evaluating marketing alternatives for agricultural products

Evaluating Marketing Alternatives for Agricultural Products

Anyone can sell something, but it takes a lot of planning and hard work to successfully market agricultural commodities. A well thought-out marketing plan should evaluate all potential marketing outlets and assist in determining which is best for the individual operation at that point in time. Because the market environment for all agricultural commodities is constantly changing, this marketing plan should be re-visited on a regular basis. A choice that proved to provide the highest return one year might actually provide the lowest returns the next. Below is a brief description of various marketing outlets for agricultural commodities. The first section provides information concerning direct produce marketing followed by non-direct produce marketing. The final section concentrates on the various marketing alternatives for livestock producers. What are direct produce marketing examples? Farmers’ Markets Farmers’ markets have been growing in popularity across the U.S. for both consumers as well as producers. These markets appeal to producers because they can specialize in producing commodities. Furthermore, because a farmers’ market typically has buyers and sellers gathered at a central location, prices must be competitive with what other growers are offering. While this atmosphere does encourage price competition, prices received at farmers’ markets are typically higher than those received from selling directly to wholesale markets. Consumer appeal of farmers’ markets comes from the perception that the quality of goods purchased are higher while prices are lower than at other retail outlets. In some cases where the farmers’ market is very large, other attractions such as cooking competitions provide entertainment along with the availability of farm fresh produce. In other cases, the farmers’ market is the only source of fresh produce. While some costs are incurred, compared to the other direct marketing outlets there is very little capital investment involved in selling at farmers markets (Table 1). Specifically, sellers must pay space rental. Prior to renting a space, individuals should consult those in charge of the farmers’ market and determine specifics regarding the rental rate. Specific questions regarding the rental rates include:

• What is the rental rate? • Is there a difference in rental rates depending on the size of the space? • Is there a difference in rental rates depending on the season? • Is there a lower rental rate if the space is rented for a longer period of time? • Is there a lower rental rate provided to farmers?

Bennett, Blake, Stan Bevers, Rob Borchardt, and Brenda Duckworth. Department of Ag Economics, Texas Cooperative Extension, Texas A&M University. May 2003.

Prior to selling products at farmers’ markets, other costs should also be taken into consideration. Transportation, storage, and handling costs will be incurred by the sellers at farmers’ markets. Sellers may have to provide containers to display their products. Likewise bags will have to be provided to buyers who purchase the products. In some cases, scales will be needed to weigh products for sale. A special license may be required to sell refrigerated products, and unless provided by the farmers’ market sellers may have to purchase liability insurance. Finally, the farmer or a sales person will have to be available to answer questions and sell products. This last cost may, however, be avoided as some farmers’ markets have permanent venders available to purchase products from farmers and resale them to buyers. Other considerations for selling at a farmers’ market include: sales, quality of products, and barriers to entry. Typically sales at farmers’ markets are smaller per customer than at other direct marketing outlets. There is also direct competition from other growers at the market, so prices should be competitive and quality should be at its highest. Finally, producers may find some barriers when attempting to sell their products at farmers’ markets. Certain products may not be allowed to be sold at the farmers’ market due to local restrictions. Likewise, the goals of the market organizers may conflict with those of individual sellers (such as a farmer who wishes to sell vegetables grown with the use of herbicides and pesticides at a market who’s goal is to provide high quality organic vegetables). Finally, good marketing skills are required of the individual selling at the farmers’ market. The seller must be able to communicate with buyers, tell them how the product was produced, and convince them that their product is of the highest quality. As with any marketing outlet, farmers’ markets have both advantages and disadvantages for sellers (Table 2). One of the most important advantages of selling at a farmers’ market is that there is no middleman. This is also the most appealing aspect of selling at a farmers’ market. Because the farmer is selling directly to buyers, prices tend to be higher than if sold through a middleman. Overhead is also reduced when selling at a farmers’ market. Specifically, parking, restrooms, and other facility costs are provided by the market as is advertising and marketing costs. Another advantage of selling at a farmers’ market is that the farmer can sell directly to buyers without anyone coming to the farm. This reduces or eliminates many costs such as overhead, liability, etc. Farmers’ markets also provide an opportunity to promote the farming operation and network with other producers who are providing the product mix and with buyers who give feedback to the farmer. Due to the fact that the marketing ability must be good combined with the time required for selling farm products, many producers have not attempted to use farmers’ markets as an outlet for their farm goods. Other disadvantages of selling at farmers’ markets include additional costs such as transportation, packaging, presentation, space rentals, and necessary licenses which are paid by the seller. A limited volume of products, a poorly located market, and small volume of sales per customer may not make farmers’ markets cost effective. Finally, sellers at farmers’ markets are required to abide by rules established for the market. These rules may not make the sale of some products possible or cost effective.

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Roadside Stand Roadside stands are a type of direct marketing to consumers where a producer sells products along a roadside. These roadside stands range from semi-permanent structures with display tables to the bed of a pick-up. The stand can be located on or off a farm or orchard. These stands may purchase additional products from other producers and operate throughout the year, or the stand may only sell goods produced on the farm and operate on a seasonal basis corresponding to the farm’s harvest. As with other direct marketing outlets, producers are attracted to selling at roadside stands because they can offer an opportunity to sell extra produce, receive a higher price than selling directly to wholesale markets, provide supplement income, and provide employment for family members. Consumers are drawn to roadside stands because they typically view these stands as having fresh, high quality produce in a convenient, friendly atmosphere at a reasonable price. Before establishing a roadside stand to sell farm products, several factors must be considered (Table 1). Specifically, there can be a higher investment cost associated with the establishment of a roadside stand compared to a farmers’ market. There will be a need for containers, scales, coolers, and other items necessary to sell the products but also a building or stand and parking,. The owner of the stand will also be liable for all accidents that occur at the stand making liability insurance a necessity. Sales labor will be needed and the cost of advertising and promotion will also have to be paid by the owner of the stand. Facilities may also have to be purchased to store certain products. Finally, the owner of the stand may have to purchase additional produce from other farmers to insure the stand has a good product mix and is well stocked. Other considerations of selling at roadside stands include sales and quality characteristics and barriers to entry. Specifically while transportation, sales, or brokerage costs are very low and individual sales at roadside stands are typically fairly large per customer, there is a limited ability to make large sell volumes. In terms of quality, roadside stands offer farmers the ability to classify and sell more than one grade of produce. This offers the ability to offer different prices for different quality products. Finally, there is a limited demand for roadside stand products. The success of a roadside stand largely depends on location and marketing ability. A roadside stand should be located on a road with a large volume of traffic, easy access, and have operation hours that are convenient and easy to remember. Zoning restrictions and the time required to sell products at a roadside stand deter some producers from establishing a roadside stand. In conclusion, there are several advantages and disadvantages that are associated with selling farm products at a roadside stand (Table 2). One of the biggest advantages associated with roadside stands is the fact that there is no middleman. Farm products can be sold directly from the farm to consumers. As with other direct marketing outlets, this allows for the average price received for products (even lower quality products) to be higher than if sold directly to wholesale markets. Unlike farmers’ markets roadside stand sales are generally larger per sale, and there is a greater ability to promote the farm and receive feedback from buyers. The owner of the stand can also determine when the stand will be open. The flexibility of selling only products raised on the farm or buying additional products from other producers to sell in the stand also offers advantages to this market outlet.

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The greatest disadvantage associated with operating a roadside stand is location. It is essential that the stand be located on a well traveled road and have easy access to buyers. There is also a substantially greater capital investment when compared to selling at a farmers’ market due to the fact that the owner will have to pay for the facility, liability insurance, upkeep of the facility, advertising along with all the supplies necessary to sell the products. Finally, the weather will affect the operation times and the demand for roadside stands. Pick-Your-Own Pick-your-own operations are a direct marketing outlet that allows buyers to harvest fruits and vegetables themselves. This type of marketing outlet is preferred by customers who like to select fresher, higher quality, vine ripened produce at lower prices. It is often times also viewed by buyers as a recreational and educational activity for the whole family. Farmers are also drawn to pick-your-own operations because they provide a marketing alternative that may supplement other marketing strategies while possibly reducing harvesting costs and increasing producer net returns. Producers should, however, realize that pick-your-own operations require the producer to spend large amounts of time doing a variety of different jobs and to deal with people. These realities along with the information provided below should be considered before a pick-your-own operation is established. When a farmer considers opening a pick-your-own operation, several items should be taken into consideration (Table 1). Specifically, a pick-your-own operation can require a substantial capital investment to pay for a building or stand, containers, ladders, location signs, and parking. An additional expense that the farmer will incur with a pick-your-own operation is liability insurance. With the public coming to the farm to harvest the produce, the farm can be liable for any accident that occurs. Additional costs include labor and advertising. Labor costs associated with a pick-your-own operation include the need for people to supervise customers in the field and checkout and field site transportation personnel. Any advertising and promotion for the operation will also have to be paid by the farm. In terms of sales, pick-your-own operations usually have larger sales per customer. Furthermore, there are no costs associated with transporting the produce to the buyer. There is also no need for a grading system for the produce since the operation will sell whatever the customer picks. Finally, as with roadside stands, location is the primary barrier to entry into a pick-your-own operation. The farm should be located near a good road system and close enough to a large population of potential customers. The limited number of crops and short season also place constraints on the already limited demand for pick-your-own operations. Similarities can also be found in the advantages and disadvantages of a roadside stand and a pick-your-own operation (Table 2). As with the other direct marketing alternatives discussed earlier, there is no middleman with a pick-your-own operation. The farming operation will be selling produce directly to consumers which will allow for higher prices to be received by the owner of the farm. Other selling advantages of a pick-your-own operation include: the average purchase per customer will also be fairly large, farms can sell various qualities of produce, and the product mix is not critical. In terms of cost savings, pick-your-own operations experience

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lower harvesting costs (which is good for crops requiring intensive harvest labor), low packaging expenses, and low transportation costs. A pick-your-own operation also provides the farm the opportunity to network and receive customer feedback regarding the products sold. As with roadside stands, location is critical for a successful pick-your-own operation. As stated earlier, the farm should be located near a good road system and close enough to a large population of potential customers. Another disadvantage of operating a pick-your-own business is the intrusion of people on family life and the fact that these potentially inexperienced people will be on the farm thus making liability insurance a necessity. Finally, whether the operation is open or closed will depend on the weather. What are non-direct produce marketing examples? Cooperatives

Although there is no universally accepted definition of a cooperative, in general it is a business that is owned and democratically controlled by its members based on use. Cooperatives typically have similar physical facilities, perform similar functions, and must follow sound business practices. They are also generally incorporated. The organizers of a cooperative draw up bylaws and other necessary legal papers. Members elect a board of directors, and the board sets policy and hires a manager to run the day-to-day operations. However, they differ from other businesses in the purpose of the cooperative, its ownership and control, and how benefits are distributed. These differences are discussed below.

The purpose of a cooperative is to provide producers services that would otherwise not be available. These benefits include getting quality supplies at the right time and having access to markets. By acting as a group rather than as individual producers, cooperative members can take advantage of economies of size and bargaining power. For instance because the members of a cooperative collectively sell their commodities, they may have more bargaining power to demand better prices. This same bargaining power is used when the cooperative purchases inputs as a group that is later purchased from the cooperative by its members.

To become a member of this type of business, a fee in the form of purchasing stock must be paid (Table 1). With this purchase, members own a portion of the cooperative (including its assets) and have the obligation to provide future financing based on how much they use the cooperative. This future financing comes from the cooperative retaining a portion of the earnings from marketing member products each year. Membership in a cooperative includes the right to control the activities of the cooperative. Members control the cooperative through voting at annual and other membership meetings and through those members elected to the board of directors. Members, in most cases, have one vote regardless of the amount of the cooperative they own or how much they use the organization. In other cases, producers who use the cooperative more receive one or more additional votes based on their usage. The initial capital investment requirements along with the yearly retainings of the cooperative are the biggest barriers cooperatives face with gaining new members. The financial obligation of the initial

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investment in becoming a member of a cooperative can financially strain new members thus making the purchase of stock unattractive.

In addition to retained earnings, cooperatives also generate income through providing supplies. These supplies are purchased by the cooperative at a discount due to the quantity of the purchase and purchased by members at market prices. This income along with the retained earnings are generally held by the organization until the end of the fiscal year. Any earnings that are greater than the costs will then be returned to its members on the basis of how much business was done with the cooperative during the year. These distributions are usually called patronage refunds. For example, it a cooperative has $30,000 of excessive earnings at the end of the year, and Farmer Smith does 5 percent of the business with the cooperative, he will receive a patronage refund of $1,500 ($30,000 x 0.05 = $1,500).

As with other marketing outlets, selling agricultural commodities through cooperatives have both advantages and disadvantages (Table 2). Specifically, growers can experience the benefits from marketing large volumes of products. This allows cooperatives to have greater bargaining power for prices versus individual producers. This bargaining power is often increased through the availability of a specialist who concentrates on selling the cooperative’s products. Combined selling can also help members meet buyer requirements for larger quantities that could otherwise not have been met. Selling larger quantities of products can also lower distribution costs. Likewise, this bargaining power is also present when the cooperative purchases inputs for its members. Because a larger volume of inputs will be purchased at one time by the collection of cooperative members, cheaper prices can traditionally be negotiated. While this lower price is not paid directly by the producers, it can be returned at the end of the year by shared earnings. Furthermore cooperatives have the ability to organize for effective political action. Political positions can be determined by the members and results can be made publicly known. With the position being supported by numerous producers, action is more likely to occur. Finally, members benefit from the democratic control of the cooperative. Members elect a board of directors which control the management of a cooperative.

While there are several benefits of becoming a member of a cooperative, there are also disadvantages. One disadvantage of selling agricultural commodities through a cooperative is that producers lose some independence. Premiums will not be paid to producers who produce high quality products nor will discounts be deducted for low quality products. Therefore, producers of lower quality products may be subsidized by higher quality producers. A cooperative’s reputation can also be hurt because producers do not have to sell through the cooperative. Producers may only use the cooperative when prices are high and then use other marketing channels when prices are low. This inconsistency in supplies can make buyers not trust the reputation of the cooperative. Finally if the cooperative’s policy is for one producer to have one vote, members who produce a high volume of the products sold by the organization have equal voting power as those who produce lower volumes.

Retail Outlets Retail outlets are another source for producers to market farm fresh products. These retail outlets include some restaurants, local independent grocery stores, and even hotels. Selling to these

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market outlets requires marketing skills on the part of the producer as well as the ability to deliver the merchandise directly to each location. To be cost effective, it will usually be necessary to sell farm fresh products to several locations as the farm’s total production will generally not be purchased by one individual retail outlet. Because most of the merchandise will be delivered soon after harvest, often times a farmer will have to have access to a delivery truck and may have to invest in containers (Table 1). Aside from this initial investment, the cost of transporting merchandise to retail outlets is generally the only other cost associated with this type of marketing. While the alternative of selling to retail outlets may appear to be cost effective on paper, the ability to establish contacts in this industry is crucial to being successful. Farmers attempting to sell to retail outlets will have to contact several potential clients prior to the growing season. Because each client will generally require frequent but low volume shipments, several buyers will be necessary to sell the majority of the harvest each season. Prior to reaching an agreement, the producer and retail outlet will have to negotiate a selling price, delivery times, identify packing, quality, and container and variety requirements. If an agreement is made, the producer should contact the retail outlet again prior to harvest in order to deliver samples and place orders. After the season is completed, growers should ask buyers what necessary changes should be made to improve the operation. This follow up allows buyers to influence the operation and makes them more likely to make future purchases.

All of the steps described above are essential to becoming a successful marketer to retail outlets. Often times the required quality and volume are barriers to many producers considering this marketing outlet. Other factors preventing some producers to marketing to retail outlets include the large amounts of time required to establish and maintain clients and the possibility of high transportation costs per unit of production.

While the amount of time involved with marketing increases, there are advantages to selling to retail outlets (Table 2). For instance, the grower will generally be paid for shipments of farm fresh products at the time of delivery. Furthermore, growers can negotiate a selling price. Because the negotiation is done without a middleman, producers may receive higher prices compared to other market outlets. Finally, the packing costs may decrease as special containers may not be required by the retail outlet.

The major disadvantage of selling to retail outlets is the quality that is demanded by this market. Because only the highest quality product will be bought by retail outlets, lower quality products might have to be sold to other market outlets. Furthermore, the producer will spend a lot of time developing and maintaining cliental. Finally because the producer will be responsible for transporting all sales to the retail outlet, transportation costs per unit may be high.

Brokers

Brokers assist agricultural producers in selling their agricultural commodities. These brokers are individuals or firms that do not take ownership or possession of the merchandise. They simply assist the producer in negotiating sales contracts with buyers. Some producers use brokers to market their whole crop while others use brokers to market only a portion of their crop. Brokers

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try to locate the best quality product at fair prices for both buyers and sellers and inform them of the terms, conditions, and special agreements of proposed contracts. Invoicing and collecting and remitting payments may also be handled by brokers, but they are generally not responsible for payment if buyers fail to honor a contract.

Because brokers provide a service to growers, there is generally no investment or liability in selling through these agents (Table 1). These agents serve as a professional sales person to the farm and may help reduce the personnel overhead of the farm. The producer is, however, still responsible for product delivery when selling through a broker. Finally, many producers cannot meet the high volumes generally required by the brokerage firms. When combined with the requirement for products that are similar quality and the brokerage fees, many producers cannot justify the use of a broker.

Produces who use brokers to market their commodities gain a professional salesman and have access to a large number of buyers that may not have been available otherwise (Table 2). These brokerage firms also will provide needed market price information that is current. The final advantage of selling through a broker is that producers are not responsible for selling their product. This can reduce personnel overhead for marketing. The major disadvantage of selling through a broker is the requirement for large volumes of similar quality products. Quality restrictions may also make it impossible for the farm to sell its entire production thus making other marketing outlets a necessity. The farm must also pay a brokerage fee for the marketing services provided. Finally, producers using brokerage firms to sell their commodities remain responsible for product delivery and quality.

What alternatives do I have for marketing my livestock?

Livestock Auctions

Livestock auctions are found throughout the U.S. These auctions allow several sellers and buyers to meet on a regular basis to buy and sell livestock. These markets can range in size from local auctions that buy and sell a limited number of livestock to larger regional auctions that handle a significantly larger number of head. Regardless of the size of the livestock auction, these markets are generally considered to provide competitive prices as sales are completed by bidding and the market is open to all sellers and buyers regardless of the number of head sold or purchased. Prior to selling livestock at an auction, several characteristics should be examined of the market and auction itself (Table 1). Specifically, there is virtually no investment or liability to selling livestock through an auction as the facility is providing a service to the industry. This service does however require a commission charge be placed on each sale to help pay for the overhead and operation of the auction. When deciding on an auction to use, producers should consider this commission charge along with the type, number, and quality of animals being sold and that are typically sold at the individual auctions. Selling similar breeds and quality to those generally found at specific auction can assist producers in getting better prices for their livestock. Other considerations should include: the time of year, day of sale, and transportation costs associated

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with selling at various auctions. The ability to sell any breed or quality of livestock at most auctions generally makes this market outlet free of barriers to entry. The greatest advantage associated with selling livestock at auctions is that it may be the closest market location that provides competitive bidding. As mentioned earlier, these auctions are open to all buyers and sellers. Furthermore, they are supervised by the federal government insuring that the auction is fair in both prices and quality. Finally, limited market knowledge is required for selling or buying at livestock auctions. Although auction markets do provide a safe and simple means of buying and selling livestock, this simple alternative also has disadvantages. The sellers of livestock at auctions have little control over the prices that are received. Furthermore, depending on conditions, stress and shrinkage can occur in livestock sold at auctions. This will result in cattle being sold that weigh less and are in poorer condition. Animal health is also an issue as disease can spread quickly at an auction. Auctions also provide disadvantages to those looking to purchase large volumes of livestock as limited numbers of livestock are sold at one time. The lack of documentation on the part of the auction that identifies specific producer’s livestock also makes it hard for a producer to establish a reputation for selling high-quality, well-performing livestock. Finally, on any day the number of buyers may be small which can reduce the competitiveness of bidding. Should I consider retaining as an alternative? Retaining ownership of livestock is a management alternative that, under the right conditions, can improve the profit potential for producers. However retaining ownership of livestock also provides additional risks that must be analyzed. In the case of cattle, retaining ownership can include one or more phases of beef production: cow-calf to stocker, stocker to feedlot, or cow-calf to feedlot. Retaining ownership of calves past weaning into the other phases allows the producer to increase control of the marketing process. Because the livestock will be owned for a longer period of time, additional facilities may be required (Table 1). For example, retain ownership of stocker cattle in a drylot for finishing will require pens, feed and water troughs, feed handlers, etc. Costs of these facilities can deter some producers from integrating into this phase of livestock production. However producers wishing to retain ownership of weaned calves through the stocker phase may not require any additional facilities. Greater liability may be associated with retaining ownership of livestock as there is a greater risk of accidents due to the increased length of time the livestock are owned. Other costs associated with retaining ownership of livestock include: additional feeding, transportation, and animal health costs. Specifically because the goal of retaining ownership of livestock into the next phase is cost effective weight gain, additional feeding costs will be incurred. Furthermore the livestock will be larger when they are eventually sold thus increasing transportation costs. Finally, health management will be of primary concern to those producers who attempt to retain ownership. This health management will include administering vaccinations to all livestock. Other characteristics of retaining ownership of livestock include: the number of head that is required, the price paid, and the quality demanded. Because buyers prefer to purchase larger lots of livestock, the number of head retained must be greater. Prices paid for heavier livestock are

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also generally lower per pound when compared to lighter livestock. Furthermore, the quality demanded by buyers will also be higher because the livestock will be closer to the consumer at each phase of livestock production. The increased costs associated with retaining ownership along with the number of head required are barriers that producers face when considering retaining ownership of livestock. Another barrier that is faced is delayed income. Because the livestock will be held through the next phase of production, income from the sale will not be realized until later. This will change the cash flow of the operation and can make retained ownership difficult for some producers. Advantages and disadvantages associated with retained ownership are discussed below. In terms of advantages, there is a greater profit potential and an increased number of marketing options associated with retained ownership. Specifically, producers can take advantage of livestock that perform well in terms of weight gain to increase the profitability of their operations. Also the number of marketing options increase as livestock are retained into the next phase of production. Data regarding the performance of the livestock can also be examined to determine any changes that might need to be made to increase demand. Genetic improvement programs of the operation can be realized by the producer instead of passing them along to the next phase of production. Finally, producers who retain ownership can take advantage of post-weaning growth where livestock typically gain weight well. Increased market risk and added costs are the primary disadvantages associated with retaining ownership of livestock into the next phase of production. Because ownership will be held for a longer period of time, market conditions can become worse before the livestock can be sold. Retaining ownership of livestock also requires that larger numbers be kept. This requirement makes retained ownership impossible for some producers as they do not have enough land or the capital needed. There are also increased managerial responsibilities associated with retaining ownership as another enterprise is being added to the operation. Finally, cash flow poses a problem for some producers who evaluate retained ownership as income will be delayed until the livestock are finally sold. What is a marketing alliance? There are growing demands for larger volumes of livestock to be sold at one time. If producers could meet these requirements, they could have greater bargaining power which could result in higher prices. Due to a lack of financial or physical resources or time, however, many livestock producers do not have the numbers available to sell to meet industry requirements. One way in which producers have attempted to meet these requirements without the financial strain is through joining a marketing alliance. These alliances can be created either by a group of producers or by an individual producer joining an existing alliance. Members of an alliance retain their individual and separate operations, but work together towards common objectives. Generally these objectives are for members to become more profitable through: sharing information, obtaining better prices for their livestock, and possibly reducing production expenses through the purchase of inputs as a group.

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Marketing alliances can be large formal organizations of many producers or an agreement between two people. Some alliances have strict guidelines concerning the production of the livestock. If these guidelines are not followed, members cannot market their livestock through the alliance. Others simply attempt to allow many small to medium sized producers to sell their livestock as one large lot in an attempt to gain better prices. Whatever the case, the alliance attempts to: evaluate the livestock market, produce quality animals that the market demands, and obtain the best selling price for its members. Joining or establishing a marketing alliance for livestock generally will require each member to contribute financially to the organization in the form of dues (Table 1). Along with these dues, members may also have to pay additional expenses such as hedging and marketing costs associated with selling livestock through the alliance. Because several producers join together in marketing their livestock through an alliance, there are generally larger volumes sold per sale, producers gain greater bargaining power, and may realize higher prices. To obtain higher prices, the alliance should be concerned that all members market the highest quality of uniform livestock possible. The alliance may attempt to insure the uniform quality of marketed livestock through strict guidelines requiring standard genetics and health maintenance. Furthermore, the liability associated with marketing through an alliance is generally very low or non-existent. Finally producers wishing to join a marketing alliance face two major barriers to entry. The first barrier is availability. If no marketing alliance is available in the local area and producers wish to establish one, guidelines for membership, dues, etc. must be created. The second barrier is the alliance regulations. Some alliances have detailed regulations that require specific breeds that have to be raised with the same production practices, health programs, etc., to be sold through the organization. If a producer wishing to market livestock through the alliance does not have the required breed, either the producer cannot participate or must liquidate the current herd and purchase new livestock. There are several advantages associated with joining or creating a marketing alliance (Table 2). First by joining a marketing alliance, producers may be able to reduce their price risk. Many livestock producers cannot take advantage of the futures and/or options market to hedge price risk because they do not produce enough livestock to meet standard contract specifications. Because the total number of head of livestock sold through a marketing alliance will be larger, contract specifications may be able to be met thus allowing the alliance to utilize the futures and/or options market to reduce price risk. Another advantage of joining a marketing alliance comes in the form of reduced transportation costs. Because livestock sold through the alliance will be transported in truck load size lots, buyers will have to make fewer stops. This reduction in transportation costs can be passed along to the alliance in the form of higher prices. Another advantage is found from the improved market power. A single producer with 500 head of livestock or a group of producers that have worked together to develop 500 head with similar production practices can attract a large number of buyers. This can increase the potential of receiving a higher price. This market power is also enhanced because buyers are generally willing to pay higher prices if they can make fewer transactions to meet their needs. For example, a buyer may be required to purchase 1,000 head of livestock in a week. Every purchase made by these buyers has an associated commission, trucking charge, and some health costs. If a large number of livestock can be purchased in one transaction, these costs can be reduced. There is also an advantage to joining a marketing alliance because better information

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may be provided to the members. Because larger numbers of head of livestock will be marketed through an alliance, buyers are usually more willing to suggest production practices, supply carcass information, and other demand related information that will assist the alliance in producing livestock that will bring higher prices. Major disadvantages associated with joining a marketing alliance come from the regulations of the alliance itself (Table 2). Specifically, most alliances regulate the production practices, minimum number of livestock that must be sold to participate in the alliance, and the genetic composition or biological type of the livestock. For instance, an alliance may require that all livestock sold through the organization: be of the same breed, offspring must come from the same sire (or offspring of that sire) and be born during specific times of the year; have certain vaccinations given in certain locations on the animal; and be fed certain rations. Each participant may also have to furnish a given quantity of livestock in a given time period to participate in the alliance. Some alliances also provide individual producers premiums for better quality and discounts for poorer quality livestock. Producers evaluating whether or not to participate in an alliance should evaluate how the base price is established and the level of premiums and discounts. Knowledge of the producer’s own herd performance is essential because discounts from the sale of just a few head of livestock can offset any premiums received.

What about video markets?

Video marketing of livestock has gained in popularity over the last twenty years. With video auctions, a representative travels to the producer’s ranch or farm approximately two weeks before the video auction takes place and videotapes the livestock. A flat taping fee is generally charged to the producer per head for recording the livestock. This fee is usually included in the sales commission unless the seller rejects the bid, in which case the seller forfeits the taping fee. The producer will also decide at this initial meeting when the actual delivery will take place. During the actual auction, videotapes last approximately two minutes and are shown while an auctioneer solicits bids. Once the cattle have been sold, buyers are generally responsible for paying the transportation costs from the producer’s ranch to their final destination. Because video auctions provide a service to the livestock industry, producers usually must register if they wish to sell through the auction. Most auctions do not charge for registration, therefore the initial investment in selling through this market outlet is virtually none (Table 1). The producer will, however, incur certain expenses when selling through video markets. As mentioned above, the video auction will usually charge a flat rate for videoing the livestock. Secondly, video auctions have a commission charge that must be paid by the seller. Finally, most video auctions will require specific health management practices to be followed for any cattle being sold. If these health regulations differ from the normal practices of the producer’s operation, additional expenses will be incurred. Another characteristic of video auctions is that the seller will be liable for livestock weight differences between the time when weight estimates were made (usually when the video is taken) and the actual delivery of the livestock. If the livestock do not weigh as much as anticipated, the selling price will be adjusted to reflect the actual weight of the cattle.

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Video auctions also generally require that larger volumes of livestock be sold by each producer. These larger volumes generally produce higher selling prices because the transportation expenses paid by buyers will be lower than smaller volumes. Furthermore, livestock uniformity and the best quality of livestock are promoted by video auctions. While uniform, high quality livestock usually bring higher prices, they also present barriers to some producers from using video auctions. When combined with the number of head required to use this market outlet along with the higher commission charges and animal health requirements, video auctions are not a viable alternative for some producers. Because video auctions can be accessed by buyers and sellers from across the country and even internationally, producers selling through video auctions find that there are a large number of potential buyers for their livestock (Table 2). Video auctions also offer the advantage of potentially lower transportation costs which can be passed along to sellers in the form of higher prices. Delivery schedules are also very flexible as livestock can be delivered several months after the actual sale has taken place. There is also lower stress to the livestock compared to other marketing outlets since the video taping will be done on the farm or ranch. Finally, video markets also can provide a valuable service to producers located long distances from other marketing outlets. While there are advantages to selling livestock through video auctions, there are also disadvantages (Table 2). For instance, video auctions generally require sellers to have on-farm truckloads (and preferably more) of uniform cattle. This size and quality restriction can make video auctions prohibitive to some producers. Likewise, costs associated with taping, commission, and discounts for weight differences can make the cost of marketing livestock through video auctions higher than other marketing outlets. Also the requirement for detailed animal health programs and documentation present a disadvantage to using video auctions. Finally, video auctions may not be held very often thus preventing producers from taking advantage of sudden increases in prices. Conclusion There are many marketing alternatives available to crop and livestock producers. The key to successfully marketing agricultural products is knowing and evaluating each marketing alternative. This evaluation should not be done only once. Producers should continuously research the changing market environment and select the marketing outlet which provides the greatest returns for their product.

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Table 1. Characteristics of different marketing outlets. Characteristic Farmer’s Market Roadside Stand

Investment • Very little capital investment. • Rent parking or building space. • Containers, scales, bags, etc.

• Need building or stand, parking, containers, signs, scales, coolers, etc.

Grower Liability

• Need liability insurance unless covered by market

• Liable for accidents; need liability insurance

Other Costs

• Sales labor. • Stall or sales fees. • Display costs. • Transportation, storage, packaging,

& handling costs. • Special licenses to sell refrigerated

products.

• Sales labor. • Advertising & promotional costs. • Some storage, packaging, &

handling costs. • May need to purchase additional

produce.

Sales/Price

• Smaller sales per customer. • Direct competition from other

growers. • No middleman.

• Fairly large sales per customer. • Limited ability to sell large

volumes. • No transportation, sales or

brokerage costs. • No middleman.

Quality

• Highest quality needed. • Can classify & sell more than one grade.

• Can sell seconds. • Spoilage

Barriers to Entry

• Municipal restrictions • Conflicting goals of organizers. • Marketing management. • Time.

• Limited demand. • Location. • Road access. • Marketing management. • Zoning. • Time

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Table 1 (continued). Characteristics of different marketing outlets. Characteristic Pick-Your-Own Cooperatives

Investment • Need containers, ladders,

location signs, parking, building or stand.

• Purchase of stock or a membership

Grower Liability

• Liable for accidents. • High liability insurance.

• Virtually none.

Other Costs

• Need labor for field supervisors and check-out stand.

• Field site transportation. • Advertising and promotion costs.

• The cooperative retains a portion of the earnings from marketing member products allocated to each member each year.

Sales/Price

• Large sales per customer. • No transportation costs. • No sales or brokerage fees.

• Benefit of usually having a sales specialist.

• Increased bargaining strength. • Potentially higher price from

large sales volumes.

Quality

• No grading. • Can sell whatever customers

pick. • Freshness.

• All qualities are generally accepted.

Barriers to Entry

• Limited demand. • Limited crops. • Short season. • Location. • Time.

• Initial capital investment requirements can financially strain new members.

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Table 1 (continued). Characteristics of different marketing outlets. Characteristic Retail Outlets Brokers

Investment • Truck • Containers.

• Virtually none.

Grower Liability

• Virtually none. • Virtually none.

Other Costs • Transportation of products to retail outlet.

• Brokerage fees.

Sales/Price

• Can negotiate sales price. • Frequent low volume sales per

customer. • No middleman. • Must develop client contacts. • Producer is responsible for

product delivery.

• Benefit from a professional sales person.

• Reduction in personal overhead for selling.

• Producer remains responsible for product delivery.

Quality • Superior quality is demanded. • Homogeneous products demanded in large volumes.

Barriers to Entry

• Required quality. • Required volume. • Time developing clients. • Possibility of high transportation

costs per unit.

• Required quality. • Required volumes. • Brokerage costs.

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Table 1 (continued). Characteristics of different marketing outlets. Characteristic Livestock Auctions Retained Ownership

Investment • Virtually none. • Facilities.

Grower Liability

• Virtually none. • Increased liability due to cattle being held longer.

Other Costs • Commission. • Transportation costs.

• Feed. • Transportation costs. • Vaccinations.

Sales/Price

• Any number can be sold • Any breed can be sold. • Competitive prices.

• Usually larger numbers are required to be sold.

• Prices received will generally be lower due to the roll-back in prices.

Quality • Any quality can be sold. • Highest quality required.

Barriers to Entry

• Virtually none. • Capital • Number of head. • Delayed income.

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Table 1 (continued). Characteristics of different marketing outlets. Characteristic Marketing Alliance Video Markets

Investment • Dues (possibly) • Virtually none. Grower Liability

• Virtually none. • Weight differences.

Other Costs

• Hedging costs. • Marketing costs. • Health and maintenance

requirements.

• Commission. • Cost of required health and

maintenance.

Sales/Price

• Larger volumes per sale. • Generally greater bargaining

power. • Generally higher prices.

• Larger volume per sale. • Generally higher prices.

Quality • Best quality possible. • Uniformity.

• Best quality possible. • Livestock uniformity may be

required.

Barriers to Entry

• Available alliances in local area. • Alliance regulations.

• Uniformity • Number of head required. • Local availability. • Higher commission charges. • Animal health requirements.

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Table 2. Special advantages and disadvantages of various marketing outlets. Farmer’s Market Roadside Stand

• No middleman • No middleman • No-one on your farm • Fairly large sales per customer • Other vendors supply product

mix • Can sell various qualities

• Networking opportunity • Networking opportunity • Low overhead • Usually limited packaging • Exemption (at most markets)

from standard size and packing regulations

• Can provide additional income

• Parking space, restrooms and other facility costs

• Can buy from other producers to supply product mix

• Little or no insurance, advertising and other marketing costs

• Usually limited transportation

• Built-in clientele • Personal promotion • Personal promotion • Customer feedback • Customer feedback • Can provide year round

employment • Low advertising & promotion

costs • Cash payment

Advantages

• Marketing ability • Location is critical • Packaging and presentation are

important • Substantial capital

requirements and liability • Transportation • Appearance, upkeep of the

stand • Limited volume • Advertising • Greater time involved • Product mix • Space & product limitations • Parking and traffic • Market rules & fees • Staffing - long business hours • Small volume per sale

compared to wholesale • Marketing and sales ability and

experience required • Operation hours • Limited demand

Disadvantages

• Poorly located markets • Affected by weather

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Table 2 (continued). Special advantages and disadvantages of various marketing outlets. Pick-Your-Own Cooperatives

• No middleman • Growers gain benefits of large sale volumes.

• Fairly large sales per customer • Often a sales specialist is available.

• Low transportation costs • Growers gain benefits of increased bargaining strength.

• Networking opportunity • Producers may reduce level of market risk.

• No harvest costs • Members democratically control the cooperative.

• Good for crops requiring intensive labor for harvesting

• Access to quality supplies and services at reasonable cost.

• Can sell various qualities • Share in the earnings. • Low packaging expenses • Political action.

Advantages

• Product mix is not critical • Location is critical • Producers lose some

independence by selling through a cooperative

• Liability • More experienced, better producers might subsidize inexperienced producers, and, therefore, not reach their profit potentials.

• Intrusion on family life • Members may only sell through the cooperative when prices are high and then use other marketing channels when prices are low, which hurts cooperatives' reputations.

• Parking and staffing • Large producers have the same voting power as small producers.

• Inexperienced people on your farm

• Affected by weather

Disadvantages

• Limited growth potential

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Table 2 (continued). Special advantages and disadvantages of various marketing outlets. Retail Outlets Brokers

• Growers may be paid at the time of delivery.

• Growers obtain the services of a professional produce salesman and have access to a large number of buyers.

• Growers can negotiate price levels. • Brokers provide needed price information.

• Packing costs may decrease and special containers may not be necessary.

• Producers are not responsible for the selling function, which reduces personnel overhead for selling.

Advantages

• Producers replace middlemen in the marketing process.

• Superior quality produce may be demanded.

• Products must be homogeneous and able to be graded, but grades may not represent sellers quality.

• Producers need time and extra planning to develop client contracts and deliver produce.

• Producer's volume may be inadequate and cost of brokerage sales is high if large volumes are handled.

Disadvantages

• There is the possibility of high transportation costs per unit volume.

• Producers remain responsible for product delivery and quality.

• All production may not be sold due to quality requirements.

• All production may not be sold due to quality requirements.

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Table 2 (continued). Special advantages and disadvantages of various marketing outlets. Livestock Auctions Retained Ownership

• The auction market can provide competitive bidding.

• Greater profit potential.

• It is convenient. • Increased number of marketing options.

• It is open to all sellers and buyers.

• Obtain performance data.

• There is prompt cash payment. • Takes advantage of genetic improvement programs.

• All types of livestock can be marketed.

• Benefit gained from post-weaning growth phase.

• It provides a place where cattle prices are determined and known to all.

• It is supervised by the federal government.

• It requires absolutely no market knowledge by the producer.

Advantages

• It requires no minimum number of cattle.

• The seller has little control of prices.

• Larger numbers are required.

• Excessive stress and shrinkage of livestock may occur.

• More capital required.

• There is a lack of volume and uniformity of animals at many markets.

• Delayed income.

• No permanent system exists for identifying livestock and producers after sale.

• Increased market price risk exposure.

• Producers find it hard to establish a reputation for selling high-quality, well-performing livestock.

• Increased managerial responsibilities.

• The grade and price information is hard to interpret.

• Prices are uncertain. • Disease spread is more likely.

Disadvantages

• The number of buyers may be small, reducing competitiveness of bidding.

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Table 2 (continued). Special advantages and disadvantages of various marketing outlets. Marketing Alliances Video Markets

• Reduced price risk. • Large number of potential buyers.

• Reduced transportation costs. • Potential for reduced buyer cost passed along to seller.

• Improved market power. • Direct buyer-to-seller transportation.

• Fewer transactions. • Delivery schedules are very flexible.

• Better information. • Lower stress to livestock compared to other marketing outlets.

• Service to producers long distances from other marketing outlets.

Advantages

• Lower transportation costs. • Production regulations. • Requires producer to have on-

farm truckload (and preferably more) of uniform cattle.

• Minimum number of livestock in the program to participate

• Marketing cost can be higher than other marketing outlets.

• Specifications on the genetic composition or biological type of the livestock.

• Discounts may be incurred for less than a full truckload.

• Alliance base price is establishment and premiums and discounts paid.

• Low frequency of auctions.

Disadvantages

• Animal health requirements.

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Lesson Plan

I. Goals

A. The participant will have knowledge of the various marketing alternatives available for agricultural producers.

B. The participant will be able to develop a marketing plan for their

operation.

II. Lesson Highlights

A. Direct produce crop marketing 1. Farmers’ Markets.

a. Farmers and consumers gather together in a central location to buy and sell farm fresh products.

b. Characteristics are found in Table 1. d. Advantages and disadvantages are found in Table 2.

2. Roadside Stands. a. Owner of the stand sells products to consumers from the

side of the road. b. Characteristics are found in Table 1. c. Advantages and disadvantages are found in Table 2.

3. Pick-Your-Own a. Consumers visit the producer’s farm. They harvest and

purchase farm fresh products. b. Characteristics are found in Table 1. c. Advantages and disadvantages are found in Table 2.

B. Non-direct produce crop marketing.

1. Cooperatives. a. Business that is owned and democratically controlled by

its members based on use. b. Members market their agricultural commodities and

purchase inputs as a group.

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c. Characteristics are found in Table 1. d. Advantages and disadvantages are found in Table 2.

2. Retail outlet. a. Include selling to some restaurants, local independent

grocery stores, and even hotels. b. Selling to these market outlets requires marketing skills

on the part of the producer as well as the ability to deliver the merchandise directly to each location.


3. Brokers a. Assist agricultural producers in selling their agricultural

commodities. b. Individuals or firms that do not take ownership or

possession of the merchandise. They simply assist the producer in negotiating sales contracts with buyers.


C. Livestock Marketing.

1. Livestock auctions. a. Allow several sellers and buyers to meet on a regular

basis to buy and sell livestock. b. Can range in size from local auctions that buy and sell a

limited number of livestock to larger regional auctions that handle a significantly larger number of head.

c. Generally considered to provide competitive prices as sales are completed by bidding and the market is open to all sellers and buyers regardless of the number of head sold or purchased.

d. Characteristics are found in Table 1. e. Advantages and disadvantages are found in Table 2.

2. Retained ownership

a. Keeping ownership of livestock into the next phase of production.

b. Allows the producer to increase control of the marketing process.

c. Characteristics are found in Table 1.

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d. Advantages and disadvantages are found in Table 2. 3. Marketing Alliance.

a. Agreement between two producers or formal organization with many producers who attempt to market their livestock as a group in an attempt to get higher prices.

b. Members of an alliance retain their individual and separate operations, but work together towards common objectives.


4. Video Markets. a. Livestock are filmed by a video auction and later sold by

video to customers. b. Characteristics are found in Table 1. c. Advantages and disadvantages are found in Table 2.

C. Developing a marketing plan.

1. Analyze all potential market outlets for your products. 2. Evaluate the costs associated with each market outlet.

3. Estimate income that could be generated by using each market outlet.

4. Identify the market outlet that will provide the greatest net return.

D. Who can help develop the marketing plan?

1. The producer. 2. Immediate family members.

3. Other close contacts that might have knowledge of the farming operation or agricultural industry.

E. What are the benefits of developing a marketing plan? 1. A well thought-out marketing plan should evaluate all potential

marketing outlets and assist in determining which is best for the individual operation at that point in time.

2. A marketing plan helps the producer identify and consider various alternative markets that may be available for commodities.

III. Potential Speakers

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A. Extension Agents B. Extension Specialists

IV. Review Questions

A. TRUE OR FALSE. Direct produce/crop marketing outlets include farmers’ markets, roadside stands, and pick-your-own operations?

Answer: TRUE

B. TRUE OR FALSE. Cattle sold in larger truckload lots generally bring

lower prices per pound than cattle sold individually?

Answer: FALSE. Cattle sold in truckload lots generally bring higher prices than cattle sold individually.

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Overheads

Direct produce crop marketing 1. Farmers’ Markets.

a. Farmers and consumers gather in a central location to buy and sell farm fresh products.

b. Characteristics are found in Table 1. c. Advantages and disadvantages are found in Table

2. 2. Roadside Stands.

a. Owner of the stand sells products to consumers from the side of the road.


2. 3. Pick-Your-Own

a. Consumers visit the producer’s farm. They harvest and purchase farm fresh products.


2.

Non-direct produce crop marketing. 1. Cooperatives.

a. Business that is owned and democratically controlled by its members based on use.

b. Members market their agricultural commodities and purchase inputs as a group.

c. Characteristics are found in Table 1. d. Advantages and disadvantages are found in Table

2.

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2. Retail outlet. a. Include selling to some restaurants, local

independent grocery stores, and even hotels. b. Selling to these market outlets requires marketing

skills on the part of the producer as well as the ability to deliver the merchandise directly to each location.


3. Brokers a. Assist agricultural producers in selling their

agricultural commodities. b. Individuals or firms that do not take ownership or

possession of the merchandise. They simply assist the producer in negotiating sales contracts with buyers.

c. Characteristics are found in Table 1. d. Advantages and disadvantages are found in Table

2.

Livestock Marketing. 1. Livestock auctions.

a. Allow several sellers and buyers to meet on a regular basis to buy and sell livestock.

b. Can range in size from local auctions that buy and sell a limited number of livestock to larger regional auctions that handle a significantly larger number of head.

c. Generally considered to provide competitive prices as sales are completed by bidding and the market is open to all sellers and buyers regardless of the number of head sold or purchased.

d. Characteristics are found in Table 1.

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e. Advantages and disadvantages are found in Table 2. 2. Retained ownership

a. Keeping ownership of livestock into the next phase of production.

b. Allows the producer to increase control of the marketing process.


3. Marketing Alliance. a. Agreement between two producers or formal

organization with many producers who attempt to market their livestock as a group in an attempt to get higher prices.

b. Members of an alliance retain their individual and separate operations, but work together towards common objectives.


4. Video Markets. a. Livestock are filmed by a video auction and later

sold by video to customers. b. Characteristics are found in Table 1. c. Advantages and disadvantages are found in Table 2.

Developing a marketing plan.

1. Analyze all potential market outlets for your products.

2. Evaluate the costs associated with each market outlet.

3. Estimate income that could be generated by using each market outlet.

4. Identify the market outlet that will provide the greatest net return.

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Who can help develop the marketing plan? 1. The producer. 2. Immediate family members. 3. Other close contacts that might have knowledge of

the farming operation or agricultural industry.

What are the benefits of developing a marketing plan? 1. A well thought-out marketing plan should evaluate all

potential marketing outlets and assist in determining which is best for the individual operation at that point in time.

2. A marketing plan helps the producer identify and consider various alternative markets that may be available for commodities.

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Case Study Application

Below is an example of a market evaluation for the case farm owned by John Doe Sr., that produces both row crops and cattle. Crops produced on the farm include sweet corn, onions, tomatoes, and cantaloupe. Also, the farm produces cattle from its cow/calf herd. To develop a better picture of the current marketing environment and possible alternative markets for the farm, the following market evaluation was developed. Current Marketing Environment of the Farm The case farm produces and markets approximately 4,000 pounds of sweet corn, 300 bags of onions, 30 cwt of tomatoes, and 200 cwt of cantaloupes each year. In the past, the farm has marketed about 2,400 pounds of the sweet corn to James Smith who then resells the corn at the Dallas Farmers’ Market in Dallas, Texas (Table 1). Mr. Smith paid John $0.305 per pound for the corn (or about $733 for the total purchase). The remainder of the sweet corn production (about 1,600 pounds) along with the total cantaloupe, onion, and tomato production has been marketed through a roadside stand which is owned by John Doe Sr.’s brother. Last year, revenue from the sale of farm raised products at the roadside stand totaled $13,000. Of this total amount: sweet corn accounted for $600 in sales with a selling price of $0.375 per pound; cantaloupe sales totaled $3,400 with a selling price of $17 per cwt; total onion revenues equaled $7,500 with an average selling price of $25 per bag; and tomato sales totaled $1,500 with an average selling price of $50 per cwt. The roadside stand that Mr. Doe’s brother owns and operates is a semi-permanent structure located at the intersection of two Farm to Market roads which is traveled by a large number of people traveling to and from work. Products sold at the roadside stand include tomatoes and sweet corn raised by both Mr. Doe and his brother as well as the cantaloupe and onions raised by Mr. Doe. Their product mix appears to be adequate as demand has been high and the stand has many return customers. The stand’s operation hours are from 7:00 a.m. through 7:00 p.m. during harvest (May through September). As stated earlier Mr. Doe’s brother owns the stand. However his wife typically handles the day to day operation of the business, and she receives a small commission from each sale. While the demand from customers at the roadside stand is high, typically all the sweet corn is not sold. Therefore, an alternative market was needed for the remainder of Mr. Doe’s corn. Three years ago, Mr. Doe began selling about 2,400 pounds of sweet corn to James Smith (Table 1). Mr. Smith travels to Mr. Doe’s farm prior to harvest, inspects the crop and negotiates a selling price (last year a selling price of $0.305 was negotiated). After harvest, Mr. Smith again travels to Mr. Doe’s farm and transports the sweet corn to the Dallas Farmers’ Market for resale. This

L11.32

arrangement has worked well for Mr. Doe in the past because it has assured him of a fairly reliable market and fair prices. Due to the limited number of head of cattle that are raised on Mr. Doe’s farm, calf sales have been completed in the past at the local sale barn. Information concerning the sales of cattle at the local sale barn are presented in Table 1. Last year, Mr. Doe sold 13 calves having an average sale weight of 450 pounds. The price received for these cattle averaged $74.46 per cwt which produced a total income from cattle sales of $4,356. Alternative Markets Under Consideration Mr. Doe has been examining the potential of entering into other markets in the hopes of obtaining better prices. Due to the excess supply that he and his brother have been experiencing with sweet corn at the roadside stand, Mr. Doe and his brother have been considering opening a pick-your-own operation on Mr. Doe’s farm. To determine the demand for such an operation, they have been surveying customers of the roadside stand to see if they would purchase sweet corn, cantaloupe, onions, and tomatoes from a pick-your-own operation. Results of the survey indicated that: 70 percent of the buyers would purchase sweet corn; 80 percent would purchase tomatoes; and 75 percent would purchase cantaloupe. While these results were encouraging, only 25 percent of the buyers said they would purchase onions from a pick-your-own operation. The buyers were also asked about their average purchases from the stand during the marketing year. Results of the survey indicated that 80 percent of the sweet corn sales from the stand were to those saying that they would purchase corn from a pick-your-own. Likewise, 90 percent of the total tomato sales were to those saying they would also use a pick-your-own operation to purchase tomatoes. Finally, 85 percent of the total cantaloupe sales were to those saying that they would purchase pick-your-own cantaloupes. Questions concerning how often they thought they would use a pick-your-own operation and whether they would pay a premium for such produce were also asked. Forty percent of those saying that they would buy from a pick-your-own operation said that they would use such an operation at least twice a month. Thirty percent said they would purchase produce from a pick-your-own at least once a month. Twenty percent of the respondents said they would use a pick-your-own at least once every other month. Finally, ten percent said they would purchase produce from a pick-your-own operation at least once a year. In terms of price eighty percent of the respondents said they would pay a premium for pick-your-own produce, and twenty percent said they would only pay the same prices as what is offered at the roadside stand. Based on the results of the survey, Mr. Doe and his brother believe that a pick-your-own operation has adequate demand in the local area and should provide higher prices. Furthermore, all produce should still be able to be sold through the use of the roadside stand and the pick-your-own operation. Specifically, Mr. Doe and his brother estimated that the 3,000 pounds of sweet corn could be sold at the pick-your-own operation while the roadside stand would market the remaining 1,000 pounds produced by Mr. Doe (Table 2). The estimated selling price of this corn would be $0.40 per pound at the pick-your-own operation while the roadside stand would continue to sell corn for $0.375 per pound. These sales would produce an estimated gross

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revenue for Mr. Doe of $1,200 per year in revenue for the pick-your-own operation and an estimated $375 per year from the roadside stand sales. Furthermore, it was estimated that 50 cwt’s of the cantaloupe would be purchased at the pick-your-own operation while the remaining 150 cwt would be sold at the roadside stand. The price that would be charged for cantaloupe at the pick-your-own operation would be $20 per cwt and would provide $1,000 of gross revenue to Mr. Doe. Cantaloupe prices at the roadside stand would remain at $17 per cwt and would generate $2,550 of revenue for Mr. Doe. Tomato sales at the pick-your-own operation would total an estimated 10 cwt and would be sold for a price of $60 per cwt. The remaining 20 cwt of tomatoes would be marketed through the roadside stand with prices remaining at $50 per cwt. Finally, due to the fact that a low number of respondents indicated that they would be interested in purchasing onions from a pick-your-own operation, Mr. Doe and his brother have decided to only offer this product at the roadside stand. To establish a pick-your-own operation on Mr. Doe’s farm, Mr. Doe and his brother decided that they could use the area outside the existing barn on the property as parking. Advertising would be done at the roadside stand as well as in local newspapers. A large sign would also have to be constructed on the property near Farm to Market road 360. Containers for buyers to use while picking the corn, cantaloupe, and tomatoes would also have to be purchased along with bags for the buyers to take produce home. Liability insurance would also have to be purchased to protect the operation from any accidents. Finally, Mr. Doe’s son along with Mr. Doe’s two nephews would manage the operation’s selling and field supervising. They would be paid a small commission from each sale. Due to the fact that the individuals running the operation would be in school during the week, Mr. Doe and his brother decided that the pick-your-own operation would be open only on the weekends. As mentioned earlier, Mr. Doe has typically sold his cattle through the local sale barn. While the prices received for his cattle have been higher than the average price paid for cattle, Mr. Doe believes that he could get a better price if sold through another market outlet. After reviewing several marketing options, Mr. Doe and his brother have decided to form a marketing alliance with two other cattle producers in the local area. These four operations all raise the same breed of cattle and pride themselves on the performance of their cattle. They have estimated that if they make slight adjustments to their calving season, they can produce approximately 70 head of calves that could be marketed at the same time in a truckload lot. Several meetings between these four operations have concluded with the following requirements that must be met in order to market cattle through the alliance. First, the same vaccinations will be given to the calves at the same time and in the same location on the animal. Secondly, each member will attend a beef quality assurance program. The group also decided that they would use one bull or an offspring of that bull as their sire. Calves would be sold during the first two weeks of February since cattle prices were found to typically be higher during this time period. Finally the group will use video markets to market their cattle. Members would pay for the video service and sales commissions based on the number of head they sold in the lot. From the discussion and research concerning the use of video markets, the group estimated that the average selling price that they would be able to receive for their cattle when marketed through the alliance would be $79.00 per cwt (Table 2). Using this estimated price, Mr. Doe

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determined that if he continues to sell thirteen head of cattle per year that average 450 pounds per calf, he could expect to generate $4,621.50 in cattle gross revenues. Comparing the total revenues that were generated from the sale of agricultural commodities from Mr. Doe’s farm last year and the total revenues that are estimated for the farm using the alternative markets, Mr. Doe determined that his gross revenue could increase by $757.50 (a four percent increase) if these alternatives were implemented (Table 3). Specifically, Mr. Doe estimates that revenues could increase by $242 by selling a majority of his sweet corn through a pick-your-own operation versus to Mr. Smith who transports the corn to Dallas and sells it at the Dallas Farmers’ Market. Likewise cantaloupe sales were estimated to increase by $150 if a portion of the cantaloupe is marketed through a pick-your-own operation with the remainder being sold at the roadside stand. Onion revenues were estimated to not change as all production would still be sold at the roadside stand. Revenue from the sale of tomatoes was projected to increase by $100 if the roadside stand and pick-your-own operation was used together. Finally, cattle revenues were expected to increase by $265.50 if cattle were sold through a marketing alliance versus at the local auction.

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Table 1. Current marketing environment of the hypothetical farm. Commodity Sweet Corn Cantaloupe Onions Tomatoes Cattle

Current Market

James Smith (Dallas Farmers Market)

Roadside Stand Roadside

Stand Roadside Stand Roadside

Stand Local Auction Barn

Average Sales/year 2,400 pounds 1,600 pounds 200 cwt 300 bag 30 cwt 13 head (450 lbs avg)

Market Price $0.305/lb

$0.375/lb

$17/cwt

$25/bag $50/cwt $74.46/cwtTotal Value $733 $600 $3,400 $7,500 $1,500 $4,356

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Table 2. Marketing alternatives under consideration by the hypothetical farm. Markets Pick-Your-Own Roadside Stand Cattle Marketing

Alliance Estimated Total Sales Sweet Corn 3,000 pounds 1,000 pounds Cantaloupe 50 cwt. 150 cwt. Onions 300 bags Tomatoes 10 cwt 20 cwt Cattle 13 head

(450 lbs avg) Estimated Price Sweet Corn $0.40/lb $0.375/lb Cantaloupe $20/cwt $17/cwt Onions $25/bag Tomatoes $60/cwt $50/cwt Cattle $79.00/cwt Estimated Total Value Sweet Corn $1,200 $375 Cantaloupe $1,000 $2,550 Onions $7,500 Tomatoes $600 $1,000 Cattle $4,621.50

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Table 3. Comparing the gross revenues of the current marketing environment and the marketing alternatives under consideration of the hypothetical farm.

Commodity Current Market (In Dollars)

Alternative Market (In Dollars)

Corn Farmers Market 733.00 Roadside Stand 600.00 375.00 Pick-Your-Own 1,200.00 Cantaloupe Roadside Stand 3,400.00 2,550.00 Pick-Your-Own 1,000.00 Onions Roadside Stand 7,500.00 7,500.00 Tomatoes Roadside Stand 1,500.00 1,000.00 Pick-Your-Own 600.00 Cattle Auction 4,356.00 Marketing Alliance 4,621.50 Total Revenue 18,089.00 18,846.50

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evaluating marketing alternatives for agricultural products

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