Analysis of Marketing Channel for Food Commodity in North

Sumatra, Indonesia

Muhammad Ilham Riyadh

Faculty of Agriculture, Agribusiness Study Program of Islamic University of North Sumatra ,

Jalan Karya Wisata Gedung Johor Medan, Indonesia

Keywords: Trading, Food, Marketing Channels, Farmer share, Revenue

Abstract: Less availability food, and lame path distribution from producer to consumers . show that system production

and system distribution some food disturbed because quality means and infrastructure transport many broken

So the increase price at the level consumer far more big compared with increase price at the producer level .

the objectives reviewed, 1) : For to know commodity supply channels food 2) For knowing efficient system

commerce on channel system commerce . 3) For knowing Policy system commerce commodities food . the

Research do at five district namely : district Simalungun , Karo , Dairi , Tapanuli and North Langkat .

Analytical method with marketing margin analysis , farmer's share, and B / C ratio. The channel length a

suggestion would be to improve the high price disparities that can be detrimental to farmers and consumers,

high disparity rice commodity experienced a 132%, the ratio of red chili commodity farmers gain the highest

45.31%. Farmer share highest commodity of red chilli 89 % . In order to regulate the food commodity trade

in North Sumatera, the following policies are needed : 1) to provide guidance and assistance to farmers for

the empowerment of farmer groups; 2) development of production and market information system and the

law on food commodity trading to maintain price stability; 3) improve coordination and synergy of farmers

and enterprises to handle production, post-harvest, marketing and credit development of food commodity

development.

1 INTRODUCTION

Food self - sufficiency is one of the main targets of

agricultural development in the future. This food self-

sufficiency program has a meaning and a very

important role for the life of a nation because

experience has proved that the disruption to food

security such as rice crisis in 2008, marked by rice

price fluctuation, has taught that protecting the

domestic market with food self-sufficiency efficient

is indispensable (Sawit et al , 2010). This is more due

to the supply aspect due to disruption of production

and distribution systems in some places The

percentage of price increases at the consumer level is

much greater than the percentage increase in prices at

the producer level.

Food is the most basic needs, especially people in

North Sumatra to meet the needs of his life. On the

other hand, the number of people who continue to

increase every year is a problem faced by local

governments in supporting food security. This

enormous food demand if not offset by increased food

production will certainly be a problem. This problem

occurs one of which is caused by the strategic

commodity food trade in the market that is not

running properly and not in favor of farmers and

consumers.

Province of North Sumatera is one of the central

areas of strategic food commodity production in

Indonesia. The resulting strategic food commodities

consist of rice, soybeans, corn, onion, chili, beef and

sugar. Some of the strategic food commodities

produced in North Sumatra in recent years continue

to experience a very high price increase. This price

increase is triggered by a variety of factors and one of

them is the amount of supply in the market as a result

of limited production at the producer level (farmers).

This price increase can indirectly trigger inflation.

The purpose of the implementation of this study

activity are: 1) To know channel, institution, function

structure and market behavior of strategic food

commodity trading in Sumatera Utara. 2.) To know

the efficiency of the trading system in every strategic

food commodity trading channel in North

276

Riyadh, M.

Analysis of Marketing Channel for Food Commodity in North Sumatra, Indonesia.

DOI: 10.5220/0010041702760282

In Proceedings of the 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and Technology (ICEST 2018), pages 276-282

ISBN: 978-989-758-496-1

Sumatera.3. To know the implication of strategic

commodity food trade policy in North Sumatera.

2 RESEARCH METHODS

This research was conducted at Prov insi of North

Sumatra with 5 ( five ) regions Regency / City

namely: Simalungun, Karo, Dairi, and Tapanuli Utara

and Langkat . The study time was conducted for 8 (

eight ) months counted start March to October 2017).

Total sample of farmers taken for interviewed as

many as 210 each - 30 farmers from 5 ( five )

commodities of rice, corn , onion, red chili , and beef

with a reason to enlarge the diversity of the research

results and is considered to have described the

condition of farmers in Province of North Sumatra.

Quantitative analysis is conducted to see the

efficiency of trading by using the analysis approach

of trading margin, farmer's share, and profit and cost

ratio ( R / C ). According to Limbong and Sitorus

(1987) mathematical trade margin analysis can be

formulated as follows:

Mi = Psi - Pbi (1)

Mi = Ci + Li (2)

From the equations (1) and (2) , it is obtained :

Li = Psi - (Pbi - Ci) (3)

Description :

Mi = The trading margin at the i-the business

institution (Rp / kg).

Psi = The selling price of the i-the business institution

(Rp / kg)

Pbi = The purchase price of the i-th business

institution (Rp / kg)

Ci = Cost of business at approved agencies

to i (USD / kg)

Li= The profit of the i-th business agency (Rp / kg).

Farmer's share analysis is used to compare

prices paid by end consumers to the price of products

received by farmers (Limbong and Sitorus, 1987).

Farmer's share has a negative relationship with the

trading margin. If the farmer's share is low, the

farmer / farmer's share is low, and vice versa if the

farmer's share is high, then the share will be high.

Farmer's share is determined based on the price ratio

received by the farmer / farmer (Hj) at the price

received by the end consumer (He) and expressed as

a percentage. Mathematically farmer's share is

formulated as follows:

FS = Hj / He x 100%

Information :

FS = Farmer's Share (100%)

Hj = Selling price at farmer's level (Rp / kg)

He = Retail price at end consumer level (Rp / kg)

3 RESULTS AND DISCUSSION

3.1 Development of Commodity Price

of Food of North Sumatra

Average price of ingredients needs principal in 33

districts / municipalities of North Sumatra Province

in the week first month of February 2016 (date 01-06

February 2016), to commodities rice , ie Rice Kuku

Balam average price of Rp . 11.420 / kg and Rice

Jongkong Ir 64 average price of Rp . 10,500 / kg. For

Meat Cow, that is Meat Cow Pure average price of Rp

. 110.830 / kg. Corn Dry the average price of

Rp.4.870 / kg. For commodities Onions , ie Onion

Red Import average price Rp . 24.290 / kg, Onion Red

Local average price of Rp . 29.130 / kg, and Onion

White average price of Rp . 29.450 / kg.

Figure 1 . Strategic Food Price Development In North

Sumatra

Information obtained from Center Medan City

Market price meat cow soaring enough sharp usually

price selling it only Rp.90.000-Rp.95.000 / kg, now

translucent in the range of Rp.110.000 / kg. Increase

this happen because of lack of supply Meat Cows in

the city of Medan are making price Meat Cow soaring

up ,

Table 1. Dispitas Price of Food in North Sumatra

Commodity Selling price Price

Disparity

Farmers Consumer

Rice 4400 10220 132%

Corn 2828.13 4750 67%

Red onion 20667.6 44000 112%

Red chili pepper 22000 24950 13.40%

Beef 64000 110000 71.87%

Source: Primary data

Based on Table 1 that the rice commodity

experienced disparity high price grain ( equivalent

rice ) in the producers with price rice in consumers by

132 percent, where there relationship no proportional

price between in producer and in the consumer . This

shows the cost of each high marketing institution in

its channel. And followed by onion commodities by

112 percent. Be different with red chili with a degree

‐

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

Beras

Jagung

Bawang

Cabai

Dagingsapi

Analysis of Marketing Channel for Food Commodity in North Sumatra, Indonesia

277

of price disparity of 13.40 percent, this is because the

production of chili directly sold through the auction.

3.2 Institutional Analysis and

Functionalization

A institution of food trading system is a business

entity, individual or economic actors who are

involved directly or indirectly

Table 2. Food Custody Function in North Sumatra

Marketing

Function

Rice Corn Onion Chili Beef

Purchase √ √ × √ × √ × √ × √

Sales √ √ √ √ √ √ √ √ √

Transportation × √ √ × × √ × × √

Storage × √ × √ √ × × × ×

Sorting × × × × × × √ × × ×

Financing √ √ √ √ × × √ √ × ×

Source: Primary data processed

Rice farmers perform marketing functions such as

purchasing, selling, financing, risk aversion and

market information. Grain Agents perform marketing

functions such as purchase, sale, transportation,

storage, financing, risk handling and market

information. Rice mills, wholesalers, municipal

market traders siantar, traders of Tanah Jawa sub-

district market, selantar retailer kiosks and retailers of

Baha Bah Jambi II retailers do all the marketing

functions of buying, selling, transportation, storage,

financing, risk-taking, standardization and pricing

information.

Corn farmers in the storage function are

sometimes done by processing plants / mills and

retailers. This is done to minimize transportation

costs. Storage of corn is generally put in the burlap

and stored in the warehouse before being processed

and resold so as not to cause a high cost. All corn

marketing agencies are doing transport functions to

market corn to end consumers. One of the biggest

costs in any marketing agency is the cost of

transportation.

The trade-off functions carried out by the offender

on the research area are the functions of exchange

(buying and selling), physical functions

(transportation, storage, distribution) and facility

functions (risk and funding).

All marketing agencies of red chillies perform the

transportation function to market red cabi to the final

consumer. Most farmers sell hasi l red chili crop

through the auction. One of the biggest costs in any

marketing agency is the cost of transportation.

Marketing agencies that perform sorting functions

when buying or selling red peppers are big traders.

While farmers, agents and collectors do not do

sorting. Sorting is done by separating red peppers

based on varieties and moisture content. But

Marketing Loss is not experienced by each marketing

agency. This is due to the sale of chili at each

institution all can be accepted by consumers.

3.3 Market Channel Analysis

In general, farmers carry out sales at trading

institutions such as Agents, middlemen, to mills

(rice), large traders and then to retailers and directly

to consumers. This can be seen in the picture below:

3.3.1 Marketing Channel of Rice

a. Farmers - Agents - Mill Sentry Refineries - Large

Traders - Holding Market - Retailers - Consumers

b. Farmers - Agents - Mill Sentosa mill - Large

trader - Parent Market - Consumer.

c. Farmers - Agents - Mill Sentosa Mill - Dolog

d. Farmers - Agents - Double mill rollers - Grocery

Traders of Java - Village kiosk sellers -

Consumers

e. Farmer - Agent - Multi Grinder - Village Trader

Java Land - Kosumen

3.3.2 Marketing Channel of Corn

a. Farmers - Refineries - Agents - Wholesalers -

Large traders - PT Phokhan Charoen - Retailer -

Consumer

b. Farmers - Refineries - Agents - Wholesalers -

Large Peddlers - Milling Mill - Retailer -

Consumer

c. Farmers - Refineries - Agents - Gatherers -

Wholesalers - Retailers - Consumers

d. Farmers - Refineries - Wholesalers - Large

Wholesalers - Retailers - Consumers

3.3.3 Marketing Channel of Red Onions

a. Farmers - Wholesalers - Retailers - Consumers

b. Farmers - Wholesalers - Large Wholesalers -

Retailers - Consumers

ICEST 2018 - 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and

Technology

278

3.3.4 Marketing Channel of Chili Red

a. Farmers - Wholesalers - Retailers - Consumers

b. Farmers - Place of Auction - Consumers

3.3.5 Marketing Channel of Beef Cattle

a. Breeder - Gatherer - Animal Slaughter House

(RPH) - Market - Consumer

3.4 Analysis of Market Structure

The market structure shows how a market is

organized based on characteristics that determine the

relationships between different market sellers,

between buyers and between buyers and sellers in the

market, so that the market organization influences the

competitive circumstances and market pricing

The market structure of rice in the simalungun

district is in imperfect competition that leads to

olipgopsoni. This market structure causes the

bargaining position of the farmer to be always weak

compared to the bargaining position of the traders,

especially in the opportunity to obtain a reasonable

price. Farmers are always positioned as price takers.

The price formed is determined by the collecting

merchant. In imperfect competition markets farmers

and consumers have low bargaining where farmers

always receive low prices whereas consumers pay a

high price, unequal margin distribution where the

price received by producer farmers is low while the

intermediary traders earn a great advantage

Table 3. Analysis Ratio Advantages and Cost trade system

Comm

odity

Marketing

Cost (Rp)

Profit (Rp) B / C ratio (%)

Far

mer

Merch

ants

Far

mer

Merch

ants

Farme

Merch

ants

Rice 519

.36

272.29 388

0.64

584.94 7.47 1.99

Corn 796

.55

689.15 277

3299.3

3.48 4.78

Red

onion

157

2001,7

222

36664,

1.41 18.31

Red

chili

pepper

475 1581.6

215

97918,

45.31 61.90

Beef 292

3,5

4075.3

640

87591,

21.89 21.49

Source: Primary data

Based on profit ratio analysis (R / C) for every one

rupiah marketing cost incurred in rice commodity will

give advantage to farmer equal to 7,47 whereas

marketing cost of merchant will give profit to trader

equal to 1.99. while red pepper will give profit to red

chili farmers as much as 45,31 whereas merchant

equal to 61,90 meaning that bigger marketing

expense will be more profit.

Table 4 Trading Margins

Commodity Price Customized

Margin

Sell Buy

Rice 8580 6912.5 1667.5

Corn 3810.42 2871,73 938.69

Red onion 34166,83 21738.32 12428,51

Red chili

24300 18820 5480

Beef 84750 57250 27500

Margin marketing is the difference between the

selling price and the purchase price and is one of the

indicators used to measure the efficiency of a

marketing system Increasingly big value margin

system commerce show increasingly big income

institution system commerce and increasingly small

part the price received by the farmer on the prices are

payable by consumers . Based on the analysis of food

trading margin, the most efficient trading channel is

Rice because it has the smallest marketing cost of Rp.

1667, 5 whereas which is inefficient is a beef trading

channel of Rp. 27,500 because it has the biggest

marketing co

Table 5. Farmer's Share Analysis

Commodity Price Farmers Share

Farmers Consumer

Rice 4400 10220 44.30

Corn 2828.13 4750 59.88

Red onion 20667.6 44000 47.70

Red chili

pepper

22000 24950 89

Beef 64000 110000 58.18

Source: Premary data

The farmer's share analysis is a channel management

analysis by comparing the price received by the

farmer and the price paid by the end consumer.

Analysis Farmer's Share contrary with margin

Analysis of Marketing Channel for Food Commodity in North Sumatra, Indonesia

279

system commerce in besides value . Increasingly high

margin system commerce something product or

commodity means accepted part.

Farmers increasingly low . Based on table 5 shows

that rice commodity has the smallest value of farmer

share of 44.30%, while the largest farmer share in red

chilli commodity is 89%, it means the marketing

channel of red pepper commodity is more operational

efficient compared to rice commodity.

Table 6. Efficiency of Food Coverage Marketing

Com

modit

Total

Product

Value

(Rp / Kg)

Total

Marketin

g Cost

(Rp / Kg)

Marketin

Efficienc

y (%)

Rice 32160 1334,26 4.34

Corn 110050 10636,58 9.67

Red

onion

126285.1

6486.80 5.21

Red

chili

peppe

24875 395.41 1.56

Beef 108333 4075 4

Source : Premary data

Marketing efficiency can be deduced from the

smallest marketing cost, lowest channel and product

cost / value ratio. From the results of the above

research, the most efficient marketing channel is the

red chili commodity 1.56 because the marketing

channel is done by the auction market with the other

word the lower the efficiency level, the smaller the

marketing costs incurred.

3.5 Strategic Food Commodity Policy

Policy in North Sumatra

To organize a strategic food commodity trading

system in North Sumatra, various policy efforts are

needed: 1) fostering and assisting farmers to empower

farmer groups; 2) development of production and

market information systems and legislation on

strategic food commodity trading to maintain price

stability; 3) improve coordination and synergy and

form cooperative farmers and enterprises to handle

production, post-harvest, marketing and lending

business efforts in strategic food commodities.

According to Sandyatma (2016), In this case,

Perum BULOG has a central role as a price stabilizer

institution and as a fair referee in the procurement of

food. Breakthrough (1) expanding the scope of its

business as an "aggregator business" in dealing with

all strategic food commodities, (2) acting as food

buffers, and (3) stabilizing food prices.

From the new food supply formulation and policy

support, if supported by the synergy of relevant

ministries / agencies and stakeholders, it is not

impossible that the President's direction can be

realized: cutting the supply chain into 3-4 supply

chain players, stable food prices and BULOG stock

adequate, the producer price disparity shrinks, the

producer enjoys the fair profit, the trader still exists,

the consumer gets the low price and controlled

inflation, the creation of new struc- ture food market

structure , and the most important is the creation of a

just food trade order for farmers, traders and

consumers.

To anticipate the increase in public demand ahead

of the holiday, surely the increase in production

would be a source of momentum, of course this will

only happen if accompanied by anticipatory steps

especially to encourage the availability of various

commodities. In addition to the availability aspect,

the important and urgent thing to note is to improve

the healthy and competitive market structure.

Especially if the problem is a basic commodity that in

fact has a very inelastic demand properties .

Anything price then consumer no have alternative

other besides must permanent buy it . According to

Hartati (2016) minimum three step absolute presence

Government for solve the fundamental problem of

turmoil price seasonal this . First and The main thing

to be do is ensure data upgrades production or supply

. Certainly needs every year experience enhancement

along with growth residents . Second , prevent and

close slit room occurrence behavior competition is

not healthy . The key , the government must have

enough reserves to avoid give room for holder

domination supply for toying with price . Third ,

keep up kel ancaran current distribution goods . If p

that could done , undoubtedly every Ramadan and

Lebaran come , no turmoil price faced however

precisely become the momentum for exciting

lethargy economy .

To anticipate the decrease of production of Red

Chili agriculture due to decreasing harvest time, new

planting, weather factor and high rainfall causing the

quality of chilli decreased then the simultaneous

harvest of paddy rice so that the chilli farmer no time

to harvest the chili and deliver to the auction market

then the role extension workers (PPL) in the field

must be aggressively socialize to the farmers,

otherwise the farmer will directly sell his agricultural

production (red pepper) to an agent or a wholesaler

outside the auction market mechanism resulting in

reduced supply to the auction market

Field Officer (PPL) should be technically

equipped to provide counseling and socializing to

farmers and record the time of planting and harvest

time red chili region of their respective duties that can

ICEST 2018 - 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and

Technology

280

be ascertained the availability of the production of

each region

The government urges farmers to sell their

products through the auction market and it is expected

that the Market Office and Pamong Praja Officer in

North Tapanuli to monitor and stop the transactions

outside the market mechanism as long as they do not

violate the rules, because there are still many agents

doing transactions before the red chili farmers arrived

at the place auction.

Red pepper farmers are equipped with counseling

process of making or processing animal feed, organic

fertilizer so that they are sure to decrease dependence

on the use of chemical fertilizers so that production

cost can be minimized and better quality of harvest.

Efforts that can be made to improve Marketing

Efficiency

1. In order for rice production not to overflow to

the market beyond the market demand at a certain

moment, for example at harvest time, then set the

planting schedule, partnership and government policy

to accommodate rice production in abundance, such

as DOLOG buy grain farmers at a price not too low

so farmers can plant rice again. The government

should establish a self-sufficient policy on trend when

production exceeds consumption is possible for

export and when production is less likely to import

rice.

2. Involving farmers / farmer institutions in

planning rice cultivation.

3. Have a good market information tool, so can

quickly market information to the farmers and try to

know the price.

4. It is necessary to immediately prepare a strong

and skilled farmer institution in entrepreneurship in

the effort of farmers development and specialize for

marketing and marketing of rice

5. Encourage the formation of Village Unit

Cooperative (KUD) in the field of sales, processing

and purchasing, and increase lending to farmers

4 CONCLUSIONS AND

RECOMMENDATIONS

4.1 Conclusion

From the results of the above research obtained

results that:

1. Marketing Channel of rice in the village of

Tanah Jawa district of Simalungun found 5 channels

of marketing, There are 4 types of marketing channels

of maize In the village Tiga binanga in Karo District,

Marketing Channel of Onion in District

Silahisabungan Dairi district there are 2 channels

market, there are 2 marketing channels of red pepper

in the village Siborong-borong Tapanuli Utara,

Marketing Channel of Meat Beef in Besitang Sub-

district, Langkata District found 1 channel of trading.

2. The market structure faced by rice farmers,

onion maize and red peppers and beef tends to be

close to perfectly competitive markets. The seller and

buyer deal price is the result of bargaining, while the

buyer's payment of the deal price can be by cash and

installment.

3. The analysis of trading costs shows that rice

milling and corn mill milling have a high cost

structure because they perform the processing

functions and bear transportation costs.

4. DOLOG and Auction Markets acts as an

institution that balances market prices and as one of

the variables in the calculation of inflation, price

stability in the auction market will be very helpful in

controlling the inflation rate.

4.2 Suggestion

The suggestions that need to be conveyed are as

follows:

1. Farmers are better to sell to grinders and

farmer groups in the form of dry milled grain (GKG)

because it will increase the selling value, farmer

groups need to strengthen the capital to increase the

purchasing power of the farmers' harvest. The hall for

extension services is expected to provide counseling

to farmers to increase the selling value of their grain

and provide counseling to the farmers groups to

improve the marketing role of farmer groups. Milling

needs to reinvest the processing machinery to

increase the yield of rice produced so that the

processing cost can be more efficient. In addition, the

mills need to strengthen the capital to be able to

distribute rice directly to retailers without going

through large traders. DOLOG support prioritizing

local rice absorption can be a marketing opportunity

by the marketing agencies at the research sites. The

large distribution of relatively equal benefits among

agencies can be a force for market expansion.

2. For local government, in this case the

Department to develop and refine the marketing

system by organizing a marketing system that is more

profitable farmers. Such as cooperatives that function

in the field of sales and purchases and play a role in

providing all the necessities of production advice with

lower prices and a role in the marketing of food

Analysis of Marketing Channel for Food Commodity in North Sumatra, Indonesia

281

products to reduce marketing costs while increasing

bargaining position in determining the price of

production, so the marketing system is much more

efficient

ACKNOWLEDGEMENTS

The authors would like to thank to support from The

Ristekdikti as give fund for my research.

REFERENCES

Alang (2013) Soybean Trading System in Cipeuyeum

Village, Haurwangi District, Cianjur Regency. Journal

of Management & Agribusiness, Vol. 10 No. 3,

November 2013

Central Bureau of Statistics of North Sumatra Province,

2015

Daryanto, A 2007) Increased Dayasaing Livestock Industry

Permata Lestari Publishing Publishers Trobos

Magazine). Jakarta

[IMF] International Monetary Fund. 2014. www.imf.org

(July 2014)

Judge. B, 2009) Judge, BD, 2009. Potpourri of

Agribusiness Series Marketing, IPB Press, Bogor

Krismurti, Swambodo, 2002. Analysis of Efficiency of

Onion Marketing (Allium ascalonicum) in Gading

Kulon Village and Malang Regency . Thesis

Department of Social Economics Faculty of

Agriculture University Brawijaya. Poor.

Limbong, W. H and Sitorus, P., 1987. Introduction to the

Department of Agriculture's Department of Agriculture

Agricultural Social Sciences . Faculty of Agriculture.

IPB. Bogor.

Mubyarto, 1994. Introduction to Agricultural Economics .

LP3S: Jakarta.

Sahari, D. and Akhmad. M., 2002. Supporting Institutional

Marketing Analysis Development of Corn Agribusiness

in Sanggau Ledo Production Center of West

Kalimantan . JPPTP, Volume 2, July.

Sawit et al , 2010) Rice Policy Architecture in the New Era.

Bogor, PT Penerbit IPB Press

Siringgo-ringgo (2014). Analysis of Tataniaga Onion.

Journal On Social Economic of Agriculture and

Agribusiness Vol 3, No. 8 (2014): Vol 3 No. August 8,

2014

ICEST 2018 - 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and

Technology

282