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AGRICULTURAL EXTENSION SERVICE
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WASHINGTON STATE UNIVERSITY
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EXTENSION WORK IN AGRICULTURE A o ·lioME ECONOMICS IN COOPERATION WITH U.S. DEPARTMENT OF AGRICULTURE
PULLMAN, WASHINGTON
no./b5 ~~------~--------------------------------------------------------------------~
I
1.,. ,,
April 1960
Revised
TO MARKET
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E.M. 1658
MARKET .
A farmer's responsibility isn't finished when he's produced something because production and marketing are part of the same process • . • supplying the needs of consumers. Agricultural production in Washington is more than eight million tons
every year. These products are either marketed directly or fed to livestock and
marketed in that form.
Marketing includes everything that happens to a product from the farm to the
consumer's table.
That means everybody is interested in marketing and should understand it. Better
.-------------------.,
knowledge can lead to greater efficiency. Increased
Highlights
efficiency at any marketing stage cuts costs and
To Remember
increases profits. In our economy these profits
are reflected either in better prices to farmers
Practically ·all farm
or in lower prices to c.onsumers . • • and many
products must be processed.
times to both •
. Only small quantities of any
product are sold at a given
time.
. Quality varies widely.
• Many products must be
stored for year-round use.
• Some marketing processes
can be done on the farm.
Most of them are now done
off the farm.
• Steps in marketing are:
assembly, standardization,
transportation, processing,
storage, risk bearing,
wholesaling, retailing,
financing, buying and selling.
Food marketing costs about 24 and a half billion
dollars a year in the United States. Most of us
agree that we want a marketing system that will
give the consumer what she wants at a price she
will pay and still give the farmer a price that will
keep him in business. Of course, the processor
has to be paid too.
Marketing costs pay for services. Apparently
the consumer wants these services, at least
they are increasing. These services help the
producer sell in volume and at a good price.
Generally speaking, marketing costs increase
slower than farm product prices and they also
go down slower during times of falling prices.
Let's look at the major steps in marketing.
E. M. 1658
Page 2
ASSEMBLY
Most commodities have to be assembled. Production from one farm is too small
for the farmer to handle all the steps in marketing. Assembly methods vary by
commodities. Examples are: auction markets for livestock; metropolitan bottling
plants for milk; elevators for grain; processipg and marketing plants for poultry
and eggs.
STANDARDIZATION
Products vary in quality, in size and other characteristics such as color in fruits.
Consumers like products of uniform quality. A system of generally understood
standards makes it easier for buyer and seller to get together on price. Some of
these standards are set by Government, such as choice cattle, No. 1 potatoes. Some
standards have been set by the trade. Through the use of standards buyers can buy
by description rather than by inspection. This cuts marketing costs.
TRANSPORTATION
Producers, processors, consumers all have a stake in transportation. For every
United States consumer more than a ton and a half of farm products leaves the farm
every year. The average housewife carries home more than 1, 600 pounds of food
products every year for each person in her family. Transportation costs represent
between five and six peJ;" cent of the consumer's food dollar. Food products are
grown in widely separated parts of the country but most of them are consumed in
only a few places. About one-quarter of the country's population is concentrated
in five metropolitan areas. Many of these products have to move quickly because
they are perishable.
STORAGE
Many pro.d ucts ...have a -s l:!ort harvest season. But most of us like to eat every day.
We also like variety• • • strawberries in January; fresh lettuce the year around.
To get this, · food must be -s-tored. Some storage is on the farm, some in the
various market channels and some by processors. Many perishables require cold
storage. Refrigerated storage space in 1953 was 711,000,000 cubic feet. We
have stored as much as 750 million pounds of fresh and cured meats. Peak butter
storage was 125 million pounds. Off-farm grain storage space amounts to about two
billion bushels. Storage involves many problems to maintain quality and to have
supplies on hand when and where the consumer wants them.
RISK BEARING
Farmers assume many risks in growing crops. The risks don't stop with the farm,
they continue until the product is used. Two principal risks after products leave
the farm are change in quality and change in price. Perishables can spoil quickly.
Some products are very sensitive to price ch4nges. For commodities that store well,
losses from price changes can be hedged by futures markets.
FINANCING
All these steps in marketing take money. Most of the operators in the various fields
use arrangements such as bank loans or loan accounts. Sometimes the farmer
helps the credit operations by not receiving his pay until the processor moves
his commodity. The retail consumer who pays cash cuts the need for credit.
E.M.l658
Page 3
BUYING
This includes the steps taken in seeking out a product from the sources of supply.
Buying can be of raw materials for processing or resale. The middleman may
buy raw materials and process them for other middlemen before they pass into
the hands of the final consumer.
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SELLING
This step must be broadly interpreted. It includes many of the steps in merchartdising, including such things as store displays, adve~tising, and other practices
to influence demand. Decisions regarding size of package, unit of sale, best
channels to use, proper time and place to sell, all are decisions included in selling.
Market research activities to find out how and where an article can best be sold
are included •
WHOLESALING
The wholesaler is between the processor and the retailer. He buys in carload lots
and sells in case lots. This gives the consumer a wide selection to choose from
and still lets him buy at a relatively low cost.
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RETAILING
The United States has more than 375,000 stores selling food. One research study
shows 62 per cent of the sales were dry groceries, 26 per cent meat and 12 per
cent produce. One fourth of the retail stores do about three-fourths of the business.
The margin is about like this: dry groceries 14 per cent; meat 17 per cent and
produce 24 per cent. Out of this margin the grocer must pay costs such as: labor,
depreciation, interest, taxes, utilities, wrapping material and assume losses such
as from spoilage and quality deterioration.
PROCESSING
The farmer doesn't produce beef steak, flour , butter , or most of the other products
the consumer uses. The farmer grows cattle, wheat or milk. Food industries
are of three types. { 1) Horizontal Integration : Several plants owned by one firm,
each plant doing the same work. Example-cooperative grain elevators. {2)
Vert~_s:al Integration: One firm owns several plants each doing a different job.
Examp1e - A chain store owns country buying stations, transportation system,
processing plants and wholesale establishments. {3) Product Integration: The
processor makes many products that add up to a more or less complete line.
Example - a miller who makes flour and breakfast foods , from wheat, and adds
other dry groceries to complete the line.
Farms are becoming more specialized and farmers are doing less of the processing
and marketing that used to be done on the farm. Also additional jobs are being
done for the consumer by the processing industries. During the past 20 or 30
years the number of farm workers on farms has gone down about 30 per cent.
During the same period the number of workers in marketing firrrls , including
processing, has grown by 30 per cent.
E. M. 1658
Page 4
Historically the housewife spends a quarter of her income on food. If she bought
the same type and quantity of food with the same amount of processing as existed
just before World War II she should now be spending only 17 cents out of every
dollar for food. Be she stills spends the quarter and she still buys about the
same number of pounds of food every year. So we can conclude that there is
more processing.
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