Ag Analysis Exam 1

Commodity Markets

• Bulk, Fungible, Homogenous

• Non-Branded

• Supply-Driven

• Price Competition

• Little Promotion

• Standardized Products

• Mass Marketing

• Low Value-Added

Value-Added Markets

• Farm Products

• Consumer Branded Products

• Business to Business Markets

• Demand-Driven

• Differentiated Products

• Heavy Promotion

• High Value-Added

• Target Marketing

4 Types of Utility

• Form

• Place

• Time

• Price / Possession

Input Sector

Provide inputs that ag producers need

Production Sector

Produce crops and livestock

Processing & Manufacturing Sector

Transform and distribute products to consumers in desired form

Food Marketing Channel

• Consists of firms and their functions that form the industry

• Famers → Assemblers and Brokers → Food Processors → Wholesalers → Retailers

Assemblers & Brokers

Sell to food processors

Food Processors

Distribute to brokers and wholesalers

Wholesalers

Sell to grocery ands specialty food stores, restaurants and institutions

Retailers

Sell to consumers

Alternate Views of Markets

• Time

• Location

• Product

• Institutional

Form Utility

• Modifying the form of the product to make it more useful

  • Processing, packaging

  • Adds value

Time Utility

• Actions taken to permit product availability or consumption at a time removed from production 

  • Storage

Place Utility

Transporting the product to a location that is more beneficial to the purchaser

Possession Utility

• Actions taken to assist the consumer in acquiring and taking title to products 

  • Advertising

  • Market information

Macro Marketing

• All activities in the flow

• How food system is organized and changing

• How does it operate or perform

• View by economists, industry analysis, and government officials

Micro Marketing

• All activities that direct the flow

• What decisions are made

• How to do it

• View by food producer, manager, or consumer

Stages of Marketing

1. What can we produce?

2. What can we sell?

3. What do customers want?

What do markets do?

• Facilitate Exchange

• Create Value

• Allocate Resources to “Best” Uses

• Stimulate Efficiency

• Discover Prices and Values

• Summarize, Distribute Information

• Resolve Conflicts

• Reward, Punish Decisions

• Economize on Effort

• Raise Living Standards

What happens in a market?

• Production and consumption

• Buying and selling

• Specialization and Division of Labor

• Pricing

• Competition

• Communication, Information Flows

• Value Adding

• Exchange

Prerequisites for Exchange

For exchange to occur, there
must be:
1. Buyers and sellers
2. Unequal valuation
3.Communication
4. Voluntary behavior
5. Mutual benefit
6. Sum positive gains

Most Important Consequences of Markets

Increased…

• Output

• Efficiency

• Income, and

• Standards of Living

Middleman

A Marketing Firm

Approaches to the Study of Food Marketing

• Functional

• Institutional

• Behavioral Systems

Functional Approach

• Exchange Functions

• Physical Functions

• Facilitating Functions

Exchange Functions

Buying and selling

Physical Functions

• Handle movement and change

  • Storage - desired time

  • Transportation - desired place

  • Processing - changing the form

Facilitating Functions

• Smooth transition of exchange and physical functions

  • Standardization - uniform measurements

  • Market Intelligence - data needed to operate the market

  • Financing - money to carry on

  • Risk Bearing - possibility of loss

What do functions do?

Add value and costs to food

Functions can be performed by anyone in the system

True

Institutional Approach

Help understand why there are
specialized middlemen in the food
industry

• Merchant Middlemen

• Agent Middlemen

• Speculative Middlemen

• Processors and Manufacturers

• Facilitative Organizations

Merchant Middlemen

Take title to and therefore own…

• Retailers - purchase and merchandise the product

• Wholesalers - sell to retailers, not consumers

Agent Middlemen

Act as a representative

• Brokers - follow directions of buyers and sellers

• Commission Men - limited power, fee

Speculative Middlemen

Buy and sell, profit from price movements

Processors & Manufacturers

Add time, form, place, and possession utilities

Facilitative Organizations

Aid middlemen in their tasks

Point of Functional Approach

• Analyzing the functions of various
  middlemen is helpful in evaluating
  marketing costs.

• Retailing is much more costly than
  wholesaling.

• Understand the difference in
  marketing costs for various
  commodities.

Economic Reasons for Middlemen

• Economies of Specialization

• Economies of Scale, Centralization

• Transactions Cost Economies

• Non-economic reasons:

  • farmers, consumers don’t want to do it,
    can’t do it, are less efficient

Behavioral Systems Approach

Ability to understand any major change
that is currently underway in the food
system

• Input-Output System

  • Producing an output

• Power system

  • Good reputation to uphold

• Communications Systems

  • Continue good communication

• Drivers of Change

  • How to adapt to them

• System Adaptation to Change

  • Desire to be prepared

Major Forces Shaping the Ag Sector

• Competitive Marketing Strategies

• Global Markets

• Government Policies

• Consumer Preferences

• Technology

• Resources

4 P’s of the Marketing Mix

• Price

  • List, msrp, discounts, credit

• Product

  • Quality, package

• Promotion

  • Advertising, PR, sales

• Place

  • Distribution channels

Keys to Successful Marketing Management

• Finds Wants and Fill Them

• The Consumer is King (Sovereign)

• Differentiate Products

• Segment Markets

• Position Products In Mind

• Beat the Competition

Two Types of Food Markets

• Commodity

• Value-Added

Farm Product Characteristics 

• Typically a raw commodity

• Bulky and/or perishable

• Quality variation

Farm Production Characteristics

• Total output increasing

  • More than population resulting in a higher standard of living

• Annual variability in production

  • Caused by farmers response to prices, government programs, biological processes

• Seasonal variability in production

  • Harvest season

  • Livestock breeding practices

• Concentration of production

  • Different regions specialize in different commodities

• Variable cost of production

  • Affected by climate, technology farm size, & _____

Farm Marketing Problems

• Output is not controllable

• Farmers are price takers

• Cost-Price squeeze

Price Squeeze

Competitive conditions of ag tend to keep prices so close to production

What are food manufacturers and processors primarily responsible for?

Adding Utility

Product Strategy (Marketing Mix)

Purchase commodities and sell differentiated, branded, high value-added end products that command a premium in the marketplace

Basic Product Strategies (Marketing Mix)

• Branding

• Convenience

• Product Innovation

Price Strategy (Marketing Mix)

Places product in a class (status, government, value)

Place Strategy (Marketing Mix)

Distribution

Promotion Strategy (Marketing Mix)

• Location of manufacturing

• Affected by:

  • Bulkiness

  • Perishability

  • Labor

  • Transport Costs

The 3 Sectors

• Input

• Production

• Processing & Manufacturing

Factors that can cause change in the food marketing system

Criticisms of the Food Industry - Cons

• Too many products

• Excessive advertising

• Over-packing

• High marketing costs

• Poor diet choices

• High prices

• Pollution, waste

• Hunger

Plant Location Decisions

• Near Producers

  • Grains, meat, cheese, fish, eggs, etc.

• Near Consumers

  • Milk, ice cream, pastries, further processing…

Criticisms of the Food Industry - Pros

• Variety and choice

• Competition, information

• Safety, convenience

• Leisure time

• Free choice

• Only 11% of income

Food Marketing System