In a market-orientated system the price of a product is determined by supply and demand. A balance is achieved between what people are prepared to supply at a price and what people are willing to pay for the product.
The essence of sound marketing is:
- find out what the consumer wants
- supply it at a profit
For agricultural produce, how much the consumer wants and will purchase is affected by a number of factors, the most important being:
- the price of the goods
- tastes and preferences of consumers
- number of consumers
- incomes of consumers
- prices of related goods (competition)
- range of goods available to consumers
Producers need to be aware of marketing and market realities. Farmers also should be aware that the price paid by the eventual consumer is made up of the amount of money paid out to farmers for their produce plus all the costs involved in getting it to the consumer in the form in which he or she purchases it. There also has to be a reasonable return to those doing the marketing and processing for carrying out these functions.
The percentage share of the final price, which is taken up by the marketing function, is known as the “marketing margin”. Sometimes this margin can be quite a high percentage and this may be used to argue that farmers or consumers are being exploited. High margins can often be fully justified by the costs involved. There are bodies like the Food Price Monitoring Committee and the Competition Commission who act as policemen and try to ensure that this chain is fair.
Some producers have become more involved in the supply chain and this is usually to their profit.
Stats SA publishes two price indices – the Consumer Price Index (CPI), based on prices at retail level, and the Producer Price Index (PPI), based on prices at the first point of trade, thereby measuring the cost of production. If the production cost of a product decreases, one can reasonably expect a decrease in the price the consumer pays.
In addition to these two indexes, the Department of Agriculture, Forestry and Fisheries also publishes a quarterly index of the price of farm requisites. Analysis of these three indices shows how prices develop in the value chains.
Source: the article “What can we do about high food prices” by Dr Koos Coetzee at www.farmersweekly.co.za.
2. Today, the success of farm planning starts at the market
Don’t produce what you can’t sell!
Production should be market oriented – knowing what the customer wants (demand) and the price at which you as the farmer are prepared to supply it (supply).
- Decide on your target group – this is your particular group of customers (their age, are they male or female, where do they live – in a city or farm, what do they do? Are they corporates (businessmen or professionals – doctors, lawyers), farmers etc., what are their interests?
- Determine what their needs are (what do they want to buy and how much are they prepared to pay).
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