Agricultural and livestock marketing

Chapter one: Agricultural marketing- Definition and Scope

Objectives
After the completion of this chapter students will be able to: Identify the concept and definition of Agricultural marketing Describe the classification and characteristics of Agricultural products Explain the importance of Agricultural marketing in the economic development Discuss the history and growth of Agricultural marketing

Group discussion
Form a group contains four or five members: Discuss on: 1. What is agricultural marketing 2. What looks like the place of Agricultural marketing in agricultural development of our country 3. The importance of agricultural marketing in the economic development.

Attendance Date: Hidar, 9/2004

1. Assefa L. 2.Taddese 3. Hassen H 4. Bogale 5. Essayas 6. Wubetu 7. Dawit 8. Wegen 9. Yihun 10.Adebabay

1. AGRICULTURAL MARKETING-Definition and scope

1.1 Concepts and definition 1.2 Classification of agricultural products 1.3 Characteristics of Agricultural products 1.4 Agricultural marketing and Economic development 1.5 History and growth of Agricultural marketing

1.1 Concepts and definition of Agr. marketing

Agricultural marketing was, till recently, not fully accepted as an essential element in agricultural development in the developing countries. Agriculture marketing occupies a fairly low place in agricultural development policies of developing countries. Countries has emphasized that it is not enough to produce a crop or an animal product; it must be satisfactorily marketed.

Contd
The term agricultural marketing is composed of two wordsagriculture and marketing. Agriculture, in the broad 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.

Contd

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.

According to Thomson, 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, such as textiles, from the farms to the final consumers, and the effects of such operations on farmers, middlemen and consumers. This definition does not include the input side of agriculture.

Agricultural marketing system in developing countries can be understood to compose of two major subsystem product marketing and input (factor) marketing The actors in the product marketing subsystem include farmers, village/primary traders, wholesalers, processors, importers, exporters, marketing cooperatives, regulated market committees and retailers.

The input sub-system includes input manufacturers, distributors, related associations, importers, exporters and others who make available various farm production inputs to the farmers. Agricultural marketing is the study of all activities, agencies and policies involved in the procurement of farm inputs by the farmers and the movement of agricultural products from the farms to the consumers. The agricultural marketing system is a link between the farm and the non-farm sectors.

Agricultural marketing, therefore, can be defined as comprising of all activities involved in supply of farm inputs to the farmers and movement of agricultural products from the farms to the consumers. The scope of Agricultural marketing include both product marketing and input marketing.

1.2 Classification of agricultural products

Agricultural

products can broadly be classified into seven categories: Food grain items Oilseed produce Horticulture produce Fiber products Beverage items Cash items Animal produce

Classification and subclassification of Agricultural products. items I. Food grain

Wheat Rice Maize II. Oilseed produce Groundnut Sunflower Coconut Soyabean Mustard Castor

III. Fiber products Cotton Jute IV. Beverage items Tea Coffee Tobacco V. Cash items Sugarcane Rubber

VI. Animal produce Milk Fish Eggs Poultry Wool Meat

VII. Horticulture produce Flowers Fruits Roses Jasmine Spices Vegetables

Cashew nuts Potatoes Mango Areca nuts Cauliflower Grapes Medicinal plants Onion Orange Green leaf

Apple

Cabbage
Guava

Classification of Agricultural products Agricultural products can be classified into

various categories on the following basis: (1) On the basis of season Agricultural products can be classified into two categories on the basis or seasons; Rabi and Kharif. (i) Rabi: Sowing is done from October to December and harvesting season is from March to May. The various Rabi crops include wheat, potatoes and barley.

(ii) Kharif: Sowing for the crops is done from April to July and harvesting is done from September to December. The various crops of Kharif season include rice, sugarcane, jute, bajra, maize, cotton and groundnut.

(2) On the basis of encashability Agricultural products can be divided into two categories-food crops and cash crops.

The food crops refer to rice, wheat, barley, maize etc. while cash crops or commercial crops include tea, coffee, rubber, oil seeds, tobacco etc.

(3) On the basis of perishability Agricultural products can be classified into two categories perishable and nonperishable products. Generally all the vegetables fall in the category of perishable agricultural products as they survive only for a few days while cereals and pulses can survive for years and hence can be classified in the category of non-perishable agricultural

(4) On the basis of processing Some products require processing before they are finally consumed while others need no processing at all. cotton, jute, wheat, rice etc. require processing but vegetables, milk, fishes etc. do not require any processing.

1.3 Characteristics of Agricultural products

The

special characteristics which the agricultural sector possesses, and which are different from those of the manufactured sectors are: Uncertainty Heterogeneity of the produce Perish ability Seasonality Processing Bulkiness Small size of holdings and scattered

Uncertainty The supply of Agricultural products is Uncertain and irregular because it is largely depend on rainfalls (natural conditions)
a)

b) Heterogeneity of the produce There is a large variation in the quality of Agricultural products, which makes their grading and standardization somewhat difficult.

Contd
C) Seasonality Farm products are produced at a particular season, they can not produced throughout the year. Hence maintaining smooth supply of agricultural products throughout the year, calls for good and large storage space.

d) Perish ability Agricultural products are more perishable than industrial goods. Most of the farms products perishable and can not remain long on the way to final consumer without suffering loss and deterioration in quality. e) Processing Most of the farm products need some kind of processing before they are consumed.

Contd

f) Bulkiness The characteristics of bulkiness of most farm products makes transportation and storage difficult and expensive. g) Small size of holdings and scattered production Farm products are produced throughout the length and breadth of the country and most of the producers are of small size. This makes the estimation of supply difficult and creates problems in marketing

1.4 Agricultural marketing and Economic development

The importance of agricultural marketing in the economic development can be understood through following reasons. a) Optimum use of resources A good marketing system leads to the optimum use of resources and output management. An efficient marketing system should be developed so that we can scale down the losses arising out of inefficient processing, storage, and transportation. As a result the income of the farmers increase, and that result in increased demand for industrial products.

b) Increase in farm income An efficient marketing system ensures higher levels of income for the farmers by reducing the number of middlemen or by restricting the cost of marketing services and the malpractices adopted by them. It avoids the commission based system in which farmers are not involved.

C) Widening of markets An efficient marketing system widens the market for the products to trade anywhere in the world. The widening of the market helps in increasing the demand on a continues basis, and thereby, guarantees a higher income to the producer.

d) Growth of Agro-based industries An improved and efficient system of agricultural marketing helps in the growth of agro-industries and stimulates the overall development process of the economy. Many industries like cotton, sugar, edible oils, food processing and jute depends on agriculture for the supply of raw material.

e) Adoption and spread of new technology. The marketing system helps the farmers in the adoption of new scientific and technical knowledge. f) Employment creation The marketing system provides employment to millions of persons engaged in various activities, such as packaging, transportation, storage and processing.

g) Addition to national income Marketing activities add value to the product thereby increasing the nations gross national product and net national product.

h) Better standard of living Better marketing system leads to the better standard of living of the farmers. This system provides more disposable income in the hands of the farmers and that income is spent by the farmers to avail and enjoy modern facilities like telephones, bikes, TV, clothing, and even cars and computers. Therefore, modern farmers are able to enjoy better standard of living besides contributing to the growth of the economy.

i) Earning foreign exchange

1.5 History and growth of Agricultural marketing

2. ORGANISATION OF AGRICULTURAL MARKETING

At the end of this chapter you will be able to: Identify the meaning and components of a market Identify the various methods of classifying agricultural markets Identify the components of market structures and its dynamics Identify the market forces and how they affect the price determination.

2. Organization of Agricultural marketing

2.1 meaning of market 2.2 Components of a market 2.3 classification of markets 2.4 market structure 2. 5 Market forces

Absentee
Samuel Yihun Dawit Wubetu Anteneh

2.1 Organizations of Agricultural markets

In order to know more about agricultural marketing, let us discuss how agricultural marketing activities are organized. This calls for a clear understanding of concept components of a market, classification of markets, market structure and market forces

2.1 meaning of a market

The word market comes from the Latin word marcatus w/c means merchandise or trade or a place where business is conducted. The word market has been widely and variedly used to mean: a) A place or a building where commodities are bought and sold, e.g super market b) potential buyers and sellers of a product eg. Wheat market and cotton market c) Potential buyers and sellers of a country or regions eg. Ethiopian market, African market d) An organization which provides facilities for exchange of commodities

The word market in the economic sense carries a broad meaning 1. A market is the sphere with in which price determining forces operate 2. A market is the area within which the forces of DD and SS coverage to determine a single price 3. The term market means not a particular market place but the whole of any region 4. Markets means a social institutions w/c performs activities and provide facilities for exchange commodities b/n buyers and sellers

5. Economically interpreted, the term market refers, not to a place but to a commodity/ies and buyers and sellers are in free intercourse with one another. 6. The AMA has defined a market as the aggregate demand of the potential buyers for a pdt/service, while Kotler defined market as an area for potential exchange

2.2 Components of a market

1.

2.

3.
4.

For a market to exist, certain conditions must be satisfied. These conditions should be both necessary and sufficient. The conditions termed as the components of a market. The existence of a good or commodity for transactions( physical existence is , however, not necessary); The existence of buyers and sellers Business r/n s/p or intercourse b/n buyers and sellers Demarcation of area such as places, regions, countries or the whole world. The existence of

2.3 Classification of Markets Markets may be classified on the basis of various dimensions. There are various dimensions of any specified market. These dimensions are : Location or place operation Area of coverage Time span Volume of transaction Nature of transactions Number of commodities Degree of competition

Contd
Nature of commodities Stage of marketing Extent of public intervention Types of population served Accrual of marketing margin

On the basis of location or place of operation Markets are of the following types: a) Village market: a market w/c is located in small village b) Primary markets: markets are located in towns near the centers of production of agricultural products. Transaction in these markets takes place b/n the farmers and primary traders. c) Secondary wholesale markets : located generally at district HQs or important trade centers. The transactions take place b/n the village traders and wholesalers
1.

d) Terminal markets: one where the pdt is either finally disposed of to the consumer or to the processor or assembled for exports. Such markets are usually situated in metropolitan cities e) Seaboard markets: which are located near the seashore and are meant mainly for the import and/or export of goods. These are generally seaport towns.

2) On the basis of Area/coverage

Depending upon the type of area served, the agricultural markets can be classified as a) Local or village markets: The local markets cater to the needs of only the local population. It exist mostly for perishable commodities in small lots b) Regional markets: a market in w/c buyers and sellers for a commodity are drawn from a larger area than the local markets c) National markets d) International markets

3) On the basis of time span/frequency a) Short period markets: the mkts w/c are held only for a day or few hours. Products highly perishable in nature. b) Periodic markets:are held weekly, biweekly, fortnightly or monthly c) Long period markets: are held for a longer period. The commodities traded in these markets are less perishable and can be stored for sometime; like food grains and oilseeds. d) Secular markets: are permanent in nature. Pds are durable in nature and can be stored for many years. Eg, machinery and manufactured goods

4) On the basis of volumes of transaction a) Wholesale market: is one in w/c commodities are bought and sold in large lots or in bulk. b) Retail market: is one in w/c commodities are bought by and sold to the consumers as per their requirements. 5) On the basis of transaction a) Spot or cash markets: A market in w/c goods are exchanged for money immediately after sale b) Forward markets: the commodities are traded for future delivery.

6) On the basis of number of commodities in which transaction takes place a) General markets: A market in w/c all types of commodities, such as food grains, oilseeds, fiber crops etc, are bought and sold. b) Specialized markets: A market in w/c transactions take place only in one or two commodities. Eg, food grain markets, vegetable markets etc.

7) On the basis of degree of competition: a) Perfect market is one in w/c the following conditions hold good There is a large # buyers and sellers Both buyers and sellers have perfect knowledge of the market The prices are uniform The products are homogenous

b) Imperfect markets Monopoly markets: monopoly is a market situation in w/c there is only one seller of a codty Duopoly market: a mkt has only two sellers Oligopoly market: a few sellers Monopolistic competition : large # sellers deal in heterogeneous and differentiated form of a commodity.

8) On the basis of nature of commodities a) Commodity markets: a market w/c deals in goods and raw materials, such as wheat, barley, cotton, etc. b) Capital markets: the market in w/c bonds, shares, and securities are bought and sold

9) On the basis of stage of marketing a) Producing markets: w/c mainly assemble the codty for further distribution to other mkts b) Consuming markets: Mkts w/c collect the pdt for final disposal to the consuming popn. 10) On the basis of extent to public intervention a) Regulated markets b) Unregulated markets

11) On the basis of type of population served a) Urban markets b) Rural markets 12) On the basis of market functionaries a) Farmers b) Cooperative markets c) General markets

Group Discussion
Form a group w/c contains 4 or 5 individuals and discuss on: 1. Market structure 2. Market forces

2.4 Market structure

Meaning The term Structure refers to sth that has organization and dimension shape , size and design; and w/c is evolved for the purpose of performing a function. The term market structure refers to the size and design of the market. It also includes the manner of the operation of the market.

Some of the expressions describing the market structures are: 1. It refers to those organizational cxs of a market w/c influence the nature of competition and pricing, and affect the conduct of business firms 2. It refers to those cxs of the market w/c affect the traders b/hr and their performance 3. It is the formal organization of the functional activity of a market institution

Components of Market structure

The components of the market structure, w/c together determine the conduct and performance of the market are: 1. Concentration of market power It is an important element determining the nature of competition and consequently of market conduct and performance. 2. Degree of product differentiation Whether or not the pdts are homogeneous affects the market structure. 3. Conditions for entry of firms in the market Restriction on the entry of firms in the market

Contd..
4. Flow of Market information 5. Degree of integration The b/hr of an integrated mkt will be d/t from that of a market where there is no or less integration either among the firms or of their activities

Dynamics of market structureConduct and performance

The market structure determine the market conduct and performance. The term market conduct refers to the patterns of B/hr of firms, specifically in relation to pricing and their practices Specifically, market conduct include: 1. Market sharing and price setting polices 2. Policy aimed at coercing rivals; & 3. Policies towards setting the quality of products

The tem market performance refers to the economic results that flow from the industry as each firm pursues its particular line of conduct. Some of the criteria for measuring market performance and of the efficiency of the market structure are: 1. Efficiency in the use of resources, including real cost of performing various functions 2. The existence of monopoly or monopoly profit, including the r/n s/p of margins with the average cost of performing various

3.Dynamic progressiveness of the system in adjusting the size and number of firms in r/n to the volume of business, in adopting technological innovations and finding/or inventing new forms of products so as to maximize general social welfare. 4. Whether or not the system aggravates the problem of inequalities in interpersonal, inter-regional, or inter-group incomes

The market structure, therefore, has always to keep on adjusting the changing environment if it has to satisfy the social goals. A static market structure soon becomes obsolete b/c of the changes in the physical, economic, institutional and technological factors For a satisfactory market performance, the market structure should keep pace with the following changes:

Production pattern Significant changes occur in the production pattern b/c of technological, economical and institutional factors. The market structure should be re-oriented to keep pace with such changes ii) Demand pattern The demand for various products in terms of form and quality changes because of change in income, changes in their tastes and habits. The market structure should be rei)

iii) Costs and patterns of marketing functions Marketing functions such as transportation, storage, financing and dissemination of market info. have a great bearing on the type of market structure. Govt policies with regard to purchases, sales and subsidies affect the performance of market functions. The market structure should keep on adjusting to the changes of in costs and govt plicy.

iv) Technological change in industry Technological changes necessitate changes in the market structure through adjustment in the scale of business, the number of firms, and in their financial requirements.

2.5 Market forces

The forces which affect the process of price determination, either directly or indirectly, may be termed as market forces. The forces may be tangible, like the quantity of arrivals at a particular pt of time in the market or They may be intangible, like the announcement of a particular govt policy All these forces affect price determination by affecting either the DD behavior of buyers or the supply behavior of sellers

1.

Demand It refers to the quantity of a product/services w/c the buyers are likely to purchase at different prices in a given market at a given time. It must be understood the dd represents the willingness and ability to buy under specified condition. The dd for a product may exist even if no actual transaction takes place

The law of dd formalizes the r/n s/p b/n the quantity purchased and their prices. The law states that the price and quantity demanded are inversely related, other things remaining the same. The usual law of dd may be depicted either through a demand schedule or a demand curve.

The following concepts of dd should be understood thoroughly: a) Effective dd It is the desire of the consumer for the commodity backed up by his/her purchasing power. Therefore, the pertinent question in marketing is: how much will be bought at a price?And not : How much will be needed or desired?

b) Derived dd The dd for farm inputs is a derived demand c) Reservation dd and price Reservation dd refers to the quantity of a product a seller would like to retain at a given price. At each price, the seller himself has a dd to keep a certain quantity with himself for later sale. He may not like to sell a particular lot if the price offered for it is lower than some preconceived price, w/c is known as the reservation price.

d) Dd function The dd for a commodity is not affected by price alone, whether one thinks of an individual consumer or a group of consumers Factors such as income, tastes, habits, weather, the prices of substitutes and incentives for savings affect demand in the sense that they shift the whole range of price-quantity r/ns/p.

A dd schedule is usually expressed as Q= f(Pq), where; Q= Quantity dded Pq= price per unit of Q The dd function for the same commodity is expressed as Q= f(Pq, Ps, P, Y, W), where; Ps=price of substitute or complementary goods P= population or family size Y=income

Factors affecting aggregate dd for farm products At macro or national level, aggregate dd for farms products is determined by the size of the population and per capita income. Changes in tastes, processing technology and income distribution affect the aggregate, as well as the composition of the demand for farm products. The effect of an increase in population and per capita incomes on the dd for food grains may be expressed in simple terms

D= P+eY, where; D= rate of increase in aggregate dd for foodgrains P=rate of growth in population e= income elasticity of dd for foodgrains Y= rate of growth in per capita income

2. Supply It refers to schedule or quantities of a product that will be offered for sale at different prices at a given time and in a given market. There is a logical r/ns/p b/n SS and price. The higher the price, the larger the quantity that is offered for sale, and vice versa. Thus, Supply indicates a r/n s/p b/n the quantity and price of a commodity from sellers viewpoint.

Factors Affecting supply of farm products There are two main sources of SS of farm products at national level such as the production on the farms and import from other countries The factor which affect the domestic production of farm products are weather, technology, irrigation facilities, land suitable for cultivation, acreage under various crops, availability of inputs and relative inter-crop and input output price.

Simple market model and price determination The simplest of the simple market models is one where it is assumed that the quantity DDed and Ssed are affected only by the price of the commodity.

The price and quantity w/c satisfies both the buyer(s) and seller(s) are called the equilibrium price and equilibrium quantity.

The simplified market model may be expressed in three equations: Demand Qd=f(Pq) Supply Qs=f(Pq) Equilibrium conditions Qd=Qs Assuming a linear and exact DD and SS r/n s/p, the hypothetical market model may be written as follows: Qd=a+bP b<0 Qs=c+dP d >0

3. MARKETING FUNCTION
3.1 Meaning and classification of marketing function 3.2 Assembling, Grading and standardization 3.3 Packaging and labeling and transportation 3.4 Storage and warehousing 3.5 Market information

Learning Objectives
At the end of this chapter students will be able to: Identify the meaning and classification of marketing function. Discuss the marketing function.

3.1 meaning and Classification of marketing function

The marketing of farm product is a complex process. It includes all the functions involved in the movement of the product from the farmers( producers to the consumers.

Meaning of marketing function

Any activity performed in carrying a product from the point of its production to the ultimate consumer. Agricultural marketing functions are many and varied. The marketing function involved in the movement of goods from the producers to its ultimate consumer vary from commodity to commodity, market to market, the level of economic development of the country or region and the final form of the consumption.

Classification of marketing function

The functions of Agricultural marketing can be classified into three broad categories. 1. Exchange function Buying and selling 2. Physical function Storage and warehousing Grading, processing, transportation 3. Facilitative function Standardization of grades Financing , risk taking Dissemination of market information

1. Exchange functions
These mainly include functions related to buying and selling Buying and selling are complementary to each other Buying function is largely one of seeking the sources of supply, assembling of products and activities associated to with the purchasing of goods, raw materials etc.

Selling is the process w/c stimulate dd or desire, finds the buyers, advises the buyer, and negotiates with him/her to bring about a transfer of title.

2. Physical functions

These functions relate to the physical handling of agricultural product either in moving it from one place to another or in storing it over a period of time.

3. Facilitative functions
These involve neither transfer of title to goods nor handling of the product but help in the smooth discharge of the above functions. i) The function of classification and grading helps to classify and sort out of commodities according to size, quality, colour, weight etc. This makes determination of price easy and thereby assumes of fair to the producer as well as good quality product

ii) further, the growing vastness b/n the place of production and place of consumption has made the function of market information invaluable. This function involves activities of collecting , interpreting and disseminating market news to various agencies including producers

iii ) lastly, no business can be done without undertaking the inherent risk w/c may be caused either due to a decline in price, bad debts or deterioration of product itself by fire, flood etc. This risks have to be borne by some one in the channel.

1. Assembling

Agricultural product is collected in small lots and then assembled into large ones. This function becomes essential b/c of small size of farms and small quantity production.

2. Grading and standardization When goods are assembled, grading and

standardization have to be undertaken. Products are graded according to quality specifications. Standardization means the determination of the standards to be established for different commodities Standardization defined as the determination of the basic limit on grades or the establishment of model processes and methods of producing, handling and selling goods and services

Standards are established on the basis of certain Cxs such as weight, size, color, appearance, texture, moisture content , ripeness, sweetness, taste, chemical content etc These cxs, on the basis of w/c products are standardized are termed as grade standards Thus, standardization means making the quality specifications of the grades uniform among buyers and sellers over space and over time.

Grading means the sorting of the unlike lots of the product into d/t lots according to the quality specifications laid down It is a method of dividing products into certain groups or lots in accordance with predetermined standards Grading follows standardization It is a sub function of standardization

There are four types of grading 1. Fixed grading/mandatory grading This means sorting out of goods according to the size, quality and other cxs w/c are of fixed standards This do not vary over time and space It is obligatory for a person to follow if some one wants to sell graded products It is compulsory to grade the product according to these grade specification

Types of grade

Individuals are not free to change these standards This is compulsory for the export of the agricultural commodity. 2. Permissive /variable grading The grade specifications in this case are fixed over time and over space, but changed every year according to the quality of the product in that year Under this method, individual choice for grading is permitted.

3. Centralized /decentralized grading Based on the degree of supervision exercised by the government agencies on grading of various farm products, the voluntary grading for internal trade can be categorized in to centralized and decentralized grading. 4. Grading at producers level Under this programme, free grading services are provided to the farmers for sorting the product before sale. This, in turn, enables them to realize prices

Inspection and quality control

To ensure the confidence of consumers, it is essential that grading is done in accordance with the standards that have been set. For this purpose, the inspection of the goods at regular intervals by third party is essential. Inspection involves the testing of the graded goods with a view to determining whether they conform to the prescribed standards. It ensures quality control.

For the purpose of inspection, samples of the product are drawn at various stages of the down stream of the supply chain and are tested in the laboratory Regular inspection creates confidence among the buyers. Producers, too, know that there is someone who checks the standards of the pdt graded by them.