1. MARKETING, AGRICULTURAL PRODUCE AND MARKETING. AND
COOPERATIVE MARKETING IN TRADITIONAL RURAL AREAS
By Zvi Galor
www.coopgalor.com 1990
1. Introduction - What is marketing?
There exist today a wide variety of concepts of marketing and its nature. The very
definitions of marketing have also undergone considerable development in the
second half of the 2nd century, which is reflected in the literature mentioned below.
Today we encounter several basic concepts of marketing and its nature. The five
main marketing concepts are listed below [1]: -
"The production approach - being a managerial orientation assuming that customers
would prefer products which are both accessible and affordable. The main
managerial function would then be the improvement of production efficiency and of
the distribution system. .
The product approach - being a managerial orientation assuming that customers
would prefer products of the highest quality for a given price. The firm should
accordingly devote its main resources to improvement of product quality...
The sales approach - being a managerial orientation assuming that customers would
(or would not) acquire the firm's products, in proportion to the efforts made by the firm
to generate an interest in the product. The firm should accordingly locate potential
customers and try to convince them, sometimes aggressively, that its products are
something they cannot do without...
The marketing approach - being a managerial orientation maintaining that the key
to the attainment of the firm’s objectives consists in the determination of the needs
and aspirations of the target market, and in tailoring the organization so as to cater
to consumers desires in a better and more efficient manner than competing firms. •
The marketing-social approach - being a managerial orientation which calls for
focusing upon the diagnosis of the needs of the target market and their fulfillment; in
parallel, public welfare should be upheld in the long term."
These approaches outline the general framework of theoretical and practical thinking
about marketing. Let us now review the various definitions of marketing as put
forward in various studies over the last 3 years, in order to trace the development of
this subject.
The first definition, in a study dating back to 1952 [2], refers to marketing as a
production-dependent activity. The definition states “ marketing is the means by
which you dispose of the output of a farm, of factories, mines, quarries, forests,
fisheries, hunting, oil, as well as everything imported." The following is added by
way of explanation: From the seller’s viewpoint, marketing is the ability of the
marketing system to transfer everything produced from the producer to the
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2. consumer, (with minimum hindrances for the highest possible return and wages.
On the other hand, from the consumer’s viewpoint, marketing is simply the ability to
transfer goods in which he is interested, in the form and the manner he desires, and
at the lowest price to him. By making a synthesis of these two viewpoints, it should
be clear to us that marketing is in fact a series of foregone decisions, based on a
suitable market survey, as to what are the goods one should produce or import, and
in what quantities. In fact, these definitions teach us
the basic concept of marketing. Inside any marketing system, we find the producer
on the one hand, and the consumer on the other hand; and in between ¥them we find
the mechanism which causes the products and services to pass from the producer's
side on to the consumer’s side.
First definition of our review referred to marketing as a system assuming that the
center of gravity is with the producer and his point of view. Another definition which
also dates back to the fifties clarifies the following for us: "Production means the
concentration of raw materials in one place, while marketing means that this parcel of
finished products is sent into farther and farther, far-flung regions" [3]. Another
definition of the same period which stresses the passage from the producer to the
consumer and also the importance of product-ion says the following: [4] "Marketing
in general may be defined as the whole process by which real marketable surplus,
belonging to the producers, reaches the consumers." In the sixties we find a shift in
perspective and the center of gravity of the marketing definitions in the literature on
the subject. Researchers now find that the stress falls somewhere in the middle -
between the producer and the consumer. The stress is now made on that
mechanism which enables goods and services to pass on from the producer to the
consumer. Ottenson and others [5] explained that: "The firm is the bridge of
decision-making between the market it series and the sources from which it buys.
The buyer’s market constitutes the main source of income, whereas the selling
market is the main absorber of the firm's outlays." We further find that in that decade
of the 6's it was attempted to extend and refine the concept of marketing, in which the
firm occupies a central position, and the following definition [6] tries to present a
marketing model which describes price relations between different points in
geographical space, different points in the time dimension, as well as between
different alternatives based on the same raw material:
"Prices in different geographical locations within the same country will differ by no
more than the cost of transportation from one point to another, within one given
marketing area. Prices will differ precisely by the cost of transportation from the point
of production to the marketing location. Prices at one point in time will differ from
prices at another point in time, precisely by the storage costs-
The price of one product will differ from the price of another product manufactured
from the same raw material, by the difference in processing costs."
This concept also fits in with the discussion concerning the marketing of agricultural
products and the role of the cooperative in this set-up. Indeed, a definition of
marketing with preference to the agricultural system again stresses the importance of
this marketing system as a link between producer and consumer [7]:
"The performance of business activities directed towards, and incidental to, the flow
of goods and services from producer to consumer or user." During the 80's the center
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3. of gravity of marketing definitions shifted from its former midway position between the
producer and the consumer, to the side of the consumer. The consumer and society
are the main issues nowadays, and the manner of satisfying their needs. Successful
marketing is that which accounts for the consumer and its environment, as this is
outlined by the following definition [8]:
"Consumer satisfaction with social responsibility has been regarded as the center
around which all marketing activities should revolve".
Again we find that as opposed to the past concept of marketing, which stressed the
sale of products, the approach nowadays lays emphasis on the satisfaction of
consumer needs.
Figure 1
2. Agricultural Marketing
Now that we know what marketing is, and how the various approaches have
developed in understanding this process, let us examine and learn what agricultural
marketing is. Let us try to find out, if what holds for marketing in general also hold for
agricultural marketing, and for marketing in traditional rural areas in developing
countries. It is fairly clear that when we consider a marketing method suitable for a
traditional agricultural society, it will have to be adapted to the pattern of the
traditional society for which the said program is intended (9)
Traditional rural areas are distinguished by a subsistence economy. In such villages
the production unit is the family, which produces the food for its own consumption,
and for the payment of rent or tax, at the equivalent monetary value. Surplus is
offered for sale only after a particularly plentiful cultivation season. The family unit
considered as a production unit, is quite small and such units operate separately.
This situation makes it difficult to concentrate the produce for efficient marketing. In
certain areas the vast majority of the population is not at all used to thinking in terms
of commerce and barter trading. Another characteristic of these areas lies in the fact
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4. that many of the traditional peasants would be prepared to switch over to the
cultivation of market crops, provided a price system is set up which gives them an
incentive (10).
The traditional peasant in developing countries sells his produce at the time and for
the price, which are the least advantageous for him. He sells in order to pay his
debts, but the cycle is repeated, and he becomes involved in new debts. In
developing countries, the peasants sell a "forced" surplus. The peasant is forced to
sell a sizeable part of his produce, sometimes much more than he would have sold if
he had had the choice. In fact, the surplus marketed in the developing countries is
determined as follows: If we work out the total produce of the peasant, deduct from
this the family’s own consumption, plus payments he makes by handing over
produce, as well as the payment of various debts, usually to money-lenders, we
finally obtain the amount left to the peasant for marketing (11).
Maynard and Beckman in their study [12] list the main functions of agricultural
marketing. These include purchasing, sales, transportation, storage, sorting and
grading, financing, added risk, and marketing information. Purchase and sale involve
change of ownership. A thing sold is also bought, and anything bought is also sold.
Transportation involves the transfer from a place of surplus to a place of shortage
this is the geographical dimension, while storage involves the transfer from a period
of surplus to a period of shortage - the time dimension.
Mathur in his study of 1971 further extends the stages involved in agricultural
marketing [13]. He argues that marketing starts at the peasant's field and includes
the following: collecting produce surplus from individual peasants, transportation to a
nearby depot, sorting and grading, stocking up, processing, storage, packing,
transportation to consumer centers, contact between producer and consumer, and
sale to the consumer.
Most of the operations of the potential marketing require capital, and are carried out
at a high risk. The agricultural produce is usually transported in bulk. Storage
and transportation are very costly. The produce is seasonal, whereas the demand
for it continues all year round. The traditional peasant is a small marketing unit.
Hence produce collection is complicated and expensive. Agricultural marketing
involves losses, damage, and quality impairment during storage and transportation.
It is difficult for the traditional Peasant to undertake the marketing operations, and
therefore most of these operations are carried out by middlemen.
The obstacles in traditional marketing are the following: The marketing circle is long
and archaic. The marketing circle: stages through which the products pass. Starting
with the producer, and on until they reach the consumer. Within the framework of a
traditional market, the stages which the products go through are extremely long and
weighed down by a plethora of middlemen.
The infrastructure of transportation is archaic, the roads are bad or do not exist at all,
producers are a long way from the market, and consequently transportation costs are
very high. The fact that there is no planning in the production and the irregularity in
supplying the market, causes either a surplus or a seasonal scarcity of products on
the market Imported products compete with the local production. Lack of sorting,
processing and of warehouses and lack of organization of producers and consumers.
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5. Mathur goes on to classify the traditional markets. In the first place, we have the
primary market. This market is at the village level. The market does not function
every day, but at fixed intervals of a few days. The market usually serves an area of
about 1 km radius.
Next we have the secondary market. This already operates day by day, and the
action is wholesale. The market is regional, located in the central area of the region,
close to arterial roads, and it embraces a wider radius of activities.
The final market is the one in which the produce passes directly to the consumer, or
goes on to be processed, or to be prepared for transportation to markets abroad. An
example is a market located close to a harbor.
One must distinguish between the traditional market and the market which functions
regularly every day and also includes warehouses and wholesale services, of private
or state owners hip (15).
The local traditional market is usually maintained in areas where transportation is
almost impossible for the rural population with its limited means. And the goods and
services are intended for local consumption. The local market is usually located in a
market place. This is a site in which the goods offered change from season to
season. Such local market form a network, in which one market is linked to another
through the passage of goods, services and people. The local market is a meeting
place of occasional sellers, who set up at random in sales shacks, and come
together at fixed time intervals at that fixed site. This is where goods and services are
distributed between the villagers, who act both as buyers and sellers (16).
Who are the market operators? - In the first place, we have the itinerant village
trader. He is the main operator in the primary market. Sometimes he himself is the
producer. In other cases, he is the one who transports goods to and from the
secondary markets. He attends to the storage and sees first¬ hand reaction to of the
agricultural produce. In some cases, he hands out advances on account of the
produce, and thus finances the peasants. The second type of trader forms the link
between the village level and the secondary market level. He sells produce on a
commission basis, which he collects both from the seller as well as from the buyer.
He often finances the village level, and thus forces the peasants to sell through him.
The third type of traders are those who represent more serious purchasing outfits.
They operate on a commission basis. They take care of cleaning up the produce, as
well as processing it weighing, packing and dispatch to centers of transportation.'
these people have a large amount of capital at their disposal and finance their
business independently [17].
One further factor worthy of mention is the price of marketing, which includes all the
subsidiary expenses of the marketing process. These expenses usually give rise to
the difference between the consumer price and what the producer gets paid. The
reasons for this are many. Farms are widely dispersed and production units are too
small. There is no uniformity in the quality of the produce. Transportation is difficult,
and marketing information is faulty. There is insufficient capital for the processing
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6. and storage, and financing costs are high. Other factors which raise the cost of
agricultural marketing are e many and "'ed levies, the failure to sort the produce
which detracts from the return to the grower, inefficient sales procedures, neglecting
to weigh the produce, and delayed payment to the grower. There are too many
middlemen, and no regulation of the distribution among markets [18].
The mechanism of market prices: This is composed of the following: The price of a
product is determined by the supply and demand in the market. The supply
represents the quantity of products offered the same day on a certain regional
market. The demand represents the willingness to buy the same products by the
consumers, the same day on the market. The price of the product on the market is
not the price that the producer receives. The following expenses will be deducted
from the price paid by the consumer:
(a) Transportation costs - distance, the means of transportation, kind of product
transferred and its processing are factors which determine the cost of transportation.
As the distance in transportation becomes shorter and the quantity for transfer
increases, so the cost of transportation, which comprises part of the cost price of the
product, diminishes considerably.
(b) Processing: presentation of the product must be enticing, in unit packing, thus
allowing direct consumption to the consumer.
(c) Sales: Cash sales are convenient to the producer. Credit sales are also
convenient as they increase the range of customers; however, the risk of unpaid
debts and the interest involved in credit terms, may lead to these sales being written
off as Bad Debts.
(d) Storage of the surpluses during times when demand is higher than supply. The
cost of storage is influenced by the following factors:
- Construction costs
- Maintenance and depreciation (labor & financing expenses)
- Volume of products produced, due consideration being taken of the storage
capacity.
- Special conditions for storage of various products (perishable food,
liquids, etc.).
- Average, burglary and losses.
(e) We can add also factors that have an impact on demand. The more plentiful the
products offered to the market, the harder it will be for the consumer to take a
decision, viz. in regard to:
- Advertising
- Presentation of the product
- Trademark.
(f) To sum up: the selling price of a product is determined by the law of supply and
demand. The price the producer receives is lower than the selling price. The price of
the product sold implies the evidence of all the abovementioned factors, as well as
the profit of the middlemen, wholesalers and retailers.
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7. 3. The Problems of Marketing
We deal here with the principles of marketing, and assume that what is right for
marketing in general also holds good for agricultural marketing. In order to test this
assumption, it is a good idea to examine an additional component of the marketing
system, which is the firm. The firm is the decision-making bridge between the
marketing it serves and the sources it buys from. The firm’s expenses arise when it
raises and receives capital, labor, and other resources needed for production, while
on the other hand it provides a supply, for which it assumes there is a demand, in the
market it has chosen to serve [20].
The firm’s main problem is how to manage its resources in such manner as to
maintain an optimum relationship between expenditure and income. In other
words, the firm must implement an efficient conversion of resources so as to provide
a supply answering an existing demand. The firm should decide what to offer, and
how to pick the suitable market in which to offer its supply. The combination of all the
variables of which the firm decides to make use constitutes what we call "the
marketing mix."
The firm management must find out and establish its optimum marketing mix. The
component parts are many: how much of our resources are we going to invest in
production; how much should be devote to product development and future planning,
and how much to present production; how much should be spent on publicity; the
advertising budget must be divided between the different forms of media, between
various products, between areas of distribution, between methods of distribution, and
between potential customers.
The firm must decide what is going to be the final price of the product, the amount of
discounts granted to middlemen, what are going to be the sales areas, and the type
and number of intermediary agencies.
Other considerations facing the firm include the types of packaging, the trade name,
possibilities of obtaining credit, repair service for products sold, product warranty,
subjects which should figure in publicity, promotion frequency, messages
communicated, gadgets for salesmen, points of sale, and gifts to customers.
To sum up, the firm's marketing task is to combine all the variables of the marketing
mix into an effective marketing program. A good program should take into account
all the components for each and every product. Every variable of the marketing mix
is interchangeable with another. For instance, if we can grant a reduction in the price
of a product, perhaps we can do with less promotion outlay. Similarly, the placement
of more salesmen could perhaps be an alternative to an increase in the sales
promotion budget.
The firm knows that all the marketing mix components are expensive, and the main
question is how much of each variable it is worthwhile to apply, and how much
money to spend on each of them. The firm faces the traditional problem of choice, in
view of financing limitations, out of an almost infinite number of possible
combinations of the variables.
On certain of these variables the firm has no control, though it does exercise an
influence on them, such as the market and the demand it represents, who the
competitors are within this market, what the various sales channels in this market
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8. are, the firm’s employees, and the technology, which affects the use of the firm’s
products. There are also such variables, which are entirely beyond the sphere of
influence of the firm, such as cyclical price fluctuations, and the change of seasons,
the general level of employment, the legal framework, the social- environmental
framework, and the structure of social establishments. The people responsible
for marketing within the firm may find themselves in conflict with other factors within
the system, such as restrictions of advertising budget, forbidden marketing
channels, and imposed minimum and maximum prices.
The firm’s main task is to put together the marketing mix of instruments so as to
achieve the maximum profit. The firm will discover that it has achieved the maximum
profit by applying the marginal profit approach. It will put the optimum mix to the test,
which should show that there is no longer any improvement in net profit, neither upon
a change in one of the components of the mix, nor with a new combination at a
higher rate of expenditures.
In order to achieve such a high "level optimum, it is necessary to have a clear
estimate of the relationship between the cost and income for each of the mixed
variables, severally as well as jointly, with the other variables, in order to gauge in
what measure they serve the firm's purposes. One needs to equalize the marginal
net profit for every single one of the mixed components, so that if the last dollar
invested in publicity yields a further marginal profit of $50, whereas the last dollar
invested in personal sales yields only $25, then if $1 is taken out of personal sales
and invested in publicity, it will certainly increase the net income of the firm.
We wish to reach a point at which the net return to the firm upon variations in price,
quality, product form and design, sales promotion, distribution, and all the other
components of the mix, will be the same. The firm's marketing program should be
not just balanced, it must be balanced at the highest profitability level, and then we
have the optimum mix [21].
4. Constraints of Agricultural Marketing
Most small farmers do not possess suitable marketing means, and this is the main
handicap to increased production. Many of the farmers feel -that they run -too high a
risk of no-t being able to sell their produce at a fair price. The traditional farmer’s
need above all is to have faith in the marketing system. It is possible to conclude,
and we shall return to this point further on, that one of the main ways of improving the
farmer’s productivity, does not consist merely in improving the inputs and the
production methods. It is important to secure a reliable market, a suitable price, and
a system by way of which the farmer can market his produce, and at the same time
receive the highest possible share of the price paid by the consumer for that produce.
[22]
When the farmer sets about marketing his produce, he faces many constraints.
Overcoming them will help us in restoring his self-confidence, and will help him to
develop. The first group of constraints is those due to physical conditions. The
primary condition is the general infrastructure, which includes insufficient means of
transportation, bad roads, and undeveloped markets. A further factor is the absence
of agreed standards. There are no agreed standard rates and measures, and in most
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9. places the scales used are biased to the detriment of the farmer. The next factor is
the means of storage. Insufficient storage space, and faulty facilities give rise to
losses. The lack of storage facilities prevents the farmer from keeping over his
produce until the season when its price rises, resulting in loss of income.
Handling does not exist, or is in very bad repair. Transport methods are outdated,
and packing and containers unsuitable. The points of unloading, loading and supply
are unsuitable. The supply inputs are unsatisfactory to the farmer. These are not
provided in the quantities requested, neither when they are needed, nor again are
they of the kinds and qualities required. The constraints of agricultural marketing,
which hamper the traditional farmer, also include components, which are more
specifically related to marketing.
Commercial efficiency is hardly accorded any attention, particularly by
government and semi-government institutions, and sometimes also in cooperative
societies set up by the government. The farmer has a very slim bargaining edge,
and this fact is exploited by the private traders. The traditional farmer has no
financial means. Further constraints he faces are related to the marketing price and
the pricing policy. In many cases, the price paid to the farmer leaves him no profit at
all.
The input prices are too high in relation to the marketing prices. The price
fluctuations are excessive, and this in addition to high and unjustified marketing
levies as well as import taxes and exports taxes. The system of payment and the
manner of payment to the farmer is also significant - usually the farmer receives
payment too late, at too low a rate, not in cash, and occasionally only part of the sum
due.
This factor is bound up with the next factor, which is credit. Credit to farmers is
virtually non-existent. When it does exist, it is insufficient. When it is granted, the
price for it is too high. Marketing information is an important factor, which in most
cases is not at the farmer's disposal. Information concerning prices, markets and
other data, is faulty and deficient. Information concerning supply and demand in
markets at various places is almost non-existent, which prevents the farmer from
rationally regulating the supply of his produce.
The government agrarian policy affects the farmer in a major way. Many
governments have a general policy of food imports, or received food products
through foreign aid, which reach that country at prices far below the prices required
by the farmer in return for his produce. Unrealistic exchange rate policy results in
unprofitable exports, and gives rise to cheap imports, which compete with the local
producer. Many governments do not carry out a real agrarian reform policy, which
could help out the farmers. The small farmer finds himself in a vicious circle.
Companies and marketing organizations have no economic interest in providing
marketing services to a far ranging and non-uniform farmer population, scattered in
remote and hard to reach places. Without such services, the small farmers will not
take on the risk of stepping up production beyond their proper consumption.
5. Cooperative Marketing
A marketing cooperative is set up in order to market and sell the surplus produce of
its members, being such a surplus, as they cannot consume themselves. Marketing
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10. cooperatives generally sell agricultural produce, but there are also those, which sell
fish produce or handicrafts [23]. There are also other definitions of cooperative
marketing. Margaret Digby defines a marketing cooperative as a system in which a
group of farmers join together in order to carry out part or all of the processes
involved in bringing the produce from the producer to the consumer. The Bank of
India defines a marketing cooperative as a society of farmers, organized for the
purpose of helping the members to market their produce, so as to obtain higher
profits than is possible by way of private marketing [24].
The reasons for the establishment of such cooperatives are:
When there is a surplus in production over the consumption.
In order to save expenses for middlemen who benefit from the producer in various
fields, such as: bad weight, very low prices and loans at high rates of interest.
When the system in force is archaic, it does not meet the requirements at all,
involves many middlemen or compensates very weakly for the producer's work.
Thus, a marketing cooperative must offer its members a more efficient service than
that in force, so that its members obtain a greater profit from their work.
When establishing a marketing cooperative, it is indispensable to study various
aspects and problems:
What products shall we produce and sell on the market? Whet, experience in regard
to production? What species are marketable every season, quantities and qualities
that are preferred? What are the perishable items that can be stored and under what
conditions? What is the present marketing system? What system of payment is
practiced for the producers? Is any advance payments allowed just after the crop, or
will payments be effected only after the sale of the products? What is the best
marketing circle of the production? Does the product undergo a process for its
improvement? To have a sound knowledge of the medium of the improvement.
Financing Problems: One producer expects to get his money upon immediate sale of
his products. Another producer wishes to receive a down payment. Whereas, the
cooperative is paid only after the sale of its products. Sometimes, it is even
necessary to store the crop for many months before it can be sold. It is also possible
that the output will be sold at a distant market, which entails transportation costs-, or,
sometimes, the retailer will delay payment of his bill. All these factors produce a
clash of interests between the needs of the producer and the existing possibilities
of the cooperative. Therefore, working capital is indispensable to meet the
requirements and to comply, at least partially, with the interests of all.
Possibilities: An important working capital to farmers. Financing on short-terms by
a bank. Financing by a cooperative bank. Establishment of a financing enterprise
where the members of the cooperative are also the shareholders. Such a financing
enterprise will be established by the marketing cooperative. It is the most
advantageous and cooperative solution. Cheap credit is allocated to the farmer
provided he sells all his output through the cooperative.
When the cooperative has determined the exact quantities, which it will be able to
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11. sell, it is in its own interest to make agreements for sates in advance. A sound sale
crowns the producer's work. This is the reason why the establishment of a
cooperative is a necessity to the farmer. The cooperative prevents unhealthy
competition between its members, sorts out the products conscientiously and directs
the supply towards the demand.
The cooperative has to cope with all the abovementioned problems when selling its
production. Other problems also arise, such as: A small supply of different products;
thereby small quantities for sate. The production of vegetables and poultry must be
sold several times each week. As the agricultural cooperatives are far away from
the market, transportation costs go up. Bad roads and high transportation costs
further increase the cost price of the product. [25]
The marketing cooperative was created in order -to push up the selling price as much
as possible and to increase the return to the member’s -For their output [26]. The
cooperative offers its members an improved bargaining position in regard to services
such as transportation, and is capable of affecting a better sale. The better the
service the more members will be keen to join the cooperative. More members in the
cooperative will enable a reduction in the price for various services, as well as in
running costs. The cooperative makes it possible to maintain services such as
storage, bulk transport, extended credit, markets survey, cooperative education,
which the single farmer is generally unable to achieve [27].
Marketing cooperatives in developing countries encounter many difficulties. G.
Hyden describes some of them [28]. Many of the marketing cooperative in Tanzania
was set up by local politicians who were influential at the national level. The main
argument was that cooperatives would minimize exploitation. The cooperatives were
set up without any feasibility study or field survey, and as a result they fell into
considerable monetary dependence on external organizations, such as marketing
organizations or financial institutions. Since the cooperatives were set up to suit
external decrees (the politicians), the marketing cooperatives' fields of activity
neither accorded nor covered, either functionally or regionally, the needs of the
productive units at work in the rural areas. The cooperatives were troubled by grave
management problems, and in parallel by lack of skilled manpower.
In Bangladesh a very extended system of agricultural cooperatives was
organized [29]. The marketing cooperatives, which are of the third level, are
concerned with four main activities - the marketing of agricultural produce of all kinds,
the marketing of semi-industrial products (handicrafts), marketing of fisheries
produce, and marketing of dairy products.
Agricultural villages form the base of this structure, whereby every fifteen villagers
make up a secondary level unit. All secondary level cooperatives are organized into
a third level cooperative. Though these cooperatives have made significant
achievements, they are also faced with weighty problems. The first problem is
credit. The farmer would like to sell his produce for cash, and this requires the
cooperative to have command of considerable liquid resources, for which it must
obviously pay dearly. One of the solutions to this problem is, of course, to sell the
farmers' produce on a commission basis [30]. But as is the case in India, so in
Bangladesh, the cardinal problem of the marketing cooperative is the lack of any link
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12. between marketing and credit [31]. Further problems in Bangladesh are the great
distances between the cooperative branches and the farmers in the villages. The
management of those cooperatives is not professional, and many of the societies
are in fact reduced to waiting for things to happen [32].
At the other end of the scale we have examples of marketing cooperatives, which
have been successful. In Jordan, the olive marketing cooperatives have changed the
farmer’s methods of cultivation. The farmer was obliged to pick the olives carefully
and in a selective manner, so as not to harm them. The olives were transported
directly to the oil press, without interim storage. The farmer could step up production,
but he was required to supply better quality and cleaner produce. The produce was
graded into various quality levels, and this grading also increased the demand on the
part of the consumers. The cooperative also succeeded in influencing prices.
The cooperative led to an increase of the return to the farmer by 1% over the market
price, with customers being on the look out for the cooperatives olive oil, as they
were confident of its quality (33).
The carob marketing societies in Cyprus have also been successful, and so have
other marketing societies. Among the reasons for this success we may note the fact
that the farmer was more exploited in the past. The marketing cooperative, on
account of its size advantage, has attained lower marketing costs than the private
traders, on top of the high level of management [34].
Another example is the agricultural marketing system in Algeria. This system, which
had been influenced by the socialist dogmas, which placed the State above all. Is an
example of severe failure in everything that concerns marketing? The system has
tailed in all that concerns transfer of information, packing, transport and storage [35].
6. Models of Marketing Cooperatives
Marketing is the process that an agricultural product goes through on its way from the
producer to the consumer.
Traditional marketing involves several intermediary stages within this process. The
result is, of course, that the consumer pays an exorbitant price and the producer
receives a very low price for his production. Naturally, it is in the interests of both
producer and consumer that the number of steps in the marketing process be
reduced as much as possible. The result: the producer will earn more and the
consumer will pay less.
The first form of marketing is the traditional marketing circle I he peasant sells his
production at a local market which is held in his village every 5 or 6 days - this is the
first stage. The intermediary who buys this production transports it. Usually on
overloaded small open trucks covered with a tarpaulin, to a regional market. Another
intermediary will buy these goods and transport them to an urban market. The
production will then be sold and distributed at the neighborhood markets where the
retailers will come to get their supplies for sale to the consumers. This way
agricultural produce has undergone too many stages from producer to consumer.
All intermediaries have benefited -From this process, but not the producer nor the
consumer.
12

13. The solution to this state of affairs: a marketing cooperative owned by the producers.
This cooperative's aims are to reduce to a minimum the number of marketing stages
between producer and consumer. In Israel, the Tnuva cooperative is a marketing
cooperative belonging to all moshavim and kibbutzim, and today has the fourth
largest turnover among Israeli enterprises. Tnuva has organized a national network,
which takes upon itself the collection, transportation, storage, processing and sale of
approximately 75% of agricultural output earmarked for the local market in Israel.
The setting up of Tnuva has reduced the number of steps in the marketing circle, but
not enough. Agricultural produce leaves the farm, passes through "Tnuva" and is
then sold in the local market and in various small shops.
Another alternative reduces the number of steps even more. This alternative
involves direct contact between the marketing cooperative owned by the farmers
and the consumer cooperative owned by the consumers. Thus, the sale of
agricultural products takes place from one cooperative to another, and in principle,
the profitability for the producer increases while the purchase price for the consumer
decreases. This situation, though far removed from the traditional marketing circle,
does not go far enough. It is still necessary to try to eliminate superfluous steps in
the marketing circle. Two solutions have been found:
The first consists of consumer sale centers, belonging to the marketing cooperative,
an example of which is Tnuva in Israel. These sale centers link producers directly to
consumers. The second solution consists in supply centers for agricultural produce,
which are owned by the consumer cooperatives, the latter belonging to the
consumers. In this example the consumers have organized themselves in order to
acquire their consumer goods directly from the producers.
The last marketing method, which we shall discuss, concerns the organizations which
belong to the farmers and the government and which deal with the export of
agricultural products [36].
The last stage in our model is the stage at which selling takes place directly from the
producer to the consumer. This is the preferable stage because it produces the best
results of all, both as far as the producer is concerned, as well as for the consumer.
An example of this is direct selling outlets, which have been set up by moshavim and
kibbutzim at roadsides all over the country, which sell their produce directly to the
public. This solution is beset with problems and is not always possible of
implementation - but this is the solution we strive for.
Figure 2.
13

14. 7. A Marketing Cooperative in Israel - The Tnuva Case Study
14

15. Agricultural marketing cooperatives throughout the world are mostly concerned with
the marketing of agricultural produce of individual producers who run their farms on
their own. These farmers cooperate mostly for the sake of marketing their produce.
Tnuva, the biggest marketing cooperative in Israel, is a cooperative of the second
degree, which markets the agricultural produce of its members, which are the
primary cooperatives [37]. Tnuva was founded in 1926, when the agricultural
produce marketing division was detached from Hamashbir Hamerkazi. Hamashbir
Hamerkazi served as the central cooperative for the supply of basic provisions, and
belonged, as it still does today, to the moshavim and to the kibbutzim. It must be
stressed that Tnuva was founded, like other marketing cooperatives, from below, and
not by decree of government or other authorities, from above. Membership in Tnuva
was and remains to this day open to any Moshav and kibbutz, or to any other
agricultural cooperative in Israel. The member joining is not required to invest money
in buying a share, but has to fulfill other obligations. A Tnuva member is required to
market all his agricultural produce through the cooperative, without exception, for the
following two reasons: In order to prevent competition with other Tnuva members,
and in order to tighten the link between credit and marketing [38].
Tnuva members participate in the cooperative central executive councils, sending
one, two or three representatives to the cooperative general assembly. The number
of representatives is determined according to the farmer membership in each primary
cooperative (Moshav or Kibbutz) and is independent of the monetary production
volume, or the quantity of produce marketed.
There were two important operational guidelines in Tnuva. As already mentioned,
all the output of Tnuva members must be marketed through the cooperative. The
member settlement must pay Tnuva a fixed commission, which may occasionally be
quite high, compared to other marketing networks [39]. This commission is
deducted as a certain percentage of the marketed produce. Tnuva in fact operates
as a non-profit organization. The entire marketing return is passed on to the farmer,
less the commission, which is calculated for each type of produce separately, in
order to cover the direct expenses and the cooperative financing expenses. Since it’s
founding to this very day, Tnuva policy has been directed at two main goals. The
first was to sell all agricultural produce of the cooperative members. The second was
to safeguard the consumer’s interests.
The first goal is attained when the cooperative sells the produce transferred to it.
Tnuva has always endeavored, as a general policy, to obtain the maximum return for
the produce of the farmer member [40]. In addition to the abovementioned
commission, Tnuva further deducted a very low commission, usually much less than
1%, from each sale affected. Tnuva named this deduction, "member's contribution
towards the purchase of Tnuva shares" [41]. The money thus collected was intended
for investment in the cooperative. We have here two Phenomena investment in the
cooperative. We have here two significant phenomena:
- Tnuva has accumulated a property (equity) which was financed by a percentage it
deducted from the sates of each member, but was actually totally anonymous, and
the member had no way of knowing, or perhaps had no desire to be able to know
whom those shares belonged to. The member did not know, and could not know the
worth of those shares for which he had paid. The shares conferred on him no rights
15

16. whatever, and in fact after many years an enormous equity was amassed at Tnuva,
which was not linked to the member in any form whatever, except perhaps in the
abstract.
- In spite of the fact that it is the primary cooperatives that are the Tnuva members,
not the individual people, the above monies are deducted from the individual. Tnuva
forms a direct link with the member of the primary cooperative, not with the primary
cooperative as a unit. The farmer member became acquainted with Tnuva directly
in everything regarding the sates organization, the marketing, prices, and deductions,
but so far as the democratic system of the second-degree cooperative was
concerned, he was quite definitely out of touch. Representatives at the
Tnuva institutions were usually delegated at the executive level of the cooperative to
which he belonged. The individual member had very little say in this in practical
terms.
The second interest mentioned - safeguarding the rights of the consumers was a
principle, which was to guide Tnuva’s business activity throughout its existence.
Tnuva attempted to minimize the marketing stages, and bring the producer closer to
the consumer. This was evident during the 30's and 40’s in the establishment of
dozens of retail sales branches of Tnuva throughout the country, in the cities and
townships [42], as well as during the 80's, when the largest supermarket network in
Israel was founded. Tnuva deals with the various aspects agricultural marketing,
such as the processing of marketing produce, sorting and grading, quality control and
packaging
[43].
One of the main problems with which Tnuva is confronted is the price problem.
Tnuva sells its produce at market prices, particularly as regards fruits and
vegetables, as well as any other product not under government control. On the other
hand, the size of the cooperative (Tnuva is the fourth largest company in Israel)
enables it also to regulate the prices of agricultural produce and thus to be of
service to the consumers as well [44]. Tnuva's price policy, and the fact that Tnuva is
a cooperative, has generally helped to reduce the gap between the price received by
the producer and the price paid by the consumer. The argument in Israel in the past
was that this gap is relatively small, on account of the marketing being done by
cooperative. We may perhaps add that Israel's limited geographical extent, in
consequence of which transportation distances are short, certainly also contributes in
this respect. Verlinski lists a number of measures by which the gap may be reduced
[45], such as maintaining a higher quality, grading and packaging, maximum
efficiency in wholesale transportation, as well as suitable retail packages, and
centralized retail marketing, which enables increased turnover and the reduction of
costs as well as improved service.
How can we in practice estimate the price of a product from the producer up to the
consumer? This path is quite long and has been described as follows [46]:
Rice passes the farmer's gates on its way out. The dispatched rice has not yet been
threshed and cleaned up. To the price of the rice at the farm gate we must add the
cost of transport to the village collection depot, as well as additional expenses such
as sacks, etc. This gives us the price of the rice at the village collection depot. To
16

17. this price we must add the transport costs to the rice station, the cost of weight toss
due to the drying of the rice, the storage cost which depends on how long is it going
to be stored, material losses of waste and damage, general expenses of the rural
station, as well as the profit made by the people who run this station. Rice
transported to the rice station for threshing will undergo a price increase by the costs
of threshing, storage, additional drying, transport to the wholesaler, packing costs,
general expenses and the profit of the threshing station. This is the price of the rice
when it is passed on the wholesaler. To this price we must add the average storage
costs at the wholesaler, waste and material losses, cost of transport to the retailer,
general expenses of the wholesaler and his profit. The retailer will add to this price
his general expenses as well as the profit he hopes to receive and thus we finally
reach the consumer price. This chapter concerning Tnuva may be concluded with a
quotation from Nahum Verlinski, one of the first directors of Tnuva, who wrote in the
6's [47]:
The marketing of agricultural produce is the final stage of the producer's work and is
the factor, which dictates his activities throughout the year. The farmer’s success or
failure in marketing his produce decides the success of all his work. Marketing is thus
a matter of primary importance to the farmers, and it is therefore not surprising
therefore that all over the world farmers have tried for years to gain control of a
function so vital to their existence, by organizing themselves into cooperatives to
direct and expand the sale of their produce.
Without the benefits of co-operative marketing, the farmers remain dependent on
commercial distributors, who are in a position to dictate conditions. Cooperative
marketing also benefits the consumers, by imposing responsibility on the producers
for supplying their produce, helping them to handle their produce efficiently and
regulating its flow to different parts of the country.
Another important aim of cooperative marketing is to promote the long-term interests
of its members. One of the most important factors in this is to relate prices to quality.
Israel farmers have realized the value of cooperative marketing years ago and their
degree of organization is high. Cooperative marketing covers 80% of local sales and
an even higher proportion of agricultural exports.
The young states of Asia and Africa are based very largely on agriculture, and
cooperative marketing of their produce is therefore important to make them
independent of commercial interests, and to assist their development in every
aspect."
8. The Production, Marketing and Export Boards
One of the most important marketing institutions, and one which exists in the vast
majority of the world's countries, are the production and marketing boards. This is a
central marketing organization serving a specific industry (a specific product), which
is intended to achieve a higher efficiency and orderly marketing. The board is
defined as an essential organization, influenced and directed by the producers, set
up by the authorities, with the purpose of intervening in the various stages of
17

18. marketing [48].
Most production boards in developing countries are involved with the producers'
interests. The first boards, which were set up towards the end of the 20's, sprung up
as a result of the farmers’ struggle to increase their own bargaining power and that of
the cooperatives representing them, in the confrontation with competitive
intermediary outfits.
The overall trend was one of technological advance on the part of the small farmers,
who consequently reached a state of production surplus, and thus became more than
ever dependent on the various intermediary outfits. The farmers set up marketing
cooperatives in order to protect their interests. Those cooperatives were
successful, and thus contributed to the stabilization of marketing conditions. This
situation was beneficial also for farmers who were unwilling to join the cooperatives.
The preservation of members' loyalty became a major problem of marketing
cooperatives. The cooperatives accordingly turned to the government, requesting
that it form production and marketing boards vested with the power of enforcement
[49].
The marketing boards have a monopoly on the marketing of a product or a number of
products. The board buys goods from the farmers through authorized agents at an
agreed price, at official stations, and carries out the grading. The board organizes
the necessary transportation. A monopolistic board may undertake a variety of
functions including overseas publicity, research of new strains, the improvement
of cultivation methods and transportation techniques, etc. The non-existence of
competitors reduces marketing risks, reduces prices as well, and indirectly also
reduces credit prices.
Storage enables a better correspondence to be obtained between supply and
demand, and it is also always possible to deal with surplus produce. A monopolistic
Board can divide the total supply between different markets so as to secure a higher
mean price than could be obtained by fixing one standard price for all markets.
Moreover, the ability to pay the farmer an average price over a long time period
makes it possible to restrain fluctuations in the farmers' income, and to exploit
efficiently resources in the production process. The board has a better access to
marketing information and consumer tendencies [50].
For example, in New Zealand, oranges are all marketed through production and
marketing boards. The function of such boards is to acquire the entire local citrus
crop and fix a price for 96 it. The board according to grading of the marketed fruit
fixes the prices. 14 days after the fruit is received, the board must inform the
grower of its grading, and have the price to be paid. Payments to the grower are
made on a monthly basis. The board expenses are covered by deducting a certain
percentage from the value of the entire quantity marketed by each producer [51].
Production boards in developing countries are government oriented. Most of them
have been initiated by the government and are ruled by it. These are boards, which
act as tax collecting organizations, or as foreign currency controllers, and do very
little in the way of marketing [52]. In Senegal, for example, the peanut marketing
cooperative was practically a state monopoly for marketing of agricultural produce.
These were set up in such a way as to ensure political control, and in parallel to
18

19. excise as much as possible from the farmers' income. The total income from peanut
exports from Senegal was divided into three parts, which were the return to the
producer, various deductions and marketing expenses, and the upshot was that the
producer did not get the maximum return [53].
It must be stressed that monopolistic production boards in developing countries,
which were intended to be of benefit to the producers as well as to the state, have in
fact inflicted severe damage on the national economy of their respective countries.
We know of great many examples, and one of the famous ones comes from Ghana,
one of the largest coffee and cocoa producers in the world. Ghana has suffered from
a distorted policy in regard to the production and marketing councils. A sizeable part
of the annual coffee and cocoa produce (some say as much as one-third) was
smuggled into the neighboring countries and exported from them. The result was a
decrease in foreign currency income to Ghana, and an increase in W this income to
the neighboring states. In conversations with people from Ghana, one hears it
argued that the farmers are in fact to blame for this. None would entertain the notion,
at least not officially, that perhaps the government policy is to blame, in that it
enforced an unrealistic exchange rate, relatively low prices, delayed payments, and
the result was very low profitability to the farmer. Such policy leaves no choice for
the farmer, but to smuggle his produce somewhere else. Where he can obtain for it
the highest return.
In other developing countries we encounter an inefficient internal marketing system,
inadequate transportation, produce collection, sorting and packing and no immediate
payment to the farmer, all leading up to the farmer eventually selling his 99 produce
to private middlemen, instead of to the government marketing organizations. The
farmer manages to get his income. I| but the entire system of guided agricultural
credit is damaged, because it is unable to collect cultivation credits which were
extended to the farmers.
The researchers Izraeli and others suggested models of the development of
production and marketing boards [54]. The model presents a system of marketing
institutions, which starts with the situation in which we find independent producers,
who market their produce on their own and make their own decisions. Each of them
has the authority to decide by himself and for himself. So far as he is concerned, his
authority is quite extensive, his surroundings, however, he has very little authority.
The alternatives are limited because his resources are limited, and he is subject to
both horizontal and vertical competition. Next we pass to a situation in which a
growing number of farmers cooperate in order to increase their power relative to non-
member producers. A framework of formal relationship is set up to that end between
the members, and a cooperative comes thus into being. Each of the producers
gives up a part of his autonomy, and areas of joint operation are formed, whereby it
is agreed that in these areas the general decision must overrule the decisions of the
individuals. In this way the struggle of producers with one another is replaced by the
struggle of producers of one sector with other sectors.
Further formation of establishments amongst the producers, including eventually
other sectors, gives rise to new organizations, in which the producers cooperate with
the government, with the various intermediary outfits, with the cultivation specialists,
and also with representatives of the consumers. Statutory recognition provides the
19

20. impetus for the formation of the marketing boards. These belong at first to one
productive sector. The process goes on, however, and gives rise to inter-sectorial
production and marketing councils. When these councils are formed, people are still
worried about the possibility that weak sectors, such as the consumers, or society at
large, are going to get hurt. In the final stage, production councils are established
which have a social interest, with the government participating, and in which
national welfare priorities are brought forward. In Israel, this approach has been
adapted in the establishment of various production, marketing and export councils,
whereby 50% of their directorates are allotted to representatives of the various
sectors, and the remaining authority is in the hands of government, through
representatives of various public sectors.
9. The Planning of Marketing in Traditional Rural Areas
The third world countries consist mostly of rural areas, and the percentage of the
population living in rural areas is typically between 70 and 90 percent. The villagers
are mostly farmers, but this is subsistence farming, and cultivation, produce, credit
and marketing are done after the traditional fashion. The framework of society is
traditional, as compared to Western society, which is mostly urban.
One of the main goats of third-world countries is development [55]. Many
development efforts were made over the last 30 years, but not always with
satisfactory results. One of the main goats of these countries was the
development of agriculture, the improvement of the level of food production, both for
internal use and for export, and the improvement of the farmers’ standard of living.
The agricultural development in general largely revolves around four main points. At
the center we have the agricultural production processes. Production becomes
possible when we supply to the farmer suitable credit, the possibility of obtaining
cheap supplies of inputs, and the possibility of marketing his produce in a manner
satisfactory to him. In the traditional system, production is carried out by age-
outdated methods, credit is expensive, and interest is usurious. Inputs are expensive
and scarce, and marketing exploitative and controlled by middlemen [56]. The efforts
of developing the agriculture in traditional rural areas revolve in fact around these
four points. It turns out, that when the deed is done property, a cooperative can
indeed give a true and satisfactory answer to the problem of development of
traditional rural areas.
9.1 Productions and Marketing
We have seen in the first chapter that marketing which used in the past to be
production oriented, is today a system, which focuses on the diagnosis of the
requirements of the targeted market and the means by which these requirements
may be supplied. One may wonder if the traditional farmer, producing his traditional
goods, within the fabric of a system, which does not allow much leeway or
irregularity, would be capable of adopting the marketing orientation of our times. In
other words, when we build a marketing program, when we plan the marketing of the
traditional farmer, or even of an agricultural cooperative which is set up within a
traditional village, should be construct a program based on production as it is, or on
20

21. planned and improved production, which would endeavor to define the optimum
distribution of the target and increasing quantities turned out by improved production.
On the other hand, we can come to the traditional farmer and tell him: We are going
to focus on establishing the market requirements; and based on the market
requirements, we are going to lay out a production program for you which wilt
answer those requirements.
The dilemma presented above is very important. Modern marketing literature is in
fact concerned with the presentation of solutions according to the second formula.
Is this formula applicable in the framework of a rural traditional society? Two
examples from Israel may perhaps provide an answer to this question. The first
example relates to the grapes of a Moshav called Lachish. This Moshav was founded
towards the end of the end of the fifties in the Lachish region. The Moshav is based
on mixed farming, but one of the main production branches is grapes for eating. The
terrain is flat highlands, with soil suitable for vine growing. The Moshav employed
specialists in the cultivation of vines, and succeeded in acclimatizing a new strain
of edible grapes, which belongs to the Sultanina family - these are grapes without
pits. The new strain proved to be resistant. And it gave very high yields per unit
areas. It had introduced to the Israeli market. The problem was how to market the
Moshav Lachish grape. In other words, the starting point was that here the
production was already a fact of life and now the output should to be marketed. It
was known to the marketing planners at the Lachish grape had some singular
qualities – it ripens in the season in which the competition Is relatively slight, and the
supply may be as high as one-fifth of the total consumption of edible grapes in Israel
The program consisted in a publicity campaign, or a marketing program, which
stressed the quality of the Lachish grapes, and especially the fact that they had no
pits. The grapes were packed in small transparent uniform plastic containers. They
were given a trade name, and the Moshav hired a marketing specialist who took care
of the produce sales throughout the various markets in Israel. This campaign has
been very successful [57]. Here we have an example in which a procluct1ve
agricultural system sets up for itself a marketing apparatus, to assist it in selling its
produce.
A somewhat similar story may be gleaned from interviews published 1n various
newspapers, with Shimshon Wolner, the manager of the Ramat Hagolan vineyards.
Many wine-grape vines were planted in the Golan Heights towards the end of the
70’s. The volcanic soil of the Golan Hieghts favored the wine-bearing grapes. At the
beginning of the 80-s there were In Israel quite a few vineyards, which controlled the
wine market and offered to the consumer public a variety of wines at relatively very
low prices, and of course the quality was not very high. The Moshavlm and
kibbutzim of the Golan Heights understood that they must establish a vineyard of
their own, otherwise they would not be able sell all their produce, and the return
would also be very low. Such vineyards were duly and the wine manufactured.
Shimshon Wolner applied a very clever marketing policy. He sold wine, admittedly of
good quality, but at prices that were four or five times as high as prices, then, current
in the market. The quantity marketed was small at first, and he sold them mostly to
hotels, tourists and prestige restaurants. In parallel he started a systematic campaign
to spread around, as it were surreptitiously, the name of this precious quality wine
which was virtually unobtainable. The result of this campaign was extraordinary. The
wine quantities marketed grew from year to year, and the demand for these wines
21

22. increased in parallel, frequently exceeding the supply offered on the market, and
certainly at a much higher return to the producers.
Here we have an example demonstrating how a given agricultural production forms
the framework from which a marketing program is derived, which if successful
establishes also the success of the farmer. It should be noted that had a market
survey been performed at the time, the current data would have indicated that the
market was saturated with wine, with large stockpiles. The successful program of the
Golan vineyards created new types of demand, which had not existed before, and
this made for great success. In view of all this, we ask ourselves once more: How
should we construct a marketing program for traditional rural areas. We shall try to
answer this question in the following chapters.
9.2 The Financial Structure of a Marketing Cooperative
The financial structure of a marketing cooperative is basically similar to the financial
structure of any other cooperative [59]. The basic conception is that the purpose of
the marketing cooperative is one only - to offer the members the best service that the
cooperative can give. Any other goal set before it, any goal such as profit making, or
even the distribution of surplus, is unjustified, and in the long run would lead to ||
failure of the marketing cooperative in its function as a cooperative. What is the best
service to the member? - The marketing cooperative is the organ, which sells the
member’s produce, and hands him over the highest obtainable return. What is the
structure of such a cooperative? - On the one hand, we have the producer/member
who passes his produce on to the cooperative. The cooperative serves in fact as an
agency, which keeps the produce for some time, and then passes it on to the
consumer. The cooperative receives financial income, which is the return paid by
the consumers to the cooperative for the agricultural produce marketed. In fact,
according to our above definition, the cooperative should pass on all monies it
receives to the farmer, deducting precisely the sum required by the cooperative in
order to exist and go on selling.
What are those expenses made up of? In the first place, we have the direct
operational expenses. These are the expenses involved in running the cooperative.
They include wages, current expenses, maintenance, insurance, marketing losses,
and any other expense necessary for the upkeep of the system. In addition, we
have to deduct from the return also the indirect expenses, the price of financing the
founding of the cooperative. Many cooperatives all over the world recover the
price of investment in the cooperative by deducting a certain commission from any
sale by the cooperative. This gives rise to very serious problems. Take for example
a cooperative dairy, which must market the produce of two members. Suppose, for
the sake of argument, that in this cooperative there are just those two members. The
cooperative has a dairy, which takes care of the conveyance of milk produced by the
two members. A certain sum has been invested in -the dairy, which enables each
member to market as much as he produces. The dairy price is deducted and is
gradually returned within five years. Out of every liter of milk passing through the
dairy, a certain sum is deducted, in order to return the investment. In our example,
over five years, one farmer markets 1.000 liters a day. While the other farmer only
markets 100 liters a day. The result is that in effect one member contributes to the
return of the investment ten times as much as the other member. When after five
22

23. years, the entire investment has been repaid, and the members are now free of
indirect expenses, since these have all been paid off, the second member may step
up his milk production, let us say to 500 liters a day. And then make use of a facility
the investment in which has been largely paid by the first member. This is flagrant
injustice.
In my opinion, the financing expenses of the cooperative must be entirely
disassociated from the operating costs. The financing expenses must be paid by all
members equally, or equitably, but definitely in a manner totally disassociated from
the operating system of the cooperative. That process, in which a fixed commission
is imposed on the member's produce, which also covers the indirect expenses of the
cooperative, is wrong. When it is applied in a marketing cooperative, which includes
many members, by way of deduction of commission, or, by investments out of
surplus, we in fact create two kinds of equity. The one is small, it belongs to the
members, who may have paid for a minimum membership share, while the other is
enormous in extent, and cannot be attributed to any member. The result is a feeling
on the part of the members that they are cut off from the cooperative, and sometimes
they become indifferent to what goes on there.
The price of service given by the cooperative must therefore only include the direct
expenses, plus a certain safety margin, intended to cover unexpected expenses over
certain time periods. This sum is in fact the surplus of the cooperative. This sum
belongs entirely and absolutely to the members, and must be split up between them
in proportion to the use they make of the cooperative services. In fact, a good
marketing cooperative will deduct from members the lowest possible sums as
coverage of unexpected expenses, and will hasten to return them as soon as
possible, in order not to let them be devalued by inflation.
9.2.1 Management of the Marketing Cooperative
The marketing cooperative manager should be employed on the basis of the formula
of wages proportionate to productivity. The cooperative manager should receive
some kind of low basic salary, and on top of it a fixed remuneration, which is to work
out according to his success in marketing the cooperative products. He should
receive a certain small payment, which must be worked out in each case separately
of course, against every volume unit or weight unit which is passed through and
successfully marketed by the cooperative. The interest of the manager, which will
provide an -incentive for him - do his job well, is of course the desire to earn more
money. Good management of the cooperative would be expressed in increased
sales of products brought to the cooperative. The more he sells, the more money he
makes. The more he succeeds in reducing the cooperative expenses, the more
competitive the price he will be able to offer on the market. In this way both parties
are going to benefit. The members will have a cooperative, which sells their
produce well, increases their income and has a manager who makes a lot of money,
but manages the cooperative efficiently, and is not distracted by thoughts of how to
embezzle its funds.
9.2.2 Marketing Cooperatives in Developing Countries
23

24. In most of the world's countries there is little understanding of what a cooperative
really is. In many countries, a cooperative is commonly regarded as something set
up in order to provide profit and income. Such cooperatives do not serve their
members at all. Managers who look for ways of showing a profit, raise the operating
expenses of the cooperative, and thus injure the members, as well as the consumer
public. The cooperative becomes a place in which you can employ family relatives,
without regard for the cost of such action to the cooperative. Most cooperative
members are unable to monitor and control the activities, which go on, suffer from
bad management and from corruption of the organizations which run the
cooperatives.
Many cooperatives are founded by decree of high authority, and not by the members
themselves. The cooperatives serve as an excellent financing instrument in the
framework of the so-called economy of affection and the political clan [60]. For
various politicians, and only seldom provide efficient service to their members.
Figure 3.
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25. 9.3 Marketing Planning
Let us restate our problem. We are discussing a traditional| village, in which there
lives a community subsisting by traditional agriculture. We wish to develop this
village. Our task is to prepare the village a program, which enables it to develop.
The peasant who lives in this village is engaged in agriculture, grows traditional
crops, cultivates his field in the traditional way and obtains low yields. His annual
income is low. His daily output is very low indeed, and so is the production output
per unit area of the plot he cultivates together with his family.
The first phase of our program will consist in preparing for the peasant a farm plan,
which will increase his income, raise his productivity, and reduce the extent of
disguised underemployment in which he lives. The farm plan takes into account
such factors as the free working days throughout the year of the farmer and his
family members, the cultivated plot at his disposal, the crops he is able to grow, how
many working days are required for each type of crop, and what is the financial return
per working day for each type of crop. Based on all these data the peasant prepares
an optimum plan, which will enable him to keep himself and his family members
employed to the maximum possible extent throughout the year, as well as to grow
crops which will give him a higher financial return, to cultivate a larger plot, and to
obtain a higher income per working day.
It is obvious that this situation is what every peasant desires, especially in the
traditional village, but such a situation does not exist in isolation. Any change at the
production stage depends by close reciprocal link on the three factors mentioned
above - credit, inputs supplies, and marketing. In the traditional system, the
marketing was usually done by a series of middlemen, who left very little return in the
peasant's hands and in his pockets. In a development system one must give the
peasant an answer, which will let him market his produce, and receive the maximum
return. One of the efficient ways of doing this when it is properly executed is the
cooperative way. In order to produce, the peasant needs suitable credit to acquire
the necessary inputs. The peasant also needs a channel through which to market
his produce with the maximum efficiency.
9.3.1. Present and Expected Production Plan
The first body of data we have to assemble, of course, is the production plan, which
is being applied at present, and how the produce is being marketed. In an
investigation conducted in a rural area in Benin, it was found that only 35% of the
produce has been sold, and the remainder was consumed by the peasant and his
family [61]. Certainly, we must know, after learning the farming plan presented by
the peasant, what are his production expectations. Another component, which we
have to work into the plan, is the survey of the market capacity for absorbing what we
are about -to produce. In -the first, place we examine what -this market receives,
and then how could 1-t absorb what. We are about to produce. The next step in our
marketing plan would be the marketing cooperative. It is the cooperative, which has
to come into contact with the peasant, when the produce is ready for sale. From this
moment on, the cooperative is responsible for the produce, its marketing and sale.
The cooperative should check if the agricultural produce can be stored and for how
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26. long. In many developing countries the peasants sell their produce immediately
after the harvest, when the market is glutted and the prices are low, because they
need the money to repay their debts. After a few months, in the off-season when
supply becomes shorter on the market, the prices go up. A traditional peasant who
lacks any storage capability is the loser, while the trader makes a profit.
9.3.2. Processing of Agricultural Produce
The second component of the marketing plan is the processing of agricultural
produce. Would it be possible to process the agricultural produce? - Taking an
example from Israel, we find that in the past the Moshav farmer used to sell his
turkey alive, by weight, to the trader. Later on, cooperative slaughter houses were
set up in which the fowls were slaughtered, and marketed as clean frozen meat.
The next development was processing. Instead of selling the turkeys whole, they
were sold in parts, cut up and with the choice cuts separately packed, as well as in a
variety of processed meat products. All these processes raised the return to the
farmer. In the developing countries it is possible to process the cassava into gari or
into tapioca, just to mention things being done already, and then to get for them a
higher price.
9.3.3. Packaging
The third component is a suitable packaging for a suitable product. A proper,
standardized package of standard weight and suitable quality will bring a higher
return to the farmer. A| description of the sale of corn in Benin [62], which resembles
the manner of doing this in other African countries, relates how the trader is the one
who brings the empty sacks to the peasant, after threshing, to fill them up. The sack
is supposed to weigh 100 kg when full, and here the trader applies various tricks to
get more corn into the same number of sacks, to the peasant’s loss. Even when the
quantity sold is measured out, the buyer makes use of all kinds of methods to change
the standard measure to his advantage, and the peasant comes out the loser again.
9.3.4. Transportation and Delivery
The next component of the marketing plant is transportation. The ability of the
cooperative to transport its produce on its own is generally considered a great
advantage. The cooperative can choose the most suitable means of transportation,
the transportation capacity employed as well as the direction of transportation
according to its needs and capabilities. We find that many cooperatives in
developing countries assume that the development of the transportation function
within the cooperative framework means that the cooperative must purchase the
vehicles, but this is incorrect. It turns out that the purchase of a truck by the
cooperative is done without conducting the necessary economical examination.
It is generally the case that the truck capacity is not put to full use most of the year,
except at harvest time. And then it is often insufficient. An additional problem is truck
maintenance. In most cases the cooperative hires a driver, and such drivers receive
a very low pay in most countries of the world. This driver will in most cases lack an
incentive to do his work. The driver s job carries a heavy responsibility. The vast
majority of roads in rural areas are in very bad repair. Responsible driving on the
part of the driver will prolong the life of the truck. A driver, who receives insufficient
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27. wages, will not care at all if the truck is going from bad to worse, and will not maintain
it properly. The cooperative might save a little on the driver s wages, but stands to
lose a fortune when the truck if finally wrecked. We find in many countries
throughout the world so called cemeteries of trucks and mechanical equipment, and
in most cases this is a result of a policy offering no incentive and no suitable
remuneration to the managerial and operational personnel. Such a driver should be
paid by the mileage driven, and in accordance with the capacity transported, driver
knows that a well kept truck in good mechanical condition will enable him to transport
more and earn more. The cooperative must adopt in principle a policy of acquiring
transportation services at the cheapest possible outlay, either by acquiring a truck, or
by renting the transportation capacity, which exists in the vicinity.
9.3.5. Trade Name
Trade names sell agricultural products. In Israel we are familiar with "Lachish"
grapes, "Golan” wines, or "Hatzeva" watermelons. These are trade names of
agricultural produce coming from specific regions, or specific moshavim. It turns out
that a trade name is a good promoter of sale of agricultural produce especially in
markets saturated with the same produce. Carmel is a trade name of Israeli
agricultural produce on the European markets, which helps the Israeli farmer to
obtain higher returns for his produce. Israeli persimmons were introduced to the
European market under the trade name "Pri-Sharon” and with great success. At
Elsmeer, the Netherlands, the flower exchange clock-indicators assign higher prices
to flowers sent in by a certain grower than to flowers from another source, and
sometimes the flowers are bought even before the clock-indicators are set, and of
course, at a higher price. All these are examples, which demonstrate the importance
of the trade name for sales of agricultural produce.
9.3.6. Marketing Contracts
The Israeli export system of agricultural produce functions by means of marketing
contracts. The organs responsible for agricultural exports sign marketing contracts
with the farmers. The signing of supply contracts of sorted and graded
agricultural produce, on pre-determined dates, and at set quantities, enables these
marketing organs to plan their marketing campaign in the export market with very
high efficiency. On the other hand, the farmer knows that once he has signed the
contracts, his risk is very considerably alleviated. He can turn his power, attention
and energy to production, knowing that a great deal of his troubles has been settled.
He knows that he has to devote himself to his work in order to succeed. Now he can
immerse himself more in his professional activities. The signing of the contract
enables the farmer to obtain advance payments for cultivation. This kind of credit is
usually cheaper, and it is repaid upon the marketing of the produce.
9.3.7. Credit to the Farmer
As mentioned above, the farmer can only produce when he receives credit. In the
traditional system he used to get credit from the local moneylender. Such money
generally costs very much and the farmer is damaged as a rule. Development
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28. enterprises in third world countries have set themselves a goal of providing suitable
credit to farmers participating in various projects in general and cooperatives in
particular. For example, the coffee growers of the Ivory Coast receive a credit from
the national agricultural development bank in this country. This credit is intended to
enable the farmer to pass the agricultural season without resorting to the services of
moneylenders. The credit is intended to cultivate the plantations. The problem used
to be the repayment of this credit. The Ivory Coast Government, operating through
its bank, or through other organizations, did not provide an efficient marketing system
for the coffee, which should have started with the farmer and ended at the export
harbor. Some stages were left out, which the farmer had to undertake on his own,
but the farmer was not organized to do this, or organized by inefficient outfits. The
farmers eventually found the answer themselves. They sold the coffee, for cash, at
their plantation gates, to private traders. In this way, they managed to obtain for
their produce the highest return possible so far as they were concerned. The Ivory
Coast Government, in adopting a policy of extending credit without linking it tightly
with marketing, and without offering to the farmer efficient marketing solutions
accessible and satisfactory to him, was left practically without any means of
recovering this credit, which had to be considered lost credit [62]. A similar situation
exists also in other West-African countries.
An additional problem is the result of the lack of understanding by policy makers of
the subject of agricultural credit, in all its aspects. The farmer receives advances and
cultivation loans, which help him to pass the agricultural season without resorting to
the services of moneylenders. This is the basic assumption of the makers of credit
policy in various places in the world.
However, the farmer has family, children and a wife. He must feed them and
provide for them also in the months in which plantations bear no crop. And his cash
flow is negative. All those project managers have foreseen no problem here, and
have not taken care to provide the farmer with short-term subsistence advances.
The farmer must find a financial source to that end, and naturally he turns to the
source, which is always at his disposal, the moneylender. At harvest time, when the
crop is ready for sale, the very first name on the list, and the most pressing for
repayment is the money lender, which in most cases is also the marketing
middleman, and he is the one who receives the produce for sale, not the project nor
the cooperative. Again, the cooperative does not sell the produce so that it has
almost no possibility of recovering the credit extended.
9.3.8. Terms of Payment
When does the marketing cooperative pay the cooperative member for his produce,
and what prices should be paid? - In the cooperative operational system we have in
fact a conflict of opposites. On the one hand the members wish to obtain for their
produce the highest possible price, paid in cash if possible. On the other hand, the
cooperative must first sell the produce to obtain money for the member, and to that
end it must compete on the market so as to obtain the best possible results. A
method of payment, which is practiced by many marketing cooperatives, is the
commission method. The return is passed on to the producer, following the sate, and
after the deduction of the commission which consists of a certain percentage of the
total sale value, and which is intended to cover the cooperative expenses. This
method has advantages, because it does not involve the cooperative in any risk, and
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29. it enables the cooperative to specialize. The method has also some drawbacks. It
does not answer to the wishes of the small farmer, who prefers to sell his produce to
the cooperative and to receive cash payment in return. It is difficult for marketing
cooperatives to compete with the private traders, who pay cash. Therefore, many
marketing cooperatives have resorted to the same method, that is, they buy from the
farmer at the full price, and pay cash. This method is applied in the case of small
farmers in traditional rural areas [63]. Cooperatives generally prefer to be an organ
that transfers quantities for sate. The cooperative assures a steady supply,
acceptance, payment and making out of invoices [64].
It is most difficult for marketing cooperatives to sell on a commission basis fresh
vegetables and fruits produce, and indeed in many countries the percentage of
marketing cooperatives in this field, including Israel, is relatively low.
Another problem bound up with this subject is that of minimum prices. The minimum
prices assured to the farmer, mostly the traditional "Farmer, help to overcome his
apprehension concerning unexpected turns for the worse. On the other hand,
minimum prices lead in cases of a market dumped with the agricultural produce in
question to a financial burden on the cooperative, which is sometimes unbearable. It
is important for the cooperative to receive support on that issue from an external
organization, such as the Government, that will ensure it, and thus offer it security in
cases it is forced to pay. A cooperative unable to withstand this financial burden,
and which does not turn for support to an external organization, is liable to find itself
in a difficult crisis, which will ultimately injure the members, and lead to a failure of
the cooperative.
9.3.9. Financial Structure of the Marketing Cooperative as a Part of the
Marketing Plan.
The marketing plan must also include an appropriate financial structure of the
cooperative. The fourth international cooperative principle states that part of the
cooperative surplus may be employed to finance future investments in the
cooperative. This is a fundamentally misleading principle, which causes the
distortion of the cooperative capital structure [65]. This principle results in the
formation in the cooperative of two kinds of equity. This is also the case with
Tnuva in Israel. This is an unhealthy situation, which leads to disassociation
between the members and the cooperative.
Moreover, the cooperative and its management, knowing that the sources for future
investments are going to be found in the surplus, and not directly be provided by the
members, will do all they can to build up the surplus, by paying less to the members
in return for their produce. A lower pay to the member gives rise to dissatisfaction of
the member as a result of which he may turn to private marketing.
The financial structure of the cooperative must be made up of investment capital,
which is divided equally or equitably among the members. The shares of all the
members add up to the sum total of investments in the cooperative. Every increase
in the cooperative investments must be divided entirely between the members, and
not be taken out of the surplus. Such policy will lead to a direct and deeper financial
involvement of the member in the cooperative, and as a result the member will care
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30. more about what goes on in his cooperative.
The cooperative’s direct expenses must be divided among all members, according
to the member's degree of participation in the cooperative business, that is,
according to the quantity of produce he markets through the cooperative. This policy,
which removes from the marketing price the burden of financing expenses, in effect
reduces the marketing price, and creates an incentive for members to market more
and more through their cooperative. Indeed, the more the member markets through
the cooperative, the greater the reduction in price of each unit marketed. The
member must bear the financing costs, which are a constant factor- therefore, the
more he markets, and the less financing costs per unit marketed.
Such a policy achieves more Justice amongst the members, encourages members to
take part in the doings of their cooperative, and raises their commitment to the
success of their cooperative. It shou1d be added and stressed, that the cooperative
must be run by the formula of remuneration according results obtained, in order to
secure for the member the maximum return he deserves.
9.3.10 Cash Flow
This is an important part in every marketing plan. We have to know what is our
financia1 status in the cooperative. We have to know if our operation is profitable or
are we losing money. We have to plan our actions ahead of time, and we have to
maintain a system of controls, which would allow us to check ourselves at each step
during the year.
A marketing cooperative must prepare for itself a system of cash flow, which should
include all the elements making up the financial structure of the cooperative. This
system must include an estimate of cash flow for each and every member of the
cooperative, based on expected production during the year. Another component are
the departments of the marketing cooperative. To this we must add the various
financing cost, and the general expenses of the cooperative. The cash flow system
should be laid out in tables, which will display in full details various activities of the
cooperative, month by month, and on a seasonal and annual level.
9-3-11- Cooperative Educations and Instruction (Extension)
Setting up marketing cooperative in traditional rural areas is a very difficult operation.
The difficulties are many and varied but in front of them all on the scale of difficulties
we have the most important factor, which is the member himself.
The cooperative is the member, and depends on its members for its existence. When
the members do not understand and do not know what the cooperative is, what are
its function, what it is capable of giving to the member, and what one may not expect
from it there is no chance for the existence of this with this cooperative. Side by side
with this, we must remember that we would like to introduce a variety of components
in the cooperative, as described in the foregoing. The vast majority of these
components represent processes of modernization and innovation, and they are
designed for members who are in fact traditional peasants, who live in traditional
villages.
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31. The failure of many development programs in developing countries was due to the
fact that they have not made within their framework the necessary provision for
appropriate
Instruction programs, programs designed to modify the behavior of the traditional
peasant, and to prepare him to accept, understand and apply -the transition to more
modern agriculture. A suitable instruction program, which would include the
components of the activity of the changing agent, that is, the agricultural extension
officer, who works in direct contact with the traditional peasant inside his village.
The instruction programs should include the chapters concerning the introduction of
production programs, extension of credit, provision of inputs, and marketing planning.
The culmination of the instruction program should be the introduction of the
cooperative, as a possible and beneficial solution for the traditional peasant, a
solution that if properly carried out, will secure the maximum possible return to the
traditional peasant.
The instruction program should focus, within the framework of the marketing plan, on
making people realize the importance of marketing information. Marketing
information is a powerful instrument, both in the hands of a farmer who is about to
draw up his annual production plan, and in the hands of the cooperative manager,
who is about to decide on his marketing policy for each and every separate product
passing through the cooperative.
10. Conclusion
Our central problem here was how to set up marketing cooperative in a traditional
village, located in the traditional rural areas of the developing countries all over the
world. Let us remember that the marketing system is generally a system intended to
pass on the produce of the producer in the most efficient manner on to the
consumers. The marketing system in traditional rural areas is a system, which
exploits as far as it cans both the producer and the consumer. This system pays to
the producer the very lowest price it can, while to the consumer it sells at the very
highest prices it can obtain. The system includes a great many intermediary stages,
and each stage in the system takes its toll. In the traditional system we are familiar
with farmers going out and waiting at the roadside with their produce for customers to
come and buy whatever they need directly. We have here a situation in which the
farmer sells directly to the consumer, without any middlemen. Both parties benefit.
In Israel we are familiar with the phenomenon of sates stores being opened by
kibbutzim and moshavim at the roadside, where they sell their produce directly to a
consumer passing by. This is another case of direct sale from the producer to the
consumer without intermediate stages.
The goal of the marketing cooperative in traditional rural areas is to do whatever it
can in order to reduce the number of stages to the necessary minimum. The
cooperative must endeavor to have its produce sold to consumers with less and less
middlemen intervening, and if it makes it this will be a measure of its great success.
References:
1) Hornik, Jacob: Marketing Management: Systems, Theories and Strategies
Everyman's University Press. Tel Aviv 1985 Vol. I P.P. 31-36
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