Problems farmers now face to adjust to selling to private traders
Farmer options for selling maize
- To consumers at markets
- Wholesale at markets
- To traders in towns
- To traders who visit the farms
- To hammer mills
- To large-scale mills
Help farmers to find buyers
- Identify buyers and their prices
- Arrange for traders to visit villages
- Ensure sufficient maize is available
- Arrange for group transport
Obtain and use market information
- Price categories
- Buying price information
- minimum quality
- with or without bags
- conditions of payment
- quality requirements
- A checklist of questions for traders
Help farmers decide when and how much to sell
- What are their consumption requirements?
- What are their cash needs?
- How will they finance inputs?
- Should they store maize?
Identify ways to improve marketing
- Provide better marketing information
- Improve understanding of the system
- Develop assembly markets
- Maintain and improve rural roads
Farmers who have been used to delivering maize to the marketing board or cooperative will inevitably find it difficult to adjust to selling to private traders. These questions may arise …
- If there are several traders, which one should they sell to?
- What is a realistic price to ask for?
- If no traders come to their village, how can they find a buyer?
- Can they join together with other farmers in the village to sell their maize?
- Should they consider going to the retail market and selling their maize directly to consumers?
- How much should they sell now and how much should they store until later?
These are immediate problems which farmers may face, and extension workers should be in a position to advise them. In the following chapters we also discuss some of the longer term decisions that farmers will need to take, such as whether or not to build new maize stores or whether or not to start growing new, higher-value crops.
Farmers may have several options. They could:
- take their maize to market and sell directly to consumers;
- take their maize to market and sell to traders in the market;
- sell their maize to traders in nearby towns;
- sell their maize to traders who visit their village;
- sell their maize to a hammer mill;
- sell their maize to a large-scale commercial mill;
Selling directly to consumers
This is only a realistic option for farmers who live close to a town with a market or for farmers who only have a small quantity to sell which can be disposed of locally. Selling in retail markets is time-consuming and the farmer may have to stay at the market for several days in order to sell his crop. He will have problems in storing his maize in the market and making sure it is not stolen. Also, the time he will have to stay in the market can be considered a cost for him. Although he may be selling his maize at a time of year when there is not so much work to be done on the farm, there may be other work for him to do where he could earn a wage or, simply, other things he would prefer to do than sitting in a market all day. Also, some markets may only allow licensed traders to sell and not allow farmers to sell their own produce. Realistically, therefore, selling directly to consumers is an option for only a few farmers.
Selling wholesale in the market
An alternative to selling directly to consumers is to take the maize to the market and sell it to a retailer who is licensed to trade there. Alternatively, many markets function both as retail markets and as assembly markets where traders buy from farmers for subsequent resale, not to consumers but to large mills or other traders. Selling to traders has advantages for the farmer in that he will not have to sit in the market for a long period in order to sell all his maize. But if he sells to traders he will be selling at the wholesale price, which will obviously be less than the retail price.
A problem with taking maize to the market is that the farmer has to arrange transport. This may not be so easy to organize, particularly when he only has a few bags. It may also be more expensive for a farmer, per bag, than it would be for a trader visiting the farmer’s village. Once at the market, the farmer is faced with another problem — if he cannot sell his maize he has to take it back home again. Traders will realize this and, as a result, may lower the price they offer. Thus, while taking maize to the market should always get the farmer a higher price than if he waited for the trader to visit him, it may not always be sufficiently higher to compensate for the extra costs involved.
Selling to traders in towns
Larger traders are likely to have their own stores in towns close to or in the larger markets. They offer an important outlet for farmers who want to deliver their own maize to buyers rather than wait for the buyers to visit them. They may also be more likely to buy at a fixed price than to negotiate with the sellers. It would greatly help farmers to know in advance the prices such traders are paying and this is an important way in which extension workers can help farmers.
Selling maize to visiting traders
This is the easiest option for farmers. They do not have to worry about organizing transport and they may even not have to worry about buying bags, as the trader may provide them. The trader buys on the farm or in the village, so minimizing the farmer’s workload and the time he spends in selling his maize. However, dealing with traders in this way is not without its problems. Firstly, they may not always visit the village when the farmers want to sell. If farmers have to contact a trader and ask him to visit their village then the price the trader is prepared to offer will be less than if he planned to visit the village anyway. Secondly, traders may have insufficient funds to pay cash. Farmers may have to be prepared to wait for a month or two to get their payment and, in some cases, may never get paid. In some countries smaller traders have been bartering consumer goods, such as used clothes, for maize, rather than paying cash. Thirdly, the price visiting traders pay will be less than if farmers delivered their maize to buyers in urban areas. However, as already stated, the net return to farmers from selling in the village may well be greater than from going to town, as traders may have lower transport costs than farmers.
Selling to a hammer mill
One aspect of market liberalization has been the rapid expansion in the number of maize hammer mills in the region. Entrepreneurs have installed these both in cities and in fairly remote villages. Such mills often offer cost advantages over large-scale mills and consumers have frequently found it worth their while to buy maize and take it to the nearest hammer mill for milling, rather than to buy commercially produced meal.
Hammer mills have mainly concentrated on milling for farmers or consumers for a fee per bag or kilogram. Relatively few have gone into business as buyers of maize and sellers of maize meal. However, this situation may well change, as the increase in the number of hammer mills means they may find it more and more difficult to make a profit and, consequently, will be looking for ways of increasing their business. Obviously, mills based in villages where all farmers grow maize won’t find much demand for maize meal, but mills closer to urban areas could well represent potential buyers of maize.
Selling maize to large-scale mills
Commercial mills represent a large potential market for farmers, but they are likely to want to buy maize by the truckload and not in quantities of a few bags. Smaller farmers can only consider delivering directly to such mills if they can organize themselves into groups to hire a vehicle. This should lead to higher returns for the farmers than if they sold to traders visiting their villages, but these higher returns may not compensate for the problems involved in organizing transport. Unless there is a considerable amount of trust among the group of farmers, each farmer will want to accompany his maize to the mill. In delivering directly to a mill, farmers will also need to be sure that the quality of their maize matches up to that required by the mill — when they sell to visiting traders it is the trader who takes that risk.
HELPING FARMERS TO FIND BUYERS
As already indicated, selling maize or other crops will not always be a simple matter for farmers. Extension workers can do much to help them find buyers for their crops. Working either individually or, preferably, as a provincial or district-wide extension initiative, extension workers can:
- compile a list of larger buyers in the area, together with their terms and conditions and latest available buying price;
- identify villages with surpluses for sale and arrange for traders to visit those villages or nearby collection points;
- help farmers to organize group transport to town markets.
Provincial extension offices should, with the help of their district offices, consider compiling and regularly updating a list of buyers of maize and other crops. Copies of such lists should be sent to all extension offices in the province and to village authorities, NGOs, etc. Recipients should be encouraged to display the lists on notice boards or on the doors of buildings, so that they are easily seen by farmers.
Information provided should include:
- name, address and phone number of each maize trader or mill;
- whether the trader will send a vehicle to a village to buy or whether he expects deliveries at his premises in town;
- whether the trader buys in bulk or expects the farmer to provide bags;
- payment conditions, that is, on delivery or later;
- minimum quantity purchased, if applicable;
- price offered at buyer’s premises at time list was prepared;
- quality requirements.
The traders identified on the list should be subject to immediate removal if they are found to be dishonest in their dealings with farmers. However, complaints should be investigated. For example, a farmer may complain that he did not receive the price the trader was advertising as his buying price. On investigation, it may turn out that the farmer’s maize was too moist and the trader had to dry it, thus justifying paying a lower price.
Such a list should also provide information about companies offering vehicles for hire and transport rates per kilometre, both to enable farmers to hire vehicles and to let them calculate the likely buying price of the trader in the village, after deducting transport costs from his buying price.
Arranging for traders to visit villages
Local extension workers can identify quantities of maize which farmers want to sell, contact traders to find out their buying price and, if the price is acceptable to the farmers, arrange for the buyer to visit the village. One problem which traders in the region have reported is the fact that when they visit villages in response to requests from farmers they sometimes find that the promised quantities of maize were never available, or that the farmers have changed their mind or that they have sold to someone else. In such circumstances, the trader will be reluctant to visit the same village again. The extension worker therefore has to be sure that both traders and farmers will honour an arrangement that he has made. He will need to contact other colleagues to find out whether or not the trader has a reputation for reliability, and he will need to stress to farmers the importance of honouring a commitment and the reasons why it would, in the long run, be in their interests to do so.
The price the trader will be willing to pay will be higher if he can buy a village’s maize at one place, rather than have to visit all farms individually. The latter is time consuming and may, indeed, be impossible for a motorized vehicle. Farmers need to be aware that, for traders, time is very important. Any action on the part of farmers to reduce the time the trader has to spend in the village should lead to a higher price.
Arranging for group transport
Where the extension worker is aware that there are buyers for maize in a nearby town, an alternative to inviting a buyer to visit the village is to organize farmers into a group to hire a vehicle. As noted, information about transport companies prepared to hire out vehicles should be provided at provincial level. The extension workers should contact companies with vehicles for hire and identify those offering the best price for the size of vehicle required. Again, hiring a vehicle, once agreed to, requires a commitment by all farmers in the group. The company renting out the vehicle will not be happy if the vehicle arrives in the village only to find that the farmers have changed their mind. Members of the farmers’ group will not be happy if one or more of their members changes his mind, with the result that the group cannot fill the truck and costs per bag go up. They will also be unhappy if one of their members cannot pay for his share of the transport costs, although this problem can perhaps be avoided if it is agreed to pay the hire fee at the time the maize is sold.
OBTAINING AND USING MARKET INFORMATION
Several countries in the region have established market information services to assist both farmers and traders to adjust to liberalized marketing in the short term and to assist farmers to better plan their production in the long term. Where national market information services (MIS) exist, extension workers need to know how to interpret the information, in order to assist farmers to bargain with traders for the best possible price. They also need to know how to add to the information provided by the national MIS, with more localized information. Where there is no national MIS, the task facing extension workers is much more difficult. They will need to rely on contacting potential buyers directly, and on their colleagues in provincial headquarters, to obtain price information.
National MIS in the region vary but can normally be expected to provide information on prices in the major cities as well as in some of the important producing areas. They should also increasingly be providing information on prices in neighbouring countries. Although grain prices do not change as rapidly as prices of horticultural crops, MIS which cover grains should try to update price information at least weekly.
It is important that the extension worker is able to explain the reasons why prices which the farmer may hear broadcast on the radio are not the same as the prices the trader is offering in his village. In the first place it is important to know the different types of prices which may be quoted by an MIS. These could include the following.
Into-Mill price. This is the price which large commercial mills are paying. Normally, the price will be for cash purchases, but sometimes the mill will want to delay payment for, say, 30 days. This can be important, particularly in countries with high inflation and/or high interest rates. If a trader gets paid after one month by the mill but pays the farmer when he buys the maize, then he will have to lower the price to the farmer to cover his cost of financing the maize for that period. Ideally, an MIS should indicate payment terms when quoting prices. The Into-Mill price may also have other conditions attached to it. For example, a minimum number of bags may be required and quality specifications will have to be met.
Wholesale price. A clear distinction needs to be made between the wholesale buying price and the wholesale selling price. In some circumstances, the Into-Mill price may be the same as the wholesale selling price. The wholesale buying price should be quoted in reference to a location, that is the price paid by traders in a particular town or city. Wholesalers will usually want to deal in a minimum of one bag and MIS may well quote prices with reference to a bag rather than to kilograms. Care needs to be taken not to confuse the price for the old-style 90-kg bags with that for the newer, and increasingly used, 50-kg bags.
Retail price. It is an uneconomic use of a wholesaler’s time to sell maize in small quantities. Thus he will usually sell by the bag to retailers who will then sell small quantities to consumers. To do this profitably, the retailer will have to sell at a higher price per kilogram than he paid when he bought the maize. Thus the retail price cannot be used as a significant measure of the price the farmer can expect, although trends in retail prices should indicate likely trends in prices to the farmer.
To convert one of the above types of price into an estimate of a price the farmer could realistically expect to get at his farm requires a knowledge of marketing costs and of the margins that traders will want to obtain. In Chapter 4 marketing costs will be discussed in some detail.
Where information is collected about traders in a province or region, buying price information should also be obtained. This information should include:
- the minimum quantity the price paid refers to;
- whether the price is for loose or bagged maize;
- whether payment is immediate or after a certain time;
- whether payment is by cheque or cash;
- quality requirements, for example moisture content.
Extension workers should always check information provided by the provincial extension service before arranging for buyers to visit villages or for farmers to go to town to sell maize. The situation can change quickly (for example a trader may have run out of bags and may therefore have changed his policy of buying loose maize). Before contacting the potential buyer, therefore, it is useful to prepare a checklist of questions to ask him.
WHEN AND HOW MUCH FARMERS SHOULD SELL
Farmers need to decide whether to sell part of their crop immediately after harvest or whether to wait sometime in the hope that the price will go up. Factors determining when and how much farmers should sell include:
- how much their family will consume between one harvest and the next with, in drought-prone areas, some possible carry-over into the following season;
- their immediate cash needs, including repayment of loans;
- the need to finance inputs for the following season;
- the price and storage opportunities. When the harvest is poor, prices are likely to rise more rapidly than when the harvest is good, thus justifying storage. But farmers need to have a clear idea of their storage costs;
- difficulties they face in selling their maize.
Unless farmers have other income opportunities in addition to the output of their farms, and unless they are sure that there will be maize available to buy when they need it, they should be advised to store enough maize for their family’s requirements until the next harvest. They should not be tempted by high prices to sell all their production because when they want to buy maize for their families the price will be much higher. Where the farm is in an area with a medium to high risk of drought, they should consider keeping back more than one year’s consumption. Farmers often grow two different varieties of maize; a traditional variety for their own consumption and a high-yielding hybrid for the market. Traditional on-farm storage facilities are rarely suitable for long-term storage of hybrid varieties (see Chapter 5).
Previous sections of this guide discussed the immediate needs that farmers might have for cash. Clearly, they will need to satisfy those needs and will sell maize to do so. However, this puts them in a very weak bargaining position with traders, as they will not be able to hold out for higher prices. Extension workers should advise farmers to try to save some money from their maize sales in order that they are not placed in such a weak position after the following harvest. The need to break this vicious cycle of debt is all the more important now that there are no marketing boards and farmers need to negotiate from strength.
In a similar way, farmers should be encouraged, where possible, to either save money in order to buy seeds and fertilizer for the next growing season or to keep back some maize to sell when inputs are required. Chapter 7 looks in more detail at input supply and credit arrangements. In many countries of the region, the agricultural credit banks are experiencing difficulties. It is, therefore, all the more important that farmers try to finance their own input requirements.
Prices and storage
Chapter 5 looks in detail at storage of maize and at how farmers can calculate whether or not to build new stores. However, even if a farmer has a suitable store to keep maize he has, in any year, still to decide whether to store maize or whether to sell it. It may not always be in his interests to store in some years, as the price may not rise sufficiently to cover the costs, and risks, of storage.
Where a market information service has been functioning for several years it should be able to make available data about seasonal price trends. From this, extension workers can get an idea of the seasonal pattern of prices. However, the exact pattern in any year depends on the size of the harvest. As noted, when there is a good harvest prices may not rise by very much over the year, and storage may not be very profitable. When the harvest is poor, prices may go up a lot and farmers who store may do very well. However, this will depend on the price in neighbouring countries, and extension officers also need this information in order to advise farmers on the best approach. Chapter 5 also gives an example of how to calculate the likely returns from storage.
While a farmer can, theoretically, decide to keep maize for sale later at a higher price this may not always be a practical option. When he wants to sell his maize there may be no traders around who want to buy it. This situation is most likely to arise if the farmer lives in a remote area which is difficult for traders to reach in the rainy season. When the farmer has doubts about marketing possibilities later in the year and has, himself, no means of getting the maize to a trader then it may be a wise option to sell before the rains begin.
IDENTIFYING WAYS OF IMPROVING MARKETING
In addition to providing direct advice and assistance to farmers to help them market their crops, extension workers need to be looking at ways of improving the way agricultural marketing is carried out. They should be prepared to contact their provincial and national offices with suggestions for:
- improving the market information that is provided;
- preparing leaflets and posters for farmers to help them understand how the marketing system works;
- developing sites which could serve as assembly markets where farmers and traders meet;
- maintaining and improving rural roads.