LITERATURE REVIEW

Concept of Middlemen

Middlemen, also referred to as intermediaries, play a vital part in ensuring that the distribution channel between the producer and the consumer is complete. The more the intermediaries in the supply chain, the higher the distribution channel. The main objective of marketing is to create valuable exchanges between consumers and producers. The market consists of those consumers who are willing and able to purchase products, hence creating exchanges that satisfy both parties.

Examples of middlemen include wholesalers, retailers, agents and brokers. Wholesalers and agents are closer to the producers. Wholesalers buy the goods in bulk and sell them to the retailers in large quantities. Retailers and brokers acquire the goods from the wholesalers and sell them in small quantities to the consumers. Consumers may also choose to bypass the intermediaries and buy directly from the producers. This is referred to as disintermediation.

Products purchased from your favorite stores often involve distribution from a variety of sources. Getting a product to the market largely requires an effective marketing channel for companies that manufacture durable goods and other products. A supply chain typically features various middlemen between the manufacturer and the consumer, such as distributors, wholesalers and retailers.

Distributors

Distributors frequently have a business relationship with manufactures that they represent. Many distributors maintain exclusive buying agreements that limit the number of participants or enables distributors to cover a certain territory. The distributor becomes the manufacture’s direct point of contact for prospective buyers of certain products. However, distributors rarely sell a manufacture’s goods directly to consumers. Wholesale representatives and retailers generally find distributors to buy products for resale.

Wholesalers

Wholesalers generally buy a large quantity of products directly from distributors. High-volume purchase orders typically improve a wholesaler’s buying power. Many distributors provide discounts for a certain number of items purchased or the total amount spent on merchandise. Wholesalers acquire merchandise, such as telephones, computers, bicycles, clothing, televisions and furniture. The goods are frequently destined for retailers.

Retailers

Retailers consist of small and large for-profit businesses that sell products directly to consumers. To realize a profit, retailers search for products that coincide with their business objectives and find suppliers with the most competitive pricing. Generally, a retailer can buy small quantities of an item from a distributor or a wholesaler. For instance, a retail merchant who wanted to purchase a dozen lamps could contact lighting distributors to inquire about pricing.

Middlemen Role

The core function of intermediaries is to deliver goods to the consumers when and where they want them. To achieve this, they buy the products from the producers, store them as they search for viable markets, and then transport them to the consumers. In the process, they assume any risks facing the goods -- for instance, theft, perishability and other potential hazards. In addition, middlemen promote the goods to the consumers on behalf of the producers.

Intermediaries are very important players in the market. Both the consumers and producers gain immensely from the roles of middlemen, who ensure that there is a seamless flow of goods in the market by matching supply and demand. Intermediaries provide feedback to the producers about the market, thus influencing the decisions made by the manufacturers. Buyers, on the other hand, gain from the services offered by intermediaries, such as promotion and delivery. Buyers can get the right quantity they want, as intermediaries are able to sell in small units.

Effect of Middlemen Role on Price

Regardless of the important role they play, there are some disadvantages to having intermediaries in the distribution channel. As the goods are exchanged from one intermediary to the other, their prices inflate. The rationale behind higher prices is to cover expenditures on the goods such as warehousing, insurance and transportation costs. Intermediaries are also out to make profits; hence they have to include some profit markup in the sales. Consumers then bear the price of having intermediaries in the channel.

Concept of Performance

The term of performance has been defined repeatedly and at different times in the social evolution and it is in a continuous development, without having reached an agreement, because there is a numerous series of factors which influence performance directly or indirectly, such as the activities performed by the entity, the interests and the objectives of each economic entity. The term of performance has a Latin origin, where the verb ‘performare’ had the meaning of finalizing a predetermined activity. Nowadays, the significance of performance comes from the English language, from the verb to perform, which signifies the regular accomplishment of a thing that requires ability or a certain skill. The noun performance denotes the manner of achieving the objectives predetermined by an entity.

Market performance

Kizito (2008) defines the market performance as the extent to which markets result in outcomes that are deemed good or preferred by society. Market performance refers to how well the market fulfils certain social and private objectives. These includes price levels and price stability in long and short term, profit levels, cost, efficiency and qualities and quantity of food commodities’

other scholars defines market performance as to the impact of structure and conduct as measured interns of variables such as price, costs, and volume of output, by canalizing its level of marketing margin and their cost components, it is possible to evaluate the impact of structure and conduct characteristics on market performance (Bain, 1968; Bressler and King, 1970, cited in Pomery and Trinidad, 1995).

The two major indicators of market performance are net returns and marketing margins. Estimating net returns and marketing margins provide indication of an exploitive nature when net returns of buyer are much higher than his fair amount. Net returns can be calculated by subtracting fixed and variable costs from gross returns.

The mathematical formulation is:

NR P V (FC VC) I I =Σ − +

where,

NR is Net Return, P is price,

V , is amount,

FC is fixed cost and VC is variable cost.

One of the major discussions in the contemporary market strategy refers to the decisive factors of the company’s performances. Teachers from various fields focused on explaining the company performance and on identifying the sources of different levels of inter-firms’ performance. (McGahan and Porter 1997).

Nicoleta Barbuta-Misu (2008) states the fact that performance in a modern company may be defined as a state of competitiveness achieved through a high level of efficiency and productivity, having the goal of assuring a durable position on the market.

Nadia si Cătălin Albu (2005) consider the concept of performance as not being easy to define, because it is an ambiguous and integrative concept. Performance means success, competitiveness, achievement, action, constant effort, it is optimizing the present and protecting the future.

Profitability is a form of economic efficiency which highlights the financial results of an enterprise. It summarizes the quality of the conducted activities at every stage, at all levels; it synthesizes the productivity of factors of production consumption, the performance of all developed activities. Maximizing profitability is the aim of any capital holder, the goal of the entire activity taking place in a market economy. Profitability provides resources for both developing the respective economic activities and for increasing personal and public consumption.

Burja C. (2009) considers that the yield determined by the efficiency of using fixed assets expresses the report between the useful economic effect synthesized by a series of summary indicators (goods production, turnover, value added, profit) and the value of fixed assets provided by the economic agents. When you want to analyze the economic-financial performance of an entity it is used a series of indicators which transpose the achieved results on one hand and, on the other hand, the efforts made to have results with the purpose of achieving an analysis of the efficiency of the whole developed activity.

To summarize the above, we can say that performance represents a state of uninterrupted effectiveness of an enterprise reached by a level of efficacy, economies and productivity(efficiency) which can guarantee a stable position on the market, position which must be improved permanently, considering the intense competition of our days.

As a result, efficacy represents a quantification of what is done, efficiency represents an indicator of how it is done and economies is a measure of the minimum cost of providing the sources for developing the activity; and the primary aim is reaching the objectives, simultaneously with providing the growth of maximum possible value. The growth of value is found under different forms and this growth of value is presented as such to the users of accounting information such as shareholders, suppliers, clients, employees, banks. The higher the growth of value is at the organization level; the more resources it has in order to be able to reinvest them in the competitive struggle on a long term.

Marketing cost and margin of Rice marketers

The marketing margin refers to the difference between prices at different levels in the marketing system. The total marketing margin is the difference between what the consumers pays and what the producer/farmer receives for his paddy or rice, in other words it is the difference between retail price and farm price. A wide margin means usually high prices to consumers and low prices to producers.

The total marketing margin may be subdivided into different components; all the costs of marketing services and profit margins or net returns. An analysis of marketing costs would estimate how much expenses are incurred for each marketing activity. It would also compare marketing costs incurred by different actors in the channel of distribution.

Marketing Channel

Kohls and Uhl (1990), cited in Duc Hai, (2003) define marketing channels as “alternative routes of product flows from producers to consumers”. They focus on the marketing of agricultural products, as does this study. Their marketing channel starts at the farm-gate and ends at the consumer’s front door. The marketing channel approach focuses on firm’s selling strategies to satisfy consumer preferences.

Kotler (2003) also explains marketing channels as a set of interdependent organizations involved in the process of making a product or services available for use or consumption. Most producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel also called a trader channel or distribution channel.

Paddy rice Marketing Channel

Paddy rice trading in the study area goes through some intermediaries before it reaches the final consumers. They include the farmers or producers, the millers (rice millers and some farmers who own mills), the wholesalers, assemblers (rural and urban assemblers inclusive), the retailers and finally the consumers.

The producers are the farmers in the interiors of the rural areas who farm rice in paddies. They supply to the millers or wholesalers depending on closeness, cost efficiency and demand. The millers are in some cases rice farmers who engage in rice milling or big company mill owners they may also be some mills established and managed by the government. They purchase the paddy rice directly from bulk producers at farm gate prices. The wholesalers buy from the mills in bulk while the retailers mostly buy from the wholesalers in smaller bulks.

Thus, rice produced by farmers are distributed through the agents to the wholesalers to the retailers and ultimately to the consumers.

Paddy rice production in Nigeria

Rice is an increasingly important crop in Nigeria. It is relatively easy to produce and is grown for sale and for home consumption. In some areas there is a long tradition of rice growing, but for many, rice has been considered a luxury food for special occasions only. With the increased availability of rice, it has become part of the everyday diet of many in Nigeria.

There are many varieties of rice grown in Nigeria. Some of these are considered 'traditional' varieties, others have been introduced within the last twenty years. Rice is grown in paddies or on upland fields, depending on the requirements of the particular variety; there is limited mangrove cultivation. New varieties are produced and disseminated by research institutes, or are imported from Asia. The spread of these strains is determined by their perceived success, and farmers multiply seed for their own plots when they see a variety doing well in someone else's field, or if a variety is fetching a good price in the market. It seems also that strong political factors affect the dissemination of varieties; the most striking example of this is a rice called "China", imported to Nigeria around twenty years ago by a political figure and now grown everywhere despite the fact that seed trials carried out by NCRI declared it unsatisfactory.

The fields cannot be ploughed until after the first rain, generally in May or June. During the oil boom many farmers had access to tractors, but most now undertake all land preparation and harvesting by hand. Generally, tasks are allocated along gender lines, but in some areas men and women work together. Women are typically responsible for the transplanting of seedlings to the fields and threshing, whilst it is often the men who hoe.

Most farmers produce one rice crop each year, but some have made irrigation channels which allow them to reap two or even three harvests in the year. This allows them to plant seedlings when there is less danger from disease or pests. At the same time, frequent planting exhausts the soil more quickly and, as fertilizers are expensive, many farmers are noticing the falling productivity of the soil. Fertilizers and herbicides are expensive, and rice is favoured as a crop because it needs fewer inputs than maize. Some farmers use organic fertilizers, including a method of green manuring by which grass is allowed to grow and is then ploughed back into the soil. The use of organic fertilizers, though, is time consuming, and is not widespread; many farmers resign themselves to buying fertilizers which they consider to be too expensive.

Once the fields have enough water the rice grows quickly with some varieties reaching maturity within three months. Some farmers grow the rice seedlings in nurseries and then transplant them into the main fields, as this reduces vulnerability to disease; others see the transplanting process as too costly in time. Varieties which mature quickly are preferred by farmers, as this reduces risk of exposure to disease and allows the land to be used for other crops. Whereas it was unusual for more than one crop of rice to be grown each year, many farmers relay rice with other crops, particularly sorghum. Fish provide the farmers with another resource; when the river flows into the fields at the beginning of the season, many fish are swept in with it, and can be easily caught with nets or hooks.

Empirical Review

Many studies conducted in analyzing the market participation and volume of sale in different crops. Abay (2005) and Rehima (2006) studied the market participation of vegetables and pepper marketing at Fogera and Siltie Zone, respectively. Their studies indicate that both where used Heckman two step model to identifying the factors that affect the market participation and volume of sales. The results show that distance from main road, frequency of extension contact and number of oxen were found significant for onion while experience of the farmers and distance from road were significant for tomato. The identified variables found in pepper marketing study were pepper production, crop yield of the households and extension contacts. Similarly, Makhura (2001) determined the effect of transaction costs on market participation in the four commodities horticulture, livestock, maize and other field crops in South Africa. He estimated by following Heckman two-step procedure (heckit). The variables were household endowment, access to information, household characteristics and interaction factors. He also used Tobit model to answer the two questions by identifying the factors affecting the decision to participate and the level of participation at the same time.

In connection to the above studies Gebremedhin and Hoekstra (2007) identified determinants of household’s market participation of three crops (teff, wheat and rice) from three districts of Ethiopia (Ada, Alaba and Fogera). For analysis, they used community level and household level data. At the household level, Probit model was used to analyse the determinants of household choice to produce these market oriented crops. Also Heckman two-steps estimation was applied for the two crops (due to data availability rice result was not given) and the result shows that distance to market place didn’t have effect on market orientation, there was a Ushaped relation between age of household head and market orientation of household in the cereal crops, availability of cultivated land, traction power, and household labour supply, are important factor that induces households to be market oriented.

A survey by Tesfaye et al. (2005) identified the challenges of the rice production, utilization and marketing of rice at Fogera, Dera and Libokemke districts. The studies pointed out both production and market constraints and more recommendations were forwarded. On the same area, Wolelaw (2005) identifies the main determinants of rice supply at farm level. The study uses Cobb Douglas production function model to estimate the limiting factors. The result that identified were, the current price, one year lagged price, actual consumption in the household, total production of rice in the farm, distant to the market and weather variables were significant to influence the supply of rice. A similar study on production part, Moses and Adebayo (2007), examined the factors determining rainfed rice production in Adamawa state (Nigeria). Production function analysis was used to analyze the factors. The result shows that two of the variables used (farm size and seed) were significantly affect the production. Also resource productivity analysis revealed that seed was over utilized, while land and herbicide were underutilized. Decreasing the quantity of seed use and increasing the size of land and quantity of herbicide respectively could increase efficiency.

Duc Hai (2003) also studies the organization of the Liberalized rice market in Vietnam. The result shows that the major rice market places were competitive. That is (1) no barriers to entry are detected that influence the formation of prices; (2) there is no concentration of market shares in the hands of private companies; (3) product differentiation is not a major issue in the market; (4) information is accessible for traders. However, in the case of largescale millers/ polishers, important barriers to entry concern access to capital, an unstable output market and proper milling technology. The study by Harahep (2004), Rice chain study in farmers’ community in North Sumatra/Indonesia, shows that paddy/rice distribution was one factor that determines rice supply in consumer level. Main actors in conventional rice chains were the capital owner both in village level (small rice chain owner, and paddy retailer) and in outside village level (whole seller and big rice mill owner). These owners controlling the chains implement strategies such as a) giving credit to peasant for production and even living cost, and (b) developing human relationship with peasant. Within these strategies, the owner of chain structurally, made peasant in a high dependency to them.