Agri Business Basics 1

7/30/2019 Agri Business Basics 1

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AAEC 3301Agribusiness Marketing

Spring 2011

Lecture 1: An Overview of Market

and Agricultural Marketing


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Market A market is any arrangement (any one of a variety of systems,

institutions, procedures, social relations, and infrastructures)

that allows buyers and sellers to freely exchange (the

ownership of) any type of goods, services, and information.

A market may emerge spontaneously or may be constructed

deliberately by human interaction in order to enable the

exchange of ownership of goods, services, and information.

Market participants consist of all the buyers and sellers of a

good or service or information who determine its price.

The exchange of goods or services formoney is a transaction.


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Market Markets vary in size, range, geographic scale, location, types

and variety of human communities, as well as the types of

goods and services traded.

Some examples include local farmers markets, shopping

centers and malls, international currency and commodity

markets, legally created markets such as for pollution permits,

and illegal markets such as the market for illicit drugs.

A market can be organized as an auction, as a private electronic

market, as a commodity wholesale market, as a shopping

center, as a complex institution such as a stock market, and as

an informal discussion between two individuals.


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Marketing Marketing is defined by the American Marketing Association

(AMA) as the activity, set of institutions, and processes for

creating, communicating, delivering, and exchanging offerings

(goods and services) that have value for customers, clients,

partners, and society at large.

Marketing is a product or service selling related overall activities.

Marketing is used to identify the customer, to satisfy thecustomer, and to keep the customer.

Marketing is an integrated process of performing market research,

selling goods and services to consumers, and promoting them

through advertising.


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Agricultural Marketing

Agricultural Marketing is an integrated process of moving

agricultural products from farms to consumers.

Numerous interconnected activities are involved in doing this,

such as planning production, growing and harvesting, grading,

packing, transport, storage, agro- and food processing,

distribution, and sale.

Such activities cannot take place without the exchange of

information and are often heavily dependent on the availability of

suitable finance.

Marketing systems are dynamic; they are competitive and involve

continuous change and improvement.


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Agricultural Markets perform an enormous role in responding

to the world populations daily demand for food products.

What do you have to do to provide one hamburger, a small

serving of french fries, and a can of soda to everyone attending a

football game at TT on a Saturday afternoon?

What do you have to do to provide the same food and drink to

everyone in Texas on a Saturday afternoon?

What do you have to do if you also have to produce, process, and

prepare the food and drink?


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Every person in the world is affected, on a daily basis, by the

way agricultural markets provide alternative quantities and

qualities of various food for consumption.

The efficiency with which all of these activities occur affects

prices that consumers pay for the food they purchase as well as

the prices that farmers receive for their products.

Less than 2% of the US population reside on farms and obtain

income directly from producing agricultural products.

A much larger fraction of the US population depends on

marketing of agricultural products as a major source of income.


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18%

82% =100%

Farm

Value

Marketing Bill

Consumer Food

Expenditure

+

Source: USDA, 2008


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US Consumer Food Expenditures, Marketing

Bill and Farm Value 1958-2008 (USDA)

0

100200

300

400

500

600

700

800

900

58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06

Total consumer food expenditures

Marketing Bill

Farm Value


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60-70 of the Fortune 500 Companies are

Agribusiness companies

Philip Morris Sara Lee General Mills

Kraft Monsanto Procter & Gamble

Kroger McDonalds Safeway

ConAgra H.J. Heinz Caterpillar

Dow Chemical Win-Dixie Walmart

Coca Cola Publix Super Mkts Kellogs

Nabisco Anheuser-Busch R. Purina

Fleming Farmland Ind. John Deere

Albertsons Pepsico Bestfoods

ADM Quaker Oats Cargill


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Tyson Dole Food 4 Less

Campbell Soup Hershey Foods McDonalds

Fred Meyer Sysco Hormel

Whole Foods Costco Dole

Smithfield Foods Dean Foods Chiquita

Hersheys Sysco Pioneer

Starbucks CHS Darden

Yum Brands Brinker Land-o-Lakes

Del Monte Campbell Coors

Great Atlantic Wrigley Pilgrims Pride

60-70 of the Fortune 500 Companies are

Agribusiness companies


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Employment Opportunities

In the Food Industry

14%

31%

8%10%

8%

29%

Mgmt., Finance

Marketing, Sales

Production Agr.Govt.,

Social Svs.

Communication,

Education

Scientists,

Engineers


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Food: Americas Largest Industry

2 million farms

Each farmer feeds 96 other Americans and 20 foreigners

Consumers spent 700 billion dollars for U.S. producedfoods in 2008

Consumers spend about 10 percent of their income in food

There are 22 million food industry jobs

The food industry produces 13% of the nations productsand services


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Firms

Functions

Flows

Levels

Activities

Pricing Points

Decisions

Value-Adding

Overview of the Food

Marketing System


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Distinguishing Characteristics of the

Industry

Biological Lags (separate production decision from

delivery)

Perishibility

Weather/Climate dependent products

Frequency of use


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Views of Ag. Marketing

The MACRO view

Macro marketing is the performance of all business activities

involved in the forward flow of goods and services from the

producer to the consumer.

The WHO and WHAT of Marketing

The MICRO View Micro marketing is the performance of business activities

that direct the flow of goods and services to the customer

and accomplish the objective of the firm.

The HOW and WHY of Marketing


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The Food Marketing Firms

14,000 Assembly Market Buyers/Sellers

20,000 Food Processing Plants

40,000 Grocery Product Wholesalers

240,000 Grocery Stores

4,000,000 Eating Places

300 Million American Consumers


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Macro view: Three approaches to the study of

marketing agricultural products

1. Institutional Approach: Emphasizes the Who of marketing

Middlemenassemblers, wholesalers, brokers, retailers, order buyers,

information providers, etc.

2. Functional Approach: Emphasizes the What of marketing

Functions that are performed in agricultural marketing

exchange functions, physical functions and facilitating functions

3. Behavioral Approach: Emphasizes the interdependence and

coordination of all participants and all the functions of the

entire systemcombines institutional and functional approaches


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The Functional Approach

Exchange FunctionsBuying (procurement) and selling

(merchandising)

Physical FunctionsStorage, processing andtransportation

Facilitating functionsFinancing, risk bearing,

standardization, intellectual property, market intelligencegathering


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Micro Marketing

From a micro, firm manager perspective, the customer is

the next stage in the marketing system.

What does this mean?

The firm manager will play an active role in overseeing the

firms marketing decisions that include:

Procurements and merchandising (buying and selling)

Identify consumer preference and product choice

Product design and development, processing, and packaging

Pricing

Promotion

Storage and transportation


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Consumer Sovereignty

The economic doctrine that the consumer is Queen or King

in the marketplace that is driven by consumer demand is

known as Consumer Sovereignty. This is the concept that each consumer decides

independently what to buy and that the combined

individual decisions directs all production and marketing

activities in the economy.

But consumer demand is influenced by effective

Advertising and Promotions

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Agri Business Basics 1