Agriculture Marketing (Mkt165) chapter 4-approach to mktg problem

Mohd Zahid Laton, FPP UiTM Pahang

CHAPTER 4

APPROACHS TO MARKETING PROBLEMS

1. The farm marketing problem. The farm problem is usually associated with
unstable and relatively low farm prices and incomes. A related set of farmers
problems can be termed the farm marketing problem. There are several dimensions
of this problem;

1.1 Farmers find it difficult to adjust precisely their production
schedule to meet changing market conditions. Agricultural output comes
from many small units operated independently. The production is to a great
extent dependent on weather and biological patterns of reproduction.

1.2 Farmers must estimate how much of his product he can sell at a
price estimated nearly a year in advance. From this estimate he can then
contract suitable acreage with his producers. If his estimations of the market
conditions and yields turn out correctly, he will pack and sell as planned.

1.3 It takes long periods to change materially the production of some
commodities. Fruit groves are planted years in advance of their coming into
production. The market situation may change during this period.

1.4 Changes in consumer tastes may find large amounts of agricultural
resources being devoted to the production of something that is no longer so
greatly desired. Higher prices resulting from shortages of production may
destroy the consumer market for that product when it finally arrives in
quantity.

1.5 A related component of the farm marketing problem is the difficulty
farmer face in improving their prices through independent or group
activities. Farmers are, for the most part, price takers- they cannot,
individually, influence the price of their products through their output
decisions. In order to raise prices through the control of supplies or
advertising programs, farmers must act as a group.

1.6 The free-rider problem often plagues farmers when they do attempt
to organize to influence farm prices. Free riders hamper any group effort that
requires each member to sacrifice for the overall welfare of the group when
the group benefits go to everyone regardless of their participation. For
example, farmers may try to raise their prices through voluntary supply
control programs, advertising efforts, or bargaining associations. If
successful, the resulting price benefits all farmers, whether or not they have
contributed to the program.

1.7 The cost-price squeeze is another component of the farm marketing
problem. The competitive conditions of agriculture tend to keep farm prices
close to the cost of production. Falling farm prices would not be so critical if

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they were accompanied by falling farm costs, or if the farmer could adjust
input costs as prices fell.

1.8 The superior bargaining power of the buyers of farm products as
compared with that of farmers is the most serious farm marketing problem.
Food marketing firms are usually larger and, because of their national and
international activities, normally have better market information than the
farmers from whom they buy. In addition, through contracts and other
arrangements, food marketing firms are thought to gain some control over
farm decisions and farm markets.

1.9 Changing food market pricing efficiency is still another element of
the farm marketing problem. Perhaps at one time farmers did not need to be
concerned with food marketing because competitive conditions assured all
farmers a fair price. However, with today’s direct negotiations and
contractual arrangements, there is no longer any assurance of a high level of
pricing efficiency in food markets.

1.10 There is growing concern about the increasing gulf between the
farm sector and the food marketing sector. Farmers retain a commodity-
orientation whereas food marketing firm stress a merchandise-orientation.

2. Limiting the barriers in the marketing process is considers in order to
minimize the agricultural marketing problem. Such barriers are;

2.1 Separation of space. The producer and the consumer were
geographically separated. The producers were located in a concentrated
location and the consumers were found scattering around. To reduce the
separation of location and space, there must be a process of marketing the
products between the producers and the consumers.

2.2 Separation of time. Consumer needs the products at a specific time
and the availability of the products to be received by the consumer at times
needed. The need of transporting the products to the consumer must be
performed correctly. The producer produced the products after harvesting
where as the consumer need the products at a specific time. The products
must be marketed so that the consumer will consume the products at a
timely needed. To reduce such separation of time between the consumer and
the producer, there must be proper marketing channels such as
transportation, storage, utilities and facilitating functions exist in between
the producer and the consumer.

2.3 Separation of information. The producers are unaware of the needs
and wants of the consumer. The price level of the products is also a main
hindrance in quoting how much price of a particular product. The consumers
are unaware of the availability of the products offered in the market, from
whom, when and how and how much price level of the products in the
market. To avoid such misinformation of the products the producers and the

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consumers must gathered valid information from reliable sources so that
both parties are aware of such products and price level offered.

2.4 Separation of ownership. The producer produced the products. As
long as he owns the products, there will be no transfer of ownership and the
possession of the products still on his hand. The questions are how long the
products are being possessed by the producer. Once the products has
transfer to consumer, than the transfer of ownership has occurred between
consumer and producer.

2.5 Separation of value. Consumer sees and valued the products from
the economic point of view and his ability to pay for the products. Producer
valued the products from costs and price competitiveness. The separation of
values can only be satisfied if the producer has the power to sell and cover
the expenses and make profit where as the consumer can only pay the
products at a particular price.

2.6 Different of quality. Producer will only sell the products at the large
quantities where as the consumer will only buy the products at a low
quantity with a low price level. In this case, the differences in qualities
offered and accepted will varies in quantities.

2.7 Different types of products. The producer concentrates the
production of certain types of products. And on the other hand the
consumers need various kinds of products for his consumption. So there
occur a gap between the producer and the consumer at large.

APPROACHES TO THE AGRICULTURAL MARKETING PROBLEM

3. FUNCTIONAL APPROACH IN MARKETING PROCESS. One method of
classifying the activities that occur in the marketing processes is to break down the
processes into functions. A marketing function may be defined as a major
specialized activity performed in accomplishing the marketing process.
Classifications of the functions are as follow;

3.1 Exchange function. The exchange functions are those activities
involved in the transfer of title to goods. They represent the point at which
the study of price determination enters into the study of marketing. Both the
buying and selling functions have as their primary objective the negotiation
of favorable terms of exchange.

i. The buying function is largely one of seeking out the sources
of supply, assembling of products, and the activities associated with
purchase. This function can be either the assembling of the raw
products from the production areas or the assembling of finished
products into the hands of other middlemen in order to meet the
demands of the ultimate consumer.

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ii. The selling function must be broadly interpreted. It is more
than merely passively accepting the price offered. In this function can
be grouped all the various activities that sometimes are called
merchandising. Advertising and other promotional devices to
influence or create demands are also part of the selling function. The
decision as to the proper unit of sale, the proper packages, the best
marketing channel, the proper time and place to approach potential
buyers – all are decisions that can be included in the selling function.

3.2 Physical functions. The physical functions are those activities that
involve handling, movement, and physical change of the actual commodity
itself. They are involved in solving the problems of when, what, and where in
marketing. It includes;

i. The storage function is primarily concerned with making
goods available at the desired time. It may be the activities of
elevators in holding large quantities of raw materials until they
are needed for further processing. It may be the holding of
supplies of finished goods as the inventories of processors,
wholesalers, and retailers.

ii. The transportation function is primarily concerned with
making goods available at the proper place. Adequate
performance of this function requires the weighing of
alternatives of routes and types of transportation as they might
affect transportation costs. It also includes the activities
involved in preparation for shipment, such as crating and
loading.

iii. The processing function is often not included in a list of
marketing functions because it is essentially a form-changing
activity. However, in the broad view of agricultural marketing
this activity cannot be omitted. The processing function would
include all those essentially manufacturing activities that
change the basic form of the product, such as converting live
animals into meat, fresh peas into canned or frozen peas, or
wheat into flour and finally into bread.

3.3 Facilitating functions. The facilitating functions are those that make
possible the smooth performance of the exchange and physical functions.
These activities are not directly involved in either the exchange of title or the
physical handling of products. However, without them the modern marketing
system would not be possible. They might be called the grease that makes the
wheels of the marketing machine go around. In comprise of;

i. The standardization function is the establishment and
maintenance of uniform measurements. These may be
measurements of both quality and quantity. This function
simplifies buying and selling, because it makes the sale by

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sample and description possible. Effective standardization is
basic to an efficient pricing process. Such activities as quality
control in processing plants and inspections to maintain the
standards in the marketing channel can be considered part of
this function.

ii. The financing function is the advancing of money to carry on
the various aspects of marketing. To the extent that there is a
delay between the time of the first sale of raw products and the
sale of finished goods to the ultimate consumer, capital is tied
up in the operation. Anywhere that storage or delay takes
place, someone must finance the holding of goods. Financing
may take the easily recognizable form of advances from
various lending agencies or the more subtle form of tying up
the owner’s capital resources.

iii. The risk-bearing function is the accepting of the possibility of
loss in the marketing of a product. Most of these risks can be
classified into two broad classifications – physical risks and
market risks. The physical risks are those that occur from
destruction of deterioration of the product itself by fire,
accident, wind, earthquakes, cold, and heat. Market risks are
those that occur because of the changes in value of a product as
it is marketed.

iv. The market intelligence function is the job of collecting,
interpreting and disseminating the large variety of data
necessary to the smooth operation of the marketing processes.
Efficient marketing cannot operate in an information vacuum.
Successful decisions on how much to pay for commodities or
what kind of pricing policy to use in their sale require a large
amount of market knowledge. Adequate storage programs, an
efficient transportation service, and an adequate
standardization program all depend to a considerable extent
on good information.

4. Functional exchange process. This process involves producer, middlemen
and retailers and consists of three parts namely:

4.1 Concentration (producer level). In the concentration functional, the
supplies delivered to assembly points such warehouse, mills, etc and vary in
quantity and quality. The concentration of produce at convenient points
attracts buyers who could not spare the time to make small purchase at
scattered farms.

4.2 Equalization (processor level). Equalization is the transformation of
raw products to processed form. For example, the collected rubber latex or
scrap to be processed in the factory in the form of semi-processed. The
products are transformed into semi-finished or finished product.

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4.3 Dispersion (retailer level). Supplies are released from storage, or
moved from one area to another so that the flow of goods to consumers will
match their demand. The systems of distribution of products aim to supply
the demands of the consumers.

5. Decentralization. Decentralization means that farm products move from
farms and into the hands of processors and wholesalers without utilizing the
services. Buying agents of processors, wholesalers, and the retail firms contact
producers and take title to the products in the production area.

6. Factors of decentralized market.

6.1 Development of the truck and highway system. This has vastly
increased the flexibility of assembling products.

6.2 Continuous improvement in the speed and flexibility of
communications technology (internets, facsimile, mobile-phone, etc). A seller
from one location to other location can now talk quickly and cheaply without
coming face to face.

6.3 Improved techniques of refrigeration and storage along with much
improved grading procedures. The feasibility of the transfer of products by
sample or description has increased.

6.4 Rapid development of fewer but larger and more specialized
production units. The output of individual farms now a feasible purchase
unit.

6.5 Development of large scale retailing with mass standardized products.
New potentialities of mass production and economies of scale are possible.

6.6 Merchandise-oriented food industry with need to coordinate farm
production with needs of farm product buyers.

7. Food marketing system. Food marketing may be thought of as the
connecting link – the bridge – between specialized food producers and consumers. It
is both a physical distribution and an economic bridge designed to facilitate the
movement and exchange of commodities from the farm to the fork. It is called a
system because it consists of interrelated component parts that contribute toward
overall industry goals.

8. Food marketing efficiency. Efficiency is measured as a ratio of output to
input. Marketing inputs include the resources such as labor, capital, personnel and
machinery as it is necessary to perform the marketing function. Marketing output
include time, form, place, and possession utilities that provide satisfaction to the
customers. Efficiency in the food industry is the most frequently measure of market
performance.

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9. Storage. Storage operations are carried on at every level of the food industry.
All food marketing firms perform some storage and warehousing. Storage is
interrelated with other marketing functions, such as transportation, processing,
financing, and risk-bearing. In a sense, farm products are being stored at the time
they are in transit or in the processing operation.

10. There are several kinds of food storage, serving various purposes.

10.1 Seasonal food stocks are a related form of food storage. Over the
marketing year, these are held to balance out supplies with demand. Seasonal
stocks are usually larger for products that are harvested in a short time but
that are consumed throughout the year. Both farmers and food marketing
firms hold seasonal food stocks. Consumers may also build these stocks by
increasing purchases of in-season commodities for later consumption.

10.2 Carryover stocks refer to the amount of commodity left over from
one marketing year to the next. Annual production and consumption seldom
balance precisely, and there may be carryovers (old crops) of shortfalls,
going into the next harvest period. These carryovers then become an
addition to the supply available for consumption in the following year.

10.3 Food reserves are intended to balance food supplies with demand
over the long run and between countries. The objective is food security –
storing in fat years as protection against lean years.

10.4 Speculative stocks. Farmers, food marketing firms, and consumers
may at times hold larger than normal food stocks when they expect prices to
rise. These speculative stocks would then increase in value and result in an
inventory profit.

11. Types of storage. Farm and food commodities can be stored at several
places in the food system. The several types of storage defined below;

11.1 Cold / hot storage for perishable product such meat, vegetables, etc.

11.2 Open storage to store palm oil bunches and some type of vegetables,
etc.

11.3 Closed storage for finished products or canned foods.

11.4 Wet storage for stuff such rubber scraps or latex received from farm
before processing.

11.5 Dry storage for rubber scraps (bales) after processing, etc.

12. Cost of storage. In determining the total costs of holding commodities, five
possible categories of costs must be considered;

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12.1 The cost necessary to provide and maintain the physical facilities
for storage. These costs would include such items as repairs, depreciation,
and insurance against lost.

12.2 The interest on the financial investment in the product while it is
in storage. Whether the money is actually borrowed or not, this a cost that
should be assessed at the rate of interest that would have to be paid if money
were borrowed during the storage period.

12.3 The cost of quality deterioration and shrinkage during storage.
Many commodities either deteriorate in quality or shrink in volume-or both-
while in storage. In a few cases, some commodities, such as corn, may
increase in quality while shrinking in volume. In such cases, storage may
result in net gain instead of a net loss for this particular factor.

12.4 The loss that may result from poor consumer acceptance of the
stored as against the fresh product. Packing companies maintain that
frozen meat will be accepted by consumers only at a price discount, even
though its quality as measured by the grading system has not deteriorated.
There is consumer resistance to storage eggs as opposed to fresh eggs,
though the quality as measured by the grading system may be the same. This
is not a problem in all commodities.

12.5 The risk that the price of the product might unexpectedly decline.
Under these circumstances the product might have to be sold at less than its
value at the time it was placed in storage. The possibility of a favorable
movement in prices, on the other hand, is a major factor in encouraging
speculative storage.

13. In order to reduce / minimize the cost of storage several method could be
considered such applied latest technology in the storage, do not retain the product
in a longer time, implement a better scheduling, good and sound management, and
efficient in handling / storing etc. This form of element can be explained as below;

13.1. Increase the efficiency of storage. The probable reasons for this
were an increase in the number and variety of food products stored, the
shifting of some marketing functions from retailers to wholesalers, and a
slackening in the rate of technological innovations in food warehousing.
Nevertheless, there are ways to improve food storage efficiency;

i. Labor efficiency versus mechanism. Use paddy harvester
instead of human being during harvesting time.

ii. Proper ventilation and insulation. The intention is to reduce
odor, maintain freshness of products, and minimize moisture.

iii. Improved management technique. This can be done through
maintaining a proper and improved work scheduling in the

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operational situation. For example, the work schedule of manure,
harvesting, and pest and disease control in the agricultural sectors.

13.2 Reducing product deterioration. Different crops need a set range of
temperature control. For example vegetables need a minimum temperature
to keep it from deteriorating and to maintain the standard grade.

13.3 Proper use of insecticides and fungicides. This is important in
order to avoid the harvested crop from contamination of fungicides. Proper
spraying must be avoided at least 10 days before harvesting is done.

13.4 Proper packaging either plastics or canned. Packaging must be
appeal and presentable to the eyes of the consumer. Proper packaging will
enhance buyers to purchase the product.

13.5 Storage financing and risk bearing. The future market can assist in
managing the financing and risk-bearing operations associated with food
storage. After harvesting, it is necessary to store the products or send the
products to the middlemen or processor. The type of risk is crop
deterioration or natural disaster and this risk can be avoids if the farmer is
willing to insured their crops.

14. Transportation. Transport is part of economic activity which is concerned
with increasing human satisfaction by changing the geographic position of goods or
people. It may bring raw materials to places where they can be manufactured more
easily, or finished goods to places where consumers can make best use of them.
Transportation of agricultural products to central assembly points or to processing
plants is performed mostly by individual, independent truck operators who are
exempt from regulation of rates. Once a product is processed, however, it generally
moves to wholesalers and retailers by rail or by large trucking companies.

15. Transport is important in agricultural marketing in order to transporting and
receiving products at the exact time, location and utility. Time utility is the value
added to products by changing their time of availability to users, usually through
storage operation. Transportation also plays an important role in market
development, expansion, and competition. The size of the market area depends
upon whether products can be moved.

16. Type of transportation;

16.1 Roadways (truck, lorry, container, tanker, van, car, low-loader,
etc). Roadways are usually public ways. Nowadays most roads were
improved natural ways of ancient origin. The tracks became pathways,
footways, bridleways and eventually highways to give an advantage.

16.2 Railways (train, electric train, etc). Railways consist of two parallel
metal strips which give a smooth hard surface. Today rails are made of steel,
but in the early days they were made of wood, and later of iron.

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16.3 Waterways/Seaways (ship, vessel, boat, etc). Waterways are
usually improved natural ways of artificial ways. Waterways and seaways
makes for economical transport.

16.4 Airways (aero-plane, aircraft, etc). Like the sea, the atmosphere is a
way which requires no artificial preparation, has no repair bills and no
private costs. It is more universal than the oceans, since all parts of the world
are equally accessible.

16.5 Pipelines. The pipeline is a unique method of transport. It also the
unit of carriage and embodies at intervals along the way (pumping station)
which are themselves part of the pipeline system.

17. Cost involves in the process of transportation depends on product
perishable, product form, loading and unloading, efficiencies in using crane, and
time factors.

18. Reducing cost of transportation. Having identified the true costs of
transportation, and allocated them to particular products or services, we can
examine them with a view to reducing total distribution costs. Basically the common
way in reducing the cost of transportation can be explained below;

18.1. Increase the efficiency of management in technology such as trucking
with attached refrigeration, road and railways. The using of RFID (radio
frequency identification device) systems provides a powerful technology for
tracking the movement of goods throughout the supply chain. RFID systems
use tiny tags with embedded microchips containing data about an item and
its location to transmit radio signals over a short distance to special RFID
readers. The RFID readers then pass the data over a network to a computer
for processing.

18.2 Competition among various transporters will enhance the efficiencies
and delivery of the products on time. Transportation company will compete
among themselves, thus to win the competition they will provide better
services with fair and minimum charges to attract customer deal with them.

18.3 Increase the usage of space for the purposes of delivering and to
maximize the space usage. Rather than bringing fruits, truck can also bring
other crop such wheat, paddy, etc from one location to other location. This
decision will reduce the cost of transportation.

19. During the transportation time, the agricultural products may deteriorate
and will decrease the quality and the freshness of the products. Thus, to reduce the
product from deteriorate, producer should consider the following ways;

19.1 The type of container use will prevent the product from deteriorate.

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19.2 The density and bulk of products.

19.3 The degree and efficiency of loading.

19.4 Bracing methods use for certain products.

19.5 Change the physical products attributes;

i. High perishable product should be sold at farm gate.
ii. Fruits – change the attributes to frozen, canned and juice.
iii. Meats – change to frozen and canned.
iv. Fish – change to frozen, canned and dried.

20. Processing. The processing is organized to engage in the packing or
processing of the farmer’s products. Cheese and butter manufacturing, fruit packing,
and vegetable canning associations are examples of this type of activities. Processing
is intends to change the physical form of products from raw or life into frozen or
canned. Once the products processed, it should be packed, branded and be
innovative, thus the product at this stage is ready to be dispersed or consumed.

21. Branding. It is necessary to brand and pack innovatively once the product
processed. Brands are more than just names and symbols. They are key element in
the company’s relationships with customers. Brands represent consumers’
perceptions and feelings about a product and its performance. In the final analysis,
brands exist in the minds of consumers. Branding will influence the products in the
market such;

21.1 Stages of product life cycle (PLC).
21.2 Consumers attitude of buying preferences.

21.3 The efficiency of marketing methods, promotions and techniques
applied.

21.4 New business ventures.

22. Food processing. Food manufacturers or processors are primarily engaged
in adding form utility to raw farm products. Wheat is milled into flour, livestock is
converted into meat products, fruits and vegetables are canned or frozen. These
firms play a vital role in transforming bulky, raw, perishable farm products into
storable, concentrated, and more appealing food products.

23. Problem of food processors. Food processors experience problems and
face challenges in three major areas;

23.1 Processing problem.

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i. Food processing involves significant investments in plant and
equipment. In order to operate efficiently, these facilities
should be used to full capacity all year-round, every year. This
is difficult to achieve when there are wide variations in farm
product supplies from year to year and within seasons. These
variations can influence significantly food processing costs.

ii. Processors face a dilemma when deciding on the number and
size of plants to build. The operational efficiency gains of large,
central processing facilities can be nullified by the costs of
assembling large quantities of raw farm products and
transporting final products to consumers from centralized
operations. Replacing a single, large plant with several smaller
ones reduces some assembly and transport costs but may
require sacrificing the operational efficiencies or large-scale,
centralized plants.

23.2 Buying operations. All manufacturers are faced with supply problem.
Any manufacturer desires to assure himself of an adequate amount of the
desired kind and quality of raw material at the lowest possible cost. He may
depend either upon other marketing agencies to do his purchasing for him or
he may undertake to set up his own procurement machinery. One of two
considerations may force the processor to become his own assembler. He
may be dissatisfied with the operation of the existing agencies which are
supposed to serve him. They may be slow in making improvements or
otherwise operating inefficiently and at high cost, from the manufacturer’s
viewpoint. Or the processor may wish control over the machinery for his
own competitive safety or to make his buying power a more effective price-
affecting force.

23.3 Selling strategies. As in procurement, processors are faced with the
necessity of choosing between alternative methods of selling the finished
product. They may either utilize the existing independent wholesale channels
or set up their own sales organization to distribute products to retailers. It is
probably true that in the past food processors have been more interested in
securing direct control over the selling phase of their operations than the
buying phase. If the processor is large and has a relatively full line of
products he will often operate his own warehouse and wholesaling system.
If, on the other hand, his line of products is limited he will often have the
sales work done for him by hiring a broker. Industries vary in the directions
they have taken.

24. To overcome the food processors problem several ways is determined that
need to consider by the processors. Such way; expand the storage facilities with
better preservation and conservation, deal directly and substitute contract
agreement between parties, maximized, utilized and adapt new technology or new
system, etc.

25. Financing. Good financial planning can help business assess its
opportunities for future growth and how to cope with shifts in the marketplace.

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Everything that happens in agricultural marketing has some financial impact.
Financing plays a critical and crucial path starting from the exchange to physical to
the facilitating functions. Financing in agricultural marketing is important as well as
other industry. In agricultural marketing financing will justified the parties that will
perform financing activities, who will bear the burden of financing whether the
middlemen, government, financial institution or farmers. It also include cost of
storage, transportation, advertising and other marketing cost, and lastly it will
determine the cost of inputs (fertilizer, chemicals, seeds, etc) generally and does the
farmer, processor, and final consumer are willing to accept the cost of financing.

26. Market information. Market information is a facilitating marketing function,
and market intelligence is essential to a smooth, efficiently operating marketing
system. Accurate and timely market information facilities marketing decisions,
regulates the competitive market processes, and lubricates the marketing
machinery. Market news, information, and research are the lifeblood of markets.

27. Roles of market information. One important function of market
information is to improve decision-making. Farmers use market information when
selecting enterprises, changing production plans, making long term investments,
and deciding the when, where and how of their marketing strategies. Food
marketing firms, farmer cooperatives, farm organizations, and legislators also
depend upon market information for good decision-making.

28. Problem of market news and information. There are several problems
regarding the collection, compilation, and dissemination of food market information
that should be taken into account by users of the information. The problem can be
explained below;

28.1 Price specification. The statement that cattle are selling for RM6.50 –
8.00 per kilogram is not very useful until other, more specific information is
provided, for example: where? when? what grade? what weight? how? what
genetics? etc. These specifications are necessary to make a price quotation
meaningful for decision-makers.

28.2 Net versus gross price. Another complicating factor in market
information programs is that publicly quoted figures are frequently not the
actual price at which commodities are traded. Premium and discount
schedules vary from place to place and from buyer to buyer. Some farm
prices include allowances for marketing costs such as hauling, packaging, and
other marketing activities. But because industry practices vary, making
accurate price comparison is very difficult.

28.3 Information costs. The cost of gathering and disseminating market
information to the public requires that some choices be made. The value of
more complete and more accurate information must be weighed against its
costs. Market information is not available for all commodities and is
somewhat incomplete for all products. Thus there are continuing requests
for more information. The same amount of information is not available for all

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levels of the food industry. In general, much more is known about supplies,
demand, and marketing at the farm level than at the retail level.

28.4 Changing market organization. Trends in farming and marketing
have also complicated the food market information task. Because of
decentralized, direct sales, products now bypass the central terminal
markets, where at one time price reporters could fairly easily take the pulse
of markets. Market reporters in these days must obtain information from
more numerous and more geographically dispersed shipping-point markets,
and the cost of obtaining accurate and complete information has risen
accordingly.

28.5 Voluntary cooperation. The Ministry of Agriculture and Agro-Based
Industry, Malaysia and the private market news and information programs
depend upon the voluntary cooperation of buyers and sellers to report
prices, supplies, and other market conditions. But because there is no
mandatory requirement that they provide this information, many farmers
and food marketing firms do not participate in the programs.

29. Criteria for evaluating market information. To be of maximum benefit,
market news and information must meet a number of criteria;

29.1 Information must be complete and comprehensive. This is a difficult
task in a large country with a geographically dispersed agricultural plant
producing different farm products and a food marketing system handling
over different supermarket items. Food market conditions also change
frequently, further adding to the difficulty of providing complete market
information. A reasonably complete description of a food market includes
prices, price trends, production, supply movements, stocks, and demand
conditions at each level of market.

29.2 Accuracy and trustworthiness are also necessary criteria for market
information. By its nature, market information can never be 100 per cent
accurate, but it must be an honest market appraisal in order to earn the trust
of information users. Considerable, and constant, efforts are made to improve
the accuracy of market information and news services.

29.3 Information also must be relevant and in usable form. It is not
enough to simply collect a mass of numbers and report them. Information
must be collected, packaged, and disseminated with the user’s interests in
mind. Much market information goes unused because it is not in usable,
easily accessible form.

29.4 Confidentiality. Market prices and supply reports are amassed to
provide a general picture of the market without revealing any single
information.

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29.5 Market information also must be timely, in the sense of being
relevant to current decisions, and must be speedily transmitted to users.
Much market information is highly perishable.

29.6 It is desirable to have a balance of market information at all levels
of the food industry. Each marketing agency should have equal access to all
information relevant to the bargaining and marketing processes.

30. Competition in the agricultural product and food industry. Competition
in both industries takes several forms. Product competition refers to rivalry
between two alternative or substitute products, such as beef and mutton, for the
consumers’ spending. Firm competition concerns the rivalry between sellers of
similar products. Brand competition refers to the rivalry between competing
brands within a product class. Interregional competition is illustrated by the
rivalry Siamese mango and Malaysian mango. Institutional competition relates to
the rivalry between competing market institutions, for example grocery stores, fast-
food restaurants, and vending machines. Functional competition arises when two
or more firms vie to determine who will perform a particular marketing function,
such as storage, financing, or transportation.

31. There are other ways to view market competition. Horizontal competition
involves rivalry between firms at the same market level-processors or wholesalers
or retailers. Vertical competition is concerned with the bargaining relationships
between buyers and sellers of food and how the consumers’ food dollar is divided.

32. Competitive advantage. The product can be competitive in the market
depend on the strategy applied and consumer acceptance. A competitive advantage
is a set of unique features of a company and its products that are perceived by the
target market as significant and superior to the competition. There are three types
of competitive advantages namely;

32.1 Cost competitive advantage. Cost leadership can result from
obtaining inexpensive raw materials, creating an efficient scale of plant
operations, designing products for ease of manufacture, controlling overhead
costs, and avoiding marginal customer. Having a cost competitive advantage
means being the low-cost competitor in an industry while maintaining
satisfactory profit margins.

32.2 Product/service differentiation competitive advantage. Because
cost competitive advantages are subject to continual erosion,
product/service differentiation tends to provide a longer lasting competitive
advantage. The durability of this strategy tends to make it more attractive to
many top managers. A product/service differentiation competitive advantage
exists when a firm provides something unique that is valuable to buyers
beyond simply offering a low price.

32.3 Niche competitive advantage. A niche competitive advantage seeks
to target and effectively serve a single segment of the market. For small
companies with limited resources that potentially face giant competitors,

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niche may be the only viable option. A market segment that has good growth
potential but it is not crucial to the success of major competitors is a good
candidate for developing a niche strategy.

33. Risk bearing. In order to reduce and minimize the variety of risk in the
marketing, such efforts are consider;

33.1 Individual management. By managing the good practice in
management such as planning, organizing, directing and controlling
resources can be use to reduce such occurrence of risk in marketing of
agricultural products.

33.2 Government involvement. Price policies set up by the government
so that the producers are unable to manipulate price fixing.

33.3 Complete and accurate market information. Comprehensive and
accurate market information will help to reduce the risk in price stabilities.
The use of media such as internet, website, and other relevant sources of
information will reduce the risk in marketing between the producer and the
consumer.

35. Methods of transferring risk in marketing. Several method may consider
by organizations such;

35.1 Insurance. Insurance is an arrangement with a company which the
organizations pay regular amount of money and the insurance company
agree to pay the costs.

35.2 Contract. A contract is an understanding of agreement between the
producer and the future consumer at a price determined earlier and
assurance in delivering quantities of the products. This way will help
organizations in reducing the risk in marketing of the products.

35.3 Hedging. Buying or selling of agricultural commodities in the future
markets. Future market is the purchase of products or agricultural
commodities for future delivery.

36. THE INSTITUTIONAL FUNCTIONAL APPROACH. Another method of analysis
is to study the various agencies and business structures that perform the marketing
processes. The institutional approach to agricultural marketing problems focuses
attention on the “who”. The institutional approach considers the nature and
character of the various middlemen and related agencies and also the arrangement
and organization of the marketing machinery. In this approach the human element
receives primary emphasis. Middlemen are those individuals or business concerns
who specialize in performing the various marketing functions involved in the
purchase and sale of goods as they are moved from producers to consumers. The
middlemen of particular interest in marketing can be classified as follows;

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36.1 Merchant middlemen. Merchant middlemen take title to, and
therefore own, the products they handle. They buy and sell for their own
gain. Types of merchant middlemen are;

i. Retailers. The retailers buy products for resale directly to the
ultimate consumer of the goods. He is the producer personal
representative to the consumer. As such, his job is very
complex. From the functional viewpoint, the retailer may
perform all of the marketing functions. This group of
middlemen is the most numerous of the marketing agencies.

ii. Wholesaler. The wholesaler sells to retailers, other
wholesalers, and industrial users, but does not sell in
significant amounts to ultimate consumers. Wholesalers make
up a highly heterogeneous group of varying sizes and
characteristics. One of the more numerous groups of
wholesalers are the local buyers or country assemblers who
buy goods in the producing are directly from farmers and ship
the products to the larger cities where they are sold to other
wholesalers and processors.

36.2 Agent middlemen, as the name implies, act only as representatives of
their clients. They do not take title to, and therefore do not own, the products
they handle. Whereas merchant wholesalers and retailers secure their
incomes from a margin between the buying and selling prices, agent
middlemen receive their incomes in the form of fees and commissions. Agent
middlemen can be broken down into two major groups;

i. The commission man is usually granted broad powers by
those who consign goods to him. He normally takes over the
physical handling of the product, arranges for the terms of sale,
collects, deducts his fee, and remits the balance of his principal.

ii. The broker, on the other hand, usually does not have physical
control of the product. He ordinarily follows the directions of
his principal closely and has less discretionary power in price
negotiations than commission men.

36.3 Speculative middlemen are those who take title to products with the
major purpose of profit from price movements. All merchant middlemen, of
course, speculate in the sense that they must face uncertain conditions.
Usually however, wholesalers and retailers attempt to secure their incomes
through handling and merchandising their products and to hold the
uncertain aspects to a minimum. Speculative middlemen seek out and
specialize in taking these risks and usually do a minimum of handling and
merchandising. They often attempt to earn their profits from short-run
fluctuations in prices.

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36.4 Processors and manufacturers primarily exist to undertake some
action on products to change their form. Apart from their main processing
activities, food processors take an active part in other institutional aspects of
marketing. Some processors, such as meat packers, flour millers, and fruit
and vegetable canners, often act as their own buying agents in the producing
area.

36.5 Facilitative organizations aid the various middlemen in performing
their tasks. Such organizations do not, as a general rule, directly participate
in the marketing processes either as merchants, agents, processors, or
speculators. One group of these organizations furnishes the physical facilities
for the handling of products or for the bringing of buyers and sellers
together. They receive their incomes from fees and assessments from those
who use their facilities.

37. Reasons for the organization of using the middlemen.

37.1 Middlemen provide greater efficiency in making goods available on a
wide scale to target markets.

37.2 Middlemen reduce the number of channel transactions.

37.3 Middlemen play an important role in matching supply with demand
i.e. by making the goods available at the right place, time and quantity.

37.4 Many producers lack the financial resources to carry out direct
marketing. If they are to distribute the goods direct to customers, it would
require them to have many shops or outlets and sales representatives.

37.5 Some producers lack the marketing experience and thus rely on
experienced middlemen and their management ability.

37.6 Producers have more time to increase their investment on Research
and Development in their business and earn a greater return.

38. Factors influencing the selection of marketing channels.

38.1 Distance between the producer and the consumer. Distance
between the producer and the consumer will enhance the high cost of
marketing channels. To reduce such cost the needs of middlemen to market
the products from the producer to the consumer.

38.2 Nature of products. Most of the agricultural products are perishable
in nature. To reduce such perishable, the marketing channel must be shorten
or the introduction of new packaging and fast transportation is needed to
reduce such cost and so that the consumer will get the products at a faster
time.

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38.3 Production skill. If a producer produces the products at a larger
scale, this will reduce the marketing cost of the production.

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Agriculture Marketing (Mkt165) chapter 4-approach to mktg problem

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Agriculture Marketing (Mkt165) chapter 4-approach to mktg problem