MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 1 AGRICULTURAL AND FOOD MARKETS, PRODUCTION, AND MARKETING Market functions, institutions, and behaviors Food marketing issues Characteristics of markets Trends in agricultural markets

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 2 AGRICULTURAL PRODUCTS FOODENERGYPAPERTEXTILE FINALFEEDINGINGREDIENTPACKAGINGTEXT

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 3 Functions in Agricultural Markets— one way to analyze Selling Storage Transportation Processing Facilitating Standardization Financing Risk bearing Market Intelligence

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 4 Selling to Processors For final products (e.g., flour) For manufacturing of ingredients Intermediaries Wholesalers Retailers Customers Consumers Institutions

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 5 Storage Seasonal Timing of production vs. cost of storage Feasibility of timing market (turkeys vs. wheat) Queuing

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 6 Transportation Cost vs. speed Perishability Value of freshness to customers Ability to predict demand Need for bulk reduction (see processing)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 7 Processing Treatment of product (e.g., wheat to flour) Reduction of bulk (oranges to concentrate—not orange juice yet) Creation of labor saving food products (e.g., frozen pizza)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 8 Facilitating Farmers’ agents Matching demand and supply Other information search—e.g., demand forecast Negotiations Logistics handling

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 9 Standardization Agricultural grades and labeling Food branding

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 10 Financing Long term lending Farm mortgages Equipment loans Short term lending Advances against harvests Financing of store and processor inventory Futures contracts

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 11 Risk Bearing Futures contracts Investments in new food products (most will fail) Evaluation of credit worthiness of farmers and other parties

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 12 Market Intelligence Market research Forecasting Demand For existing products Spread of new products Supply

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 13 Institutions Marketing middle people Merchant Retailer Wholesaler Agent Brokers Commission Speculative Processors/manufacturers Facilitative organizations

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 14 Behavioral Systems Input-output Different parties provide goods and services moving toward final products Communications Matching supply and demand Adaptation to outside changes—e.g., Consumer tastes World supply

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 15 Food Marketing Efficiency Getting final products to consumers at lowest cost for given services Lower spread between farm costs and retail food costs does not necessarily mean greater efficiency—intermediate functions may add value Types of efficiency Operational Pricing

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 16 Agricultural Production and Marketing Structure of U.S. agriculture Dominated by small, family farms Product characteristics Raw material Bulkiness and perishability Quality variation Production characteristics Total product Annual variability Seasonality

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 17 Production characteristics Total product Increase due to productivity Annual variability Seasonality Geographic concentration Varying production costs Farm supply industry (derived demand)

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 18 Marketing Problems Lack of control over Own output Market supply Lag in results of adjustment efforts Decision of whether to engage in marketing efforts Free rider problem Superior bargaining power of large buyers Cost squeeze

MKTG 442 MARKETS, PRODUCTION, AND MARKETING Lars Perner, Instructor 19 Some Trends Differentiated products Specialty/nice products Interdependence of manufacturers and suppliers High price risk Science and innovation Closed information systems Private and proprietary research Resource and environmental conservation Managerial and interpersonal skills Industrialization Global competition Farm incomes moving toward incomes of other sectors