Agriculture Marketing (Mkt165) chapter 1-introduction


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Agriculture Marketing (Mkt165) chapter 1-introduction

  1. 1. Mohd Zahid Laton, FPP UiTM Pahang CHAPTER 1 INTRODUCTION1. The agricultural sector has been one of the most important components ofthe economy. The increasing trend of agricultural production has brought newchallenges in terms of finding market for the surplus. There is also a need torespond to the challenges and opportunities, that the global markets offer in theliberalised trade. To benefit the farming community from the new global marketaccess opportunities, the internal agricultural marketing system in the countryneeds to be integrated and strengthened. Agriculture and agricultural marketingneed to be re-oriented to respond to the market needs and consumer preferences.2. Marketing. Marketing means working with markets, which in turn meansattempting to actualize potential exchanges for the satisfying human needs andwants. Thus we return to our definition of marketing as human activity directed atsatisfying needs and wants through exchange processes.3. Farm’s marketing. Activities related to the marketing and production ofagricultural products produced by an organization or individual farmer. Suchactivities in the process of farm’s marketing include packaging, selection of brandsname, promotional strategies, price policies, marketing channels and other policies.4. Agricultural marketing. Agricultural marketing generally means themarketing of agricultural products to the first handler. In macro (social)perspective, is the performance of all business activities involved in the forwardflow of food and fiber from farm producers to consumers. It includes all theactivities associated with agricultural production and with food, feed, and fiberassembly, processing, and distribution to final consumers, including analyses ofconsumer’s needs, motivations, and purchasing and consumption behavior.5. Agricultural marketing circle. It consists of; 5.1 First circle. Refers to the final consumer or targeted customer. 5.2 Second circle. Factors that can be controlled known as marketing mix (product, price, place, and promotion). 5.3 Third circle. Environmental factors that cannot be controlled (political and legal, economic, law and regulation, social & culture, technologies, & demographic).6. Agribusiness marketing. Agribusiness marketing has come to mean themarketing operations from the first handler to the final consumer-beginning withsuppliers to farmers and covering producing, processing, and marketing to the finalconsumer. 1
  2. 2. Mohd Zahid Laton, FPP UiTM Pahang7. Marketing utility. Utility will refers to the value of marketing which adds togoods and services. The marketing function will allow to create utility. There arefive types of utilities, namely; 7.1 Form utility. To change the raw materials to a finished products. Example, palm oil bunch to edible cooking oil. 7.2 Time utility. Making the products be available during the convenient hours. 7.3 Place utility. Making the products and services available in convenience location and place. 7.4 Possession utility. Making the exchange of goods and services between the buyers and sellers. 7.5 Information utility. To informs the buyers that the products exists, how to use it, the price and other related information of the products availability.8. Marketing concept. This concept has dominated the marketing strategiesfor the past 40 years ago; 8.1 The Production Concept. Kotler (1996) has defined the production concept as a philosophy that holds consumers who will favor those products that are available and highly affordable and therefore management should concentrate on improving production and distribution efficiency. 8.2 The Product Concept. The product concept as defined by Kotler (1996) holds that the consumer will favor those products that offer the most quality, performance and features and therefore the organization should devote its strategy to making continuous product improvement. 8.3 The Selling Concept. Kotler (1996) has defined the selling concept, which says that the consumer will not buy enough of the organization’s product unless the organization undertakes substantial selling and promotion efforts. 8.4 The Marketing Concept (1950’s – 1960’s). The marketing concept as defined by Kotler (1996) is that the key to achieving organizational goal is for the organization to determine the needs and wants of the target market and to adapt itself to delivering the desired satisfaction more effectively than its competitors. The product concept and the selling concept have given way in many successful firms to the marketing concept. 8.5 The Societal Marketing Concept (1960’s present). Kotler (1996) has defined that the societal marketing concept holds that the organization’s 2
  3. 3. Mohd Zahid Laton, FPP UiTM Pahang task is to determine the needs, wants, and interest of target markets and to deliver the desired satisfaction more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and society’s well-being.9. Importance of marketing. There are several important reasons to studymarketing; marketing plays an important role in society, marketing is important tobusiness, marketing offers outstanding career opportunities, and marketing affectsour life every day. 9.1 Marketing plays an important role in society. The total population of Malaysian exceeds 28 million people. Think about how many transactions are needed each day to feed, cloth, and shelter a population of this size. The number is huge. And yet it all works quite well, partly because the well- developed Malaysian economic system efficiently distributes the output of farms and factories. Marketing makes food available when we want it, in desired quantities, at accessible locations and in sanitary and convenient packages and forms (such as instant and frozen foods). 9.2 Marketing is important to business. The fundamental objectives of most business are survival, profits, and growth. Marketing contributes directly to achieving these objectives. Marketing includes the following activities, which are vital to business organizations: assessing the wants and satisfactions of present and potential customers, designing and managing product offerings, determining prices and pricing policies, developing distribution strategies, and communicating with present and potential customers. 9.3 Marketing offers outstanding career opportunities. Marketing offers great career opportunities in such areas as professional selling, marketing research, advertising, retail buying, distribution management, product management, product development, and wholesaling. Marketing career opportunities also exist in a variety of non-business organizations, including hospitals, museums, universities, the armed forces, and various government and social service agencies. 9.4 Marketing affects our life every day. Marketing plays a major role in our everyday life. We participate in the marketing process as a consumer of goods and services. About half of every dollar we spend pays for marketing costs, such as marketing research, product development, packaging, transportation, storage, advertising, and sales expenses. By developing a better understanding of marketing, we will become a better-informed consumer. We will better understand the buying process and be able to negotiate more effectively with sellers. 3
  4. 4. Mohd Zahid Laton, FPP UiTM Pahang10. The importance and interdependence of the food and fiber system. Thevarious foods and fibers are the commodities included in agricultural marketingtexts although food usually receives the most attention. It may be helpful to think offood and fibers as moving to the world consumers through three sectors; 10.1 Food and fiber originate in a farm sector where livestock, poultry, fruits, vegetables, cotton, tobacco, flax, corn, wheat, other grains, and specialty crops are produced. 10.2 More than 80% of the gross farm income is typically spent in the input sector on items such as feed, fuel, and fertilizer. These production expenses have risen from time to time. 10.3 Food and fiber than move through a marketing sector involving many marketing functions, such as transportation, processing, and storage, which are more expensive than the production costs in the farm sector.11. The marketing bill (the costs in the marketing sector) costs much more tomarket most agricultural products than it costs farmers to produce them. Modernfarming is dependent on the market sector. There is no way that farmers in ourhighly industrialized and urbanized society could supply world consumers withoutthe facilities, efforts, and expertise of the market sector.12. The input sector reminds us that modern farming is highly dependent onindustrial inputs such as tractors, combines, petroleum, pesticides, and fertilizer. Infact, the purchased inputs of non-farm origin are larger in costs than the inputs(feed, seed, and livestock) supplied by other farmers. Agricultural marketing focuseson the market sector, which is a very important part of the entire food and fibersystem. It is also a very interdependent part.13. The development of agricultural marketing. Marketing is related to thebusiness activities for the purposes of the consumer satisfaction in exchanges ofgoods and monetary value between the producer and the consumer. Scope ofmarketing is not only focused to the buying and selling but it also includes activitiessuch as transportation, storage, grading, financing, risks involvements, productsdesign, price determination, promotions, distribution and developing the marketingchannels. A brief history of agricultural marketing begins with; 13.1 Trade among tribes. Marketing begin in tribal nomadic cultures. Different tribes lived in areas that held different fruits, game, and fish; from these differences came products that could be traded. Supplies beyond a tribe’s own needs had a low marginal value but were of higher value when traded for other goods. 13.2 Appearance of market squares. With the advent of village life, following the development of agriculture, specialized village craftspeople appeared. Eventually a block of land in each village came to be designed as 4
  5. 5. Mohd Zahid Laton, FPP UiTM Pahang the market square. Here farmers brought products for display and sale to the villagers, and craftspeople showed their wares for farmers or others to buy. 13.3 Regional and national market centers. The modern counterpart of the market square is the regional mall shopping center, housing a wide array of dealers and products under one vast roof. At a wholesale market, suppliers gather so that retailers may see, in one place, the kinds of merchandise offered and their prices.14. The role of marketing in the economy. In any economic system there arealways barriers that prevent producers from efficiently satisfying consumer needs.These barriers include separations of space, time, information, value, andownership. The role of the marketing system is to bridge this gap betweenproducers and consumers needs and increase the efficiency of the marketingsystem. 14.1 The most familiar marketing functions to most of us are the buying function and the selling function. They must be performed in the marketing system if any product exchanges are going to occur. They involve overcoming separations of ownership by transferring legal title of the product from the seller to the buyer. 14.2 The storage function overcomes the separation of time by maintaining the product in good condition between production and final sale. 14.3 The transportation function overcomes the separation of space by moving the product from where it is produced to where the consumer is willing to purchase it. 14.4 The processing function involves the transformation of a commodity to a form that has greater value to consumer. Processing is included since what is produced in a free market economy should be determined by the needs of consumers. One of the purposes of the marketing system is to transmit consumer desires to producers so they can provide the products that consumers want. How the products are produced is a technical matter, but what to produce is a function of marketing. 14.5 The grades and standards function involves the development of uniform descriptions of commodities and products. It means that buyers do not have to physically inspect each shipment of product before they purchase it. A buyer can be assured that when he orders a certain quantity of a Grade A product over the telephone, he knows exactly the physical specifications of the product he will receive. 14.6 The financing function involves providing the funds necessary to pay for the production and marketing of a product before the money is received from its sale. 5
  6. 6. Mohd Zahid Laton, FPP UiTM Pahang 14.7 The risk taking function involves assuming the risk of loss between the time of purchase and sale. Various forms of insurance are available to guard against adverse changes in price as well as physical losses arising from such things as fire, flood, theft, and spoilage. The efficiency of the marketing system is also greatly enhanced if there is wide dissemination of information on prices, inventory levels, embargoes, or anything else that could influence the buying and selling of products. 14.8 The market information function involves the development of any means to disseminate this type of information.15. The structure of product in agricultural production. The traditionalstructure of farm production and farm market can each be described in terms of asingle identifying characteristic; product and production. 15.1 Characteristics of the products. a. A raw material. The output of agriculture is largely a raw material that will be used for further processing. This processing may be limited, as in converting livestock into meat. It may be highly complex, as in converting wheat into wheaties. Regardless of the complexity, however, the product sold by the farmer soon loses its identity as a farm product becomes simply food. b. Bulky and perishable products. Compared to most other products, agricultural products are both bulkier and more perishable. Bulk affects the marketing functions concerned with physical handling. Products that occupy a lot of space in relation to their value almost automatically raise unit transportation and storage costs. A truckload of drugs would be considerably more valuable than a truckload of wheat. In this sense, fruits, vegetables, grain, and meats are all quite bulky. Perishable, too, can be measured only in relation to other products. All products ultimately deteriorate. Some agricultural products, like fresh strawberries or fresh peaches, must move into consumption very quickly or they completely lose their value. Such products as cattle or poultry continue to grow and change if storage in the form of withholding them from market is attempted. Wheat, on the other hand, can be stored for a considerable length of time without much deterioration. Even the most storable agricultural products, however, are usually more perishable than other industrial products. Perishable products require speedy handling and often special refrigeration. Quality control often becomes a real and costly problem. Quality control often becomes a real and costly problem. From the farmer’s viewpoint, withholding from the market is extremely difficult; when the products are ready, they must move. 6
  7. 7. Mohd Zahid Laton, FPP UiTM Pahang c. Quality variation. The general quality as well as the total production of agricultural commodities varies from year to year and from season to season. During some years the growing conditions are such that the crop in general is of high quality. In other years, unfavorable conditions prevail and the crop is of much lower quality. Such variations in the quantity of production make it very hard to apply uniform standards for grades from year to year. If the quality of the apple crop is uniformly high, the standards for top-grade apples may be strictly adhered to. On the other hand, if the quality of the apple crop is poor, grading standards may be relaxed somewhat to permit some apples to be marketed as top quality. Variations in the quality may also change marketing patterns. For example, during a year in which corn does not mature properly, large amounts of ‘soft’ corn are harvested. The corn will spoil if it is not used before the following years. Farmers may then buy additional feeder stock in order to utilize this corn. The marketing pattern of these feeders, however, will be different from the usual pattern because the feeding period is adjusted to the condition of the corn.15.2 Characteristics of production. a. Total output. The long run trend in food production is upward. The rising food supply per capita has been a mixed blessing for farmers. On the one hand, it is dramatic proof of the efficiency of agriculture and its contribution to the rising standard of living. On the other hand, this tremendous productive capacity of agriculture has frequently depressed farm prices and incomes. Maintaining an acceptable balance of rising food supplies and fair farm prices has been a difficult task for food policy. b. Annual variability in production. There are years where the situation of increasing, decreasing, and stable farm output. These are caused by farmer responses to prices and other uncontrollable factors such as weather and disease. Such changes in farm output influence the food marketing process and the use of the food marketing system’s capacity. Year to year changes in farm supplies have a significant impact on the purchase prices, need for storage facilities, and plant utilization rates of food marketing firms. The desire to reduce the risks and uncertainties of fluctuating farm supplies is one of the forces creating closer contractual ties between marketing agencies and farmers. c. Seasonal variability in production. In addition to the annual production variability, much of agricultural production is highly seasonal. Livestock receipts may vary substantially throughout the year. The harvest of such crops as paddy, fruits, and vegetables is crowded into a relatively short period. Egg and poultry production is larger in seasonal fest and remain stable after the period. To the extent that the product is storable, storage facilities must be furnished 7
  8. 8. Mohd Zahid Laton, FPP UiTM Pahang to hold the product until it is consumed. This means that during part of the year, storage will be used at near capacity, at other times it will be almost empty. If the product cannot be stored it must either be processed or consumed immediately. This may result in processing plants running at capacity for some periods and well below capacity, or even shut down, for other periods. If the product must move directly into consumption, transportation and refrigeration facilities must be available immediately. These situations affect the costs of the marketing process. d. Geographic concentration of production. Although a variety of farm products is produced in all states, there is increasing geographic specialization of farm production. For example in Malaysia, north area tends to specialize in the production of commodities for which its resource base is best suited: paddy, fruits, e.t.c. The marketing system, of course, must adjust to these changing geographic production patterns. e. Varying costs of production. There is no single cost of production for all farmers. Farmers cost of production are affected by climate, technology, farm size, and individual managerial skills. Consequently, the cost of producing a farm commodity varies widely by regions and among farmers. Most studies have found that the average cost of farm production falls as small farms grow larger, but there is a point at which average cost do not fall further as farm size increase. f. The farm supply industry. The farm supply industry provides such agricultural inputs as chemicals, seeds, machinery, feeds, capital, labor, land, and so on. These may be supplied by the farm or purchased from the industrial or farm supply sectors. The growth and importance of the farm input sector affects farmers in several ways. It has added another market for the farmer to operate in. The farm input markets have also been responsible for much of the dramatic gain in agricultural efficiency in recent years, especially the chemical and machinery markets.16. To ensure the effective of the product and production structure, thusmarketer need to have a proper management practices, proper timing applicationsof insecticides, the need of storage facilities, the availability of transportation, andcredit facilities.17. Strategies of National Agricultural Policy 1992-2010. In 1984, NAPintroduced by Malaysian government because of recession, but agriculture stillplays an important role in the GNP growth of the country even-though it has declinein its production due to industrialization and urbanization.18. Problems faced by agriculture; 8
  9. 9. Mohd Zahid Laton, FPP UiTM Pahang 18.1 Gross domestic product has declined in the contribution even-though the value-added has increased. 18.2 Land expansion has been hindrance because some of the arable land has been allocated for industrialization, urbanization and housing projects. 18.3 Market protection less has been taken into consideration as compared to automobile industries. 18.4 Fiscal incentives did not favor in agriculture so that’s why large companies did not enjoy as compared to manufacturing industries.19. Objectives of the NAP (1992-2010); 19.1 To achieved a balanced development between agriculture and other sectors such hunting & forestry, fishing, mining & quarrying, electricity, gas & water supply, construction, wholesale & retail trade, hotel and restaurants, transport, communication, education, financial, public administration, health and social work in the country. 19.2 To enhance the economics sectors and structural integration in particular with the manufacturing sectors. 19.3 To achieve a higher level of expansion and development of the food industry sectors. 19.4 To achieve a wider and effective participation of the Bumiputra participation in support services in the fields of commercial agricultural, agribusiness, trade, distribution, selling, extension, institutional development and marketing. 19.5 To ensure a sustainable development in agriculture. 19.6 To maximize income through efficient utilization of resources and revitalization of sectors for economic development. 19.7 To developed new land and to enable for farm unit development, efficient managerial practices for new crops growing. 19.8 To enable development of in-situ land will be carried out to resolve unproductive, inefficient and low level of productivity of land to be developed. Example; FELCRA, RISDA, KESEDAR e.t.c.20. Strategies for achieving the NAP objectives; 9
  10. 10. Mohd Zahid Laton, FPP UiTM Pahang 20.1 Optimizing the resources uses. Land, labor, capital and management has to be use effectively. Idle land should be develop, division of labor should be analyzed and given the priority for development and usage, managing farm management through skills, and increased farm sizes and mechanism while capital such land owned by farmers has to bring together and fully utilized, thus will reduced the cost of maintenance. 20.2 Human resources development. The use of technologies in the agricultural sector such as mechanism in planting and harvesting will improved efficiency in used of labor. Manpower training is required to handle such cases, efficient agribusiness in marketing, and agro-based processing should also be included in the development of human resources. 20.3 Enhancement of research & development, and technological diffusion. This would maintain the competitiveness of the agricultural sectors especially in research and development. For example; rubber, palm oil and rice, and other product. It must be market driven, commercially oriented and environment friendly. 20.4 Greater role of the private sectors. The greater role of the private sectors in the land development for agricultural purposes, support by financial strength and investment, incentives, promotion and packages will enhance the sale of products for export purposes. 20.5 Reformed marketing strategies. The need of reformed in the marketing strategies of the producers. Now the products should be view as commodity and plays it role in the export of the products to various countries like Middle East, African, Latin America and China and other countries. New product development should be venture into the market and credit facilities can be extended and provided to the buyers. 20.6 Expanded food production. Producer will look into the expansion of food products to the needs of the locals and for export purposes. The finished products should be first caters for the demand of the domestic populations. The products produced must be competitive in nature. 20.7 Development of viable and self-reliant farmer institution. The development of institution which caters into the needs of the farmers especially when supplying the products to the consumers is considers. Some farmers are unable of doing so because lack of facilities such as financial strength, marketing, storage and transportation purposes. The need of this institution is highly required so as to less the burden of the farmers.21. 3rd National Agricultural Policy ( NAP 3 ). The new NAP3 will focus on newpolicy trust, strategies, and implementing mechanisms will be emphasized tonational concern on agricultural development an economy as a whole.22. Objective of the policy; 10
  11. 11. Mohd Zahid Laton, FPP UiTM Pahang 22.1 Enhance food security. 22.2 Increase productivity and competitiveness of the agricultural sector. 22.3 Linkages with other sectors. 22.4 Create new sources of growth for the sector. 22.5 Conserve and utilized natural resources on a sustainable basis.23. Strategies of the NAP3. This strategy will be focused on the upstreamprimary agriculture to enhance the production and marketing of the agriculturaland forestry products. The strategies are; 23.1 Agro-forestry approached. Agriculture and forestry are mutually compatible and complementary for joint development. This approached will addressed the increasing scare resources and raw material availability. 23.2 Product based approach. Product based approach address on key products and market identified based on demand and supply, preferences, and potential consumers.24. The institutional bodies comprise the following; 24.1 The establishment of public-private sector coordinating council comprises of federal agencies state government and private sectors. The council will steer guide and review the progress of the policy. 24.2 The establishment of a high level planning and implementation committee and comprises of representatives from state government, federal agencies and private sectors. 24.3 The committee will undertake a close relationship for the implementation process. 24.4 A review and rationalization of government institutions to enhance the effectiveness of development programs. 24.5 An allocation of resources, funds and manpower for the realization of the policy. 11