AGRICULTURAL MARKETING AND ORGANISATIONS
AGRICULTURAL MARKETING AND ORGANISATIONS: MARKET AND MARKETING.
Market.
Group of buyers and sellers I in sufficiently close contact with each another for exchange to take place.
Perfect/competitive market.
Where any buyer can purchase from any seller and vice versa.
Equilibrium price.
Price that is acceptable to both the sellers and the buyers.
Imperfect market.
Occurs where some buyers, sellers or both are not aware of the prices offered by others. It is common for goods that are not graded or where there are few traders and different goods in the market.
Marketing.
Flow of goods and services from the producer to the consumers. It include all activities involved in the transfer of goods and services from the producer to the consumer.
Types of markets.
Monopolistic competition.
Features.
- The existence of few sellers of the commodity. ii. Product quality varies from one firm to another.
iii. There is perfect product differentiation between the firms. A single seller may dominate the market due to technological superiority.
Oligopoly.
Occurs where the number of firms (sellers) is sufficiently small that mutual interdependence exist among them. Each firm in determining its own policies takes into consideration the possible effects of the policies upon the actions of competitors.
Monopsony.
Monopsonistic markets are characterised by existence of influence upon price by individual buyers.
Occurs in case there is only one buyer in the market.
May also arise due to smallness in the number of buyers or due to preference on part of sellers for dealing with particular buyers.
Sellers may be forced to lower price below the expected price.
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AGRICULTURAL MARKETING AND ORGANISATIONS
Classes of market.
Pure competition.
Exists where neither individual buyers nor sellers have any control over prices.
Features of a competitive market.
- Number of buyers and sellers must be sufficiently large enough and the volume of business handled by each must be sufficiently small that sale or purchase will not affect the price. Sellers and buyers act independently.
- Products must be homogenous and buyers regard products of all sellers as identical and have no preference for dealing with any particular firms and sellers must have no preference of dealing with particular buyers.
AGRICULTURAL MARKETING AND ORGANISATIONS
DEMAND, SUPPLY AND PRICE THEORY.
Demand.
Quantity of goods and services which consumers are willing and able to buy at a specific price in a given market at a given time.
Want.
Desire to have a good while demand is the ability to purchase that good at a given price.
Utility.
Anything that satisfies human want and is useful.
Effective demand.
Demand which involves payment for the required goods. It is controlled by one’s purchasing power.
THE LAW OF DEMAND.
The quantity of goods and services demanded varies inversely with price.
Demand schedule.
List of quantities a given population will buy at different prices.
Individual demand.
List of quantities of a product that a person will purchase at various prices.
Demand schedule or curve relates to specific time and price and are used to predict the possible price when any quantity of a product is marketed.
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AGRICULTURAL MARKETING AND ORGANISATIONS
Change of demand at a constant price.
Factors influencing demand for a commodity.
- Population.
Denotes the number of consumers in the market.
As population increase, the demand for a given good or service at a given price increase and vice versa.
A high population demands more goods and services than a small one.
ii. Income.
Change in income of consumers results in change of their purchasing power.
Consumers with higher income buy more than those with low income. This lead to increase in demand for commodities like meat, butter, rice and a decline in demand for commodities like maize meal and potatoes.
iii. Preference and tastes.
Demand is affected by tastes and preference of consumers and may cause change in demand from time to time. Taste and preference of other products that are substitutes may affect demand of another product.
iv. Prices of related Goods.
Demand of a commodity increase if there is an increase in the prices of a substitute.
It promotes the sale of a given good or service subsequently increasing its demand.
Advertisements makes consumers aware of a particular good in the market.
- Beliefs, customs and Taboos.
They influence the total demand for a given good or service.
vii. Price expectation.
If in future, the prices of certain commodities is likely to go up then the demand of such goods may go up currently or vice versa.
viii. Level of taxation.
An increase in tax will increase the prices thus few will afford them and their demand fall and vice versa
ix. Perishability.
If goods e.g. agricultural commodities deteriorate in quality, their demand falls due to loss of freshness.
- Future expectation or uncertainty.
If there is fear of shortage of a given commodity in future, consumers tend to more of the commodity for stocking thus increasing its demand.
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AGRICULTURAL MARKETING AND ORGANISATIONS
ELASTICITY OF DEMAND.
Degree of responsiveness of demand to change in price.
Or. Amount of change in quantity of a product that consumers will buy in response to a given change in price.
Ed greater than 1 there will be more than proportional increase in quantity purchased hence total revenue also rises. The price decline results in an increase in total revenue.
Ed of 1 (unitary) an increase or decrease in price leaves total revenue unchanged.
Ed less than 1, the price is lowered, a less than proportional increase in quantity purchased occurs and total revenue declines. Price decline causes total revenue to fall.
Ed=%∆Q÷%∆P.
Where Ed is elasticity of demand
%∆Q is percentage change in quantity demanded.
%∆P is percentage change in price.
Example.
The elasticity of demand when 100 loaves of bread are demanded at a price of Kshs 20 per loaf of bread while only 600 loaves are demanded at Kshs 23 per loaf. Calculate Ed.
Solution.
Elastic demand segment.
A price change is accompanied by more than proportional change in quantity demanded and total outlay is greater at lower prices than higher prices.
Inelastic demand segment.
Price change is accompanied by less than proportional change in quantity demanded and the total outlay is greater at higher prices.
It does not benefits the supplier/producer to reduce price. The price should remain high where the consumer is willing to pay and producer gets maximum satisfaction for one’s products.
Unitary Demand segment.
Percentage change in quantity demanded is the same as the percentage change in price.
Reduction of price by half doubles the quantity demanded. The total outlay is the same regardless of the price.
AGRICULTURAL MARKETING AND ORGANISATIONS
Factors that determine Elasticity of Demand.
The availability of substitutes.
Commodities with many substitutes have elastic demand. A commodity with no substitute e.g. salt has inelastic demand and has to be bought at any price.
Degree of necessity.
Commodities like salt or food are of great necessity thus its demand is inelastic and has to be bought at any price. Luxury commodities can be forgone if prices increases.
The number of uses a product can be put to.
Commodities that can be put to several uses usually have elastic demand.
Time lag.
A commodity whose use can be postponed to another day has elastic demand. E.g. cement in construction work.
Time span.
Ed is usually greater in the long run because some adjustment can easily be done while it is small in the long run.
Proportion.
Commodities that form a very long proportion of the total expenditure e.g. animals feeds, fertilisers have elastic demand than those that form a very small proportion that have inelastic demand.
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AGRICULTURAL MARKETING AND ORGANISATIONS
SUPPLY.
Quantity of goods or services which producers (sellers) are willing to sell at each specified price in a given market and time.
The higher the price, the more will be offered.
Supply does not refer to total production or output. Rather it refers to quantity of output which particular prices attract to the market.
THE LAW OF SUPPLY.
As the price of goods or services increases the corresponding quantity of goods and services offered for sale increases and vice versa.
Relationships between price and supply (normal supply curve)
Change of supply at constant price.
Supply schedule.
List of quantities of an item that will be produced or sold at all probable prices.
Example.
| Price of meat supplied per month. | Quantity of meat supplied in Kg |
| 25 | 80 |
| 20 | 70 |
| 15 | 50 |
| 10 | 20 |
| 5 | 10 |
Factors influencing supply of a commodity.
- Number of sellers in the market.
If many sellers bring similar goods to the market at the same time it will increase its supply.
ii. Price of related goods.
An increase of price of related products will result in rise of demand for the product whose price has not increased thus it supply will increase.
iii. Price expectation.
Supply of a commodity will be low if the future prices of the commodity is expected to increase. Suppliers will hoard the produce so as to release it when prices has increased and vice versa.
iv. Technology
Modern techniques of production lead to increased production of goods thus will also increase its supply.
v. Weather
Favourable weather conditions leads to increased production hence more goods are available for sale hence increase in supply and vice versa.
vi. Government policy.
Increase in tax of inputs will increase their prices thus farmers may cease to apply some inputs hence production drop and consequently the suppl.
vii. Cost of production.
If cost of inputs is low then it is easy to buy them so many farmers will be able to apply them increasing yields.
vii. Increase in supply of associated goods.
Increase in supply of associated commodity increases the supply of the other (e.g. joint products.)
ix. Transport system.
Improved transport system facilitate delivery of farm produce. This support and increase supply.
x. Change in price.
Increase in prices of commodities is an incentive to producers to produce more since they benefit by earning high profit.
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AGRICULTURAL MARKETING AND ORGANISATIONS
Elasticity of supply (Es)
Degree of responsiveness of supply to change in price.
Its main determinant is the amount of time which a producer has to respond to a new price offered for a product.
Es=%∆S÷%∆P
Where Es is elasticity of supply.
%∆S is percentage change in quantity supplied.
%∆P is percentage change in price.
Example.
If the price of millet changes from Kshs 10 to Kshs 12 per kg resulting in a change of supply from 400kg to 600kg. Calculate the Es.
Price theory.
Price. Amount of money paid in exchange for a good or service.
Price theory. Mechanism by which price is determined in the market.
Determination of market price.
After liberalisation, price control is not by the government but price is determined by the demand and supply forces.
When price is high (P2) supply is also high but when price is high (P2) the demand is low (Q1)
When price is too low P1 the supply is also low but demand is high Q4.
In order to sell goods supplied at price
The resultant price P where quantity of goods supplied equals the quantity of goods demanded is the equilibrium price or the market price. This occurs in a free market.
Price control.
Price control is mainly done to keep down the cost of living. Some circumstance force the government to change prices of some essential farm produce.
It also prevent exploitation of consumers by producers.
Increasing producer price aims at encouraging farmers to produce more. Lowering price may discourage framers.
Measures taken by the government.
Gives subsidy by reducing cost of production inputs.
Fixes prices of related products.
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AGRICULTURAL MARKETING AND ORGANISATIONS
MARKETING.
All activities and services associated with the flow of goods and services from production to consumption are marketing functions.
Service. Any function that alters a commodity in form, place, time or possession.
Production services. Occurs before or at point of production.
Marketing services. Occurs after production.
Marketing functions.
All activities involved in the marketing process.
- Buying and Assembling.
Buying. Acquisition of goods from farmers on payment of cash.
Assembling. Collection of produce from individual farms, concentrating tem at convenient points or stores. ii. Transport and Distribution.
Farm produce reach the consumer through transportation. Agricultural produce are perishable and need specialised transport services. Most are distributed by middlemen.
iii. Storage.
Storage helps to spread seasonal produce over extended periods of relatively stable demand.
Storage may be for a few days awaiting sale or more than a year in case of surplus.
Processing plants hold reserve stocks or their raw materials so that they are not held up awaiting new supplies.
iv. Packing.
Facilitates the measurement of commodities into quantities that can be easily handled.
Protect produce against damage, theft and adulteration on its way to the market.
v. Processing.
Involves preparation of produce for consumption. Changing raw materials into finished products.
It increases the shelf life of produce.
Reduces the bulkiness of goods.
vi. Grading and standardisation.
Grading.
Sorting out produce into different lots each with substantially the same quality with respect to market quality e.g. size, shape, flavour, degree of ripeness.
Importance.
- Helps buyers to select the most suitable produce.
- Allows buyers to purchase the desired quality of the produce hence avoid time wastage on Inspection.
Standardisation.
Establishing some uniformity in quality and quantity of products.
Importance.
- Facilitates the establishment of criteria for inspection and control to ensure safety.
- Avoids exploitation of consumers.
- Prevent physical deterioration, theft, tampering with/ adulteration and substitution.
- Acts as an advertising medium thus promotes sales.
Collecting market information (market research)
Efficient marketing depends on the availability of market information.
There should be information as to the quality of the commodity for various purposes and prices in alternative markets.
Buyers want to ensure they do not pay more for a particular seller while sellers need the same information so that they are not paid low for their produce by any particular buyer.
ix. Selling
Presentation of the product to consumers in the most attractive manner.
Include activities like; advertising, displaying the produce in the market and bargaining for fair prices.
x. Financing
Capital is required to finance all the activities from the original buying of the raw produce to the final sale of finished goods.
xi. Bearing risks.
Uncertainty exist regarding the final outcome of the marketing process due to the time lag between the buying of the produce and its final sale.
Produce may suffer physical damage such as destruction, fluctuating prices, and change in consumer taste leading to decrease in demand of the final produce.
Marketing agencies involved must accept and bear the risks involved. The risks are usually transferred to an insurance company by the marketing agency.
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AGRICULTURAL MARKETING AND ORGANISATIONS
MARKETING ORGANISATION AND AGENCIES.
Bodies that facilitate the marketing process.
- Wholesalers
They buy goods from the producers, processors or manufacturers in bulk and sell to retailers and other merchant in relatively large lots/quantities.
They may buy in small quantities from farmers or itinerant traders and bulk up for sale to retailers.
They may sell directly to consumers especially industrial users.
They bear most of the marketing risks.
Speculative buyers. Those willing to accept greater risks by buying when prices are low and sell them when they are high.
- Retailers
Buy goods in bulk from wholesalers or processors and sell to consumers in small quantities.
They may offer special services to their customers e.g. delivery to restaurants/hotels, individual consumers and various institutions.
- Itinerant traders.
Performs the functions of buying, assembling and transporting. They move from place to place buying agricultural produce from farmers, assemble the produce and sell them to markets in town.
- Packers and processors.
They change the form of the produce they handle to one more convenient for marketing and more acceptable to the consumer.
Most processors are manufacturing companies. They may pack or process for farmers, wholesalers or large retailers for a fee at a fixed rate on a volume.
- Commission Agents.
Middlemen who act on behalf of other businessmen for a fee or a commission.
- Broker Agents.
Bring potential buyers and sellers together. They do not handle the actual commodities but have a good knowledge of supplies, requirements and prices of commodities in various markets.
They are very useful in the export and import market in which the local producer has no way of meeting the customers overseas.
vii. Co-operative societies and Unions.
They help farmers to market their produce locally and internationally. They are important in reducing the marketing costs for small scale farmers.
viii. Marketing Boards.
Assist small scale farmers in the production and sale of primary agricultural commodities hey deal in e.g. Dairy Board, Tea Board and Coffee Board.
ix. Auctioneers.
They offer specialised service in the negotiation of purchase and sales.
Concentrate buyers and sellers at a particular time and place and negotiate sales quickly in a way that all present are informed of the bids. They take a commission on sales payable by buyers, sellers or both.
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AGRICULTURAL MARKETING AND ORGANISATIONS
PROBLEMS IN MARKETING AGRICULTURAL PRODUCE AND THEIR POSSIBLE SOLUTIONS.
- Perishability.
Most are perishable and deteriorate in quality rapidly. Products must be stored under refrigeration, sold immediately after production.
Processing into other forms e.g. canning of fruits.
ii. Seasonality.
Production of agricultural commodities is seasonal and available in plenty at harvest periods.
This affects market prices and create shortage problems.
Supply is inelastic during supply period and it is difficult to determine prices.
Solution.
Storing surplus produce to be released during period of scarcity.
iii. Bulkiness.
Most are bulky, weigh heavily, occupy a large space and have low value per unit weight.
They require large storage spaces.
Transportation increases their prices beyond reach of ordinary producers.
Solution.
Processing of the produce.
iv. Storage.
Due to seasonality, there is need to store the produce. This calls for construction of storage facilities that are expensive thus increasing cost of marketing.
Solution.
Farmers should pull resources together to purchase the storage facilities.
- Poor transport system.
Rural areas with the bulk of agricultural production have poor roads and inadequate means of transport.
Framers thus cannot easily take the produce to the market on time and the produce being perishable get spoilt in farms.
- Change in market demand.
Plans based on today’s demand may yield products years/months later. There is a relatively long time lag between the decision to produce and actual availability of the product.
In this time consumers tastes and preference may change affecting demand and price.
Solution.
Contracting.
- Limited elasticity of demand.
The bulk of agricultural produce is food produce which has inelastic demand.
Thus an increase in food supplied does not necessarily increase the quantity bought.
The products cannot be converted to serve another purpose. Thus the only alternative is for farmers to dispose the excess supply at a throw away price.
viii. Lack of market information.
Some farmers lack adequate market information before selling their produce due to low state of knowledge. This leads to:
- Producing goods not in conformity with market demand.
- Farmers may be exploited by unscrupulous middlemen who buy the produce at low prices. Change of supply.
There is overproduction or underproduction of agricultural goods leading to change in supply in the market. Supply thus is relatively inelastic resulting to fluctuation of market prices.
Solutions.
- Use of modern technology to maintain production.
- Storage of surplus produce to regulate supply.
- Efficiency in marketing.
AGRICULTURAL ORGANISATIONS.
Boards that promote agricultural activities.
Include:
- Statutory Boards.
- Farmers’ co-operative societies.
- Farmers unions. Agricultural society of Kenya.
- Youth organisations.
Agricultural statutory Boards.
1) National Irrigation Board.
Charged with the responsibility of developing and improving irrigation projects.
Some of the irrigation projects include:
- Bura scheme at coast. Grows cotton.
- Bunyala scheme (western). Grows rice.
- Pekerra scheme in Baringo. Grows onions, citrus fruits and chillies.
- Ahero scheme in Kisumu. Grows rice, cotton and sugarcane.
- Mwea –Tebere in kirinyaga. Grows rice.
2) National Cereals and Produce Board. (NCPB)
Functions.
- Regulation and control of production, storage of maize, wheat, pulses and other cereals. Ensures reserves of maize.
- Buying and storing maize, wheat, pulses which are later sold to millers and consumers.
- Advising the CS for agriculture on production, importation or exportation of maize, wheat etc. in relation to the needs of the country.
3) The Kenya Sisal Board.
Promotion of sisal production.
Regulation of production, grading and marketing of sisal.
iii. Registration of all sisal producers
. iv. Licensing sisal factories and sisal exports.
- The inspectorate department examines all sisal for export to ensure and maintain high quality.
- Re-baling sisal which may be spoilt on transit from sisal estate to the port.
4) Coffee Board of Kenya.
Functions.
- Licensing coffee producers and processors.
- Carrying out research on all aspects of coffee production and processing.
- Acting as the sole government agent on all matters related to international coffee agreements such as prices and quotas.
5) Pyrethrum Board of Kenya.
Functions.
- Offering advisory services to the farmers.
- Managing pyrethrum nurseries which produce planting materials for farmers.
- Processing pyrethrum in the factory. iv. Marketing the processed products.
- Buying pyrethrum from the farmers. vi. Carrying out research to obtain the best cultivars through selection and breeding.
6) Cotton Board of Kenya.
Planning, monitoring and regulation of cotton growing and ginning.
Licensing and control of cotton ginneries.
iii. Regulation and control of quality of raw cotton. iv. Regulation of the export or import of cotton lint or cotton seed.
- Regulation and control of quality and supply of seeds through ginneries.
- Carrying out and promotion of research and development in cotton production and processing technology.
- Providing or co-ordinating training for the cotton sector industry.
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7) Kenya Sugar Authority.
Functions.
- Advise on development of sugarcane production for manufacture of white sugar. ii. Advise on rules and regulations necessary for development of sugar cane industry,
iii. Formulate and advice on price of cane to the out-growers. iv. Advise on all aspects of sugar cane research.
- Advise on all aspects of sugar processing.
- Register all cane producers within sugar factory zones. vii. Ensures availability of adequate statistics relating to sugar cane industry. viii. Advise on utilisation of sugar by-products.
8) Horticultural Crops Development Authority.
Functions.
- Offering advisory services to farmers through its extension agents.
- Collecting produce from farmers. iii. Sorting and grading the produces. iv. Marketing the produce both locally and abroad. 9) Agricultural Finance Corporation. (AFC)
Providing agricultural credit to farmers at reasonable rates with a grace period.
Providing technical services to the farmers to ensure the best utilisation of the borrowed capital.
- Ensure repayment of the loan.
10) Agricultural Development Corporation. (ADC)
Functions.
- Running and operation of state farms.
- Raising high quality livestock which are sold to farmers as breeding stock. iii. Bulking planting materials such as maize, Irish potatoes and nappier grass. iv. Promotion of agricultural production through field demonstrations.
11) Kenya Meat Commission. (KMC)
Deals with marketing of beef. Has factories in Athi River, Mombasa and Ngong.
Functions.
- Buying cattle from beef farms. ii. Slaughtering the beef animals. iii. Grading carcases. iv. Marketing beef locally and overseas.
CO-OPERATIVE SOCIETIES.
Organisation of people who have joined together voluntarily with a common purpose for a mutual economic benefit.
Formation of co-operatives.
Requires a minimum of ten adults to form.
Those interested elect an interim committee that decides on the name of the co-operative, draws up a constitution and seeks its registration with the commissioner for co-operatives.
Principles of co-operatives.
- Open membership.
Members join co-operatives voluntarily upon paying membership fee regardless of race, religion, sex, education or political inclination so long as they are adults and of sound minds
. ii. Equal rights.
They are run democratically where the principle of one-man one-vote operates.
iii. Principle of share limit.
A member may buy shares up to a specific maximum limit to avoid domination by one member or a group of members.
- Interest on shares.
Any money or accruing capital is distributed among the members as dividends on the basis of share contribution.
- Withdrawal from membership.
Members are free to join or withdraw voluntarily. Upon withdrawal members get back their share contribution.
Members are expected to be faithful and loyal to their co-operative. They should sell their produce only through their co-operative.
Members should be continually be educated to ensure they are knowledgeable in relevant skills and are conversant with co-operative affairs
. viii. Co-operative principle.
Co-operatives are supposed to join the co-operative movement at the primary, district, national and international levels.
ix. Non-profit motive.
Their main objective is to improve the living standards of their members.
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Types of farmers’ co-operative societies.
Farmers/producer co-operatives.
Formed by group of farmers who poll their resources to buy large tracts of land and operate the farm as a group.
Each farmer is paid dividends according to the members’ share.
Marketing co-operatives.
Formed to help small scale farmers to market their produce collectively.
The produce is collected at a buying centre from where it is transported to the market thus reducing the operational costs.
Consumer co-operatives.
Deal with selling farm inputs to farmers. Inputs are bought in bulk thus it is possible to sell them to members at prices lower than the market prices.
They may also offer marketing services to farmers.
Functions of farmer’s co-operative societies.
- Marketing farmers’ produce. May involve collecting, transporting, grading, processing, packaging, storing, selling the produce and paying farmers.
- Negotiating for fair prices for farmers’ produce and also for inputs.
- Keeping records of the co-operative activities and informing the members accordingly.
- Paying dividends to the members.
- Giving loans in kind to the members.
- Educating the members on matters relevant to their co-operative through field days, seminars, workshops and demonstrations.
ASSOCIATIONS AND UNIONS.
The Agricultural Society of Kenya. (ASK).
Functions.
- Holding competitive agricultural shows and exhibitions of livestock, crops and farm produce.
- Encouraging breeding and importation of pure breeds of livestock and improvement of useful indigenous animals.
- Encouraging and assisting in official milk recording scheme. iv. Organising the running of Young Farmers Clubs.
- Organising the National Ploughing Contest. vi. Publishing the Kenya Stud Book.
vii. Publishing a monthly journal known as ‘The Kenya Farmers’. viii. Awarding bursaries for local and overseas studies/tours for its members.
Youth organisations.
4-K clubs. (Kuungana, kufanya, kusaidia Kenya.)
Draws members from the primary schools countrywide. Their motto is ‘Learn by doing’.
Functions.
- Teaching by carrying out practical projects to show that agriculture can be a profitable profession.
- Exposing the youth to the existing and improved agricultural technologies.
- Developing and enhancing leadership qualities among the youth. iv. Using the youth as agents of change by taking part in competitive shows.
- Involvement in field trips to places of agricultural interest.
Young Farmers Clubs.
Have members drawn from secondary schools and tertiary institutions. They are run by ASK.
Functions.
- Participating in exhibitions and competitions at ASK shows.
- Involvement in agricultural projects at the club level. iii. Participation in YFC annual rallies.
- Involvement in workshops and seminars related to agriculture.
- Participating in National tree planting activities.
- Involvement and participation in exchange programmes, both locally and abroad.
- Participation in national ploughing contest.
Kenya National Federation of Producers. (KNFP).
Functions.
- Bargaining for better prices of farm produce.
- Ensuring adequate and timely supply of farm inputs.
- Bargaining for reasonable and affordable prices of farm produce.
- Provision of better infrastructure including roads, electricity, telephone services to facilitate quick delivery of farm produce to the market.
- Provision of loan facilities.
- Adequate control of crop and livestock pests and diseases. vii. Looking for markets of farmers produce both locally and overseas. viii. Offering technical services to farmers.
- Representing Kenyan farmers in the International Federation of Agricultural Producers.
- Publishing monthly magazine known as the “Farmers’ Voice”.
Agricultural based women groups
AGRICULTURAL MARKETING AND ORGANISATIONS
ALL AGRICULTURENOTES FORM 1-4 WITH TOPICAL QUESTIONS & ANSWERS
