In a market-orientated system the price of a product is determined by supply and demand. A balance is achieved between what people are prepared to supply at a price and what people are willing to pay for the product.
The essence of sound marketing is:
- find out what the consumer wants
- supply it at a profit
For agricultural produce, how much the consumer wants and will purchase is affected by a number of factors, the most important being:
- the price of the goods
- tastes and preferences of consumers
- number of consumers
- incomes of consumers
- prices of related goods (competition)
- range of goods available to consumers
Producers need to be aware of marketing and market realities. Farmers also should be aware that the price paid by the eventual consumer is made up of the amount of money paid out to farmers for their produce plus all the costs involved in getting it to the consumer in the form in which he or she purchases it. There also has to be a reasonable return to those doing the marketing and processing for carrying out these functions.
The percentage share of the final price, which is taken up by the marketing function, is known as the “marketing margin”. Sometimes this margin can be quite a high percentage and this may be used to argue that farmers or consumers are being exploited. High margins can often be fully justified by the costs involved. There are bodies like the Food Price Monitoring Committee and the Competition Commission who act as policemen and try to ensure that this chain is fair.
Some producers have become more involved in the supply chain and this is usually to their profit.
Source: Agricultural Marketing and the Agricultural Marketing Extension papers on www.dalrrd.gov.za.
Today, the success of farm planning starts at the market
Don’t produce what you can’t sell!
Production should be market oriented – knowing what the customer wants (demand) and the price at which you as the farmer are prepared to supply it (supply).
- Decide on your target group – this is your particular group of customers (their age, are they male or female, where do they live – in a city or farm, what do they do? Are they corporates (businessmen or professionals – doctors, lawyers), farmers etc., what are their interests?
- Determine what their needs are (what do they want to buy and how much are they prepared to pay).
The marketing process
- Find out what customers want by doing market research. Visit the Department of Agriculture. Speak to extension officers and to as many people as possible. Who is going to buy your product? How can you make your product better?
- Identify the commodity (or commodities) that is suitable for you to produce.
- Plan the production of the product – how you are going to do this, using the best season for the product you have chosen. At the beginning of the summer, before the rains?
- Produce your chosen commodity.
- Choose the marketing channel that suits you best and where you can make the most profit. Explore co-operatives. Refer to the chapter on co-operatives in this publication.
The marketing chain
The marketing chain is the process the farmer has to follow to get the product from the farm to the consumer.
You can benefit by adding value to the products (see the block in green in the next column). You increase your profit by being involved in the washing, packaging, storage, processing and retailing (selling) yourself. Using the best methods and paying attention to cleanliness and food safety will ensure that your product will sell in all markets.
Production and harvesting
- Production costs include seed, fertiliser, pesticides, implements, tractors, fuel, labour, etc.
- Marketing/retailing costs include transport, advertising and storage.
To cut back on costs from a long marketing chain – you can use a shorter route by selling directly to the customer yourself.
- Storage and packaging – costs include grading, packing material (e.g. boxes, bubble wrap, plastic, string, labels etc.), labour, storage, insurance, etc.
Another way of adding value is by packaging and storage until the prices are more favourable or when the demand for the product will be greater e.g. in winter or when there is a shortage.
Market conditions will change from year to year. Whether you’re selling a few items off your roadside stall or are drawn into a huge supply chain, one thing never changes – and that is quality!
Aim to produce the best possible product and your marketing efforts will be rewarded. Successful marketing is one of the most important aspects of a modern farm business.
Source: Agricultural Marketing and the Agricultural Marketing Extension papers on www.dalrrd.gov.za.
Some marketing options
The following marketing options exist for the emerging producer:
- Market directly from their gardens to the surrounding communities.
- Supply hawkers who visit them with their bakkies for on-selling in the local town or city.
- Supply to processing units e.g. mills abattoirs, dairies, fruit packhouses, etc. This is a type of contract production and is normally limited to larger emergent commercial units and to emergent irrigation schemes that would market their product collectively.
- Supply to various retail outlets, such as the Spar Group, that buy directly from emergent farmers from time to time. Pick ‘n Pay has instituted a programme to support the emergent sector.
- Sell through farm or market stalls (road stalls) in urban, peri-urban and rural areas.
- Sell into contract markets, such as government feeding programmes, schools, hospitals, retail contracts, hotels, restaurants and tourism outlets. The government is particularly supportive here. The extension officer is ideally situated to broker these contracts on behalf of groups of farmers who may lack the confidence and expertise to do so.
- Supply exporters directly. Large exporting concerns are often eager to work with organised communities. The community will need the extension officer to broker this for them as well, and it might be an idea to involve subject matter specialists from the Department of Agriculture or organised producer associations to support them. By matching the requirements of the traditional marketing channels in terms of quality and quantity, they can market through the existing marketing chains e.g. national fresh produce markets, livestock auctions, wool auctions, etc.
Add value to their own produce, and then market products through the various marketing channels mentioned above. The following are some of the value adding activities which farmers could carry out:
- Fruit – graded, prepacked, dried, semi-packed.
- Meat – cooked, cuts, dried (biltong).
- Eggs – graded and packaged.
- Broilers – slaughtered before selling.
- Vegetables – graded, packaged and transported to market, and/or dried semi-prepared, bottled.
- Bananas – graded, packaged in special ripening rooms, chips, dried
- Litchis – Graded and packaged for local and export market, juiced
- Maize/Grains – milled, bagged, stored; beer, bakeries.
- Milk – dairies, yoghurt, sour milk, cheese.
- Wool – sheared, graded and baled.
- Potatoes and Onions – bagged, transported to markets, crisps, snacks.
The main marketing channels
Farm gate marketing
As the name implies, this is marketing done by the farmer at the place where the product is produced. Examples include the sale of vegetables from a community garden, the sale of broilers from a broiler unit and the sale of animals from the farm directly. There is generally no limit to the type of product that may be marketed in this manner, as long as there are willing buyers.
Farm gate marketing is the most common form of marketing found amongst smaller producers. Maize, beans, vegetables, fruit, poultry and livestock are concerned. However, once the local market’s demand is supplied, the farmer has to look to more distant markets.
This channel provides a development on marketing from the farm, as it goes some way towards taking the product to the consumer. At its most elementary level, a farm stall may be operated by farmers selling their own products, progressing through to individual stallholders selling on behalf of local farmers. Generally the type of product that would be marketed on a farm stall would be perishable, such as fruit and vegetables, although processed foods such as pickles, jams and cooked mielies are also suited to this type of marketing.
Fresh produce markets
Refer to the “Fresh produce markets” page.
These markets are set up in larger centres mainly for the sale of fruit and vegetables. They have traditionally catered for the commercial producer, and in turn supply the larger urban centres. The system on most markets has changed from auctioning to sales by market agents on commission. With this system, the farmer sends his produce to the agent at the market, who endeavours to obtain the highest price for him.
|Market information is important to enable the farmer to make the right decisions.
Refer to the “Livestock auctions” page on this website.
The sale of livestock in the developing areas has been encouraged for many years. There are a number of sale yards. Some of these provide a marketing service to emerging farmers as well to commercial farmers. Auction sales are held regularly at many of them. The seller may decide whether or not to accept the price offered by the buyer. The prices received on stock sales are not fixed and to a large extent reflect the supply and demand position both locally and within the entire market.
With director or contract marketing, the farmer sells directly to the retailer. Agreements are often concluded between large producers of perishable goods and large retailers e.g. Woolworths or Pick ‘n Pay stores. These retailers are often fairly flexible in their volume and supply demands to ensure good publicity as supporters of emerging farmers, but they will not compromise on quality. Some Black Empowerment companies have secured large government kitchen contracts (e.g. Department of Justice and Correctional Services) for themselves and prefer buying contractually from the emergent sector for political reasons. The extension officer needs to be aware of such contracts by staying in touch with the Local Government Tender Board.
Farmers may choose to market collectively. A farmers’ association may get together and jointly market their crop on a formal market, such as to be found in most of the rural towns.
Refer to the “Export” page in this publication.
There are many regulations and rules if you wish to enter this way of marketing your produce. The National Agricultural Marketing Council (NAMC) can help you with information to see if this is an option for you.
Source: No 1 of Marketing Extension Training Papers on www.dalrrd.gov.za.
The supply chain
The sequence of stages involved in transferring produce from the farm to the consumer is generally referred to as the marketing chain. All transfers involve marketing activities in some or other form, and all activities involve costs, which are:
- Product preparation and packaging costs. The harvesting of produce and the movement of produce to the farm gate or packing shed is part of the production costs. The second cost to be encountered is all costs associated with packaging.
- Handling costs. At all stages in the marketing chain, produce will have to be packed and unpacked, loaded and unloaded, put into store and taken out again. The sum total of all such handling costs can be significant.
- Transport costs. This transport cost could be anything from produce transported on the back of a donkey to trucks, bakkies, taxis, trains, aircraft and ships.
- Produce losses. Losses are common with agricultural produce marketing, even if nothing is actually thrown away, products may lose weight in storage and transit. The treatment of losses in marketing cost calculations can be fairly complex. Produce which is bought but not sold can still incur costs such as packaging, storage and transport. If there are no quantity losses there can still be quality losses, and this is reflected in the price at which produce is sold.
- Storage costs. The main purpose of storage is to extend the availability of produce over a longer period than if it were sold immediately after harvest. Such costs will vary depending on the costs of building and operating the store, but also on the capital used to purchase the produce which is stored.
- Processing costs. This is an important marketing cost. Grains such as maize and wheat have to be milled. In working out total marketing costs, we need to consider the conversion factor from unmilled to milled grain, as well as the value of any by-products. Processing costs can vary according to the efficiency of the organisation doing the processing, the processing facility’s throughput and the frequency of its operation. It will also vary according to the organisation’s costs, which depend on factors such as fuel costs, depreciation costs, import duties, taxes and wages.
- Capital costs. To operate, a trader may have to borrow money from a bank. The interest he pays on that money is a cost. If a trader uses his own money, he has to consider the lack of interest he could have received, a cost economists refer to as “opportunity cost”.
- Fees and commissions. The costs considered above are the major costs in marketing agricultural produce. There are many others and people involved with measuring costs need to keep all of them in mind. For example, people using National Fresh Produce Markets, have to pay agents fees.
Source: No 1 of Marketing Extension Training Papers on www.dalrrd.gov.za
Linkages through contract farming
Linkages through marketing co-operatives
Refer to the page on co-operatives.
Linkages through an exporter
Linkages through an agro-processor
Linkages through a retailer
Linkages though a domestic trader
Source: Adapted from FAO, 2007, by DALRRD in the document Linking Producers to Markets Programme available at www.dalrrd.gov.za.
Commercial farmer notes
Failing to plan a marketing strategy is often the single biggest oversight South African farmers make, but producing a crop only to find that it can’t be disposed of profitably, can be easily avoided. The critical first step is for farmers to establish their production and marketing costs, factoring in expected prices at a certain time of the year and their key target markets.
Key elements of a marketing plan farmers are advised to consider prior to any production are listed below. They should:
- understand their customer-base, strengths and competition;
- optimise and enjoy the success of producing good quality crops by first establishing whether there is sufficient need or desire for their product or service. If not, there won’t be a steady stream of customers;
- first establish how the product will be marketed – a thorough understanding of the target market is essential (also establish what drives buying decisions);
- remember, the plan must reflect the current market, potential and existing customers, competitors, market penetration tactics and importantly, the farmer’s competitive advantage;
- remember too that an innovative marketing plan positions a product or service in the minds of potential customers and typically integrates multiple mediums and/or promotional strategies to reach the market.
Then it comes down to writing up a plan. When compiling this, a farmer should:
- Write about the current market. Describe the industry you are operating in, the market conditions that influence your business and the business opportunities and threats.
- New products must always include market research. Also, an analysis of existing customers is essential – who they are, their purchasing habits and buying cycles. By acquiring a thorough knowledge of your target market you will learn to relate to your customers better – and they to your product.
- Once you’ve identified and researched the market, the strategy for reaching the market and distributing the product is crucial. A viable method for reaching the market at an appropriate price level is something that potential lenders will scrutinise.
- The marketing strategies and successes of competitors must be interrogated. Ask who’s doing well and who’s struggling – and if/why they are growing or scaling back. Understanding competitors’ strengths and weaknesses is critical in establishing competitive advantage. You must be able to justify that there is room for another player in the market.
The next step is to compile a production plan outlining in detail what will be produced and the resources required. The key elements of this are:
- Land, buildings and facilities – a precise description of the land and buildings that will be used for the farming business.
- Equipment – each tool that will be used must be named, e.g. tractors, implements, trucks and other vehicles. Other equipment, such as computers, printers, office equipment, hand tools and irrigation equipment should also be included. Buildings, facilities and equipment are normally depreciable assets. Having them listed in a business plan can be helpful when you have to do your tax returns.
- Materials and supplies include materials and supplies needed for the daily running of the operation, such as feed, fertilisers, soil amendments, fuel and oil, other consumables and materials necessary for maintenance and repairs. It is important to capture as many expected expenses as possible.
Other essential aspects include:
- Production strategies relate to production methods, and should include projected schedules. Questions around whether to plough or do ‘no till’ farming, when and how the produce will be sent to market, how production will be expanded over time, and when optimum size and production have been reached should be answered here.
- Construction and production schedules – once a farmer has a stable vision of the operations needed, then short and long term construction and production plans can be considered. Plan for routine weeding and fertilising. Experience has shown that it is helpful to have these events scheduled. And also to have an idea of when new irrigation systems will need to be erected, and the scheduling of crop rotations. Having a plan for these will assist in controlling budgeting and costs.
- An environmental assessment plan that emphasises stewardship for the environment. Vital components to consider are: uses for runoff water, quality assurance, pastures and stream protection run offs and, in some instances, soil erosion.
- Political and legal aspects of production – consider stipulations as well as other laws that could impact production.
The marketing and production plan component of the business plan helps establish the framework for tracking cash flow, growth and overall profitability. In the end, it is what is produced and marketed that generates income for a farm business and time is needed to think through the details of this part of the business plan to ensure the overall success of the business.
When the market is volatile, one of the best production decisions farmers can make is to diversify. This means that one or more of their products will cushion them against market and currency fluctuations and give their overall operation far greater flexibility and stability.
Source: Compiled by Magna Carta Public Relations for Standard Bank.
National strategy and government contact
The Agricultural Policy Action Plan (APAP) looked at marketing. In the section “Trade, Agribusiness Development and Support” it tracked the progress of small holder farmers and smaller commercial operations. What had worked against them was the entry of large supermarket chains into rural towns, and then the procurement requirements of these outlets. Low volume and erratic supply made matters more difficult. APAP looked at interventions to integrate smallholder and smaller commercial farmers into the market. These included investing in infrastructure, facilitating certification of producers for Good Agricultural Practice (GAP), training in financial literacy etc.
Department of Agriculture, Land Reform and Rural Development (DALRRD) Directorate: Marketing www.dalrrd.gov.za – find the government gazette notices under “Publications”
The aim of the Directorate: Marketing is to develop, promote and support competitive, open and representative agricultural markets. The directorate comprises the following sub directorates:
- Commodity Marketing
- Marketing Administration
- Marketing Information and Capacity Building
- Marketing Infrastructure and Agro logistics
There is a wealth of information on this directorate’s pages at www.dalrrd.gov.za).
Department of Trade, Industry and Competition (the dtic) www.thedtic.gov.za
National Agricultural Marketing Council (NAMC) www.namc.co.za
The objectives of the Marketing of Agricultural Products Act, Act No.47 of 1996 Act are:
- to increase market access for all market participants
- to promote the efficient marketing of agricultural products
- to optimise export earnings from agricultural products
- to increase the viability of the agricultural sector
These objectives are not to be pursued at the expense of food security or job opportunities. The Act provided for the establishment of the National Agricultural Marketing Council (NAMC).
A question to the reader:
An Import Substitution strategy means looking at a country’s most imported products, and then encouraging the production of those goods locally through various incentives. Obviously there will be some products that cannot be produced in a country owing to limitations beyond its control, so Import Substitution does not apply to all goods.
If you were in charge of agricultural policy in South Africa, what measures would you take to encourage the production of the top agricultural imports: wheat, tobacco, kidney beans, cotton, coffee, tea, rice, soy bean oil cake, palm oil, whisky, soy bean oil, chicken, sunflower seed, sardines and animal offal?
- The various industry associations help with marketing. Indeed, the very purpose of their existence is to help their constituencies with marketing. Find their details on the relevant pages e.g. poultry, beef etc.
- Agricultural Colleges present marketing-related short courses. Find contact details on the “Agricultural education and training” page.
- Marketing Diplomas and Modules are offered at various colleges and universities. Find details of some of these institutions on the “Agricultural education and training” page.
Websites and publications
Find the value chain analyses of agricultural commodities on the Department of Agriculture, Land Reform and Rural Development (DALRRD) website, www.dalrrd.gov.za.
Although there are occasional places where they are dated, the “Agricultural Marketing Extension” on the DALRRD website are highly useful.
- Paper No. 1 provides a general background to marketing issues in South Africa
- Paper No. 2 and 3 is on horticultural marketing extension
- Paper No. 4 looks at how extension officers can assist farmers with market information
- Paper No. 5, on cereals marketing, mainly maize but also other cereals of interest to emerging farmers
- Paper No. 6 is on dairy farming
- Paper No. 7 on livestock
- Paper No. 8 reviews wool and mohair marketing
- Paper No. 9 covers poultry and eggs marketing
Included in the seventeen manuals on developing a co-operative at www.dalrrd.gov.za are ones like (7) Developing a business plan (14) Success for the agricultural business and (15) Marketing. Find the full list on the “Co-operatives” page.
A number of reports and publications are available from the National Agricultural Marketing Council. Find the “Research & publications” menu option at www.namc.co.za.
The Embassy of the Kingdom of the Netherlands study The Current State of Fruit & Vegetable Agro-Processing in South Africa (February 2019) includes a look at access to markets.
Neves, M.F. 2017. Future of The Food Business: The FACTS The IMPACTS The ACTS. 2nd Edition. New Jersey: World Scientific. Visit www.favaneves.org.
Van Schalkwyk, H.D., Groenewald, J.A., Fraser, G.C.G., Obi, A., Van Tilburg, A, (eds). 2012. Unlocking markets to smallholders: Lessons from South Africa. Wageningen: Wageningen Academic Publishers.
Two valuable Afrikaans books, distributed by Briza Publications, are Die ABC van boerderybestuur and Finansiële onafhanklikheid vir die boer. Find them at www.briza.co.za/catalog. The books are also available from Kejafa. See www.kejafa.com.
A completed Water Research Commission (WRC) study, Investigating smallholder food value chains, investigated the environment in which emerging farmers operate, and ascertained the food value chains in which they either currently participate in or could potentially participate in. Find this and other publications at www.wrc.org.za.
For access to timely, market-related information, most farmers read the weekly publications – either the Landbouweekblad or the Farmer’s Weekly. This information is also available electronically. Visit www.landbou.com or www.farmersweekly.co.za. Stories include:
- Brody S. 2021, April 8. “Livestock marketing tips”. Farmer’s Weekly. Available at www.farmersweekly.co.za/farm-basics/how-to-livestock/livestock-marketing-tips/
Find the many options at Bizcommunity.com. These include categories like agriculture and retail. An example of an article is given here:
- Hartzenberg L. 2022, May 31. “#AfricaMonth: Why informal retailing in Africa must not be overlooked”. Bizcommunity. Available at www.bizcommunity.africa/Article/410/345/228332.html
Cordes, M. 2018, June 28. “Marketing tips: Essential steps to better fresh produce prices”. AfricanFarming.com. Available at www.africanfarming.com/marketing-tips-essential-steps-better-fresh-produce-prices/
Uys, F. 2017, April 18. “Marketing tips: Choose the right market for your fresh produce”. AfricanFarming.com. Available at www.africanfarming.com/marketing-produce-choose-right-market/.
- African Farmer is a free, open source online game that simulates the complex decisions and uncertainties faced by small-scale farmers living in Sub-Saharan Africa. Take a look at www.africanfarmergame.org.
- Find Strengthening sustainable food systems through geographical indications: an analysis of GI economic impacts (May 2018) on the FAO website at http://www.fao.org/3/I8737EN/i8737en.pdf
- International Institute for Environment and Development (IIED) – www.iied.org. Find the “Sustainable Markets” menu option.
- www.intracen.org – International Trade Centre (ITC) website.
- www.macmap.org – “Making import tariffs and market barriers transparent”
- The Agricultural Marketing Service of the United States Department of Agriculture (USDA) is at www.ams.usda.gov. The USDA’s website is www.usda.gov.
- www.fairtrade.net – “Guarantees a better deal for producers”.
- World Union of Wholesale Markets (WUWM) – www.wuwm.org
- www.researchandmarkets.com – “The world’s largest market research resource”
- World Trade Organisation – www.wto.org
- Farm Concern International, pro-poor marketing development initiatives for Sub-Saharan Africa – www.farmconcern.org
- Micromarket Monitor, www.micromarketmonitor.com/agriculture-industry.html
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