• TABLE OF CONTENTS
HIDE
 Title Page
 Introduction
 The Costa Rican potato sub-sys...
 Figure 1: Principal components...
 The setting - Demand factors
 Figure 2: Apparent demand curve...
 Production and marketing factors...
 Table 1: Comparison of major characteristics...
 Figure 3: Average costs of potato...
 Figure 4: Combined average costs...
 Conclusion
 Policy implications
 A final word














Group Title: Marketing as a first generation problem of small farmers : a Costa Rican case
Title: Marketing as a first generation problem of small farmers
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Permanent Link: http://ufdc.ufl.edu/UF00073327/00001
 Material Information
Title: Marketing as a first generation problem of small farmers a Costa Rican case
Physical Description: 17 leaves : ill. ; 28 cm.
Language: English
Creator: Harrison, Kelly M
Shwedel, Kenneth
Publication Date: 1976
 Subjects
Subject: Farms, Small -- Costa Rica   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: Costa Rica
 Notes
Statement of Responsibility: Kelly M. Harrison and Kenneth Shwedel.
General Note: Cover title.
General Note: "OECD/FAO International Seminar on Critical Issues on Food Marketing Systems in Developing Countries."
General Note: "October 18-22, 1976."
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Bibliographic ID: UF00073327
Volume ID: VID00001
Source Institution: University of Florida
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Resource Identifier: oclc - 76955586

Table of Contents
    Title Page
        Title Page
    Introduction
        Page 1
        Page 2
    The Costa Rican potato sub-system
        Page 3
        Page 4
    Figure 1: Principal components and relationships in food production-marketing systems
        Page 5
    The setting - Demand factors
        Page 6
    Figure 2: Apparent demand curve for potatoes in Costa Rica
        Page 7
    Production and marketing factors - Participant characteristics and costs
        Page 8
        Page 9
    Table 1: Comparison of major characteristics of small vs. large production marketing sub systems for potatoes, Costa Rica
        Page 10
        Page 11
    Figure 3: Average costs of potato production for large vs. small farmers in Costa Rica
        Page 12
    Figure 4: Combined average costs of potato production and assembly for large vs. small farmers and assemblers in Costa Rica
        Page 13
    Conclusion
        Page 14
    Policy implications
        Page 15
    A final word
        Page 16
        Page 17
Full Text
/&s oQ2


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h-/I


MARKETING


AS A FIRST GENERATION PROBLEM OF SMALL
FARMERS: A COSTA RICAN CASE


By: Kelly M. Harrison and
Kenneth Shwedel




OECD/FAO INTERNATIONAL SEMINAR


On


Critical Issues on Food Marketing Systems
in Developing Countries


October 18-22, 1976









MARKETING AS A FIRST GENERATION PROBLEM OF


SMALL FARMERS: A COSTA RICAN CASE


Kelly M. Harrison and Kenneth Shwedel



The world food crisis of 1973 has helped to focus attention
on what has been a long term imbalance between the rapidly rising demand
for food and the not so rapidly rising supplies, especially in develop-
ing nations. In the course of the World Food Conference, the flurry of
lesser conferences and the subsequent rhetoric!' there has been general
agreement,that agricultural development must be given top priority and
that huge investments must be made in order to avoid global catastrophe.
"This entails a new determination to mobilize the small farm sector -
the farm families working on eight acres and l Ps, the labourers and
landless men. A multiple effort is required".-

But development literature has not yet adequately dealt with
the issue of efficient organization and coordination of the markets
serving small farm agriculture. Development planners are preoccupied
with macro economic issues such as agricultural credit allocations,
agricultural research, national agricultural price policy and education
and have largely overlooked the issues of market coordination which
determine how effective those macro economic policies will be in
achieving their lofty development goals.

Moreover, marketing has been regarded as a "second generation"
problem by development researchers, planners, policy makers and even





* Associate Professor and Research Assistant at Michigan State University.
We gratefully acknowledge the research support provided by the Costa
Rica USAID Mission and the helpful comments of our colleagues Harold
Riley, James D. Shaffer and Alvaro Silva.

1/ Barbara Ward describes the activity vividly: "The whole world seems
to be full of moving delegates, declarations, speeches, disclaimers,
corridors of rumour, endless shifts behind the scenes...Like an anthill
that has received a violent kick, the great termitery of Planet Earth
is all movement and confusion", in Hunger, Politics and Markets, The
Real Issues in the Food Crisis, Ed. Sartaj Aziz, New York University
Press, New York, 1975, pp. 3-4.


2/ Ibid. pp. 2-8







-2-


by farmers themselves/ This implies that the "first generation"
problem is to increase physical output. Yet, how many times have
peasant farmers related their frustrations of having obediently
adopted recommended technologies, thereby increasing production,
only to encounter depressed market prices which might not even
cover harvesting costs?

We maintain that marketing is not a second generation
problem. It is as much a "first generation" problem as plant
breeding, seed multiplication or production credit. And we
believe it is important for development researchers, planners,
aid agencies and farmers to recognize that and act accordingly.

To support that assertion we will draw on the empirical
results of a recent study of potato producers in Costa Rica. In
that study we hypothetized that small farmers are at a competitive
disadvantage because their products are marketed through sub channels
composed of small scale, limited resource intermediaries who exert
little effort to reduce costs and risks through "active market
coordination". We further hypothesized that this, coupled with the
existence of economies of scale in marketing activities, creates
a situation in which the unit cost of small farmer products delivered
to the consumers are relatively high. Given the limited purchasing
power of consumers in LDC's, total consumption is limited by the high
delivered price of small farmer products. If there exists a commercial
or large farm component, their products will probably be marketed
through a more effectively'coordinated sub-channel using larger
scale marketing agents and thereby achieving marketing economies
of scale and "active coordination" economies. Hence, the demise of
small farmer agriculture, in spite of evidence that small farmers
can be as efficient in production as large farmers.

The situation is compounded by the tendency of policy makers
to over simplify in diagnosing marketing problems. One of two extreme
views will normally prevail. They can be summarized as follows:
(1) the market is functioning "efficiently" because there are many
buyers and sellers and there are no drastic price imperfections in






3/ As the "green revolution" reached its peak there was much discussion
in the literature about second generation problems such as storage,
transportation and marketing. See for example; Walter P. Falcon,
"The Green Revolution: Generations of Problems," American Journal
of Agricultural Economics, 52:698-710, December, 1970.







-3-


space and time,- or (2) market intermediaries are monopolistic parasites
who fatten themselves by exploiting farmers and consumers through
artificially contrived periods of market glut and scarcity.5/ The
correlative policy prescriptions are: (1) ignore the marketing system
to concentrate on production problems or (2) devise elaborate projects
to eliminate middlemen by creating government marketing corporations,
boards or cooperatives. But experience, at least in Latin America,
suggeststhat neither of these general policy positions are likely q
foster the development of healthy and efficient marketing systems.H/
The Costa Rican potato case further corroborates that conclusion.


In the remainder of this paper we will explore that Costa Rican
case, attempting to identify and describe the marketing arrangements
and related management practices which have improved overall market
coordination and performance while leaving small farmers at a competitive
disadvantage.

The Costa Rican Potato Sub-System


The information for this case was drawn from of a year long
potato production and marketing study in the region which produces and
markets over 90% of the potatoes consumed in Costa Rica./ The research
methodology was derived from that used in several other countries by
the Latin American Marketing Planning (LAMP) Center at Michigan State



4/ The following statement from a paper by John Mellor summarizes this
position:..'.the private trade in general operates quite competitively
and at a relatively high degree of economic efficiency even though
resource productivity may be relatively low'. Performance of Private
Trade and Cooperatives, Occasional Paper No. 87 Technological Change
in Agriculture Project, Department of Agricultural Economics, Cornell
University, December, 1975, p. 3.
5/ It is difficult to find a trained economist who would publish such a
position in a professional article, but such arguments by public
officials and private citizens (some of whom are "well trained
economists") are regularly quoted in LDC newspapers and other popular
literature.
6/ For a summary of conclusions from marketing research in five Latin
American countries. See Kelly Harrison, et.al., Improving Food
Marketing Systems in Developing Countries: Experiences from Latin
America. Research Report No. 6, Latin American Studies Center,
Michigan State University, 1974.
7/ The complete study will be reported in a forthcoming Ph.D. Thesis
at Michigan State University by Kenneth Shwedel.







-4-


University=/

This study, however, goes deeper into the details of production
and marketing costs and coordination arrangements than previous LAMP
work.

The following key definitions are offered to help the reader
understand the basic approach and to facilitate interpretation of our
conclusions.

We believe that marketing policy research must start with a
systems orientation. Thus marketing is defined as a set of interrelated
activities coordinated to accomplish the transfer of goods and the flow
of information between producer and consumer.2/ The farmer initiates
the marketing process when he decides when and what to produce. Before
starting the production process he must have in mind some market outlet -
be it his own family, the government buying station or an intermediary.
There is therefore, a very close "systems" relationship between production
and marketing activities. Figure 1 illustrates the major components of
the food production-marketing system (occasionally abreviated as simply
"the food system".) In that figure the heavy arrows denote flow of product
as well as information essential to negotiation. The dotted arrows
represent information backflows, money movements and legal and policy
constraints.

Coordination, a key concept in the above definition, is concerned
with those arrangements, agreements, contracts, information flows, payments,
and physical product movements necessary for the harmonious functioning
of the exchange system.

The term institutional arrangements draws on the institutional
school of economic thought, and refers to those legal and governmental
policy constraints, regulations and policing arrangements, commercial
customs and traditions of the society as well as the prevailing conditions
of exchange which interact to produce the environment in which commercial
transactions take place.

Finally, in evaluating the operation of a commodity sub-system we
use the term performance to refer to the effective functioning of the



8/ See Kelly Harrison, op. cit. for a summary of the methodological
approach and a list of research studies.

9/ This is based on the definition of a system taken from C. West
Churchman, The Systems Approach (New York: Dell Publishing Co.,
Inc., 1968) P. 29.









FIGURE 1. Principal Components and Relationships in Food

Production-Marketing Systems.





Credit Policies
r \ and
S / Institutions



V I N I &A ssembler'n s Ie r.


* N
N







-6-


system as measured against established goals. It, therefore, encompasses
pricing efficiency and efficiency of resource use (which are the standard
concerns of classical economic analysis) as well as market stability,
income distribution effects, employment effects, nutritional effects, or
any other important goals which society may establish for the food
production marketing system.

The Setting

Costa Rica is one of the smaller countries in Central America.
It has a population of about 2 million with over 50 per cent living in
urban areas. The capital city, San Jose and its suburbs, contain about
38% of the country's population. But in spite of the high degree of
urbanization, 46 per cent of the economically active population is employed
in agriculture. And another 15% is employed in businesses directly
related to agriculture (agribusinesses). Most Costa Rican farmers are
relatively specialized in the production of those few products which are
well adapted to their specific micro-climatic conditions. Similarly
most production is sold in the market and a high percentage of total
production flows through San Jose .0/ Thus Costa Rica is not highly
representative of the poorer developing countries. This must be born
in mind when interpreting the results of this research.

Demand Factors

Potatoes are not a staple in the Costa Rican diet. Per capital
consumption is only 27 pounds, which is quite low in comparison to potato
eating countries like Peru (230 Ibs), Colombia (123 lbs) and the United
States (118 Ibs). While potato prices in Costa Rica are relatively high
(U.S. $12.50 per hundred weight)ll/, the low per capital consumption is
partially attributable to the fact that potatoes are not an indigenous
crop. While some potatoes were cultivated as early as 1910, it was not
until 1935 that they were produced on a large scale. The high caloric
staple foods in the Costa Rican diet are rice, cassava, plantains and beans.

Potatoes are primarily an urban food. Nearly 75% of the production
is consumed in urban areas. The reasons for this phenomenon appear to


10/ Kelly Harrison, James D. Shaffer and Michael Weber, Fomenting
Improvements in Food Marketing in Costa Rica, Research Report
No. 10, Latin American Studies Center, Michigan State University,
East Lansing, Michigan, 1973.

11/ The standard measure for potatoes used in this case is the hundred-
weight (cwt.) one hundred pounds.










be: (1) rural marketing costs are high as are potato prices; (2) the
demand for potatoes is relatively income elastic; (3) upper income families
are concentrated in urban areas and especially in the capital city,
and (4) virtually all potatoes are brought to the San Jose market for
distribution.

Given the relatively high rate of urban population growth and
rising incomes, the total demand for potatoes should be rising substantially.
Nevertheless, potato production has not responded to the apparently rising
demand. Per capital consumption has remained constant at 27-28 Ibs. since
1967. The apparent reason is that during that time production and
marketing costs and potato prices have increased at a faster rate than
the overall consumer price index.

Evidence suggests that demand for potatoes in urban areas,
especially the capital city, is highly price inelastic. On the other
hand the demand for potatoes in rural areas is more elastic. This
suggests a kinked demand curve. (Figure 2). Upper income urban
consumers eat potatoes year round without great concern for price
variations. In figure 2 we depict their more or less fixed demand
at XI. Middle and lover income urban consumers and upper income rural
consumers purchase more potatoes during the periods of abundant supply





Price
PI A





I

P2 I

Urban Rural
0 Consumption I Consumption C DD
0Figure -. App Quarnty D C f




Figure 2. Apparent Demand Curve for Potatoes


in Costa Rica.







-8-


and declining prices (between X1 and X2). And the mass of rural consumers
only consider potatoes when prices fall below P2. Below that price level
demand is relatively elastic.

As we will see, this demand situation is simultaneously a result
of existing organization and coordination arrangements in the marketing
system and a cause for certain coordination changes which are in progress.

Production and Marketing Factors

Most of the potatoes for Costa Rica are produced on the rich
soils of the Irazu Volcano which is located about 35 kilometers southeast
of San Jos4. About one third of the national production comes from farms
of less than 10 hectares with less than 2 hectares planted to potatoes.
The remaining two thirds are produced on farms of more than 10 hectares
with more than 2 hectares planted to potatoes.

A distinctive marketing process has evolved over time. Every
Sunday morning between 9 and 11 a.m. farmers who have potatoes ready to
harvest go to a certain street corner near the market plaza in Cartago,
the principal city in the production zone.12/ They may take a small
sample of 10-15 representative potatoes from their field. There they
meet with assembler .buyers to negotiate sales for delivery during the
coming week. The farmer and assembler negotiate a base price, quantity
and date for pick up at the farm. No money changes hands at the time
of negotiation or even at the time of pick up. The farmer is paid for
his potatoes the following Sunday morning. The final price received
by the farmer will depend on the quality of potatoes actually delivered,
the wholesale price received by the assembler and the assembler's
decision as to how much he can reduce the agreed on price without evoking
some kind of future retaliation by the farmer. Small farmer prices are
reduced more than large farmer prices because of their limited bargaining
power.

After picking up the potatoes at the farm, the assembler takes
them to a washing shed where they are washed in large troughs and set
out in the sun to dry. He then re-packages them in bags of 100 pounds
and transports them to San Jose for sale in the wholesale market the
following morning.

Participant Characteristics and Costs

To compare small farmer production and marketing patterns with
those of large farmers, we asked farmers, assemblers and government agents

12/ Large farmers normally go to the market every Sunday even if they have
no potatoes to sell. They seem to recognize the value of keeping
abreast of market conditions.







-9-


what they considered as small farmers and small assemblers. The
predominant answer was that small farmers plant less than 2 hectares
of potatoes per year and small assemblers purchase and sell less than
16,200 hundredweight per year. We adopted those classifications for
purposes of our analysis.

Small farmers sell primarily to small assemblers (71 per cent
of all small farmer sales were made to small assemblers). Similarly
large farmers sell primarily (80% of their volume) to large assemblers.
We therefore concluded that within the region there exists a small
production-marketing sub system and a large production-marketing sub-
system.

Table 1 shows a comparison of the two in terms of selected
socio-economic characteristics which were judged to indicate significant
differences in managerial behavior and performance. A quick review of
the table reveals what one might expect participants in the small
production marketing sub-system have access to fewer resources and are
more conservative in their attitudes and management practices. In
addition, their economic performance is inferior to that of participants
in the large production-marketing sub-system.

Small farmer's yields and production costs per hundredweight
were not significantly below large farmers 13/ However small farmers
received lower average prices for their potatoes and thus had lower
average net profits.

Figure 5 shows the production cost functions for small and
large farmers. It indicates that small farmers reach their minimum
average costs of U.S. $1.25/cwt. at a production level of 780 cwt.
or about 2.1 hectares. Large farmers on the other hand reach minimum
average costs of U.S. $V5.53/cwt at a production level of 1585 cwt. or
about 4 hectares. Thus, small farmers have a production cost advantage
at production levels of less than 2.1 hectares and their minimum average
production costs at those levels are significantly below the minimum
production costs for large farmers.


13/ Production costs were calculated for both large and small farmers
using the following different sets of assumptions about seed and
labor costs: (1) retail seed prices with a market rate for family
labor, (2) retail seed prices with free family labor, (3) wholesale
seed prices with a market rate for family labor, (4) wholesale seed
prices with free family labor. The differences in average costs
between small and large farmers were not statistically significant
at the .01 level under any of the above sets of assumptions.






10 -

TABLE 1. Comparison of Major characteristics of Small vs. Large Production Marketing

Sub Systems for Potatoes, Costa Rica.


Characteristic

Patterns


Resources

Education
Market Knowledge
Land & Capital

Access to Credit
Access to inputs
Influence on Policy Makers

Position & Perceived Role

Place of Residence
Managerial Preparation

Self View of Role

Perceived Relation to Society


Attitudes

Future Orientation
Fatalism
Trust-Non Family
Innovation & Change

Business Management Practices

Specialization

Economic Goals


Small Production Marketing Sub-System

Small Farmers I Small Assemblers


Low (1-4 years)
Low
0-10 Hec.(mostly
owned)
Limited
Good(except seed)
Low



On Farm
Limited

Rural Laborer-
Farmer
No Opinion




Low
High
Low
Low



Product Diversifi-
cation
Stable Income


& Wholesalers


Low (1-6 years)
Medium
Low

Limited
N.A.-
Low



Rural Area-Rural Town
Limited

Farmer-Intermediary

No Opinion




Medium
High
Low
Low



Product Diversification

Profit Maximization


Large Production Marketing Sub-System


Large Farmers


High (5 years or more)
High
10 or more Hect.
(owned & rented)
Good
Good
High



Market Town & On Farm
Relatively Sophisti-
cated
Progressive Business
Man
Vital Part of Changing
Society



Medium
Low
Medium
Medium



Product Specialization

Profit Maximization


Large Assemblers
& Wholesalers


High (4 years or more)
High
Low

Limi ed
N.A.-
Low



Market Town-Rural Area
Relatively Sophisti-
cated
Progressive Business
Man
Vital Part of Changing
Society



Medium
Low
Medium
Medium



Product Specialization

Profit Maximization


I -- - I--- -


------


--- ----- ----- -- -~--- I I-






TABLE 1. (cont'd)


- 11 -


Small Production Marketing Sub-System Large Production Marketing Sub-System
Characteristic
Small Farmers Small Assemblers Large Farmers Large Assemblers
Patterns & Wholesalers & Wholesalers


Risk Aversion Strategy






Level & Quality of Market
Information
Recognition of Community
of Interest with Assembler

Stable Pre-Arranged Sales
Agreements

Product Sample Inspection
Size of average sale (cwt.)
% Use Washing-Drying Capacity
Perception of Assembler
Buyer or Farmer Seller
2/
Yield per Hectare (cwt.)- ,)
Weekly Volume Handled (cwP.)2/
Total Costs of Operation2r
US$ per cwt.
Average Price Received-
US$ per cwt.

Net Returns


Plant same amount
each year; harvest
when ready, produce
and market 2 months
of year



Low

Low (45% sell to
same assembler)

Few

Necessary
79 1/
N.A.-
Friend or Relative


567

$ 5.99

$ 9.04


$ 5.05


Buys on basis of custom
or tradition; passes all
risks to farmer.





Low

Low


Few(16% of total amount)


15
50%
Friend


or Relative


216
$ 2.87

$ 12.40


$ .49


Adjust acreage with
assembler before
harvest, get assembler
advice on harvest
timing. Produce and
Market 4 months or
more of year

High

High (76% sell to
same assembler)

Many

Not Necessary
217 1/
N.A.-
Business Man


595

$ 5.93

$ 9.25


$ 3.32


Guarantee whole
saler stable
supply, advice
farmer on pro-
duction. Market-
in strategies.


High

High


Many(52% of total
amount)
-
36
96%
Business Man



540
$ 2.57

$ 12.40


$ .58


L/ N.A. = Not Applicable.
2/ Average for the representative
sample taken.











- 12 -


Average Costs of Potato Production for
Large vs. Small Farmers in Costa Rica.





















/ Large


180 560 540 720 900 1080 1260 1440 1620 1800


Figure 3.


6.54

5.88


3.92


.1'. ... c


Hundredweight







- 13 -


Figure 4.


Combined Average Costs of Potato Production
and Assembly for Large vs. Small Farmers and
Assemblers in Costa Rica.


Small


8.50 153

7.84 120

7.19 1100






4,58 7To

3.;"- 6ob


Large


50
4ob V




0I 8 6 4 2 0 0016 11. 6010 udewih


0 180 360 540 720 900 1080


1260 1440 1620 1800


hundredweight






I- 1 .


But when assembler marketing costs are added, to 7 I.!. :'..",l
costs the situation is reversed (Figure 4.~)o "'r.- 3 ,v.: .'.:. R.e..-'arket-
j,;.: sub-system reaches minimum costs of $3.11 r'..:/et. as *.*~~_ ...- to minimum,
r-1. -r :. costs of U.S.,$5.65 per cwt. for the saa ll .-; .: ,,-.. :?. :; t i,-
sub-system.

Th" economies of scale in mr-irLetin? activities and the ,-.:~ : ir.it in,t
efficiencies of large assemblers override the small farmer x.A-.L.:. i cost


Conclusions:

Small potato producers in Costa Rica market their r '~L IT through
small scale, limited resource intermediaries. amd. while anll farmers
have a significant production cost advent hne-, the .. ) unit r~rket i n:. costs
of their trading partners eliminates that nd .: r T .'.. "'- on
the other hand, by marketing through large asseriblers and *,' :.-" -. .-re
with close coordination and larger volumes are able to overcome their
production cost disadvantage.

There are significant economies of scale in potato ."i- .in.
activities. The sources of those economies are: (1) close ..:r *:.'.. t'-n
between farmers, assemblers and wholesales, (2) transaction .ff i.n.:y,
(3) transport efficiency and (4) washing-drying fnilciency.

We have listed the coordination factor first because it jp .r
to be a n-,cesc ary condition for the remininn- factors. Large farmers and
large assemblers have forward exchange arrn.'r: r:- in which t. -.y P..'.- ii'.itly
recognize their community of interest. Large assemblera have -. rL,-'I,'"
p.-Cw -.,.:.,n with wholesalers. Thus, large assemblers fr:.i'; as a i,.n.
of "channel ,.ri.tdin" and thereby help to bring about order and -'. ..i ty
for themselves and their trading partners. This also a;1..- i'i -: an
element of sub-system optimization. That is, the c'hanuel -i~;. ". acts
in svch a wray as to try to encourage behavior in his trading partner
which will minimize his costs, their costs and therefore total sub system
costs. Thus, large assemblers and their counterpart [ -1' Jalers are
able to achieve more efficient use of ,'lt,.i, labor .:! :- .:..* ;.3I
factors in the buying, selling, vorhin-, h-r.'li~-, and *.."1-..:''i i[t
of p;..vt' t:.. In addition, through exchange ','.:',::' large '.'.'i'.
and assemblers manage to supply the wholesalers and retailers who p.;.. j:;
::.-:*".." to upper income consumers. This means that large fi ii, i;. and
assemblers have not only stable demand (Xl in fic e 2) but relatively
A-~rh prices, (PI in Figure 2).

On the other hand small farmers and their assemblers are t.
to -.~-rppy the lower income urban and rural consumers who are mrch more
price conscious. (Sections AB and BC of the demand curve d0!..,-' 1 in
Til,,"re 2). There are no forward sales ar.r.nt: so small '' :






- 15 -


(dr;t .n-.Jly) .choose to produce about the same acreage n hb year and to l-m nt
on dates which permit maximum yields Il-.-n their micro-climatic :c-.mtil.tions.
Their m -r~eting strategy reflects an accurate e' -.r ., -r. that short term
! ice fluctuations are random. As potatoes near mT.'turity,the .roall ..'-.-
takes a .-mpl1e to the market to determine if he will accept the market
price of the week. Since he has not yet h-'-, r0.,, i' .. .the option of
delaying the sale of his crop for as much as 3 weeks: -' This arrangement
lho.p to avoid extreme short term market gluts. But since most small
farmers are in the market during the peak harvest .....:.; it does not
prevent them from receiving lower %v.:-ra:- rl ..-. T1- ..,-- all farmers
are under triple market jeopardy. Th-.y receive lower prices, their
risks are greater and their marketing partners have I i-,- .-1 -;.*.. costs.

Fb :v Tmplications

Tn this particular case, we conclude that government programs,
d, i. to reduce small farmers production costs without consider -;
.:-. ibir improvements in the institutional n r.rn...:. p. -;. in the market
pi.cre would have had relatively little ben.efici.:l, effect on small f>:rwr. "
welfare. The basic cause of the small farmers' current \I-.,.: t. -.:
is the manner in which he markets his products.

Th,.. eu--tion arises: what could small farmers do to overcome
the v:,a txnr, di.nd'vantcre? Is it feasiblee for them to copy I.-:*
ftrT' .,''.",:t Inf. rr~cticcn and thus improve their -i; i, tie position?
'..-: answer to the latter question :-.'rx'-r-rn to be, u:;, but .::' 7 with
partial success. The costs per hundredweight of s:....:t:, I:( .,: i ,n,
and transporting the smaller volumes marketed by the small farmer are
significantly higher. Large assemblers are therefore not interested
in buying from small farmers. And the small assembler is still likely
to be rpavr:~n.t on the lower income market -.r ue unless he is made
r_ ir.lv aware of the coordination -i. r-i .nv r,... to ,--*-. with
large assemblers for the high income segment of the rearket, r.---
the small r'.:,.'.r and small assembler could ..',ly -...- to alter
behavior in order to improve their :,.,..r. i ive :.-. ** A second
alternative would be for small farmers to organize and earnestly
-'.p,';t a ryarrctin, cooperative. A third alternative would be for the
government to pursue some type of mar].;.t i. order or bcXard .1-* ., i.; -,


1/ :.':~Ariin potatoes "in the ground" for more than 3 weeks is not
feasible because of the risk of insect and moisture damage. And
even if that were not the case, most small farmers ust
ir,:'.el.-atly get what they can out of the crop in order to pay
loans and ,urbch '." family needs.






- 16 -


which would assure equitable rarnet access for all *. r and r
' r' iaT -:' in markel ir:. activitionUc /. Il" any the v'.*... .,. .. 1
channel ci-r:.in" is ir .-tVn'. in order to :, n,.' an element of i'-". .,1..'.
in r -,n'i. dates, ha:1". .-* "t q- ('. *,;, washing, handlf.. and deli -7.-

.. cace illustrateD. the ,i for i '- ; to understand
the i.ntc 5-=orking- i of the u :'. S '.i! icr.in-arkei ;i ab-~system ;"f... r-. r- .-..:nal.'fi:.
r] ."- It also nar!f,"' t threat in t. .:, 'he *'- r the ..-T.r-.;.,r l
friendly invisible hand can become the not so fri u.'<- inv l iSle-foot .*.r
some participants. If' *-..K~ ty is an important '...*. .. .;- r ,-.V
government efforts might be directed toward;

(1) ',T, -.'.-ir. \ : inf..- O .rr't i.-.; and technical an distance '.' small
farmers to '.c:'. irmprov'.-.' r.nrk tin ar nv :-r'.~.t .;

(2) similar educational and technical assistance programs for
..nll assemblers. (By ra,-, ,_lt! their behavior '-:~i 1i "active coordination"
of the market channel they '.Irht take on the l,'. ...: of channel l ': i.r r0n"
to their own benefit and to the K-. ncit of small .; .,

(5) a careful review, with the ... .,. :' ioi of-call fa-rmer
leaders, of institutional arrangements ';b.Ih might be -A' *. to fE'. --..
small hf'rmer's market access nnd r fi i.c* .'v 7;

(4) monitoring the ar-. itive si Lcution Y. policy
mia.;nurcr to assure confirw--' effective :- or. in npotao assembly
and ',.:.1.--. iM activities.

A Final W'-,-',

The r ':.-r-. might be tzI-ir'. unr! that this eaCe : f more
than substantiate the vi;,r yi 1 held 0.. 1-i. that simdll ::. : lmust be
...,- ... '..J into '..T.' T-::r.:t ves or some other .-.,r of '-* n-. action n in .- 1.'. '
to 2.r-,, .,.: '* their situation. We do not :.: ly .. i. w ith thnat
( < : '* 5 ,) '.

First of all the case does more than that., '' shower .-," and
*', LIr what etst be done to i-r, -,r, economic ormance the small
.' *-. : farmer andb his ro,'".. "n. system. In other words, the act *--
*i r A'i.' .in." a cooperative of small farmers in and of itnielf does not-
aasure fi-.t.r. .r,-tit in it's member's welfare. And the decision as to
what to do with a cr.s ,r,'f ive once it in o: -, inl ..' is not a ',_." one.
It r i.'. .i'.es a t.'i.J,.1 and. accurate *'.,'."- ..."- i.i,- of the root cause of
fun ..:_;c rt P s.i1. ma:. ll Int;r_ performance.. '

..1 .' -,ll i -l -q r f Agricultural .-.x. ri... ..i
RO'W* as a iit i Ac for T--..r. :'. Economiic I' :' ", an


16/ Potato i -. .'- in the ."'i---f : area .to... ..:. that oat for themselves s
'..r ra''ni:A a r f:-v' without : i. a -. .-. .
S'o.y"- i tt. ntr, : to duplicate the i;-.::?:r of -.:.. -I- r and. ere unable
to :',, F." ,' c .f iOnftly.










''r. .. ,~ the .-.i .. i. not e ven ;, i* ," e a .. ; or '"..
Other ;., forml i action by Spmall .,r ,, .' el-ear
of the its root 'use .O' i i- I :; to0 c ,, -
P": '. on the ,'* '. c, of individual I i ,:. ,, i in the --. ,i. .. I II .,
those i .! behavior interact '. 1 to prodce
0 11 ._- .- 0 in overall r ..., ..... In V.. k 7 eas, -, e, 11
mall farmers and asemiblerS 1 r ap- i : the T 1~. t.,. Hrir'
. t.i, to mak e i -.. ales : .. themselves to :" .
ir, !.,i -. on market condition and, to fr- :. rely .. -..._ in the
more .:' I in oe .- .o e of the r ;1 .. .

'"' r final I ;.-.: ... .i. that while niero economic
analy;.1. l o-!.;*..-;n and :.::' r i i :. ii' are necessary conditions
of '.e -.-nlt,: a :.1 r,-ft. Th!,i.-:. should. not be : a,'. (a VT -:,. often are)
as both .: : :.' ;'. ,: no substitute r U -'.. -. .
research at the W.i.4 -L -:A-; .' level in order to a3, ,. :.i o...l-:l
and. rM' terin'r, '.- how to resolve them. And that research should focus
not only on agricultural r''.' ,i i' .r br i on marketing '..i ..-.* -
as well.




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