5.

Agricultural Marketing
The term agricultural marketing is composed of two words- agriculture and marketing.
Agriculture generally means growing and/or raising of crops and livestock while,
marketing encompasses a series of activities involved in moving the goods from the point
of production to point of consumption. Many scholars have defined agricultural
marketing and incorporated essential elements of time, place, form, and passion utility.
Some of the definitions of agricultural marketing are given below.
 Human activity directed at satisfying the needs and wants through exchange process
(Phillip Kotler).
 Performance of business activities that directs the flow of goods and services from
producers to users (American Marketing Association).
 The study of agricultural marketing comprises all the operations, and the agencies
conducting them, involved in the movement of farm produced foods; raw materials
and their derivatives, such as textiles, from the farms to the final consumers, and the
effect of such operations on the farmers, middlemen and consumers (Thomsen).
This definition does not include the input side of agriculture.
 Agricultural marketing is a process which starts with a decision to produce a
saleable farm commodity, involves all the aspects of market structure or system,
both financial and institutional, based on technical and economic considerations,
and includes pre- and post-harvest operations, assembling, grading, storage,
transportation, and distribution (National Commission on Agriculture, 1976)
5.1 Marketing Characteristics
Markets exist to facilitate the transfer of ownership of goods from one owner to another.
Each time ownership of something changes hands, whether it be a goat or a bicycle, a
price is determined. This is true whether the exchange of ownership takes place in a
barter economy or using money as the medium of exchange. If in a particular barter
transaction ten chickens are exchanged for a goat, then the price of the goat is ten
chickens and that of one chicken is one-tenth of a goat. Clearly it is impossible to trade in
tenths of a goat, so that if the person originally owning the chickens had only five, he
would have been unable to conclude a barter exchange with the goat owner unless the
latter could have been persuaded to accept the much lower price of five chickens per
goat. Putting together barter deals is a cumbersome way of achieving transfers of
ownership. It is far easier to arrange this in a money economy, where chickens and goats
can both be sold for units of currency. In this way the goat owner may be able to buy the
chickens without having to sell his goat to the chickens' owner. He can sell his goat at a
money price equal to that of ten chickens, and then spend half of the notes or coins he
receives on buying the five chickens on offer.
At a higher price less would be demanded even though producers would find it profitable
to sell more, while at a lower price consumers would like to purchase more but producers
would only find it profitable to supply less. The equilibrium solutions examined were all

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derived for markets which were assumed to be subject to perfect or pure competition.
(many buyers and sellers). In practice, however, not all markets are competitive. Some
may be oligopolistic (few sellers) and in others competition may be typified as
approximating monopoly (one seller) or monopsony (one buyer). Oligopoly is not
common in agricultural product markets although it may occur in markets for modern
industrially produced inputs. Monopoly and monopsony are however important features
of agricultural product markets due to the creation of state trading organizations, often
called marketing boards.
Exchanges of ownership do take place directly between producers (farmers) and food
consumers. This is particularly the case in lessdeveloped countries where it is not
uncommon for members of producers' families to transport surplus produce to a nearby
market for direct sale to the final consumer; but in industrialized countries the proportion
of output sold in this way is very small and the bulk of produce is sold off the farm to
wholesale merchants, special state commodity trading organizations, or directly to large
food processing firms. In these markets much farm produce is transformed (e.g. from
wheat to cakes and biscuits), often using industrial food processing techniques, before
being sold through supermarkets or restaurants to final consumers. In these circumstances
the immediate demand for farm produce arises not from households but from a variety of
firms and state organizations and it is shops, restaurants and supermarkets which supply
food to households not farmers. These structural characteristics of food and agricultural
markets are of considerable importance.
Some of the major characteristics of marketing concept are as follows: 1. Customer-
orientation 2. Marketing Research 3. Marketing Planning 4. Integrated Marketing 5.
Customer Satisfaction.
1. Customer-orientation:
All business activities should be directed to create and satisfy the customer. Emphasis on
the needs and wants of consumers keeps the business on the right track. All marketing
decisions should be made based on their impact on the customer. Consumer becomes the
guide of business
2. Marketing Research:
Under the marketing concept, knowledge and understanding of customer’s needs, wants
and desires is very vital. Therefore, a regular and systematic marketing research
programme is required to keep abreast of the market. In addition, innovation and
creativity are necessary to match the products of requirements of customers.
Up-to-date and adequate knowledge must be available to answer the following
questions:
(а) What business are we really in?
(b) Who are our customers?

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(c) What do the customers want?
(d) How should we distribute our products?
(e) How can we communicate most effectively with our customers?’
3. Marketing Planning:
The marketing concept calls for a goal-oriented approach to marketing. The overall
objectives of the firm should be the earning of profits through satisfaction of customers.
Based on this goal, the objectives and policies of marketing and other departments should
be defined precisely. Marketing planning helps to inject the philosophy of consumer-
orientation into the total business systems and serves as a guide to the organization’s
efforts.
3. Integrated Marketing:
Once the organizational and departmental goals are formulated, it becomes necessary to
harmonize the organizational goals with the goals of the individuals working in the
organization. The activities and operation of various organizational units should be
properly coordinated to achieve the defined objectives. The marketing department should
develop the marketing mix which is most appropriate for accomplishing the desired goals
through the satisfaction of customers.
4. Customer Satisfaction:
The aim should be to maximize profit over the long run through the satisfaction of
customers wants.
5.2 Functions of Agricultural Marketing
Agricultural marketing functions are many and varied. The part played by each function
varies widely as regards to the specific goods and services. It may further be noted that
these functions are indispensable regardless of the institution or agency which performs
them or the commodity in connection with which they are performed. These functions are
closely related to each other and cannot be isolated from one another. Accordingly, the
functions of agricultural marketing can be classified into three broad categories:
i) Exchange functions.
ii) Physical functions; and
iii) Facilitative functions.
(1) Exchange Functions
Exchange functions are the most important of all the functions of agricultural marketing.
These mainly include functions related to buying and selling. Buying and selling are
complementary to each other, and one cannot take place without the other. Buying
function is largely one of seeking the sources of supply, assembling of products and
activities which are associated with the purchase of goods, raw materials-etc. Selling is

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the process which stimulates demand or desire, finds the buyer, advises the buyer, and
negotiates with him to bring about a transfer of title.
(2) Physical Functions
These functions relate to the physical handling of agriculture produce either in moving it
from one place to another or in storing it over a period. Agriculture produce must be
moved from threshing floors to the consuming areas because it is not consumed at the
place of its production. Then, on account of seasonal operations, agricultural production
cannot be undertaken at will. This can be done in a particular season only under a
particular set of conditions. On the contrary, the demand for agricultural produce exists
all the year round. Hence, there must be some system by which the year’s, crop may be
used throughout the year. This requires extensive transportation and storage facility.
Storing operations may, however, take place anywhere along the channel of distribution
from production to consumption and it may be performed by the producer, processor,
distributor or even the consumer.
(3) Facilitative functions
As the very name of these functions implies, they involve neither transfer of title to goods
nor handling of the product but help in the smooth discharge of the above functions. The
function of classification and grading helps in classification and sorting out of
commodities according to size, quality colour, weight, etc. This makes the determination
of prices easy and thereby assumes a fair return to the producer, on the one hand, and
good quality produce to the consumer, on the other, without any trouble to either. Then,
there is always a time lag between the assembling of commodities and their sale in the
consuming markets. During this period, somebody’s money remains tied up in the stocks.
This creates the problem of finance. Further, the growing vastness between the place of
production and place of consumption has made the function of market information
invaluable. This function involves activities of collecting, interpreting, and disseminating
market news to various agencies including producers residing in the interiors of the
country. This helps the government in formulating policies and plans of production and
marketing of good. Lastly, no business can be done without undertaking the inherent risk
which may be caused either due to a decline in price, bad debts, or deterioration of the
produce itself by fire, flood etc. These risks must be borne by someone in the channel.
Physical risks may be covered under insurance while risks stemming from price
fluctuations are handled through the hedging operation
5.3 Marketing Agents and Enterprises
Agents of agricultural marketing includes all the people or agents which are directly or
indirectly involved in the marketing of farm produce. A very general institutional
description of a marketing chain might be that it involves five groups of economic agents,
and that following a 'shape' to their activities may be assumed which is based upon the
number of agents in each class.

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Producers → Country Dealers→ Wholesalers/Processors →Retailers→ Consumers
In this simplified description many (hundreds of thousands of) producers sell their
produce to a much smaller number of country dealers (or merchants) who perform the
vital function of concentrating large numbers of small sales into large lots for sale to the
wholesaling and processing sector. While the number of firms in the latter sector may be
very much smaller than the number of producers, it will generally be large enough to
permit the wholesale market to be described as competitive, especially as barriers to entry
of new firms may not be high. At the righthand end, the distribution chain widens out
again as produce passes into retailing outlets which in turn sell to the millions of
consumers and consuming households.
In several respects this stylized description is oversimple. There are many specialized
types of firm within the wholesaling/processing sector which can only loosely be
described by either of those two terms; there are small grain mills in LDCs which grind
the grain of farmers and consumers without ever taking ownership of it - they provide a
special service; there are companies owning grain or meat storage facilities the operations
of which cannot be described aptly as either wholesaling or processing. Furthermore,
there are companies which are vertically integrated to perform several stages of the chain.
In sugar production companies operating refineries often also operate the sugar
plantations and own or organize transport and storage operations up to the point of sale to
retailers. That is the stages from primary production, assembly, processing through to
wholesaling may all be integrated under one management. There may of course always
be several such integrated operations competing with one another as well as competition
from an unintegrated, more atomistic sector.
For the purposes to be pursued here it is however convenient to set aside the
qualifications which have just been stated and to accept the diagrammatic presentation of
the marketing chain as involving five classes of owner and four transfers of ownership in
the marketing chain, while recognizing that in specific cases there may be transfers than
this. On the principle that all changes of ownership entails fixing a price, there will
therefore be a hierarchy of prices one for each level of transfer. Sales of produce from
farmers to country dealers take place at what may be called the producer or farm-gate
price. Sales from dealers to wholesalers involve what can be termed a wholesale price.
Because frequently the amount of processing undertaken in the wholesaling/processing
sector is large, commodity descriptions which apply to sales from merchants to
processors are not applicable to sales to retailers. Wheat moves into the processing sector
but emerges as bread, flour and in many other forms; beef carcasses are transferred into it
only to emerge in tins, pies or frozen forms. Thus sales from processors/wholesalers to
retailers can also be described as occurring at wholesale prices, but (except in the cases of
fruits and vegetables which frequently pass to consumers without any processing) with
these prices relating to processed products rather than the primary products produced on
farms. Retail prices are those which apply to the final transfer of ownership from retailers
to consumers.

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 Three of the principal forms of enterprise to be found in developing countries are private
companies, marketing boards and co-operatives.

Private enterprise

Private enterprise has much to commend it, including a much higher level of financial
independence from government than public enterprises. Moreover, private enterprise can
adapt, rapidly, to changing circumstances and opportunities and is usually able to provide
what consumers want at a lower cost than public enterprises.

Marketing boards

Marketing boards are, in most instances a government agency and/or legislative

organization having the function of intervening in the marketing process, with a view to
serving the cause of efficient and orderly marketing. Less frequently they are voluntary
organizations established by farmers/producers. Put another way, marketing boards tend
to be born out of government policy rather than by consensus among commercial parties.
This is especially true of Marketing boards in the tropics where their chief object is to
improve the income of the smallholder, grower, and/or livestock farmer. Marketing
boards do not normally provide marketing services to large estates or plantations. Prior to
the adoption of structural adjustment and market liberalization in nearly all Marketing
boards served as ‘price stabilizing boards’.

Another characteristic of marketing boards is their focus on durable products. Marketing

boards are normally given authority for ‘controlled’ or ‘scheduled crops’. In many
countries fewer than 5 crops are controlled. These tend to be traditional crops like millet,
sorghum, rice, maize, groundnuts and palm oil and ‘colonial’ crops such as cocoa, cotton,
coffee, tea, tobacco, and rubber. Some governments have opted for boards that control
more than one crop. In some cases, the marketing board performs all the marketing
functions itself but in others it cooperates with private enterprise by, for example, hiring
storage facilities or appointing local buying agents.

The effectiveness of a particular marketing board is often viewed in terms of three

factors:-

 Its contribution to orderly and efficient marketing

 The reduction in the capacity of intermediaries to manipulate margins at the expense of
producers and consumers
 The generation of producer-oriented monopoly power

In many cases the establishment of a marketing board was a reaction to situations where
middlemen and/or foreign buyers were perceived to hold monopolistic power over
producers. Hence the role of the marketing boards is frequently articulated as being one
of organizing producers into monopolistic agencies with real countervailing power; to
reduce inefficiencies due to unwarranted competition, and duplication of effort between
intermediaries.

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 In theory at least, the marketing board contributes to orderly marketing by acting as an
agent for improving marketing practices, as a market regulator and as a provider of
facilitating services. For instance:

Change Agents-Marketing boards can establish marketing practices and procedures for
raw and /or processed products.

Regulatory Role-Marketing boards may act as “watch-dogs” over agreed marketing

practices and procedures e.g credit arrangements, weights and measures, quality
control,,etc.

Facilitator-Marketing boards may provide all or some of the facilitating services e.g
credit market intelligence and risk management.

Co-operatives

The co-operative enterprise has its origins in the 19th century and has become one of the
most ubiquitous examples forms of business/economic enterprise. Co-operatives exist in
all countries of the world and operate under diverse political systems: from communism
to capitalism. Most of these co-operatives are, through their national apex organizations,
ultimately in membership of the International Co-operative Alliance (ICA), the
representative world body of co-operatives of all types.

The motivation to form co-operatives has three aspects:

 The need for protection against exploitation by economic forces too strong for the
individual to withstand alone
 The impulse for self-improvement by making the best use of often scarce resources
 The concern to secure the best possible return from whatever form of economic activity
within which the individual engages whether as a producer, intermediary or consumer.

It is the belief that each of these aspirations can most advantageously be pursued and
secured in concert with like-minded people that provides the stimulus to co-operative
action. The underpinning principles with are those of self-help, voluntary participation,
equity, democracy, and a common bond of common need and purpose. The cohesion of
the group is maintained by ensuring that individual members cannot secure power or gain
advantages at the expense of the others. Co-operatives reward participation in the co-
operative venture rather than rewarding capital Self-interest is a primary motivator in co-
operative enterprises, with economic gain being the primary objective. In these respects,
co-operatives differ little from capitalistic enterprises; self-interest is simply pursued in a
different way from the capitalist enterprise. Thus, the rate of interest paid on share capital
is fixed and limited, and not subject to variation according to the amount of profit made.
Secondly the use and distribution of surplus is restricted to one or more of the following
purposes:

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 Allocation to reserves, where it becomes collectively owned capital and is thereafter non-
distributable for use on, or donation to, common-good, community project.
 Distribution to members in proportion to the trade each member has done with the co-
operative. In other words, the distribution is made not in relation to capital held, but by
declaring a bonus or dividend per cash unit of trade done.

5.4 Integration and Diversification of Marketing

5.4.1Market Analysis Tool: Market Integration
Markets are important determinants of food availability and food access. The extent to
which markets make food available and keep prices stable depends on whether markets
are integrated with each other. Integrated markets can be defined as markets in which
prices for comparable goods do not behave independently. If markets are well integrated,
it can be assumed that market forces are working properly, meaning that price changes in
one location are consistently related to price changes in other locations and market agents
are able to interact between different markets. If markets are integrated, food will flow
from surplus to deficit areas - and imports will flow from port and border areas into the
hinterland. High prices in deficit areas provide the incentive to traders to bring food from
surplus to deficit areas, making food available. As a result of these flows, prices should
decline in deficit areas, making food more accessible to households.
Prices usually give important indications on whether markets are integrated. Markets are
integrated if prices among different locations move in similar patterns, given that the
differences between prices is explained by the transfer and transaction costs as food flows
between the locations. Otherwise, markets are segmented. This could, for example, be a
result of prohibitive transaction costs related to poor infrastructure in remote areas or
damaged roads or bridges because of a disaster.
When markets are integrated, food flows among regions and prices fluctuate less,
enhancing food security. Knowledge about market integration is, therefore, essential for
programming. The degree of market integration will inform the analysis of food security,
appropriate responses to a crisis, the extent of possible negative effects of food aid and
local procurement possibilities. Here are some examples:
 Where markets are poorly integrated - and prices more volatile - vulnerable households
will experience more often high prices.
 Regarding response options, cash transfers can be a response option if markets are
integrated, food is available, and prices are relatively stable;
 Local procurement is also highly dependent on market integration. WFP might be able to
procure locally with no detrimental effects on the market if food flows from other regions
and
 In case of an emergency, the degree of market integration affects the estimates for the
required amount of food aid because traders might be able to meet part of the food needs
of the disaster-affected people.

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5.4.2 Diversification
Market diversification is a strategy in which a company/producer seeks growth by adding
products and markets of a kind unrelated to its existing products and markets.

Diversification is a strategy used to expand market share or enter new markets by

launching or acquiring new products (perhaps through licensing, merger, or acquisition).
It allows a company to grow by expanding market share in an existing market or by
developing a market presence. In essence, diversification involves innovation and market
disruption.

Below are defined types of diversification.

Offensive and Defensive Diversification Strategies

Company A may introduce a new formula to expand its presence in the chemical wood
cleaner market. This is expanding in its existing market with a newly created product.
That same company may license the new formula to clean garden weeds. This is
expanding into a new market with a new product with a product that it did not invent but
is closely related to existing products. Lastly, the Company may begin selling home
furniture. This is an example of expanding into a new market with newly created or
acquired products. Expanding in an existing market is defensive diversification, while
expanding into new markets is offensive diversification. Defensive diversification
generally recognizes the existence of competition in any market. The company is
defending its market share (and seeking to grow it) by introducing new products.
Offensive diversification seeks to generate market share in a new market, either with
related or unrelated products.

Concentric, Horizontal, and Conglomerate Diversification

Concentric diversity concerns a growth strategy where any new or acquired products are
closely related to existing products or to the company's core competencies. This approach
allows the company to employ resources and take advantage of existing competencies in
introducing the new product. The new products will generally relate closely to existing
products or product lines with the purpose of leveraging brand awareness and customer
loyalty. It generally involves targeting previously identified market segments that have
not been fully addressed.

Horizontal diversification concerns the introduction of new products to a new market

segment (generally forming a new business in the process). The new products and
business, however, are designed to appeal to an existing customer base. As with
concentric diversification, the new products will be closely related to existing products.
This strategy depends heavily upon customer loyalty for existing products to transfer over
to the new products and business. An example of horizontal diversification is the when
company A, which makes laundry detergent, seeks to enter the market for selling
washing machines. Brand recognition and customer loyalty for the detergent may carry
over to the business of selling washing machines.
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Conglomerate diversification involves launching a new product or product lines that are
unrelated to existing products, resources, or core competencies. The company will
generally attempt to leverage any brand recognition or customer loyalty in the new
market. An example would be Company A, which sells electronics, venture into selling
clothing apparel.
5.5 Transaction Costs and Marketing Efficiency

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