PREFACE

STRUCTURE, CONDUCT AND PERFORMANCE OF THE MARKETING SYSTEMS MARGINS AND SEASONAL PRICE VARIATIONS OF SELECTED FRUIT AND VEGETABLES IN BALOCHISTAN, NWFP, NORTHERN AREAS AND AZAD JAMMU AND KASHMIR

Social Sciences Division

Dr. Muhammad Sharif

PAKISTAN AGRICULTURAL RESEARCH COUNCILIslamabad

FOREWORD

It is a famous proverb that a successful farmer has one eye on his plow and other on the market. This implies that marketing carries equal importance as the production process does. In Pakistan, right from independence, there are strong public interventions in the marketing of staple food grains while laissez faire type of approach has been adopted in the marketing of fruit, vegetables and live animals. However, gradually it was learnt that horticultural crops, for which the Pakistans diverse agro climatic are well suited, can play an important role in achieving high agriculture sector growth rates along with favourable employment and income. Horticultural crops play an instrumental role in Pakistans economy by improving the income of the rural people. Cultivation of these crops is labor intensive and as such they generate lot of employment opportunities for the rural population. On the other hand, Pakistan enjoys a good position in the production of many horticultural crops like 4th in dates, 5th in mangoes and 11th in citrus. Moreover, in future the demand for high value agricultural products is expected to increase at quite higher rates induced by various factors like population growth, rising urbanization, developments in food processing and preservation technologies, high income elasticities of these products and better connectivity of producers with distant markets and consumers. Very few studies have been conducted on fruit and vegetables marketing in Pakistan and are therefore inadequate to guide public policy. Moreover these studies covered only large provinces like Sindh and Punjab. The information on structure, conduct and performance of various fruit and vegetables was generated by PARC for Punjab and Sindh provinces during early 2000s but no such information was available for NWFP and Balochistan provinces, Northern Areas and AJK. Gathering such information for these areas would result in complete countrywide information on marketing of fruit and vegetables in Pakistan. The study in hand broadly confirmed the earlier findings on marketing of fruit and vegetables in other provinces of Pakistan. This study explored some useful findings e.g. (i) Fruit growers usually avoid self marketing, as they seriously lack in marketing information and linkages with other markets. (ii) Study area markets are poorly interlinked with other markets of all scale. Similarly, (iii) traders do not care much for product quality from nutrition and freshness perspectives. Moreover, the study concluded that minimizing transport costs, improvements in packing, fast disposal of commodities, easy access to formal credit sources and transformation of market information are vital for efficient marketing system. This study identified some technical and socioeconomic constraints to fruit and vegetables marketing in the study area. Some useful suggestions are proposed before closing the document to address the issues involved in the existing production, marketing and distribution for horticultural crops in the country. It is hoped that this report will be useful reference point and inspiration for researchers, educationists, policy makers and everyone involved in the development of this sector. Dr. Muhammad Sharif and the group of scientists who worked under his leadership did a tremendous job for assessing structure, conduct and performance of marketing system of fruit and vegetables in the neglected ecologies of the country. This work has also generated valuable information and needs acclamation.

Dr. Iftikhar AhmadChairman PARC

PREFACE

Horticulture is a vital sub sector of Pakistan agriculture. It is an important source of livelihood for a substantial segment of rural and urban dwellers and also valuable source of foreign exchange earnings for the country. Demand of horticultural products, especially of fruit and vegetables, has recently increased due to rising income levels, developments in transport and roads infrastructure, changing rural-urban population composition and penetration of global food chains in developing countries. In policy circles, policy planners and development practitioners also giving special attention to horticultural crops for making it an effective source of growth in the agriculture sector of Pakistan.

The present study was designed to complete countrywide information on structure, conduct and performance of horticultural crops in the country. Hence, a detailed investigation of the efficiency of the marketing system and quantify the marketing margins of producers and other market intermediaries as well as to suggest ways to improve share of horticulture growers in the retail price to enhance income of the growers of Balochistan, NWFP, Northern areas and Azad Jammu & Kashmir.

The markets, market actors, marketing channels and market intermediaries are quite competitive and efficient in delivering services in relation to volume of produced available to them in their respective areas, as well as in terms of price and non-price competition at the farm level between contractors and producers. Farmers generally lack in capital and/or access to credit, lack of knowledge and expertise in marketing lead growers to rely on the contract-harvesting system in fruit whereas vegetables marketing is preferably carried out by self-marketing.

It was observed that the higher competition was among the buyers and seller, the determined price was close to the optimum price. The fruit and vegetables commission agents with in a market do have intense competition for capturing business. Besides, offering better price to the stakeholders, the dealing reputation of the intermediary matters a lot in creating business competition and price determination. Perishable and short duration commodities gave more shares to producers/farmers in consumer price and vice versa. So marketing efficiency does links with producers and consumers satisfaction. Similarly, an intermediary if get greater share in consumer price may invest more. High prices directly linked with higher transportation cost and quality and freshness is directly linked with packing and packaging.

I hope this exercise will provide useful complementary information on structure, conduct and performance of the existing marketing system of selected fruit and vegetables in the study area to all the stakeholders of the horticulture sector. This research report should be of a great significance to anyone interested in how horticulture sector can be developed for resource poor and food insecure farming communities in the country.

Dr. Iftikhar AhamdDirector General, NARC

ACKNOWLEDGEMENT

The author has initiated the efforts to achieve the goals of the project. However, it would not have been possible without the support and help of many individuals working in the satellite institutes of Social Science Division, PARC. The author wishes to express his sincere thanks to the team of social scientists of National Agriculture Research Center, Islamabad, Technology Transfer institutes at Balochistan, NWFP, Northern Areas and Azad Jammu & Kashmir for their help at various stages of literature collection and review, conducting field work for generating first hand information on fruits and vegetables marketing systems in Balochistan, NWFP, Northern Areas and Azad Jammu & Kashmir.

Dr. Waqar Malik Ex. Member Social Sciences (PARC) also deserves special gratitude and thanks for his encouragement, motivation, valuable comments and suggestions during planning and implementation. I wish to express profound indebtedness to Dr. Iftikhar Ahmad, Director General, NARC for providing patronage, inspiration, and guidance in conducting and accomplishment of research study on structure, conduct and performance of marketing system margins and seasonal price variation of selected fruit and vegetables in Balochistan, NWFP, Northern Areas and Azad Jammu & Kashmir. I deeply appreciate the technical support provided by Dr. Umar Farooq, CSO, SSD; Nadeem Akmal, SSO, NARC; and Sajid Ali, SO, SSD in synthesizing this report.

I am highly indebted to Nadeem Akmal, Husnain Shah and Waqar Akhtar from SSI, NARC; Syed Nisar Ali Shah, Muhammad Ishaq and Abdul Hassan from Technology Transfer Institute, Tarnab, Peshawar; and Ghulam Sadiq Afridi from Technology Transfer Institute, Azad Jammu & Kashmir for their relentless efforts in conducting field work, data entry and analysis for this study. Cooperation from fruit and vegetables growers, contractors, commission agents, wholesalers, retailers, exporters and consumers involved in the assembly, wholesale and terminal markets in Balochistan, NWFP, Northern Areas and Azad Jammu & Kashmir are also acknowledged.

This study would have not been completed without the guidance of Dr. Iftikhar Ahmad, Chairman PARC who has provided an opportunity to work on such an important national endeavor.

The Author

ACRONYMS

ADPAsian Development BankAEZs Agri. Ecological Zones AJKAzad Jammu & KashmirC.A.Commission AgentDMMA Deconstructing Marketing Margin AnalysisFFS Farmer Field Schools GDPGross Domestic ProductGoP Government of PakistanKARINA Karakorum Agricultural Research Institute for Northern Areas MARS Mountain Agriculture Research System MMA Marketing Margin Analysis NAsNorthern AreasNGOsNon-Governmental OrganizationsNWFPNorth West Frontier ProvincePARCPakistan Agricultural Research CouncilPCOPublic Call OfficePHDEBPakistan Horticulture Development and Export BoardR&DResearch & DevelopmentSCP Structure- Conduct- PerformanceWTOWorld Trade Organization

TABLE OF CONTENTS

FOREWORDiiiPREFACEivACKNOWLEDGEMENTvACRONYMSviLIST OF TABLESxiLIST OF FIGURESxiiiCHAPTER 11INTRODUCTION11.1.Background11.2.Research Problem11.3.Objectives41.4.Organization of the Report4CHAPTER 25THEORETICAL FRAMEWORK AND METHODOLOGY52.1Introduction52.1.1Marketing theory52.2Role of Marketing and Markets62.3Classification of Markets72.3.1Assembly market72.3.2Wholesale markets72.3.3Terminal market72.3.4Marketing efficiency analysis82.4Review of Empirical Research82.4.1Review of domestic marketing research on horticultural crops82.5Structure, Conduct and Performance (SCP) Model112.6Research Design and Implementation152.6.1Survey design152.6.2Fieldwork162.6.3Longitudinal data collection162.6.4Cross sectional data collection172.6.5Producers survey172.6.6Market survey172.7Analytical Techniques172.7.1Structure, conduct and performance (SCP) model used for this study182.7.2Working Structure, conduct and performance (SCP) model for Pakistan182.7.3Market efficiency212.7.3.1Marketing marginal analysis212.7.3.2Absolute margin212.7.3.3Marketing costs222.7.3.4Net margin232.7.3.5Deconstruction of marketing marginal analysis23CHAPTER 324CHARACTERISTICS OF SAMPLE MARKET INTERMEDIARIES243.1Introduction243.2Characteristics of Sample Fruit & Vegetable Growers and their Farms243.3Characteristics of Sample Farms, Market Access, and Information Sources for Sampled Fruit and Vegetable Growers243.4Characteristics of Sample Fruit and Vegetable Contractors/Beoparies303.5Characteristics of Sampled Fruit and Vegetables Commission Agents333.6Characteristics of Sampled Fruit and Vegetables Wholesalers353.7Characteristics of Sampled Fruit and Vegetables Retailers373.8Characteristics of Sampled Fruit and Vegetables Consumer403.9Conclusion40CHAPTER 441SUPPLY AND DEMAND FOR SELECTED FRUIT41AND VEGETABLES414.1.Introduction414.2.The Condition of Nature and Economy414.3.Basic Facilities in the Study Area424.3.1.Research and development424.3.2.Processing and refrigeration434.3.3.Transportation (highway and air transportation)434.3.4.Market and communication444.3.5.Institutional constraints444.4.Supply of Selected Fruit and Vegetables in the Study Area454.4.1.Supply of selected fruit in the study area464.5.Supply of Selected Vegetables in the Study Area474.6.Demand of Selected Fruit and Vegetables in the Study Area474.7.Public Policy494.7.1.Influence of WTO494.7.2.Government policy494.7.3.Policy and regulatory constraints494.8.Conclusions50CHAPTER 551MARKET STRUCTURE515.1.Introduction515.2.Market Types515.2.1.Road side markets515.2.2.Assembly markets515.2.3.Wholesale markets525.2.4.Terminal markets535.3.Market Actors545.4.Marketing Channel605.5.Relationship between Market Intermediaries in Marketing Channels in the Study Areas655.6.Barriers to Entry in the Market665.7.Export of Fruit and Vegetables675.8.Conclusion67CHAPTER 669MARKET CONDUCT696.1.Introduction696.2.Research and Development/Development of New Products696.3.Investment in New Technology706.4.Behavior of Traders716.5.Competition of Traders in the Market736.6.Formation of Prices among Traders756.6.1.Formation of prices among traders of markets in Balochistan756.6.2.Formation of prices among traders of markets in NWFP756.6.3.Formation of prices among traders of markets in Northern Areas766.6.4.Formation of prices among traders of markets in AJK766.7.Marketing Strategies776.7.1.Marketing strategies in Balochistan776.7.2.Marketing strategies in NWFP786.7.3.Marketing strategies in Northern Areas and AJK786.8.Conclusions78CHAPTER 781MARKET PERFORMANCE817.1.Introduction817.2.Seasonal Price Fluctuations817.2.1.Seasonal price fluctuations of selected fruit in the study area817.2.2.Seasonal price fluctuations of selected vegetables in the study area837.3.Market Efficiency857.3.1.Marketing marginal analysis (MMA) of selected fruit857.3.2.Deconstruction of marketing marginal analysis (DMMA) of selected fruit877.3.3.Marketing marginal analysis (MMA) of selected vegetables887.3.4.Deconstruction of marketing marginal analysis (DMMA) of selected vegetables917.4.Market Effectiveness917.4.1.Geo-figureical distribution917.4.2.Consumers evaluation to fruit and vegetables quality947.4.3.Information services947.4.4.Credit services957.5.Conclusion95CHAPTER 897SUMMARY, CONSTRAINTS AND STRATEGIES978.1.Summary of Findings978.1.1.Market structure978.1.2.Market conduct988.1.3.Market performance998.2.Horticultural Development Constraints1008.2.1.Production constraints of horticulture development1008.2.2.Post-harvest handling constraints of horticultural development1018.2.3.Domestic marketing constraints of horticultural development1018.2.4.Institutional constraints of horticultural development1028.2.5.Policy and regulatory constraints of horticultural development1028.2.6.Export constraints of horticultural development1038.3.Horticultural Development Strategies1048.3.1.Reorientation of subsistence horticulture to sustainable commercial horticultural farming1048.3.2.Re-orientation of research and development services1058.3.3.Reform of agricultural education, research and extension1058.3.4.Improving efficiency, productivity and competitiveness1058.3.5.Encouraging public and private partnership and private sector investment1068.3.6.Capacity building of chain stakeholders of horticulture sector1078.3.7.Policy and regulatory framework for the promotion of horticulture sector1078.4.Suggestions for Further Research1098.4.1.Investment appraisal analysis of fruit and vegetables products industries1098.4.2.How efficient and equitable fruit and vegetables value chains are with respect to competitiveness, inclusiveness, scalability and sustainability1098.4.3.Impact of WTO on fruit and vegetables export109REFERENCES110APPENDIX -1115APPENDIX -2116

LIST OF TABLES

Table 2.1: Marketing channels of different fruit and vegetables in Pakistan9Table 2.2: Distribution of marketing margins of market intermediaries in fruit & vegetables10Table 2.3: Elements of structure, conduct and performance14Table 2.4: Modified elements of structure and performance14Table 2.5: Selected fruit and vegetables on the bases of acreage in the study area16Table 2.6: Distribution of sample size for fruit marketing in the study area16Table 2.7: Distribution of sample size for vegetables marketing in the study area16Table 2.8: Characterization of existing SCP marketing system for selected fruit in Pakistan19Table 2.9: Characterization of existing SCP marketing system for selected vegetables20Table 2.10: Modified elements of structure, conduct and performance in sample areas21Table 3.1: Socio-economic profile of the sample selected fruit growers25Table 3.2: Socio-economic profile of the sample selected vegetables growers26Table 3.3: Landholding, market access, power and information source for fruit growers27Table 3.4: Land holding, market access, power and information source for vegetables growers29Table 3.5: Characteristics of sample fruit contractors in the study area31Table 3.6: Socio-economic characteristics of sample vegetables beoparies32Table 3.7: Socio-economic characteristics of sample fruit commission agents33Table 3.8: Socio-economic characteristics of sample vegetables commission agents34Table 3.9: Socio-economic characteristics of sample fruit wholesalers36Table 3.10: Socio-economic characteristics of sample vegetables wholesalers37Table 3.11: Characteristics of the sample selected fruit retailer38Table 3.12: Characteristics of the sample selected vegetables retailer39Table 3.13: Characteristics of the sampled fruit and vegetables consumers40Table 4.1: The condition of nature and economy in the study area41Table 4.2: Institutional constraints emerging from lack of basic facilities in the study area45Table 4.2: Institutional constraints emerging from lack of basic facilities in the study area45Table 4.3: Areas under different fruit tree in the study area (000 hect and 000 tons)46Table 4.4: Areas under different fruit tree in the study area (hectares and tons)47Table 4.5: The condition of nature and economy in the study area48Table 5.1: Market types for selected fruit (% farmers) in the study area53Table 5.2: Market types for selected vegetables (% farmers) in the study area54Table 5.3: Factors affecting low productivity of fruit and vegetables in the study area55Table 5.4: Fruit selling systems practiced by sample farmers (% farmers) in the study area56Table 5.5: Vegetables selling systems practiced by sample farmers (% farmers)56Table 5.6: Post-harvest handling issues of selected fruit and vegetables in the study area59Table 5.7: Issues of domestic marketing selected fruit and vegetables in the study area60Table 5.8: Apple Marketing Channels in study area.61Table 5.9: Grapes, Citrus, Plum, Cherry, Walnut and Mango Marketing Channels62Table 5.10: Apricot Marketing Channels in Balochistan and Northern Areas.63Table 5.11: Tomato, Potato and Peas Marketing Channels in study area.63Table 5.12: Lady Finger and Onion Marketing Channels in study area64Table 5.13: Carrot, Cauliflower and Brinjal Marketing Channels in study area64Table 5.14: Barriers to entry of intermediaries in the market in study area66Table 6.1: Average quantities of fruit dealt during the season by pre-harvest contractors72Table 6.2: Average quantities of vegetables dealt during season by pre-harvest contractors72Table 6.3: Mean quantities of fruit traded by sample commission agent (t/season)72Table 6.4: Mean quantities of vegetables traded by sample commission agent (t/season)72Table 6.5: Mean quantities of fruit traded by sample wholesaler (t/season)73Table 6.6: Mean quantities of vegetables traded by sample wholesaler (t/season)73Table 6.7: Mean quantities of fruit traded by sample retailers (t/season)73Table 6.8: Mean quantities of vegetables traded by sample retailers (t/season)73Table 6.9: Market competition of among fruit and vegetables market intermediaries74Table 6.10: Factors affecting price determination (% role) for different fruit in NAs and AJK74Table 6.11: Price determinations of fruit growers (%)76Table 6.12: Price determinants between growers and fruit contractors ... number (%)77Table 7.1: Mean sale price (Rs./kg) of fruit at different intermediary levels by season82Table 7.2: Mean sale price (Rs./kg) of vegetables at various intermediary levels by season84Table 7.3: Profit (Rs./kg) distribution among market intermediaries for selected fruit86Table 7.4: Itemized marketing margin by different market intermediaries for fruit89Table 7.4: Itemized marketing margin by different market intermediaries for fruit89Table 7.5: Profit (Rs/kg) distribution among market intermediaries for vegetables90Table 7.6: Itemized marketing margins of market intermediaries for selected vegetables93Table 7.7: Consumers perceptions about quality and price for fruit and vegetables94

LIST OF FIGURES

Figure 2.1: Two different SCP frameworks11Figure 2.2: Structure Conduct Performance Framework13Figure 2.3: Structure Conduct Performance Framework18Figure 5.1: Relationship between traders and flow of products, funds and information66

132

CHAPTER 1

INTRODUCTION

1.1. Background

Notwithstanding its declining share in GDP, agriculture is still the single largest sector, contributing 21 percent to GDP and employing 44 percent of the workforce (GoP, 2008). The sector is even more vital from perspective of creating employment opportunities, particularly in the rural communities, where an estimated 95 percent of the total employed population is attached directly or indirectly to agriculture (ADB, 2004). Government of Pakistan has declared Horticulture as one of the priority areas for the future development in agriculture sector, not only because the demand for fresh produce, both in domestic and international markets is increasing, but also it offers high returns and multiple job opportunities compared to other competing crops (PHDEB, 2007). The area under fruit & vegetables (including potato) crops is about 1.212 million hectares, with fruit sharing almost 69% and vegetables 31% during 2006-07 (GoP, 2007). During the same year, country produced about 11.73 million tones of fruit and vegetables, in which fruit shared 6.011 million tons (51%) and vegetables (including potato) 5.720 million tons (49%). Horticultural crops contributed about 12.2% to the national agricultural GDP (PHDEB, 2007). Pakistan exported about 0.561 million tones of Fruit and vegetables produce (4.78%) during 2006-07 and earned foreign exchange of US$168.71 million (GoP, 2007). On a comparative basis the fruit trees are perennial and involve less management and labor, compared to vegetables, which are more intensive and require high labor and inputs. Pakistan produces about 11.73 million tones of fruit and vegetables, of which 20-40 percent goes waste (PHDEB, 2007).

1.2. Research Problem

Research always begins from some problems or researchable issue (Sharif, 2004). The objective of a researcher is to find the the solution of the problem through the construction of a theory which may help solve the problem; for example, by explaining the unexpected, unexplained observations (Samad, 1990). In this context, the first step towards destination is to define and conceptualize the problem. This section begins with the importance of the research problem followed by the study objectives.

There are growing concerns about the low productivity of horticultural crops in the country as compared to developed and developing countries, especially in comparison to our neighbors (PHDEB, 2007). In terms of production of horticultural crops, Pakistan stands at the positions of 4th in case of date, 13th in case of mango, 19th in case of citrus, 35th in case of apple, 32nd, 35th and 41st in case of potato, onion and tomato respectively. Yield gap ranges from 16 tones (mango) to 485 (tomato) tones per hectares. This signifies a need to identify the factors responsible for this low productivity. Therefore, one of the objectives of the study is to determine the technical and socioeconomic constraints in the marketing system, which has an impact on the expansion of its production and marketing in Balochistan, NWFP, Northern Areas, and AJK.

A typical marketing chain involves buyers (including harvesting contractors in fruit and local traders in grains and cotton), commission agents, wholesalers and retailers. Marketing of fruit and vegetables are carried out exclusively by private sector. It is commonly believed that these products are highly perishable in nature. The quality of these commodities begins to deteriorate in few moments after harvest and continues throughout the marketing process. The entire distribution process is geared towards rapid marketing. Generally, the producers share in consumers expenditure is not only low, but also fluctuates according to the commodity perishability and degree of collusion among marketing intermediaries (Iqbal, 1989). In fact, government has left marketing and export of horticultural products to the private sector. The distribution channel may vary from direct sale to consumers (which is rare) to a more complex market structure involving, producers, contract buyers, commission agents, wholesalers and retailers. The distribution channel gets more complicated when the wholesaler sells to another wholesaler or a processor and retailer to another retailer thus creating cost inefficiencies in the marketing system. In general farmers do not have bargaining power and thus their share in retail price is not only low but also fluctuates according to the commodity, its perishability and the degree of collusion among the marketing intermediaries (Khushk and Smith, 1996).

In Pakistan, marketing of fruit and vegetables is becoming more important because quantity of these commodities is expanding as the urban population is growing. Increasing in international trade makes more complicated marketing systems. Marketing functions including grading, packing and information are important to facilitate exports. Processing is another issue associated with the exports of fruit and vegetables in the country. The problems of export marketing of horticultural products are different from the domestic ones. This is because products differ in size and degree of perishability. They need a high degree of professionalism and care during transport and require very precise packing and grading standards. Some of the fruit and vegetables which enter the international trade are citrus, mango, date, potato, chilies and onion, etc. They all require specific post-harvest treatments, types of packaging, phytosanitary treatments and care during transport. They all have unique market requirements in terms of maturity, size, color, taste, shape, and popularity of the variety (Khushk and Sheikh, 2004).

The ground problems in the marketing of perishable products like fruit and vegetables are more serious, because: a) the conditions of the road and the design of the transport vehicles not conducive to the nature of product handled; b) intermediaries face different types of corruptions during commodities transport and their marketing; c) the general sanitary conditions in the markets are also very poor; d) packaging varies from jute bags to wooden crates, which are non-standardized, unattractive, not re-useable and often difficult to handle; e) cold storage facilities are also very poor and affect quality of produce stored; f) common problems in cold storage are ammonia leakages, poor insulation, frequent power breakdown and use of untrained labour; and, g) no agency is involved in providing marketing outlook to different stakeholders, therefore, market intermediaries manage communicating market information by their own sources.

Agricultural marketing research gained popularity with studies investigating the nature of market competition (Bateman, 1976). Efforts made to improve the standard of agricultural marketing research led to empirical observations about the agricultural industry. The resulting analytical framework became known as "market structure research". Later (Bain, 1968) introduced research with analytical tools which gained popularity as "market research analysis". Specially, the structural approach centers on identifying market characteristics as a means of analyzing marketing efficiency. In such analysis, market structure determines market conduct and consequently, market performance (i.e., employing the structure-conduct-performance model (SCP), derived from industrial organization theory, in analyzing market performance). This school focuses on the behavior of functionally similar firms and the influence the horizontal relationships between these firms has on market performance (Scarborough and Kydd, 1992). The first and main element of these is market structure. It provides a base, which may be used to assess the performance of an agricultural marketing system. The main components of this framework are market "Structure", "Conduct" and "Performance".

The review of literature revealed that in Pakistan, like other developing countries, marketing functions are performed in a traditional way and markets for agricultural products may not function efficiently (Sharif, 2004). There are generally great differences between prices paid by consumer and those received by producers (Toaha, 1974; Qureshi, 1974; Sattar et al. 1976; Siddiqui, 1977, 1979; Memon 1978; Khan 1980; and Mohy-ud-din, 1991). It is generally perceived that marketing agents exploit producers and consumers by charging a fixed and high margin on their investment (Ali, 2000). However, the perceptions might be false because: (i) marketing margins in the off-season are lower than margins in the peak season; (ii) price variability is generally lower at the retail or wholesale level than at the farm gate; (iii) correlation between prices paid by agents and marketing margins was found to be negative, implying that when agents pay higher prices, they have to reduce their margin, mainly by reducing their profit (Sharif, 2004). He further stated that these factors indicate that marketing agents do in fact adjust their margins, which helps to reduce price variation. However, no rigorous analysis is available on the rate of return on investment made by marketing agents in Balaochistan, NWFP, Northern Areas and AJK. Therefore, one of the objectives of the study is to quantify the market margins of producers and other market intermediaries; and assess ways and means to improve the producer's share and consumers surplus in the study areas.

In addition, there are popular views among the economists of the country that there are some other problems, which may reduce the efficiency of the marketing systems (Sharif, 2004). These problems are: (i) the long chain of market intermediaries' results in high marketing cost; (ii) the inefficient information system; (iii) inadequate physical facilities; and (iv) the monopolistic power of a few traders. Therefore, there is a need to conduct detailed investigation to examine the efficiency of the marketing system and quantify the marketing margins of producers and other market intermediaries and suggest an appropriate way to improve the share of producers in the retail price to enhance the income of the growers of Balochistan, NWFP, Northern Areas, AJK. Detailed information is required to guide growers, consumers, market traders and policy makers. Information on marketing cost and margins is required to understand the role that price play. Producers and consumer price differentiation enhance income of the farmers and consumers and take care of their satisfaction.1.3. Objectives

i. To study the existing structure, conduct and performance of the marketing systems of selected fruit and vegetables in Balochistan, NWFP, Northern Areas, and AJK;ii. To determine the technical and socioeconomic constraints in the marketing system, which have an impact on the expansion of its production and marketing in Balochistan, NWFP, Northern Areas, and AJK;iii. To quantify the market margins of producers and other market intermediaries; and assess ways and means to improve the producer's share and consumers surplus in Balochistan, NWFP, Northern Areas, and AJK, andiv. To develop policy recommendations for efficient marketing system to safeguard the interests of producers as well as consumers; and to enhance output and exports of fruit and vegetables in Balochistan, NWFP, Northern Areas, and AJK.

1.4. Organization of the Report

The report is organized into eight chapters. Chapter-1 introduces the problem in hand wherein the importance of the study is outlined. Chapter-2 discusses theoretical and conceptual framework. The characteristics of sample intermediaries are covered in Chapter-3. The supply and demand for selected fruit and vegetables is delineated in chapter-4. The market structure for selected fruit and vegetables in the study area is discussed in chapter-5. Chapter-6 pertains to the market conduct for selected fruit and vegetables in the study area. The performance of market for selected fruit and vegetables in the study area is described in chapter 7. The summary of findings and recommendations in chapter-8 complete this report.

CHAPTER 2

THEORETICAL FRAMEWORK AND METHODOLOGY

2.1 Introduction

In this chapter, some of the basic concepts will be defined and subsequently review the relevant literature concerning the analysis of agricultural markets will be discussed. The second part of this chapter will present the methodology that will be applied to analyze the structure, conduct and performance of selected fruit and vegetables in Balochistan, NWFP, Northern Areas and AJK. 2.1.1 Marketing theory

In empirical literature, numerous versions of the definition of marketing are available. Crosier (1975) reviewed more than 50 definitions of marketing. Variation in the definition of markets does not necessarily indicate differences in activities, but rather differences in view points (Eid, 1978). The definitions from Alexander (1960), Kotler (1988), Baker (1983), Kayanak (1986), Bartels (1986) and Bezvan (1953) are relatively more cited. However, the definition from Kohls and Uhls (1980) seems most appropriate in our context. They defined marketing as The series of activities involved in making available services and information which influence the desired level of production relative to market requirements, and the movement of product (or commodity) from the point of its production to the point of final consumption. Food and agricultural marketing means the movement of agricultural produce from the farm where it is produced to the consumer or manufacturer. This includes physical handling and transport, initial processing and packing to simplify handling and reduce wastage, grading and quality control to simplify sales transactions and meet different consumers requirements and holding over time to match concentrated harvest seasons with the continuing demand of consumers. Agricultural marketing also includes the marketing of agricultural inputs.

It is important to recognize the overall role that marketing can play in a developing economy, for marketing per se can be regarded as a vital factor for development (Holton, 1953). Drucker (1958) points out that marketing promotes development by creating standards and encouraging the entrepreneurial spirit. Bartels (1986) also points out that consumer behaviour and attitudes can be changed by marketing techniques. The introduction of new marketing ideas, and the improvement in the presentation and quality of products, will raise consumer expectations and lead to further demand for even better and better products, along with improvements in packaging, retail facilities and so on. Producers are, in effect, forced into a competitive position to meet such demands. The pursuit of higher standards and the increases in demand have cumulative impacts.

In the past, so many attempts have been made by the development economists to keep abreast of the producers/entrepreneur regarding the philosophy of markets and marketing systems but the credit goes to the father of Development Economics, Smith (1976) who opened a new era in The wealth of Nations, by stating the theory of division of labor and thus inculcated the concept of specialization of human activities, the ability to mass produce and the need to exchange products and to develop the value of money mechanism to facilitate an exchange system. This concept has widened the range of economic activities in the form of processing, packing, storage, transportation, credit and advertisement etc. Advertisement is the crux of marketing or salesmanship, which was futile before 1900.

The 1910-1920 was a decade of over-production witnessed by Europe and USA. Gluts of production posed new multi-dimensional challenges which helped in provoking new ideas how to market over-production to earn reasonable profit. Naturally, out-flow of other disciplines like packing, advertising, transportations and selling had become a pre-requisite condition. No doubt, this concept provided sound footing to verify the validity of theoretical structure of marketing, even then, it was harsely criticized by Hallbert (1965), Rodger (1969) and Baker (1993) that the marketing theory lacks validity as is observed in physical sciences. Despite this, such a state of affairs, Halbert (1965) and Baker (1991) proclaimed that marketing borrowed most of the tools from the business disciplines such as economic laws, social and behavioral sciences and from methodological sciences such as mathematics and quantitative techniques. 2.2 Role of Marketing and Markets

Marketing is also one of the important components in economic development to integrate and mobilize economic activities (Drucker, 1958). Galbraith and Holton (1956) linked performance of marketing function as a developmental tool, which Abbott (1986) paid much attention to marketing at planning stage as an integral part of agricultural economic approach covering physical assets, price and market information (market intelligence). Bateman (1976) laid much emphasis on investigating the nature of market competition. Research in agricultural marketing has opened a new vista for agro-based industries, which is known as market structure research, while Bain (1968) attached much importance to market research analysis. The structure conduct performance model has been framed to view and analyze all sorts of activities related to market performance, which Scarborough and Kydd (1992) focused on functional relationships between firms. However, the net product of the work is Structure, Conduct and Performance of the markets. Research with analytical tools introduced by Bain (1968) gained popularity as market research analysis.

Market structure lays on organization of a market, nature of competition and price behavior within market (Bain, 1968). Similarly, market conduct studies price policy of firms, aims to pursue and methods applied to charging price quantity to be produced and sale promotion cost incurred. The end product of all these activities is the interaction, adaptation and coordination of a seller in the market. Scherer and Ross (1990) added research and development commitment, investment in production facilities and legal tactics market performance mostly depends on behavior of sellers and buyers taking into account the parameters like price, output, production, selling cost etc. (Bain, 1968 and Sosnick, 1964).

In developing countries government and policy makers have joined hands to gear the potential role of marketing in economic development (Kanyak, 1986; Kazgan, 1988). Efficient use of scarce resources is the key of success to capture national and international markets. To go ahead Timmer et al. (1987) very vividly described three marketing aspects i.e. marketing function, markets and price formation and suggest that their proper and timely application would yield better results in any case. To enter into a market is a difficult approach unless enterprisers have complete information and knowledge about any particular market.2.3 Classification of Markets

Markets are the places where the buying-selling activities are performed in order to transfer the title of ownership from one party to the other. In the marketing process, the nature and extent of different activities varies in different ways like time, place, infrastructure etc. In the following paragraphs, the markets are classified on the basis of market place and nature of trade activities.2.3.1 Assembly market

Assembly markets are often situated close to farms, generally in small towns, where farmers bring major portion of the marketable surplus. Shopkeepers, traders, and retailers participate as buyers in these markets. Most of the transactions involve small quantities of agricultural produce. Traders in assembly markets are not approved by any government agency, although in some cases town committees (created by the provincial government) charge an entry fee from traders. Usually, these traders maintain no systematic record of transactions. The price formation process is simply based on direct negotiation between traders and the farmers. Since the quantities involved are small, a farmer may not mind small price differentials (compared to wholesale markets). However, for larger quantities farmers prefer to go to wholesale markets, or at least try to compare price with those markets before selling the produce. Recently, due to better farm to market road links and transport facilities and availability of larger quantities of marketable surplus, farmers are encouraged to take their produce to the wholesale markets. In the sample citrus area, the assembly markets are almost non-existent.2.3.2 Wholesale markets

Wholesale markets are usually located in a district or a major sub-division town. These markets are the main assembly centers for the fruit and vegetable surplus of surrounding areas. Wholesale markets have better storage, transport, communication and working conditions than the assembly markets. In these markets permanent offices and auction traders having official permission for their activities built floors. Almost every trader (commission agent) has sufficient space in the market to store produce for sometime (free of cost) or for longer periods on nominal charge basis. Also there is easy access of transport, which makes it convenient both for growers and market traders to move agricultural produce from one market to another. In the study area, the wholesale markets are present at tehsil level. 2.3.3 Terminal market

Terminal markets are generally situated in large urban centers. The Lahore and Karachi markets are the best examples of this kind of markets in Pakistan. Most of the marketable surplus of agricultural commodities is ultimately routed to these markets. Foreign trade is another reason for the adequate flow of marketable surplus to this market. Traders in terminal markets are usually wholesalers, who supply agricultural products to processing industries and retailers and shopkeepers. The majority of traders are buying agents, who buy from other wholesale markets through their agents or directly when the produce is brought there from other regions. This market is well equipped, with traders who are well established and mostly dependent on supplies from growers and other wholesale markets. They have access to all modern facilities for approaching their agents in lower level markets. Many traders have their own goods transport companies. Telephone, cellular phones, and telegraph services are easily available to them. The market of Bhalwal cannot be strictly called as terminal market because the export quality citrus does not enter into wholesale market of the area. It is rather directly shipped from factory gate to Karachi for onward transport to various destinations by sea. Although majority of the Kinnow processing factories are located in Bhalwal tehsil, dry port facility is not available.2.3.4 Marketing efficiency analysis

Besides ensuring the efficient allocation of resources, an efficient marketing system ensures optimum returns to the producers, processors and market intermediaries for their services rendered. The efficiency of marketing system can be better understood by analyzing the marketing structure and conduct, and market margins of the present marketing channels (Scarborough and Kydd, 1992; Adekanya, 1982; Thakur, 1973; Hays and McCoy, 1977). Studies pertaining to marketing margin market integration analyses are reviewed below;2.4 Review of Empirical Research

As title shows, this section deals with reviewing the findings of the empirical work in production and marketing research. The review of marketing research is further subdivided into the studies related to the developing world and Pakistan.2.4.1 Review of domestic marketing research on horticultural crops

In Pakistan, very little research has been done on domestic marketing of fruit and vegetables and what so ever is available is highly superficial. Hence the existing literature is highly inadequate to guide the policy makers. What so ever is available is briefly reviewed and tabulated in Tables 2.1 and 2.2. It was found that majority of the fruit producer sell the harvesting rights of the output to the contractors while vegetables are mainly marketed through assembly and wholesale markets. In other words, no pre-harvest contractor is involved in vegetable marketing (Table 2.1). Regarding the marketing margins of different intermediaries, producers were found earning a margin of 0.95 5.00 rupees/kg, contractors as 1.55 8.75 rupees, commission agent as 0.09 1.37 rupees, wholesalers 0.82 2.5 rupees and retailers as 1.3 6.25 rupees/kg. The lowest margins were obtained in case of banana and highest for mango. The lowest variation in marketing margins per unit quantity handled was observed as producers ends and highest at contractors. In case of vegetables, the producers were found earning a margin of 3.06 14.02 rupees/kg, commission agents as 0.28 0.82 rupees, wholesalers 0.73 1.75 rupees and retailers as 1.06 2.93 rupees /kg. The lowest margins were obtained in case of onion and highest for tomato (Table 2.2).

From market integration perspective, Nada and Swarup (1979) are of the view that agricultural markets in general are reasonably well integrated, however, there is a lack of evidence in case of fruit crops, which are perishable, bulky and localized in production. They estimated correlation coefficient for spatial integration of Delhi and other four terminal markets was estimated at 0.80 for Royal Delicious variety and