop. bank generally,needed Marketing Equal price if Depends on access Usually left to Assistance rare Assistance No Insistence on board/state can reach official to buying station; government service rare measures to help trading buying station may be subject to .mall farmers at agency illicit charges rural buying points TEXTNAME: III (R)P: (JA-2) 19 -62- hectare in the first location, but there is a net loss of $235 per hectare on maize grown in the remote ara. (World Bank, 1981). 3.43 Implication of the various types of marketing parastatal, and cooperation systems where they are given an official monopoly are set out in Table 3.1. In summary, one may hazard for 1983 the following ratings for marketing board types one to six. (1) Largely combined with export trading activities or repalced by national export promotion bureaus financed by a general charge on customs revenues. (2) Tending to be absorbed by government services in face of financial stringency, or by an operational marketing board, but still seen to have a role - witness rubber in Liberia. (3) Continuing quietly, very much behind the scenes, with reserve fund accumulation in considerable disfavor. (4) A recent favorite with the aid agencies and food security programs, but difficult for developing country governments to understand and manage successfully. (5) Expanding in numbers, but for the wrong reasons, for example, political ideology and currency control, rather than marketing advantage. Integration of export production from the grower through to final distribution in overseas markets my have the edge with some products over the monopoly export board in the face of increasingly competitive world market conditions. (6) Under continuing attack on grounds of high costs,, disincentives to producers and opportunities created for evasion and corruption,.but maintained by governmants for a combination of' financial, ideological and less worthy interests. rEXTNAME: III (R)P: (JA-2) 20 -63- 3.44 This classification was discussed in some detail at the meeting of the East African Agricultural Economics Society in Kampala, 1968, where some alternatives were presented (Riordan, 1968). It was raised again at the meeting on marketing boards in Africa at Leiden. Here the conclusion was that domestic marketing boards had withstood the test of time. tEXTNAME: IV (R)P: (JA-2) 01 -64- IV. COMMODITY ANALYSIS OF MARKETING BOARD/PARASTATAL OPERATIONS 4.01 In this section a review of commodity situations likely to respond to marketing board/parastatal treatment will be attempted. 4.02 Under the general administrative constraints of developing countries, the relative ease of achieving a desired objective is an important consideration in determining marketing board activities. If, for example, a program designed to control quality of product or quantity of sales is to succeed, the marketing channels must be few and concentrAted so that detailed inspection is feasible. Such a program can be instituted most easily for commodities destined for export or processing. Price stabilization by means of purchase of part or the whole of the market supply is obviously more difficult for perishable fruit and vegetables than for grain, particularly since cold storage and processing facilities are usually limited and the economics of investment in their use for this purpose highly restrictive. Consequently, most trading boards in developing countries tend to limit their intervention to relatively more durable products, such as grains, beans, peanuts, palm oil, coffee, cocoa, and cotton. Thus, the strategic commodity considerations include; durability/perishability, the nature of the channel through which a product moves, its marketsf how easily access to them can be controlled, and the nature of the production base, that is, whether it is large number of small growers scattered over an extensive production area or a few relatively large growers geographically concentrated and fairly easily identified. 4.03 These commodity "situations" will now be set against the objectives of the various types of marketing boards/parastatals discussed in Chapter III. These are summarized as,follows: TEXTNAME: IV (R)P: (JA-2) 02 -65- (1) Sales promotion, research, extension. (2) Regulation of quality packaging and presentation to meet competition and of quantities sold on particular markets in order to maximize returns. (3) Price stabilization via a reserve fund. (4) Price stabilization via purchasing, sales and operation of a buffer stock within a free market. (5) Monopoly of sales on export markets for weight in bargaini-dg (and control of foreign exchange returns). And, (6) Monopoly of sales on domestic markets to facilitate provision of desired marketing and processing facilities and implementation of pricing policies. 1. Sales promotion, research, extension 4.04 The commodity market situations where active market development, promotion and advisory programs are likely to bring substantial benefits include those where: (1) Sales face competition from other countries, and suppliers of substitute products, who are maintaining active promotion programs. (2) The development of new outlets for a product and methods of utilization is essential because previous markets have been lost or are declining. (3) There is not brand promotion or systematic advertising at present and there are indications that consumers would be responsive to such action. TEXTNAME: IV (R)P: (JA-2) 03 -66- (4) Production and marketing costs could be reduced, for example, by the provision of advice on new techniques and adoption of higher yielding varieties. (5) The general quality level and market returns can be improved by developing grade and packing standards to be applied by a government service o the advice of the board. (6) Fluctuations in prices could be reduced and overall returns increased by the provision of market information - reports of current supplies, stocks and prices, forecasts of demand and future market supplies, and so on, which help prevent gluts on certain markets and during certain periods. 4.05 The essential point in establishing a marketing board/parastatal to manage these activities is that it is given power to collect a levy on sales to provide the necessary finance. This is founded on the assumption that funds for such an expenditure would not be forthcoming otherwise, and that their use would be less consistent and productive if not directed by a body including representatives of the producers concerned. 4.06 It is feasible with crops exported through only a few frontier stations :or ports controlled by customs,services0 It is also practicable for produce-requiring processing before.entering distribution channels and which must pass through-a few specialized plants. At these bottlenecks a direct levy on exporters and processors, and through them on producers, is practicable. Generally it is impracticable to collect a levy on produce sold by small-scale growers through local traders and shopkeepers. 4.07 Commodities for which such an operation is mounted teud to be export products earning foreign exchange. Tea,centers- providing; top TEXTNAME: IV (R)P: (JA-2) 04 -67- quality tea and interesting information about it, were set up by the Ceylon Tea Propaganda Board, in major cities in many parts of the world. This Board also supported national tea promotion programs in importing countries. 4.08 Such a program can be mounted just as easily by any trading. enterprise, either private or public, handling a sufficient .volume to justify the outlay. A classic example is the introduction of the avocado to the U.K. market by Agrexco, the Israeli Export Company. It arraiged for people to visit fruit and vegetable shops in above medium income consumer centers and to have the people ask for avocado. After two or three such enquiries the retailers placed orders. Domestic markets may also be responsive to such initiatives. The Indian Coffee Board, for instance, has been successful in increasing sales of coffee in parts of the country where it was not widely drunk. The Board participated in exhibitions and fairs, set up approved coffee-houses, organized house-to-house demonstrations and parties to demonstrate correct methods of coffee preparation, and maintained networks of coffee depots where low income consumers could obtain good coffee at low prices. A classic example of promotion of a "socially desirable" product is the establishment of milk sales kiosks and milk vending machines by the Dairy Board of India. 4.09 Organization of a parastatal to undertake such an ihitiative would be justified where: (a) The conditions set out above prevailed. (b) No existing enterprise had sufficient command of the market to justify the expenditure. And, (c) No overall export promotion organizations existed, or would give adequate attention to the product concerned. TEXTNAHE: IV (R)P: (JA-2) 05 ~.68- 2. Regulation of quality and volume of sales The main functions of a regulatory board are: (1) To advise the government on minimum quality, grade and packing standards and labeling procedures to be adopted, to secure their application by means of export licensing and inspection to regulate the terms and conditions of sale employed by the exporters, and to introduce standard forms of contract. (2) To provide and operate such control laboratories and asseibling, packing and processing facilities as are necessary to enable produce to conform to the desired quality standards. (3) To provide and operate markets, exchanges, auction sales systems and the like, to facilitate the general use of improved sales methods. (4) To negotiate conditions of transport, handling, processing and storage of certain products with trader and handlers to safeguard producers and the national economic interest. (5) To determine the quantities of different quality categories despatched for sale on particular markets at particular times. 4.10 The establishment of a profitable export trade depends very much on ability to offer a regular supply of standard quality produce. Uniform applicatioll of internationally accepted grading, packing and marking procedures an do much to establish an advantageous market reputation. A valuable mechanism in achieving these objectives is a central regulatory organization with power to introduce standards and enforce them by means of a licensing and inspection system. TEXTNAME: IV (R)P: (JA-2) 06 -69- 4.11 The formulation, issuance and enforcement of quality and other marketing regulations can be undertaken directly by a government service and, indeed, this is the practice in many countries. Alternatively, it can be assigned to a statutory control agency established for the purpose, with strong representation from producers and traders of the commodity on its directorate. This latter alternative is often preferred for highly specialized crops, and especially where permanent installations have to be provided and operated on a commercial basis. It may then be felt that a government service is likely to be less appreciative of the commercial problems involved and slower in adopting desirable handling and processing techniques than an independent agency with close industrial ties. 4.12 In developing countries, regulatory boards have generally had to limit their intervention to export crops. Effective control of the quality of produce, for -xample, going into domestic consumption and originating in numerous small-scale local production units selling to local traders or directly to consumers is much more difficult to exercise. 4.13 The income of regulatory boards is derived from (a) charges for licenses, (b) a levy on all of the controlled produce which passes through specified markets or export points, (c) processing and handling fees on the products passing through the board's installation, (d) proceeds from renting out market or storage space, processing equipment, and the like to cooperatives, trade associations or individuals, and (e) proceeds from the investment of funds in hand. 4.14 Generally such boards are established to regulate the marketing of products for export. The Kenya Tea Board licensed producers. In this IsXNAM4E: IV (R)P: (JA-2) 07 -70- way it exercised indirect control over the volume of products forthcoming for export. Implementation of this authority was helped by the need of the grower to deliver pickings regularly for processing. In Ecuador it is official policy to concentrate coffee planting into areas and arabica types producing high quality beans so as to maximize returns from a total export volume to member countries set by the International Coffee Organization. In practice, however, the government has been unable to prevent squatters from planting lower valued robusta. 4.15 Regulation of the marketing of milk is geneally appreciated. Prices at the producer level for a product involving a considerable capital investment, high perishability and needing daily collection cannot be left to uncoordinated bargaining without substantial deterrence to production. This is not to defend the pricing systems often adopted, such as uniform prices irrespecitve of seasonal supply factors and location vis-a-vis the main markets. Tobacco is a crop for which uniform grading of a complicated nature is specifically advantageous, sometimes a necessity. Other crops for which regulatory boards are commonly used are coffee, tea, cotton, sisal, sugar, coconuts, jute, rubber and livestock (Sudan, Argentina) for export. 4.16 This type of regulation can also be done by a normal arm of government. The argument for a special board is based on the value of direct participation by representatives of major interests concerned. Thus, establishment of a regulatory board for rubber has recently been recommended for Liberia. A prime consideration would be to bring in the experience and commercial weight of the Firestone Company, a major producer andprocessor. TEXTNAME: IV (R)P: (JA-2) 08 -71- 3. Stabilization of prices without trading 4.17 Typically the system is applied to crops bought by a monopolistic processing enterprise and/or exported to markets subject to substantial price fluctuations. 4.18 The essential powers required for the application of stabilized producer price schemes backed by reserve funds for export crops in developing countries are: (1) To license all traders, processors, and exporters dealing*in the controlled product and to prohibit trading, processing, and exports by other than licensed enterprises. (2) To fix a port price for export sales for a given period and to require that exporters pay into a reserve fund part or all of the differences between the price fixed and that actually obtained. (3) To fix the prices to be paid to producers for various grades or types of the product (though it is sufficient if the government will fix such prices on the advice of the board). (4) To require licensed traders, processors, and exporters to keep a record of all transactions and to transmit such information to the agency within a prescribed time in the form indicated by it. (5) To inspect the purchase, delivery, and export of the product, to prescribe the qualifications, powers and duties of inspectors, and to authorize the examination and inspection of all books and documents relating to production, processing, or sale of the controlled product. (6) To draw upon accumulated funds for compensation of deficiency payments to exporters for losses sustained on exports when the export price realized is lower than the fixed port price. TKXTNAME: IV (R)P: (JA-2) 09 -72- 4.19 A statutory board with representatives of producers and traders on its directorate is used rather than a government service because it is likely to have a closer appreciation of the conditions and requirements of particular trades, and better prospects of taking detailed decisons without cumbersome procedures. 4.20 The non-trading price stabilization board is well adapted to export crops handled by a small number of firms which are operating fairly efficiently and are inclined to collaborate. In many of the countrids where it has been used there were only five to ten firms concerned. Administration by a board with compulsory powers ensures that all participate and none reaps unfair advantages by remaining outside. 4.21 Whether a crop is marketed for export directly or goes through a few industrial-type processing plants, price stabilization measures can be applied to the total output marketed. Thus, African stabilization funds are able to stabilize prices for the whole supply, although in some countries part of the processed crop is destined for internal use. 4.22 Crops for which this type of parastatal is used include; coffee, cocoa, cotton, groundnuts, pryrethrun, and fruits and vegetables for processing, handled by a limited number of easily identifiable and controllable enterprises. For coffee,in the Cameroun these include private exporters, a cooperative federation, and a marketing board for the western province. 4. Stabilization of prices by purchasing, sales and buffer stock operations within a free market 4.23 Parastatals are established to carry out this function* essentially for basic grains,in domestic markets. TEXTNAME: IV (R)P: (JA-2) 10 -73- 4.24 The circumstances leading to the establishment of this type of public marketing agency generally include: (1) Wide seasonal ranges between the prices obtained by producers at harvest time and those paid by domestic consumers later in the year due to weaknesses in existing marketing structures and facilities, lack of information, competition, credit, etc. (2) Sharp annual fluctuations in domestic supplies of basic foodstuffs due to climatic influences on production. And,* (3) Government concern to provide incentives to farmers to expand or maintain output of certain products. 4.25 Operated efficiently, such an agency can contribute considerably to: (1) Stabilize domestic prices of basic grains otherwise subject to wide fluctuations, sometimes exaggerated by speculation and hoarding. (2) Protect lower income consumers by putting supplies of basic food on to the market when prices are high. And, (3) Stimulate production by implementing minimum intake prices to farmers at harvest time. 4.26 It can be argued that free, competitive markets, while not announcing in advance a minimum intake price, would direct producers to provide the necessary supply and pay them the price required. However, it is the hard experience of wide fluctuations in prices that has put pressure on governments to find their own ways of moderating them. Such an organization provides a government with a means of selective marketing intervention in politically sensitive areas of production and consumption TEXTNAME: IV (R)P: (JA-2) 11 -74- without great and continuing financial and administrative obligations. Existing marketing channels would continue to operate and could be allowed to handle the bulk of the trade, though under competition from the board. 4.27 In principle a government department could undertake this role. Often it has been a responsibility of a Ministry of Supply, as in Pakistan for many years. However, departmental procedures requiring prior budgeting, for example, are often not adapted to the needs of trading where financial requirements may vary greatly during an operating year. Government departments are often not allowed to obtain commercial credit from banks and traders, or to finance out of income new expenditure which does not appear in the budget. This restricts quick access to funds and prevents flexibility in trading activities. In many developed countries, firms already in the business are engaged to act on the government's behalf. Developing country governments often see themselves as in a position where such arrangements are difficult to operate. For this reason they set up an enterprise that will have some flexibility through administrative autonomy but still be safely under their control. An additional consideration in many Latin-American countries, for example, is the possibility of offering ,salaries adequate to attract competent staff and of assuring continuity of personnel through frequent changes of government. 4.28 In principle this type of operation can be carried out with crops that can be stored conveniently for periods of months, preferably from one year to the next. These include wheat, barley, rice, maize, sorghum, beans and other food legumes, and cotton. rEXTNAME: IV (R)P: (JA-2) 12 -75- 4.29 The essential requirements are access to storage and capital, and the ability to determine when and how much to buy and sell. 4.30 Reliable information on crop output prospects and quantities held in storage is also vital. It follows from this that the crops handled in a particular country should be ones for which such information can be obtained. 4.31 Because of the financial and other resources that must go into such a program, governments of developing countries find it advisable to concentrate on those crops of strategic importance for domestic producers and consumers. Thus the Government of India established the Food Corporation of India to operate such a program for wheat and rice - far the most important crops in total volume - though for certain groups of consumers (in fact, the poorest) sorghum and similar grains are the traditional source of calories. 4.32 A disadvantage in focussing on one or two crops is that producers and consumers may be attracted towards them as against other crops for which physical production conditions are relatively more favorable and are often a lower cost substitute. This is happening to rice and wheat in India as against grains involving less production risks in semi-arid conditions, for example, in Indonesia for rice as against tubers, and in humid West Africa for maize and rice as against yams and cassava. An attempt, however, to stabilize via a parastatal operation the supply and price of yams in Nigeria was discontinued. Treatment of yams to permit storage over some months is still in an experimental stage. Cassava is best stored by leaving it in the ground where it is growing. TEXTNAME: IV (R)P: (JA-2) 13 -76- 4.34 A price stabilization program operated within a free market frame cannot be expected to be financially self-supporting. Necessarily it will in the interests of stabilization forego the profit opportunities taken by traders operating on purely commercial terms. It is expected to buy when the trader is holding off while waiting for prices to go lower. It is expected to sell when the trader waits to get the maximum return on this outlay. It must maintain a minimum staff and facilities and carry the overhead cost in years when it buys very little. When there is as bamper harvest it may have to buy a large part of the crop and mobilize facilities for this at considerable cost. 4.35 To meet the deficit on its stabilization operations, developing country governments lacking adequate revenues commonly assign the stabilization board a monopoly on imports of some good for which there is a consumer demand that cannot be met from domestic supplies. In food grain deficit countries, wheat available internatioanlly on concessional terms often assumes such a role, as with IDEMA, the stabilizing agency in Colombia. In West Africa and Somalia an import monopoly for rice is a common source of income for an agency stabilizing the price of domestic maize or sorhgum. The trap in this arrangement is that the agency then becomes dependent for its operating margin on continuing imports of this product. It has a bult-in interest in maintaining such imports as against promoting self-sufficiency in foodgrains. The food agency in Bangladesh has been notably embarrassed by this as aid imports declined with approaching self-sufficiency. 4.36 Buffer stock programs for perishable products such as vegetables, fruit dairy produce and meat, are relatively rare, especially in developing TEXTNAME: IV (R)P: (JA-2) 14 -77- countries, though the prices of these products fluctuate more than those of storage products. The main difficulty is that they cannot be held until the off-season, or from one year to the next, without elaborate processing or refrigeration. Where the necessary facilities are available, milk can be held as a dried powder or frozen fats and other solids; butter and some cheeses can be held in cool temperatures; meat and vegetables can be held canned or frozen. However, the cost of these facilities generally, precludes their use in developing countries. Moreover, there must be an easy market for the product after processing for storage , which can also raise difficulties. The Agricultural Marketing Board of Mauritius stabilizes the domestic price of potatoes and onions by holding buffer stocks in refrigerated storage and by controlling imports. More generally, potato price stabilization via public agency storage has been wasteful and ineffective. 4.37 In principle, meat prices could be stabilized through adjustment of sales of live animals for slaughter. An agency with access to watered grazing grounds and prepared to buy supplementary feed could help moderate sharply fluctuating meat prices in African and Near Eastern countries, for example, with long dry seasons. This was the role vis-a-vis the meat supply for Dakar envisaged for the ninety-seven percent government owned enterprise SERAS. Success in practice would depend on the quality of the management that could be secured. SERAS was relieved of its stabilization responsibilities after incurring heavy losses. 4.38 Whether one board should handle several commodities raises issues of management and sales convenience. Boards operating buffer stock schemes for domestic food stuffs often find it economic to handle several TEXTNAME: IV (R)P: (JA-2) 15 -78- commodities with related requirements and outlets, such as grains. Their turnover of a particular product may vary greatly from year to year according to the degree of price support needed after harvest. Physical facilities such as storage, which may be needed for particular commodities only at some seasons or in some years, may be utilized more fully if several commodities are handled by one board, especially if the board is established primarily to foster general agricultural development in a particular area and is obliged to maintain extensive local purchasing facilities. Establishment of separate agencies for different crops could be wasteful in terms of overhead costs and experienced personnel. 5. Monopoly of sales on export markets 4.39 If all exports are made by one agency it can separate the internal price level from the prices received outside. It can keep the former stable at least in the shorter run. It can announce a buying price in advance of the planting season by operating a reserve fund to which it contributes when export prices exceed the announced price plus marketing costs, and from which it draws when they are below this level. 4.40 In this respect export monopolies achieve the same result as the non-trading stabilization board (type 3). 4.41 The advantage it affords in selling on competitive markets is enhanced bargaining power. There is no other enterprise able to undercut it, at least not with offers of supplies form the same country. Prior to the board monopoly in Sierra Leone, for example, a number of traders offered contracts for ginger before they had obtained supplies, thus exaggerating the quantity available and depressing prices. It can control directly the timing and direction of sales and so avoid flooding any TEXTNAME: IV (R)P: (JA-2) 16 -79- one market at one time. It has been shown that growers in countries like Greece and Lebanon could have raised their earnings from citrus and peaches, for example, by the adoption of mechanisms to control the quantities and qualities exported and supplied to domestic markets (McCorkle, 1962). Monopolies can also divert supplies to other uses, for example, to domestic processing in the case of groundnuts and cotton, or to holding produce in storage to bolster prices on its main markets. 4.42 The advantage of such a monopoly is enhanced to the extent*that the seller has significant weight in the overall market. Sudan, with forty percent of the world market for fine staple cotton, is in this position. The anglophone West African countries had a similar advantage for cocoa and groundnuts when they sold in collaboration. Alone, Gambia and Sierra Leone, especially, did not export enough of any of their export products to have an influence on world markets. However, by participating through their marketing boards in joint selling arangements in London with those of Nigeria and Ghana, they benefited from the bargaining weight of their partners. Unilever buying oilseeds, for example, for Siera Leone or Gambia, would be obliged to apply the same price as from Nigeria. With the breakup of joint selling in London following independence this advantage was foregone (Barker, 1983). 4.43 Effective monopoly control is made feasible by the necessary movement of an export product through a limited number of ports and border crossing points. It would be more difficult to enforce for livestock, for example,-which could easily be driven on foot over unguarded inland borders, and perhaps for copra in a country like Indonesia, where there are many points from which it can be transported by small boat to markets in nearby countries. rEXTNAME: IV (R)P: (JA-2) 17 -80- 4.44 The existence of a public monopoly board also facilitates the arrangement of government-to-government sales, and the equalization of returns from sales in protected and free world markets. It can also facilitate participation in international export control schemes such as the International Coffee Agreement. Making sure that the maximum proportion of high grade coffee is sold to I.C.O. importers is a prime concern of the Kenya Coffee Board. In this way the highest foreign exchange return is obtained for the country from a quota fixed by quAntity. 4.45 A further motivation for many developing country governments in resorting to monopoly trading companies is the desire to exercise direct control over a major source of foreign exchange. Where a currency is overvalued and/or capital movements are restricted, direct export sales constitute a continuing temptation to enterprises (and individuals) to arrange for part of the proceeds to remain to their credit in another country. This was said to be a main consideration in bringing the export of citrus from Morocco under a monopoly board. 4.46 Purchase and sale by a single agency also facilitates the esI-blisment of standard quality grades and price differentials and the establishment of a good reputation for contract performance. These considerations w-re important when some of the monopoly export boards were first established to handle oilseeds, coffee, cocoa, and certain other commodities. These considerations can work the other way, however, in commodity situations where subsequent handlers see an advantage in direct contact wi,th producers. 'EXTNAME: IV (R)P: (JA-2) 18 -81- 4.47 A disadvantage of the monopoly board, especially where it buys domestically and/or arranges processing through agents who may have no continuging commitment, is the break in responsibility for the produ,ct handled. Such a break hampers the transmission back through the marketing chain via selective buying and price differentials of demand preferences. Thus, a 1977 World Bank report comments that the Nigerian Cotton Bord should relinquish its monopoly purchasing role and let spinners and ginners establish direct links with producers. 4.48 Where continuing care and attention is needed from producer through to the retail outlet in another country, integration of all operations under one management either by direct ownership or by production marketing contracts has a significant advantage. This is very clear, for example, in the case of bananas. The world market is dominated by three or four enterprises integrated back to the growers by contracts under which they furnish technology and materials. The provision of these goods and services is designed to maintain fruit unblemished by bruise marks through to retail display in the export market. Producers are rewarded accordingly. After years of export sales by a monopoly board, banana growers in Jamaica are shifting to a direct contract with a transnational exporter. Under the board the percentage of rejects was high, little effective assistance and no new finances were provided. A similar arrangement with Japanese importers is being made for Jamaican Blue Mountain coffee, which was also formerly handled by a monopoly export board. 4.49 While introduced mainly for fairy durable products such as coffee, cocoa,-oilseeds and palm oil in Africa, a monopoly parastatal can be used to export the less perishable fruits provided an appropriate speed of movement, as with citrus from Israel and Morocco, can be, assured. TEXTNAME: IV (R)P: (JA-2) 19 -82- 4.50 Under the special situation of a favorable supply cycle lasting for two to three weeks to the U.K., the Potato Marketing Board of Cyprus has been a success as a monopoly exporter. Facing difficulties in the timely organi1zation of transport for small lots and skimping on quality in competition over prices, the previous structure of small scale exporters brought lower returns to producers. 4.51 Handling the more perishable crops, however, implies a high standard of mana gement, especially where they are produced by numer6us small farmers. Attempts by parastatals to export perishable vegetables from Kenya and Senegal have not been successful. 4.52 In East Africa there has been a preference for export boards organized on a specialized commodity basis. In this way, it was thought, the commodities would receive the specialized attention they needed. On the other hand, maintenance of separate directorates, staff, and international market contacts can add considerably to their overhead costs. This can be especially wasteful where a stable of commodity parastatals is seen as a convenience in placing former high officials and other people with influence. 4.53 In some small countries a single export monopoly marketing board often handles a number of commodities in order to secure an economic level of operations. The Sierra Leone Agricultural Products Board exports a range of comm6dities covering cocoa, sesame seeds, palm oil and kernels, and ginger. Originally it benefitted from a common sales agency with other countries in London. Its current effectiveness is very much in question. 6. Monopoly of sales on domestic markets. 4.54 The main reasons for granting a trading and. processlng monopoly for produce going into domestic consumption are: TEXTNAME: IV (R)P: (JA-2) 20 -83- (a) To take advantage of a higher price obtainable in a particular market provided supplies to that market can be restricted, and to pay to all producers a price based on the average return from sales to other market. And, (b) To secure an adequate volume of through-put to justify investment in marketing installations and equipment considered necessary for development, but which are not being provided by a structure of small marketing enterpises in competition. 4.55 Governments sometimes establish a domestic monopoly to facilitate the maintenance of fixed prices at all stages in the marketing of a product throughout a country. Leaving aside its desirability, such a policy could be implemented by regulatory measures but with somewhat more difficulty. 4.56 The first reason for creating a domestic monopoly refers to a situation where a substantial portion of total output must be exported at prices lower than those prevailing on the domestic market if prices to producers are to be maintained at a desired level. Under such conditions control of the disposal of all supplies become indispensable since no individual enterprise would have an inducement to export on its own account. Some enterprise must make these exports and be able to cover its losses from sales on the more profitable home market. It can then guarantee to producers a price based on the estimated average realization from both markets. 4.57 This operation is usually a development of type 4 and is concerned with market stabilization and production incentive pricing of basic food grains. It enables a country with periodic surpluses beyond carry-over needs to dispose of these without the domestic price structure falling to export parity level. TEXTNAME: IV (R)P: (JA-2) 21 -84- 4.58 The second reason for a domestic monopoly derives from situations where expensive marketing and processing installations have -0 be established and the volume of business to be handled is only enough to support one enterpise on an economic scale. - The establishment of livestock, slaughtering, and processing facilities in an area with a relatively light livestock population often depends on public initiative and monopoly protection, A supplementary consideration in using a marketing board to provide and administer these facilities is often the need for strict application of special veterinary and sanitary precautions, for example, in the handling of livestock from quarantine areas so as to avoid the spread of disease. The Kenya Meat Commission is the classic example of this situation. Its monopoly has now been relaxed so that wholesaler butchers using local municipal slaughter places may also sell meat in Nairobi. The share of the supply handled by (MC with its heavy burden of overhead costs has dropped to around six percent. Producer representatives, however, still press for maintenance of the KMC with government subsidy, as a buyer of last resort. The costs of such a role may be too high, however, for the government to carry. 4.59 Such compulsory marketing schemes are also applicable to products where the price in the main market can be maintained at a high level by diverting part of the total quantity marketed into less profitable domestic iutlets. They are often used for milk to keep separate sales for fluid consumption and for manufacturing into butter, cheese, and other derivative products and so maintain a higher average return to the producer. 4.60 This objective can be achieved by a control board of type 2 if the number of producers is not too large and their sales can be regulated TEXTNAME: IV (R)P: (JA-2) 22 -85- by issuing orders. In developing countries where production is in the hands of large numbers of small peasant farmers this approach is less practicablc and a monopoly trading board is seen as a more effective recourse. 4.61 Channeling the whole of the marketed production through one board is feasible when supplies are marketed through a rather limited number of board depots or agencies and processing plants which constitute a convenient bottleneck for control. Where supplies come mainly from small-scale peasant cultivators enforcement may only be possible for certain crops in particular areas, or in specific marketing channels offering means of control over all transactions. It is feasible, for example, for produce which must pass through specialized processing plants before becoming suitable for consumption. Thus coffee producers in India can be obliged to deliver their entire crop to a central pool, administered by a board, because it must pass through a curing plant which can be checked. 4.62 Sugar beet and sugar cane for industrial processing must also pass through a factory. A monopoly board can be applied to livestock, which can only be marketed through a few slaughter-houses or well-known transport routes, or milk in an outlying area which has no market except through a dairy processing plant, and milk which can only be ielivered in town by using certain roads. 4.63 For other products a monopoly board may still be feasible, but with its operations limited to a specific category of production units or areas form which sales cannot take place easily without cognizance of the board. Thus the Zimbabwe Grain Board could make sales to it by large grain rEXTNAME: IV (R)P: (JA-2) 23 -86- producers compulsory, under penalty of legal action, while leaving sales by small peasant producers free. 4.64 Monopoly purchasing powers, backed by cordoning-off roads out of a given production area may enable a stabilizing agency to enforce sales to it at its base price, so facilitating its accumulation of a buffer stock from domestic source at minimum cost. This practice was used in India for many years to ensure that adequate supplies of wheat and rice came into official hands to meet public distribution needs. There the octroi dontrol barrier across the highway is traditional. In Africa, control of evasion would be difficult indeed. 4.65 The critical goal in establishing a monopoly operation as against the type 4 stabilization agency is that by managing.supplies and prices to domestic consumers and paying only the average price realized from sales in its different markets, it can be financially self-supporting. 4.66 Tobacco is a crop frequently subject to an official monopoly of processing and marketing, primarily because of its public revenue earning potential. 4.67 In a number of the smaller British Commonwealth countries, notably islands in the Caribbean, marketing boards or public corporations have been established to market fresh fruits and vegetables. This approach originated form dissatisfaction with the services offered to producers and consumers by the prevailing structure of small scale traders in such produce. Specifically lacking was the ability to furnish consistently the produce lines and quality required for the tourist industry. Nhile not specifically legal monopolies, the Agricultural Marketing Corporation in Jamaica and the-Barbados Marketing Corporation were authorized and funded TEXTNAME: IV (R)P: (JA-2) 24 -87- by government to establish and operate wholesale marketing facilities designed to assume a near monopoly role. After heavy losses both have been judged failures. Plans are underway for their facilities to be adapted to support competing small scale traders rather than to replace them. Summary: Crop applicability in developing countries of parastatal types 1 to 6 (1) Crops for export which pass through points such as customs stations and processing plants convenient for collection 6f a promotional levy, for example, tea, coffee, tobacco , and sisal. (2) Crops where returns can be improved by regulating qualities and quantities sold in particular markets, and which pass through export points or centralized marketing systems where such controls can be enforced, for example, milk, tobacco, coffee, tea, rubber, and jute. (3) Cloves, cocoa, coffee, cotton, groundnuts, oilseeds, pepper, sugar and vanilla exported by a limited number of easily identifiable enterprises have been the subject of successful price stabilization via reserve funds without trading. (4) Major food grains such as wheat, rice, maize, sorghum, beans that can be stored easily, and potatoes and onions where refrigerated storage is available economically, have been the subject of successful stabilization operations in a free market structure. These can be financially self-supporting where costs can be set against profit margins on a low cost import. (5) Most crops for export including olive oil and wine (Tunisia), potatoes (Cyprus), citrus (Israel and Morocco), except where, as IEXTNAME: IV (R)P: (JA-2) 25 -88- with bananas, control over the product from farm to retailer by a single management has competitive advantages. Monopoly selling will be the more effective to the extent that the seller has a dominant position on the commodity market concerned. (6) Food grains such as wheat, maize, and rice, where periodic surpluses must be exported generally at a loss or production areas cordoned-off to facilitate buying for controlled distribution, and other products such as meat and milk whete better marketing depends on the installation of large scale facilities only economic with monopoly protection. rEXTNAME: Chaptc,r5 (R)P: (ja-1) 01 -89- V. COUNTRY ANALYSIS OF USE OF PARASTATALS IN MARKETING 5.01 The preceding chapter examined the use made of various parastatal marketing organizations for various commodities and commodity situations. It is also useful to see how parastatal commodity trading organizations are used in different countries. This may help to identify influences deriving from the historical and cultural backgrounds of countries, their socio- ethnic composition, their political history and commercial tradition, the nature of their agriculture and of the main markets for their products. 5.02 Clearly there are limitations to the conclusions that may be drawn. Certainly the extent to which a country has put the marketing of food and agricultural products in the hands of monopoly parastatals has had its influence on the rate of growth of agriculture in that country. The relationship is not easily, separated, however, from other factors, for example, from the price policies that a government has required its parastatals to apply. 5.03 There are, however, several hypotheses that can be examined: (a) That a country with a substantial middle income consumer sector will require a more flexible food supply system than one concerned primarily with supplying basic needs. (b) That certain degrees of refinement in marketing organization are required to match scale, concentration, specialization and other attributes of agricultural production structure in a country. And, (c) That the resources available to a government in terms of investment capital and qualified managerial and technical personnel will be a significant consideration. ZEXTNAME: Chapter5 (R)P: (ja-1) 02 -90- 5.04 At a minimum, some analysis by countries may serve to indicate the range of alternative marketing structures in use in countries with broadly similar agricultures. It may also show whether factors considered decisive in favoring a particular approach in one country were interpreted in the same way in others. The outcome should provide some tentative conclusions that may be helpful to governments in reviewing their marketing structures and to agencies endeavouring to assist them. Tunisia 5.05 In Tunisia there are parastatal marketing monopolies for cereals, wine, olives and olive oil. Public enterprises were also established to market meat, milk and other products to fill gaps left by the French. These were not given monopolies. Coupled with government price fixing policies, this structure is judged to have been adequate as a simple outlet for farm produce in providing basic transport and processing and in maintaining existing overseas markets for wine and olive oil, though in declining amounts. It has not, however, responded dynamically to opportunities in the domestic market presented by the rise in consumer incomes and tourism. Nevertheless, agriculture in Tunisia has still grown at a much faster rate than in many other countries. Overriding factors have been the strong consumer market fed by a high rate of population increase and the shift away from the policy of compulsory cooperativization of agriculture pushed by Ben Salah in the 1960s. 5.06 It is argued, however, that this marketing structure and pricing environment was slow to seek new outlets, to recognize new demands as consumer incomes rise, and to introduce innovation in product mixes and presentation. A team of World Bank and Tunisian specialists concluded: TEXTNAME: Chapter5 (R)P: (ja-1) 03 -91- "All of the public agricultural marketing and processing enterprises in the Maghreb, including Tunisia's, are slow to respond to market signals and to introduce cost-cutting efficiencies or consumer-satisfying innovations. This is partly caused by the lack of incentive to be efficient (losses are financed by the Government), and partly by Government price policy which does not permit public marketing enterprises fo generate financial surpluses. Without such surpluses, these enterprises must solicit Government budget transfer to finance investment. This is a slow process." (World Bank, 1982). 5.07 Once it was clear that marketing was occurring and the gaps left by the departing French were being plugged, the government could have fostered a more diversified marketing structure. This would not mean abandonment of the state marketing enterprises . Rather, it would mean that new competing enterprises would be encouraged to develop a niche wherever they could. Relaxation of pricing, marketing, and transport restrictions, and access of private enterprise to finance on equal terms with state enterprises are among the policy changes required. Kenya and Ecuador 5.08 These two equatorial countries are very similar in their agricul- ture. Both have lowlands and highlands, high rainfall zones and dry areas, large farms and small farms, highly commercial farming sectors and tradi- tional sectors lacking education and training. In marketing structure they contrast sharply. Kenya, albeit with a much larger population, has sixty-six parastatals, mostly related to agriculture. Ecuador has three; ENAC, a price stabilization body for the major grains and cotton, ENPROVIT, a state enterprise which sells basic foods at official prices to consumers, and a national seed company, E.N. SEMILLAS, a close parallel to the Kenya Seed Company. The Government of Ecuador has established some 25 mixed government/private marketing companies but they are not given monopolies. 5.09 Advisory and promotional commodity activities do not figure distinctly in -either country. In Kenya they are a feature of regulatory TEXTNAME: Chapter5 (R)P: (ja-1) 04 -92- boards such as that for sisal, of the Coffee Board and of the Horticultural Crop Development Authority. 5.10 Regulatory activities such as price and quality controls and the allocation of export quotas for coffee, for example, are undertaken in Ecuador by specialized commodity services of the Ministry of Agriculture. Head offices are maintained in the area where the commodity is produced. There are similar services with staffs of around thirty professionals for each major commodity or group of commodities. These services combine marketing advisory and control activities with extension functions. Research is undertaken by a single national service collaborating with the commodity services. In Kenya, regulatory boards have been a long standing tradition. Each board is financed by a small levy on sales of the commodity concerned and empowered by government to collect this levy. 5.11 Stabilization of prices via accumulation of reserve funds without trading has not been featured in either country. However, in both countries their governments have fixed prices for various commodities at the producer, wholesale, and retail level. Both governments set maximum prices to consumers, for example, for meat and milk. In Ecuador this is done by the central planing department with advice from the Ministry of Agriculture and the relevant-commodity service. In Kenya, advice to the government on pricing has been a responsibility of independent boards such as the Dairy Board, the Pig Board, and the Wheat Board. Sometimes there is an operational monopoly enterprise or a country-wide cooperative for the same commodity. It is significant, perhaps, that these regulatory boards are among the first to go under conditions of financial stringency. 5.12 Stabilization by trading. In Ecuador there is a specific parasatal, ENAC, to undertake this for rice, maize, and cotton, particularly. Trade and market movements in maize, rice, and food legumes TEXTNAME: ChapterS (R)P: (ja-1) 05 -93- are free in Ecuador. Guide prices are announced by the government. They have been implemented by ENAC, buying directly from producers at some forty storage depots and temporary buying statiois located in producing areas where prices tend to be low immediately after harvest. In practice, ENAC has bought at the official price some ten to twenty percent of the crop marketed, holding this quantity in store to release later in the season when prices to consumers might rise above the official maximum. Part of the stock may be carried over as a reserve to the next year if judgdd desirable. While not fully effective at the farm level because of erratic government pricing and procedural requirements, it is representative of the approach whereby a government agency modifies fluctuations in prices for strategic products while leaving the bulk of their marketing and its financing to private trade in which the millers play the key role. 5.13 In Kenya, wholesaling of these products is a legal monopoly of the National Cereals and Produce Marketing Board. Its monopoly originated in the occurrence of periodic surpluses and a desire to maintain prices to producers at-a given level while exporting the surplus at whatever price can be obtained. To make this possible, the Board, which otherwise could assume a parastatal type 4 role, (that is, trading in a free market) needs a monopoly. It can then cover losses on exports from profits from its internal monopoly. From this it may be argued that it could recede to a type 4 role should the supply position shift with increasing population o a permanent deficit. It would be sufficient then for the Board to have a monopoly of imports. Trading on the internal market could then be left free. However, it seems that other considerations enter into this monopoly. The need to offset losses on exports of occasional surpluses TEXTNAME: ChapterS (R)P: (ja-1) 06 -94- against its margin on domestic transactions and prevent smuggling of needed supplies into neighbouring countries are still the justifications presented for maintaining its monopoly despite a succession of recommendations (FAO, World Bank, University of Nairobi studies) that it be relaxed to reduce distribution costs overall. Behind this lie othe' reasons for monopolization, for instance, the reluctance of the African Kenyans to let grain marketing become fully competitive for fear that it would be dominated by the Asians, and the reluctance of certain individuals to forego the advantages of official allocation of milling quotas and movement licenses. These allocations would be less profitable under conditions of open competition. (Maritim, 1982). 5.14 Currently, prices of wheat and bread in Ecuador are maintained at levels established from time to time by the government through direct collaboration with the millers reinforced by official inspection. This is feasible because milling is concentrated in a few hands and domestic supplies have to be supplemented by imports. Wheat is grown by 20,000 predominantly small farmers in Ecuador. They sell directly to the mills if their farms are near, or via traders in local markets. The millers import directly subject to government license, which limits the quantities imported to maintain a satisfactory price for domestic producers. The price of bread to domestic.consumers reflects a balance of higher priced domestic grain and lower priced imports. 5.15 In Kenya, wheat production is highly concentrated. Some twenty-five farmers produce eighty-five percent of the domestic supply. The whole crop has been bought by the Kenya Farmers' Association acting as assembly agent for the National Cereals and Produce Board. The Wheat Board (now incorporated in the NCPB) was primarily a voice for the views of a TEXTNAME: Chapter5 (R)P: (ja-1) 07 -95- restricted group of producers and a means whereby they obtained both price stability and protection against lower cost imports. The Kenya Farmers Association wYas also a producer organization. However, having their own board secured for the wheat growers a more direct hearing with the government. 5.16 Prices of sugar are stabilized in Ecuador by government price- fixing implemented for growers at the cane crushing plant and at retail through ENPROVIT. Maintenance of the producer prices if facilitated by concentration in centrifugal refining facilities. There are three big sugar plants in Ecuador of which one is government owned. The minimum price at which these plants must buy cane from growers is enforced. They can pay more if necessary to maintain throughput. Of their total output, forty percent must be offered to the government for distribution through ENPROVIT. The rest may be sold on the free market, or exported if there is a surplus. The production/processing structure in Kenya is much the same. Most of the processing plants are owned by -the government. Nevertheless, there is a Kenya Sugar Authority with a regulatory mandate. 5.17 Milk marketing is free in both countries, subject to government fixing of producer and retail prices. In Ecuador, most of the pasteurizing plants are owned by groups of producers, though strictly speaking the groups are not cooperatives. The official prices reflect production and transport costs. Pressure from producers for a change in the price struc- ture is voiced through livestock farmers' professional organizations. Powdered milk is imported by ENPROVIT and used for sales of recombined milk in urban areas at lower prices. 5.18 In Kenya, the Kenya Cooperative Creameries, handling some 40 percent of the milk marketed and serving the school milk program, has a TEXTNAME. Chapter5 (R)P: (ja-1) 08 -96- dominant rols. It negotiates directly with the Government on prices to farmers and to consumers, with full coverage of production costs its target. Making no allowances in price for seasonal differences in supply, or for location of suppliers, its financial problems are chronic. There has also been a Dairy Board with regulatory and advisory responsibilities. This reflected a tradition in Kenya that a board representative of producers had a role in advising on pricing, quality definition and similar issues. In practice, the KCC exercises its own political muscles directly with the President. 5.19 The Government of Ecuador maintains a close watch on prices of substantial interest to domestic consumers. ENPROVIT, its consumer supply organization, was established to ensure that flour, rice, cooki-4g oil, sugar and other basic foodstuffs are available at official prices in the retail markets. In practice it is,a token instrument in a continuing battle against inflation. For this it requires a subsidy, though privileged access to low cost imports, for example, milk powder, helps it meet its costs. The need for such an operation, or one geared more specifically to making nutritious food available to low income consumers at prices they can afford, is less clear in Africa, where the bulk of the, population is considered to lie on much the same level. The contrast is seen as between the few important and powerful individuals, rather than between a bourgeoisie and salaried employee class on the one hand and a poor urban fringe on the other. In Africa this latter group exists, of course, but is thought still to have close ties with its villages of origin and to be able to draw on food supplies from there if necessary. TEXTNAME: Chapter5 (R)P: (ja-1) 09 -97- 5.20 Export marketing monopoly, In Ecuador there are none, while for Kenya export commodity marketing parastatals are numerous, often with country-wide producers' associations alongside. 5.21 Coffee is a major export crop in both countries. From Ecuador it is exported by three processing firms, twenty commercial exporters and a growing number of producer cooperatives. Of the country's International Coffee Organization quota the government has aLlocated seventeen percent to the producer groups. This may be raised if they can mobilize more' supplies of adequate quality. The coffee service of the Ministry of Agriculture administers the coffee export quota, export quality controls at the port, and announces daily a reference price. This is based on market reports from New york and London with deductions for transport costs, exporters' margins and handling' costs. This price is decided daily by a committee of three - one government, trade and producers' representative each. In 1982, Ecuador had substantial exports to the free market in addition to filling its ICO export quota. 5.22 In sharp contrast, coffee exports from Kenya are made only through the Kenya Coffee Board. It buys all coffee from producers, either directly or via a structure of coffee assembly and processing cooperatives. Sales are by auction in Nairobi. Normally the Kenya ICO quota is filled and substantial exports made to the free market. The Board endeavours to put the highest grade coffee onto the ICO quota market to maximize foreign exchange earnings. Direct comparison of prices obtained at f.o.b. and producer levels in Kenya and Ecuador is obscured by the higher average quality rating of the Kenya coffee. This is attributed mainly to physical locational advantages but may also owe something to more careful grading by the Kenyan Coffee Board. TEXTNAME: ChapterS (R)P: (ja-1) 10 -98- 5.23 Bananas are the main agricultural export of Ecuador. Again, there is neither a monopoly marketing or regulatory board. Instead, the Ministry of Agriculture provides quality control services and announces a reference price for sales by producers, as it does for coffee. The main growers (7,000 to 15,000 in number) are linked to one of three big exporting firms by production/marketing contracts. They receive fertilizer, packing materials, advice, and the like on credit repaid by deductions from the eventual sales price. Growers covered by such contracts tend to receive more than the reference price. The other population of growers (about 60,000 strong) may only sell part of their crop at this price, leaving the rest for sale on the domestic market. 5.24 Impressed by the quantities of bananas that were brought to Guayaquil only to be thrown into the river for lack of a buyer, an FAO adviser in the.1960s recommend the establishment of a marketing board. It would allocate quotas to growers according to expect export requirements. This idea did not prevail. The exporters insisted on direct links with producers. 5.25 Somewhat comparable in Kenya to the banana industry in Ecuador is the production, processing, and export marketing of pineapple. Following the bankruptcy of Kenya Canners, a growers' cooperative, the government negotiated its takeover by Del Monte. The weakness of the cooperative was in selling. (Syed Jabbar, 1972) Del Monte had its established inter- national brands and outlets. Originally agreeing to take half its supply of pineapples from small growers, it has let this slide in favor of direct product! :n because of the difficulty they had in meeting its supply requirements. TEXTNAME: Chapter5 (R)P: (ja-1) 11. -99- 5.26 Pyrethrum was introduced into Ecuador fairly recently. As with marigold and other crops of interest to a limited number of producers development was left to commercial enterprise. In Kenya, growers of specialized crops have obtained authority form the government to establish a body to manage their affairs. This was the case with pyrathrum. First the growers had a regulatory board for negotiations with an ,expatriate pro- cessing enterprise. This was succeeded by a board with a monopoly on processing and export marketing. Currently it is in financial difficulties because of unsold stockE. With pyrethrum, a traditional small farmers' crop, reduction of intake by imposing delivery quotas is hardly feasible. In Kenya this is a matter of public responsibility. In Ecuador the same sequence of boom and bust with specialized crops is a matter only for the few producers and the processor concerned. In general, the tradition in Ecuador has been counter to government establishment of producer marketing parastatals. There is suspicion that these may favour particular inter- ests. There is a continuing concern as to who will meet their costs. 5.27 Domestic marketing monopoly. In Ecuador no such monopolies have been authorized. In Kenya, in addition to the Cereals and Produce Board, the Kenya Meat Commission, a government corporation, had a monopoly of meat wholesaling in Nairobi and for export. This was founded on a desire to ensure that the white settler population received meat processed according to their own standards and to maintain overseas an image of meat originating from hygienic processing facilities and subject to approved disease originally to complement the investments in high quality stock made by expatriate farmers for sale to discerning high income consumers. With the rapid growth of the lower income population of Nairobi and reduced TEXTNAME: ChapterS (R)P: (ja-1) 12 -100- Nairobi and reduced availabilities of meat for export, the justification for a KMC type operation receded. Consumer pressure for lower cost meat led the government to rescind its monopoly of wholesale meat supplies to Nairobi. The result was a sharp reduction in throughput and a correspondingly heavy burden of overhead costs. 5.28 The Uplands Bacon Factory, first a producer cooperative then a parastatal, had a parallel role for pig meat. Its throughput has also declined sharply with the reduction in supply from specialized, originally expatriate, producers. The Pig Industry Board, established as a producers' organization to advise on and regulate pig marketing, lost its justification when the Uplands Bacon Factory itself became a parastatal operation subject to direct government control. 5.29 In Ecuador, livestock and meat marketing are free. The government has helped to finance a meat plant for a production area that was not well served, but this plant has to compete with the wholesale butchers. A maximum retail price for meat is announced by the government, but sales of high quality meat at higher prices to hotels and by some supermarkets are tolerated. 5.30 As between Kenya and Ecuador, the following propositions may be offered to explain the sharp contrast in the use of marketing parastatals. 1. In Kenya, relatively specialized, high quality production was undertaken by restricted groups of large scale farmers. They had influence with the Government and used this to create mechanisms such as regulatory boards to protect and promote their interests. They were prepared to pay for these because the benefits accrued to them'directly. Later, as production rEXTNAME: Chapter5 (R)P: (ja-1) 13 -101- for the market expanded to include large numbers of small farmers following independence, public interest shifted to the monopoly export board. For some time the regulatory and trading boards co-existed, with the justification that their functions differed and the first should watch the second. With large numbers of small producers this refinement grew increasingly unrealistic. Consequently, the regulatory boards are now disappearing. The marketing monopolies remain. In Ecuador, the big farmers saw centralized authority as an undesirable featv!e. They preferred to use their weight individually or in limited partnerships. Ministry of Agriculture services were expanded to help the smaller and less advantaged producers. 2. The availability of qualified personnel able to manage relatively sophisticated marketing mechanisms had an important influence in Kenya. This was reinforced by a tradition of integrity in selecting and supporting qualified management. The establishment of similar arrangements in Ecuador was undoubtedly held back by doubts as to the integrity and effectiveness of such staff as might be appointed. 3. Willingness to pay for marketing board services has been a tradition in Kenya, with the reverse in Ecuador, evidenced of late by reluctance to recognize the basic financial needs of ENAC. Illustrative of this attitude in Ecuador was the tendency to spend funds generated by the oil boom of the rEXTNAME: ChapterS (R)P: (ja-1) 14 -102- seventies on highways and skyscrapers rather than on strengthening educational and institutional structures. Senegal and Sudan 5.31 Within Africa, these two countries constitute a legitimate con- trast. Ecological conditions for agriculture are broadly similar. In each country, cotton and groundnuts are the major cash crops, and sorghum the main domestic food grain. Both had national universities quite early, and in consequence, a relatively high proportion of well educated people. In 1980 there were ninety-seven public and mixed government/private companies in Senegal related to agriculture. In Sudan the number of such companies barely went into double figures. 5.32 Dominant in the agricultural marketing economy of Senegal for many years has been ONCAD (Office Nationale de Cooperation et Develop- pement). After independence, Senagal was the first of the francophone African countries to move from private exporting firms working with a caisse de stabilisation to a monopoly parastatal. First it was assigned a monopoly of groundnut exports, Senegal's main foreign exchange earner. The key reason was to attain full national control over this vital sector. (World Bank, 1977) It then took over the distribution of fertilizer and related inputs on credit, the collection of this credit, and finally the domestic marketing of sorghumm, the main food grains. SERAS, a ninety-seven'percent government owned enterprise, was expanded from the handling of hides and skins for tanning to management of the Dakar abattoir, the source of meat for the main urban centre, and to running a livestock raising enterprise viewed as a reserve stock operation. SODEFITEX, with eighty-seven percent government and caisse-de stabilisation TEitNAME:'Chapter5 (R)P: (ja-1) 15 -103- capital, was made responsible for cotton ginning, marketing, and production services. This and other predominantly public companies such as SODEVA and SAED were established to provide marketing, processing, and extension services on a regional basis. The BUD Senegal vegetable production and export venture was ninety percent government and aid financed in its final operative stages. ONCAD, BUD Senegal and several others eventually lapsed into disgrace or bankruptcy. ONCAD purchasing of sorghum at a guaranteed minimum price has been replaced by government announcement of a guide price. Cooperatives and traders are expected to observe it. Groundnut marketing is led by mixed companies, seed crushing mills and other enterprises that formerly served as agents for ONCAD. The crucial consideration for the government seems to have been to minimize its financial obligations. The same picture has emerged in vegetable exportingR This is now left to a competing structure of indigenous and alien private enterprises receiving very little government support. 5.33 Senegal has had much the same government since it became independent. It was conspicuous among African countries for its Western orientation, with a modest socialist cover. Relations with the French were never marred by direct conflict. Nevertheless, its movement to state marketing was remarkable. Reasons for this shift include: a) A continuing desire to escape alien domination. In the private sector still only thirty-two percent of managerial - and technical staff are Senegalese. And, b) Availability of development funds. The explosive increase in parastatals followed the groundnut and phosphate boom of the 1970s, and was fostered by external aid projects. TEXTNAME: ChapterS (R)P: (ja-1) 16 -104- 5.34 In Sudan, the wholesale trade for the supply of internal markets is mainly in the hands of private companies. The export trade of the major agricultural products features some corporations established by the Government and mixed companies with part of the capital owned privately as a rule by former private exporters. Overall, this structure reflects a policy of government intervention in the marketing of food and agricultural products only where this follows logically from the production/marketing situation. At ome stage, under the influence of Nasser socialism, the Government embarked on a fairly drastic transformation of agricultural marketing structures into a state enterprise system. Some of the corporations in which former major exporters have substantial capital shares may be traced back to this period. The so called 'Cattle King' of Sudan was himself once the nucleus of a national livestock marketing corporation. 5.35 The main, purely government marketing corporation in Sudan is the Cotton Public Corporation. In Sudan, cotton is grown on government irrigation projects with the Irrigation Management Boards buying all the crop. They deduct from payments to producers charges for water, cultivation, seed and other services. With the cotton coming into public hands in this way, marketing through a single public coorporation is a natural consequence. Further ground for a single central management as that Sudan exports make up a major share of world trade in long staple varieties, averaging forty percent during the years 1970-75, for example. However, with the basic price accountable in foreign exchange determined by the corporation, actual export sales are turned over to four private companies with long experience in the business. TEXTNAME: Chapter5 (R)P: (ja-1) 17 -105- 5.36 The Sudan Oil Seed Company is fifty-eight percent government and forty-two percent privately owned. It has a price stabilizing role on auction markets at internal assembling centres. It undertakes to buy if preannounced minimum prices allowing for transport costs are not offered. All traders must sell to it at a price established in conjunction with the Ministry of Finance. 5.37 The Gum Arabic Company is also a mixed company monopoly - thirty percent government, seventy percent private owned. Base prices to producers and traders are announced seasonally. The GAC finances itself from a portion of the spread between the fob and world market prices. 5.38 Livestock, the remaining major agricultural export, is entirely in private hands. Some five or six exporters based in Omdurman have credit and assembly links.back into the producing areas and forward into export markets. The role of the Livestock and Meat Marketing Corporation established in 1976 is to upgrade the marketing system via provision of finance, facilities, information and better organization of transport, rather than to replace the existing traders. 5.39 The overall impression of the marketing system of Sudan is that it is quite efficient. Apart from wheat increasingly favored by the urban population, food supplies generally are adequate. While the lack of processing and storage facilities sometimes cause some areas to experience shortages, others have unused supplies. Famine ordinarily does not exist. Second, while domestic markets are not perfectly integrated, they have been highly responsive to world price trends. The lack of market integration results from inadequacies in market information, transport, storage, and capital to lubricate the system. It is difficult to judge competitive TEXTNAME: ChapterS (R)P: (ja-1) 18 -106- efficiency. However, the large number of traders suggest that entry into trading is not too difficult. The margin between producer, consumer, and export prices is judged high but this includes substantial local and export taxation. Price fixing by Government involves several ministries and is not well coordinated. The recommendation of a World Bank mission of 1979 was that an Agricultural Price and Marketing Bureau should be established to collect and analyse the information necessary as a basis for informed decision. (World Bank, 1979) 5.40 The traditional trading sector in Sudan performs important functions that cannot be replaced by government or cooperative agencies without incurring substantially greater costs in administrative manpower and finances. Facilitating efficiency in traditional trade therefore must be a priority of Government. Establishment of the Marketing Bureau would be an important step in improving the efficiency of the marketing system; so would investmei,t in transport and storage and information communication facilities. 5.41 Considerations in the approach pursued in Sudan to monupoly parastatal enterprises in marketing seem to be: 1., Funds in government hands for investment in public enterprises have always been scarce. Consequently, public expenditure on marketing development has remained low, insufficient even to maintain facilitating services at an adequate level. 2. While some alien managed enterprises participate in market- ing, especially in exports, there has been no widespread feeling that nationals are dominated or handicapped in this area of economic activity. TEXTNAME: Chapter5 (R)P: (ja-1) 19 -107- 3. The period of socialization of enterprise on political grounds was short-lived because it provoked its own counter-reaction. 4. Marketing parastatal organizations have been established for specific purposes, for example, to maximize bargaining power in marketing a product with an influential pos.ition on world markets as with cotton, or to limit fluctuations in prices to producers as with oilseeds and gum arabic. They operate in collaboration with existing private enterprise. And, 5. While avoidance of foreign exchange leakage has been a major requirement in Sudan's precarious financal position, it has not be/an used as a justification for nationalization of export enterprises. Conclusions 5.42 Tentative conclusions from this analysis are that countries with much the same level of development of educated personnel and agricultural structure can develop sharply contrasting stances in their use of marketing parastatals. Influential factors seem to be: 1. Access to ample funds: Kenya and Senegal thought they were rich. Traditionally Ecuador and Sudan have shared a poverty complex. 2. Colonial models: Kenya built on the marketing board system of the white settlers. Senegal followed the Commonwealth countries of West Africa. 3. Resentment of alien domination of commerce. For the Africans of Kenya and Senegal this has been a continuing issue. In Sudan and Ecuador it has been slight to nonexistent. rEXTNAME: ChapterS (R)P: (ja-1) 20 -108- 4. Of the five countries considered in some detail only in Senegal had political dogma a role and this more a claim than reality. In some other African countries, of course, poli- tical dogma was more potent - piloting a course for African socialism in Guinea, Tanzania, and Madagascar, a debt to power secured with communist assistance in Algeria, Mozambique and Angola. And, 5. Access to continuing international financial and technical assistance. This has enabled many developing countries to maintain and strengthen, marketing systems that would other- wise have proved too elaborate for their manpower and other resources. This applies to Kenya and to Senegal, much more so to Tanzania. Here the establishment of crop authorities combining marketing with a range of other responsibilities is attributed very largely to World Bank concern to identify a convenient counterpart organization for a 'development' loan. (Barker, 1983) In Senegal, too, the World Bank was biassed in favour of parastatals because they could absorb its loans. (Harriss, 1979) A World Bank loan for seed pro- duction and distribution in Eduador in the 1970s was concen- trated on E.N. SERILLAS, a parastatal which was slow to develop. Meanwhile, alternative private enterprise was starved of capital. (Koenig, 1981). 5.43 If these conclusions are valid, it follows that developing countries, particularly in Africa, will be inclined to reverse trends towards parastatal marketing as and when. TXTNAMi. Chapter5 (R)P: (ja-1) 21 -109- 1. Funds for government financing and ongoing subsidization of parastatals become scarce. 2. Misleading colonial models become more distant in their thinking. 3. The competence and confidence of nationals in marketing management matches that of alien residents, or alternatively, governments recognize the,advantages of letting efficient aliens operate in this area subject to conditions that they employ ethnic nationals as managers, take them as partners, or otherwise allow them an acceptable participation, as has been the policy recently vis-a-vis the Chinese in Indonesia. 4. They learn, by bitter experience or otherwise, that whatever advantages they may see in the pursuit of marxist teachings in other areas of economic activity there are none to be gained from applying them to agriculture or to food and agricultural marketing. 5. Multilateral and bilateral aid agencies stand back from programs of assistance that promote the continuation, expansion or proliferation of unproductive parastatals in marketing, however convenient they may be as counterpart agencies. And, 6. Domestic and export markets become more exigent or competitive and more prepared to patronize enterprises that by evasion of official monopolies or more effective performance respond promptly, flexibly, and imaginatively to their requirements. IEXTNAME: Chapter5 (R)P: (ja-1) 22 -110- 5.44 It will be an appropriate objective of international aid agencies to align their programs in support of such developments and changes. rEXTNAME: Chapter6 (R)P: (ja-3) 01 - 111 - VI. PROSPECTIVES FOR THE 1980s Need for a better understanding of marketing 6.01 Notions of agricultural marketing held by national policy makers are often based upon inaccurate information, or half truths bequeathed over many years and accepted without much question. Over time and by constant repetition, the half truths have come to be accepted at face value. 6.02 Illustrative are popular attitudes towards "middlemen" and cooperatives. The feeling toward middlemen reflects the attitude tow.ard commerce in general of the higher social groups in some developed as well as developing countries. That middlemen pay farmers less than the real value of their produce is an assumption. Seldom is the value concept defined. Farmers are sometimes paid low prices, but it is far from a universal fact. 6.03 Middlemen are also damned for their alleged inclination to "hoard" stocks and "force" up prices to consumers. The fact that buying supplies at postharvest time and holding them until the period of relative scarcity later in the season benefits both consumer and producer is rarely considered. Increased purchasing by traders in the period just after harvest forces prices up, thus benefitting producers. Release of stocks when prices are high later in the season has the effect of expanding supplies and so lowering prices, to the benefit of the consumers. 6.04 Accusations of collusion among middlemen are common. Their large number is in itself a condition which does not favour collusion. Unfortunately, empirical studies are still too few or too little known to destroy the false premises on which attacks on middlemen are built. rEXTNAME: Chapte,7I (R)P: (ja-3) 02 - 112 - 6.05 Confusion over marketing is often intensified by the special position of cooperatives. Frequently they are regarded as quite separate institutions and as sacrosanct. Yet their role in marketing has to be assessed dispassionately along with that of government, private, and mixed enterprises. 6.06 For many people, the marketing board has also acquired a position that is near sacrosanct. Automatically it is assumed to benefit farmers, consumers, and the country, and to protect them against the self-intdrest of private traders. The cost of the board, to be paid by karmers and consumers, is rarely considered. Government marketing policy unit 6.07 The tenacity of these erroneous notions of agricultural marketing in governments is a measure of the need for better marketing policy units. Somewhere in the government structure there must be a unit with a professional staff trained in marketing that is able to collect information systematically, analyse it and formulate sound action recommendations for consideration by the responsible governing body. Continuity is essential. Past experience can then be drawn upon when legislation or other intervention is envisaged so that the practical consequences are foreseen. 6.08 To assist a marketing system in operating efficiently, most governments will also find it useful to provide certain continuing marketing services and controls. The services include: - Research: Initially to advise the government: subsequently to assist enterprises engaged in marketing. YEXTNAME: Chapter6 (R)P: (ja-3) 03 - 113 - - Advice: Primarily for the government, then through extension and similar services for enterprises engaged in marketing and the people who depend on it, specifically producers and consumers. - Information: Dissemination of supply, price, outlook and technical information, again first to service government planners and policy makers, then to marketing operators and those served by themh, including producers and consumers. 6.09 A prime responsibility of such a unit would be to advise governments on the usefulness of alternative forms of marketing mechanisms to monitor their performance and to make proposals for changes.. Few developing countries have such units staffed with sufficient number of competent personnel with the requisite authority to assume such a role. 6.10 More common is the situation where the responsible ministry has no competence even to participate effectively in the meetings of directing bodies of marketing boards under its supervision. It was a complaint of the Review Committee set up in Kenya in 1979 that ministry representatives on parastatal directors' meetings were ill-equipped to influence decisions. 6.11 In some countries, Turkey is one documented case, the existence of a number of powerful parastatals has specifically blocked.the elevation of a nascent central marketing unit to any position of significance. 6.12 Lack of coordination of responsibilities for agricultural marketing and their dispersal among various ministries and parastatal bodies are a further indication that governments do not understand the subject. TEXTNAME: Chapter6 (R)P: (ja-3) 04 - 114 - 6.13 The establishment of central marketing policy units has long been recommended by international aid agencies. Many have been initiated. Rarely have they assumed their due role. 6.14 Staff have lacked the experience to present advisory material of quality and convenience that holds the respect of the administrator and policy maker. Staff with that ability have been bid away by more remunerative salary offers. Much more, therefore, has to be done in training personnel for analyses and policy formation in marketing and providing an adequate financial base for the staffers. Evaluation of parastatals 6.15 For almost two decades the parastatal marketing body has had a fairly free run. Criticism there was, but it came mainly from academics. Administrators, policy makers, and aid agencies were inclined to disregard it as carping. The farmers on whose behalf the academic spoke did not rise up in protest against low prices and high roargins due to elaborate marketing mechanisms. Often they were ill informed. Those who did raise their voices were bought-off with political or institutional appointments. In a number of countries, insecure governments interpreted criticism, particularly organized protest, as incipient rebellion against established authority and stepped on it heavily. 6.16 The turning point in attitudes towards marketing parastatals for many countries came with the financial stringencies of recession. In many developing countries it is being grudgingly recognized that the ultimate yardstick for a commercial entity, be it publicly or privately held, is the financial one. Can a country afford the cost of inefficient marketing? In countring like Jamaica and Sri Lanka-the shift of opinion has gone faster with the election to power of new free enterprise oriented governments. rEXTNAME: Chapter6 (R)P: (ja-3) 05 - 115 - 6.17 The Meeting on Marketing Boards held at Leiden, 19-23 September, 1983, was called by sponsors who were wedded to the marketing board system in tropical Africa. The bulk of the thirty papers presented there pointed, however, to its defects. Low prices to farmers and internal inefficiencies, defective management and staff overloading were emphasized over a wide range of countries. None of the authors of these critical papers recommended, however, the abolition of the board in question. Their direction was for reform of the defects. They had not thought through a workable alternative. 6.18 The following review of the various kinds of marketing parastatals and their functions will be not so much in terms of whether they achieved their objectives; legislation establishing such bodies often assigns a host of worthy objectives to justify their creation. The review is on the basis of cost, directly to the persons concerned, and indirectly to the country. The review is based on available studies and comparative analyses. More detailed and specific studies would involve gaining direct access to parastatal operating data which would facilitate a more thorough analysis. Sales promotion and research 6.19 Essential for maximum development of export and many domestic markets are investigations covering the following points: (a) Regulations to protect public health and prevent transmission to diseases and pests, minimum quality and packaging standards, inspection and other requirements to be taken into account in deciding on the form in which a product should be sold. TEXTNAME: Chapter6 (R)P: (ja-3) 06 - 116 - (b) Customs and licensing requirements, quotas, and other public levies or restrictions which affect the cost, volume or timing of sales in particular markets. (c) Prices paid for different qualities and forms of a product during different seasons. (d) Suitability of alternative methods of sale and type of sales agencies, and their respective costs. And, (e) Prospective consumer demand and ways in which it could be increased. 6.20 Inquiry along these lines is designed to answer such critical questions as: What is the size of the market? What is its character in terms of public requirements and consumer tastes? Is it consistent through the year, or are there great advantages in concentrating sales during certain seasons? Can sales be expected to increase? Will the increase in returns cover transport, stocks in storage, credits to distributors and the cost of advertising? 6.21 A further stage of research would explore new uses for a product in surplus to present demands, and new forms and new ways of processing it. Promotion would then be guided by the conclusions of the research. It might include publicity campaigns for the product to keep consumers aware of its availability, emphasize its nutritive or other desirable qualities, and stress these in terms of the product originating in the particular region or country which the board represents. This may be done by advertising in newspapers, on the radio and television, by distributing films, distributing brochures, pamphlets and recipe books by mail or hand delivery, from stalls, etc., and/or by displaying the product and publicity materials at local and foreign fairs, and by the use of specific brand names, labels and merchandising techniques. TEXTNAME: Chapter6 (R)P: (ja-3) 07 - 117 - 6.22 The ultimate criterion of performance in such research and promotion is what increase in quantities sold, in the price obtained, and in the share of the market it has brought about. Also important is the quality of follow-up action, the degree of contact with the firms selling the product, the cooperation secured in having products available at the time when a sales campaign is launched, and the parastatals' own public relations approach to the producers who are supposed to benefit from the parastatals' research and promotion activities. 6.23 Such development work is normally undertaken by enterprises engaged in marketing the products concerned, particularly when they can refer to their own brand. When the enterprises are numerous and small, no single enterprise may have the resources to cover the expenses-of research and promotion particularly if its competitors will also benefit. This situation calls for arrangements whereby all of the enterprises contribute in proportion to their sales, or, alternatively, the cost is charged to general government revenue. 6.24 Such an activity can be mounted as a special effort of limited duration. It can be undertaken by a body specifically equipped for such research studies and promotional campaigns. It does not require the establishment of a parastatal specifically for this purpose. Regulation of quantities and standards sold on particular markets 6.25 Regulation is advantageous where enforcement of sale by specified quality and packing standards will raise the prtce or the market share obtained and where restriction of the quantity offered to a particular market at a particular time will also raise the price obtained. ZEXTNAME: Chapter6 (R)P: (ja-3) 08 - 118 - 6.26 Again, the ultimate criterion of performance is whether the regulatory program succeeds in raising the quantities sold, the prices obtained and the share of competitive markets. This will depend on the nature of the markets against which such action is directed. Thus, on quality conscious European markets it seems that coffee exported from Indonesia suffered for lack of quality regulation. Traditionally it has been discounted on European markets as against comparable growths from elsewhere. Until recently, growers have been left without specific quality price incentives. (ICO, 1981). A structure of 245 licensed Indonesian exporters each organizing his own assembly channel contrasts adversely in this respect with the Coffee Boards of India and Kenya. These boards arrange for grading according to uniform standards, maintain regular sales by auction at established points, and support these efforts with continuing promotion. 6.27 An appraisal of the Sinaloa tomato export control system in Mexico concluded that it had maintained the reputation of the product in the U.S. market by confining exports to the highest grades. It had maintained the price by restricting the quantities offered. But in so doing it had stimulated winter season production in Florida that could be- disadvantageous in the longer run. 6.28 Production licensing and quality control of tea in Kenya is rated highly. It has confined producion to areas or varieties that favoured a high quality product and so maintained or raised the reputation of the product overall. The share of smallholders in total production has expanded steadily and the quality of their output has been higher than that of the older established plantations. TEXTNAXE: Chapter6 (R)P: (ja-3) 09 - 119 - 6.29 Determination of the particular set of grades applied calls for economic as well as technical criteria. At one time the Nigerian marketing boards were criticized for widening the gap in prices paid to producers for top and intermediate quality produce beyond that justified by processors' requirements (Bauer, 1954). 6.30 Determiriation and application of quality and other controls on produce going to particular markets does not it itself call for the establishment of a parastatal. It can be and is done for export products by ongoing government action in many countries. However, governments cannot always be counted on to implement quality controls fairly, and without illicit payments. A case from Chad, where the export of melons to France in winter was prejudiced because the quality control people let through those grown by "an eminent personality" even though they were inferior, is only one of many examples. Price stabilization (non-trading) 6.31 Much has been written on the merits and demerits of price stabilization in developing economies (Bateman, 1965), (Duloy, 1966). Taking into account the costs and risks involved in any price stabilization scheme, it is unlikely that producers will receive more for their crops under a price stabilization program than under a free market. Yet the existence of some sort of producers' preference for guaranteed floor prices is evidenced by the wide use of price stabilization programs in even the most advanced economies. This may be the flaw in the argument. Agricultural producers may be susceptible to sharp fluctuations in prices for their products in proportion to the extent that their produce is commercialized and that they are operating on borrowed money. The small -120- producer operating mainly with family labour may be able to weather price fluctuations more easily. This may lie behind the argument advanced by Hagerdorn at Leiden that African farmers do not attach the importance to "price stabilization" that is assumed by its proponents. Van der Laan and his associates, however, regard the announcement of a "price" as the critical function of the marketing board system. At a seminar on marketing, in Nairobi, where organized farmers' representatives had a prominent role, they were insistent in maintaining the farmer's preference for a floor price as an outlet of last resort which set a minimum which could be counted upon if other buyers did not offer more and so limit the farmers' risk. This preference was stated for all products from maize to livestock. 6.32 The critical element in the performance of a body established to stabilize prices without engaging in trading is determining the stabilization price. This is certainly so where the decision is on the price for one seasons's crop. The stabilizing body constitutes a mechanism for bringing together representatives of producers, wholesalers, processors, and exporters, as applicable. It may make available information obtained independently. A balance then has to be struck between the price at which the wholsalers say the produce can be sold on domestic, retail, or export markets, and the price below which farmers say they will make a loss. With experience, the negotiations learn to recast these statements into the price at which the wholesalers or processors can sell the finished product and the price at which farmers start to shift production resources away to ther crops. If the product is marketed -121- domestically, then consumer interests will also have to be taken into account. A further criterion then would be that the quantity consumed domestically expanded at least in proportion with the growth in population, and preferably faster. 6.33 Performance of the negotiating mechanism is highest when it can induce the two interests, producer and consumer, to come together annually on prices that permit them jointly to maximize their income at a given level of production or to expand production and throughput steadily at prices that are still remunerative. Evidence that this had occurred would imply a high rating for the negotiating mechanism. 6.34 Boards have been established to facilitate such negotiations in countries like Canada. Meeting only occasionally and with very limited staff they do not constitute a direct burden on the producers concerned. The same role can also be assumed by a government department, as in Taiwan, where price negotiations occur between canners and producers of mushrooms and asparagus. 6.35 Much more challenging is the task of the body attempting to stabilize prices over a number of seasons. Typically this has been tried for export crops where world market prices tended to fluctuate sharply for reasons quite remote from the producers of the country concerned, for example, because of a war in Asia, a frost in Brazil, and like events. Because they had no means of managing world market prices and because the whole purpose of stabilizing prices to producers is to let them know what to expect for a crop when they plant it, bodies setting prices under such conditions have generally set them too low. They did this for fear th&t the world price might be lower than anticipated and there would then be no TEXTNAME: Chapter6 (R)P: (ja-3) 12 - 122 - funds to iiimplement the price announced in advance. This bias is reinforced where part of the reserve funds held to compensate producers at times when export returns are very low have been diverted to other uses.. Hence, the prices received by producers operating under a stabilization program never average out as much as those received by farmers taking the high with the low. Thus, the highest mark for performance in reserve fund operation goes to those bodies that pay back nearest to 100 percent of their revenues to the producers. 6.36 The following figures (ICO, 1981) show the impact of high world market coffee prices following frost damage in Brazil on growers in other exporting countries. In Kenya and Zaire, prices to growers had trebled by 1977. The impact on growers in Indonesia was magnified by the low rating of their coffee previously. In the face of a world shortage the price of Indonesian coffee improved, but the price fell back smartly to its previous level in 1981 when the supply situation normalized. In Ivory Coast and Cameroun, the caisse de stabilization absorbed most of the price increase. In the Ivory Coast, producers had no significant benefit. In Cameroun, the Growers' price was raised some thirty percent and was kept there when the world-market-fell,back,,to its previous-Jevel ExNAmg:* Chapter6 (R)P: (ja-3) 13 - 123 - PRICES OF COFFEE TO GROWERS, BY COUNTRIES Index of Annual Averages in Constant Terms (1975 100) Cameroun Ivory Coast Indonesia Kenya Zaire 1975 100 100 100 100 100 1976 104 94 260 210 188 1977 121 93 434 348 325 1978 133 103 368 - 197 1979 139 93 271 - 105 1980 138 93 209 - 124 1981 131 86 115 - 111 6.37 A reservation on the 100 percent would be due where the operators of a reserve fund can show that their use of the money is more in a producer's long-run interest than the use he would make of it himself. One of the early arguments for such funds was that unexpectedly high returns to producers would be spent on consumer goods and additional wives. If the money were spent on improving rural roads and services, research to control pests and diseases and to develop new varieties, and on specialized extension, then the producer would be better placed to face competition in the future and the country would be better off in the longer run. This argument has its merits. The crucial point is whether the money is spent on services that benefit the producer in enduring ways. 6.38 Originally the reserves accumulated in periods of very high prices were kept 'safe' in government bonds or bank deposits in the metropolitan countries. This was later criticized as depriving a developing country of urgently needed investment capital. Large slices of reserve funds where then committed to various domestic uses. Often they were no longer available for their original purpose. UEXTNAME: Chapter6 (R)P: (ja-3) 14 - 124 - 6.39 Experience has demonstrated the risks of holding large reserves. Most of the African caisses de stabilisation now keep quite small reserves. Since they still try to announce a producer price in advance of the planting season, more skill is needed in assessing market trends. High rating for performance goes, therefore, to those that fix advance prices near to the actual price. They have abandoned a more ambitious smoothing of prices over periods of years, and the risks this entails, for a more secure advance stabilisation for the season. 6.40 Performance rating of the caisses also takes into account their implementation of the prices agreed upon. 6.41 Preservation of reserve funds against government raiding for uses not directly beneficial to the growers from whom they.were derived is a criterion for the caisse and national government together. 6.42 The caisse de stabilization system offers a price guarantee indirectly and, in principle, at low cost. This is its merit. 6.43 At the Leiden Meeting, Van der Laan advanced the view that confidence in a caisse de stablisation was conditional on the maintenance of a stable currency. It fitted the CFA region linked to the (relatively) hard French franc. Establishment of a new caisse in Zaire following the return of the foreign-owned export firms in 1979 suggests that the link with a few large enterprises that can be counted upon to report prices correctly is the key criterion. Price stabilisation by trading in a free domestic market 6.44 This type of parastatal operation has received considerable support over the last two decades. Whereas the international aid agencies were wary of the monopolies, this approach appealed to them as a,means of TEXTNAME: Chapter6 (R)P: (ja-3) 15 - 125 - providing incentives to domestic food grain producers to expand their output until it met domestic demand. Considerable assistance was furnished both as technical, advisory and training projects, and in the provision of physical storage capacity. A further wave of assistance in these areas, to build up national ability to hold reserve stocks against short harvests, followed under the banner of food security publicity. The most recen. thinking, however, has favoured a substantial contraction of such operations, as in Sri Lanka, or abandonment, as in Ecuador. 6.45 It was with some surprise, therefore, that the Leiden meeting saw the advocacy by W. 0. Jones, a long standing advocate of free enterprise systems, of a parastatal organization in this area. He maintained that a national trading company could a.ssist in correcting major deficiencies in the marketing of storable staple foods like cereals and pulses in various African tropical countries, deficiencies in spatial arbitrage caused by problems of information, access to finance, and difficulties in inter-seasonal arbitrage caused by ignorance about the size of stocks. Such a board would be charged with competitive trading between major terminal markets and with establishing and perhaps operating bonded warehouses where merchants and farmers might store these commodities and obtain bank credit on their stocks in storage. 6.46 Certainly the goal in such operations should be to achieve the desired objective with the minimum intervention. This is also likely to minimize costs to the government concerned. To this end the margin between the announced price at which the parastatal would buy and that at which it sells should leave room for private traders to operate economically. Adoption of this principle for the Paddy Marketing Board in Sri Lanka has TEXTNAME: Chapter6 (R)P: (ja-3) 16 - 126 - steadily reduced the proportion of the total quantity marketed that the board has purchased. At one time around thirty percent, this proportion fell to ten percent and is now around four percent. The spread of buying stations and their period of operation has also been reduced greatly. The result has been a sharp increase in paddy markets, and in milling activity by private traders. 6.47 Concommitant with this approach would be the pursuit of the following principles: 6.48 The price at which the stabilising organization would buy should be determined with a very cool head. Common is a tendency to over react to sharp variations in output due in large part to climatic conditions. A short crop results in the price for the following year being set too high, and vice versa. 6.49 The intake price would be adjusted through the season to provide an incentive for farm or commercial storage, locationally to reflect transport costs, and by quality to reflect consumer preferences and to reduce handling and storage costs. Many stabilizing agencies do not do this because of the detailed administration required, because they want to maximize their intake in order to have more weight in managing consumer prices later in the season,-,and because of the misguided notions of some governments that it is only fair for all farmers to receive the same price. The result is much higher overall costs of operation and often high physical losses. With a single seasonal price, a bumper crop means that the stabilizing agency has to buy large quantities for which it has no suitable storage. Much of the crop remains in the open. This occurs TEXTNAME: Chapter6 (R)P: (ja-3) 17 - 127 - periodically in India. It was the situation in 1983 with sorghum in Nigeria. Losses on the 1982 Kenya maize crop on this account may have amounted to twenty-five percent, according to a presidential statement. Intake prices rising through the season mobilize the resources and ingenuity of farmers and others to protect grain against such damage. 6.50 Purchases normally would be made through agents, who are already in business on their own account, who will incur little extra cost in buying for the parastatal. Indeed, they may obtain some advantages because it brings them potential customers for other business, for example, the sale of farm inputs, consumer goods, or beer, and therefore will accept a low margin. These agencies can be farmers' cooperatives where they exist. Such an agency role can provide a relatively risk free income from the agency commission and a convenient base from which to provide other services. Where the buying agent is a cooperative the board will probably have to advance it funds for purchasing. Otherwise it would leave its agents to finance primary purchasing and pay them only on delivery to its depots. 6.51 Policing the terms on which the agents bought from farmers would be left to competition, with maximum provision of information. There would be no question of limiting the number of agents and so giving them monopolistic powers and their employees an opportunity to exact illicit payment for their services. Because of their cost, establishment of direct purchasing stations would be a last resort for areas where there was continuing complaint of poor service. Irrigation and rural development authorities would be mobilized as assembly agents for small farmers participating in special schemes. rEXTNAME: Chapter6 (R)P: (ja-3) 18 -128- 6.52 Resale arrangements would be kept simple. Selling to millers and leaving subsequent distribution to them is the lowest cost procedure. However, such a system may leave scope for manipulation of supplies and prices to retailers. Control can be exercised a stage further by the stabilization agency arranging for grain to be milled by contract. It can then sell the consumer product to wholesale distributors. A condition of such a sale can be that the wholesaler make available to retailers specified quantities for sale at a low price against a ration card allocate to vulnerable groups of consumers. Effective organization of programs to ease the situation of very low income groups enables a government to allow the general price to maintain an incentive to producers. 6.53 Recently governments have become concerned at the cost of their stabilisation operations. In a number of cases where the intake price had been set low and there was a bumper harvest the governments found themselves unable to provide or guarantee the finance to buy more than a part of the quantities offered. 6.54 It has also been pointed out that in spite of heavy financial outlays, the benefits were skewed away from those most in need. Subbarao has shown that the position of the rural poor and of small farmers in various parts of India has actually deteriorated as a result of the operations of the Food Corporation of India (Subbarao, 1983). Yet these required a direct annual subsidy of $500 million in addition to subsidized rail transport and capital outlays. Contraction of such operations appears in order. TEXTNAME: Chapter6 (R)P: (ja-3) 19 - 129 - 6.55 Where a government undertakes a policy of retrenchment from a more elaborate system of state assembly and distribution, monitoring is needed for the social effect. The savings in public expenditure in Sri Lanka from allowing a much larger share of the rice trade to go through private hands were not visible to the ordinary public. The new role of the private trader, on the other hand, was conspicuous. That a .dispropor- tionate number of those benefitting from this activity were Tamils was one of the sparks for the 1983 riots with extensive looting and burning of Tamil shops and stores. 6.56 The high cost of grain storage, estimated at $120-140 per ton per year, in addition to the construction cost of the plant, sets strict limits on the quantities developing countries can afford to hold as security stocks. The risks faced, however, by landlocked countries dependent on transit facilities for external supplies are considerable. 6.57 The argument for their holding substantial stocks against a bad harvest or an interruption of norial supply channels was maintained at the Leiden meeting (Creupelandt, 1983; Haram, 1983; and Schmidt, 1983). Schmidt pointed out that even after supplementary aid supplies had been authorized by the EEC, for example, it took several months for them to reach the country and still more before they were in distribution in the areas affected by storages. For these reasons, and because the existence of stocks depress the market for domestic production, such reserves are best kept to the level essential to cover the time until imports beyond normal requirements can be delivered. KXTNAME: Chapter6 (R)P: (ja-3) 20 - 130 - 6.58 For technical reasons, like the need for periodic rotation, the holding of reserve stocks is often best done by a national stabilization agency. This does not mean, however, that it can carry the cost. Indeed, where this responsibility has been forced onto a stabilization agency, as in some African countries, the result has been to widen its own operating margin to the point that it ceased to be effective. Export marketing monopolies 6.59 At the Leiden meeting, Van der Laan advanced the hypothesis that the crucial feature of the export marketing board system was "the price". This was what counted for the farmer. He wanted to know in advance the price he could expect to receive for his produce before he committed himself to the expenses of production, or maintenance and harvesting in the case of tree crops. 6.60 This was the price payable for standard quality produce by the licensed buying agents of the marketing boards. In Sierra Leone, where Van der Laan worked for ten years, this price was a legal obligation. Buying agents must pay this price. In practice many farmers did not obtain this price. Either they were located at a distance from the agent's buying station or they incurred additional transport costs or sold to an intermediary assembler. But "the price" was their reference point in bargaining. It was well publictzed and widely known. 6.61 Much of the resear . 8temming from this base focused on how near farmers came to receiving this price. Geographers tended to approach this in terms of the need for direct buying stations to "enforce" the price, leaving aside the cost to the parastatal (Pederkampf, 1983). This leads to theatheory of the"optimum social locationwof buyingatations, that, is, that TEXTNAME: Chapter6 (R)P: (ja-3) 21 -131- they should be located so as offset locational inequities in reflection of the official price and the number of farmers involved as opposed to equidistant placement over the whole buying area. Pederkampf left aside the cost to the monopoly parastatal of maintaining buying stations. Consequently, in this regard he gave the highest mark to ADMARC, in Malawi, because its direct buying points in some smallholder areas were within 12 kms. of most farmers. 6.62 The importance to farmers of "the price" is confirmed by experience in Ecuador. Here exports of cocoa and coffee, for example, proceed through competing private and cooperative channels. Special attention is still given to announcing a guide price. This is based on trade information from London and New York, discounted back to the port of export in Ecuador by established transport and exporter margins and the export tax. Whether or not it can be enforced legally, it is an effective aid to the farmer in bargaining with the first buyer. When interviewed by the author, farmers in Pakistan under free marketing conditions declared their satisfaction with the rural marketing system for cotton more than for other products because there was a reliable reference price - the current price at the Karachi exchange. Against this they could assess the offers of competing local buyers. 6.63 It seems a fair conclusion that for small farmers there should be a reference price widely publicized. This does not, however, call for a monopoly buyer. 6.64 Optimum scale of operation. In his book on the Lebanese traders in Sierra Leone, Van der Laan concludes that a family size operation has intrinsic advantage in the Africa environment (Van der Laan, 1975). This is broadly in line with the observation of Jones and his associates in their studies of food markets in West Africa in the 1970s. rEXTNAME: Chapter6 (R)P: (ja-3) 22 - 132 - 6.65 The scale of operations that can be managed effectively depends on the quality of staff available, the means of communication, and the nature of the prevailing integrity. In some developing countries the environment in these respects sets severe limitations on scale. The Lebanese traders took over from the European companies as produce buyers at inland points in Sierra Leone in the 1950s. Once the companies gave up employing expatriate managers, supervising of managers of local origin proved too difficult. Other loyalties counted more for them than that to "the company". Corporations owned by the government are in the same position, as have been many of the cooperative structures established by distant governments rather than by local initiative. The Ghana Cocoa Marketing Board has resorted to the payment of all farmers by cheque, with elaborate banking arrangements whereby they may be cashed, because of frequent embezzlement by produce clerks (Gyekye, 1983). 6.66 The prevalence of clientage practices in Tanzania was also stressed by Bryceson in contrast to the elite attitudes of the colonial administration and the family control of the Asian traders (Bryceson, 1983). Face-to-face accountability was an important factor. This had helped with some of the early cooperatives. It was notably lacking in regard to the performance of the buyer for a state body arriving at a distant village. 6.67 All this points to the advantages of relatively small scale, family directed enterprises in many developing country environments. 6.68 The Ghana Cocoa Marketing Board, once said to have a staff of 100,000, has now been broken up into regional units each responsible for making a profit. It has yet to be seen whether this,achieves the sense-of responsibility that goes with a family directed enterprise. TEXTNAME: Chapter6 (R)P: (ja-3) 23 - 133 - 6.69 Perhaps the most damning argument against such a monopoly is the situation where the monopoly board treats the payment to the farmer as a residual based on the amount left after the costs of the board, unchecked by competition, have been fully recovered. 6.70 Effectiveness in exporting. One of the main purposes in assigning a monopoly is to take advantage of possible opportunities to raise the price obtained by controlling total sales. If the supplies under the national monopoly management constitute a substantial share of the total available then there are good prospects of positive returns. This has been the case for Egyptian and Sudanese fine staple cotton exports. Each controlled over forty percent of the export supply. The focus on uniform high quality of exports by the Zimbabwe Gotton Marketing Board has also paid off (Blackie, 1983). If its outlet was an infant domestic textile industry serving predominantly low income consumers, a different focus might be needed. In Nigeria, the cotton board monopoly of wholesaling is regarded as an obstacle to direct links between manufacturers. It prevents their adapting quality price differentials to attract the supplies required to suit their particular customers. 6.,1 Bananas are a product for which the returns potentially obtainable through an integrated marketing operation that brings under oner management the production, handling and quality packaging of the product in the exporting country, shipping to the importing country and distribution through established outlets there seem significantly better. The advantage of this system is the reduction of risks and costs because of the absence of the need to sell en route, and the direct transference backto the producer of consumer preference signals recorded by the distribution branch of the organization. The comparison here is between the prices ad market TEXTNAME: Chapter6 (R)P: (ja-3) 24 - 134 - shares obtained for bananas exported from Ecuador or Central America by Noboa or Standard Fruit, with their distribution channel in Germany or the U.S.A., and bananas exported from Jamaica by a monopoly marketing board. The Jamaica Banana Board was able to average $211 per ton f.o.b. from sales in the U.K. where it had a protected market. Bananas exported from Ecuador to Germany by a competing structure of national and transnational firms returned lower prices. However their marketing costs and margins were less by nearly $100 per ton in spite of transport over a longer distance and notwithstanding Panama Canal fees. In two of the five years the importers' gross margin was negative. Noboa in Ecuador has maintained its share of the German and Italian markets with the help of aggressive sales agencies in those countries under managers with a direct share in the profits of the firm. The Banana Boatd in Jamaica had not the means to rehabilitate its producer base after the hurricane damage of 1980. Banana Export and Distribution Costs; Jamaica to the UK and Ecuador to Germany (Average of the years 1971, 1973, 1975, 1977, and 1979) Jamaica Ecuador -------$ per ton)-------- F. 0. B. cost 211 124 Freight and insurance 104 94 Handling 31 25 Importer's margin 16 9 Ripener's margin 130 84 Retail margin 203 185 Retail price 703 517 Total Marketing Costs and Margins 492 393 TEXTNAME: Chapter6 (R)P: (ja-3) 25 - 135 - 6.72 Ability to direct supplies for export to the mst rewarding market may enable the monopoly Coffee Board of Kenya to put more high quality coffee onto the limited I.C.O. members market than a structure of independent exporters. 6.73 The Ghana Cocoa Marketing Board has a good reputation as a seller on international markets. In terms of average export return for cocoa in dollars per kilogram, 1977-1981, it did quite well, viz.: Nigeria .$2.86, Ghana $2.63, Brazil $2.60, Ivory Coast $2.52, and Cameroun $2.30. Its defect was the low proportion of the price passed back to producers mainly because of exchange rates and tax. 6.74 The following figures for cocoa point mainly to the disincentive impact of keeping down prices to producers when world market prices are high. Part of the growth in Ivory Coast exports is attributed to transfers from Ghana. Export Average export Country Structure growth rate 1966-80 (% per year) Malaysia Competing firms: free prices 50.0 Ecuador Competing firms: free prices 22.5 Brazil Competing firms: free prices 22.4 Ivory Coast Competing firms: stabilized price 22.0 Cameroun Competing firms: stabilized price 15.7 Nigeria Monopoly board: stabilized price 13.1 Ghana Monopoly board: stabilized price 12.9 6.75 More specific analyses allowing for differences in quality of product and market situation are needed to assess the performance of- alternative export marketing systems. Overall, however, there seem to be only a few situations where the monopoly board is justified on the grounds of marketing efficiency. rEXTNAME: Chapter6 (R)P: (ja-3) 26 - 136 - 6.76 Other considerations are tax and exchange controls. As a method of taxing the proceeds of export sales the monopoly marketing board has been only too effective. It is, however, true that the same degree of taxation can be levied at the stage of port clearance without a board. That being the case, establishment of an export monopoly is an expensive way of collecting the tax. 6.77 Following the attainment of independence by many African countries and the establishment of national currencies, their need to avoid leakage of foreign exchange became a quoted justification for taking over export enterprises that were foreign owned. This argument had substance. FAO studies of exports of hides and skins from Sudan, for example, suggested that they were underpriced by some twenty percent, with the implication that this portion of their value was left to the credit of the exporter in another country. It has now become common practice for the central bank of an exporting country to assess the f.o.b. value of exports and require that this amount of foreign exchange be delivered to it by the exporter. This arrangement is now used effectively in countries like Sudan and Somalia for livestock and other products. It is less precise, of course, than direct crediting of foreign exchange earnings.through a government:enterprise, but the difference is hardly sufficient justification for nationalization of an otherwise"Iefficient export channel. A handicap in presenting private enterprise alternatives to parastatals in some developing country environments is the degree of political uncertainty. Frequently the governments are: a) Uneasy about any unsupervised activity of significance, tending,.to regard it'as-a potential focus:,of opposition.,And, TEXTNAME: Chapter6 (R)P: (ja-3) 27 - 137 - b) They feel obliged to intervene in every price or supply issue that receives any publicity, albeit temporary, in order to show awareness of the popular interest. 6.79 Facing such risks, private enterprise is likely to take a very short run approach to profit maximization. It will then behave as in the myth prevalent among the uninformed. 6.80 Thus, when the alternative to the cocoa export monopoly in Ghana of some twenty licensed private exporters, as in Ecuador, was presented at Leiden, the Ghana participants rejected it as quite unfeasible; tax evasion and foreign currency diversion would present an immediate incentive for corruption. Does this suggest that for such situations transnationals able to take risks and a longer view, because they are based elsewhere yet fairly easy to supervise in the country concerned, would be the most acceptable alternative? Domestic monopoly trading 6.81 Two broad trading situations give rise to pressure for a government authorized monopoly. The first is a need to separate prices in different markets in order to implement a price stabilization program without incurring direct financial losses. The second is to attain sufficient throughput to justify investment in new processing on other marketing facilities. 6.82 Highly negative to producers' interests and, through the deterence effect on production, to the economy as a whole, is the use of monopolies to enforce sales by producers at less than the free market price. This has been employed in some areas of India as a means of building up stocks in public hands for use in stabilizing prices to TEXTNAME: Chapter6 (R)P: (ja-3) 28 - 138 - consumers. K. Subbarao and R. Krishna maintain that it is all the more regressive because large farmers can bribe their way out and the main burden falls on those who are unable to do this (Subbarao, 1983, and Krishna, 1982). B. Harris has horror stories of compulsory collection of grain by parastatals in the Sahel (Harris, 1979). 6.83 A monopoly domestic grain marketing organization can operate through private trading, storage and transport firms employing them as its agents. Thus, the Kenya Farmers Association has handled wheat for the Cereals and Produce Board. Such a system is still likely to foster a structure of high costs and margins. 6.84 Contraction of the operation to the scale proposed for board type 4 would bring overall benefits in most situations with losses on exports or special distribution programmes to be met from public funds and by levies applied at the mill. 6.85 A similar solution is favoured in place of the monopoly rice board common in West Africa (Nyanteng, 1982). Maintenance of domestic production calls for a protected price, yet some imports, generally available at a much lower price, are needed to satisfy consumer demand. Restriction of imports keeps up the domestic price. It then offers a major profit opportunity to the one who obtains the licence. The device in Cameroun is to require that traders bringing in imports at lower prices buy an equal quantity of domestically produced rice at a higher price. Traders can also be invited to bid for import licences, with the proceeds going into the public treasury. TEXTNAME: Chapter6 (R)P: (ja-3) 29 - 139 - 6.86 The tendency to let costs rise under protection is also the great weakness of the enterprise assigned a monopoly in return for providing or maintaining certain marketing facilities. The infant industry argument is commonly invoked. Protection for a given period of years may be guaranteed to help ensure a return on the new capital invested. After say eight or ten years it should face competition on its merits. 6.87 This is not to imply that all parastatal marketing bodies should be abolished. Clearly many are in a position to offer continuing economic advantages, for others there may be overriding political considerations and for some it may be difficult to find an acceptable substitute. 6.88 Where a number of parastatal marketing bodies are continued, a government must equip itself to supervise their management and performance. The recommendations of the 1970 Review of Statutory Bodies issued by a committee appointed by the President of Kenya provide a useful starting point (Kenya, 1979). In addition to providing a set of principles for management, staffing, and the handling of costs, it-stressed the importance of governments' acquiring the capacity for effective supervision. To assure this it should have a continuing Inspectorate of Statutory Boards. The role of this Inspectorate would be to carry out in-depth management studies and to advise on the operations of parastatals - in other words, to provide a Management Audit Service to Government for parastatals. This will involve preparing studies of parastatals, at all levels,.in order to assess the appropriateness and relevance of each, having regard to its mandate and the prevailing circumstances. In the long-term, the Inspectorate of Statutory Boards should develop a capability for providing this service to supplement other existing control agencies of Government. TEXTNAME: Chapter6 (R)P: (ja-3) 30 - 140 - 6.89 General indicators for the efficient performance of parastatals are: 1. Clear definition of the terms of reference and remuneration of the Chairman of the Board, of the Board Members, and of the Managing Director, normally the chief executive. 2. There must be clear public accountability, with the designation of an officer, not necessarily the managing director, whose focus would be on policy and its implementation and who would be responsible for answering detailed questions on the financial management of the parastatal. 3. Maintenance of an accounting system that provides up-to-date information on the costs and earnings of a parastatal's various activities, as well as the conventional accounting required of any public body. And, 4. Some flexibility in the planning of expenditures and the handling of surplusses so that operations are not straight jacketed by the need for advance approval of detailed budgets, and so that incentives for efficiency are not blunted by requirements that all surpluses be returned to the treasury at the end of'a financial year. 6.90 For its part, government should have a clear understanding of: (1) the objectives of each parastatal, (2) of their implications for policy and procedure, (3) of the need to ensure that decision making by the responsible ministry and other relevant bodies is not contradictory to the TEXTNAM: Chapter6 (R)P: (ja-3) 31 - 141 - successful operation of a parastatal; and (4) of the capital and income requirements of a parastatal, for if it is required to undertake loss making activities, Government shall have to provide for compensatory sources of revenue. Aid agency attitudes 6.91 Over the decades up to 1980, aid agency convenience was a significant factor in promoting the establishment of developing country parastatals. The attitudes of some of the major agencies are now changing. For several years the World Bank has been questioning the wisdom of assigning large areas of agricultural and food marketing to parastatals, particularly where the main consideration is to implement price policies already found negative to development. 6.92 The use of compulsory procurement as a means of securing repayment of credit is now seen as a disastrous policy. The need to recover irrigation charges has been another reason for maintaining monopsonistic marketing systems. While sales through a single marketing agency is a convenient means of securing credit repayments, the price offered must be as attractive as those available in other outlets. 6.93 How far other agencies will support this shift has yet to be seen. With some agencies, the official stand of the recipietn government is accepted as right. Some others, including the bilateral agencies of some Scandinavian countries, have a long standing bias against private enterprise in marketing that may be resistant to change. TEXTNAME: Chapter6 (R)P: (ja-3) 32 - 142 - FOLLOW UP ACTION 1. Research and demonstration Many of the points made in this analysis are based on observations, experience, and analysis of secondary information. They could become a more effective instrument for policy changes if backed up by application of specific efficiency indicators over a wider range of experience. These indicators could then be used for comparative purposes, for example, to compare parastatals undertaking similar functions, to compare the same parastatals' performance overtime and to compare parastatal and private or cooperative marketing systems undertaking similar functons. Illustrative areas meriting such treatment include: a) Gross margins between producer and f.o.b. or consumer prices adjusted to exclude non-marketing elements such as taxes and to include subsidies, interest on capital foregone, and the like. b) Specific marketing cost items, for example, transport and freight costs, management, labour, and other overhead costs. e) Management of physical facilities, for eyample, the rate of storage utilization, physical and quality losses in storage, ship* turnaround. times, and demaurrage charges. d) Management of the selling function, for example, prices obtained for defined qualities, transmission of incentives to producers and handlers, share of market, and performance rating by other market participants. e) Accountability perfbrmance, that is, promptness, reliability and detail of accounts, and the use made of management accounting, for example. "EXTNAME: Chapter6 (R)P: (ja-3) 33 - 143 - f) The effect on costs of pan-territorial pricing and failure to provide seasonal incentives for private storage. And, g) The building and maintenance of a morale for efficiency in a marketing parastatal. 2. Training for marketing parastatal staffs at various levels and training for personnel of government departments concerned with parastatal policy determination and supervision adapted specifically for their requirements. Indicators of the kind envisaged above would be used in such training along with other appropriate materials. 3. Realignment of international technical and financial assistance 212grams to orient governments and to help them build up the potential of alternative indigenous marketing structures. Access to an evident workable alternative will also detract from political persuasions that in Africa, for example, confuse socialism with nationalism. TABLE 3.1 IMPLICATIONS or PARASTATAL MARKETING ENTERPRISES Type of marketing Responsibility Nature of Financial Effect upon free Marketing and administrative Benefits for Implications for Conditions of board (parastatal assigned government implications market structure skills required producers domestic consumers iplementation connl tment 1. Advisory and Undertake or com- Authorize compulsory Self supporting as Continues undisturbed Low: specialized service Improved sales returns None Marketing centralized at promotional mission promotion charge on sales long as levy is can be hired should exceed cost of part or processing plant and research of products - accepted levy 2. Regulatory Control quality Delegate powers Self supporting Continues subject to Skills needed to assess uniansates Ma be fineg ao P u s didntfiable form and quantity of compulsion as long as levy controls not dis- benefits of action redns untitiaes Maywe confinegde o produce faew aditifiable of product offered and to collect is accepted criminating between envisaged and taken sold may be restricted at higher prices limited processing or on particular levy enterprises on historical basis export points narkets 3. Stabilising To establish prices Delegate powers Self supporting Wholesale operations Skill in estimating Wholesaler purchasing More directly Wholesale purchases relatively prices without paid to producers of compulsion and as long as levy continue free; pur- appropriate price price clearly few and easily identifiable trading and possibly to collect levy is accepted chasing from farmers to farmers established may be operate a reserve subject to licence lower than on free fund for this and may be market purpose crystallized. 4. Stabilising Generally control Provision of Unlikely to cover Free domestic trading High ability to estimate Announcement of Protected against Product easily storable domestic prices or trading mono- initial capital. own costs so continues subject to supplies and prospects; guaranteed minimum very high prices by via buffer- poly of imports guarantee for government must competition with judgment in buying into price before planting releases from buffer- stock on a free and exports, commercial credit; assign compensa- board and selling from buffer- facilitates production stock market implementation of support import/ tory source of stock and skill in stock planning a preannounced export controls income or make management minimum price up deficit to farmers L Export monopoly Sole exporter of Provision of initial Operating costs Former exporters Can be operated with Announcement of More directly Exports limited to a few trading designated capital. guarantee normally covered eliminated or required routine management skill; guaranteed price points that can be policed products and for commercial from margin to act as agents for initiative and judgment facilitates planning implementation of credit support for allowed by price the board needed to exploit mono- but price may be low pre-announiced export monopoly paid to farmers poly weight and see minimum price to new opportunities farmers 6. Domestic Sole trader in Provision of initial May incur trading Former traders eliminate Can be operated Pre-an nuncement of a Price of products Feasible to control monopoly trading designated products capital, guarantee deficits if capital or required to act as with routine guaranteed price sold likely to be evasion of monopoly In defined domestic for commerical and operating costs agents for the board management; initiative but it may he low higher than with a markets. imple- credit,support for excessive or is and judgment needed to free market mentation of minimun monopoly badly managed see new opportunities prices to producers TEXTNAME: Ref (R)P: (ja-3) 01 -144- REFERENCES Abbott, 1966 Agricultural Marketing Boards: Their Establishment and Operation, by J. C. Abbott and H. Creupelandt, FAO, Rome. Abbott, 1968 "Marketing Issues in Development Planning", by J. C. Abbott, in Markets and Marketing in Developing Countries, Eds. Moyer and Hollander, Irwin, Homewood, Illinois. 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