AAEC 3301 Agribusiness Marketing Spring 2011

1. AAEC 3301Agribusiness MarketingSpring 2011 Lecture 1: An Overview of Market and Agricultural Marketing

2. Market • A market is any arrangement (any one of a variety of systems, institutions, procedures, social relations, and infrastructures) that allows buyers and sellers to freely exchange (the ownership of) any type of goods, services, and information. • A market may emerge spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of ownership of goods, services, and information. • Market participants consist of all the buyers and sellers of a good or service or information who determine its price. • The exchange of goods or services for money is a transaction.

3. Market… • Markets vary in size, range, geographic scale, location, types and variety of human communities, as well as the types of goods and services traded. • Some examples include local farmers’ markets, shopping centers and malls, international currency and commodity markets, legally created markets such as for pollution permits, and illegal markets such as the market for illicit drugs. • A market can be organized as an auction, as a private electronic market, as a commodity wholesale market, as a shopping center, as a complex institution such as a stock market, and as an informal discussion between two individuals.

4. Marketing • Marketing is defined by the American Marketing Association (AMA) as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings (goods and services) that have value for customers, clients, partners, and society at large.” • Marketing is a product or service selling related overall activities. • Marketing is used to identify the customer, to satisfy the customer, and to keep the customer. • Marketing is an integrated process of performing market research, selling goods and services to consumers, and promoting them through advertising.

5. Agricultural Marketing • Agricultural Marketing is an integrated process of moving agricultural products from farms to consumers. • Numerous interconnected activities are involved in doing this, such as planning production, growing and harvesting, grading, packing, transport, storage, agro- and food processing, distribution, and sale. • Such activities cannot take place without the exchange of information and are often heavily dependent on the availability of suitable finance. • Marketing systems are dynamic; they are competitive and involve continuous change and improvement.

6. Agricultural Marketing • Agricultural Markets perform an enormous role in responding to the world population’s daily demand for food products. • What do you have to do to provide one hamburger, a small serving of french fries, and a can of soda to everyone attending a football game at TT on a Saturday afternoon? • What do you have to do to provide the same food and drink to everyone in Texas on a Saturday afternoon? • What do you have to do if you also have to produce, process, and prepare the food and drink?

7. Agricultural Marketing • Every person in the world is affected, on a daily basis, by the way agricultural markets provide alternative quantities and qualities of various food for consumption. • The efficiency with which all of these activities occur affects prices that consumers pay for the food they purchase as well as the prices that farmers receive for their products. • Less than 2% of the US population reside on farms and obtain income directly from producing agricultural products. • A much larger fraction of the US population depends on marketing of agricultural products as a major source of income.

8. Consumer Food Expenditure Marketing Bill 100% 82% = Farm Value + 18% Source: USDA, 2008

9. US Consumer Food Expenditures, Marketing Bill and Farm Value 1958-2008 (USDA) Total consumer food expenditures Marketing Bill Farm Value

10. 60-70 of the Fortune 500 Companies are Agribusiness companies • Philip Morris Sara Lee General Mills • Kraft Monsanto Procter & Gamble • Kroger McDonald’s Safeway • ConAgra H.J. Heinz Caterpillar • Dow Chemical Win-Dixie Walmart • Coca Cola Publix Super Mkts Kellogs • Nabisco Anheuser-Busch R. Purina • Fleming Farmland Ind. John Deere • Albertson’s Pepsico Bestfoods • ADM Quaker Oats Cargill

11. 60-70 of the Fortune 500 Companies are Agribusiness companies … • Tyson Dole Food 4 Less • Campbell Soup Hershey Foods McDonalds • Fred Meyer Sysco Hormel • Whole Foods Costco Dole • Smithfield Foods Dean Foods Chiquita • Hersheys Sysco Pioneer • Starbucks CHS Darden • Yum Brands Brinker Land-o-Lakes • Del Monte Campbell Coors • Great Atlantic Wrigley Pilgrims Pride

12. Employment OpportunitiesIn the Food Industry Mgmt., Finance Scientists, Engineers Communication, Education Marketing, Sales Govt., Social Svs. Production Agr.

13. Food: America’s Largest Industry • 2 million farms • Each farmer feeds 96 other Americans and 20 foreigners • Consumers spent 700 billion dollars for U.S. produced foods in 2008 • Consumers spend about 10 percent of their income in food • There are 22 million food industry jobs • The food industry produces 13% of the nation’s products and services

14. Overview of the Food Marketing System • Firms • Functions • Flows • Levels • Activities • Pricing Points • Decisions • Value-Adding

15. Distinguishing Characteristics of the Industry • Biological Lags (separate production decision from delivery) • Perishibility • Weather/Climate dependent products • Frequency of use

16. Views of Ag. Marketing The MACRO view • Macro marketing is the performance of all business activities involved in the forward flow of goods and services from the producer to the consumer. • The WHO and WHAT of Marketing The MICRO View • Micro marketing is the performance of business activities that direct the flow of goods and services to the customer and accomplish the objective of the firm. • The HOW and WHY of Marketing

18. The Food Marketing Firms • 14,000 Assembly Market Buyers/Sellers • 20,000 Food Processing Plants • 40,000 Grocery Product Wholesalers • 240,000 Grocery Stores • 4,000,000 Eating Places • 300 Million American Consumers

19. Macro view: Three approaches to the study of marketing agricultural products • Institutional Approach: Emphasizes the “Who” of marketing Middlemen – assemblers, wholesalers, brokers, retailers, order buyers, information providers, etc. • Functional Approach: Emphasizes the “What” of marketing Functions that are performed in agricultural marketing – exchange functions, physical functions and facilitating functions 3. Behavioral Approach: Emphasizes the interdependence and coordination of all participants and all the functions of the entire system – combines institutional and functional approaches

20. The Functional Approach • Exchange Functions – Buying (procurement) and selling (merchandising) • Physical Functions – Storage, processing and transportation • Facilitating functions – Financing, risk bearing, standardization, intellectual property, market intelligence gathering

21. Micro Marketing • From a micro, firm manager perspective, the customer is the next stage in the marketing system. • What does this mean? • The firm manager will play an active role in overseeing the firm’s marketing decisions that include: • Procurements and merchandising (buying and selling) • Identify consumer preference and product choice • Product design and development, processing, and packaging • Pricing • Promotion • Storage and transportation

22. Consumer Sovereignty • The economic doctrine that the consumer is Queen or King in the marketplace that is driven by consumer demand is known as Consumer Sovereignty. • This is the concept that each consumer decides independently what to buy and that the combined individual decisions directs all production and marketing activities in the economy. • But consumer demand is influenced by effective Advertising and Promotions