Changes In Market Organization

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Changes In Market Organization

• Kohls Uhl Chapter 12

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Ag Marketing Concepts

• Wk 6 Kohls Ch 1o Food Farm Prices
• Kohls Ch 11 Food Mkting Costs
• WK 7 KOHLS CH 12 CHGS IN FOOD MARKETS
• Kohls Ch 13 Coops In Food Indust
• Wk 8 Kohls Ch 14 Mkt Development
• Kohls Ch 1 5 Mkt Barg Power
• Wk 9 Kohls Ch 16 Market Information
• Kohls Ch 1 7 Standards Grades
• Wk 10 Kohls Ch 18 Transportation
• Kohls Ch 19 Storage
• Wk 11 Team Presentations

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Kohls UhlChap 11 Food Marketing Costs Review
1. The Marketing Bill Keeps Rising Because Of Inc
Volume, Inc Demand For More Mkting Services,
Higher Costs For These Services
2. The Farmers Share Varies Inversely With The
Marketing Margin.
3. The Marketing Margin Is Not Out Of Line
4. The Farmers Share Varies Widely Depending On
The Product
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Learning Objectives
Changes In Market Organization

• After The Lesson, Student Will Be Able To
• 1. Discuss How The Structure Of The Ag And Food
  Markets Have Changed In Terms Of Specialization
  /Diversification, Centralization/Decentralization
• 2. Discuss Vertical Coordination And Its Impact
  On Ag And Food Marketing.

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I. Evolution Of Market Structure
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1

• A. 1700s
• 1. Simple Channel Much Barter
• 2. Gate To Plate Direct Delivery

3. Not Many Middlepersons
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I. Evolution Of Market Structure
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1

• B. 1800s - Mid 1900s
• 1. Longer Market Channel
• 2. More Miles Between Gate Plate
• 3. Trading By Price
• 4. Many Independent Middlepersons
• 5. Central Terminal Markets

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Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1
A. Seller Meets Buyer At Terminal Central
Market

• B. Physical Concentration Of Buyers Sellers In
  One Location

C. Producers Represented By Brokers D. Easy
Price Discovery - Efficient E. Public Market
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C. Late 1900s
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1

• 1. Decentralization Of Ag Markets

Cattle
Yr
Hogs
Term
Auct
Direct
Term
Auct
Direct
76
10
24
1923
90
1940
40
25
60
1950
75
1960
17
66
69
1970
18
1980
10
83
90
1990
17
1999
3
86
97
14
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C. Late 1900s
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1
A. Reasons/Factors
1. Better Transportation 2. Better Communications
3. Better Standards Grades
4. Bigger Farms 5. Uniform Genetics 6. Quantity
Quality Control
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Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1
B. Consequences
1. Pro More Operating Efficiency
A). Less Handling Shrink B). Less Shipping Cost
2. Less Efficient Price Discovery
A). Less Open Seller/Buyer Interaction B).
Difficult To Collect Mkt Info
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2. Diversification In Food Mkts
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1

• A. Diversification In
• 1. .Product Offering
• 2. ... Marketing Functions
• 3. ...Institutional Levels

B. Reasons For Diversification
1. Anti-trust Prevents Further Growth In Area 2.
Economies Of Scale For Adv Promotion 3.
Protection From Single Product Price Changes
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3. Specialization In Fd Industry
Discuss How The Structure Of The Ag Food
Markets Have Changed
Learning Objective
12-1
A. Reasons

• 1. Economics Of Scale

B. Consequences 1. Increased Interdependence Of
Producers, Middlemen, Consumers 2. Increased
Marketing Activity 3. Tendency For Bigger Firms
To Reduce Costs
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Ii. Vertical Coordination
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2
A. Vertical Coordination Can Be Defined As The
Alignment Of Direction And Control Across
Segments Of A Production /Marketing System
(King, 1992).

• B. Process Of
• 1. Directing Harmonizing Several...
• 2. .Interrelated Sequential Decisions (Price,
  Quantity, Quality, And Terms Of Exchange) .
• 3. ..From Gate To Plate

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B. Importance
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• 1. Long Marketing Channels
• 2. Large No. Of Specialized Firms
• 3. Uncertainty Of Prices, Supplies Quality
• 4. Urgency Of Perishable Products

D. Trends 1. Major Decisions Of What How
Much To Produce Have Passed From Farmer To Food
Marketing Decisions 2. Replace Open Market
Prices With Administered Coordination Techniques
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Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2
Strategic Options for Vertical Coordination
NOTE The diagonal line represents the mix of
invisible-hand and managed coordination
characteristics found in each of the five
alternative strategies for vertical coordination.
The area above the diagonal indicates the
relative level of invisible-hand characteristics
and the are below the diagonal indicates the
relative level of managed characteristics
Source Peterson and Wysocki. 1998 AAEA Symposium
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E. Vertical Coordination Options
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• 1. Spot Markets External Control Mechanisms,
  Neither Party Can Influence Price Or The Generic
  Performance Standards
• 2. Specification Contracting Marketing
  Contracts Establish Agreed Upon Specific
  Detailed Specification Of Performance, Ultimately
  Enforced By An External Third Party

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3. Strategic Alliances
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• A . Involves Mutually Shared Objectives, Risks
  Benefits
• B. Both Parties Retain Separate, External
  Identity. No Joint Mgt To Allow For Strong
  Internal Control.
• D. Enforcement Mechanism Are Internal To The
  Relationship

4. Formal Cooperation
A. Distinguishing Feature Is A Formal
Organization That Has An Identity Distinct From
The Participants
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Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2
B. First Time That True Internal Control May
Take Place.

• C. Owners Maintain A Separate Identity That
  Allows Them To Walk Away

5. Vertical Integration Defined More By
Centralized Control Then By Ownership.
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Iii. Intregation Of Food Industry
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• A. Types
• 1. Vertical
• A. Multiple, Related Functions In The Same
  Channel
• 2. Horizontal
• Same Function By Multiple Firms
• 3. Conglomeration Diversification

B. Means 1. Ownership Integration A.
Mergers B. Alliances Joint Operations
2. Contractual Integration
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Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• C. Motives

1. Profits 2. Risk Reduction 3. Qual Quant
Control 4. More Efficiency 5. Lower Cost 6.
Predictable Prices
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Iv. Integration In Farming
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2
1994
A. Extent Of Prod Contracts 1. Broilers 2.
Proc Vegetables 3. Potatoes 4. Eggs
5. Hogs 6. Grains
92
88
55
25
11
1
B. Types Of Contracts 1. Mkt Specification
LittleHelp/Control
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C. Reasons For Production Integration
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2
2. Resource Providing
A. Financing B. Managerial 3. Mgt
Income Guarantted Profit/Unit

• 1. Fluctuations Of Quantity
• 2. Quality Control
• 3. Application Of Technology
• 4. Application Of Management
• 5. Predictable Prices/Income

D. Implications 1. Better Operating
Efficiency 2. Less Pricing Efficiency
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V. Future Organization Trends
Discuss Vertical Coordination Its Impact On Ag
And Food Marketing.
Learning Objective
12-2

• 1. Industrialization Of Ag
• 2. Technological Change
• 3. Decentralization
• 4. Specialization
• 5. Integration

6. Globalization 7. Govt Regulation 8.
Information Revolution 9. Vert Coordination
Integration 10. New Price Discovery Techniques
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Summary
Kohls Ch 12 Chgs In Food Markets
1. Market Structure Has Changed From A Direct
Producer/Consumer Interaction To One With Many
Middlepersons.
2. Decentralization Of Markets, Particulary In
Hogs And Cattle.
3. Specialization In Ag Produ Ction But
Diversification In The Food Industry.
4. Vertical Coordination To Control Quality And
Quantity.
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SELF TEST MARKET STRUCTURE
A. BROILERS B. CENTRAL MKTS C. DECENTRALIZATION D.
GLOBALIZATION E. PRICE DISCOVERY F. SIMPLE
CHANNEL G. STRATEGIC ALLIANCE H. SUPPLY
CONTROL I. VERT COORDINATION J. VERT
INTERGRATION K. NONE OF THE ABOVE
F

• __1. DIRECT DELIVERY
• __2. PHYSICAL CONCENTRATION
• __ 3. BETTER TRANSPORTATION
• __ 4. CONTROL ACROSS PRODUCTION SEGEMENTS
• __ 5. RELATED FUNCTIONS IN SAME CHANNEL
• __ 6. FUTURE ORGANIZATIONAL TREND
• __ 7.MOST INTEGRATED AG ENTERPRISE
• __ 8. REASON FOR INTEGRATION
• __ 9. VERT COORD OPTION
• __10. ADVANTAGE OF CENT MKTS

B
C
I
J
D
A
H
G
E
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Next Ag Marketing Topic

• Cooperatives