Download AOM-3 - Xavier Institute of Management

Interlinking Agriculture Production
and Marketing

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Characteristics of agricultural products, production
and consumption
Implication of these characteristics on marketing
Characteristics of Agricultural
Products

Raw materials
- product sold by farmer soon loses its identity
- farm product becomes food
- considerable distance between the farmers’ product
and the consumers’ product
- producers believe that their task is only to produce
raw commodities
Characteristics of Agricultural
Products

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Bulky in nature
- low value to volume ratio
- high transport and storage cost
Perishable products
- if not consumed, loose the value over time
- speedy handling
- high storage cost
- problem in quality control
- withholding farm products from the market is
extremely difficult
Characteristics of Agricultural
Products

Quality variation
- need for grading to sort and price farm products of
different qualities
- quality may be controlled by following certain
production practices
- increases cost
- quality control encourages partnership between
producers and processors
Characteristics of Agricultural
Production

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Variability in production
- annual/seasonal
- effect price, storage facilities, plant utilization
capacity
Geographic Concentration
- long marketing channel
- high cost of marketing
Characteristics of Agricultural
Production

Varying cost of production
- cost of production is affected by climate,
technology, farm size, and individual management
skills
- but all farmers receive same price for a given
quality
- some may loose money, or breakeven or earn profit
Characteristics of Agricultural
Production

Small size of holding and scattered production
- marketed surplus with each producer is small
- high transaction cost
- supply estimation is difficult
- producer can not influence the market supply
- market price is determined independent to his
supply
Characteristics of Agricultural
Production

Substantial production lag
- inability to adjust quickly to changing conditions
- difficult to anticipate at the time of planting, the
price that will prevail at the time of sale
- difference between realized prices and expected
prices leads to price risk
Characteristics of Demand for
Agricultural Products

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Continuous throughout the year
- imbalance in demand and supply
- seasonal fluctuation in prices
Price inelastic demand
- inelastic demand of agriculture commodities
- magnify the impact of supply shocks on prices
Approaches to Analyze Food Market

Functional Approach
- Identify the specialized market functions in
the total marketing process
It is useful in
- evaluating the marketing cost of different
commodities
- evaluating the efficiency of various
functions being performed in a market
system
Approaches to Analyze Food Market


The functions affect not only the marketing cost but
the value of food products to consumers by providing
various utilities
It is possible to eliminate or reduce the middlemen,
but it is not possible to reduce the market functions
for a given level of value of food products
Approaches to Analyze Food Market

Key issues
- whether the necessary functions are being
performed?
- whether these functions are being performed in the
most efficient manner?
Approaches to Analyze Food Market

The Institutional Approach
- Analyze the nature and character of various
agencies and business structures that perform the
marketing process
- It helps to understand why there are specialized
middlemen in the food industry?
Approaches to Analyze Food Market

Reasons for presence of specialized agencies:
- gains from division of labor and specialization
- many of the food marketing functions are marked
by economies of scale
- middlemen can reduce the market search cost