Marketing by the cooperative

Zvi Galor
www.coopgalor.com

1. Cooperative Marketing

A marketing cooperative is set up in order to market and sell

the surplus produce of its members, being such a surplus, as
they cannot consume themselves. Marketing cooperatives
generally sell agricultural produce, but there are also those,
which sell fish produce or handicrafts. There are also other
definitions of cooperative marketing. Margaret Digby
defines a marketing cooperative as a system in which a
group of farmers join together in order to carry out part or all
of the processes involved in bringing the produce from the
producer to the consumer. The Bank of India defines a
marketing cooperative as a society of farmers, organized for
the purpose of helping the members to market their
produce, so as to obtain higher profits than is possible by
way of private marketing [1].

The reasons for the establishment of such cooperatives are:

When there is a surplus in production over the consumption.

In order to save expenses for middlemen who benefit from

the producer in various fields, such as: bad weight, very low
prices and loans at high rates of interest.
When the system in force is archaic, it does not meet the
requirements at all, involves many middlemen or
compensates very weakly for the producer's work. Thus, a
marketing cooperative must offer its members a more
efficient service than that in force, so that its members
obtain a greater profit from their work.

When establishing a marketing cooperative, it is

indispensable to study various aspects and problems:

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What products shall we produce and sell on the market?
Whet, experience in regard to production? What species are
marketable every season, quantities and qualities that are
preferred? What are the perishable items that can be stored
and under what conditions? What is the present marketing
system? What system of payment is practiced for the
producers? Is any advance payments allowed just after the
crop, or will payments be effected only after the sale of the
products? What is the best marketing circle of the
production? Does the product undergo a process for its
improvement? To have a sound knowledge of the medium
of the improvement.

Financing Problems: One producer expects to get his money

upon immediate sale of his products. Another producer
wishes to receive a down payment. Whereas, the
cooperative is paid only after the sale of its products.
Sometimes, it is even necessary to store the crop for many
months before it can be sold. It is also possible that the
output will be sold at a distant market, which entails
transportation costs-, or, sometimes, the retailer will delay
payment of his bill. All these factors produce a clash of
interests between the needs of the producer and the
existing possibilities of the cooperative. Therefore, working
capital is indispensable to meet the requirements and to
comply, at least partially, with the interests of all.

Possibilities: An important working capital to farmers.

Financing on short-terms by a bank. Financing by a
cooperative bank. Establishment of a financing enterprise
where the members of the cooperative are also the
shareholders. Such a financing enterprise will be established
by the marketing cooperative. It is the most advantageous
and cooperative solution. Cheap credit is allocated to the
farmer provided he sells all his output through the
cooperative.

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When the cooperative has determined the exact quantities,
which it will be able to sell, it is in its own interest to make
agreements for sates in advance. A sound sale crowns the
producer's work. This is the reason why the establishment
of a cooperative is a necessity to the farmer. The
cooperative prevents unhealthy competition between its
members, sorts out the products conscientiously and directs
the supply towards the demand.

The cooperative has to cope with all the abovementioned

problems when selling its production. Other problems also
arise, such as: A small supply of different products; thereby
small quantities for sate. The production of vegetables and
poultry must be sold several times each week. As the
agricultural cooperatives are far away from the market,
transportation costs go up. Bad roads and high
transportation costs further increase the cost price of the
product. [2]

The marketing cooperative was created in order -to push up

the selling price as much as possible and to increase the
return to the member’s -For their output [3]. The
cooperative offers its members an improved bargaining
position in regard to services such as transportation, and is
capable of affecting a better sale. The better the service
the more members will be keen to join the cooperative.
More members in the cooperative will enable a reduction in
the price for various services, as well as in running costs.
The cooperative makes it possible to maintain services such
as storage, bulk transport, extended credit, markets survey,
cooperative education, which the single farmer is generally
unable to achieve [4].

Marketing cooperatives in developing countries encounter

many difficulties. G. Hyden describes some of them [5].
Many of the marketing cooperative in Tanzania was set up
by local politicians who were influential at the national level.
The main argument was that cooperatives would minimize
exploitation. The cooperatives were set up without any

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feasibility study or field survey, and as a result they fell into
considerable monetary dependence on external
organizations, such as marketing organizations or financial
institutions. Since the cooperatives were set up to suit
external decrees (the politicians), the marketing
cooperatives' fields of activity neither accorded nor covered,
either functionally or regionally, the needs of the productive
units at work in the rural areas. The cooperatives were
troubled by grave management problems, and in parallel by
lack of skilled manpower.

In Bangladesh a very extended system of agricultural

cooperatives was organized [6]. The marketing
cooperatives, which are of the third level, are concerned with
four main activities - the marketing of agricultural produce of
all kinds, the marketing of semi-industrial products
(handicrafts), marketing of fisheries produce, and marketing
of dairy products.

Agricultural villages form the base of this structure, whereby

every fifteen villagers make up a secondary level unit. All
secondary level cooperatives are organized into a third level
cooperative. Though these cooperatives have made
significant achievements, they are also faced with weighty
problems. The first problem is credit. The farmer would like
to sell his produce for cash, and this requires the cooperative
to have command of considerable liquid resources, for which
it must obviously pay dearly. One of the solutions to this
problem is, of course, to sell the farmers' produce on a
commission basis [7]. But as is the case in India, so in
Bangladesh, the cardinal problem of the marketing
cooperative is the lack of any link between marketing and
credit [8]. Further problems in Bangladesh are the great
distances between the cooperative branches and the
farmers in the villages. The management of those
cooperatives is not professional, and many of the societies
are in fact reduced to waiting for things to happen [9].

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At the other end of the scale we have examples of marketing
cooperatives, which have been successful. In Jordan, the
olive marketing cooperatives have changed the farmer’s
methods of cultivation. The farmer was obliged to pick the
olives carefully and in a selective manner, so as not to harm
them. The olives were transported directly to the oil press,
without interim storage. The farmer could step up
production, but he was required to supply better quality and
cleaner produce. The produce was graded into various
quality levels, and this grading also increased the demand
on the part of the consumers. The cooperative also
succeeded in influencing prices. The cooperative led to an
increase of the return to the farmer by 1% over the market
price, with customers being on the look out for the
cooperatives olive oil, as they were confident of its quality
(10).

The carob marketing societies in Cyprus have also been

successful, and so have other marketing societies. Among
the reasons for this success we may note the fact that the
farmer was more exploited in the past. The marketing
cooperative, on account of its size advantage, has attained
lower marketing costs than the private traders, on top of the
high level of management [11].

Another example is the agricultural marketing system in

Algeria. This system, which had been influenced by the
socialist dogmas, which placed the State above all. Is an
example of severe failure in everything that concerns
marketing? The system has tailed in all that concerns
transfer of information, packing, transport and storage [12].

2. Models of Marketing Cooperatives

Marketing is the process that an agricultural product goes

through on its way from the producer to the consumer.
Traditional marketing involves several intermediary stages
within this process. The result is, of course, that the
consumer pays an exorbitant price and the producer

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receives a very low price for his production. Naturally, it is in
the interests of both producer and consumer that the
number of steps in the marketing process be reduced as
much as possible. The result: the producer will earn more
and the consumer will pay less.

The first form of marketing is the traditional marketing circle

I he peasant sells his production at a local market which is
held in his village every 5 or 6 days - this is the first stage.
The intermediary who buys this production transports it.
Usually on overloaded small open trucks covered with a
tarpaulin, to a regional market. Another intermediary will
buy these goods and transport them to an urban market.
The production will then be sold and distributed at the
neighborhood markets where the retailers will come to get
their supplies for sale to the consumers. This way
agricultural produce has undergone too many stages from
producer to consumer. All intermediaries have benefited
-From this process, but not the producer nor the consumer.

The solution to this state of affairs: a marketing cooperative

owned by the producers. This cooperative's aims are to
reduce to a minimum the number of marketing stages
between producer and consumer. In Israel, the Tnuva
cooperative is a marketing cooperative belonging to all
moshavim and kibbutzim, and today has the fourth largest
turnover among Israeli enterprises. Tnuva has organized a
national network, which takes upon itself the collection,
transportation, storage, processing and sale of
approximately 75% of agricultural output earmarked for the
local market in Israel. The setting up of Tnuva has reduced
the number of steps in the marketing circle, but not enough.
Agricultural produce leaves the farm, passes through
"Tnuva" and is then sold in the local market and in various
small shops.

Another alternative reduces the number of steps even more.

This alternative involves direct contact between the
marketing cooperative owned by the farmers and the

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consumer cooperative owned by the consumers. Thus, the
sale of agricultural products takes place from one
cooperative to another, and in principle, the profitability for
the producer increases while the purchase price for the
consumer decreases. This situation, though far removed
from the traditional marketing circle, does not go far enough.
It is still necessary to try to eliminate superfluous steps in
the marketing circle. Two solutions have been found:
The first consists of consumer sale centers, belonging to the
marketing cooperative, an example of which is Tnuva in
Israel. These sale centers link producers directly to
consumers. The second solution consists in supply centers
for agricultural produce, which are owned by the consumer
cooperatives, the latter belonging to the consumers. In this
example the consumers have organized themselves in order
to acquire their consumer goods directly from the producers.

The last marketing method, which we shall discuss, concerns

the organizations which belong to the farmers and the
government and which deal with the export of agricultural
products [13].

The last stage in our model is the stage at which selling

takes place directly from the producer to the consumer. This
is the preferable stage because it produces the best results
of all, both as far as the producer is concerned, as well as for
the consumer. An example of this is direct selling outlets,
which have been set up by moshavim and kibbutzim at
roadsides all over the country, which sell their produce
directly to the public. This solution is beset with problems
and is not always possible of implementation - but this is the
solution we strive for.

Figure 2.

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3. Conclusion

The central problem to which we have been confronted was

the quest to know how to establish marketing cooperative in
a traditional village, existing in the traditional rural areas of
any developing country. We should remember that
marketing is a system designed to transfer, in the most
effective way, the production from the producers to the
consumers. We know that the existing marketing system in
the traditional rural areas is a system, which highly exploits
the producers and at the same time the consumers. This
marketing system pays to the producers the lowest possible
price, and at the same time, sells to consumers at the
highest possible price. This system is composed of too many
intermediary stages, and each of these stages takes its part
from the total payment by the consumers.
We find, in the traditional areas, farmers who present their
merchandises on the side roads, and waiting for clients
going on the road with their cars and stopping over to
purchase their produces directly. We observing here a stage
of marketing where the producer sells his produce directly to
the consumers, without any intermediary. Both parties stand
to gain here.
In Israel we know this phenomena where many Kibbutzim
and Moshavim which opened on side road of major axes
small shops where they sell their produce directly to
consumers drivers, going over for their daily needs. Once
again, we observe here the direct sale from producers to
consumers, without any intermediary. This is the role of
marketing cooperative: to reduce the number of
intermediaries stages to the lowest number.
.

Notes et references

1) Définitions de Mathur , ibid. pp. 349-350 .

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2) Galor. Z (l982), ibld. ibid.

3) Hardis, I.W.: "Coopérative Theory and Market Implications:

A selected review". p.49
dans; Anschel,ibid.

4) Whetham. E.M.; "A Comparison of Marketing Structures

for Agriculture Produce in Developing Countries". . pp. 26-27
Dans Digby M. and Mccready. K.J. (Ed):
Year Book of Agriculture Coopératives l970
Basil Blackwell. Oxford. l970

5) Hyden. G: "The struggle for success in coopération:

Kabuku Noani UJamaa Coopérative Society, Tanzania". 2l2-
2l3
Dans Webster. F.H. (Ed); Year Book of Agricultural
Coopération. l977 Parchment. Oxford. l977

6) Andreou. P, et Islam. M.M.:

"La commercialisation coopérative au Bangladesh".
Revue des études coopératives
No. l99 Paris l980 PP.lll-ll5

7) Patel. M.S.: "Coopérative Marketing In India"

Review of International Coopération
Vol. 69 No. 2 l976. p.52

8) Galor Zvi: "Towards the Coopérative Development of

Tradltlonal Rural Areas".
IIDCLS. Tel Avlv l985.

9) Considérations supplémentaires sur les problèmes des

coopératives de mercatique, dans:
Callar, D: The Social and Cultural Factors Involved in
Production by Small Farmers In Wedza Communal
Area, Zimbabwe, of Maize and Its Marketing
Unesco, Paris. RRD l7. Dec l982 P. 6l
Vinyor, T.R.: Les Facteurs socioculturels qui orientent
la production et la commercialisation de certaines

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denrées alimentaires par les petits fermiers dans la
République populaire du Bénin
Unesco, Paris. RRDl6. Août l982 pp. 64-69

Semana, A.R.: The social and cultural factors involved

in small scale farmers food crop production and
marketing in Malawi
Unesco. Paris. RRD 20. août 1983, p. 15

Macbaney, F.E.: The social and cultural Factors Involved

ln production by small Farmers ln Cameroun of
plantain and cassava and thelr marketing
Unesco. Paris. RRD 2l. Sept. l983 p. 4l

10) Tayeh. A.K.: Coopérative Olive 0ll Processing and

Marketing ln Jordan". PP. 67-68 :
Digby. M. (Ed): Year Book of Agrlcultural Coopératives
l969
Basil Blaewell. Oxford l969.

11) Andrew. P.: "The Coopérative Marketing of Carobs ln

Cyprus". P. 233
Webster, F.H. (Ed) : Year Book of Agrlcultural
Coopératives l976 Oxford. l976

12) Paris. A: "Une enquête sur les cooperatives cypriotes de

commercialisation des agrumes et autres fruits de tables"
Revue des Etudes Coopératives Paris, No. l83, l976. pp.
45-54

13) Granier. J.C.: "La Commercialisation des fruits et légumes

en Algérie"
Revue des Etudes Coopératives Paris. No. l94 l978. pp.
69-88

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