I believe the commission system remains the purest form of price discovery, but there are pros and cons to both sides of the debate.
Wholesale
In a wholesale system, the buyer offers a fixed price based on supply and demand. But whose supply and whose demand? Buyers are in business to make money so they’ll obviously buy as low as possible.
Does the farmer have the market knowledge and negotiating skills to counter the “expertise” of a trained buyer? Does the price reflect the true value at that time or is it adjusted according to that so-called “supply and demand”? Does the farmer realise that sending the best produce directly to the buyer lowers the standards on the market, and the prices?
And you can bet the buyer’s using those deflated prices as his benchmark.
The buyer pays at a given time, which could range from cash up to 120 days. The farmer is therefore often carrying the buyer as well as the risk. Does the buyer take the whole crop? Some take an orchard run but most select only the best – naturally – and leave the farmer wondering what to do with what’s left over.
Commission
Here farmers appoint a market agent. Market agents sell on the farmer’s behalf and are paid a commission for their services.
Farmers sells their whole crop through the market, and retain ownership of their products until the point of payment by a buyer.
The law protects the farmer financially if a market agent can’t pay, or is guilty of any fraudulent activity with the farmer’s money. The market agent must pay the farmer within five working days after completing the sale.
Farmers who understand how a market operates ensure continuity at all times and strive for the best quality. They know high prices are nice, but understand that the average is what really counts.
Farmer and market agent build a relationship over the years. In the South African context, given our thousands of small-scale farmers, I believe the commission system offers all farmers the best deal.
