Marketing

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Material Information

Title:
Marketing a requirement for profit with fresh produce
Series Title:
Staff paper ;
Physical Description:
17 leaves : ill. ; 28 cm.
Language:
English
Creator:
VanSickle, John J ( John Jay ), 1952-
Publisher:
Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
Place of Publication:
Gainesville, Fla
Publication Date:

Subjects

Subjects / Keywords:
Farm produce -- Marketing   ( lcsh )
Vegetables -- Marketing   ( lcsh )
Genre:
government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )

Notes

Bibliography:
Bibliography: leaf 18.
Statement of Responsibility:
John J. VanSickle.
General Note:
"February 1985."

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
oclc - 16934916
ocm16934916
System ID:
AA00007211:00001

Full Text























MARKETING--A REQUIREMENT FOR PROFIT-WITH FRESH PRODUCE


BY


John J. VanSickle


Staff Paper 273


February 1985


Staff Papers are circulated without formal
the Food and Resource Economics Department.
is the sole responsibility of the author.


review by
Content


Food and Resource Economics Department
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611




John J. VanSickle is an Assistant Professor in Food
and Resource Economics, IFAS, University of Florida.














MARKETING A REQUIREMENT FOR PROFIT WITH FRESH PRODUCE


Introduction

An often heard statement and question made by farmers about growing

vegetables in areas where they are not currently commercially grown is

..."We can grow almost any vegetable that can be grown in other parts of

Florida. How do we develop a market for these vegetables?" The answer to

this problem is not easy. It is true that from a production standpoint

many vegetables can be commercially grown in areas of Florida they are not

currently grown. It is the unique marketing characteristics of fresh pro-

duce, however, that often prevents development of a viable commercial vege-

table industry.

The purpose of this bulletin is to discuss the unique marketing char-

acteristics of the fresh produce industry and to discuss methods growers

may pursue for developing markets that fit these unique characteristics.

Developing new markets is an age old goal of farmers and others serving

agriculture. This bulletin discusses methods for developing new markets

that require a minimum of structural change in the industry.





Characteristics of the Produce Industry



The commercial produce industry is diverse and complicated. Most

fresh produce must be moved through the marketing channel quickly once it

reaches a mature state to insure the best quality for the consumer at a

fair price for the grower. The distribution system for fresh produce is














very complex. Figure 1 illustrates the typical participants and marketing

channels for fresh produce.

Consumers purchase fresh produce from food service establishments,

supermarkets, other retail outlets, and local markets. Local markets are

those markets where growers market produce directly to retailers and con-

sumers, without the services of a middleman. Local markets include local

retail groceries with local owner-operators, U-pick operations, roadside

stands, and city and local farmers' markets. If growers are considering

the option to grow fresh produce in a new area, the local markets are the

first marketing options that should be considered. Local markets may be

easier to access and develop than markets serving other retail outlets.

Food service establishments, supermarkets and other retail outlets are

generally serviced through regional and national markets. Because of the

diversity of fresh produce handled in these markets, the fresh produce

industry is characterized by many growers (there are many crops, most hav-

ing many growers) and comparatively few commercial buyers. As evidenced by

the complicated marketing channels depicted in Figure 1 between the grower

and these retail markets, it is difficult for growers to develop a market

which can offer the services necessary to supply these outlets. Growers

generally use produce dealers (often called brokers) to arrange the market-

ing of produce to these markets. These dealers are indicated in Figure 1

with dotted lines connecting them to the marketing channel because dealers

primarily facilitate the marketing process by making connections between

buyers and sellers. The role these middlemen play can be very important,

however, in developing a viable market.
















161. 34 MARKET LFVEI
% HANDLED
EXPORTS CONSLUERS
1-100%




FOOD SERVICE SUPERMARKETS AND 11-84%
ESTABLISHMENTS OTHER RETAIL OUTLETS LOCAL MARKETS

2 25 3

i2 7% 1&
INSTITUTIONAL 9 RETAIL INTEGRATED
-111-80
WHOLESALERS WHOLESALOLESALERS WHOLESALE RETAILERS




TERMINAL 12 2
MARKETS



16 401 40% 4%

S. DEALERS 40% -4


INTEGRATED IMDEPENDENT V-96%
GROWER SHIPPERS SHIPPERS


STATE
FARMERS
MARKETS




I0I 90%
IMPORTS GROWERS VI-100






Figure 1. United States fresh produce marketing system.


SOURCE: VanSickle, Adrian, and Epperson.














Because commercial buyers desire a steady supply of consistent, qual-

ity produce, these buyers often establish relationships with produce deal-

ers to assure themselves with some degree of confidence that they can ob-

tain the kind and quantity of produce they desire. Growers wishing to sell

produce in regional and national markets will probably need to acquire the

services of a produce dealer. The ability to acquire the services of a

produce dealer depends in large on the volume of produce available for

marketing by the produce dealer. Produce dealers generally operate on a

commission basis and will locate in areas where they believe they can mar-

ket the most volume of produce. Growers wishing to develop a commercial

fresh produce industry are therefore faced with something similar to the

chicken and egg dilemma. Produce dealers will not market produce in a new

area without substantial commitment from growers that an adequate volume of

produce will be available for marketing. Growers, however, cannot afford

to grow produce without some commitment that a reputable produce dealer

will market the produce. The only solution to this dilemma is to coopera-

tively solve both problems at the same time. A commitment must be obtained

from the growers that will satisfy the minimum needs of a dealer.

A grower wishing to develop a market for vegetables should consider

all marketing alternatives that are available. The marketing alternatives

considered should include marketing in local, regional and national mar-

kets. Considerations for determining whether a market is available in

these channels are discussed in the following sections.














Local Markets



Growers considering growing vegetables in an area where a commercial

vegetable industry does not currently exist should first consider the mar-

keting alternatives available in local markets. Local markets can be

easier to access because they can be served'by an individual grower with a

small or large volume of produce. The different local markets that can be

used by growers are discussed in this section.



Local Retail Outlets

Local retail outlets available to growers are generally family-owned

and operated businesses. The chain-store type of local retail outlet usu-

ally has a central purchasing department responsible for supplying many

stores, and therefore does not make a policy of purchasing produce locally.

Owner-operators of family-owned businesses usually purchase the pro-

duce they sell. A grower's ability to supply such stores depends on his

ability to sell both himself and his produce to the owner-operator. The

owner is interested in obtaining a dependable, stable supply of good qual-

ity produce. The advantage to the grower in selling directly to this out-

let is that no produce dealer's fee is paid. A disadvantage is that retail

outlets may handle only a small portion of the grower's total supply and

may therefore take more of the grower's time and effort than it is worth

for the grower to satisfy the retail owner's demand.

Growers wishing to pursue local retail outlets as a viable marketing

alternative must first identify those retail outlets in the surrounding

area that buy their own produce. This can be determined by contacting














produce managers at nearby stores. The grower must then determine the

needs of these buyers and decide if he can supply these needs.



U-Pick

A second method for selling in the local markets is by establishing a

U-pick operation. U-pick is advantageous in that it eliminates the cost of

harvesting and transporting the produce. Many fields are planted with the

express purpose of having all produce sold via the U-pick method. However,

U-pick operations often are set up in fields after it has become unprofit-

able for the grower to commercially harvest and market the produce. A

disadvantage to U-pick operations is that the grower may need to provide

additional management and capital investment to prevent damage to his field

and to provide for fee collection. Other factors important for the grower

to consider are insurance, advertising, traffic control, pricing, and su-

pervision of pickers.

The important factor for determining whether a U-pick operation is a

viable marketing alternative for a grower is location. A grower must be

close enough to a large population that will come to the grower's field to

pick their own produce. If the location is not on a main traffic artery,

the grower will also need to advertise his produce and location through

some popular media in the area.



Roadside Stand

A roadside stand is simply a retail business that is located in a

producing area rather than in a consuming area. The grower is able to

shift most of the transportation cost to the consumer and avoid the cost of

a middleman when marketing in this local market outlet.














Characteristics which contribute to the success of a roadside stand

include: (1) closeness to a large urban population center; (2) a long

selling season; (3) nearness to a high percentage of year-round residents;

(4) a large acreage available for producing a variety of vegetables, and;

(5) developing repeat customers through goodwill in the operation. Growers

considering a roadside stand as a viable marketing alternative should de-

termine whether they can possess enough of these characteristics to assure

success in growing produce.



City and Local Farmers' Markets

City and local farmers' markets are basically roadside stands that are

located in urban areas rather than in producing areas. These markets are

generally well established and have developed a clientele of consumers who

purchase in the market. The disadvantage to using this type of market

compared to roadside stands is that the grower must pay the cost of trans-

portation. The advantage is that the grower does not need to worry about

advertising to entice customers to travel to his stand.

If an established city or local farmers' market does not exist in an

area a grower or group of growers would like to market produce, then the

growers) must pursue avenues for establishing a new market. County exten-

sion personnel are a good source to begin with for finding information

concerning existing markets and for determining the potential for estab-

lishing a new market. The interest for the market must come from growers

who want to use the market, however, and once a market is established,

management of the market should be the responsibility of those who use it,

not county extension personnel.














Regional and National Markets



Food service establishments, supermarkets, and other retail outlets

generally procure produce in regional and national markets. Growers wish-

ing to sell produce in these markets must establish a marketing process

that provides services supplied by participants depicted in Figure 1. As

stated earlier, growers generally use the services of produce dealers to

sell in these markets. The challenge for growers who grow vegetables in an

area where no commercial produce industry exists is to find an established

dealer who will market his produce, and if that cannot be accomplished,

then the challenge is to make conditions in the area conducive to bringing

in a produce dealer.

The following discussion describes ways for obtaining a reputable

produce dealer for marketing fresh produce. Other methods for marketing

produce in regional and national markets are then described for those who

cannot obtain the services of a produce dealer or for those interested in

improving their marketing process by adding additional marketing alterna-

tives.



Obtaining a Reputable Produce Dealer

There are many kinds of dealers who may facilitate the marketing pro-

cess in regional and national markets. Produce dealers consist of two

general classes: selling dealers and buying dealers. Selling dealers

assist growers in selling their produce, and dealers put into this class

are grower's agents, selling brokers, and commission merchants. Buying

dealers purchase produce from the grower or agent of the grower, and deal-

ers put into this class are buying brokers and shippers.














Grower's agents generally work directly with the grower in one or more

phases of the production-marketing process. It is common for a grower's

agent to handle the selling of a grower's produce in the agent's own name

and then pay the net proceeds to the grower. The division of responsibil-

ity between grower and agent depends on the agreement made between the two

parties. The grower's agent should act in the grower's best interests in

all areas of responsibility assumed for the grower.

A selling broker acts as an agent for the grower, negotiating valid

and binding contracts for the sale of a grower's produce. The selling

broker charges a fee to the grower for his services only if a sale is made.

A selling broker generally contacts buyers in the receiving market to pur-

chase the produce.

A commission merchant usually operates out of the receiving market.

The commission merchant does not take ownership of the produce, but accepts

it on consignment and thus is obligated to act in the best interests of the

grower and to obtain the best possible price for the produce.

A buying broker is an agent for a buyer. A buying broker usually

operates from the shipping point and negotiates valid and binding contracts

between growers and the buyer he represents. The grower or the grower's

agent is responsible for the grower's interests when negotiating with a

buying broker since the buying broker is obligated to act in the buyer's

best interests.

A shipper is a buying dealer who purchases produce directly from the

grower for resale. A shipper generally operates from the shipping point

and assumes the risk for the produce once he purchases it. Again, the

grower or grower's agent is responsible for the grower's interests in nego-

tiating with the shipper.














Given the various kinds of produce dealers, finding a reputable dealer

who will assist the grower in the marketing process can be a difficult

task. Several sources of information exist for searching for the produce

dealer the grower needs. These sources include the State Department of

Agriculture Division of Marketing, trade magazines, and trade journals.-/

The State Department of Agriculture lists dealers who are licensed and

bonded according to regulations specified in Florida's A~i.B!icurai Bond

and License Law. The Agricultural Bond and License Law specifies that any

dealer who handles produce that is a) not grown by themselves, or b) not

paid for in cash at time of purchase with United States currency and is not

a bonded licensee under the Federal packers and stockyards act must be

licensed and bonded by the Commissioner of the State Department of Agricul-

ture. The State Department of Agriculture can provide a list of these

licensed and bonded dealers operating in Florida.

Trade magazines are an additional source of information for locating

dealers. Trade magazines generally contain advertisements of produce deal-

ers operating in various areas of the country. These dealers can be con-

tacted to determine their potential for marketing produce in a new area.

These dealers may or may not be from a nearby area. Any dealer that is

located by these means should be researched to determine their credit and

reputation in the trade as well as to make certain they are licensed and

bonded under federal or state laws.

An additional source of information for locating a produce dealer is

trade journals. Trade journals list dealers by location within the United

States and produce handled, and generally rate the reputation and credit of

the dealers. These journals are published by produce industry publishing














companies and are continuously updated to give current addresses, phone

numbers and ratings of dealers operating in the industry. The Red Book,

published by Vance Publishing Company in Shawnee Mission, Kansas, and the

Blue Book, published by Produce Reporter Company in Wheaton, Illinois are

two examples of trade journals that list and rate produce dealers.

Growers locating dealers by these or other means should make certain

that the dealers are licensed and bonded and should also check on their

reputation as dealers. Having no dealer could end up being better than

having a bad dealer. If possible, the grower should get in writing the

functions the dealer will perform at specified prices. Written documenta-

tion is important in case a problem later arises between the dealer and

grower.



State Farmers' Markets

Another method for marketing produce in regional and national markets

is State Farmers' Markets. There are 15 fruit and vegetable State Farmers'

Markets located in Florida, each serving, a specified region.!/ All State

Farmers' Markets operate on a seasonal basis that correspond to the produc-

tion period of the area served. These markets offer both small- and large-

scale growers an opportunity to sell their produce in the national or re-

gional markets by using the services of a produce dealer, generally a sell-

ing or buying broker. Many of the markets also offer other methods of

sale, such as auction and direct sale, but selling through produce dealers

is the most common method for selling in the national or regional markets.

A farmer wishing to market produce through State Farmers' Markets

should contact the market manager to find out which, if any, produce deal-














ers are operating on the market and to determine which commodities and

varieties of commodities are selling best on the market. The same evalu-

ation of the produce dealers operating on the farmers' market should be

done as for dealers identified from other sources. The managers of State

Farmers' Markets do try to get reputable dealers to operate in their mar-

kets, however, it is the responsibility of the growers to guarantee that

the dealers have the qualifications the growers desire. Again, it is de-

sirable for growers to get in writing the functions the dealer will perform

at specified prices. It is also important that all transactions be record-

ed in a business like manner so that they can be verified at a later date

if necessary.

As a final point, if a State Farmers' Market does not exist in the

nearby area and enough support can be obtained for promoting a new market,

then the group of growers supporting such a market should contact the State

Department of Agriculture3/ and their elected state representatives to

express their support. If enough support exists, the State can request a

feasibility study to determine the viability of a new market. If a need is

identified, then legislation can be introduced to implement such a market.

The desire for a new market must first, however, come from the growers in

the area.



Cooperatives

Another marketing alternative for overcoming the problem of having

enough produce to justify a produce dealers' time to market the produce in

a new area is a cooperative organization.














Cooperatives are voluntarily owned businesses, controlled by their

users and operated for their mutual benefit on a nonprofit basis. The

basic purpose of a cooperative is to give groups of people an opportunity

to serve their own needs and solve their own problems more effectively than

when acting individually. By acting as a group in a cooperative, growers

can increase the number of alternatives for acquiring a produce dealer.

First, a cooperative can get commitment from its members to grow a minimum

volume of produce for marketing through the cooperative. The cooperative

can then use this committed volume to obtain better produce dealers. The

larger the volume of produce available, the larger will be the number of

produce dealers who will be interested in serving the cooperative. This

will give the cooperative the ability to choose more reputable dealers.

A cooperative can also be important for obtaining necessary investment

capital from growers who will use the cooperative. This investment capital

may be necessary for building facilities to perform the required services

for marketing in regional and national markets. Cooperatives can also be

important for gaining bargaining power for growers through increased infor-

mation collection and dissemination and increased specialization of manage-

ment.

The development of a new cooperative is much like the development of a

new State Farmers' Market. The interest in developing a cooperative must

first come from growers wishing to expand their market opportunities. The

county extension agent is a good source of information for developing a

cooperative once a group of growers identify an interest.














Grower Vertical Integration

Vertical integration is defined as ownership-participation by a single

organization in two or more steps in the total production-marketing pro-

cess. Vertical integration can be either forward (toward the retailer) or

backward (toward the grower). From a grower viewpoint, vertical integra-

tion means financial participation in facilities and operations of two or

more stages of the production-marketing process.

Vertical integration through ownership can be achieved by an indi-

vidual or by members of a group. Individually owned, vertically integrated

businesses are generally developed by the owner adding step by step to his

own operation. Integrated grower-shippers are examples of individual ver-

tical integration that are commonly found in Florida. Growers extend own-

ership and control of their crop through harvesting, sorting, sizing, pack-

aging, and shipping by investing in operations which allow direct sales in

the national and regional markets.

Integrated grower-shippers are indicated at the bottom of Figure 1.

An individual grower can vertically integrate on his own or with a group of

growers. The grower can alternatively encourage another growers) to ver-

tically integrate in the area so that he and other growers may be able to

market produce through the grower-shipper, as indicated in Figure 1.



Computerized Marketing Systems

Computerized marketing is a new marketing alternative that has been

developed and implemented in the produce industry. Computerized marketing

involves the use of a microcomputer to list produce that growers have for

sale and produce that buyers need to purchase in a mainframe computing














system available throughout the United States. Buyers and sellers through-

out the United States have access to the information, giving easier access

to markets that otherwise could not be used by traders.

Computers are being used extensively by firms marketing produce.

Computer Aided Marketing Programs Produce Marketing System-4 has extended

the use of the computer into the marketing function of the business. This

computer aided marketing system also provides information and marketing

management services to assist in providing auxiliary information (weather

and market information) used in marketing produce and to assist in monitor-

ing and managing the marketing operation for individual firms.





Conclusions



The question of whether vegetables can be grown is far different from

the question of whether vegetables can be grown and marketed with reason-

able expectation of profit. The question of marketing has been addressed

in this bulletin to encourage growers to think about where the produce they

grow will be marketed. This question must be answered before any seed or

transplant is put into the ground. This should, in fact, be one of the

very first questions answered when considering the production and marketing

of vegetables.

A key element has been omitted in this analysis. Finding markets for

produce being grown has been the emphasis of this bulletin, but a growers)

should also address the question of expected profit if a marketing alter-

native is chosen. Questions the grower should be able to answer include:














(a) what will it cost to grow and market the produce; (b) what is a reason-

able price to expect for the produce; (c) what risk is associated with

growing and marketing the produce, and; (d) what are the expected profits?

None of these are easy questions to answer, but they must be addressed.

The grower needs to know how much it will cost to grow the produce, what

the expected profits are, and how much risk is associated with growing the

produce. Even if the produce can be marketed with a positive expected

profit, the risk may be too high for the grower to assume. An example

might be tomatoes with an expected profit of 1,000 dollars per acre, but

with a range of expected profits from a minus 4,000 dollars per acre (an

expected loss) to a positive 4,000 dollars per acre. A grower that cannot

survive a loss of 4,000 dollars per acre may choose not to grow tomatoes,

or at least choose to.limit his production.

Growing vegetables is easy for many growers. Growing vegetables pro-

fitably, knowing which market to serve is not easy for growers. Growers

must answer the marketing questions before planting their first seed or

transplant. After all, planting the seed or transplant may be easy, but

harvesting and marketing the fruit of the seed can also be impossible.














Footnotes


1/ Addresses for these sources are:

Director, Division of Marketing
Florida Department of Agriculture
Room 435 Mayo Building
Tallahassee, Florida 32304


The Produce News
2185 Lemoine Ave.
Fort Lee, New Jersey 07024


The Packer Magazine
7950 College Blvd.
P.O. Box 2939
Shawnee Mission, Kansas 66201


Blue Book
Produce Reporter Company
315 West Wesley Street
Wheaton, Illinois 60187


Red Book
Vance Publishing Company
7950 College Blvd.
P.O. Box 2939
Shawnee Mission, Kansas 66201


2/ The locations of these farmers' markets are: Bonifay, Starke, Brooker,
Florida City, Fort Myers, Fort Pierce, Quincy, Immokalee, Pahokee,
Palatka, Plant City, Pompano Beach, Sanford, Trenton and Wauchula. For
information about these markets contact either the market manager on
the market or the Chief, Bureau of State Markets, Division of Market-
ing, Florida Department of Agriculture, P.O. Box 1191, Winter Haven,
Florida 33880.


3/ Contact the Director of Marketing, Florida Department of Agriculture,
Room 435 Mayo Building, Tallahassee, Florida 32304.


4/ For further information contact Computer Aided Marketing Programs,
Inc., P.O. Box 1024, Gainesville, Florida 32602.














References


VanSickle, John J. Marketing Alternatives for Florida's Commercial
Vegetable Growers. Florida Coop. Ext. Serv. Cir. 541. 1982.


VanSickle, John J., John L. Adrian, and James Epperson. "Computerized
Marketing for Fresh Produce A Development for Today." Journal of
Food Distribution Research 16: Forthcoming.