Agricultural marketing in a country in transition : case of sweetpotato products in Sichuan, P.R. China

China's achievements in its reform from a centrally planned economy toward a marketing economy during the last two decades are substantial. Although it still has a long way to go to reach its targeted aims, half of China's economy is now 'marketised, or is responsive to market forces (Lawrence, 1998). The influence of the transition on agricultural marketing is significant, particularly when the reforms were initiated by farmers and started in rural areas. The sweetpotato sector, one of the earlier crops to move away from centrally controlled planning, is particularly suitable for a transitional marketing study. Sichuan is chosen as the study area since it is the largest sweetpotato producing and processing province in China. This study investigates the role of agricultural marketing in a transitional economy and how agricultural marketing functions in a transitional economy in terms of market structure, market institutions and market orientation.After an introduction about the research objectives in the first chapter, relevant aspects of the theory of Institutional Economics are applied to agricultural marketing in China's transitional economy in chapter 2. Using a framework of New Institutional Economics as discussed by Williamson (1998), we focus on getting the institutional environment right and getting the governance structure right. The institutional environment is concerned with the rules of the game while the governance structure concerns the actual play of the game. Institutional environment changes in China's agricultural marketing started in 1978 with the advent of new agricultural institutions: the Household Responsibility System (HRS), which replaced the central planning authority. It was then followed by both deregulation of agricultural production and price liberalisation. These transformations abolished the rigid central planning system and redefined the rules of the marketing game. As the institutional environment changed, the corresponding government structure also had to be adjusted, particularly for the traditional marketing institutions, such as the Grain Bureau and Supply and Marketing Co-operatives. The new institutional environment not only required the transformation of the traditional government controlled marketing institutions, but also called for new marketing institutions, such as open markets, wholesale markets and so on.Chapter 3 is devoted to the sweetpotato economy in Sichuan Province from a historical perspective: how sweetpotato production, processing and marketing have changed during the 20 <sup>th</SUP>century. At the beginning of this century, sweetpotatoes were mainly used as a staple food for fresh consumption. Processing and marketing of sweetpotato was constrained by the presence of a subsistence economy in that period. After the communist took over power in 1949, sweetpotato production in Sichuan Province was greatly increased in order to meet the rising demand for food. As a Category 1 crop, sweetpotato production, processing and marketing were strictly controlled by the government. Private sector involvement in sweetpotato processing and marketing was forbidden. At the end of the 1970s, beginning with the introduction of the Household Responsibility System and the deregulation of agricultural production, sweetpotato, a less important crop compared with rice and wheat, enjoyed an earlier start towards the market economy. The main benefits farmers gained from the economic reform were due to the liberalisation policy towards sweetpotato processing and marketing. The government policy of sweetpotato processing has changed from 'forbidden' (before the reform), to 'allowed' (beginning of the reform) and finally to 'encouraged' (currently).In order to investigate the evolution of sweetpotato marketing in a transitional economy, we have analysed consumer behaviour, and the structure and functioning of marketing channels. These are crucial factors in the change of marketing from a planned towards a market economy. Surveys were executed, including two structured questionnaires, one for processing households and one for individual consumers in two counties and one city of the province Sichuan. Unstructured interviews were conducted with actors in the sweetpotato industry, including government officers, crop breeders, processing experts, and market actors (wholesalers, retailers and collectors). The questionnaire design, sampling and data collection procedures are discussed in Chapter 4.Sweetpotato noodle consumption is investigated on the basis of a consumer behaviour model. It is assumed that consumer choice is influenced by three sets of characteristics: individual characteristics, product-related characteristics and environmental characteristics. A series of variables are defined for each of the three sets and a number of hypotheses based on the specified variables are formulated. Is noodle consumption significantly influenced by attitude and by relevant demographic variables? The test result shows a significant relationship between attitude and noodle consumption.We also have studied the impact of a number perceptual variables on noodle consumption. Fifteen perceptual variables are reduced by factor analysis to four factors labelled 'convenience', 'market situation', 'sensory quality' and 'image'. Regression of consumers' noodle consumption on these four factors and on relevant demographic variables shows that 'convenience' and 'market situation' are significant in influencing consumers' noodle consumption. Noodle consumption was also regressed on six important perceptual variables selected on the basis of the importance of their factor loadings. It appears that 'packaging' is the most significant variable in influencing consumers' noodle consumption. Other significant variables include market distance, noodle elasticity and noodle nutritional value. However, no significant relationships are found for demographic variables, such as age, income, region and household size.We also investigated whether variety seeking is important for noodle consumption. Several results show that variety seeking does not significantly influence noodle consumption. However, additional tests show that urban consumers have a higher variety-seeking tendency than rural consumers, and that younger, more highly educated and higher income consumers also have a higher variety-seeking tendency than lower ones.Consumers' preference with respect to sweetpotato noodles is analysed using Conjoint analysis. Four attributes (noodle colour, noodle shape, noodle packaging and price) are used to profile noodle products. The results show that 'price' is the most important attribute while 'noodle colour' is the least important. There is a preference difference for noodle packaging between rural consumers and urban consumers. Urban consumers value 'packaging' more than rural consumers do.So it appears that marketers in the sweetpotato economy in transition will have to pay serious and long-term attention to efficiency of production and marketing in order to keep prices competitive. In addition, they can serve consumers better by improving packaging, nutritional value (no white colour), access to markets and sensory properties. Clearly, the marketing system should adapt in order to serve consumers' needs. Consequently the structure and performance of the marketing system is analysed in Chapter 7 and 8.In Chapter 7, the structure of the sweetpotato marketing system is discussed. This includes all market actors (producers/processors, collectors, wholesalers and retailers) in the sweetpotato sector and their external environment, such as government, R&D institutions, competitors, consumers and others. The rising number of sweetpotato processors, newly emerged noodle collectors, wholesalers and retailers characterise the transition from a centrally planned to a market economy. These new marketing actors actively carry out different marketing functions, such as buying and selling, transportation, storage and processing. Less attention is paid to the facilitating functions, particularly standardisation, grading and marketing information.Another feature of the sweetpotato market in transition is the change of co-ordination mechanisms in the market channel. Co-ordination by government policy is replaced by the conventional marketing channel, whose functions are mainly co-ordinated by market price. In some cases, further co-ordination by administrative procedures can be observed. Sometimes, they are strengthened by family links between actors in the market channels. The external environment of the sweetpotato industry is also described, particularly the relevant R&D institutions and government organisations. Finally, the competitive position of sweetpotato processing in Sichuan is analysed vis à vis Shandong's sweetpotato industry, using Porter's 'diamond' model as a framework. It is concluded that the Sichuan sweetpotato industry is competitive in the domestic Chinese market, but that Shandong has a transport advantage in exporting to Japan and South Korea.The marketing performance of the sweetpotato industry is analysed on effectiveness and efficiency. The assessment of service outputs of the marketing channels suggests that some aspects of distribution outlets for sweetpotato noodles are less effective than those for other types of noodles. Consumers have to travel a longer distance to purchase sweetpotato noodles, which are offered almost exclusively at open markets. Also, the product is not always available.Since wholesalers play very important roles in the market channel, their market performances are is investigated. Three wholesalers deemed typical for small, medium and large-scale wholesalers were analysed with respect to profitability and marketing efficiency. The results show that wholesalers' profit margins vary considerably. Large-scale wholesalers seem to enjoy economies of scale and to make better use of storage capacity than the small ones, which contributes to a higher profit margin. So it might be expected that in the further transition toward a market economy, wholesalers will become bigger.An investigation is also made of which factors enhance integration of noodle processing households into the markets. In this analysis, two groups were first determined by cluster analysis, Cluster 1 being more market integrated and Cluster 2 less market integrated. Compared with Cluster 2, processors in Cluster 1 purchase more starch for noodle processing purposes. They also tend to have long term relationships with traders, do more business with wholesalers and search for more information for price setting. Results from logistic regression show that more educated processors and processors from regions with well-organised markets (e.g. Anyue) have a higher probability of being more integrated in the markets.Changes of marketing channels in a transitional economy contribute directly to marketing effectiveness and efficiency. They also contribute indirectly to the rural economy as a whole. This topic is analysed from the point of view of employment generation, income generation and sweetpotato utilisation. The impact on employment is two sided. On the one hand a market economy enhanced by a more effective and efficient marketing system brings new problems, such as unemployment and reallocation of millions of laid-off rural labourers. On the other hand, new opportunities and demand for more labour are created. Generating new employment is one of the contributions of the expansion of sweetpotato-processing activities.The results of our study are integrated in Chapter 9 using the concept of market orientation (Kohli and Jaworski, 1990). The three dimensions of market orientation: market intelligence generation, dissemination and responsiveness, also seem key dimensions to be considered in changing marketing policies and marketing structures in the transition from a planned to a market economy. Firstly, it appears that consumers' preference and perception are not well understood by marketers (e.g. noodle packaging and noodle colour), and consumers' wants and needs are not always served well because of too great market distance and product unavailability. A market intelligence system at the industry level will have to assist market orientation, since most actors (individual farmers) are still too small to bear the costs of a market intelligence system at the company level. Also, effective dissemination of market intelligence will have to be handled at the industry level in addition to information flows generated by individual actors, such as wholesalers.The responsiveness of the sweetpotato market system to the generated intelligence has to be handled carefully in order to establish effective channels. Effective response to market intelligence will remain difficult for individual households yet because of the small company size, e.g. product development is too expensive. Co-ordination of activities, like by co-operatives, as well as market-oriented government research on product development are still important for a smooth transition of agricultural marketing systems entering into an open market economy.