Urban Markets

The main consumer markets for livestock products are found in urban areas. Increasing urbanization is resulting in an increasing market for livestock products. However, the increased opportunities for livestock production tends to favour large-scale intensive operations instead of small-scale rural operations.

The Importance of Urban Markets Problems of Access for Rural Producers Peri-urban Production Economies of Scale in Processing and Marketing International Markets References and Further Reading

Large towns and cities are market foci, where demand for most products is concentrated, as is the supply of manufactured goods and public services. The process of urbanization is associated with industrial development and growth. Communications are facilitated, and transaction costs reduced, by grouping workers into firms, while there are benefits from economies of scale and agglomeration. The main consumer markets for livestock products are found in these market centres, where the rapid growth of urban populations and incomes account for much of the growth in consumer demand.

As shown in Table 1 of the "SUBSISTENCE" unit, developing country diets provide less energy and substantially less animal protein than those of the developed countries. The poorer diets in the developing countries are reflected in the low average levels of supply (and consumption per head) of meat and dairy products. In all regions but Latin America , the average intake per head of meat and dairy products is a small fraction of that in the developed countries.

However, as incomes rise, in the developing countries particularly in urban areas, consumers seek more variety in their diets. Demand for livestock products rises rapidly, an effect which is driven by the rapid growth in per capita incomes, particularly in East and South East Asia. At the same time population growth has led to increases in the number of consumers, particularly in urban zones. The high rates of growth in meat supply, and consumption, per capita recorded in all regions except North Africa and the Near East, are significant and form the basis of the so-called "'Livestock Revolution". If the growth in consumer demand continues at the same rate, livestock producers are faced with rapidly expanding urban markets.

The rapid changes in supply and consumption of meat are accompanied by shifts in the types of meat contributing to the total. Over the past ten years, while consumption per head of bovine and sheep and goat meat has stagnated in all regions of the developing world (with the exception of Latin America where beef consumption rose by 1% annually), poultry meat consumption has risen annually by over 6.5 percent in South Asia, and by nearly 6% in Latin America and on average 6% for all developing countries. Significant increases in consumption of eggs are recorded for all regions except Africa. Hence it can be argued that the rapid increases in consumption of livestock products have largely stemmed from a shift towards consumption of poultry products.

Urban markets are also the conduits for international trade, which has increased at an accelerating rate over time. Trade in livestock products has expanded since the development of refrigerated shipping at the end of the 19th Century. Today, domestic livestock producers, in most countries, face market competition from imported products. Local producers must achieve comparable quality standards at no higher price in order to compete. At the same time, some developing country livestock producers are able to compete in world markets, so the country becomes a net exporter.

Problems of Access for Rural Producers

Access to urban markets, by rural livestock producers, depends upon the existence of an infrastructure including communications and transport, intermediaries, market places and processing facilities. The links between producers and consumers, often direct in rural markets, are more likely to be extended through a chain of intermediary traders to reach urban markets. Within the market chain, products are transported from one location to another, and processed from one form into another. All these operations must be financed as well as the transaction costs of negotiating and enforcing contracts. The institutional framework has an important influence on the share of prices received by producers.

Access, and hence tradability, also differs between types of livestock and their products. Large animals may be moved large distances, on the hoof, but may lose condition as a result. Where motorized transport is available, it may well prove a cheaper alternative. Small animals, and poultry require transport but are bulky and therefore costly to move over large distances. None the less, for remote rural producers live animals are more readily tradable than most other livestock products.

Products such as meat, milk and eggs are all perishable, while meat and milk require chilled transport if moved over large distances. Transport costs are considerably higher, per tonne, than they are for live animals. Since transport costs also vary with distance to the market, the producer prices net of transport costs are much lower in remote production areas, than in locations close to the main markets. For similar reasons the costs of new inputs, supplied from urban areas are more costly for livestock producers in remote areas. Small-scale producers are at a particular disadvantage, due to the high unit costs of moving small consignments.

 

Peri-urban Production

Peri-urban producers have a clear advantage due to their market proximity. Costs of produce marketing, and of input delivery, are lower than those for more remote rural producers. Intensive, landless poultry systems, producing broiler meat or eggs are often concentrated in such zones. In East Asia, peri-urban pig production is also expanding rapidly, while feedlots for sheep fattening have been tried in Near Eastern countries. Production is often dominated by large-scale chick suppliers or animal breeders and meat processors. It is highly dependent on cereal grains for feeding, and these may be imported. In some countries smallholder producers have been contracted to rear broilers, keep laying birds or fatten pigs, under a form of vertical integration.

Concerns arise regarding the limited benefits to the rural poor and associated risks of environmental pollution from large-scale intensive industrial-type production systems. However, pig and poultry production converts feed efficiently and provides a cheap source of animal protein, while competing successfully with cheap imports. Despite this, it is argued that policies are needed to alleviate the adverse environmental effects of intensive production and to facilitate market access for small-scale producers.

 

Economies of Scale in Processing and Marketing

The marketing problems associated with the perishable nature of livestock products, such as meat and milk may be alleviated by chilling and hanging of meat, plucking and eviscerating broiler chickens, processing of by-products, or the cooling and pasteurizing or souring of milk. Further processing of meat may involve drying, salting or smoking, while milk can be processed into dried milk powder, butter, cheese, and yoghurts. Such processes extend the potential shelf life of the product and may facilitate transport, although the cost of refrigerated transport per tonne–kilometre is much higher than that of ordinary transport.

However, this is counterbalanced by the considerable value added, per tonne of produce, by processing. All these operations require capital equipment and are subject to economies of scale. Pecuniary economies, in the form of higher prices, also result from bulk selling. This benefit also applies to the grading and packing of eggs (FAO 2003) .

While there are large numbers of small scale livestock producers, and consumers of the products, there are often very few traders or market intermediaries. The results are a lack of competition and inequality of bargaining power. 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.

In the past Governments intervened, through parastatal Marketing Boards, for meat and for milk. Following structural adjustment, and identified weaknesses in their operation, many marketing boards have stopped operations. It was hoped that private enterprises would fill the gaps and provide marketing services. There has been a tendency to revert to more traditional methods of more direct marketing from producer to consumer. Co-operatives, or group activity by producers, have been successful in milk marketing, for instance in India and for a time in Kenya, though mainly for cows' milk.

In addition, the high costs of processing together with competition from other sources of dairy products have reduced the importance of co-operative processing and marketing in many countries. Local milk processors face competition from cheap imports of dairy products and from local traders who are not members of the co-operative. These problems have been exacerbated, since the 1980s, by 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.

 

International Markets

Although, at the time of independence, most developing country economies depended on agricultural exports, over recent decades the developing countries as a group have become net importers of agricultural products from the developed world, including livestock products. Estimates of the current net trade, in livestock products in 2002 (average 2001 – 2003) for developing regions, are given in the Table below. The balance of trade in livestock products, for the developing countries, as a group, is indicated by the data for the developed countries (last column), which provide net exports to the developing countries in all products.

Milk and dairy products, measured as milk equivalent, make up by far the largest item of net imports, in all regions. Net imports of 'milk equivalent' have been growing at between 2 and 4 percent annually, other than in Latin America and South Asia where they have diminished in recent years. For the meat products, there is much variation between regions. South Asia is a net exporter of ruminant meat, from cattle, sheep and goats. Latin America is a net exporter of bovine, pig and poultry meat, while East and South East Asia exports poultry meat. The Near East is the only region which is a net importer of all livestock products, although Africa is a net importer for all livestock products except ovine meat. Net imports of ruminant meat and pig meat to East Asia, poultry meat to Africa and the Near East, and sheep meat to Latin America are all growing rapidly.

Net trade in livestock products in 2002 (average of 2001 - 2003)

Source FAOSTAT 2005 (negative values = net imports)

These broad statistics only give a rough guide as to developments in livestock trade. There is much variation between countries and within continental regions, while trade in live animals and some minor products have been omitted. Of particular note is the trade in live ruminants from the tsetse-free but poor, Least Developed Countries of the African Sahel to Coastal West African countries and to East African States (de Haan, van Ufford & Zaal 1999).

Despite the data limitations, it may be concluded that the growth of imports to many developing countries reflects a failure of domestic producers to meet the growing domestic demand. There are therefore significant opportunities for increased home-produced sales to substitute for imports. It is clear that in countries that are net exporters of livestock products, the producers are already meeting increasing domestic requirements and competing in world markets.

Nevertheless, it is widely argued that the tariffs and non-tariff barriers imposed by the USA, the EU and Japan on imports from third countries, to support their domestic producers, restrict production and trade for developing country exporters and destabilize world markets. At the same time, support for developed country (OECD) producers is thought to depress world prices below their free trade levels. As a result producers in developing countries may face competition from artificially cheap imports. Reduced farm support in the USA, Europe and Japan should result in slight increases in world prices for livestock products, that, while raising food costs for developing country consumers, will improve opportunities and incentives for the producers.

Health and food safety (SPS) standards are aimed at risk reduction for importing countries but may impose barriers against exports from developing countries because of the high costs of compliance. The WTO provides a forum for dispute settlement, but financial, legal and technical support may be needed by developing countries to negotiate settlements and comply with agreed standards. Separate, less stringent standards might be appropriate for inter-developing country trade. Other issues such as environmental impact of productive activity and animal welfare are likely to be increasingly important in future international trade negotiations. The main conclusion, for developing country producers, is that improved animal health care and product quality management is essential for access to major world markets.

De Haan, L., van Ufford, P.Q. and Zaal, F. (1999). Cross-border cattle marketing in Sub-Saharan Africa since 1900: Geographical patterns and government induced change, in H.L. van der Laan, T. Dijkstra & A. van Tilburg (Eds.) Agricultural Marketing in Tropical Africa: Contributions from the Netherlands. Aldershot, England: Ashgate. ASC Research Series no. 15