Interlinking Agriculture Production and Marketing

1. Interlinking Agriculture Production and Marketing • Characteristics of agricultural products, production and consumption • Implication of these characteristics on marketing

2. Characteristics of Agricultural Products • Raw materials - product sold by farmer soon loses its identity - farm product becomes food - considerable distance between the farmers’ product and the consumers’ product - producers believe that their task is only to produce raw commodities

3. Characteristics of Agricultural Products • Bulky in nature - low value to volume ratio - high transport and storage cost • Perishable products - if not consumed, loose the value over time - speedy handling - high storage cost - problem in quality control - withholding farm products from the market is extremely difficult

4. Characteristics of Agricultural Products • Quality variation - need for grading to sort and price farm products of different qualities - quality may be controlled by following certain production practices - increases cost - quality control encourages partnership between producers and processors

5. Characteristics of Agricultural Production • Variability in production - annual/seasonal - effect price, storage facilities, plant utilization capacity • Geographic Concentration - long marketing channel - high cost of marketing

6. Characteristics of Agricultural Production • Varying cost of production - cost of production is affected by climate, technology, farm size, and individual management skills - but all farmers receive same price for a given quality - some may loose money, or breakeven or earn profit

7. Characteristics of Agricultural Production • Small size of holding and scattered production - marketed surplus with each producer is small - high transaction cost - supply estimation is difficult - producer can not influence the market supply - market price is determined independent to his supply

8. Characteristics of Agricultural Production • Substantial production lag - inability to adjust quickly to changing conditions - difficult to anticipate at the time of planting, the price that will prevail at the time of sale - difference between realized prices and expected prices leads to price risk

9. Characteristics of Demand for Agricultural Products • Continuous throughout the year - imbalance in demand and supply - seasonal fluctuation in prices • Price inelastic demand - inelastic demand of agriculture commodities - magnify the impact of supply shocks on prices

10. Approaches to Analyze Food Market • Functional Approach - Identify the specialized market functions in the total marketing process It is useful in - evaluating the marketing cost of different commodities - evaluating the efficiency of various functions being performed in a market system

11. Approaches to Analyze Food Market • The functions affect not only the marketing cost but the value of food products to consumers by providing various utilities • It is possible to eliminate or reduce the middlemen, but it is not possible to reduce the market functions for a given level of value of food products

12. Approaches to Analyze Food Market • Key issues - whether the necessary functions are being performed? - whether these functions are being performed in the most efficient manner?

13. Approaches to Analyze Food Market • The Institutional Approach - Analyze the nature and character of various agencies and business structures that perform the marketing process - It helps to understand why there are specialized middlemen in the food industry?

14. Approaches to Analyze Food Market • Reasons for presence of specialized agencies: - gains from division of labor and specialization - many of the food marketing functions are marked by economies of scale - middlemen can reduce the market search cost