Analysis and Evaluation of Marketing Systems of Temperate Vegetables in West Java

8/14/2019 Analysis and Evaluation of Marketing Systems of Temperate Vegetables in West Java

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ANALYSIS AND EVALUATION OF MARKETING SYSTEMS OF

TEMPERATE VEGETABLES IN WEST JAVAWitono Adiyoga

Indonesian Vegetable Research InstituteJl. Tangkuban Perahu 517 Lembang

Bandung - 40391

In accelerating the pace of economic development, the effort of building an effectivemarketing system is absolutely necessary. With the increased in the population and per capitaincome, marketing plays a crucial role in ensuring that consumers have access to affordable food,while farmers obtain returns that provide enough incentives for continuing their participation orinvolvement in agricultural activities. Signals about changes in supply and demand will be sent bythe marketing process and may be used as guidance in allocating production factors into

desirable economic optimization (Bruce and Kilby, 1975). The signals may also guide productionand supply to fulfill consumer requirements in terms of place, time, form and ownership.Improving marketing is a very important but rather neglected aspect of vegetable

development in Indonesia. So far, emphasis is usually placed on increasing vegetable production,with the goal of improving farm income, nutritional status of consumers and act as a base for ruraldevelopment (Setiadi, 1995). There are those who hold the view that marketing is an adaptive setof activities to be given secondary consideration in vegetable development planning strategieswith primary consideration being directed toward the expansion of vegetable production.

However, markets do not necessarily develop automatically and the lack of a well-functioningmarket can increase risks and costs for farmers and other market participants. An effectivemarketing system needs to be developed hand-in-hand with the development of vegetableproduction in order to reap the full benefits for farmers and consumers. It will contribute towardachieving some of the basic goals of agricultural development, including raising agriculturalincome, optimal allocation of agricultural resources, increased self-sufficiency in food andattainment of price stability. However, there is also a question of whether spontaneousdevelopment of marketing firms, in the absence of facilitating policies and programs, will provideefficient and equitable linkages between producers ands consumers (Hayami and Kawagoe,1993).

Kohls and Uhl (1998) indicate that the vegetable marketing system has been influencedby a number of production, product and market characteristics: perishability, large price andquantity variations, seasonality, alternative product forms, bulkiness of product and geographicspecialization of production They also point out the characteristics of marketing infrastructure for


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As Indonesian economy continues to grow, vegetable and/or food marketing will have agreater role to ensure that the economic growth is not accompanied by sharp rises in the prices of

vegetable and/or foodstuff. To ensure non-inflationary growth, efficient marketing is vital toensure optimal distribution of consumer good and services to relieve any pressures in prices atthe consumer level. This will have to be brought about by an efficient and effective distributionsystem, and will ensure sufficient availability of goods at the location required and satisfyrequirements in terms of variety and quality.

METHODOLOGY

To understand the system of vegetable marketing we conducted a rapid appraisal of thevegetable marketing system in West Java (Holtzman, Lichte and Tefft, 1995). This included fieldvisits to Langensari village (in Lembang Sub-District) and Margamulya village (in PangalenganSub-District), representing the two biggest vegetable production centers in West Java, to conductsemi-structured interviews with key informants, including farmers and traders. Interview topicsincluded (i) respondents' characteristics, (ii) brief description on vegetables farming systems (iii)

marketing aspects of vegetables. There were 26 respondents and 27 respondents wererespectively interviewed in Lembang and Pangalengan. Some packers were also visited to obtaininformation on their marketing method that is considered to have less uncertainty (they knewexactly where to supply and the quantity demanded). Possible constraints and prospects forimprovements to marketing vegetables, especially temperate vegetables, were also identified.Secondary data were collected to assess trends in vegetable harvested area, yield and prices.

This study is actually a continuation of the first year work/project on the same topic. Fieldvisits were conducted to the same location as the first year work. Rapid appraisals were carried

out to collect data (Holtzman, Lichte and Tefft, 1995) from farmers in Langensari village (inLembang Sub-District) and Marga-mulya village (in Pangalengan Sub-District), representing thetwo biggest vege-table production centers in West Java. Semi-structured interviews with farmerswere conducted mainly to elaborate farmers preference on the temperate vegetable marketingsystem improvements. There were 25 respondents were interviewed from each location(Lembang and Pangalengan).

Additional visits were also carried out in collecting data on market infrastructure to

wholesale markets (Pasar Caringin and Gedebage) and retail markets (Pasar Ciroyom andSederhana) in Bandung. A market staff/official and two vegetable traders were interviewed fromeach market by using a semi-structured questionnaire. Secondary data were collected to providesome supports in clarifying the existing market regulations currently applied.


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Langensari is situated about 20 km north of Bandung, while Margamulya isapproximately 50 km south of Bandung. The road system in those areas is fairly well-developed,

and the majority of vegetable fields is close to a road or a track that is accessible to truck or smallvehicle during most of the year. The approximate vegetable supply from Langensari is 50tons/day (max.), while from Margamulya is 100 tons/day (max.). About 50% of vegetables fromLangensari are shipped to Jakarta and Bekasi, and the remaining amount is supplied to Bandungand local markets. Meanwhile, the most part of total vegetable produce (75%) from Margamulyais mainly marketed to Jakarta. Some vegetables from both Langensari and Margamulya are alsoshipped to other islands, such as Sumatra and Kalimantan, and even exported to Singapore,Malaysia and Brunei.

2. Farmer and Vegetable Cultivation Characteristics

The age structure of surveyed farmers is dominated by a relatively young group (25-40years old). This may imply a group of farmer that is potentially responsive to innovation or newtechnology. Most farmers have an elementary school background that may suggest the need for

additional informal education (extension or training) to strengthen their knowledge and capacity.On the other hand, most farmers have more than 10 years experience in cultivating vegetables.This indicates that growing vegetables have been functioning as the main source of income forquite long time. It also reflects farmers familiarity in growing vegetables that may have asignificant role in the process of farm decision-making (especially concerning theadoption/rejection of new technology) and risk management. Most farmers in both areas, operatesmall farms (< 0.5 ha) and the proportion of farmers in Langensari cultivating vegetables on verysmall farms is larger than that in Margamulya. In practice, the distribution of farm landholding in

these areas tends to be less ideal in terms of the possibility of maximizing economic efficiency.However, it should be noted that with respects to the question of land productivity, there isconsiderable evidence to suggest that over a significant range of small farm sizes, a negativecorrelation exists between farm size and land productivity. Information on land tenure statusindicates that the number of farmers owning and renting farm land at the same time is quitesignificant. This implicitly shows that some farmers who cultivate their own land are still trying toenlarge their landholdings. In other words, this may confirm that farmers, in general, have been

unable to achieve comparable scale advantages. In consequence, they may find themselves inone of two unenviable positions: producing at high cost or earning a low family income. Owningand renting farm land at the same time may also be considered as a risk management strategy.Spatial parcel or plot diversification could reduce plot-yield covariation and aggregate productionvariability.

Providing suitable climate conditions, farmers in both Langensari and Margamulya are able


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Tabel 1 Farmers Characteristics

Characteristics Langensari

(%, n=26)

Margamulya

(%, n=27)Age:

22-3031-4041-5051-60> 60

11.538.523.123.13.8

14.833.325.818.57.4

Years of formal education:< 6 years6 years

9 years12 years16 years

11.550.0

15.419.33.8

11.137.1

22.229.6

-

Years of experience in growing vegetables:< 5

5-1011-1516-2021-25> 25

7.723.119.219.211.619.2

-33.414.814.811.125.9

Size of landholding:700 2000 m2

2001 4000 m24001 6000 m26001 8000 m210000 m2

20000 m2

> 20000 m2

30.823.126.93.87.77.7-

3.77.4

37.114.814.87.4

14.8

Land tenure status:Owned

RentedOwned and rented

19.2

53.926.9

14.8

18.566.7

Table 2 Crops currently and/or previously cultivated by farmers

No Crop Langensari

(%, n=26)

Margamulya

(%, n=27)

1 Cabbage (Kubis) 73.1 96.3

2 Tomato (Tomat) 92.3 92.6

3 Potato (Kentang) 19.2 100.0

4 Cauliflower (Kubis Bunga) 100.0 -

5 Kidney bean (Buncis) 80.8 22.2

6 Chinese cabbage (Petsai) 84.6 100.0

7 Chinese mustard (Sawi) 15.4 -


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There are several factors considered by farmers in choosing a particular crop to grow. Atleast eight factors are perceived by farmers that to some degree may affect their decision before

planting. Those are: (a) expectation of high price, (b) expectation of high yield, (c) mastery of thecultural practices, (d) capital availability, (e) land suitability, (f) response to market demand, (g)influence from neighboring farmers, and (h) habit/routine. Table 3 and 4 show the importance ofeach factor in determining the planting of some main crops as perceived by farmers in Langensariand Margamulya. Data indicate that there is a similar pattern between farmers perceptions inLangensari and Margamulya with regard to these factors. The two most important factors are landsuitability and the mastery of cultural practices that simultaneously reflect their habit/routine.Other factors, such as capital availability, expectation of high price, and expectation of high yieldare considered to have lower importance. Farmers argue that the response to market demand isnot as important as other factors because there is a biological lag between time of planting andharvesting/selling. By the time they harvest their crop, the market demand may have alreadychanged. This may indicate that despite their long experience in cultivating vegetables, since theuncertainty is so high, they are still having difficulty to predict the market demand.

Table 3 Factors influencing the determination of planting particular crop as perceived by farmers inLangensari

Langensari

(%, n=26)No Factors

Cauli-flower Tomato Chinesecabbage

Kidney bean

1 Expectation of high price 57.7 46.2 23.1 26.9

2 Expectation of high yield 61.5 26.9 30.8 34.6

3 Mastery of the cultural practices 84.6 53.8 65.4 65.44 Capital availability 65.4 34.6 50.0 57.7

5 Land suitability 100.0 61.5 80.8 76.9

6 Response to market demand 65.4 38.5 30.8 30.8

7 Influence from neighboring farmers 3.8 - 3.8 3.8

8 Habit/routine 76.9 38.5 23.1 34.6

Table 4 Factors influencing the determination of planting particular crop as perceived by farmers inMargamulya

Margamulya

(%, n=27)No Factors

P t t Chi C bb T t


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In the past, vegetable production has been mainly increased by cultivating more land, but nowthere is limited scope for this since unused land is rapidly diminishing. More recently there has been

greater emphasis on increased yield per unit area that may be more appropriate in the moredeveloped, temperate countries. In the developing, tropical countries, such as Indonesia, emphasishas been on growing more crops per year, or multiple cropping. Table 5 shows that croppingsystems applied by farmers in Langensari are slightly different to those in Margamulya. Most farmersin Langensari apply multiple cropping, while farmers in Margamulya prefer to apply mono cropping.This may clarify two things. Firstly, most farmers in Langensari have smaller land holdings thanfarmers in Margamulya as indicated earlier. Under this circumstance, the choice of multiple croppingseems to be more relevant to them, since a higher total yield and greater gross return per unit areacan be obtained. In other words, multiple cropping may help farmers to cope with land shortages.Secondly, most farmers in Margamulya seem to have stronger urging and more access to cropspecialization that is in accordance with their commercial orientation. Within this context, farmersperceive that mono cropping is commercially more feasible and the efficiency of resource use istechnically more reachable than multiple cropping. These clarifications are supported by farmersreasons in choosing mono cropping or multiple cropping. Most farmers in Langensari choose multiplecropping since it may reduce the risk of total yield loss and optimize production from small plots.

Meanwhile, most farmers in Margamulya apply mono cropping based on some considerations that itmay optimize the yield of a particular crop and avoid competition or interference from other crops.Since the environmental resources necessary for growth are usually in limited supply, competitionalmost always takes place at some stage in the plant development.

Table 5 Cropping system and some reasons behind farmers choice

No Cropping Systems and Reasons Langensari

(%, n=26)

Margamulya

(%, n=27)1 Cropping system:

Solely mono-cropping

Solely multiple cropping

Both monocropping and multiple cropping

15.4

57.7

26.9

51.9

11.1

37.0

2 Reasons for monocropping:

Optimize the yield

Avoid competition for lights and nutrients

More affordable in terms of its required capital

19.2

11.5

11.5

40.7

44.4

3.7

3 Reasons for multiple cropping:

Reduce the risk of total yield loss

Reduce price risk

30.8

23.1

14.8

25.9


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Table 6 Examples of mono cropping and multiple cropping systems

Cropping System Langensari Margamulya

Mono cropping Cabbage Cabbage

Tomato Tomato

Potato Potato

Cauliflower Chinese cabbage

Kidney bean Carrot

Shallot

Multiple cropping Tomato+Cabbage Tomato+Chinese cabbage

Tomato+Hot pepper

Tomato+Chinese cabbage Hot pepper+Chinese cabbage

Tomato+ Chili pepper

Tomato+Kidney bean Hot pepper+Bunching onion

Cauliflower+Chinese cabbage Potato+Hot pepper

Cauliflower+Kidney bean

Cauliflower+Tomato Potato+French bean

Cauliflower+ Chili pepper

Cauliflower+Bunching onion Potato+Hot pepper+Chinese cabbage

Chinese cabbage+ Chili pepper

Cabbage+ Chili pepper

Kidney bean+Chinese cabbage+Bunching onion

Tomato+Chinese cabbage+ Kidney bean

Tomato+Cabbage+Kidney bean

Tomato+Cabbage+Chili pepper

which are grown together with a cropping intensity of 3-4 crops per year, results in frequent use ofthe same field for the same crop. There has been a strong suspicion that such practice leads to ahigh disease level, especially in the case of potato production.

Table 7 shows that except for cabbage, the yield for some vegetables (the same cropsgrown in the two areas) in Margamulya is significantly higher than that in Langensari. This mayexplain two possibilities. First, the yield in Langensari is lower because it is recorded for aparticular crop that is intercropped with other crops (for example, tomato that is intercropped withcabbage and chili pepper). Second, the yield in Margamulya is higher because the crop is

cultivated more intensively by applying monocropping system.

Table 7 Yield of some important vegetables in Langensari and Margamulya

Langensari Margamulya

Crop Min. Max. Av. Min. Max. Av.


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3. Marketing systems in different production areas

3.1. Innate and market-related commodity characteristics

3.1.1. Commodity characteristics

There are certain inherent characteristics of vegetable crops that make special demandson marketing systems. They tend to be bulky; their weight and volume are closely related to theirmonetary value (especially when compared to many manufactured goods). Some crops, such aspotato and shallot, retain their quality for quite some time, but leafy vegetables, such as chinesecabbage, lettuce, cabbage and bunching onion are very perishable and will rapidly begin to decayif they are not consumed or kept in special storage.

Table 8 Relative perishability of some vegetables grown in Langensari and Margamulya as perceived byfarmers/traders

Crop RelativePerishability



Cabbage *** Chinese mustard **** Broccoli **Tomato ** Lettuce **** Carrot ***

Potato * Hot pepper ** Shallot *

Cauliflower ** Chili pepper ** Chinese radish ***

Kidney bean ** Bunching onion **** French bean **

Chinese cabbage **** Chinese kale ***

Note: * = low; **** = high

Harvested vegetables coming from the field usually need sorting in some way so thattraders/consumers can choose the kind of produce they want. The characteristics used for sortingmay include size, shape, ripeness/maturity or some other qualities that influence the commercialvalue of the products. The other facilitating function in marketing is grading, which simplifies andmakes easier and less costly the movement of goods through the marketing channel. Gradingactually refers to the sorting of products into the various categories (referred to as grades)established by the standards for quality. Table 9 indicates that most farmers in Langensari and

Margamulya practice the product sortation. Basically, they sort the harvest to separate betweenmarketable and unmarket-able produce by using some quality factors, such as decay, bruisesand dirt (except in tebasan system). In terms of grading, only few farmers in Langensari indicatepracticing this activity, while most farmers in Margamulya grade their harvest, especially forpotato. Field observation shows that farmers grade their potato based on its size and uniformity.Other important quality factors, such as flavor, texture, color and aroma, are not used, since they


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and ARES (Rp. 500 Rp. 700). It is interesting to note that the grading system is not commonlyapplied to other vegetable crops. In the mean time, there is evidence that only if the farmer sells

on the basis of grades will the fullest benefits of the grading system as a method of consumer-producer communication be realized. The wider the practice of selling on a graded basis, the lessis the possibility of fraud and deceit during transaction. However, it is probably also true that notall farmers stand to gain from selling on a graded basis. The farmers who produce the higherquality products would gain at the expense of those producing the lower quality products. Inproducing high quality products, more careful and often more expensive handling is usuallyrequired. In some instances the extra cost would probably outweigh the extra returns. In thissituations farm selling on a graded basis has little attraction, as it is in the case of other vegetablecrops (except potato that is considered to be financially important for vegetable producers,especially in Margamulya).

3.1.2. Consumption patterns

Vegetable consumption in Indonesia is approximately 38 kg/capita/year in 1996. This ismuch smaller than the FAO recommendation for vegetable consumption, that is 65 kg/capita/year

(Sutrisno, 2000). In general, demand for and consumption of vegetables has been growing inIndonesia as incomes have increased over the past decade. The income elasticity of demand formost vegetables exceeds one. By the mid-1990s, per capita consumption of vegetables is 30percent greater than during the 1960s (Stringer, 1998). Percentages of monthly average percapita expenditure for vegetables are 8.83 (1987), 8.86 (1990), 8.73 (1993), 8.96 (1996), and8.94 (1999). Based on three scenarios of income elasticity (0.3, 0.6 and 0.9), the growth ofvegetable demand in 2000-2005 is projected 2.7, 4.1 and 5, 5% per year, respectively. Demandfor vegetables is estimated to increase from 5, 835, 000 t in the year of 2000, to 7, 131, 000 t in

the year of 2005 (Jensen, 1992).How are these indicators reflected at the farmers level? In the last three years, most

farmers in Langensari perceive that there is an increasing trend in demand for vegetables.Farmers estimate that the demand increases by 10-30%. However, most farmers in Margamulyaperceive that the demand for vegetables is relatively stable. Farmers also indicate that festiveseasons and special ceremonial events are often important factors that influence vegetableconsumption and demand. There are at least four key festive seasons in Indonesia that may

change consumer purchasing habits. Those festive seasons are Christmas, Chinese New Year,Ramadhan and Idul Fitri. The increase in consumption is usually anticipated by farmers throughplanting vegetables that are mainly reserved for these events. This anticipation often tends tocause excessive supply, if it is not very well-planned.

Table 10 Trends in demand for vegetables in the last 3 years as perceived by farmers


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spinach, chinese mustard, chinese radish and chayote. It is noted that most of these crops aregrown in highland area, so that the data may also represent the vegetable supply from the two

areas that are being studied. Table 11 indicates that there is a decrease in planted area betweenthe year of 1998 and 2000, from 60, 238 ha to 56, 603 ha, respectively. However, the totalvegetable production between those two years is increasing, from 634, 259 t in 1998 to 948, 300 tin 2000.

Table 11 Planted area and production of some vegetable crops in West Java, 1998-2000.

Planted Production

Crops 2000 1999 1998 2000 1999 1998

(ha) (ha) (ha) (ton) (ton) (ton)

1. Shallot (Bawang Daun) 3,819 3,618 4,787 30,953 38,943 26,161

2. Garlic (Bawang Putih) 125 162 214 952 1,647 1,762

3. Bunching onion (Bawang Daun) 2,318 2,783 2,494 21,609 16,317 14,627

4. Potato (Kentang) 18,131 19,758 19,765 352,893 309,178 177,902

5. Cabbage (Kubis) 11,211 15,270 13,759 274,838 314,033 192,612

6. Chinese cabbage (Petsai) 3,911 3,230 3,453 80,566 63,905 59,546

7. Carrot (Wortel) 941 1,589 499 27,844 5,777 23,678

8. Chinese radish (Lobak) 331 7,024 0 0

9. French bean (Kacang Merah) 2,887 3,559 0 15,850 23,357 0

10. Yard long bean (Kacang Panjang) 1,138 1,038 1,677 4,510 4,069 7,760

11. Hot pepper (Cabai Merah) 3,527 6,384 3,614 17,138 32,987 10,335

12. Tomato (Tomat) 4,133 4,559 4,431 76,288 80,406 71,007

13. Eggplant (Terung) 286 427 847 1,672 1,292 2,392

14. Kidney bean (Buncis) 1,802 2,085 2,678 11,876 14,663 24,373

15. Cucumber (Mentimun) 891 649 902 11,038 11,098 10,414

16. Chayote (Labu Siam) 487 483 574 11,390 8,432 9,654

17. Kangkong (Kangkung) 354 219 295 615 634 845

18. Spinach (Bayam) 311 139 249 1,245 535 1,193

Total 56,603 65,952 60,238 948,300 927,273 634,260

Source: Agricultural Office of West Java Province, 2002

Graph 1 Growth of vegetable production in Kabupaten Bandung, 1998-2000

927 273948,3001000000


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Graph 1 shows that a significant increase in vegetable supply between 1998 and 1999 is followedby a slight increase in the following year. Daily total supply of vegetables from Langensari and

Margamulya is estimated at 50 t and 100 t, respectively.

3.1.4. Price relationships and seasonality

Price functions as a director of the vegetable economic activity, serves as a rationingmechanism for product produced during one period of the year, and becomes a barometer andmeasure of the behavioral dimensions at work in the market of vegetables. Because the factors

influencing demand and supply are continuously changing, it may be expected that the time pathof vegetable prices will show variations. Under competitive conditions, fluctuations in prices maybe caused by the shifts in vegetable supply and demand. Comparing the variability of prices atdifferent marketing levels can be indicative of the locus of price instability. Table 12 compares thevariability in monthly prices at the farm-gate and wholesale levels of potato, tomato, cabbage andchinese cabbage in West Java during 1995-1999. The results show that the magnitude ofvariation in producer or farm-gate prices for all commodities is consistently higher than that of

wholesale prices. This may imply that producers/farmers have to deal with higher price risk thantraders. Viewing from other perspectives, this may be consistent with a competitive market inwhich in the short run the supply of the farm commodity is relatively inelastic compared withconsumer demand (Tomek and Robinson, 1981).

Table 12 Variation in farm gate and wholesale prices of some important vegetables in West Java, 1995-1999

Grand Mean Standard Deviation Coefficient of Variation (%)Prices (Rp/kg)

FG WS FG WS FG WS

Potato 1 336.2167 1 596.5167 780.4411 881.6165 58.4 55.2

Tomato 548.0333 1 114.1667 427.2543 602.2284 77.9 54.1

Cabbage 527.9667 691.1833 396.8134 471.1467 75.2 68.2

Chinese cabbage 318.2000 501.8833 195.7623 201.6459 61.5 40.2

FG = farm-gate prices; WS = wholesale pricesSource: Calculated from Vademekum Pemasaran, 1990-1999

Regardless of the trend and irrespective of what phase of the cycle developing, theseasonal moves in price will be key determinants of the success of the decisions within themarketing year. An approximation to the seasonal pattern of prices can be made by removing theeffects of trend and then calculating the average price by months. By expressing the averageprice for each month as a percent of the overall average a useful approximation of the seasonal


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Table 13 Seasonal pattern of farm-gate prices of some important vegetables in West Java, 1995-1999

MonthFarm

gate prices J F M A M J J A S O N D

Monthly average price (Rp/kg)

Potato 1170 1098 1224 1350 1334 1267 1409 1215 1290 1391 1617 1681

Cabbage 480 390 579 652 715 575 429.2 368.8 383.3 410 624 754

Tomato 496 448 736 697 778 528.8 274.2 284.8 369 366 649 948

Chi. cabbage 208.4 181.2 381 427 401 308 267.2 269.2 251 315 434.6 408.6

Cauliflower 705 710 677 596 824 707 832 752 822 984 1088 1094

Monthly average as % of overall average a

Potato 0.85 0.80 0.89 0.98 0.97 0.92 1.02 0.88 0.94 1.01 1.17 1.22

Cabbage 0.91 0.74 1.09 1.23 1.35 1.08 0.81 0.70 0.72 0.77 1.18 1.42

Tomato 0.91 0.82 1.34 1.27 1.42 0.96 0.50 0.52 0.67 0.67 1.18 1.73

Chi. cabbage 0.65 0.56 1.19 1.33 1.25 0.96 0.83 0.84 0.78 0.98 1.35 1.27

Cauliflower 0.86 0.87 0.83 0.73 1.01 0.87 1.02 0.92 1.01 1.21 1.33 1.34a Calculated by dividing each monthly average by the overall mean of potato prices : Rp. 1 377.22

cabbage prices : Rp. 530.13tomato prices : Rp. 548.03chi. cabbage prices : Rp. 321.08

cauliflower prices : Rp. 816.05Source: Calculated from Vademekum Pemasaran, 1990-1999

3.2. Marketing institutions and policies

3.2.1. Marketing system participants and organization

Those characteristics of the organization of the market that seem to exercise strategicinfluence on the nature of competition and pricing within the market is defined as market structure(Bain, 1969). Certain features of a market will heavily influence the conduct of firms in a marketenvironment. These features are several and unique to the product and institution involved.However, there are at least four market structure characteristics that are mutually importantdeterminants of the type of conduct that prevails in all markets. Those characteristics include: (i)the number and size of firms engaged in marketing; (ii) the nature of the product as viewed by thebuyers; (iii) entry and exit conditions; and (iv) the status and availability of knowledge about costs,

prices and market conditions among the participants.Marketing outlets for vegetable produce from Langensari and Margamulya mainly consist

of local, Bandung and Jakarta markets. Unfortunately, there is no reliable data availableconcerning the number of local and regional traders involved in vegetables marketing in thoseareas, since the West Java Regional Trade Office does not require vegetable traders to register.Traders both local and regional usually are not specializing in one particular crop but handling


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potato, except as would be measured by obvious grade differences. However, there is one casein which few farmers grow potatoes from Atlantic variety as chips material. In this case, potato

product differentiation exists -- products are distinguished from one another in the eyes of thebuyer through actual product variations. It is possible for those farmers to exercise some marketmonopoly power over price since they sell a differentiated product. These farmers do not need tofear that an undercutting price will completely erode the market for their product.

Table 14 Crop and variety of vegetables mostly grown by farmers

VarietyNo Crop

Langensari Margamulya

1 Cabbage Green Coronet Green Coronet

2 Tomato Arthaloka Arthaloka, TW 375

3 Potato Granola Granola

4 Cauliflower Local (Cempaka, Soluna, Blaster) -

5 Kidney bean Local -

6 Chinese cabbage Eikun Eikun, Ito

The vegetable market environment basically allows traders or firms to enter or exit themarket freely. Some factors that may influence entry and exit include absolute cost advantageand unique managerial and technical competence held by existing traders or firms. A growingnumber of marketing firm (packers) enters the market is frequently slowed down by the one thatexits. In Lembang, there are at least ten firms (packers) involved in vegetable marketing and two

of them go out of business in the last two years.Buyers or sellers will likely make more rational decisions if they have useful and timely

information at their disposal. In West Java, daily wholesale price information for vegetables isregularly announced through radio and disseminated through information boards, especially atthe assemble markets in production centers. But market knowledge extends beyond informationconcerning prices and technical product quality. It also includes knowledge of the actions thatcompetitors and traders or firms take, as well as reasonably informed judgments about futuremarket conditions. Within the context of vegetable marketing, at some points, the existing market

knowledge held by market participants (buyers and sellers) has permitted them to make informeddecisions in the market environment in which they operate.

Of the several characteristics listed previously, the two most important are the number oftraders or firms and the nature of the product. Information obtained on these two characteristicsindicates that the market structure for vegetables in West Java could be categorized as closely top re competition (both for the seller side and b er side) there are a relati el large n mber of


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possible price, but no one knows when this price will be offered (since the buyers try to obtain thelowest possible price). No marketing strategy can insure the highest possible price. A market

strategy that attempts to achieve an acceptable price has a better chance of success than onethat aims for the highest price (VanSicle, 2000). Therefore, growers must know what price level isconsistent with and acceptable profit for the total farming operation. Careful attention to markettrends will help farmers to decide whether to accept a price or to wait for something better.

Both in Langensari and Margaluyu, some farmers quite often sell their produce beforeharvesting (tebasan, without weighing), usually for cabbage, chinese cabbage and cauliflower.One to three weeks before harvesting time, traders visit the farmers field, estimate the yield,negotiate the price, pay in cash or provide a down-payment, and take care of all farming activities

until the crop is harvested and marketed. Farmers carry out this selling method to tackle animmediate or sudden need of cash and to speculate in capturing high price and avoiding furtherexpenses. Meanwhile, other farmers prefer to sell their produce by weighing during harvestbecause of the expectation of getting higher price through bargaining.

Table 15 Selling method, transaction and buyers

Langensari (n=26) Margamulya (n=27)No Description

% %1 Selling the produce:

Not weighing before harvesting (tebasan)

Weighing during harvesting (kiloan)

Not weighing and weighing

3

16

7

11.5

61.5

27.0

-

11

16

-

40.7

59.3

2 Reasons for not weighing (tebasan):

Cash payment (money received at once)

Cost saving (harvesting labor)

Time saving

6

2

2

60.0

20.0

20.0

9

3

4

56.3

18.8

24.9

3 Reasons for weighing (kiloan):

More profitable

Expecting better price through bargaining

Obtaining actual yield estimate

5

11

7

21.7

47.8

30.5

9

13

5

33.3

48.1

18.6

4 Place of transaction:

Local market

Field

Farmers house

Traders warehouse

2

2

9

13

7.7

7.7

34.6

50.0

13

6

4

4

48.1

22.3

14.8

14.85 Transaction:

Directly with traders

Through intermediaries

24

2

92.3

7.7

24

3

88.9

11.1

6 Most often traders to sell the produce to:

Local assembly traders 15 57.7 16 59.3


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through intermediaries or commissioners. Most of them sell the vegetable produce directly to bothlocal assembly traders and/or regional assembly traders. Farmers indicate that occasionally it is

difficult to get buyer, especially when the supply is excessive and the price is low for someunstorable crops, such as cabbage and tomato.

The flow of vegetables from producers (in Langensari and Margamulya) to consumers isfacilitated by the process carried out by marketing channels. A variety of well-establishedalthough informal marketing channels for the distribution and sale of vegetables exists in the twolocations. Those channels are relatively simple and short due primarily to the fact that marketingservices required are not much. The following types of middlemen and their principal functionsare identified from the existing marketing channels.

1. Field petty assembly traders

These small-scale, itinerant traders are village-trotting daily to visit the field and make abid. They buy and assemble relatively small volume vegetables directly from farmers and sellthem to rural assembly traders. They may finance their operation by themselves or occasionallyact as commissions agents. As commission agents, they actually do not buy vegetables, but

assemble and ship them to the rural assembly traders for a commission or fee.

2. Contract traders

These traders buy vegetables from farmers on a contract basis that involves negotiationsfor sale even before vegetables (e.g. cabbage, chinese cabbage, cauliflower) in the field reachtheir optimum age to be harvested. The contract traders estimate the total value of the crop bymultiplying the estimated quantity to be harvested by the expected price at harvest time. Once

the trader and farmer have agreed on the price, the contract trader takes over the care of thisparticular crop in the field. In other words, all expenses in preparing the produce for market areborne by the buyer. The buyer also assumes any pre-harvest and post-harvest risks. Contractbuyers may either finance operations on their own, or be financed by a financier-rural assemblytrader or financier-wholesaler.

3. Rural assembly traders

The major marketing functions of this type of trader are to assemble a relatively large-volume of vegetables and ship them to distant consumption centers. They may either reside at ortravel to farms to purchase, transfer, and later sell vegetables to another locale. Their activitiesmay involve the purchase of truckloads of vegetables from one or more growers and/orencompass the purchase of small lots of vegetables from several growers at the same time.


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own or rented truck and go to the field for directly buying vegetables from rural assembly tradersor farmers. They usually establish a prior contact with farmers or commission agents before the

transaction occurs.

5. Wholesalers

These are the merchants in Bandung or Jakarta who receive vegetable shipments fromproducers, rural assembly traders, and other shippers. They have permanent stalls in the urbanmarkets and sell mainly to retail merchants or secondary wholesalers. Most of the vegetablesthey handle are sold on a whole-sale basis. Wholesalers may at the same time undertake the

function of assembling or retailing. The two most important factors that influence the volume ofpurchases are capital and contacts. Cash availability is absolutely necessary for outrightpurchase of vegetables. Meanwhile, the established contacts that have a mutual respect for oneanother based on years of doing business together can facilitate regular purchases and buying ona short-term credit.

6. Retailers

These traders constitute the last link in the vegetable marketing chain. They sellvegetables in an unaltered form, or directly as purchased. Thus, they just buy and sell freshvegetables. Moreover, they generally buy vegetables in small lots of 25 kg - 100 kg per week.Limited working capital dictates the retailers to adopt such purchase arrangement partly to limitspoilage losses due to lack of proper storage. In addition, small and frequent purchases may alsohelp them to minimize inventory costs and the risk of being caught with considerable suppliesafter a sharp decline in prices.

Typical marketing channels in Langensari and Margamulya are as follows:

producers - rural assembly traders - inter-regional traders - wholesalers - retailers -consumers.

producers - rural assembly traders - wholesalers - retailers - consumer.

producers - field petty assembly traders or commission agents - rural assembly traders -wholesalers - retailers - consumers.

producers - contract traders - rural assembly traders - retailers - consumer.

producers - packers - retailers - consumer


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price of vegetables from farmers, but also to decide to which market their vegetables will be sold.Farmers indicate that the traders' advantage in having more access to price information

frequently weakens their bargaining position.Figure 1 is actually self-explained in describing the flow of vegetables from Langensari and

Margamulya to consumers in Bandung and Jakarta. The one that seems inadequately elaboratedyet is the existence of some packers both in Lembang and Pangalengan which begin to playimportant role in bridging the vegetable producers and consumers. Those packers collect thevegetable produce from farmer cooperator or from the harvest of their own production.

Figure 1 Marketing channels of vegetables from producers in Langensari and Margamulya to consumers in

Bandung and Jakarta.

VEGETABLE

GROWER

CONTRACT OR LOCAL

ASSEMBLY TRADER

WHOLESALERIN BANDUNG

WHOLESALERIN JAKARTA

RETAILER IN BANDUNG

REGIONAL ASSEMBLY

TRADERPACKER

RETAILER IN JAKARTA SUPER MARKET

RESTAURANT HOTEL

VEGETABLE

CONSUMER


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into a special plastic net, and packed in a container. The produce is then transported anddelivered to supermarkets, restaurants and hotels in Jakarta by using a refrigerated truck. The

firm supplies a relatively small amount of vegetables daily that consist of both common andsophisticated vegetables. The following is an example of vegetable delivery to Jakarta (byMarch 5, 2002).

No Crop Quantity (kg) No Crop Quantity (kg)

1. Tomato 321 10. Red sweet pepper 17

2. Cherry tomato 30 11. Yellow sweet pepper 10

3. Potato 140 12. Cabbage 1924. Celery 37 13. Chinese mustard 45

5. Chinese cabbage 338 14. Baby chinese mustard 17

6. Cauliflower 76 15. Peterseli 6

7. Zucchini 88 16. Lettuce 271

8. Green sweet pepper 37 17. Pumpkin 200

9. French bean 5

The selling price per unit is calculated from the buying price that is added by the costs forcompensating product loss, grading, sorting, packing, transporting and profit margin. These aresome examples for some vegetables delivered:

Crop Buyingprice

Loss Grading Sorting Packing Trans-porting

Profitmargin

Sellingprice

Rp/kg

Potato 2 800 170 85 85 140 145 225 3650

Cauliflower 4 000 240 125 125 200 200 260 5150

Tomato 2 700 168 81 81 135 135 150 3450

Lettuce 4 000 240 120 120 200 220 300 5200

Green sweet pepper 8 000 480 240 240 400 400 640 10 400

Red sweet pepper 11 000 660 330 330 550 550 880 14 300

Yellow sweet pepper 11 000 660 330 330 550 550 880 14 300

The manager informs that if there is a supply shortage from farmer cooperator, the firm will buyfrom wholesale market in Bandung and carefully select the product that still conforms to therequired quality. It is also indicated that there is an increasing trend in demand for high qualityvegetables, especially from super-markets and grocery stores.

Two common measures used to evaluate marketing performance are: (1) the farmers


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Table 16 shows that at farm-gate level, the magnitude of variation in monthly prices ofpotato is lower than that of tomato, cabbage and chinese cabbage. This may reflect that the price

of potato is relatively more stable than those three other crops, since potato is less perishable.However, further analysis suggests that this indication does not occur at the wholesale level. Itshould be noted that the variation in margin for tomato and chinese cabbage is lower than thevariation in their farm-gate prices. This may imply that for these two crops, market tends tooperate in such way so that the margin is more stable than the farm-gate price. Meanwhile, forpotato and cabbage, the variation in marketing margin is higher than the variation in farm-gateand wholesale prices. This comparison suggests that, in the short run, traders absorb asubstantial share of the variability in potato and cabbage prices. This may indicate that traders do

not have a strong enough bargaining position such that they can pass on the effects of shifts insupply and demand to producers and consumers.

Table 16 Farmers share and marketing margin of some important vegetables in West Java, 1995-1999

Potato Tomato Cabbage Chi cabbage

Farm-gate price (Rp/kg)

Grand MeanStandard DeviationCoefficient of Variation (%)

1 336.2780.458.4

548.0427.377.9

527.9396.8

75.2

318.2195.8

61.5Wholesale price (Rp/kg)


1 596.5881.655.2

1 114.2602.254.1

691.2471.1

68.2

501.9201.6

40.2Farmers share of wholesale price (%)


0.82870.1121

13.5

0.45970.1312

28.5

0.75270.1483

19.7

0.61090.1831

30.0

Marketing margin (Rp/kg)(wholesale price farm-gate price)


260.3242.493.1

566.1264.046.6

163.2142.6

87.4

183.7105.0

57.2Source: Calculated from Vademekum Pemasaran, 1990-1999

Furthermore, the magnitude of variation in wholesale prices is generally lower than that of themarketing margin and farm-gate prices. This also indicates that, in short term, the market isoperating to increase wholesale price stability. These indicators undisputedly lead to the need ofimprovements in the marketing system that should put more emphasis to solve high instability inprices at producers level.


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guidance to discover the price. It is interesting to note that the main source of price information isother farmers or traders. This may suggest the ineffectiveness of price information service

publicly disseminated trough printed and/or electronic media.Farmers have identified some factors and agreed that the most important factorinfluencing the price discovery is product quality. In Langensari, the rank of importance is thenfollowed by type of traders, transaction place, and good relationships with traders. Meanwhile, inMargamulya, the rank of importance is followed by product quantity, type of traders, link withcredit-provider traders, and place of transaction. It is interesting to notice that more farmers inMargamulya are involved with credit-provider traders. There is greater possibility that suchrelationships may lower their bargaining power in the process of price discovery.

Only few farmers in Langensari and Margamulya are paid directly (in cash) for vegetableproduce they sell. Later or delayed payment seems to be a common practice in vegetablemarketing. At least there are two forms of delayed payment: (1) all payment is delayed for 2-10days after transaction, and (2) buyer provides 20-50% down-payment and pays the rest after theproduce sold out, or pays 2-14 days after the transaction occurs.

Table 17 Pricing and payment in vegetable marketing in Langensari and Margamulya

Langensari (n=26) Margamulya (n=27)No Description % %

1 Guidance for discovering the price during transaction:

Calculation of per unit cost and expected profit

Knowledge of current/recent price in the market

2

24

7.7

92.3

2

25

7.4

92.6

2 Source of information concerning market price:

Printed and/or electronic media

Other farmers

Traders

Other farmers and traders

-

3

12

11

-

11.5

46.2

42.3

-

3

7

17

-

11.1

25.9

63.0

3 Factors importantly influence the determination of agreed/final price:

Product quantity

Product quality

Transaction place

Type of traders

Good relationships with particular traders

Link with traders who provide credits

5

26

13

20

10

1

19.2

100.0

50.0

76.9

38.5

3.8

23

27

8

20

6

11

85.2

100.0

29.6

74.1

22.2

40.7

4 Payment system mostly used:Cash

Paid later

Cash and paid later

2

3

21

7.7

11.5

80.8

2

18

7

7.4

66.7

25.9


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electronic media is also questioned since it is frequently unreliable to be used as guidance forbargaining. There are three other constraints, such as choice of trader, quality requirement, and

handling costs that are considered by farmers as low of importance.

Table 18 Some constraints to market the vegetable produce as experienced by farmers


% %

1 Sometimes there is no choice of selling the produce to certain traders - - 2 7.4

2 Price offered by traders tends to be low 17 65.4 20 74.1

3 Price information is not reliable/accountable enough to be used asguidance for bargaining 14 53.8 11 40.7

4 Selling produce directly to the market needs high cost and may not befeasible related to the produce volume sold

16 61.5 15 55.6

5 Quality requirements asked by traders is occasionally difficult to satisfy 8 30.8 10 37.1

6 Sortation and grading tend to be costly and reduce the expected profit 2 7.7 5 18.5

7 Competition in the supply of similar produce from other regions tends toincrease price uncertainty

26 100.0 27 100.0

Considering those marketing constraints, farmers also propose some suggestions toimprove the existing marketing system. It is interesting to note that farmers in Langensari andMargamulya consistently indicate the same suggestions in terms of their rank of importance. Mostfarmers prefer the possibility of establishing contract systems in vegetable production andmarketing to minimize the risks. With no intention of inviting government intervention to themarket, farmers indicate the needs of clear and fair market regulations that may improve the

system functioning. In the contrary to individual negotiation as commonly practiced, farmers beginto be aware of collective marketing that may guarantee more fairness in price discovery andreduce marketing risks. Farmers also suggest that additional information on how many (quantity),what (crop), and when the product is demanded should be included in market price informationservice which publicly disseminated through media. Finally, supply adjustment, for example, byestablishing some special vegetable production areas, is also perceived by farmers as onesolution in avoiding excessive supply and improving farm planning.

Table 19 Suggestions for improving vegetable marketing system as perceived by farmers


% %

1 Applying contract systems that may reduce marketing uncertainties 22 84.6 27 100.0


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Margamulya is 100 tons/day (max.). About 50-75% of vegetables from Langensari andMargamulya is shipped to Jakarta and Bekasi, and the remaining amount is supplied to Bandung

and local markets. Some vegetables from those areas are also shipped to other islands, such asSumatra and Kalimantan, and even exported to Singapore, Malaysia and Brunei.Farmers in Langensari grow cauliflower, tomato, Chinese cabbage, kidney bean and

cabbage as their main crops. Chili pepper and hot pepper are considered secondary, and theother remaining crops, such as potato, Chinese mustard, lettuce, bunching onion, Chinese kaleand broccoli are considered minor. Meanwhile the main crops grown in Margamulya are potato,Chinese cabbage, cabbage and tomato. Other crop that seems to show an increasing trend bothin production and planted area in Margamulya is hot pepper.

Eight factors perceived by farmers that affect their decision before planting a particularcrop are: (a) expectation of high price, (b) expectation of high yield, (c) mastery of the culturalpractices, (d) capital availability, (e) land suitability, (f) response to market demand, (g) influencefrom neighboring farmers, and (h) habit/routine. The two most important factors considered byfarmers in both areas are land suitability and the mastery of cultural practices. Other factors areconsidered to have lower importance. Farmers argue that the response to market demand is notas important as other factors because there is a biological lag between time of planting andharvesting/selling.

There is a high variation in whole year cropping pattern among farmers in both areas.Basically, vegetables are planted and harvested every month all year round. In Margamulya, thecase of planting the same crop in two consecutive seasons is quite common. This implies arelatively limited range of crops, which are grown together with a cropping intensity of 3-4 cropsper year, results in frequent use of the same field for the same crop. There has been a strongsuspicion that such practice may leads to a high disease level, especially in the case of potatoproduction.

In general, the yield for some vegetables in Margamulya is significantly higher than that inLangensari. This may be explained by: (a) the yield in Langensari is lower because it is recordedfor a particular crop that is intercropped with other crops, and/or (b) the yield in Margamulya ishigher because the crop is cultivated more intensively by applying monocropping system.

Most farmers in Langensari and Margamulya sort the harvest to separate betweenmarketable and unmarketable produce by using some quality factors, such as decay, bruises anddirt (except in tebasan system). In terms of grading, only few farmers in Langensari indicatepracticing this activity, while most farmers in Margamulya grade their harvest, especially forpotato. Field observation shows that farmers grade their potato based on its size and uniformity.Other important quality factors, such as flavor, texture, color and aroma, are not used, since theymay be subjective and very difficult to measure.

Farmers estimate that the demand increases by 10-30%. However, most farmers inMargamulya perceive that the demand for vegetables is relatively stable. Farmers also indicate


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Even though there are some slight differences among vegetables being studied, a commonor similar price pattern is also identified. The price of most crops decreases in January-February;

starts to increase in March-May; begins to decrease again in June-September; and reaches thehighest in November-December.Unfortunately, there is no reliable data available concerning the number of local and

regional traders involved in vegetables marketing in those areas, since the West Java RegionalTrade Office does not require vegetable traders to register. Traders, both local and regional,usually are not specializing in one particular crop, but handling several vegetable cropssimultaneously. Field observation and farmer interviews indicate that there is no single trader orfirm in Langensari and Margamulya that may conduct itself in such a manner as to maximize

profits without concern about other traders/firms trying to undercut that price.It is indicated that for each location, the vegetable sold in the market is basically

homogeneous. This implies that most buyers feel that the product of one seller is virtually nodifferent from that of another seller. It is impossible for farmers to exercise some marketmonopoly power over price since they sell a homogeneous product.

The vegetable market environment basically allows traders or firms to enter or exit themarket freely. Some factors that may influence entry and exit include absolute cost advantageand unique managerial and technical competence held by existing traders or firms. A growingnumber of marketing firm (packers) enters the market is frequently slowed down by the one thatexits. In Lembang, there are at least ten firms (packers) involved in vegetable marketing and twoof them go out of business in the last two years.

In West Java, daily wholesale price information for vegetables is regularly announcedthrough radio and disseminated through information boards, especially at the assemble marketsin production centers. But market knowledge extends beyond information concerning prices andtechnical product quality. It also includes knowledge of the actions that competitors and traders or

firms take, as well as reasonably informed judgments about future market conditions. Within thecontext of vegetable marketing, at some points, the existing market knowledge held by marketparticipants (buyers and sellers) has permitted them to make informed decisions in the marketenvironment in which they operate.

Both in Langensari and Margaluyu, some farmers quite often sell their produce beforeharvesting (tebasan, without weighing), usually for cabbage, Chinese cabbage and cauliflower.One to three weeks before harvesting time, traders visit the farmers field, estimate the yield,negotiate the price, pay in cash or provide a down-payment, and take care of all farming activities

until the crop is harvested and marketed. Farmers carry out this selling method to tackle animmediate or sudden need of cash and to speculate in capturing high price and avoiding furtherexpenses. Meanwhile, other farmers prefer to sell their produce by weighing during harvestbecause of the expectation of getting higher price through bargaining.

Farmers in Langensari prefer to do the transaction in their house and in the traders


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producers - field petty assembly traders or commission agents - rural assembly traders -wholesalers - retailers - consumers.

producers - contract traders - rural assembly traders - retailers - consumer.producers - packers - retailers - consumer

It is estimated that the first and second channels absorb approximately 70% of totalvegetable supply either from Langensari or Margamulya. The remaining 30% are marketedthrough the third, fourth and fifth channel. Closer look to the various vegetables marketingchannels in Langensari and Margamulya suggests the dominant role of rural assembly traders tobridge the producers and consumers. The volume of vegetables that is assembled and shipped

by this type of traders is ranging between 5 - 25 tons per day. A packer in Lembang collects vegetable produce from farmer cooperators which are

recruited on the basis of: (1) willingness to continually supply (daily) a certain amount of specificvegetable ordered by the firm, (2) agree with the payment arrangement, such that three weeksdelivery will be compensated or paid in the next following week, and (3) agree with the price thatis reviewed once a week and the contract that is renewed every six months.

Produce that comes from the field will be washed/cleaned, sorted, graded, weighed,wrapped/packed, and labeled by the packers. For example, (a) Chinese mustard is sorted, oldleaves are thrown away, weighed for 1 kg/unit, tied, labeled, and packed into a plastic container,(b) tomato is washed/cleaned, graded into 12 fruits/kg, put on a styrofoam plate and wrapped withplastic, labeled and packed, (c) potato is washed, graded into grade A, B and C, weighed for1kg/unit, put into a special plastic net, and packed in a container. The produce is then transportedand delivered to supermarkets, restaurants and hotels in Jakarta by using a refrigerated truck.

At farm-gate level, the magnitude of variation in monthly prices of potato is lower than thatof tomato, cabbage and Chinese cabbage. This may reflect that the price of potato is relatively

more stable than those do three other crops, since potato is less perishable. However, furtheranalysis suggests that this indication does not occur at the wholesale level.

Variation in margin for tomato and Chinese cabbage is lower than the variation in theirfarm-gate prices. This may imply that for these two crops, market tends to operate in such way sothat the margin is more stable than the farm-gate price. Meanwhile, for potato and cabbage, thevariation in marketing margin is higher than the variation in farm-gate and wholesale prices. Thiscomparison suggests that, in the short run, traders absorb a substantial share of the variability inpotato and cabbage prices. This may indicate that traders do not have a strong enough

bargaining position such that they can pass on the effects of shifts in supply and demand toproducers and consumers.

Furthermore, the magnitude of variation in wholesale prices is generally lower than that ofthe marketing margin and farm-gate prices. This also indicates that, in short term, the market isoperating to increase wholesale price stability. These indicators undisputedly lead to the need of


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Farmers have identified some factors and agreed that the most important factor influencingthe price discovery is product quality. In Langensari, the rank of importance is then followed by

type of traders, transaction place, and good relationships with traders. Meanwhile, inMargamulya, the rank of importance is followed by product quantity, type of traders, link withcredit-provider traders, and place of transaction.

Only few farmers in Langensari and Margamulya are paid directly (in cash) for vegetableproduce they sell. Later or delayed payment seems to be a common practice in vegetablemarketing. At least there are two forms of delayed payment: (1) all payment is delayed for 2-10days after transaction, and (2) buyer provides 20-50% down-payment and pays the rest after theproduce sold out, or pays 2-14 days after the transaction occurs.

Farmers in both areas fully agree that the most important constraint is the competition ofsupply of similar vegetable produce from other regions that causes higher price uncertainty.Excessive supply, especially for some crops that are also suitably grown in low and mediumaltitudes (e.g. tomato, hot pepper), often causes a drastic drop in prices.

As consequence of individual negotiation, farmers also feel that the price offered bybuyers/traders is frequently too low. Meanwhile, even though it may shorten the marketing chain,selling the produce directly to the market is considered high cost (handling and transportationcosts) and unfeasible, especially due to a relatively small amount of selling volume.

The effectiveness of price information service publicly disseminated through printed and/orelectronic media is also questioned since it is frequently unreliable to be used as guidance forbargaining.

Some improvements suggested by most farmers in Langensari and Margamulya:

the possibility of establishing contract systems in vegetable production and marketing tominimize the risks.

the needs of clear and fair market regulations that may improve the system functioning. farmers begin to be aware of collective marketing that may guarantee more fairness in

price discovery and reduce marketing risks.additional information on how many (quantities), what (crop), and when the product is

demanded should be included in market price information service which publiclydisseminated through media.

supply adjustment, for example, by establishing some special vegetable production areas,is also perceived by farmers as one solution in avoiding excessive supply and improving

farm planning.

II. Temperate vegetable marketing infrastructure and policy


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with the focus primarily on rural assembly markets and urban wholesale or semi-wholesalemarkets.

Temperate vegetables in West Java are normally channeled through the following types ofmarket:a) Rural Assembly Markets:

Rural assembly market is found in Margamulya, Pangalengan, where greater quantities ofproduce are traded, either by the producers themselves or by traders. This assembly market(combined with local rural markets) is situated at a central place in Pangalengan and besidesthe village's access road. Produce is predominantly bought by traders or collection agentson their own behalf or on behalf of urban wholesalers. However, this type of market is not

found in Langen-sari, Lembang. Rural assembly traders in this location are not facilitated bymarket infrastructure.

b) Wholesale Markets:As previously mentioned, vegetables from Langensari and Margaluyu are mostly marketed toBandung and Jakarta. Two wholesale or semi-wholesale markets located in Bandung arePasar Caringin and Pasar Gedebage. These markets are mainly supplied by West Javaassembly centers in the rural areas or directly from farms, either by traders or by largefarmers. Transactions are predominantly handled. Meanwhile, those markets in Jakarta arePasar Induk Kramat Jati(PIKJ), located in the south-western part of Jakarta, and another marketcalled Pasar Cibitung in the town of Bekasi located on the eastern outskirts of Jakarta. Jakarta isa market of growing importance for vegetables, as it is a fast expanding city with around 11.5million inhabitants and a growth rate of approximately 4.3 per cent per annum for the 1990 to1995 period. Both markets receive trucks of vegetables from all over Java and Sumatra. PIKJ isgeared mainly for distribution to retailers such as grocers (warung), street vendors and peddlers.

c) Retail Markets:Retail markets are found at both village level and city level. In Bandung, there are approximately40 retail markets, mostly provided by the municipal government. These markets attract traders,farmers and consumers and generally are highly price competitive, with a large number ofbuyers and sellers. Vendors mainly market vegetables in these urban markets. These vendorscollect around 50 to 200 kg of several kinds of vegetable for sale.

d) Other Markets:There is a growing market, especially in Lembang, for selling vegetables through packinghousesto institutional buyers and supermarkets. There are about 7 pack-ing houses currently operated

in Lembang area. Delivery for these packinghouses usually is on contract-basis with a fixed priceand pre-determined delivery conditions, such as timing, quantity and quality of the product.Contracts are usually on a long-term basis, with a revision of the price and delivery conditions atspecified intervals (e.g. every two weeks). In packinghouses, the grading and sorting of theproduce is carried out according to the needs of the supermarkets or institutional buyers such as


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Caringin and Gedebage Wholesale Markets facilitate the economic function of buying andselling by allowing the forces of supply and demand to converge in establishing a single price for a

particular vegetable crop. In these wholesale markets, wholesalers may also perform storage andwarehousing function, as well as allowing economies of scale to be obtained in the transportation ofvegetable produce from farm to market.

Ciroyom and Sederhana Retail Markets are two relatively important retail markets in Bandungat which there is a public gathering of buyers and sellers at a known time. These markets involve alarge number of transactions of relatively small quantities of vegetables on a face-to-face basisbetween a seller and buyer. In these markets, buyers have opportunity to immediately and easilycompare vegetable prices between different sellers of the same crop.

It should be noted, however, that both wholesale (Caringin and Gedebage) and retail(Ciroyom and Sederhana) markets are still in the first stage of market development. A wide range ofproduce, not only vegetables, is traded in those markets. They still have a role in the marketing offresh produce, including vegetables, fresh meat and fish. It seems that the only difference betweenwholesale and retail market is still the volume or quantity traded.

As shown in Table 20, Caringin operates under the management of Market Cooperative.Considering the local socio-economic and political factors, this format seems to be quite close to theideal form. However, it should also be considered as one possibility in managing a market andshould be viewed critically viewed, as it may not answer the need for effective management. Thecooperative format is often the most appropriate for a grouping of producers. It facilitates theconcentration of produce at collection centers and the organization of joint transport to market.Meanwhile, a cooperative of traders may be counter-productive, self-interest dictating behavior,

Table 20 Characteristics of some main wholesale and retail markets in Bandung

Characteristics Pasar Caringin Pasar Gedebage Pasar Ciroyom Pasar Sederhana

Market type Wholesale Wholesale Retail RetailManagement Private (Koperasi Pasar

Induk Caringin/CaringinMain MarketCooperative)

Private (Joint mana-gement: PT Ginanjarand KoperasiPasar/MarketCooperative)

Bandung City Office ofMarket Management

Bandung City Office ofMarket Management

Size of market area 13 ha 13 ha 1 400 m2 12 980 m2

Distance toLangensari, Lembang

25 km 35 km 22 km 20 km

Distance to Margaluyu,Pangalengan

40 km 50 km 42 km 45 km

Market staff/ personnel(person)

26 (permanent)

50 (contract)

19 (permanent)

32 (contract)

12 (permanent)

6 (contract)

10 (permanent)

18 (contract)

Sales method Direct transaction(bargaining/negotiation)b t b d

Direct transaction(bargaining/negotiation)b t b d



28


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which is detrimental to the needs of both producers and consumers. Often, a buying and sellingscheme is created, keeping prices down for the producers and high for the retailers and consumers.

Nevertheless, there are exceptions to this behavior, since some of the most efficient markets in thedeveloped countries are run by the wholesalers themselves. A similar institutional arrangement isapplied to Pasar Gedebage, in which Market Cooperative jointly operates the wholesale market withPT Ginanjar (a limited-liability company).

In the case of wholesale market, it is important for both producers and buyers to be providedwith an environment where price formation can occur. In these circumstances, the public sector maynot necessarily provide the best management system, as the motivations of public sector bodies areoften quite unrelated to agriculture. Thus, if the major function of a market is related to wholesaling,

the ideal form of management is more likely to be one where private sector is the main driving forcein providing long-term management. However, this is unlikely to be suitable for small-scale, mixed-function markets where the main role is that of providing retail facilities. As shown in Table 1, PasarCiroyom and Sederhana operate under the management of local authorities. Although in the longterm some form of privatization of market services may be appropriate, in the short term a local/citycouncil or local government market office is likely to be the most appropriate body to manage a retailmarket.

A key factor in determining how a market will operate is the sales method it will adopt. Thefour markets being studied, both wholesale and retail markets sell vegetables by private treaty ordirect transaction or negotiated sales. The traders with produce for sale rent a market stall from amarket authority display their produce and await an offer from an interested potential buyer. Thebargaining begins and depending on the supply and demand situation, coupled with the quality of theproduce, the private bargaining continues until an agreement is made between the two parties.Traders indicate that the success of this sales method is largely dependent on their knowledge of thecurrent market supply and price situation.

Which sales method is adopted will mainly depend on local custom and the type of producebeing sold. It is not uncommon to have a number of sales methods at the same market. There is asuggestion from the local government through the wholesale market management to explore thepossibility of applying the auction system. This system has the advantage that it can avoid theoccurrence of wholesalers rings, and if well organized, can facilitate the sales of large number ofvery small-scale consignments. However, the market management and most traders seem to bereluctant to respond since there are still so many technical and institutional constraints that have notbeen solved yet. They perceive that private treaty is the most flexible and suitable method for them,

since it requires minimum management and is well adopted for the sale of small lots, particularlyvegetables.

2.2. Volume of transaction in some main wholesale and retail markets

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Table 21 Estimated one-day volume of transaction in some main wholesale and retail markets (05/11/2002)

Crop Pasar Caringin

(wholesale) (t)

Pasar Gedebage

(wholesale) (t)

Pasar Ciroyom

(retail) (t)

Potato 80.0 3.0 5.0

Cabbage 80.0 6.0 5.0

Hot pepper 30.0 5.0 0.3

Tomato 100.0 - 5.0

Carrot 30.0 4.0 0.5

Chinese cabbage 50.0 - 0.5

Shallot 40.0 5.0 0.3

Cauliflower 10.0 5.0 0.5

Eggplant - 3.0 -

Cucumber - 3.0 -

Yard long bean - 1.0 -

Kidney bean - 2.0 0.5

Chayote - 5.0 -Lettuce - 3.5 -

Garlic - 5.0 -

Bunching onion - - 0.2

Celery - - 0.2

Data also indicate that Pasar Gedebage is losing its function as one of wholesale market for

vegetables in Bandung. In the mean time, further interview reveals that Pasar Caringin was actuallyestablished for trading non-fresh produce, while Pasar Gedebage was assigned to trade freshproduce, including vegetables. In its development, however, market officials and traders in PasarGedebage indicate that there is a continuing decrease in vegetable transactions. Vegetables fromproduction centers are mostly marketed to Pasar Caringin because it could be accessed more easilyfrom the highway. Buyers also prefer to purchase vegetables from Pasar Caringin because it islocated much closer to the city or consumption center. This actually creates some sanitary and wastemanagement problems in Pasar Caringin, since the existing facilities is initially provided to supportthe trading of non-fresh produce. Meanwhile, during the survey, the management and traders inPasar Gedebage indicate that they have pleaded the local government to make some marketregulations that may enable them to operate back as vegetable wholesalers and improve theoperational efficiency of this market.

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minimum : Rp. 900maximum : Rp. 2 000average : Rp. 1 200

The decree uses some criteria for deciding the amount of retribution charged to the traders.Those criteria are (a) type of stalls, (b) type of produce sold, and (c) class of market. For example, insome retail markets, it is not uncommon that some traders display their produce along the street tothe market. It happens because the number of stalls available could not adequately accommodate alltraders involved. Each trader who does not have a permanent stall is charged daily as much as Rp.500. In terms of the produce sold, traders who sell fresh meat are charged Rp. 400-Rp. 600, whiletraders who sell vegetables have to pay as much as Rp. 200-Rp. 300. Pasar Ciroyom and Pasar

Sederhana are classified as the first class retail markets. Lower amount of retribution is applied tothose retail markets that are classified as second and third class. It is quite surprising that thetargeted amount of retribution to be collected by each market is relatively small. For example, thetargeted daily retribution for wholesale market is Rp. 500 000-Rp. 600 000, while for retail market isRp. 200 000-Rp. 400 000.

Table 22 Retribution applied to some main wholesale and retail markets

Pasar CaringinWholesale Pasar GedebageWholesale Pasar CiroyomRetail Pasar SederhanaRetail

Types of retribution Charged to tradersand collectedeveryday:

o Stalls

o Cleaning

o Security

Charged to all

transportation vehicleentering the market:

o Parking

Charged to tradersand collectedeveryday:

o Stalls

o Cleaning

o Security

Charged to all


o Parking


o Stalls

o Cleaning

o Security

Charged to all


o Parking


o Stalls

o Cleaning

o Security

Charged to all


o Parking

Retribution collector Market Managementfor stalls, cleaningand security

City Parking Office forparking

Market Managementfor stalls, cleaningand security






Average range of

retribution (Rp/day)

Rp. 3, 000 Rp. 3, 000 Rp. 700-1, 500 Rp. 900- 2, 000

Criteria used indetermining theamount of retribution

Stall ownership Stall ownership Type of produce sold

Type of stalls

Type of produce sold

Type of stalls

2 4 L d l ti li d i i h l l d t il k t

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The reasons for regulating who may participate in a market vary, and may include: theexpectation of improving the quality of traded commodities, collecting revenues from taxing economicactivity, or securing the economic advantage for a particular special interest group. This oftenprovides a useful way for authorities to exert a degree of control over participants in the market in thepublic interest, and to collect useful information for statistical analysis and planning. All traders,basically those who own a permanent stall must register their business and obtain a permit from localauthorities. Meanwhile, those who do not have permanent stall and display their produce along thestreet, usually are not having a permit. They are not formally registered, but they have to pay for dailyretribution. Lack of consistence in implementing this regulation tends to increase the number ofunregistered and temporary traders who display their produce along the street, outside the market,

which unavoidably worsen the sights and disturb the traffic.One of the most common ways of attempting to improve the quality of produce offered for sale

is to introduce standards or grading requirements. Since the grading system has not been applied toall vegetables traded, there is no legislation enforced to penalize producers and traders whomisgrade or adulterate produce. Legislation No. 32/98 is applied by local authority, especially to testthe pesticide residue on agricultural produces, including vegetables. The tests are conducted andofficially controlled by the City Office of Agriculture. Because of the budget constraint, theimplementation of these tests is still random and irregular. Commodities that pass the test aresupposed to be labeled. However, this labeling system has not been applied yet and there is no pricedifference between tested and untested vegetables. Furthermore, market observation indicates thatthe unclear follow-ups of this test have made the legislation ineffective. Traders are reluctant to followthe test, because there is a strong perception among them that the test is merely another way forlocal government to collect retribution or income.

Table 23 Laws and regulations applied in some main wholesale and retail markets

Laws and regulations Wholesale MarketPasar Caringin and Pasar

Gedebage

Retail MarketPasar Ciroyom and Pasar

Sederhana

Regulating participation in markets All traders are registered Some traders are registered

Applicable to the commodities traded

Controls on quality

Packaging and labeling

Random test on pesticide residue

None

None

None

Affecting supply

Movement of produce

Storage of produce

Type of commodities traded

Volume of commodities traded

None

None

Division of specialty between freshand non-fresh produce

None

None

None

None

None

Price controls None None

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Even though desired, especially by producers, price controls or floor prices seem to be veryunlikely applied for vegetables. In the absence of this legislation, the prices of vegetables could beexpected to fluctuate in response to changes in supply and demand. Controlling prices may createsignificant incentives for traders to circumvent the law. The nature of the market and the possibility oftraders speculation point towards the likelihood of very high associated regulatory costs. Forvegetables, the costs seem to outweigh the benefits claimed for such policy since it involves anelaborate infrastructure, an array of ancillary rules to avoid circumvention of official prices, and alarge number of officials to monitor and enforce the system.

Transactions in vegetable markets are mostly conducted face-to-face and the produce and theprice are exchanged simultaneously. These markets seem to provide the least possibility for

participants to manipulate the functioning of the markets to their advantage. Therefore, laws toregulate market manipulation and transactions between participants are not urgently needed.

2.5. Suggestions proposed by market officials and traders to improve some main wholesale andretail market efficiency

In summary, the proposed suggestions are basically aimed to improve the performance of the

wholesale market that may cover:

Increased confidence and trust in its use and acceptance of its fees and charges Increased operational efficiency, including:Efficient handling of the arrival, unloading and loading of produceDiscipline in the market in the internal movement, storage and display of produce, which

could be achieved trough enforceable tenancy agreements, and widely accepted and

implemented market regulationsCleanliness and hygieneEffective provision of services, such as loading and unloading services, produce movement,

electricity, garbage and solid waste disposal, communication facilities and warehousing A pleasant and safe trading and working environment in which private treaty or private

trading could operate profitablyThe extent to which the market meets general community needs by ensuring:

o A regular supply of produce in the necessary quantity and qualityo Transparency in price setting through free competition between traders

A better service and relationship of the market management authority with market users,including wholesalers, buyers, market operators and service providers

These suggestions are mostly also applied for the retail market. However, there is a specific

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Table 24 Suggestions proposed to improve the wholesale market operational efficiency

Caringin Wholesale Market Gedebage Wholesale Market

Physical infrastructure Renew or renovate old stalls Improve the sewage system

Harden and widen the on-site roads

Renew or renovate old stalls Improve the drainage and sewage systems

Improve the solid waste disposal and itsmanagement

Improve the electrical supply, building andstreet lighting

Implementation of marketregulation or legislation

Carry out firm sanctions or punishments forthose who violate the laws

Increase the awareness of marketparticipants to the importance of obeying

market regulations by involving them in theprocess of making those regulations

Enforce the market regulation consistently

Increase the awareness of all market

participants to the importance of obeyingmarket regulations by involving them in theprocess of making those regulations

Human resources capability Provide both on-the-job training andprofessional development, includingparticipation by selected marketmanagement staff in specific outside training

Improve the professionalism, especiallymarket staff, in managing a wholesalemarket

Method of transaction Introduce the auction system Support the private treaty system with some

regulations that may protect marketparticipants from being defrauded byunscrupulous sellers or from buyers that donot pay

Collecting market retribution Improve control or supervision mechanism

Introduce a computerized system

Increase market retribution by encouragingmore traders to come in and register

Supporting factors and services Establish a special terminal for loading andunloading

Initiate a market-owned transportationservices for goods and passengers

Enforce the regulation for publictransportation that has been assigned topass by the market area to consistently

follow its route

III. Assessment of farmers preference on marketing system improvements

Interviewed farmers are basically those who have experience in growing vegetables more

than five years. Thus, they have enough familiarity to deal with the existing marketing system. Noneof the farmers in Langensari indicates that the existing marketing system al

Documents

Analysis and Evaluation of Marketing Systems of Temperate Vegetables in West Java