The demand for processed foods depends largely on the economic situation in a particular country or region. Where economic activity is growing, there is sufficient disposable income and growing urban populations, who form the main markets for commercially processed foods (Case study 7). Examples include the rapidly expanding economies in South Asia, the "Pacific Rim" and some countries in Latin America and Africa, where there has been a corresponding upsurge in small-scale food processing enterprises.
In other areas, low incomes and conservative eating habits create situations in which there is little demand for processed products beyond the usual staples, and in these places the introduction of diversified food processing is more difficult. Similarly, in countries that have opened their markets as part of structural adjustment programmes, the competition from imported processed foods that can be produced more cheaply because of economies of scale or subsidies, may overwhelm small-scale local processors and cause them to fail.
When processing foods for sale, one of the most important activities is to assess the demand for products and the proportion of that demand could realistically be met by a processor who is in competition with other producers. This not only guides the processor to which products to make, but also determines the size of the production facility and the level of investment required. The market investigation should include identification of the likely customers and consumers, and the types of promotion; marketing and selling techniques that are likely to be most effective for them. If a market assessment is not done, and re-done on a regular basis, a business is likely to eventually fail (Case study 8)
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CASE STUDY 7 Changing markets for processed foods In many large Asian cities, increases in the cost of rented property over the last few decades have had a profound effect on the demand for processed foods. Whereas previously, in professional families the income from one parent was sufficient to pay the rent and employ a housemaid, the increased cost of accommodation now means that both parents must work full-time and a housemaid may no longer be affordable. As a result, the parents must prepare meals, but they may have little time available for traditional food preparation methods when they return from work. The demand for convenient, pre-prepared foods has therefore increased dramatically. Products such as spice mixes, cooking sauces, prepared rice and ready-to-eat meals are now being supplied by many hundreds of small-scale processors, who previously had a limited local market for their products. (Source: Author's field work, 1998). |
A simple market assessment can be done by the processors themselves, using the type of questions in Table 8, or they can employ an agency to do it for them.
Consumers' perceptions are not just about price and quality, but may also include status, enjoyment, attractiveness, convenience, health or nutrition. When this information is put together, a marketing mix (Figure 3) can be used to summarize the factors that are special for a particular product. Using the information from a market assessment, processors can identify groups of people who will provide the greatest sales, then refine their product to meet the needs of customers and consumers, and develop a strategy to market their products to these particular people. This involves developing an attractive package, negotiating with retailers, distributors or other buyers, and designing and distributing promotional materials.
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CASE STUDY 8 The need to assess demand for a product In the 1980s, a government-supported factory was set up in a rural area of an African country. It purchased pineapples from farmers within a 20 km radius and transported them to the factory for processing into canned pineapple slices. The capacity of the factory was approximately 20 tonnes per day. However, the factory had never been profitable for several reasons. The demand for canned pineapple slices had not been properly assessed; they were not part of peoples' normal diet as most people preferred fresh fruit, and therefore sales were insignificant. Some retailers reported having stocks of rusty tins that were over five years old, and many said that they sold not more than one or two tins per year. Problems were also encountered with production. The farmers harvested their pineapples too early in order to receive an income as soon as possible for their crop. This meant that the pineapples were small, too acidic and had a pale colour. Their small size meant that peeling losses were proportionately very high (of the order of 60 percent instead of a more usual 25 percent), and the cost of the usable crop was therefore increased almost twofold. Additionally, the acidic flavour and pale colour were not attractive and the canned pineapple did not compete well with products made in other countries. As a result, there were limited export opportunities. The low sales meant that money was not available to invest in the business or pay farmers on time. As a result, fewer farmers were willing to supply the business, equipment was not repaired when it broke down, and the process was only able to operate at about 20 percent of its capacity. This increased the overhead costs, so that the product was sold at a loss. This spiral of decline continued until the factory was forced to close. (Source: Author's field work, 1989) |
TABLE 8 Typical questions for a market assessment
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1) Questions about potential customers and consumers: |
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· Who are the people who are most likely to buy your food (e.g. retailers, hotels, businesses and institutions)? |
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· Who are your expected consumers (e.g families, travellers, children, etc.)? |
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· What do consumers expect in terms of quality or other benefits? |
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· Where are your customers (urban, rural, which towns)? |
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· What are the average income levels of your consumers? |
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· What amounts of food do consumers buy each week or month, and how much are they willing pay for it? |
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2) Questions about competitors: |
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· Who and where are the important competitors, and how many are there? |
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· What are their successes and weaknesses? |
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· How will your product or your service to customers be better than theirs? |
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3) Questions about sales outlets: |
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· Where do your consumers usually buy their food? |
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· Who will sell your product and where are the sellers located? |
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· What are the terms of trade (discounts, payments, etc.)? |
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· How will your product be distributed? |
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4) Questions about your product promotion and marketing: |
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· What type of packaging do customers and consumers want? |
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· How will you use the package to promote the food? |
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· What types of promotion or advertising do your consumers see or hear (e.g. newspapers, radio and television, signboards, posters and leaflets, personal contacts, special promotions, and free samples in retailers' shops)? |
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FIGURE 3 Examples of components of a marketing mix Product Place Promotion Price |
For rural processors, there are five types of geographical markets that they can consider supplying.
1. The home community. The nearest market is customers who are neighbours and other members of the village. Processors can sell foods that other families cannot make because they require special skills and/or equipment, or because of lack of time or other reasons. The main outlets are sales from the home, sales in daily village markets or from local shops or kiosks.
2. Local villages. In many rural areas, people from neighbouring villagers meet in weekly markets that are held in one of the larger communities. Processors can rent a stall in the marketplace, set up roadside stalls for people who are travelling to the market, or rent a shop in the neighbouring village. Similarly, in some countries farmers transport products to rural trading centres, where they are sold to traders or middlemen. Sales outside a village are more important than the sale of foods to neighbours, because for economic development "new" money must be brought into a village, rather than recirculating existing money within a community.
3. Rural towns. Larger daily markets in rural towns attract people from a wider area and have a larger range of income groups who are potential customers at retail shops. There may also be sales to small hotels, bus stations, cafes, etc.
4. Large towns/capital city. These have more limited opportunities for inhabitants to cultivate their own foods, higher disposable incomes and therefore large numbers of potential consumers. Urban residents may also be more willing to try out new or different foods. In some cities, expatriate and tourist populations also increase the demand for a wider range of processed foods. Sales can be made by processors from roadside stalls or rented stalls in daily markets or via retail shops, supermarkets, or wholesale traders/middlemen (Case study 9). There are also opportunities to sell processed food to hotels, institutions and other food processors (Table 9).
5. Export markets. Some types of products that can be produced by village processors are suitable for export. However, the administrative and legal complexities of exporting require assistance, either from local agents, from development agencies (Case study 10) or by creating well-organised producer associations (Case study 11). Large numbers of rural communities have benefited from sales of processed foods to fair trade organizations (Annex A), which buy products such as dried fruits, nuts, cooking oils, shea butter and jams for sale in Europe and other industrialized regions. They assist communities to establish village development programmes and use the income from sales to fund improvements to community facilities.
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CASE STUDY 9 Confectionery making in Peru Maria Canto Zanabria lives in a rural village near Huancayo and has run a food processing micro-enterprise for 10 years making jam and a traditional flour from a local root crop. In 1999, she read an article about chocolate making and started production using Peruvian ginseng. She produces between 200 and 300 packets of chocolates per week, which are sold to intermediaries for distribution to shops in Huancayo. She pays herself a wage and reinvests the rest of the profits in the business to buy better equipment, including different types of chocolate moulds. (Source: Anon., 2001). |
TABLE 9 Summary of different types of markets for small-scale food processors
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Type of market |
Retail |
|
|
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Institutional |
|
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Food service/processing |
Export agents |
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Location |
Sales directly from the processing unit |
Market stalls |
Small shops kiosks |
Supermarkets |
Schools |
Hospitals |
Barracks |
Hotels |
Cafes |
Restaurants |
Other food processing companies |
Mainstream commercial agents |
Fairtrade organizations |
|
Home community |
* |
* |
* |
|
|
|
|
|
|
|
|
|
|
|
Local villages |
* |
* |
* |
|
* |
|
|
|
|
|
|
|
|
|
Rural towns |
|
* |
* |
|
* |
* |
* |
* |
* |
* |
|
|
|
|
Large towns/ capital city |
|
* |
* |
* |
* |
* |
* |
* |
* |
* |
* |
|
|
|
Export markets |
|
|
|
|
|
|
|
|
|
|
|
* |
* |
The types of typical customers in each of these five market categories are shown in Table 9. There may also be specific types of consumers that can be identified for particular food products. For example some foods are more commonly eaten by children (weaning foods, confectionery), by men (meat snack foods sold in bars), by travellers or workers' lunchtime meals (fried fish, bakery products, prepared meals), by students (biscuits, yoghurt, snack foods) or by people attending sports' or social events (juices, bakery products, etc.).
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TABLE 10 Tips for small-scale processors to increase sales in local markets
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CASE STUDY 10 Cashew processing in Sri Lanka Traditionally in Sri Lanka, middlemen hire low-income women in rural areas to process cashews, and then package and sell the processed nuts to buyers and exporters. Although this is an important source of income to poor farming families, the women depend on middlemen to buy the processed kernels and to provide loans. In 1992 Intermediate Technology Sri Lanka (ITSL) received a request from a group of cashew farmers for a more affordable and efficient way to dry cashew nuts. ITSL modified and improved a tray dryer design that had been developed in Peru and adapted it for use in cashew processing. By 1999, eight villages had adopted the improved drying technology and had increased the quality and quantity of their products. As well as improving the technology, the project aimed to empower small-scale cashew processors by helping them to access information on markets for their products, and increase their status within the cashew industry. The groups now grade the kernels according to sizes required by the international market, and processors in four villages are now selling 100 percent of their produce (3 000-4 000 kg per month) to exporters. They are acknowledged as a reliable source of quality products. An indication of the improvements in quality is the percentage of broken nuts, which has fallen to between 4 and 10 percent in villages involved in the project, compared to more than 30 percent in those that have recently joined. The groups conduct their enterprises collectively in order to increase their access to credit and to market their products more effectively. One group has increased its credit from the Rural Development Bank from US$3 800 to US$10 000. These changes have increased women's incomes by more than 10 percent, and families now earn up to US$25-US$30 per month, which has had significant effects on their lives. Not only have they made improvements to their houses, better clothing and education for their children, etc., but the increased incomes have also enabled them to gain recognition and respect within their villages as successful, self-employed business people. On a wider scale, the Cashew Corporation and Export Development Board of Sri Lanka now recognize that small-scale rural processors are capable and reliable export suppliers. (Source: Hildellage, 1999) |
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CASE STUDY 11 Making money from honey In a region of the United Republic of Tanzania that is economically depressed and where poverty is widespread, trade in honey is providing thousands of subsistence farmers with a rare opportunity to earn cash income. In the dry season when the ground is too hard to cultivate, many farmers travel up to 160 km and stay in temporary camps for 2 to 3 months working traditional hives made from hollowed-out logs. The Tabora Beekeepers Co-operative Society, formed in 1962, has grown from the initial 100 members to 6 000 in 36 local branches. It has a processing unit at Kipalapala that can handle 1 000 tonnes of honey per year. The beekeepers separate the honey from the combs and fill it into 20-litre plastic buckets that have clip-on lids. These are the most convenient containers for transporting honey over rough bush roads without spillage. When farmers have collected at least six tonnes of honey, they arrange for it to be collected. A truck from Kipalapala is loaded with empty buckets and follows a route that enables empty buckets to be dropped off at camps on the outward journey and return with full buckets. Each member is given a receipt for the number of buckets of honey that are bought by the Society, at a price that is established at the start of the season. The honey is processed at the Kipalapala unit, and packed into jars for the local market, or in 300 kg drums for export. By 1972 they were exporting 300 tonnes of honey to Holland and 12 tonnes to the UK. However, this collapsed in 1979 when the exports had to be made through a parastatal organization, whose costs were so high that there were insufficient margins to pay the beekeepers. By 1987, changes in legislation allowed the Society to take control of its export marketing and to retain 50 percent of its export earnings. The trade revived and exports resumed. Honey processing enables up to 50 000 villagers and their families to benefit from a cash income without the need for capital investment, and without competing with other rural activities or scarce resources such as agricultural land and water. (Source: Herklots, 1991). |
For many rural processors the main markets for their products are likely to be local (categories 1-3 in Table 9). Attention to the points in Table 10 can increase sales in these markets.
