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  1. 1. The agricultural market, value chain and key actors
  2. 2. Overview • Agricultural marketing, the market and the value chain. • Supply and demand and the effect on the market. • Formal and informal markets. • Key actors in the agricultural value chain. • Key business development service providers. • Key regulators in the agricultural value chain. • Food issues and standards in the agricultural market.
  3. 3. Marketing The process of identifying, anticipating and satisfying customer requirements profitably; i.e.  The right product.  The right place.  The right price.  The right time.
  4. 4. Agricultural marketing Set of business activities that are performed in the flow of products from the beginning of agricultural production into the hands of consumers.
  5. 5. Agricultural marketing elements  The customer.  Factors that can be controlled, known as the marketing mix, are product, price, place (distribution) and promotion.  Environmental factors, which cannot be controlled, are political, economic, legal and technological factors.  All activities and services from the farmer to the consumer.
  6. 6. Agricultural marketing elements  Production planning.  Growing and harvesting.  Cleaning, grading and packaging.  Storage and transport.  Distribution.  Advertising.  Sales.
  7. 7. The marketing mix A set of tactics and strategies that a company (or farmer organisation) uses to promote its product in a particular market and that is made up of the so-called 4Ps of marketing: product, price, place and promotion.
  8. 8. Agricultural marketing activities  Production planning.  Growing and harvesting.  Cleaning, grading and packaging.  Storage and transport.  Distribution.  Advertising.  Sales.
  9. 9. Marketing plan A document (plan of action) that outlines the current market position of a company, as well as the activities involved in meeting specific marketing objectives for a particular period (e.g. a year).
  10. 10. Marketing plan helps farmers to:  Understand which products are in demand and will provide a profit.  Decide on: • What to plant. • When to plant. • How to produce a crop. • To whom to sell the harvested crop.
  11. 11. Market  The group of consumers or organisations that: • Is interested in a particular product. • Has the resources to buy the product. • Is allowed by regulations and/or legislation to buy the product.
  12. 12. Agricultural market The group of consumers and organisations that: • Is interested in a particular agricultural product. • Has the resources to buy it. • Is legally allowed to buy the product.
  13. 13. Components of a market  In order for a market to exist, the following components have to be present: • A product that can be bought and sold. • Buyers and sellers. • Business relationship between buyers and sellers. • A particular area, e.g. a region or a country.
  14. 14. Levels in a market  Potential market.  Available market.  Qualified available market.  Target market.  Penetrated market.
  15. 15. Agricultural market vs. market of manufactured goods  The agricultural products are perishable.  Agricultural products are produced and supplied irregularly or seasonally.  Most agricultural products are bulky: therefore, storage and transportation are expensive.  There is a large degree in variation in the quality of agricultural products.  Agricultural products require processing.
  16. 16. Agricultural value chain The goods, services and processes involved in an agricultural product moving from the farm to the final customer (consumer).
  17. 17. Activities: agricultural value chain  Input supply.  Farm production.  Post-harvest handling and processing.  Technologies of production and handling.  Grading criteria and facilities.  Cooling and packing technologies.  Storage and transport.  Industrial processing.  Finance.  Feedback from markets.
  18. 18. Market segmentation The division of an overall market into subsets (segments) of customers with common characteristics. Market segmentation can be based on geographic, demographic (population) and behaviouristic characteristics.
  19. 19. Market supply The quantity or amount of a product (maize, potatoes, tomatoes, eggs, and so on) that producers can offer to the market for sale. The supply of a product depends partly on its price and on local conditions.
  20. 20. Local conditions and product supply  Rainfall, drought and access to water.  Pests and diseases.  Availability of fertiliser and seeds.  Poor roads and transport vehicles.  Poor farmer health and nutrition.  Pregnancy and child rearing: women farmers.
  21. 21. Market demand The amount of the product that customers are willing and able to buy, which partly depends on the price. If the price is low, more people will want to buy and each person may want to buy more of the product. If the price goes up, fewer people want to buy and each person will probably buy a smaller amount.
  22. 22. Factors affecting demand  Customers generally want to buy more: • Staple foods (e.g. maize or wheat) or major vegetables (e.g. onions and tomatoes). • High-quality products. • Fresh products. • Scarce items, e.g. first fruits in the season.
  23. 23. Supply and demand Understanding supply and demand helps farmers to:  Plan crops – what, when and where.  Grow a more expensive crop variety to be sold for more money.  Grow a more nutritious crop.  Determine best time to sell their crop.  Increase crop quality for higher selling price.
  24. 24. Agricultural market types  Informal markets • Markets that exist beyond the tax system and that are therefore, off record.  Formal markets: • All the businesses, enterprises and economic activities in the agricultural and food sectors that are structured, monitored and protected by government and internationally recognised standards.
  25. 25. Informal agricultural markets  Support all types of products produced by smallholders.  Have no formal grades and no traceability systems.  Rarely use standard measures.  Set prices based on local supply and demand conditions.  Offer few barriers to entry.  Are attractive to smallholder farmers, as they generally get paid in cash on delivery and have few, if any, rules and regulations..
  26. 26. Informal agricultural market types  The farmgate (on the farm).  Roadside sales.  Village markets.  Rural assembly markets.  Sales within the main urban wholesale and retail markets.
  27. 27. Mile 1 in Lagos (Nigeria) Example of a massive informal market
  28. 28. Farmgate markets Informal markets in which sales occur when farmers sell their products directly from the farm to neighbours or traders.
  29. 29. Informal assembly markets  Farmers and small local traders regularly coming together to sell their goods to larger traders.  The buyers in assembly markets are traders, not consumers.
  30. 30. Informal wholesale markets  Markets where traders (and some farmers) deliver produce in bulk.  Generally found on the outskirts of larger towns and cities.  Retailers come to these markets to buy bulk goods.
  31. 31. Informal retail markets  Markets where consumers and small businesses buy their daily or weekly supplies of food.  It is possible for farmers to sell in bulk directly to retail markets. To do so, they must work out a system with the retailer.  Wholesalers may try to prevent farmers from selling directly to retailers.
  32. 32. Formal agricultural markets  Offer more consistent pricing methods and extended seasonal buying.  Highly competitive.  Have strict quality standards.  Meet all levels of food safety regulations.  Invest in information and communication technology (ICT).  Record and share information on prices and volumes.  Invest in storage systems.  Monitor sanitation through the market system.
  33. 33. Export markets  Export markets involve goods being produced in one location or country and being sold and consumed in another country.  Export trade traditionally included a mix of food and fibre products, e.g.: • Coffee Cocoa • Tea Cotton • Tropical fruits and nuts
  34. 34. Actors in value chain levels  Level 1: Core value chain actors.  Level 2: Business development services.  Level 3: Regulatory agencies.
  35. 35. Key value chain actors  Farmers  Collectors  Processors  Wholesalers  Retailers  Consumers
  36. 36. Business development services  People and organisations that support the production, supply and marketing of goods, without owning the product involved.  Operate on the second level in the value chain, and include: • Market access support. • Infrastructure and technology support. • Input supplies and finance.
  37. 37. Key business development service providers  Input suppliers.  Communication services.  Training and agricultural advisory services.  Market information services.  Financial services.  Research support.
  38. 38. Key regulators The actors/role players and agencies on Level 3 in the value chain that set formal and informal policies, standards and legal regulations that govern the way in which the core actors and business service providers conduct their businesses and deliver their products or services.
  39. 39. Food safety issues and standards  Organisations involved in food quality, handling, processing and distribution: • United Nations Food and Agriculture Organization (FAO). • United States Department of Agriculture (USDA). • National food laboratories.
  40. 40. Problems: food safety  Foodborne illness.  Food contaminants.  Pesticide exposure.
  41. 41. Changes: food production, handling, processing and quality  Inspection of domestic products, imports and exports.  Conducting risk assessments.  Educating the public about the importance of food safety.
  42. 42. GLOBALG.A.P. The world's leading farm assurance programme, translating consumer requirements into good agricultural practice in various countries.
  43. 43. Farmer segmentation  Bill Vorley identified the following three farmer segments: • Rural World 1: Globally competitive farmers. • Rural World 2: Locally orientated farmers with access to land and multiple enterprises. • Rural World 3: Farmers with fragile livelihoods, limited access to resources.
  44. 44. Types of extension agents  National government agricultural extension agents.  NGO agricultural extension agents.  Lead farmers and community based agents.  Volunteer agents and mobilisers.  Commission agents.  Fee-based agents.  Private sector field agents;  Partnerships.
  45. 45. Market linkage methods
  46. 46. Overview  the key skills needed to run a farming enterprise, including: • Changing rural communities. • Marketing strategies used by smallholder farmers. • Ways in which extension agents can help farmers to understand their market options. • Basic concepts I value chains and market linkage; • The use of value chain methods for market linkage.
  47. 47. Modern rural communities  Are varied and complex in operations.  Have diverse sources of income.  Seek alternative options for learning, generating business opportunities and improving the lives of family members.
  48. 48. Marketing strategies and approaches  Opportunistic market sales.  Informal sales agreements.  Contract farming and marketing.  Vertical integration.  Certification schemes.  Inclusive business models for sustainable trading relationships.  Shifting from production to market chain approaches.
  49. 49. Terminology  Market chain: A set of linkages between actors with no binding or sought-after formal or informal relationships.  Supply chain: A market chain that supplies a particular customer, meeting their particular product specifications and procedures.  Value chain: A specific type of supply chain in which actors support one another, so that they can increase their overall efficiency and competitiveness.
  50. 50. Key steps: value chain approach  Target products and locations for development.  Analyse the market.  Select partners.  Identify and organise farmers.  Prioritise investments along the chain.  Provide farm level and chain actor support.  Business development services and financial services.  Policy review and analysis.  Chain wide support.
  51. 51. Importance: value chain approach  End markets and levels in the value chain.  Power dynamics and governance.  Quality relationships between actors in the value chain.
  52. 52. 54 Logistics and Supply-Chain Management
  53. 53. 55 Learning Objectives  To understand the escalating importance of logistics and supply-chain management as crucial tools for competitiveness.  To learn about materials management and physical distribution.  To learn why international logistics is more complex than domestic logistics.  To see how the transportation infrastructure in host countries often dictates the options open to the manager.  To learn why international inventory management is crucial for success.
  54. 54. 56 International Logistics International logistics is the design and management of a system that controls the forward and reverse flow of materials, services, and information into, through, and out of the international corporation.
  55. 55. 57 International Logistics (cont.)  Through the implementation of international logistics, the firm can implement cost-saving programs such as just-in-time (JIT), electronic data interchange (EDI), and early supplier involvement (ESI).  The two phases of the movement of materials include: • materials management, or the timely movement of materials, parts, and supplies. • physical distribution, or the movement of the firm’s physical product to its customers.
  56. 56. 58 Supply-Chain Management  Supply-chain management is the integration of business processes from end user through original suppliers, that provide products, services, and information that add value for customers. • Supply-chain management connects a company’s supply side with its demand side. • It opens up supplier relationships for companies outside of the buyer’s domestic market.
  57. 57. 59 Transportation Infrastructure  A firm’s logistics platform is determined by a location’s ease and convenience of market reach under favorable cost circumstances.  The public sector’s investment priorities, safety regulations, tax incentives, and transport policies can have major effects on the logistics decisions of firms.  The logistics manager must learn about existing and planned infrastructures abroad and at home and factor them into the firm’s strategy.
  58. 58. 60 Considerations for Selecting a Mode of Transport Predictability Transit Time Cost Non-economic Factors
  59. 59. 61 International Inventory Issues  Inventories tie up a major portion of corporate funds, therefore proper inventory policies should be a major concern to the international logistician.  Just-in-time inventory policies minimize the volume of inventory by making it available only when needed.  The purpose of establishing inventory systems are: • to maintain product movement in the delivery pipeline • to have a cushion to absorb demand fluctuations
  60. 60. 62 Three Factors that Decide the Level of Inventory Order Cycle Time Desired Customer Service Levels Use of Inventories as a Strategic Tool
  61. 61. 63 International Packaging Issues  Packaging is instrumental in getting the merchandise to the destination in a safe, presentable condition.  Because of the added stress of international shipping, packaging that is adequate for domestic shipping may be inadequate for international shipping.  Packaging considerations that should be taken into account are environmental conditions and weight.  One solution to the packaging problem has been the development of inter-modal containers.  Cost attention must be paid to international packaging.
  62. 62. 64 Storage Facilities  A stationary period is involved when merchandise becomes inventory stored in warehouses.  The location decision addresses how many distribution centers to have and where to locate them.  Storage facilities abroad can differ in availability and quality.  The logistician should analyze international product sales and then rank order products according to warehousing needs.
  63. 63. 65 Special Trade Zones  Foreign trade zones are areas where foreign goods may be held or processed and then re-exported without incurring duties.  Trade zones can be useful as transshipment points to reduce logistics cost and redesign marketing approaches.  Governments and firms benefit from foreign trade zones.
  64. 64. 66 Export Processing Zones and Economic Zones  In export processing zones, special rules apply that are different in other regions of the country.  These zones usually provide tax-free and duty-free treatment for production facilities whose output is destined abroad.  The maquiladoras of Mexico are one example of a program that permits firms to take advantage of sharp differentials in labor costs.  Through the creation of special economic zones, the Chinese government has attracted many foreign investors bringing in millions of dollars.
  65. 65. 67 Centralized Logistics Management  In international logistics, the existence of a headquarters staff that retains decision-making power over logistics is important.  To avoid internal problems, both headquarters staff and local management should report to one person.  This individual can contribute an objective view when inevitable conflicts arise in international logistics coordination.
  66. 66. 68 Decentralized Logistics Management  When a firm serves many diverse international markets, total centralization might leave the firm unresponsive to local adaptation needs.  If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance.  Once products are within a specific market, increased input from local logistics operations should be expected and encouraged.
  67. 67. 69 Outsourcing Logistics Services  The systematic outsourcing of logistics capabilities is a third option.  By collaborating with transportation firms, private warehouses, or other specialists, corporate resources can be concentrated on the firm’s core product.  One-stop logistics allows shippers to buy all the transportation modes and functional services from a single carrier.
  68. 68. 70 The Supply Chain and the Internet  Because of the internet, firms are able to conduct many more global comparisons among suppliers and select from a wider variety of choices.  When customers have the ability to access a company through the internet, the company must be prepared for 24-hour order-taking and customer service.  For all countries, but particularly in developing nations, the issue of universal access to the internet is crucial.
  69. 69. 71 Logistics and Security  After the terrorist attacks of 2001, companies have to deal with the fact that the pace of international transactions has slowed down and that formerly routine steps will now take longer.  Logistics systems and modern transportation systems are often the targets of attacks.  The need to institute new safeguards for international shipments will affect the ability of firms to efficiently plan their international shipments.
  70. 70. 72 Logistics and the Environment  Since environmental laws and regulations differ across the globe, the firm’s efforts need to be responsive to a wide variety of requirements.  Reverse distribution systems are instrumental in ensuring that the firm not only delivers the product to the market, but also can retrieve it from the market for subsequent use, recycling, or disposal.  Companies need to learn how to simultaneously achieve environmental and economic goals.
  71. 71. Nigeria exports  Levels  Destinations  Products  Export Potential Map  Search for by country Nigeria