Marketing Margins

Question 1

What are Definitions Of Marketing Margins?

Answer 1

1. The farmers’ share of the consumer’s dollar.
2. The cost of marketing (“Food Marketing Bill”).
3. A price of marketing services, i.e. the outcome of demand and supply of marketing services.
4. Price differential between farm and retail levels.

Question 2

How is the Farm Level Demand derived?

Answer 2

Farm level demand (derived demand) is obtained by subtracting the marginal valuation of marketing services from the primary demand.

Question 3

How do you obtain the Derived Supply Function?

Answer 3

As competition is assumed, the derived supply function(s) can be obtained by adding the marginal costs of marketing services to the primary supply.

Question 4

What are Values described as?

Answer 4

Values (willingness to pay)
• concept of value as utility (satisfaction) • place, form and time
• preferences, tastes, opinion

Question 5

What are Costs described as?

Answer 5

Costs
• marketing uses resources
• pricing efficiency and profit margins depend on competitive structure

Question 6

What are Marketing Services?

Answer 6

Marketing services includes the many activities and functions that are performed along a supply chain (from farm gate to retail/whole sale levels)
• Transport • Storage
• Processing • Advertising • packaging

Question 7

What are the Influencing Factors of Price Marketing Services?

Answer 7

• The competitiveness of the market
• Trends in demand and supply of the services
• The interrelationship with regulations and industry structure

Question 8

What is the Derived Demand Approach?

Answer 8

Assumes competitive markets along the supply chain (not very realistic?).
Retail good is a composite of the farm good and a bundle of marketing services.
Change in the market may affect the demand and supply of services and that of the farm good in different ways.

Question 9

What are Farm Production Factors?

Answer 9

• Volumeandvolatilityofproduction
• Seasonality factors (eg lamb)
• Perishability (eg lettuce)

Question 10

What is Value Chain Integration?

Answer 10

• Highly integrated chains can capture transactional efficiency (eg.broiler chicken)
• Size economies (wheat transport and handling) • Concentration of ownership (margarine)
• Changing competitive structure (lamb)

Question 11

What is Marketing Approach?

Answer 11

• Segmentation and house brands
• Globalisation of brands
• Convenience markets (pre-prepared meals)
• Customisation of food products in a multi-cultural market

Question 12

What are Regulation and Compliance Costs?

Answer 12

• Business regulation
• Competitive regulation
• Ethical and product quality compliance

Question 13

What are Trade Effects?

Answer 13

• Export booms put pressure on domestic price
• Import threats, trade dumping issues
• International benchmarking as a result of globalisation

Question 14

What are Technology and Innovation?

Answer 14

• Capital intensity of processing (labour is a key cost in food processing)
• By-product utilisation (low value cuts of meat and offal)

Question 15

What is Retail Dynamics?

Answer 15

• Supermarket house brands
• Convenience foods, pre-prepared meals
• Greater concentration in supermarket sector

Question 16

Key Terms

Answer 16

•Agricultural commodity markets
(form/space/time are relevant)
• Marketing margin (definitions)
•Trends in the returns to farmers
•Trends in the marketing margin
•Price of marketing services (values/costs) •Supply chain - farm gate to retail
(transport, storage, processing, ……) •Primary demand (retail level)
•Derived demand (farm level)
Primary supply (farm level)
•Derived supply (retail level)
•Demand for marketing services •Monopoly marketing services •Marketing margin (as price differential) •If demand for the retail goods increases! •If demand for the services increases! •Supermarket Vs independent marketing •Deferent margins for different products •Determinants of food prices/costs? •Retail Vs farm level elasticities