Agribusiness Midterm.pdf

Agribusiness Module overview Over the past 30 years, there has been a major shift in agricultural markets and the international trade of agricultural products. The world is moving from local and national markets towards a global system of trading, which means that neighbouring farmers working on sm...

Agribusiness Module overview Over the past 30 years, there has been a major shift in agricultural markets and the international trade of agricultural products. The world is moving from local and national markets towards a global system of trading, which means that neighbouring farmers working on small plots of land may be competing with large industrial farmers from another country in a single marketplace. In developing countries, there is increasing pressure on farmers to commercialise their operations. This change is driven by the following factors:  Declining land size, which means that farmers need more intensive production systems to support their family needs;  Urbanization and rapid population growth and  General modernisation, which means that farming families need to generate larger incomes to support their family needs and expectations in terms of medical support, education, transport, communication and to cover the rising costs of their cultural traditions. This module familiarizes learners with the key terms and concepts required to introduce agribusiness to farmers, farmer groups and agricultural businesses and to support improved productivity and market engagement. The module provides a practical approach to improving the knowledge, skills and attitudes of learners as they seek to help the farming community take on new enterprise skills. Agripreneur: An individual who starts, organizes and manages a business venture focusing on the agricultural sector. Value chain: A set of connected actors that work together to add value to a product and increase efficiency and competitiveness, while linking producers to processors and markets. Supplier: A company or a business that supplies goods or services to another business, in this case a farming operation or an agribusiness Module introduction Approximately 1,5 billion people are engaged in smallholder agriculture across the world. This mainly rural community includes 75% of the world’s poorest people whose food, income and livelihood depend on agriculture. Despite their important role as food producers, the commercial prospect for millions of poor smallholders remains challenging. There is a growing perspective that better market engagement is a critical element in improving the livelihood prospects of rural families. However, poverty is endemic to this community and, in order to support this farming sector, several global agencies have renewed their investments in smallholder agriculture, but with a stronger focus on upgrading the agripreneur opportunities for farmers. To stay relevant and meet the needs of the rural community, the new extensionist must acquire new skills in business support. The methods used will depend on the scale of the business venture involved. With the more pluralistic nature of extension, business services will be provided in a combination of free and fee-based- service business models. Smallholder: Farmers who owns a small plot of land on which they grow self-sustaining crops, and who rely mainly on family labour. Endemic: A condition that is regularly found in a particular area or among particular people. Pluralistic extension: Extension that is characterised by the inclusion, interaction and coordination of multiple public and fee based providers, services and information sources. Lesson 1 Introduction to agribusiness Study unit overview There is an increasing awareness that agriculture should be seen as a commercial activity. Within this context, farmers are seen as agripreneurs and farmer groups or cooperatives are seen as enterprises. In this study unit, learners will be introduced to agribusiness, the role of agricultural entrepreneurs and successful business ideas. Commercial activity: Activity that involves trade and trading. Enterprise: Any business operation or organisation that provides goods or services with the primary motive of making a profit. Value capture: The process of maintaining a percentage of the value provided in every transaction. Study unit introduction Entrepreneurship refers to the capacity to take risks, develop, organise and manage a new business venture in order to make a profit. Agricultural entrepreneurship (agripreneurship) relates to marketing and producing various agricultural products, as well as agricultural inputs. Most smallholder farmers produce food for their families, but at the same time, almost all smallholders sell a portion of their produce into various markets and that level of market sales is growing. Therefore, smallholder farmers are working towards being, or already are, agricultural entrepreneurs. All types of entrepreneurship have the common goal of making a profit. Entrepreneurs may work alone and keep the profit of their ventures for themselves, or they may choose to become part of a farmer group where they invest in their production system as an individual but sell collectively. Farmers are increasingly entering into regular business relationships with other value chain partners. Over time, farmers tend to shift from working as individuals towards some form of cooperative or contractual marketing approach and, if successful, they go on to create medium to large-sized businesses. Agripreneurship: Entrepreneurship that relates to the marketing and production of various agricultural products, as well as agricultural inputs. Agricultural inputs: Products or resources that farmers use in farm production, e.g. seed, fertilisers and agro- chemicals. Contractual marketing: A marketing approach in which companies at different levels of the value chain (e.g. production and distribution) work together to achieve greater financial advantages than they would have on their own. Agribusiness is one of the most challenging businesses today. Agribusiness has held up a large share of business niche. The volume of agribusiness is flourishing day-by-day. The term agribusiness coined first in 1957 by Goldberg and Davis. Agribusiness is not mere a business rather it is an useful tool for ensuring food security throughout the world and all sorts of basic needs as most of the basic requirements are filled up directly or indirectly with agro products. In near future agribusiness will be the central metaphor of business system for not only in our country but also to the whole world. What is Agriculture? Art of cultivating various categories of crops including animal husbandry, forestry, fishery and other related activities. What is Business? An economic unit, Aims to sell goods and services to customers, at prices that will provide an adequate return to its owners, Commercialization of any enterprise. What is Agribusiness? Agribusiness is the sum total of all operations involved in the manufacture and distribution production activities on the farm and the storage, processing and distribution of farm commodities from them(Goldberg and Davis,1957). Examples: Agri Chemicals Companies, Veterinary Supply Companies, Livestock Supply Companies, Biotechnology Firms, etc. Objectives of Agribusiness  Develop a competitive and sustainable private sector led agribusiness sector  Increase productivity / reduce yield gaps  Commercialization of Agriculture  Advance high potential sectors:  horticulture, livestock and fisheries  Use of modern technologies  Reducing cost of production  Value addition  Export agriculture The Agribusiness System Input sector  It provides producers with the feed, seed, credit, machinery, fuel, chemicals, they need to operate.  This sector provides 75% of the input used in production agriculture.  Improvements in the quality of purchased inputs have been a large source of efficiency gains for the entire system. Production sector  It aims at producing crops, livestock and other products.  The agricultural production sector has been the cause of much of the change in agribusiness. They, in turn, have been changed by development in other areas of agribusiness, particularly in technology. Processing/manufacturing sector  Employs millions of people in a variety of businesses ranging from grain elevators to fruit and vegetable- processing plants to supermarkets to fast food restaurants.  The businesses in this sector acquire raw agricultural commodities from producers and then process them into food products that are sold at times, at places, and in forms that are desired by consumers. Important Features of Agribusiness  Agribusiness is a multifaceted point of view, complex vertical structure, largely depend and partly independent.  Successful decision making at firm level is the basis for development in future.  Viability of the industry is traceable to the viability of the firms.  Agribusiness is market oriented Major areas of Agribusiness  Farm supplies  Production  Processing  Marketing  Research & Extension  Govt. Policies & Programmers Scope of Agribusiness  Growing demand for agricultural inputs  (Feed and fodder, inorganic fertilizers, biofertilizers).  Biotechnology applications  (Production of seed, bio-control agents, industrial harnessing of microbes for bakery products).  Export can be harnessed as a source of economic growth.  Scope for production of marine and inland fish and ornamental fish culture.  Scope for production of meat, milk and milk products, poultry products etc.  Mushroom production for domestic consumption and export.  Organic farming.  Production and promotion of bio-pesticides and bio- control agents.  Seeds-hybrid and genetically modified crops.   Micro-irrigation systems and labor saving farm equipment’s.  Production of vegetables and flowers(Export market)  Opportunities for employment in marketing, credit, insurance and logistic support services. Importance of Agribusiness  Single most important contributor to world’s economy.  It represents approximately ¼ of total world production.  Provides employment for nearly ½ the population of the planet.  Play an important role in the economic development of most countries.  Maturing of production sector gives rise to other sectors.  Released workers. Nature of successful agribusiness The important requisites for success in a modern business are- 1. Clean objectives 2. Planning 3. Sound organization 4. Research 5. Finance 6. proper plant location, layout and size 7. Efficient management 8. Harmonious relations with the workers Conclusion  Agribusiness is going to dominate all over the world as a potential business sector for which proper strategic management is required to be developed in the country and the supply chain management of the country ought to be improved.  It should be properly handled to raise national income, creation of employment opportunities, raising purchasing power, and ultimately decreeing balance of trade deficit and causing economic development of the country and to fulfilment of basic needs of the people of the country. Lesson 2 Marketing and Market Chain Learning Objectives: 1. Define marketing 2. Explain the different marketing concepts 3. Demonstrate understanding about the market chain of agricultural business This lesson will cover the different definitions of marketing and the market chain in an agricultural business. A. Definition of Marketing According to the American Marketing Association, marketing is 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. Four components, activities of marketing: 1. Creating- the process of collaborating with suppliers and customers to create offerings that have value. 2. Communicating- broadly, describing those offerings, as well as learning from customers. 3. Delivering- getting those offerings to the consumer in a way that optimizes value. 4. Exchanging- trading value for those offerings. B. Marketing Concepts What are the Marketing Concepts? The marketing concept is a process when a company plans and implements to maximize profit by increasing sales, satisfying customer’s needs and beating competitors. The purpose is to creates a situation that benefits both parties; customer and the company. The idea of eth marketing concept is to anticipate and satisfy the needs and wants of customers better than the competitors. The marketing concepts were originally derived from the book of Adam Smith, Wealth of Nation. It remained unknown to the world until the 21st century. 5 Marketing Concepts There are as many marketing concepts as many businesses running in the world. Some of those concepts exist today and the others have become obsolete. However, there are five core marketing concepts also known as marketing management philosophies. 1. Production Concept The production concept is one of the earliest marketing concepts where the company focuses on the efficiency of its production processes. I tis to produce the products cheaper to make it available to the mass population. The focus of the production concept is on the quantity, not the quality of the products. 2. Product Concept The core idea of the product concept is to produce cheaper products because the customers won’t pay much price for the products or services. The companies that follow the product concept, manufacture the product on a mass scale and they make a profit out of the economies of the scale. In the product concept, marketers do not give any importance to the needs and wants of the customers. Their main focus is to produce more and more product, quantity matters, not the quality. Customers are usually unsatisfied with the poor quality of the products. Marketing Myopia - Sellers pay more attention to the specific products they offer than to the benefits and experiences produced by the products. - They focus on the “wants” and lose sight of the “needs” 3. Selling Concept The idea that people will buy more goods and service if the aggressive sales techniques are used and that high result in high profits. 4. Marketing Concept The marketing concept is customer- oriented. It puts customers in the middle of the marketing process, finding out customer’s needs and wants, then satisfying those needs better than the competitors. In this approach, the marketer says that the customer is always right and his needs and wants should come first. Here the marketing strategy focuses on making profit by meeting the needs and wants. 5. Societal Marketing Concept The idea of the societal marketing concept is based on the welfare of the whole society because it questions the strategy of the marketing concept. What customers want, it doesn’t mean that it would be good for them in the long term. What you want, and what is good for you and society, are two completely different things. C. Core Concept of Marketing 1. NEEDS  The basic reason or the minimum requirements consumer look for in a product or service  State of felt deprivation of some basic satisfaction including physical, social and individual needs. Why bother with researching needs and wants?  Customer are at the centre of the marketing concept  Customer needs and wants are not always apparent  They have to be continually researched  We have basic needs for food, shelter, love and so on  Wants are specific desires some would prefer hamburger, others vegetarian meal, others Indian, Chinese or Mexican  The same person in a different situation, might only want a plain bar or chocolate  Even the best get it wrong, and misinterpret customer needs and wants 2. WANTS  Desires, intentions or expectations for specific satisfiers of these deeper needs  These are the expressions of needs and are shaped an attributed by one’s culture, individual personality, and such social and environmental forces as schools, business firms and community families and religion  Form that a human needs takes as shaped by culture and individual personality 3. DEMANDS  Wants for specific products that are backed up by an ability and willingness to buy them  Wants become demands when supported by purchasing power D. Market Chain in Agribusiness To better understand the value chain in farming let’s watch How an d agro value chain should work by clicking this link https://www.youtube.com/watch?v=zBtnKPEo1mM Lesson 3 MARKETING MIX Learning Objectives 1. Explain the concept of marketing mix and its components 2. Explain the meaning of product and its classification 3. State the various factors affecting pricing decisions 4. Describe different methods of pricing 5. State the meaning of channels of distribution 6. Identify the various channels of distribution 7. State the factors affecting choice of a channel of distribution 8. Explain the concept of promotions and promotional mix Marketing Mix is the set of controllable variables that the firm can use to influence the buyer’s response. The controllable variables in this context refer to the 4 P’s (product, price, place and promotion). Each firm strives to build up such a composition of 4P’s , which can create highest level of consumer satisfactions and at the same time meet its organizational objectives. Thus, this mix is assembled keeping in mind the needs of target customers, and it varies from one organization to another depending upon its available resources and marketing objectives. 1. Product. The right product to satisfy the needs of your target customer. 2. Price. The right product offered at the right price. 3. Place. The right product at the right price available in the righrt place to be bought by customers. 4. Promotion. Informing potential customers of eth availability of the product, its price and its place. PRODUCT Product refers to the goods and services you offer to your customers. Apart from the physical product itself, there are elements associated with your product that customers may be attracted to, such as the way it is packaged. Other product attributes include quality, features, options, services, warranties, and brand name. The product’s appearance, function, and support make up what the customer is actually buying. Your product should meet the needs of a particular target market. Other important aspects of product may include an appropriate product range, design, warranties, or a brand name. Customer research is a key element in building an effective marketing mix. Knowledge on target market and competitors will allow you to offer a product that will appeal to customers and avoid costly mistakes. PRICE Price refers to how much you charge for your product or service. Some price decisions may involve complex calculation methods, while others are intuitive judgments. Pricing strategy should be based on your product, customer demand, the competitive environment, and the other products you will offer. 1. Cost- plus: adds a standard percentage of profit above the cost of producing a product. Accurately assessing fixed and variable costs is an important part of this pricing method. 2. Skimming: Involves the introduction of a product at a high price for affluent consumers. Later, the price is decreased as the market becomes saturated. 3. Discount: Based on a reduction in the advertised price. A coupon is an example of a discounted price. 4. Loss- leader: Based on selling at a price lower than the cost of production to attract customers to the store to buy other products. PLACE Place refers to the distribution channels used to get your product to your customers. Businesses that create or assemble a product will have two options: selling directly to consumers or selling to a vendor.  Direct Sales As a producer, you must decide if supplying direct is appropriate for your product, whether it be sales through retail, door- to- door, mail order, e- commerce, on- site, or some other method. An advantage of direct sales would be the contact you gain by meeting customers face to face. Direct sales may be a good place to start when the supply of tour product is limited or seasonal. For example, direct sales for many home- produced products can occur through homebased sales, markets, and stands. However, direct sales require that you have an effective retail interface with your customers, which may be in person or electronic.  Reseller Sales (Sales Through an Intermediary) Instead of selling directly to the consumer, you may decide to sell through an intermediary such as wholesaler or retailer who will resell your product. One of the most important reasons for selling through an intermediary is access to customers. Wholesalers and retailers have customer connections that would not be possible to obtain on your own. In selling to a reseller you may also lose contact with you consumer. In some cases, you may also lose some of your company identity. For example, your distributor may request that your product be sold under the reseller’s brand name. Market Coverage No matter whether you sell your product direct or through a reseller, you must decide what your coverage will be in distributing your product. Intensive distribution is widespread placement in as many places as possible, often at low prices. Large businesses often market on a nationwide level with this method. Convenience products- ones that consumers buy regularly and spend little time shopping for, like chewing gum- do better with intensive (widespread) distribution. Selective distribution narrows distribution to a few businesses. Often, upscale products are sold through are retailers that only sell high- quality products. With this option, it may be easier to establish relationships with customers. Products that people shop around for sell better with selective distribution. Exclusive distribution restricts distribution to a single reseller. You may become the sole supplier to a reseller who, in turn, might sell only your product. You may be able to promote your product as prestigious with this method, though you might sacrifice sales volume. Specialty products tend to perform better with exclusive distribution. PROMOTION Promotion refers to the advertising and selling part of marketing. It is how you let people know what you’ve got for sale. The purpose of promotion is to get people to understand what your product is, what they can use it for, and why they should want it. You want the customers who are looking for a product to know what your product satisfies their needs. The channel you select for your message will likely involve use of a few key marketing channels. Promotion may involve advertising, public relations, personal selling and sales promotions. A key channel is advertising. Advertising methods to promote your product or service include the following. Radio: Radio advertisements are relatively inexpensive ways to inform potential local customers about your business. Mid- to- late week is generally the best time to run your radio ad. Television: Television allows access to regional or national audiences, but may be more expensive that other options. Print: Direct mail and printed materials, including newspapers, consumer and trade magazines, flyers, and a logo, allow you to explain what, when, where, and why people should buy from you. You can send letters, fact sheets, contests, coupons and brochures directly to new or old customers on local, regional, or national levels. Electronic: Company Websites provide useful information to interested consumers and clients. Direct e-mail contact is possible if you have collected detailed customer information. Word of mouth: Word of mouth depends on satisfied customers (or dissatisfied customers) telling their acquaintances about the effectiveness of your products. LESSON 4 KINDS OF BUYERS Learning Objectives 1. Define a buyer 2. Identify the different types of buyers This lesson provides a background about the definition and the different types of buyers in agricultural business. A. Defining a buyer Buyers are central point in the market whatever the activities are performed for their satisfaction. It is very important aspect of the market. The buyer is basically classified in to two types and they are individuals or institutional buyers. This means that a buyer could be an individuals or institutional buyers. This means that a buyer could be an individual or a business that makes a purchase from a seller. B. Classification of buyers 1. Individual / Non- institutional buyer- An individual who buys from a seller for personal consumption or for consumption of another person. Features of individual buyer  Buying Motives- Buying motives are those influences considerations which provide the impulse to buy, included action or determine choice in the purchase of goods and services.  Number of buyers- The number of individual buyers is more they purchase a less than the person buying for personal consumption or for the consumption of the relatives.  Knowledge about the product and market- individual buyers may not have the sufficient knowledge about the product they want to purchase. Individual buyers lack sufficient knowledge about the market and product.  Purchase quantity- The individual buyer purchases the product less quantity that institutional buyer. To fulfill current need individual buyers , purchase different products for the consumption process. 2. Institutional Buyers- The institutions that purcahses goods for institutional use or for processing. It includes producers, wholesales, retailer, government institutions, etc. it has the necessary information about the product features and availability. Features of Institutional buyer  Buying Motives- Institutional or business buyer makes purchasing decisions to satisfy specific objectives to make other goods and services, resell to other business users or to buyers.  Number of buyers- They purchase in large scale because their demand is high and the number of institutional buyer is limited.  Knowledge of market- Institutional buyers are well- informed about what they are buying. They know more about the relative merits or alternative sources of suppy and competitive products.  Purchase budget – Under the limit of purchase budget, institutional budget is made. On the basis of economic conditions of the firm as well as the market demand of the product the budget is prepared. Lesson 5 Market Mapping Learning Objectives 1. Explain the importance of market mapping 2. Identify the pros and cons of market mapping 3. Demonstrate how to conduct a market mapping This explains the importance of market mapping to spot gap in the market and understand competitor’s behavior. A. Defining Market Mapping Market mapping Market mapping is the process of using a graph to plot competitors and their products to understand competitor behavior and spot a gap in the market. It also allows a business to see who their competition will be and what other products and services are available in the same sector. A market map is displayed as a graph and makes it very easy to see where gaps in a market exists. An entrepreneur can use a gap in the market to help them launch a product or service that is more likely to be a success. What is a market map? A diagram that shows the range of possible positions for two features of a product, such low to high price and low to high quality. The illustration below is an example of market map. To better understand how to do market mapping, watch this video through this link https://youtu.be/VkXe6SswsA4 B. Pros and Cons of Market Mapping Pros of market mapping Market mapping can help a trader identify a viable trade in a particular market, perhaps spotting a low- risk, high- profit opportunity that other traders had not considered. Market mapping encourages traders to research a range of markets in considerable depth, meaning that they will get a consummate knowledge of the market and how to spot opportunities to profit. Cons of market mapping Effective market mapping can be very time consuming, and a trader will need to spend hours researching each opportunity in turn before deciding which of their options are the most viable for profits. Even after all this research, there is still no guarantee of success, as the markets could move at any given time and for several reasons- some of which are external to the financial markets.