آیا بازاریابی برای کشاورزان کوه در نپال واسطه بهره برداری است؟ مطالعه بر اساس قیمت بازار، حاشیه بازاریابی و تجزیه و تحلیل توزیع درآمد

Against the backdrop of viewing marketing intermediaries in developing countries as parasites, this study examined the validity of such a view, especially in the context of mandarin (a species of orange) marketing in a mountain district of Nepal. Necessary information was collected from all major stakeholders such as farmers, collectors and commission agents, and the relative position of farmers in terms of their gains was analyzed by employing three criteria: price of mandarin, marketing margin and income distribution. Income distribution among marketing functionaries “with” and “without” transaction cost has been analyzed. Similarly, marketing margin and farmers’ share of gross income are also analyzed ‘with’ and ‘without’ the cost of malicious practices by marketing intermediaries. Findings of the study revealed that farmers in the study area are receiving a fair share of the benefit accruing from the marketing of mandarin. However, taking advantage of their weak bargaining power and poor economic condition, marketing intermediaries are harassing and cheating them in different ways. Policy recommendations are made to institutionalize and strengthen the group-marketing system to address such inherent problems.

Agriculture in developing countries has been confronted with the chronic problem of low returns (Ellis, 1996) due partly to an over-emphasis on the production of cereal crops, with low income elasticity of demand, irrespective of land suitability. Cereals are sources of food, but dependence on such crops only deprives small farmers, who comprise the major proportion of farming populations in developing countries, from cash earnings required for the improvement of their economic condition. Moreover, cultivation of cereals that requires intensive tillage practices has been a major cause of land degradation in the Himalayan Mountains (ICIMOD, 1998, UNEP, 1999 and Thapa, 2001). Integration of suitable and economically attractive cash crops such as fruits can help to improve the economic status of mountain farmers and also control land degradation (Dixon et al., 1989, Demaine, 1994 and SAREP, 1997). Fruits usually fetch higher prices (FAOSTAT, 2003) because of an ever-increasing demand arising from the growing urbanization of societies (Gunawan, 1997 and Lantican, 1997). Realizing such economic and environmental significance, many developing countries are promoting fruit production. Nepal, where mandarin (Citrus reticulata), a species of orange, promotion has been a national strategy for reducing agrarian poverty in the middle mountains, is not an exception. Accordingly, provisions of extension services, credit, and necessary inputs have been made to enable farmers to produce fruit (Chambers, 1989). Despite such efforts, developing countries have very small percent ages of their agricultural land under fruit. Rather they have been importing fruit and fruit-products to meet domestic demands (FAOSTAT, 2003). This is due to a lack of concern about fruit marketing on the part of policymakers ( Ellis, 1996, Pennings and Leuthold, 2000 and Key et al., 2000). Any enterprising farmer first considers possible profit from the new crops ( Blaikie, 1988 and Thapa, 2001) that largely depends on marketing operations (Isik, 2002). In the absence of an efficient marketing system, farmers are deprived from satisfactory income, eventually discouraging them from venturing into cultivation of commercial crops such as fruits ( Ervin and Ervin, 1982 and Blaikie, 1985). Empirical studies pursued in Nepal found mountain farmers losing interest in mandarin production due to low income attributed to an inefficient marketing system ( Shrestha and Shrestha, 2000 and MDD, 2001). Agricultural marketing comprises buying, selling, storage, processing, standardization, certification, and distribution of farm products. In the process of transfer from farmers to consumers, agro-products pass through a channel involving a sequence of changes in their forms and prices, and several intermediaries play an important role in getting products transferred from farm-gates to the consumers (Ellis, 1996). A farmers’ role would normally be over after the transfer of products to intermediaries, who bear the responsibilities of transporting, storing, processing and selling products. Intermediaries who purchase products at the farm-gate, commonly referred to as middlemen, provide important marketing services particularly to small farmers in developing countries who would incur high transaction costs if they had to transport small amounts of their produce to sell it in the market centers, thereby constraining the adoption of suitable and economically attractive land use systems (Bingen et al., 2003). Particularly in the case of highly perishable products such as vegetables and fruits, there is a high risk of these products decaying while being transported to and stored at different market centers. Thus, intermediaries safeguard small farmers against possible loss and help them to secure a higher profit margin (Ellis et al., 1997, Sidhu, 1997, Fuentes, 1998, Lyon, 2000 and Gandhi et al., 2001). While overlooking the positive role of intermediaries in providing marketing services particularly to small farmers, agricultural policymakers in many developing countries have had a tendency to perceive them as parasites who take away a large share of the benefit accrued from the sale of crops by taking advantage of small farmers’ unawareness of market prices (Ellis, 1996). Such a perception is clearly reflected in policy papers and academic publications (Mohtar, 1997, Lee, 1997, Gunawan, 1997 and Khushk, 2001). According to Thapa et al., 1995 and Shrestha and Shrestha, 2000, traders and middlemen are cheating farmers by taking advantage of their lack of knowledge of market prices, poverty and weak bargaining power arising from illiteracy and low social status, on the one side, and monopsony or oligopsony types of marketing system, on the other. These combined with seasonal shortfalls of cash, lack of storage facilities in villages and little awareness of market prices have further weakened farmers’ bargaining power (Lantican, 1997, Banskota and Sharma, 1999, Shrestha and Shrestha, 2000 and Khushk, 2001). The above-mentioned perceptions have dominated the policymaking arena in the past, resulting in direct government intervention in agricultural marketing, with focus on export and strategic products (Ellis, 1996). In this pursuit, monopoly and semi-monopoly marketing parastatals were created for handling marketing of agricultural products. Evaluation studies on the performance of government handled marketing systems revealed that they have become instrumental in the exploitation of farmers by offering low prices for farm products and delayed payments. Moreover, they were functioning very inefficiently, and could not provide any services to the overwhelming majority of the farmers who possess small landholdings and produce crops beyond the mandate of marketing parastatals (Thapa et al., 1995, Koirala et al., 1995, Ellis et al., 1997, Sidhu, 1997, Guoquiang, 1997, Lantican, 1997, Mohtar, 1997, Dewbre et al., 2001, Gandhi et al., 2001 and Dorward et al., 2004). Instead of helping to address farmers’ problems arising from their weak bargaining capability, state policies of handling marketing of selected crops by government or semi-government agencies aggravated farmers’ problems (Lantican, 1997, Banskota and Sharma, 1999 and Khushk, 2001). In view of the bitter experience of state intervention in agricultural marketing, there is growing emphasis in developing countries on the promotion of a free marketing system that satisfies the interests of farmers, traders and consumers. An ideal situation, where there are opportunities for earning income for both farmers and traders, serves as a driving force for a self-regulated free marketing system. Providing marketing services in an efficient way to millions of farmers is impossible for government agencies. However, the agencies can play a catalyst role as a facilitator and regulator of the free marketing system. Realizing this, the governments in developing countries are gradually withdrawing from direct involvement in agricultural marketing and dismantling barriers to the free marketing system (Reusse, 1987, Guoquiang, 1997, WTO, 2003 and Dorward et al., 2004). However, marketing intermediaries such as middlemen and traders are still viewed as exploiters of uneducated farmers by both national and international policymakers as reflected in publications such as AEC/WI/MOA, 1996, FAO, 1998, MOA, 1998, Pradhan, 1998, Banskota and Sharma, 1999 and Chapagain and Phuyal, 2003. If the marketing intermediaries are really getting a large share of the benefit generated by agricultural products by taking advantage of farmers’ weak bargaining power, lack of knowledge of the market price of products and high transaction cost per unit of marketed product, arranging marketing through farmers’ groups can help considerably to overcome this problem, though this is not an easy task. By organizing themselves in groups, particularly small farmers’ can enhance their bargaining power and establish a market information system, thereby reducing the chance of market price information being manipulated by intermediaries and increasing the proportion of their share of income. The groups may sell farm products directly to the wholesale traders instead of to intermediaries by arranging transportation of products by themselves. Farmers can get more benefits when the products are transported and marketed in bulk (Bingen et al., 2003). We challenge the deeply entrenched tendency of viewing marketing intermediaries as exploiters, which, in the majority of instances, is founded on the perception that the intermediaries make a lot of profit by purchasing agricultural products at low price from farmers. In other instances, such a view is based on the findings of studies that did not take into account the income that time, capital and labour resources invested by intermediaries could earn from alternative businesses. Marketing intermediaries have to spend a lot of time and financial resources in the process of procuring products from farmers and delivering them to the wholesalers and retailers. Therefore, making a profit from an investment in a business on par with or slightly higher than the profit that investment could have made from an alternative business cannot be considered exploitation (Ellis, 1996 and Banskota and Sharma, 1999). Even a large profit margin in some cases reflects the complexity of the job that must be done by the intermediaries in marketing the product. It could be considered as exploitation only when the marketing intermediaries make profits from their investments far above the profits that they could have made from investments in alternative businesses (Bhuyan et al., 1990). The rate of profit from an investment depends on several factors including the type and scale of enterprises. In most instances, it is believed that it lies somewhere between 8% and 15% (Gittinger, 1972, p. 90). In view of the complexity of the matter, one can even consider the average interest rate that commercial banks offer to savers as a standard rate of income that an investment can earn from an alternative business (Thapa and Weber, 1994, Neupane, 2000, Pandit, 2003 and Rasul, 2003). Seeking to answer the question of whether intermediaries are exploiting farmers would require an assessment of the marketing functions performed by market functionaries and the analyses of marketing costs and benefits (Sidhu, 1997). In this pursuit, this paper, first, compares the farm-gate and wholesale prices of mandarin in the context of the roles of different marketing functionaries especially with reference to a mountainous region of Nepal. This is followed by an analysis of the marketing margin as well as income distribution ‘with’ and ‘without’ transaction cost. Finally, marketing margin and income distribution are examined by taking into account financial and non-financial costs of matters not directly related to the price. Policy recommendations have been made for improving the mandarin marketing system, with the view of enabling farmers to enhance their income. The Agriculture Perspective Plan and successive periodic plans of Nepal have identified mandarin as a high value crop and a priority investment sector in view of suitable biophysical conditions in the middle mountain region (NPC, 1995, NPC, 2003a and NPC, 2003b). Therefore, this study bears very important policy relevance.

Amidst the common practice of characterizing marketing intermediaries as parasites taking away a large percentage of income generated by products, this study analyzed the real situation in regard to mandarin marketing in a mountain district of Nepal adjacent to the district of Kathmandu where the capital city is located. By virtue of easy access to the relatively close national capital and regional cities facilitated by the highway, farmers in the study area are well informed about the price of mandarin at different wholesale market centers. As a result, there is little prospect of the market price information being manipulated by intermediaries such as farmer-collectors who purchase the major proportion of the mandarin. However, this cannot be expected in areas where farmers do not have a regular access to market information. As revealed by studies undertaken elsewhere (Demaine et al., 1996, Mohtar, 1997 and Khushk, 2001), marketing intermediaries easily manipulate the information on market prices of agricultural products in the pursuit of increasing their profit margin when farmers have either poor or no access to information on the market price of their products. Several factors, including the mutual trust between farmers and farmer-collectors and the tradition of advancing some cash to the farmers in time of need, have played a role in the dominance of farmer-collectors in mandarin marketing. However, the farmers’ confidence that they are getting a fair price, which is based on their assessment of the relative price situation at different market centers, has played the most important role. This implies that when farmers have access to reliable information on market prices of their products, they can decide when and whom to sell their products in order to maximize their profit margin. The above conclusion about farmers’ confidence in the fairness of the price offered by farmer-collectors is reinforced by the findings of a marketing margin analysis, which revealed farmers’ getting two-thirds of the total income generated by mandarin even if the cost of delayed payment is taken into account. The gross income of 33% going to the marketing intermediaries seems to be substantial in view of a lot of time and labour resources spent by farmers on producing mandarin. However, the result of net income analysis derived by deducting the cost of marketing from gross income revealed that the income that marketing intermediaries are getting is fair as it reflected the income that their investment could earn from an alternative business. Any entrepreneur cannot be expected to make investment in a business if the income is less than that it could earn from investment in an alternative business. This finding contradicts with the findings of several other studies undertaken in South and Southeast Asia (Thapa et al., 1995, Khushk, 2001 and Lantican, 1997) that revealed marketing intermediaries getting a substantial proportion of income accruing from agricultural products. However, being aware of the fact that the factors influencing the efficiency of marketing vary from one region to another of a country, we cannot refute the conclusions of other studies that feature marketing intermediaries as exploiters taking away a substantial proportion of the income accruing from marketing of agricultural products. Neither can we accept the conclusions of the studies based on researchers’ perceptions rather than on analysis of net marketing margin or income accruing to different stakeholders involved in the marketing. The major share of the income is likely to be taken away by the marketing intermediaries in situations where the farmers have incomplete or sketchy or no information on the market prices of their products (Demaine et al., 1996, Mohtar, 1997 and Khushk, 2001) and marketing is dominated by a few intermediaries due to difficult access to villages or for other reasons (Gunawan, 1997 and Lee, 1997). Farmers in the study area could receive a relatively fair share of the benefit from mandarin due mainly to their access to market price information facilitated by easy access to market centers and mutual competition among farmer-collectors for buying mandarin. This indicates the need for more studies on agricultural marketing in Nepal and elsewhere with due consideration of location specific realities, which will be conducive to the promotion of marketing systems enabling farmers to receive the major proportion of the benefit accruing from the sale of their products. Despite providing farmers a relatively fair share of the benefit, the mandarin marketing in the study area suffers from some inefficiencies. In the absence of wholesalers, the farmer-collectors have to rely on commission agents for selling mandarin to retailers, thereby making them vulnerable to cheating. Whether they like it or not, farmer-collectors have to accept it if the commission agents say that they could not sell mandarin at the anticipated rate. If the payment is made at less than the expected rate, this cost is ultimately passed on to the farmers as farmer-collectors do not pay them the full amount due on the grounds that mandarin could not fetch the price expected. Some marketing intermediaries are inflicting losses upon farmers by delaying mandarin harvesting and by not making payment of the amount due on the stipulated date. Though such practices are not common and do not have much effect on marketing margin and on the farmers’ share of income, they put farmers under financial and psychological pressure. As an individual with little power to influence caused by his/her low socioeconomic status, particularly, a small farmer cannot force marketing intermediaries to make payment of the full amount due on time. The problems of delay in and the reduced amount of payment would not have arisen if the farmers had sold mandarin for cash. However, this is not easy for farmers because, as an individual, they cannot say that they will not sell on credit. Other farmers may sell mandarin on credit, even if some farmers deny it. On the part of the marketing intermediaries, purchasing mandarin in cash is not their preferred choice. By taking advantage of the individual farmer’s weak bargaining power, marketing intermediaries have opportunity for earning additional income through delayed payment and for passing on any loss incurred to the farmers by not paying the full amount due to them. This entails promoting grassroots institutions that would strengthen farmers’ social strength (Bingen et al., 2003), thereby enabling them to sell mandarin for cash or ensure the recovery of the full amount due. In view of the small amount of mandarin produced by a farmer and his/her weak bargaining power as an individual, it is essential to encourage farmers in the study area and elsewhere to organize themselves in a group, with the primary responsibility of marketing their products including mandarin. Besides, in view of farmers’ need for cash before the ripening of mandarin, the group should also make provision of credit by mobilizing the savings of members. Encouraging farmers to practice group-marketing entails making them aware as to how such a marketing system would provide them benefits. Once they are convinced of its benefits, farmers will gradually join the marketing group, which needs to be enabled to handle marketing efficiently through the provision of appropriate village based training courses (Bingen et al., 2003). When the majority of farmers join such groups, they may refuse to sell mandarin on credit, thereby eliminating the problems of delay and cheating in payment. In case the selling on credit cannot be avoided immediately, the group may make a provision of a promissory note requiring marketing intermediaries to pay the amount due by the stipulated date. Because under such institutional arrangements the marketing intermediaries owe to the group, they will find it very difficult to breach the promises made and cheat farmers because of the apprehension of being deprived from running their business or socially discarded if the group becomes unhappy with their dealings. The farmers as a group would exert psychological pressure on intermediaries, thereby forcing them to comply with the promises made. Any failure in abiding by the terms and conditions of the promissory notes made would be subject to legal action, which would be effective only when group marketing is practiced. On an individual basis, marketing intermediaries can easily breach their promises by taking advantage of farmers’ inability to take any legal or other actions such as social pressure against them. What is suggested here is not an alien institutional arrangement to farmers in the study area. As mentioned above, many farmers in the study area are selling vegetables through a cooperative, which is reportedly operating very effectively and providing satisfactory benefit to concerned farmers. According to the cooperative members, they used to be cheated and harassed by intermediaries until they started selling vegetables through the cooperative. Those problems disappeared ever since the cooperative marketing system came into operation. This reinforces our suggestion for the promotion of the group-marketing of mandarin. After gaining some experience in handling marketing, the group may consider selling mandarin directly to the capital and regional city based retailers instead of selling to the intermediaries. This would eventually enable farmers to increase their share of income accruing from mandarin marketing. However, this would require them to cut the cost of transportation and to reduce the amount of fruit damage through proper packaging and handling. As suggested above, enabling farmers to pursue such innovative approaches to marketing would initially require some technical assistance from the government and non-government agencies. The findings of this study has several border policy implications for improving the performance of agricultural marketing systems in the developing countries of South Asia and elsewhere. The overarching implication being the need for strengthening the free marketing system so as to enable all market functionaries to get a fare share of benefit from their efforts and investments. The government agencies should confine themselves to create an environment conducive to the promotion of such marketing system. In this pursuit, there is a need for development of physical infrastructure such as roads linking the rural areas with the market centers. The kind of benefits that mandarin and vegetable farmers have been enjoying in the study area would not have been possible without the highway which has provided agricultural products access to the major markets in the region. In the mountainous areas, where it is not cost effective to construct roads, the governments may consider making provision of alternative cheaper infrastructure, including ropeway, to enhance the efficiency of agricultural marketing. This would not only help to bring down the cost of transportation considerably, but also encourage potential marketing intermediaries to enter into the marketing of agricultural products, which is another important condition for creation of an environment conducive to functioning of the free marketing system in an efficient way. As learned from the experience in our study area, a healthy competition takes place among the intermediaries for the purchase of farm products especially when their number is large, thereby enhancing farmers’ chance of getting fair prices for their produces. Equally important policy to be considered would be to make a provision of a special fund for providing credit to the potential intermediaries who are willing to pursue marketing of agricultural products, but have been constrained due to a lack of required funds. Finally, the creation of an appropriate environment conducive to efficient operation of a free agricultural marketing system requires the provision of a comprehensive agricultural information system, facilitating smooth flow of information on prices of agricultural products from different market centers to the farmers. Farmers’ groups or any other community based organization have a direct role in development and operation of the information, with required technical assistance from the concerned government and non-government agencies. The regular flow of reliable information on market prices of agricultural products through the community based organization would provide a variety of choices to farmers in regard to the decision making on where and whom to sell their produces, eventually reducing the possibility of them being cheated by the marketing intermediaries through manipulation of information.