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.
There are almost as many definitions as to the number of marketing
specialists.
As such, there cannot be a universally accepted definition.
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.
•Agricultural marketing can be defined as 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, "agricultural marketing” describes a series of services involved in
getting goods from the point of production to the point of consumption.
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Difference in Marketing of Agricultural and Manufactured Goods:
1. Perishability of the Product:
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.
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.
7. Processing: Most of the farm products have to be processed before their
consumption by the ultimate consumers.
 IMPORTANCE OF AGRICULTURAL AND FOOD MARKETING
•The basis of all marketing is man’s effort to satisfy his need (such as food, clothing
and shelter).
•The marketing economy has developed much more rapidly.
•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 
oEconomic growth and development in developing countries
 Increasing urbanization
 Increasing incomes
 Increasing employment of women 
oImprovement of rural incomes in developing countries
 Reduce income inequality between the rural and urban areas
 Decrease rural-urban migration
oAdoption of market liberalization and privatization policies
 Decreased participation of the public sector in marketing
 Increased participation of the private sector in marketing
 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.
 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 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.
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.
 MARKETING MIX
•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!
•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).

A. Product
•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.
B. 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.
C. 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.
 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(sign) for the customer.
 It helps the customer to evaluate the worth of the offer that the marketer is
making.
 Pricing methods you choose depends on:
o competition in the market and your marketing strategies
o controlled pricing
o your costs
o demand for your product
o perceived value
4.3. Agricultural Marketing Agents and Enterprises
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.
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
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.
•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 and Commodity merchants or government grading officials
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 to
Distribution and retailers (chain retail stores sometimes have their own separate warehouse
Retailing distribution centers)
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.  
•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.
•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.
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.
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
•Marketing costs include labour, transport, packaging, containers, rent, utilities
(water and energy), advertising, selling expenses, depreciation allowances and
interest charges.
•Marketing costs vary from commodity to commodity
•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 margin
•It is the difference between the price at which you purchase a product and the
price at which you sell the product through distribution channel.
•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.
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.

Summary by pictures
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