CHAPTER 4: AGRICULTURAL MARKETING

4.1. MARKETING CHARACTERISTICS

Marketing can be defined in various ways as many writers have used their own way of defining
it. In fact, there are almost as many definitions as to the number of marketing specialists. As
such, there cannot be a universally accepted definition. The definitions depend upon the role
marketing is expected to play and the perspective from which it is viewed. Generally, Marketing
is a total system of business activities designed to plan, price, promote and distribute want-
satisfying products to target markets and to achieve organizational objectives.

Like marketing, there are many ways of defining agricultural marketing; some writers have used
the “economists” definition of production as a basis for the term agricultural marketing. The
economists’ reason states that man cannot create matters; he produces by changing matters in
form, place, and possession so that it might better suit his wants. Other writers have limited their
definition to include only the sale of the product. This concept probably originated from the word
market is a place where the ownership of a product changes hands where goods are bought and
sold. Here the producer may sell directly to the consumer, but to do so, he may have to pack,
store and transport and advertise his product. Note that, selling is not marketing; it is one
component/function/ of marketing. Based on the above concept agricultural marketing can be
defined as follows:
Agricultural marketing is the study of all activities, agencies, and policy involved in the
procurement of farm inputs and the movement of agricultural product from the farms to the
consumer.

Thus agricultural marketing is the link between the farm and nonfarm sectors. It includes
organization of agricultural and material supply, processing industries, the assessment of demand
for farm inputs and raw materials and the policy related to the marketing of farm products to the
consumer. Therefore, the term "agricultural marketing” as used in this learning task describes
nothing more than a series of services involved in getting goods from the point of production to
the point of consumption.

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With specialization in production on the rise, agricultural marketing systems have increasingly
become more complex. Today, most producers and consumers of agricultural products live far
apart meaning that a number of middlemen are involved in the provision of crucial services to
bring the product from the producer to the final consumer.

Difference in Marketing of Agricultural and Manufactured Goods:

The marketing of agricultural commodities is different from the marketing of manufactured
commodities because of the special characteristics. The special characteristics which the
agricultural sector possesses, and which are different from those of the manufactured sector, are:
1. Perishability of the Product: Most farm products are perishable in nature; but the period of
their perishability varies from a few hours to a few months.
2. Seasonality of Production: Farm products are produced in a particular season; they cannot be
produced throughout the year. In the harvest season, prices fall. But the supply of manufactured
products can be adjusted or made uniform throughout the year. Their prices therefore remain
almost the same throughout the year.
3. Bulkiness of Products: The characteristic of bulkiness of most farm products makes their
transportation and storage difficult and expensive. This fact also restricts the location of
production to somewhere near the place of consumption or processing. The price spread in bulky
products is higher because of the higher costs of transportation and storage.
4. Variation in Quality of Products: There is a large variation in the quality of agricultural
products, which makes their grading and standardization somewhat difficult. There is no such
problem in manufactured goods, for they are products of uniform quality.
5. Irregular Supply of Agricultural Products: The supply of agricultural products is uncertain
and irregular because of the dependence of agricultural production on natural conditions. With
the varying supply, the demand remaining almost constant, the prices of agricultural products
fluctuate substantially.
6. Small Size of Holdings and Scattered Production: Farm products are produced throughout
the length and breadth of the country and most of the producers are of small size. This makes the
estimation of supply difficult and creates problems in marketing.

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7. Processing: Most of the farm products have to be processed before their consumption by the
ultimate consumers. This processing function increases the price spread of agricultural
commodities.

IMPORTANCE OF AGRICULTURAL AND FOOD MARKETING

The basis of all marketing is man’s effort to satisfy his wants. These include the basic items such
as food, clothing and shelter. The desire to cultivate material goods, the mental and spiritual
wants have led to both acceleration and maintaining tradition of man’s progress. The marketing
economy has developed much more rapidly. Here freedom to do as one wish was greatest, and
with the individual reaping the rewards of his own work, the standard of living of the people has
reached the highest level in the world.

Agricultural marketing plays an important role not only in stimulating production but also in
accelerating the pace of economic development. Agricultural marketing is important in economic
development. Effective agricultural and food marketing is important to developing countries for
the following reasons:
o Agriculture is the biggest single industry in developing countries
 Largest employer
 Source of raw materials
 Market for manufactured goods

o Economic growth and development in developing countries

 Increasing urbanization
 Increasing incomes
 Increasing employment of women

o Improvement of rural incomes in developing countries

 Reduce income inequality between the rural and urban areas
 Decrease rural-urban migration

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o Adoption of market liberalization and privatization policies
 Decreased participation of the public sector in marketing
 Increased participation of the private sector in marketing

4.2. FUNCTIONS AND MIX OF AGRICULTURAL MARKETING

Marketing functions are classified into three groups:
1. Exchange functions
 Buying and Selling: They are directly associated with negotiating an exchange of ownership
– or flow of title – between a seller and a prospective buyer. Buying activities include
searching for, gathering information about, evaluating alternative products and suppliers, and
negotiating a purchase agreement. The selling function involves identifying and seeking out
potential buyers, determining an asking price, negotiating terms of sale, and similar activities.
The ultimate aim for any seller is to meet its consumer (buyer’s) needs.

2. Physical functions
 Storage: Balances supply of and demand for agricultural and food products. Agricultural
production in developing countries is usually seasonal whilst demand is generally
continuous throughout the year. Hence, the need for storage to allow a smooth, and as far as
possible, uninterrupted flow of product into the market.
 Transportation: Making the product available where it is needed, without adding
unreasonably to the overall cost of the produce. Adequate performance of this function
requires consideration of alternative routes and types of transportation, with a view to
achieving timeliness, maintaining produce quality and minimizing shipping costs.
 Processing: Most agricultural produce is not in a form suitable for direct delivery to the
consumer when it is first harvested. Rather it needs to be changed in some way before it can
be used. The form changing activity is one that adds value to the product.

3. Facilitating functions
 Standardization: concerned with the establishment and maintenance of uniform
measurements of produce quality and/or quantity. This function simplifies buying and selling
as well as reducing marketing costs by enabling buyers to specify precisely what they want

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 and suppliers to communicate what they are able and willing to supply with respect to both
quantity and quality of product. In the absence of standard weights and measures trade either
becomes more expensive to conduct or impossible altogether.

Quality differences in agricultural products may be due to production methods and/or because of
the quality of inputs used. Technological innovation can also give rise to quality differences. In
addition, a buyer’s assessment of a product’s quality is often an expression of personal
preference. Thus, for example, in some markets a small banana is judged to be in some sense
‘better’ than a large banana; and white maize is ‘easier to digest’ than yellow maize.

 Financing: In almost any production system there are inevitable lags between investing in
the necessary raw materials (e.g. machinery, seeds, fertilizers, packaging, flavorings, stocks,
etc.) and receiving the payment for the sale of produce. During these lag periods some
individual or institution must finance the investment.
 Risk bearing: In both the production and marketing of produce the possibility of incurring
losses is always present. Physical risks include the destruction or deterioration of the produce
through fire, excessive heat or cold, pests, floods, earthquakes, etc. Market risks are those of
adverse changes in the value of the produce between the processes of production and
consumption. A change in consumer tastes can reduce the attractiveness of the produce and
is, therefore, also a risk. All of these risks are borne by those organizations, companies and
individuals.
 Market intelligence: It is the process of collecting, interpreting, and disseminating
information relevant to marketing decisions. The role of market intelligence is to reduce the
level of risk in decision making. Through market intelligence the seller finds out what the
customer needs and wants. Marketing research helps establish what products are right for the
market, which channels of distribution are most appropriate, how best to promote products
and what prices are acceptable to the market.

Note: Each of these functions adds value to the product and they require inputs, so they incur
costs. As long as the value added to the product is positive, most firms or entrepreneurs will find
it profitable to compete to supply the service.

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MARKETING MIX
The marketing mix is probably the most famous marketing term. Its elements are the basic,
tactical components of a marketing plan. Also known as the Four P’s, the marketing mix
elements are: product, promotion, place and price.

No Customers! = No Business!

Marketing goes well beyond selling and is often described in terms of the 4 P's. The 4 P's affect
every decision made within a business from production to the final product delivery.
Product ⇨ what you make!
Pricing ⇨ what you charge for it!
Promotion ⇨ how you let people know about it!
Place ⇨ where and how you distribute!

The concept is simple. Think about another common mix– a fertilizer mix (composite/compound
fertilizer), all mix of fertilizers will contain Nitrogen, Phosphorus and Potassium along with
various micro nutrients. However, depending on the crop, the soil condition and the stage of the
crop, one can alter the final composition of the mix by altering the amounts of mix elements
contained in it. For soils deficient in potassium, add more of potash based fertilizer.

It is the same with the marketing mix. The offer you make to your customer can be altered by
varying the mix elements. So for a high profile brand, increase the focus on promotion and
reduce the weight given to price. Some commentators will increase the marketing mix to the Five
P’s, to include people. Others will increase the mix to Seven P’s, to include physical evidence
(such as uniforms, facilities, office/branch ambience and printed cheque book, etc.) and process
(i.e. the whole customer experience e.g. a visit to the modern retail store). The term was coined
by Neil H. Borden in his article The Concept of the Marketing Mix in 1965.

A. Product

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For many people, a product simply means the tangible, physical entity that they may be buying
or selling. A farmer buys a new tractor and that's the product - simple! In formal marketing, the
product may not be as simple as it may appear at first. For example, when a farmer buys a
tractor, the product is more complex than he first thought? Like an onion, the ‘Product’ has many
levels. A tractor comes bundled with spares and accessories, after-sales service warranty and a
network of support and supplementary services. Without all of that, the tractor ownership would
be such a difficult task.

 PRODUCT – what is it that you are going to sell

 Product Mix – range of PRODUCTS or SERVICES offered for sale
 Product Features – color, packaging, quality, brand name
 Product Support – maintenance, after-sales Service, pre-sale like advice and quotations

B. Promotion
Another one of the 4Ps is promotion. This includes all of the tools available to the marketer for
'marketing communication'. As with Neil H.Borden's marketing mix, marketing communications
has its own 'promotions mix.' Think of it like the mix of fertilizers, the basic ingredients are
always the same. However, if you vary the amounts of one of the ingredients, the final outcome
is different. The different elements of promotion mix are: Advertisement, Sales promotion,
Events and Public Relations, Direct Marketing, Personal Selling and Internet marketing.
Therefore, our promotions are designed to create demand. Public Relations, Online Marketing,
Advertising, Direct Marketing and Event Marketing are different Methods of promoting your
product or service:
- Public Relations – establishing a favorable image
- Publicity – feeding media of information that is of public interest (free advertisement)
- Sales Promotions
- Merchandising – point-of-sale display

C. Place

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Another element of Neil H. Borden's Marketing Mix is Place. Place is also known as channel,
distribution, or intermediary. It is the mechanism through which goods and/or services are
moved from the manufacturer/ service provider to the user or consumer.

 The 3rd "P" of the marketing mix deals with product placement – the width of distribution.
 Distribution - how your products or services reach your customers
 Distribution Methods:
o Customers come to you
o You take the product/service direct to the customer
o You use an agent merchant franchise etc. to reach your customer
 LOCATION - the place of the business "locate your business where the market is".
 Factors in Selecting an area:
o Customer accessibility
o Adequacy of transport/communication facilities
o Supply of skilled labor
o Population Trends

D. Price
 Price acts as a primary cue for the customer. It helps the customer to evaluate the worth of
the offer that the marketer is making. There are many ways to price a product depending on
the situation faced by the marketer vis-à-vis his customer or the competition.
 There are several options to consider regarding price:
1) Price matching, 2) price making, 3) introductory penetration pricing, and 4) a competitive
upgrade price strategy

 Pricing - not just how much you charge for a product but how the price fits your target
market and the image you wish to develop.
 Pricing methods you choose depends on:
o competition in the market and your marketing strategies
o controlled pricing

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 o your costs
o demand for your product
o perceived value

4.3. AGRICULTURAL MARKETING AGENTS AND ENTERPRISES

As defined earlier, marketing is management orientation focusing all the activities of the
organization on satisfying customer needs and wants, thereby helping achieve the organization’s
long-range objectives.

Agricultural and food marketing system comprises all functions, and agencies that perform those
activities, which are necessary in order to profitably exploit opportunities in the marketplace.
Agricultural and food marketing system consists of the following sub-systems: input, production,
distribution, consumption and regulatory as given below.

The marketing concept must therefore, be adopted throughout not only the entire organization,
but also the entire marketing system. A system is a complex of interrelated component parts or
sub-systems, which have a defined common goal. Thus, an agricultural and food marketing
system comprises all of the functions, and agencies who perform those activities, that are
necessary in order to profitably exploit opportunities in the market place. Each of the
components or sub-systems is independent of one another but a change in any one of them
impacts on the others as well as upon the system as a whole.

4.4. INTEGRATION AND DIVERSIFICATION OF MARKETING

Integration can be:
o Backward integration- instead of buying from farmers, the agro-industrial enterprise should
consider integrating backward to produce some or all of its raw material, which converts raw
material pricing to an internal accounting process.
o Backward Vertical Integration- it implies whether the agro-industry should use the existing
suppliers or assume some production, assembly, or transport functions. Be aware of the
following possible effects of integration.

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Stages in a commodity marketing system (marketing system integration)
 A commodity marketing system encompasses all the participants or actors in the
production, processing and marketing of an undifferentiated or unbranded farm product (such
as cereals), including farm input suppliers, farmers, storage operators, processors,
wholesalers and retailers involved in the flow of the commodity from initial inputs to the
final consumer.
 The commodity marketing system also includes all the institutions and arrangements
that effect and coordinate the successive stages of a commodity flow such as the
government and its parastatals, trade associations, cooperatives, financial partners, transport
groups and educational organizations related to the commodity.
 The commodity system framework includes the major linkages that hold the system
together such as transportation, contractual coordination, vertical integration, joint ventures,
tripartite marketing arrangements, and financial arrangements.
 The systems approach emphasizes the interdependence and interrelatedness of all aspects of
agribusiness, namely: from farm input supply to the growing, assembling, storage,
processing, distribution and ultimate consumption of the product.

Table: Stages of agricultural marketing (integration of agricultural marketing)

Stage Examples
Stage 1: Assembly Commodity buyers specializing in specific agricultural products, such
commodities as grain, cattle, beef, oil palm, cotton, poultry and eggs, milk.
Stage 2: Independent truckers, trucking companies, railroads, airlines, etc.
Transportation
Stage 3: Storage Grain elevators, public refrigerated warehouses, controlled
atmosphere warehouses, heated warehouses, freezer warehouses.
Stage 4: Grading Commodity merchants or government grading officials
and classification
Stage 5: Processing Food and fiber processing plants such as flour mills, oil mills, rice mills,
cotton mills, wool mills, and fruit and vegetable canning or freezing plants
Stage 6: Packaging Makers of tin cans, cardboard boxes, film bags, and bottles for food
packaging or fiber products
Stage 7: Independent wholesalers marketing products for various processing plants
Distribution and to retailers (chain retail stores sometimes have their own separate
Retailing warehouse distribution centers)

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Diversification
This is where we market completely new products to new customers. There are two types of
diversification, namely related and unrelated diversification. Related diversification means that
we remain in a market or industry with which we are familiar. For example, a soup manufacturer
diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we
have neither previous industry nor market experience. For example, a soup manufacturer invests
in the rail business.

Bases for market segmentation (Diversification)

Market segments are based on customer or product characteristics. Typical product
characteristics are different sizes, prices and colors whereas customer characteristics may be age,
sex, income, social class, geographical location, personality, product usage rate, degree of brand
loyalty, occasions of product usage.

Strategic approaches to market segmentation

Once the market has been segmented an agribusiness must decide which of these segments it can
profitably serve. The main strategic approaches which may be adopted in this regard are:

Concentrated marketing: The organization concentrates on serving a single market segment.

This is also known as niche marketing. This can be a high risk strategy since the organization is
vulnerable without some degree of diversification as niche markets can quickly disappear.

Differentiated marketing: Here the organization elects to serve two or more of the market
segments identified. A distinct marketing mix is employed for each market segment which the
organization is seeking to penetrate.

Undifferentiated marketing: This is the antithesis of market segmentation in that the

organization seeks to attract as many buyers as possible with a single marketing mix. Some
organizations have been very successful with this simple formula but it becomes increasingly
difficult to sustain market position and share as the level of competition becomes more intense.

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4.5. Transaction Costs and Marketing Efficiency (Marketing Costs and Margins)

Marketing efficiency
Marketing efficiency is the ratio of inputs to outputs. Marketing efficiency is principally
comprised of operational efficiency and pricing efficiency.
 Operational efficiency is increased when marketing costs are reduced whilst outputs are
either maintained or expanded.
 Pricing efficiency is concerned with the efficient allocation of resources by a marketing
system.

Marketing costs
To begin with, can you identify the probable costs of marketing of agricultural commodities or
products? Marketing costs include labour, transport, packaging, containers, rent, utilities (water
and energy), and advertising, selling expenses, depreciation allowances and interest charges.
Marketing costs vary from commodity to commodity and product to product. There are several
factors that individually or collectively account for these differences. These include:
 The more wastage, the greater the proportion of customers’ expenditure which goes on
marketing costs
 The more perishable the product, the greater the marketing costs
 The more processing of the commodity, the greater the marketing costs
 The greater the amount of produce handling and transportation, the greater the marketing
costs.

Marketing margins

A marketing margin is the percentage of the final weighted average selling price taken by each
stage of the marketing chain. The margin must cover the costs involved in transferring produce
from one stage to the next and provide a reasonable return to those doing the marketing.

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Table: Example of Margins, shares and costs and marketing efficiency
Raw Milk Processed Milk
Retail price 1000 1200
Marketing margin 600 800
Farmer’s return 400 400
Farmer’s share 40% 33%

Though margins are often used in the analysis of the efficiency of marketing systems they have
to be interpreted cautiously. Why should we be cautious when interpreting marketing margins?
While higher marketing margins might reflect inefficiency of the marketing system it is not
always the case. As economies develop, consumers tend to demand for more services, such as
processing, cold transportation and storage, and these usually lead to higher margins even though
the marketing system may be efficient. In the example provided in table above, you will see that
the marketing margin (farmers’ share) is higher (lower) for processed milk than raw milk. This
implies that the marketing system for processed milk is less efficient than that for raw milk.

Note: When calculating marketing margins, it is advisable to employ the reference product
concept. The reference product concept is important for purposes of comparing the performance
of market participants who may be operating at different stages of the marketing channel from
one another. The finished product as delivered to the end user can serve as the reference point.
The reference product concept also takes into account product losses, the creation of by-
products, transport, storage, handling, packaging and capital costs.

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