AGB 301 Test 1

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kderaad
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302274
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AGB 301 Test 1
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2015-06-10 23:39:37
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ABG 301
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AGB 301 Food and Fiber Marketing Test 1
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  1. What is a commodity?
    • Homogeneous good
    • unbranded,
    • market sets the price.
  2. Industrial Project
    partly processed sold to food manufacturers.
  3. Consumer Project
    • usually branded, differentiated. 
    • Monopolistically competitive market.
  4. 3 aspects of good ideas marketing change
    • 1. form
    • 2. location (space)
    • 3. time
  5. Who sets grading standards
    • Government
    • USDA
    • Trade organizations
    • Producer boards.
    • Processor groups
  6. Subsistence agriculture
    food produced and consumed  by the same people
  7. Marketing activities
    • Exchange between at least two parties.
    • Some level of processing.
    • Change as production and processing technologies change
  8. Futures markets
    (why do farmers enter the market)
    Long/short position
    • farmers enter futures market to reduce risk - like insurance
    • —A futures exchange or derivatives exchange is a
    • central financial exchange where people can trade standardized futures contracts;
    • that is, a contract to buy specific quantities of a commodity or financial instrument at a
    • specified price with delivery set
    • at a specified time in the future.

    • Long Position: contract to buy
    • Short Position: contract to sell

    BUY LOW, SELL HIGH
  9. Hedging
    • Producers (users) of commodities can offset lower (higher) than expected prices through
    • gains from the futures market. 
    • Farmers who sell on the cash market take a short position.
    • People who buy commodities on the cash market take a long position.
  10. Basis
    Cash-futures (mostly negative)

    Futures higher than cash because of time, storage, location (cash is now, today)

    —The difference between the local cash price and the futures price
  11. 3 axioms of behavior
    • 1. limited behavior
    • 2. more preferred to less (unlimited wants)
    • 3. rank preferences
  12. Inelastic vs elastic demand
    • E > 1 is elastic should lower price to increase revenues
    • E < 1 is inelastic should rise price increase revenues
  13. Cross price elasticity
    • <0 = complement
    • >0 = substitute
  14. Income elasticity
    • <0 = inferior
    • >0 = normal good
    • >1 = luxury good
  15. Movement along demand curve
    change in quantity demanded

    to find surplus take area of the triangle
  16. #1 factor that determines what we eat
    • 1. Nationality
    • 2. Ethnicity
    • 3. Income
    • age
    • all other factors
  17. Buying Behavior
    What determines what we buy?
    • Transport - how you get food home
    • Preparation - reheat or cook
    • Where and how buy - grocery store or convenience store
    • Eating – an event, a celebration, or a
    • single diner
  18. consumption trends
    • Generational
    • Eat more: cheese, poultry, oils, sugar (high fructose corn sugar) fruits and vegetables, fish (as much farmed as caught in wild) 
    • Eat less: fluid milk, lamb
  19. Food Trends
    Food safety concerns
    • more labeling and regulations
    • Microbial – e. coli, salmonella.
    • —Natural toxins – shellfish, aflotoxins in pistachios.
    • —Additives – guar gum, colors
    • —Ag Chemicals – pesticides, insecticides,
    • fertilizers.
    • —Hormones in animals.
    • —Animal welfare.
    • Physical contaminant – rocks in rice
  20. Food marketing system
    • channels farmer ->farmers market
    • channels farmer ->middlemen -> store
    • Facilitates information flows – what consumers want
    • Changes ownership of goods
  21. Middlemen
    • Brokers (don't take possession)
    • Market middlemen (take posession)
  22. Cooperation
    • One member, one vote
    • Problems with co-ops:
    • -Raising capital – the horizon problem.
    • -Retain earnings or disperse them?
    • -Quality control
    • Many co-ops have converted to
    • investor-owned firms
  23. How many food products are introduced every year>
    20,000
  24. How much of our food do we get at the grocery store?
    94% of food from grocery store
  25. Biggest store
    • 1. Wal-Mart
    • 2. 1/4 size of Wal-Mart
  26. Affects of a quota
    • Consumers pay more.
    • Consumer surplus decreases.
    • Price to domestic producers increases.
    • Producer surplus increases.
    • The importer makes an economic rent (buys at world price, sells at a higher price).
    • A small dead weight loss
  27. The difference between a tariff and a quota:
    • Consumers pay more under both.
    • Domestic producers receive higher prices under both.
    • Both produce a dead weight loss.
    • Tariffs are public revenues.
    • Quota rents go to the importer
  28. Non-tariff barriers
    • Phyto-sanitary regulations that limit trade.
    • Are restrictions on GMOs a non-tariff barrier?
    • Do Mexican avocados put CA avocados at risk?
  29. Effects of Tariffs
    • Raise price to consumers.
    • Decreases consumer surplus.
    • Increases price received by domestic producers.
    • Increases domestic producer surplus.
    • Tariff revenues are public funds.
    • Small dead weight loss
  30. Tariff vs. Quota
    • Tariff: a tax put on import
    • Public revenues-tax, raises price
    • Quota: -revenues go to importers-control amount imported
    • Both raise price to consumers increases consumer surplus
  31. Technology
    Trends in international food trade
    • Has changed shipping with shipping containers
    • use of shipping containers 
    • shipping lines have bigger ships
  32. Standard Grades
    • Prices can be established for each grade.
    • Commodities can be sold on description.
    • ->increases efficiency in marketing
  33. Physical Risks
    • Biological processes.
    • —Stochastic processes.
    • Deterioration.
    • —Transportation.
    • ->risk-reducing inputs: eg, pesticides.
    • ->crop and other insurance.
    • ->HACCP
  34. Financial risk
    • Will you get paid.
    • Interest rates.
    • —Exchange rates.
    • ->letters of credit, long-term financing, forward contract.
  35. Price Risk
    • Can you buy low and sell high?
    • Will output prices cover cost of production?
    • Will input prices stay low enough to allow a profit?
  36. Initial Futures Margin
    • the amount of money that is required to
    • open a buy or sell position on a futures contract
  37. Margin Maintenance
    added money needed to keep your margin high enough to cover expected losses.
  38. Margin Calls
    notice from your broker that you need more money to maintain your margin.
  39. Indifference Curve
    • A consumer “reveals his/her preferences” according to the 3 axioms of behavior.
    • The consumer is indifferent between different combinations of goods along the curve.
    • Total utility is the same at any point on the curve.
  40. Substitution effect
    • effect reg. price change with income effect
    • relative price goes down as income effect changes in price.
  41. Income Effect
    • If price of gas goes down can spend more on others
    • A change from one indifference curve to another due to a price change is called
    • the income effect
    • A price decrease (increase) allows me to move to a higher (lower) indifference
    • curve, resulting in an increase (decrease) in utility.
  42. Increase in demand is due to
    • income goes up 
    • tastes and preferences
    • demographics
  43. Quantity demand
    will only go up with change in price
  44. Law of Demand
    • Demand is a negative price/quantity relationship.
    • Consumers buy more (less) of a good as its price decreases (increases).
    • The “Veblen Effect” of conspicuous consumption exists, but is very rare.
  45. Market Demand
    • Market demand is the sum of individual consumers’ demands for the good or service.
    • Market demand is based on the price of the good, prices of other goods/services
    • (competing ends) and limited budgets.
    • D = f(prices, income|tastes & preferences)
  46. Change in demand
    • A change in demand can be caused by
    • -Change in income (or wealth or budget).
    • -Change in prices of other goods or services.
  47. Own-price elasticity
    • How responsive quantity demanded is to a price change.
    • If a firm can set its price, knowing the elasticity of demand for its product can
    • help to maximize their revenue
  48. Maximizing Total Revenue
    • Total revenue = P * Q
    • If demand is elastic, lowering price raises total revenue.
    • %DQd  > %D P.
    • The increase in sales is greater than the
    • decrease in price.

    Note the reverse:  raise price and TR decreases.
  49. Good/services with elastic demands
    • Lots of substitutes
    • Luxuries, or at least not necessities.
    • Takes a large budget share
  50. Inelastic goods or services
    • Few good substitutes
    • Necessities
    • Usually a small budget share – drugs and health care can be exceptions
  51. Conditions for Perfect Competition
    • 1.Homogeneous products.
    • 2.Lots of consumers.
    • 3.Lots of producers.
    • 4.Freedom of entry and exit.
    • ->Buyers and sellers acting independently to maximize their utility and profits,
    • respectively
  52. Monopolistic Competition
    • Lots of buyers and sellers
    • Branded products
    • Relatively easy entry and exit
  53. Oligopoly
    • Either homogeneous or heterogeneous products.
    • Just a few sellers.
    • Definite barriers to entry
  54. Monopoly
    • Homogeneous or heterogeneous product.
    • Only one seller.
    • Clear barriers to entry
  55. Monopsony
    • Lots of producers.
    • Only one buyer
  56. Marketing Margin
    • The difference between the farm price and the consumer price
    • A higher marketing margin indicates more value added
  57. Vertical and Horizontal Linkages
    • Degree of vertical  coordination:
    • -poultry industry (do everything)
    • -Contracts, partnerships
    • -Arms-length transactions on open market
    • Degree of horizontal coordination
    • -Perfect competition
    • -Contracts, partnerships, co-ops
    • -Monopoly
  58. Food manufacturing for consumers
    Selling to consumers
    • Shelf life
    • Processing
    • Costs
    • Primary and secondary commodity supply
    • Promotions
  59. Selling to food manufacturers
    Selling to businesses
    • Technical information and help
    • Samples
    • Delivery schedules
    • Price and payment options
    • Personal sales
  60. Top imports
    • Canada 
    • Mexico
    • EU-28
    • China
  61. Top exports & and imports
    • Exports
    • China
    • Canada
    • Mexico
    • Japan
    • Imports

    • Canada
    • Mexico
    • EU-28
    • China
  62. Autarky
    an economy with no trade
  63. "Trade Policy” is a misnomer
    • Domestic policy affects our trade relations
    • -US sugar policy.
    • -Cotton subsidies.
    • -Japanese car quota
  64. Trading Blocks
    • Trade with friends and neighbors
    • -1787: Confederation of States
    • United States.
    • -1957: EC 6, expanded into EC 12, now EU
    • 28
  65. % of disposable income spent of food
    about 10%-8%
  66. Hierarchy of why people buy food
    • survival (nutrition)
    • taste
    • health & convenience
    • living well
    • show off status causes
  67. Perfectly completive markets are:
    price takers
  68. Merchant Middle Man vs Broker
    Middle hand takes ownership
  69. USDA and trade
    • is non biased 3rd party grading system. can be done by trade organization
    • -facilitates trade
  70. 4 p's of marketing
    • 1. Product
    • 2. Place (sold)
    • 3. Price
    • 4. Promotion
  71. 3 C's of pricing
    • 1. cost of production
    • 2. competition
    • 3. consumer
  72. Branded product marketing
    • mission
    • vision
    • strategy
  73. Competitive premise: how do you profit
    • commodity producer-lower costs
    • differentiated product - higher quality or out of season)
    • Niche market - one of a kind
    • synergy - greater when combined with others
    • Pre-emtive mover - first on the scene
  74. Who selling to in a target market
    • consumers
    • industrial
    • food service
    • retailers
  75. consumer market segmentation
    identify your market so you can:
    • measure your potential market
    • target your advertising & promotion
    • satisfy their words
  76. Consumer market segments
    • geographic
    • sociocultural
    • demographic
    • psychographic
    • user behavior
  77. Industrial markets
    Macro segmentation
    group characteristics: location, size, type of processing
  78. Industrial Markets
    Micro segmentation
    company characteristics: buying process, technical expertise, product needs
  79. Segmentation strategies
    • undifferentiated - mass market
    • concentrated - single segment
    • differentiated - several products aimed at specific target markets
  80. Secondary market research
    making use of existing data
  81. Brand equity
    the added value endowed on products are services, reflected in how consumers think, feel, and act with respect to the brand, as well as prices, market share & profitability
  82. Five dimensions of brand personality
    • 1. sincerity
    • 2. excitement
    • 3. competence
    • 4. sophistication
    • 5. ruggedness
  83. seven types of brand stories
    • 1. overcoming the monster
    • 2. rebirth, story of renewal
    • 3. quest
    • 4. journey and return
    • 5. rags to riches
    • 6. tragedy
    • 7. comedy
  84. Reasons for multiple brands in portfolio
    • increase self presence & retailer dependence
    • attract consumers seeking variety
    • increase internal competition
    • yield economies of scale
  85. Product life cycle
    • may be month, years, decades
    • Introduction
    • growth
    • maturity
    • decline
  86. Grocery distribution: Push vs. pull promotion
    Push: product through the market channel using trade promotions, personal selling, price incentives to wholesales & retailers
  87. Grocery distribution: push vs Pull promotion
    • Pull: get consumers to pull the products through the marketing channel using advertising consumer promotions
    • In practice, most use a mix of both
  88. Gross Rating points
    1 grp is 1% of the universe being measured
  89. Advertising schedules
    • continuous - constant level over time
    • flighting - on then off over time in bursts
    • pulsing - continuous but at varying frequencies
  90. Personal selling* vs advertising
    • products: non standardized, high unit value, technical, purchased infrequently, needs demonstration, high emotional value
    • market is: geographically concentrated, few customers, price is negotiable
  91. Personal selling vs. Advertising*
    • products: standardized, low unit value, nontechnical, purchased frequently, simple to use, low emotional evolvement
    • market is: geographically dispersed, lots of customers, price is set
  92. Price setting methods
    • market pricing
    • taret-return pricing
    • (perceived) value pricing
    • going-rate pricing
    • auction-type pricing
  93. Pricing issues
    • Geographical pricing 
    • discounts (cash, quantity, seasonal)
    • promotional (loss-leader, special event, cash rebates)

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