AGB341 UNIT 5

A FUNCTIONAL APPROACH TO
AGRICULTURAL MARKETING

by
EM Syampaku
 Physical
Exchange
functions:
functions:
Production
Buying
Transportation
Selling
Storage
Processing
Marketing
functions

Facilitating functions
Information flow: intelligence,
communication
Sorting, grading and standardising
Risk bearing
• performed to transfer ownership,
change value addition, and facilitate
transactions
• fall in three categories, namely,
exchange, physical and facilitating
functions
• exchange functions are for changing
commodity ownership, physical
functions for changes in value
addition, and facilitating functions
are for easing up transactions
 Exchange functions
• define the changes in commodity
ownership during each transaction
• add possession utility in the market
place
• performed by buyers and sellers at any
stage
• involve price discovery and
determination
• reconcile prices depending on
negotiating power of buyers and
sellers.
 Exchange
functions

Buying Selling
 Buying
• assuming ownership of a crop in exchange for
payment to the original owner
• can be direct or indirect [through brokers]
• buyers are more powerful in crop markets when:
• (a) they collude or form associations or
cooperatives
• (b) alternative sources of the same crop are
present
• (c) profitability margin for buyer is small
• (d) they do not face switching costs for buying
from other sellers
• (e) the purchased crop is perceived to be of
inferior quality
• some common methods of buying include:
o bulk buying: buy and store for future but risk
of obsolescence occurs over time; good for
managing likely price rise
o hand to mouth buying is buying for direct
use with no need for storage; has no risk of
obsolescence but price rise due to relatice
scarcity may strain the business
o speculative buying: buy and store for use
with idea of reselling some purchased crop
in lean periods
o blanket buying: buying crops of same
category
o reciprocate buying: buy from suppliers with
some arrangement of mutual benefit
 Selling process
• transferring ownership of a crop by receiving
payment from new owner
• can be direct between seller and buyer or
indirect through the commodity exchange
• requires:
• knowledge of operations of prospective market
• prospecting, identifying and locating matching
customers
• qualifying prospects to estimate quantity to be
sold
• making contacts with customers to effect the
transaction
• sellers have power in the selling
process when:
• (a) they form seller groups like
associations for collective bargaining
• (b) they are few
• (c) alternative suppliers are absent
• (d) forward integration is possible
• (e) buyers makes a large gross margin
• (f) buyers experience switching costs
• (g) the sold crop is of superior quality
• some common methods of selling
include:
o transactional selling: selling through
prospecting, developing a relationship
with buyer and close a sale
o solution selling: selling focusing on
solving the customer’s problem
o consultative selling: based on detailed
negotiations than solution selling
o provocative selling: selling by raising
customer awareness of his/her problem
first before enticing him/her to buy
 Price determination
• (a) negotiation: the buyer and seller
negotiate until they agree on the price; the
price only comes down depending on the
negotiating power of the buyer and seller
• (b) auctioning: seller may peg the minimum
or floor price but allows the buyer to
determine the final price; the price only goes
up in this case.
• (c) market forces: neither seller or buyer
determines the final price; both are price
takers
• (d) sealed bidding: in this case, buyers peg
prices through sealed bids. Usually, the
 Approaches of influencing
prices in agricultural markets
• extent of market liberalization: low
when government role is large and
high when private sector role is low
• cooperative or group marketing
(concentration theory)
• formation of collusions, associations,
unions of buyers or sellers (interest
group theory)
• product improvements, changes,
volume adjustments, product mix, etc
 Activity
• Visit one market and interact with
buyers and sellers. Observe how
products exchange ownership.
Write own notes on how prices
are arrived at
• When do sellers raise the price?
• Research on the concept of e-
buying and selling, and explain
how it takes place
 Evaluation
• Explain what is meant by buying
and selling.
• Explain how brokering adds
possession utility.
• Differentiate between price
determination and price discovery.
• Explain how the buyer-seller
concentration theory affects prices
and profitability.
the end