Chapter 2: Agricultural Marketing and marketing functions

2.1 Agricultural marketing

 Agricultural marketing generally means the marketing of agricultural
products to the first handler.
 In macro (social) perspective, is the performance of all business activities
involved in the forward flow of food and fiber from farm producers to
consumers.
 Agri. marketing is the process by which a farmer seeks to maximize the
return from farm production by providing buyers what they want and
supplying it at a profit
 It has to be customer-oriented
 It provides all those participating in it with a profit.
 Agril. marketing is the series of activities and services relating to moving
agricultural product from the point of production to the point of
consumption.
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• Agricultural marketing is the study of all activities,
agencies, and policy involved in the procurement of farm
inputs and the movement of agricultural product from the
farms to the consumer
• Thus agricultural marketing is the link between the farm and
nonfarm sectors.
• It includes
Organization of agricultural and material supply,
Processing industries,
The assessment of demand for farm inputs and raw materials
and
The policy related to the marketing of farm products to the consumer.
• Therefore AM describes nothing more than a series of
services involved in getting goods from the point of
production to the point of consumption 2
 Agriculture Marketing?
The bridge that links producer & consumer

• Agricultural marketing is the study of all activities, agencies, and

policy involved in the procurement of farm inputs and the
movement of agricultural product from the farms to the consumer.
• It is the link between the farm and nonfarm sectors. 3
Agricultural marketing activities contd…
 Variety selection
 Identification of procedures
 planning production
 growing and harvesting
 grading of products and their packing, transport, storage,
processing, distribution and sale;
 Sending information from production area to market

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Agricultural marketing activities contd…

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 Two Types of Agriculture Markets

Input market Product market

– The input market includes items
–This is the market where
like metal like iron or steel frame,
with a blade attached to cut and
final products are sold to
loosen the soil, fertilizer, seed & consumers
wood
–Eggs and potatoes from
– These types of products are
farms
purchased by producers

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Types of Agricultural Markets
Input markets Product markets

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 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

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 Scope and Subject Matter of Agricultural Marketing:---

Agril. Marketing activities

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Scope and Subject Matter of Agricultural Marketing:-----
• The subject of output marketing is as old as civilization itself.
• The importance of output marketing has become more conspicuous
in the recent past with the increased marketable surplus of the crops
& other agricultural commodities following the technological
breakthrough.
• On one hand surplus production in agriculture resulted in problem
of distribution to consumption centres and on the other transformed
agriculture into a commercial venture.

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 Scope and Subject Matter of Agricultural Marketing:----
• Input marketing is a comparatively new subject. Farmers in the past
used such farm sector inputs as local seeds and farmyard manure.
• These inputs were available with them; the purchase of inputs for
production of crops from the market by the farmers was almost
negligible.
• The importance of farm inputs–improved seeds, fertilizers,
insecticides and pesticides, farm machinery, implements & credit–
in the production of farm products has increased in recent decades.
• The new agricultural technology is input-responsive.
• Thus, the scope of agricultural marketing must include both product
marketing and input marketing. 11
2.2 Importance of agricultural and food marketing
– In LDCs the consumer frequently spends in excess of fifty percent
of the household's income on basic foodstuffs - much of which is
inadequate both in quality and nutritional content.
– By contrast
• Americans spend approximately 12% of their total disposable
income on food. In Western Europe the figure ranges from
about 16 to 19% of disposable income.
– The scale of poverty in most LDCs is such that the commercial
marketing system must be relied upon to perform the task of food
distribution to poor and not-so-poor alike
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• As countries experience economic growth, their rate of urbanization tends to
increase substantially
– In LDCs, whereas the rate of population growth averages around 3% per
annum, their cities and towns are increasing their populations at about
4% per annum.
– This means that the number of people, in urban areas, needing to be fed
by rural people, will double within 16 years. This has clear implications
for agricultural production and the marketing systems that direct that
production and distribute the output to the points of its consumption.
– Subsistence farming is likely to diminish in importance as farmers
respond to the increased opportunities that development and urbanization
create; farms are likely to decrease in number whilst increasing in size;
and agriculture will probably become less labor intensive and more
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• Agricultural and food marketing contributes towards attempts to
improve rural incomes in developing countries.
• Rurally based enterprises, including small-holdings, can greatly
improve their earning potential by adopting a market orientation.
– They can be encouraged to add value to commodities by adding to
their utility. Value added products normally carry a higher margin
than raw commodities.
• Another development which has in recent times increased interest in
marketing practices is the trend, in many developing countries,
towards market liberalization as part of economic structural
adjustment programs (ESAPs).
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– The view that direct and indirect government participation in production
and distribution had brought about structural distortions in economies
has become widely accepted.

– Measures intended to correct these distortions include

• a return to market prices for all products and resources,

• the encouragement of a competitive private sector and

• the commercialization, and sometimes privatization, of all or some

of the functions of marketing parastatals.

– All of this requires a better understanding of marketing practices and

processes within the country implementing ESAPs, in general, and
within the agricultural marketing parastatals affected, in particular.
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In general, the Importance of Agricultural Marketing
1. Optimization of resource use and output management
• An efficient agricultural marketing system leads to the optimization of resource use
and output management.
• An efficient output system can also contribute to an increase in the marketable
surplus by scaling down the losses arising out of inefficient processing, storage and
transportation.
2. Increase of farm income
 An efficient marketing system ensures higher levels of income for the farmer by
reducing the number of middle men or restricting the commission on marketing
services.
 When there is an efficient marketing system, farmers get better prices for their farm
products and enable them to invest their surplus in purchasing modern inputs.
 This may lead to an increase of production and productivity.
3. Widening of markets
 A well-knit marketing system widens the market for the product by taking them to
remote corner both within and outside the country i.e. to areas far away from the
production point.
 The widening of the market helps in increasing the demand on a continuous basis, and
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thereby guarantees a higher income to the producer.
4. 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. Many industries
depend on agriculture for the supply of raw materials.
5. Price signals : An efficient marketing system helps the farmer in planning
their production in accordance with the need of the economy. This work is
carried out through pricing signals.
6. Adoption and spread of new technology : The marketing system helps the
farmer in the adoption of new, scientific and technical knowledge. New
technology requires higher investment and farmers would invest only if they
are assured of the market clearance.
7. Employment : The marketing system provides employment to millions of
persons engaged in various activities such as: packaging, transportation,
storage and processing. These persons are like commission agents, brokers,
traders, retailers and packagers who directly employed in the marketing
system.
8. Addition to the national income: Marketing activities and value added to
the product thereby increases the nation’s gross national product and17 net
9. Better living: The marketing system is essential for the success of the
development program, which are designed to uplift the population as a
whole.
•In any plan of development that aims at diminishing the poverty of the agricultural
population, reducing consumer food prices, and earning more foreign exchange or
eliminating economic waste has therefore, to get special attention to the
development of an efficient marketing system for agricultural products.
10. Creation of utility : Agricultural marketing is productive by creating
utility. Though, many people consider the marketing system and those
engaged in various marketing activities as parasite to producers and/or
farmers.
• Farmers and processors complain about the profit the middlemen make
because they consider that they alone produce the final product.
• But in reality, it is the farmers who produce raw materials. Many things
should be done to the farm products like transport, processing, transfer,
storage etc. thus the middlemen can also be productive.
•They can create utility which is defined as the power of goods or services
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 Link between agriculture and food industry
• Food manufacturers will have particular expectations of agriculture as a supplier of
their raw materials, including:
 Quality
 To build a profitable business, food manufacturers seek to establish a preference for
their products by differentiating those products in some way which is meaningful to
consumers.
 Then, in order to enable consumers to recognize the differentiated product,
manufacturers brand that product. Manufacturers can then work on building
consumer loyalty to these brands.
 Brand loyalty is normally only established by delivering high quality consistently.
 As disposable incomes rise, the market tends to develop more sophisticated needs
and the quality of the raw material becomes even more critical. Where agriculture is
seeking to serve a food industry, that itself is seeking to meet these more
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sophisticated needs and wants, it can expect to face increasing emphasis on quality.
 Cost

– With an increased capability to search the world for raw materials, the food
industry is able to find the lowest cost source for any given level of quality.
– For the food manufacturer, the country in which he/she manufactures, or
markets, need no longer be the source of agricultural produce.
– This is a significant change in the competitive environment of agriculture which
the farming community has to realize, because farmers have, hitherto, been
largely cocooned in their respective domestic markets.
 Non-seasonality

– Agricultural products have traditionally been seasonal in their production and

supply.
– Modern technology and husbandry practices mean that food manufacturers need
not have their production schedules dictated by the seasons.
• Apparently, the capital intensive food industry cannot afford to incur the
high costs of under utilizing its capacity. 20
 Reliability

– A manufacturer who has invested heavily in building up his brand will be very
keen to get reliable supplies in terms of quality, timing and cost.
– Producers of agricultural produce will be increasingly judged on their reliability
in all of these respects.
 Processing
– Ease of processing will become an increasingly important expectation of the
food industry.
– Farmers who can do part of the secondary processing and/or performing
functions such as the post harvest treatment of the crop or transporting will be
adding another advantage.
– Crops that are specially bred or designed to facilitate processing (e.g. seedless
fruits, featherless chickens, coffee beans without caffeine, low cholesterol
meats) are another type of advantage that the food industry could expect from
agriculture.
- The competitive advantage will rest with those able to add most value and can
differentiate what they are offering from that of other suppliers 21
• Product differentiation
– In competitive brand marketing, the food industry has to innovate
continuously to create new products that are different from and
superior to existing ones of their own or competitors.
– The scope of innovation has traditionally been at the processing
stage. Whilst this will continue to be an important area for
innovation, manufacturers will increasingly tend to look for
innovative changes in the agricultural produce itself.
• This may be in terms of novel tastes, improved texture, more
attractive shapes, etc.

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• Health aspects
– In the more sophisticated food markets, healthy eating can
become a priority among consumers.
– There are two aspects of health to be taken into account.
• First, consumers may be interested in the food itself i.e. low
fat, low/no sugar or low/no salt. It would be a mistake to
think that health issues are confined to the more sophisticated
food markets or to the wealthier segments of the community.
. Second, the consumer may be more, or equally, concerned
about the food production methods i.e. the avoidance of
chemicals like herbicides, pesticides etc.
– This may mean a change to the farmer's husbandry practices
with implications for the costs of production. The consumer and
the food industry will expect the farmer to produce without
potentially dangerous chemicals, but at no extra cost to them.
This will be another challenge for agriculture.
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Conflict of interest in agricultural/food marketing systems

Key Players Interests

Maximum price, unlimited
Farmers
quantities
Low purchase price, high
Manufacturers
quality
Low purchase price, high
Traders and retailers
quality
Low purchase price, high
Consumers
quality

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 2.4 Problems in Agricultural Marketing
• Agriculture is a mode of life
– Farming is a way of life.
– The farm is the home, a source of food, and it furnishes a ‘job’ to
the farmer and his family.
– Most of the farmers do not regard themselves as businessmen.
• Concentration of agricultural produce
– In AM, assembling of agricultural produce has special
significance.
– There is a longer channel of distribution and multiple middlemen
between primary producer and ultimate consumer.
• Seasonal demand on marketing services
– Agricultural production is seasonal but consumption of
agricultural produce is continuous and regular.
- Demand for marketing services is in the busy season 25
• Varying qualities
– Varying quality due to variations in climate, soil type, production
methods, and technological innovation.
• Lack of adequate aids to trade
– Lack of adequate and specialized aids to trade such as facilities of
finance, transport and storage in the process of marketing of
agricultural goods.
• Lack of standardization and grading
– Grades and standards should be there.

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Characteristics of Agricultural goods vis-à-vis marketing
problems

Characteristics of Agricultural goods

Product
Production Consumption
Characteristics characteristics
-Bulky but of less Characteristics
-Small scale -Continuous
- scattered value, -- Regular and in
- non-specialized - Perishable
-- Varying quality small quantity
- seasonal in - Inelastic demand
production and quantity
- Elastic supply

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 2.5 Problems of Agricultural marketing in Ethiopia
• Lack of effective competition
– Very young private sector with limited experience in AM
– Market domination by few traders (A study in 1998 showed that
the largest 10% wholesalers handled 43% of grain traded at
wholesale level)
– Limited supply of grain (79% of the grain sale is immediately after
harvest) and livestock (for export) throughout the year
– Limited access to information
– Lack of adequate storage facilities
– Limited access to credit
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• Inadequate market information
– Limited access of poor and remote market participants to MIS
– Lack of strong analytical skills to interpret or analyze MIS
– Duplication of efforts
– Supply driven information
– Emphasis on price formation
– Sustainability issue?
– Monitoring and evaluation ?
• Lack of training
• Presence of too many unlicensed traders
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• High income tax and unsystematic income tax assessment
– 5% sales tax
– 40% income tax
• Storage problems
• Transportation constraint
• Lack of credit facilities to traders and small farmers
– The working capital of traders in both the surplus and deficit areas
in Ethiopia is very low.
• Weak participation of the marketers in policy formulation and
implementation
• Lack of research
– Little is known on how to identify and assess accurately the
deficiencies in marketing, how to determine their causes and how
to design appropriate policies for incentives, institutions, and
investments. 30
• Inadequate market facilities
• Institutional constraints
– The private sector is doubtful about the legal system to enforce
contractual disputes.
• Poor Reliance on supply derived from subsistence oriented livestock
production system,
• Lack of a well-coordinated livestock supply chain that links many producers
and buyers,
• Lack of mechanism for abattoirs to monitor their purchasing system
regularly,
• Problem of access to untapped areas which are characterized by poor road
infrastructure,
• Insecurity and frequent conflicts in pastoral areas
• Unavailability of water and feed resources in the trekking routes,
• Lack of efficient mechanism for delivering market information to the
producers and traders in local markets on issues related to seasonal prices,
demand, and quality requirements in different markets, and
• Lack of partnership and linkages (team working from producers 31
to
processors).
 2.6 Marketing of Agricultural and Manufactured Goods
Manufactured goods Agricultural goods
• Equal attention on production and • Agriculturist is purely a producer.
marketing • The farmer has practically no voice in
• Manufacturer has major voice in marketing and channel choice
marketing & channel choice. • Middlemen at liberty to exploit farmers
• Middlemen cannot usually exploit through many mal-practices
manufacturers • Assembling plays a very important role
• Assembling has no special importance as • No effective control over quantity or
goods are produced on a mass-scale quality of agricultural produce
• Effective control over quality and quantity • Agricultural goods
of goods • Demand creation activities are not paying
• Manufactured goods as demand is inelastic
• Promotion plays a very important role in • Marketing very elaborate and
marketing complicated-host-of middlemen
• Marketing process not very complicated • Are rare in agriculture. Agricultural goods
• Product differentiation, branding, can be graded.
advertising, and sales promotion are • Products are brought only on the basis of
common real quality and not on the basis of
• Manufacturer is the creator of his brand producer’s reputation.
and thus reputation. • Due to perishability these costs are very
• Cost of transport and ware housing are high.
not excessive 32
2.7 Marketing Functions

Marketing functions can be broadly classified as following:-

1. Buying
A. Exchange Functions
2. Selling
3. Storage
4. Transportation
B. Physical Functions 5. Processing
6. Packaging
7. Standardization
8. Financing
C. Facilitating Functions 9. Risk Bearing
10.Market intelligence

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 Marketing Functions----

 Any activity performed in carrying a product from the point of its

production to the ultimate consumer is termed as a marketing
function.
 A marketing function is a fundamental or basic physical process or
service required to give a product the form, place, time, and
possession utility consumers desire.

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 1. Exchange Functions
• The exchange functions are those activities involved in the transfer of title or
ownership to goods.
• The exchange functions of marketing are the heart of marketing. It includes buying,
assembling and selling.
2.1.The buying function: Seeking out the sources of supply, assembling of products,
and activities associated with the purchase
2.2.The selling function: All the various activities that are called merchandising.
physical arrangements of display of goods, advertising and other promotional services
to influence/create demands.

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 Buying and Assembling
• The marketing concept holds that the needs of the customer are of paramount
importance.
• A producer can be said to have adopted a market orientation when production is
purposely planned to meet specific demands or market opportunities.
• For example, a contract farmer, who wishes to meet the needs of a food processor,
manufacturing wheat flour and pasta, will produce only improved bread wheat
variety seeds which can attract his potential customers.
• Buying is the first step in the process of marketing. Buying involves careful
planning and needs setting up of policies and procedures.
• The following points are considered before a particular product is bought.
• What to buy (Product)?
• When and how much to buy? (Time and quantity)
• From whom and where to buy? (Source)
• On what terms and conditions and prices? (Price)
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 Assembling
• starts after the goods have already been purchased.
• It is a function separate from buying.
• Buying involves transfer of ownership of the goods where as
assembling involves creating and maintaining of stock of goods
purchased from different sources.
• The problems encountered in assembling of agricultural products are:
• Seasonal production
• Difficulties in controlling quantity and quality
• Non- availability of information about sources of supply
• Low quantity of marketable surplus

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 Selling
• The function of marketing is to ensure that the right product is made
available at the right place, in the right quantity, at the right price, at the
right time and under the right impressions to the consumer.
• All these righteousness is made possible by performing the sales function.
• Through selling function desires are created hence it is called as creative
function.
• Selling is also often referred to as distribution function because
distribution makes goods move from the place of production to the place of
consumption.

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 2. Physical Functions

 The physical functions are those activities that involve

the handling, movement, and physical change of the
actual commodity itself.

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 2.1. Storage and warehousing
• Storage physical function concerned with making goods available at
the desired time.
• It allows a smooth, and as far as possible, uninterrupted flow of
product in to the market. It tries to balance supply and demand.

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 Transportation
• Transportation physical function concerned with making the goods
available at the right place.
• It includes activities as weighing of alternative routes and types of
transportation to use, activities in the preparation for shipment such
as crating and loading.

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 processing
• The processing physical function would include all those essentially
manufacturing activities that change the basic form of the product.

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 Packaging

 Packaging is the first physical function performed in the marketing of

agricultural commodities.
 It is required for nearly all farm products at every stage of the marketing
process.
 The type of the container used in the packing of commodities varies with the
type of the commodity as well as with the stage of marketing.
 Packing means, the wrapping and crating of goods before they are
transported.
 Goods have to be packed either to preserve them or for delivery to buyers.
 Packaging is a part of packing, which means placing the goods in small
packages like bags, boxes, bottles or parcels for sale to the ultimate
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consumers.
Packing and packaging

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 3. Facilitative Functions
 Facilitating functions are those that make possible the smooth
performance of the exchange and physical functions.
 The standardization function is concerned with the establishment
& maintenance of uniform measurements of both quality &
quantity.
 It simplifies the buying and selling process.
 Standardization means the determination of the standards to be
established for different commodities.

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 Grading and standardization
 Standards are established on the basis of certain characteristics-such
as weight, size, colour, appearance, texture, moisture content, staple
length, amount of foreign matter, ripeness, sweetness, taste,
chemical content, etc.
 standardization means making the quality specifications of the
grades uniform among buyers and sellers over space and over time.

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 Financing
 The financing function of marketing involves the use of capital to
meet the financial requirements of the agencies engaged in various
marketing activities.
 Like credit from various lending agencies
 Commercial bank
 Development bank
 Credit coop/credit union, investor…

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 Risk Taking
 The risk bearing function is the accepting of the possibility of loss in the
marketing of a product.
 Some risks such as:

1. Quantity Loss
2. Quality Deterioration
3. Price Risk
• In both the production and marketing of produce the possibility of
incurring losses is always present.
• Risk bearing is often a little understood aspect of marketing.
• Risk bearing must be acknowledged as a cost since what is uncertain is
not whether they will occur, but when they will occur.
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 Market information/ intelligence
 It is the job of collecting, interpreting, and disseminating the large
variety of data to the smooth operation of the marketing process.
 Its role is to reduce the level of risk in decision making.
 Market information is an important marketing function which
ensures the smooth and efficient operation of the marketing system.
 Accurate, adequate and timely availability of market information
facilitates decision about when and where to market products.

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Market information/ intelligence----

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 2.3 Approaches of marketing researches
1.The Commodity Approach
 This approach simply follows one product, such as coffee,
and studies what is done to the commodity and who does it
as it moves through the marketing system.
 It helps to pinpoint the specific marketing problems of
each commodity as well to develop the market for the
specific commodity.

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 2. Institutional approach

 The institutional approach studies the various agencies and business

structures that perform the marketing task.
 The institutional approach considers the nature and character of the
various middle men and related agencies and also the arrangement
and organization of the marketing machinery.

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 Middlemen in Agril. marketing
Marketing middlemen: are those individuals or business firms that
specialize in performing the various marketing functions.
These are:
1. Merchant Middlemen,
2. Agent Middlemen,
3. Speculative Middlemen,
4. Processors and Manufacturers, and
5. Facilitative Organizations/middlemen

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Marketing middlemen

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 Marketing middlemen…
1.Merchant middlemen take title and therefore own the product the
handle. They buy and sell for their own gain.
• Retailer buys products for resale directly to the ultimate consumer of
the goods
• Wholesalers sell the commodity to retailers, other wholesalers and
industry users, but do not sell in significant amount to ultimate
consumers

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 2. Agent Middlemen
• Agent Middlemen act only as representatives of their clients.
• They don’t take title; therefore don’t own the products the handle.
• agent middlemen receive their income in the form of fee and
commission. They sell their services (knowledge and know-how in
bargaining) to their principals, not physical goods to customers
Commission Agents: granted with more power than broker
• Brokers: usually don’t have physical control over the product

3. Speculative middlemen are those who take title to products with the
major purpose of profiting from price movements.

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 4. Processors and Manufacturers
• Processors and manufacturers exist primarily to undertake some
actions on products to change their form
• Agricultural processors take an active part in other institutional
aspects of marketing.
• Some act like as their own buying agents in producing areas, some
participate in the wholesaling of their products to retailers

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 5. Facilitative organizations

• Facilitative organizations assist the various middlemen in

performing their tasks. Such organizations do not directly
participate in marketing process as either merchants or agents.
• They provide the physical facilities for the handling of products or
for bringing buyers and sellers together. They may also aid in
grading, arranging and transmitting payment and the like
• For instance, the facilitative organizations participating in the
coffee marketing in Ethiopia include, district agricultural office,
cooperatives/unions, government and private banks, informal
lenders, ECX and Coffee Quality Inspection Office.
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