• TABLE OF CONTENTS
HIDE
 Cover
 Title Page
 Foreword
 Table of Contents
 Acknowledgement
 Map of Colombia
 Frontispiece
 Introduction
 The Cali urban food distribution...
 The production and distribution...
 Special industries in the food...
 Consumer goods in the industrial...
 Some public aspects of market coordination...
 A summary diagnosis
 On implementation
 Bibliography
 Appendix A. Methodology
 Appendix B. A list of acronyms
 Appendix C. List of definition...
 Appendix D. Units of measure














Group Title: Michigan State University, Latin American Studies Center. Research report
Title: Market coordination in the development of the Cauca Valley region-Colombia
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00086763/00001
 Material Information
Title: Market coordination in the development of the Cauca Valley region-Colombia
Series Title: Michigan State University, Latin American Studies Center. Research report
Physical Description: xii, 386, 23 p. : illus., maps. ; 23 cm.
Language: English
Creator: Riley, Harold, 1922-
Publisher: Latin American Studies Center, Michigan State University
Place of Publication: East Lansing
Publication Date: 1970?
 Subjects
Subject: Farm produce -- Marketing -- Colombia -- Cali   ( lcsh )
Produce trade -- Colombia -- Cali   ( lcsh )
Produce trade -- Colombia -- Cauca River Valley   ( lcsh )
Genre: non-fiction   ( marcgt )
Spatial Coverage: Colombia
 Notes
Statement of Responsibility: by Harold Riley, and others.
 Record Information
Bibliographic ID: UF00086763
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 00096689
lccn - 74630707

Table of Contents
    Cover
        Cover
    Title Page
        Page i
        Page ii
    Foreword
        Page iii
    Table of Contents
        Page iv
        Page v
        Page vi
    Acknowledgement
        Page vii
        Page viii
        Page ix
        Page x
    Map of Colombia
        Page xi
    Frontispiece
        Page xii
    Introduction
        Page 1
        Page 2
        Page 3
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    The Cali urban food distribution system
        Page 30
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    The production and distribution of selected foods in the Cali area
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    Special industries in the food system
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    Consumer goods in the industrial transition
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    Some public aspects of market coordination of the food system
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    A summary diagnosis
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    On implementation
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    Bibliography
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    Appendix A. Methodology
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    Appendix B. A list of acronyms
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    Appendix C. List of definitions
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    Appendix D. Units of measure
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Full Text




M"ARKET COORDINATION
IN THE DEVELOPMENT OF
CAUCA VALLEY,
COLOMBIA.





RESEARCH REPORT NO. 5
LATIN AMERICAN STUDIES CENTER Michigan State University

je ;I-'.t';." c- A -gricultural Economics
Gainesville, Florida

MARKET COORDINATION
IN THE DEVELOPMENT OF
THE CAUCA VALLEY
REGION COLOMBIA
Harold Riley, Kelly Harrison, Nelson Suarez, James Shaffer
Donald Henley, Donald Larson, Colin Guthrie, David Lloyd-Clare


MARKETING IN DEVELOPING COMMUNITIES SERIES


















Library of Congress Catalog Card Number 74-630707


Distributed by the Latin American Studies Center,
Michigan State University, East Lansing, Michigan
48823








FOREWORD


This report summarizes the results of a study directed by a Michigan State
University research team and carried out jointly with Colombian agencies. The
MSU research team was composed of members of the Department of Marketing in
the College of Business and the Department of Agricultural Economics in the
College of Agriculture and Natural Resources.
This is the fourth report in a series on marketing in developing communi-
ties that has been published by the Latin American Studies Center at Michigan
State University. The other reports in this series are listed below:

Food Marketing in the Economic Development o6 Puet-o Rico

Market Proce&ses in the Recide AAea of Nohtheast Btazit

MaAket Processes in La Paz, Bolivia

The Michigan State University research program which began in 1965 has
been carried out under two interrelated contracts financed by the U.S. Agency
for International Development. The first contract, A Compawative Study o0 Food
Marketing Systems in Selected Latin Amehican Count~ie~ (AID/TCR-786) was con-
ducted for the Technical Cooperation and Research Branch of USAID, Washington.
It had two interrelated goals: 1) to provide developing countries with infor-
mation to assist in the design of improved food marketing systems; and 2) to
formulate a more adequate conceptualization of the role of marketing in the
development process. The second contract created the Latin American Market
Planning Center (LAMP) at Michigan State University (AID/la-364) which operated
through the Latin American Bureau of AID, Washington. The LAMP Project expanded
the scope of the program to include not only food marketing but also the mar-
keting of technical farm inputs and selected industrially produced consumer
goods.
For a general overview of the Colombian project and a summary of the major
research findings and the recommendations, the reader is directed to Chapter 1,
pp. 1-8 ; Chapter 7, A Summary Diagnosis and Chapter 8, On Implementation,
pp. 1-5.
Throughout this report the basic monetary unit is the Colombian peso. The
official exchange rate in February, 1969, when much of the research data were
collected, was 16.90 pesos for one U.S. dollar.







TABLE OF CONTENTS

iii
FOREWORD . . .................................
TABLE OF CONTENTS . . . ..........................
ACKNOWLEDGEMENTS ..................................... vii


Chapter
1 INTRODUCTION . . . . . .
PIMUR -- Proyecto Integrado de Mercadeo Urbano Rural . . 1
A Framework for Diagnosing Market Coordination Problems . . 3
The Geographic Area ............................ 9
The Institutional Environment . . . . . . . .. 11
Demographic and Economic Characteristics and Projected
Changes . . . . . . . . 12
Organization of the Summary Report . . . . . . .. 23
2 THE CALI URBAN FOOD DISTRIBUTION SYSTEM . . . . . . 30
Introduction ...... ............ 30
Consumer Food Purchasing Patterns .. . . . ..... 30
The Structure of Food Retailing .. . . . ...... 39
Consumer Shopping Patterns and Attitudes Toward Retailer
Types . . . . . . . . . . . . . 50
Retailer Conduct and Performance .............. 58
The Structure of Wholesaling .. . . . ........ 70
Retailer-Wholesaler Relationships .. . . . ..... 78
Wholesaler-Supplier Relationships . .. . . . 85
The Economics of Food Wholesaling .. . . . ..... 87
The Existinq Cali Food Distribution System: A Summary. ..... 91
Opportunities for Change .. . . .............. 93
The Benefits of Urban Marketing Reform. . . . . .... 104
Recommendations . . . . . . . 109
3 THE PRODUCTION AND DISTRIBUTION OF SELECTED FOODS IN THE CALI AREA 122
Introduction. . ... . . . . . . . . . 122
Meat .. . . . . . . . . . . . . . 124
Introduction . . . . . . . . 124
Beef. . . ... . . . . . . . . . . . 125
Pork . . . . . . . . . . . . . .. . 131
Conclusions and Recommendations .. . . . ..... 133
Poultry and Eggs. . . . . . . . . .140
Introduction. . . . . . . . . . .140
Poultry and Egg Production .. . . . ........ 141
Egg Marketing . . ........................ 144
Broiler Marketing . . . . . . . . 149
Future Demand . . . . . . . .153
Conclusions and Recommendations .. . . ........ 153
Milk . . . . . . . . . . . . . . . 157
Introduction ........ . . . .................. 157
Consumption . . . . . . . . 158
Milk Production . . . . . . . . . . . 159
Pasteurized Milk System . . . . . . . . . 160
Raw Milk System . . . . . . . . . . 163
SConclusions and Recommendations .. . . . ..... 165
Fruits and Vegetables . . . . . . . . . . 174
Introduction . . . . . . . . . . ...... 174
The Production and Distribution System .. . ..... 176
Conclusions and Recommendations .. . . . ..... 191








Grains . . . . . . . . . . . . . 198
Introduction .................. . ... 198
Consumption ............. ........... . 198
Production. . . . . . ... . . . . . . 199
Marketing . . . . . . . . . . . . 201
Performance . . . . . . . . . . . . 211
Conclusions and Recommendations . . . . . . .. 212
Conclusions . . . . . . . . . . . . 218
4 SPECIAL INDUSTRIES IN THE FOOD SYSTEM . . . . . 225
Introduction . . . . . . . . . . . . .. 225
Technical Farm Inputs . . . . . . . . . . 225
Improved Seeds . . . . . . . . . . . .. . 226
Fertilizers . . . . . . .... . . . . . 233
Pesticides . . . . . . . . . . . . . 246
Farm Machinery . . . . . . . . . . . . 251
Feed Concentrates .............. ....... . 257
Conclusions and Recommendations . . . . . .... 261
Food Processing . . . . . . . . . . . . 264
Packaging . . . . . . . . . . . . . 269
Transportation . . . . . . . . . . .. 274
Introduction .......... . . . . . .. 274
Legislation . . . . . . . . . . . . 275
Public Service Transport Firms and Affiliated Transporters. 275
Transportation Rates. . . . . . . . . ... 277
Intermunicipal and Interdepartmental Transport. ....... 280
Aspects of Congestion and Coordination of Transportation. . 281
Transportation Within Cali . . . . . . . . 283
Transportation of Foodstuffs by Consumers . . . . .. 285
Conclusions and Recommendations . . . . . . .. 285
5 CONSUMER GOODS IN THE INDUSTRIAL TRANSITION . . . .... 292
Manufactured Consumer Goods. ... . . . . . . 292
Introduction. . . . . . . . . . . ... 292
The Impact of Government Regulations on Industry in Cali. . 293
Productive Capacity . . . . . . . . .. . 295
Financial Resources . . . .... . . . . . 298
Marketing Orientation . . . . . . . . . 299
Conclusions and Recommendations . . . . . .... 302
Residential Construction.................... 305
The Existing Situation in Cali .. . . ........ 305
Conclusions and Recommendations .. . . . ..... 311
6 SOME PUBLIC ASPECTS OF MARKET COORDINATION OF THE FOOD SYSTEM . 315
Introduction . . . . . . . . . . . . . . 315
Laws and Regulations ................... 315
Introduction. . . . . . . . . . . . 315
Regulation and Coordination . . . . . . . .. 316
Importance of Contracts . . . . . . . . .. 320
A Possible Problem with Agencies Having Special Privileges. 320
The Dilemma of the Labor Code . . . . . . .... 321
Price Supports . . . . . . . . . . . .. 323
The Problem of Price Control and Speculation . . . .. 324
Conclusion . . . . . . . . . . . . .. 327
Information and Communication . . . . . . . .. 328
Availability and Use by Market Participants . . . .. 328
Conclusions and Recommendations. . . . . . .. 331
Credit. . . . . . . . . . . . . . 337
General Credit Situation in Colombia . . . . . .. 338
Credit Availability and Needs in the Cauca Valley . . .. 340
Conclusions .. . . . . . . . ..... 345








7 A SUMMARY DIAGNOSIS. ................ .... 346
Introduction . . . . . . . . . . . .. . 346
Regional Economic Development Problems . . . . . .. 347
Market Processes and Development . . . . . . . .. 349
A Summary Diagnosis of the Cali Food System . . . .. 352
Some Barriers to Change . . . . . . . . . . 359
8 ON IMPLEMENTATION. ................ . .... 363
Introduction . . . . . . . . .. . . . . 363
The PIMUR Recommendations .................... 363
An Agency for Implementation .................. 367
Timing of Implementation Activities. . . . . . . ... 369
Financing and Technical Assistance . . . . . . .. 371
Some Observations on Priorities . . . . . . ... 374
A Strategy for Fomenting Regional Development. . . . . 378

Bibliography . . . . . . . .. . . . . . . 380
Appendices
A Methodology
B List of Acronyms
C Definitions
D Units of Measure








ACKNOWLEDGEMENTS


The PIMUR project (Proyecto Integrado de Mercadeo Urbano Rural) was
jointly financed by the Colombian Government and the U. S. Agency for Inter-
national Development. The Colombian Autonomous Regional Corporation of the
Cauca Valley (CVC) was responsible for the administration of Colombian funds,
and also contributed the time of the Co-Director and another experienced tech-
nician. Michigan State University provided the technical direction for the
project through the AID financed Latin American Market Planning Center. The
CVC and the University were contractually linked to the Specific Projects
Section of the National Department of Planning. However, we are indebted to
numerous other agencies and individuals who have given their support to the
PIMUR project, and without their help this report could not have been prepared.
Martin Stoller, Marketing Advisor, Bureau for Latin America, AID/Washing-
ton, was instrumental in negotiating arrangements for the project and has
provided continued advice and administrative support during the conduct of this
study.
The USAID Mission in Bogota, directed by Marvin Weissman, has provided
logistical support for the Michigan State University Contract team. Mission
staff who have provided administrative and technical support to the project
include James K. McDermott, Rural Development Officer; William Rhoads, Program
Officer; and John Oleson, Assistant Mission Director.
We are grateful to Edgar Guti6rrez C., former Head of the National
Department of Planning; to Augusto Cano, Assistant Director; and to Omar Botero,
former Head of the Section for Specific Projects, for their administrative
approval of the project and for expediting the release of Colombian project
funds. During the conduct of the project we have benefitted from continued
contacts with Humberto Colmenares, Tomas L6pez, and Miguel Angel Rivera on
technical aspects of the PIMUR study. Camilo Cardenas has provided able
administrative supervision of the financial operations of the project.
Due to the cooperation of Henry Eder, Executive Director of the CVC;
Roberto Moncada, Personnel Director; Rosario Moreno, Luis M. Velasco, Julio
Salcedo, and Oscar Mazuera, there were never administrative difficulties which
hampered the fast-moving project work schedule.
The project has also benefitted from the logistical support and active
participation of several other agencies. The Promotora de Abastecimientos,
directed by Antonio Forero, was active in promoting the project, provided
office space during the early stages of the operation, and has had personnel
actively engaged in all phases of the study.








Reynaldo Scarpetta, formerly Dean of the Division of Social Sciences at
the University of Valle, was also instrumental in bringing the PIMUR project
to Cali, and in providing two faculty members to the task force.
IDEMA, a national marketing agency, also contributed the services of a
full-time technician.
The Sociedad de Agricultores del Valle, and its former Executive Director,
Guillermo Barney Mater6n, were helpful in promoting the project. They also
provided office space and conference facilities for the PIMUR staff during the
organizational phase of the Project.
We are grateful to Antonio Garc6s, Director of Empresas Municipales of
Cali, and to Oscar Lozano for making available the IBM 1401 computer without
charge to the project. This made it possible to provide additional training
for local personnel, while enlarging the library supply of computer programs
and expediting the PIMUR data analysis. We also appreciate the competent
services of Allan Dale of Systems Research, Inc., who provided technical direc-
tion of our data processing operations. In addition, James Thomas, U. S. Peace
Corps Volunteer, worked many long hours programming and supervising data pro-
cessing.
We recognize that information summarized in this report could never have
been assembled without the diligent work of more than 40 PIMUR interviewers
recruited largely from local universities. We also gratefully acknowledge the
cooperation of the many businessmen, farmers, and consumers who willingly
provided us with information. We were assisted greatly in our study of rural
communities by Mario Iglesias of the Faculty of Agronomy at Palmira, and by
Jan Flora of Cornell University. Both participated directly in the research,
and in fact helped with the preparation of a technical report.
An advisory board was organized early in the project in order to provide
an exchange of ideas with participating and interested agencies. We are grate-
ful to those board members who have been most helpful in the research phase and
who have manifested a continuing interest in helping put the research results
into action. The members are:

Jaime Uribe U. Gerardo de Francisco
Enrique Luque Josd Vicente Arboleda
Antonio Garc4s Guillermo Cobo
Henry Eder Eduardo Polo
Marino Renjifo Jaime Cifuentes

We are especially grateful to the Michigan State University Technical
Advisory group. While serving as part-time consultants, they have in fact
provided "full-time" and invaluable experience, leadership, and know-how
through all phases of project planning, execution and report preparation.








Finally, we express our most sincere appreciation to all project personnel,
who are listed below. Their dedication to their jobs, their willingness to
cooperate with each other, their eagerness to learn, and their sincere desire
to make a lasting contribution to regional development are reflected in this
summary report.


Michigan State University Technical Direction Team of Consultants

Harold M. Riley and Donald Taylor Co-Directors, Latin American
Market Planning Center
James D. Shaffer Professor of Agricultural Economics
Donald Henley Assistant Professor of Marketing


Urban Studies Group

Colin Guthrie
Michigan State University

Hugo Duque
Universidad del Valle
Norma Avellaneda
Guillermo Caicedo
Guillermo Molta
Fernando Sol6rzano
Ruben Cruz


Rural Studies Group

Donald W. Larson, Leader
Michigan State University
Hugo Torres
University of Valle
Guillermo Gutidrrez
IDEMA
Elvia Gutidrrez de Garcfa
CVC

Special Studies

Luis Ardvalo
Alonso Garcia
Cesar Bonilla
Carlos Ruiz

Survey Supervisor

Hernan Dussan

Data Processing

James Thomas
U. S. Peace Corps


nd David Lloyd Clare Co-Leaders
University of Valle and
Promotora de Abastecimientos
Faber Osorio
Luis Alfonso Ortiz
Miguel Arce
Gladys Pellandi
Nohra de Londoho
Alberto Angel
Alfonso Blum
Promotora de Abastecimientos





Aldo Patruno
Hugo Gonzalez
Romulo Campo
Ramiro Molina
Alvaro Silva
Guillermo Montaio



Kerry Byrnes
Michigan State University
Sonia G6mez de Byrnes


Rubdn Darfo Rozo








Office Administration

Alvaro Hernindez
Office Manager
Leyda de Ramfrez
Susana de Escobar
Isabel de Lombo


Patricia Chain
Flor de Marfa Martfnez
Luz Elena Zuluaga
Beatriz Sol6rzano
Promotora de Abastecimientos


Kelly Harrison (MSU)
Co-Director of PIMUR


Nelson Suirez GonzAlez (CVC)
Co-Director of PIMUR


March 31, 1970












Caribbean Sea


Panama











Pacific
Ocean


Venezuela


Bucaramanga
0


Medellin


Bo ota


Buenaventura

*Cali


Ecuador


Brazil


Map of Colombia



























"-- I-r







I ; . .- ,-



A panoramic view of Call, a fast growing city of over 800,000 that serves as
the political and commercial center in the Cauca Valley region. The statue
in the foreground depicts Sebastian de Belalc6zar, the Spanish explorer who
founded the city of Cali in 1536.








CHAPTER 1

INTRODUCTION

PIMUR--Proyecto Integrado de Mercadeo Urbano Rural


The primary objective of PIMUR was to conduct diagnostic studies of mar-
ket coordination in the Cauca Valley region and to formulate recommendations
to improve resource use efficiency and stimulate economic growth. Secondary
objectives were to train Colombian personnel in the technical aspects of eco-
nomic studies and to contribute to a better understanding of market coordina-
tion processes in economic development.
The discussions which led to the organization of the PIMUR project origi-
nated in response to expressed concerns of civic leaders in Cali who were
confronted with major decisions on changing the urban food distribution system.
A decision had already been made to remove the Galeria Central as a first step
in the improvement of a large area in the center of the city. The Galeria
Central has served for many years as the hub of the food system. In further
discussions with representatives of local agencies, the National Department of
Planning and the U.S. Agency for International Development, it was determined
there was a need for a broad study. While emphasizing the urban food distri-
bution system, researchers would deal more comprehensively with the problems
of the regional food production-distribution system and its relationship to
the development of the region. Thus, the scope of the study was extended to
the broad problems of economic integration of the rural and urban areas ,
focusing on Cali and its principal area of influence. Although the study was
to be carried out in the Cauca Valley, it was anticipated that the problems
identified and some of the suggested solutions would have relevance to other
regions in the country.
The PIMUR project staff was assembled in October and November of 1968.
The staff consisted of a small contingent from Michigan State University and a
larger group of Colombians, most of whom were relatively recent university
graduates. (See Acknowledgements, pages ix-x for detailed description of
the task force.) The project was carried out within a period of one year, which
placed stringent time constraints on the research activities.
The research procedures and methods of operation drew heavily on the exper-
ience of a Michigan State University group which had conducted similar studies








in Brazil, Bolivia, and Puerto Rico. Initially, activity was concerned with
preparing a detailed work plan based upon a review of previous studies, con-
sultations with public officials, and reconnaissance-type interviews with con-
sumers, farmers, industrialists, and others. This was followed by detailed
personal interviews with individuals chosen through systematic sampling pro-
cedures to be representative of various segments of the marketing system. A
total of 3800 interviews were completed. The survey data were transferred to
IBM cards for analysis at the Empresas Municipales computer facility in Cali.2
However, due to the massive amount of data and the limited capacity of the
facility, considerable analysis was shifted to the Michigan State University
Computer Center.
The PIMUR staff prepared 16 technical reports which served as the basic
materials for this summary. The technical reports provide a much more detailed
description and analysis of specific components of the regional economic system
than is reasonable to include here in the summary report. The depth of analysis
varies, reflecting, among other things, the varying emphases on different topics
Primary emphasis was on the urban food distribution system and the related
vertical production-distribution systems for selected food commodities. Al-
though important to the comprehensive diagnosis of market processes, relatively
less emphasis was given to studies of the manufacture and distribution of
agricultural inputs and consumer goods and to food processing, packaging and
residential construction.
A list of the Technical Reports follows:3
No. 1 Some Aspects of Market Integration of Rural Trading Centers in
the Cauca Valley

No. 2 Production, Distribution and Use of Packaging Materials for
Agricultural Products in the Cali Area

No. 3 The Distribution and Use of Technical Agricultural Inputs in
the Cali Area

These studies have been summarized in the following publications:
C. C. Slater, H. M. Riley, Kelly Harrison, et. al., Food Mahketing in the
Economic Development of PueAto Rico, Research Report No. 4, Latin American
Studies Center, Michigan State University, East Lansing, 1970.
Market Ptocesses in the Recide Area o6 NoLtheast Btaziz, Research
Report No. 2, Latin American Studies Center, Michigan State University, East
Lansing, 1969.
C. C. Slater, Donald Henley, et. al., Manekt Ptroce.ne~ in.La Paz, Bo.ivia,
Research Report No. 3, Latin American Studies Center, Michigan State University,
East Lansing, 1969.
2Code books and magnetic tapes containing all survey data have been placed
on file with the Corporaci6n Aut6noma Regional del Valle del Cauca (CVC) in Cali
and with the National Department of Statistics (DANE) in Bogotd.
3Copies of the PIMUR Technical Reports have been provided to government
agencies, and selected university libraries. Copies can also be purchased
from the CVC. All Technical Reports are in Spanish only.








No. 4 The Production and Distribution of Selected Consumer Goods in
the Cali Area

No. 5 Food Processing and Distribution in the Cali Area

No. 6 The Cali Urban Food Distribution System

No. 7 The Cali Consumer: Incomes, Food Purchases, and Shopping Patterns

No. 8 The Transport System for Agricultural Products in the Cali Area

No. 9 Market Information and Communication in the Cali Area

No. 10 Laws and Regulations Affecting Market Coordination in the
Cali Area

No. 11 Grain Production and Marketing in the Cauca Valley

No. 12 The Cali Milk Production and Distribution System

No. 13 Slaughtering and Distribution of Beef and Pork in Call

No. 14 Poultry and Egg Production and Distribution in the Cali Area

No. 15 Fruit and Vegetable Production and Distribution in the Cali Area

No. 16 An Economic Analysis of Residential Construction in Cali

This summary report highlights the special studies and integrates them
into an overall diagnosis of the existing marketing system. In each section
of the report there are specific recommendations related to the diagnoses.
The final chapter deals with implementation problems and strategies. The
balance of this first chapter will introduce a framework for diagnosing market
coordination problems. This is followed by a brief description of the geo-
graphic area studied. Demographic and economic characteristics of the region
are summarized, and long-range projections are presented as an environmental
framework within which we can consider future development problems and the
need for marketing services and facilities.


A Framework for Diagnosing Market
Coordination Problems

Market Processes and Economic Development4

Market processes are viewed here as the primary mechanism in coordinating

4A more complete review of literature and expression of views on marketing
and economic development can be found in the following publications:
1) Research Reports 2, 3, and 4, as listed in Footnote 1 on Page 2.
2 J. C. Abbott, "Marketing Issues in Agricultural Development Planning,"
in Maakets and MaAketing in Developing Economies, eds., Reed Moyer and Stanley
Hollander, (Richard D. Irwin, Inc., 1968).
3) N. R. Collins and R. H. Holton, "Programming Changes in Marketing in
Planned Economic Development," Kykhos, Vol. 16, January, 1963. Reprinted in
AgrticuLtuAe in Economic Devetopment, eds., C. Eicher and L. W. Witt,
(McGraw-Hill, 1964).








production, distribution and consumption. From an economic viewpoint, market
processes include the exchange activities associated with the transfer of
property rights, the physical handling and transformation of products, and the
institutional arrangements for facilitating these activities. Market processes
are also seen as an integral part of the social system. The behavior of market
participants is conditioned by social customs and traditions which affect ex-
change relationships, attitudes toward institutional change and willingness to
adopt new procedures.
Our definitional concept of market processes is a broad one. We reject
any arbitrary classification of "production" and "marketing". We see the food
system as a set of interrelated stages of production activity. These include
the manufacture and distribution of agricultural inputs such as seed, ferti-
lizer, machinery and pesticides; the farm production activities; and the
assembly, storage, processing and distribution of food products to consumers.
Coordination of these activities is achieved largely through market processes.
We also attempt to emphasize the role of marketing in a dynamic economic
system where change is continually occurring through technological and insti-
tutional innovation. This leads to concern, not only for efficient resource
use in a static framework, but for technological and institutional changes
which greatly increase production possibilities with existing resources. These
changes should be considered within an overall economic development framework
so that employment and income consequences can be evaluated-. However, due to
limitations of data and analytical tools, comprehensive evaluations of con-
templated technological and institutional changes are necessarily rather crude
conjectures of the results of particular reform programs.
Market processes increase in relative importance as a community develops.
Increased specialization is fundamental to rising levels of productivity and
income. As near subsistence agrarian societies shift toward industrialization,
the proportion of population in urban centers increases. Likewise, as incomes
rise, food and clothing preparation shifts from the home to specialized pro-
cessing and distribution firms. As modern technology is introduced into agri-
culture, farmers find it profitable to purchase industrially-produced inputs
such as fertilizer, pesticides, and machinery. As a result of these changes,
marketing activities become a larger proportion of total economic activity.
Farm production declines as a percentage of total economic output and the
satisfaction of food needs becomes increasingly dependent on the effectiveness


For a theoretical discussion and an empirical example, see Chapter 11
and 13 of MakFet Ptocesee in the Recie AAea of Nohetheat Btazie, Research
Report No. 2, Latin American Studies Center, Michigan State University, East
Lansing, 1969.








of market coordination. At the same time, the consumer's food costs include
a growing percentage spent on market services. Thus, the functions of special-
ized intermediaries and physical distribution activities become important con-
cerns for development planning.
Food production and distribution makes up a large proportion of economic
activity in less developed countries. Hence, increased productivity and re-
duced real costs of food can have a significant impact upon levels of living
and the economic growth rate. In Cali, about 42 percent of total household
expenditures are for food. However, due to the unequal distribution of in-
comes, we find that most of the families are spending considerably more than
one half of their income for food. When divided into quartiles based upon level
of per capital income, it was found that the poorest quartile spent 82 percent
of its income on food while the second poorest quartile spent 63 percent. For
these low-income families, a reduction in food prices would result in signi-
ficant increases in real purchasing power, thereby affecting overall economic
activity.
The dynamic effects of reducing food prices can be illustrated using
actual family income-expenditure relationships derived from the PIMUR consumer
study. If we assume that technological and institutional changes in production
and distribution of foods could reduce Cali food prices by 10%, what effect
would this have on demand for additional food and for non-food products?
Table 1.1 compares the peso expenditures before and after a food price reduction.

TABLE 1.1 ESTIMATED EFFECT OF A 10% REDUCTION IN FOOD PRICES ON THE
DEMAND FOR ADDITIONAL FOOD AND NON-FOOD PRODUCTS

Expenditures per Capita per Month


After 10% Reduction in
Level of Family Present Food Prices
Income Per Capita
Food Non-Food Food Non-Food

I $ 75.19 $ 15.43 $ 70.44 $ 20.18

II 112.27 64.65 105.09 71.83

III 161.08 178.86 149:32 190.62

IV 294.02 769.59 267.85 795.76

City-wide Average 152.30 227.12 140.68 238.74


aSee Table 1.7 for information on classification of families by level of
per capital income.
SOURCE: Calculations based upon data from PIMUR, Consumer Survey, 1969.








For all income groups food expenditures would decline while nonfood
expenditures would increase. For the lowest income group, nonfood expendi-
tures would increase by about 30%. The overall average increase in nonfood
expenditures for all families would be about 5%. Thus, it is clear that a
reduction in food prices would have a significant stimulating effect on demand
for nonfood products. Furthermore, while total per capital food expenditures
are less after the price reduction, consumers would be buying a larger volume
of food than before. For all Cali consumers the 10% price reduction would
mean that the same diet could be purchased for 10% less (i.e., $137.07 as
compared to $152.30 before the price change). But some of the savings of
$15.23 would be allocated to buy more food. For all consumers, an average of
$3.61 more would be so allocated. This would permit the average consumer to
buy 2% more food with a total outlay of $140.68. Because their income elas-
ticity of demand for food is higher, a 4% increase in food volume would be
purchased by consumers in the lowest income group.
The above adjustments could only occur if supplies of food and non-food
were perfectly elastic, or if sufficient time elapsed for production to respond
to increased demand. In a competitive economic system, the dynamics of change
could begin with reduced food prices brought about through market improvements.
This would increase real purchasing power, forcing prices back upward at retail,
which, when reflected back to farmers and manufacturers, would call forth
expanded output. When this increased output reaches the market, prices would
decline toward a new equilibrium resulting in lower consumer prices, and higher
levels of output for both food and nonfood products.
This example serves as a realistic illustration of the effects which might
result from increased productivity in the food system. It should be stressed
that productivity increases in the processing and distribution stages can be
just as important as productivity increases in farm production. In both in-
stances there are secondary and tertiary effects on employment and income which
are important in formulating development policies.
In discussing the effects of changes in market processes, it is important
to consider the dynamics of innovation. In many instances the development of
more stable and remunerative markets has a strong stimulating influence on the
adoption of new production technology. This is undoubtedly a'more important
contribution to economic development than the short-run economic savings derived
from a system evaluated within a static equilibrium framework.
Ir c "(- L ,-
An Approach to Diagnosis

A diagnostic study of market coordination is essentially a search for un-
exploited opportunities in an economic system. It is an organized effort to
identify conditions which limit output expansion and create unnecessary costs.








The approach is pragmatic and eclectic. Hopefully it is also practical, in
that the results are useful to policy makers and private business managers.
There is no general theory of economic development to provide a rigorous
and deterministic framework for this type of diagnostic research. Economic
development is a complex, interactive growth process that can best be concept-
ualized as a system of relationships. The identification of important develop-
ment opportunities or difficulties often requires a comprehensive investigation
of a broad set of economic activities. This can serve as the basis for a
general strategy to foment desirable patterns of development. A program of
follow-up research can then provide feed-back information to guide decision-
making as the development program evolves. Detailed, in-depth studies of
specific sub-parts of the system can be fitted into the overall development
planning process, but resources will probably be better utilized if the de-
tailed studies are preceded by a more general diagnostic study.
In most developing countries there is a lack of information about existing
production and distribution systems and consumption of agricultural and indus-
trial products.' Henr., a useful first step toward problem identification is
to carry out a descriptive, diagnostic study.
A modified market structure conduct performance framework of analysis
can be useful in organizing such a diagnostic investigation. This framework
of analysis is oriented toward the evaluation of system performance when judged
against broad economic and social goals. For the purpose of the PIMUR study,
we have assumed that three broad goals are generally accepted in Colombia.
These are:
1. Growth in per capital gross product
2. High levels of employment
3. Greater equality of economic opportunity
The evaluation of system performance is both normative and relative. It
is normative in the sense that we observe how the results deviate from what
seems to be desirable as expressed in the general development goals. The, .,
evaluation is relative and pragmatic in that there is no ideal condition likely
to be attainable. Hence, results flowing from the present system must be judged
against what is attainable through alternative ways of organizing the system.
Following this approach there is no attempt to evaluate a particular economic
system on the basis of structural criteria alone. The emphasis is on the
degree of acceptability of the results and the conditions which will most
likely produce the desired results.


6For an early exposition of this framework of analysis, see Joe Bain,
Indu thial OLganization, (New York: John Wiley, 1959).









For the purposes of this diagnostic study, maeket stuctutwte variables are
the number, relative size and absolute size of participants. Also included
are conditions of entry and exit. Conduct variables are the behavior patterns
of market participants as they arrange transactions and work out procedures for
inter-firm coordination. Public participation and regulations are also a part
of the behavioral system considered under conduct. PeAroamance variables are
selected results relevant to the attainment of broad social and economic goals.
Three performance criteria are of central importance in the context of a
developing economic system. These are listed below, along with questions which
give direction to evaluation procedures:
1. Resource Use Efficiency -- To what extent is the system achieving
the lowest possible costs? Are there obstacles to efficient resource
use patterns, either internal or ,-..te r.l n. t.the firm? To what
extent are consumer demands being a.o:.:"cjte'i/transmitted to farmers,
processors, and distributors? Cost comparisons for alternative ways
of organizing and coordinating subsectors of the production-distri-
bution system provide a basis for judging relative economic
efficiency.

2. Progressiveness -- To what extent is the system generating and
rapidly adopting new technology that reduces production and distri-
bution costs for presently consumed goods and services? To what
extent is the system developing new products or improving the quality
of existing products to satisfy changing consumer demands?

3. Equity -- Are there institutional barriers which cause a socially
and politically unacceptable distribution of income from the system?
Are there groups of participants who seem to be seriously disadvan-
taged? What is the effect of inequities in income distribution on
the dynamic growth process?

This framework was a general guide in the diagnostic investigation of
market coordination in the Cauca Valley of Colombia.7 The description and
analysis of sub-parts of the food system served as the basis for identifying
opportunities for reducing costs or offering consumers improved products at
the same cost. At a more macro-level, opportunities for improved coordination
of agricultural and industrial activities have been examined as a means toward
achieving more rapid rates of economic development.


7For related views on research approaches, see the following articles:
Norris T. Pritchard, "A Framework for Analysis of Agricultural Marketing
Systems in Developing Countries," Aguicultutae Economics Research, Vol. 21,
No. 3, July 1969.
James D. Shaffer, "Changing Orientations of Marketing Research," Ameitcan
JouAnal o6 AgicuZetuuta EconomUis, Vol. 50, No. 5, December 1968.
S_"On Institutional Obsolescence and Innovation Back-
ground for Professional Dialogue on Public Policy," AmeAican JouAna2 o0
AgricuttuLat Economics, Vol. 51, No. 2, May 1969.









The Geographic Area

The study was focused on the city of Cali and the area which supplies most
of the major food products for the city. The configuration of the supply area
varies by commodity. Delineation of these areas was made on the basis of a
checkpoint study of trucks entering Cali, supplemented with source of purchase
information obtained from product wholesalers. A description of the commodity
supply areas is given in Chapter 3.
For agricultural products the principal area of influence of Cali is the
Cauca Valley (Figure 1.1). The flat part of the Valley has an area of approx-
imately 430,000 hectares. The Valley is about 200 kilometers long and has an
average width of 15 kilometers. It extends from Cartago in the northern part
of the state of Valle to Puerto Tejada in the northern part of the state of
Cauca. It is bounded on both sides by mountains, with an average elevation
of approximately 3000 feet in the valley area. The climate is warm with a
mean annual temperature of 250C. The average annual rainfall is about 1000 mm.
There are two rainy seasons making it possible to produce two grain crops per
year. Sugar cane, corn, soybeans, cotton, and beans are the principal culti-
vated crops. The soils are exceptionally fertile and adaptable to mechanization.
Most of the land is held in large units. In the mountain highlands surrounding
the Cauca Valley, however, there are many small farmers. Coffee is the prin-
cipal cash crop, although fruits, vegetables, corn and beans are also produced
in small quantities.8
Cali is the capital of the state of Valle and is the dominant commercial
center in the southwestern area of Colombia. A highway network links Cali with
other major trading centers such as Pasto, Popaygn, Buenaventura, Palmira,
Buga, Tulud and Cartago.
Cali's commercial influence extends well beyond the Cauca Valley
region to the other regional centers such as Manizales, Medellin, Barranquilla,
Bogota, and Bucaramanga. The city also plays an important role in import
and export movements through the port of Buenaventura. In the PIMUR study
of industrial production and distribution of consumer goods and agricultural
inputs the area of influence of Cali was expanded to this larger area.
The lists of industrial firms interviewed included several in Medellin, Bogota
and Barranquilla, who are major suppliers to Cali and the Cauca Valley region.



8See PIMUR Technical Report No. 1, Some Aspects of Makhet Integration of
RuAlt TAading Cente)u in the Cauca VaUey.

































CH CO


SYMBOLS
_-- Highways

+ Railroad

Cauca Volley




Scale Aprox. : 1: 1'200.000


C A U C A


THE DEPARTMENT OF VALLE AND THE
GEOGRAPHIC LOCATION OF THE CAUCA
VALLEY.








The Institutional Environment


The existing institutional environment is an integral part of the economic
system. The public entities most relevant to an understanding of market pro-
cesses are identified briefly below:
The National Department of Planning prepares national development plans
and approves major public investments and development programs instituted by
the various ministries of government.
The Ministry of Agriculture is primarily responsible for the formation
and implementation of agricultural policies consistent with national develop-
ment policies. The ministry develops and coordinates national programs of
production, distribution and consumption in the agricultural sector.9 The
following agencies form a part of or are attached to the Ministry of Agri-
culture:
1. ICA (Instituto Colombiano Agropecuaria) ICA carries out re-
search, extension, and higher education in agriculture. It maintains a re-
gional office in Cali, and a National Center for Agricultural Research in
Palmira. The Regional Office in Cali has charge of the Departments of Valle,
Risaralda, Quindio and Caldas. ICA also has responsibilities for quality
control of fertilizers, pesticides, feed concentrates, and improved seeds.
Furthermore, ICA is charged with the enforcement of sanitary codes and other
standards for handling agricultural products.
2. IDEMA (Instituto de Mercadeo Agropecuaria) The central function
of IDEMA is to regulate prices and markets for food products through buying
and selling activities, importation, and exportation; guaranteeing support
prices to food producers. IDEMA has a regional office in Cali. In the Cauca
Valley, IDEMA operates grain storage facilities in the cities of Cartago,
Zarzal, Roldanillo, Buga, Yumbo and Palmira, and they also are in charge of
cotton gins in Zarzal, Buga and Roldanillo. In cities such as Cali, IDEMA
maintains retail outlets for articles of prime necessity, using both fixed
store locations and moveable trailers.
3. INAGRARIO This agency stores agricultural products and gives
negotiable warehouse receipts. In the Valle, INAGRARIO has facilities for
storage, drying and preserving corn, blackbeans, sorghum, and soybeans in the
cities of Buga, Cartago, and Palmira.
4. Caja Agraria (CAJA DE CREDIT AGRARIO, INDUSTRIAL Y MINERO) -
The Caja Agraria is essentially a credit institution, principally financing
agricultural production. In Valle the Caja Agraria carries out its credit


9A major reorganization of the Ministry of Agriculture occurred in 1968.
For detailed information on the existing organizational structure see Decree
No. 2420, 1968.









programs with offices in the main cities. The Caja also operates CRESEMILLAS,
a large seed multiplication and distribution enterprise. In addition, the
Caja operates several retail outlets handling agricultural supplies.
5. INCORA (Instituto Colombiano de Reforma Agraria) This insti-
tute administers the Colombian land reform program. INCORA has two projects
in the Department of Valle, one in the Irrigation District Roldanilla -
La Union Toro and the second in Palmira. Both projects emphasize the foment-
ing of agricultural development by means of supervised credit, technical assis-
tance, and the organization of producer cooperatives.
Regional and local entities with responsibilities relating to the food
system are as follows:
CVC (Corporaci6n Aut6noma Regional del Valle del Cauca) The CVC is
a public corporation whose main function has been to develop an electrical
power system for the Cauca Valley. The CVC also has responsibility for manage-
ment of natural resources in the Cauca Valley region, promotion of commercial
agriculture and provision of extension services to rural families.
EMSIRVA (Empresas de Servicios Varies) One of the functions of this
public corporation is the operation of the Cali slaughterhouse and management
and control of public food markets (Plazas mercados).
The Promotora de Abastecimientos de Cali This is a public agency
recently created to plan, promote and construct a new wholesale food marketing
facility for the city.


Demographic and Economic Characteristics and
Projected Changes

Public and private planning decisions must be made within the context of
the total economic situation. In this section we will attempt to identify
several of the more important demographic and economic characteristics of the
city Cali and the state of Valle. Especially important for planning decisions
are population and income projections, because volume of commodities, services
demanded, and needed facilities to meet the generated demands are closely
related to these characteristics. The future is unknown, and as a matter of
fact, so is the present. Planning decisions must be based upon available evi-
dence and judgement.
Population estimates used in this study in projecting current aggregate
consumption and future demands are summarized in Table 1.2. The projections
into the future should be clearly recognized as assumptions based upon an inter-
pretation of past trends and an evaluation of some of the factors likely to
influence these trends in the future. We neither predict they will occur nor
suggest they are desirable patterns of population growth. A variety of events
and policy actions will influence the outcome. As a whole, we believe these








TABLE 1.2 POPULATION TRENDS AND PROJECTIONS 1951 1989, COLOMBIA
VALLE AND CALI
Number of People in Thousands

Other
Colombiaa Vallef Urbanb Six secondary County Rural
S Call Cities, Valle Seats of Valle
Valle


1951 11,548 1105 241 198 107 556

1964 17,485 1733 639 381 221 513

1969 20,000 2156 895 480 266 515

1974 23,398 2641 1,219 596 311 515

1979 27,004 3227 1,624 732 356 515

1984 31,159 3920 2,113 891 401 515

1989 35,772 4737 2,699 1077 446 515


aThe 1951 and 1964 data are census data
of about 3.2 percent. Projections are
3.0, 2.9, and 2.8 by 5-year periods.


and imply a net annual growth rate
based upon assumed rates of 3.2, 3.1,


bThe 1951 number is from the census. The 1964 population estimate is based
upon a re-evaluation of the census data and is the accepted figure by
Planeacidn Municipal. (See Arce, Miguel, and Molta, Guillermo, Estimates
and Cha acteAhi ti c of Unemployment in Cati, University of Valle, Department
of Economics, Graduate Thesis, December, 1964, and PIMUR Technical Report
No. 7, Consumidores.)

The implicit growth rate for 1951-1964 is about 7.8%. The rates assumed from
1964 to 1969 were 7.4, 7.2, 6.9, 6.7, and 6.6; from 1969 to 1971 6.5; from
1971 to 1986 a uniform decline in growth rate from 6.4 to 5.0 and from 1986
on, a constant rate of 5.0. Thus, based upon past trends, the projections
of Cali population are very conservative. Assuming growth in the immigrant
population at past rates seems to provide unreasonable population relation-
ships. For example, the apparent migration to Cali amounted to an average
of about 4.2 percent annual rate of increase in Cali population for 1951-1964.
Applied to the 1964 population this would imply an immigration of about
26,000. However, the same rate applied to a two million population expected
in the 1980's implies an in-migration of more than 80,000. It is expected
that the number of migrants will increase as the total Colombian population
increases and as the population of the city increases, but that it will
represent a significantly smaller percentage of the city's population.








CThe 1951 and 1964 data are based upon the census reports. Anyone living
outside a city or cabeceta is defined as rural. This includes some very
small towns. It is assumed that the rural population will stabilize at,
current levels with the increased population pressures and the labor sub-
stitution effect of new technology in agriculture canceling out.

dThe 1951 and 1964 population estimates for the six largest cities of Valle
excepting Cali (Buenaventura, Buga, Cargago, Palmira, Sevilla and Tulud)
were calculated from census reports. These cities grew at an implicit
annual rate of 5.29 from 1951 to 1964. The projection assumption was
arrived at by first assuming a vegetative growth rate of 3.2 and calculating
the average annual net absolute migration to these cities for 1951-1964
and then applying a growth rate of 3.2 plus this constant absolute net
migration of 6,400 annually for the 1964-1989 period.

eThe 1951 and 1964 estimates of population for the cabeceAta of Valle other
than the seven largest cities was calculated from census reports. The
implicit growth rate for that period was about 5.7 percent. The average
growth in that period was about 9,000 per year, and the 1964-1989 projection
assumes their growth to continue at this absolute level. As transportation
improves it is probable that the population of many of these towns will
decline. We assume this will be offset by increases in some of the other
towns.

fThe 1964-1989 population projection for Valle was determined by adding the
estimates for Cali, the six secondary cities, other county seats and rural
Valle. It implies a slightly declining growth rate averaging somewhat above
4.0 which is higher than the 3.5 rate implicit in the 1951-1964 census data
due to expected net migration into the area.








projections are conservative. We have assumed a modest decline in the birth
rate for Colombia and a substantial decline in the growth rate for the city of
Cali. We also assume that most of the increased population of Valle will be
urban. By 1989 we expect only about ten percent (10%) of the population of
Valle will live in areas defined as rural. The projections imply that many of
the migrants to Cali will continue to come from areas outside Valle.10
The composition as well as the size of the population is important to
some planning decisions. Table 1.3 presents the age-sex distribution of the
total Cali population as of 1964, and of those who immigrated to Cali from
1958 to 1964. The age profile reflects a rapidly growing population with a
high proportion in the under-15 age group and a small percentage over 60. The
age distribution will stimulate the natural growth rate, partially offsetting
the expected decline in fertility rates. Also notable is the high proportion
of women to men. This also reflects the higher ratio of women to men among
Cali immigrants.

TABLE 1.3 DISTRIBUTION OF TOTAL POPULATION OF CALI AND OF
1958-1964 IMMIGRANTS BY AGE AND SEX

Total Population 1958-1964 Immigrants to Cali

Age Group Male Female Total Male Female Total
% % % % % %
0 14 20.8 21.0 41.8 16.3 17.6 33.9
15 59 24.6 29.1 53.7 27.8 34.5 62.3
60 + More 1.9 2.6 4.5 1.6 2.2 3.8
TOTAL 47.3 52.2 100.0 45.7 54.3 100.0

SOURCE: CUIP Population Census for the Department of Valle del Cauca, 1964.

Of special significance is the high proportion of immigrants to Cali
(62.3%) relative to the total population in the 15 59 age group (53.7%).
The population projections and an estimate of the proportion of total population
economically active was used to construct Table 1.4, which reports a projection
of the number of economically active people in Cali by 5-year periods up to
1989. This estimates the number of persons working or looking for work. In
any period the difference between those employed and those "economically active"
are defined as unemployed. We estimate that during the total 5-year period
(1964-1989), a net addition of 82 thousand people entered the Cali labor market.
When added to the 204 thousand economically active in 1964, this provided the
estimate of 286 thousand economically active in Cali in 1969. The major signi-
ficance of these data is to illustrate the magnitude of the task of creating


10We estimate that half the heads of households inCali in 1969 were born
outside of Valle. Source: General Consumer Survey, 1969. See Technical
Report No. 7.








productive employment for the growing population. Our projections indicate
the necessity of creating about 104 thousand new jobs in Cali in the next five
years, and the growth of the number seeking employment to 864 thousand in 1989--
more than three times the number currently employed.
TABLE 1.4 PROJECTED GROWTH OF ECONOMICALLY ACTIVE POPULATION OF CALI
1964 1989
Number of Persons Economically Net Addition to Potential
Period Active at End of Period Labor Force

Thousands of People
1964 204
1964-1969 286 82
1970-1974 390 104
1975-1978 520 130
1980-1984 676 156
1985-1989 864 188

aThese data are based upon the projections of Table 1.1 and the assumptions
that 32% of the Cali population will continue to be economically active.
The estimate of 32% as economically active is based upon three studies:
1) Estimates and Characteristics of Unemployment in Cali, Arce Miguel and
Molta, Guillermo, Universidad del Valle, Facultad de Economia, Tesis de
Grado (December, 1964); 2) Unemployment and Employment of the Labor Force
in the City of Cali, Center of Economic Research, University of Valle,
Department of Economics, Results of the survey taken between March 1 and 7,
1965, page 13; and 3) Encuentaz UAbanaS sobte Empleo y Deempteo, Apendice
Estaditico, Centro de Estudios Sobre Economia (CEDE) Bogota, July, 1968.

We have no very reliable estimate of the level of current unemployment in
Cali. The census of 1964 calculated unemployment in Cali at about 11 percent.
A survey in 1965 estimated 13.2%11 and one in 1968 estimated 15 percent
unemployed. The PIMUR consumer survey did not attempt a direct estimate of
unemployment because of the difficulty of defining individuals in this status.
We did estimate the percent of the total population employed, which was some-
what more than 23%. Previous studies had indicated 32% of the population to
be economically active.13 Assuming some downward bias in our estimate, the
rate of unemployment was estimated to be about 20 percent.
11El Centro de Investigaciones Sobre Desarrollo Econ6mico (CIDE).
Empleo y Deempteo de Mano de Ob/a en La Ciudad de Call, Universidad del
Valle. Facultad de Econ6mia, Cali, 1965, p. 13.
12Centro de Estudios sobre Desarrollo Economico (CEDE). Encuestas
UAbana. SobAe Empleo y Desempteo. Apendice Estadictico. Universidad de
los Andes, Bogota, July, 1968.
13The PIMUR consumer survey provides some estimates of employment. Based
on the consumer survey questions: "Is the head of this household now working?"
and "How many other persons of this household are now working?" We estimate
that 23 percent of the total population was employed at the time of the survey.
This probably underestimates employment. Those engaged as maids and those who
work at casual labor probably are underestimated. If we assume 25 percent
employed and accept 32 percent as an estimate of those economically active,
we get an estimated unemployment of slightly more than 20 percent. See
Technical Report No. 7, The CaZi Consume: Income, Food PuAchas es and
Shopping PatteAns.








Fifteen percent of the households with a head under 64 years of age
reported the head of the family was not employed. About 6 percent of the
households were headed by a person 64 or older. However, only 8% of the male
heads under 64 were not working, as compared with 53% of the female heads
(households without a male head) who reported not being employed. Seven per-
cent of all families reported that no member of the family was employed while
about 13 percent reported the head was not employed but that some other member
of the family had employment. These data indicate a high incidence of unem-
ployment among young people and women.
Unemployment is clearly a pressing problem in Cali, and based on the labor
force projections one may assume that the problem will become more pressing
in the next two decades.
Table 1.5 shows the estimated distribution of the employed population of
Cali in May, 1968, by major classes of economic activity. It shows that manu-
facturing is the largest source of employment, but that services and commercial
activities also employ a large proportion of the population.
TABLE 1.5 DISTRIBUTION OF LABOR FORCE BY TYPE OF ECONOMIC ACTIVITY,
CALI, MAY, 1968

Economic Activities Percent


Agriculture, Forestry and Fishing 1.8
Extractive Industries 0.7
Processing 34.1
Construction 6.9
Electricity, Water, Gas and
Sanitary Services 0.2
Commerce 18.1
Transportation, Storage and
Communication 5.4
Services 22.2
Public Services 5.4
Armed Forces (excluding Police) 0.8
Other Activities 4.3

TOTAL 100.0

SOURCE: Centro de Estudios sobre Desarrollo Econ6mico (CEDE). Encuentas
ULbana, sobite Empleo y Desempleo, Apindice Estaditico, Bogota,
July, 1968.

The structure of the economic activity for the Department of Valle is
more adequately revealed in Table 1.6, where the value of production is shown
for specific sub-sectors of the economy. Although these data are relatively
unrefined estimates, they emphasize the importance of industry and agriculture
as the largest components of regional economic activity.








TABLE 1.6 SECTORAL ORIGIN OF GROSS INTERNAL PRODUCT AT CURRENT MARKET
PRICES FOR THE DEPARTMENT OF VALLE DEL CAUCA, 1964
Sector Value Added Percent
(million pesos)

Agriculture 1,525.8 20.70
Mining 41.7 0.57
Industrial Manufacturing 2,270.9 30.80
Construction 325.5 4.42
Electricity and water 64.8 0.88
Transportation, storage and communication 653.8 8.86
Commerce 1,164.3 15.80
Banking, insurance and finance 133.4 1.80
Housing 348.0 4.72
Public Administration 364.6 4.94
Services 479.6 6.51

TOTAL 7,372.7 100.00


SOURCL:


l E Centro de Investigaciones Sobre Desarrollo Econ6mico

1966, Cuadro II-1.


Table 1.7 shows the industrial activity of Valle relative to other areas
of Colombia as of 1966. Valle is one of the three major manufacturing centers
of the country, contributing about one-fifth of the country's gross manufac-
turing product. The data also indicate that Valle manufacturing firms are
somewhat larger than the average.
TABLE 1.7 A COMPARISON OF THE PERCENTAGE CONTRIBUTION OF SELECTED
RFrEONS Tn TOTAl NATIONAL MANUFACTURING ACTIVITY. 1966


The difficulty of creating sufficient new and productive jobs for the
burgeoning labor force in Cali becomes even more apparent when one considers
the present levels of education. Table 1.8 shows that 62 percent of the heads
of households in Cali have 5 years of schooling or less. Since more than half
of the yearly growth in the labor force is made up of migrants who have even
less education than current Cali residents, it is clear that educational levels
will be a limiting factor in efforts to employ the exploding urban population
productively.


Region

Antioquia Bogota, D. E. Valle

Number of establishments
(% of total) 16.7 24.1 15.5
Personnel employed 25.4 26.0 17.5
(% of total) 27.0 25.0 19.4
Remuneration (% of total)
Gross Production (% of total) 20.2 22.4 20.4
Value Added (% of total) 23.3 23.3 21.1

SOURCE: BoltiE n Mensuat de Estadistica, DANE, No. 212, October, 1968.








TABLE 1.8 CALI PERCENTAGE DISTRIBUTION OF EDUCATION OF HEAD OF
FAMILY, HOUSEWIFE, AND MEMBER OF THE FAMILY WITH MOST
EDUCATION BY LEVELS OF EDUCATION, FEBRUARY, 1969
Heads of F Member with
Education Levels Family Housewives Most Education


No education 3.9 4.5 0.2
Primary, unfinished 31.0 40.3 16.6
Primary, completed 27.0 29.5 22.0
Secondary, unfinished 22.6 21.1 38.7
Secondary, completed 9.0 3.0 10.9
University 6.5 1.6 11.6

TOTAL 100.0 100.0 100.0

NOTE: 1. Unfinished education means not having completed the official
number of years for each level (5 for primary, and 6 for secondary)
2. The university level includes university studies completed or
incomplete.
SOURCE: PIMUR, General Consumer Survey, 1969.

Estimates of level and distribution of incomes are important in assessing
effective demand, productivity and equity of an economy. From the PIMUR con-
sumer study we obtained estimates of disposable cash income. These data are
based upon the respondent's estimates of the families' incomes from all sources
and for all members. We would expect some under-reporting, and we would expect
only cash income to be reported. We would not expect a large part of the social
payments (ptestacione sociaoee such as ceuantia, bonuses, etc.) to be reported,
nor insurance by those covered under the Instituto Colombiano de Seguros
Sociales. In addition, domestic and service workers often receive payment in
kind or other special benefits, which are undoubtedly excluded from our income
estimates. While it is difficult to estimate the value of these extra benefits,
it is quite likely that available cash incomes are somewhat higher in reality
at all income levels than our estimates indicate.
Recognizing the limitations of the data, we can get some useful general
impressions in Figure 1.2. The income distribution is quite disproportionate,
with 67 percent of the families earning 2100 pesos or less per month. Table
1.9 shows per capital incomes, per household incomes, and related information
by per capital income groups.
Assuming that the current income distribution pattern holds and that all
income groups enjoy an annual increase of 1.5% in real income, average per
capital income projections are presented in Table 1.10 for the four income
groups. These projections illustrate the slow rate of improvement for lower
income groups assuming a higher real growth rate than has been achieved on the
average in the past two decades. Columns 3 and 4 in Table 1.10 also show the
population growth expected in each income group.








Fig. 1.2 DISTRIBUTION OF FAMILY INCOME, CALI,
FEBRUARY, 1969

Family Income a
Pesos per Month I

10000 -


9,000-


8,000 -


7,000 -


6,000-


5,000-


4,000-


3,000 -


2,000


1,000 -

L I I I I I I I
0 10 20 30 40 50 60 70 80 90 100
Cumulative Percentage of Families


SOURCE: Pimur Consumer Survey, (1969)








TABLE 1.9


PER CAPITAL AND PER HOUSEHOLD INCOME AND THE
DISTRIBUTION OF POPULATION CLASSIFIED BY LEVEL
F O DISPOSABLE CASH INCOME CALI FEBRUARY 9


Range of Per Capita Percent of Percent of Income Per Capita Income Per Household
Income Households People Mean Median Mean Median

1. Less than 125 20.3 25.5 86 92 686 600

2. 126 240 27.8 29.1 176 167 1167 1000

3. 241 500 28.7 25.3 352 333 1962 2000

4. More than 500 23.2 20.1 1157 893 6340 5000

All Families 100.0 100.0 395 214 2500 1500
Based upon reports of the 520 out of 625 households who provided income
information on the PIMUR General Consumer Survey in Cali.

TABLE 1.10 PROJECTED CHANGES IN PER CAPITAL INCOME AND POPULATION
BY PER CAPITAL INCOME GROUPS CALI, 1969 1989a
Income is in 1969, Pesos per Monthb
Average Per Change in
Average Per Changes in Income Number of People Number of
Capita Inceth Pesos per Month (Thousands) People
Pesos per Month (Thousands)
Group 1 Less than 125 Pesos in 1969
1969 86 7 228 83
1974 93 7 311 103
1979 100 414 125
1984 109 8 539 149
1989 116 688
Group 2 126-240 Pesos in 1969
1969 176 14 260 95
1974 190 14 355 118
1979 204 16 473 142
1984 220 17 615 170
1989 237 785
Group 3 241-500 Pesos in 1969
1969 352 27 226 82
1974 379 9 308
1979 408 32 411 12
1984 440 34 535148
1989 474 683
Group 4 More than 500 Pesos in 1969
1969 1157 89 180 65
1974 1246 245
1979 1343 103 326 99
1984 1446 112 425117
1989 1558 542

aAssumes a 1.5% growth rate for each income group and a proportionate growth
in the population among the income groups based upon growth rates assumed in
Table 1.1.
bThe official exchange rate between the Colombian peso and the U.S. dollar was
16.90 to 1 in February, 1969 when this research was being done.








The income projections are, of course, in 1969 constant pesos. Another
important characteristic of the general economic setting is the changing value
of the peso or the extent of inflation. Table 1.11 shows the change in the
index of prices for workers from 1959 to 1968 (with 1955 = 100). The index
of prices for employees and the wholesale price index show a very similar
pattern of inflation. The index of total prices indicates that Cali has had
slightly less price increases than the country as a whole. Most significant
is the fact that the national index of food prices increased significantly
more than the prices of all goods, and very much more than housing or
clothing. Food prices increased more than 400% in monetary terms since 1955.
This increase has clearly had very serious effects on the level of living for
the low income families who spend a very high proportion of their income on
food. In addition, it points up the necessity of reducing the costs in the
food production-distribution system.


TABLE 1.11 CONSUMER PRICE INDICES (BLUE-COLLAR WORKERS)
(BASE: 1955 = 100)

YeaCALI NATIONAL
Food Housing Clothing Total e Food Housing Clothing Total Change
% %
1959 161.4 143.1 142.6 155.8 155.9 140.9 149.7 151.9
5.2 5.7
1960 171.5 148.5 149.7 163.9 163.5 151.7 160.0 160.5
5.1 8.5
1961 183.4 152.9 156.9 172.3 180.9 163.4 166.6 174.1
4.1 4.3
1962 186.6 160.4 165.0 179.4 t82.8 176.6 173.8 181.6
26.8 27.3
1963 246.1 186.4 208.1 227.2 241.5 211.5 215.2 231.1
17.8 17.7
1964 308.3 205.4 220.6 267.7 299.9 236.8 228.6 272.1
8.9 7.1
1965 332.8 232.6 236.4 291.5 312.9 265.6 245.9 291.3
17.0 16.7
1966 397.2 257.1 301.0 341.0 369.7 297.6 306.1 339.9
6.3 8.1
1967 410.7 279.8 325.3 362.3 388.1 227.3 338.8 367.3
6.7 7.4
1968 431.2 300.3 349.0 386.7 416.1 353.2 361.0 394.5


SOURCE: Revista del Banco de la Republica,


April 1964 January 1969.








Organization of the Summary Report

The research findings from the 16 Technical Reports have been summarized
into five chapters which comprise a central core of this report. Within each
chapter (2 through 6) a brief description and diagnosis of various segments of
the agricultural-industrial system are presented along with related recommen-
dations. Chapter 2 is a description and analysis of the urban food distribu-
tion system serving Cali. The socio-economic characteristics of consumers are
related to existing shopping patterns. Demand for food products and marketing
services are projected several years into the future. The existing system of
food wholesaling and retailing is described and alternative ways of improving
the system are considered. The vertical production-distribution systems for
meat, poultry, eggs, milk, selected fruits and vegetables and grains are
described and evaluated in Chapter 3. Chapter 4 describes and evaluates the
performance of special industries in the food system including technical farm
inputs, food processing, packaging and transportation. Analyses of manufactured
consumer goods industries and residential construction in Chapter 5 provide
some important insights into the role of these activities in the industrial
transition process. Some public aspects of market coordination, such as laws
and regulations, information and communication and credit are presented in
Chapter 6.
Following the description, diagnosis, and recommendations presented in
Chapters 2-6, a more aggregative summary evaluation is made in Chapter 7. The
performance of the existing system of market coordination is examined against
a conceptual framework of how market processes can contribute to regional
economic development.
The overall organization of this summary report is designed to facilitate
the diagnosis of problems within a systems framework. There are obvious link-
ages between the urban food distribution system and the vertical commodity
supply systems. Functional studies of credit, information flows, transporta-
tion, laws and regulations cut across all phases of the food system and the
related industrial activities. In the diagnoses and related recommendations,
these system interrelationships have been considered, although it has not been
possible to portray these as a precise, formal economic model.
A final chapter (8) is directed toward implementation strategy and prob-
lems of financing and carrying out the recommendations that have evolved from
the PIMUR project. Suggestions are offered on strategies for fomenting
desirable patterns of change in market processes. However, it should be
stressed that this report is not a blueprint for economic development. In
combination with the related Technical Reports, it does provide a valuable
information base for development planning with some specific recommendations
for immediate consideration by policy makers and action agencies.



































The Galeria Central building constructed in 1941 to serve as the plaza market
for Cali. This facility is located in the central area of the city.


Fruit and vegetable vendors and shoppers in the street adjacent to the Galeria
Central.

































Traffic congestion in one of the streets in the Galeria Central area
serves as the major wholesale center for the city.


A wholesaler-retailer establishment in the Galeria Central area handling a
broad line of food products including meat. Ambulante, are selling fruits
and vegetables in the street in front of the store.























F LA2


TS


The Alameda plaza market which is one of five satellite public markets in Cali.
This is the oldest and largest volume satellite market. It is located in a
middle and upper income area.


The Cristobal Col6n satellite market is the second largest public market. It
is located in a lower income area.
































The meat section in the Galeria Central. Beef and pork carcasses are delivered
to these stalls which are rented by individual retailers.


Fruit and vegetable stalls in the Alameda public market.




















Fruits being sold on the sidewalk near the Alameda public market.


----


j


A small food store located within a residence in one of the lower income bau~ios.
This type of outlet handles a high percentage of the food purchased by low
income families.


r









U
llr'

*r


A small supeAmeAcado located in a middle income baut o. A panadeuia is
located in the same building but is a separate business.
40; i3 1 ngriB
hkV-C^ H


A modern supermarket located in an upper income area. The store is one of
three operated by this firm.








CHAPTER 2

THE CALI URBAN FOOD DISTRIBUTION SYSTEM

Introduction


Analysis of the Cali urban food distribution system involves consideration
of three major groups -- consumer, retailer and wholesaler -- as well as the
interfaces between them. Since a central purpose of the food production-distri-
bution system is to better serve the consumer, the initial focus in this chapter
is on the consumer's purchasing patterns and attitudes toward various retail
outlets. Characteristics of retailers, services provided by them, and economic
costs and returns are viewed in the context of consumer needs. The structure
of the wholesale sector servicing retailers is considered, together with the
wholesaler-retailer relationship in terms of the services provided the retailers
to enable them to more adequately serve the consumer sector.
Following description and analysis of the existing system, the need for
change is considered. A political decision to tear down the main Central
Market (Galeria Central), together with disruption of retail operations in the
immediately surrounding area, is forcing realignment of consumer shopping
patterns. The proposed development of a wholesale center should materially
affect the retailer-wholesaler relationship. Within this context of change,
the feasibility of larger scale, full-line, low-price neighborhood retail out-
lets is examined, as well as the feasibility and necessity of developing con-
commitant full-service wholesalers to supply these new retailers.
Finally, recommendations regarding the development of a more effective
urban food distribution system are put forward.


Consumer Food Purchasing Patterns

Food consumption patterns in Cali are dominated in great measure by the
level and distribution of income.1 Income distribution is highly skewed (see
Figure 1.2 ); although the mean family income is $2500 per month,14%of Cali
families reported monthly cash incomes of less than $600, 29% reported less
than $900 and 67% less than $2400 per month. Distribution of households and


The data presented on food expenditures and income come from two sources--
the Encuesta General de Consumidores and the Encuesta de Canasta de Consumo,
both carried out by PIMUR in February 1969. The first was a random sample of
629 families, and the second a sub-sample of 239 families who agreed to parti-
cipate in the more detailed Market Basket study. Within each of these, there
were sub-groups of 522 and 182 families, respectively, consisting of those
families willing to give us details of their income. Much of the analysis
could use data only from these sub-groups.








people by income class is shown in Table 2.1. Households of low per capital
income have larger average size of household, which is one of the reasons for
the low per capital income. About one-fifth of the households and one-fourth
of the people have a per person monthly income of less than $125, while about
one-fourth of the households and one-fifth of the people have per capital in-
comes of $500 or more.

TABLE 2.1 DISTRIBUTION OF POPULATION AND HOUSEHOLDS CLASSIFIED
BY PER CAPITAL INCOME-LEVELS, CALI, FEBRUARY 1969
$0-125 $26-240 241-500 501 and over All Families
Average number of
persons per household 8.0 6.6 5.6 5.5 6.25
% of Population 25.5 29.1 25.3 20.1 100.00
% of Households 20.3 27.8 28.7 23.2 100.00
SOURCE: PIMUR, General Consumer Study, 969.

At the time of the PIMUR study, 42% of consumer income in Cali was spent
for food. While high, this aggregate figure understates substantially greater
food expenditures among low income groups. (Table 2.2.) The lowest quarter
of the population spend an average of more than 80% of their income for food,
while the second lowest quarter spend nearly two-thirds of their income for
food.2

TABLE 2.2 DIFFERENCES IN TOTAL FOOD EXPENDITURES AMONG GROUPS
CLASSIFIED BY PER CAPITAL INCOME, CALI, FEBRUARY 1969

$0-125 $125-240 $241-500 $500 and more
Income ($/month)
Average 91.00 177.00 340.00 1064.00
Food Expenditures
($/month) Average 75.00 112.00 161.00 294.00
As % of Income 82 63 47 28
Elasticity of Demand .61 .57 .57
SOURCE: PIMUR, Consumer Study, 1969.

The distribution of expenditures among different foods for the four in-
come groups and the total population is shown in Tables 2.3 and 2.4. Table 2.3
gives expenditures in pesos per month and Table 2.4 shows the percentage of
expenditures allocated to each food.

2The data reported here suggest higher expenditures on food than reported
in earlier studies. For example, a study by DANE in 1963 reported that food
expenditures absorb 49.3% of the blue-collar worker's budget and 35.5% of the
white-collar worker's income. An informal survey in 1966 by the CVC indicated
that blue-collar workers in Cali were spending over 50% of their income on food,
while in one of the poorest neighborhoods in Cali expenditures on food rose to
nearly 60% of income. Both studies are quoted in Josd Miguel Bernal Z., CeAtain
Aspect of Food Distnibution in Colombia (Master of Science Thesis, M.I.T.,
1965, reproduced by the Facultad de Administraci6n Industrial, Universidad del
Valle), p. 53.








TABLE 2.3 PER CAPITAL EXPENDITURES FOR DIFFERENT FOODS BY
PER CAPITAL INCOME GROUPS, CALI, SPRING 1969
Expenditures and Incomes in $ per Month
$0-125 $126-240 $241-500 $501 and Total
over Sample

Meats 20.25 33.26 49.16 87.18 44.94
Beef 15.58 25.74 36.88 57.77 32.44
Beef (with bone) .03 1.15 1.42 3.08 1.32
Others 4.63 6.37 10.86 26.33 11.18

Poultry 1.63 4.24 7.05 22.57 8.07
Chickens .23 .79 2.76 12.12 3.50
Eggs 1.40 3.45 4.29 10.45 4.57

Dairy 4.77 10.99 21.03 38.17 17.46
Fluid Milk 3.60 8.92 15.97 24.69 12.51
Others 1.17 2.07 5.06 13.48 4.95

Grains 14.04 19.29 23.35 27.65 20.58
Rice 8.86 12.09 14.31 15.00 12.37
Beans 2.63 3.06 3.44 4.21 3.28
Corn 1.29 1.36 1.48 1.11 1.32
Others 1.25 2.78 4.12 7.13 3.61

Fruits, Vegetables 13.13 19.29 22.14 53.97 25.61
Potatoes 3.85 4.02 3.90 5.30 4.22
Stem onions .75 .89 1.02 1.30 .97
Tomatoes 1.25 2.05 1.85 5.67 2.55
PtAtano 3.67 4.91 5.28 6.86 5.08
Others 3.60 7.42 10.09 34.84 12.79

Processed Foods 21.37 25.20 38.35 64.68 35.65
Oil .72 2.75 5.25 9.52 4.23
Lard 3.20 2.92 2.39 1.52 2.57
Sugar 2.34 2.74 3.10 5.91 3.39
Pan-sugar 4.05 4.47 4.48 4.79 4.43
Bread 3.75 4.25 8.34 11.49 6.63
Pastas .87 1.27 1.19 1.34 1.16
Chocolate 1.83 1.50 2.05 1.86 1.80
Coffee 2.33 1.98 2.22 3.57 2.47
Canned goods .20 .80 2.50 10.58 3.10
Others 2.07 2.52 6.83 14.10 5.87


TOTAL 75.19 112.27 161.08 294.22 152.31

SOURCE: PIMUR, Market Basket Survey, 1969.








TABLE 2.4 PERCENTAGE OF FOOD EXPENDITURES SPENT FOR DIFFERENT
FOODS BY PER CAPITAL INCOME GROUPS CALI, SPRING 1969
Income Group (pesos per month)
$0-125 $126-240 $241-500 $501 and Total
over Sample

Meat 26.93 29.63 30.52 29.65 29.51
Beef 20.73 22.93 22.90 19.65 21.30
Beef (with bone) .04 1.02 .88 1.05 .87
Others 6.16 5.68 6.74 8.95 7.34

Poultry 2.17 3.78 4.38 7.68 5.30
Chickens .31 .70 1.71 4.12 2.30
Eggs 1.86 3.08 2.67 3.56 3.00

Dairy 6.34 9.79 13.06 12.98 11.46
Fluid Milk 4.79 7.95 9.91 8.40 8.21
Others 1.55 1.84 3.15 4.58 3.25

Grains 18.67 17.18 14.50 9.34 13.51
Rice 11.78 10.77 8.88 5.10 8.12
Beans 3.50 2.73 2.14 1.43 2.15
Corn 1.72 1.21 .92 .38 .87
Others 1.67 2.47 2.56 2.43 2.37

Fruits, Vegetables 17 47 17.18 13.74 18.35 16.81
Potatoes 5.12 3.58 2.42 1.80 2.77
Stem onions 1.00 .79 .63 .43 .64
Tomatoes 1.66 1.83 1.15 1.93 1.67
Pl tano 4.88 4.37 3.28 2.33 3.33
Others 4.81 6.61 6.26 11.86 8.40

Processed Foods 28.42 22.44 23.80 22.00 23.41
Oil .96 2.46 3.26 3.24 2.78
Lard 4.26 2.60 1.48 .52 1.69
Sugar 3.11 2.44 1.92 2.01 2.23
Pan-sugar 5.39 3.98 2.78 1.63 2.91
Bread 4.99 3.79 5.18 3.91 4.35
Pastas 1.16 1.13 .74 .45 .76
Chocolate 2.43 1.34 1.27 .63 1.18
Coffee 3.10 1.76 1.38 1.21 1.62
Canned goods .27 .71 1.55 3.60 2.04
Others 2.75 2.33 4.24 4.80 3.85

TOTAL 100.00 100.00 100.00 100.00 100.00

SOURCE: PIMUR, Market Basket Survey, 1969.








TABLE 2.5 INTERGROUP "ARC" INCOME ELASTICITY
ESTIMATES FOR SELECTED FOODS, CALI, 1969
Per Capita Income Levels, $/month
Product 0-125 to 126-240 126-240 to 241-500 241-500 to
500 and over

Beef .7623 .5640 .4280
Pork 1.1923 1.2026 .7758
Chicken 1.7020 1.7593 1.2199
Eggs 1.3104 .3440 .8105
Milk 1.3172 .8979 .4160
Rice .4780 .2666 .0456
Beans .2344 .1855 .1953
Corn .0818 .1341 -.2762
Potatoes .0922 -.0482 .3534
Yuca .2920 .1649 .1753
Stem onion .2647 .2159 .2341
Tomato .7515 -.1626 .9853
Ptditano .4480 .1151 .4098
Cabbage .9034 -.0812 .2777
Orange .6420 1.0910 1.0101
Lard -.1420 -.3164 -.4426
Oil 1.8136 .9908 .5750
Pan-sugar .1528 .0035 .0664
Sugar .2440 .1953 .6204
Bread .1938 1.0301 .3161

SOURCE: PIMUR, Market Basket Survey, 1969.

Table 2.5 presents the arc income elasticities derived from the grouped
income and expenditure data for major food items. In general, the elasticities
appear consistent in pattern, with elasticities falling as incomes rise. There
are, however, some anomalies which we cannot explain. They may reflect unusual
consumption patterns; more likely, they are the result of problems in data
collection. The major ambiguities are found in patterns of fruit and vegetable
consumption between families in the second and third income quartiles, espe-
cially in the cases of potatoes, tomatoes and cabbages. Notwithstanding these
few inconsistencies in the data, overall they appear sufficiently reliable to
act as a base for public policy decisions.
Meat is a very important expenditure for families at all income levels,
representing almost 30% of total food purchases. Most of this is for beef.
The upper income group spends four times as much for meat per capital as the
lowest group. Since meat is such an important food item, it offers a special
opportunity to achieve benefits through improving distribution efficiency. The
income elasticity for pork is higher than for beef; thus, we may expect some
shift in the proportion of pork to beef as incomes rise.
In contrast to beef, the percentage of expenditures spent for poultry
meat increases sharply with level of income. Currently, poultry is relatively
expensive and comprises a small portion of the diet. However, if lower prices
result from better feed conversion, the potential market can be expected to








increase significantly, as poultry had the highest average income elasticity
of the foods studied. Eggs are slightly more important in expenditures than
poultry meat and would be purchased in much greater quantities by low income
families in response to increases in income or reduction in price.
Milk is also an important item in the diet at all income levels. In
total, dairy products are nearly as important as grains in the expenditure of
the Cali population. The highest income group spends nearly 13% of its food
peso for milk, compared with about 6% by the low income group. The income
elasticity between the lowest and the second lowest income groups indicates a
substantial potential growth in milk consumption for the lowest group if in-
comes increase or milk prices drop. (Table 2.5.)
Expenditures for grains represented about 14% of food expenditures by the
total Cali population.3 The upper income group spends almost twice as much
per person for grains as did the low income group, indicating that the demand
for grains would expand with higher incomes or reduced prices. Even so, the
higher income group expended only 9% of its food budget for grains, compared
with almost 19% by the lowest group. Rice is by far the most important grain
in the diet of all income groups. Corn is a very small consumption item,
representing less than 1% of total expenditures, with a very low income elas-
ticity.
A great range of fruits and vegetables is available in Cali and these
items are an important element in the diet at all income levels. In total,
fruits and vegetables accounted for about 17% of the food peso, about half of
which was spent for a large number of different items which we have classified
as "other". Both potatoes and pe4tano represent greater percentage expenditures
in the low income diet, although more is spent for them absolutely by the
higher income groups. In the case of potatoes, the upper income group buys a
higher priced potato as well as a larger quantity. The upper income group
spends four times as much for all fruits and vegetables and ten times as much
on the miscellaneous "other" category as does the lowest income group.
The importance of food processing is shown by the high percentage of all
food budgets spent for processed foods. One of the few foods which shows a
decline in expenditures as income increases is lard, which is replaced by the
more preferred vegetable oil. This is clearly indicated by the relative income
elasticities. While the upper income group spends three times as much for
processed foods as the lowest group, the low income group spends a larger per-
centage of its food peso for these items.


3In addition, wheat is purchased as bread (about 4% of the food peso) and
pastas, and some additional corn is included in the "others" processed category.








The overall performance of the economic system, and the food sub-system
in particular, can be partially judged by the nutritional adequacy of consumers'
diets. The nutritive content of the average market basket purchased by low
income families was estimated using data from the PIMUR Market Basket Study and
the nutritive composition values reported in an earlier Colombian nutrition
study4 (Table 2.6). The daily calorie intake was estimated to be around 1400
per capital and the protein intake about 27 grams per day. These overall aver-
ages are approximately the same as those reported for low income families in
Cali in the 1960 study mentioned above.5 In both instances the observed nutri-
tion levels reveal deficiencies in terms of both calories and proteins when
compared with recommended intakes. Nutritional needs vary substantially by
age, sex and physical size of individuals. Hence, protein requirements may
vary from about 40 to 90 grams per person per day. The Cali data indicate a
substantial protein deficiency6 which is made more serious by the low propor-
tion of the total protein which is derived from animal sources. The caloric
requirements per capital in a warm climate such as that of Cali ranges from
around 1000 to 1200 calories for children under five years of age to around
2500 to 2700 calories for male adults, with an average per individual per
family of about 1500 calories.7
Thus, it is clear that the low income families in Cali would benefit
substantially from programs that would raise their incomes and/or lower the
real price of food.
It is suggested that further analysis of the PIMUR Market Basket data and
related field observations should be undertaken to more clearly identify nutri-
tional conditions in Cali as an input for consumer education programs and for
the planning of additional studies in support of applied nutrition programs.
In planning changes in market facilities and institutions serving Cali,
it is helpful to have estimates of the volume of products being handled by the
existing system, as well as projections of volumes that will need to be handled
in the future. Table 2.7 provides estimates of the peso value of major food
groups and selected specific products purchased at retail by Cali households in
1969. Using the population and income projections presented in Table 1.10 and
the income elasticities derived from the PIMUR Market Basket Study (Table 2.5),


Arnold E. Shaefer, et aL., Cotombian NutAition SuAvey, A Report by the
Interdepartmental Committee on Nutrition for National Defense, Washington, D.C.,
1961, Appendix Table VI, pp. 256-260.
Loc. cit., pp. 86 and 89.
U. S. Department of Agriculture, Food--The VYeabook of Agticuituwte, 1959,
Washington, D.C., p. 61.
7Arnold Schaefer, op. cit., p. 85.








TABLE 2.6


AVERAGE DAILY FOOD PURCHASES BY LOW INCOME FAMILIES
AND ESTIMATED NUTRITIVE CONTENT PER CAPITAL CALI 1969


Average C
Product Quantitya aof r rmsinb
per Capita Intakeb of Protein


Beef

Milk

Eggs

Rice

Beans

Corn

Potatoes

Plitano

Tomatoes

Cooking fat

Sugar

Pan Sugar

Bread

Pastas

Coffee

Chocolate


TOTAL

Adjusted


Totalc


.079 Ib.

45.5 gms.

.077 eggs

.137 lb.

.027 lb.

.043 lb.

.217 lb.

.194 lb.

.032 lb.

.025 lb.

.076 lb.

.119 lb.

.112 loaves

3.31 gms.

.013 lb.

.006 lb.


59.42

22.75

6.02

245.56

40.77

70.52

72.91

69.84

2.18

111.50

145.92

185.64

56.62

11.55

6.24

13.23


1120.67

1392.14


4.79

1.55

.47

5.34

2.75

1.63

1.65

0.88

.11





.30

1.51

.35

.23

.11


21.66

26.91


aAverage quantity purchased per capital by PIMUR market basket families in
lower quartile when grouped by per capital income.
bBased upon nutrient composition values which appear in Appendix Table VI,
Colombian Nut o-tion SuAvey, May-August 1960, A Report by the Interdepartmental
Committee on National Defense, Washington, D.C., 1961.
CThe items listed above in this table represented about 80.5 percent of the
total market basket purchased by these families. The total nutritive intake
has been adjusted to include these other food items.








TABLE 2.7 TOTAL MONTHLY EXPENDITURES FOR ALL FOOD AND FOR SELECTED FOOD
ITEMS IN CALI, 1969 WITH PROJECTIONS FOR 1979 AND 1989
(at 1969 prices)
1at 11979 1989
Product million million Index million Index
pesos pesos 1969=100 pesos 1969=100

Meat 38.37 79.09 203 142.51 367
Beef 29.20 59.83 205 108.45 371

Poultry 6.98 15.25 218 29.50 423
Chickens 3.03 7.18 237 15.03 496
Eggs 3.95 8.40 213 15.74 398

Dairy 15.10 31.03 205 56.63 375
Milk 10.82 23.16 214 43.86 405

Grains 17.80 34.95 196 60.43 339
Rice 10.70 20.90 195 36.11 337
Beans 2.84 5.49 193 9.42 332
Corn 1.14 2.14 188 3.54 312

Fruits and Vegetables 22.15 46.63 211 87.07 393
Potatoes 3.65 7.00 192 11.85 325
Yuca .30 .58 193 .99 330
Tomatoes 2.21 4.48 203 8.04 364
Ptitano 4.39 8.66 197 15.11 344

Processed Foods 30.84 61.08 198 105.85 343
Lard 2.22 4.00 180 6.34 286
Oil 3.66 8.12 222 15.95 436
Brown Sugar 3.83 7.28 190 12.23 319
Sugar 2.93 5.80 198 10.23 349
Bread 5.73 11.63 203 20.84 364

TOTAL 131.24a 268.03 203 481.99 366

aThe "total" is the sum of expenditures for major food groups such as meat,
grains, fruits and vegetables.
SOURCE: Computed from PIMUR Consumer Survey data and population and income
projections presented in Table 1.lOof this report.
we have derived projections of food expenditures for 1979 and 1989. These
projections provide estimates of the demand for food by households in Cali if
relative product prices remain the same as in 1969 and if households adjust
their purchases in accordance with the income consumption patterns revealed
in the cross-sectional analysis of the PIMUR Market Basket data.
As would be expected on the basis of data presented in Tables 2.3 and 2.5,
the greatest relative increases in projected demand are for products such as
poultry, meat, milk, eggs, cooking oil, selected fruits and vegetables, and
beef. However, since the projections are based upon relatively large annual
increases in the Cali population (5 to 7% per year) and relatively small in-
creases in real income per capital (1.5% per year), the differential increases
in demand among products are not particularly wide. For example, the demand
for corn triples by 1989, while the demand for milk quadruples.








The Structure of Food Retailing8

An Overview of Food Retailing Institutions

The retail food distribution system in Cali, as in most developing coun-
tries, consists of a large number of low volume outlets. At the time of the
PIMUR sample census in November 1968, there were approximately 9000 food re-
tailers of various types in the city, or one retail outlet for every 15.4
households. Approximately 42% of the retailer population is composed of public
market operators (Table 2.8). An additional 48% of the retail outlets are
personal service grocery stores, i.e., with clerk attendants who wait on the
customer. There are also approximately 860 outlets (10% of the total) special-
izing in poultry, dairy, meat and bakery products. Finally, a few self-service
outlets are in operation.


TABLE 2.8 NUMBER AND TYPE OF RETAIL FOOD OUTLETS IN CALI, NOVEMBER 1968
Number %

Public market retailers 3755 42.1
Personal service stores 4241a 47.6
Self-service stores 54 0.6
Specialty outlets 864 9.7

TOTAL 8914 100.0

aThis includes the 696 independent meat bancos operating within personal
service stores, but does not include 19 of the largest wholesale-retailers
who do the major portion of their business at wholesale.
SOURCE: PIMUR Retail Study, 1969.

The approximately $137 million of food consumed monthly in Call is distri-
buted through the four major outlet types as shown in Table 2.9.9 Public
market operators handle one-fifth of the food moving through retail outlets.
These operations are particularly important in the marketing of fruits and
vegetables, and account for 30 percent of the meat sales. However, while the


8This section and subsequent ones dealing with retailers and wholesalers
are based on PIMUR Technical Report No. 6, The Catei ULban Food Dis t bution
System.
9The data presented in Table 2.9 are not completely equivalent to those
presented earlier in Table 2.3. Data on the value and volume of food consumed
in Cali were collected in the consumer studies, retailer-wholesaler surveys,
and channel studies. While these data were generally consistent, they never-
theless differed for some products. Since no reasonable basis existed for
adjusting the consumer data by income level, it has been presented as collected.
In developing the aggregate data in Table 2.9, however, we have reconciled the
three sources of data. For a detailed discussion of the reconciliation, see
PIMUR Technical Report No. 6, The Cati Urban Food DiVtyibution System.








public market system is an important element in food retailing, it should be
kept in mind that it is not the major factor in the food marketing system. Per-
sonal service outlets are the largest element in the system, marketing over
half the food sold at retail. These retailers are important factors for the
whole range of food products, although they are relatively least important in
fruit and vegetable distribution. Self-service stores account for one-eighth
of retail food sales, generally in the upper income areas. Their major sales
volume is in processed foods, of which canned and bottled goods are important
items. Specialty stores are significant factors in the retailing of poultry
and eggs, and dairy products.


TABLE 2.9


MONTHLY RETAIL SALES OF FOOD IN CALI, BY OUTLET TYPES AND
nnnnIT In Dn Tkh A Dd n %\


a0nly beverage sales in these outlets are
include home delivery, and other outlets
etc.


shown. Total sales would also
such as bars, restaurants, stands,


bRetail sales to consumers only. Does not include institutions or industries.
SOURCE: PIMUR, Retail, Consumer and Commodity Studies, 1969.


rPKUUU I uuur, rcDuunIl U I IIluu3aiu 3 uI ru/s eso
l Public Personal Self- Specialty
T l Markets Service Stores Service Stores

Meat 37,994 11,599 20,522 2,637 3,236
(30.5%) (54.0%) (7.0%) (8.5%)

Processed
Foods 32,579 2,177 21,475 7,668 1,259
(6.7%) (65.9%) (23.5%) (3.9%)

Fruits and
Vegetables 20,718 10,679 5,138 1,453 3,448
(51.5%) (24.9%) (7.0%) (16.6%)

Grains 17,570 2,407 12,724 2,439
(13.7%) (72.4%) (13.9%)

Dairy
Products 13,701 409 5,637 1,448 6,207
(3.0%) (41.1%) (10.6%) (45.3%)

Beverages 8,435a 7 7,914 514
(0.1%) (93.8%) (6.1%)

Poultry and
Eggs 6,142 283 2,304 1,020 2,535
(4.6%) (37.5%) (16.6%) (41.3%)

TOTALb 137,139 27,561 75,714 17,179 16,685
(20.1%) (55.2%) (12.5%) (12.2%)








The Central Market area, consisting of the Galeria Central, the two
adjoining Calvarios public markets, and a variety of personal service retailers
in the immediate surrounding area, is a significant part of the food retailing
system. This area alone accounts for approximately one-fourth of all food sold
in Cali and attracts customers from all income classes. In considering the
significance of the Central Market area, it is important to distinguish between
the area itself and the Galeria Central. While the public market operations
attract large numbers of customers because of their fruit, vegetable and meat
offerings, the personal service retailers operating in the area also have sig-
nificant drawing power, as they are among the lowest priced (and highest volume)
retail units for grains, processed goods, and meat. Thus, it is the combination
of a wide variety of goods, in terms of both type and quality, offered at low
prices which attracts customers. In this respect, the area is similar to a
supermarket operation.10 Physically, however, the Central Market area leaves
much to be desired; the public markets are extremely crowded and unsanitary and
the surrounding streets are choked and refuse-ridden. Further, the heavy
movement of shoppers into the area creates substantial congestion, as well as
being costly in terms of operating expenses and investment for public trans-
portation.
One aspect of marketing conditions in the Central Market complex merits
particular notice. Generally, neither the assembly nor wholesaling institutions
handling fruits, vegetables, and meat provide grading and sorting services.11
Retailers must therefore handle products varying widely in quality. Since
large numbers of consumers of all income classes shop in the Central Market
area, grading of fruits and vegetables and, to some extent, meat is essentially
performed by the housewife, enabling the retailer to sell the different quali-
ties with relatively little waste. On the other hand, self-service stores in
the upper income areas can only market the higher quality items, while the
customers of the personal service stores in lower income bavLuos can only
afford the less expensive, lower quality items. Thus, retailers outside the
Central Market area who handle fruits, vegetables, and meat are faced with a
merchandising and managerial problem which is but a symptom of problems in the
assembling and wholesaling functions. Either the retailer cannot get the
quality level desired, with subsequent sales problems, or he must put substan-
tial managerial time into procurement, with a consequent diminution of time to
manage daily operations and merchandising at the retail level.


10There are also many nonfood retail outlets in the area, which increases
its drawing power.
While there is not a precisely delineated or adhered-to system of
grading in grains, there is a general system which is understood and utilized.









Patronage of the various outlet types appears to have changed over the
past few years. The sales volumes of self-service outlets have increased
substantially; managers of these outlets expect the trend to continue. Public
market operators, on the other hand, think that their sales have been de-
creasing and will continue to do so. Despite population increases in the
lower income baulwos, most personal service retailers think that sales have
stayed constant or declined, and will continue to do so. Easy entry into
small-scale retailing tends to keep the sales volume of any one ;tienda low.

Food Retailer Characteristics

Some general characteristics of the three main retailer groups are shown
in Table 2.10.12 The data indicate the small-scale nature of much food re-
tailing in Cali, and point out some substantial differences between outlet
types.
Public market operators have by far the smallest sales volume, averaging
only two-fifths that of personal service stores. In turn, the latter stores,
on the average, are quite small compared to the self-service outlets, which
are nearly 18 times larger in terms of sales volume.

TABLE 2.10 GENERAL CHARACTERISTICS OF CALI RETAILERS BY TYPE OF OUTLET
Public Personal Self-
Market Service Service

Average monthly sales $7,300 $17,850 $318,000
Average size M2 3 26 258
Average no. of paid employees 0.1 0.4 15
Average no. of non-paid employees 1.1 1.5 1
Average years in business 8 5 10

SOURCE: PIMUR Retail Study, 1969.

Public market operators have only a limited amount of space for their
business and are therefore severely restricted in the amount of goods they
can stock and sell each day. Personal service stores average only 26 square
meters in size, with the great majority of the stores located in private
residences, either in the garage or a street level room. While there are
many factors inhibiting the growth and efficiency of most personal service
stores, their small physical size surely limits their ability to handle
either a better assortment of the types of goods they now carry or a wider
and more complete line. Although there are some large personal service stores


12The data are based on a series of structured interviews conducted by
PIMUR in the spring of 1969. An area-stratified random sample of 629 retailers
was completed, of which 297 of the interviewees were with personal service
stores, 291 with public market operators, and 41 with various types of self-
service outlets.








in the Central Market area, in general only the self-service outlets appear to
be of a physical size which permits full-line retailing and the handling of
large volumes of customers.
There is a rapid rate of turnover in personal service outlets, as approxi-
mately 30% of those interviewed had been in business for a year or less. Within
the self-service group, cooperatives averaged 17 years in business, while half
of the supermarkets have been in business for two years or less. Public market
stall retailing tends to be stable, as one-third of the pue~teAos had been in
business ten years or more. Most of the more recently established retailers in
this group are in the newer satellite ptazaA.
Except for self-service stores, virtually all retailing operations are
individual or family businesses. It is common for more than one family member
to work in the store, the average being 1.6 in personal service stores and 1.1
for public market businesses. In general, only the larger personal service and
self-service stores employ paid personnel; in the public markets, paid assis-
tants are employed almost exclusively by the meat stalls.
The educational level of owner-managers gives some indication of the poten-
tial of these retailers to originate or accept changes in their mode of opera-
tion. Self-service store operators averaged nine years of education; 11% had
completed secondary education. Personal service retailers reported an average
of five years of schooling. Only 1% of the personal service retailers had
finished their secondary education. None of the public market retailers had
completed high school, while 30% had two years or less of formal education. The
average educational level of this group was four years.
Only a small percentage of the personal service and public market retailers
appear to have sufficient educational background to assimilate advanced tech-
nical assistance. Nevertheless, simple accounting and merchandising programs
could make a considerable difference in current operations. Ninety-seven per-
cent of self-service retailers, as well as 63% and 43% of personal service and
public market operators, respectively, said they would like assistance in these
areas. Any training programs offered the latter two groups would have to take
into account their capacity to absorb modern management techniques.

Variety Within Major Outlet Types

Although it is convenient to consider the food retailing system in terms
of the four main groups noted earlier, it is important to realize that there are
major differences between outlets within these groupings.

Self-service Outlets These outlets, the sector of greatest change in the
Cali food retail system, consist of four main types of operations: 1) super-
markets; 2) consumer cooperatives; 3) general merchandise chain stores; and
4) Cajas de Compensacidn Familiar. With the exception of the chain stores,









which are located in the center of the city, self-service outlets are located
in middle and upper-income baxmtio, principally in the latter.
A large number of retail stores in Cali call themselves supermarkets, but
only 19 of these operate under a full-line, self-service policy. These stores
offer all classes of food products, although variety in their fresh meats and
produce departments is limited due to the existing difficulties in obtaining
uniformly high quality products, as well as the usual problems in managing and
merchandising these products. All the supermarkets are located in upper and
upper-middle income bacLios with heavy concentration in the northwestern
section of the city. At the time of the PIMUR study, there appeared to be no
indication that new privately owned supermarkets would be opened in the lower
income bouiLos. Supermarket monthly sales averaged $455,000.
As of February 1969, 17 cooperatives in Cali had retail food stores run
by paid managers. These cooperatives were formed by the employees of private
and public sector corporations, but are now open to the general public for
membership. A complete line of dry packaged food is carried, but only three
cooperatives offered fruits and vegetables (other than potatoes), while seven
handled some fresh meats. The restricted product line is due mainly to the
difficulties of handling highly perishable products and to the problems in
obtaining a satisfactory supply of these products. Many of these stores are
located in the higher income neighborhoods. Since their membership consists
largely of lower and middle class clerical and laboring people, patronage is
limited by travel time and cost considerations. Sales averaged less than half
those of the supermarkets, at $202,000 monthly.
There are 14 general merchandise stores in Cali, owned by five chains,
the largest of which operates four stores. In general, these are high-volume,
low-margin stores which use rice as a loss leader to attract customers into the
store. The stores are located principally around the Central Market area,
although one is situated close to Alameda, the most important satellite ptaza,
and another in a shopping center in a high income area. Middle income consumers
appear to be the major clients of tle chain stores. These stores have expanded
their total operation in recent years, and are probably the most aggressive
merchandisers in the retail system.
There are currently eight Cajas de Compensaci6n Familiar in Cali, three
of which have supermarkets, all opened in the last two years.3 These stores
are presently handling a full line of grains and processed foods, with only

13The "Cajas de Compensaci6n Familiar" are private sector organizations
formed in accordance with Decrees 0118 and 1521 of 1957. All companies with a
capital of $100,000 or more must pay 4% of their payroll into a Caja, which in
turn pays a family subsidy to employees earning $1500 or less according to the
number of children in the family. Any surpluses may be invested in other social
activities for the benefit of its members, such as children's clinics, super-
markets and schools.







one store offering fresh meats and vegetables. Other products, such as drug
items, household goods and some clothing, are also available. The three stores
are located in middle and upper-middle income areas, limiting their accessibil-
ity to those members who either live in the vicinity, have private transporta-
tion, or can afford the time and cost of public transport. This locational
limitation is a major one, since the original objective of these organizations
was to provide benefits for members in the lower income levels; however, the
current clientele of these outlets are in the higher income groups. The Cajas'
sales have increased rapidly as a result of aggressive merchandising and low
prices.4

Personal Service Outlets When differentiated along the dimension of
sales volume, certain patterns emerge for personal service retailers with regard
to location of outlet, physical size, and product mix (Table 2.11).5 Per-
sonal service outlets are referred to hereafter as tienda", small gLanemos,
large ganneAos, and wholesaler-retailers (in ascending order of sales volume).

TABLE 2.11 SIZE. LOCATION AND PRODUCT MIX OF VARIOUS TYPES
OF PERSONAL SERVICE STORES CALI, FEBRUARY 1969
Ara Average Main Principal % Cali
No. M Monthly Location Products Retail Sales
Sales

Tiendau 2696 22 $ 6,900 BaWUios Beverages 13.6
Processed

Small Grains
graneAro 673 35 33,100 BOAAZos Processed 16.3
Meats

Large Central Grains
g)aneros 152 55 102,600 Market and 11.4
Area Processed

Wholesaler- Central Grains
retailers 24 121 231,600 Market and 4.8
Area Processed

Banco de Baiuos Meats
cane (retail) 696 5 18,000 and 9.1
Central
Market
Area
NOTE: Monthly sales had the following ranges: Tiendas $0-20,000; Small
graineAos $20,001 to $50,000; Large gkaneAos $50,001 to $200,000; and
Wholesaler-retailers $160,000 to $350,000.
SOURCE: PIMUR Retai.l Study, 1969.


14The largest of the three Caja supermarkets had monthly sales of well
over $1,000,000 at the time of PIMUR's survey.
15The outlets also differ substantially with regard to the price level at
which they sell and the gross margins at which they operate, as will be dis-
cussed later in this chapter.







The smallest volume outlets tiendas and small gcraneAos are located in
the low and middle income bak'iuos, principally the former. Both are major
outlets for low income families, and their performance is therefore of great
concern. Generally located in a street-level room of the owner's residence,
tienda handle a narrow line of processed foods and grains, as well as some
household cleaning and personal care articles. A sizeable minority of tienda
(30%) also carry a small quantity of meat. Beverages account for 18% of the
tienda,' sales volume, and provide slightly over 35% of their gross profits.
Small gsaneAos handle a broader product line than the tienda, and offer
more variety within lines. Grains are an important element in their product
offering, as are staple fruits and vegetables. About one-third have their own
fresh beef operation, which is undoubtedly a strong attraction to the house-
wife, as she can do virtually one-stop shopping at the small gazneAo. Many
small gianetos do not handle beef themselves, but rent space within their stores
to independent butchers, who may also handle fruits and vegetables. These
rented bancao are an important element in the retailing of beef; we estimate
that some 20% of retailed beef passes through them. The small gjaneAos have
five times the sales volume of ttendaz, which can be attributed to the wider
product line carried, lower prices, and greater physical space in which to
handle customers.
Personal service outlets with the greatest sales volume are located in the
Central Market area, where they have the benefit of a large volume of customers
of different income classes. Since these outlets are in close proximity to
the Galeria Central, they generally do not carry fruits and vegetables. Grains
and processed goods are their major items. However, the large graneAos do
rent space to independent butchers (who are both wholesalers and retailers),
thereby broadening the appeal of their outlets. These rented bancos handle
13% of the beef sold at retail.
Wholesaler-retailers perform a dual function in the food marketing system.
In total, approximately 50% of their sales are made at retail. The remainder
of their business volume consists of sales to other retailers, principally
small tiendao in outlying baAuios. The average purchases made by these tiendas
are too small to be handled by regular wholesalers and at times are indistin-
guishable from a retail purchase. The wholesaler-retailers operate at lower
gross margins than the large ghanerros, which undoubtedly is an important factor
in their larger sales volume. Further, their sales area is twice that of the
large graneros, and this increases the number of consumers who can be properly
serviced.
The large personal service outlets in the Central Market area supply
slightly over 16% of the total retail sales of Cali. As we shall discuss in







detail later, they do so at lower prices than those prevailing in the neighbor-
hood personal service stores, although there is obviously an offsetting time
and money cost to the consumer in coming to the Central Market area to purchase
food.

Public Market Retailers The Cali public market system, managed by
Empresas de Servicios Varios (EMSIRVA)16 is made up of the Galeria Central
ptzazo (Galeria Central and Calvarios), five satellite ptaza., and the Mercados
Campesinos. A new satellite plaza in the Alfonso L6pez bacuio started opera-
tions in October 1969 (at which time the Calvarios markets were closed down).
There are two main groups of public market retailers, permanent stall operators
and mobile vendors. As of early 1969, there were 2,398 permanent stall opera-
tors and 1,357 mobile vendors distributed among the various markets as shown
in Table 2.12. Approximately 81% of the sales volume of the public market
system moves through stall operators and 19% through mobile vendors.

TABLE 2.12 DISTRIBUTION OF STALL OPERATORS AND MOBILE
VENDORS IN THE CALI PUBLIC MARKET SYSTEM, BY
PUBLIC MARKET AND PRODUCT TYPE FEBRUARY, 1969
Galeria Alameda C. Col6n Floresta Silod Porvenir Total
Central

Fruits and Vegetables 628 243 37 65 26 66 1065
Meats and Fish 268 44 42 38 15 31 438
Grains and Staples 126 27 33 29 10 18 243
Dairy 65 7 10 4 86
Poultry and Eggs 40 4 2 6 52
Bread and Pastas 24 2 3 4 33
Others 334 47 46 23 8 23 481
Total Stall Operators 1485 374 171 161 63 144 2398
Mobile Vendors 925 90 219 57 31 35 1357
TOTAL 2410 464 390 218 94 179 3755
% of Total 64% 12% 10% 6% 3% 5% 100%
SOURCE: EMSIRVA and PIMUR, Wholesale-Retail Surveys, 1969.

There are substantial differences between public market stall operators
in sales volume, which varies by type of product handled and public market
location. For example, fruit and vegetable puuteAoh averaged $4765 per month,
with sales in the Galeria Central puetos being nearly 15% higher than those
in the satellite ptazau. Stall operators specializing in grains and staples
had considerably higher sales, averaging $16,850 per month, with the puetos
in the satellite markets having sales 20% higher than in the Galeria Central,
reflecting the greater competition from the large personal service stores in
the Central Market area. Meat puezteAos in the public markets have average
monthly retail sales of $26,500, with beef stalls having higher average sales


16EMSIRVA is a public corporation created by the municipal government to
manage the slaughterhouse, public markets, garbage collection, etc.







than other meat stalls. Beef and pork puetos in the Galeria Central also
have an important volume of wholesale sales which gives them an overall average
monthly sales volume of $46,500.
Fruit and vegetables provide virtually all the sales volume of the mobile
vendors. Sales average $3,850 per month, or 80% of the volume of fruit and
vegetable stall operators. In total, they account for 25% of the retail sales
of fruits and vegetables in Cali.
There are two groups of mobile vendors--those operating legally and those
operating illegally. "Legal" ambuavntu operate on temporary permits, renting
a stall or floor space by the day. In the satellite plaza, they sell within
the limits of the market itself, while in the Galeria Central they often move
out onto the sidewalks. Although the total number of "legal" ambulant.v fluc-
tuates from day to day, the average in February 1969 was 560. Approximately
800 illegal vendors operate on the sidewalks in the vicinity of the public
markets, over 90% of them in the area of the Galeria Central. Although selling
in this manner is against the law, their number has increased by over 200%
in the last four years, and in recent months there has been a growing number
in the vicinity of the Plaza Alameda.
Within the public market system, the Galeria Central complex is by far the
most important plaza market, with 64% of the total number of public market
retailers in Cali located here and 60% of the total retail sales made in these
markets. This pattern will change drastically, of course, when the three
buildings of this complex are torn down.

Specialized OutletsZ This group includes the specialized retail outlets
handling one or two products. These outlets are of particular importance in
the distribution of poultry and eggs and fresh milk. To a lesser extent, they
are important in the retailing of meat, especially to upper income families.
There are some 12 specialty meat stores in the city. Most of them are
fairly large-volume, operators handling beef, pork, and viscera, as well as
some prepared meats. The major volume, however, passes through two outlets
which do a large-volume business selling first grade meats to high income
customers.
There are also nine fama" with a total of 51 meat stalls, most of which
sell beef. Over 90% of the total sales made in famas are at wholesale, but
the remainder is sold directly to consumers.
In February 1969, there were 136 stores specializing in the sale of
poultry and/or eggs, of which 46 sold to other retailers as well as to final
consumers. A number of these specialty outlets are the result of forward

1Additional information on distribution of meat, milk, poultry and eggs
is presented in Chapter 3.







integration by the medium and large producers. Specialized stores account for
66% of poultry sold at retail, as few outlets other than supermarkets handle
the product because of its limited demand. In the distribution of eggs,
specialized stores are somewhat less important as retail outlets, as there is
fairly wide distribution in tienda6 and small ghaneA.o. Nevertheless, these
specialty outlets account for 26% of eggs purchased by consumers. Average
monthly retail sales for specialized wholesaler-retailers is $31,300, while
those outlets operating only at retail average $18,400.
The retail distribution of fresh milk is to a large extent carried out by
specialized outlets, the most important of these being the home delivery truck-
ers who account for 46% of all fresh milk (both pasteurized and raw) reaching
consumers. Specialized neighborhood stores sell approximately 8%. Although
home delivery accounts for 46% of total milk retail sales, there are some dif-
ferences between pasteurized and raw milk distribution in this channel.
The two pasteurizing plants in Cali distribute 31% of their output through
home delivery. Cremex has its own trucks and distributes directly, while
Pasteurizadores del Valle does this only for the San Fernando brand and allows
15 private truckers to distribute Salomia brand on predetermined routes. Both
the companies and the truckers also distribute to neighborhood tienda and
gtaneAos, as well as to restaurants, etc.
Direct home delivery is of greater importance in the case of raw milk,
accounting for 62% of sales in this product. Producers themselves are respon-
sible for 15% of this volume, while 190 truckers who purchase from the farms
deliver the rest. Both farmers and truckers deliver to the specified milk
stores, although truckers are more important in this aspect.
In February 1969, there were 157 stores specializing in retailing raw
milk, of which only 121 were authorized by the municipality to do so. They are
usually very small stores using the front room of the retailer's home for this
purpose. Generally only raw milk is sold through these outlets, although other
dairy products such as cheese are sometimes available. These stores are of
importance in the low-income baruios, which are unattractive routes for truckers
since milk purchases are not made every day. They account for 15% of the total
distribution of raw milk.







Consumer Shopping Patterns andl8
Attitudes Toward Retailer Types

Shopping Patterns

The data presented on the volume of sales by different types of outlets
reveal a great deal about consumer shopping patterns and preferences for
various types of food retailers, given the current alternatives. (Table 2.9.)
This section will elaborate upon these shopping patterns by showing the allo-
cation of food expenditures among types of outlets for families living in
different areas of the city, classified according to socio-economic strata. In
considering possible changes in the retail system, it is necessary to recognize
the very significant differences which exist in shopping patterns for families
in different areas of the city.
The city planning commission (Planeaci6n Municipal) has classified every
baulio in the city according to the socio-economic class which predominates
(Figure 2.1). The locations of the Galeria Central and the six satellite
markets, which have a definite influence on shopping patterns in the various
baouios, are also indicated on Figure 2.1.
Table 2.13 shows some of the income and demographic differences between
the socio-economic areas.19 Most significant, of course, are the great dis-
parities in income, and hence purchasing power, among these areas. It is im-
portant to note that fully three-fourths of the families are in the lower two
classifications with average monthly income per household of $1500 and $1000,
respectively.


TABLE 2.13 MEAN INCOME AND HOUSEHOLD SIZE OF CALI BARRIOS
CLASSIFIED BY SOCIO-ECONOMIC AREA, 1969
1 2 3 4 5 6
Upper Upper Middle Lower Lower Slums
Middle Middle
Average household
income ($/Mo.) 11,185 5,568 4,440 2,490 1,603 1,013
Average per capital
Income $/Mo.) 1,687 1,009 710 400 251 157
Aversonsumer household 6.55 5.35 5.79 6.48 6.27 6.43
% of Households 4.6 4.9 8.3 11.9 49.9 20.4
% of Population 4.8 4.2 7.7 12.4 50.0 20.9
SOURCE: PIMUR, Consumer Survey, 969.

18This section is based upon PIMUR Technical Report No. 7, The Cati
ConsumeA: Income6, Food PuAchase, and Shopping PatteAnA. The technical
report includes the results of two consumer surveys, providing considerable
detail on consumer food buying in Cali.
19It should be noted that these data, which are essentially geographically
based, are not directly comparable to the income class data presented earlier.



















































SOCIO-ECONOMIC LEVELS OF 1
BARRIOS AND LOCATIONS
OF PUBLIC MARKETS, CALI, 1969

Fig. N2 2.1


0 Public Markets


dWl Com.rcio








While bauvios tend to be relatively homogeneous within the municipality's
categorization, there is nonetheless a fair degree of income dispersion within
each socio-economic area (Table 2.14). For example, while the average per
family income in the upper class areas was over $11,000 per month, nearly 30%
of the families living in these areas reported monthly incomes ranging from
$2,000 to $6,000. Similarly, 20% of the households living in Level 5 areas
reported incomes of more than $2,000 per month.

TABLE 2.14 PERCENTAGE DISTRIBUTION OF INCOME RANGES OF FAMILIES
IN EACH SOCIO-ECONOMIC LEVEL, CALI, FEBRUARY 1969
S O C I EC O N OM I C LE VEL
Income Range 1 2 3 4 5 6
Upper UMpe Middle le Lower Slums
Middle Middle

$10,001 or more 44.5 7.4 5.0 0.4
$ 6,001 $10,000 25.9 25.9 20.0 3.4 0.4
$ 2,001 $ 6,000 29.6 63.0 60.0 45.8 20.0 6.2
$ 801 $ 2,000 3.7 12.5 40.7 55.6 50.0
$ 501 800 2.5 6.8 18.4 29.8
Less than $500 3.3 5.2 14.0
TOTAL 100.0 100.0 100.0 100.0 100.0 100.0

SOURCE: PIMUR, Consumer Survey, 1969.

Table 2.15 shows the distribution of total food expenditures among five
major types of retailers for each of the socio-economic areas.20 Table 2.16
gives for each area the percentage of respondents who patronize the various
outlets according to the product group.21 The retailer classification differs
somewhat from those used in the previous section, since consumers identify
stores near the Galeria Central and the satellite markets as part of these
markets. Thus, "Galeria Central Area" includes public market operators (both
stall and ambutante-u), large ganneHos, and wholesaler-retailers. "Satellite
Market Areas" includes public market operators (both stall and ambutante)
and small graneAos operating in the immediate region. Neighborhood stores
refer to both tiendaz and small graneAos.
Almost half the food expenditures of families in Area 1 bacvios are made
in self-service outlets, particularly supermarkets. Most of the supermarkets
are located in that area of the city. However, people in this high income
group have their own cars or can afford taxis, and so have considerable free-
dom in choosing retailers. Nevertheless, distance from home is apparently
still a factor of some importance, since the Central Market, which is nearer
20These data are based on a sample of 629 households. See Footnote 1
of this chapter.
2Since more than one outlet type may have been used, the percentages
may sum to more than 100%.








to Area 1 baxyios than are the satellite plazas, gets seven times as much
patronage from this group, although the plazas have much better parking facili-
ties than the Central Market. Of course, the greater degree of selection in
the Central Market area, as well as nonfood shopping, may play a larger role
in the observed shopping pattern.
The incomplete line carried by the Cali supermarkets is reflected in the
use of specialty stores by Area 1 consumers. A quarter of their expenditures
are made in "other" outlets, consisting almost entirely of specialty stores
for meat and poultry and camioneAos for milk.
Area 2 residents divide their purchases more evenly over the five types
of retailers, in terms of both expenditure and percentage of people using each
retailer, than the residents of any other area. This phenomenon can be ex-
plained in locational terms, as these baAhiLos are almost all located in the
southwest of the city. The concentration and quality of self-service stores
in this area are considerably lower than in Area 1 and help explain the drop
in the area of these stores from 45% to 16%. On the other hand, the tiendas
in this area are relatively large and full-line.
Plaza Alameda is within reasonable walking distance for people in the
northern quarter of this area, and accounts for most of the expenditures in
satellite plazas by Area 2 consumers. The Central Market receives 26% of the
expenditures. This reflects the central location and concentrated food re-
tailing activity of this area. Once a consumer is in a bus or a taxi, the
Central Market is a natural destination.
In summary, housewives in Area 2 appear to have no predominant orientation
toward any particular outlet type. Their purchasing patterns are consistent
with the hypothesis that accessibility and locational convenience are important
determinants in outlet selection.

TABLE 2.15 PERCENTAGE OF TOTAL FOOD EXPENDITURES SPENT AT DIFFERENT
TYPES OF RETAIL OUTLETS BY CALI CONSUMER, BY SOCIO-
ECONOMIC AREA, SPRING 1969
1 2 3 4 5 6
Outlet Types Upper Upper Middle Lower Lower Slums
Middle Middle

Galeria Central Area 14 26 31 32 22 26
Satellite Market Areas 2 15 24 8 20 11
Self-Service Stores 45 16 7 12 6 6
Neighborhood Stores 13 24 12 33 41 46
Others 26 19 26 15 11 11

TOTAL 100 100 100 100 100 100

SOURCE: PIMUR, General Consumer Survey, 1969.








TABLE 2.16 PERCENTAGE OF FAMILIES INTERVIEWED PATRONIZING PRINCIPAL
OUTLET TYPES, BY PRODUCT AND SOCIO-ECONOMIC LEVEL, CALI 1969
PRODUCT T Y P E
Outlet Type Grains Meat Canned Fruits Milk Socio-
Foods and Economic
Vegetables Area
Galeria Central Area 10 28 4 38 0
Satellite Market Areas 4 0 4 7 0
Self-Service Stores 66 31 69 45 4
Neighborhood Stores 10 17 7 14 14 Upper
Others 14 31 10 10 72
Galeria Central Area 23 32 16 39 0
Satellite Market Areas 16 23 7 29 0 2
Self-Service Stores 32 26 42 19 7 Upper-
Neighborhood Stores 26 26 29 16 29 Middle
Others 13 10 13 16 71
Galeria Central Area 33 44 21 48 0
Satellite Market Areas 15 31 10 33 0
Self-Service Stores 27 14 21 14 0 Middle
Neighborhood Stores 31 12 14 4 21 Middle
Others 12 14 8 14 69
Galeria Central Area 33 40 9 53 2
Satellite Market Areas 3 11 0 16 0 4
Self-Service Stores 16 8 17 2 2 Lower-
Neighborhood Stores 36 40 20 31 39 Middle
Others 21 5 12 7 52
Galeria Central Area 37 32 2 40 1
Satellite Market Areas 8 10 2 11 1
Self-Service Stores 11 3 6 1 5 5
Neighborhood Stores 48 61 9 52 41 Lower
Others 11 9 2 8 25
Galeria Central Area 28 26 8 35 0
Satellite Market Areas 15 22 4 26 L
Self-Service Stores 12 1 9 0 Sl
Neighborhood Stores 41 51 13 35 49 lums
Others 11 3 5 3 33
SOURCE: PIMUR, General Consumer Survey, 1969.
Shopping patterns in Areas 3 and 4 show very distinctly the effects of
location on outlet selection. These bawiaLos are all roughly equidistant from
the Central Market, but almost all the Area 3 baiuLos have satellite ptazas
close by, while Area 4 baiuLos do not. Both groups spend the same proportion
of their food outlays in the Central Market area. However, Area 3 expenditures
in the satellite plazaz (Alameda and Porvenir) amount to a quarter of their
outlays, while the corresponding expenditures for Area 4 are relatively small
(8%). The reverse pattern is found for expenditures in tiendas, with Area 4
consumers devoting a substantial portion of their food budget to this location-
ally convenient outlet type. The difference between percentages of expenditures
in "other" outlets is the sum of various smaller differences. Area 3 consumers
buy poultry and eggs from specialized stores, while the tienda is the most
important supplier of these to the Area 4 group, which also buys a higher pro-
portion of its milk at the tienda and less from the camioneAo.







Areas 5 and 6 are the most important, both in terms of the proportion of
total population in these areas and of the problems they pose in respect to the
provision of food.
Here again there are distinctive differences in the locations of bauAos
in the two areas. The Area 5 ba.vuosi lie east and southeast of the city center,
with three satellite ptazas (Porvenir, Floresta and Crist6bal Col6n) dotted
among them. Area 6 bawuAos are principally peripheral, the only accessible
p/azas being Crist6bal Col6n and Siloe. The latter has poor assortment and
selection, and little drawing power. The former lies on the bus route between
La Uni6n de Vivienda Popular (by far the most populous Area 6 baouio) and the
city center. This plaza is near enough to La Uni6n and far enough from the
center that the difference in travel time between the two is significant. These
locational considerations explain the differences between the two areas with
regard to expenditures in the satellite ptazas.
Residents in both Areas 5 and 6 make a substantial portion of their food
purchases in the neighborhood tiendas. In this respect they exhibit signifi-
cantly different shopping patterns than those found for higher socio-economic
groups. As will be shown later, tienda, are not low-price outlets, nor are
they considered to be high-service outlets. Rather, the high usage of these
outlets appears to relate to both income and locational factors. Consumers in
Areas 5 and 6 typically buy some food daily. To make the long trip to the
Central Market area each day is for most families, especially those in Area 6
bawuios, too expensive, both in time and money. For the most part, the tienda
is the only convenient outlet.
From the data just presented, it appears that a primary determinant in the
consumer selection of retail outlet type is accessibility. Data from a previous
study22 suggest that the satellite ptazas draw their customers from an average
distance of 0.6 kilometers, or six blocks. For tiendaa this "radius of in-
fluence" will be much less, and only an outstanding tienda is likely to draw
customers from more than two blocks. A 1964 study of the Galeria Central
suggests that the area has strong drawing power for consumers living up to
some 3 kilometers distance.23
Data on the frequency of major shopping trips, and the attendant money
costs, for shopping outside the immediate neighborhood is shown in Table 2.17.
The data presented do not refer to trips where the housewife went on foot both
ways, and thus represents the cost of visits to either the Central' Market area

22ILMA, Feasibility Study for EMCALI, Food Supply Center in Cali, Colombia,
February, 1965.
23Glen H. Mitchell, et ae., Report No. 1, Some Economic ConsidetationA o6
Peuihable Famun Ptoducta Matketing Through the Centtat GateALia o CaLi, Colombia
with Emphas-i on Possible Future E6ficiency. (Centro de Formaci6n Profesional e
Investigaci6n Agricola, Universidad del Valle, September 1964), pp. 23-25.








TABLE 2.17 CONSUMER TRANSPORTATION COSTS ON MAJOR FOOD
SHOPPING TRIPS, CALI, MARCH 1969
Socio-Economic Area
1 2 3 4 5 6

Average trips per week 1.08 1.29 1.52 1.25 1.77 2.27
Average cost per trip $4.30 4.65 3.66 3.00 2.57 3.17
Average cost per week $4.65 6.00 5.55 3.75 4.55 7.20
Average food bill per week 570 430 393 296 175 138
Transport costs as % 0.80 1.50 1.40 1.30 2.60 5.12
of food costs
SOURCE: PIMUR, General Consumer Study, 1969.

or one of the satellite plazas. As can be seen, frequency of shopping trips
correlates highly with socio-economic strata. While Area 1 residents exhibit
the once-per-week major shopping trip pattern found in developed countries,
Area 5 and 6 residents, who make up the low income bulk of the population,
shop in non-neighborhood outlets approximately once every three to four days.
Transport costs associated with shopping in non-neighborhood outlets show
the heavy burden imposed on the lower income Area 5 and 6 families by trips to
lower-priced outlets outside their neighborhoods.24 Transport costs as a per-
centage of total food costs are over 2% for Area 5 families and over 5% for
Area 6 families. Transport costs for families in Areas 1, 2, and 3 are some-
what understated since no costs were recorded for operation of private cars on
shopping trips. Since private cars are a major mode of travel in these higher
socio-economic groups, their costs are greater than shown in Table 2.17.
It is clear that lower income families, who are least able to afford it,
must spend a substantial percentage of their food budget on consumer transport
because of the lack of adequate food retailing facilities in thefr immediate
neighborhoods. It should be noted that some of the transport costs associated
with trips to centers of retail activity can be allocated to nonfood purchasing.
However, the high percentage of income spent on food by Area 5 and 6 residents
suggests that by far the greatest portion of the transport costs reported in
Table 2.17 must be attributed to food purchasing activity.
In the aggregate, approximately 2.5% of the city's food budget is expended
for consumer transport on major shopping trips outside the neighborhoods, prin-
cipally to public markets or self-service outlets. Three-quarters of the
aggregate expenses are absorbed by low-income families in Area 5 and 6 bauios.
In addition, it is important to note that there is undoubtedly a high invest-
ment cost in the public transportation facilities (busses and taxis) required
to move the housewife around the city on shopping trips. It need hardly be

2Most of the public markets are located within Area 5 neighborhoods (see
Figure 2.1). Thus, some families in this area have negligible transportation
costs, which tends to reduce the average cost of transportation for families
in this level. On the other hand, those families living near the periphery
have transportation costs similar to those in Area 6.







added that investment in vehicles represents a serious drain on the country's
scarce foreign exchange. These data point to the need for well-stocked, low-
price retail outlets located within walking distance of consumers. As we shall
see, such a system appears feasible, from both a public and private viewpoint.

Consumers' Perceptions of Outlet Characteristics

Consumers' expressed beliefs and opinions about different types of retail
outlets are useful in judging the relative performance of established outlet
types. In addition, they provide some insight into the possible impact on con-
sumer shopping patterns of alternative changes in the food distribution system.
Such data may also be of immediate value to retailers wishing to modify their
services to make their stores more attractive to consumers. To obtain infor-
mation on consumers' beliefs, 629 Cali homemakers interviewed were asked which
outlet types were, in their opinion, the best and the worst in respect to each
of 15 attributes of possible importance to consumers in selecting an outlet.25
These types of attitudinal data are subject to many different influences
and may be subject to somewhat differing interpretations. Nevertheless, we
believe they give some insights to the system, if not a clear picture.
The data would indicate that the Central Market area offers a mixture of
strong advantages and disadvantages as seen by many consumers, for it received
a large number of best and worst designations on many of the 15 attributes.
Consumers apparently shop at the Central Market because it offers higher-quality
products, a wide assortment, low prices on basic foods, and is at least as
reliable as most of the alternatives on weights and measures. Presumably,
consumers avoid the Central Market for the negative attributes, which were
said to be the dirt, congestion, and inconvenient location.
The satellite markets received few of the best or worst ratings. This is
clearly because they have all of the characteristics of the Central Market but
to a lesser degree. They offer more variation in quality than other outlets,
but to a lesser degree. They offer more variation in quality than other out-
lets, but not as much as the Central Market. They may be dirty, but they cannot
match the undesirable conditions in the Central Market.
Consumers indicate that, in their view, the neighborhood personal service
outlets as now operated have only the advantage of locational convenience rela-
tive to other outlets. They did, however, receive more "best" ratings for
offering credit and convenient hours than other outlets. Consumers find the

25The attributes tested were: quality of foodstuffs, agreeable customers,
gives credit, home delivery, hours open, tleanliness and hygiene of the estab-
lishment, honesty of weights and measures, bargains and discounts, low trans-
portation costs, self-selection, service and attention, assortment of food-
stuffs, convenience of location, price of basic foods, price of non-basic foods.
For greater detail of the responses to the different attributes, as well as the
methodology used, see PIMUR Technical Report No. 7, The CaLtL Conuumer: Incomeu,
Food PuAchasz6, and Shopping PatteAnr .








negative characteristics of these outlets to be poor quality, little variety,
high prices, and not very reliable weights and measures.
The self-service outlets are rated high on cleanliness, pleasant customers
to associate with, and service. They are also perceived by many to have the
best quality and prices, especially on non-basic items. They received few
"worst" ratings.
The "don't know" responses also give some indication of the importance of
the various attributes and/or the prevalence of the characteristics in the
system. It may be assumed that those characteristics given a high "don't know"
response for both "best" and "worst" would be of less importance. The great
majority of consumers answered "don't know" for both giving credit and home
delivery.
To a large extent, these data simply confirm what most observers would
conclude from an inspection of the Cali food system. While the data do not
prove poor performance, we may well ask whether the wide assortment and low
prices of the Central Market area cannot be combined with the locational con-
venience of neighborhood outlets. Data presented later in this chapter show
that the positive characteristics of assortment, price, and cleanliness can be
combined with locational convenience. The consumer seems to be sensitive to
these benefits and, in the case of Area 5 and 6 shoppers, can be assumed to be
willing to forego the present high cost of transport associated with food
shopping.


Retailer Conduct and Performance

The data presented thus far show the major role which location, product
assortment, and price play in the consumer's shopping behavior. Assortment
and price are major factors drawing the housewife to the Central Market area,
notwithstanding the time and cost of getting there and the general disagree-
ableness of the area. On the other hand, the tienda and small granero are
major outlets for low and lower-middle income families, principally because of
their location. For many shoppers locational convenience of tiendas clearly
outweighs the negative factors of poor assortment and high price. While the
small gtaneio offers lower prices than tiendas, together with a wider variety
and assortment of products, it is still high-priced compared with outlets in
the Central Market area.

Price Levels and Ancillary Services

Since approximately half of the families in Cali devote over 60% of their
income to food, the price at which they are able to purchase it is of signi-
ficant importance. Tiendas and small gtaneAos are important outlets for Area
5 and 6 families; because of this we were particularly concerned with








determining price levels in these outlets relative to those in other areas of
the city.
Table 2.18 presents the results of a consumer price study conducted by
PIMUR. In Area 1 (the highest income group) prices were collected at three
supermarkets servicing these bacu io. Prices in the middle class bac&uos of
Areas 2, 3, and 4 (which have been grouped together because of their similarity
with each other) and the low-income Area 5 and 6 baCviod were collected from
tiendas and small granewro in those areas. Samples of prices were also collected
at the Central Market area and the six satellite plazas the latter being
grouped together for ease of presentation.
The data clearly indicate that the lowest prices are to be found in the
Central Market area. The highest prices monitored were generally in the tiendas
of Area 6 and, to a lesser extent, in the tienda" of Area 5. Surprisingly, the
supermarkets of Area 1 were found to be among the lowest-priced outlets outside
the public market areas. The major price advantage of the public markets is to
be found in fruits and vegetables. Although the Central Market area and
satellite plazas offer the lowest-priced commodities, there is also a consumer
transport cost which must be taken into account for purchases made in those
areas. For Area 5 and 6 residents, the average cost per trip is $2.57 and
$3.17, respectively. As shown in Table 2.17, these housewives make 1.9 and 2.3
shopping trips per week on the average to these areas, which increases the cost
of purchasing their food by 2.6% and 5.2%, respectively. If the costs of these
shopping trips are applied only to those purchases made in the public market
areas (Table 2.15), the lower prices available are largely offset by the trans-
port costs, except in the case of fruits and vegetables.

TABLE 2.18 RELATIVE RETAIL PRICESa FOR SELECTED FOOD ITEMS BY TYPE OF
RETAIL OUTLET AND SOCIO-ECONOMIC AREA, CALI 1969
Area 1 Areas 2, 3, 4 5 Area 6 Galeria Satellite
Food Item Super- Tiendas and Tiendas Central Galerias
markets small g'IaneAo
Beef, 1st quality 103 103 102 101 100 100
Beef, 2nd quality 111 112 112 114 100 105
Beef, 3rd quality 115 115 114 117 101 100
Beef viscera 108 106 107 110 100 101
Rice, 1st quality 104 104 106 110 100 103
Calima beans 105 100 108 109 102 103
Corn, germ removed 100 104 108 112 100 102
Eggs, medium 103 108 110 116 100 102
Paneta 100 103 109 107 103 102
Potatoes, guata 112 113 114 122 103 100
Potatoes, cLiotoa 118 117 118 137 101 100
Tomatoes, ripe 126 132 137 143 100 111
Tomatoes, green 114 116 124 131 100 100
Onions 102 110 118 123 100 102
PLctano, green 164 159 138 165 105 115
PPttano, ripe 147 149 136 164 100 114
aThe lowest price among all six types of outlets equals 100.
SOURCE: PIMUR, Price Study, 1969.








While all income classes shop in the Central Market area and at the
various satellite pzaza families in Areas 6 and 5 make over 40% of their
food purchases (by value) in neighborhood tiendas (see Table 2.15) and are
therefore paying higher prices than the more affluent residents in the middle
and upper income baguios. Area 3 residents, who are conveniently located to
the Central Market and satellite market areas, appear to be purchasing at about
the lowest prices in the city. The high income families in Area 1 are generally
purchasing at lower prices than low income families in Areas 5 and 6.26 Fur-
thermore, there was some indication that quality was lower in the tienda~ of
Areas 5 and 6, although, insofar as possible, prices were collected on equi-
valent quality products.
Thus, we conclude that low income families tend to pay more for their food
than higher income families and receive lower quality products.
Although by now the pattern of services offered by the various retail
outlets is clear, there are several ancillary services credit, home delivery,
and hours open which merit discussion. Based on data from the PIMUR consumer
market basket and retailer surveys, credit extension is not a major factor in
food retailing. Slightly less than 10% of the food budget of consumers in the
two lowest income quartiles is purchased on credit. For those families headed
by a casual laborer with uncertain income, however, periodic credit extension
may be an important service. The highest and second highest income quartiles
made only 5% and 4%, respectively, of their food purchases on credit.
PIMUR's retailer study also shows that at present the credit given con-
sumers is on a very small scale, and is given more by the self-service stores
than by the personal service stores and public market operators. For instance,
all the cooperatives give credit, with 80% of cooperative sales being made on
this basis. The cooperatives, of course, are able to garnishee salaries. Over
half (60%) of supermarkets give credit; however, those giving this service make
only 15% of their sales on a credit basis. Only 40% of personal service stores
reported giving credit, and then on only 22% of their sales. Less than 30% of
public market retailers give credit; 20% of the sales of those doing so are
made on this basis. Retailers giving credit reported extending terms of 10 to
14 days.
The consumer market basket study showed that, excluding milk, only 2.6%
of food purchase transactions involved home delivery, with consumers in the
highest income level having 7.6% of their purchases delivered. In general,


26The price patterns reported here are similar to those found in La Paz,
Bolivia. See C. C. Slater, D. S. Henley, et al., Ma heting Processes in
La Paz, Bolivia (East Lansing, Michigan: Research Report No. 3, Latin
American Studies Center, Michigan State University, 1969), pp. 195-198.








supermarkets are the only outlets offering home delivery. Nearly half (46%)
of the milk consumed in Cali, however, is home delivered by specialized milk
distributors.
Tiendac and small gQaneoos are open the longest hours, averaging 12 hours
per day, 7 days per week. Public market retailers also operate on a seven-day
week, but only an average of 8 hours daily. Their hours are restricted by
the policy of EMSIRVA, since the markets are kept open only from 6 a.m. to
4 p.m. daily. However, sales are slack in the afternoon, and most retailers
leave before the 4 p.m. closing time. Self-service stores are open the least
number of hours, usually 8 hours per day, 6 days per week.
The market basket study indicates that food purchasing in the evening is
virtually non-existent. Shoppers in the three lower income levels made less
than 5% of their purchases in the afternoon, a figure which increased to 8% for
the highest income level. Virtually all purchasing is done in the morning,
principally to ensure getting the best choice of perishable meats, fruits and
vegetables. It should be noted that tiendaz provide fill-in service, as well
as beverage service, and this probably accounts for their long hours.
For the most part, then, the existing food retail system offers relatively
little credit and delivery service to the consumer. In turn, the consumer
appears sensitive to the deficiencies in the present system, but is not able to
impose change. It is appropriate at this point to consider the margins, costs
and profits for various retail outlets, in order to make some judgments regarding
opportunities for improving food distribution in Cali.

The Economics of Food Retailing

The data presented in this section are based on the results of the general
retailer survey of 629 outlets conducted during February 1969. These surveys
collected information on purchase and sales prices, sales volumes, spoilage
estimates for the principal items within the different product groupings, costs
of operation and investment costs. This was later complemented by data collected
from a few representative firms who were willing and able to give us further
detailed information on investments and costs of operations.
It was not possible to obtain complete aggregate purchase and sales records
for all the outlets studied. Gross margins are derived from the difference
between purchase and sales price per unit (price spread) and data on estimated
spoilage losses in the different product groups, by type of retail outlet. The
data presented are therefore based on a subset of the products handled, prin-
cipally the larger volume items within a product grouping, and probably under-
state overall gross margins in the system, as slower-moving items usually have
higher margins. In the case of personal service retailers, the products studied
in depth in the general retailer survey cover over 80% of their total sales








volume and are indicative of the stores' aggregate gross margin. For self-
service retailers, individual products studied accounted for only 56% of total
sales, which suggests that the data presented in Table 2.19 understate the
overall situation to some degree. Overall gross margins may be higher than
those shown for fruit and vegetable stall operations and ambul&avtes, as only
two-thirds of the sales volume is covered by the products sampled. The estimated
beef margins are representative of actual operations, since the outlets handling
this product are generally highly specialized.
It is important to point out that cost and margin data for individual
types of retailers is only one of the elements to be considered in judging the
efficiency and overall costs of the food distribution system. The cost of
supplying the individual retailer groups is a major factor that must also be
considered. For example, it is noted in Table 2.19 that supermarkets have the
second highest overall gross margin of the retailers studied. Nevertheless,
Table 2.18 shows that prices in these stores are generally lower than those
found in tiendas and small graneros. This is explained by the fact that the
larger volume supermarkets are able to purchase products at a lower price by
purchasing larger quantities through more direct channels.
The differences in gross margins between the various types of self-service
retailers generally reflect the differences in the product mix offered (Table
2.19). Supermarkets have the highest overall gross margin in this group,
which is attributable to their broad product line (including fruits, vegetables,
and meats). Cooperatives handle a narrow line of staple products. This, as

TABLE 2.19 RETAILERS' GROSS MARGINS BY OUTLET TYPE CALI, FEBRUARY 1969
Price Spread Spoilage Loss Gross Margin

Self-Service
Supermarkets 14.5 1.2 13.3
Cooperatives 10.9 1.0 9.9
Cajas de Compensaci6n 8.6 0.8 7.8
Chain Stores 8.0 0.5 7.5

Personal Service
Tiendas 13.7 0.8 12.9
Small gIraneAos 12.2 0.9 11.3
Large graneMos 9.5 0.9 8.6
Wholesaler-retailers 7.2 0.5 6.7

Public Market Retailers
Fruit and Vegetable 24.7 12.5 12.2
Grains and Processed 9.2 0.5 8.7
Beef stalls 20.0 5.5 14.5
AmbuLantes 26.4 15.0 11.4

SOURCE: PIMUR, Retailer Survey, 1969.








well as management philosophy, accounts for their lower gross margins. Manage-
ment philosophy is a factor in the low gross margins reported by the Cajas de
Compensaci6n. In addition, the Cajas carry a wide line of nonfood items and
drugs, with high total store volume thus permitting lower margins on food.
Finally, these outlets have essentially a zero cost of capital.27 The low
margins in the chain stores are due to their use of a narrow line of staple
food products as loss leaders.
The relationship between scale and gross margins for the various kinds of
personal service outlets is highly significant. The low overall gross margins
for the wholesaler-retailers reflects to a large extent the efficiencies and
lower per unit costs associated with volume operations, but also reflects the
partial wholesale nature of these operations. Differences in product mix be-
tween the four types of personal service outlets tend to hide some of the
relationships between scale and overall gross margin. It is worth noting,
however, that the small graneAos, which carry the higher margin fruits, vege-
tables, and meats, are nonetheless able to sell at a lower overall gross margin
than the tiendas. The higher gross margins for the smaller personal service
outlets (which tend to corroborate the data presented earlier on prices in
these stores) suggests that prices could be lowered substantially in the lower
income bauLios if larger-scale operations could be developed in those areas.
Although gross margins for ambultantea and fruit and vegetable stall oper-
ators do not appear high, there is substantial spoilage associated with these
operations. The price spread for those items sold at full price is over double
the gross margin. Nearly two-thirds of the sales of ambulante- are in highly
perishable products, i.e., pl~tanos, oranges, and tomatoes. Price spreads
must therefore be high to offset spoilage losses.
The "normal" spoilage one might expect in these items is amplified by
exposure to the sun as well as damage from passers-by. Spoilage losses by
stall operators are also quite high in fruits and vegetables and reflect the
handling of these products by consumers in their selection of the items they
will purchase.
A final observation which can be drawn from Table 2.19 relates to the
beef pueateAos. A gross margin of 14.5% appears high given the nature of their
operation. Working under a hot beef system, they purchase daily and therefore
operate with minimal inventory investment. Furthermore, rental rates for meat
stalls in the public markets are very low. Since beef puesteAos handle one-
fourth of the beef Consumed in the city, their margins and expenses are a
significant part of the cost of supplying food in Cali.

27This should not be construed to mean that there is no opportunity cost
to the system of the capital they use. While they are using scarce resources,
they are permitted to do so at no charge.








Monthly income statements for the three major types of retailers are
given in Tables 2.20, 2.21, and 2.22. Average investment in fixed assets
(excluding buildings and vehicles) and such current assets as inventory, cash
balance, and accounts receivable are also shown.28 Fixed equipment for the
various types of outlets was determined from a supplementary survey on equip-
ment usage. Value was determined on the basis of existing prices for comparable
equipment. It will be noticed, of course, that public market retailers have
only very simple equipment and tools and the investment in these items is
negligible.


TABLE 2.20 MONTHLY INCOME STATEMENTS -


SELF-SERVICE STORES


$
Sales 385,000 100.0

Purchases 342,265 88.9

Gross Profit 42,735 11.1

EXPENSES

Rent 4,120
Utilities 2,500
Salaries and Fringe Benefits 21,300
Transport 1,310
Delivery 920
Bad Debt Losses 300
Depreciation 1,453
Maintenance 600
Miscellaneous 1,000
TOTAL EXPENSES 33,503 8.7
Net Profits B/Taxesa 9,232 2.4
Imputed Return to Capitalb 5,493
Return to Management 3,739

CAPITAL INVESTMENT

Liquid Assetsc 44,706
Fixed Assets 175,000
TOTAL 219,706

aThis should be considered as a return to capital and management.
Calculated as 2.5% of total capital investment.
CIncludes inventory, cash, accounts receivable, less supplier credit.


28Data on revenue, expenses and investments are averages for retailers
within each type based on PIMUR retailer interviews.










Tiendao Small Graneros Large GIanerosa WResalers
$ % $ % $ % $ %
Sales 6,936 100.0 33,105 100.0 102,565 100.0 231,605 100.0
Purchases 6,041 87.1 29,364 88.7 93,744 91.4 216,087 93.3
Gross Profit 895 12.9 3,741 11.3 8,821 8.6 15,518 6.7

Rent 985 2,055 2,815
Utilities 100 300 530 800
Salaries and
Fringe Benefits 160 655 1,670 3,575
Transport 60 240 110 135
Deliveries 5 45 20 335
Bad Debt Losses 70 110 655 800
Depreciation 37 62 108 290

TOTAL EXPENSES 432 6.2 2,397 7.2 5,148 5.0 8,750 3.8

Net Profit before
taxes 463 6.7 1,344 4.1 3,673 3.6 6,768 2.9
Imputed Return to
investment 157 366 891 2,091
Return to labor
and management 306 978 2,782 4,677

CAPITAL INVESTMENT
Liquid Assetsc 1,810 7,136 22,627 49,096
Fixed Assets 4,450 7,500 13,000 34,540
TOTAL 6,260 14,636 35,627 83,636
aThis should be considered as the return to capital and labor/management.
bCalculated as 2.5% of total capital investment.
cIncludes inventory, cash, accounts receivable, less supplier credit.

Inventory investment was based on an item-by-item analysis from PIMUR
data on frequency and volume of purchases. Average inventory was assumed to be
60% of purchases (i.e., a safety stock of 10%) for perishable items such as
fruits, vegetables, meats and dairy products and 70% of purchases (i.e., a
safety stock of 20%) for staple grains and processed items.
Rental expenses as shown are averages of the actual rates being paid by
retailers. Two exceptions must be pointed out. No charge for rent has been
made for the tiendas, since these operations are located in the proprietors'
houses, and the out-of-pocket cost of using a room for a tienda rather than
living area is practically zero, unless, of course, the house was rented
specifically for its tienda facilities.


INCOME STATEMENTS PERSONAL SERVICE RETAILERS


TABLE 2.21 MONTHLY'








TABLE 2.22 MONTHLY INCOME STATEMENTS PUBLIC MARKET RETAILERS
Fruit and Grain and
Vegetable Processed Beef Stalls Ambulntes
Stalls Stalls
$ % $ % $ $ %

Sales 4765 100.0 16,850 100.0 45,325 100.0 3850 100.0
Purchases 4184 87.8 15,384 91.3 38,753 85.5 3411 88.6
Gross Profit 581 12.2 1,466 8.7 6,572 14.5 439 11.4

EXPENSES
Rent 55 155 180 16
Salaries and
Fringe Benefits 12 873
Transport 85 45 80 31
Bad Debt Loss 15 110 415
Depreciation 2 8 12
Miscellaneous 175-

TOTAL EXPENSE 157 3.3 330 2.0 1,735 3.8 47 1.2

Net Profit
(B/tax)a 424 8.9 1,136 6.7 4,837 10.7 392 10.2
Imputed Returnb
on Investment 14 86 64 2
Return to Labor/
Management 410 1,050 4,773 390

CAPITAL INVESTMENT
Liquid Assetsc 258 2,453 1,057 89
Fixed Assets 300 1,000 1,500 -

TOTAL 558 3,453 2,557 89

aThis should be considered as a return to capital and labor/management.
bCalculated as 2.5% of total capital investment.
cIncludes: Inventory, Cash, Accounts receivable, less supplier credit.

The other exception has to do with the rental rates in the public markets.
The municipality has a substantial investment in public market facilities.
While the present facilities may be largely amortized, the physical expansion
of the city, together with the proposed tearing down of the Galeria Central,
means that any future servicing of the city through public markets will require
substantial public investment. Thus, analysis of alternative changes in future
retail systems must include full capital and operating expense charges to
public market operators.
Based on the cost of the recently constructed Alfonso L6pez market, each








puesto involves a capital investment of $5,600.29 At a straight line deprecia-
tion rate of 10% per annum and a (subsidized) mortgage rate of 1% per month,
the monthly opportunity cost of capital per stall is $102. The average income
per stall from rentals does not cover this cost, let alone the cost of admini-
stration and maintenance of the public markets. We understand that current
income from rentals is only covering the operating expenses. If this is the
case, then an additional sum of $100 per month would have to be charged stall
operators to reflect their true costs to the system.
In the case of outlets which are owned and operated principally by private
individuals and their families, i.e., personal service outlets and public
market operations, the net profit figure should be considered a return to
labor, management and capital. Return to labor and management is considered to
be the residual after a return on invested capital of 22% per month or 30% per
year (approximately equal to the open market price for money) is deducted
from net profits. Thus, if the public market retailers were charged with the
cost of public capital utilized by them, it is clear that their returns would
be lowered.
The income statements for self-service stores show that these outlets as
presently equipped and managed return 30% per annum on investment at an 11.1%
overall gross margin after a salary for the owner/manager of $3739 per month
is deducted. The returns for private supermarkets are somewhat higher than
this figure, while returns to investments in cooperatives and Cajas de
Compensaci6n are lower.
Public market fruit and vegetable retailers (both stall operators and
ambulantea) earn less than the $450 per month minimum wage. If the full oper-
ating and capital costs of the public markets were charged to the stall re-
tailers, their returns would be reduced by one-fourth. Grain and processed
goods graneAos within the public markets earn somewhat more than double the
minimum wage. It appears that even if their share of the operating expenses
and capital investment of the public market system were allocated to these
operations, they would still earn more than minimum wage in return for their
labor. Beef pue teAos return to labor is the highest for any retailer group
studied, with the possible exception of supermarkets. The city has conferred
some major benefits on them. They are permitted to buy directly from the
matade)o; they are charged a subsidized rent for their physical facilities;
and they are somewhat protected from competition by the limited number of beef

It seems appropriate to consider replacement cost as a true measure of
the capital investment to be amortized and reinvested to service the future
growth needs of the city. The $5,600 value per stall includes the costs of
land, buildings, stalls and services, where land is estimated at $100 per
square meter and building costs per stall at $5000.








pu.6tos in the public markets (especially Galeria Central and Alameda). The
data in Table 2.22 show that few public market retailers are making excessive
profits in food retailing.
Opportunities for increased productivity in personal service retailing
are indicated by the data in Table 2.21. As volume increases, gross margins
drop substantially and returns to labor increase. Inter-firm comparison is
somewhat ambiguous because of differences in product mix, and, in the case of
wholesaler-retailers, type of operation. The order of magnitude differences
in costs and margins as scale increases, however, appear to overwhelm any
caveats regarding product mix or operating methods. The larger volume opera-
tions have lower costs per peso of sales and can operate at lower margins.
And, as in the case of supermarkets, they purchase at lower prices, given the
greater volume and ability to purchase directly from wholesalers, rather than
through wholesaler-retailers.
The data in Table 2.23 are further indicators of increased economic effi-
ciency as volume increases. Although tiendas have higher sales per peso of
inventory, principally because of the importance of beverage sales, they are
substantially less efficient than the other outlets in their use of fixed
equipment, space and labor. There is a slight drop-off in the efficiency of
use of fixed assets between large graneAos and wholesaler-retailers.

TABLE 2.23 OPERATING EFFICIENCY MEASURES BY TYPE OF PERSONAL
SERVICE RETAILERS, CALI FEBRUARY 1969
Tienda Small Large Wholesaler/
S GraneAo GraneAo Retailer
Monthly sales per $ of inventory $7.30 $5.60 $5.50 $4.10
Monthly sales per $ of equipment 1.60 4.40 7-90 6.70
Monthly sales per square meter 315.00 946.00 1,865.00 1,914.00
Monthly sales per employee 3,651.00 12,261.00 34,188.00 51,568.00

SOURCE: PIMUR, Retailer Survey, 1969.

Tienda operations earn slightly less than the minimum wage. If the number
of family members involved in the business (1.6) is considered, per capital
returns to labor are substantially less than the minimum wage.
Returns to labor in the small gianeAo operations place the owner in the
second lowest family income quartile in Cali. Large graneAos and wholesaler-
retailer operations are in the second highest family income quartile. (See
Table 1.8 and Figure 1.2 in Chapter 1 for details on income distribution in
Cali.)
The cost, margin and investment data just considered suggest strongly that
the cost of food retailing for low and lower-middle income classes could be
reduced substantially with the introduction of larger-scale retail outlets in








their neighborhoods. Lower food prices would result from: 1) the cost effi-
ciencies associated with scale; 2) the reduced cost to the retailer of acquir-
ing supplies as a result of large-scale purchasing; and 3) reduced consumer
transport costs.
Since the data appear to point clearly to unexploited economic opportuni-
ties in personal service retailing, why have existing entrepreneurs not seen
the possibilities and responded to them? The existing tienda appear trapped
in a condition of static equilibrium, lacking either the financial or managerial
resources to change their position. The profits associated with volume can
only be attained if a program of a wider product line, better assortment, and
substantial price reductions and merchandising is instituted to achieve these
volumes. Such a program requires inventory and fixed equipment financing, as
well as a large measure of entrepreneurial initiative. Commercial bank credit
is not available to them, nor is supplier credit likely to be forthcoming to
these marginal operators with their high rate of turnover. There is no evi-
dence to date that tienda operators are anything but marginal operators waiting
for better employment opportunities.
A policy of small price reductions to achieve volume is untenable, since
in a situation where a price reduction on the part of one tienda will be dup-
licated by a competitor across the street or halfway down the block, there is no
private profit and indeed, there is only private loss to be had by relatively
small price cuts.
The small gkaneAos are faced with fewer handicaps than the tienda owners
in attempting to gain scale. They do, however, have the problem of capital
shortage, which limits their ability to finance the inventory, fixed capital,
and early losses likely associated with a move toward a larger volume outlet.
Perhaps most important, they may simply lack the entrepreneurial ability.
There is also the problem of supply coordination and transport, which appears
to be a substantial barrier to a major expansion in the neighborhood bavuios.
The lack of full-line, full-service wholesalers forces a full-line retailer to
purchase from a variety of suppliers and to coordinate the delivery of their
goods. The resultant heavy burden on managerial time strongly militates against
the development of full-line retailers in outlying baAAcos, given existing
wholesale operations.
It would appear that the more enterprising retailers have been drawn to
the Central Market area, with its large daily influx of shoppers from all the
income classes. There is no reason to think that they will voluntarily trans-
fer to a neighborhood location, with all its uncertainty with regard to market
potential and its higher cost of acquiring supplies. The Central Market area
retailers have, of course, the advantage of close proximity to the major
wholesalers in the city. However, the Galeria Central is scheduled to be







removed; the resultant potential breakup of consumer shopping patterns may
well make the owners of large granecos and wholesale-retail operations receptive
to locational transfer.
A critical question, then, is whether there is sufficient market potential
for a full-line neighborhood store to achieve sufficient volume to obtain the
increased productivity suggested in Table 2.23. Analysis of family food pur-
chases and population concentration in the various socio-economic class baAAcio
shows that sufficient purchasing power exists even in the lower income bawxios
to easily support outlets with monthly sales volumes of over $300,000.30 It
must be strongly stressed, however, that these volumes can be achieved only
if the store follows an aggressive merchandising and pricing policy, is rela-
tively full-line, and is properly stocked.
Perhaps the greatest barrier to effective large-scale, full-line neighbor-
hood retailing is the problem of supplying these outlets. Just as the consumer
is faced with high transport costs, poor assortment, and higher-than-necessary
prices as a result of small-scale retailing, so the retailer is faced with the
same problems relative to the wholesale sector. There are no wholesalers who
provide one-stop purchasing, appropriate grading and sorting, and delivery.
As a result, a full-line retailer must devote considerable time to seeing a
wide variety of suppliers, inspecting and bargaining for price, and coordinating
delivery to his place of business. This has been a major problem for the
existing self-service outlets in Cali.
To better understand the wholesale food system in Cali, we now turn to
description and analysis of its structure and performance.


The Structure of Wholesaling

The Central Market Area and Its Role in Food Wholesaling

The Central Market area of Cali is of prime importance in the wholesaling
of most food products, with approximately 70% of the total city food supply
passing through the wholesale sector in this area. Only liquid milk, poultry
and eggs, soft drinks and processed foods distributed directly by manufacturers
move through other wholesale channels.
The area immediately surrounding the Galeria Central building is honey-
combed with bodegaf and dep6stos in which over 90% of the fruit and vegetable
wholesaling in the city takes place, primarily in the early morning hours prior
to 7:00 a.m. Space within these bodegas is rented on a regular basis by the
larger fruit and vegetable wholesalers, but the majority rent on a daily basis
and thus have no fixed place of business. The very small volume country


30See pages 97 to 101.








assemblers and farmers generally conduct their business in the streets. Fruit
and vegetable wholesaling in full lots (boxes or sacks) does not take place
within the physical confines of the Galeria Central structure itself, except
in the case of ptdtanos, whose main wholesaling location is in the basement of
this building.
Approximately 80% of the total volume of meat consumed in the city moves
through this area. Sixty percent of this volume is sold at wholesale and dis-
tributed throughout the city by 140 meat wholesaler-retailers operating out of
famta and expendcLos. As in fruit and vegetables, most meat wholesaling takes
place before 7:00 a.m.
Ninety percent of the total wholesale volume of grains and basic staple
processed goods are handled by specialized wholesalers and wholesaler-retailers
in the area.
The physical characteristics of the area make it increasingly inadequate
for the functions carried out within it. The Central Market complex first took
shape in 1897 and, as the city grew, most of the food wholesaling and retailing
developed around this area. A wide variety of businesses complementary to food
distribution activities, such as hardware stores, drugstores, suppliers of
packaging materials, hotels, restaurants, bars and transportation companies
have been attracted to the area.
Most of the buildings are old houses which have been adapted for use as
warehouses and stores. Their layout is usually not adequate for the efficient
handling of food products and they generally have only minimum storage facili-
ties.
The streets and sidewalks are very narrow and usually in a state of dis-
repair. The multitude of wholesaling transactions and physical distribution
activity taking place make traffic in the area chaotic, occasionally coming to
a virtual standstill. Approximately 330 food trucks and 60 chivar move into
the area of the Central Market daily. While many unload at night, a large
number of inter-city and intracity vehicles service the area during the day,
causing congestion in the rest of the downtown area. As a result, trucks
hauling into the area waste a considerable amount of time getting to their
destination, parking and unloading.
Hygienic conditions within the area leave a great deal to be desired.
Refuse, which is always plentiful where fruits and vegetables are handled, is
found everywhere. Because of the state of disrepair of the streets and
buildings, cleaning operations are difficult and usually not effective. During
the rainy season, the problem is aggravated by poor drainage. The whole area
produces a stench of decaying food products, which in turn attracts tremendous
numbers of flies and other insects, as well as rodents. These are clearly un-
desirable conditions for the handling of food products for human consumption.








While the Central Market area has expanded in a non-coordinated manner,
with resultant inadequate storage facilities and grossly inefficient handling
and physical distribution conditions, it nevertheless has a rationale for being.
The concentration of wholesalers, each handling only a few of the wide variety
of products found in the area, was perhaps inevitable given the small-scale
nature of retailing. Because of price and quality variations, as well as the
lack of generally accepted grades, retailers must purchase most of their pro-
ducts by personal inspection and comparison, as well as bargaining. It is also
common and indeed necessary for wide-line retailers to purchase their total
offering from a variety of suppliers. This is most easily done when there is
close proximity between the various wholesalers. The concentration of whole-
saling, as well as retailing, in the area has served to further intensify the
strong drawing power of the Central Market area.

Types of Wholesalers and their Characteristics

As of February 1969, the population of wholesalers servicing Cali was
approximately as shown in Table 2.24.

TABLE 2.24 NUMBER OF FOOD WHOLESALERS IN CALI,
BY TYPE OF PRODUCT FEBRUARY 1969

Grains and Processed Goods
Wholesalers 46
Wholesaler-Retailers 43
Distributors 14

Meat
Foruanea Suppliers 42
Beef and Pork Suppliers 49
Beef Wholesaler-Retailers 119
Pork Wholesaler-Retailers 21

Fruits and Vegetables 450

Poultry and Eggs 84

SOURCE: PIMUR, Wholesaler, Meat, Poultry and Egg Surveys, 1969.

An overview of the various wholesaler types can be gained from the data
in Table 2.25. Although the data are aggregated, concealing many differences
within the product group, they are nonetheless highly revealing. Fruit and
vegetable wholesaling operations are small-scale, whereas substantial scale
and organization have been achieved in grain and processed food wholesaling.
Beef wholesaling is a moderate-sized operation.








TABLE 2.25 GENERAL CHARACTERISTICS OF CALI WHOLESALERS
BY TYPE OF PRODUCT FEBRUARY 1969
Grains and Fruits
Processed Beef and
Goods Vegetables

Average monthly sales ($) 914,400 106,000 30,000
Average number of paid employees 3.64 1.0 0.15
Average number of non-paid employees 1.10 1.0 1.24
Area (square meters) 228 5 6

SOURCE: PIMUR, Wholesaler Study, 196.


Grains and Processed Foods Four main channels exist for supplying re-
tailers: 1) direct distribution by processor; 2) distributors; 3) wholesalers;
and 4) wholesaler-retailers.
The larger processors of branded items usually have direct distribution
in Cali, and in this way bypass wholesalers. Although direct distribution
would appear uneconomic except for the largest processors with a wide product
line, many firms apparently view the margin taken by wholesalers as potentially
lost profits and do not fully appreciate the direct and indirect costs associ-
ated with their own direct distribution. Another important consideration,
especially for the larger and more sophisticated firms, is that through experi-
ence they have learned that wholesalers cannot be trusted to "push" their
products, or adhere to the various merchandising and pricing policies employed
by the manufacturer. Further, the firms cannot depend on wholesalers as a
reliable source of information on market conditions. Thus, because of the
general lack of marketing services provided by most wholesalers, many firms
who might have preferred otherwise have set up their own distribution organi-
zations.31
Distributors handle branded processed foods, and are of two types: (a)
distribution agencies; and (b) independent distributors. Distribution agencies
are basically a variation of direct distribution by processor, but handle
product distribution for those manufacturers with plants in other parts of the
country.
Independent distributors are generally used by brand name processors too
small to warrant their own agencies. In these cases, the distributor is
usually given the exclusive distribution in the area. Occasionally the pro-
cessor supplies his own salesmen and at times a delivery vehicle. Collections,
credit risks, etc., are carried out by the distributor, who also supplies
storage facilities. In some cases the goods are placed on consignment with
the distributor and payment is made by him when a new order is placed.

3More information on processors' distribution is presented in Chapter 4.








In most aspects of their operations, independent distributors are similar
to grain and staple wholesalers, although they are somewhat more aggressive in
their sales efforts and customer services.
Grain and staple goods wholesalers handle the largest volume of foods
within the Cali distribution system. The principal products which they carry
are grains, flour, vegetable fats and oils, sugar and panta. In addition,
their product line includes coffee, chocolate, pastas, and other processed
foods, but these tend to be minor items for these wholesalers. Two fairly
distinct groups can be identified within the broad classification of grain and
staples wholesaling: 1) specialized wholesalers and 2) wholesaler-retailers.
There are 46 specialized wholesalers (including two cooperatives) who
purchase their products directly from assemblers or processors located generally
outside Cali and often outside Valle. These wholesalers usually handle five
to seven different products, although the bulk of their volume is typically
concentrated in one or two. In addition to being the principal suppliers of
Cali in these products, the larger wholesalers also do a high proportion of
their business outside of Cali. For example, sales in Cali account for less
than 40% of the total volume handled by the seven largest firms.
As in other countries, a group of wholesaler-retailers have developed to
bridge the gap between large wholesalers and small retailers. There are 43
firms in this category serving Cali. In addition to handling the products
carried by specialized wholesalers, they handle potatoes, eggs and canned
goods. As a further difference between them and the specialized wholesalers,
wholesaler-retailers are not highly concentrated in a few items.
Generally, these businesses are supplied by the specialized wholesalers
and local processors, while their sales are made to smaller neighborhood
stores, public market retailers, and consumers. Although it is often difficult
for them to differentiate between a wholesale and retail sale due to the low
volumes purchased by small retailers, it is estimated that the total sales of
this group are divided evenly between intermediaries and consumers. There is
some indication that the wholesale business is increasing in importance, while
the retail sales appear to be decreasing.
Total sales per outlet in this group average approximately $308,000 mon-
thly. In general, the larger firms in this group do the bulk of their business
at the wholesale level and the small firms the reverse.
Table 2.26 shows some of the other differences between specialized whole-
salers and wholesaler-retailers. Entry into this latter group appears to be
somewhat easier. Many of the older specialized wholesalers began operations
as importers, while the wholesaler-retailers often integrated backward from
retailing.








TABLE 2.26 GENERAL CHARACTERISTICS OF WHOLESALERS
OF GRAINS AND STAPLE FOODS
Specialist Wholesalers Wholesaler-Retailers
Sales and storage area (sq. meters) 303 161

Average number of paid employees 5.0 2.7

Average number of non-paid employees 1.1 1.2

umber of years in business 14 7

Years of education of owner 9 6
SOURCE: PIMUR, Wholesaler Study, 1969.

Specialized wholesalers have had more schooling, although only 10% had
completed secondary school. Only 5% of wholesaler-retailers had completed
secondary education, while 67% had no secondary education.

Fruit and Vegetable Wholesaling Although no precise figure could be
developed, there are approximately 450 wholesalers of fruit and vegetables.
(Table 2.27.) Only pLttano, tomato and potato wholesalers tend to operate on
a permanent basis in a fixed location; the wholesalers of the other fruits and
vegetables usually rent space on a daily basis in a bodega or dep6sito.


TABLE 2.27 NUMBER OF WHOLESALERS OF FRUITS AND VEGETABLES
CALI, FEBRUARY 1969
Plantain 120 Bananas 20
Tomatoes 72 Cabbage 15
Stem onions 40 Pineapple 15
Potatoes 39 Carrots 10
Oranges 35 Luto 10
Yuca 20 Others 54
SOURCE: PIMUR, Wholesaler Study, 1969.

Some of the general characteristics of these fruit and vegetable whole-
salers are shown in Table 2.28. Since potatoes, pintanos, and tomatoes account
for nearly 50% of the fruits and vegetables consumed in the city, they are
important elements in the system and have therefore been shown separately.
With the possible exception of potato wholesalers, fruit and vegetable whole-
saling is generally small-scale in nature. The physical size of the operations
is small, even for potato wholesalers who reported by far the greatest average
sales and storage area. With the exception of potato wholesalers, very few
operations hired outside help. The great majority of these "businesses" are
individual operations, as evidenced by the low average number of paid and non-
paid employees.32

3Although these wholesalers hire very few workers directly, there are large
numbers of porters who handle the movement of produce into and out of the bodegaA.








TABLE 2.28 GENERAL CHARACTERISTICS OF WHOLESALERS OF FRUITS AND VEGETABLES,
CALI, FEBRUARY 1969
Potatoes Tomatoes Plantain Others
Average monthly sales ($) 66,700 23,500 32,800 20-30,000
Sales and storage area (sq. m.) 32 4 11 6
Average no. of paid employees 0.69 0.35 0.08 0.05
Average no. of non-paid employees 1.2 1.3 1.1 1.3
No. of years in business 4.0 5.3 7.6 7.6
No. of types of articles handled 1.1 1.2 1.1 1.6
SOURCE: PIMUR, Wholesaler Study, 1969.


In all categories, close to 50% of those interviewed had been in business
two years or less, while a sizeable minority (except in the case of potatoes)
had been in business ten years or more). Thus, there appears to be fairly
rapid entry and exit for a major segment of the wholesalers.
The data, then, show that, in general, fruit and vegetable wholesaling
consists of small-scale, individual operations. Further, these operations tend
to be specialized principally in one product.
As in other urban food marketing institutions, the age of the fruit and
vegetable wholesalers averaged around 40 years. (Table 2.29.) Only a small
proportion of those interviewed (less than 20%) were aged 30 or less. With
the exception of tomato wholesalers, where nearly one-third had over five years
of schooling, very few fruit and vegetable wholesalers had more than a primary
education. And, again with the exception of tomato wholesalers, more than 30%
of the respondents had two years or less of schooling.

TABLE 2.29 AGES AND EDUCATIONAL LEVELS OF WHOLESALERS OF
FRUITS AND VEGETABLES, CALI FEBRUARY 1969
Potato Tomato Plantain Others
Average Age 37 40 43 40

Average Years of Schooling 3.8 5.8 3.5 3.3
SOURCE: PIMUR, Wholesaler Study, 1969.


Meat Wholesaling Over 80% of the fresh meat consumed in Cali is supplied
by 49 wholesaler-assemblers who buy live animals and have them slaughtered at
the municipal slaughterhouse. The minimum unit of sale is one whole carcass.
The remainder is handled by approximately 42 wholesalers who purchase meat
(mainly beef) at the slaughterhouses in the towns near Cali.

The wholesalers who purchase in neighboring towns usually do not buy
whole carcasses, but rather certain parts (which are frequently the higher








quality cuts). These wholesalers generally sell direct to self-service stores,
specialized meat stores, institutions and the meat product industry.33
All meat from the matadero is now delivered by EMSIRVA to the public
markets and to the mamas, which are close by. No deliveries are made to other
retailers or wholesaler-retailers, who must therefore make arrangements with a
(ama to handle the meat they have purchased from wholesaler-assemblers. This
involves a small fee.
Forty-five percent of the meat slaughtered at the matadeAo goes through
the public markets. Most of this meat (71%) is sold directly to the consumer,
but 29% is also sold to other retailers, mainly small tiendcs, and to industry.
The remaining 55% of the meat from the matadeAo goes to wholesaler-retailers in
the Central Market area. These wholesaler-retailers (140) operate a small
banco or stall located in a larger store containing one or more bancos. Fifty-
one of these bancos are located in oamas. The 6ama is often owned by a whole-
saler-assembler who rents out the bancos and usually supplies the meat to the
stall operators.
The remaining wholesaler-retailers (89) rent stalls within the stores
operated by other wholesaler-retailers and large gianeAos, thus facilitating
the sale of leftover meat at retail. Nevertheless, wholesaler-retailers sell
most of their meat to other retailers. This means that some 50% of the meat
sold at retail in Cali goes through an additional step between the wholesaler-
assembler and retailer.
On the average, meat wholesaler-retailers handle two carcasses per day,
of which approximately 15% is sold at retail and 85% at wholesale. Bancos in
the gamas average monthly sales of $90,000, while the other bancoos average
$121,000. The physical space occupied by these operations is small (approxi-
mately five square meters) and little equipment is utilized.

Wholesaling of Poultry and Eggs Coordination and integration between
producers, wholesalers, and retailers make the urban distribution of poultry
and eggs well organized, especially when compared to the distribution system
for most other food products. Coordination is aided by the relatively small
number of retail outlets, many of which specialize in these products.
At the wholesale level in Cali there are 22 specialized wholesalers of
eggs and 16 specialized wholesalers of broilers. There are also 46 wholesaler-
retailers who in general handle both of these products.
Specialized egg wholesalers market over 40% of the egg production in the




3Some meat is purchased by wholesaler-retailers once a week when there
is no slaughter at the matadeAo.







Department of Valle. Of the total volume handled, only 44% is consumed in
Call (accounting for over 50% of the total supply to the city) with the remain-
der being shipped to other markets.
Egg wholesalers are supplied by farmers and assemblers throughout the
Valley. The largest supplier is AVIVALLE, an egg producers' association
handling some 2,000,000 eggs monthly. In general, there are strong supplier
relationships based on verbal contracts between buyer and producer, with the
latter usually transporting the product to the wholesaler's warehouse.
Specialized wholesalers of broilers are frequently large producers who
have integrated forward within the channel; they account for 17% of broiler
production in the Valle. In contrast to eggs, Cali consumes over 75% of the
total broiler production of the Department and hence there is little export
of this product to other parts of the country.
The wholesaling function as carried out by these intermediaries is gener-
ally confined to the buying and selling of dressed broilers on a volume basis.
There is some short-term storage of frozen broilers.
Sales are made either to wholesaler-retailers or retailers. Volume handled
varies from 2000 to 25,800 pounds per month, with an average of 4,200 pounds
a month.
Wholesaler-retailers of eggs and broilers are very important in the dis-
tribution of poultry, but less so in that of eggs, handling 46% of the distri-
bution of the former and 13% of the latter. These wholesalers are supplied in
similar proportions by producers, assemblers and wholesalers with whom they
generally have verbal contracts. Sixteen percent purchase and slaughter live
birds, while the rest handle only dressed and packaged ones.


Retailer-Wholesaler Relationships

Coordination between retailers and wholesalers is a critical element in
an efficient distribution system. To devote his major efforts to the operation
of his store and the servicing of customers, the retailer must rely upon his
supplier to provide needed products in desired quality and quantity, at the
right time, and at a competitive price. While the retailer clearly must
closely monitor the purchasing function, it is nonetheless desirable that this
not be a major and preoccupying activity.
To a large extent, the degree to which a wholesaler provides such services
as full-line assortment, delivery, and credit is a function of cost and degree
of competitiveness, which in turn are largely functions of scale at both the
retail and wholesale level. Thus, a retail sector comprised of small-scale
operations handling limited lines, with rapid exit and entry, can neither
command services from the wholesale sector nor induce the development of these








services. At the same time, a small-scale, low-service, highly specialized
wholesale sector tends to militate against the development of larger scale
retailing, since the retailer finds the lack of wholesaler coordination and
service a major barrier to achieving volume operations. Thus, at this point
in our description and analysis of the Cali urban food distribution system it
seems appropriate to consider retailer-wholesaler relationships.

Retailer Purchasing Practices and Problems

In general, all retailers identified problems in purchasing and/or financing
as the areas of greatest difficulties within their businesses. These problems
tend to be interrelated, since the lack of adequate resources or credit com-
pounds purchasing problems. When asked to identify their greatest single
problem in purchasing, retailers responded as shown in Table 2.30.

TABLE 2.30 MOST IMPORTANT PROBLEMS IN PURCHASING BY
TYPE OF RETAILER, CALI, FEBRUARY 1969
Self-Service Personal Public
Service Market

Price variations 32% 25% 28%
Quality variations 19 5 10
Shortages of supplies 19 6 12
Lack of credit 17 8
Difficulties of transporting 25 7
Others 8 3 16
None 22 19 19
TOTAL 100 100 100
SOURCE: PIMUR, Retail Study, 1969.

With the exception of price variations, which is seen as the most impor-
tant problem by all retailers and appears to affect them all to a similar
extent, the other problems identified are closely related to the main charac-
teristics of the various types of outlets, as well as to the types of products
handled.
Self-service stores cater mainly to high income customers who demand
superior quality. A high percentage of their total sales are in canned and
bottled goods which they are able to acquire directly from processors. Many
self-service outlets do not carry meats and fresh fruits and vegetables, for
two main reasons. First, the high perishability of these products makes them
inherently risky. Second, and perhaps underlying and intensifying the risk,
is the difficulty of obtaining supplies of a consistent, desired quality.
Since the self-service outlets cater to the upper income classes, high and
consistent quality is important. Quality variations and supply shortages are,
therefore, major purchasing problems.
Neighborhood personal service stores, on the other hand, do not face as
demanding a consumer and often do not carry the more perishable products.







Therefore, they give considerably less importance to quality and supply short-
ages. They do, however, face greater difficulties in securing supplier credit,
due mainly to the general instability common to these retailers, as well as
to their low-volume purchases, which make them less attractive customers than
the larger retailers. Transporting of purchases is also a major problem,
especially to those retailers in the outlying bawAios. These retailers must
secure their own means of transportation, coordinate purchases from several
suppliers and incur the high unit cost of transporting small lots.
Supply shortages appear to be a problem for public market operators, es-
pecially fruit and vegetable retailers. Quality variations are less of a
problem, since the wide variety of customers patronizing the public markets
provides a demand for all types of products. In general, stall operators are
also considered better credit risks than neighborhood retailers, given the
former's stability and fixed location. Since meat retailers and fruit and
vegetable stall operators within these markets have rapid inventory turnovers,
they have less need for credit than do personal service outlets.
Transportation problems are also minor for retailers located in the
Galeria Central because of their suppliers' close proximity. Retailers in the
satellite markets often consolidate transport with their colleagues. It
should be noted that these satellite markets (excepting Siloe) are closer to the
wholesale area than a large number of bcuios.
Purchasing practices and retailer relationships with their suppliers
reflect to a high degree the various conditions mentioned above. The percen-
tage of retailers who usually purchase from the same set of suppliers and the
reasons stated for doing so are shown in Table 2.31.

TABLE 2.31 PERCENT OF RETAILERS PURCHASING FROM REGULAR
SUPPLIERS BY TYPE OF RETAILER, CALI 1969
Self- Personal Public
Service Service Market

Purchasing from regular suppliers 68% 68% 44%
Reasons given for this pattern:
Better prices and discounts 40 38 20
Gives credit 32 22 32
Quality considerations 24 9 20
Friendship and confidence 4 23 25
Other 8 3
TO 100 100
SOURCE: PIMUR, Retailer Study, 1969.

In the case of processed foods, the limited number of suppliers for each
item, as well as the known quality and fixed prices of these products, results
in stable relationships between retailer and wholesaler. Where price-quality
stability is less certain (e.g., in fruits and vegetables) the degree to which








the retailer maintains a steady association with the supplier is reduced.
Thus, although two-thirds of self-service and personal service retailers pur-
chase from a regular supplier, only 44% of the public market operators, who
sell mainly fruits and vegetables, have this steady relationship.
Friendship and confidence are considerably more important to personal
service and public market operators than to self-service outlets. The latter,
it may be presumed, rely more on strictly economic judgement than on personal
relationships. Personal service and public market operators believe they can
obtain better prices and increased credit through development of personal
relationships. However, the high turnover rate in tiendaz makes it difficult
for them to establish such relationships.
Commercial credit is generally not available to the small store or public
market retailer. As shown earlier, total net profits are usually only enough
to meet family living expenses, leaving little or no surplus to be reinvested
in the business. Supplier credit is thus the major potential source of financ-
ing. However, the small sales volumes of these stores, coupled with their
high mortality rates and the lack of financial guarantees, makes credit exten-
sion risky and costly for suppliers.
The credit restrictions under which the economy is currently operating,
in addition to high losses reported by wholesalers due to bad debts in the
last two years, have forced suppliers to limit credit and carefully select
those to whom they make credit available. (See Table 2.32 for details on
credit extension.) As a result, self-service retailers are usually able to
get credit, while smaller personal service retailers are forced to buy for
cash.

TABLE 2.32 EXTENT AND TERMS OF CREDIT RECEIVED BY RETAILERS, CALI,
FEBRUARY 1969
Self-Service Personal Service Public Market
% Days % Days % Days

Grains 85 14 36 14 65 12
Processed Staples 86 21 30 14 45 14
Fruits and Vegetables 25 10 9 11 32 3
Meat 28 14 1 2 100 3
Poultry and Eggs 58 12 3 10 29 5

SOURCE: PIMUR, Retailer Survey, 1969.

Little credit appears to be available from fresh fruit and vegetable
wholesalers. In the case of meat, public market operators are able to finance
purchases with credit, while personal service operators work on a cash purchase
basis.
Larger self-service outlets generally receive credit on grains and pro-
cessed staples, where credit is important to finance inventories. In contrast,







only about one-third of the personal service outlets and one-half of the public
market retailers receive credit on these items.
Even though a retailer may purchase regularly from the same set of sup-
liers, this does not mean that he has only one supplier for each product or
product group. Self-service retailers contact an average of 3.5 suppliers
before purchasing an item, while personal service and public market retailers
contact 2.2 and 2.9, respectively.
The frequency of purchases by retailers offers a good indication of the
incidence of transaction costs in the system. Table 2.33 shows the average
frequency of purchase for each item within product classes by type of retail
outlet. Care must be taken in interpreting these data, for within each pro-
duct group, especially processed staples and fruits and vegetables (and to a
lesser extent, grains) there is a wide variety of products, each of which is
quite often purchased from a different supplier after shopping around. For
example, in fruits and vegetables, virtually all items must be purchased from
a different supplier. Thus, a tienda operator handling five fruits and vege-
tables would typically make 125 transactions a month to acquire them. The
data in Table 2.33 show that the least frequent purchasing is every other day.
For a retailer carrying a fairly wide assortment, the time demands are sub-
stantial. Although the larger supermarket operations utilize a broker to make
fruit and vegetable purchases, his ability to obtain desired quality and quan-
tity is severely restricted by the number of wholesalers who must be contacted
and the degree of inspection and bargaining required. Indeed, the weekly task
of checking the broker's performance must be quite time-consuming for the
manager of the supermarket.

TABLE 2.33 AVERAGE NUMBER OF PURCHASES PER MONTH PER ITEM
WITHIN PRODUCT GROUP BY TYPE OF RETAILER, CALI, FEBRUARY 1969
Self-Service Personal Service Public Market

Grains 3.0 3.2 4.0
Processed Staples 2.5 3.2 3.0
Fruits and Vegetables 15.0 25.0 20.0
Meat 20.0 25.0 30.0
Poultry and Eggs 7.0 6.0 9.0
Milk 30.0 30.0
SOURCE: PIMUR, Retailer Survey, 1969.

Retailer procurement of grains and processed staples is, of course, less
of a problem than fruit and vegetable procurement. It is possible to consoli-
date purchases of grains and major staples. But since the large wholesalers
specialize in a few products, as do food processors, their customers must still
make many transactions per week in order to fulfill all needs. The smaller
retailers who purchase from the wholesaler-retailers tend to consolidate their








purchases, apparently both to minimize purchase time and to maximize the possi-
bility of receiving credit. The larger personal service stores and self-service
stores, on the other hand, buy from the specialized wholesalers and tend to
split their purchases.
Small and frequent purchases increase the costs of transportation, as well
as transaction costs. Wholesalers deliver only large volume orders, generally
by re-routing a truck bringing supplies to them. This service is clearly
available only to the largest retailers. The principal means of transportation
used are push-carts, horsecarts and motorscooters. These small-scale trans-
porters are used by 80% of personal service stores and 95% of the public market
operators, while 69% of self-service stores use trucks. Taxis are used by 12%
of the personal service retailers.
Given the high frequency of purchase, storage periods for most products
are very short. Self-service stores generally have a small area in the back of
the store for this purpose, while other retailers keep most of their merchan-
dise on shelves in the selling area.

Services Offered by Wholesalers

Grain and processed goods wholesalers are generally not aggressive in
their sales efforts. Only four of the wholesalers interviewed had salesmen
who visit clients regularly. As for the rest, the owner-manager occasionally
makes customer contacts, but for the most part retailers are forced to come
into the wholesaler's store.
Customer services provided by wholesalers are limited, reflecting in
great part the small-scale nature of retailing. The specialized wholesalers,
who deal with the larger retailers, offer more services than do the wholesaler-
retailers, who service ftienda, and g/iane OS. For example, while 86% of the
specialized wholesalers reported giving credit on about 50% of their sales,
62% of wholesaler-retailers gave credit on only 26% of their total sales.
Credit was extended an average of 27 days by wholesalers, compared with an
average of 13 days by wholesaler-retailers. Thirty-eight percent of specialized
wholesalers provided delivery to their largest customers, while only 10% of
the wholesaler-retailers offered delivery service.
Fruit and vegetable wholesalers provide fewer customer services than
grain and staple wholesalers. (Table 2.34.) Grading by wholesalers is prac-
tically non-existent. Produce is usually bought and sold by the box, sack or
basket without being opened. It appears, then, that the major function per-
formed by fruit and vegetable wholesalers is that of providing a physical link
between producers or country assemblers and the urban retailer.
Beef and pork wholesalers purchase live animals in the Medellfn cattle
market or on farms, which are then custom slaughtered at the Cali Municipal








Slaughterhouse. The meat is sold mostly to wholesaler-retailers and public
market stall operators in whole carcass units, while the byproducts such as
hides, viscera, horns, etc., are sold to other buyers. Delivery of the fresh
slaughtered meat is made directly to the public markets and famas by EMSIRVA.
Credit is usually given for one to three days, which is ample, since most
wholesaler-retailers and public market butchers sell the total quantity the
same day.

TABLE 2.34 DELIVERY AND CREDIT PRACTICES OF FRUITS AND VEGETABLE
WHOLESALERS, CALI, FEBRUARY 1969
Potatoes Tomatoes Pl tanos Others
Percentage providing delivery 15% 9% 3% 5%
Percentage of sales on credit 69 37 16 42
Number of days credit 14 5 6 4
SOURCE: PIMUR, Fruit and Vegetable Survey, 1969.

FoAnanea beef and pork suppliers, on the other hand, purchase selected
cuts at the slaughterhouses in nearby towns. Although the customers of these
wholesalers are usually only large institutional buyers and self-service stores,
their service is presently of considerable value because of their handling of
selected cuts.
Wholesaler-retailers of beef and pork provide little service to the re-
tailer other than selling in less than whole carcass quantities. It should be
noted that they do not sell by specific cuts, but in packages of mixed cuts
(tevuetta), thus forcing the retailer to take a mixture of items. Neither
credit nor delivery are provided by the wholesaler-retailer.
In general, egg wholesalers do little more than buy and sell. Grading on
a regular basis is done only by AVIVALLE. Candling and washing are practically
unknown, while storage is limited by the lack of adequate facilities. On the
other hand, egg wholesalers do provide delivery services to their customers.
Although the wholesalers, as described above, provide rather limited
services to retailers, they do perform a vital role in the overall food mar-
keting process. The specialized wholesaler contributes substantially to price
formation and the process of equating market supply and demand. He is contin-
ually evaluating market information to identify opportunities to buy more
cheaply and to take advantage of short-term price maladjustments. In so doing,
the wholesaler group contributes to the efficient allocation of products be-
tween markets and between time periods. In carrying out his operations, the
wholesaler assumes substantial risks due to unfavorable shifts in market prices
and product losses. He continually operates under the discipline of impersonal
market forces. Hence, over a period of time his windfall gains tend to be
counterbalanced by windfall losses. His success depends significantly upon
his skill in evaluating market information and taking appropriate buying and








selling actions so that the gains exceed the losses. The other important
function of the food wholesaler is to assemble products in large lots and then
resell in small lots in a convenient location for his retailer clientele. The
wholesaler-retailer serves the small retailer by assembling a group of pro-
ducts, thus saving the retailers much valuable time in the procurement of his
supplies. Thus, wholesaling functions are important in the efficient operation
of a food system, and become increasingly important as an economy becomes more
urbanized and production-distribution activities become more specialized.

Wholesaler-Supplier Relationships

Since specialized grain and staple wholesalers normally handle large
volumes of only a few products, their suppliers are most frequently large rural
assemblers or food processing firms. On the other hand, wholesaler-retailers
are most frequently supplied by the specialized wholesalers, although the larger
ones do make some direct purchases from processors in Cali. The majority of
both specialized wholesalers and wholesaler-retailers purchase regularly from
the same suppliers. (Table 2.35.) Because of the lack of accepted grading
practices and market information, wholesalers must be able to trust their
suppliers.

TABLE 2.35 PERCENTAGE OF WHOLESALERS PURCHASING FROM
REGULAR SUPPLIERS BY TYPE OF WHOLESALER, CALI 1969
Specialized wholesalers Wholesaler/Retailers

Percent that usually purchase
from same suppliers 78% 69%
Principal reason:
Price 35% 49%
Credit 24% 35%
Quality 31% 14%
Others 10% 2%
SOURCE: PIMUR, Wholesaler Study, 1969.

Specialized wholesalers usually make product purchases once or twice a
month, while wholesaler-retailers purchase more frequently--two to three times
per month. Thus, grain and staple wholesalers have a fairly high rate of
inventory turnover. This is probably due to three factors: 1) limited stor-
age space; 2) risk of price fluctuations; and 3) the extent of supplier credit
received.
Sixty-two percent of the specialized wholesalers make their purchases
F.O.B. their supplier's warehouse and therefore must accept the risk and cost
of transportation. On the other hand, only 29% of wholesaler-retailers use
this method, for their suppliers either provide delivery or re-route incoming
trucks to unload the necessary goods in the client's place of business.








Some general data on the relationship between fruit and vegetable whole-
salers and their suppliers are shown in Table 2.36. There appear to be two
main supply sources: 1) direct from the farmer; and 2) assemblers operating
in rural villages and assembly points. For potato wholesalers, assemblers
outside of Cali are by far the major supply source. Truckers and assemblers
in Cali were important secondary supply sources for all but potato wholesalers.
The data suggest, then, that intermediaries play a major role in supplying
fruits and vegetables and that a sizeable proportion of these intermediaries
operate in other areas and send their produce on some sort of contractual basis
to wholesalers in Cali. The data also show the degree to which purchasing is
done directly by wholesalers from farmers, either at the farm level or in the
wholesale market at Cali.

TABLE 2.36 SUPPLIER RELATIONSHIPS OF FRUIT AND VEGETABLE
WHOLESALERS, CALI 1969
Potatoes Tomatoes plttanos Other
Major Supply Sources:
Direct from farmers 10% 30% 38% 32%
Negociantea outside Cali 83 31 37 43
Negociantez in Cali 7 7
Truckers in Cali 21 15 9
Other 18 10 9
Percentage buying from one supplier 8 28 39 22
Average number of suppliers talked
to before buying 3.2 3.0 3.0 3.6
Percentage of purchases on which
credit is obtained 76 83 82 89
Average number of days credit received 9.6 3.5 4.6 5.2
SOURCE: PIMUR, Wholesaler Study, 1969.

The majority of fruit and vegetable wholesalers do not buy from only one
supplier. PLitano wholesalers are most likely to buy consistently from one
supplier, and potato wholesalers least likely. Wholesalers reported talking
to an average of three suppliers before making their purchase decisions; these
contacts were either by telephone or face-to-face. Over three-fourths of the
wholesalers' purchases were made on a credit basis, with potato wholesalers
least likely to obtain supplier credit and wholesalers of "others" most likely.
In general, credit was extended for less than a week. Wholesalers reported
holding products less than three days, with the exception of p&ttanos, where
the average was 5.5 days. Thus, wholesalers turn their inventory rapidly, and
this is reflected in the credit terms afforded them.
Variability in price and quality was seen as a major problem in purchasing.
Quality differences, of course, are a function of the lack of grading in the
system. Pidtano wholesalers specifically listed a lack of credit and working
capital; although 83% received credit, over half received only one or two days'







credit. Potato wholesalers were generally dissatisfied with the necessity to
conduct much of their business during the early morning hours.


The Economics of Food Wholesaling

The material presented thus far indicates that the principal services
provided by wholesalers are price formation and physical handling of products
moving from rural producer or assembler to urban retailer. In nearly all cases,
the wholesaler does not provide transportation from his place of business to
the retail store. With these service elements in mind, we consider the mar-
gins, costs and profits associated with food wholesaling. The largest whole-
salers in the system are those handling grains and staple processed goods.
As noted earlier, two major categories within this type of wholesaler can be
distinguished, i.e., the "specialized wholesaler" and the "wholesaler-retailer."
Monthly income statements for specialized wholesalers of grains and processed
goods are shown in Table 2.37. Three size categories are shown for specialized
wholesalers. These breaks are made to facilitate analysis of the effect of
scale on costs.
Specialized wholesalers at the three sales levels take similar margins,
with middle-sized wholesalers having a somewhat lower margin. The effect of
scale is best seen in a comparison of expenses as a percentage of sales, which
range from 1.8% for the largest specialized wholesaler to 3.0% for the smallest
volume wholesaler group. On the other hand, profits as a percent of sales were
much higher for the large wholesalers than for the medium and small wholesalers.
It should be noted that the type of operation, as well as the sales level,
affects the economics of specialized wholesaling. For example, the largest
wholesalers do a considerable volume of business outside Cali, selling to
large volume customers in other cities. In these cases the wholesaler often
delivers orders directly from his supplier so that the merchandise does not
move through his Cali warehouse. Furthermore, there are differences in terms
of products handled, with some wholesalers carrying only a few fast-moving
items, and others handling a broader line. Therefore, the data in Table 2.37
must be viewed with some caution. Nevertheless, it appears that reduced costs
accompany scale. Further, it is clear that the absolute level of profits
gained by wholesalers are greater than those obtained in the retail sector.
(Tables 2.20, 2.21 and 2.22.)
It would seem that reduced margins and prices should be attainable through
programs designed to reduce the number of specialized wholesalers and increase
their scale of operations. But it should be noted that the major activity of
these wholesalers is watching the markets of each of the products he handles,
anticipating price movements, and deciding when and where to place orders.




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