sdcasia kaong igp case study 2005

8/3/2019 SDCAsia Kaong IGP Case Study 2005

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Bridging the Gapsin the Kaong Subsector

Ivan Idrovo and Marian BoquirenSDCAsia

October 2005

Implementation Grant Progra

BDS Learning Networ

Case Stud


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Copyright 2005 The SEEP Network

Sections of this publication may be copied or adapted to meet local needs without permission from The SEEPNetwork, provided the parts copied are distributed for free or at costnot for profit. Please credit the USAID

Microenterprise Development Division, Implementation Grant Program for Business Development Services (IGP-BDS), IGP-BDS Learning Network, Case Study #6, and The SEEP Network for those sections excerpted. Forany commercial reproduction, please obtain permission from The SEEP Network, 1825 Connecticut Avenue NW,

Washington, DC 20009.

The Implementation Grant Program (IGP) for Business Development Services, IGP-BDS Learning Network,Case Study #6, Bridging the Gaps in the Kaong Subsector.

Printed in the United States of America

For additional information or to order additional copies, contactThe SEEP Network

1825 Connecticut Avenue, NWWashington, DC 20009-5721

Tel.: 202-884-8392 Fax: 202-884-8479Email: [email protected] Web: www.seepnetwork.org

To access this publication on line, visit www.seepnetwork.org.


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Implementation Grant Program BDS Learning Network

Case Study #6

Bridging the Gaps in the Kaong Subsector

Ivan Idrovo and Marian Boquiren

SDCAsia

October 2005

The Small Enterprise Education and Promotion (SEEP) Network1825 Connecticut Avenue, NW, Washington, DC 20009-5721Tel.: 202-884-8581 Fax: 202-884-8479Email: [email protected] Web: www.seepnetwork.org

The Implementation Grant Program for Business Development Services (IGP-BDS) and the IGP-BDS Learn-ing Network are funded by the Microenterprise Development Division of the United States Agency forInternational Development (USAID). The opinions expressed herein are those of the authors and do notnecessarily represent the views of The SEEP Network, SDCAsia, or USAID.


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IGP-BDS Learning Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SDCAsia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Market Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Indigenous Kaong Semi-Processors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Kaong Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SDCAsia Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Principal Market Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Facilitating More Equitable Market Relationships . . . . . . . . . . . . . . . . . 5

Drilling Down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Strengthening Market Linkages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Strengthening Supply-chain Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Annex 1: Moving Kaong from the Mountains to the Cities . . . . . . . . . 9

Annex 2: Key Features of the Kaong Fruit Market of Davao del Sur . . . . . 10

Annex 3: Baseline, Current, and Future Relationships in the Kaong Market . . 11

Table of Contents


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Bridging the Gaps in the Kaong Subsector 3

The United States Agency for Developments(USAID) Microenterprise Development Division hasbeen funding programs in microfinance and businessdevelopment services (BDS) through the Implementation

Grant Program (IGP) since 1995. As of 30th Septem-ber 2004, over 90 grants have been approved for a totallife-of-project funding greater than 100 million dollars.The current IGP-BDS grantees are an impressive groupof organizations and projects that: cover almost everygeographic region, consist of numerous value chains,use various approaches, and contain enormous potentialto make a positive impact. These programs present animportant learning opportunity on how to improve thedesign, implementation, and impact of BDS programs.

The USAID Microenterprise Development Division,

in an effort to establish a participatory learning process,initiated a learning network for the IGP-BDS grantees. TheSEEP Network, a non-profit organization in Washington,DC, is the secretariat for the IGP-BDS Learning Network.The SEEP Network provides resources for the IGP-BDSgrantees to conduct technical exchanges, hold virtual discus-sions, organize an annual meeting, and learn about differ-ent approaches and tools that are being used in the variousIGP-BDS grant programs. In addition, The SEEP Networkgenerates opportunities for: peer exchanges, collaborativecase studies, and conference participation for IGP-BDS

Learning Network participants.

The goal of the IGP-BDS Learning Network is to be anexcellent technical resource for the participants of the IGP-BDS Learning Network, furthering their program and organi-zation objectives. Through the IGP-BDS Learning Network,lessons on sound practices will be captured and disseminatedto the wider microenterprise development industry.

The IGP-BDS Learning Network was officiallylaunched during a meeting organized by The SEEP Network

and held in New Delhi, India in December 2003. ThisLearning Network identified the following three learningthemes, which frame the common challenges of the IGP-BDS Learning Network participants, and are aligned with

the market development goals of the IGP-BDS grants.1. How to effectively manage the market facilitation role

and tasks across a range of market settings and marketproblems.

2. How to build win/win business relationships betweenMSEs and other key market players.

3. How to effectively stimulate demand for businessservices.

Each IGP-BDS grant operates on a performancebasis, tracking progress against targets established at theoutset of the grant. The semi annual reports also provide

qualitative narratives that link programmatic performanceto the overarching IGP-BDS Learning Networks agenda.The agenda aims to understand how to harness the powerof increased MSE participation in growing markets toachieve positive and lasting development outcomes.

Six IGP-BDS Learning Network case studies haveresulted from the first two learning themes. These caseswere written against a set of guidelines adopted by theIGP-BDS Learning Network. These six case studies haveinitiated a process of learning linked to useful and practi-cal outcomes. In the near future, the IGP-BDS Learning

Network plans to: develop diagnostic tools that manageand track performance, document learning against cur-rent and future learning themes, and distill lessons on the

links between better practice and performance.

- Marshall Bear, IGP-BDS Learning Network Facilitator- Jimmy Harris, Deputy Director, The SEEP Network- Jennifer Hansel, Program Associate, The SEEP Network

IGP-BDS Learning Network

SDCAsiaSDCAsia (formerly Swiss Contact Philippines) is

working to help small-scale processors of fruit and veg-etable products in Mindanao enter higher value marketsby establishing commercial linkages with established pro-cessors and vendors. SDC is working with processor andwholesalers to stimulate demand for Mindanao-processedproducts through trade fairs and market information inthe metro Manila area and is working to differentiate the

newer products with innovative marketing approaches(e.g., using clean and hygienic processing practices as amarketing tool). SDC is facilitating sustainable mar-ket access and upgrading services by embedding theseservices within commercial transactions between smallscale farmers and processors. SDC is also strengtheninghorticulture cluster in Mindanao utilizing mentoring andnetworking tools.


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IGP-BDS Learning Network Case Study #64

Introduction

The Market Context

The Arenga Pinnata, a wild variety of sugar palmtree, abounds in the forests of Davao del Sur, Mindanao,as well as in other parts of the Philippines. Known as ka-ong to Tagalogs and ediok to the Bagobo indigenous

people, the sugar palm is used for a variety of purposes,such as edible starch, sweet sap (fermented to vinegar),roof , and construction materials.

The most popular commercial by-product of thesugar palm is its sweetened fruit, which is used as an in-gredient in fruit salads and desserts. Philippine exports ofprocessed kaong fruit grew annually by an average of 5.3percent over the last five years. Bottled kaong preservesare also very popular on the domestic market, particu-larly during graduation months, fiesta months, and theChristmas season.

Kaong industry players in Davao del Sur generallyoperate outside of national and export markets (see An-nex 1). The semi-processing communities, for example,are not connected to city-based processors. Processors

are unable to significantly expand their business mainlydue to supply constraints, while semi-processors have notevolved from household-based production because theylack access to bigger, more lucrative markets.

This case study describes the strategies implementedby SDCAsia to improve relationships in the processedkaong value chain in Davao del Sur. Its goals were toenhance MSE growth and subsector competitiveness.Specifically, the study focuses on ongoing efforts to buildmutually beneficial, longer-term business relationshipsbetween semi-processors (mainly Bagobo indigenous

peoples), traders, and processors.

Indigenous Kaong Semi-Processors

The indigenous communities of Davao del Sur aremade up of various tribes, the majority of which areBagobos. The Bagobos are a proud people with a strongsocial structure that has enabled them to blend well withthe main political body of the Philippines while retainingmany indigenous customs, beliefs, and values.

Many Bagobos have suffered dislocation due to theloss of ancestral lands and the effects of communist andMuslim insurgencies which are more pronounced in Min-danao than in other parts of the country. These semi-pro-cessors are generally located in uplands, accessible only bytrail. Non-farm income, such as kaong semi-processing,is crucial to Bagobo households because it helps smooththe flow of income over the crop production cycle andspreads income risk. Ownership of trees such as the sugarpalm, usually through group property rights, representsa high share of Bagobo capital assets. Harvesting andselling of another persons kaong is considered stealingand proper fines must be paid. When households are indire need of money trees can be used as collateral or evenpawned.

Harvesting of kaong is usually done by male mem-bers of the household, which entails climbing up thepalm and cutting off bunches of fruit. In the past, women

primarily performed the semi-processing, which involvescleaning, boiling of the nut, pitting, and soaking of pittedseeds in water. (please see attached value chain). At pres-ent, male household members have also become activein semi-processing. When the SDCAsia program started,there were only about 40 households in the business of

kaong processing. At present (September 2004) there are250 households, which derive, on average, 40 percent oftheir monthly income from kaong processing.

The Kaong Market

The main features of the kaong fruit market, as seenfrom the perspective of the upland communities of Davaodel Sur, are summarized in Annex 2.

SDCAsia Project

The goal of the SDCAsia program is to increase theincome-earning capacity of resource-poor entrepreneursin Davao del Sur by facilitating their access to bigger,more lucrative markets for semi-processed kaong fruit.Given the characteristics of the Bagobo communities andthe environment in which they operate, the project team,in consultation with various community-based stakehold-ers, adopted a strategy to:


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strengthen the semi-processing activities of Bagobocommunities rather than immediately move up the

value chain and produce endproducts,1 and

build on the traditional trading system, meaning thatsemi-processors do not deal directly with Manila- andDavao-based processors, but rather, with community-

based market intermediaries.The team assessed that it would require more time to

fully develop the capacity of semi-processors to produceend-products than semi-processed fruit. The investmentsrequired for end-products were, moreover, beyond thecapacity of both the semi-processors and the commu-nity-based traders. The focus on semi-processed productsserved to increase the income levels or, at least, sustainthe economic activity of the indigenous communities.The decision to work via intermediaries was based on thelatters experience in dealing with relatively bigger enter-

prises and city people, basic minimum infrastructure,and transaction costs that were either low and/or could bespread among other cash crops carried by the intermedi-aries.

Principal Market Relationships

The project team identified the following marketrelationships to be most crucial in bringing resource-poorenterprises to the mainstream market:

relationships between kaong semi-processors andcommunity-based intermediaries; and

relationships between community-based intermediar-ies and the buying agents of processors.

The relationship between kaong semi-processors,community intermediaries, and processors is based uponarms-length negotiation. Traders, buying agents, and pro-cessors maintain a shifting network of potential suppliersto complement in-house production. The relationship be-tween buyers and sellers was, therefore, inherently unstableand short term, often extending only to a single or inter-

mittent purchase order. This arrangement allowed buyersto switch suppliers easily if they could purchase at a betterprice. By contrast, immediate cash for daily subsistence wasthe bottom line for the semi-processors.

In general, market relationships did not permit closecooperation between semi-processors and buyers and con-tributed little to systemic upgrading of the supply chain inDavao del Sur. A high degree of mistrust prevailed amongall parties and the flow of information at each link of thechain was inefficient. Consequently, the system was notwell positioned to respond to market change meaning that

necessary changes were either slow or missed altogether.

The SDCAsia project envisions that future relation-ships among these three links will be characterized by: (a)a high degree of interdependence oriented towards end-market demand, (b) effective, efficient management ofquality and performance along the value chain to induceconvergence of supply-side capabilities and demand-siderequirements, (c) systemic upgrading of the supply chain,(d) non-adversarial, equitable returns and the sharing ofrisk; (e) transparency, and (f) long-term duration.

A picture of the baseline, current, and future relation-ships among the three parties is presented in Annex 3.

Facilitating More Equitable Market Relationships

Drilling Down

Market research and gathering feedback play animportant role in facilitating the development of win-win

relationships in the kaong market. The analysis and useof market data gains value as information feeds into thedevelopment process, which increases confidence anddecreases risk. The primary tools being used in marketresearch are (a) use of secondary market info; (b) keyinformant interviews, and (c) informal group discussions.

Information gathering involves understanding:

the nature of the kaong market and value chain andhow semi-processors are currently served by them

market structure, players, and their dynamics vis--visthe market position of the semi-processors

the indigenous culture and trading system, includinggovernance.

1Recently, SDCAsia identified a good market for kaong vinegar, an end-product suitable to the capabilities of the Bagobo communities.Product development is in progress and the product is being market tested locally. The building of trading/marketing networks is ongoing.


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Based on the information gathered, the project teamimplemented the following steps:

Identified and selected market channels and links thatwould provide opportunities for indigenous com-munities to penetrate the mainstream market and getlarger share of the value within the chain

identified critical constraints and opportunities of se-lected market channels/links, as well as requirementsor standards that should be met

assessed skills and know-how required by indigenouscommunities to be able to meet requirements andhow these can be accessed by indigenous communities

Matched requirements to the resources, objectives,and existing activities of the relevant market players

Selected entry points and championsan initial coreset of market players with whom the SDCAsia pro-

gram could work.

The team discussed the feedback of different marketplayers with the players themselves, seeking to identifywin-win solutions to problems. At this point in the proj-ect, the various parties preferred that SDCAsia play therole of mediator to resolve dissatisfaction, new issues, andconstraints in market relationships.

Strengthening Market Linkages

Support for market linkages is provided primarily

to (a) expand markets of the different links in the kaongvalue chain, (b) ensure a continuous flow of orders tothe Bagobo communities, (c) provide the impetus for thevarious players to work closely with each other, and (d)encourage the upgrading and optimization of the valuechain by triggering market demand. Project interventionsare currently directed towards traders and processors.

The SDCAsia program actively brokered the firstsupplier agreement between the community enterpriseand the processor to show the viability of partnerships,overcome historical distrust, and spark the first significant

orders (and thus motivate business development training,which the majority of processors had never undergone).The delivery of specific services such as production pro-cesses training and quality control by the processor wasalso included in the partnership agreement.

Making the first marketing agreement work meantthat the project team had to accept responsibilities passedon to it by both parties (e.g., ensuring delivery and pay-

ment), which included filling the skills gaps of relevantparties. This phase of the project gave the team the op-portunity to learn more about kaong trade, although itfelt that its role of filling up weaknesses of both partieswas unsuitable for sustainable operations.

Although the project successfully achieved its short-term objective of improving semi-processing skills andhigher prices for semi-processed kaong, it became evidentthat the capacity of kaong processors to deliver businessdevelopment services (BDS) to communities was insuf-ficient to improve the market position of the semi-proces-sors. Linkage and close partnership with a mainstreambusiness can jumpstart the development process, reducethe costs of bringing the products to the markets andact as a catalyst in improving the efficiency of the sup-ply chain (at the community level). But linkages aloneand the BDS provided by buyers are not enough to bringenterprises into the mainstream market. Often times

the main prerequisite for a subcontracting agreement isfor potential subcontractors to have a certain acceptableperformance level. As such, the project team found itnecessary to: a) develop a range of services with marketrequirements as the starting point that will address thegaps; and b) build the indigenous capacity to provide anddeliver the BDS by themselves, particularly those thatrelate to skills that affect improvements in the commu-nity level supply chain, and consequently, enable them tomeet market requirements.

In addition to skills constraints, the project sud-

denly faced stagnant markets in Mindanao (the principalmarket of the processor) due to bombings in DavaoCity and nearby provinces. With the unstable peace andorder activities, commerce significantly slowed down.Fortunately, the project was already in discussion with aManila distributor which facilitated continuous sales forthe Davao processor and consequently the indigenouscommunities.

The project then shifted to concentrate on build-ing up a BDS system in the Babogo communities and,consequently, strengthen their market position. The BDS

system builds on existing trade/marketing structure tofacilitate the flow of BDS to all players in the communitysupply chain. Under the system, marketing intermediar-ies at every level are tapped and trained to handle typicaltechnical and business concerns of microenterprises. Inthe kaong communities, for instance, the contractorsprovide market-based quality specifications as well asshare some technical and market info to the central buy-ing agent in the community. The central buying agent


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then shares these with the pool of trainors2 from thecooperative. The cooperative organizes the training forthe microenterprises (members and non-members) andalso operates the common service cum marketing facili-ties. Training sessions are conducted both in the commonservice facilities center and in the place of the barangayassemblers. The sessions also became forums to discuss

and find solutions to common concerns and potentialmarket opportunities. Coaching and mentoring servicesand quality control services are provided by the barangay

assemblers3 to their group of suppliers and the transpor-tation group. In other words, the BDS delivery systemfollows the flow of the products. Knowledge and skillsupgrading forms of BDS and marketing service are paidvia mark-ups while tangible services (e.g., use of commonservice facilities, raw materials) are paid in cash with vari-ous payment schemes.

The project team also adopted a passive role in bro-

kering transactions. Market development activities thusfocused on promoting product quality and food safetyby making buyers aware of the positive changes imple-mented by communities, providing opportunities (formaland informal) for the different players to interact witheach other and supporting the participation of processorsto marketing events.

To date, the shift in activities appears to be workingwell. Linkages induced by market forces are becomingmore spontaneous. More buyers are coming to the kaongmarket in Davao del Sur, including buyers from Manila.

The main role of the program is now to track the prog-ress of orders and negotiations between buyers and thecommunities, including discussions of new issues andconstraints. Processors provide the program with feed-back on their transactions, which is used as the basis forcapacity building for the intermediaries. Intermediariesalso discuss the problems they have encountered with theproject team, which provides them assistance in definingsolutions and developing new opportunities.

Market relationships facilitated by the SDCAsiaproject have not yet reached the point where the differ-

ent parties can discuss relationship issues and constraintsopenly with each other. However, a certain degree ofopenness has been established.

The entry of more buyers both from Davao andManila has provided the Bagobo communities morechoices, and hence, more power in the market. Commu-

nity intermediaries must now learn to use this power ina positive way, i.e., to create long-term, win-win transac-tions, ethical trading relationships, customer loyalty, andcustomer retention.

Competitive forces (i.e., additional buyers) areenabling traders to offer better terms and conditionsto semi-processors, as well as to upgrade their role andfunction (e.g., pick-up of products at buying stations,packaging materials, market info, assistance in openingbank accounts, etc), thus improving the efficiency of thesupply chain. Similarly, processors or their buying agentsare offering relatively better prices to traders, as well asadded services (e.g., assistance in opening bank accounts,cash payments, pick-up of products at buying stations,etc.). It has been observed that trader loyalty is strongerto processors who offer additional services.

Strengthening Supply-chain Governance

Many of the trust issues between traders and semi-processors can be traced to the lack of product standards.At the beginning of the project, for instance, pricing wassaid to be set arbitrarily. Processors claimed that prod-ucts produced by the Bagobo communities were of poorquality and required additional re-processing. The mainproblem was that quality standards were subjective. At thestart of the program, the Bagabo communities believedthat they were producing products of acceptable quality,a position which, based on local norms, could be con-sidered correct. To address many trust and transparency

issues as well as to facilitate the development of productdifferentiation the project team facilitated the strengthen-ing of supply-chain governance by:

strengthening horizontal linkages (identifying andfacilitating commitment to common objectives)

establishing process and product quality standards.The standards and norms were set by key players inthe community that were trained by specialists, withinput from buyers.

promoting the benefits of meeting quality standards

among the different players. This campaign wasprimarily directed at barangay assemblers since theyare the nearest to suppliers in terms of location andinfluence.

2Consist of fruit processors and barangay assemblers3They collect the semi-processed kaong from their group of suppliers and deliver these to the cooperative


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strengthening the capacity of marketing intermediar-ies in good manufacturing processes and quality-con-trol processes

developing and ensuring the access of differentplayers to BDS services that enable them to matchmarket requirements with quality standards

promoting compliance with product standards viamarketing intermediaries at various levels. Thisprocess depended to a great extent on a strong chainleader in the community (i.e., a community-basedbuying agent who was well-respected by the semi-processors). The explicit acceptance of the chainleader was very important in facilitating supply chaincollaboration.

The effectiveness of collaboration among supplychain actors at the community level, as well as theirconsequent collective adherence to product standards de-

pends on shared goals and mutual interests. The programtherefore offered organizational development support andconducted social marketing campaigns. However, the besttrigger for closer collaboration and cooperation has beenthe pursuit of markets outside the locality.

At present, a clear concept of good-quality productvis--vis an unacceptable product (rejects) is recog-nized by buyers and semi-processors. The traders and the

Bagobo communities have started to realize the rewardsof managing performance and quality along their sup-ply chain. As one trader puts it, 90 percent of the timetraders only accept and pay for clean seeds that have beenpre-processed well. Sometimes, however, the buyer relentsand accepts discolored, poor-quality kaong in consider-ation of the farmers effort. It would be uncharitable to

turn them away after they have carried kilos and kilos ofseeds on their back or head for hours, the trader ex-plained. I just tell them how to do it better and makesure they understand that next time, I wont accept poor-quality seeds.

The trader added that she also requires farmers whobring their kaong to the buying stations to attend goodmanufacturing practices (GMP) training, especiallywhen their kaong are substandard. One time, almost halfof the 100 kilos she collected at one buying station wereof poor quality. She immediately tasked community-

based trainers to conduct a GMP training there. Aftersome time, the GMP sessions bore fruit. The percentageof substandard kaong was eventually reduced to 5 kilos,or about 5 percent, of the total kaong collected.

Lessons LearnedThe SDCAsia project offers the following lessons

learned:

The best way to convince mainstream businesses towork with indigenous communities and microen-terprises is to present proof that production systemsand practices, including product quality and volume,have improved. As soon as the Bagobo communi-ties became known for highquality, semi-processedproducts and the capacity to produce requiredvolumes of consistent quality, contractors began to

approach the communities without much facilitationon the part of the project team.

Market relationships must offer tangible benefits toall involved, thus creating an incentive for continuedparticipation and maintenance.

Facilitating supply-chain governance and continu-ous dialogue among all parties ensures that mutualobjectives of the supply alliance are met and that no

one member attempts to benefit at the expense of theothers. Third-party facilitation during the formativestages of relationships helps build trust by ensuringthat information pertinent to the parties involved isexchanged.

Facilitating win-win relationships entails in-depthunderstanding of the nature of the value chain andmarkets important to resource-poor enterprises, theirstructure, the different stakeholders involved, theirinstitutions, their dynamics, and the way in which

the poor are currently served by these markets.

It is important to facilitate the process of buildingmarket relationships and not engage in core marketactivities. The facilitator of the project should not beviewed as the ever-ready savior of these relation-ships. However, the facilitator must be flexible andshould help the parties find solutions to the problemsthat arise.


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Annex1:

MovingKaongfrom

theMountains

totheCities


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Annex2:

K

eyFeaturesoftheK

aongFruitMarketofDavaodelSur

Baselinesituation

Currentsituation(September2004)

Villagerssocialnetworksan

daccesstomarketsarehistoricallylimitedtothe

townpublicmarket.

Fourdifferentmarketchannelshavebeenreachedbythe

projectstarget

groups:localtraders,buyingagents,Davao-basedproces

sors,andManila

exporters.

Accordingtoprocessors,the

qualityofsemi-processedkaongwa

sverypoor

anditssalepricewasthuslo

w.

Accordingtosemi-processors,productqualitywasacceptableba

sedontradi-

tionallocalnorms.

Semi-processedkaon

gfromtheindigenousDavaodelSurcommunitiesis

acknowledgedtobe

ofverygoodqualitybyindustryplayers.

TheonlykaongprocessorbasedinDavaodelSurboughtfromvillagesonan

intermittentbasis(includingpeakseason).

RepresentativesofDavao-basedprocessorssourcedsemi-processedkaong

onlywhentheyweredesperateforsupply.

Buyersconsistofagent-distributorsandprocessorsfrom

Davao,nearbycities

inMindanao,andM

anila.

Communitytraders4andbu

yingagentsengagedinsemi-processedkaong

tradingonlyduringthepeakseason.

In2004,production

andtradingofsemi-processedkaon

gcontinuedeven

duringthesupposed

lyleanmonthsduetoordersfromp

rocessors.(These

ordersweredestined

forexportmarketsandinstitutionalbuyers,suchas

restaurantsandhotels.)

Therawkaongnutwasamoreestablishedtradedproduct.Semi-processed

kaongwastradedinsmallvolumes.Thisperiodisnowreferredtoasthe

Caltexyearsbecausesemi-processedkaongwaspurchasedinq

uantitiesof

Caltexcontainers,notbyweight.

Semi-processorsand

communitytradingintermediariesnowspeakinterms

ofkilosandtons.

AManila-basedexporterpurchases10to15tonsofkaongeverytwoweeks

throughabuyingagent.Localprocessorsbuyanaverage

of10tonsper

month.

Thebuyingpriceofsemi-processedkaongrangedfromUS$0.09toUS$0.15

perkilo.

Thebuyingpriceof

semi-processedkaongnowrangesfr

omUS$0.18to

US$0.26perkilo.

4Communitytradersarealsomicroenterprises.Theyaretheintermediariesbetweenthecommunityofsuppliersandthe

buyer(usuallylocatedoutsideofthelocality).Theycollectthesemi-

processedkaongandsellthesetothecity-basedbuyers.


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Annex3:

Baseline,Current,andFutureRelationships

intheKaongMarke

t

RelationshipbetweenSemi-Processors

andC

ommunity-BasedTraders

Relation

shipbetweenCommunity-Base

dTraders

andProcessorsand/orBuyingAgents

Baseline

Current

Future

Baseline

Current

Future

SupplierandBuyerSelection/Procurement

Spotsellingand

purchasing.

Nopriorcommit-

mentororders,

butsomeinformal

guaranteeoffuture

business.Somede-

greeofrecognition

ofpasttransac-

tions/

relationships.

Priceandpayment

termsarethemain

determinantsof

buyerandseller

selection.Informa-

tionontraders

whoofferhigher

pricesspreads

rapidlywithinthe

community.

Flexible,subjective

pricingandpay-

mentterms.

Somesemblanceoflong-termrela-

tionships.Eachtraderhasaninfor-

malne

tworkofsuppliers.Traders

absorb

deliveriesandoutputsof

regularsuppliers.

Verbal

ordersandvolumecommit-

ments

relayedfrommainbuying

agenttobarangaybuyingstationto

semi-p

rocessors.However,buying

station

sandsemi-processorsstill

pronetoabetteroffergetsthe

supplyattitude.

Preferr

edsuppliers/buyers.Semi-

processorsmanifesthigherdegree

ofloya

ltytotraderswhohelpthem

improvetheirskills,offerfacilities/

infrastructureneartheirresidence,

etc.

Productqualityisalreadyanad-

ditionalconsiderationtoprice.

Casho

ndelivery.

Long-termpart-

nersh

ips/rela-

tionshipsallow

busin

essesofboth

partn

erstogrow.

Spotmarketsales.

Noregulartransac-

tions.Processoror

itsbuyingagent

initiatedtransac-

tions.Theyusu-

allyvisitedanarea

whentheyneeded

additionalsemi-

processedkaong.

Subjectivepricing.

Flexiblepayment

terms.

Preferredsuppliers/buyers.Some

semblanceoflong-termrelation-

shipsandsomepredictabilityinor-

ders.Tradersmoreloyaltobuyers

whoprovideadd-onservices(seeds,

packagingmaterials,assistance

inopeningATMbankaccounts,

etc.),eveniftheirvolumeislower

thanthatofotherbuyers.

Tradersalreadyproactivelybook

someordersratherthanwaitingfor

buyers.

Cashondelivery.Tradersgive

preferencetobuyerswhopaycash

ondelivery.

Buyerstendtobemoreaccom-

modatingandopentonegotiation

whentheyknowthatproductsare

ofgoodquality.

Stillsomedegreeofbiddingand

bluffingonprice.Duringleansea-

son,buyerhasdominance.During

peakseason,suppliercaninfluence

pricetosomeextent.

Tradersand

processorsjointly

conductforecast-

inganddecide

timeandsizeof

deliveryandwith

agreed,mutually

acceptableprices

(pricestability).


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andC


Relation


dTraders


Baseline

Current

Future

Baseline

Current

Future

InformationSharing/Transparency

Somedegreeof

informationshar-

ingonprice,cost,

anddemandfrom

traders,butmostly

forthebenefitof

traders.Informa-

tionsometimes

distortedtoserve

theirinterests.

Pricesvis--vis

standardsare

setarbitrarily

andacceptedby

microenterprises

inexchangefor

immediatecash.

Inform

ationsharedwithrespect

todem

and,bothcurrentand

potent

ial.

Suppliersandtradersawareof

standards.Purchasingandpricing

decisio

nsalmostalwaysbasedon

agreed

standards.

Significanttwo-

ways

haringand

optim

aluseof

informationon

busin

essplanning

ando

perations.

Directive,one-

way,andlim-

itedinformation

sharingfocused

solelyoncurrent

transaction.

Tradersand

processorshave

differentquality

standards.

Indicativeinformationonshort-

andmedium-termdemandand

productionisprovidedonanad-

hocbasis.Buyersremainuneasy

whentradersaskforinforma-

tiononthemarketandcompany

operations.

Tradersandbuyersattimesdistort

informationtogetbetterprices.

Standardsrecognizedandusedas

basisforpricingmostofthetime.

Discussionsoftransactionorrela-

tionshipproblemsnotveryopen.

Workflowand

information

exchangedina

mannerthatper-

mitstheintroduc-

tionofinnovation,

betterrelation-

ships,andjoint

effortstobetter

respondtomarket

demands.Both

partiesuseinfor-

mationpositively

tojointlytake

advantageofmar-

ketopportunities,

ratherthantaking

advantageofone

another.

QualityControl/Inspect

ion

Focusonweight

orcounting

numberofCaltex

containers.

Qualitycontrolatbuyingsta-

tion.Improvedunderstandingand

acceptanceofstandardsamong

semi-p

rocessors.

Finalw

eighingatbuyingstation.

Qualitycontrol

anda

ssuranceat

thele

velofsemi-

proce

ssors.Self-

initiativetosort

outp

roducts.

Priceusedas

qualitycontrol

mechanism

basicallysubjective.

Qualityassuranceandcontrol

conductedattradersites.

Someissues(e.g.,weightlossdue

towatercontent,locationoffinal

weighing)remain,althoughmajor-

ityofbuyersaccepton-siteweigh-

ingbecausetradershaveadopted

thesameprocedurewiththeir

suppliers.

Institutionaliza-

tionofstandards

andquality-control

practicesatall

linksofthechain.

Standardized

weighingpractices

andallowancesfor

moisturecontent

areacceptableto

allparties.


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andC


Relation


dTraders


Baseline

Current

Future

Baseline

Current

Future

Value-addedservices/Co

llaborationandcooperation

Somelearningand

skillstransfer,but

knowledgelimited

tolocalnormsand

traders.

Closemonitoringofproduc-

tionan

dlogistics,aswellasfinal

productatdelivery.Trainingand

mentoringservicesbycommunity-

basedtraderstosolveproduction

problems.

Buyingstationssetuptoreduce

transportationcosts.

Interdependence

andp

artnership.

Both

partiesmutu-

allyexploitcost,

quality,technical,

and/o

rmarketing

advan

tagesviacol-

laboration.

Almostnon-exis-

tent.

Someassistancetoimproveprod-

uctqualityandtraderoperations.

Mostbuyerspurchaseproductsat

buyingstation,allowingtradersto

maintaindecentprofitmargin.

Greaterrespectnowgivento

weakerparty.

Someprocessorsfeelthatthereis

stillalackoftrustonthepartof

traders,despitesignificantorders

inrecentmonths.Processorsalso

sensealackofethics,whichmakes

themhesitanttosignificantlyin-

vestinsupplierdevelopment.

Partnershipsare

basedonalong-

termcommitment

tocooperateand

thusachievemutu-

allyacceptable

outcomes.

Basisofcompetition/M

arketoffer

Price.

Abundantsupply.

Supply

ofsemi-processedkaongis

growin

g.

Qualityandpricearethemost

importantindicators.

Allpartiesableto

transactbusiness

underbettercon-

ditions.Business

transactedprimar-

ilyviadifferentia-

tionfactorsother

thanprice.

Priceandsupply

availability.

Bagobocommunitiesbecoming

knownfortop-qualityproducts.

Economiesofscaleandlower

transactioncostsarebeingrealized.

Quality,cost

efficiency,price,

dependability,and

reliability.Socially

responsibletrading

practices.


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sdcasia kaong igp case study 2005

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