Development of Agribusiness Enterprises - Asian Productivity ...

Japanese firms, for example, are opening joint farming operations in Indonesia and other
countries that produce a variety of commodities for export directly to Japan.
Global or internal outsourcing, commonly practiced in manufacturing, can also be
introduced to agriculture. Technology, in the form of components such as seeds, can be
brought in from overseas in order to minimize or alleviate problems of quality and other nontariff
impediments. Yet, even with all these efforts, the highly competitive international
market is not easy to enter. For this reason, in promoting agribusiness – at least at an early
stage and for small-scale operations – greater emphasis should be placed on the domestic
market.
Prices and Marketing Costs
The exchange functions of marketing, buying, and selling are the heart of marketing.
As goods pass through many hands before reaching the final user, their titles change several
times. Each time a title changes, a price must be decided upon. Prices then influence the
decisions of producers, consumers and marketing firms. Pricing efficiency is determined by
how well prices function in those roles.
To companies, high and rising prices means increasing profits and incentives to
produce more. To consumers, they mean a reduction in consumption and possibly a “do
without” decision. It is therefore important to ensure that the right or most efficient price is
set at each stage of the marketing chain. What is the right price? It is achieved when the
structure of a market is perfect or near perfect competition. It is therefore important in
promoting agribusiness to bring the market as close as possible to a perfectly competitive
environment.
Due to the nature of agricultural products, farm prices and hence farmers’ income tend
to be highly variable. Seasonal behavior in production, perishable products, and long
gestation periods contribute to high variability in prices. Efforts have been made to alleviate
seasonal behavior in production through genetic engineering. For example, Thailand is able
to produce mangoes and other fruit throughout the year. Storage technology has also exerted
influence in reducing price variability. Prices of processed products tend to be stable.
Therefore, in addition to its role in creating demand for farm products, processing can be a
useful mechanism for stabilizing prices.
Farm markets are close to being a near perfect competitive market. Farmers are pricetakers.
On the other hand, marketing firms tend to be close to an oligopolistic and
monopolistic market. Improvements in marketing efficiency involve bringing the market
structure close to a perfect competitive market. Public policies can play an important role in
influencing the state of the competition.
Prices are partly determined by marketing costs, which comprise the cost of labor and
packaging materials, transportation costs, profit, energy requirements and advertising costs.
The proportion of each category of costs in the total cost of marketing varies among
industries. The cost of packaging materials in the food industry tends to be very high while
transportation costs for fresh products are lower but still substantial. One of the reasons for
the high cost of packaging materials is the high tariff for imported materials that is frequently
imposed in many countries relative to other commodities. In promoting agribusiness, it is
important to study and, if possible, remove this tariff as an incentive in promoting
agribusiness.
Some marketing firms practice marketing integration in order to reduce marketing
costs. Whether this approach is effective or not has yet to be proved. However, it is true that
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