Agriculture Products or Services Marketing
Marketing Ag Products
In contrast to most manufacturing firms, agriculture production has been mostly about producing a generic product. Agriculture businesses may not choose to advertise at the production and processing levels. If you grow corn, wheat or peanuts the local grain elevator or processing mill with take your crop and pay you the going rate. Because most farmers produce commodities – products that conform to a published quality standard, no advertising is needed. But once that commodity is altered by processing it is no longer a simple product but a value added agriculture product. These modified products take on unique characteristics that can differentiate them from other processed goods. At this level and beyond they can have a brand name, they can be promoted as having unique characteristics, and they can have a perceived price differential that reflects the value-added quality they possess. Once processing has been added to a commodity it can be advertised as having unique product characteristics.
The value of the unique characteristic is the perceived value that the end user is willing to pay for the differentiation. A product or service that is promoted as unique and different from the undifferentiated offering can command a premium price if and only if, the end user deems the extra price worthwhile. Advertising and promotion can be important in educating the consumer on the value the product or service brings.
So, who develops the consumer demand in the agriculture marketing chain?
- With commodity products such as corn, wheat and rice, large aggregators (Cargill, IBP, Continental, ADM, etc.) purchase huge quantities of undifferentiated product and comingle them to provide the large quantities needed. Much of this grain stock goes into animal feed or ethanol production. Some gets exported. Very little product differentiation or advertising is done by these aggregators.
- Some goes directly from producer to consumer. A pick-your-own farm, a roadside stand or farmers market is consumer direct. While limited work has been done in this area, the opportunity to brand the products and to provide advertising and promotion of the farm and the products raised is a possibility. Some ranches have promoted the ranch named beef through restaurants and stores. The buying public has to be able to clearly see the differences and must be willing to pay the extra price for the differentiated product. Organic raised products have gained public awareness.
- Producer to local Ag processing. This can be on the farm or very local. Often this is simply cleaning and boxing for shipment, but the opportunity to add value and generate brand name recognition is possible.
- roducer to large Ag processors who can, bag, clean, or freeze the product. Some product passes along as generic goods to be processes further by other value-added producers. Some goes to the military, to schools or to restaurants. Some of our production is exported either as raw commodities or as processed, read-to-eat products. Large Ag processors can add their name to a product to gain value recognition or they could package for the producer. Most often however, they package for the retail distributor.
- roducer to Ag processor to retail distributor. Much of the product moves through the processor and gets labeled with the retail distributer’s name. Often the same processor is producing product for every distributor. These large retail distributors warehouse huge quantities of product ready to be shipped to their own retail stores such as: Safeway, Kroger, Winn Dixie, Publix and Wal-Mart.
It’s important to be clear on what is meant by a retail distributor. This name is common, but other references may also accompany this discussion. First, you must realize that the local supermarket is probably not independent. Your local Kroger or Winn Dixie is owned by a conglomerate that is vertically integrated – meaning that they control as much of the value chain as possible. They utilize huge warehouses that stockpile grocery products for sale. Typically they utilize their own trucks to move product from their warehouse to the grocery chain they control. Some sell through several recognized chains. Some are independent grocers that wholesale to small independent stores. Prices at the store level are set by the retail distributor. They publish the store specials, offer coupons and specials. Wal-Mart has upset this structure by acting as their own distribution system and have countered the proliferation of sales and specials with everyday low prices. To negate the coupon, Wal-Mart has moved quickly to the Wal-Mart “Sam’s Choice” or “Great Value” names that the retail distributors cannot control.
The production farmer has little influence on price and the local grocery store has very limited flexibility in promoting products or setting retail prices. Nearly all the control is in the hands of these large wholesalers and distributors.
A major transition is underway in the agricultural industries from using open market mechanisms for coordinating the various economic stages of the value chain from genetics to consumers to negotiated coordination involving governance forms such as alliances, joint ventures, contracts, franchising agreements and ownership. Everyone associated with the value chain must understand how these changes affect them and take measures to capitalize on them.
Below is a graph showing some of the ways that an agriculture product goes from producer to the end user. This is not an all-encompassing list, other variations of these distribution chains are frequently found. Many foreign production systems have a much different process.