Development of Agribusiness Enterprises - Asian Productivity ...

of inefficiency. Coordinating the flow of raw materials from the farm to the factory has been
cited as an important aspect in promoting agribusiness. Just as important is the quality of raw
materials supplied by farms to plants.
Recently, we have witnessed a move towards decentralized marketing in which farms
are established through vertical integration. Some people have argued that such an
arrangement will create inefficiency in the market, as it tends to be monopsonistic. However,
in the absence of an efficient centralized market and with problems of quality and continuity
of raw materials, this could be the second best alternative available.
Another issue in processing is a decline in operational efficiency when idle capacity
results from the discontinuity of raw material supplies from the farm. A plant can only be
efficient if it is operating at its minimum average cost. This has been the case in Indonesia,
where it is believed that idle capacity in the country’s food industry could be allowed to rise
up to 40 percent.
On the demand side, there has been a growing effort by manufacturers to utilize the 4Ps
(Product, Place, Price and Promotion) of marketing mix to create a market or demand for
their products. However, small-scale agro-processors might not be able to afford that
approach. Organizing them through marketing boards or associations might enable them to
undertake the promotion of their products. Alternatively, governments could perhaps play
a role in promoting agribusiness, since the size of the market is potentially substantial in
many cases. To turn this potential market into actual demand is the provision of product
information, which again could be a job of the government.
Wholesaling and retailing is another marketing institution that plays a vital but often
controversial role in promoting agribusiness through moving farm products to the consumer.
This is the stage in marketing where the addition of possession utility occurs. Wholesaling
and retailing facilitate a consumer’s choice of product assortment, but are controversial since
it is often argued that this stage of marketing collects a larger portion of the marketing
margin. It is important to ensure that every step in the marketing chain receives a fair portion
of the marketing margin according to its contribution to added value along the marketing
chain. Most importantly, we need to understand that the presence of this stage is necessary
in promoting agribusiness. Recently, there has been a movement towards chain stores and
supermarkets in cities in many countries. Such outlets can act as a source of information for
farms on the needs of urban consumers, both in terms of quality and required types of
products.
International markets are important for agricultural products. Many developing
countries have based their foreign exchange earnings requirements on agricultural exports.
However, for a long time a large proportion of such exports has been in the form of
commodities, and rarely in the form of processed products. Even so, these exports have been
facing increasingly stiff competition. Theoretically, trade is considered as one way of
improving the allocation of productive resources worldwide. However, many countries are
still practicing protectionist regimes through trade policies that include trade and non-trade
barriers. Hence, we can see that penetrating the world market is not easy and requires
intensive marketing efforts.
One strategy for promoting agribusiness through international market penetration is
the formation of strategic marketing alliances. Marketing business partners in the destination
countries can be brought in to start up operations within the exporting countries. They will
be asked to provide the necessary technology and the means of meeting the requirements of
the destination countries, and to undertake related marketing activities in their respective
countries. In many countries, we are witnessing the implementation of such arrangements.
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