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Agricultural Marketing System Exam #1
Terms in this set (67)
Why is Agriculture important?
Accounts for 12 percent of gross domestic product
Accounts for (at least) 16% of total employment
Why is Agriculture important in developing countries?
Accounts for over 90 percent of gross domestic product in some cases
Accounts for 80% of total employment in some cases
any firm involved in the marketing of agricultural products or supplying farm inputs. examples: grain elevators, meat packers, ice cream makers
Behavioral Systems Approach
a study of marketing that focuses on the interdependence and coordination of all key participants and their marketing activities. Markets and prices play key coordinating roles in marketing systems.
The concept that each consumer decides independently what to buy and that the collection of all these individual decisions directs all production and marketing activities in the economy
Fallacy of Composition
The error of assuming that what holds true for one member of a group will necessarily hold true for the entire group
A study of marketing organized around classification of activities such as buying, selling, storing, transporting, processing, standardizing, financing, information gathering, and risk bearing
A study of marketing featuring the key institutional players such as processors and retailers and key institutions, , such as cooperatives, futures markets and marketing orders
The performance of all business activities involved in the forward flow of goods and services from producers to consumers
The set of firms that move a commodity from the farm to the consumer
The performance of business activities that direct the forward flow of goods and services to customers and accomplish the farmer's or the agribusiness firm's objectives
the performance of business activities that direct the flow of agricultural commodities to a firm to satisfy its objectives
Institutional Approach to Marketing
Emphasizes the key institutions and institutional players-the "who" of marketing
Example: Regulatory in the form of commodity associations battling Corps of Engineers over artificial river rise on the Missouri River.
Functional Approach in Marketing
Emphasizes the "what" functions performed in marketing.
Example: Cargill HOLDING inventories of soybean oil
Behavioral Systems Approach in Marketing
A combination of both the institutional and functional approaches. This approach focuses on the interdependence and coordination of all the participants and all the functions of the entire system.
Example:Pork processor (institution) marketing contract offered to hog producers that controls for quality (functional) in order to meet the specific need by the fast food industry (institutional)
The firm under imperfect competition usually finds it profitable to advertise and otherwise promote it own product or service
a set of competing firms producing similar products or a commodity; it is the seller side of a market
law of demand
Change in price causes an opposite response in the quantity demanded
law of supply
Change in price causes a similar response in the quantity supplied
all of the possible buyers and sellers of a product or commodity. Usually involves firms as sellers and firms or consumers as buyers.
When a market contains many firms, each competing to sell a product or service that is somewhat different
marketing competition among a few firms of fairly similar size
a firm that sets price or negotiates it with those on the other side of the market. Firms monopolistic and oligopolistic competition are price makers
a market participant that buys or sells such a small part of the market's total that accepts price as a given. Consumers are usually price takers. Firms in competitive markets are price takers
A characteristic of a market in which buyers perceive significant differences among the products or services offered by various sellers.
Important to Know
A movement along the demand (supply) curve is a change in quantity demanded (supplied)
This can only be caused by a price change
A shift of the demand (curve) is a change in demand (supply) which are due to exogenous factors.
Draw out chart at the end of chapter 2.
Introduces continual disequilibrium, a set of prices that keep changing over time even though basic supply and demand schedules are stable
What are three economic questions?
What, how and for whom
The period between a decision to produce and the actual harvest or collection of output. For example, there is a lag of about 30 months between the breeding of a cow and the slaughter of the fed animal born from breeding.
the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.
An economic good such as corn or wheat that can be legally produced and sold by almost anyone. A commodity contrasts with a differentiated product which belongs to a specific seller and may often be trademarked as her exclusive property
The marketing of commodities such as fresh meat or vegetables, tends to be highly price competitive because the commodities offer few or no profitable opportunities for advertising and promotion.
the percentage of industry sales or purchases made by its four largest firms. Data concentration ratios are provided by US Census and are widely used as one measure of industry structure
a firm doing business in several or many unrelated markets. For example, Altria is a major player in cigarettes, beer, groceries, cheese and ice cream etc,.
The value that motivates a processor to store or offer incentives for input suppliers to store or market a product even though there is a negative expected return to storage
Economies of size
The economic concept that cost per unit of production decreases as the size of the business increases
Those commodity handlers that have little or no power to set their sales prices may focus on maintain a margin or specific differential, between sales prices and purchase prices. For example a grain elevator may set its offer prices to farmers by subtraction a margin from the daily future closing price
The data about current volumes of sales, current and future prices and events (such as disturbances in weather or in politics) that may influence upcoming prices and sales
The quality of a food that loses its desirable characteristics over time. The speed of such quality deterioration varies among commodities and among methods of handling.
The marketing of most processed foods, such as canned fruits, cake mixes and frozen entrees provides profitable opportunities for promotion and reduces the emphasis on price competition
The price obtained by a seller. Realized prices are often quite different from the estimates made when farmers commenced production
Being in a position to experience gain or loss as a result of externally controlled changes in the amount or price of one's holdings of commodities or others assets
The development and use of constant measures of quantity and quality of various goods. For example, the US is gradually shifting to a metric system for measuring quantities
the value that motivates processors to store or offer incentives for input suppliers to store or market a product even though there is a negative expected return to storage
Agribusiness Marketing Functions
Buying (Procurement) and Selling (Merchandising)
Standardization and Market Intelligence
Demand Curve Shifters
Shifts in population
Shifts in income
Shifts in supplies and prices of competing products
Shifts in consumer perception and preferences
Supply Curve Shifter
Good heating degree days
Hard winter for cattle feeding
A cost that varies as you change the level of production
All costs are variable in the long run
A cost that is constant in the short run, i.e., does not change with the level of production
Farm-to-retail price spread
is the difference between the prices farmers receive and those that consumers pay for equivalent amounts of a food
is a break down of how the consumer dollar is allocated between farm and marketing costs and the costs of the services and materials required to market the food
The farm to retail price spread is compiled and published regularly for numerous individual farm commodities and also for a representative froup of domestically produced foods bought in food stores
a long term repetitive movement of prices
Seasonal price pattern
is a set of prices within a year that varies somewhat regularly as a result of the regular influence of the seasons on production, marketing and demand
Storage alternatives open to suppliers give positive slope to the supply curve.
most livestock and poultry are marketed every week of this year
accounting costs + net benefit from undertaking in the next best alternative (opportunity cost)
How does one decide who profits are maximized?
The level the firm produces at, to maximize profits, is where marginal revenue equals marginal cost (MR=MC)
the satisfaction obtained by the consumer from consuming a good
Diminishing Marginal Utility
Additional satisfaction decreases as one consumes more of the good.
At some point, I get full of Oreo's and the satisfaction that I receive from eating them doesn't amount to the same satisfaction received from the first cookie I ate.
Consumer Decision Making
Recognition of a need
Search for information
Evaluation of product alternatives
Post purchase evaluation
demand is the relation between changes in own-price and the quantity demanded.
< -1, Elastic
= -1, unit elastic
> -1, inelastic
demand is the relation between changes in incomes and the quantity demanded
< 0, inferior good
>0 & < 1 normal good
>1 luxury good
the pattern of a declining percentage spent on food as income rises
Cross Price Elasticity
< 0, complements
> 0, substitutes
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