AAEC 3301Agribusiness Marketing

Spring 2011

Lecture 1: An Overview of Market

and Agricultural Marketing

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 for money is a transaction.

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.

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 the customer, 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.

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.

Agricultural Marketing

Agricultural Markets perform an enormous role in responding to the world population’s 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?

Agricultural Marketing

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.

18%

82% = 100%FarmValue

Marketing Bill

Consumer Food Expenditure

+

Source: USDA, 2008

US Consumer Food Expenditures, Marketing Bill and Farm Value 1958-2008 (USDA)

0

100

200

300

400

500

600

700

800

900

Total consumer food expenditures

Marketing Bill

Farm Value

60-70 of the Fortune 500 Companies are Agribusiness companies

Philip Morris Sara Lee General Mills Kraft Monsanto Procter & Gamble Kroger McDonald’s 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 Albertson’s Pepsico Bestfoods ADM Quaker Oats Cargill

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 …

Employment OpportunitiesIn the Food Industry

14%

31%

8%10%

8%

29%

Mgmt., Finance

Marketing, Sales

Production Agr.Govt.,Social Svs.

Communication,Education

Scientists,Engineers

Food: America’s Largest Industry

2 million farms Each farmer feeds 96 other Americans and 20 foreigners Consumers spent 700 billion dollars for U.S. produced

foods 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 nation’s products

and services

•Firms•Functions•Flows•Levels•Activities•Pricing Points•Decisions•Value-Adding

Overview of the Food Marketing System

Distinguishing Characteristics of the Industry

Biological Lags (separate production decision from delivery)

Perishibility

Weather/Climate dependent products

Frequency of use

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

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

Macro view: Three approaches to the study of marketing agricultural products

1. Institutional Approach: Emphasizes the “Who” of marketing Middlemen – assemblers, 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 system – combines institutional and functional approaches

The Functional Approach

Exchange Functions – Buying (procurement) and selling (merchandising)

Physical Functions – Storage, processing and transportation

Facilitating functions – Financing, risk bearing,

standardization, intellectual property, market intelligence gathering

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 firm’s 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

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