Agriculture Marketing (Mkt165) chapter 4-approach to mktg problem


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Agriculture Marketing (Mkt165) chapter 4-approach to mktg problem

  1. 1. Mohd Zahid Laton, FPP UiTM Pahang CHAPTER 4 APPROACHS TO MARKETING PROBLEMS1. The farm marketing problem. The farm problem is usually associated withunstable and relatively low farm prices and incomes. A related set of farmersproblems can be termed the farm marketing problem. There are several dimensionsof this problem; 1.1 Farmers find it difficult to adjust precisely their production schedule to meet changing market conditions. Agricultural output comes from many small units operated independently. The production is to a great extent dependent on weather and biological patterns of reproduction. 1.2 Farmers must estimate how much of his product he can sell at a price estimated nearly a year in advance. From this estimate he can then contract suitable acreage with his producers. If his estimations of the market conditions and yields turn out correctly, he will pack and sell as planned. 1.3 It takes long periods to change materially the production of some commodities. Fruit groves are planted years in advance of their coming into production. The market situation may change during this period. 1.4 Changes in consumer tastes may find large amounts of agricultural resources being devoted to the production of something that is no longer so greatly desired. Higher prices resulting from shortages of production may destroy the consumer market for that product when it finally arrives in quantity. 1.5 A related component of the farm marketing problem is the difficulty farmer face in improving their prices through independent or group activities. Farmers are, for the most part, price takers- they cannot, individually, influence the price of their products through their output decisions. In order to raise prices through the control of supplies or advertising programs, farmers must act as a group. 1.6 The free-rider problem often plagues farmers when they do attempt to organize to influence farm prices. Free riders hamper any group effort that requires each member to sacrifice for the overall welfare of the group when the group benefits go to everyone regardless of their participation. For example, farmers may try to raise their prices through voluntary supply control programs, advertising efforts, or bargaining associations. If successful, the resulting price benefits all farmers, whether or not they have contributed to the program. 1.7 The cost-price squeeze is another component of the farm marketing problem. The competitive conditions of agriculture tend to keep farm prices close to the cost of production. Falling farm prices would not be so critical if 1
  2. 2. Mohd Zahid Laton, FPP UiTM Pahang they were accompanied by falling farm costs, or if the farmer could adjust input costs as prices fell. 1.8 The superior bargaining power of the buyers of farm products as compared with that of farmers is the most serious farm marketing problem. Food marketing firms are usually larger and, because of their national and international activities, normally have better market information than the farmers from whom they buy. In addition, through contracts and other arrangements, food marketing firms are thought to gain some control over farm decisions and farm markets. 1.9 Changing food market pricing efficiency is still another element of the farm marketing problem. Perhaps at one time farmers did not need to be concerned with food marketing because competitive conditions assured all farmers a fair price. However, with today’s direct negotiations and contractual arrangements, there is no longer any assurance of a high level of pricing efficiency in food markets. 1.10 There is growing concern about the increasing gulf between the farm sector and the food marketing sector. Farmers retain a commodity- orientation whereas food marketing firm stress a merchandise-orientation.2. Limiting the barriers in the marketing process is considers in order tominimize the agricultural marketing problem. Such barriers are; 2.1 Separation of space. The producer and the consumer were geographically separated. The producers were located in a concentrated location and the consumers were found scattering around. To reduce the separation of location and space, there must be a process of marketing the products between the producers and the consumers. 2.2 Separation of time. Consumer needs the products at a specific time and the availability of the products to be received by the consumer at times needed. The need of transporting the products to the consumer must be performed correctly. The producer produced the products after harvesting where as the consumer need the products at a specific time. The products must be marketed so that the consumer will consume the products at a timely needed. To reduce such separation of time between the consumer and the producer, there must be proper marketing channels such as transportation, storage, utilities and facilitating functions exist in between the producer and the consumer. 2.3 Separation of information. The producers are unaware of the needs and wants of the consumer. The price level of the products is also a main hindrance in quoting how much price of a particular product. The consumers are unaware of the availability of the products offered in the market, from whom, when and how and how much price level of the products in the market. To avoid such misinformation of the products the producers and the 2
  3. 3. Mohd Zahid Laton, FPP UiTM Pahang consumers must gathered valid information from reliable sources so that both parties are aware of such products and price level offered. 2.4 Separation of ownership. The producer produced the products. As long as he owns the products, there will be no transfer of ownership and the possession of the products still on his hand. The questions are how long the products are being possessed by the producer. Once the products has transfer to consumer, than the transfer of ownership has occurred between consumer and producer. 2.5 Separation of value. Consumer sees and valued the products from the economic point of view and his ability to pay for the products. Producer valued the products from costs and price competitiveness. The separation of values can only be satisfied if the producer has the power to sell and cover the expenses and make profit where as the consumer can only pay the products at a particular price. 2.6 Different of quality. Producer will only sell the products at the large quantities where as the consumer will only buy the products at a low quantity with a low price level. In this case, the differences in qualities offered and accepted will varies in quantities. 2.7 Different types of products. The producer concentrates the production of certain types of products. And on the other hand the consumers need various kinds of products for his consumption. So there occur a gap between the producer and the consumer at large.APPROACHES TO THE AGRICULTURAL MARKETING PROBLEM3. FUNCTIONAL APPROACH IN MARKETING PROCESS. One method ofclassifying the activities that occur in the marketing processes is to break down theprocesses into functions. A marketing function may be defined as a majorspecialized activity performed in accomplishing the marketing process.Classifications of the functions are as follow; 3.1 Exchange function. The exchange functions are those activities involved in the transfer of title to goods. They represent the point at which the study of price determination enters into the study of marketing. Both the buying and selling functions have as their primary objective the negotiation of favorable terms of exchange. i. The buying function is largely one of seeking out the sources of supply, assembling of products, and the activities associated with purchase. This function can be either the assembling of the raw products from the production areas or the assembling of finished products into the hands of other middlemen in order to meet the demands of the ultimate consumer. 3
  4. 4. Mohd Zahid Laton, FPP UiTM Pahang ii. The selling function must be broadly interpreted. It is more than merely passively accepting the price offered. In this function can be grouped all the various activities that sometimes are called merchandising. Advertising and other promotional devices to influence or create demands are also part of the selling function. The decision as to the proper unit of sale, the proper packages, the best marketing channel, the proper time and place to approach potential buyers – all are decisions that can be included in the selling function.3.2 Physical functions. The physical functions are those activities thatinvolve handling, movement, and physical change of the actual commodityitself. They are involved in solving the problems of when, what, and where inmarketing. It includes; i. The storage function is primarily concerned with making goods available at the desired time. It may be the activities of elevators in holding large quantities of raw materials until they are needed for further processing. It may be the holding of supplies of finished goods as the inventories of processors, wholesalers, and retailers. ii. The transportation function is primarily concerned with making goods available at the proper place. Adequate performance of this function requires the weighing of alternatives of routes and types of transportation as they might affect transportation costs. It also includes the activities involved in preparation for shipment, such as crating and loading. iii. The processing function is often not included in a list of marketing functions because it is essentially a form-changing activity. However, in the broad view of agricultural marketing this activity cannot be omitted. The processing function would include all those essentially manufacturing activities that change the basic form of the product, such as converting live animals into meat, fresh peas into canned or frozen peas, or wheat into flour and finally into bread.3.3 Facilitating functions. The facilitating functions are those that makepossible the smooth performance of the exchange and physical functions.These activities are not directly involved in either the exchange of title or thephysical handling of products. However, without them the modern marketingsystem would not be possible. They might be called the grease that makes thewheels of the marketing machine go around. In comprise of; i. The standardization function is the establishment and maintenance of uniform measurements. These may be measurements of both quality and quantity. This function simplifies buying and selling, because it makes the sale by 4
  5. 5. Mohd Zahid Laton, FPP UiTM Pahang sample and description possible. Effective standardization is basic to an efficient pricing process. Such activities as quality control in processing plants and inspections to maintain the standards in the marketing channel can be considered part of this function. ii. The financing function is the advancing of money to carry on the various aspects of marketing. To the extent that there is a delay between the time of the first sale of raw products and the sale of finished goods to the ultimate consumer, capital is tied up in the operation. Anywhere that storage or delay takes place, someone must finance the holding of goods. Financing may take the easily recognizable form of advances from various lending agencies or the more subtle form of tying up the owner’s capital resources. iii. The risk-bearing function is the accepting of the possibility of loss in the marketing of a product. Most of these risks can be classified into two broad classifications – physical risks and market risks. The physical risks are those that occur from destruction of deterioration of the product itself by fire, accident, wind, earthquakes, cold, and heat. Market risks are those that occur because of the changes in value of a product as it is marketed. iv. The market intelligence function is the job of collecting, interpreting and disseminating the large variety of data necessary to the smooth operation of the marketing processes. Efficient marketing cannot operate in an information vacuum. Successful decisions on how much to pay for commodities or what kind of pricing policy to use in their sale require a large amount of market knowledge. Adequate storage programs, an efficient transportation service, and an adequate standardization program all depend to a considerable extent on good information.4. Functional exchange process. This process involves producer, middlemenand retailers and consists of three parts namely: 4.1 Concentration (producer level). In the concentration functional, the supplies delivered to assembly points such warehouse, mills, etc and vary in quantity and quality. The concentration of produce at convenient points attracts buyers who could not spare the time to make small purchase at scattered farms. 4.2 Equalization (processor level). Equalization is the transformation of raw products to processed form. For example, the collected rubber latex or scrap to be processed in the factory in the form of semi-processed. The products are transformed into semi-finished or finished product. 5
  6. 6. Mohd Zahid Laton, FPP UiTM Pahang 4.3 Dispersion (retailer level). Supplies are released from storage, or moved from one area to another so that the flow of goods to consumers will match their demand. The systems of distribution of products aim to supply the demands of the consumers.5. Decentralization. Decentralization means that farm products move fromfarms and into the hands of processors and wholesalers without utilizing theservices. Buying agents of processors, wholesalers, and the retail firms contactproducers and take title to the products in the production area.6. Factors of decentralized market. 6.1 Development of the truck and highway system. This has vastly increased the flexibility of assembling products. 6.2 Continuous improvement in the speed and flexibility of communications technology (internets, facsimile, mobile-phone, etc). A seller from one location to other location can now talk quickly and cheaply without coming face to face. 6.3 Improved techniques of refrigeration and storage along with much improved grading procedures. The feasibility of the transfer of products by sample or description has increased. 6.4 Rapid development of fewer but larger and more specialized production units. The output of individual farms now a feasible purchase unit. 6.5 Development of large scale retailing with mass standardized products. New potentialities of mass production and economies of scale are possible. 6.6 Merchandise-oriented food industry with need to coordinate farm production with needs of farm product buyers.7. Food marketing system. Food marketing may be thought of as theconnecting link – the bridge – between specialized food producers and consumers. Itis both a physical distribution and an economic bridge designed to facilitate themovement and exchange of commodities from the farm to the fork. It is called asystem because it consists of interrelated component parts that contribute towardoverall industry goals.8. Food marketing efficiency. Efficiency is measured as a ratio of output toinput. Marketing inputs include the resources such as labor, capital, personnel andmachinery as it is necessary to perform the marketing function. Marketing outputinclude time, form, place, and possession utilities that provide satisfaction to thecustomers. Efficiency in the food industry is the most frequently measure of marketperformance. 6
  7. 7. Mohd Zahid Laton, FPP UiTM Pahang9. Storage. Storage operations are carried on at every level of the food industry.All food marketing firms perform some storage and warehousing. Storage isinterrelated with other marketing functions, such as transportation, processing,financing, and risk-bearing. In a sense, farm products are being stored at the timethey are in transit or in the processing operation.10. There are several kinds of food storage, serving various purposes. 10.1 Seasonal food stocks are a related form of food storage. Over the marketing year, these are held to balance out supplies with demand. Seasonal stocks are usually larger for products that are harvested in a short time but that are consumed throughout the year. Both farmers and food marketing firms hold seasonal food stocks. Consumers may also build these stocks by increasing purchases of in-season commodities for later consumption. 10.2 Carryover stocks refer to the amount of commodity left over from one marketing year to the next. Annual production and consumption seldom balance precisely, and there may be carryovers (old crops) of shortfalls, going into the next harvest period. These carryovers then become an addition to the supply available for consumption in the following year. 10.3 Food reserves are intended to balance food supplies with demand over the long run and between countries. The objective is food security – storing in fat years as protection against lean years. 10.4 Speculative stocks. Farmers, food marketing firms, and consumers may at times hold larger than normal food stocks when they expect prices to rise. These speculative stocks would then increase in value and result in an inventory profit.11. Types of storage. Farm and food commodities can be stored at severalplaces in the food system. The several types of storage defined below; 11.1 Cold / hot storage for perishable product such meat, vegetables, etc. 11.2 Open storage to store palm oil bunches and some type of vegetables, etc. 11.3 Closed storage for finished products or canned foods. 11.4 Wet storage for stuff such rubber scraps or latex received from farm before processing. 11.5 Dry storage for rubber scraps (bales) after processing, etc.12. Cost of storage. In determining the total costs of holding commodities, fivepossible categories of costs must be considered; 7
  8. 8. Mohd Zahid Laton, FPP UiTM Pahang 12.1 The cost necessary to provide and maintain the physical facilities for storage. These costs would include such items as repairs, depreciation, and insurance against lost. 12.2 The interest on the financial investment in the product while it is in storage. Whether the money is actually borrowed or not, this a cost that should be assessed at the rate of interest that would have to be paid if money were borrowed during the storage period. 12.3 The cost of quality deterioration and shrinkage during storage. Many commodities either deteriorate in quality or shrink in volume-or both- while in storage. In a few cases, some commodities, such as corn, may increase in quality while shrinking in volume. In such cases, storage may result in net gain instead of a net loss for this particular factor. 12.4 The loss that may result from poor consumer acceptance of the stored as against the fresh product. Packing companies maintain that frozen meat will be accepted by consumers only at a price discount, even though its quality as measured by the grading system has not deteriorated. There is consumer resistance to storage eggs as opposed to fresh eggs, though the quality as measured by the grading system may be the same. This is not a problem in all commodities. 12.5 The risk that the price of the product might unexpectedly decline. Under these circumstances the product might have to be sold at less than its value at the time it was placed in storage. The possibility of a favorable movement in prices, on the other hand, is a major factor in encouraging speculative storage.13. In order to reduce / minimize the cost of storage several method could beconsidered such applied latest technology in the storage, do not retain the productin a longer time, implement a better scheduling, good and sound management, andefficient in handling / storing etc. This form of element can be explained as below; 13.1. Increase the efficiency of storage. The probable reasons for this were an increase in the number and variety of food products stored, the shifting of some marketing functions from retailers to wholesalers, and a slackening in the rate of technological innovations in food warehousing. Nevertheless, there are ways to improve food storage efficiency; i. Labor efficiency versus mechanism. Use paddy harvester instead of human being during harvesting time. ii. Proper ventilation and insulation. The intention is to reduce odor, maintain freshness of products, and minimize moisture. iii. Improved management technique. This can be done through maintaining a proper and improved work scheduling in the 8
  9. 9. Mohd Zahid Laton, FPP UiTM Pahang operational situation. For example, the work schedule of manure, harvesting, and pest and disease control in the agricultural sectors. 13.2 Reducing product deterioration. Different crops need a set range of temperature control. For example vegetables need a minimum temperature to keep it from deteriorating and to maintain the standard grade. 13.3 Proper use of insecticides and fungicides. This is important in order to avoid the harvested crop from contamination of fungicides. Proper spraying must be avoided at least 10 days before harvesting is done. 13.4 Proper packaging either plastics or canned. Packaging must be appeal and presentable to the eyes of the consumer. Proper packaging will enhance buyers to purchase the product. 13.5 Storage financing and risk bearing. The future market can assist in managing the financing and risk-bearing operations associated with food storage. After harvesting, it is necessary to store the products or send the products to the middlemen or processor. The type of risk is crop deterioration or natural disaster and this risk can be avoids if the farmer is willing to insured their crops.14. Transportation. Transport is part of economic activity which is concernedwith increasing human satisfaction by changing the geographic position of goods orpeople. It may bring raw materials to places where they can be manufactured moreeasily, or finished goods to places where consumers can make best use of them.Transportation of agricultural products to central assembly points or to processingplants is performed mostly by individual, independent truck operators who areexempt from regulation of rates. Once a product is processed, however, it generallymoves to wholesalers and retailers by rail or by large trucking companies.15. Transport is important in agricultural marketing in order to transporting andreceiving products at the exact time, location and utility. Time utility is the valueadded to products by changing their time of availability to users, usually throughstorage operation. Transportation also plays an important role in marketdevelopment, expansion, and competition. The size of the market area dependsupon whether products can be moved.16. Type of transportation; 16.1 Roadways (truck, lorry, container, tanker, van, car, low-loader, etc). Roadways are usually public ways. Nowadays most roads were improved natural ways of ancient origin. The tracks became pathways, footways, bridleways and eventually highways to give an advantage. 16.2 Railways (train, electric train, etc). Railways consist of two parallel metal strips which give a smooth hard surface. Today rails are made of steel, but in the early days they were made of wood, and later of iron. 9
  10. 10. Mohd Zahid Laton, FPP UiTM Pahang 16.3 Waterways/Seaways (ship, vessel, boat, etc). Waterways are usually improved natural ways of artificial ways. Waterways and seaways makes for economical transport. 16.4 Airways (aero-plane, aircraft, etc). Like the sea, the atmosphere is a way which requires no artificial preparation, has no repair bills and no private costs. It is more universal than the oceans, since all parts of the world are equally accessible. 16.5 Pipelines. The pipeline is a unique method of transport. It also the unit of carriage and embodies at intervals along the way (pumping station) which are themselves part of the pipeline system.17. Cost involves in the process of transportation depends on productperishable, product form, loading and unloading, efficiencies in using crane, andtime factors.18. Reducing cost of transportation. Having identified the true costs oftransportation, and allocated them to particular products or services, we canexamine them with a view to reducing total distribution costs. Basically the commonway in reducing the cost of transportation can be explained below; 18.1. Increase the efficiency of management in technology such as trucking with attached refrigeration, road and railways. The using of RFID (radio frequency identification device) systems provides a powerful technology for tracking the movement of goods throughout the supply chain. RFID systems use tiny tags with embedded microchips containing data about an item and its location to transmit radio signals over a short distance to special RFID readers. The RFID readers then pass the data over a network to a computer for processing. 18.2 Competition among various transporters will enhance the efficiencies and delivery of the products on time. Transportation company will compete among themselves, thus to win the competition they will provide better services with fair and minimum charges to attract customer deal with them. 18.3 Increase the usage of space for the purposes of delivering and to maximize the space usage. Rather than bringing fruits, truck can also bring other crop such wheat, paddy, etc from one location to other location. This decision will reduce the cost of transportation.19. During the transportation time, the agricultural products may deteriorateand will decrease the quality and the freshness of the products. Thus, to reduce theproduct from deteriorate, producer should consider the following ways; 19.1 The type of container use will prevent the product from deteriorate. 10
  11. 11. Mohd Zahid Laton, FPP UiTM Pahang 19.2 The density and bulk of products. 19.3 The degree and efficiency of loading. 19.4 Bracing methods use for certain products. 19.5 Change the physical products attributes; i. High perishable product should be sold at farm gate. ii. Fruits – change the attributes to frozen, canned and juice. iii. Meats – change to frozen and canned. iv. Fish – change to frozen, canned and dried.20. Processing. The processing is organized to engage in the packing orprocessing of the farmer’s products. Cheese and butter manufacturing, fruit packing,and vegetable canning associations are examples of this type of activities. Processingis intends to change the physical form of products from raw or life into frozen orcanned. Once the products processed, it should be packed, branded and beinnovative, thus the product at this stage is ready to be dispersed or consumed.21. Branding. It is necessary to brand and pack innovatively once the productprocessed. Brands are more than just names and symbols. They are key element inthe company’s relationships with customers. Brands represent consumers’perceptions and feelings about a product and its performance. In the final analysis,brands exist in the minds of consumers. Branding will influence the products in themarket such; 21.1 Stages of product life cycle (PLC). 21.2 Consumers attitude of buying preferences. 21.3 The efficiency of marketing methods, promotions and techniques applied. 21.4 New business ventures.22. Food processing. Food manufacturers or processors are primarily engagedin adding form utility to raw farm products. Wheat is milled into flour, livestock isconverted into meat products, fruits and vegetables are canned or frozen. Thesefirms play a vital role in transforming bulky, raw, perishable farm products intostorable, concentrated, and more appealing food products.23. Problem of food processors. Food processors experience problems andface challenges in three major areas; 23.1 Processing problem. 11
  12. 12. Mohd Zahid Laton, FPP UiTM Pahang i. Food processing involves significant investments in plant and equipment. In order to operate efficiently, these facilities should be used to full capacity all year-round, every year. This is difficult to achieve when there are wide variations in farm product supplies from year to year and within seasons. These variations can influence significantly food processing costs. ii. Processors face a dilemma when deciding on the number and size of plants to build. The operational efficiency gains of large, central processing facilities can be nullified by the costs of assembling large quantities of raw farm products and transporting final products to consumers from centralized operations. Replacing a single, large plant with several smaller ones reduces some assembly and transport costs but may require sacrificing the operational efficiencies or large-scale, centralized plants. 23.2 Buying operations. All manufacturers are faced with supply problem. Any manufacturer desires to assure himself of an adequate amount of the desired kind and quality of raw material at the lowest possible cost. He may depend either upon other marketing agencies to do his purchasing for him or he may undertake to set up his own procurement machinery. One of two considerations may force the processor to become his own assembler. He may be dissatisfied with the operation of the existing agencies which are supposed to serve him. They may be slow in making improvements or otherwise operating inefficiently and at high cost, from the manufacturer’s viewpoint. Or the processor may wish control over the machinery for his own competitive safety or to make his buying power a more effective price- affecting force. 23.3 Selling strategies. As in procurement, processors are faced with the necessity of choosing between alternative methods of selling the finished product. They may either utilize the existing independent wholesale channels or set up their own sales organization to distribute products to retailers. It is probably true that in the past food processors have been more interested in securing direct control over the selling phase of their operations than the buying phase. If the processor is large and has a relatively full line of products he will often operate his own warehouse and wholesaling system. If, on the other hand, his line of products is limited he will often have the sales work done for him by hiring a broker. Industries vary in the directions they have taken.24. To overcome the food processors problem several ways is determined thatneed to consider by the processors. Such way; expand the storage facilities withbetter preservation and conservation, deal directly and substitute contractagreement between parties, maximized, utilized and adapt new technology or newsystem, etc.25. Financing. Good financial planning can help business assess itsopportunities for future growth and how to cope with shifts in the marketplace. 12
  13. 13. Mohd Zahid Laton, FPP UiTM PahangEverything that happens in agricultural marketing has some financial impact.Financing plays a critical and crucial path starting from the exchange to physical tothe facilitating functions. Financing in agricultural marketing is important as well asother industry. In agricultural marketing financing will justified the parties that willperform financing activities, who will bear the burden of financing whether themiddlemen, government, financial institution or farmers. It also include cost ofstorage, transportation, advertising and other marketing cost, and lastly it willdetermine the cost of inputs (fertilizer, chemicals, seeds, etc) generally and does thefarmer, processor, and final consumer are willing to accept the cost of financing.26. Market information. Market information is a facilitating marketing function,and market intelligence is essential to a smooth, efficiently operating marketingsystem. Accurate and timely market information facilities marketing decisions,regulates the competitive market processes, and lubricates the marketingmachinery. Market news, information, and research are the lifeblood of markets.27. Roles of market information. One important function of marketinformation is to improve decision-making. Farmers use market information whenselecting enterprises, changing production plans, making long term investments,and deciding the when, where and how of their marketing strategies. Foodmarketing firms, farmer cooperatives, farm organizations, and legislators alsodepend upon market information for good decision-making.28. Problem of market news and information. There are several problemsregarding the collection, compilation, and dissemination of food market informationthat should be taken into account by users of the information. The problem can beexplained below; 28.1 Price specification. The statement that cattle are selling for RM6.50 – 8.00 per kilogram is not very useful until other, more specific information is provided, for example: where? when? what grade? what weight? how? what genetics? etc. These specifications are necessary to make a price quotation meaningful for decision-makers. 28.2 Net versus gross price. Another complicating factor in market information programs is that publicly quoted figures are frequently not the actual price at which commodities are traded. Premium and discount schedules vary from place to place and from buyer to buyer. Some farm prices include allowances for marketing costs such as hauling, packaging, and other marketing activities. But because industry practices vary, making accurate price comparison is very difficult. 28.3 Information costs. The cost of gathering and disseminating market information to the public requires that some choices be made. The value of more complete and more accurate information must be weighed against its costs. Market information is not available for all commodities and is somewhat incomplete for all products. Thus there are continuing requests for more information. The same amount of information is not available for all 13
  14. 14. Mohd Zahid Laton, FPP UiTM Pahang levels of the food industry. In general, much more is known about supplies, demand, and marketing at the farm level than at the retail level. 28.4 Changing market organization. Trends in farming and marketing have also complicated the food market information task. Because of decentralized, direct sales, products now bypass the central terminal markets, where at one time price reporters could fairly easily take the pulse of markets. Market reporters in these days must obtain information from more numerous and more geographically dispersed shipping-point markets, and the cost of obtaining accurate and complete information has risen accordingly. 28.5 Voluntary cooperation. The Ministry of Agriculture and Agro-Based Industry, Malaysia and the private market news and information programs depend upon the voluntary cooperation of buyers and sellers to report prices, supplies, and other market conditions. But because there is no mandatory requirement that they provide this information, many farmers and food marketing firms do not participate in the programs.29. Criteria for evaluating market information. To be of maximum benefit,market news and information must meet a number of criteria; 29.1 Information must be complete and comprehensive. This is a difficult task in a large country with a geographically dispersed agricultural plant producing different farm products and a food marketing system handling over different supermarket items. Food market conditions also change frequently, further adding to the difficulty of providing complete market information. A reasonably complete description of a food market includes prices, price trends, production, supply movements, stocks, and demand conditions at each level of market. 29.2 Accuracy and trustworthiness are also necessary criteria for market information. By its nature, market information can never be 100 per cent accurate, but it must be an honest market appraisal in order to earn the trust of information users. Considerable, and constant, efforts are made to improve the accuracy of market information and news services. 29.3 Information also must be relevant and in usable form. It is not enough to simply collect a mass of numbers and report them. Information must be collected, packaged, and disseminated with the user’s interests in mind. Much market information goes unused because it is not in usable, easily accessible form. 29.4 Confidentiality. Market prices and supply reports are amassed to provide a general picture of the market without revealing any single information. 14
  15. 15. Mohd Zahid Laton, FPP UiTM Pahang 29.5 Market information also must be timely, in the sense of being relevant to current decisions, and must be speedily transmitted to users. Much market information is highly perishable. 29.6 It is desirable to have a balance of market information at all levels of the food industry. Each marketing agency should have equal access to all information relevant to the bargaining and marketing processes.30. Competition in the agricultural product and food industry. Competitionin both industries takes several forms. Product competition refers to rivalrybetween two alternative or substitute products, such as beef and mutton, for theconsumers’ spending. Firm competition concerns the rivalry between sellers ofsimilar products. Brand competition refers to the rivalry between competingbrands within a product class. Interregional competition is illustrated by therivalry Siamese mango and Malaysian mango. Institutional competition relates tothe rivalry between competing market institutions, for example grocery stores, fast-food restaurants, and vending machines. Functional competition arises when twoor more firms vie to determine who will perform a particular marketing function,such as storage, financing, or transportation.31. There are other ways to view market competition. Horizontal competitioninvolves rivalry between firms at the same market level-processors or wholesalersor retailers. Vertical competition is concerned with the bargaining relationshipsbetween buyers and sellers of food and how the consumers’ food dollar is divided.32. Competitive advantage. The product can be competitive in the marketdepend on the strategy applied and consumer acceptance. A competitive advantageis a set of unique features of a company and its products that are perceived by thetarget market as significant and superior to the competition. There are three typesof competitive advantages namely; 32.1 Cost competitive advantage. Cost leadership can result from obtaining inexpensive raw materials, creating an efficient scale of plant operations, designing products for ease of manufacture, controlling overhead costs, and avoiding marginal customer. Having a cost competitive advantage means being the low-cost competitor in an industry while maintaining satisfactory profit margins. 32.2 Product/service differentiation competitive advantage. Because cost competitive advantages are subject to continual erosion, product/service differentiation tends to provide a longer lasting competitive advantage. The durability of this strategy tends to make it more attractive to many top managers. A product/service differentiation competitive advantage exists when a firm provides something unique that is valuable to buyers beyond simply offering a low price. 32.3 Niche competitive advantage. A niche competitive advantage seeks to target and effectively serve a single segment of the market. For small companies with limited resources that potentially face giant competitors, 15
  16. 16. Mohd Zahid Laton, FPP UiTM Pahang niche may be the only viable option. A market segment that has good growth potential but it is not crucial to the success of major competitors is a good candidate for developing a niche strategy.33. Risk bearing. In order to reduce and minimize the variety of risk in themarketing, such efforts are consider; 33.1 Individual management. By managing the good practice in management such as planning, organizing, directing and controlling resources can be use to reduce such occurrence of risk in marketing of agricultural products. 33.2 Government involvement. Price policies set up by the government so that the producers are unable to manipulate price fixing. 33.3 Complete and accurate market information. Comprehensive and accurate market information will help to reduce the risk in price stabilities. The use of media such as internet, website, and other relevant sources of information will reduce the risk in marketing between the producer and the consumer.35. Methods of transferring risk in marketing. Several method may considerby organizations such; 35.1 Insurance. Insurance is an arrangement with a company which the organizations pay regular amount of money and the insurance company agree to pay the costs. 35.2 Contract. A contract is an understanding of agreement between the producer and the future consumer at a price determined earlier and assurance in delivering quantities of the products. This way will help organizations in reducing the risk in marketing of the products. 35.3 Hedging. Buying or selling of agricultural commodities in the future markets. Future market is the purchase of products or agricultural commodities for future delivery.36. THE INSTITUTIONAL FUNCTIONAL APPROACH. Another method of analysisis to study the various agencies and business structures that perform the marketingprocesses. The institutional approach to agricultural marketing problems focusesattention on the “who”. The institutional approach considers the nature andcharacter of the various middlemen and related agencies and also the arrangementand organization of the marketing machinery. In this approach the human elementreceives primary emphasis. Middlemen are those individuals or business concernswho specialize in performing the various marketing functions involved in thepurchase and sale of goods as they are moved from producers to consumers. Themiddlemen of particular interest in marketing can be classified as follows; 16
  17. 17. Mohd Zahid Laton, FPP UiTM Pahang36.1 Merchant middlemen. Merchant middlemen take title to, andtherefore own, the products they handle. They buy and sell for their owngain. Types of merchant middlemen are; i. Retailers. The retailers buy products for resale directly to the ultimate consumer of the goods. He is the producer personal representative to the consumer. As such, his job is very complex. From the functional viewpoint, the retailer may perform all of the marketing functions. This group of middlemen is the most numerous of the marketing agencies. ii. Wholesaler. The wholesaler sells to retailers, other wholesalers, and industrial users, but does not sell in significant amounts to ultimate consumers. Wholesalers make up a highly heterogeneous group of varying sizes and characteristics. One of the more numerous groups of wholesalers are the local buyers or country assemblers who buy goods in the producing are directly from farmers and ship the products to the larger cities where they are sold to other wholesalers and processors.36.2 Agent middlemen, as the name implies, act only as representatives oftheir clients. They do not take title to, and therefore do not own, the productsthey handle. Whereas merchant wholesalers and retailers secure theirincomes from a margin between the buying and selling prices, agentmiddlemen receive their incomes in the form of fees and commissions. Agentmiddlemen can be broken down into two major groups; i. The commission man is usually granted broad powers by those who consign goods to him. He normally takes over the physical handling of the product, arranges for the terms of sale, collects, deducts his fee, and remits the balance of his principal. ii. The broker, on the other hand, usually does not have physical control of the product. He ordinarily follows the directions of his principal closely and has less discretionary power in price negotiations than commission men.36.3 Speculative middlemen are those who take title to products with themajor purpose of profit from price movements. All merchant middlemen, ofcourse, speculate in the sense that they must face uncertain conditions.Usually however, wholesalers and retailers attempt to secure their incomesthrough handling and merchandising their products and to hold theuncertain aspects to a minimum. Speculative middlemen seek out andspecialize in taking these risks and usually do a minimum of handling andmerchandising. They often attempt to earn their profits from short-runfluctuations in prices. 17
  18. 18. Mohd Zahid Laton, FPP UiTM Pahang 36.4 Processors and manufacturers primarily exist to undertake some action on products to change their form. Apart from their main processing activities, food processors take an active part in other institutional aspects of marketing. Some processors, such as meat packers, flour millers, and fruit and vegetable canners, often act as their own buying agents in the producing area. 36.5 Facilitative organizations aid the various middlemen in performing their tasks. Such organizations do not, as a general rule, directly participate in the marketing processes either as merchants, agents, processors, or speculators. One group of these organizations furnishes the physical facilities for the handling of products or for the bringing of buyers and sellers together. They receive their incomes from fees and assessments from those who use their facilities.37. Reasons for the organization of using the middlemen. 37.1 Middlemen provide greater efficiency in making goods available on a wide scale to target markets. 37.2 Middlemen reduce the number of channel transactions. 37.3 Middlemen play an important role in matching supply with demand i.e. by making the goods available at the right place, time and quantity. 37.4 Many producers lack the financial resources to carry out direct marketing. If they are to distribute the goods direct to customers, it would require them to have many shops or outlets and sales representatives. 37.5 Some producers lack the marketing experience and thus rely on experienced middlemen and their management ability. 37.6 Producers have more time to increase their investment on Research and Development in their business and earn a greater return.38. Factors influencing the selection of marketing channels. 38.1 Distance between the producer and the consumer. Distance between the producer and the consumer will enhance the high cost of marketing channels. To reduce such cost the needs of middlemen to market the products from the producer to the consumer. 38.2 Nature of products. Most of the agricultural products are perishable in nature. To reduce such perishable, the marketing channel must be shorten or the introduction of new packaging and fast transportation is needed to reduce such cost and so that the consumer will get the products at a faster time. 18
  19. 19. Mohd Zahid Laton, FPP UiTM Pahang38.3 Production skill. If a producer produces the products at a largerscale, this will reduce the marketing cost of the production. 19