2 Changing Food Marketing Systems in Western Countries

Chapter2 2 Changing food marketing systems in western countries M.T.G. Meutenberg andJ. Viaene 2.1 Introduction Agricultural and food products have traditionally been marketed through institutionalized markets,suc h ascommodit y exchanges,auction s andwho lesale markets. Pricesar eth e centralcoordinatio n mechanismsi n such mar kets.However ,agricultura lan dfoo d markets havechange d drastically in the last few decades. Perhaps the most fundamental change is the shift from production to market orientation.I n ordert o establish astron g competitive position in their market, agricultural and food companies have to produce goods andservice s which match the wants and needs of consumers. In this contextth ecoordinatio n ofcompan ydecision si n thefoo d marketingsyste m has become extremely important. Consumer orientation, competitive strength and marketing efficiency are key words in agricultural and food marketing. In conjunction with this development, food marketing systems have become more diverse and moresophisticated . Thischapte ri sconcerne dwit h changesi nth efoo d marketing system,i n par ticular in the European Union (EU).First , aframewor k ofth e marketingsys tem is proposed in order to analyse marketing and markets of agricultural andfoo d products.Afterward s developmentsi n the environmento fth e food marketing system are reviewed. Subsequently structural developments in food marketing systems areanalysed .Attentio n will bepai dt o actorsi n the marketing channel, such as farmers, wholesalers, the food industry and retailers. Marketing strategies which have become important in the Europeanfoo d marketing systems arereviewed .Th echapte r endswit h some conclusions. 2.2 Thefoo d marketing system:a framewor k Direct marketing from farmer to consumer is the exception rather than the rulei n Westerncountries .Agricultura lmarketin g channels haveevolve dint o food marketing systems consisting of different actors, such asfarmer ,who lesaler, the food industry and retailer. Figure 2.1 Farmer Farmer Farmer Farmer Industry Basicpattern so f Consumer Middleman Wholesaler Wholesaler Farmer food marketing Consumer Retailer Industry Industry channels Consumer Retailer Retailer Consumer Consumer Changing foodmarketin gsystem si n westerncountrie s These actors, sometimes organized in aspecifi c way, such as cooperatives, have emerged in the food marketing channel for reasons of effectiveness, efficiency or equity. Forinstance ,dair y cooperatives havebee nse tu pi n the past in order to: (a) increase marketing effectiveness, e.g. by productinno vation and better product quality; (b) improve marketing efficiencye.g . by economies of scale in processing and logistics, and (c) enlarge equityb y strengthening farmers' bargaining power vis-à-vis other actors in the mar keting channel. The exchange process for food and agricultural products can take place through institutionalized markets, such as commodity exchanges, auctions andwholesal e markets. Other types of exchange processes,suc h asa direc t relationship between producer and retailer, arebecomin g more popular.Th e structure of markets and marketing channels has become more diverse and depends on the marketing strategy pursued by the actors of the food mar keting system. In some cases food marketing systems need specific inputs within the context of their product policy, and for that reason agribusiness companies, such as mixed feed or seed companies, are becoming a part of the system. In other cases food marketing systems shrink by excluding or integrating companies,e.g .th e exclusion orintegratio n ofa wholesalecom panyi n the exchange process between producer and retailer. The analysis of food marketing and markets should cover the system of actors involved in the marketing of a food product. In real life there is a greatvariet y offoo d marketing systems rangingfro m conventionalmarketing channels, whereactor s areconnecte d by markets andcoordinate d bymarke t prices,t o vertical marketing systems, where actors operate onth e basis ofa coordinated marketing plan. Essentially an analysis of food marketing systems is based onth e following questions: Which marketing functions are performed? How is the perfor mance of these functions institutionalised? What kind of relationship exists betweenthes einstitutions ?Thi sframewor k canstructur eth e analysiso fcur rent dynamic food marketing systems. 2.2.1 Functions The performance of marketing functions should be based on a thorough knowledge of the environment of the marketing system.Variou s aspects of the environment can be differentiated: the general environment, which inf luences mediuman dlon gter m marketing policies ofa company ,an dth e task environment, which is relevant in a specific product-market combination. Within the general environment adistinctio n can be made between the eco nomic, demographic, social, political, physical and technological environ ments. On the demand side,trend s in the generalenvironmen t causechan gesi n consumer wants and needs with respect to food products andservi ces,and ,o nth esuppl yside ,ne wsystem so f production andinformation .Fo r instance, many agricultural and food companies are interested in future Chapter 2 developmentsi n biotechnology andi n their acceptance byconsumers . These environmental trends determine the opportunities for and threats to food marketing systemsi n the medium and/or long run. Thetask environment of afoo d marketing system consists of: (a) consumers or customers, as well as consumer groups and lobby groups representing societalinterests , (b) competitors who operate in the sametarge t market; (c) agovernment , which both stimulates andregulate s agriculturalan dfoo d marketing. Every product/market combination has a specific task environ ment. However, task environments of many product-market combinations havedevelopment s in commonsinc ethe y resultfro mth e samegenera lenvi ronment.Thes ecommo nchange si nth etas k environmentwil lb einclude d in our discussion of the generalenvironment . 2.2.2 Institutions How should the fulfilment of marketing functions be institutionalized, in order to best serveth e chosentarge t group? Should companies differentia te or integrate specific marketing functions and which criteria should be applied for that purpose? In general,suc h decisions arebase d onth e crite riao f effectiveness, efficiency andequity. Theories about marketing channel structure use specific criteria which essentially are related to these three basic criteria. For instance, marketing theories about the length of marke ting channels, use efficiency/costs criteria (Stigler, 1951; Bucklin, 1965; Mallen,1977) .Effectivenes s criteria,suc ha ssale svolum ean dmargins ,hav e also been used in theories about channel length (Aspinwall, 1962). Equity criteria, in particular channel power, have been applied in the behavioural analysis of marketing channels (Stern, 1969; Brown et al., 1995). 2.2.3 Relationships Therelationshi p between actors in the food marketing system is acorrelat e ofth e marketing strategy and marketing functions to beperformed .I n spot markets relationships between actors areweak .The y are close in food mar keting systems when marketing policies have to be coordinated precisely, such asi n the case of marketing private brand names. These relationships between actorsi n thefoo d marketing system can beinforma l or legally bin ding. Consequently, an analysis of food marketing systems has to consider the implications of changing marketing strategies for the relationship between actors in thesystem . In summary,th e proposedframewor kfo r analysing changing food marketing systems perceives the actors involved in the marketing of food productsa s members of amarketing system which hast o respondt o changesi n its envi ronment with an effective marketing strategy. Also, autonomous develop ments within companies of the system, such as the development of new retail concepts, new processing technologies and breeding methods, will Changing foodmarketin gsystem si nwester n countries have a strong impact on food marketing. Good relationships between the actors of afoo d marketing systemar e crucialfo r good performance. Figure2. 2 Aframewor kfo rfoo d Economic, Demographics, Social marketingsystem s GENERAL TASK i—- Industry £ E N E 1 f N — Farmer V N V V ! v I I 1 I i R R —- Wholesaler R R 0 0 1 U 0 N Industry N N M ,v, N M E 1 E M E ! N — Wholesaler N E T Ï N ; 1 N T 1 T CONSUMER. rOMPrTTTCR _ (.lKll<ÎJW,(Nr, L:!ffcVibIS GENERAL Political, Physical, Technological 2.3 Developmentsi n the environment ofth efoo d marketingsyste m Changesi n the environment ofth e food marketing system are opportunities andthreat s for marketing strategies. We will discussthes echange sconcise ly and elaborate sometopics .I n our exposition wefollo w the classification outlined in Section 2.2, of economic, demographic, social, political, physi calan dtechnologica l environments. 2.3.1 Economic environment Theeconomi c environment influences marketing strategies of the foodsys tem in various ways. Percapit a disposable income is abasi c determinant of food consumption. Its quantitative impact can be expressed in the income elasticityo ffoo ddemand .Incom e elasticities ofth edeman dfo r genericfoo d products aresmal li n Western countries.Thi si s one of the reasons for satu ration in food consumption: the well-known Engel's law states that with increasingincom eth e percentage ofconsumers 'disposabl eincom

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