ADVANCED AGRICULTURAL

ECONOMICS
Topics
Agricultural Marketing and
Price Analysis
PREPARED BY: RYAN PAUL C. CAALEM
MS in Agricultural Extension
 The term Economics derived
from the Greek word, ‘oikonomiya’
meaning household management.
Economics – is defined as the
study of how limited resources can best be
used to fulfill unlimited human wants.

Whereas the wants or desires of

human beings are unlimited, the means or
resources available for meeting these wants
or desires are limited and scarce.

Economics thus deals with making

the best use of available resources in order
to fulfill these unlimited wants.
 Marketing – a series of services involved
in moving the product from the point of
consumption.

Services – function performed on or for a

product that alters its from, time place, or
possession characteristics. Services add value to a
product and are generally performed to meet
existing or anticipated consumer demand.

Point of production – the point of usual

first sale by the farmer, typically at the farm or at
farmer’s home.

Point of Consumption – the point

where marketing ends. The point of last purchase
or sale.
 A word Market came from
the Latin word “marcatus” means
trade or merchandise.
Market – a group of
buyers and sellers with facilities
for trading each other. A place
where buyers and sellers meet to
exchange goods or services.
PRODUCTS SOLD IN GABALDON PUBLIC MARKET
 The Market System
In market economy the basic economic questions:
• How to produce?
• What to produce?
• For whom to produce?
are concerned; answered by market forces.
Adam Smith “Invisible
Hand”
 Three Economic System
1. Free Market Economy – where there is
a very limited role for the government. It
represents perfect competition market
structure.

2. Command Economy – where the

government takes virtually total control. As
with market structures it represents
monopoly.

3. Mixed Economy – a system that both

combines aspects of both capitalism and
socialism.
1. Free Market Economy
• Ownership: Nearly all of the country's factors of
production are owned privately.

• Objectives: Everyone in this system is motivated

by pure self-interest.

• Free enterprise: Basically, firms can sell anything

they want.

• The level of competition: Very high.

• The pricing system: Nearly all markets are

perfectly competitive.

• What, how and for whom?

2. Command/Planned Economy
• Ownership: Nearly all of the country's factors of
production are owned publicly by the government
(or the state).

• Objectives: The complete opposite of the pure self-

interest of the free market system.

• Free enterprise: There is none.

• The level of competition: Very little.

• The pricing system: There is no competition, so

there is no price mechanism.

• The planning system: This is an extra

characteristic of the command economy.

• What, how and for whom?

3. Mixed Economy
• Ownership: The government owns some of the
country's factors of production publicly and some
are owned privately.

• Objectives: Again, a combination of the two

extremes.

• Free enterprise: Only in the free market part of the

economy (the private sector).

• The level of competition: Again, the private sector

can be quite competitive.

• The pricing system: The price mechanism operates

in the private sector.

• What, how and for whom?

Why is Marketing Productive?

Marketing is productive because it creates

utility i.e., the process of making useful goods and
services. Utility is not physical quality of a thing in
itself. It is the want satisfying power of an object or
services.

Four types of Utility

1. Form utility – is created if goods possess the

required properties.
2. Place utility – when the products are made
available where they are most wanted.
3. Time utility – created when products are made
available when they are most wanted.
4. Possession utility – created when goods are
transferred or are placed under control of the
persons who desire to use them.
The Food Marketing Channel
Marketing Channel Diagram for Distribution,
Wholesale and Retail Food Products
Agricultural Marketing System and its Role in the
Economy

1. It has objectives or goals to achieve.

2. In the course of attaining objectives, , it has
components or participants that perform
certain functions

Agricultural Marketing Components or

Subsystem

1. Producer subsystem
2. Channel subsystem
3. Flow subsystem
4. Functional subsystem
5. Consumer subsystem
6. Environment subsystem
Problem Areas in Agricultural
Marketing

1. Characteristics of the products

• Perishability
• Seasonality
• Bulkiness
• Non-homogeneity

2. Number of producers
3. Characteristics of the consumer
4. Reflecting the demand of
consumers
Five Major Problems that Hinder
Efficiency of Marketing
• Poor condition of physical infrastructure that
link producers to market intermediaries and
final consumers
• Minimal flow of market information
• Small volume of market-oriented output for
many agricultural commodities
• Inadequate know-how on the part of farmers
and traders especially on grading and handling.
• Absence or lack of definitive public marketing
policies and the non-enforcement of public
regulatory prices.
Approaches and Methodologies to the
Study of Agricultural Marketing
A. The Commodity Approach - is product-
oriented rather than marketing-oriented
function.
B. The Institutional Approach – study at
various agencies and business structures
involved in the marketing process. It attempts to
answer the questions “who”.

Classification of Middlemen
1. Merchant Middlemen
• Contract Buyer
• Grain Miller
• Wholesalers
• Retailers
2. Agent Middlemen
• Commission Agent
• Broker

3. Speculative middlemen
4. Facilitative organizations

C. Functional Approach – one method of

classifying the activities in the marketing process
is to break down processes into functions.

1. Exchange function – are those activities

involved in the transfer of title goods.

a. Buying (assembling) function –

largely the one of seeking out the sources of
supply, assembling the products, and the
activities associated with purchase.
b. Selling functions – covers all various activities
which sometimes are called merchandising.

2. Physical function – are those that involved

handling, movement and physical change of the
actual commodity itself from producer to consumer.

a. Assembling function
b. Storage function
c. Transportation function
d. Processing function
e. Grading and standardization function

3. Facilitating function – are those which make

possible the smooth performance of the exchange
physical functions.
a. Standardization function
b. Financing function
c. Risk-bearing function

• Physical Risks
• Market Risks

d. Market intelligence function

e. Market research
f. Demand creation

D. The Market Structure-Conduct

Performance Approach – This approach
refers to the study of behavior of firms,
institutions and organizations, which exist in the
marketing system
1. Market Structure

It refers to how a market is organized with

particular emphasis on the characteristics that
determine the relationship among the various
sellers in the market, among various buyers,
between sellers in the market.

a. The degree of buyer and seller concentration

b. The degree of product differentiation
c. The condition of entry to the market
d. The degree of knowledge of the market

• Purely competitive market – is one where

the number of buyers and sellers is sufficiently
large so that no individual can perceptively
influence price by his decision to buy or sell.
• Absolute monopoly – type of market
structure with a single seller.

• Monopolistic competition – refers to

market in which a large number of sellers offer
differentiated products.

• Oligopoly – refers to a market with a few

large sellers.

• Monopsony – market with a single buyer

2. Market Conduct
3. Market Performance
 Meaning of Price – It is the “price of a
good or service is what it costs the buyer to
acquire it from the seller; the same price is what
the seller rewards for giving up its property rights
on the good or service”.

Utility – is the attribute of an item that

make it capable of satisfying wants

Value – is the quantitative expression of

the power a product has to attract other products
in exchange
Economic Role of Price
In both command and communist systems, it
is the government which decides what to do and
where the resources should go.

In a market economy, a change in market

forces (supply and demand) changes the market
price.

Price Determination in a Perfectly

Competitive Market

• In a perfect market, prices serve the dual role

of informing producers of consumers wants and of
varying conditions of production.
• Market price is determined by forces of supply
and demand.
Effects of Changes in Supply and Demand
on Equilibrium

Price will tend to rise in response to the following:

a. Demand increase with no change in supply
b. Supply decrease with no change in demand
c. A higher price will occur when supply
decreases and the demand increases
simultaneously

Price will tend to fall in response to the following:

d. Demand decreases with change in supply
e. Supply increases with change in demand
f. A relatively large decline in price will occur if
supply increases and demand decreases
simultaneously
Types of Price Fluctuations

A. Seasonal Price Variations

B. Annual Price Variations
C. Trends
D. Cyclical Price Variations
E. Random or Irregular Movement in Prices

Operational Aspects of the Pricing Process

F. Individual Negotiation
G. Organized Market

1. Commodity Exchanges

a. Spot or Cash Market

b. Future Contracts
2. Auction Markets
3. Terminal Livestock Exchange
4. Administered Prices
5. Collective Bargaining

Pricing Strategies
A. Manufacturer’s Pricing Strategies
1. Market Skim Pricing
2. Penetration Pricing
3. Pre-emptive Pricing
4. Extinction Pricing
5. Formula Pricing
6. Tie-in Pricing
B. Retailer Pricing Strategies
1. Competitive Pricing
2. Psychological Pricing
3. Unit Pricing
4. Price Lining
5. Special Pricing

Marketing Channels

It refers to an inter-organizational system

made up of a set of interdependent institution and
agencies involved in the task of moving products
from their point of production to point of
consumption.

Nature of Marketing Channels

Producer Retailer Consumer
Choice of Marketing Channels

1. Nature of Product
• Perishability
• Unit value
• Newness of the product

2. Nature of Market
• Consumer buying habits
• Size of average sale
• Total sale volume
• Concentration purchases
• Seasonality of sales
Thank you for listening