Chapter 3


Finally, markets and the prices that arise from their operation are the basis for the
distribution of the benefits from production and exchange as between producer, trader,
processor and consumer. This distributional role is one of the main reasons governments
become involved in marketing systems. The state may try to protect the consumer's
economic access to food by regulating the price of food at various points in the marketing
system. However, if this discourages private traders from operating in certain markets, for
example in remote areas, food commodities may not be available at all, unless the state
undertakes to provide them. Box 3.2 gives an example of the importance of undertaking
disaggregated analysis of the distribution of costs and benefits from proposed policy
initiatives, as these may not be obvious.


 Box 3.2 The Distribution of Benefits from Marketing in Thailand

 An analysis of the distribution of benefits from diversifying from rice production into soybean production
 in Thailand was undertaken using Commodity Chain Analysis. This is a technique which analyses the
 inputs and outputs at every stage of the marketing chain to assess the level of commodity flows, the
 amount of resources used at each stage in the commodity chain, and the returns to those resources.

 At first glance it appeared that diversification into soybean production increased the overall value added in
 the agricultural sector. However, closer examination showed that the increase in benefits accrued entirely
 to the soybean processors and traders, while farmers were actually worse off than before. From a food
 security perspective, this was a retrograde step as farmers were, in general, poorer than soybean processors.
 It was also contrary to the government's underlying objective in encouraging diversification into soybean,
 which was to increase rural incomes and discourage rural-urban migration.

 Source: Aroon, 1995.



 In summary, an effective marketing system is an important institution in terms of ensuring
 availability of food in different regions of a country, at different times of the year, and with
 the degree of processing that the customer requires. It also should provide the information to
 ensure that there is some stability of supply on a year to year basis. Finally, it is important in
 ensuring economic access to the population, both in terms of providing income for certain
 groups of the population and in terms of the level of the final consumer price.

 Although input markets did not appear explicitly in the example of a commodity chain
 shown in Figure 3.1, these are also important in terms of providing appropriate quantities
 and varieties of seed, fertilizer and pesticides at the relevant time of year to enable farmers to
 respond to the price signals that the marketing system sends them. The prices at which the
 marketing system can supply inputs to farmers (and other agents such as processors and
 transporters, who also use non-food purchased inputs in their activities) will determine the
 use and productivity of the various productive processes.

 1.4 Household food entitlement and the food chain

 For simplicity's sake, actors in the commodity chain are often referred to as producers,
 traders, consumers, etc., as though they only had one function. In fact, all individual actors
 are consumers (though organizations such as transnational corporations are not consumers


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