AG312 Unit 01 Marketing Functions PDF

Unit 1: MARKETING AND ITS FUNCTIONS Unit 1 Outline 1.1. Marketing defined 1.2. Marketing process 1.3. Classification of markets 1.4. Functions of marketing 1.5. Special features of agricultural product affecting marketing. 1.6. Agricultural situation in PICs 1.7. Recent changes in farm production a...

Unit 1: MARKETING AND ITS FUNCTIONS Unit 1 Outline 1.1. Marketing defined 1.2. Marketing process 1.3. Classification of markets 1.4. Functions of marketing 1.5. Special features of agricultural product affecting marketing. 1.6. Agricultural situation in PICs 1.7. Recent changes in farm production and agribusiness marketing 1.8. Importance of agricultural marketing in economic development 1.9. Summary Unit 1: Learning Objectives After studying this unit, you should be able to:  Explain the concept of marketing’.  Describe various functions performed in the food marketing system.  Classify markets using different indicators.  Critically compare marketing systems of food products and the industrial goods.  Analyse the role of agricultural markets in overall economic development of PICs.  Discuss the modern concepts of farm production and marketing. 1.1. Marketing Defined a). What is a Market? In an economic sense, the market is an avenue by which supply and demand of a product interact. As a result, an exchange between the buyer and seller occurs. The market is a system of intercommunication or network of dealings that exists to enable buyers with money and sellers with goods or services to make contracts. The market is not only confined to a physical place. Rather it denotes an area where buyers and sellers interact. Marketing: the American Marketing Association Board of Directors has defined marketing as, “The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large”. It is the management process through which goods and services move from concept to the customer. For a market to exist, certain conditions must be satisfied. These conditions (or components) should be both necessary and sufficient. 1 i) The existence of a good for transaction (Physical existence is, however, not necessary). ii) The existence of buyers and sellers. iii) Trading Operations between buyers and sellers. iv) Geographical demarcation of area such as place, region, country or the whole world. v) The existence of a perfect competition or uniform price is not necessary. b). What is agricultural marketing? Agricultural Market: The input supply and farm product markets are often referred to as agribusiness. Farm supply industries--such as the feed, fertilizer, farm machinery, and seed industries are also part of the food industry. Agricultural market is defined as an arena for organizing and facilitating agribusiness activities. Agriculture Markets integrate various components of the food industry; the farm input supply sector, the farm sector, the food marketing system, and national economies. Agricultural marketing is:  the study of all the activities, agencies and policies involved in the procurement of farm inputs by the farmers and the movement of agricultural products from the farms to the consumers.  is the performance of all business activities involved in the flow of food products and services from the point of initial agricultural production until they are in the hands of consumers.  a value-adding process that adds place, form, time, and possession utility to farm products. It is a link between the farm and the non-farm sectors . Farmers who produce more than what their family need are involved in marketing. Marketable surplus: the production of farm exceeding that needed or desired for personal consumption; this surplus is then available for sale to other individuals or countries. 1.2. The Marketing Process Markets are studied to answer the basic economic questions: what to produce, how much to produce, how to produce, and how to distribute production. Two essential characteristics of the marketing process are: (1) Movements- that is, a series of actions and events that are in some sequence; and (2 ) Coordination of the series of events and activities. It is necessary if goods and services are to move in some orderly fashion from the hands of producers into the hands of consumers. At the beginning of the supply chain is the farmer producer and at other end of marketing activities is the consumer. Between the agricultural producer and the consumer is the marketing system. This complex marketing system is composed of business firms engaged in physical, technological, and economic activities; 2 pricing of food products, establishing various arrangements, contacts, and procedures to ensure orderly flow of goods and services. Marketing of any commodity has many facets and is composed of alternative product flows (called marketing channels), a variety of firms (middlemen), and numerous business activities (referred to as marketing functions). All marketing channels, middlemen and functions taken together is known as marketing system as it consists of interrelated component parts that contribute toward overall firm, industry and social goals. The marketing system for food (agricultural products are basically food) encompasses two major types of activities. One is concerned with the physical handling, storage, processing, and transfer of raw and finished goods as they move from producers to consumers. The other is concerned with the exchange and price-setting processes in the market system. This latter economic aspect of the food marketing system is less tangible than that of the physical distribution aspect, but no less important. Marketing is complex and costly. The initial production of raw materials for these food products takes place on farms (in the PICs these farms are smallholder subsistence farms mainly). The marketing task begins here, on these diverse farms. Some farms produce small amounts of many commodities. Others with specialized operations produce large amounts of a single commodity (sugarcane). Farm products are not only perishable, but they vary in quality. 1.3. Classification of Markets A market may be identified based on various dimensions as shown in the illustration below: Location Extent of public Time intervention Classification of markets Degree of Product competition Volume 3 a) Location or place of operation (Area or coverage) a location; such as village market, city market, etc. b) Time span; such as daily market; weekly market; monthly market; yearly market, etc. c) Product: number and nature of commodities traded a product; such as fruit market, grain market, egg market, etc. d) Volume of transactions or institutional level such as primary market, the retail food market, wholesale market. e) Degree of competition f) Extent of public intervention i) Location (Area): Any individual market may be classified on the basis of location or place of operation of market into following types: (a) Village Market: A market which is located in a small village, where major transactions take place among the buyers and sellers normally residing in that village, is called a village market. In this market buying and selling activities are confined among the buyers and sellers drawn from the same village or nearby villages. The village market exists mostly for perishable commodities. b) District markets: These markets are located generally at district headquarters or important trade centres or near highway junctions. The major transactions of commodities in these markets take place between the village traders and the wholesalers. The bulk of the arrivals in these markets are from village markets. c) National Markets: These markets are located either in metropolitan cities. In this market, buyers and sellers are at the national level and deal in wholesales. ii) On the basis of time span: Markets on the basis of time span can be grouped as follows: a) Short period Markets: The markets, which are held only for a few hours are called short period markets. The products dealt with in these markets are of a highly perishable nature, such as fish, vegetables, milk and flowers. b) Long-period Markets: These markets are held for a longer period than the short period markets. The commodities traded in these markets are less perishable and can be stored for some time e.g., food grains (e.g., rice, wheat, maize, sorghum, etc.) and oil seeds (mustard, rape seed). The prices are governed both by the supply and demand forces. c) Secular-Markets: These are markets of a permanent nature. The commodities traded in these markets are durable in nature and can be stored for many years. An example is markets for farm machinery. iii) Commodities: Commodity markets deal in goods and raw materials such as rice, maize, egg, meat, fruit & vegetables etc., are formed as commodity markets. Classification of markets based on commodities includes two aspects a) Number of commodities and b) Nature of commodities. A market may be general or 4 specialized depending on the number of commodities transacted there. A market in which all types of commodities, such as root crops, grains, oil seeds, pulses etc., are bought and sold is known as a general market. These markets deal in a large number of commodities. In the specialized markets transactions take place only for one or two main commodities. For every group of commodities, separate markets exist. The examples are fruit and vegetable market, wool market and meat & egg market. Based on nature of commodity a market may be called a raw materials market, semi processed or finished goods market. iv) Volume of transaction: On the basis of volume of transactions at a time, there are two types of markets: Wholesale and retail markets. a) Primary (or local) Market: These markets are located in towns near the centres of production of agricultural commodities. In these markets, a major part of the produce is brought for sale by the producer-farmers themselves. Transactions in these markets usually take place between the farmers and primary traders or consumers. Primary market has marketing of raw farm products. The market functionaries are the producer/farmer, pre-harvest contractor, transport agents b) Secondary Wholesale Market: The major transactions of commodities in these markets take place between the village traders and the wholesalers. The bulk of the arrivals in these markets are from primary markets. The produce in these markets is handled in large quantities. There are, therefore, specialized marketing agencies performing different marketing functions, such as those of commission agents and brokers in these markets. These markets help in assembling commodities from neighboring district/province. Secondary market functionaries are financial agents and processing agents. It is a market in which buyers and sellers for a commodity are drawn from a longer area than the local markets. A wholesale market is one in which commodities are bought and sold in large lots or in bulk. Transaction in these markets takes place mainly between traders. c) Retail Markets: A retail market is one in which commodities are sold to the consumers as per their requirements. Transactions take place between retailers and consumers. The retailers purchase in the wholesale markets and sell in small lots to the consumers. These markets are very near to the consumers residences. (d) Terminal Market: A terminal market is one where the produce is either finally disposed of to the consumers or processors, or assembled for overseas export. In these markets, merchants are well organized and use modern methods of marketing. Such markets are located either in metropolitan cities or at seaports. In this market, in addition to primary and secondary market functionaries, commercial analyst and shipping agents are also involved. In this market, buyers and sellers are at the national level. e) International Market: A market in which the buyers and sellers are drawn from the entire world. These are the biggest markets from the area point of view. These markets exist in the commodities, which have a worldwide demand and or supply such as coffee, wheat, machinery, etc. The storage facility, transportation, preservation and processing techniques used can enhance 5 the area dimension of market for a commodity e.g. fresh tomatoes for the local market and tomato sauce for the wider market. v) Competition: On the basis of degree of competition, markets may be classified into the perfect competition and imperfect competition. a) Perfect Markets: A perfect market is one in which the following conditions hold good. i). There are a large number of buyers and sellers. ii) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices. iii) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies from surplus to deficit areas. iv) The prices are uniform at anyone place, over periods of time, plus or minus the cost of storage from one period to another. v) The prices of different forms of a product are uniform plus or minus the cost of converting the product from one form to another. b) Imperfect Markets: The markets in which the conditions of perfect competition are lacking are characterized as imperfect markets. The following situations, each based on the degree of imperfect, may be identified. ) Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity. He/She exercises sole control over the quantity or price of the commodity. e.g. electricity, shipping company. ii)Duopoly Market: A duopoly market is one, which has only two sellers of a commodity, e.g. two retailers in a village. iii) Oligopoly Market: A market in which there are more than two but still a few sellers of a commodity is termed as an oligopoly market e.g. different airlines operating in our country. iv) Monopolistic Competition: When a large number of sellers deal in heterogeneous and differentiated form of a commodity, the situation is called monopolistic competition. e.g. milk and coffee by different companies, tractors, fertilizers etc. vi) Extent of public intervention: Based on this criterion, a market may be categorized as a regulated market or a non-regulated market. a) A regulated market or controlled market is an idealized system where the government controls the forces of supply and demand, such as who is allowed to enter the market and/or what prices may be charged. A legislative measure designed by government establishes and regulate marketing of agriculture produce. This type of market is regulated by government appointed bodies (such as Marketing Board), often to control charges and ensure that fair services are offered to customers. Regulated market is one that aims at the elimination of the unhealthy and unscrupulous practices of market intermediaries, reducing marketing costs, and providing facilities to the producer-seller in the market. Examples are, Grain markets, Fruit markets, Milk market, and service provision such as Cooking gas, Water, and Electricity supply. 6 b) The non-regulated markets: There is no intervention by government in supervision or controls. 1.4. Marketing Functions Markets play many important roles in the food economy. First, they facilitate the exchange of products and money between buyers and sellers - (markets make both parties to a transaction better off). Second, Markets also create value by encouraging competing firms to improve their prices, services, products, and values for consumers. Through competition, markets can also contribute to efficiency as well as economize on the efforts of buyers and sellers. Thirdly, markets also place values on economic activities, creating both rewards for correct decisions and punishments for inefficient decisions. Fourthly, markets assist in the allocation of resources in the food industry, which in turn can improve the living standards of a society. Markets perform following nine functions, which can be broadly grouped into three categories: I. Exchange Functions 1. Selling 2. Buying (possession utility) II. Physical Functions 3. Transportation (place utility) 4. Processing (form utility) 5. Storage (time utility) III. Facilitating Functions 6. Standardisation (Grading) 7. Financing (credit) 8. Market information 9. Risk insurance The exchange and the physical functions of the marketing are a value adding process. Production is defined as the creation of utility--the process of making useful goods and services. However, after the production of farm products, the marketing processes further create four types of utilities to the farm products: form utility, place utility, time utility, and possession utility. i) Exchange function: The exchange function assists the consumer in acquiring and taking title to desired products. The marketing functions of buying and selling help in the transfer of ownership from one person to another and thus, create possession utility. Products are transferred through marketing to persons having a higher utility from persons having a low 7 utility. Retailers, supermarkets, marketing agents make it easier for/or assist the buyers and thus create possession utility. ii) Transportation function: In many countries, producers are small and the farms are scattered all over the country.Farm products are produced at some distance from consumers. Transportation moves products from one point to the other. Some buyers make it their business to buy produce from farmers and then transport and assemble small quantities of produce at more central and more convenient locations to where other buyers come and buy produce to sell at town markets or to processors. The assembling and moving a product from farm to the processing unit, then moving the processed and packaged produce to wholesalers, retailers, and finally to the consumers create place utility to a product. The place utility is created by transferring farm products from production to consumption areas. The transportation function adds place utility to products by shifting them from the place of production to a place of need. Products command higher prices at the place of need than at the place of production because of the increased utility of the product. iii) Processing Function: Farm products are not always produced in the same form as sold in the market. Processors of food change the form of raw food material and create a product that consumers are often willing to pay for. Processing involves converting products into suitable form according to consumers’ needs and tastes before they can be sold to consumers. For example, miller of paddy make rice by de-husking paddy, oilseeds are converted into oil, sugarcane into sugar, wheat into flour and bread. Meat animals need slaughtering, dressing and dividing into convenient cuts and joints. Processors must mix meats to make sausages. Processors also pasteurise most of the milk and bottle or convert it into butter, ghee or cheese. Perishable fruits and vegetables are marketable for a much longer period if they are processed. Ways that they may be processed include canning, drying, and extracting and bottling juices. Samoa, for example, has moved from producing and exporting dry coconuts (copra) to producing and exporting coconut cream in cans. Such processing function adds form utility to the product by changing the raw material into a finished form. With this change, the product becomes more useful than it is in the form in which it is produced by the farmer. The processed forms are more readily useful to consumer than the original raw materials. iv) Storage Function: Food production is often seasonal while consumers eat products year round. Storage is the safekeeping of products for a considerable period of time after they are first ready for market. Storage maintains the quality of the produce and ensures the spread of product supply to meet the all year round demand. The storage function adds time utility to the products by making them available at the time when they are needed. The timing and availability of the product is altered by this marketing activity. It helps in balancing the supplies between periods of relative plenty to periods of relative scarcity. 8 v) Facilitating functions: There are four facilitating functions of marketing as follows: (a) Standardization process establishes grades for farm products based on some quality specifications. Grading is the sorting of products into lots, each of which has substantially homogeneous quality characteristics. Harvested supplies coming from farms usually need sorting in some way so that consumers can choose the kind of produce they want. Grading and inspection are also necessary to maintain high quality; make good pricing policies possible; and promote exports. Information on the physical features and price of the product is needed so that people engaged in buying and selling of the product can deal confidently with it. Buyers need to know the features of the product and whether it is suitable for various purposes. (b) Financing (credit): There is a long interval between the time of product harvested by farmers and is used up by consumers. During these two points, the ownership of agricultural commodities shift many times. The market intermediaries (such as processors, wholesalers, retailers) need finance for purchase of stocks, and for transporting, processing and storage. Credit is the lubricant that facilitates the marketing machine. Goods must have financial support to pass through the marketing system. At each stages of the marketing process, whoever buys (owns) the goods must pay by either giving up the opportunity to use their own capital elsewhere or borrowing the capital they need for marketing process. (c) Market information relates to commodity prices that prevailed in the past and market arrivals over a period of time. Marketers need also to know its price in various markets sincethey do not want to pay a price to the seller that is too high. The farmers and other sellers seek corresponding information, such as:  Where are the people who want to buy this produce?  In what form do they want the product?  When is the best time to sell, and what is the best price to ask? (d) Risk insurance: Risk is inherent in all marketing transactions of agricultural products. Buyers must take major marketing risks of product destruction by fire, rodents, quality deterioration, price fall, etc. Someone has to bear the risk in marketing process. The burden of these risks also contributes to the cost of marketing. The longer the time lag between the production and consumption of farm products, the greater the risk. The market middlemen transfer burden of risks to insurance companies which are specialised agencies to bear such risks. 1.5. Special Features of Agricultural Products Affecting Marketing Agricultural products differ in nature and contents from industrial goods in the following respects: 9 i) High bulk volume, low value Agricultural products tend to be bulky and their weight and volume are great for their value in comparison with many industrial goods. When products are weighty but their real money value is low, relatively speaking, we say these products have low bulk value, such as taro from Fiji exported to New Zealand, and copra from Vanuatu exported to Europe. Farm products tend to be bulky and their real money value gained for their weight and volume, is relatively low. This is especially apparent if you compare agricultural produce with the many manufactured goods such as watches and necklaces. As a share of the product's value, transport and storage costs tend to be relatively high and so absorb much of their value. For example, a kilogram of taro costs the same as a kilogram of computer equipment to freight by air transport. A kilogram of computer equipment, however will fetch a higher price than a kilogram of taro. The high transport costs relative to value is a particular problem for PICs in marketing agricultural products. ii) Seasonal production The farming cycle affects the timing of production of some crops and, to a lesser extent, the timing of livestock output. Given this, some crops are available only seasonally. They are not available throughout the year although consumers are willing and able to purchase them throughout the year. To meet the demand when the fresh product is not available, marketers must use a method of extending the life of the product. Cool storage is a useful method of doing this, but processing is the more successful method and is also usually cheaper. The demand on storage and transport facilities is heavier, and more specialized in case of agricultural products than in the case of manufactured commodities. This seasonal nature of farm production puts strains on a marketing system. At harvest time there is a heavy demand for marketing facilities such as storage and buyers' credit while, at other times of the year, farmers may hardly use these facilities at all. However, this condition of seasonal availability is not found in the case of industrial goods. iii) Scattered production Agricultural production is geographically scattered in areas that are often located at some distance from consumers. Agricultural produce is widely scattered over a vast geographical area and as such its collection (assembling) poses a serious marketing problem. But such is not condition in the case of industrial goods whose production is concentrated in few locations near the consuming areas. Farm commodities must be collected, sorted, and swiftly moved to market, or stored for later use. These production and commodity characteristics give rise to the basic marketing activities, such as storage, transportation, processing, and the like. iv) Large number of small producers Average farm holdings in many developing countries and in PICs are very small. Farming plots are small in size and so are their outputs. Farm products often start their journey to market as the 10 small surpluses of many thousands of individual farmers. As in many other developing countries, sellers in PICs operate on a small scale and so too the buyers. Where both buyers and sellers operate on a small scale, no single buyer or seller can affect the price. They are said to be price- takers. The smaller the farm business and the poorer the financial position, the more vulnerable it is to market fluctuations. v) Long production cycles Most crops and livestock have long production cycles. The time taken from planting of crops to harvest is usually a few months to a few years. Similarly the time taken for livestock to be weaned to the time they are ready for slaughter is usually a few months to a few years. Agricultural marketing decision begins before farmers plant their crops or decide on what livestock to rear. They must know that there is a market for what they plan to produce. Without such knowledge they could be wasting their money and time because there is a risk that no one will buy their products. The longer the production cycle, the more uncertain farmers are of the prices they will receive for their marketed produce. For example, because coconut takes longer than tomato to produce, growing coconut involves more price risk than tomato. vi) Risk of weather and pests Agricultural production is a biological process that requires much knowledge. The husbandry and management of crops and livestock therefore cannot be completely controlled or directed as desired. Agricultural production is particularly subject to natural forces that are more or less beyond farmers’ control such as drought, cyclones, and floods, as well as pests and diseases. Such problems are not faced by industrial producers. vii) Varying quantity of product The biological nature of agricultural production leads to variations in quality of crops and livestock products. In a field of squash of the same species, for example, you will find some variation in quality. Similarly a Jersey cow will differ in quality from other breeds of cows in a herd. Bad weather or failure to control pests or diseases often harms the quality of farm products. Because of this, it is difficult to determine a fair price to cover all qualities. In this case, grading of farm produce is necessary. There are various kinds and varieties in farm produce and so it is difficult to grade and standardize them. viii) High perishability When agricultural produce is not able to stay fresh and/or maintain quality for a long time (from a few hours to a few days), we say that it is perishable. With the exception of a few crops such as rice, most farm produce is perishable, Milk is especially perishable. It will keep for only a few hours in hot climates if it is not treated. Products like fresh fruit and vegetables damage easily, particularly during harvest and packaging. Such damage lowers the quality and the shelf life of 11 the product, and its market value or price. Perishable products need good storage and transportation facilities. Farmers, however, often have problems storing and transporting their produce. Storage is not necessary if the produce is processed. However, because crops usually mature and are ready to harvest at the same time, processing is often costly and organising processing equipment and staff to cope with seasonal demand is difficult. Moreover, if the market is far away, the product may deteriorate by the time it gets there. Export markets for farmers of PICs in particular are often distant. Fast forms of transport like air transport are ideal for export markets but are very costly and not economical to use for low value produce. Agricultural commodities are comparatively more perishable than industrial goods. Most of the farm products are highly perishable and cannot remain long on the way to the final consumer without suffering loss and deterioration in quality. ix) Long distance to market There are long distances from farms to marketplace. Farm products usually have to be moved over a vast distance to get to their markets. Many farms are located a long way from markets and farm products have to be transported by land, water, sea or air. This problem is compounded as farms move further and further inland. This is a common feature in PICs. Transport costs are increased by both distance from towns and distance from good roads or railways, rivers or processing plants. Such costs then affect the areas where it is viable for a farmer to supply bulky farm products. In many countries, however, marketing boards have a lot of local buying points and a standard national price for both farm products and farm inputs. This arrangement is made to achieve social equity and regional balance. The location of farms, however, still strongly affects farming systems. Farmers near cities/ markets produce highly perishable products such as milk and vegetables and farmers in remote areas produce long shelf life products such as coconuts, cocoa and coffee. x) Inelastic demand for many farm products: Consumer demand for agricultural products is known to be inelastic. Inelastic demand means simply that demand does not respond much to price changes. This is because most agricultural products fulfil consumers' basic needs for food and fibre. People who have enough food of the type they like will probably not buy more of it, even if they have spare cash. On the other hand luxury goods, such as watches and cars, have elastic demand. If the price drops, they are more likely to buy extra luxury goods. However, a consumer can eat only a certain amount of food items. Therefore, even if their prices go down, the consumer is unlikely to buy much more of them, especially if the product is a perishable. The above-mentioned features are special to agricultural production. They have important implications for marketing management and thus these cannot be ignored. Therefore, when designing a realistic and successful marketing strategy, governments and commodity organisations should take them into account. If they fail to allow for these features, their policies too may fail. Farmers should ensure that their products give the highest possible returns on the 12 resources used for production, compared with the returns they could get from investing their resources in some other way. Successful farmers observe the market conditions and, if necessary, change their products to suit those conditions, rather than simply continuing to produce the products that they have always produced. 1.6. Characteristics of Pacific islands’ Agriculture The special features of the South Pacific island agriculture may be summarized as follows: i) Agriculture and allied activities are the main source of income for 60 -70 percent of population. Hence, it is critical to breaking the poverty trap of farmers. ii) Low farm productivity. iii) Agriculture is main source of foreign exchange (80%) (coffee, cocoa and tropical fruits) iv) Food balance sheet characterized by imports. Net food importing countries suffered the most when agriculture marketing is inefficient. v) Poor average annual growth of agricultural sector (less than the pledged 6%). vi) Low investment in agriculture below the pledged 10% of the budget. Agricultural financing has been poor for investing in Agro processing e.g. crop processing zones. vii) Rain-fed agriculture thus high variability in crop yields. viii) Land degradation; high soil erosion. ix) Climate change affecting agriculture negatively. x) Poor agricultural markets and market access. Improving market access means lowering transaction costs: transport, storage, market information etc. xi) Mismatch in production increase and market demand. xii) Lack of and poor access to new farm technology, mainly labour intensive production of traditional subsistence crops. 1.7 Changes in Farm Production and Marketing Pattern In recent years, some changes are taking place in the agricultural production pattern and the economic environment for agribusiness marketing has become more specialised and innovative. The new concept of marketing management and the strategic thinking are changing the outlook and goals of farm producers and the marketing agencies. Table 1.1 depicts the comparative picture of traditional and modern concepts of farm production and marketing. 13 Table 1.1: Changes in the farm production and marketing approach Old Concepts Modern Concepts 1. Produce, sell commodities 1. Produce specific attribute and differentiated products 2. Market staple products 2. Market specialty, niche products 3. Sell product 3.Give away packed product 4. Impersonal, open market 4. Personal, negotiated, closed markets 5.Adversial relationship of sellers and buyers 5. Sellers and buyers partnerships 6. Independence 6. Interdependence 7. Stability 7. High risk business 8. Agriculture as an art form 8. Science-based agriculture 9. Tradition 9. Innovation 10. Open information system 10. Closed information system 11. Public research and development 11. Private proprietary R & D 12. Resource exploitation 12. Resource conservation, protection 13. Traditional skills 13. Emphasis on technical skills 14. Subsistence farming 14. Commercial farming 15. Competition with country producers 15. International food competition 16. Farm income lower than non-farm production 16. Improved farm income and comparable to others The above comparison shows that the scope for moving towards modernizing agriculture systems must include modern marketing dimensions in it, if the momentum of farm production transformation is to be sustained. 1.8. Importance of Agricultural Marketing in Economic Development There is a mutual interdependence between farmers and food marketing middlemen. The food production process and value addition does not stop at the farm gate. The food marketing activities complement the agricultural production process. Consumers rely on the food marketing system to complete the food production process that began on the farm. The relationship between the farmers and food-marketing firms is at the same time competitive and complementary. Food marketing involves large number of marketing establishments (food processing plants, grocery product wholesalers, food retail stores, restaurants and public eating-places) which make valuable contribution to the economy. For economic development, it is important to raise farm production and to develop the marketing system so that the entire output reaches consumers efficiently. Greater marketing efficiency will not only give farmers higher prices, but also give consumers lower ones and thus expand their buying behaviour. Good marketing facilities are especially important for smallholder farmers who have small agricultural surpluses over their subsistence needs for sale. Economies of scale operate in market-related activities. Horizontal and vertical integration play a major role in marketing. Agricultural marketing plays an important role in stimulating production and consumption and thereby accelerates the pace of economic development in the country. Marketing is the most 14 important multiplier of economic development. It stimulates technological change in agricultural production, which leads to substantial increase in farm production and to the larger marketable and marketed surplus. An efficient market system that provides an assurance of remunerative prices to the farmer is a prerequisite for agricultural development. Marketing system transmits the crucial price signals that increase sensitivity of farmers to relative prices to specialize in the cultivation of those crops on which the returns are the greatest, subject to socio-cultural, ecological and economic constraints. Marketing system accelerates the process of shifting from traditional to modern agriculture because of production surpluses generated by the shift. Indeed, the term modern agriculture implies a market-oriented agriculture. The importance of agricultural marketing in economic development is revealed from the following: (i) Optimization of Resource use and Output Management. An efficient agricultural marketing system leads to the optimization of farm resource use and output management. An efficient marketing system can also contribute to an increase in the marketable surplus by scaling down the losses arising out of inefficient processing, storage and transportation. A well-designed system of marketing can effectively distribute the available stock of modern inputs (fertilizer, high yielding seeds), and thereby sustain a faster rate of growth in the agricultural sector. (ii) Increase in Farm Income. An efficient marketing system ensures higher levels of income for the farmers reducing the cost of marketing services and malpractices in the marketing of farm products. An efficient system guarantees the farmers better prices for farm products and induces them to invest their surpluses in the purchase of modern farm inputs so that farm productivity and production may increase. This again results in an increase in the marketed surplus and income of the farmers. If the producer does not have an easily accessible market-outlet where he can sell his surplus farm produce, he has little incentive to produce more than the subsistence needs. The need for providing adequate incentives for increased production is, therefore, very important, and this can be made possible only by streamlining the agricultural marketing system. (iii) Widening of Markets. An efficient and well-knit marketing system widens the market area for the products by reaching out to remote corners of the country. The widening of the market helps in increasing the supply and demand network, and thereby guarantees a higher price for farm products and low prices of farm inputs to the farmer- producer. (iv) Growth of Agro-based Industries. An improved and efficient system of agricultural marketing helps in the growth of agro-based industries and stimulates the overall development process of the economy. Many industries like sugar, edible oils, food processing are depend on agriculture for the supply of raw materials. 15 (v) Price Signals. An efficient marketing system helps the farmers in planning their production in accordance with the needs of the country. This work is carried out by marketing through transmitting price signals from consumers to the producers. (vi) Adoption and Spread of New Technology. The marketing system helps the farmers in the adoption of new scientific and technical knowledge of agriculture. New technology requires higher investment and farmers would invest only if they are assured of market clearance of increased production at remunerative price. (vii) Employment Creation. The marketing system provides direct employment to thousands of persons engaged in various marketing activities, such as transportation, storage, processing, and retailing. This apart, several others find employment in supplying goods and services required by the marketing system. (viii) Addition to National Income. Marketing activities add value to the product thereby increasing the nation's gross national product. (ix) Better Living. The marketing system is essential for the success of development programmes, which are designed to uplift the standard of living of population. Any economic development program that aims at reducing consumer food prices, earning more foreign exchange or eliminating economic waste must pay special attention to the development of an efficient marketing for food and agricultural products. (x) Creation of Utility for Consumers. Marketing is productive, and it is as necessary as the production at the farm. It is, in fact, a part of production itself, for production is complete only when the product reaches a place in the form and at the time required by the consumers. Marketing adds cost to the product, but, at the same time, it adds utilities to the product for consumer satisfaction. 16 1.9. Summary In this unit, you have studied  the vital role that agricultural marketing plays in agro produce distribution to customers,  the special features of agricultural products and problems in their marketing,  various functions involved in marketing food products and farm inputs, and  the importance of efficient marketing system in sustainable development of a country. Like alleconomic activities, marketing also aims for profit making. It helps the farmers to reach their customers within very short lead-time. In order to avoid isolation of small-scale farmers from the benefits of selling agricultural produce at remunerative prices they need to be integrated and informed with the market knowledge like price fluctuations, and concepts of demand and supply management which are the core of economic planning. 17