The Clute Institute International Academic Conference Munich, Germany 2014

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1 The Marketing System Analysis Of Selected Fresh Vegetables Passing The Good Agricultural Practice (GAP) System Leading To Organic Farming In Chiang Mai, Thailand Ayooth Yooyen, Maejo University, Thailand Jukkaphong Poung-Ngamchuen, Maejo University, Thailand Kunsavee Klomthongjareon, Maejo University, Thailand ABSTRACT Thailand is the agricultural-based and the biggest of agricultural production-based country in South East Asia. On the other hand, Thailand has disadvantage in the agricultural market and trade at the regional level. Hence, the marketing system consisting of marketing cost, margin, and obstacles of selected fresh vegetables passing the Good Agricultural Practice (GAP) system as well as marketing analysis for development to organic farming were studied. Questionnaire, field survey, focus group discussion, and In-depth interview technique were used for data collection from 210 farmers in Chiang Mai who practice GAP and certified by Office of Agriculture Research Development Region 1 (OARD1). Ten middlemen and 5 concerned government agencies were also considered as a sample group. Obtained data were analyzed by using content analysis. Findings revealed that, chili and onions were selected for the study since it was the important vegetables for people consumption of the country. However, Chiang Mai had the biggest area for onion cultivation. Besides, Thailand ranks the top-ten of chili exporter in the world. According to the marketing system, percent of both chili and onions were sold to the local middlemen. Quantity distribution of chili was approximately 2,000-5,000 kilograms per day at 14 baht per kilogram. Marketing margin was 20 baht per kilogram, calculated from the difference between retailing price (34 baht per kilogram) and farming price (14 baht per kilogram). However, chili selling was independent and caused the lack of bargaining power. In terms of onion, it had 3 marketing channels to distribute namely: local agricultural cooperative, local middlemen and retailer. Red-net bags were prepared for the packaging and cost 3 baht of each bag. Marketing margin is baht per kilogram with retailing price of 20 baht and farming price of 5.75 baht per kilogram. However, onion selling was operated by agricultural cooperatives. The local middlemen bought and distributed both of chili and onion to the 3 biggest wholesale markets in Bangkok by passing another middlemen. Furthermore, farmers sold some of those vegetables to the provincial wholesale market such as Chiang Mai and Chiang Rai province. Marketing margin of both chili and onion showed marketing cost from transportation, packaging, and labor. The quality and quantity of production were considered as serious problem for the development to organic farming. Therefore, the government should play important roles in the reinforcement of standard of organic production process at the national level. Keywords: Good Agricultural Practice (GAP); Middlemen; Marketing System; Marketing Margin; Organic Farming Copyright by author(s) 124 The Clute Institute

2 1. INTRODUCTION Safe agriculture or organic farming is production activities playing crucial economic roles in many developing countries, e.g. Argentina, Sri Lanka, Costarica, and Mexico. The expansion rate of organic yields in these countries is increased continually. Organic farming or safe agriculture in many countries does not only generate incomes for the country but also concern with sustainable development (Rebber, 2010). The expansion of safe agriculture or organic farming arises from changes of consumption behavior and attitudes. Currently, consumers place the importance of the production process which is environmentally friendly. Also, it must avoid the application of chemicals and insecticides. Thus, the yields must meet standard with high safety since consumers concern about their health (Dimitri & Green, 2002; Gregory, 2000; Grossman, 1972; Schifferstein & Qude Ophuis, 1998). Based on the investigation, it is found that demand of organic yields or products of the world is increased continually (Ergin, 2009). The expansion of organic yields markets is increased for 20 percent per year. In Thailand, the government agencies play important roles in chemical reduction support. Besides, organic farming area is also expanding which can be observed from an increase in a number of organic farmers and consumers (Schobesberger, 2008). When compare with foreign countries, Thailand still be in the beginning step or organic yields production and consumption as well as development. Most organic yields are basic good, e.g. vegetables, rice, fresh fruits, etc. It is observed that organic yields markets are in the form of niche market. There are many factors having a negative affection the slow expansion of organic yields market. Market system problem is an important issue but few people realize on it. In fact, organic market system analysis included all various activities marketing from producers to consumers. It is a systematic consideration in all steps of marketing activities. Therefore, this study also analyzes marketing systems consisting marketing margin, channels, and problems encountered in marketing of selected fresh vegetables passing the GAP system in Chiang Mai. The team of researchers perceives that vegetable is an important agricultural yield with a high value. Besides, Chiang Mai is a province where a lot of vegetables are grown and farmers there have enough potential for developing the organic farming system in the near future. 2. MATERIALS AND METHODS 2.1 Theoretical and Conceptual Framework This study clings on the marketing mix theory. Moreover, concept of marketing system, marketing channel and marketing margin were also reviewed to find the whole market system of selected fresh vegetables. This led to the information and figure of distribution channel and the analysis of cost and margin of marketing as well as obstacles of marketing system as shown in the conceptual framework (Figure 1). 2.2 Research Methodology The Sample Group The sample group in this study consisted of: 1) 210 farmer representatives (out of 1,268) who had already been registered for the GAP system in 2012 and they were obtained by using the formula of Taro Yamane as cited by Prasitratthasin (2001); 2) 10 middlemen who did their task on product distribution and 3) 5 personnel from concerned government agencies Data Collection Methods and Tools For the primary data, a one-on-one interview was applied by using questionnaire. For secondary data, it was done by collecting data from related documents and various media. In-depth interview, field survey and focus group discussion technique were done with farmers, middlemen, and concerned government agencies. Copyright by author(s) 125 The Clute Institute

3 Farmers Middlemen Market Selecting distribution channel Production costs Additional part of yield selling price Market factors Selecting a place for selling yields Yield selling costs Additional part of yield selling price Market factors Additional part of yield selling price Market factors Data Analysis Output Data and diagram presenting channels of GAP vegetable production distribution Data and an analysis of marketing costs Data on problems encountered in marketing Figure 1: Conceptual Framework of the Study Obtained data were arranged systematically and content analysis was done. Triangulation was used for data checking for more clarification. Microsoft Excel Version 2010 was used for marketing cost and margin analysis. Results of the descriptive analysis were presented after all. 3. RESULTS OF THE STUDY 3.1 Selection of Fresh Vegetables Passing the GAP Thailand is an agricultural country from the past up to the present with the abundance of edible plants and fruit trees. Most people in the country prefer to consume vegetables and fruits throughout the year. Onion is an important cash crop (economic crop) in the world. It can be consumed as fresh vegetables like salad mixed with other vegetables and it can be a raw material in processing food plants (The Community Information Center, 2009). In Thailand, onion can be produced once a year only. Its yields are usually harvested during December April. After that, the yields begin to be kept in May. In fact, Chiang Mai province is an important onion production source since it is the biggest onion growing area in Thailand. Chili is an annual plant which can be eaten freshly or in the processing form. Hence, chili has a commercial potential (Office of the Coordination of the Vegetable for Health Project, 2007). Indeed, Thailand ranks top ten countries exporting chili most. However, a lot of farmers use chemicals for the production of chili and it has impacts on chili exporting. Therefore, Thailand attempts to increase the quality of chili production to meet domestic and international standards. Chili products are in various forms such as chili powder, dried chili, prickled chili, chili sauce, chili paste, curry ingredient, dip, and pharmaceuticals. Aside from this, consuming behavior and needs for food in daily life of Thai people at present place the importance of nutrients and safety (non-chemical contamination). There is an increase in call for quality food products including onion and chili in important markets; particularly abroad. These markets place the importance of product standard and certification as well as inspection of product sources. Thus, the system of production for consumption must focus on quality products from farm to table. Copyright by author(s) 126 The Clute Institute

4 3.2 The Marketing System of Chill Passing the GAP System in Chiang Mai Marketing Channel of Chili Passing the GAP Certification The marketing channel of chili passing the GAP certification in Chiang Mai begins with bush red pepper is grown and harvested. After that, a middleman purchases its yields in the production area, at a chili purchase point or on the chili farm. The middleman determines the chili price based on the price fixed by a wholesaler and competitors in the village. Sometimes, the middleman collects and improves basic quality of the chili before selling. For example, the yields having no quality will be sorted out or contamination will be eliminated before packing the chili into a plastic bag (10 kg.), rattan basket (30 kg. and 10 kg.). Then, it will be distributed to other markets. The bush red pepper yields may be sent to local wholesalers. They also act as a middleman for wholesalers in Bangkok or a retailer selling bush red pepper in Chiang Mai. Besides, there are wholesalers outside the local area come to the bush red pepper growing areas for purchasing it (Figure 2). An amount of yields is directly purchased by wholesaler and retailers from chili farmers. There are needs for chili yields for 2,000-5,000 kg. per day. Selling bush red pepper at a wholesaling level does not have brand and packaging is of one s own. The bush red peppers are kept in a rattan basket (10 kg.) with rice straw on the bottom. Its cost is 7 baht per basket. The chili yields are sent to markets in Chiang Mai city, Bangkok, and Chiang Rai province. Price of the chili yields depends on wholesaler market in Bangkok. There is no chili yields storage and it is transported through a lorry. The expenses are computed at the place of destination and obtained from returns. Incomes earned from chili selling are estimated to be 100, ,000 baht per year. Farmers Local wholesaler Local retailer Local yields collector Wholesaler outside production area Bangkok market wholesaler Bangkok market retailer Retailer outside production area Marketing Margin of Chili Consumer Figure 2: Distribution Channels of Chili Passing the GAP System in Chiang Mai Market margin of chili is equivalent to 20 baht in which it arises from the difference in the retail selling price of bush red pepper and the price obtained by the farmers (34 baht/kg. and 14 baht/kg., respectively). Marketing expenses include transportation, packaging, and workforce ( /person/ day). The fuel used for transportation to the place of destination (local middleman) costs 100 baht per round. For fixed costs, there is no expense in product storage since needs new and fresh products (chili yields) are needed. Copyright by author(s) 127 The Clute Institute

5 3.2.3 Marketing Obstacle of Chili The farmers earned an income from bush red pepper growing for 10,637 baht/rai or 14 baht/kg. In 2012, bush red pepper yields were scarce and part of it due to impacts of flood and adverse climate in 2011 (Office of Agricultural Economics, 2012). In 2011, the price of chili was low, making some farmers turned to grow maize. This made local middlemen and wholesaling market middlemen expected that bush red pepper yields in 2012 was lessen. Besides, there was an epidemic problem making the standard of bush red pepper did not meet the desired standard of the market. Therefore, the farmers needed assistance from the government sector; particularly on the extension of knowledge about the correct cultivation, prevention and control epidemic. For middlemen, an amount of bush red pepper which was lessens risky for them in the negotiation with the end market. However, they had prevented the risk by buying other types of agricultural yields as well. 3.3 Marketing System of Onion Passing the GAP System in Chiang Mai Marketing Channel of Onion There are 3 distribution channels of onion as follows: 1. Channel 1: an onion yields was sold through onion grower cooperatives and kept in the cooperative warehouse for selling as dried onion yields with a high price during the off-season. 2. Channel 2: an onion yield was sold to local middlemen and then, it was sold to onion grower cooperatives. 3. Channel 3: local retailers sold onion yields to consumers. Onion yields of channel 1 and 2 were sold to wholesalers in Bangkok market and then sold to retailers in Bangkok and provinces as well as wholesalers from another places then, sold to retailer and customers respectively. There are 3 distribution channel of dried onion kept in the cooperative warehouse (Figure 3). 1. Channel 1: the broker of Bangkok market chased by local middlemen was distributed through the following channels: wholesalers purchased onion yields of onion grower cooperatives for selling to wholesalers and retailers in Bangkok. 2. Channel 2: local middlemen sold onion yields to Bangkok market wholesalers and other market outside the area and then it was sold to retailers outside the area. 3. Channel 3: local retailers sold onion yields to consumers. Farmer Broker Onion grower cooperatives Local wholesaler Local retailer Bangkok market wholesaler Wholesaler outside the area Bangkok market retailer Retailer outside the area Consumer Figure 3: Distribution Channels of Onion Passing the GAP System in Chiang Mai Copyright by author(s) 128 The Clute Institute

6 Onion yields of local farmers or in the production area was sold through local middlemen. The local middlemen wanted onion yields for selling with an amount of 8,000 kg. per day. Obtained onion yields was not for processing but it would be sold to whole sale markets in Bangkok and wholesale markets in the production area, i.e. local markets and Muang Mai market. For local middlemen, there was no brand and own packaging. They purchased red netted bags for packaging from a company in Muang district, Chiang Mai (3 baht each). Price of onion yields depended on needs of wholesalers in Bangkok markets. Transportation in the production areas or vicinity was done by using a four-wheel-pickup truck or a sixwheel-truck (10 satang per kg. or ten-hundredth of a baht/kg.). For the transportation to Bangkok, a lorry (a tenwheel-truck) was used and it cost 25 baht/bag Marketing Margin of Onion Yields Marketing margin of onion yields was equivalent to baht. This was due to the difference in the price of sell retail and the price obtained by the farmers (20 baht/kg. and 5.75 baht/kg., respectively). The marketing expenses included transportation, packaging and workforce. For fixed costs, it included warehouse rental of the cooperatives (20 satang/kg.) and refrigerated room service charge (1 baht/kg./month) Marketing Obstacles of Onion Yields The following were problems encountered: 1. An amount of onion yields did not meet needs of markets. This was because there was an increased amount of rain in 2012, making the onion weight does not meet the desired standard. 2. There was an increase in production costs, e.g. workforce, fertilizers, herbicides, insecticides, etc. 3. There was a fluctuated price of onion yields. That was, the price of off-season onion yields was higher than that of fresh onion yields (in-season). However, it was time consuming to get the returns from dried onion yield selling. Besides, the farmers must pay interests since they got a loan for investment. 4. Middle and cooperatives faced a problem in the quality of onion yields which sometimes did not meet desired standards. Besides, the determination of onion yields price was not consistent with production costs. 5. The price of onion yields was depending on the season. That was, it was low during the harvesting season having a great amount of onion yields but it was high during the off-seasons. The onion yields sold the offseasons was in the form of dried onion and time span of dried onion was longer than that of fresh onion yields. To prevent from the fluctuated price, planning on dried onion selling should be done rather than fresh onion yields. The production of onion yields should be planned to be consistent with needs of the market. Besides, a role of cooperatives is important to cooperative members growing onion. This can build the negotiation power in pricing. 3.4 Marketing System Analysis for the Development of Organic Farming Thailand is well recognized throughout the world in vegetables and fruits production in accordance with the GAP system. Based on a report on cost analysis, it was found that farmers producing non-toxic vegetables obtain net returns per rai for about 20, baht. Meanwhile, farmers producing organic vegetables obtain net returns per rai for 22, baht (Chongworakitwattana, 2013). That is, the farmers can increase net incomes per rai per year for about 1, baht if they produce vegetables in accordance with the GAP system. In addition, the improvement of a marketing system which can be connected must be practiced. That is, marketing should comprise 4 similar systems as follows: 1. Member system marketing: it is the oldest marketing form of the organic farming process which the farmer (producer) directly connects with the consumer, e.g. the TEIKEI system in Japan, the Community Support Agriculture (CSA), and the BOX system in Europe and U.S.A. 2. Sunday market (Occasional market): most of this market is located in the provinces (big town) and near crowded places, e.g. hospital and government official office or a space which is convenient for consumers to purchase yields. Copyright by author(s) 129 The Clute Institute

7 3. Specific channel marketing: this is operated by entrepreneurs having the clear policy on organic farming, food for health, and environmentally friendly products. It can be operated in various forms, e.g., a shop selling products for health and good environment and organic products. 4. General marketing: organic market in many countries has been developing at a particular level. It will find that the distribution channel of organic agricultural products is expanding to the general marketing system. This is particularly on in modern trade like supermarkets and big department stores. However, the development of GAP leading to organic farming is a challenging issue for Thailand. This is because farmers there have been engaging in agro-chemistry for a long time. Hence, it needs to develop and place the importance of soil, water system, seeds, care-taking, fertilizer, transportation, logistics system until the yields or products reach the end-users. Importantly, agricultural yields must be certified by the Organic Agriculture Standards Office receiving accreditation from the IOAS ender the supervision of the International Federation of Organic Agriculture Movement (IFOAM). Besides, the GAP plant marketing system must be developed to elevate the marketing standard from the local up to the national level. This aims to make farmers have negotiation power which can obtain a reasonable price for their yields. 4. DISCUSSIONS AND RECOMMENDATIONS Based on this study, it makes us realize the importance and the marketing system of the vegetable production in accordance with the GAP system. This can be furthered or developed to be the system of organic agriculture standard production. It helps farmers perceive marketing channels of vegetable product transportation from the farmer to the place of destination. Also, they will perceive value added of vegetables passing the GAP system. Regarding onion and chili markets, the following are suggestions: 1. The government should accelerate onion exporting as soon as possible. 2. The Customs Department should be strict in imported onion during Thai onion is releasing to markets (January-April) in order to prevent impacts on the price of domestic onion. 3. The Ministry of Agriculture and Agricultural Cooperatives (Department of Agriculture) should keep on producing onion seeds although the climate condition is rather inappropriate. Most imported onion seeds are from Hokkaido (Japan) and Chile. 4. Onion farmers should also grow other plants to prevent from a low price of onion yields. 5. The campaign on Thai onion consumption should be promoted to help the farmers release their onion yields to other provinces. 6. Importing onion yields from other countries should be strict to prevent a low price of Thai onion yields. Chili (Bush red pepper): 1. Data on chili growing must be up-to-date and can be used for production planning appropriately. 2. Thai people must realize the government s policy Thai Kitchen to be the World Kitchen. Thai agricultural products must meet international standards. Production should be on the basis of coordination among concerned agencies and chili farmers. 3. Chili farmers and concerned people (e.g., middlemen) must access agricultural extension, e.g. knowledge about safety system in accordance with the GAP system. 4. Chili farmers must be encouraged to form a farmer group based on the principle of cooperative for strengthening the negotiation power. 5. CONCLUSIONS For the development of organic vegetable yields in Thailand, concerned personnel in marketing systems, middlemen, and consumers should be promote to have agricultural knowledge focusing on the safety system in accordance with the GAP standards. This is because the GAP standard system focuses on safety for producers and consumers, e.g. disease/pest prevention and control, compost production, bio-extract production, etc. Agricultural yields form the producer to the middleman and end-user (consumer) must be safe, without chemical contamination. It can be said that the GAP standard system is the beginning step for the development of the organic farming system. Copyright by author(s) 130 The Clute Institute

8 This helps create sustainability to farmers, middlemen, and consumers based on fair competition in the free trade age; particularly on the ASEAN Economic Community region which will commerce in REFERENCES 1. Chongworakitwattana, S. (2013). Production economy, organic vegetable marketing. (Research Report). Office of Agricultural Economy. 2. Community Information Center. (2009). Onion. Available from 3. Office of Agricultural Economy. (2012) Annual Report. Ministry of Agriculture and Agricultural Cooperatives. 4. Office of Vegetables for Health Project Coordination. (2007). Production, growing, processing, and marketing of chili and chili products in Thailand. Faculty of Agriculture, Khon Kaen University. 5. Prasitratthasin, S. (2001). Research methodology on social science. Bangkok: NIDA. Copyright by author(s) 131 The Clute Institute

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