LECTURE 2

BASIC PRINCIPLES OF AGRI-

MARKETING

Khols & Uhl

Chapter 1
Learning outcomes
 Describe the role and importance of
agricultural marketing
 Name and discuss the assumptions of
an eGcient marketing system
 Describe diIerent types agricultural
markets
 Discuss value addition in the context
of agrimarketing
Food perishability
*
* Seasonality
Essential Questions
 What are the main business functions?
 General Management operations
*
 Public relations Logistics
*
*
costumer care

 Purchasing
 Human Resources
 Production
 Administration
 Marketing *
 Financial
 Porter’s value chain model highlights
marketing
 https://www.business-to-you.com/value-ch
Agrimarketing: An Essential cost involved
farmer and consumer:

Component
Between

 The cost of marketing U.S. domestic food amounted to

$450 billion, while the cost of producing farm food
products is $125 billion.
 Of the billions spent by consumers for food products,
less than one-fourth was returned to producers – over
three quarters went to marketing costs.
 In agriculture, the role of marketing is to meet the
consumer’s needs while also ensuring that producers
earn a suGcient pro^t.
 Well-designed marketing campaigns are a key
component in maximizing pro^t.
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What is Agrimarketing?
 De^ned as the sum of the processes, functions,
and services performed in connection with food
and ^ber from the farms on which they are
produced until delivery into the hands of the
consumer.
 Agrimarketing operations include the following:
 Buying, assembling, storing, packing, warehousing,
communicating, advertising, ^nancing, transporting,
grading, sorting, processing, packaging, selling,
merchandising, insuring, standardizing, regulating,
inspecting and gathering market information (among
others!)
 What does sound like and look like?
Prerequisites of an EAcient
Economic System
with intervention
where buyers and sellers connect
taking place.
no
->
 A free market economy is the ^rst necessity because
consumers dictate what is produce, when it is produced, who
produces it, and for whom.
 Pricing eAciency is the second necessity – it is determined by
how closely an economic system comes to getting the full value for
its resources. This bene^ts both consumers and producers. Prices
recect the possession of all available information by all market
participants
 Interaction between Consumer and Producer is the third
necessity because when parties interact directly, knowledge is
gained and informed choices can be made.
 An eGcient economic system has the following:
– Consumers that make decisions and are satis^ed
– Pricing that allows for allocation of resources
– Producers whose long-run pro^ts are maximized
Intervensions
Farm Commodity
Marketing

Agrimarketing takes place in two phases:



– Marketing of products directly from the farm

– Marketing of products that have been through “transformation”
(they are now products)
Strategies for marketing farm commodities:


– Determine markets available

– Costs of marketing and transportation
– Advertise to create markets
– Market seasonal products at peak times
– Shorten the channels between producer and consumer
Types of Agricultural
Markets
 Terminal Markets:
 Stockyards hold and care for animals until they are

sold (receiving a fee for services)

 Auction Markets:

 Members of the public bid on animals for purchase

 Direct Sales:

 Animal producers sell their animals directly to a

processor (there are no commissions or fees)

 Cooperatives:

 Producers band together to market a commodity

Types of Agricultural Markets (continued)

 Government:
 Buys products for service programs (school
lunch) and sells surpluses to developing nations
 Vertical Integration:
 Combines steps in production, marketing, and
processing in order to reduce costs
 There is less competition and more control
 Futures Markets:
 Refers to the buying and selling of contracts
rather than the immediate purchase of an
animal/crop
 Will deal with Futures Markets in more detail
JSE/Safex Commodity
Market
CME Group

https://www.cmegroup.com/
Types of Agricultural Markets (continued)

 Forward Contracting:
 Producers seek to set ^xed (preharvest) prices
through contract sales
 Harvest Pricing:
 Traditional way of selling – prices are set
according to the markets at time of harvest
 Postharvest Pricing:
 Determining a price anytime after harvest from
right after to 10 or more months later (depending
on the commodity and market pricing)
Main elements of
marketing

 There are four controllable variables in

Agrimarketing – in the right combination they will
meet the needs and preferences of the intended
market:
 Product: The ^rm must develop the right product to give
maximum satisfaction in the target market
 Price: Must carry the right price in light of market factors
 Place: Right product, right price, must be in the right place to
be purchased by the target audience
 Promotion: Members of the target market must be told in the
right way in order to secure sales
Functions of Marketing
 All advertising is a form of marketing, but
marketing is more than just advertisement.
 Primary function of marketing is to attract
people to a business so that they will buy a
product or service for more money than it takes
to produce or render.
 Eight main functions of marketing include the
following:
 Buying, selling, transporting, storing, provision of
quantities and quality, ^nancing, risk taking, and
gathering market information
Marketing Agribusiness Products

Five key aspects or agribusiness marketing

include:
 Advertising
 Wide range of advertising methods
 Price Promotion
 Used to stimulate quick sales (E.g. Dealer priced incentives)
 Merchandising Promotions
 Endcap displays, additional shelf-facings, prominent signage
 Public relations activities
 Draw attention to product through support of local/civic organizations

 Coordination
 Coordinate advertising with other marketing strategies
Value Adding
 From the time the commodity leaves the farm,
to its arrival in the consumer’s shopping cart,
product value increases by more than the
additional input.
 Example: When maize is ground into maize meal, the
maize meal is worth more than the maize and the cost
of the grinding process.
 When the maize meal is turned into corncakes, the
corncakes are worth more than the maize meal and
the price of the ingredients that go into the cakes, etc.
Value Adding

 Value adding can occur at any point

during marketing – the most is added
when the product is processed in
some way prior to sale.
 Think about wool to a jersey
 Pumpkin to ready made pumpkin
fritters
 Transport to a city
 Keeping a product fresh through
storage
Market Analysis

 This involves the collection and processing of

information to determine if a product will sell and
typically involves six steps:
1. Determine what information is needed
2. Develop a means for getting the needed information
3. Word questions carefully
4. Gather the information
5. Tabulate and analyze the information
6. Draw meaning and interpret the ^ndings
 Market analysis is much like the Scienti^c Method.
Strategic Planning and Marketing

Strategic planning considers a wide range of

issues (advertising, employees, customers,
company structure)
Characteristics of strategic planning:
 Consider the big picture
 Know that demand changes
 Consider future environmental forces in the Industry
 Anticipate competitors’ reactions
 Plan long-term
 Typical plans today are about ^ve years

 Marketing is an essential part of the strategic planning

process