ABE REVIEW MATERIAL

FOR
AGRICULTURAL MARKETING
(Ma. Eden S. Piadozo, PhD)
CEM - UPLB

Adapted and Prepared by: Keno

Jay M. Balogbog, PhD

Marketing
A series of services involved in moving a product
from the point of production to the point of
consumption
Service/s
a function performed on or for a product that alters its
form, time, place or possession characteristics
add value to the product & thus entails cost
may or may not involve physical handling
Generally performed to meet existing or anticipated
consumer’s demand.
Point of Production
the point of usual first sale by the farmer
maybe done in the farm, farmer’s house, along the
road, mountain trail, or assembly market
transaction occurs between the farmer & the buyer
A price is established.
Point of Production
Point of Consumption
 The point of last purchase or sale
 Transaction occurs between the buyer & the seller
 A price is established
Point of Consumption
Market
a group of buyers and sellers with facilities for
trading with each other

a place where buyers & sellers meet to exchange

goods or services

a large geographic area wherein a given set of supply

& demand forces operate to set prices

consists of 3 elements (buyers, sellers, trading

facilities)
Elements of Market
1. Buyers
a. Ultimate buyers – buy goods to satisfy their personal
needs
b. Industrial buyers – buy goods for resale/for the
purpose of transforming it into
another form
2. Sellers – suppliers of goods and services
3. Trading facilities
Production services – services added prior to the point of
production
Marketing services – services added after the point of production
Why Marketing is Costly & Complex?
Farms are scattered throughout the
country
Small production unit of several
commodities
Large production unit of a single
commodity
Highly perishable
Varied in quality
Seasonal
 Performance of marketing services
involves a large amount of money
Marketing is productive
– because it creates utility
4 types of utility

1. Form – if good posses the required properties

- change the form of raw materials & create
something new
2. Place - when products are made available where they are
most wanted (ex. Moving hogs from Mindanao to
Metro Manila)
3. Time - when products are made available when they are
most wanted
4. Possession – when goods are transferred or are placed
under the control of the persons who desire to use them.
Form Utility
Place Utility
Agricultural Marketing System

 an inter-organizational system made

up of a set of interdependent
activities aimed at expanding
agricultural production.
 Also known as Agricultural
Marketing Machinery
 Components of Agricultural
Marketing System
Components (Sub
Intermediate Goals Ultimate Goals
system)
Equalize supplies and
Minimize marketing obstacles
demand
1. Producer Sub-system
Fair price for Promote stabilize
products/produce price/income

Facilitate product, financial

2. Flow sub-system Maximum long – term profit
and information flows

Reasonable return to
3. Functional sub-system Increase efficiency
investment
Stable supply, maximum
4. Market channel sub-system Minimize short-term risk
longterm profit
Facilitate market Minimize market
5. Environmental sub-system
performance imperfection
 Consumer satisfaction, least
6. Consumer sub-system Reasonable price
cost

Entry Points in Agricultural

Marketing
1. Organization of Small Farm
Business
2. Corporate and Small Grower
Arrangement
3. Establishment of Trading Post
4. Building of Marketing
Infrastructure and
Communication Facilities
 4 Approaches to the study of Agricultural Marketing

1. Commodity Approach
studying the commodity concerned
product-oriented than marketing –oriented
study may cover the characteristic of the product, market
demand & supply situation, prices, consumer preferences, market
potential of new products, etc.
2. Institutional Approach
studying the various agencies & business transactions involved in the
marketing processes
considers the nature & character of various middlemen
& related agencies; also the arrangement & organization of the marketing
machinery
in this approach, human element receives primary
emphasis
Middlemen – those individuals or business
concerns that specialize in
performing the various marketing
functions involved in the purchase &
sale of goods as they are moved from
producers to consumers.
 Classification of Middlemen:
1. Merchant middlemen – take title to and therefore own products
they handle; buy & sell for their own gain.

Examples:
1. Contract buyers
2. Grain millers,
3. Wholesalers
- assembler wholesaler or
viajeros
- Financier - wholesaler or
bodegeros/cuartajera
- Shippers
- Wholesaler
- Wholesaler – retailer
- Retailer

2. Agent middlemen – act as

representative of
their
clients, do not
take title to &
therefore do not own the product they handle; income is in the form
of fees & commission

a. Commission agent – normally takes over the physical

handling of the product, arranges the terms of sale,
collects, deducts his fees, & remits the balance to his
principal.
b. Broker – usually does not have the physical control of
the product, ordinarily follows the
instructions of his principal closely &
has less discretionary
power in the price negotiations than the
commission agent
3. Processors & manufacturers – change form of the
products
[Link] organizations
– aid the various middlemen in performing their tasks

Example: Auction Markets

[Link] Associations – buying & selling of goods

Buying – seeking out sources of supply

Selling – merchandising activities; proper unit of sale,

proper packaging, best market channel
3. Functional Approach

Attempts to answer “what” in the question “who

does what”
Marketing process
Helpful in evaluating marketing costs of various
middlemen.

Marketing function - is a major specialized activity

performed in accomplishing the
marketing process.
Functions are classified as follows:
1. Exchange function – activities involved in the transfer of title of
goods (buying & selling)

2. Physical functions – those activities that involve handling,

movement & physical change of the actual commodity itself;
answer when, what, & where of marketing

a. storage – making goods available at a desired time

[Link] – making goods available at the proper place
c. processing – manufacturing activities (carrying/freezing/drying)
3. Facilitating function – makes possible the smooth performance
of the exchange & physical functions; acts as the grease of the
agricultural marketing machinery
 a. Standardization

b. Financing

c. Risk-bearing

d. Packaging

e. Market Intelligence

f. Market research

g. Demand creation
4. Market-Structure-Conduct-Performance Approach
– how market behaves
Market Structure

– refers to how a market is organized that

determines the relationship among the
various sellers & buyers in the market (degree of
buyerseller concentration, degree of product
differentiation, the condition of entry to the market
& the degree of knowledge of the market)
Classification of Market Structure
Purely Competitive/Pure Competition
– thousands of buyers & sellers; products
are homogenous

Monopolistic Competition – hundreds of buyers &

sellers; products are differentiated

Pure Monopoly – one seller market situation

Oligopoly – few seller market situation

Pure Oligopoly
– where the products for sale are identical.
Differentiated Oligopoly
– when the products being offered for sale
are not homogeneous
Collusion
– a secret agreement between two or more
persons or institutions to achieve certain
objectives among the industries or firms.

Oligopsony – a few-buyer market situation

Monopsony – a one-buyer market situation

Market conduct

– the behavior or pattern that the firm

exhibits in the market (marketing practices)

Market performance

– appraisal of how much the economic resource of the

industry’s market behavior a conduct deviates from the best
possible contribution it can make to achieve relevant
socioeconomic goals.
 Price Determination

Price
- the amount of money which is needed to
acquire in exchange some combined assortment of a
product & its accompanying services
 Role of Price

1. Tells producers what & how much to produce

2. Allocates productive resources to the production
of goods & services that consumers demand

3. Guides goods through the channels of trade so

they end up where consumers want them, when
they want them, & in the form they want them

4. Ration the goods & services to those who demand

them most urgently & in proportions that
will all be consumed
Price Behavior over time

Fluctuations in market price occur because of:

 1. Fluctuations in demand

2. Fluctuations in supply

3. Experimentation in the price discovery

Types of Price Fluctuations
1. Seasonal price variation
– these are price fluctuations that tend
to follow a more or less uniform pattern
within the year & are observed to
conform to this pattern over a period of
years.
Examples:
- Climate & seasonal demand
- seasonality of production
- perishability,
- short harvest or marketing season, - storage , credit
and risk charges involved in holding product over time.
2. Annual price variation
– methods of price determination
under pure competition can be applied to
directly explain year to year product price
variation;
- typically greater for crops without
price support/annual average.
Example:
Yield sensitive to weather, pest and
hectarage planted and harvested can be
changed from year to year.
3. Trend
– associated with general
inflation & deflation in the economy;
- changes in the tastes &
preferences of consumers;
- increases in production &
income;
 - technological change in
production
4. Irregular or Random Price Movement

 prices that “just happen”

 unexpected & unpredictable price shift
caused by unanticipated forces
a. inventions
b. Strikes
c. physical destruction from typhoons,
floods or earthquakes
5. Cyclical price movement

prices fluctuate in regular pattern

e.g. livestock production and prices
explained by the cobweb model
- a high price leads to large production, the
large supply results in low prices, which in
turn result in smaller production, and so
forth.
 Operational Aspects of Pricing Process

1. Individual negotiations
- A simple bargaining process between individual
buyers & sellers for each transaction.
- there is equal market power and equal
information for all participants. (competitive market
model)

2. Organized Markets
- Became popular because haggling buyers & sellers
become too heavy or difficult, too time consuming & too costly
Types of Organized Markets:
 a. commodity exchanges
– provide a site for trading to take place under
specified rules

Types:
(1) Spot or cash market – trading of actual commodity on
the basis of samples and
(2) Future trading – trading in the form of future contract
(specifying the minimum grade of the commodity)
which must be delivered in the fulfilment of the contract.
b. auctions markets
- used for commodities which are difficult to
standardize;
 - most widely used where actual inspection of
the product is desirable to determine its
quality;
- prices are determined by progressively bidding
for each transaction made through public
outcry
c. terminal livestock exchanges
– livestock producers consign their animals to a
commission firm at the terminals;
- the commission agent seeks-out buyers for the
livestock, negotiates the best possible price,
collects payment, deduct yardage fees &
commissions & refunds the remainder to the
seller
3. Administered Prices

– almost exclusively a government

function with the following objectives:

(1) to provide a floor price so as to minimize price

fluctuation when there is a large crop,

(2) to provide incentives to increase production,

(3) to assure farmers of a fair or equitable price

4. Collective Bargaining

 bargaining associations through which farmers

can negotiate for higher prices
 necessary conditions for effective bargaining:
a. complete control of price so that
outsiders
cannot offer a lower price for the product
(Cut back production)
b. Buyers to be few in numbers
c. Inelastic demand is desirable
 Marketing Channels
 An inter-organizational system made up of a set
of interdependent agencies & institutions
involved in the task of moving products from the
point of production to the point of consumption;
Product delivery.
 A fairly well established channel must be
available to enable consumers to secure the
products they demand.
Nature of Marketing Channels:
 vary according to the type of commodity
handled, time and location.

Producer Retailer Consumer

To ensure Viability of the Channel

System
 Mutual understanding of channel members
on
- type of channel served
- territory served
 - functions of activities performed
 Follow explicit rules to ensure the viability
of the system ( payment delivery,
standardization, etc.)
Emergence of Marketing Channels
 Product delivery is the major channel
 Economic Reasons
a. increasing the efficiency of the
process.
 b. adjusting the discrepancy of
assortments.(collection)
c. Organization of transactions
d. Facilitation of the sorting and
searching process.
Choice of Marketing Channel
depends on:
1. Nature of the Product
a. perishability
b. unit value
c. newness of the product
2. Nature of the Market
a. consumer buying habits
b. size of average sale
c. total sales volume
d. concentration of purchases
e. seasonality of sales
Final Consideration in choice of
Channel:

[Link] consider
a. cost involved in using each channel
b. investment required
 c. potential net profit from sales

2. Direct Selling
Marketing Channels of Selected Farm
Products:
1. Contract-buyers – a contract is made between the
producer & the buyer

[Link] – merchant middlemen who sell to

retailers & other merchants but not to
consumers
3. Commission Agents – buy products in local areas & sell to
viajeros or assembler-wholesalers; just get
commission as payment for their services
4. Wholesaler - Retailers
– get produce in large quantities and sell to
retailers on wholesale basis as well as to
consumers on retail basis

5. Assembler - Wholesalers
– they buy from producers & contract
buyers, assemble the products in large
volume & transport to market centers;
also known as viajeros
6. Butcher-Retailers
- buy live poultry & livestock &
sell them in dressed or carcass
form

7. Retailers – sell to ultimate

consumers
 Grading & Standardization

Grading
– sorting of products into lots or units
according to one or more of its attributes

Standardization
– the establishment & maintenance of
uniform measurement
Transportation
(Place Dimension of Marketing)
Purpose:
- To make food products useful by
transporting them from the farm or
processor to the consumer.

Primary Concerns:
a. Cost
b. Time – because it takes to move them from
the farm to the processing and consuming
centers.
 Forms of Product Marketed
1. Transportation cost may be altered by a
change in the form of the product marketed.
Example:
- if it cost more to transport corn than
hogs, corn will be fed and marketed in
the form of hogs.
2. Transport costs determine the location
differentials for the processed products but
also location of the processing industry.
Who pays transport cost?
1. Short run – most changes in
transportation cost will be borne
by the producers.
2. Long run – consumers to bear
any increase in transportation
cost.
 Storage (Time Dimension of
Marketing)
Primary Concern:
a. help balance supply & consumption (demand)
- seasonal nature of production
- demand for the different products
throughout the year.
- time required to perform the various
marketing services
- the need to carry – over into the following
year.
b. to balance periods of plenty & periods of scarcity
Place of Storage:
 1. Farms

2. Producing areas

3. Terminal markets

4. Consumer centers
Cost of Storage:
1. Provision & maintenance of the physical facilities for
storage & for moving the products into & out of storage
a. Repairs
b. Depreciation
 c. Insurance
d. Handling fee
e. Utilities

2. Interest on the amount of capital invested in the

stored products.

3. Cost of quality deterioration, shrinkage, insect & rodent

damage.
Risk in Storage:
1. Risk of physical loss
- loss from fire, theft and natural causes
- natural product deterioration, insect and pest damage
2. Market Risk of loss due to price change
– the most important risk
Marketing Program
(4 Ps of Marketing)
A marketing mix strategy consists of four
parts:

1. Product strategies

2. Pricing strategies
3. Place strategies

4. Promotion strategies
The Other P’s to consider
A. Product Strategies

Product – is anything offered for sale,

attention, and acquisition

Categories of Agricultural Products:

1. Raw or fresh
2. Semi-processed
3. processed
Product Classifications:
a. Consumption & Tangibility
1. Durables
2. Non-durables 3. services

b. Effort & Risk

1. Convenience products
2. Preference products
3. Shopping products
4. Specialty products
c. Levels of Product
1. CORE PRODUCT- the problem solving
 benefits that consumers are
really buying
Ex. AMC cookware – better health
2. AUGMENTED PRODUCT- offering of
additional services and
benefits
Ex. AMC cookware - lifetime warranty,
free cooking lessons, free delivery, home
demo service
3. FORMAL PRODUCT
- refers to the product parts,
quality level, features, designs, brand
name, packaging and other
attributes
a. Product Mix – refers to the number of
products a firm is handling. It can
be:

a. wide – if there are a lot of product

lines
 b. deep – if there are several products
within each line

c. consistent – if the products being

produced are related
b. Branding

Brand – is a letter, word or symbol used to

identify products. It has 3 parts: the
name, the mark & the trademark
c. Packaging – is the total presentation of the
product
 Benefits of packaging:
1. Protects the goods in storage & transit
2. It makes handling convenient
3. It promotes the product
4. It enhances the product
Characteristics of a good package:
1. Attractive 5. textural
2. Recognizable 6.
dependable
3. Informative 7. functional
4. Immediate 8. labeling
 A label is a part of a package which
carries information about the product. It
shows the brand, manufacturer, expiry
date & etc.
TYPES OF LABELS

•BRAND LABEL

•GRADE LABEL
 •DESCRIPTIVE LABEL
BRAND NAME - words, letters or
number that can be vocalized Ex.
PENSHOPPE

TRADEMARK- a brand that is given

legal protection under Phil. Patent
Office Ex. JOLLIBEE
IMPORTANCE OF BRAND NAME
CONSUMER
 Easy identification of products
 Assured that you get comparable quality
when you buy again
SELLER
 Can be advertised
 Recognized when displayed in a store
 Measure of prestige
 BENEFITS OF BRANDING
1. Differentiation
2. Vehicle for communication and
promotion
3. Aids advertising
4. Aids recognition
5. Goodwill value
6. Facilitates customer recall and self
selection
7. Allows higher price to be charged
 8. Improves customer loyalty
CHARACTERISTICS OF A GOOD BRAND
NAMES

1. Easy to remember
2. Suggest something about product
benefit or use
3. Distinctive
4. Legally protected
B. Pricing Strategies
Manufacturer’s Pricing Strategies
1. Skimming the Market
– holding prices at relatively high level &
promoting the product’s effectiveness & value

2. Moving down the demand curve

– prices are set at a relatively high point & held
there until the market available at that point
is pretty well saturated
3. Penetration Pricing
– aims at getting an immediate mass
market

4. Pre-emptive pricing
– set the price of the product so low that
the market is unattractive to
competitors

5. Extinction pricing
– price of the product is set based on the
variable costs in order to force firms in
 weak financial or marketwise positions
to discontinue their production
6. Formula pricing
– pricing agreement is negotiated
with the buyer

7. Tie pricing
– negotiate a sale that provides
for the inclusion in the
purchase of a sought-for
 product a quantity of the
unwanted product.
Retailer’s Pricing Strategies

1. Competitive pricing
– set price to be near or equal to those in
other stores for products bought on a
regular or irregular basis.
2. Psychological pricing
– odd-centavo pricing to give the
appearance of having cut prices to the
 base; Minimum/ even-centavo pricing to
gain a quality image
3. Unit pricing
– pricing items in units of two or more.

4. Price Lining
– offering two or more classes of the same
product at different prices

5. Special prices
– offering items as specials for a given period of
time
 TYPES OF PRICE IN THE MARKET
1. Agricultural Price - result of the forces of D and
S which influence production and consumption of
agricultural price
2. Farm gate Price - price realized by farmers for
their product at the farmgate
POINT OF FIRST SALE- the first time exchange has
taken place between the farmers
as producers and the buyers
regardless of the place of exchange
3. Wholesale Price- the rate at which a
relatively large transaction, generally for
further sale is effected.
4. Retail Price- price at which the retailer
sells his or her commodity to the
consumers in small quantities or volume
5. Export Price- the price which
determined in export markets for
products intended for delivery outside the
customs boundary of the country
C. Distribution Strategies (Place)

Considerations:

1. Number of potential consumers

2. Complexity of the products

3. Distribution budget

4. Seller’s sales & distribution experience

5. Geography
 Marketing Channel of Upland Rice
in Cotabato 2002

Upland Rural Miller Wholesaler Consumer

rice trader trader
farmer

Retailer

D. Promotion Strategies
Promotion
– is the personal and/or impersonal process
of assisting a prospective customer to buy a
commodity or to act favorably upon an idea
that has commercial significance to the seller.
Importance of Promotion:

1. makes the buyers

aware of alternative
goods & services
2. Shorten the
distance between
 the market & the
manufacturers
3. regulate the level &
timing of demand
Methods of Promotion

1. Advertising – any paid form of non-personal presentation

of promotion of the products

2. Personal Selling – oral presentation of the product

3. Sales Promotion – are price off, bonuses, lotteries, etc.

4. Publicity – non-personal form of promotion which aims
to attract buyers by publishing
commercially significant news about the
product in different media.

Some Considerations on
Promotions
1. Nature of the market
2. Nature of the product
3. Stage of the product life cycle
4. Availability of funds
PROMOTION MIX
1. ADVERTISING- seeks to
generate a favorable
customer perception of the
product through creative
messages via effective
media
• TELEVISION • NEWSPAPER •
RADIO • MAGAZINES
Problems in Food Advertising

1. Inelastic demand for most products.

2. Food products already consumed in
volume and not many people are
interested in eating more of the same
items.
 3. Competition among food products is
primarily in price, not in emotional or
other appeals.
4. Difficulty of getting funds for advertising.
2. SALES PROMOTION - works on
the principle of giving an incentive or
prize for purchasing a product
Examples:
- Contest And Prizes
- Shows And Exhibits
- Premiums And Discounts
 - In-store Promotions
- Sales Incentives
- Trade Promotions
3. PUBLIC RELATIONS
- Publicity Campaigns -
Customers Services
 - Community Projects -
Employee Programs
4. DIRECT SELLING -
Personal Selling
- Electronic Shopping
Marketing Margin
 - difference between prices
at different levels of the marketing
system
- difference between what
the consumer pays and what the
producer receives for his produce
( Price Spread)
Components of Marketing
Margin:
 1. Wage - return to labor
2. Interest – return to borrowed
capital
3. Rent – return to land & buildings
4. Profit – return to entrepreneurship
& risk capital
Types of Margins:
a. Absolute Margin = Selling price – Buying price
b. Percentage Margin =
(Absolute Margin/Selling Price) x 100%
Percent Mark-up =
(Absolute Margin/Buying Price) x 100%
Components of the marketing margin

Marketing cost

- returns to the factors of

production used in providing the
processing and marketing services
 rendered between the farmers and
consumers.
Components of the marketing margin

Marketing charges

Returns according to the various

agencies or institutions involved in the
marketing of products
Net return or profit component
Breakdown of Consumer’s Peso:

This phase applies to the series of figures

representing the absolute margins of
different types of middlemen or assignable
to different marketing functions, divided by
the retail price,

or Absolute Margin at any two levels

Final Retail Price or Consumer price
Where: Final Retail Price or Consumer Price =
 Farm Price + Mktg Margins of all Middlemen

1. Farmer’s Share =
(Farm Price/Final Retail Price) x 100%
Eg. Farmer 10 Retailer 20 Consumer

Farmer’s share = (10/20) x 100% = 50%

2. Middleman’s share =
Middlemen’s Absolute Margin X 100 %
Final Retail Price
a. Wholesaler Share
(WS) =
WS Absolute Margin X 100% Final
Retail Price
b. Contact Buyer Share (CB) =

CB Absolute Margin X 100 % Final

Retail Price
 c. Retailer Share (R) = R Absolute
Margin X 100 %
Final Retail Price
Eg. Farmer P10 CB P20 WS P25 RS P28 C

a. WS Share = {(25-20)/28} x 100% = 17.85%

b. CB Share = {(20-10)/28} x 100% = 35.71%

c. R Share = (3/28) x 100% = 10.7%

d. Farmer’s share = (10/28) x 100% = 35.71%