Smallstock Marketing:
Socio-Economic Issues

Marketing is an important aspect of any livestock system. It provides the mechanism whereby producers exchange their livestock and livestock products for cash. Markets for livestock and livestock products depend on a complex range of physical, economic, social and environmental issues, as well as policies that interact with them. A number of socio-economic issues related to smallstock marketing are introduced below. Wider considerations and cross-cutting issues are addressed in the pages on Social Issues in Smallstock Development.

Marketing Problems Faced by Rural Livestock Producers Marketing Boards and Their Decline The Need for Market Information and Advice Co-operatives Contracting and Vertical Integration Gender Issues References and Further Reading

While there are large numbers of livestock producers, and consumers of the products, there are often very few traders or market intermediaries. This situation results from the small-scale and scattered distribution of producers, and inadequate transport and communications. The costs of setting up a trading agency are high and there may not be enough business to justify many traders becoming involved. Since there are economies of scale in marketing activities, including transport, processing and retailing, large-scale operations are most likely to be cost-effective. As a result markets are likely to be dominated by a few large-scale traders. Hence there is a lack of market competition and inequality of bargaining power, between the few large traders who control the market and the many small producers. In addition the producers lack experience and the necessary skills for negotiating contracts to ensure the terms are fair and equitable. They may be forced to sell to meet an emergency, such as a drought, or to clear a debt. Hence the producers have to accept whatever terms are offered; they are "price takers".

In negotiating contracts, small-scale producers are in a weak position, lacking market power and information on patterns of supply, demand and prices. Thus in promoting institutional development, there is a need for dissemination of market information, and encouragement of co-operative group action and participation by small-scale producers to strengthen their bargaining position. This might result, as in the case of the Indian dairy industry, in producer co-operative unions managing the processing and marketing operations. Additional benefits can be achieved by developing linkages between product markets and input supply, where product-marketing agencies are well placed to arrange the delivery of inputs.

In the past many developing country Governments intervened in marketing, especially through parastatal Marketing Boards, for meat and for milk. Marketing Boards were supposed to serve the livestock producers by providing assured markets for meat and milk at pre-set prices, quality control and food safety in processing and efforts to seek out and expand product markets. However, Marketing Boards in many countries have experienced financial difficulties, while their services have deteriorated. It should be noted that Meat Marketing Boards have rarely, if ever, been responsible for all the small ruminants and other small-stock sold for slaughter, rather they have been responsible for larger livestock. Following structural adjustment, and identified weaknesses in their operation, many Marketing Boards have ceased operations. It was assumed that private enterprise, or Non-Government Organizations would fill the gaps and provide more cost-effective marketing services.

However, the experience has been mixed. There has been a tendency, in many cases, to revert to traditional methods of more direct marketing from producer to consumer, often associated with declining food hygiene and quality standards in processing. Where producers previously knew the prices they would be paid, often at the start of the season, they now face a situation which is open ended and in which prices may vary from day to day. Producers have little or no information on market conditions, prices and quality, and little experience of how the market works, of negotiation of contracts and of their ability to influence the terms and conditions of sale.

Telecommunications and other means of disseminating information on markets, products and prices are limited. As a result livestock producers, in remote areas, are at a serious disadvantage in seeking markets and negotiating sales with traders and commercial firms, that may be the main buyers. The livestock producers have little knowledge and information on market opportunities and the prices prevailing in the larger urban markets. The traders and commercial buyers are generally much better informed about market conditions.

It is widely agreed that governments have an important public role in stimulating the flow of market information. Timely and clearly-analysed price data should be made available through mass media, notices, leaflets or radio programmes. Simple lists of the average prices prevailing in the main markets are of very limited value, especially when, as is often the case, they are out of date. Producers need to know how prices vary seasonally and price trends over the longer term, where are the biggest accessible markets and who are the main buyers.

Agricultural extension advice generally concerns technical production issues and little guidance is given on marketing issues. Agricultural extension staff require training to enable them provide advice on marketing issues as well as technical matters. Supervision and guidance is required for small-scale producers entering contracts with large-scale processing and marketing enterprises.

Governments have a role in the improvement and strengthening of the institutional environment. This involves establishing an enforceable legal framework for defining property rights and establishing market contracts. It may include the setting of standards for weights and measures and for quality grades, for milk and dairy products for instance.

Marketing co-operatives have long been recommended as a means of allowing small-scale producers to benefit from economies of scale and greater control over the marketing process than is possible in dealing with private traders alone. This form of organization is widely adopted, for milk marketing, in the industrialized countries of Europe, North America, Australia and New Zealand. Among the developing countries, India’s "Operation Flood", for the development of the dairy industry, is of particular note. Local supply of milk is organized through co-operatives, modelled on that founded in Kaira District, Gujarat State, known as the "Anand Model". All the milk co-operatives in a district form a union that, ideally, has its own processing facilities. Unions are federated in each state and in the National Co-operative Dairy Federation. The programme appears to have been successful in matching rapid increases, since the mid 1970s, in milk production and consumption per capita, so that today India is self-sufficient in milk and produces more than any other country in the world.

Dairy Marketing Co-operatives have been established, in other developing countries often assisted by Government supported prices and investment in processing equipment. Although the main product has usually been cow or buffalo milk, sheep or goat milk may also be accepted and processed.

While some dairy co-operatives have served both producers and consumers well, others have faced problems. In many cases governments have sought to influence or directly control the co-operative movement. Problems of mismanagement arise through lack of business skills and training, lack of finance, corruption and state interference. Thus many co-operatives have failed at the local level. In addition, the high costs of processing and competition from other sources of dairy products have reduced the importance of co-operative processing and marketing in many countries. Local milk processors often face competition from cheap imports of dairy products and from local traders who are not members of the co-operative.

These problems have become worse, since the 1980s, following market liberalization, and the ending of price fixing and state support for the co-operatives. With the ending of price control producers may be offered a higher milk price by local traders than by the co-operative processor. None the less, despite failures in the past, co-operative group action remains an important means of strengthening producers’ bargaining power and deriving economies of scale in marketing. Although less common, group activity in the marketing of animals might also bring benefits to small-scale producers.

Similarly, co-operatives may also be established for products such as honey.

All business transactions in goods and services, by barter or by formal market exchanges, involve costs. These "transaction costs", which are distinct from the costs of production and delivery, include the following:

• Search for information about potential contracting parties, and the quality and price of the resources to be exchanged;
• Bargaining to determine acceptable terms and conditions for the exchange;
• Defining the terms of the contract;
• Monitoring to ensure that contracting partners are abiding by the terms of the contract;
• Enforcing the contract and collecting damages where the partners fail to observe their contractual obligations.

The simplest kind of transaction, is the "spot market", selling or bartering "on the spot" often in a market place. Alternatively transactions may be pre-arranged through contracts. There are advantages for both the livestock producers, who are the sellers, and the traders or processors who are the buyers. By agreeing on quantities, qualities and prices in advance, the sellers have an assured market for their products. Risks and uncertainties, regarding whether anyone will want to buy and what the price will be, are removed. Likewise buyers, who have made contractual agreements can be confident that they will receive the produce at a pre-agreed price.

However, contracting may not always work to the advantage of both parties. First the agreed contract may be unfair to one side or the other. For instance if the trader-buyer is better informed than the producer-seller, about market demand and prices, then the contract offered may be unfairly weighted against the smallstock producer.

Second, risks remain that one side or the other may default on the agreed contract. Default may be the result of unforeseen problems, such as disease or death of animals, or breakdown of transport, but might also be due to dishonesty. Hence effective contracting depends upon mutual trust that the contract will be honoured. Many contracts are based on "gentlemen’s agreements", where both parties are known to, and are willing to trust, each other.

However, for economic development to proceed, people need to trade with others, often strangers from outside the village community. Given the bargaining power of traders and the relative lack of market knowledge of the producers, it is highly desirable that, where contracting is thought to be appropriate, extension advice and assistance should be provided to small stock producers. In the longer term there is a need to develop effective, low cost enforcement of contracts.

When repeated contracting is justified on a continuing basis, then closer links may develop between producer-seller and processor-buyer under what is known as "vertical integration". Such arrangements have developed between broiler producers and the processing companies (as discussed in the section on "broilers"). Similar arrangements have developed between pig producers and pork and bacon processors in some Asian and Latin American countries.

Women invest a large part of their time, labour and expertise in agricultural and livestock production. Development projects often ignore this fact and sometimes expect women to find additional time to invest in income-generating activities of minor economic relevance and often with few market opportunities (IFAD 2000).

Women rarely hold property rights or usage rights in land. In both traditional inheritance systems and in many land reform and settlement schemes, land rights are generally transferred to males as the "head of household". Female headed households, resulting from death or extended migration of the husband, or divorce, generally control less land than male headed households (IFAD 2001).

In contrast women often independently own small livestock, such as goats in West Africa (Okali & Sumberg 1986) and "backyard" poultry in many developing countries. They are then able to market the produce and retain the proceeds. It is estimated that 70 percent of the world’s rural poor are women, for whom livestock represent one of the most important assets and sources of income (DFID 2000). Thus in cases where women have access to home-produced milk or eggs there is often evidence of improved child nutrition (Kennedy & Peters 1992, Quisumbing et al 1995, Tangka, Jabbar & Shapiro 2000).