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AEE233: AGRICULTURAL MARKETING

TRADE AND PRICES
 Concept and
Definition

Objectives of
the study

. Scope and
Subject Matter
 The word market comes from the latin word **marcatus”
which means merchandise or trade or a place where business is
conducted.

Word market has been used to mean:

°A place or a building where commodities are bought and sold, e.g.,
Super market

¢potential buyers and sellers of a product, e.g., wheat market and

cotton market

¢potential buyers and sellers of a country or region, e.g., Indian

market and Asian market
= A market is area within which the forces
supply converge to establish a single price.

= Market means a social institution which performs activities

and provides facilities for exchanging commodities between
buyers and sellers.

= A market is the sphere within which price determining forces

operate.
 or a market to exist, certain
conditions should be both necessary and st
termed as the components of a market.

1. The existence of a good or commodity for transactions

2. The existence of buyers and sellers

3. Business relationship or intercourse between buyers and sellers

4. Demarcation of area such as place, region, country or the whole

world. The existence of perfect competition or a uniform price is not
necessary.
structure refers to something that has organiza ion and
> i
gee

dimension —shape, size and design; and which is evolved

for the purpose of performing a function.

Market structure refers to those organizational

characteristics of a market which influence the nature
of competition and pricing, and affect the conduct of
business firms

Market structure refers to those characteristics of the

market which affect the traders behaviour and their
performances.
The components of the market structure, which together =
determine the conduct and performance of the market, are:

1. Concentration of market power

2. Degree of product differentiation
3. Conditions for entry of firms in the market
4. Flow of market information
5. Degree of integration

For a satisfactory market performance, the market

structure should keep pace with the following changes:
1. Production pattern:
2. Demand pattern:
3. Costs and patterns of marketing functions:
Concept

The term agricultural marketing is composed of two words-

agriculture and marketing.

Agriculture,. in the broadest sense, means activities aimed at the

use of natural resources for human welfare, i.e., 1t includes all the
primary activities of production. But, generally, it is used to mean
growing and/or raising crops and livestock.

Marketing connotes a series of activities involved in moving the

goods from the point of production to the point of consumption. It
includes all the activities involved in the creation of time, place,
form and possession utility.
According to Thomsen, the study of agricultural! ”
comprises all the operations, and the agencies conducting them,
involved in the movement of farm-produced foods, raw
materials and their derivatives.
understanding of the complexities involved and the identification of
bottlenecks with a view to providing efficient services in the transfer
of farm products and inputs from producers to consumers.

Difference in Marketing of Agricultural and Manufactured Goods

1. Perishability of the Product
2. Seasonality of Production
3. Bulkiness of Products
4. Variation in Quality of Products
5. Irregular Supply of Agricultural Products
6. Small Size of Holdings and Scattered Production
7. Processing
 Difference between AM and Consumer
Marketing

Perish ability Goods highly perishable Less perishable products

Seasonality of products Highly seasonable: varies according to Less affected by seasonality

one season to other. Warehousing is not

possible

Volume of production Produced in large volume. Produced in low volume.

Variation in quality of products Products highly vary on account of Quality doesn’t vary to a great extent
grading and standardization.

Nature of supply Supply highly seasonable i.e. discreet in Consistent and continuous in nature.
nature
Size of holdings Quite Large Very small

Nature of production More affected by natural factors Least affected by natural forces
 See,

‘Optimization of Resource use and Output Management

*Increase in Farm Income
Widening of Markets
¢Growth of Agro-based Industries
*Price Signals
eAdoption and Spread of New Technology
*Employment
eAddition to National Income
*Better Living
*Creation of Utility- form , Place, Time and possession
utilities
 Scope and Subject Matter
= Product marketing as well as input marketing.
: Marketable surplus of the crops following the technological
breakthrough.
= The farmers produce their products for the markets. Farming becomes
market-oriented.

> marketing functions, agencies, channels, efficiency and costs,

price spread and market integration, producer’s surplus,
government policy and research, training and statistics on
agricultural marketing
Market Structure

Monopolistic
Competition

Monopoly
 Market

Market
¢ In economics, market means a social system
through which the sellers and purchasers of a
Commodity or a service (or a group of commodities
and services )can interact with each other.
 Market
¢ In common language, market means a place where
goods are purchased.
¢ However, in economics, market means an
arrangement which establish effective
relationship between buyers and seller of a
commodity. Hence, each commodity has its own
market.
 CLASSIFICATION OF MARKET
> On the Basis of Number of
Commodities:
Y General Markets- all item are sale
v Specialized Markets- medicine, vegetable,
cloths

On the Basis of Market Area:

UNM WY

Local Markets- village market for

perishable item.
Regional Markets- 4-5 dist. are covered.
N

Foodgrains.
National Markets- jute, tea, coffee
\N\

International Markets- gold, silver, crude

oil, etc
> On the Basis of Location
v Village Markets — 2-5 village markets
Y Primary Wholesale Markets- held on town, taluk,
mandal
Y Secondary Wholesale Markets- dist.
headquarters
v Terminal Markets- state capital, big cities, well organized
market.

Y Seaboard Markets- Mumbai, Kolkata, Chennai,

Visakhapatnam.

> On the Basis of Time

v Short Period Markets- vegetable, flower market
etc.
VY Long Period Markets- foodgrains, oilseeds etc
Y Secular Markets — Godown facilities, import-
export, like machinery or manufactured goods.
> On the Basis of Volume of Business
Y Wholesale Markets- large amount buy and sale.
Y Retail Markets- as per requirement.

> On the Basis of Nature of Transaction

Y Cash Markets — transaction through cash mode.
Y Future/forward marketing- future sale and purchase
at current time.

> On the Basis of Government Intervention and

Regulation
Y Regulated Markets- govt. fixe the rules and fee for
every things eg — marketing cost, margins etc.
Y Unregulated Markets- middlemen exploit the
farmers.
> On the Basis of Nature of
Commodity
¥ Commodity Markets- cotton, wheat,
rice market, cattle market etc.
Y Capital Markets- Share market,
Money market.

> On the Basis of Vision

VY Black Market- goods are placed in
godown and sale when demand is
high.
Y Open Markets -
 Market Structure

Market
Structure

Perfect
Imperfect
Competition
Competition Rneneny
|

Monopolistic Oligopoly Duopoly

Competition
Perfect Competition
Many Buyer and many seller transacting a homogeneous
product.
Characteristics:
Large number of buyer and seller:
Firm is large, but supply is only a small part of the total
quantity offered for the sale in the market.
Each buyer’s demands is relatively small to the market
demand.
No buyer and seller is large to influence the market price.
Market price is beyond their control.

. Homogeneous product:
Transacted commodity is identical.
No option to differentiate the goods produced by different
firms.
Buyers have no preference.
3. Free entry and exit of firms:
=" No barrier on entry and exit of firms.
A firm can leave the industry if it cannot
withstand losses.

4. No Govt. Regulation:
" Govt. does not place any restriction on price.

5. Perfect mobility of resources:

=" Worker can move from one job to another.

6. Perfect knowledge:
= All economic agents (seller and buyers) have
the complete knowledge.
" Buyer and seller are aware of the nature of the
product and prevailing market price.
 Large Number Of Buyers And Sellers
Conditions
Large number of buyers and sellers
 Perfect Competition

HOMOGENOUS Products : Identical Or Perfect Substitutes

 Perfect Competition
There's free entry and exit.

* Free Entry or Exit

* Firms can enter or exit the market without
restriction.

rt! ie, * The number of firms in the market adjusts until

economic profits are zero.
 Imperfect Competition

= Characteristics:

Few number of buyer and seller

Heterogeneous product
Restricted entry and exit of firms
Govt. Regulation
Less mobility of resources
Less knowledge
 Imperfect Competition
¢ Imperfectly competitive markets may be classified
as : (i) Monopoly, (ii) Monopolistic Competition,
(iii) Oligopoly and (iv) Duopoly

Imperfect Competition
e Imperfect competition is between the
extremes of monopoly and perfect
competition.
¢ A monopoly firm is one that produces the
entire market supply of a particular good or
service.
— e.g. NZ Post for postal services.
¢ In duopoly only two firms supply a particular
product.
- e.g. Vodafone and Telecom
e In oligopoly a few large firms supply all or
most of a particular product.
- e.g. petrol, banks, supermarket chains
e In monopolistic competition many firms
supply essentially the same product but each
has brand loyalty.
 Monopoly
(1) Monopoly
¢ Monopoly refers to the market situation where there is one
seller and there is no close substitute to the commodities
sold by the seller. The seller has full control over the supply
of that commodity.
¢ Since there is only one seller, so a monopoly firm and an
industry are the same.
¢ Monopoly is a form of market structure where there is a
single seller producing a commodity having no close
substitute.
¢ The word monopoly is derived from two Greek words-
Mono and Poly. Mono means single and Poly means 'seller'.
Thus monopoly means single seller.
Characteristics of monopoly market
I. Single seller
2. No close substitute
3. Restriction in entry
4, Price discrimination
5. price maker
 Monopolistic Competition

(2) Monopolistic Competition

¢ It is that form of market in which there are large numbers
of sellers selling differentiated products which are similar
in nature but not homogenous, for e.g.., the different brands
of soap.
¢ This are closely related goods with a little difference in
odour, size and shape. We separate them from ach other.
¢ The concept of monopolistic competition was developed by
an American economist “Chamberline”. It is a
combination of perfect competition and monopoly.
 Monopolistic Competition

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onopolistic Competition? i
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Characteristics of monopolistic market
I. Large buyers and sellers
2. Selling cost
4, Free entry and exist
5. Lack of Knowledge
6. Product differentiation
7.Price controlling
8. Non price competition
 Monopoly

We gh MONOPOLISTIC COMPETITION

Large Number
of Firms

PTITION Product Free Entry and

Differentiation Exit

Monopolistic
Competition
Product
Variati Some Control
IRE rahi Heavy Over Price
ViOnopols Nat Hard Expenditure
on
OM silcle Advertisements
and Other Selling
the Market Cost
 Some another competition in the market.
Monopsony
means the presence of a single buyer for the products
produced by the firms/farm. Eg Sugar factory purchase
the cane of all farmers, same Tea & coffee board.

Oligospony
it is form of buyer side in a market. Eg. Tata company
for purchases iron ore, Hindustan Petrolium
corporation buy the gas from Govt or supply to
consumer after refinement.
 Oligopoly
(3) Oligopoly
¢ Oligopoly is a market situation in which there are
few firms producing either differential goods or
closely differential goods. The number of firms is so
small that every seller is affected by the activities of
the others.
Characteristics of oligopoly market
I. Few sellers
2. Interdependence
3. Selling cost
4, Barriers of entry
5. Formation of cartage
6. Non price competition
 Oligopoly

Oligopoly
A few large firms
Standardized or differentiated products
Significant barriers to entry
Market power
— Interdependent
Examples
— Steel, Oil
— Automobiles
 Duopoly
Duopoly
¢ It is a specific type of oligopoly where only two producers exist
in one market. In reality, this definition is generally used where
only two firms have dominant control over a market.
¢ Duopoly provides a simplified model for showing the main
principles of the theory of oligopoly: the conclusions drawn
from analysing the problem of two sellers can be extended to
cover situations in which there are three or more sellers. If there
are only two sellers producing a commodity a change in the price or
output of one will affect the other; and his reactions in turn will
affect the first. In other words, in duopolies there are two
variables of interest: the prices set by each firm and the quantity
produced by each firm.
 Duopoly
REAL WORLD EXAMPLES OF DUOPOLY:

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 Duopoly
¢ Duopoly is a market situation in which there
are two sellers of a commodity such that
actions of each seller has predictable effect
on the other seller/rival.
 Marketing Mix
0 Marketing Mix is a combination of marketing tools
that a company uses to satisfy their target
customers and achieving organizational goals.
McCarthy classified all these marketing tools
under four broad categories:
>> Product >> Price,
>> Place, >> Promotion
Oo These four elements are the basic components of a
marketing plan and are collectively called 4
Ps of marketing.
 Marketing Mix
Marketing mix your business is about how you position it to
satisfy your markets needs. There are four critical elements in
marketing your products and business. They are the four ps of
marketing.
I. Product. The right product to satisfy the needs of your target
customer.

2. Price. The right product offered at the right price.

3. Place. The right product at the right price available in the right
place to be bought by customers.

4, Promotion. Informing potential customers of the availability of

the product, its price and its place.
 Marketing Mix And 4P
MAREE TING
PRODTU TT MIX

Quality
Features
Design
Style
Brand
Packaging,
Lable ‘TARGET
Services MARKET
WV arrants

PRICE PROMOTION J
1Es ricing, strategy Advertising
D isc OUncs Personal sell ine
Allowances Sale promotio 1
-E ayment period Publicity
Cc) redit items Public relations
andling charges Displays
Credit cards
Market
Segmentation
MARKETING MANAGEMENT
Cela.)
 oMoIKRC)I .
Market Segmentation
The need for marketing
segmentation
> The marketing concept calls for understanding customer
and satisfying there needs better than the competition.

> Different customers have different needs, and its rarely

possible to satisfy all the customers by treating them
alike.
Bases for segmentation in
consumer markets
Geographic segmentation

Geographic segmentation tries to divide

markets into different geographical units:
> Regions
> Size of the area
> Population density
> Climate
Geographic segmentation

> Population density: often classified as

urban, suburban, or rural

> Climate: according to weather patterns

common to certain geographic regions
Demographic segmentation
Demographic segmentation consists of dividing the market into groups
based on variables such as:

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* Gender NRIs
* Income
Demographic segmentation F

> Age : Marketers design, package and promote products differently

to meet the wants of different age groups.

Good examples include the marketing of toothpaste (contrast the

branding of toothpaste for children and adults) and toys (with many
age-based segments).
Demographic segmentation io

> Gender: Gender segmentation is widely used in consumer

marketing.

The best examples include clothing, hairdressing, magazines and

toiletries and cosmetics.
Demographic segmentation

> Income: Many companies target affluent consumers with luxury

goods and convenience services.

Good examples include Coutts bank; Moet & Chandon champagne

and Elegant Resorts - an up-market travel company.
furnishings, leisure
services.
Psychographic segmentation

Psychographic segmentation groups customers according

to their lifestyle. Activities, interest, and opinions (AIO)
surveys are one tool for measuring lifestyle.
> Activities
amiss
> Opinion
> Values
Behavioralistic segmentation

Behavioralistic segmentation is based on actual customer

behavior towards products. Some behavioralistic variable
include:
> Opinions, interests and hobbies
> Degree of loyalty
> Occasions
> Benefits sought
> Usage
Behavioralistic segmentation

> Opinions, interests and hobbies - this covers a huge area

and includes consumers’ political opinions, views on the
environment, sporting and recreational activities and
arts and cultural issues.
Behavioralistic segmentation

> Degree of loyalty - customers who buy one

brand either all or most of the time are
valuable to firms.
Avioralistic segmentation

nefits sought — this requires marketers to identify and

iderstand the main benefits consumers look for in a
oduct.
sage — some markets can be segmented info light,
edium and heavy user groups.
 What is Demand?
- Quantities of a particular good or
service consumers are willing and
able to buy at different possible
prices. —

==
—~
s
 The Law of Demand...
- Consumers buy more of a good when
its price decreases and less when its
price increases.
When price Demand When price Demand

iif
goes up... goes down... goes down... goes up...
The Demand Curve

Price
(£)

Quantity Demanded (t)

 Factors of Demand
1. Changes in income (the income
effect)...

5
when income consumers
goes up buy more

2%
when income consumers
goes down buy less
 Factors of Demand
2. Prices or availability of substitutes
(substitution effect)...
a substitute is a good that can be used
in place of another.

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 Factors of Demand
3. Prices or availability of
complementary goods...
- complementary goods are things that
are often are sold or used together

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 Factors of Demand
5. Changes in tastes & preferences...

now...
 What is Supply?
- Supply: The amount of a product
that is offered for sale at all possible
prices in the market.
 The Law of Supply
- Tendency of suppliers to offer more
of a good at a higher price and less at
lower prices.
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When price Supply When price Supply a

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goes up... goesup... goesdown... goes down...

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- The law of demand
describes how
price affects
CONSUMERS...

- And the law of

supply describes
how price affects
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 Factors of Supply
Cost of inputs (factors of
—_

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production)...

when production t supply

costs go up goes down

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when production zd supply
costs go down goes up
 Factors of Supply
2. Changes in productivity...

when productivity supply

goes up goes up

when productivity 7 supply

goes down goes down
 Factors of Supply
3. Change in the number of sellers in
the market...
- More sellers in a market = increase
supply.
- Fewer sellers in a market = decrease
supply.

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 The Best Price...
- The equilibrium price is where
supply & demand intersect.

equilibrium
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 Market Equilibrium

¢ Only in equilibrium
is quantity supplied
equal to quantity
Price ($)

demanded.
¢ At any price level
other than Pp, the
wishes of buyers
af Q QQ
and sellers do not
Quantity
coincide.
 Market Disequilibria

Excess demand, or
shortage, is the condition
that exists when quantity
Price ($)

demanded exceeds quantity

supplied at the current
price.
When quantity demanded
_— + _ exceeds quantity supplied, price
Q; Q a tends to rise until equilibrium is
‘Quantity restored.
Market Disequilibria

¢ Excess supply, or surplus, is

the condition that exists
when quantity supplied
exceeds quantity demanded
at the current price.

¢ When quantity supplied exceeds

quantity demanded, price tends to
fall until equilibrium is restored.

Quantity
 Increases in Demand and Supply

e3 Pope eg Po
_ ‘

i
ok
D

Qo—> Q, Qo Q,
Quantity Quantity

¢ Higher demand leads to higher ¢ Higher supply leads to lower

equilibrium price and higher equilibrium price and higher
equilibrium quantity. equilibrium quantity.
 Decreases in Demand and Supply

P,
et
Price ($)

i!
P,
gh
o

QQ Q-Q
Quantity Quantity

¢ Lower demand leads to ¢ Lower supply leads to

lower price and lower higher price and lower
quantity exchanged. quantity exchanged.
 PRODUCER'S SURPLUS

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a) (a,
> From the marketing point of view, this surplus is more important than the
total production of commodities.
MUM nee Scan (et Marlena: credo oh Eas ae
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 Importance of Producer's Surplus |

>» Framing Sound Price Policies

» Developing Proper Procurement and Purchase Strategies
Gre CiOMU Ne cm aflecm alo lacer-li(o)g(
> Export/Import policies
>» Development of Transport and Storage Systems
 IW oem a (0.0 V(ecmISO1E)(N15

PACU CIELO 0) 0
RUE LLCIE]O RUN O SCR U)¢ cae of the produce which can be am
available to the non-farm population of the country,
aa Wes
MS — = Marketable surplus
P = Total production, and
C = Total requirements (family consumption, farm needs, payment to labour,
artisans, landlord and payments for social and religious work).
PELLCom yt e013
Marketed surplus is that quantity of the produce which the producer-farmer
actually sells in the market, irrespective of his requirements for family
consumption, farm needs and other payments.
 Factors Affecting Marketable Surplus

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Ss

Production
Fn

Price of the Commodity

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PAM O Many
See, fae

Requirement of Seed and Feed

Nature of Commodity
Consumption Habits
\

M = f(x1, x2, x3, x4)

Relationship between prices and marketable surplus

MISC COnsul|e
IMAM MULAN CUM aOR SUNN OM CNTs¢(0E AFIOM i ela tle
marketed surplus is inversely proportional to the price level. This behaviour
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CONSCIOUS.
Selling Behaviour of Farmers
It is determined by the following factors
OS

Mir al@reImece solo MMO)MUTeReinille

LO Goes

Nature of commodity to be marketed

Marketable surplus
Binding of farmer to particular middleman.
Se
SM

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MO
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Market information
Government policies
tee,

Weather conditions at the time of harvest

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