MZUMBE UNIVERSITY

FACULTY OF SOCIAL SCIENCES

A RESEARCH PROPOSAL

ASSESMENT OF FACTORS INFLUENCE COFFEE FARMER’S MARKET CHANNEL

CHOICE IN TANZANIA

A CASE STUDY OF KILIMANJARO REGION

BY

BARAKA DENIS

A research proposal to be submitted in the partial fulfillment of the

requirements for the bachelor degree of science in economics, Project

Planning and Management of Mzumbe University.

2013

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TABLE OF CONTENTTABLE OF CONTENT.....................................................1

CHAPTER ONE..........................................................2

INTRODUCTION.........................................................2

Outlook Tanzania coffee sector.......................................2

THE SCOPE OF THE STUDY...............................................3

1.3.0 Objectives of the study........................................3

1 General objectives.................................................3

Specific Objectives..................................................4

Hypothesis to be tested..............................................4

The study tested mainly the following hypotheses:....................4

Definition of Concepts...............................................4

Significance of the study............................................4

CHAPTER TWO..........................................................6

LITERATURE REVIEW....................................................6

THEORETICAL LITERATURE REVIEW........................................6

EMPIRICAL LITERATURE REVIEW..........................................7

CHAPTER THREE.......................................................10

RESEARCH METHODOLOY.................................................10

Study design........................................................10

Sampling techniques.................................................10

Source of data......................................................10

Data collection technique...........................................10

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Econometric model and estimation method.............................10

Estimation model....................................................11

REFERENCES..........................................................12

CHAPTER ONE

INTRODUCTIONThis study focused on the assessment of factors influence coffee

farmer’s market channel choice in Tanzania.

1.1. Coffee crop industry outlook

The coffee bean is a legal and addictive crop that has made some

people enormously rich and turned others into slaves (Kronbrink,

2006).

After oil, coffee is arguably the second most important

commodity, as it constitutes an important source of foreign

income for several developing countries. Coffee like any

agricultural product is a cyclical crop. When the supply of

coffee is large the world price of coffee falls. Many farmers

then go out of business, or they switch from coffee to another

crop. Consequently, the world supply of coffee falls and the

price rises again. (Thánh, 2002).

In this century, coffee has also become one of the most

chemically treated food crops in the world. Coffee is often

sprayed without regulation with DDT, pesticides, herbicides, and

fungicides, some of which have been determined to be hazardous to

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good health and the environment. This affects the farmers, but

also their families, their land, their water, and the consumer.

1.2 Outlook Tanzania coffee sectorCoffee is one of Tanzania’s primary agriculture export crop about

representing about 5% percent of total exports,24% of traditional

cash crops and generating export earnings averaging 100 million

$USD per annum over the last 30 years (about 145M.USD in

2011).More than 90% of Tanzanian coffee originates from the

smallholders farmers. The industry provides direct income to more

than 450,000 farmers’ families and benefits indirectly the live

hoods of 2.4 million Tanzania. Tanzania produces about 800,000

bags of 60 kilograms, equivalent to about 0.7% of world output

totaling 117 million bags. Arabica coffees are grown in the North

regions of Kilimanjaro and Arusha, Mbeya and Ruvuma regions of

the southwestern regions of Kigoma, Mara also small quantities’

are produced in Kagera Region. Robusta coffees are produced in

the lake Zone, mainly the Kagera region including Ngara District.

TACRI website 2013.

1.3 Market Channel Selection

Market channel selection is a task for everyone in supply chain.

Agent must find business patterns who meet the minimum

requirement of the market and the firm. It includes coffee

farmers, collectors, different buyers, processors, primary

cooperatives, cooperative unions, exporters and various

government institutions (Gemech and Struthers, 2007). Tanzanian

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coffee is sold both at local level and at the international

market. Normally coffee marketing cooperatives offer various

advantages such as better price, economies of scale, long-term

relationships with buyers, bargaining power, training and other

services to its member. Furthermore they also provide market

information and facilitate the entrance to niche markets by their

members. They generally guarantee a market for their members’

coffee. Due to this coffee marketing cooperative member farmers

are expected to sell their produce to their own coffee marketing

cooperative in the study area.

Rather significant number of member coffee growers sell their

coffee to private traders and a number of non member coffee

growers sell their coffee to coffee marketing coops through their

relatives or friends. Reasons of this situation and factors

affecting selling decision of both member and non member coffee

growers is not studied. Due to this there is no empirical

evidence regarding selling decision of coffee farmers. A better

understanding of farmers selling decision is therefore is

important to produce empirical evidence for cooperative leaders

and for policy makers to design appropriate policies and

strategies that can contribute to increased income of coffee

farmers.

1.4 Problem statement

Marketing channel decisions are among the most critical decisions

facing farmers and the chosen channels intimately affect all

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other marketing decisions (Berry, 2010). Most farmers in

Kilimanjaro Region use direct channel to market coffee and this

means that they have same target market which can lead to

increase in competition.

When there are more suppliers in a given market customers have

more options and this affects sales negatively therefore increase

in variable costs. Variable costs increases due to increase in

the number of days spend by coffee on the farm after market point

which is three years. In intermediary marketing channels

intermediaries buy more coffee at a time and this can enable

farmers to have quick return but more farmers are using direct

channel. Farmers in Kilimanjaro have no information regarding to

benefits of other marketing channels.

The objectives of this paper are; to identify various marketing

channels available for coffee marketing and to examine the

factors influencing marketing channel choice for coffees in

Kilimanjaro Region. The findings will assist governments, Non-

Governmental Organizations (NGOs) and other development partners

involved in the development and promotion of coffee production to

design appropriate intervention that will help increase the

returns among farmers in similar business in Africa.

Choice of a marketing channel is one of the key ingredients to

successful marketing of both agricultural and non-agricultural

products. This is so because different channels are

characterized by different benefits (profitability) and costs.

According to Tsourgiannisa (2008), marketing channel used when

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selling the product has a bearing on the profit farmers may make.

Therefore, studies on marketing channel choice decisions are very

important especially in a liberalized market economy, where there

are many alternative market channels open to the seller’s choice.

Identifying and understanding the factors influencing the

producer’s choice of marketing Channels and how these factors can

help to develop the coffee value chain which is important in

developing the industry. This research will therefore aim at

assessing the factors that affect marketing channel choice for

coffee so as to be able to pinpoint setbacks in the coffee

marketing and also to formulate strategic plans as a roadmap to

development of the market. The study also contributes to the

existing knowledge gap regarding to the benefits of different

marketing channels so that farmers in coffee production can

market their coffee profitably.

1.5 The scope of the studyThe research will be conducted in Kilimanjaro region. The area of

interest is to asses factors influencing coffee farmer’s market

channel choice in Tanzania.

1.6 Objectives of the study

1.6.1 General objectivesThe general objective of the study is to assess factors

influencing coffee farmer’s market channel choice in Tanzania.

1.6.2Specific Objectives

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The study will be conducted due to the following specific

objectives:

i. To identify various marketing channels available for coffee

marketing,

ii. To characterize coffee farmers involved in various coffee

market channels,

iii. To evaluate coffee farmer’s market channel selection

preference; and

1.7 Hypothesis to be tested

The study tested mainly the following hypotheses:

i. To test whether household characteristics influence

farmer’s market channel choice,

ii. To test whether farmer’s market channel choice is

influenced by production system,

iii. To test link between price attributes and its influence

toward farmer’s market channel choice; and

iv. To test if market context influence farmer’s market

channel choice.

1.8 Significance of the studyThe study is significant in the sense that:

i. This study will create footsteps to further potential

researchers who will be interested to undertake research on

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the discipline or related discipline in this way it will

broaden up the existing literature in similar area of study.

ii. It aims on assessing factors affecting coffee farmer’s

market channel choice in Tanzania.

iii. To the farmers the research will provide useful data for

planning and improvements of coffee industry and how to

produce quality coffee.

iv. It enabling the researcher to qualify to be awarded a

Bachelor of Sciences in Economics (Project Planning &

Management) since the study is a partial fulfillment of the

requirement for the Bachelor degree of Economics of Mzumbe

University

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CHAPTER TWO

LITERATURE REVIEW2.1 INTRODUCTION

This chapter will explore literature surrounding producer’s

marketing channel choices. The selection of distribution channel

is affected by many factors which have been studied by

researchers in various fields.

The chapter comprise of introduction, theoretical review,

empirical review and conceptual framework.

2.2 THEORETICAL LITERATURE REVIEW

Neil Borden on his paper “The Concept of the Marketing Mix”, he

reconstruct the history of the term “marketing mix”. He started

teaching the term after an associate, James Culliton, described

the role of the marketing manager in 1948 as a “mixer of

ingredients”;

The marketer E. Jerome McCarthy proposed a four P’s

classification in 1960, which has since been used by marketers

throughout the world.

Theory of marketing mix thus consists of four main elements:

i. Product (consumer need)

A product is seen as an item that satisfies what a consumer

demands. It is a tangible good or an intangible service.

Marketers must do careful research on how long the life cycle of

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the product they are marketing is likely to be and focus their

attention on different challenges that arise as the product move.

Marketers should consider how to position the product, how to

exploit the brand, how to exploit the company's resources and how

to configure the product mix so that each product complements the

other. The marketer must also consider product development

strategies.

ii. Price (cost)

The amount a customer pays for the product. The price is very

important as it determines the company's profit and hence,

survival. Adjusting the price has a profound impact on the

marketing strategy, and depending on the price elasticity of the

product, often it will affect the demand and sales as well. The

marketer should set a price that complements the other elements

of the marketing mix.

iii. Promotion (communication)

Promotion refers to all of the methods of communication that a

marketer may use to provide information to different parties

about the product. Promotion comprises elements such as:

advertising, public relations, sales organization and sales

promotion.

iv. Place (channel)

Place (distribution) refers to providing the product at a place

which is convenient for consumers to access. Various strategies

such as intensive distribution, selective distribution, exclusive

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distribution and franchising can be used by the marketer to

complement the other aspects of the marketing mix.

Getting the mix of these elements right enables the organization

to meet its marketing objectives and to satisfy the requirements

of customers. In addition to the traditional four P’s it is now

customary to add some more P’s to the mix to give us Seven P’s.

The additional P’s have been added because today marketing is far

more customer oriented than ever before, and because the service

sector of the economy has come to dominate economic activity in

this country. These 3 extra P’s are particularly relevant to this

new extended service mix.

The seven P’s is an additional marketing model that refers to the

already mentioned four P’s, plus:-

v. Physical evidence

Physical evidence refers to elements within the store, the store

front, the uniforms employees wear, signboards, etc

vi. People

People refer to the employees of the organization with whom

customers come into contact.

vii. Process

The processes and systems within the organization that affects

its marketing process.

Theory of market mix explored factors that influence market in

general hence will be used as the guideline for the research to

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study factors which influence coffee farmer’s market choice in

Tanzania.

2.3 EMPIRICAL LITERATURE REVIEW

2.3.1 Marketing process for agricultural products

Although marketing of agricultural produce remain an important

tool in increasing farmers income and alleviating poverty,

Kherallah and Kirsten (2001) explains that farmers

experience barriers such as insufficient and inadequate physical

infrastructure, lack of basic education and marketing knowledge,

lack of organizational support and institutional barriers in

marketing. This further has an implication on the choice of

marketing channels those farmers who sell use in marketing their

produce.

2.3.2 Marketing channel functions

According to Kotler (2004) marketing channel moves goods from

producers to consumers and it fills the main time, place and

possession gaps that separate goods and services from those who

would use them. Members of the marketing channel perform many key

functions which include gathering and distributing marketing

research and intelligence information about actors and forces in

the marketing environment needed for planning and facilitating

exchange, developing and spreading persuasive communications

about an offer, finding and communicating with prospective

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buyers, shaping and fitting the offer to the buyer’s needs,

including such activities as manufacturing, grading, assembling

and packaging, reaching an agreement on price and other terms of

die offer, so that ownership or possession can be transferred.

Some intermediaries help to fulfill the completed transactions

through transporting and storing goods and acquiring and using

funds to cover the costs of the channel work (Kotler et-al,

2004).

2.3.3 Determinants of Marketing Channel Choice from related studies

The choice of the channel to use is a fundamental decision for

the producer where a number of factors and objectives have to be

considered as a basis for such a decision. Several authors

carried out different studies to identify factors that influence

the producer’s choice of marketing channel.

Hobbs (1997) focused on transaction cost analysis between

levering auction (live weight) and dead weight (direct-to-packer)

cattle marketing channels in United Kingdom. It was found that

the major transaction factors influencing the proportion of

cattle sold through the auctions were degree of grade,

uncertainty, risk that the cattle may not sell, time spent at the

auction and the adequacy of parker procurement staff. The major

producer characteristics included, average number of cattle sold,

whether producer sold bulls and whether the producer was a member

of the Farm Assured Scotch. All factors had a negative influence;

this means that factors had inverse relationship with number of13

cattle sold through a particular marketing channel. For example

increase in time spent at the auction led to decrease in the

number of cattle sold through the auction.

A study by Jari (2009) provides an insight into the institutional

and technical factors that influence agricultural marketing

channel choices among smallholder and emerging farmers in Kat

River Valley in South Africa. The institutional factors that

influence agricultural marketing channel choices include

transaction costs, market information flow and the institutional

environment which encompasses formal and/or informal rules, the

use of grades and standards, organization in the markets and the

legal environment. An appropriate institutional environment

reduces transaction costs for traders.

Mburu et al (2007) found that the institutional factors that were

significant in the study of the determinants of smallholder dairy

farmer’s adoption of various milk marketing channels in Kenyian

highlands included credit availability, dairy cooperatives,

policy related interventions such as government extension agent

as a source of government extension information and finally,

membership to agricultural farmer’s group.

Jabbar (2008), Eleni and Gabre-Madhin (2001), explain that

transaction costs are unique and specific to individual agents,

therefore, each agent in the market conducts transactions on the

basis of his/her own costs. Transaction costs can be incurred

either before (ex ante) or after (ex post) the transaction has14

taken place. Ex- ante costs involve searching for a potential

partner with whom to exchange, screening their trustworthiness

and negotiating to reach agreement. Ex post costs include

monitoring and enforcing the agreement. Transfer of the product

(transport costs) between two transacting parties also involves

costs (Voors, 2006). However, these may not necessarily be

transaction costs but in other cases the transport costs are

production costs. It is argued that the cost of transacting plays

a key role in economic performance. Therefore, higher transaction

costs incurred in a particular broiler market channel would

reduce the likelihood of farmers to participate. Misra (1993)

found out that factors related to price and non price factors

affecting selection decision of milk producer farmers. According

to Royer (1995) risks that agricultural producers face are linked

with decisions about the prices, quantity, quality, and the

timing of delivery. It also aims to explore the association

between the factors that influence the farmers to adopt

a particular marketing strategy and their selection of a

particular distribution channel.

2.4 Conceptual framework

This section presents the study’s variables and the conceptual

model of the study. It presents the model of the study

(conceptual model) for the factors influencing coffee farmer’s

market channel choice in Tanzania, variables of the study in

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which the dependent and independent variables for the analyses

were identified.

FIGURE: CONCEPTUAL FRAME WORK

Source: Own design

The above mentioned variables are as explain below:-

i. Farm household characteristics

Market channel choice is likely to be influenced by farmers risk

attitude (Agarwal and Ramaswami, 1992). When farmers face

uncertainty, they will turn to other whom they know and trust

(Galaskiewics, 1985, Podolny, 1994).

Farmers always select market channel depending on their social

network and background and hence seek to reduce transaction cost

and uncertainty, while on other hand, they feel safe in market

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HouseholdCharacteristi

cs

Production system

Price attributes

Market context

Channel choice decision

Market co- operativesIn the same location

Private buyers with license

Neighboring cooperatives

Informal buyers without licenses

setting where they maintain long – term relationship with

participating agent.

Farm household characteristics it comprises of factors like;

family size, education level, cultivated area, producer age,

experience and farmer’s age.

ii. Production system

Production system includes all means of production like soil

fertility, access to training and road condition (transportation

system).

iii. Price attributes

Price is usually considered as one of the most important

attributes in the analysis of economic regimes especially for

marketing process. Price attributes includes factors like price,

inputs costs and salaries/ wages.

iv. Market context/ channel characteristics

Market context it includes factors like business factors, chance

of success, distances to the market, number of buyers and trust

of farmers towards buyers.

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CHAPTER THREE

RESEARCH METHODOLOY

3.1 Introduction

This chapter describes how the study will be conducted in data

collection and analysis. It describes the research design, the

research sampling, data collection methods, the data collection

instruments and the analytical tools for data analysis.

3.2 Study designThis research will employ a case study design whereby coffee

farmers from Kilimanjaro region will be considered as a sample. A

cross sectional study design will be preferred for the study due

to the fact that it is cost effective, providing reliable

information and it saves time. As a one-shot study design it will

be used to assess factors influencing coffee farmer’s market

channel choice in Tanzania.

3.3 Source of data

Primary data and Secondary data sources will be used. Secondary

data sources included official reports of various aspects

concerning coffee product, Internet searches, books, research

papers, journals, reports and other document concerning market

channel choice of coffee farmers.

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3.4 Data collection technique

Information (data) to be used in this study will be collected

from small-scale coffee growers through a face-to-face

questionnaire. The research will be conducted from November 2013

to February 2013 in Kilimanjaro region. Both member and non

member coffee farmers of primary coffee cooperatives were

included as a target population of our research. The members

sample will be drawn randomly from the registration lists of the

cooperatives, non-members will be selected randomly by using

lists of coffee farmers from the rural district cooperative

offices in the area where the study will be conducted.

Both qualitative and quantitative data will be collected by the

researcher. Qualitative data will be coded and quantified so as

to be used for analysis and enable derivation of study

conclusion.

3.5 Econometric model and estimation method

To asses factors influence coffee farmer’s market channel choice

a Tobit model will be used the type of multiple choice model. It

is of multiple choice model as the fact that it is a dummy

(dependent variable) variable regression model at which it has

more than two possible answers but there is no ordering

(hierarchy) among the responses.

Agarwal and Ramaswami 1992; Williamson, 2002 and Brewer 2001 have

identified factors that influence Coffee producer’s choice for19

the market channel which are; price, production scale and size,

farm household characteristic, behavioral aspects such as

(trust, risk, and experience), and market context (distance and

purchase condition). Furthermore, Zuniga-Arias (2007) found out

that factors such as price attributes, production system, farm

household characteristic, and market context could affect market

outlet decision of farmers.

A Tobit model will be used where by the choice of coffee farmer’s

will be a dependent variable. The equation of Tobit model will be

as follows:-

Yi = α + β1X1+ β2X2+ β3X3 + β4X4 + β5X5+ β6X6+ β7X7 + β8X8+ £1

Where; Yi = Proportion of coffee sold to a market channel

- takes four responses (categories) (market channel)i - Market co- operatives in the same locationii - Neighboring cooperativesiii - Private buyers with licenseiv - Informal buyers without licenses

X1= farmer education level

X2= total cultivated area

X3= Distance to the market

X4= access to technical training

X5= input costs

X6= Gender of farmer (male = 1 and female = 0)

X7= Price of coffee

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X8= coffee productivity

£1 = Error term

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566–579.

Gemech, F and Struthers, J (2007). Coffee Price Volatility in

Ethiopia: Effects of Market Reform Programmes. Published online 4

May 2007 in Wiley Inter Science, Journal of International

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MoFED (2008). MoFED (Ministry of Finance and Economic

Development), Annual Report, Addis Ababa , Ethiopia.

Oxfam (2008). A Consultancy Reports on Ethiopian Coffee Marketing

Cooperatives. Addis Ababa, Ethiopia.

Tsourgiannis, L. Eddison, J., Warren, M. 2008. Factors affecting

the marketing channel choice of sheep and goat farmers in the

region of east Macedonia in Greece regarding the distribution

of their milk production. Small Ruminant Research, Volume:

79, Pages: 87-97.

Tanzania Coffee Board (2006): Various issues, statistics and

Auction Catalogue Moshi

Tanzania.

22

Tanzania coffee Board (2001) Coffee Sector Strategy

Technoserve (2003), Tanzania coffee Taxation-Benchmarking Study-

paper, presented in

coffee industry meeting in Moshi 22 January 2003

Tanzania Coffee Board (2003) Coffee Sector Strategy 2001/2006

bussiness are limited Dar-es-

Salaam.

Tanzania Coffee Association (2002) Supreme Quality Tanzania

Coffee

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Bardhan, P.Ed (1989) The Economic Theory Of Agrarian Institutions

Oxford University

Press,Oxford

Tanzania Ministry of Agriculture and Food Security (2002) Basic

Data Agriculture Sector

Ekaterina.K. (2004),The Impact of Coffee Market reforms on

producer prices and Price

transmission (http//econ.worldbank.org)

Sibuga, K, K. (1990), Basic Agricultural Economics 2 Press and

Publicity centre, Dar-essalaam.

Msambichaka, L.A et al (2006) Globalization and Challenges for

Development in Tanzania,

DUP, Tanzania

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Worako, T., Van Schalkwyk, H., Alemu, Z., and Ayele, G., (2008).

Producer Price and Price

Transmission in a Deregulated Ethiopian Coffee Market, Journal of

Agrekon, Vol 47, No 4.

Zuniga-Arias, G. E.. (2007) Quality Management and Strategic Alliances in the Mango Supply Chain from Costa Rica: An interdisplinary Approach for Analyzing Coordination, Incentive, and governance, Wageningen University, The Netherlands

Congratulate

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