This chapter will enable students to understand the different stages of agricultural commodity marketing.The chapter also emphasizes the importance of grading and classification of agricultural commodities to the students.

1. Agribusiness Marketing
Agricultural Commodity Marketing
Marketing Issues Related To Form
Daisy Odunze

2. MARKETING ISSUES RELATED TO
FORM
 Grading and Standardization of
agricultural commodities
 Unlike manufactured products, for which
specifications can be met with very close
tolerances, farm products come off the
production line carrying a spectrum of quality.
 Public and private programs are continuing to
assist farmers to produce to specification, but
the vagaries of Mother Nature will often
interface and thwart those efforts.

3. MARKETING ISSUES RELATED TO
FORM
 Grades and standards help buyers and sellers in
the marketing chain communicate quality among
themselves and back to producers.
 Grading is the evaluation of an agricultural
commodity for compliance with official
standards.
 Certification is the official documentation of the
grading evaluation and the identification of the
graded commodity with an official grade mark or
seal.

4. MARKETING ISSUES RELATED TO
FORM
 Quality grade marks are usually seen on beef,
lamb, veal, chicken, turkey, butter, and eggs.
 The grade mark isn't always visible on the retail
product. In these commodities, the grading
service is used by wholesalers, and the final retail
packaging may not include the grade mark.
 However, quality grades are widely used--even if
they are not prominently displayed--as a
"language" among traders.

5. MARKETING ISSUES RELATED TO
FORM
 Consumers, as well as those involved in the
marketing of agricultural products, benefit from
the independent assessment of product quality
provided by grade standards.

6. MARKETING ISSUES RELATED TO
FORM
 Grading is based on standards, and standards are based
on measurable attributes that describe the value and
utility of the product. Beef quality standards, for
instance, are based on attributes such as
 marbling (the amount of fat interspersed with lean
meat),
 colour,
 firmness,
 texture, and
 age of the animal, for each grade.

7. MARKETING ISSUES RELATED TO
FORM
 In turn, these factors are a good indication of
tenderness, juiciness, and flavour of the meat--all
characteristics important to consumers. Prime,
Choice, and Select are all grades familiar to
consumers of beef.

8. MARKETING ISSUES RELATED TO
FORM
 Standards for each product describe the entire
range of quality for a product, and the number of
grades varies by commodity.
 There are eight grades for beef, and three each for
chickens, eggs, and turkeys. On the other hand,
there are 38 grades for cotton, and more than 312
fruit, vegetable, and specialty product standards.

9. MARKETING ISSUES RELATED TO
FORM
 It is important to have a grading system which
accurately describes products in a uniform and
meaningful manner.
 Grades and standards contribute to operational
and pricing efficiency by providing buyers and
sellers with a system of communicating price and
product information.

10. MARKETING ISSUES RELATED TO
FORM
 By definition, commodities are indistinguishable
from one another. However, there are differences
between grades and this has to be communicated
to the market.
 Prices vary among the grades depending upon the
relative supply of and demand for each grade.
Since the value of a commodity is directly,
affected by its grade, disputes can and do arise.
 In fact, the government may establish grading
services to serve as a disinterested third party.

11. MARKETING ISSUES RELATED TO
FORM
 Grading typically occurs at the assembly stage or
when a product moves into storage, during
storage, or just before it leaves storage.
 Grading is not normally a separate marketing
stage, It is a function provided by the storage firm
or the commodity merchant or the government.
 The absence of grades and standards restricts the
development of effective and efficient marketing
systems.

12. MARKETING ISSUES RELATED TO
FORM
 Effective standardization is basic to an
efficient pricing process.
 Consumers use the price differentials they are
willing to signal to suppliers what they want
with regard to produce quantities and qualities.
If produce is not in well defined units of
quantity and quality then the pricing
mechanism fails as a device for
communicating consumer wants to suppliers

13. CONSUMER AWARENESS AND
REQUIREMENTS TO COMPLY WITH
STANDARDS

14. Standards
 Agricultural products vary greatly in their
intrinsic characteristics. Some, such as color or
odor, are recognizable to the naked eye, whereas
other characteristics related to the production
process (i.e. the use of pesticides, moisture
content, etc.) may require testing.

15. Standards
 Traditionally standards in developing countries
have been informal, and based primarily on
product shelf life, with buyers and sellers
bargaining over products that can be assessed
physically.
 Global markets, for a number of reasons, require
formal and widely recognized standards.

16. Standards
 Products are handled in large volumes over
greater distances.
 Buyer power has increased, and standards reduce
buyer and retailer risk, as well as increasing shelf
life and reducing waste.
 Standards permit trade by specification, reducing
transactions costs. Banks are more willing to
provide credit for goods with a known market
value.

17. Standards
 In addition to these concerns, increased consumer
awareness in developed countries has driven the
implementation of sanitary and phytosanitary
measures to address health and safety concerns,
social standards to protect workers, and
environmental measures such as reduced pesticide
levels.

18. Standards
 The phenomenal growth of the organic market in
recent years is one example of how consumer
preferences are influencing agricultural practices.
 Formerly, standards were seen as the domain of
the public sector while grades were determined by
the private sector. Standards and grades today are
increasingly determined and enforced by private
industry.

19. Standards
 While many developing country ministries of
agriculture continue to offer or require certain
types of certification for sale or export, in many
cases the standards used are less strict than those
required by buyers, and thus they are irrelevant.
 In other cases, developing country governments
lack the capacity to administer and enforce
standards.

20. Standards
 There are numerous potential benefits for developing
countries conforming to standards, such as:
 reduced transaction costs,
 access to more stable markets and high-end
consumers,
 increased earnings,
 reduced post-harvest deterioration, improved health
and safety of workers and consumers, and
 greater provision for worker welfare and
environmental issues.

21. Standards
 Furthermore, certifications offer producers an
opportunity to add value and/or differentiate their
products. However, it is no wonder if developing
country producers feel overwhelmed by the range
of certification options they face
 shade-grown,
 HACCP,
 organic,
 bird-friendly,
 ISO 9000 and 14000, fair trade.... the list goes on.

22. Standards
 Some certifications are mandatory, others “boutique”
certifications are voluntary.
 Certifications can be quite expensive, and usually
have to be updated/renewed annually.
 Some are required by each producer, others can be
handled at the collection point by an organization
(perhaps a cooperative or association).
 Some can be obtained in a few days or weeks, others
take years (such as organic certification, which takes
a minimum of 3 years).

23. Standards
 There are three general categories of standards
and certifications: quality (including food safety),
environmental, and social (such as labor
standards).
 Key components of compliance with standards
and certifications include:
 The ability to trace a product (or input) back to its
source of origin.
 Auditing systems.
 Labeling.

24. Standards
 Compliance with international standards and
certifications pose two potentially inhibiting
barriers for small producers trying to gain access
to foreign markets:
 It is not always easy to gain knowledge of these
standards, and
 Even armed with knowledge, producers may lack the
skills, technology and capital to implement the
measures necessary to comply with the standards.

25. Standards
 Under the best of circumstances, compliance with
international standards may simply be
prohibitively costly for small developing country
producers. Some national governments and
international donors have focused their
interventions on reducing these barriers.
 A central challenge for agriculture development
today is learning how to facilitate such processes
to include and benefit small producers.

26. Value addition versus processing
 Value addition in the agro-food system is often
confused with processing, which changes the
form of the product.
 Value can be added to products without changing
their physical form and processing (in the sense of
changing the form of the product) does not
necessarily add value to the product.

27. Value addition versus processing
 Value addition does involve processing in the
sense that the product undergoes some process
(which can just involve cleaning, grading, or
labelling), after which a buyer is willing to pay a
price for the product that more than compensates
for the cost of the inputs used in the process.

28. Value addition versus processing
 Sorting a heterogeneous mix of mangoes into
high-quality fruit targeted to the fresh fruit export
market and lower-quality fruit targeted to juice
production for local consumption allows a firm to
separate markets and practice price discrimination
by charging higher prices in export markets for
high-quality fresh mangoes, thereby increasing its
earnings.
 In a market economy, this added value is typically
manifested by the processor earning a profit.

29. Value addition versus processing
 Across the continent, new opportunities for
upgrading into value added production and/or
processing of agro-food and agro-industrial
products have emerged, though in some value
chains, actors are under pressure from
competition in other developing regions of the
world and from increasing demands or decreasing
prices applied by retailers and processors in
developed countries.

30. Value addition versus processing
 The term ‘value chain’ describes the full range of
value-adding activities that firms, farmers and
workers carry out to bring a product from its
conception to its end use and beyond.
 The benefits of supplying specific value chains
vary dramatically depending on how these chains
are governed, whether suppliers receive inputs,
knowledge and ancillary services as part of their
engagement, and what end market they cater to.

31. Value addition versus processing
 While supplying some global value chains can
offer handsome rewards in comparison to regional
or local value chains, these often come at a high
cost in terms of increased risk and greater
vulnerability.
 Many factors determine whether a value chain is
local, regional or global27 but in general, what
keeps a value chain local (or reverts a global to
local) is a combination of:

32. Value addition versus processing
 Traditional trade barriers (tariffs, subsidies in
competing producer countries).
 Standards, which have tended to become stricter, more
numerous, and ever changing in rich countries.
 Greater profitability vis-à-vis risks in local markets.
 The inability of local players to match volume and
logistical and quality specifications demanded by
international buyers.
 The emergence of competitors that squeeze out a group
of players (or a country) from a value chain.

33. Value addition versus processing
 Farmers, traders and processors based in Africa
are said to upgrade when they acquire new
capabilities or improve existing ones.
 Upgrading refers to innovation or improvements
among a firm or group of firms that increases
value added and/or competitiveness
 Upgrading paths (and possible combinations of
paths) can be characterized as follows:

34. Value addition versus processing
 Product upgrading: this is based on increased
efficiency. It involves moving into more
sophisticated products with increased unit value,
or with more complex content, or that match more
exacting product standards
 This requires knowledge of what the end
consumer wants.
 Improvements can include planting desired
varieties, better harvest and postharvest handling,
packaging improvements, more efficient
transport, etc.

35. Value addition versus processing
 Process upgrading: achieving a better
transformation of inputs into outputs through the
reorganization of productive activities, and/or
from improving standards in quality management,
environmental impact and the social conditions of
production.
 Examples include providing technical assistance
(cultural and postharvest handling practices)
and/or improved inputs (improved varieties,
fertilizers, etc.)

36. Value addition versus processing
 Functional upgrading: acquiring new functions
that increase the skill content of activities and/or
improve profitability. Often, this implies moving
into value-added activities beyond the farmgate
(forward integration ; moving from production
only, to production and primary processing).
 Examples include simple processing (such as
drying), or packing into consumer-ready packs
(such as dried beans in small bags)

37. Value addition versus processing
 Intra-industry upgrading: Moving to a new market
channel, i.e., selling to large retailers or export
brokers rather than local markets.
 This requires knowledge of exact product
specifications. SMEs must have some access to
this information as well as the ability to comply.

38. Value addition versus processing
 Inter- industry upgrading : applying competences
acquired in one function of a chain and using
them in a different sector/chain. It involves
Moving to a new value chain to offer a different
product. This would include diversifying crops or
substituting high-value crops for traditional
production.

39. Value addition versus processing
 Other forms of upgrading:
 matching strict logistics and lead times (time to
market),
 consistently delivering supplies reliably and
homogeneously (a major challenge in agro-food
products),
 being able to supply large volumes (thus improving
economies of scale)—
these can involve a combination of the upgrading types
listed above.

40. Value addition versus processing
 There is no ideal path of upgrading—success will
depend on the value chain, the strategic objective
of the industry (and/or government), and the
specific structure and contingent situation in a
given industry.
 Furthermore, where the profitability of a
particular function is decreasing or carrying out
such a function becomes too risky, African actors
could be better off moving back to simpler
products, processes or functions (also known as
downgrading

41. Value addition versus processing
 Successful upgrading in value chains depends not
only on a business-friendly operating environment
for private sector players, but also on specific
opportunities that may be linked to a particular
product or product form, to the emergence of
particular technologies, to changes in
international trade rules, or to the emergence of
niche markets.

42. Value addition versus processing
 Such windows of opportunity are often time
bound: first-mover advantage is important, and
abrupt changes in price and/or quality demands
mean that rewards may be limited in time.

43. The end
 References
 John. N. Ferris (2005) Agricultural Prices
and Commodity Market Analysis 2nd
edition: Michigan state university press.
 James Vercammen (2011) Agricultural
Marketing; Structural Models for Price
Analysis 1st edition, Routledge publishers.