Agricultural Marketing Functions PDF

# Chapter Two: Agricultural marketing functions ## 2.1 Storage Storage is one of the physical functions that deals with availing of products which enables to balance supply and demand for the product. An inherent characteristic of agricultural production is that it is seasonal whilst demand is gen...

# Chapter Two: Agricultural marketing functions ## 2.1 Storage Storage is one of the physical functions that deals with availing of products which enables to balance supply and demand for the product. An inherent characteristic of agricultural production is that it is seasonal whilst demand is generally continuous throughout the year. Hence the need for storage to allow a smooth, and as far as possible, uninterrupted flow of product into the market. Because he is dealing with a biological product the grower does not enjoy the same flexibility as his manufacturing counterpart in being able to adjust the timing of supply to match demand. It would be an exaggeration to suggest that a manufacturer can turn production on and off to meet demand - they too have their constraints- but they have more alternatives than does the agricultural producer. A manufacturer can, for example, work overtime, sub-contract work, and over a longer time horizon, the manufacturer can increase or decrease productive capacity to match the strength of demand. In agriculture, and especially in LDCs, supply often exceeds demand in the immediate post-harvest period. The glut reduces producer prices and wastage rates can be extremely high. For much of the remainder of the period before the next harvest, the product can be in short supply with traders and consumers having to pay premium prices to secure whatever scarce supplies are to be had. The storage function is one of balancing supply and demand. Both growers and consumers gain from a marketing system that can make produce available when it is needed. A farmer, merchant, co-operative, marketing board or retailer who stores a product provides a service. That service costs money and there are risks in the form of wastage and slumps in market demand, prices, so the provider of storage is entitled to a reward in the form of profit. ## 2.2 Transportation Deals with the availing of product at required place by moving from production place to buyer's location using different transportation means. Transportation function facilitates exchange and physical function. It includes activities to smooth shipment which include, crating and loading. Agricultural marketers should consider vehicles that match to the product, cost, etc. One of the agricultural marketing problems is the shortage of transportation in developing countries. The transport function is chiefly one of making the product available where it is needed, without adding unreasonably to the overall cost of the product. Adequate performance of this function requires consideration of alternative routes and types of transportation, with a view to achieving timeliness, maintaining produce quality and minimizing shipping costs. Effective transport management is critical to efficient marketing. Whether operating a single vehicle or a fleet of vehicles, transportation has to be carefully managed, including cost monitoring - operations on different road types, fuel and lubrication consumption and scheduled and remedial maintenance and repair. Skillful management of all aspects of vehicle operations can also make a substantial contribution to efficient marketing, especially with respect to optimum routing, scheduling and loading and off-loading; maximization of shift hours available, maintaining the vehicle fleet at an optimum size, taking account of time constraints on delivery, and collection times and judicious management of vehicle replacement and depreciation. Transport managers also have to weigh the advantages and disadvantages of owning, hiring or leasing transport. ## 2.3 Grading It is the process of sorting product into various categories or different quality for the purpose of standardization. It enables to make price decision which furnishes transaction. Quality criteria is a problem to differentiate one grade from the other in agricultural product. Standardization is concerned with the establishment and maintenance of uniform measurement of product quality and/or quantity. This function simplifies buying and selling by smoothing communication and reducing unnecessary cost (time and effort). Some advantages of uniform standard include the followings: - Price quotation is more reasonable - Sale of product by sample is possible - Enables the buyer to identify quality of product. ## 2.4 Processing Most agricultural product is not in a form suitable for direct delivery to the consumer when it is first harvested. Rather it needs to be changed in some way before it can be used. Kohls and Uhlá observe that: "The processing function is sometimes not included in a list of marketing functions because it is essentially a form changing activity." However, it is for this very reason that processing ought to be included as a marketing function. The form changing activity is one that adds value to the product. Changing green coffee beans into roasted beans, cassava into gari or livestock feed, full fruit bunches into palm oil or sugarcane into gur increases the value of the product because the converted product has greater utility to the buyer. How the form of produce is to be changed and the method to be used in bringing about such changes are marketing decisions. For example, some years ago when Ethiopia was looking to expand its tea business, a prototype manufacturing plant was established. The plant was capable of curing the tea and packing it in individual tea bags. At that point, tests were undertaken in which the product was compared with others already on the market. The results were encouraging. However, in the course of the marketing research, it was also discovered that ninety percent of the black tea consumed is blended and not the pure variety placed in tea bags by the Ethiopians. By going past the point of changing green leaf into high quality black tea, the Ethiopians were entering a nice market which is not what they intended at all. Timely marketing research would have directed Ethiopia to stop the form changing activity short of bagging since, at that time, Ethiopia did not have the acreage of tea, nor the resources, to develop a tea blending facility of its own. In the same way, a producer of fresh fruits may have pulping and/or canning facilities but if potential buyers want the flexibility of using the fruits in a variety of ways, then these stages of processing serve to reduce utility and value, rather than increasing them. Of course, processing is not the only way of adding value to a product. Storing products until such times as they are needed adds utility and therefore adds value. Similarly, transporting commodities to purchasing points convenient to the consumer adds value. In short, any action which increases the utility of the good or service to prospective buyers also adds value to that product or service. ## 2.5 Risk bearing In both the production and marketing of products the possibility of incurring losses is always present. Physical risks include the destruction or deterioration of the produce through fire, excessive heat or cold, pests, floods, earthquakes, etc. Market risks are those of adverse changes in the value of the produce between the processes of production and consumption. A change in consumer tastes can reduce the attractiveness of the produce and is, therefore, also a risk. All of these risks are borne by those organizations, companies and individuals. Risk bearing is often a little understood aspect of marketing. For example, when making judgments as to whether a particular price is a 'fair price' the usual reference point is the producer or supplier's costs. However, the risks borne are rarely taken into account by those passing judgment and yet, almost inevitably, there will be occasions when the risk taker incurs losses. Stocks will spoil, markets will fall, cheaper imports will enter the country, consumer tastes will change, and so on. These losses can only be observed if adequate surpluses were generated in previous periods. Risk bearing must be acknowledged as a cost since what is uncertain is not whether they will occur, but when they will occur. ## Market intelligence: As far as is possible marketing decisions should be based on sound information. The process of collecting, interpreting, and disseminating information relevant to marketing decisions is known as market intelligence. The role of market intelligence is to reduce the level of risk in decision making. Through market intelligence the seller finds out what the customer needs and wants. The alternative is to find out through sales, or the lack of them. Marketing research helps establish what products are right for the market, which channels of distribution are most appropriate, how best to promote products and what prices are acceptable to the market. As with other marketing functions, intelligence gathering can be carried out by the seller or another party such as a government agency, the ministry of agriculture and food, or some other specialist organization. What is important is that it is carried out. ## Financing Where internal financing is insufficient for the purposes in view, an enterprise in a developing country can look to several alternatives including: - development banks - commercial banks - shares issues - credit co-operatives and/or credit unions. Where these sources of finance are considered inappropriate, or are simply not available to a particular enterprise, a strategic alliance in the form of a joint venture could be the answer. These are partnerships formed to exploit market opportunities more effectively and/or efficiently than either party can on its own. An enterprise, in a developing country, may engage in a joint venture with either an indigenous partner and/or with a foreign partner. The agreement between parties to a joint venture normally specifies their respective contributions of resources, share of management control, profit and risk. ## 2.6 Buying and selling ### Buying The marketing concept holds that the needs of the customer are of paramount importance. A producer can be said to have adopted a market orientation when production is purposely planned to meet specific demands or market opportunities. Thus a contract farmer who wishes to meet the needs of a food processor manufacturing sorghum-based malted drinks will only purchase improved sorghum seed. He/she will avoid any inputs likely to adversely affect the storage and/or processing properties of the sorghum and will continually seek new and better inputs which will add further value to his/her product in the eyes of the customer. In making his/her buying decisions his underlaying consideration will be the effect upon the attractiveness of his/her output to the markets he/she is seeking to serve. The buyer's motive is the opportunity to maintain or even increase profits and not necessarily to provide, for example, the best quality. Improving quality inevitably increases the associated costs. In some cases the market is insensitive to improvements in quality, beyond some threshold level, does not earn a premium price. Under such circumstances, the grower who perseveres and produces a 'better product', is not market oriented since he/she is ignoring the real needs of the consumer. The most successful agribusiness is the one which yields the largest difference between prices obtained and costs incurred. ### Selling Kotler suggests that: "Most firms practice the selling concept when they have over capacity. Their immediate aim is to sell what they can make rather than to make what they can sell." There is no denying that 'high pressure selling' is practiced, where the interests of the consumer are far from foremost in the mind of the seller. Enterprises adopt the marketing philosophy as a result of becoming aware that their own long term objectives can only be realised by consistently providing customer satisfaction. Selling is part of marketing in the same way that promotion, advertising and merchandising are components, or sub-components of the marketing mix. These all directed towards persuasion and are collectively known as marketing communications; one of the four elements of the marketing mix.