Food Marketing

The

performance of all business

activities involved in the flow of
food products and services from
the point of initial production
until they are in the hands of the
consumers.

Two views of marketing

Macro

marketing

Big

picture focus on the agricultural

and food marketing system

Micro

marketing

Decision

maker level choices faced by

individuals in food production,
processing and consumption

Food marketing challenges

Food

distribution to consumers

What to produce
How to process
Where to distribute
Reasonable

returns to farmers

Price / profit signals from consumers

Profit margins beyond the farm

Marketing functions
Create

utility by transforming a
food item along one of the four
dimensions
For example,
Production,

storage, transportation,
grading, processing, packaging etc.

Marketing Functions
Facilitating Functions
Physical Functions

Exchange Functions
Buying and Selling

Transportation

Reading assignment
Food

and Agricultural Policy:

Taking Stock for the New Century

Chapter 1. The Evolving Food and Agriculture
System
http://www.usda.gov/news/pubs/farmpolicy01/fpi
ndex.htm

Traditional Marketing Channel

Consumer
Retailer

Wholesaler
Processor

First Handler
Producer
Inputs

Food market structure

Consumers (US)
Retail
Grocery
Restaurants

Wholesalers
Processors
Producers

287 million
589,000
186,000
403,000

41,000
21,000
2.2 million

Emerging Marketing Channel

Customers
Retailers
Wholesaler
Processor
First Handler
Producer
Inputs

Food Marketing Channel

Increased complexity
International trade
Increasing concentration
Direct marketing
Vertical integration
Non-market transactions
Grocery and food service
You

can cut out the middle man but

not the function he performs

First Handler

Processor

Wholesaler
Retailer

Consumer

Producer
Inputs

U.S. Population, Percent by Sector

1900

1950

1990

Farm

39.3

15.5

1.9

Nonfarm Rural

21.0

20.5

22.9

Urban

39.7

64.0

75.2

Ag & food sector, 2001

Food

& Fiber

17% of employment
16% of GDP
Farming

1% of workforce
<1% of GDP
13

off-farm jobs for each on-farm job

Food expenditures, 2000

Consumers

spent $661 billion

Excluding imports and seafood

11% of disposable income
Farmers share 18%
Off-farm share 81%

Food Marketing Bill, ($Billion)

Labor
Packaging
Pretax Corp Profits
Net rent
Transportation
Advertising
Depreciation
Business
Fuels & Elec.
Net Interest
Repairs
Total Marketing Bill
Farm Value
Consumer Expenditures

1980
81.5
21
9.9
6.8
13
7.3
7.8
8.3
9
3.4
3.6
182.7
81.7
264.4

1990
154
36.5
13.2
13.9
19.8
17.1
16.3
15.7
15.2
13.5
6.2
343.6
106.2
449.8

2000
252.9
53.5
31.1
26.7
26.4
26.1
24.2
23.5
23.1
16.9
10.1
537.8
123.3
661.1

US Food Marketing Bill, 2000

Labor
Farm Value
Packaging
Pretax Corp Profits
Net rent
Transportation
Advertising
Depreciation
Business
Fuels & Elec.
Net Interest
Repairs

http://www.ers.usda.gov/publications/FoodReview/septdec00/FRsept00e.pdf

Consumer Food Expenditures

700
600

Billion $

500
400
300
200
100
0
1980
Farm Value

1990
Labor

2000

Non-Labor Marketing

So what???
Labor

is the largest single share

of the food bill
Farm value was 2nd in 2000 at
half of labor cost
Food cost and food policy
involves more than agriculture

Changing Food and Ag System

Shift

from raw bulk commodities to

food products
Diverse consumer
Globalization
Industrialization
Technologies
Environment

Drivers of change
Consumers

Food and services are normal goods

More income - Less time
Demand more choice and convenience
Food away from home

New products and outlets

12,000 new products/year
Process verified, branded, labeled
Niche markets

Household income and food

spending
1998
Dollars
Household pretax income 42,584
Annual food / person
2,037
Food at home
1,211
Food away from home
826

1990-98
%Change
28
17
18
15

Food at Home spending

Meat fish eggs
Fruits & Veg
Cereal
Miscellaneous
Dairy
Beverages
Sugar sweets
Fats oils

1998
Dollars
313
219
187
174
133
102
51
33

1990-98
%Chg
15
22
22
25
9
11
34
18

Drivers of Change
Globalization

Capital markets, information, expectations

Sales by US affiliates of foreign firms
Sales by foreign affiliates of US firms
US imports

Ag trade in 2000
Exports, 2000
Imports, 2000

$64 B
$133 B
$32 B

$Billion

% of total

$50.8
$38.9

7.2
3.3

Drivers of Change
Technology

Traditionally production tech

Lower costs
Increased profit to early adopters
Lower prices for consumers

New technologies
Cost reducing and value enhancing (biotech, precision ag)
Consumer oriented (food safety, health)
Information

Drivers of change
Diversity

of producers

Structure
Enterprise
Cost of production
Method of production

Selected Ag Trends
1970 1980 1990 1997
Farms Mil.
3.0
2.4
2.1
2.0
Farm pop %
5
3
2
2
Avg acres
373
427 461 471
Assets $1000 89.5 403.1 395.4 497.1
Output/input1 150
174 233 255
1/1950=100

Selected Ag Trends
1970 1980 1990 1997
Farm prices1 106
238 264 298
Income $B
58.8 149.3 196.4 238.2
Percent of farm income from
Nonfarm
55
64
85
88
Government
11
2
5
3
1/1950=100

Agricultural Producers
1999
Sales

Rural
Intermediate Commercial
Residence
Farms
Farms
LT $100K $100-250K
GT $250K

Number
1,356,047 655,812
Produce $B
13.7
42.0
Avg sales $
10,074
64,117
NFI $
2,310
12,998
Off-farm $
70,754
36,343

175,091
120.2
687,065
115,832
35,017

Farm Ownership, 1997

Percentage
Farms Acres Sales
Sole Prop.
86
63
52
Partnership
9
16
18
Corporations
Family
4
13
23
Nonfamily
0.3
1
6
1/Annual

average sales $1,000

Average
Acres Sales1
356
62.4
881 209.7
1571 603.0
1507 1395.0