KOHLS & UHL

CHAPTER 11
MARKETING COSTS
AGR MARKETING CONCEPTS
WK 6: KOHLS CH 1O: FOOD & FARM PRICES
KOHLS CH 11: FOOD MKTING COSTS
WK 7: KOHLS CH 12: CHGS IN FOOD MARKETS
KOHLS CH 13: COOPS IN FOOD INDUST
WK 8: KOHLS CH 14: MKT DEVELOPMENT
KOHLS CH 15: MKT & BARG POWER
WK 9: KOHLS CH 16: MARKET INFORMATION
KOHLS CH 17: STANDARDS & GRADES
WK 10: KOHLS CH 18: TRANSPORTATION
KOHLS CH 19: STORAGE
WK 11: TEAM PRESENTATIONS
CHAPTER 10 REVIEW
A. PRICES VARY IN TRENDS, CYCLES,
SEASONALLY AND DAILY

B. UTIMATELY, SUPPLY & DEMAND
DETERMINE PRICES

C. FARM & RETAIL PRICES MOVE
TOGETHER OVER LONG RUN
CHAPTER 11 MARKETING COSTS

AFTER THE LESSON, THE STUDENT WILL
BE ABLE TO
1. DEFINE MARKETING MARGIN,
MARKETING BILL, PRICE SPREAD, AND
FARMERS SHARE
2. INDICATE HOW VARIOUS FACTORS
INFLUENCE THE FARMERS SHARE
LEARNING OBJECTIVES
I. MARKETING MARGIN
(PER DOLLAR SPENT)
A. DIFFERENCE BETWEEN FARM & RETAIL PRICE
B. PART OF CONSUMER DOLLARS THAT GOES TO
THE MIDDLEPERSON
C. MIDDLEPERSONS CUT
D. DIRECT MARKETING HAS ZERO MKT MARGIN
E. COST OF UTILITY ADDING ACTIVITIES
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
1. SMALL MARGIN = GREATER EFFICIENCY
2. LARGE MARGIN = TOO MANY MIDDLEMEN
--CAN ELIMINATE THEM, BUT NOT THEIR
FUNCTIONS
3. LG MARGIN CAUSES LOW FARM PRICES
4. MARKET MARGIN = PROFITS
F. MISCONCEPTIONS
CONSUMER PAYS
FARMER RECEIVES
$1.00
MARKETING MARGIN
$0.22
$0.78
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
II. MARKETING BILL
(TOTAL DOLLARS SPENT)
A.TOTAL DOLLAR DIFFERENCE BETWEEN
WHAT CONSUMERS SPEND AND FARMER
RECEIVE
IN 1993
B.FARMERS RECEIVE 22% OF WHAT
CONSUMERS SPEND ON FOOD
CONSUMERS SPENT
$491 BILLION
FARMERS RECEIVED
$108 BILLION
MARKETING BILL
$382 BILLION
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
1. LEVEL OF PRICES
2. MARKETING MARGIN
3. COSTS
4. EFFICIENCY
D.MARKETING BILL IS INCREASING BECAUSE
3. MORE SALES
2. HIGHER INPUT COSTS
1. ADDED MARKETING SERVICES
C. DOES NOT INDICATE
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
46%
10%
8%
6%
5%
25%
LABOR
PACKAGING
TAXES
TRUCKING
ADV
OTHER
a. MKT BILL FOLLOW INC IN LABOR COST
b. BIAS UPWARD
c. INCENTATIVE FOR EFFICIENCY
d. FOOD WAGES NOT OUT OF LINE
e. RAISES MARKETING BILL
E. COMPONENTS (COST OF MKT FUNCTIONS)
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
III. FARM - RETAIL PRICE SPREADS
A. MKTING BILL: ALL FOODS
B. PRICE SPREADS: INDIVIDUAL FOODS
C. MEASURE OF MARGIN FOR
INDIVIDUAL FOODS
D. DIFF BETWEEN RETAIL PRICE PER
UNIT AND THE FARM VALUE OF
EQUIVALENT AMOUNT OF FOOD
SOLD BY THE FARMER
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
IV. FARMER'S SHARE
A. % OF CONSUMER'S FOOD $1 FARMER GETS
C. MARKET BASKET APPROACH: 19%
ONLY USES GROCERY STORE
PRICES
B. MARKETING BILL APPROACH: 22%
REFLECTS BOTH CHANGING PRICES
AND CHANGING CONSUMPTION
PATTERN
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
Despite steady increase in average
grocery stores prices, the share of the
average food dollar received by American
farmers has dropped.
According to recent USDA
statistics, American farmers
receive just 19 cents out of every
dollar spent for food.
Kovac, Mark. Price of Food Rises, Farmers Share
Drops. Wooster Daily Record. Oct 26, 2004. p D1
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
ITEM MKT BASKET MKT BILL
EGGS
54%
33%
DAIRY
42%
34%
POULTRY
45%
34%
MEAT
47% 31%
FRUIT & VEG
24%
28%
CEREAL GRAINS
8%
7%
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
If customer pays 1.60 for bread the farmers share is
7 cents and if customer pays 5.99 the cattle
producer gets 79 cents
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
D. INFLUENCING FACTORS
FACTORS CHANGE FARMER'S SHARE
1. REFLECT UTILITY ADDITIONS
PROCESSING
PERISHABILITY
INCREASE
SEASONALITY
TRANSPORT
BULKINESS
INCREASE
DECREASE
INCREASE
DECREASE
DECREASE
INCREASE
INCREASE
INCREASE
INCREASE
Learning
Objective
2
INDICATE HOW VARIOUS FACTORS
INFLUENCE THE FARMERS SHARE
IV. RELATIONSHIP:MKT MARGIN & FD PRICES
A."GATE": INC MKT MARGIN => DEC FARM
PRICES
B."PLATE": INC FARM PRICES RETAIL PRICES
C. COST- PLUS PRICING
1. FARM PRICE + MARGIN = RETAIL
2. CONSUMER PAY MORE IF EITHER CHG
3. CORRECT IN THE LONG RUN
D. MKT MARGIN IS "STICKY"; INFLEXIBLE
1. LRG LABOR COST 2.IMPERFECT COMP
DEFINE MKTING MARGIN, MKTING BILL,
PRICE SPREAD, & FARMERS SHARE
Learning
Objective
11-1
CHAPTER 11 SUMMARY
1. THE MARKETING BILL KEEPS RISING
BECAUSE OF INC VOLUME, INC DEMAND
FOR MORE MKTING SERVICES, & HIGHER
COSTS FOR THESE SERVICES
2. THE FARMERS SHARE VARIES INVERSELY
WITH THE MARKETING MARGIN.
3. THE MARKETING MARGIN IS NOT OUT OF
LINE
4. THE FARMERS SHARE VARIES WIDELY
DEPENDING ON THE PRODUCT
SELF TEST: MARKETING COST
__ 1. TOT FOOD $S SPENT
__ 2. DIFF BET GATE & PLATE
PRICE
__ 3. MIDDLE PERSON CUT
__ 4. REASON FOR HIGHER
MARKET BILL
__ 5. BIGGEST PART OF MKT BILL
__ 6. FARMERS PART OF
CONUMER $ FOR EGGS
__ 7. FARMERS SHARE IS
SMALLEST FOR
__ 8.DEC FARMERS SHARE
__ 9.ZERO MKT MARGIN
__ 10. FARM PRICE + MARGIN
A. COST PLUS PRICING
B. FARMERS SHARE
C. INC PROCESSING
D. LABOR
E. MARKETING BILL
F. MARKETING MARGIN
G. MORE MKTING SERV
H. ROADSIDE MKTING
I. WHEAT, OATS, CORN
J. NONE OF THE ABOVE
E
F
F
G
D
H
A
C
I
B
NEXT
AGRICULTURAL MARKETING
TOPIC
CHANGES IN FOOD MARKETS
KOHLS & UHL CHAPTER 12