Marketing Through Cooperative Structures vs Direct Selling From The Farm

Cooperative Marketing

There are two primary types of agricultural service cooperatives: supply cooperative and marketing cooperative. Marketing cooperatives are established by farmers to undertake the transformation, packaging, distribution, and marketing of farm products (both crop and livestock).

Cooperatives can add value to individual businesses and to the value chain by marketing the products of their member farmers. This is the ideal arrangement where individual farmers do not have the resources or knowledge to market their own products. In that case, they can pool resources and get the economies of scale that large agricultural businesses have, thereby overcoming the ‘curse of smallness’.

Agricultural cooperative: Also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity.

Producers and their cooperatives are selling into markets increasingly dominated by fewer, larger buyers. A variety of ownership and contractual arrangements intensify concentration and create a dramatic disparity in market power. Even the largest agricultural cooperatives have much smaller sales and asset bases than many of their competitors and customers. They must seek added value for their members in other ways, for example, by identifying niche markets and focusing their marketing efforts on them.

Cooperative Marketing And Distribution

One factor that can weaken the cooperative’s bargaining power is the potential variability of the quality of produce emanating from its range of producers. All cooperatives have strict quality management systems in place, but quality variation is an inherent risk in a system where fresh farm products are supplied by many individual producers.

Distribution Channel Budget

Most costs associated with the production and packing of fresh farm products are fixed.

Since there are various distribution options and logistics service providers from which to choose, costs can be saved in this area. It is therefore important to compare prices for the various stages of the distribution chain and use this information to create a distribution channel budget.

The distribution budget serves as the financial expression of the distribution plan and in its formative stages is a useful tool for comparing different options.

Monitoring Distribution Channels

It is important for the farmer to enter into a contract or service-level agreement with the chosen transport and logistics service provider. In this agreement, the required service delivery standards should be clearly described.

The actual service delivery is measured and monitored against this agreement, and payments are made accordingly.

To ensure ongoing compliance by the service provider, it is important to maintain short interval control so that service delivery problems can immediately be brought to the attention of the service provider and appropriate action taken.

Monitoring the Productivity of Transport Providers and Distributors

The most obvious way of measuring the efficiency of transport and distribution contractors involved in the fresh farm product supply chain relates to the final condition and quality of the product they have been responsible for conveying.

Fresh farm products are, by nature, perishable products with a limited shelf life. Once the product has been produced, harvested, and packed, time and temperature become the crucial parameters determining its quality and condition during and after the transport and distribution process.

There are other negative factors associated with cooperatives. Some issues arise because members’ enterprises vary in size and motivation. This makes it difficult to please all members. For example, commercial-scale producers may expect discounts on supply purchases and special services because such benefits are offered by other businesses. The costs of doing business through a multi-level supply cooperative come under real scrutiny when a farmer can order chemicals, for example, directly from the manufacturer and have them delivered for the less total cost.

In turn, small producers sometimes resist what they see as efforts by larger producer-members to control the organisation. Large cooperatives may be inflexible and individual members may miss out on marketing opportunities because they are not able to respond to them in time because of their commitment to the cooperative.

Each member brings a specific set of interests and demands to the cooperative. Leaders and advisers of cooperatives must find ways to blend this diverse base of farmers into membership with a cohesive business interest in their cooperative.

Two themes permeate strategies for cooperatives to succeed in the 21st century. The first is that greater investment is needed in the people who make up cooperatives. Members, directors, managers, and advisers must receive the training required to deal with 21st-century issues. Otherwise, they will neither completely understand the options available nor can analyse them and make sound business decisions. The second is that an emphasis must be placed on pragmatism and profitability. Cooperatives are businesses and, in the years ahead they must focus on solving business problems and providing value to their members. If they don't, members will stop patronizing them and they will just fade away.

Click here to view a video on how cooperatives differ.

Direct Selling From The Farm

It is the excesses of the conventional marketing system that have forced the return of direct marketing. Consumers tired of tasteless supermarket produce and factory-raised meat (and with increasing concerns about food safety issues) want fresh food with flavour, as well as more control over their food supply, and are willing to pay a premium price for it.

Direct marketing can give the farmer a larger share of the food Rand and possibly a higher return on each unit sold, offset to some extent by loss of economies of scale. For some farmers, adding value or marketing some minimally processed farm products directly to the consumer is a way of enhancing financial viability. Farmers who are unable to compete in, or are locked out of, distant markets can build a thriving local business.

However, finding the right niche and marketing directly to the public is a hard and labour-intensive job requiring time and effort, creativity, ingenuity, sales expertise, and the ability to deal with people in a pleasant and positive manner. Agricultural producers must be sure they are ready for the job.

The one advantage that direct marketers have over retailers is the ability to build their relationships with customers over time. Indeed, good marketing is about building trust and personal loyalty in the relationship. Good sellers know and use the customer's name. Consumers who feel an emotional bond to the grower are likely to remain loyal, even though the product is available at the grocery store at a cheaper price.