LESSON 2.

APPROACHES TO THE STUDY OF AGRICULTURAL MARKETING

Time Frame: 3rd-4th weeks
DULE 1.

INTRODUCTION
The study of marketing systems and their problems can be frustrating and confusing without a system
of organization and procedure to guide our observations, thought, and judgements. This leads to the building
of an organizational framework which will then provide us a unique perspective on the nature and workings
of the food marketing processes. This unit deals with the four major approaches to the study of agricultural
marketing, namely; commodity, institutional, functional, and market-structure-conduct-performance
approach.
As a whole, this module focuses on the ways of breaking down a particular marketing problem into its
parts so that it can be better understood.

LEARNING OBJECTIVES
By the time you finish this lesson, you will be able to:
comprehend the various approaches to the study Agricultural Marketing
analyze the uses of different approaches to the study of agricultural marketing
classify the major activities under different approaches to the study of agricultural marketing
describe salient features of market-conduct-performance approach
distinguish the different types of markets

LEARNING GUIDE QUESTIONS

What are the various approaches to the study of agricultural marketing?
In what particular aspect does commodity approach to agricultural marketing applicable?
What is an institutional approach to agricultural marketing?
Are there circumstances where middlemen can be eliminated?
What is your comment on the statement “middlemen are necessary evil”?
How will you describe the different types of middlemen in food marketing?
When do we use institutional approach?
What is a functional approach to agricultural marketing?
 Why are there so many marketing functions?
When do we use functional approach to agricultural marketing?
What is a market structure-conduct-performance approach to agricultural marketing?
Outlined and discuss market structure and conduct with reference to their effect on market
performance?
Can you characterize the different types of market?
“Bear in mind that after reading the learning guide you will be asked to answer the same/some questions
in the light of the new knowledge you will have acquired”

LEARNING GUIDE
1. The Commodity Approach
 refers to the study of a product in detail
 characteristics of the product, the market demand, and supply situation at the domestic and
international levels
 behavior of the consumers in relation to a specific product
 prices either at the farm, wholesale, or retail level.
2. The Institutional Approach
 studies the various agencies and business structures involved in the marketing processes
 attempts to answer the question “WHO”?
 gives more emphasis to the human element of the marketing process.
 considers the nature and character of the various middlemen and related agencies

Middlemen
 individuals or business concerns that specialize in performing the various marketing functions
 may operate as individual proprietors, partnerships, or cooperative.
 Also known as intermediaries or marketing channel

Classification of Middlemen
A. Merchant Middlemen
 They take title to, and therefore own, the products they handle.
  They buy and sell for their own gain.
 Their income is in a form of profit.
a.1. Contract – buyers
 buyer shoulders all the expenses in preparing the produce for the market
 assumes the pre-harvest and post-harvest risks
a.2. Grain Millers
 own warehouses and mills and procure grains from suppliers including their own agents,
farmers, wholesalers and farmers’ cooperative.
 Do pre-harvest contract arrangements to ensure continuous supply.
 Provide technical advice, inputs, improved methods of production
a.3. Wholesalers
 They sell to retailers, other wholesalers, and industrial users
 do not sell in significant amounts to ultimate consumers.

◦ assembler – wholesaler of fruits, vegetables, and grains

◦ financier – wholesaler of fruits and vegetables, poultry and livestock

◦ shippers of poultry and livestock, fruits and vegetables

a.4. Retailers
 They buy products for resale directly to the ultimate consumers.
 They serve as the producer’s personal representative to the consumers.
 They handled all kinds of products.

B. Agent Middlemen
 They act only as representatives of their clients.
 They do not take title to, and therefore do not own the products they handle.
 They receive their incomes in the form of fees or commissions.
 They sell their services to their principal, not physical goods to consumers.
b.1. Commission Agent
 takes over the physical handling of the product;
 arranges for the terms of sales;
 collects, deducts his fees, and remits the balance to his principal
  grains, poultry and livestock are commonly sold to wholesalers and processors through the
commission agent.
b.2. Broker
 do not have physical control over the product
 follows the instruction of his principal closely and has less discretionary power in price
negotiations
 usually found in fish markets in the country.

C. Processors and Manufacturers

 They primarily undertake some action of production to change their form.
 often act as their own buying agents in the producing areas
 They also undertake the wholesaling of their finished products to retailer

D. Facilitative Organizations
 Aid the various middlemen in performing their tasks
 do not directly participate in the marketing processes, they furnish the physical facilities
 aid in grading, arranging and transmitting payment
 receive their income from fees and assessments from those who use their facilities

E. Market Organizations
 active in buying and selling of goods and often have far – reaching influence on the nature of
marketing.

3. The Functional Approach

 a major specialized activity performed in accomplishing the marketing process.
 attempts to answer “WHAT“ in the question “who does what’?

Classification of Marketing Functions

a. Exchange Functions
 activities involved in the transfer of title of goods.
  They represent the point at which price determination enters into the study of marketing.
a.1. Buying (assembling) function
 Seeking out the sources of supply, assembling the products, and the activities associated with
purchase
a.2. Selling Functions
 Covers all of the various activities which sometimes are called merchandising
b. Physical Functions
 activities that involve handling, movement and physical change of the actual commodity itself
 involved solving the problems of when, what, and where in marketing.
b.1. Storage Function
 making goods available at the desired time
b.2. Transportation Function

 making goods available at the proper place; requires the weighing of alternatives of
routes and types of transportation costs; preparing product for shipment such as crating
and loading
b.3. Processing Function

 change the basic form of the product

c. Facilitating Functions
 making possible the smooth performance of the exchange and physical functions.
c.1. Standardization Function
 uniform measurements
 simplifies the concentration process
c.2. Financing Function
 advancing of money to carry on the various aspects of marketing
c.3. Risk-bearing function (physical & market risks)
 acceptance of the possibility of loss in the marketing of a product
c.4. Market Intelligence
 the job of collecting, interpreting, and disseminating the large variety of data which are
necessary to the smooth operation in the marketing processes
 how much to pay for commodities
  Adequate storage programs
 efficient transportation service,
 adequate standardization program
c.5. Market research
 to evaluate the possible alternative marketing channels that may be used;
 different ways of performing other functions;
 the market potentials of new products
c.6. Demand Creation
 effective advertising of the product and other promotional devices using either mass media or
house-to-house campaign.

4. The Market Structure – Conduct – Performance Approach

a. Market Structure
 deals with the organization of a market as it influences the nature of competition and pricing within
the market structure, such as:
 the degree of buyer and seller concentration
 the degree of product differentiation
 the condition of entry to the market
Based on the above condition, markets may be classified as competitive, oligopolistic, or
monopolistic. Another category which is sometimes used, is monopolistic competition.
a.1. Purely Competitive Market
 number of buyers and sellers is sufficiently large
 product is sufficiently homogenous
 new firm should be free to enter the industry.
a.2. Absolute Monopoly
 single seller
 firm’s supply is the industry’s supply and the firms demand coincides with the industry’s
demand.
a.3. Monopolistic Competition
 large number of sellers offer differentiated products
  close substitutes
 firm has some influence on price but the number of substitutes is likely to limit the firm’s
discretion in pricing.
a.4. Oligopoly
 market with a few large sellers
 Each firm produces a large fraction of the industry’s total product
In pure oligopoly

 the sellers are producing a homogenous product

In differentiated oligopoly
 the firms are producing a similar but not identical product.
b. Market Conduct
 Refers to the way firms adjust to the markets in which they are engaged as buyers or sellers
 It is the behavior or pattern that the firm exhibits in the market.
 When translated into action, this behavior is generally termed as marketing practices.
c. Market Performance
 This is the appraisal of how much the economic resource of the industry’s market behavior or
conduct deviates from the best possible contribution it can make to achieve relevant socio-
economic goals.

The factors to be considered in making this appraisal are the following:

 The relevant goals of society
 The appropriate system level to achieving these goals.
 The institutional and functional components of the system.
 The appropriate environmental factors in which the marketing system can operate
Market Performance includes:
 the price relative to the average cost of production, and thus the size of the profits.
 The relative efficiency of production, so far as this is influenced by the scale or size of plants and
firms relative to the most efficient, by the extent, if any of the excess capacity.
 The size of sales-promotion costs relative to the costs of production.
  The character of the product, including choice of design, level of quality, and variety of product
within any market.
 The rate of progress of the firm and industry in developing both products and techniques of
production.
 The size of the margin in relation to marketing.
 The size of sales in relation to marketing resources.
 The size of marketing loss.

At the macro-level, market performance is viewed through the goals which the society and the
marketing system hope to achieve, i.e. efficiency, employment, equity, progressive and effectiveness of the
industry.

SUMMARY

Several approaches to the study of marketing may be utilized to gain a thorough understanding of
marketing principles. The use of each approach however, will depend on the researcher’s objectives in
analyzing marketing problems. For example, if one is interested in a specific product, the commodity is the
best. It helps to focus attention on the characteristics of the product. The functional approach on the other
hand, looks at the various activities that are performed to increase the utility of the product as it moves from
the farmer to the consumer. Hence, any marketing services and their costs call for this kind of approach.
The institutional approach to marketing describes the people who perform the various functions in the
marketing system. thus, this approach gives emphasis on people and business organizations and not on the
characteristics of the product or on services added to it. If one wants a better understanding of the market
for goods and services where buyers and seller’s meet, then the market structure-conduct-performance
approach must be used. So far, this approach is the most comprehensive among all approaches. In doing
marketing studies however, a combination of two or more of these approaches are usually used.

Reference
PTIA Instructors and Participants from BAC, BUCA, PNAC, PSPC and SSAC. 1991. Resource Unit in
Agricultural Marketing during the National Seminar-workshop on Agri-business Management and
Administration on April 15-May 3, 1991. Central Mindanao University, Musuan, Bukidnon.