The performance of potato markets in South Western Uganda

Market-oriented farmers play a significant role in the rural agricultural sector in Uganda. However, these trader-farmers are often disadvantaged by limited access to information, services, appropriate technology and capital. These factors restrict their capacity to effectively participate in the marketing of their produce. In many instances farmers, including those in the potato innovation platforms (IPs) of Southwestern (SW) Uganda are relegated to the lower end of value chains where they are price takers with little bargaining power. Therefore they end up earning little margins while giant chain actors along the chain like middlemen have the power to determine prices paid by the final consumer and thus extract huge marketing margins. This study aimed at identifying marketing channels of potatoes from the farm to consumption; identifying marketing constraints faced by farmers and traders in the potato marketing chain in SW Uganda; and assessing the marketing performance of potato markets. Data were collected in July 2010 from 291 respondents in 2 IPs in SW Uganda. Descriptive statistics were used to characterise potato traders and farmers while Gross Margin Analysis was used to determine the market performance for different potato varieties. Purchase prices varied by district between UgSh350/kg for Rwashaki variety and UgSh531/kg for Kinigi variety. Sutama and Victoria varieties had the highest marketing margins in Kabale and Kisoro districts respectively.


INTRODUCTION
In Uganda, potatoes 1 are grown in the highland areas (1,500 -3,000 masl).The major production areas are Kabale and Kisoro districts in SW Uganda which produce the bulk of the crop.Kabale alone produces between 50 1 The term potato is widely used to refer to the solanum potato, differentiating it from sweet potato the tuber and 60% of the total annual ware potatoes 2 consumed in Uganda.The 2 districts are followed in production by Mbale and Kapchorwa on the slopes of Mount Elgon in Eastern Uganda.However, production of potatoes has now spread to other districts of Uganda (Ferris et al., 2002).
Potatoes are considered a source of both food and income, thus development of the potato sector can improve livelihoods of rural dwellers in Uganda in the context of urbanization and market integration (Horton, 2008).Urbanization, increasing incomes, market liberalization and direct foreign investment are causing changes in the food marketing systems (Kennedy et al., 2004).In addition, increased participation of women in the labour force has led to transition from traditional staple foods to convenience foods.The changes in the marketing of food products have thus led to a shift from informal to formal market channels.
Formal marketing channels are characterized by standardized branded products, use of efficient, integrated marketing, logistical, and financing processes.In addition, the terms of production, processing, procurement, payment and product type are set by buyers and not producers.This is due to the demand by urban consumers who require high quality products at consistent prices throughout the year.Supermarkets are becoming significant players in vertically integrated food marketing systems.Other market players include hotels and fast-food outlets.These trends confront smallholder farmers with market challenges and opportunities.As a result of such trends, the livelihoods of smallholder farmers are being influenced by the demands of urban consumers, market intermediaries, and agricultural (food) industries (Horton, 2008).
Often smallholder farmers have limited access to marketing information, services, technology and capital.This lack of access restricts the capacity of the smallholder farmers to participate efficiently in the marketing of their produce (Horton, 2008).Consumers need standardized products, yet these farmers have little knowledge of consumers demand and hence cannot produce what the market needs.Even if they produce what the market needs, they may have little information of reliable and profitable markets.In such circumstances, there is potential exploitation of farmers by the middlemen and wholesalers in the chain because the market value of the potatoes is subject to very limited negotiation, given that almost all farmers sell to middlemen at the farm gate.The exploitation is further exacerbated by absence of standardized packing and weighing scales (Hoffler and Maingi, 2005).The growing demand for potatoes in urban areas could therefore contribute positively to the development of the rural areas and the overall economy of Uganda if there is 2 way efficient flow of market information.
High marketing margins exist either because of monopolistic elements in the marketing chain or because the real costs of marketing are high.High marketing costs may be due to poor marketing services and infrastructure.Thus, improving the marketing services such as storage, transportation, and processing can lead to improvement of rural income by reducing marketing costs (Fuglie, 1993).Farmer collective action has also been proposed as a way of improving the welfare of smallholder farmers in the emerging high-value agricultural markets (Horton, 2008) as it can improve the bargaining power.
Production of potatoes in Uganda is basically for subsistence use (mainly household consumption) with limited surplus for sale in order to earn income despite enormous opportunities for national, regional and global trade.There is limited cross-border trade with Rwanda, but this only occurs to meet the very short term potato supply shortages (Okoboi, 2001;Ferris et al., 2002).The potato value chain is not well organized or integrated because producers, transporters, marketers, wholesalers and retailers are fragmented.This lack of organization is one factor that isolates the potato sub-sector from regional and global markets.There are few initiatives for collective action in potato production and marketing and those existing are in their infancy and widely scattered (Ferris et al., 2002) leading to limited or no integration of stakeholders along the potato value chain.
With increasing population and urbanization and thus growing demand coupled with the increase in fast food restaurants and supermarkets, the potato sub-sector in Uganda is bound to expand.This was noted by Ferris et al. (2002) who estimated the demand for potatoes to be approximately 850,000 to 1,000,000MT per year by 2015.Production volumes increased from 478,000MT in 2000 to 695,000MT in 2010 (FAOSTAT, 2012).This is an opportunity for potato farmers to increase production and productivity of improved and suitable potato varieties, which will in turn increase their income and improve food security and livelihood.
Given the challenges and opportunities that smallholder farmers face in Uganda, it is important to identify and compare marketing challenges as faced by potato farmers and traders in selected Innovation Platforms 3 in addition to estimating the marketing margins in the potato trade.An important contribution of this paper is the comparative assessment of constraints at different parts of the potato market chain hoping to identify common constraints and possible solutions and concerns along the length of the potato marketing chain.
The objectives of this study were to: (a) Characterize potato farmers and traders in selected Innovation Platforms (IPs) on the basis of potato volumes and varieties traded, type of trading business, sources of financing, customer base and pricing strategies; 3 An Innovation Platform is a tool for bringing together multiple stakeholders for visioning, planning and implementing or application of new ideas, practices, services which arise through interaction, creativity, insight, and empowerment.The aim of the Innovation Platform is to improve the existing situation /conditions around a common interest/challenge and thereby bring about a desired change.It is a forum for sharing and creation of new knowledge gaps relevant for planning explicit systemic innovation agricultural development strategies (Tenywa et al., 2011).

Conceptual framework
Farmers seek to maximise profits from the sale of their agricultural produce by exploiting the margin or the difference between what the consumer pays and the amount producers receive.Margins represent the price charged for one or a collection of marketing services.
Along the market chain, margins reflect the value added or the price of all utility adding activities at each level of the market chain.The concept of marketing margins has been defined variously by a number of researchers (FEWS NET 2009, Arene, 2003;Minot and Goletti, 2001;Abbott and Makeham, 1986) all of whom contend that marketing margins are an important tool in analysing the performance of marketing systems.They measure the portion of the consumer's food expenditure that goes to food marketing.Marketing costs and profit margins which make up marketing margins can be both indicators of efficiency or inefficiency of marketing systems and act as incentives or disincentives in business sustainability (Achike and Anzaku, 2010).The concept of margin analysis offers a chance to understand market conditions made by different decision makers in the market.When looking at the concept of margins, it is imperative to consider the flow of agricultural commodities along the marketing chain.This angle enables the consideration of the relationship between and amongst the different players and the share of the total margin claimed at each stage.This enables the determination of margins at various stages given that margins are likely to differ for different stages.Therefore in order to make a complete analysis of marketing margins, one needs to analyse the complete flow of goods.This can be achieved through use of market-behavior equations (Carambas, 2005).For example Smith (1992) elaborates the concept of costs and margins using the farmers' share of retail price thus: Farmgate price Farmers' share (%) = × 100 Retail price And further uses the above to obtain the Total Gross  Margin as: Retail price -Farmgate price Total gross margin (%) = X 100

Retail price
The Ugandan potato marketing chain has various actors including collectors, retailers, transporters, wholesalers and farmers.In this study we adopt the Gross Marketing Margin model as suggested by Mendoza and Rosegrant (1995) to analyse the margins of traders because of their central position in the potato marketing chain.
Selling price -Supply price Marketing margin (%) = X 100 Selling price

Study area
The study was conducted in Kabale and Kisoro districts which are situated in South-Western Uganda.The districts are currently the leading potato producers in Uganda.The 2 districts have various types of traders in the potato market chain and thus were purposively sampled for the study.Both districts were part of the Sub-Saharan Africa Challenge Program (SSA-CP) as pilot sites where an Integrated Agricultural Research for Development (IAR4D) initiative was conducted.The road ne2rk in these districts is all weather and thus transporting potatoes to urban areas for marketing is feasible all year round.

Data collection
Data were collected in July 2010 using pre-tested structured questionnaires.Information collected included household characteristics, communication equipment, sources of business finance, type of traders and their customers, types of potato varieties traded, quality characteristics considered, pricing strategy, produce grading and mode of transport.Direct one-on-one interview sessions were held with 291 randomly selected respondents, including 140 potato traders and 151 potato farmers in 48 villages in 3 sub counties (Table 1).

Data analysis
Descriptive statistics (frequencies and percentages) were generated from the data and used to characterize potato farmers and traders in the IPs and to identify and compare marketing constraints across different actors in the potato trade.The analyses were conducted using a standard Statistical Package for Social Scientists (SPSS) version 17.0.

Empirical model
Gross marketing margins made by the traders were calculated for each potato variety as follows: Where; Q1i is the average quantity (kgs) of potatoes supplied to the i th trader, P1i is average purchase price (UShs) paid by the i th trader to the farmers and V1 is the average value of potatoes at the farm gate.To determine the average quantity of potatoes reaching market, Q2i: , and Where PL is the percentage loss, QLi is the quantity lost by the i th trader before selling potatoes (obtained by multiplying quantity supplied by percentage loss).In order to determine the average value of potatoes after adjusting for the losses, 2 Where i P 2 is the average selling price by each trader in the market.Thus: Where GMM is the gross marketing margin.It is the proportion of revenue that traders retain as gross profit, expressed as a percentage.

Respondent characteristics
The majority of the respondents in both districts were males (for traders, 50.5% in Kabale and 89.2% in Kisoro, and for farmers, 63% in Kabale and 68.6% in Kisoro (Table 2).In Kabale about equal numbers of males and females were involved in potato trading reflecting equal proportion of gender types in potato production and trade further reflecting the crop's importance as a source of livelihood for people in this area.In both districts, the majority of respondents in the selected sample were in the 31 to 50 year age-group.In Kabale, 63% of the traders and 49% of the farmers were in this age-group while for Kisoro, this age group formed 47% of the trader sub-sample and 60% of the farmer sub-sample (Table 2).The majority of respondents in both districts had only attained primary level of formal education or no education at all, that is from 0 to 7 years of schooling.Few traders and farmers had attained higher than secondary level education.Most traders in both districts had up to 10 years of trading experience.Overall retailers formed over half the trader sample with proportions as shown in Table 3.
The second most common type of trade was the wholesale business as indicated by the percentages of 32.9% for the overall sample (and 31 and 38% in Kabale and Kisoro, respectively).Traders did not significantly  2002), the potato value chain contains a number of participants/traders.They are Wholesalers-these are traders who get their supplies from travelling traders.They rarely buy from farmers; Retailers-these range from supermarkets to roadside sellers and buy about 1-5 bags from the wholesalers and sell them in heaps of various sizes; Transporters (at times called travelling traders)-are traders who either own trucks or hire them for buying potatoes from farmers or village traders and then transport and sell to wholesalers and urban traders in other district markets; Collectors-these are village traders who know farmers in their village and surrounding areas and make it their business to know which farmers are ready to harvest.They are in contact with transporters, wholesale buyers and financial service providers; Agents/Brokers-are one of the prominent participants in the potato marketing chain and are a contact for travelling traders and wholesale buyers to farmers, as well as the key link between farmers and traders.
process the product either in order to lengthen the shelf life or add value to the final product.As such few other trader types are observed in both districts.These findings suggest that the potato marketing system is still in its infancy and a lot needs to be done in order to add value in the market chain.Respondents reported several sources of income, the commonest being income from trading businesses.
In both districts, traders also obtained income from growing and selling their own crops, hence the potential for expanding potato production.Other sources of income for traders were from sale of livestock, and from loans, wages or salaries.This broad range of activities reflects the desires of the traders to diversify their income sources in order to manage risks.However, this also may imply that these traders and farmers may not be able to commit all their time to one activity which may hinder intensification of potato production and marketing.

Quality characteristics in potato trade
Traders look for a number of quality characteristics and attributes when buying potatoes.The study revealed that traders in both Kisoro and Kabale preferred large-sized potatoes because of the suitability for making chips (French fries) (Table 4) and hence can penetrate the market easily.Traders had little preference for other potato characteristics.This implies those characteristics are of less importance to determine marketing of potatoes.Therefore any improvement in the potato production for attracting consumers/market should first consider size.When the marketing system develops further and becomes more integrated, information flow should be greatly enhanced such that the producers get feedback about the consumer desires and hence production becomes demand driven.This demand responsive production would be a great stride towards more effective resource use in the marketing system.The most important criteria for grading potato were variety, size and colour as determined by consumer preferences in the market.Overall 73.5% of the traders considered variety as the most important grading criterion followed by size (66.4%) and color (48.6%).In both districts this order of grading preference was maintained.However, there was an additional important criterion -cleanliness, for Kisoro district where it scored 32.4% as opposed to Kabale district where it scored 1.9%.These grading standards are indications of moment towards a well functioning marketing system.However, it was not clear whether consumers were willing to pay premium prices for the best quality and grades.

Types of potato markets, pricing strategies and product transportation
Traders operate in a number of markets (Table 5).Shops constructed in the trading centers, stalls constructed in markets and trading spaces in open markets formed the  commonest points for marketing produce.In Kabale, the majority of traders (52.4%) operated from shops constructed in the trading centers, followed by open spaces in markets (25.2%), stalls in markets (24.3%) and road side markets (20.4%).In Kisoro the majority of traders interviewed (37.8%) operated from shops constructed in the trading centers (40.5%) and in open spaces within the market.
Traders had various ways of determining prices of their produce (Table 5).Overall, the major pricing strategy in both districts was the cost plus strategy (43.5%) followed by going rate at 25% and target profit (22.1%).Negotiation was not a major pricing strategy.The ordering of importance of these pricing strategies is not different across the 2 districts.The cost-plus strategy is important given that traders incur costs during their trading activities and simply look to meeting the costs of trading without necessarily making profit.In addition, the fact that about a quarter of traders priced at the going rate confirms why negotiation was not a major pricing strategy.

Potato varieties traded in Kisoro and Kabale Districts
Rwangume was the most traded (47.6%) potato variety in Kabale followed by Kinigi (40.8%), and Rwashaki (18.4%) (Figure 1).In Kisoro however, the most traded variety was Kinigi (51.4%).In general potato traders did not trade the other varieties including Rwashaki, Victoria and  Sutama.The observed differences are due to differences in tastes and preferences for the varieties.

Potato marketing channels and transportation modes
Ware potatoes are relatively highly perishable and due to limited on-farm storage facilities thus they are normally moved quickly to buyers/consumers.There are various participants in the ware potato market chain namely: farmers, village traders, brokers, transporters, mobile traders, wholesalers, retailers, processors, restaurants/ fast food outlets and consumers as displayed in Figure 2.
In ware potato marketing, farmers form the first link in the supply chain.They are also consumers of their own produce as well as other farmers' produce.Some farmers  sell their potatoes to the rural consumers on-farm or by the road side or in the weekly village markets.However, the main channel through which farmers sell their produce is through the village traders.Farmers also sell directly to travelling traders or urban brokers.Village traders sell potatoes directly to the travelling traders or urban brokers mainly from Kampala and also from other towns.Some village traders also double as brokers.
Brokers provide the link for other market participants to each other especially to farmers.
Travelling traders may own trucks or hire them for buying potatoes from farmers or village traders.Travelling traders then transport and sell the potatoes to wholesalers, processors and retailers like supermarkets, shops and restaurants, fast food outlets in other towns mainly Kampala.Travelling traders know the best varieties required especially for chips and crisps (potato chips) and so tend to dominate the chain.Wholesalers sell their potatoes mainly to the urban retailers.Urban retailers (supermarkets, shops, local markets and restaurants or fast food outlets) then sell them in the various grades (heaps, tins, kilograms or as prepared food).
Potato processors obtain their supply directly from travelling traders or urban brokers.They mainly sell their products to supermarkets or shops.Consumers are the final link in the potato market chain.They obtain their raw produce and processed products from urban retailers, restaurants, fast food outlets, supermarkets and shops.
Table 6 shows the percentages of farmers in the district that had access to the different transportation/ delivery modes.The most common means of transport for potatoes in both districts was hired vehicles (19.2%) with Kisoro having a higher percentage (21.6%)than Kabale (18.4%).The second most common means of delivering produce to markets in Kabale was carrying it on heads/shoulders/backs (12.6%) followed by nonmotorized bikes (3.9%).In Kisoro the second major mode of transport used was the non-motorized bikes (8.1%) followed by people carrying produce on their heads/shoulders/backs (5.4%).The other means of transport were not used much in both districts (Table 6).A good number of traders in both districts (on average 39.2%) sold their produce either by the roadside or at home markets and therefore did not incur transportation costs.It is worth noting that the steep terrain in these districts largely prohibits motorized transport especially in the rural areas making collection of produce problematic.

Constraints in potato marketing
Traders in both districts encountered various constraints in the marketing of their produce (Table 7).The most serious constraint faced by Kabale traders was that of low prices at the time of sale.This could be due to the nature of the supply chain where middlemen determine the price the consumer pays and other chain actors become price takers.It could also be due to the perishable nature of potatoes and lack of proper storage facilities, so potatoes cannot be stored long after harvest until prices go up.In Kisoro traders reported high cost of transport as the main marketing constraint.Farmers and traders linked marketing constraints to institutional inadequacies (Table 7).For example for traders, institutional constraints included low prices at the time of sale, high prices at the time of purchase, delayed delivery of produce, and long distances to markets.

Table 1 .
Number of Respondents.

Table 2 .
Demographic characteristics of traders and farmers in Kabale and Kisoro.

Table 3 .
Types of potato traders and sources of income.
Source: Survey data, 2010.1 According to Ferris et al. (

Table 4 .
Characteristics of potatoes used for purchase decisions and grading criteria.

Table 5 .
Traders by type of potato market by District*.

Table 7 .
Constraints to potato marketing.