Food MarketingFood Marketing The performance of all business The performance of all business

activities involved in the flow of activities involved in the flow of food products and services from food products and services from the point of initial production the point of initial production until they are in the hands of the until they are in the hands of the consumers.consumers.

Two views of marketingTwo views of marketing

Macro marketingMacro marketingBig picture focus on the agricultural Big picture focus on the agricultural

and food marketing systemand food marketing system

Micro marketingMicro marketingDecision maker level choices faced by Decision maker level choices faced by

individuals in food production, individuals in food production, processing and consumptionprocessing and consumption

Food marketing challengesFood marketing challenges Food distribution to consumersFood distribution to consumers

What to produceWhat to produceHow to processHow to processWhere to distributeWhere to distribute

Reasonable returns to farmersReasonable returns to farmersPrice / profit signals from consumersPrice / profit signals from consumersProfit margins beyond the farmProfit margins beyond the farm

Marketing functionsMarketing functions

Create utility by Create utility by transformingtransforming a a food item along one of the four food item along one of the four dimensionsdimensions

For example,For example,Production, storage, transportation, Production, storage, transportation,

grading, processing, packaging etc.grading, processing, packaging etc.

Marketing FunctionsMarketing Functions

Facilitating Functions

Physical Functions

Exchange FunctionsBuying and Selling

Transportation

StoragePr

oces

sing

Stan

dard

izat

ion Financing

Mar

ket I

ntelli

gence

Risk Bearing

Reading assignmentReading assignment

Food and Agricultural Policy:Food and Agricultural Policy:Taking Stock for the New CenturyTaking Stock for the New CenturyChapter 1. The Evolving Food and

Agriculture Systemhttp://www.usda.gov/news/pubs/

farmpolicy01/fpindex.htm

Traditional Marketing ChannelTraditional Marketing Channel

Inputs

Producer

First Handler

Processor

Wholesaler

Retailer

Consumer

Food market structureFood market structure

Consumers (US)Consumers (US) 287 million287 millionRetailRetail 589,000589,000

GroceryGrocery 186,000186,000

RestaurantsRestaurants 403,000403,000

WholesalersWholesalers 41,00041,000ProcessorsProcessors 21,00021,000ProducersProducers 2.2 million2.2 million

Emerging Marketing ChannelEmerging Marketing Channel

Inputs

Producer

First Handler

Processor

Wholesaler

Customers

Retailers

Food Marketing ChannelFood Marketing Channel Increased complexityIncreased complexity

International tradeInternational tradeIncreasing concentrationIncreasing concentrationDirect marketingDirect marketingVertical integrationVertical integrationNon-market transactionsNon-market transactionsGrocery and food serviceGrocery and food service

You can cut out the middle man but not You can cut out the middle man but not the function he performsthe function he performs

Producer

Retailer

Inputs

ProcessorFirst Handler

Consumer

Wholesaler

U.S. Population, Percent by SectorU.S. Population, Percent by Sector

1900 1950 1990

Farm 39.3 15.5 1.9

Nonfarm Rural 21.0 20.5 22.9

Urban 39.7 64.0 75.2

Ag & food sector, 2001Ag & food sector, 2001 Food & Fiber Food & Fiber

17% of employment17% of employment16% of GDP16% of GDP

FarmingFarming1% of workforce 1% of workforce <1% of GDP<1% of GDP

13 off-farm jobs for each on-farm job13 off-farm jobs for each on-farm job

Food expenditures, 2000Food expenditures, 2000

Consumers spent $661 billionConsumers spent $661 billionExcluding imports and seafoodExcluding imports and seafood11% of disposable income11% of disposable incomeFarmer’s share Farmer’s share 18%18%Off-farm shareOff-farm share 81%81%

Food Marketing Bill, ($Billion)1980 1990 2000

Labor 81.5 154 252.9Packaging 21 36.5 53.5Pretax Corp Profits 9.9 13.2 31.1Net rent 6.8 13.9 26.7Transportation 13 19.8 26.4Advertising 7.3 17.1 26.1Depreciation 7.8 16.3 24.2Business 8.3 15.7 23.5Fuels & Elec. 9 15.2 23.1Net Interest 3.4 13.5 16.9Repairs 3.6 6.2 10.1Total Marketing Bill 182.7 343.6 537.8Farm Value 81.7 106.2 123.3Consumer Expenditures 264.4 449.8 661.1

Labor

Farm Value

Packaging

Pretax Corp Profits

Net rent

Transportation

Advertising

Depreciation

Business

Fuels & Elec.

Net Interest

Repairs

US Food Marketing Bill, 2000

http://www.ers.usda.gov/publications/FoodReview/septdec00/FRsept00e.pdf

Consumer Food Expenditures

0

100

200

300

400

500

600

700

1980 1990 2000

Bill

ion

$

Farm Value Labor Non-Labor Marketing

So what???So what???

Labor is the largest single share Labor is the largest single share of the food billof the food bill

Farm value was 2nd in 2000 at Farm value was 2nd in 2000 at half of labor costhalf of labor cost

Food cost and food policy Food cost and food policy involves more than agricultureinvolves more than agriculture

Changing Food and Ag SystemChanging Food and Ag System

Shift from raw bulk commodities to Shift from raw bulk commodities to food productsfood products

Diverse consumerDiverse consumer GlobalizationGlobalization IndustrializationIndustrialization TechnologiesTechnologies EnvironmentEnvironment

Drivers of changeDrivers of change ConsumersConsumers

Food and services are normal goodsFood and services are normal goods»More income - Less time

» Demand more choice and convenience

» Food away from home

New products and outletsNew products and outlets» 12,000 new products/year

» Process verified, branded, labeled

» Niche markets

Household income and food Household income and food spendingspending

19981998 1990-981990-98

DollarsDollars %Change%Change

Household pretax incomeHousehold pretax income 42,58442,584 2828

Annual food / personAnnual food / person 2,0372,037 1717

Food at homeFood at home 1,2111,211 1818

Food away from homeFood away from home 826826 1515

Food at Home spendingFood at Home spending19981998 1990-981990-98

DollarsDollars %Chg%ChgMeat fish eggsMeat fish eggs 313313 1515Fruits & VegFruits & Veg 219219 2222CerealCereal 187187 2222MiscellaneousMiscellaneous 174174 2525DairyDairy 133133 99BeveragesBeverages 102102 1111Sugar sweetsSugar sweets 5151 3434Fats oilsFats oils 3333 1818

Drivers of ChangeDrivers of Change

GlobalizationGlobalizationCapital markets, information, expectationsCapital markets, information, expectations»Sales by US affiliates of foreign firms$64 B»Sales by foreign affiliates of US firms$133 B»US imports $32 B

Ag trade in 2000Ag trade in 2000 $Billion$Billion % of total% of totalExports, 2000 $50.8 7.2

Imports, 2000 $38.9 3.3

Drivers of ChangeDrivers of Change TechnologyTechnology

Traditionally production techTraditionally production tech» Lower costs

» Increased profit to early adopters

» Lower prices for consumers

New technologiesNew technologies» Cost reducing and value enhancing (biotech, precision ag)

» Consumer oriented (food safety, health)

» Information

Drivers of changeDrivers of change Diversity of producersDiversity of producers

StructureStructureEnterpriseEnterpriseCost of productionCost of productionMethod of productionMethod of production

Selected Ag TrendsSelected Ag Trends

19701970 19801980 1990199019971997

Farms Mil.Farms Mil. 3.03.0 2.42.4 2.12.12.02.0

Farm pop %Farm pop % 55 33 2222

Avg acresAvg acres 373373 427427 461461471471

Assets $1000Assets $1000 89.589.5 403.1403.1 395.4395.4497.1497.1

Output/inputOutput/input1 150150 174174 2332332552551/1/1950=1001950=100

Selected Ag TrendsSelected Ag Trends

19701970 19801980 19901990 19971997

Farm pricesFarm prices1 106106 238238 264264 298298

Income $BIncome $B 58.858.8 149.3149.3 196.4196.4 238.2238.2

Percent of farm income fromPercent of farm income from

NonfarmNonfarm 5555 6464 8585 8888

GovernmentGovernment 1111 22 55 331/1/1950=1001950=100

Agricultural ProducersAgricultural Producers

NumberNumber 1,356,0471,356,047 655,812655,812 175,091175,091

Produce $BProduce $B 13.713.7 42.0 42.0 120.2120.2

Avg sales $Avg sales $ 10,07410,074 64,11764,117 687,065687,065

NFI $NFI $ 2,3102,310 12,99812,998 115,832115,832

Off-farm $Off-farm $ 70,75470,754 36,34336,343 35,01735,017

Rural Intermediate Commercial1999 Residence Farms FarmsSales LT $100K $100-250K GT $250K

Farm Ownership, 1997Farm Ownership, 1997

PercentagePercentage Average Average

FarmsFarms AcresAcres SalesSales AcresAcres SalesSales11

Sole Prop.Sole Prop. 8686 6363 5252 356356 62.462.4

PartnershipPartnership 99 1616 1818 881881 209.7209.7

CorporationsCorporations

FamilyFamily 44 1313 2323 15711571 603.0603.0

NonfamilyNonfamily 0.30.3 11 66 15071507 1395.01395.0

1/1/Annual average sales $1,000Annual average sales $1,000