Rethinking marketplace agriculture

By Lo Chu-ping 羅竹平  / 

Fri, Aug 12, 2011 - Page 8

The Council of Agriculture wants to see elderly farmers having more direct access to market information and it envisages them using smartphones to do this.

The idea in itself is a sound one, but there are literally dozens of -independent wholesale markets dotted around the country that predominantly serve the needs of their immediate vicinity. At present, there is no national system to bring all this information together.

The lack of integration and consistency across the board makes the smooth flow of goods from one area to the next difficult. It would therefore be useful if the government could consolidate these wholesale markets into four large regions, say north, south, east and west, making it easier to coordinate information.

However, getting elderly farmers online with computers or smartphones will inevitably be a bit of a hurdle. Much better, really, to exploit both the ubiquity of cable television and the Taiwanese penchant for dabbling in the stock market, to get this consolidated market information to TV sets in farmers’ homes in real time.

Even the more technophobic elderly farmers will be at home monitoring the latest commodities information on the TV. At the same time, using existing facilities would incur few additional costs when establishing a national system.

It is not just about lack of access to supply, distribution and retail information. Another key factor is the ability to negotiate selling prices. Theoretically, auctioning should produce reasonable prices set at the market level, because bids should be open and competitive, but the reality is that pooling or collusive bid-rigging could occur if there are only a few upstream wholesale suppliers purchasing or bidding.

In addition, as agricultural produce spoils easily, many small farms have to deal with middlemen or agents, which introduces another impediment to the pricing process, further inflating prices at the eventual point of sale.

To address these two problems, the lack of access to information and the inflationary constraints on pricing, I propose the establishment of a “farm direct” trading system which would provide non-bulk-volume farm produce direct to the customer at wholesale prices. The system would allow small farmers to sell directly to the several hundred thousand buyers for downstream wholesale distribution as well as millions of housewives looking to buy their week’s groceries in one go. When you have a few wholesale suppliers bidding against several hundred thousand, or potentially several million, buyers for wholesale distribution, the price is much more likely to settle at a reasonable level and better reflect production costs.

Cable TV and ordering over the phone are widespread in Taiwan, and this proposed system could make use of this to good effect. Elderly farmers can get the latest trading information from the TV, just like people check stock prices.

For example, a certain small farmer estimates that he will be able to harvest 50 catties (30kg) of yams, which he wants to sell for NT$35 per catty. He then phones an operator on the proposed system and asks them to fill out a sales form, or does it himself online, detailing the product he wants to sell, the volume, the grade and the price, just as he might if he were enquiring about shares.

In Taiwan pretty much everyone dabbles in the stock market, so it is not too much of a stretch to imagine even elderly farmers surveying stock prices on the TV and picking up the phone to place orders. -Customers are quite accustomed to researching products and pricing on the Internet and buying online. Just like when buying and selling shares, individual participants can decide on how many items are required and at what price. It’s important that this system also allows for the advance purchase and sale of a range of products in relatively small volumes.

Let’s review how this might work in practice. A restaurant in Miaoli County commits to buying 15 catties of yams from a farmer at NT$35 per catty. If the market price subsequently falls the farmer then accepts an order for 20 catties from a certain elementary school in Greater Kaohsiung for only NT$30 per catty, as he is still making a profit on them.

If the market price then increases, a housewife in Taipei purchases three catties at NT$40 each, which she believes to be eminently reasonable. The following morning, the farmer sends 38 catties of yams to the “farm direct” premises, where they are checked, divvied up, packaged, and shipped to their respective destinations. He can then send the remaining 12 catties to the traditional wholesale market.

In the interests of establishing a favorable and reliable trading environment, the service provided by the system should aim for a level of quality assurance to rival even the best major retailers.

This would include recording and making available product details online, different kinds of packaging, quality tests and an interactive customer evaluation system.

In addition, trained researchers should provide farmers with regular assessments of agricultural products. If the system does manage to attain this level of quality control it could also look at the possibility of exporting goods.

The council plans on training about 2,000 professional staff versed in production and marketing information who, if equipped with digital cameras and laptops, would be able to upload information about products on behalf of the elderly farmers, information such as the history, category and quality of products, and help them process customers’ orders. With this system, together with an efficient haulage and waste management mechanism, customers would be able to buy safe agricultural products at prices not much higher than wholesale prices.

Lower prices would also mean higher demand, which would increase jobs in the industry, bring more farmland into use and cut down the amount of imported farm produce. It would also enable farmers to turn a profit even when selling their produce at near wholesale prices, thereby making them less reliant on government subsidies.

Established, reputable companies could be brought in to provide management services. Last, but certainly not least, even though the system would have been set up with government support and corporate assistance, the government should offer shares to farmers at preferential rates, according to the size of their land and the market value of their produce. This would mean that the system would be both owned by and run for the farmers.

Before long a few landowners would be able to rent land to many tenant farmers, which is to say that elderly farmers would not only receive rent, they would also benefit from share ownership. Letting out land for agricultural use would increase yields in real terms, ensuring the proposed system operates smoothly and increases the wealth of its shareholders.

Lo Chu-ping is an assistant professor of agricultural economics at National Taiwan University.