THE AGRIBUSINESS MARKETING SYSTEM
Introduction
Agribusiness marketing can be viewed as a study area and as a process.
As a study area, it is an applied field of microeconomics or price theory, centered
on the operation of demand and supply concepts. It is viewed as a system
comprised with various sub-systems.
As a process, agribusiness marketing includes all the services involved in
transferring the title or possession of agribusiness products from the sellers to
the buyers. Services add value to a product and are generally performed to meet
existing or anticipated consumer demands. These services may involved the
physical handling of the agribusiness products such as transportation, packaging
and processing, or may not involve direct physical handling such as advertising
and the assumption of risks.
The price paid by the consumer thus includes the services involved in
producing the product called production services as well as those in bringing it to
the consumers called marketing services.
General Perspective on Agribusiness Marketing System
The agribusiness marketing system is defined as the primary mechanism
for coordinating production, distribution and consumption activities. It is a
complex system with various subsystems interacting with each other and with
different marketing environments. As a system, it has the following
characteristics:
1. It has objectives or goals to achieve.
2. It has components or participants that perform certain functions such
as transport, storage, processing, grading, standardization and
marketing information, and all the necessary jobs between the decision
to produce and the final consumption of the product.
3. It needs institutional arrangements, which are necessary in the
performances of its functions.
4. It needs planning and management decision structure that controls and
coordinates the forces at work.
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Paper prepared and presented by Prof. Wilfred E. Jamandre. Chair and faculty member of the
Department of Agricultural Management, College of Agriculture, CLSU, Muñoz, Nueva Ecija during the
Agribusiness Training on March 26-28, 2003 at CI-SU-RET
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5. It has spatial and temporal dimensions and is most often commodity
specific.
The agribusiness marketing system has six components: producer, flow,
functional, channel, consumer and environmental subsystems (refer to Figure 1).
The producer subsystem consists of small farmers, farmers,
cooperatives/associations and corporate farms. Goods produced in this
subsystem are brought to the final consumer via the channel subsystem consists
of marketing participants or intermediaries. who are directly responsible in
performing the necessary marketing services based on consumers' demand
requirements.
The Role of Marketing in Economic Development
The development of the agribusiness sector requires a balanced
improvement in the production and marketing. It is ineffective to improve the
production side and neglect the marketing side, as the producer improvement is
dependent on the latter's development. From the producers' point of view, an
effective and efficient marketing system is one that will induce the production of
those products and in quantities which, when sold to consumers, will result in
maximum returns after the deduction of minimum marketing charges and farm
production costs.
A knowledge of marketing and its problems will help farmers make
important decisions on the following aspects:
1. What to produce and how to prepare for sale. For example, some fruits
and vegetables are more preferred by consumers than others. Some
harvesting practices and other pre-sale services may have an effect on
the value of the product.
2. When and where to sell. Different products have different high and low
periods of prices throughout the year. Production and storage practices
may be adjusted to take advantage of these. Many alternative outlets
are usually available. Knowing how to appraise the advantages and
disadvantages of each will help in selecting the one that will maximize
returns.
3. How much of the marketing job should be done by the farmer himself
either as an individual or as a member of a group. In many instances,
transportation may either be hired or provided by the farmer himself.
Similarly, someone may be hired to do the selling and other marketing
tasks or the farmer may perform these tasks himself. Knowledge of
marketing costs and problems will help in appraising the best line of
action.
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4. What can be done to expand markets? Many proposals and schemes
for advertising and other techniques for influencing consumers are
being offered. Knowledge of the factors that influence consumers and
their behavior can help determine which of the several proposals for
action might be most effective.
5. Which of many different marketinq arrangements are desirable?
Increasingly, farmers are being offered different methods of selling
their products, e.g. contract marketing arrangements.
6. How can changes necessary to correct undesirable practices be
secured? New laws and various market programs are often proposed
and implemented to improve the marketing system: Government
intervention may be desirable in some cases.
On the part of middlemen and consumers, the marketing system performs the
following functions:
1. Provides intermediaries an outlet for agricultural products:
2. Distributes goods and services to consumers in the desired forms and
condition and delivers them at price consumers are willing and able to pay.
3. Provides employment for middlemen and products as well as responsible for
making the farmers' products available to the user at the right place, time and
form. The flow subsystem facilitates product, financial and information flows.
Information to- be relayed usually consists of production trends, demand
trends, grading/standardization and prices. Functional subsystem, on the
other hand, consists of marketing functions or services related to the creation
of place, time and form utilities that involves assembly, concentration and
dispersion activities. At the other end of the system is the consumer
subsystem, which refers to the final repository of products produced by
farmers. These subsystems interact with and are interdependent with each
other and within the environment they operate. The environmental subsystem,
which facilitates market performance, encompasses four other areas or
factors that affect the entire marketing system: climatic/physical, socio-cultural,
economic/technical and legal/political factors.
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Approaches to the Study of Marketing
1. Commodity approach
It is product oriented. It covers the characteristics of the products,
consumers' behavior and preferences in relation to a specific commodity (fresh or
processed), supply and demand situation, and price analysis (trend on prices at
the farm, Wholesale and retail levels).
a) Product types
 Exportables
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Fresh and dried tropical fruits
Purees and juice concentrates
Preserved food delicacies
Aqua-marine products
Leather and leather goods
Shell crafts
 Import substitutes
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Food grains
Feed ingredients and animal health products
Bio-fertilizers
Essential oils
Canned food products
 Other commodities
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Cutflowers/ornamentaI plants
Natural beverages
Aquarium fish
Herbal medicine
Seedlings/clone
b) Product characteristics
 Farm inputs
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Reliability
User friendly and safety'
Economy in application and usage
Environment friendly
Availability
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 Farm products
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Highly perishable
Bulky
Quality variation
Seasonal
Geographic concentration
 Processed farm products
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Consistent quality
Reasonably adulterated
Clean
Functionally/conveniently packaged
Retained the desired characteristics (e.g. flavor, texture,
color and scent)
2. The Institutional Approach
It deals with the study of
industry players (producers,
processors/manufactures, traders, cooperatives, government agencies) their
arrangement and organization of the marketing system.
It may operate in individual proprietors, partnerships, cooperatives and
non-cooperative associations.
Participants at the enterprise level can be grouped into four:
(a) Farm input production and distribution
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Breeding stock and fatteners
Seeds and seedlings
Pesticides and pest control implements
Animal health and veterinary products
Animal feed
Fertilizer and growth regulators
Farm machineries, equipments and implements
(b) Primary production
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Crop farming
Livestock farming
Aqua-marine farming
Tree farming
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(c) Processing of Farm Products
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Milling
Slaughtering/meat processing
Fruit/vegetable processing
Dried cutflowers1ornamentaI plants
Aqua-marine processing
(d) Agri-related Services
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Natural and artificial insemination
Financing and financial services
Pest and disease control
Transport
Raw material sourcing
Warehousing
Management and business advisory services
Analytical testing
Trade, investment and business information/missions
Technology commercialization
3. Functional Approach
- It classifies the activities that occur in the marketing process according
to function.
- It indicates the marketing functions performed in accomplishing the,
market process.
- It determines the economics of processing.
- Different functions: grading/standardization, packaging, transportation
including loading/unloading, storage and processing.
Facilities and Related Services
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transport, storage and communication facilities
assembly, domestic distribution, and export marketing facilities
product handling and distributing services
support institutions (e.g. finance, market intelligence and business
advisory)
information
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Marketing Channels
The marketing channels identify the key players and stakeholders in a
particular commodity marketing system. It traces the flow of the commodity from
the growers to the different intermediaries, until it finally reaches the consumers.
Geographic Flows
Geographic flows show where agricultural products originate up to the
final destination where these are absorbed by consumers.
Marketing Concepts
The following are some concepts to understand more the essence of
marketing. This includes market, market demand, marketing, selling, societal
marketing, marketing mix, strategic business units, product life cycle, competitive
strategies, market segmentation, and total quality management.
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Marketing
- is a social and managerial process by which individuals and
groups obtain what they need and want through creating,
offering, and exchanging products of value with others.
Market - consists of all the potential customers sharing a particular needor want who might be willing and able to engage in exchange to
satisfy need or want.
Selling
- if left alone, consumers will ordinarily not buy enough of the
organization's products. The organization must therefore
undertake an aggressive selling and promotion effort.
Societal marketing - the organizations' task is to determine the demand of
target markets and to deliver the desired satisfaction more
effectively and efficiently than competitors in a way that
preserves or enhances the consumers' and the society's well
being.
Total quality management - is an organization-wide approach to
continuously improving the quality of all organization's
processes, products and services.
Strategic business unit - it is a single business or collection of related
businesses that can be planned separately from the rest of the
company.
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Marketing mix - is the set of marketing tools that the firm uses to pursue its
marketing objectives in the target market (e.g. price. promotion. product,
place of distribution).
4 P‘s
Product
Price
Place
Promotion
4 C’s
Customer needs and wants
Cost to the customer
Convenience
Communication
Market segmentation - process of subdividing the market into segments so that
companies can create more fine-tuned product/service offer and price it
appropriately for the target market.
Product life cycle - stages of product life in the market.
Stage
Introduction
Characteristics
A period of slow sales growth as the product is introduced in
the market. Profits are non-existent in this stage because of
the heavy expenses incurred with product introduction.
Growth
A period of rapid market acceptance and substantial profit
improvement.
Maturity
A period of slowdown in sales growth because the product
has achieved acceptance of most potential buyers. Profits
stabilize or decline because of increased marketing outlays
to defend the product position.
Decline
The period when sales show a downward drift and profits
erode.
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Competitive strategies - efforts undertaken by competitors in the market to
defend or prolong their position.
Competitors
Strategies
Market
 Position defense - building impregnable fortification around's
leaders
one territory.
 Flank defense - erect outposts to protect weak front or
possibly serve as an invasion base for counterattacking.
 Preemptive defense - launch an attack on the enemy before
the enemy starts its offense against the leader.
 Mobile defense - the leader stretches domain over new
territories that can serve as future center for offense.
 Contraction defense (strategic withdrawal) - not to abandon
the market but give up weaker territories and reassigning
resources to stronger territories.
Market
challengers
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Frontal attack - attack the opponents strengths rather its
weaknesses
Flank attack - attack the weaknesses of the opponent
Encirclement attack - attempt to capture a wide slice of the
enemy's territory through a comprehensive blitz attack.
Bypass attack - bypassing the enemy and attacking easier
markets to broaden one's resource base.
Guerrilla attack - it consists of waging small, intermittent
attacks on an opponent's different territories.
Counterfeiter - duplicates the leader's product and package
and sells it on the black market or through disreputable
dealers.
 Cloner - emulates the leader's products, distribution,
advertising and son on.
 Imitator - copies some thing from the leader' but maintains
differentiation
 Adapter - takes the leader's products and adapts or improves
them.
Market
followers
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Market
nichers
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End-user specialist
Vertical level specialist
Customer-size specialist
Geographic specialist
Product specialist
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Cost and Return Analysis
An analysis of the traders' marketing cost and returns provides an insight
on the profitability of trading a particular commodity.
Problems and Constraints
There are problems, which have not only affected the performance of the
marketing system participants but also have stunted the growth of a particular
industry. These problems and constraints may be classified according to the four
levels of production, distribution, processing and consumption levels. Their
analysis involves the identification of the conditions under which they have
occurred, their probable causes and their likely effects.
Reference:
Kotler, Philip (1997), Marketing Management: Analysis, Planning,
Implementation and Control, (9"') International edition, Prentice Hall, New
Jersey.
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Climatic/Physical
Factors
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Seeds/seeding
Fertilizers
Agro-chemicals
Machinery and
Equipment
Socio-cultural
Factors
Information System Flow
prices
production trends
grading/standardization
demand trends
Product Flow
transport
processing
storage
grading
Production Sector
Inputs
- Farmers
- Cooperatives
- Corporate Farms
Marketing Channel
Sector
Products
Price/Cost
- Contract Buyer
- AssemblerWholesaler
- Transporters
- Processors
- Brokers
- Exporters
- Retailers
Consumption
Sector
Products
Price/Cost
- Contract Buyer
- Institutional
buyers (hotels,
restaurants,
etc.)
Payment Flow
Financial Flow
Production/Marketing
Technical and
Economic
Factors
Legal/Political
Factors
Figure 1. The Agribusiness Marketing System