Strategy Paper for Rural Agroenterprise Development

STEP 2
Market Opportunity Identification and
Market Chain Analysis

T
he marketing study is generally being grown by farmers within the project site
conducted in two stages. The first stage and being sold in the local market. This
is a market opportunity evaluation approach can also be considered as a pilot
leading to the selection of a product(s). The project, so that service providers and farmer
second stage involves a more in-depth market groups can learn how to evaluate markets for
chain analysis on selected product(s). products that are already well known to the
Participatory selection of a product is an farmer groups. The minimum timeframe for the
important part of the decision-making process, enterprise process based on this strategy is one
especially for communities who are evaluating season.
their marketing prospects for the first time.
Using participatory methods avoids top-down Strategy 2. Identification of a new
decisions and allows communities to learn and product (higher risk)
make choices based on their experiences and For more experienced market facilitators or more
risk assessment. organized farmer groups, strategy 2 focuses on
“market diversification”, i.e., evaluating a more
However, it is recognized that in many diverse range of products. This strategy places
agricultural intervention projects, the selection emphasis on evaluating the market demand of
of product(s) can be done as part of a pre- products and most importantly whether demand
feasibility study, based on macro-economic data is increasing, stagnant or declining. The
and expert opinion. If a product pre-selection information gathering in this strategy can be
process is used, the first stage in this process narrowed down to evaluate market information
can be skipped. for only one or two products, such as pigs or
pineapples, or the survey can be broadened to
Matching Product Selection with gather information on a range of products such
Experience as fruits, or vegetables, that are of interest to
specific clients and/or investors. The timeframe
Product selection in this method is done in one
for the enterprise process based on strategy 2
of two ways and the decision on which option to
may extend beyond one season.
select is based on the marketing experience of
the working group members and the level of risk
Planning the Market Opportunity
or innovation that is being sought by the farmer
groups or investor (see Figure 1). For less Survey (Product Selection)
experienced marketing groups we recommend As a first step, the working group should select a
that the team opt for strategy 1 and focus on limited number of members for market survey
“market penetration” approaches with existing team. This group will plan, implement and
products. For more experienced groups and analyze the market survey information. The
particularly those with an experienced market survey team should comprise 4 to 3 members
facilitator, the group can undertake the more maximum and where possible should include
complicated market opportunities identification farmer participation. This survey team begins
process, which focuses on “market the analysis by calling a meeting with farmer
diversification”. group(s) to find out which product(s) farmers are
interested to learn more about, in terms of the
Strategy 1. Selection of an existing product’s market opportunities.
product (lower risk)
This strategy focuses on evaluating demand, If the farmers decide to opt for strategy 1,
market opportunities and prospects for business working with existing products, a decision on
development services that are related to existing products can be made quickly. Product(s) can
products. These are products that are already be selected, based on what crops farmers grow

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Market Opportunity Identification and Market Chain Analysis

that are considered to be of highest income and identify which buyers would be interested to
grown by most group members. Where farmer work with farmer groups.
groups are seeking diversification, strategy 2,
the selection of products, requires a rapid The sample size is not a critical issue in this type
market survey to identify products that are in of survey. It is more important to interview “key
high demand and in growth markets. To avoid informants1” and gain a “feel” for how the
gathering information on too many products, the market operates. Interviewers should follow the
diversification questionnaire usually limits the basic rule that if there are more actors at one
numbers studied (for example, if farmers and point in the market chain that more interviews
other investors are interested in prospects for should be done at this point to gain a more
fruits, pigs, or fresh vegetables). These product representative sample.
“options” will be included in the survey
questionnaire, alongside more general questions Selection of Most Attractive Market
to evaluate demand. Options Using Enterprise Criteria
Having selected a strategy, the survey team are Due to the open nature of the questionnaire in
tasked with developing a plan including strategy 2, the initial stage of the market study
(i) the scope of the survey, (ii) developing may generate a relatively “long list” of up to
questionnaires and (iii) making decisions on 30 products that are “in high demand”. This
where the survey will be administered. See long list needs to be reduced to a manageable
example questionnaire for evaluating products in number for market chain analysis. Products are
highest demand (Illustration 1). eliminated through a three stage filter process
(Figure 4). The first filter removes obvious
The survey team should collect information on
(i) buyer contacts, (ii) products in high demand,
1. Key informants are people who have a good
(iii) trends in demand, and (iv) buying understanding of the market situation from their
conditions. The survey team should also position in the market chain.

Illustration 1. Market opportunities questionnaire, with product option example for fruits.

1. Personal contacts
Name, phone no., position in chain, job, etc....

Products showing good sales growth

2. Compared with last year, how were the sales volumes of your produce (or specifically e.g. fruits) in
your business? greater equal less

3. To what extent have things changed? not much to some degree greatly

4. Which products or (specifically fruits) are in highest demand? Why?

a. b.
c. d.

5. Which produce (specifically fruits) are in scarce supply. Why?

a. b.
c. d.

Buying conditions Product a Product b Fruit a Fruit b

Price
Volume of sales
Quality
Frequency of supply
Minimum purchase
Conditions of payment

Would you be interested in buying produce from a farmer’s group? yes no

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 Strategy Paper for Rural Agroenterprise Development

Filter 1: Obvious discard Filter 2: Selection matrices Filter 3: Farmer decisions

Criteria: Can be grown Criteria: Production, Criteria: Farmers have
in project area, marketing, financial/ casting vote on
investment limit profitability final selection

Final
selection of
Initial long
market
list of
opportunities
products
by farmers

Selection Filter 1: Obvious discard Filter 2: Selection matrices Filter 3: Final selection
rates Many options: 5–10 down to 3–5 3–5 down to 1–2 for
30 down to 5–10 market chain analysis

Figure 4. Selection of market options based on three levels of selection/discard.

SOURCE: Author’s diagram based on MOI process; see Ostertag (2006) and Abele et al. (2004).

discards, such as products that cannot be grown Risk Assessment

in the target area, products that take too long
One of the more difficult tasks, when selecting
before harvest, products that require a high level
products and new business options, is to assess
of investment. This initial set of discard
an appropriate level of risk that a client group
criteria should reduce the options down from
should take on when developing a new
30 to 5-10 possibilities.
enterprise. Tools such as the Ansoff matrix
(Illustration 2) are used to categorize risk
The second level of product screening uses three
options, by comparing types of products and
enterprise filters based on (i) production,
markets. In this matrix, risk increases from
(ii) marketing conditions, and (iii) profitability.
1 (low risk) to 4 (highest risk). Market
Data for these three criteria is collected for each
opportunity analyses of products based on
product and compared. From this analysis, the
demand and profitability will tend to bias results
survey team can prioritize 3 to 5 products to be
towards higher risk options and enterprise
presented to the farmer groups for a final
groups need to be aware of the risks and benefits
selection, these being the most profitable options
from higher profit options.
that can be grown and have marketing
conditions that are suitable for the client group.
The market facilitator can use the Ansoff matrix
A meeting is held with the farmers, where the
to guide groups towards a sensible level of risk
analyzed product assessment data is presented
based on their experience and financial options.
and the farmers have the casting vote on which
In this case, facilitators may advise newly
product should be analyzed via market chain
formed farmer groups to select options that are
analysis.

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Market Opportunity Identification and Market Chain Analysis

Illustration 2. Using the Ansoff matrix for risk assessment.

Existing products New products

Existing markets 1. Market penetration (lowest risk) 3. Product development

New markets 2. Market development 4. Diversification (highest risk)

based on market penetration with the view that represents a market actor. These actors perform
farmers can test new markets in a stepwise a number of value adding tasks, such as
manner. In some cases, farmers may want to assembling, grading and value addition through
start with test plots and market trials before processing, packaging. Between each point
engaging in larger scale supply. For groups with other service providers transport goods between
more experience in marketing, higher risk, value adding stages before the product is finally
higher return strategies are likely to be more retailed to consumers.
attractive. To facilitate the identification of
market opportunities and evaluate prospects for A market chain analysis provides information
diversification, CIAT developed a guide: on changes in price, quality and quantity in
Identifying and assessing market opportunities addition to product and financial flow. The
for small rural producers (Ostertag, 2006). survey team should clarify at the outset, which
part of a market chain will be surveyed and
Market Chain Survey where farmers should be involved in data
collection. In Figure 5, the dotted line indicates
Having narrowed the products down to one or
where a farmer or farmer’s representative can
two options the market survey team moves onto
play their most effective role in studying the
the next task of analyzing the market chain(s).
market chain, but this all depends upon the
The market chain study provides a structured
skills and experience of the farmer’s involved.
way of assessing the roles and performance of
market chain actors, their level of business
Having selected a chain, or part there of, the
organization and the use or potential for
survey will gather information from market
business development services (BDS). The
contacts on buying conditions, opportunities,
results from this type of analysis are mainly
constraints, value addition, finance options and
descriptive and therefore do not require
prospects for growth. The survey will interview
sophisticated econometric skills. However, the
key informants at specific points in the market
study can be complicated and for market
chain and complement this information by
facilitators who have not undertaken this type
interviewing other relevant actors that provide
of work before, it is recommended that they
marketing and business services (Figure 6).
work with an experienced economist to assist in
survey implementation, analysis and report
Rapid methods of market chain appraisal, such
writing.
as that developed by Holtzman (1999), rely on a
semi-structured informal interviews with key
Scope of the market chain survey
observers2 and key informants. This type of
Market chains can be complex, as products can approach enables the team to survey a
have various market destinations and channels, minimum but representative number of
can target different consumer segments (e.g., participants at different stages of the market
rich, poor, young, old, industrial buyers) and chain/subsector.
can involve few or many market chain actors.
The first task of the survey team is therefore to
decide which part of the market chain to study
and the markets to investigate. The information
2. Key observers in this case are defined as persons
in Figure 5 provides a schematic diagram of the
who are not involved in the market chain directly but
many “interconnected market channels” that have considerable knowledge about the product/
can exist for a product, from the primary chain in question and valuable insight into the
producer’s perspective. Each point in the chain context.

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 Strategy Paper for Rural Agroenterprise Development

Product 2
Product 2

Product 3
Int Export

Regional

Product 1

National

Product 1
District

Local

Market Types

Product Types

Figure 5. Schematic of a subsector and its many market chains.

Consumption

Retailing

rs
to
ac Research
ain Trading
ch
et
rk Transportation
Ma
Processing
Govt. policy regulation

Trading Communications

Production input supply

Post harvest
handling
Tech. & business training & assistance

s
ce
Production Financial services r vi
Se

Market information and intelligence

Figure 6. Actors and services that support a market chain.

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Market Opportunity Identification and Market Chain Analysis

Outline of the Rapid Market Appraisal Results from the market chain survey will enable
methodology the team to (i) gain a view of how a commodity
The basic steps in a Rapid Market Appraisal sub-sector is organized, operates and performs,
(RMA) of a product or commodity are as follows: (ii) identify constraints and opportunities,
(iii) identify specific market chains/channels
1. Define the subsector or stages of a subsector that are most appropriate for a client group or
with perceived problems and the need for investor, and (iv) prescribe interventions in
investigation. Draw a subsector map. organization, technology, services and
2. Conduct a focused review of relevant management for a specific part of the chain.
literature and collect and tabulate readily Based on this information the analysis should
available secondary data. identify opportunities and constraints and
3. Identify key areas of investigation, and make suggest how the client can compete in this
strategic decisions about where to allocate chain. In some cases, the survey will identify
time and resources. Identify key observers several potential market options which should
who can assist in defining important issues, be prioritized according to market type,
priorities, and questions for the study. e.g., local, national and export.
4. Identify, select, and conduct semi-
structured informal interviews with key sub- Level of Participation in Market
sector informants. (interview at least Chain Analysis
3 informants at each level in the chain,
The level of participation in these activities
where possible take product sample, cross-
should be a rational decision, based on time,
check answers with other key informants at
resources and scale of the study. We
that point in the market chain).
recommend that where possible clients/farmers
5. Visit physical facilities (e.g., markets,
are involved as much as possible in the process
warehouses, transport and cold storage
in order to facilitate skills transfer and local
facilities) and observe performance of
empowerment. However, we appreciate that this
marketing functions. This activity may
is not practical in all cases. As a rule of thumb,
include going to a millers factory and
the level of participation of farmers will decline
observing the milling operation in action.
as the scale and scope of the study increases. In
From this observation the team will be able
the past the market opportunity identification
to assess information given in the interview
studies were only undertaken by economists or
against the size, throughput and activeness
consultants. Whilst the consultant-led process
of the factory.
remains valid, especially in large surveys, we
6. Share and discuss findings, draft a report,
recommend that the survey be undertaken with
and present it to clients and interested
“farmer representation” to avoid top-down
stakeholders.
processes and increase ownership of the results.
7. Revise the report, based on feedback, and
propose next steps.

·· Development of enterprise plan.

Innovations in technology, institutional
For more details of methods for rapid market
appraisal and participatory approaches to
market analysis, refer to (i) Lundy et al.
arrangements, and organization or
(2006b), Design of strategies to increase the
coordination of marketing functions (and
competitiveness of production chains with
a monitoring plan).

· Further, research that is required to

implement an enterprise option.
smallholder producers and (ii) Wandschneider
et al. (2006), A guide to methods for rapid
market appraisal.

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