Food Marketing u The performance of all business activities involved in the flow of food products and services from the point of initial production until they are in the hands of the consumers.

Two views of marketing u Macro marketing  Big picture focus on the agricultural and food marketing system u Micro marketing  Decision maker level choices faced by individuals in food production, processing and consumption

Food marketing challenges u Food distribution to consumers  What to produce  How to process  Where to distribute u Reasonable returns to farmers  Price / profit signals from consumers  Profit margins beyond the farm

Marketing functions u Create utility by transforming a food item along one of the four dimensions u For example,  Production, storage, transportation, grading, processing, packaging etc.

Marketing Functions Facilitating Functions Physical Functions Exchange Functions Buying and Selling Transportation Storage Processing Standardization Financing Market Intelligence Risk Bearing

Reading assignment u Food and Agricultural Policy: Taking Stock for the New Century   Chapter 1. The Evolving Food and Agriculture System   ndex.htm

Traditional Marketing Channel Inputs Producer First Handler Processor Wholesaler Retailer Consumer

Food market structure Consumers (US)287 million Retail589,000 Grocery186,000 Restaurants403,000 Wholesalers41,000 Processors21,000 Producers2.2 million

Emerging Marketing Channel Inputs Producer First Handler Processor Wholesaler Customers Retailers

Food Marketing Channel u Increased complexity  International trade  Increasing concentration  Direct marketing  Vertical integration  Non-market transactions  Grocery and food service u You can cut out the middle man but not the function he performs

Producer Retailer Inputs Processor First Handler Consumer Wholesaler

U.S. Population, Percent by Sector Farm Nonfarm Rural Urban

Ag & food sector, 2001 u Food & Fiber  17% of employment  16% of GDP u Farming  1% of workforce  <1% of GDP u 13 off-farm jobs for each on-farm job

Food expenditures, 2000 u Consumers spent $661 billion  Excluding imports and seafood  11% of disposable income  Farmer’s share 18%  Off-farm share81%

Food Marketing Bill, ($Billion)

US Food Marketing Bill,

So what??? u Labor is the largest single share of the food bill u Farm value was 2nd in 2000 at half of labor cost u Food cost and food policy involves more than agriculture

Changing Food and Ag System u Shift from raw bulk commodities to food products u Diverse consumer u Globalization u Industrialization u Technologies u Environment

Drivers of change u Consumers  Food and services are normal goods »More income - Less time »Demand more choice and convenience »Food away from home  New products and outlets »12,000 new products/year »Process verified, branded, labeled »Niche markets

Household income and food spending Dollars%Change Household pretax income42,58428 Annual food / person2,03717 Food at home1,21118 Food away from home82615

Food at Home spending Dollars%Chg Meat fish eggs31315 Fruits & Veg21922 Cereal18722 Miscellaneous17425 Dairy1339 Beverages10211 Sugar sweets5134 Fats oils3318

Drivers of Change u Globalization  Capital markets, information, expectations »Sales by US affiliates of foreign firms$64 B »Sales by foreign affiliates of US firms$133 B »US imports$32 B  Ag trade in 2000$Billion% of total Exports, 2000$ Imports, 2000$

Drivers of Change u Technology  Traditionally production tech »Lower costs »Increased profit to early adopters »Lower prices for consumers  New technologies »Cost reducing and value enhancing (biotech, precision ag) »Consumer oriented (food safety, health) »Information

Drivers of change u Diversity of producers  Structure  Enterprise  Cost of production  Method of production

Selected Ag Trends Farms Mil Farm pop %5322 Avg acres Assets $ Output/input Output/input / 1950=100

Selected Ag Trends Farm prices Farm prices Income $B Percent of farm income from Nonfarm Government / 1950=100

Agricultural Producers Number1,356,047655,812175,091 Produce $B Avg sales $10,07464,117687,065 NFI $2,31012,998115,832 Off-farm $70,75436,34335,017 Rural IntermediateCommercial 1999 ResidenceFarmsFarms SalesLT $100K$ KGT $250K

Farm Ownership, 1997 Percentage Average FarmsAcresSalesAcresSales 1 Sole Prop Partnership Corporations Family Nonfamily / Annual average sales $1,000