4 years ago



In addition, in direct

In addition, in direct selling, the farmer applies an individual risk management strategy, in contrast to farmers selling in the conventional channels, often applying a collective risk management strategy. In direct selling, a shock in one product category (e.g. a bad harvest) is absorbed by offering different product categories to the customer, spreading the risk across different products. Second, the risk of losing a single buyer is spread across many other buyers. In conventional sales channels, only one product is marketed by many suppliers. Shocks are hence absorbed collectively through the price mechanism. Sales Production Gross revenue Costs Profitability Price/unit 70 Sales Production Gross revenue Costs Profitability Price/unit Figure 1. Price risk in conventional marketing channels (left) versus market risk in direct marketing channels. Another mechanism that alters the nature of the risk involved is trust. The way trust is achieved in direct marketing is also fundamentally different compared to conventional sales channels. Given the increasing distance in conventional channels between producers and buyers, eventually consumers, public and private institutions such as certification, traceability and labeling needed to be devised to create the necessary trust. In direct marketing, these institutions are replaced by the farmer, who materializes the trust ‘in persona’. The short distance between producer and customer creates trust, which is seen as one of the cornerstones of direct selling. Given the absence of more ‘objective’ measures of trust (such as a certificate issued) compared to the conventional channel, the direct selling farmer is however very susceptible to changes in this trust. A single shock (for example a food scare) can destroy the trust base of the customers. As this is the cornerstone of direct selling, the adverse effects on profitability can be substantial. In conclusion, the theoretical farm‐level impact of direct marketing is unclear. The analysis, however, clearly shows the importance of (1) considering marketing costs for each channel, especially fixed marketing costs; (2) considering the scale of sales, as supplied products that are left unsold represent

a major marketing cost and induces a shift from price risk to market risk, rather than reducing risk. ECONOMIC IMPACT OF DIRECT MARKETING: THE FACTS All theoretical considerations regarded, the question if and to what extent direct marketing contributes to farm profitability remains an empirical one. Good managers under good circumstances should be able to develop a profitable direct marketing business. In this section, we summarize the available empirical literature on the economic impact of direct marketing. It must be noted that farm economic analyses of the impact of direct marketing are scarce. Several studies have investigated the specific marketing costs associated with different channels. A major conclusion from most of these studies is the importance of marketing labor costs. Significant costs of direct marketing and on‐ farm processing, especially those related to time and labor, can present obstacles to expansion of local food sales (Biermacher et al., 2007; Lawless et al., 1999). Interviews with farmers in New York (LeRoux et al., 2010; Uva, 2002) and California (Hardesty, 2008; Kambara and Shelley, 2002) indicated that shortage of labor related specifically to marketing activities is consistently reported by farmers as being a barrier to direct marketing. In Belgium, this finding was confirmed by De Regt et al. (2010) who found that, when a value on own unpaid labor was set, net profit of farm processing was negative. Verhaegen and van Huylenbroeck (2001) performed a qualitative analysis of costs and benefits of participation in direct sale channels, and found that all costs were compensated for by higher price, revenue and reduced uncertainty. Tegtmeier and Duffy (2005) surveyed a large number of community supported farms and found that net returns to land were much higher than for conventional soy, corn and wheat growers. However, over half of the surveyed population responded negatively to the question whether CSA provided them with a fair wage. KEY FACTORS FOR ECONOMIC SUCCESS Based on the theoretical considerations and the evaluation of the empirical literature, a number of key factors for economic profitability may be identified. Here, we concentrate on internal key factors, or key factors that can be controlled by the farm manager: (1) type of direct marketing; (2) scale of sales; (3) managerial ability; (4) passion, attitude and effort. DIVERSIFICATION OF MARKETING CHANNELS Several authors (e.g. Hardesty, 2007; Hardesty and Leff, s.a.) show that marketing costs, and hence the profitability of direct marketing may vary a lot across 71

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