Factors Affecting the Cost of Agricultural Marketing - Agribusiness Education and Research International

Factors Affecting the Cost of Agricultural Marketing

Product’s perishability: The product’s perishability is a major factor that influences marketing costs. The degree of perishability has a direct impact on marketing expenses. Marketing expenses rise in direct proportion to perishability.

The extent of the loss during storage and transportation: The cost of marketing will increase if there is a significant loss in the amount and quality of produce due to spoiling, shrinking, or wastage during storage or transportation.

Volume of the Product Handled: The lower the per-unit cost of marketing, the higher the volume of business or product turnover.

Consistency in Product Supply: The cost of marketing per unit will be lower in a case where the product is supplied consistently throughout the year as opposed to sporadically or only during a few months.

Amount of Packaging: The expense of marketing goods that need packaging is higher.

Grading Adoption: Products for which grading is readily adopted have lower marketing costs than those for which it is not.

Need for Demand Creation: The overall cost of marketing will be high if a significant amount of advertising is required to generate demand among potential customers.

Product Bulkness: Bulky products have higher marketing costs than non-bulky ones.

Requirement for Retailing: A product’s overall marketing expenses increase with its retailing necessity;

Storage Need: Goods that are manufactured and sold right away without any storage incur lower marketing costs than those that require storage, which raises the price of marketing.

Risk Extent: The greater the marketing expense, the greater the risk associated with a product (due to either business failure, price changes, buyer monopsony, or the presence of unfair tactics).

Services Provided by Dealers to Customers: The more services a dealer provides to a customer (e.g., a product return policy, home delivery, credit options for purchasing goods, the ability for customers to enjoy their children’s entertainment, etc.), the more expensive marketing becomes.

Why do agricultural commodities have higher marketing costs?

Typically, the expenses of selling agricultural commodities are higher than those of manufacturing goods. This phenomenon is caused by the following factors:

Widely Distributed Farms with Low Output Per Farm: Countless farmers generate a meager amount of agricultural goods. There are a lot of different producers. It is therefore quite expensive to assemble.

Agricultural Product Bulkiness: The majority of agricultural products are bulky in comparison to their worth. Transport becomes more expensive as a result.

Tough Grading: Grading agricultural products is a challenging task. During the acquisition and sale process, each lot must be personally inspected; this raises the expense of marketing. Due to variations in product quality, it is difficult to sell or purchase a product by contract or sample because each batch must be inspected.

Unreliable Supply: The production of agricultural items varies seasonally. As a result, their market supply varies all year. Prices decline during gluts, and marketing expenses are allocated based on value.

Need for Processing and Storage: Due to the seasonality of agricultural production, there is a higher need for processing and storage of agricultural products. Because not all agricultural products are consumed in their raw form, processing is a necessity. The cost of marketing is increased by processing and storage. Due to their perishability, agricultural products that are stored also experience significant losses.

High Number of Intermediates: Because there are no restrictions on middlemen’s ability to enter the foodgrain marketing industry, there are a greater number of them. On the other hand, there are primary barriers to entry for industrial product trade. For instance, entering the trade of non-farm items might be challenging because of the lengthy licensing process, high risk, and large financial requirements. The cost of marketing increases with the number of intermediaries involved.

Risk involved: Agricultural products are more susceptible to price volatility. Increased risk results in an increased risk premium, which raises the cost of marketing.

Read more: Why is market information important?

Marketing Costs in Bangladesh, India, and Other Countries:

Compared to developed nations, Bangladesh has reduced food grain marketing costs.

The following variables account for this discrepancy:

(i) While consumers in wealthy nations prefer their food grains to be mostly processed, Bangladesh sells them in a comparatively raw state. In India, food grain processing is done at the consumer level. As a result, Bangladesh has cheaper marketing costs and a larger farmers’ portion of the country’s consumer revenue.

(ii) Bangladesh has relatively cheap labor, which helps India’s labor component of marketing costs remain lower than in wealthy nations.

Food grains’ Long-Term Marketing Costs

The cost of marketing food grains in Bangladesh has gone up over the years. This growth has been caused by several variables, including:

Trend Shift from Subsistence to Commercialized Farming: In the past, each farmer would grow the food grains he needed for himself, but in the present, producers and consumers are farther apart due to increased urbanization and specialization in agricultural production. This has led to a rise in the price of transporting food grains from farmers to consumers.

Technological Developments in Storage and Preservation: In the past, a lot of food items were only consumed during the growing season. Production specialization and the emergence of high-yielding, short-duration cultivars have led to large-scale production, which calls for storage. Though they have made handling large amounts easier, technological advancements in storage and preservation have also raised costs and widened the gap between producer and consumer pricing.

Modification in Type of Customer Demand: Over time, customer behavior has changed. With urbanization’s growing influence, consumers now prefer the product in a processed, ready-to-use form. Customer demand has also been influenced by the need for appealing packaging and a home delivery option. As a result, they are now in more need of marketing services.

How to Lower Agricultural Marketing Costs

Cutting marketing expenses can be done in several ways. There isn’t a single element that can significantly lower these expenses. The cost of marketing could, however, be significantly reduced by several elements working together. Several strategies to lower farm product marketing expenses include:

(i) Boost Marketing Effectiveness

Numerous interactions between producers and consumers have the potential to boost marketing efficiency. Several key domains where enhanced efficacy could lead to a decrease in marketing expenses include:

(a) Growing the Volume of Business: One can efficiently lower marketing expenses and boost marketing efficiency by growing the amount to be handled at a time.

(a) Better Handling Techniques: Among the ways to boost productivity and cut expenses are the prepackaging of perishable goods, the use of quick transit, the construction of cold storage facilities, and the economical use of labor.

(c) Managerial Control: Efficiency is increased by using tried-and-true management strategies. The effectiveness of marketing at every level can be increased by continuously assessing expenses and returns.

(d) Modifications to Marketing Techniques and Technology: Modifications to marketing techniques and technology, such as selling orange juice rather than oranges, selling food services through supermarkets, and integrating marketing functions, lower marketing expenses and boost marketing effectiveness.

(ii) Lower Marketing Profits

Due to the inherent risk at various phases of marketing, agricultural commodities frequently yield the highest profits in the marketplace. There are several ways to lower the risk:

a) Implementing hedging strategies, enhancing market news services, grading, and standards; and

b) Boosting competition in the farm product market

In general, the producer and the consumer gain when marketing margins and expenses decrease. In rare circumstances, both the producers and the consumers reap the full benefits (i.e., the producers’ price remains unchanged). Aside from these situations, both parties benefit from increases in agricultural marketing strategy efficiency. The nature or attributes of the product’s supply and demand dictate how much of these benefits are shared. To illustrate:

Producers and consumers split the benefits equally in three scenarios:

(a) When the elasticity of the supply and demand curves is equal,

(b) When the demand is more elastic than the supply (as in the case of farm products in the short term), producers receive a larger share of the benefits; and