ACE305 Unit 1

What is a market
a group of buyers and sellers organized for the purpose of the exchange of goods and services
(buyers + sellers) + organization = market
Market supply chain list
farmers – processors – wholesalers – retailers – consumers

Each of those(besides consumer) is an input supplier and in-between are brokers/agents

input supplier
typically provide those items that are necessary to the successful operation of terms in other sectors.
farmers
typically grow crops or raise live animals
broker/agent
offer networking and transaction service that may transfer of farm products alone the marketing chain more efficient.
processors
transform raw agricultural products into other forms by adding desirable or removing undesirable characteristics.

i.e. wheat int bread or corn into corn syrup

wholesalers
organize and coordinate acquisition activities among numerous individual producers and sort, store, and distribute products to the next marketing stage
retailers
organize and distribute finial goods to individual consumers

ie grocery stores, restaurants

consumers
individual buyers aka you
marketing
the process of moving goods and services through the relevant marketing chain from initial producers to final consumers. it is a multidisciplinary activity that requires familiarity with business activities, economic incentives, geography, psychology, and technical knowledge.
Value added
marketing adds value but enhancing location, form or possession of goods or services. value is added at each stage of the marketing or supply chain as the raw potatoes are transformed and moved to become products that the consumers are willing and able to buy.

seeds – potatoes – chips – flavoring – packaging – location

marketing participation (Uniqueness)
everyone is an agricultural consumers
biological impacts (Uniqueness)
production lags, perishable goods, low value per density, imprecise control of output levels
nature of demand (Uniqueness)
demand elasticated for food tends to be low
market structure (Uniqueness)
various market structure models apply (perfect or imperfect competition)
political influence (Uniqueness)
government subsides for agriculture are relatively high in most countries food security is part of national security
challenging (complexity)
ag marketing involves coordinating production, processing and distribution of thousands of products from millions of farmers to thousands of agribusiness firms to hundreds of countries to billions of people world wide
multistage (complexity)
it involves input suppliers, farm production, brokering, processing, storage, wholesaling, and retailing.
adaptable (complexity)
ag goods and service may be transferred from producers to consumer via different market mechanisms including auctions, futures markets, contracts, marketing boards, cooperatives or direct negotiation.
global (complexity)
hundreds of countries with vastly different social and cultural preferences about not only what foods to eat, but where and how they should be grown, processed, and distributed.
importance of agricultural markets
everyone in the world is affected by hoe well or poor ag markets operate. when markets are inefficient more people will get less food at higher prices and also will have fewer options
percent of laborers in the us that are farmers
2%
percent of laborers in Africa and Asia
more than 90%
percent of farming in USA’s GDP
1.2%
percent of farming in low income contours GDP
Liberia 77%
somalia 65%
ethiopia 47%
Ag economy (% of GDP)
low income countries – high
high income countries – low
ag employment (% of GDP)
low income countries – high
high income countries – low
emerging issues in ag markets
emerging issues in ag markets
why define ag markets
to avoid unnecessary confusion and arguments. defend against illegitimate criticisms
characteristics
consumers must value(recognize) the distinctly
time
relevant consumers must exist during the specified time
space
the product must be distributed across the specified space
well defined markets
1) group of consumers exist during time frame

2) who distinctly value a food or derived with the specified characteristics

3) and that the distribution of the food or service natural encompasses the specified space

defining markets characteristically
local food, specific color of horse
farm level (market 1)
ie
sellers: grape growers
buyers: grape wholesalers

output: potatoes, cattle, corn, chickens

wholesale (market 2)
ie
sellers: grape wholesalers
Buyers: grape retailers

output: dried potatoes, beef, ethanol, broilers

Retail (market 3)
ie
sellers: grape retailers
buyers: individuals

ourput: instant mash potatoes, ground beef, e-85 ethanol gas, boneless chicken brest

Farm value
the value of all U.S. agricultural products when they leave farms
Marketing bill
the costs to get all U.S. produced food from all the farm gates into the hands of final consumers
Total Consumer Food Expenditures.
Farm Value + Marketing Bill
Since 1955, the U.S. farm value share has generally
decreasing
Farm Value Share
the portion (or share) of total consumer food expenditures that go to farmers

calculated by dividing farm value by the total consumer food expenditures and then multiplying by 100

food services
The single largest industry sector comprising all U.S. food expenditures in 2011
Reasons that the U.S. food marketing bill has increased in recent decades are
Higher disposable income, high total population, inflation
Farm Value Percentage equation
Farm Value / Consumer expenditures
Marketing Bill
Labor, Packaging, transportation, energy, profits, advertising, etc
Wealthy Vs Poor countries’ disposable income
Americans have the lowest budget share devoted to food (10%) Low income countries such as Nigeria spend around 70%
Per capita equation
total amount / population
Inflation
general rise in price level
Types of Prices
Nominal/curent – price paid at time of event

real – adjusted for inflation

Real Value equation
( nominal value / price index ) x 100
Rescaling an index
1) select period you prefer as the base period/unit

2) divide every value in the list by the value in the preferred base period/unit

3) multiply the resulting quotient by 100

price index
compare prices
per capita incomes over time
per capita incomes across states
big mac prices across countries
quantity index
compare quantities
bushels of wheat over time
tons of coal across countries
head of cattle per country
productivity
output/input
disappearance
estimate of US consumption of individual agriculture commodities
ie corn, soybeans, wheat
farm to retail price spread
the market cost associated with individual food products or limited groups of food
ie peas beef, pork
marketing bill equation
= total consumer expenditure – farm value
farm to retail price spread equation
= retail price – farm value equivalent
farmers share equation
farm value equivalent / retail price
farm level equivalence
conversion factors inflate to amount necessary compensation for wast, trimming, shrinkage, spoil, damages
i.e. beef 2.4lb for 1lb
ie carrots 1.031 for 1lb
farm value equivalent equation
farm level price * conversion factor
why governments intervene in ag markets
1)facilitate price discovery
2)stabilize market prices
3)correct market failure
facilitate price discovery
governments gather and distribute information about market transactions to encourage greater price efficiency
mandatory live stock reporting act
greater price reporting on meat packers
stabilize market prices
ag comodity prices tend to fluctuate more than other prices and the incomes of farmers in turn fluctuate eve more. the government does this though production control and price supports
production control
moderate market supplies,
Ag adjustment act
limit production of major crops
price supports
policies designed to maintain minimum market prices. will give out penalties to those who do not abide
commodity credit cooperation
nonrecourse loans, low interest loans made to farmers to allow them to store their comedies onside till prices rebound.
corrective market failure
monopolies, public goods, and externalities
monopolies
single large firm dominates a given market
public goods
non-excludable, non-rival consumption
ie national defense, fireworks
externalities
goods which the full social cost or benefit of the good is not reflected in the market price consumers must pay.
tools government uses to correct market failure
regulate, tax, subsidize
commodity grading
grade standard descriptions of products that allow for easy categorization of individual units
8 grades
beef
three grades
eggs chickens turkeys
38 grades
cotton
312 grades
fruit vegetables
wool grades
average fiber diameter
benefits of commodity grading
allows consumers to buy unseen products
lowers transaction costs
moticates produces to improve quality
facilitate price
reduce marketing risk
facilitate dispute resolution
trends in commodity
create a reputation of greater quality assurance among consumers vs rival firms
to penetrate or devope niche markets
to raise transaction costs and entry barriers for competitors
marketing orders
use mandatory standards to elevate consumer expectations