Question

According to the text, “harvesting” is a strategy which:

1. Reduces marketing costs even as a product is still being sold
2. Refers to the agriculture industry
3. Is normally an unprofitable strategy
4. Two of the above

Answer 1

In many countries, and virtually every less developed country (LDC), agriculture is the biggest single industry. Agriculture typically employs over fifty percent of the labour force in LDCs with industry and commerce dependent upon it as a source of raw materials and as a market for manufactured goods.

The marketing concept must be adopted throughout not only the entire organisation, but the entire marketing system. A system is a complex of interrelated component parts or sub-systems which have a defined common goal. Thus, an agricultural and food marketing system comprises all of the functions, and agencies who perform those activities, that are necessary in order to profitably exploit opportunities in the marketplace. Each of the components, or sub-systems, are independent of one another but a change in any one of them impacts on the others as well as upon the system as a whole.

There is a danger that the marketing concept will be adopted by some parts of the system but not others. Thus, for example, a food manufacturer may be trying hard to implement the marketing concept and offer products that meet the precise needs of a target market. If, however, the manufacturer has to rely upon a farming community that is still very much production oriented, for raw material supplies, then the overall marketing objectives may be frustrated. In the same way, if only some functions are performed according to the marketing concept then the system as a whole may not achieve a market orientation. For instance, the marketing department may set out to serve the market for a high quality fruits and vegetables, for which it can obtain premium prices, but if transportation is performed using the same open-topped bulk carrying wagons used to ship grain and other aggregates then it is unlikely that the enterprise will deliver the product in the right condition for the target market.

Marketing is sometimes narrowly defined as the changing of owner- ship of goods. This is merchandising and is only one step, the final step, in marketing. Marketing is a far more complex thing than that. Marketing begins with the production of a marketable product and continues till the product is in the consumer's home. Marketing con- sists of five separate but related steps: namely (1) production, (2) storage, (3) transportation, (4) credit, (5) merchandising. A "so- lution of the marketing problem," is, therefore, a solution of five sepa- rate problems. They are bound up together, and all must be con- sidered if more efficiency is to be introduced into our middleman system.

II. The Solution

A problem once clearly stated is half solved. If, therefore, we have stated the marketing problem correctly, its solution has been sug- gested. The five steps in the marketing problem are now considered in turn.

1. Production.-Recent market reports dealing with the fall in the price of cotton spoke of market gluts of low-grade cotton which caused stagnation in domestic and foreign markets; the hope was expressed that the poor-grade stuff could be worked off in Europe. The hay market in the ten leading markets of the country tells the same story- market gluts of low-grade hay, and a scarcity of No. 1 hay. The first problem for the farmer therefore, is, not how to increase the crop yields, but how to produce more of the better grades, less of the poorer grades. "Limitation of output" is a two-edged sword, now being played with by cotton farmers and wheat farmers. The labor unions have already used and abused this weapon and caused public odium to at- tach to the term. The farmer ought to limit the output in the sense that he keep the poorer stuff at home and put the better stuff on the market. He would realize more for his crop by this legitimate form of limitation of output. This would likewise eliminate some of the preventable leaks in marketing. For by glutting the market with poor-grade stuff the farmer spoils his own market and does not benefit the consumer. Here then is the first problem in marketing, the first step is production for market.

Grading.-Grading is the second step in production. Grains and cotton are coming to be sold largely on grades. But even in these commodities the buyer at the country station is commonly too lax in adhering strictly to the federal standards. This fails to bring home to the grower the relation between low grade and low price or good grade and good price. Most farm commodities have no federal grades or state grades or any other kind of grades. Here lies the first field for cooperative marketing by farmers, that they may put on the market a better product, graded and standardized. Most of the large, successful cooperatives in the United States (such as the California examples, the Warren County, Kentucky, Strawberry Growers, the Eastern Shore of Virginia Produce Exchange, and so on) establish their own respective grades, and stand back of this grade. In other words, they imitate manufacturers of successful articles-have a brand and guarantee its integrity. When a good article, graded and stand- ardized, is ready for market, the marketing problem is half solved. In no other way can sales f.o.b. be made. As long as ungraded stuff is sent to the city market, just so long will it be necessary to have com- mission merchants handle it, and handle it, moreover, on a wide margin. The commission merchant system is a poor system made necessary by poor production. For, as said before, poor production means poor marketing. Good production means good (cheap) marketing. Summarizing, it may be said that the first step in marketing is pro- ducing a better product and putting on the market a graded, stand- ardized product.

2. Storage.-Since most farm crops are produced only in the sum- mer but are consumed during a large part of the year, these crops must be stored somewhere by somebody. Here the middleman enters, to begin one of his services. Most storage is now owned wholly by middlemen, by wholesalers, retailers, or others. Control of storage gives certain strategic power. Cold storage, dry storage, warm stor- age, and the various other kinds of storage are being furnished to the trade to meet the requirements of the present middleman system. But if the whole marketing system is to be dealt with constructively, if farmers are to go the whole way in dealing with the marketing of their products, they must take hold of the storage question. In some sec- tions this means construction at railway stations of local storage ware- houses for potatoes, for hay, and for various other crops. Here the grading takes place. With many commodities farmers ought to go into the terminal market and own storage-enough storage at least to learn the storage business from the inside. Thus the Canadian Grain Growers, some 20,000 strong, own terminal grain warehouses and hospital elevators where they do their own drying, mixing, and condi- tioning, thus learning all the ways of the trade. Storage owned by farmers would tend to equalize the flow of the commodities to market. Standard warehouses, under the United States Warehouse act, furnish warehouse receipts for graded commodities which in turn are strictly first-class liquid securities in securing credit.

An interesting example of the foregoing marketing principles was recently afforded by the hearings before the House Committee on In- terstate Commerce. A farmer from Minnesota showed how a scarcity of terminal grain warehouses at the seaboard caused a fall in potato prices in Minnesota, and also a drying up of credit to the potato farmers. It was a concrete and striking example of how closely linked together these five marketing functions are. First, the scarcity of grain storage at the seaboard caused a tremendous backing up of freight cars loaded with export grain. In other words, freight cars were used for storage, not for transportation, and thus one derange- ment begot other derangements. Storing grain in cars caused a short- age of cars in Minnesota, particularly in those counties having one thousand or more carloads of potatoes ready for market all at once, and with freezing weather approaching or at hand. Buyers refused to buy at any price, unless cars were on hand. Banks refused to loan on such an erratic market, with danger of a freeze and a loss of the product. Here clearly was a "marketing problem" that extended from

the Minnesota farm to the Atlantic seaboard, and involved each of the five steps in marketing.

Summarizing, farmers should consider storage as part of their marketing program, and in case they are not adequately served they should devise ways and means of owning and operating more of their own storage.

3. Transportation.-Most farm crops are produced many miles from the place where they are consumed. Hence, comes transportation to give them "place utility." Transportation is the most expensive link in the marketing chain from the time the product leaves the farm till it reaches the retailer's hands. Government investigations have shown that the haul of cotton or wheat from the farm to the local station, over the country road, actually costs more than the haul from the Atlantic seaboard to Liverpool. The "big leak" in transportation, in other words, is due to bad country roads. This leak will never be cured by scolding the middleman. It will be cured by cooperation in the widest sense of the term-cooiperation of all the various interests, rural, urban, local, state, and national until good roads are secured for the average farmer. The question of developing rural motor ex- press lines is one for the farmer to face and solve. Transportation by rail is so vital in its social significance as to be compared with the arteries in the human body. Problems in rail transportation, such as car shortages and rates, being interstate or national in character, are, of course, beyond the reach of any one farmer although they affect his

welfare most intimately. Farmers may well, therefore, when they mnobilize themselves for better marketing, devote a goodly share of their attention to this step in the marketing problem. The "voice" of the farmer may well be heard in this vital matter.

4. Credit.-Most farm crops are paid for in cash when taken by the dealer. But in most cases it is a matter of weeks or even months before these goods are passed on to the final consumer and paid for by him. To bridge this time-gap between producer and consumer-since there is not half enough money in the country to carry the goods- credit must be furnished. As the marketing structure is now organ- ized the "middleman" is usually the person who performs the banking function of furnishing the credit. He horrows at wholesale from city banks. While it is doubtless true that the average farmer gets all the credit he is entitled to from his local bank, yet there is a preventable leak here in the marketing process. That is, credit to inove the crop can be furnished the farmers more easily, more readily, and more

cheaply-provided the preceding steps have been taken-if the goods are graded; if the goods are in a warehouse, insured, and represented by a warehouse receipt. Under the federal reserve system, there is the form of credit paper known as the trade acceptance which requires the creation of no new credit machinery, but is now available for farmers individually and collectively. This form of credit should have a very large and rapid development. After developing to their full limit the trade acceptance and the warehouse receipt the farmer will find that he is in as good a position to obtain short-time credit as is any other borrower.

The farmer should be educated to the new view of credit: that it is a tool to be used by the prosperous and not a mere "debt" or badge of non-prosperity. He should be taught that somebody has to furnish credit to market his crops and must be paid for furnishing this credit; that wholesale credit is cheaper than retail credit; that modern bank- ing machinery exists to furnish more and cheaper credit to the farmers (organized or unorganized) who have successfully taken the first two steps in marketing. When these means of credit are exhausted it will be time to talk of creating new agencies for securing credit for financing the marketing process.

5. Merchandising.-The last step in marketing is the actual sale of the goods, the changing of ownership. The price problem is a knotty one. But we know that supply and demand do determine general prices. At least they mark out a sort of prize ring, and within this ring the buyer and seller "fight out" the price by the bargaining process. Of course the more powerful bargainer has some advantage over the weaker. A seller pressed by poverty, ignorance, or weakness is at a disadvantage. Conversely, a seller who has knowledge, or waiting power, or skill, may have the advantage. Here is where the argument comes in for cooperative selling organizations among farmers. They are mobilized; they have power; they have a voice in marketing. Col- lectively they secure and use market information. Thus, the potato farmers in the Eastern Shore of Virginia Produce Exchange spend $30,000 a year for telegrams. They are justified in doing this, for they have for sale a better product, graded, standardized. They would not be justified in this expenditure if they did not have such a product for sale. Being mobilized, 3,000 strong, they are powerful bargainers, within the limits of the law of supply and demand.

Cost of production.-A word must be said about the cost of produc- tion and its relation to selling price or value. Value (price) depends upon two factors-utility and scarcity. Cost of production governs supply, or the scarcity factor. UTtility governs the demand, and has no direct relation to cost of production. Hence cost of production is not the correct basis of price, but is only one important element in it. Any price fixed by collective bargaining, collective selling, or other- wise, must actually reflect supply and demand, or it will not stay fixed. For it will lead either to a surplus (which the consumer re- fuses to take except at price concessions) or a shortage (leading the consumers to bid up the price).