Marketing Benefits Derived from Clustering: the Case of Vegetable Clusters in Mindanao

One of the most limiting constraints for improving the profitability of smallholder vegetable farmers is poor marketing. With the lack of knowledge and inability to negotiate with downstream buyers, farmers have little option other than to sell their products to the traditional market. To facilitate access to technical information, credit and institutional markets, smallholder farmers are forming collaborative marketing groups. Clustering is one form of collaborative marketing in which smallholder farmers are organized into small groups within a defined territory or geographic area. Using the CRS Eight Step Plan for Agro-enterprise Development, 29 clusters were formed in three provinces in the Southern Philippines. This study explores the various marketing benefits smallholder farmers have achieved after joining the cluster. After interviewing 61 vegetable farmers from 10 clusters using a structured questionnaire, results show that upon joining the cluster, farmers became more aware of their buyer’s preference for product quality and gained knowledge on how to properly handle and package their produce. Cluster farmers increased their income from vegetable farming by selling a greater product variety, a larger volume and gaining access to high value markets. INTRODUCTION One of the most limiting constraints for improving the profitability of smallholder farmers is marketing (Montiflor et al., 2011). Moreover, improving agricultural marketing has been a continuous undertaking in the Asian region, where farmers have been burdened with limited resources, changing consumer demands and inefficient supply chains (Manalili, 2003). With the lack of knowledge and inability to negotiate with buyers, farmers have little option other than to sell their products through the traditional markets. Acting independently, smallholder vegetable farmers find it difficult to meet the quality and quantity demands of institutional buyers because they lack financial capital and their small farm size (Montiflor et al., 2011). External factors such as poor transport infrastructure, high transport and handling costs, limited access to physical inputs, credit and information, high transaction costs and the lack of government and institutional support all contribute to the difficulties smallholder farmers experience in entering highvalue markets (Murray-Prior, 2007). The agricultural research and development community has started to recognize the need for smallholder producers to move away from a traditional focus on production towards a more market orientated strategy to improve on-farm income (APAARI, 2008). Proc. IVth IS on Improving the Performance of Supply Chains in the Transitional Economies Ed.: P.J. Batt Acta Hort. 1006, ISHS 2013 204 This approach requires linkages to be established between input suppliers, producers and market intermediaries. An outstanding example of this approach is the Eight Step Clustering Approach for Agro-enterprise Development developed by the Catholic Relief Services. Under the clustering approach, farmers are organized into small groups called clusters (CRS, 2007). This approach employs a process of eight steps. The first five steps emphasize the need for farmers to learn new skills, access new information, and adopt innovative methods to be able to identify and respond to market demands and opportunities. Adequate preparation during this first phase ensures a higher degree of success when actual marketing takes place in Step 6 (test marketing). After this, the cluster is asked to reflect and to decide if they want to continue with their agro-enterprise development plan. At this point in time, the farmers formally come together into clusters and develop links with the institutional market. The clustering approach focuses not only on improving smallholder farmer’s production system, but also on how their products can more efficiently reach the market. This is achieved through collaborative marketing where the farmers come together to collectively sell their produce to a preferred buyer. This collaborative action aims to lower farmers’ transaction costs, gain better access to markets, better bargaining power, and improve the income of smallholder vegetable farmers. The key benefits of clustering can be economic, environmental and social (Lamban et al., 2010). Economic benefits include higher prices for products, lower costs, higher income, improved market access, improved access to technical information and capacity building, greater access to production inputs and greater access to working capital. The adoption of natural farming technologies and contour farming has had a positive impact on the environment. The capacity to negotiate with buyers and to establish market linkages has enabled the clusters to diversify their markets and their product range, to provide additional employment for the community, to improve social connections and access to information and infrastructure. Perhaps the most significant and longterm social benefit has been the ability of cluster farmers to send their children to school. Through clustering, farmers have a better understanding of the market dynamics, price fluctuations and the product specifications they must meet to satisfy their downstream buyers’ needs (Lamban et al., 2010). A better understanding of the market enables farmers to overcome much of the distrust and apprehension that has been present in the traditional market. Moreover, cluster members feel more empowered with the skills and information acquired through training, workshops and seminars. They now have the capacity to make their own decisions, especially in dealing with buyers and in developing alternative markets for existing and new products. This paper will highlight some of the on-farm benefits farmers have gained from participating in the clustering process. SITE DESCRIPTION Mindanao, the second largest island in the Philippines, is composed of six regions, 26 provinces and is home to over 21.6 million residents. In this study, research was undertaken in three provinces: Bukidnon, Davao City and South Cotabato. Bukidnon has 22 municipalities and a total land area of 1.05 million ha. Two clusters were situated in the municipality of Lantapan, one in Impasugong, and four in Malaybalay City. Lantapan lies at an altitude of 1,130 m above sea level and has a total population of 51,406. The municipality is composed of 14 barangays, including Songco and Kaatoan. The Songco and Kaatoan clusters were each composed of 13 farmers. Impasugong is the largest of the 22 municipalities in Bukidnon. The cluster in Impasugong is composed of six farmers who primarily plant bitter gourd. Malaybalay, the capital city of Bukidnon, is composed of 46 barangays. The Kilapagan Gardeners Association is composed of two clusters located in Purok 6 and 7 of Barangay Can-ayan. Both clusters have 13 members. Davao City is one of the largest cities in the world. It is composed of 184 barangays, including Barangay Saloy and Barangay Marilog, both of which are located