THEME 3.0 FARMING BUSINESS ECONOMICS AND AGRICULTURAL EXTENSION
AGRICULTURE MARKETING
A market is a place where buyers and sellers meet and exchange goods or services.
- It is a place where forces of demand and supply interact.
Agriculture marketing is the performance of all business activities involved in the flow of agricultural goods and services from the point of initial production until they are in the hands of the consumer.
Aim of Efficient Marketing
- To deliver goods and services to consumers at the place and time they are wanted, in the form they are wanted, and at a price consumers are willing to pay.
MARKET FUNCTIONS
a) Exchange function involves:
- Merchandizing: The process of buying and selling goods, i.e., purchasing in small lots from producers, bulking up the commodity, presenting the products attractively to consumers, and bargaining for an advantageous price.
- Price setting: Sellers usually set the price at which to sell their products. Marketing conditions such as supply and demand, pricing policies, and competition are considered when setting the price.
b) Supply function involves:
- Processing: Changing products from their raw form to a more easily utilizable form.
- Transportation: Moving goods from one place to another.
- Financing and insuring: Marketing agencies borrow necessary capital from public and commercial institutions (e.g., banks) to finance buying and selling activities.
- Collecting and analyzing market information.
- Grading and standardization.
- Storage: To prevent wastage of excess products.
c) General function involves:
- Financing, organizing, and bookkeeping: Keeping financial accounts of the business transactions, organizing the marketing process, and bearing the cost of all operations.
- Risk taking: Marketing institutions insure goods to minimize risk.
- Collection and provision of marketing news and information (sales promotion): Market and product information enables consumers to make consumption decisions and producers to make production decisions.
- Grading and description of products: To satisfy the requirements of different consumer groups.
- Processing.
Marketing Channels and Agencies
Normally, the people who handle goods from producers to consumers are middlemen. Some buy goods from producers and sell to other middlemen, while others sell directly to consumers.
PRODUCERS – Wholesale – Retailers – Consumers
Types of Middlemen
- Wholesalers: Buy goods in bulk from producers and manufacturers; store them for sale in large quantities.
- Retailers: Handle goods and sell them to consumers.
- Jobbers: Buy goods from wholesalers and distribute to retailers; they usually travel from place to place.
- Brokers: Do not take title to goods; they represent buyers or sellers and arrange transactions between them.
- Cooperatives: Non-profit organizations set up to serve consumers and producers, operating on the principle of “one person, one vote.”
- Commission agents: People who sell goods and services and receive a commission (percentage of the selling price).
- Manufacturers and authorities: Parastatal organizations established by parliamentary acts to deal with production or marketing of specific crops or livestock.
CLASSIFICATION OF MARKETS
This is done on the basis of competition and price. There are six classes:
1) PURE/PERFECT COMPETITION
CHARACTERISTICS
- There are many sellers and buyers of a particular product.
- Sellers and buyers sell/buy similar products.
- All sellers and buyers have equal knowledge of market conditions.
- No seller or buyer can influence the market price.
- The demand curve for each buyer/seller is perfectly elastic.
- Each seller makes small profit because of strong competition.
- The price of products is determined by the forces of supply and demand.
2) MONOPOLY COMPETITION
Monopoly may be formed due to the following reasons:
- Protection by the government.
- Control of source of raw materials by one firm.
- In most cases, the monopolist produces a low amount of output to keep prices high.
CHARACTERISTICS
- There is a single seller in the market (monopolist).
- Monopolist can raise or reduce price depending on profit and sales volume.
- Produces low amount of output to keep prices high.
3) OLIGOPOLY COMPETITION
CHARACTERISTICS
- Several firms sell similar products.
- The number of firms is small, each selling a substantial share of total output.
- When one seller changes price, it affects competitors’ sales after studying their prices and output levels.
4) MONOPOLISTIC OR IMPERFECT COMPETITION
Sellers lower prices to sell more and attract customers by placing labels.
5) MONOPSONY CHARACTERISTICS
- There is a single buyer of a particular resource.
- Supply curve of the resource is upward sloping (perfectly inelastic).
- Monopolist profits by restricting the quantity of resources used while paying a price lower than under pure competition.
6) BLACK MARKET
Resulting from:
- Scarcity of the product.
- Price control by the government.
- Rationing of the product.
CHARACTERISTICS
- Involves high costs and risks; prices are higher than on the open market.
- Not all potential buyers are willing to buy on the black market.
NB: Market margins and costs are the costs of performing marketing functions, i.e., the difference between what farmers get and consumer prices.
CO-OPERATIVES
A cooperative is a voluntary business organization operating on the principle of one man, one vote. It aims to minimize costs and maximize profit.
TYPES OF CO-OPERATIVES
- Marketing or producer co-operatives.
- Consumer co-operatives.
- Saving and credit co-operatives.
- Multi-purpose co-operatives.
Function / objectives of co-operatives
- To give consumers bargaining power to get lower prices.
- To give producers bargaining power to get better prices.
- To give members bargaining power to get lower interest rates on loans.
Benefits farmers can get from co-operatives
- Co-operative marketing reduces middlemen profits so farmers get larger shares of sale prices.
- Improves bargaining power of farmers for better prices.
- Farmers can sell in bulk.
- Co-operatives provide storage and processing facilities, reducing wastage.
- Bulk handling facilitates better grading and packaging standards.
- Useful in channeling inputs and credit to farmers.
- Act as extension agents to farmers.
- Facilitate smooth marketing of farmers’ produce.
Types of co-operative societies
- Agricultural co-operatives: Deal with crop production, purchasing, processing, marketing, and distribution.
- Livestock co-operative societies.
- Producer co-operatives for agricultural forestry, beekeeping, and other natural products.
According to the Co-operative Societies Act 1991, the structure of co-operatives shall be determined by the members.
Levels of marketing co-operatives in Tanzania
- Primary cooperatives
- Secondary cooperatives
- Apex cooperatives
- The federation of cooperatives
1) PRIMARY CO-OPERATIVE SOCIETIES
May be formed by ten or more farmers provided it is economically viable and must be registered by the registrar.
Functions
- Preparation of economic plans and coordination of all production activities.
- Purchasing, storage, and distribution of agricultural inputs.
- Provision, operation, and maintenance of machinery for processing agricultural products.
- Purchasing, collection, and storage of products from members.
- Establishing large-scale farms.
2) SECONDARY CO-OPERATIVE SOCIETIES
Formed when primary co-operative societies unite; the society formed is known as a co-operative union.
Functions:
- Acquire, maintain, and operate buildings and equipment for assembling, warehousing, and transporting products belonging to members.
- Produce and distribute inputs and consumer goods to member primary cooperative societies.
- Provide finance for purchasing agricultural products from member societies.
- Collect, process, and deliver products from primary societies for marketing.
- Establish and operate savings and services for members.
- Establish, operate, and maintain large-scale farms.
- Provide audit services for member societies.
3) APEX CO-OPERATIVE SOCIETY
Formed when two or more secondary co-operative societies unite.
Functions:
- Organizing and coordinating activities of member secondary societies.
- Providing services such as standardizing bookkeeping and auditing.
- Publishing and circulating materials regarding co-operative principles.
- Representing member societies in collective bargaining.
- Providing consultative services to member societies.
4) THE FEDERATION OF CO-OPERATIVE
Apex societies may join to form a federation of societies.
Functions:
- Coordinating economic plans of member societies and forwarding them to the minister.
- Formulating, maintaining, and regulating terms and conditions of services of persons employed in apex and secondary societies.
- Encouraging educational and advisory work related to cooperative enterprises.
- Representing member societies in international conferences.
Farmers in a village may form primary cooperative societies to buy their produce; many such societies form larger cooperative organizations.
Procedures for starting a co-operative
- Formed under a co-operative society ordinance.
- Each co-operative makes its own by-laws under the rules of the co-operative society ordinance. The rules are approved by the registrar of cooperatives.
Principles of Co-operatives
- One member, one vote; each member is entitled to one vote in decisions taken by the society.
- At general meetings, members elect a committee with functions including:
- Electing a chairperson.
- Electing a secretary.
- Electing a treasurer.
- Employing and dismissing employees.
- Overseeing day-to-day business.
- Each co-operative society admits members without discrimination.
- Each co-operative society aims at selling goods in pure and clear form.
- Each co-operative society aims at selling goods at current prices.
- The surplus is distributed to members based on the volume of business transactions with the co-operatives.
MARKETING BOARDS
- Marketing boards are government-formed organizations to protect producers and consumers’ interests and control economic development.
Functions
- Improving marketing organization and methods by regulating quality, packaging standards, and sales procedures.
- Protecting producers and consumers against price fluctuations.
- Protecting government interests.
- Obtaining funds for production research and extension.
- Carrying out research and sales promotion.
- Improving bargaining power of producers in foreign and domestic markets.
- Standardizing prices using buffer stocks, stabilizing funds, and international agreements.
- Administering laws to maintain quality and standards of commodities.
- Ensuring steady supply of agricultural products to consumers.
- Promoting production by participating in actual production.
INTERNATIONAL TRADE
- International trade is the exchange of goods and services across different countries or nations.
Significance of International Trade
- Trade allows countries to specialize in producing certain goods.
- Enables countries to obtain products not easily produced locally.
- Encourages specialization in crops with comparative advantages, stabilizing higher prices.
NB: Payment in international trade is settled in foreign currency, and goods exchange occurs across national borders.
Terms used in international trade
- Terms of trade: Ratio between price of exports and imports.
- Balanced trade: Ratio of value of exports to value of imports.
- Foreign exchange rate: Rate of exchange between currencies of two countries (e.g., Tanzanian shillings vs. US dollars).
- Foreign reserves: Total value of resources held in dollars, gold, and special drawing rights by a country, used for international payments.
Effects of international trade prices on economic developing cost
- Tanzania and other developing countries depend on primary agricultural commodities (coffee, sisal, tea, cotton) for foreign exchange. Markets for such commodities are unstable due to low income elasticity of demand.
- Import costs for raw materials increase yearly, exceeding exports, causing balance of payment problems.
- Prices of exports do not rise as much as import prices, worsening terms of trade.
NB: Developed nations generally benefit more from trading with underdeveloped or developing countries.
International commodity agreements
Some products (coffee, tea, sugar) face price instability in the world market, necessitating international commodity agreements such as the International Coffee Agreement.
- Provide protection to exporting countries against excessive production and low prices.
- Protect exporting countries against excessive competition.
- Stabilize world prices for products.
- Set overall output levels for producing countries.
- Allocate quota shares to each producing country.
BALANCE OF PAYMENT
It is a statement summarizing a country’s trading transactions with other countries.
- Consists of income and expenditure sides which must balance.
- Shows total income and expenditure for international transactions and their difference.
- If expenditure on imports is less than income from exports, there is a surplus; otherwise, a deficit.
Balance of payment account consists of:
- a) Capital account
- b) Current account
Capital account
Shows movement of capital transactions including:
- Foreign loans.
- Foreign investment.
- Foreign gifts (grants).
If payments exceed receipts, there is a deficit; otherwise, a surplus.
Current account
Shows two main items:
- Visible (e.g., raw materials, manufactured goods, capital goods).
- Invisible (services such as insurance, tourism, banking, interest on foreign loans, and profits on investments).
When there is a deficit, the country can correct it by:
- Selling foreign investments.
- Asking debtors to repay loans.
- Withdrawing from accumulated reserves (e.g., IMF).
- Borrowing from foreign governments, institutions, or monetary funds (e.g., IMF).
When there is a surplus in the current account, the government can use it for:
- Paying foreign debts.
- Granting foreign loans.
- Investing abroad.
- Adding to reserves.
Problems of prolonged deficit in balance of payments
- Devaluation of local currency.
- Introduction of floating exchange rates.
- Review of fiscal policies such as taxation and subsidies.
- Total ban on some imports.
- Introduction of strict foreign exchange regulations.
Problems of marketing agricultural products
- Seasonality.
- Storage problems.
- Perishability.
- Bulkiness.
- Changes in market demand.
- Low knowledge about marketing.
- Limited elasticity of demand (e.g., food products).
The demand for food increases with income only until a certain point; after that, demand increases mainly for certain food types such as meat, fruits, and spices.
AGRICULTURAL EXTENSION EDUCATION
Agricultural extension is the application of scientific research and new knowledge to agricultural practices through farmer education. The field now encompasses a wide range of communication and learning activities organized for rural people.
Diffusion and Adoption of Agricultural Innovations
Diffusion
Diffusion is the process by which an innovation is communicated through certain channels over time among members of a social system.
There are four elements in the diffusion process:
- An innovation
- Communication channels
- Time
- Social system
An innovation is an idea, practice, or object perceived as new by an individual or other unit of adoption. Technology is a design for instrumental action that reduces uncertainty in achieving a desired outcome.
The components of technology are hardware (physical) and software (knowledge base).
A good innovation should have the following five attributes:
- Relative advantage
- Compatibility
- Complexity
- Trialability
- Observability
Re-invention
Re-invention is the degree to which an innovation is changed or modified by a user during adoption and implementation.
Communication channel:
It is the means by which messages are transferred from one individual to another. Mass media are good for creating awareness and knowledge, whereas interpersonal channels are good for forming and changing attitudes towards technology.
Social System:
It is a set of interrelated units engaged in joint problem solving to accomplish a common goal.
Components of a Social System
- Structure: Patterned arrangement of the units.
- Norms: Established behavior patterns.
Opinion leaders exhibit the norms.
- Heterophily: Degree to which interacting individuals differ in attributes such as beliefs, education, and social status.
- Homophily: Degree to which interacting individuals are similar in attributes such as beliefs, education, and social status.
Time is involved in innovativeness, innovation rate of adoption, and the innovation decision process.
Innovation Decision Process:
The mental process through which an individual passes from first knowledge of an innovation to forming an attitude, deciding to adopt or reject, implementing the idea, and confirming the decision.
The steps in Innovation Decision Process are:
- Knowledge
- Persuasion
- Decision
- Implementation
- Confirmation
Innovativeness is the degree to which an individual adopts new ideas earlier than others.
Rate of Adoption is the relative speed with which an innovation is adopted by members of a social system.
Adoption is the decision to make full use of a new idea as the best course of action.
Rejection is the decision not to adopt an innovation.
Discontinuance is the decision to cease use of an innovation after earlier adoption.
Discontinuance is of two types:
- Replacement: Rejecting an idea to adopt a better one.
- Disenchantment: Rejecting an idea due to dissatisfaction with its performance.
Stages of Adoption
Adoption process is the mental process through which an individual passes from first knowledge of an innovation to a decision to adopt or reject and later confirmation.
Five stages of adoption process:
- Awareness: Individual first hears about the innovation but lacks detailed information.
- Interest: Individual is motivated to find out more about the innovation.
- Evaluation: Individual mentally trials the innovation, considering its advantages.
- Trial: Individual tests the innovation on a small scale.
- Adoption: Individual decides to use the innovation on a large scale.
Duration between stages varies with the practice and individual characteristics.
Stages of Adoption Process as Used in Indian Researches
- First information, most information, and final adoption.
- Awareness, acquaintance, and adoption.
- Awareness, trial, and adoption.
- Awareness, knowledge, trial, and adoption.
- Awareness, interest, evaluation, trial, and adoption.
- Awareness, interest, trial, evaluation, and adoption.
- Need, awareness, interest, deliberation, trial, evaluation, and adoption.
Adopter Categories
Adopter categories classify members of a social system based on innovativeness, i.e., how early they adopt new ideas.
- Innovators: Venturesome, eager to try new ideas, have cosmopolite social relationships, able to understand complex knowledge, cope with uncertainty, and take risks. They constitute about 2.5% of the social system.
- Early Adopters: Respectable, local opinion leaders, considered “the individual to check with” before adopting new ideas. They hold central positions in communication and are respected by peers. They make up about 13.5% of the social system.
- Early Majority: Deliberate adopters who adopt just before the average member. They seldom hold leadership but provide interconnectedness in networks. They constitute about 34% of the social system.
- Late Majority: Skeptical adopters who adopt after the average member, when adoption is safe. They constitute about 34% of the social system.
- Laggards: Traditional, last to adopt, isolated, possess almost no opinion leadership, and rely on past references. They are suspicious of innovations and change agents. They constitute about 16% of the social system.
Five stages of Innovation-Decision Process
- Knowledge: Exposure to the innovation’s existence and understanding of how it functions.
- Persuasion: Forming a favorable or unfavorable attitude towards the innovation.
- Decision: Engaging in activities leading to a choice to adopt or reject.
- Implementation: Putting the innovation into use.
- Confirmation: Seeking reinforcement for the decision but may reverse if exposed to conflicting messages.
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