MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 1

AGRICULTURAL AND FOOD MARKETS, PRODUCTION, AND MARKETING

Market functions, institutions, and behaviors

Food marketing issues

Characteristics of markets

Trends in agricultural markets

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 2

AGRICULTURALPRODUCTS

FOOD ENERGYPAPERTEXTILE

FINAL FEEDINGINGREDIENT PACKAGING TEXT

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 3

Functions in Agricultural Markets—one way to analyze

Selling Storage Transportation Processing

Facilitating Standardization Financing Risk bearing Market Intelligence

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 4

Selling to

ProcessorsFor final products (e.g., flour)For manufacturing of ingredients

IntermediariesWholesalersRetailers

CustomersConsumers Institutions

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 5

Storage

Storage Seasonal

Timing of production vs. cost of storage

Feasibility of timing market (turkeys vs. wheat)

Queuing

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 6

Transportation

Cost vs. speed Perishability

Value of freshness to customers

Ability to predict demand

Need for bulk reduction (see processing)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 7

Processing

Treatment of product (e.g., wheat to flour)

Reduction of bulk (oranges to concentrate—not orange juice yet)

Creation of labor saving food products (e.g., frozen pizza)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 8

Facilitating

Farmers’ agentsMatching demand and supplyOther information search—e.g., demand

forecastNegotiations

Logistics handling

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 9

Standardization

Agricultural grades and labeling

Food branding

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 10

Financing

Long term lending Farm mortgages Equipment loans

Short term lending Advances against

harvests Financing of store

and processor inventory

Futures contracts

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 11

Risk Bearing

Futures contracts Investments in new

food products (most will fail)

Evaluation of credit worthiness of farmers and other parties

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 12

Market Intelligence

Market research Forecasting

Demand For existing

products Spread of new

products

Supply

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 13

Institutions

Marketing middle peopleMerchant

RetailerWholesaler

AgentBrokersCommissionSpeculativeProcessors/manufacturersFacilitative organizations

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 14

Behavioral Systems

Input-outputDifferent parties provide goods and services

moving toward final productsCommunications

Matching supply and demandAdaptation to outside changes—e.g.,

Consumer tastesWorld supply

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 15

Food Marketing Efficiency

Getting final products to consumers at lowest cost for given services

Lower spread between farm costs and retail food costs does not necessarily mean greater efficiency—intermediate functions may add value

Types of efficiencyOperationalPricing

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 16

Agricultural Production and Marketing

Structure of U.S. agriculture Dominated by small, family farms

Product characteristics Raw material Bulkiness and perishability Quality variation

Production characteristics Total product Annual variability Seasonality

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 17

Production characteristics

Total product Increase due to productivity

Annual variabilitySeasonalityGeographic concentrationVarying production costsFarm supply industry (derived demand)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 18

Marketing Problems

Lack of control over Own output Market supply

Lag in results of adjustment efforts Decision of whether to engage in marketing

efforts Free rider problem

Superior bargaining power of large buyers Cost squeeze

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 19

Some Trends

Differentiated products Specialty/nice products Interdependence of

manufacturers and suppliers

High price risk Science and innovation Closed information

systems

Private and proprietary research

Resource and environmental conservation

Managerial and interpersonal skills

Industrialization Global competition Farm incomes moving

toward incomes of other sectors