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2. Physical Functions
(a) processing – alters the form of a product
(b) packaging – determines the outer appearance
of a product
(c) storage – makes the product available in a
certain future time
(d) transportation – makes the product available
in a specific place
3. Facilitating Functions
- enable the exchange process to take place
d. Facilitative organizations – provide conducive
Subsystems of the Agricultural Marketing environment for marketing
System e. Market/trade associations – influence the nature
of marketing
1. Producer subsystem
a. Individual farmers/fishermen/producers 5. Consumer
b. Corporate farms a. Institutional buyers – e.g., hotels, restaurants
c. Cooperatives and hospitals
d. Clusters b. Household consumers – final-end users
3. Functional
a. Exchange functions – buying and selling
b. Physical functions – processing, packaging,
storage and transportation
c. Facilitating functions – standardization, financing,
risk-bearing, market intelligence, and demand
creation
4. Market Channel
1. Determine changes in revenue from a product ❖ As shown in Figure 1, the (red and yellow –
through changes in purchases based on the price
ordinary line) inelastic supply and demand curves
elasticity of demand
showed a large fluctuation in farmgate prices.
2. Determine which income group of consumers will
II. Stickiness of Retail Prices
respond most to changes in income based on the
income elasticity of demand ❖ The supply and demand curves for agricultural
goods at the retail level tend to be elastic. This is
3. Determine which good has elastic demand because retailers can easily adjust the supply of
where marketing services can be employed to gain goods they will sell while in terms of demand,
some benefits marketing services have been done on or for the
goods before they reach the retail market.
4. Determine the level of government interventions
based on different demand elasticities ❖ As shown in Figure 1, the (red and yellow –
broken line) elastic supply and demand curves
showed a small fluctuation in retail prices.
> Higher total revenue = higher net income or profit, ❖ In the long run, prices go down from P’0 to P1
which is beneficial to farmers. while quantity increases from Q0 to Q1.
❖ Price floor or support price is a legally imposed o Existence of time lags (i.e., difference in the time
price above the equilibrium price. It aims to support between the decision to produce and the realization
farm prices and ultimately farm income, thus of final output)
considers the welfare of producers.
o Nature of demand (i.e., agricultural demand is
❖ In the case of a price floor, quantity supplied relatively more inelastic than agricultural supply;
(QSF) exceeds quantity demanded (QDF) (i.e., price changes in supply are greater than in
excess supply of goods or services). It is the demand)
triangular area 2, 5 and 3 (Figure 4).
> Involvement of more middlemen compared to
goods sold in the industrial sector
❖ Given an increase in supply and a decrease in ❖ The above discussions tackle price
demand, assuming that the magnitude of changes determination using graphical approach.
is the same, equilibrium quantity remains the same Equilibrium price and quantity can also be
while equilibrium price decreases. Given a determined using mathematical approach.
decrease in supply and an increase in demand,
❖ Dependent variables also known as ❖ It can also be defined as the process of buyers
endogenous variables while independent and sellers arriving at a transaction price for a given
variables are also called as exogenous or quality and quantity of a product at a given time and
explanatory variables or determinants. place. ❖ Types of Price Variation
Convergent Cycle
– demand is more elastic than supply; damped
oscillation/stable case
FOB pricing
- Free on Board
- All customer pays the same ex-factory price and
the goods are placed FOB a carrier, at which point
the title and responsibility pass to the customer,
who pays the freight from that point onward
- FOB factory: Customers pay all transportation
costs beyond the factory gates
- FOB destination: Supplier meets all of the costs
incurred up to the point where the goods are
delivered to the customer
Zone Pricing
- Falls between FOB pricing and uniform delivered
pricing
- Company sets up a series of geographical zones
- All customers within a zone pay the same total
price and this price is higher in the more distant
zones
Objectives: At the end of the exercise, the student should be able to:
1. explain the changes in quantity demanded and demand for agricultural inputs, products and services;
and
2. express the demand curves in graphical form and mathematical form.
a. Construct Mrs. dela Paz’s new demand curve using the same figure drawn
for Question No. 1a. Express also her new demand curve in mathematical form.
Interpret the slope and intercept of the new demand curve.
b. To make this demand curve meaningful, what assumptions will you make?
Quantity Demanded for Prawns (kg)
600
500
400
300
200
100
0
0 0.5 1 1.5 2 2.5 3 3.5
>A decrease in the price from PhP 500/kg to PhP 450/kg caused an increase in quantity demanded
from 0.5 kg to 1 kg. This is a case of an extension.
4. Explain and illustrate graphically whether there will be a change in demand or quantity demanded for
the underlined agricultural inputs, products, or services. Identify the factor affecting quantity demanded
or demand. Indicate the direction of the movement along the demand curve (extension, contraction) or
shift in the demand curve (rightward or leftward).
> Since the value of the slope is negative, mango in this example, is considered as an ordinary good
because it follows the Law of Demand.
a. The selling price of Bt corn seeds has been cut by seed companies, which affected Bt corn farmers.
b. The government increased the minimum wage rate for farm workers, which affected the farm owners.
c. Due to rising oil prices, multinational companies which provide logistical services to agricultural firms
raise service charges.
e. The Zero Coke Movement campaigns that aspartame, an artificial sweetener, found in Coke Zero
causes cancer.
f. UPLB professors had a salary increase after the Merit Promotions shifting their consumption from fast
food meals to restaurant meals.
g. Chickenjoy was not available in many Jollibee branches making disappointed customers buy Chicken
McDo.
h. A media report states that a rice shortage might occur in two days’ time.
i. An increase in the number of working mothers and people adopting a more sedentary lifestyle has
affected fast food consumption.
j. Korean drama and K-pop followers in the Philippines have been increasing in recent years and this
has led to many Filipinos experiencing Korean culture through food such as kimchi.
5. Market demand is the summation of all individual demand curves. Assume that there are only five
wholesaler-retailers supplying mangoes in San Pedro, Laguna public market. Further, assume that they
account for 99 percent of the market for mangoes in the municipality and the amount they sold
represent the demand for the product.
b. Construct the individual demand curve of each wholesaler-retailer and the market demand curve in
San Pedro, Laguna. Compare and contrast the six demand curves.
c. Express the market demand curve in mathematic form. Interpret the slope and intercept of the market
demand curve.
80
70
60
50
40
30
20
10
0
0 2000 4000 6000 8000 10000 12000 14000 16000 18000
Since the value of the slope is negative, mango in this example, is considered as an ordinary good
because it follows the Law of Demand.