Selection of Representative Postfarm Activities

The identification and selection of representative marketing activities proceeds in a manner analogous to that used in construction of farm budgets. Initial efforts identify the principal marketing chains that carry output from the farm to the consumer. Visits to principal production and processing areas and conversations with commodity experts are usually sufficient to identify the alternative methods of marketing and processing. These chains vary in complexity from simple storage on the farm for home consumption to complex systems of farm-gate collection, bulking in local markets, transportation to main consumption centers, processing, and distribution to consumer markets. Because analytical interest centers on the competitiveness of the domestically produced commodity relative to potential competing imports or exports, the marketing chain is usually terminated at the final wholesale point. Both imports and domestic production pass through the wholesale-retail linkages, and costs and returns at this stage of marketing thus have no influence on the relative competitiveness of the two products. If the commodity is an export, marketing chains are terminated at the fob point, where the product is ready to leave the local port for foreign delivery.

The actual number of marketing chains will generally exceed the number that can be analyzed effectively. Market shares for each marketing chain can be used to reduce the set of marketing activities. However, some marketing chains may be unimportant under observed market conditions but potentially important once the effects of divergences are removed. In addition, the policy issues of interest could mandate attention to particular marketing chains precisely because they are unimportant; the issue in this case is to identify why those marketing chains are little used. Box 10.1 illustrates the system identification and selection process for rice marketing in Ghana.

A key consideration in choosing postfarm activities for evaluation in the PAM is the relative importance of marketing costs in the agricultural system. If marketing costs command only a minor share of the final market price (at either the domestic market or the export point), a single representative marketing chain is often sufficient for construction of the PAM. Data collection and analysis can focus instead on variations in

Box 10.1. Alternative Marketing Chains for Delivering Rice to an Urban Market, Atebubu District, Ghana

In this example, rice moves to the urban market in seven ways. All rice must be processed before consumption. Three processing technologies-hand pounding, processing in small-scale mills in the local villages, and processing in a large-scale mill in the major town of the district-were observed. Bulking agents, or assemblers, were also found to operate at various levels-buying directly from the farmer in both the local village and district markets and buying from one another and assembling progressively larger volumes of rice before sale to the large processor in the district market.

If the research project were focused on farm production issues, only two marketing chains would be selected for analysis: local processing at the village and distribution through a visiting wholesaler; and bulking through a local assembler, large-scale processing in the district market, and shipment to the wholesale market. In Atebubu District, Ghana, these two systems accounted for about 85 percent of marketed output. The hand-pounding technique was judged unimportant for marketed output (although it was more significant for home consumption), and the other marketing chains differed little from the selected systems in terms of physical input use.

Different policy concerns would mandate the inclusion of additional marketing chains. Interest in employment effects would require consideration of the relatively labor-intensive chains, such as the hand-pounding and multiple assembly chains. An interest in comparing the competitiveness of rice production against imports would require analysis of marketing chains for three areas of consumption-on-farm consumption, local village consumption, and consumption in major cities.

farm budgets. But if marketing costs are large, a rich set of potential policy issues emerges. In particular, location, marketing technology, and end product become important determinants of competitiveness. A lack of competitiveness might not reflect high farm-level costs of production but instead might be due to high costs of marketing. In this event, representative commodity systems may differ not by farm production technique but by location, marketing technology, or end product.

Location is especially important when transportation costs are large. Production areas located far from potential export points will receive farm-gate prices that are low because of substantial transport costs. Alternatively, high transport costs mean that imports become more expensive as distance from the import point increases, thus providing natural protection to domestic producers located far from that point. Transportation cost issues become interesting cases for analysis, and representative systems are specific for different locations.

The second source of difference in marketing costs relates to alternative marketing technologies. Differing technologies can be present in every phase of the marketing process, but they are usually of greatest significance in storage and processing. In developing country agriculture, large losses and high interest costs mean that storage costs can be substantial. Although all storage technologies have interest costs, differences in the magnitude of losses sometimes lead to substantial differences in carrying costs. Even more significant variations are found for processing. For example, techniques for processing paddy rice vary from hand pounding with a mortar and pestle to processing a few hundred kilograms per hour with small mills to dehusking, cleaning, and bagging several tons per hour with large mills.

End products provide a final characteristic in the selection of multiple marketing systems. Some farm products can be transformed into a variety of commodities for consumption. For example, corn can be eaten directly as human food, consumed as flour, fed as grain to animals, incorporated into animal feed, processed into corn oil or corn starch, or processed into sweeteners or alcohol. If the farm product is traded on world markets (as corn is), the choice of end product is an issue more for industrial development than for agricultural development. Corn prices are independent of the domestic processing industries. But when the farm product is not traded internationally (raw milk, for example), choice of output (cheese, butter, skim milk powder, or whole milk) can be an important influence on potential farmgate prices and profitability. Competitiveness depends on the domestic efficiency of all activities in the commodity system.