The term ‘commodity’ is commonly used in reference to basic agricultural products that are either in their original form or have undergone only primary processing. Examples include cereals, coffee and cocoa beans, sugar, palm oil, eggs, milk, fruits, vegetables, beef, cotton, yam, cassava, and rubber.
A related characteristic is that the production methods, post-harvest treatments, and/or primary processing to which they have been subjected have not imparted any distinguishing characteristics or attributes.
Therefore, within a particular grade, and with respect to a given variety, commodities coming from different suppliers, and even different countries or continents, are ready substitutes for one another.
Agricultural commodities are also generic, undifferentiated products that compete with one another on the basis of price. Consequently, commodities contrast sharply with those products which have been given a trademark or branded to communicate their marketable differences.
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Importance of Commodity Marketing in Agricultural Development
Commodity marketing is crucial to the success of the rural economy and is a key element in the development of the sector. In developing countries, commodity marketing has been undermined by a variety of factors, including a dearth of social and physical infrastructure, such as inaccessible roads and markets; lack of processing and storage equipment, which exacerbates post-harvest losses, etc.
This development has increased the risks associated with commodity marketing, playing a major role in the pricing of primary commodities in developing countries. Various countries also have policies relating to commodity marketing.
Following national independence in many African and Asian countries, state agencies became the conduits for major commodities. They dictated prices and purchased commodities from farmers, often without recourse to market mechanisms.
Over time, commodity prices offered to farmers by state agencies were at variance with international market prices, prompting farmers to cut down production or abandon their activities altogether. Consequently, production of commodities declined in many developing countries, undermining state revenue and impoverishing farmers, whose livelihoods have been undermined.
However, in the early 1980s, many developing countries embraced economic reforms encapsulated under different economic frameworks, including Structural Adjustment Programmes (SAPs).
With economic reforms, most state-owned commodity agencies were abolished in a development that liberalized the rural economy in many countries. The advent of economic reforms permitted private entities and individuals to engage in commodity marketing under a deregulated framework.
This development inspired competition, accompanied by favourable prices, which encouraged farmers to produce more. Thus, production of commodities escalated in many countries, allowing rural farmers to benefit from international market prices, which was denied them prior to the 1980s.
Grain Marketing in Agricultural Commodities
Grains are an important element of agricultural commodities. Marketing of grains is therefore key to the success of many farmers and commodity marketing organizations. The principal players in grain marketing systems are producers, marketing boards (where they still exist), brokers, millers, livestock farmers, animal feed processors, other food manufacturers, grain exchanges, and exporters.
A Typical Grain Marketing System
The physical marketing system begins with the assembling and collecting points located in the rural areas close to the producers. The next stage involves the storage areas at the national grains marketing facilities owned by an appointed parastatal and/or private grain elevator, and the grain milling companies, which in some countries are privately owned and in others are government enterprises.
Although the size and methods of operation differ from one country to another, the local assembling and collection points usually have grains brought to them either directly by farmer-producers themselves or by rural entrepreneurs. Thus, in the case of grain, the assembly and storage functions are typically combined at this marketing stage.
A common feature of grain marketing systems is the co-existence of a government marketing agency and a parallel private marketing channel with a myriad of private traders. The second class of actors in the commodity marketing system is private agents.
These include private individuals operating in the system as petty assemblers, traders, large-scale merchants, millers (both large corporations and small rural operators), brokers, and retailers of grain products.
The Economic Importance of Animal By-Products
Meat component of an animal typically accounts for 80 percent of its value. In this context, livestock animals include cattle, sheep, goats, and pigs. Producers’ attempts to adjust livestock production in keeping with demand often result in adverse market effects.
The problem for livestock farmers is the inevitable lags between changes in demand and adjustments to supply. In order to expand meat supplies in response to anticipated increases in demand, livestock producers must channel animals into the breeding herd rather than the market.
This pushes up meat prices over the short run. Conversely, when prices fall, farmers try to reduce production levels by selling off animals. The sell-off increases meat supplies and further reduces prices over the short run.
Profits are further squeezed by the increase in costs in the form of additional storage and interest charges. This practice of adjusting future production according to present-day prices results in marked output and price peaks and troughs. Often, livestock prices drop below production costs and thus retard the industry since producers become discouraged.
Poultry and Egg Marketing in Agricultural Commodities
Poultry farmers have three distinct types of birds from which to select their flocks:
1. Hybrid Broilers: In addition to pure chicken breeds, specialized breeders sell chickens which are first crosses and multiple crosses. The latter are known as hybrids, gaining more weight quickly and laying more eggs than pure breeds and are therefore genetically used by poultry breeders. They are only suitable for commercial food production, having an excellent food/meat conversion ratio.
2. Dual-Purpose Birds: These give good carcasses when slaughtered but only moderate egg production. A mature female can be expected to weigh about 2.25kg. This type of bird has the advantage of rarely exhibiting cannibalism and is hardy against disease. However, they do tend to go broody, and consequently, egg production can decline.
3. Lightweight Birds: These are bred for egg production. Lightweights have excellent food conversion rates and rarely go broody. However, they do need good management and, therefore, are only recommended to experienced poultry farmers.
Development Stages of Poultry Enterprises
Item1st Stage: Backyard Poultry2nd Stage: Farm Flock3rd Stage: Commercial Poultry Farm4th Stage: Specialized Egg Production5th Stage: Integrated Egg ProductionSub-division of egg productionDay-old chick pullet growing, feed production, mixed culled hens, egg and manure integrated on farmHatchery production separate from poultry farmingFeed production separate from poultry farmsChicken meat production becomes independent of poultry production in the form of the broiler industrySeparate enterprises re-integrated as a businessMain management characteristicsNatural hatchingArtificial hatching and sexingFeed mixingEgg processing plantControlled environment housesType of farmingSubsistence farmingMixed farmingJoint egg and meat productionEgg industry (single commodity)Egg complexLabourPart-timePart-timeFull-timeDivision of management of labourSeparate daily work and random workBuildingFree rangeWater feederWater feederManure disposal equipmentEgg belt automatically controlled house
Within the developing world, poultry and egg businesses may be found at all five stages of development, although more commonly they are likely to be more at the first and second stages. Amongst peasant farmers, poultry are allowed to find their own food and water and roost where they can in the family compound.
Under these conditions, it is not surprising that productivity is low and mortality rates among the birds are high. Commercial broiler and layer enterprises need to have a much higher level of technology and management.
However, they too have their problems. In developing countries, commercial producers are reliant to varying extents upon expensive imports of breeding stock, i.e., hatching eggs and/or day-old chicks, animal health products, and vitamin and mineral additives for compound feeds.
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Marketing of Fresh Milk in Agricultural Commodities
While milk can be converted to a range of dairy products, such as cheese, butter, yoghurt, dried powders, etc., these are not commodities. It is generally the case that the processing of milk into these products involves a measure of product differentiation.
That is, the methods, techniques, and technologies used in manufacturing dairy produce tend to impart unique characteristics to the finished product. Milk is an extremely important human food. Not only is it a relatively cheap source of protein, but it is also rich in minerals such as calcium and vitamins A, D, and B2.
The quality of milk is usually judged according to its butterfat content. In addition, buyers are also concerned that it should be free from diseases like tuberculosis. In all parts of the world, milk production is seasonal, but the peaks and troughs are higher in the tropics.
Production in the tropics peaks just after the rains when there is lush pasture available and progressively declines the further into the dry season. As in the case of beef production, milk producers have to take into account the lengthy biological lags when trying to match the supply and demand for liquid milk.
When there is an over-supply of milk, then it might be possible to channel some of the excess into making butter, cheese, yoghurt, and other processed dairy products.
However, the market for these products is finite too, and although dairy products can be stored longer, higher levels of capital are tied up, and interest charges are higher for storing these value-added products, in comparison to milk.
In this article, the concept of commodity marketing, as well as its mechanisms, has been explained. The market participants and the various products in commodity marketing have also been introduced.
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Frequently Asked Questions
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