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FOOD SAFETY OF THE SHORT SUPPLY CHAIN - Favv

FOOD SAFETY OF THE SHORT SUPPLY CHAIN - Favv

DIRECT MARKETING FROM

DIRECT MARKETING FROM PRODUCERS TO CONSUMERS: ECONOMIC ASPECTS AND KEY SUCCES FACTORS E. Wauters*, K. Mondelaers 1, M. Crivits 1 1 ILVO * Speaker: Dr. Erwin Wauters Researcher ILVO‐L&M Guest Prof. Antwerp University E‐mail: erwin.wauters@ilvo.vlaanderen.be ABSTRACT This paper presents a theoretical exploration of the farm economics of direct marketing channels, taking into account both income and risk. It summarizes the available empirical literature on the farm‐economic impact of selling through an alternative marketing channel. Its major conclusion is that the question if and to what extent direct marketing improves farmers’ income and income stability is an empirical one. Empirical evidence is mixed, but confirms the conclusions from our theoretical elaboration, where we show the importance of (1) considering marketing costs, especially fixed marketing costs, associated with different marketing channels, as they might be substantial and offset the higher price and (2) the importance of scale of sales as marketing costs are incurred for all products supplied, regardless of whether they are sold and unsold products might shift farmers from being exposed to price risks to severe market risks, with comparable results on income. Good managers with the required skills and passion, though, should be able to exploit direct marketing channels in a profitable manner. INTRODUCTION Direct marketing from producers to consumers has received considerable attention in recent years. Surprisingly, whereas direct marketing started as a reaction of, mostly, small‐scale farmers to the increasing price squeeze (difference between prices and costs) and the market power of retailers and merchants in conventional marketing channels, most attention in the last decade was going to the socio‐ecological aspects of direct marketing. Direct marketing channels have been associated with ecological benefits such as a reduction in carbon emission, a reduction in energy and pesticide use. The fact that a large share of direct marketing farms produce under an organic or other ecological label has probably contributed to this. Socially, direct marketing channels are thought to benefit farmers’ pride, enhance the development of social capital, reinforce producer‐consumer bonds and build up trust and image. Further, direct marketing channels fill up structural holes (Burt, 1992) of the conventional 66

channels. These structural holes in conventional channels are formed when certain producer and consumer demands with respect to, for instance, authenticity, social contact, diversity, taste, become unfulfilled, in part due to the tendency of conventional marketing channels towards efficiency and uniformity (Van der Ploeg, 2011). Recently, attention has shifted again to the potential of alternative marketing channels to provide an additional source of income, to protect – small – farmers from the forces of the conventional market, to increase margins over costs and to protect farmers from volatile international commodity markets. This paper presents the economics of alternative marketing channels from a theoretical ad empirical point of view. Whereas some of the theoretical considerations are based on general farm economics, most of the elements specifically related to alternative marketing channels are based on foreign literature. To the best of our knowledge, economic analyses of alternative marketing – with the exception of the analysis by De Regt et al. (2010) – have yet to be carried out in Belgium. Vecchio (2009) also notes that, while there is a lot of literature from the U.S. (see Brown, 2002), economic studies on European farmers’ markets is very limited. ECONOMICS OF DIRECT MARKETING: THEORETICAL CONSIDERATIONS IMPACT ON INCOME We first present a simple theoretical model reflecting the choice between a direct (d) and conventional (c) marketing channel, for the very simple case of one product with total production Q and two marketing channels, the direct and the conventional channel: Where NR is net return, Pd and Pc output price in the direct and conventional channel, Qd and Qc output allocated to the direct and conventional channel, Cc and Cd marketing costs per unit product for both channels and C all other production costs (independent of the choice of channel). Marketing costs comprise not only pure costs of marketing the product, but all ‘production’ costs that are implied by choosing a particular channel. Solving the first order conditions yields 67 ,

FOOD SAFETY OF THE SHORT SUPPLY CHAIN - FAVV
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