Chapter One

Introduction to Agricultural
Marketing

Prepared by: Yonas M.

 The sphere within which price determining forces
operate.
 Area within which the forces of demand and
supply converge to establish a single price.
 A social institution which performs activities and
provides facilities for exchanging commodities
between buyers and sellers.
 Economically interpreted, the term market
refers, not to a place but to a commodity or
commodities and buyers and sellers who are in free
exchange with one another.
Components of a Market
For a market to exist, certain conditions must
be satisfied:
 Existence of a good or commodity
 Existence of buyers and sellers
 Business relationship between buyers and sellers
 Demarcation of area such as place, region, country
or the whole world
Market structure
Meaning
 The term structure refers to something that has
organization and dimension – shape, size and design
Market structure refers to:
 Organizational characteristics of a market which
influence the nature of competition and pricing, and affect
the conduct of business firms,
 Characteristics of the market which affect the traders
behaviour and their performances;
An understanding and knowledge of the market structure
is essential for identifying the imperfections in the
performance of a market
Components of Market Structure

The components of the market structure, which

together determine the conduct and performance of
the market, are:

 Concentration of market power:

 Degree of product differentiation:
 Conditions for entry of firms in the market:
 Flow of market information:
 Degree of integration:
Dynamics of Market Structure – Conduct
and performance:

 The market structure determines the market conduct

and performance.
 The term market conduct refers to the patterns of
behaviour of firms, especially in relation to pricing
and their practices in adapting and adjusting to the
market in which they function.
Specifically, market conduct includes:
 Market sharing and price setting policies;
 Policies aimed at coercing rivals; and
 Policies towards setting the quality of products.
Market performance
 Refers to the economic results that flow from
the industry as each firm pursues its particular
line of conduct.
For a satisfactory market performance, the
market structure should keep pace with the
following changes:
 Production pattern:
 Demand pattern:
 Costs and patterns of marketing functions:
 Technological change in Industry:
What is agricultural marketing?
Concept and Definition:
 Agricultural marketing - composed of two words- “Agriculture”
and “Marketing”.
 Agriculture, in the broadest sense, means activities
aimed at the use of natural resources for human welfare,
i.e., it includes all the primary activities of production.
 But, generally, it is used to mean growing and/or raising
crops and livestock.
 Marketing connotes a series of activities involved in
moving the goods from the point of production to the point of
consumption.
 It includes all the activities involved in the creation of time,
place, form and possession utility.
Cont… What is agricultural marketing?

 Therefore, the study of agricultural marketing,

comprises all the operations, and the agencies
conducting them, involved in the movement of
farm-produced foods, raw materials and their
derivatives.
Scope and Subject Matter of
Agricultural Marketing
Agricultural marketing in a broader sense is
concerned with:
 The marketing of farm products produced by
farmers
 The marketing of farm inputs required by farmers in
the production of farm products
Subject of agricultural
marketing
 This includes product marketing as well as input
marketing.
 The farmers produce their products for the markets
 The subject of output marketing is as old as
civilization itself.
 Input marketing is a comparatively new subject.
 Farmers in the past used such farm sector
inputs as local seeds
 The new agricultural technology is input-responsive.

 Thus, the scope of agricultural marketing must

include both product marketing and input
Cont… Subject of agricultural marketing
Therefore, the subject of agricultural marketing
includes;
 Marketing functions,
 Agencies,
 Channels,
 Efficiency and costs,
 Price spread and market integration,
 Producers surplus,
 Government policy and research,
 Training and statistics on agricultural marketing.
Importance of Agricultural
Marketing
Optimization of Resource use and Output
Management
 Efficient marketing system can also contribute to an
increase in the marketable surplus by scaling down the
losses arising out of inefficient processing, storage and
transportation.
Increase in Farm Income
 By reducing the number of middlemen or by restricting the
commission on marketing services
 It guarantees the farmers better prices for farm products
and induces them to invest their surpluses in the
purchase of modern inputs so that productivity and
production may increase.
Cont… Importance of Agricultural
Marketing
Widening of Markets
 By taking the products to remote corners both within
and outside the country, i.e., to areas far away from
the production points.
 The widening of the market helps in increasing the
demand on a continuous basis, and thereby guarantees a
higher income to the producer.
Growth of Agro-based Industries
 An improved and efficient system of agricultural
marketing helps in the growth of agro-based industries
and stimulates the overall development process of the
economy.
Cont… Importance of Agricultural
Marketing
Price Signals
 An efficient marketing system helps the farmers in
planning their production in accordance with the needs
of the economy.
Adoption and Spread of New Technology
 The marketing system helps the farmers in the
adoption of new scientific and technical knowledge.
Employment
 The marketing system provides employment to
millions of persons engaged in various activities, such
as packaging, transportation, storage and processing, etc.
Cont… Importance of Agricultural
Marketing
Addition to National Income
 Marketing activities add value to the product
thereby increasing the nation’s gross national
product and net national product.
Better Living
 The marketing system is essential for the
success of the development programmes which
are designed to uplift the population as a whole.
Cont… Importance of Agricultural
Marketing
Creation of Utility: Marketing adds cost to the
product; but, at the same time, it adds utilities to the
product.
The following four types of utilities of the product are
created by marketing’
 Form Utility: by the processing function,
 The product becomes more useful than it is in the form
in which it is produced by the farmer.
 Place Utility: by the transportation function by
shifting them to a place of need from the place of plenty.
 Products command higher prices at the place of need
than at the place of production
Cont… Importance of Agricultural
Marketing

 Time Utility: The storage function adds time utility to

the products by making them available at the time when
they are needed.
 Possession Utility: The marketing function of buying
and selling helps in the transfer of ownership from one
person to another.
 Products are transferred through marketing to persons having
a higher utility from persons having a low utility.
Why is agricultural marketing important?

Reflect on why Agricultural Marketing is important:

 For us as a marketing management student?
 For a country like Ethiopia?
The importance of agricultural marketing is as follows:

 Provides raw materials for industries.

 Provides food grains for the entire population and
fodder for cattle.
 Provides a base for expansion of internal market of
a country.
 Helps in the expansion of international market also
when marketable surplus found in excess of the
demand of a country, fetches a considerable
amount of foreign exchange.
Difference in Marketing of Agricultural
and Manufactured Goods
 The special characteristics which the agricultural sector
possesses, and which are different from those of the
manufactured sector, are:
1. Perishability of the Product: Most farm products are
perishable in nature; but the period of their perishability
varies from a few hours to a few months.
Cont… Difference in Marketing of Agricultural
and Manufactured Goods
2. Seasonality of Production: Farm products
are produced in a particular season; they cannot
be produced throughout the year.
 In the harvest season, prices fall.
 But the supply of manufactured products can be
adjusted or made uniform throughout the year.
 Their prices therefore remain almost the same
throughout the year.
Cont… Difference in Marketing of Agricultural
and Manufactured Goods
3. Bulkiness of Products: makes their transportation and storage
difficult and expensive.
 This fact also restricts the location of production to somewhere
near the place of consumption or processing.
 The price spread in bulky products is higher because of the higher
costs of transportation and storage.
Cont… Difference in Marketing of Agricultural and
Manufactured Goods

4. Variation in Quality of Products: makes their

grading and standardization somewhat difficult.
 There is no such problem in manufactured goods,
for they are products of uniform quality.
Cont… Difference in Marketing of Agricultural
and Manufactured Goods

5. Irregular Supply of Agricultural Products: The

supply of agricultural products is uncertain and
irregular because of the dependence of agricultural
production on natural conditions.
 With the varying supply, the demand remaining
almost constant, the prices of agricultural
products fluctuate substantially.
Cont… Difference in Marketing of Agricultural
and Manufactured Goods
6. Small Size of Holdings and Scattered
Production: This makes the estimation of supply
difficult and creates problems in marketing.
Cont… Difference in Marketing of Agricultural
and Manufactured Goods
7. Processing: Most of the farm products have to
be processed before their consumption by the
ultimate consumers.
 Problems affecting agricultural
marketing in Ethiopia
Unstable price
 It affects both producers and consumers
 Public sector withdrawal from marketing and price
stabilisation operations has not been replaced by
adequate alternative mechanisms
 Rigidity in input credit provision and repayment
requirements
 Weather and productions risks
Solutions/actions required
 Facilitation of private and cooperative sectors through
finance, credit and regulations
Cont… Problems

Finance and credit

 Input credit limited in supply
 Repayment schedules rigid
 Credit for marketing operations both at farm and off-farm levels
inaccessible or inadequate
 Inadequate institutional arrangements for savings mobilisation;
traditional savings and credit institutions, e.g. ekub and edir, not
involved in savings mobilisation for productive purposes.
Solutions/actions required
 Investment policy should encourage the private sector to invest in
marketing operations and infrastructure
 Subsidise interest rate
Cont… Problems
Post-production losses
 About 20% or more in some crops in Ethiopia are reported to
be lost after harvest
 Problems at all levels: production practices, harvesting, drying,
husking/grinding, storage methods
Solutions/actions required
 On-farm actions may be facilitated by extension education e.g.
planting time, selling time, storage and marketing practices,
group marketing where possible and appropriate.
 Off-farm investments, especially for storage and processing,
need to consider optimal location, appropriate technology, and
source of finance.
Cont… Problems

Transportation and communication

 Inadequate road networks, so limited access to input and
output markets and services, high transaction costs,
disincentive for adoption of new technologies
Solutions/actions required
 Investment in road infrastructure and in agricultural
development need to be complementary to maximise benefits
from both investments
 Investment to improve rural markets to link them better with
larger markets
Cont… Problems

Grades and standards

 Traditional and informal trading recognise many grades and
quality standards based on norms accepted by the local
market and the trading community.
 Improved technology and move towards homogenisation of
production will lead to more uniform grades and standards.

Solutions/actions required
 In partnership with traders, use traditionally accepted grades
and standards, gradually standardise them across markets
and geographical regions, and formalise them through
extension education and training.
Cont… Problems
Storage
 On-farm storage methods poor, capacity inadequate.
 Existing storage facilities are not optimally located to
move grains from surplus to deficit areas at least cost.
Solutions/actions required
 Extension recommendation need to include methods
of storage
 Need to facilitate private and cooperative sector
investment in storage through finance and credit
provision.
Cont… Problems

Processing
 On-farm processing methods poor, lead to losses
and poor quality output
 Inadequate rural electrification limits scope for
expansion of better methods
Solutions/actions required
 Extension recommendation need to include
improved processing methods
 Investment in processing capacity need to be
increased mainly by supporting private sector
Cont… Problems
Information
 Market and price information not accessible to producers and
local traders
 Information on profitability of inputs and technology not
adequately covered,
Solutions/actions required
 Extension material should include both information on
production and marketing practices
 Cost, price and profitability information should be provided not
as single values but as possible ranges within which rational
choices may be made.
Cont… Problems
Transaction costs
 All the problems mentioned above contribute to high
transaction costs leading to either no or low participation in
market and also low returns where some participation is
prevalent
Solutions/actions required
 Institutional mechanisms needed to overcome the problems in
order to reduce transaction costs
 Cooperatives are being promoted, but success will depend on
real farmer participation and farmer control in management.
 Evaluation needed to identify where improvement can be
made.
The relationship between agriculture and the
food marketing system
 The food industry is a major user of agricultural
products and commodities.
 As disposable incomes increase in developing
countries, the food industry will have to meet new
and different needs from its more affluent
consumers.
 The food industry will, in turn, require agriculture
support its efforts to meet the new challenges and
opportunities.
 Agriculture will be required to supply throughout the
year rather than seasonally;
 Reliability in the quantity, quality and timing of
supplies will become the major determinant in
supplier selection;
 Innovative producers who can provide differentiated
products and products that make food processing
easier or cheaper are more likely to survive than
those who persist in producing traditional products
using traditional farming methods;
 and issues related to the health aspects of food
consumption will become increasingly important.
Agricultural and food marketing enterprises

 Private companies,
 Marketing boards and
 Co-operatives.
Private enterprise
 Private enterprise has much higher level of financial
independence from government than public
enterprises.
 Moreover, private enterprise is able to adapt,
rapidly, to changing circumstances and
opportunities
 They are usually able to provide what consumers
want at a lower cost than public enterprises.
Strengths of private enterprise
Low operating costs: The private entrepreneur has every
motivation to contain costs since to do otherwise erodes his/her
profit margin.
High levels of equipment utilization: Since private
enterprise has as its prime objective, profit, everything is done to
maximize the use of capital equipment, and thereby lower unit
costs.
Adaptability: Decision making within private enterprise
tends to be quicker, because of the absence of a weighty
bureaucracy, than in public enterprise equivalents.
Marketing boards in developing countries

 Marketing boards are, in most instances a

government agency
 Less frequently they are voluntary organisations
established by farmers/producers.
 In many cases the establishment of a marketing
board was a reaction to situations where middlemen
and/or foreign buyers were perceived to hold
monopsonistic power over producers.
The effectiveness of a particular marketing
board is often viewed in terms of three factors:
 Its contribution to orderly and efficient marketing
 The reduction in the capacity of intermediaries to manipulate
margins at the expense of producers and consumers
 The generation of producer-oriented monopoly power
The role of the marketing boards
Change agent: Organizing producers into
monopolistic agencies with real countervailing power.
Regulatory role: Marketing boards may act as
“watch-dogs” over agreed marketing practices and
procedures.
Facilitator: The last of these usually takes the form
of the guaranteeing of prices.
 In the case of tree crops prices are announced in
advance of harvest.
Co-operatives in the agriculture and food
sectors
 The co-operative enterprise has its origins in the 19th century and
they exist in all countries of the world and operate under diverse
political systems: from communism to capitalism.
The motivation to form co-operatives has three particular
aspects:
 The need for protection against exploitation by economic
forces
 The need for self-improvement by making the best use of
often scarce resources
 The concern to secure the best possible return from whatever
from of economic activity within which the individual engages
whether as a producer, intermediary or consumer.
Coop’s… cont.
 The underpinning principles with are those of self-help,
voluntary participation, equity, democracy, and a common
bond of common need and purpose.
 The cohesion of the group is maintained by ensuring that
individual members cannot secure power or gain advantages
at the expense of the others.
The Structure and organization of co-operatives

 There are two principal forms of co-operative organisations:

primary co-operatives and secondary co-operatives.
 The basic unit in the co-operative systems is the primary co-
operative.
 A primary co-operative is one in which the shareholder are
individuals; each of them having an equal share in its control.
 While a primary co-operative has individual persons as
members, a secondary (or federal) co-operative is one in
which other co-operatives are the members.
 Apart from this basic difference the structure and organization
of both types follow a very similar pattern.
End of Chapter One