13
Farm Business Marketing Behavior and Strategic Groups in Agriculture Fraser McLeay Sandra Martin Tony Zwart In the agricultural marketing literature the marketing activities o f individual farmers are not adequately described, and it is often assumed that the strategic behavior o f farmers is relatively homogeneous. Likewise, the farm management discipline does not emphasise the marketing behavior of farmers. This contrasts with the business management literature that places considerable emphasis on the marketing and strategic activities o f individual firms. Strategic group studies empirically identgy groups offirms within an industry that follow similar business strategies. Although the investigation of strategic groups within the agribusiness sector has been identijied as an important area for future research., only a small number o f studies have examined strategic groups at the farm business level. This article presents the results of an analysis o f farm business marketing and strategic management processes. These show that ...................................................... Requests for reprints should he sent to F. McLeay, Dept. of Agri- cultural Economics and Food Marketing, University of Newcastle upon Tyne, NE1 7RU, UK. E-mail: [email protected]. strategic groups o f New Zealand intensive crop farmers exist, and the marketing, business, and management characteristics associated with following each distinctive strategy are described. 01996 John Wiley & Sons, Inc. It can be argued that agricultural marketing spe- cialists have often studied the marketing behavior and strategic management processes of farmers in a simplistic manner. Agricultural economists have traditionally taken the view that marketing is a process that occurs after the product leaves the farm gate or with a change of ownership. This im- plies that farmer marketing decisions are fre- quently limited to sales decisions and production planning is excluded from the marketing process. Most detailed studies have only examined individ- ual elements of the marketing process, such as timing or method of sale, and have often used op- erations research techniques to identify one opti- mal solution.' This implicitly assumes that farmers ............................................................................................................... A more detailed version of this article is available from the authors. Fraser McLeay is a Marketing Lecturer at the Department o f Agricultural Economics and Food Marketing, University o f Newcastle upon Tyne. 9 Sandra Martin is a Senior Lecturer in the Department o f Farm Management and Tony Zwart is a Professor o f Marketing, Lincoln University, New Zealand. ............................................................................................................. Agribusiness, Vol. 12, No. 4, 339-351 (1996) 0 1996 by John Wiley & Sons, Inc. *339 CCC 0742-4477/96/040339-13

Farm business marketing behavior and strategic groups in agriculture

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Page 1: Farm business marketing behavior and strategic groups in agriculture

Farm Business Marketing Behavior and Strategic Groups i n Agriculture

Fraser McLeay Sandra Martin

Tony Zwart

In the agricultural marketing literature the marketing activities of individual farmers are not adequately described, and it is often assumed that the strategic behavior of farmers is relatively homogeneous. Likewise, the farm management discipline does not emphasise the marketing behavior of farmers. This contrasts with the business management literature that places considerable emphasis on the marketing and strategic activities of individual firms. Strategic group studies empirically identgy groups offirms within an industry that follow similar business strategies. Although the investigation of strategic groups within the agribusiness sector has been identijied as an important area for future research., only a small number of studies have examined strategic groups at the farm business level. This article presents the results of an analysis of farm business marketing and strategic management processes. These show that ......................................................

Requests for reprints should he sent to F. McLeay, Dept. of Agri- cultural Economics and Food Marketing, University of Newcastle upon Tyne, NE1 7RU, UK. E-mail: [email protected].

strategic groups of New Zealand intensive crop farmers exist, and the marketing, business, and management characteristics associated with following each distinctive strategy are described. 01996 John Wiley & Sons, Inc.

It can be argued that agricultural marketing spe- cialists have often studied the marketing behavior and strategic management processes of farmers in a simplistic manner. Agricultural economists have traditionally taken the view that marketing is a process that occurs after the product leaves the farm gate or with a change of ownership. This im- plies that farmer marketing decisions are fre- quently limited to sales decisions and production planning is excluded from the marketing process. Most detailed studies have only examined individ- ual elements of the marketing process, such as timing or method of sale, and have often used op- erations research techniques to identify one opti- mal solution.' This implicitly assumes that farmers

............................................................................................................... A more detailed version of this article is available from the authors.

Fraser McLeay is a Marketing Lecturer at the Department of Agricultural Economics and Food Marketing, University of Newcastle upon Tyne. 9 Sandra Martin is a Senior Lecturer in the Department of Farm Management and Tony Zwart is a Professor of Marketing, Lincoln University, New Zealand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Agribusiness, Vol. 12, No. 4, 339-351 (1996) 0 1996 by John Wiley & Sons, Inc.

*339

CCC 0742-4477/96/040339-13

Page 2: Farm business marketing behavior and strategic groups in agriculture

McLeay, Martln, and Zwart

should follow one pattern of strategic behavior. On the other hand farm management specialists often view production as the cornerstone of farm management with supporting functions of record keeping, financial analysis, and legal planning. This model of farm management evolved from pro- duction economics with financial management sup- porting this production activity.* Marketing decisions are excluded from this management pro- cess, as is a mechanism to facilitate the interactive thinking that is needed to take a strategic ap- proach to managing a farm business."."

Previous issues of this journal have identified strategic management and marketing as important areas for agribusiness researchers .4-6 However, only a small number of studies have explored these issues at the farm le~el . '~ ."~7-~0 Most farm level studies of strategic management attempt to prescribe formal strategic planning models similar to those for large businesses,l1.l2 when there is little empirical or anecdotal evidence to show if these techniques will assist farm managers to clari- fy their direction and fulfill objectives. While it is often considered that strategy is a formal hier- archical process, the strategic management process at the farm level may follow a more entrepre- neurial mode, being informal and unstructured and performed intuitively o r instinctively. Little is known about the strategic management process of farmers, in particular the strategic decisions made by farmers, the strategic alternatives available for farmers, and the resulting strategic As a consequence further research is necessary to investigate the strategic dimensions underlying farm business strategy and to identify and categor- ize the different strategies farmers follow, thereby enhancing the understanding of farm businesses marketing and strategic management processes.

In the business literature the different strategies that businesses follow have been classified in stud- ies of strategic taxonomies and typologies. It is generally accepted that typologies are developed conceptually using theoretical and deductive rea- soning. They may be underpinned by empirical or anecdotal observation, but are usually not quan- titatively based. Taxonomies are statistically de- rived classifications of strategic behavior that may be formed using theoretically derived variables.

The two most widely referenced typologies are Porter's generic strategies1." and Miles and Snow's strategic typologies.1" Porter13 outlines three con- ceptual typologies that a firm may use to gain sus- tainable competitive advantage. A cost leadership strategy requires firms to produce a low cost stan- dardized product in order to attract price sensi- tive buyers. Dqferentiation strategies may be used to provide a product that appeals to buyers who are interested in elements other than price, while firms following a focus strategy attempt to fulfill the needs of a particular market segment by either cost leadership or differentiation. Porter suggests that any of the three generic strategies may be successful, depending on the resources available to the business, the business' distinctive cornpeten- cies, and noncontrollable environmental factors. Miles and Snow14 categorize firms into four broad types that differ on the basis of adaptive behavior and general strategic orientation. Defenders, pros- pectors, and analyzers are expected to enjoy suc- cess while reactors are perceived to be failures.

which they operate means that existing typologies are unlikely to adequately describe the strategic behavior of farm businesses. For example, it could be argued that the nature of commodity goods makes it difficult for agricultural producers to dif- ferentiate their products, while the small scale na- ture of farming enterprises impedes the acquisition of the economies of size required for overall cost leadership.

The most widely used approach to researching strategic taxonomies has been taken in the litera- ture that studies strategic groups. Strategic group studies have empirically identified the alternative strategies that businesses follow, often when little a priori evidence exists about how many strategic groups exist or how many members they have. Members of strategic groups make similar deci- sions with respect to key variables, but patterns of strategic behavior differ from group to group. Marion15 suggests that research opportunities exist for identifying strategic groups within the agribusi- ness sector and for comparing the performance implications, competitive consequences, and char- acteristics of these groups. However, only one published study has been conducted at the farm

The nature of farm firms and the environment in

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Behavior

level. Kuhl and Kuhl'" cluster German farmers into groups who have changed their product line, farm areas, and work force in similar ways over a 10-year period. However, they do not attempt to operationalize the components of the farm busi- ness strategy process or examine the marketing implications of strategic group membership.

In this article the results of an analysis of the marketing and strategic behavior of farmers is re- ported. I t is shown that there are significant dif- ferences between intensive crop farmers' patterns of strategic behavior, and the marketing, manage- ment, and personal characteristics associated with having each distinctive strategic focus are de- scribed. The research implications of the results are discussed, as is their relevance to policy- makers.

Methodology

Because of the limited understanding of the di- mensions underlying farm business strategy and strategic alternatives that exist, this study was em- pirically rather than conceptually based, and ex- amined strategic groups and their marketing implications at the farm level. To conduct an em- pirical analysis it was necessary to collect primary data that described the attitudes of individual farmers toward strategic and marketing variables. An approach to strategic group analysis that is

commonly used in the strategic management litera- ture, is to identify strategic groups by measuring the differences between firms over a number of strategic variables, then to categorize businesses into groups on the basis of similarities and differ- ences in these variables, and to develop profiles of strategic group members with the assistance of sta- tistical tests. In this study factor analysis was used to reduce 39 strategic variables to a smaller, more focused set of strategic dimensions. Factor scores were subjected to cluster analysis in order to group farm businesses with similar patterns of strategic behavior and ANOVA, Duncans multiple range and chi-square tests of independence were used to identify the differences between clusters.

New Zealand arable farmers seemed particularly suitable for this type of study because there is po-

tential for heterogeneity in the strategic and mar- keting decisions they make. They operate in a de- regulated environment with no policy restrictions impeding their choice of strategy, sell through a large number of distribution channels, and grow a diverse range of crops. Intensive crop farms were classified as those businesses that received more than 75% of their income from cropping, and were identified from the New Zealand Department of Statistics Agricultural Survey data. All intensive crop farms in the Canterbury region of New Zea- land, where the majority of New Zealand's arable farms are concentrated, were included in the sam- ple.

Marketing and strategic variables were identified after surveying literature from the business and agricultural marketing, farm management, agri- cultural economics , industrial organizational eco- nomics, and strategic management disciplines. Special attention was placed on existing conceptual frameworks , including Porter's l 3 generic strategies and Miles and Snow's14 strategic typologies, as a starting point for identifying appropriate vari- ables. Taxonomic classifications of strategy includ- ing many strategic group studies were also reviewed; and because it is necessary to have a de- tailed knowledge of the industry being studied to specify correct strategic variables, l 7 the literature review was followed with detailed interviews with farm ownerstmanagers and farm management aca- demics.

A number of different types of variables were identified. Some of these are related to strategic activity and were used as inputs to factor and cluster analysis. Others were used to develop pro- files of strategic group members.

The eight-page questionnaire contained 49 attitu- dinal questions where participants were asked to rank on a five-point scale, the extent to which they were involved in various strategic and mar- keting practices, and their attitudes towards non- controllable environmental factors. These included variables that assessed sources of sustainable com- petitive advantage and distinctive competencies. Similar types of questions were used to detect the perceived importance of 18 information sources and 15 information types, while additional ques- tions described farm and farmer characteristics,

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McLeay, M a r t i n , and Z w a r t

Table 1. Description of Strategic Dimensions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Differentiation

Grow niche crops Involved with further processing and value-

adding activites Grow crops on a trial basis Involved with off-farm marketing activites

3. Production Focus Monitor crops while they are growing Continually update production techniques Use specialist techniques to maximize crop

Aware of crop costs and returns Maximizing farm profits is the most important

yields

farming goal

5. Sales Flexibility

contract

is highest

Sell crops on the free market rather than by

Store crops so they can be sold when the price

Monitor market signals to plan sales decisions

7. Stability Plan the crop mix to minimize risk Have a stable crop mix that grows well on the

Meet long-term market requirements farm

9. Financial Imperative Cannot afford to store crops and wait for the

price to improve

11. Financial Focus Perceive that the farm gate is the boundary of

View the farm operation with a financial focus Financially secure Cannot influence the price of their produce

the business

13. Short-Term Returns Focus Attempt to maximize short-term returns Use specialist techniques to gain quality premi-

Aware of crop costs and returns ums and maximize yields

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Production Flexibility

Flexible production plans Regularly change crop mix Plan production b y monitoring a number of

market signals

4. Market Knowledge Understand market requirements and distribu-

Aware of new crops and crop varieties Monitor market signals Simultaneously plan production and sales activ-

tion channels

ities

6. Market Flexibility Have flexible market outlets but are not flexible

in the method or timing of sales activities Deal with a large number of market outlets Continually seek new merchants and market

Are aware of the different returns from selling outlets

to different market outlets

8. Low Cost Focus Have low total input costs Concern with budgeting and planning

10. Commercial Sentivity Keep knowledge from other farmers Grow crops on a trial basis Sell crops on the free market Monitor market prices

12. Off-Farm Financial Focus Invest money off-farm rather than farm Farm in a relatively unconstrained manner Have easy access to capital that they are pre-

pared to invest off farm

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Behavior

crop mixes, sales methods and outlets, and envi- ronmental factors.

After being pretested twice by five crop farmers, the questionnaire was mailed to all sample mem- bers. The effective response rate of 72% compares very favorably with that of similar studies and suggests that nonrespondent bias is unlikely to be an issue. In addition, it was not essential to make inferences about the population because of the ex- ploratory and illustrative nature of this research.

Results and Discussion

The discussion of the results is broken into three parts: identification and description of the under- lying strategic dimensions (factors), identification of strategic groups and description of the strate- gies their members follow, and description of stra- tegic group members. To conserve space, not all statistical results are reported, but are available from the authors upon request.

Underlying Strategic Dimensions

The responses to 39 of the attitudinal statements relating to strategic activity were subjected to fac- tor analysis. Standard latent root or eigenvalue equals one (factors = 11) and scree test (factors = 14) criteria were used as guidelines to determine the number of factors in the first rotations. These were followed by several different trial rotations where factor interpretability was compared. Thir- teen factors explaining 69.2% of total variation appeared to give the best representation of under- lying relationships among variables. The factor loadings obtained after a varimax rotation of the factor analysis are presented in Table I. Factors are ranked in order according to the proportion of variance explained and have been named to re- flect the strategic dimensions they represent.

Identification and Description of Strategic Groups

After completing the factoring procedures, orthog- onal or uncorrelated standardized factor scores

(mean 0, standard deviation 1) for each farmer and factor were saved for subsequent cluster anal- ysis. The preliminary clustering solution indicated a large change in the increase in cluster coeffi- cients as clusters five and six and two and three were merged, indicating either a five or two clus- ter solution was appropriate. Solutions containing between two and five clusters were examined for interpretability and external validity by testing if there were significant differences between clusters for the descriptive variables that were not used to generate clusters. A five cluster solution was deemed most meaningful as this solution was high- ly interpretable and appeared to have external va- lidity. Solutions with less than five clusters forced together groups of farmers that seemed to follow relatively different business strategies. The five clusters were named according to the strategy that businesses in the groups appear to follow. Mean factor scores and standard deviations for farmers in each strategic group and each strategic dimen- sion, and the results from ANOVA tests are pre- sented in Table 11. High mean scores indicate that a particular dimension is important to a business.

ProductiodProduction. Flexibility Strategy

This group contains 20% of the sample. Cluster members score highly on the strategic dimensions associated with having production flexibility, a production focus, high levels of market knowledge, and low costs. The low loading on the stability di- mension is consistent with high levels of produc- tion flexibility; low scores on sales and market outlet flexibility factors indicates businesses fol- lowing this strategy are concerned with the costs and efficiency of production rather than sales con- cerns. These farmers appear to be flexible in their production plans and focus on production technol- ogy and concerns rather than marketing activities associated with distribution channels.

Stability Strategy

The second cluster is the largest, and contains 32% of the sample. Farmers in this strategic

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McLeay, Mar t ln , and Zwar t

Table 11. Characteristics of Five Strategic Groups Derived from Cluster Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Strategic Groups

Strategic Dimensions ...................... Differentiation

Production Flexibility

Product Focus

Market Knowledge

Sales Flexibility

Market Flexibility

Stability

Low Cost Focus

Financial Imperative

Commercial Sensitivity

Financial Focus

Off-Farm Financial Focus

Short-Term Returns Focus

Production/ Production Flexibility

, . . . . . . . . . . - 0.0266

0.2324

0.6765 0.7949

0.4150 0.5789

0.2598 0.8169

- 0.6203 0.7994

- 0.6338 0.7069

-0.6125 0.91 86

0.2762 0.0715

-0.1258 0.9290

-0.1040 1.1943

-0.1353 0.9637

- 0.3309 0.7645

- 0.1986 1.0282

Production/ Market F F

Stability Outlet Focus Differentiation Arbitrage Ratio Probability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.2324 0.71 26

- 0.3651 0.9983

-0.5030 0.9942

-0.4094 1.0341

0.0890 1.0029

-0.3 146 0.8743

0.4473 0.8854

-0.1088 1.1895

-0.0394 1.1022

-0.1244 0.91 79

0.3784 0.9754

- 0.3849 0.8310

0.0789 1.2602

- 0.4982 0.7087

-0.482 1 0.6940

0.5969 0.8142

0.2431 1.0287

-0.1135 0.7900

0.9007 0.7367

0.0247 0.8549

-0.2557 0.7283

-0.4594 0.7862

0.2155 0.9283

-0.1234 0.7942

- 0.2979 0.7065

- 0.0570 0.7814

1 .9443 0.5972

0.3451 0.8082

0.1996 0.7886

0.3800 0.6049

0.0887 0.6321

0.5034 0.7743

0.2373 0.9729

0.1892 0.5060

0.5079 0.7081

0.3313 1.1178

-0.1487 1.0471

0.7448 0.6455

- 0.3199 0.6669

-0.7577 0.6150

0.2980 1.0938

- 0.3940 1.1208

- 0.0282 1.0109

0.6735 1.1575

- 0.059 1 1.0702

- 0.2769 1.0991

0.1137 0.9925

0.4163 0.9458

-0.0727 0.9416

-0.2719 1.1685

1.0321 1.1015

0.3080 0.7712

36.98

9.02

9.73

3.57

6.69

15.14

6.34

1.36

4.04

0.98

2.44

16.59

1.30

0.000

0.000

0.000

0.008

0.001

0.000

0.000

0.251

0.040

0.420

0.050

0.000

0.274

Values are means with standard deviations in italics.

group have significantly higher scores on the sta- bility and financial focus factors than members of most other groups. The low score on the flexibility factor is consistent with high scores on the stabil- ity factor, indicating that these farmers consistent- ly plant a standardized crop mix that they feel grows well on their farm. High scores on the stra-

tegic dimension relating to financial focus and low scores on the off-farm financial focus dimension signifies that they are likely to operate with a simple financial focus and view the farm gate as the boundary of the farm business. Low factor scores on the production flexibility, production fo- cus, and market outlet flexibility strategic dimen-

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Behavior

sions may mean these farmers do not require a great deal of market information and contribute to the low score on the market knowledge factor. Be- cause these farmers are unlikely to grow new crop types or varieties, or change production or sales techniques, they may not monitor signals to the same extent as other farmers.

Production/Market Outlet Focus Strategy

Twenty-one percent of the sample follow a pro- duction/market outlet focus strategy. These busi- nesses place emphasis on production activities, but have an inflexible crop mix and a high degree of channel flexibility. The high scores on the market outlet flexibility factors indicates they sell to a large number of different agents or market out- lets, are continually searching for new market outlets or agents, and are likely to weigh up the costs and returns of selling to different market outlets.

Differentiation Strategy

Differentiators are members of the smallest strate- gic group, and represent just 9% of the sample. Member’s scores are significantly higher than oth- er firms on the strategic dimension relating to dif- ferentiation, suggesting these farmers are likely to differentiate their produce by growing niche crops, further processing and marketing, or in- volvement in other value-adding activities. They score positively on all strategic dimensions except those associated with having a short-term focus and viewing the farm with a simple financial fo- cus. High levels of off-farm investment activity may be explained by involvement in further pro- cessing and marketing activities and through vertical integration. The relatively flexible produc- tion focus is consistent with growing niche crops. A high score on the market outlet flexibility di- mension may be associated with producing non- traditional crops that are sold through market outlets that are different from those for traditional crops, or may reflect on farmers developing their own markets for produce. Differentiators are like-

ly to have high levels of market knowledge and score highly on the financial imperative dimen- sion.

Arbitrage Strategy

The fifth strategic group contains 18% of the sam- ple. The businesses are characterized by their high level of sales flexibility, which means they are likely to sell crops on the free market rather than by contract. They will also store crops and wait for the price to improve. These farmers focus on short-term returns and sales and investment op- portunities (including off-farm investments) rather than production concerns. It appears that they re- ceive high crop prices by obtaining quality premi- ums, selling produce at an optimal time of the year, or involvement in off-farm financial activ- ities. The high scores on the financial imperative dimension are hard to interpret with the data available, because a sales focus would seem to in- dicate that these farmers would be likely to store crops and wait for the price to improve.

Description of Strategic Groups

In the survey a considerable amount of detailed information was collected on the personal and management characteristics of the individual farm- ers. This data was not used in the clustering anal- ysis but can be used to describe and identify individuals who may belong to a group. Discussion in the following paragraphs develops further pro- files of group members by examining the differ- ences between descriptive variables relating to farm and farmer characteristics, crop mix, other marketing characteristics, and information gather- ing activities. Results relating to the sales methods utilized by strategic group members, the influence the environment has on business strategy, and the performance implications of strategic group mem- bership are not reported but are available from the authors upon request. The results from an ANOVA analysis presented in Table I11 indicate that for many variables there are significant dif- ferences between strategic groups, suggesting that the clusters have external validity.

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McLeay, Mart in, and Z w a r t

Table 111. Descriptive Characteristics of Strategic Groups. .................................... ........................................................................

Strategic Groups

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Farming Areas (ha.)

Farm area Effective cropping area Area cropped Irrigated area Area rented or leased to others

Farming Experience (Years) Involvement with crop farming

Work Away from Farm (Days Per Month) Working at farm related activities Earning income at another job

Number of Crops Grown Traditional Niche Vegetables Specialty Total

Other Marketing Characteristics Number of agents or market out-

lets crops were sold last year Number of this years crops not

grown previously on farm Buyer orientationc Final consumer orientation"

Production/ Production Flexibility

. . . . . . . . . . .

271.9 244.1 203.9 125.6 16.2

23.1

4.05 0.39

4.36 1.82 0.36 0.93 7.46

3.64

1.64

3.29 2.71

Production/ Market

Stability Outlet Focus DiIIerentiation Arbitrage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

228.5 170.6 142.5 53.8

1 . 1

29.78

1.73 0.63

4.56 1.16 0.29 0.47 6.47

3.84

0.68

2.91 2.57

22 1.8 2 04 147.7 62.3 2.3

24.75

3.86 0.75

4.63 1.37 0.4 0.57 6.97

5.76

0.66

2.81 2.52

318.1 294.8 274.5 85.6 2.7

23.85

3.92 2.15

4.62 2.23 1.15 0.77 8.77

5.85

1.85

3.31 3.23

130.3 106.1 95.1 32.9

0.6

16.72

1.86 4. I6

4.24 1.2 0.24 0.44 6.12

5.84

0.64

3.31 3.23

F Ratio . . . . . .

2.048 8.15b 7.92 3.69h 1.05

5.70h

2.72 7.25

0.34 8.81 4.37h 1.74a 4.09"

6.218

5.06a

1.44 1.47

" p < 0.1.

hp < 0.01. .Farmers were asked the extent to which they increased their farm business success by satisfying the needs and wants of either the buyers or final consumers of their produce.

Farm and Farmer Characteristics

In this section the intergroup differences in farm- ing areas, financial characteristics, and farmers' work experience and personal characteristics are discussed. The results show there are differences in farm sizes between the groups with farmers following a differentiation strategy having the lar- gest land and crop areas, followed by farmers

utilizing a production focustproduction flexibility strategy. Members of both of these strategic groups have high scores on the production focus and production flexibility strategic dimensions. Farmers in the productiontproduction flexibility cluster are slightly more likely to rent or lease land to or from other farmers than some other strategic group members, which may be associ- ated with their focus on production activities

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Behavior

and emphasis on having flexible production plans.

analyzed by examining strategic group members’ levels of debt servicing and gross farm income earned from crop farming. Chi-square statistics in- dicate that there are no significant differences in debt servicing requirements. However, dgferentia- tors earn a lower percentage of farm income from crop farming than other farmers, possibly because some of their income is obtained through further processing, value-adding, o r other marketing activ- ities that they do not classify as crop farm income.

Farmers were asked if they occupied positions with more responsibility than normal voting mem- bers in marketing cooperatives and farmer organi- zations, and if they owned or managed a nonfarm business. Statistical tests could not be carried out to assess if there were significant intergroup dif- ferences because many cells of the contingency ta- bles contained a small number of cases, but intercluster variations appear to exist. A high pro- portion of differentiators are involved in both farm and nonfarm related organizations and busi- ness. These farmers do not appear to view the farm gate as the boundary of the business opera- tions, which is indicated by the low score on the financial focus factor and high scores on the off- farm financial focus dimension. The high percent- age of differentiators owning, managing, o r direct- ing nonfarm businesses may be associated with vertical integration and their involvement in fur- ther processing, value-adding, and marketing ac- tivities. A relatively high proportion of farmers following a production focus/production flexibility strategy are likely to occupy positions of respon- sibility in farmer organizations and marketing co- operatives. Unlike differentiators, however, they limit their involvement to business activities di- rectly related to the farm.

gies spend less time working away from the farm on farm related activities than farmers whose strategies generally focus more on production ac- tivities and/or having flexible crop mixes. Arbi- tragers spend significantly more time than other group members earning income at another job which means they are more likely to have part-

The financial characteristics of the farmers were

Farmers following stability and arbitrage strate-

time employment away from the farm. Differentia- tors also spend a relatively large amount of time working away from the farm, possibly because they occupy positions of responsibility in other businesses and organizations. Members of the sta- bility group do not spend many days working away from the farm.

Intergroup differences also exist in farmers’ work experience, age, and levels of education. The results from chi-square tests indicate that farmers following a stability strategy were significantly old- e r and spent more years crop farming, while farm- ers following a differentiation and arbitrage strategy spent more time at tertiary institutions than other farmers.

Crop Mix

The diverse range of crops grown in New Zealand and the small number of farmers growing some crops make it difficult to obtain an overall picture by examining data relating to areas grown in indi- vidual crops such as wheat, borage, or Chinese cab- bage. Therefore, the crops were divided into niche, vegetable, specialty (traditional crops that require specialized techniques to produce or harvest), and traditional crop types in order to increase the in- terpretability of the results. The differences in crop mixes between clusters were examined by analyzing the numbers of each type of crop that strategic group members grew. Results from an ANOVA analysis indicate that there are significant inter- cluster differences in niche, vegetable, specialty, and total crop numbers. Duncan’s tests indicate that differentiators and farmers in the produc- tionlproduction flexibility group grew a signifi- cantly higher total number of crops and niche crops than other strategic group members. These results are consistent with the strategies these farm- ers are following because they are the only strate- gies for which farmers have high scores on both the production flexibility and production focus dimen- sions. Differentiators grow significantly higher numbers of vegetable crops than all other strategic group members; farmers following a produc- tion/production flexibility strategy grow the highest numbers of specialty type crops.

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Other Marketing Characteristics

In Table I11 the number of agents or market out- lets that cluster members sold to, the number of new crops they grew, and the marketing orienta- tion of cluster members are also presented. Farm- ers following a productionlmarket outlet focus and a differentiation strategy sell their produce to more agents or market outlets than other strategic group members. Production/market outlet fo- cusers actively seek new market outlets and sell to a large number of market outlets. Differentiators grow many different types of nontraditional crops that may necessitate the utilization of nontradi- tional market outlets, or lead to farmers develop- ing their own markets for these crops. Differ- entiators and members of the produc- tion/production flexibility cluster are significantly more likely to be growing crops that they had not grown previously than other cluster members. This appears to be associated with their flexible production plans and the large numbers of crops they grow.

The marketing orientation of farmers was as- sessed by asking farmers to rank on a five-point Likert scale the extent to which they agreed with

the statement that they increased their farm busi- ness success by satisfying the needs and wants of the buyers and the final consumers of their pro- duce. Differentiators scored highest on both ques- tions, indicating they displayed the highest marketing orientation of any group.

Information Gathering

Table IV presents the four most important infor- mation gathering activities, ranked in decreasing order of importance for each strategic group. Re- sults indicate that there are significant intercluster differences between the perceived importance of overseas newspapers and magazines, agents, farm- er group meetings, crop field days, farm workers, personal records, farm advisers, and rural shows or exhibitions as information sources. Similarly, contrasts were found in the value of different types of information sources. Duncan’s multiple range tests indicate there are significant differ- ences between most strategic groups in the per- ceived importance for at least some information sources. The types of information that farmers fol- lowing a production/production flexibility strategy

Table IV. Information Sources and Types Ranked by Level of Importance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information Sources Strategic Group ~~

ProdJMarket ProductionlFlexibility Stability Outlet Focus Differentiation Arbitrage Average

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Crop Field Days 3.25 Agents 3.15 Crop field days 3.28 Budget 3.08 Agents 2.80 Crop field days 2.86 Personal Records 2.79 Other farmers 2.56 Personal records 3.17 Crop field days 2.92 Other farmers 2.76 Agents 2.86 Agents 2.75 Crop field days 2.51 Agents 3.03 Other farmers 2.92 Crop field days 2.56 OthPr farmers 2.69 Other Farmers 2.50 Personal records 2.22 Other farmers 2.90 Personal records 2.85 Personal records 2.44 Personal records 2.63

............................................................................................................ Information Types Strategic Group ProdJMarket

ProductionlFlexibility Stability Outlet Focus Differentiation Arbitrage Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mangernent Practices 3.61 I.oeal grow cond. 3.20 Management pram 3.61 Crop msts & returnb 3.54 Crop cost & returne 3.36 Pests & diseases 3.22 Crop Costs & Returns 3.54 t’rm & difirasra 3.09 Pests & diseases 5.56 ManagPment pract. 3.46 Financial 3.32 I.ocal grow cond. 3.14 Production Terhniqucs 3.39 NZ crop prices 3.08 Local growing cond. 3.17 Prod. techniques 3.08 NZ crop prices 3.28 NZ crop prices 3.13 Pesta & Diseases 3.14 Financial 2.73 Crop cost6 & returns 3.17 Pests & diseasrs 3.07 I.oral gowing rond. 3.25 Management praet. 2.98

Scores are based on a scale from 0 (not important) to 4 (extremely important).

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Behavior

and production/market outlet focus strategy do not differ significantly, possibly because members of these groups focus on production concerns.

Farmers following a stability strategy do not per- ceive that a great deal of information is valuable. This contrasts with producers utilizing a differen- tiation approach. These results indicate that the in- formation gathering activities that farmers perceive to be important change according to the strategic group they are in, and appear to be consistent with the strategy members of each group follow.

Summary of Strategic Groups

Members of each strategic group appear to operate their businesses in a distinctive manner and follow clearly defined but seemingly different business strategies. The fact that farmers following each of the five strategies have managed to survive the up- heavals in the industry since deregulation in 1984 suggests that each of the five strategies may be suc- cessful. During 1984 there were major policy changes that were arguably responsible for a subse- quent period of financial hardship. These policy changes mean that New Zealand arable farmers now operate in an almost totally deregulated envi- ronment. Therefore, it is likely that logical reasons exist as to why farmers pursued each strategy, in- cluding the possibility that individual farmers may have distinctive competencies or different business objectives from members of other strategic groups. The following paragraphs describe the hypothesized sources of advantage associated with each strategy. Farmers following a production focus/production

flexibility strategy gain advantage by addressing production rather than sales concerns. They focus attention on the production side of their business, have a flexible production mix, and utilize infor- mation relating to production concerns and man- agement practices. A high level of knowledge regarding crop prices and the costs and returns of growing different crops is likely to be useful when making the decision to grow new crops that pro- vide high market prices. A good knowledge of pro- duction practices would allow total input costs to be relatively low, or alternatively, for costs as well as yields to be higher. Investing resources in pro-

duction activities and learning to grow new crops, which command price premiums, both seem to be important areas for investment.

Farmers in the stability group are the most stan- dardized and produce a stable crop mix that they have grown previously. Because they are older and have spent more time farming than other farmers, it is likely that they would have consider- able experience curve benefits. This is a relatively low cost approach, with benefits resulting from taking a relatively simple and standardized ap- proach to management. These farmers do not spend a great deal of time or energy collecting in- formation or making decisions and they have low levels of debt, leading to relatively low oppor- tunity costs. It is possible that farmers may change to this strategic group as they become old- er and this strategy could be the end point of a farmers’ life cycle, when business and personal objectives may have more to do with family and life-style factors than for other farmers.

cus strategy invest in production activities, and like farmers in the production/production flex- ibility group, are likely to gain advantage through having high levels of production skills. These farmers, however, have a stable crop mix and do not gain premiums from changing their product mix. Instead they are likely to invest resources into gaining knowledge of premiums that can be obtained from selling to different middlemen or market outlets. High crop prices are gained by selling produce through the marketing channel that offers the highest returns.

Differentiators actively seek opportunities for new products or ways of differentiating their pre- sent produce in order to capture high returns. These farmers are more highly educated and ap- pear to have better entrepreneurial skills. Al- though disadvantaged by relatively low experience curve benefits, success appears to be achieved through “first mover” advantages, vertical integra- tion, and commitment to satisfying specific con- sumer requirements, thereby obtaining high prices per unit of produce.

Arbitragers focus on sales and investment oppor- tunities rather than production concerns. Al- though these farmers’ cost structures are likely to

Farmers following a production/market outlet fo-

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be higher, advantage is gained through producing what the market wants with respect to quality, selling at a time when prices are at their peak, or using a sales method that offers high returns, thereby obtaining high returns per unit of output. Off-farm investment opportunities are likely to present a further source of income.

resent unique means of achieving success and are to some extent mutually exclusive. Developing the skills to follow each strategy successfully is likely to involve considerable investment including that associated with human capital. Most farmers are unlikely to have skills in all potential areas of business strategy, and it appears that they concen- trate on specific areas where they have distinctive competencies. For example, while some farmers are skilled at gaining knowledge and growing new crops that command price premiums, others are more successful at achieving quality premiums or investing their money away from the farm. The theories of core competencies and information eco- nomics would suggest that farmers can only ac- quire a limited amount of knowledge and therefore are unlikely to be able to develop the skills re- quired to follow all strategies at once.

The five strategies identified in this study all rep-

Conclusions and Implications

The results of this study clearly indicate that for New Zealand arable farmers, marketing is much more than an activity that occurs after the prod- uct leaves the farm gate, and suggest that the mar- keting approach and mix of marketing variables utilized by individual businesses vary according to the business strategy a firm is following. Farm business marketing involves more than sales tac- tics, and each strategic group interacts with the market in different ways.

From a simple marketing perspective, only dif- ferentiators can be considered to be totally mar- keting oriented because they pay a great deal of attention to market signals, differentiate their pro- duce from that of other farmers, and attempt to satisfy the needs and wants of both the buyers and final consumers of their produce. Only a small proportion of farmers follow this strategy, whereas

a larger percentage follow a stability strategy and have low levels of market orientation. Other farm- ers fit between these extremes.

Although the behavior of farmers following the stability strategy is close to what agricultural econ- omists would perceive to take place in a competi- tive market, the majority of farmers exhibit more sophisticated marketing behavior. Some farmers change their crop mix and plan production by monitoring market signals. Others have an inflex- ible crop mix, sell to a large number of market outlets, and are continually searching for new sales opportunities. Another group of farmers monitor sales and marketing opportunities and sell when prices are at their peak or attempt to gain quality premiums, while others utilize a number of approaches to differentiate their produce from that of other farmers. All strategies except one re- quire the business to be intricately involved with interpreting market information. The results from this study indicate that farmers do not usually uti- lize textbook marketing principles but take an ap- proach to marketing that is unique to them and their capabilities. Because each of the five strate- gies appears to be successful, the lack of a mar- keting orientation for farmers following a stability strategy should not be construed as a lack of stra- tegic sophistication. The strategy most suitable for a particular business is likely to be the one that best aligns the distinctive competencies, resource endowments, and objectives of a business with en- vironmental opportunities and threats.

keters, or farm management specialists are inter- ested in designing programs to aid farmers’ marketing and strategic decision making, it is im- portant that researchers clearly understand the strategic and marketing behavior of farmers. Re- search of this nature is a useful starting point for understanding the integrated nature of farmers’ decision making because it identifies the key stra- tegic dimensions important to farmers and gives a clear understanding of the profiles of strategic group members and the strategies they follow.

ciency and equity implications for policymakers because businesses in specific strategic groups are likely to be affected by government policy in

If agricultural economists, agricultural mar-

The results of this research also have both effi-

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Behavior

different ways. If farmers in a particular group are following the strategy that is best suited to their internal business competencies and resource endowments as well as the external environment in which they operate, policymakers should consider the members of each group separately. For exam- ple, the provision of information regarding man- agement practices is likely to be highly valued by farmers following a production focustproduction flexibility or differentiation strategy, but not by members of other strategic groups. Businesses fol- lowing an arbitrage strategy would be likely to gain the highest relative benefits from a govern- ment introducing compulsory grading regulations that increase quality premiums and discounts.

If it is accepted that alternative approaches could be equally profitable, then it is necessary to examine the issue of why alternative strategies have been chosen by individual farmers. Mobility barriers that make it costly for farmers to move from one group to another, may include managers distinctive competencies and other barriers to imi- tation, as well as a firms’ initial resource endow- ments. Because most farm managers are owner operators, it is possible that management compe- tencies are less tradable than they would be for larger businesses, and therefore may have a rela- tively large influence on the strategic approach most suitable for a business.

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