FOOD SUPPLIES AND PRICES

As a rural manager at a time of rapid liberalization of rural food markets you

might feel confused and uncertain about what the role of NGOs or
government in food markets should now be. Perhaps you would welcome
liberalization , particulary if you were working in district in which food
markets were officially controlled by government but in reality were
dominated by parallel markets. or you may be against it, fearing that the
relaxing of price and movement controls will cause shortages, price
instability and exploitation of consumers and farmers by traders.
The purpose of this chapter is to help you in your effort to understand
how well local food markets work and what might be done to make them
work better.
State and market
The roles of the state and the private sector should be and can be
complementary and mutually reinforcing in making food markets work
better. this may seem a surprising assertion since they have been presented
so often as being in opposition to each other. but they are only in opposition
where the state, or some buyers or sellers, are trying to control the market
for their own purpose usually to extract more from it than they could
without controls, i.e. to make monopoly profits from it, in the case of buyer
and seller, or, in the case of the state, to feed the cities more cheaply or
raise foreign exchange.
A well-functioning market absorbs less of the net price of the product,
i.e. marketing costs are low, so that both producers and consumers benefit.
in general, for food markets to function well solid back-up from the state is
required, particularly where there are uncertainties about food supplies, food
quality or the stability of peoples purchasing power.
state back-up
The back-up by the state has two parts:
1. Improving the market infrastructure and regulations
State have intervened in markets by regulation (improving regulations or
removing them), participation ( as buyer and seller) investment (investing in
the improvement of market facilities-whether these be market roads,

shelters, stores , and whether the state is the sole investor or only provides
the seed capital to other private investors).
some degree of market malfunctioning, is present whenever there are
poor conditions of competition, transfort or community among buyers and
seller. improving rural food markets mainly involves the investment role of
the state, plus ensuring that regulations help rather than hinder the good
functioning of the market.
But since the investments which may possibly improve a market are
almost limitless (roads, for example ) and expensive in capital outlay and
maintenance, it is important that the investment made are those which, will
actually improve the market. further, in cases of poorly developed markets,
investment in facilities may not be enough: entrepreneurs, with good market
imformation and readily available working capital, may be too few to make
the market work as well as it could.
2. preventing market failure.
market failure occurs where the market cannot function to meet the needs of
buyers and sellers. public goods are defined by the inability of the market
to distribute them effectively without public regulation and support. they in
clued education and training for those unable to pay their cost, public health
environmental quality , infrastructure planning, justice and defence.in case
food , there is market failure where a sudden reduction in food supplies or
peoples purchasing power occurs or threatens to occur.where supplies of
food have been disrupted, or there is fear they will be distrupted as in a
major drought, floods or war, foodor war, food market quickly fail: people
hoard food, immediately buying any food that becomes available to create
their own private stocks thereby pushing up prices further.
the general conclusions regarding the state and the private sector in
food markets are :
they can be complementary, with the state providing the framework of
minimum necessary regulations (to ensure quality and competition)
and the private sector the capital , initiative and competitive drive.
the more efficiently the market works and the less the risk of market
failure, the less intervention is reguired from the state.(i.e. the less the
state needs to participate in the market as a buyer or seller).
Techniques for finding out how local food markets work.

a detailed understanding of how food markets work does require a lot of data
that can only be acquired by thorough record keeping. but use of simple
techniques of analysis and quik methods of collecting imformation can go a
long way towards clarifying the overall workings of the food market,
identifying the main problems, and the interventions thap may be
appropriate.
Seasonal calendars
the seasonal calendar is thus a valuable food problems in the area. it can
also serve footo indicate which food markets may be particularly inefficient
(i.e are indicated to be too high cost or too unstable) and for which the
marketing chain should be examined more closely.
The following observa-htions can be made from the marketing
chains:
1. the market difference between the pre-harvest and postharvest
period.
2. theof local production (300 out of 370) tonnes) is stored and consumed
on farms 55 the 70 tonnes sold outside the parish, mainly to the cooperative miller in the town , even though the cooperative pays iower
prices.
3. local non-farm consumers are supllied mainly through the small
retailers (who sell more two small local miller who charge only .
it usefulness is that it provides the basis for more detailed analysis and that
it can show roughly but at a glance:

quantities distributed through different channels:

prices at which the commodity changes hands at each stage:
shares of the finalretail prices paid to producers, wholesalers,
processors and retailers, and the gross margins they receive
how different marketing chains compare in terms of the prices received
by producers and consumers.

It limitation are:

it is static i.e. it shows the picture only at a point in time.the picture

migh well represent the situation in a particular season but wiil not
applyb for the whole year.
it applies only to one commodity or group of commodities e.g
vegetables food grains.

it does not show quickly the commodity or payments move along the
marketing chain.

dosand donts in constructing marketing chain

do.
begin with a small local area (otherwise the chains may quickly
become overcomplex)
begin at the source of the food the producer or entry point into the
area
include estimates of the quantities (or per cent of total consumption or
production in the area ) and selling price at each link of the chain.
dont forget
marketing chain are different in different seasons. districts that export
foodter after the harvest may be importing by the pre harvest period.
marketing costs analysis
analysis marketing costs provides the evidence for judging how well
marketing chains are functioning. it enables comparisons to be made
between:
costs of alternative marketing chains
transport costs between villages compared to the prices differences
between them ( to see wether spatial arbitrage i.e moving food from
one village to another is profitable).
storage costs compared to seasonal price differences for sale in the dry
season, is
comparing costs in alternative marketing chains
the reasons for comparing different marketing chains are various but often
include :

comparing official with unofficial channels where there are regulations

restricting marketing to a marketing board or co-operetive
comparing chains which use different means of processing

What can be done to overcome problems

having acquired an overview of the food markets of the district and the way
they work: having learnt , from discussions with farmers,ah traders,

processors and consumers, what the problems are and perhaps also having
analised the marketing costs and prices at one or two points in problematic
marketing chains having dg done all this the rural manager is faced with the
task of what can be done and what are the priorities.
transport costs are too high
a remote district necessarily has higher transport costs than an accessible
one. its roads are likely to be in much worse condition. but the inevitability of
higher transport costs to aninaccessible area can easily lead to poor roads
being blamed for more than they should be.
lack of backloading may put transport costs, this occurs when food or other
produce is transported into/out of the district but the trucks return without a
payload.
overpricing of transport. is excess profit being made in transport ? compare
the costs of trucking per kilometer on different routes of similar road quality
serviced by different truckers. how much competition is there among
truckers? interview the truckers to find out what problemsthey face which
raise the cost.
problems with movement restrictions as the main policy instrument to prevent food
price increases in deficit rural areas include:
1. the system of restrictions tends to be inflexible and may cause food prices to
rise in deficit districts there by reducing food security
2. movement restrictions may cause food prices in a district to fluctuate more
than they would with unrestricted trade and to fluctuate less predictably
thereby decreasing the incentive for temporal arbitrage.
3. restrictions on movement increase transport costs (by causing delays, or
bribes to officials, or the use of illegal border crossings).
they were set up widely in developing countries in the post-world war II years,
with a variety of objectives:
to control quality and quantity of product offered on home and /or
domestic markets.
to establish producer prices and if necessary to operate reserve stocks for
this purpose.
to control imports and exports of the product
to promote consumption of the product
frequent complaints include:

delays in payments
prices below commercial prices

restrictions on selling to private traders

too few collection and sales points

there is collusion among seller or buyer of produce locally they fix prices unfairly.
licensing more traders to deal in basic foods , or removing licensing
requirements altogether
relaxing movement controls to allow easier trade to and from the district
encouraging new traders to enter the business (assistance with training
investment, trade credit)
state or community participation in the market (through the local
authority or a parastatal ) by storing food and selling it at low prices to the
poor or selling when prices rise too high
improving roads, or vehicles , so that transport costs are lowered.
there are several reasons why new entrepreneurs either do not enter the market or
remain very small even where there are profits to be made from trading or storing
food.

lack of skill, confidence and capital .local culture may lack a strong trading
tradition in families.
lack of market information
transfort difficulties and costs
difficulties in obtaining supplies.