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A Needed Paradigm Shift for Agricultural Marketing in Asia
Yang Boo Choe
The Agrofood New Marketing Network
Nonghup Yongsan Annex 6F,
15-19 Hangangro-2ga, Yongsan gu,
Seoul, Korea, 2002-11-01

Abstract

This Bulletin discusses a new paradigm for agricultural marketing, based on consumer preferences. This new paradigm involves new shippers and new marketing channels, including direct marketing by producers. Packing houses, where products are graded and processed, are a key feature of the new agrofood marketing system. In Korea, these packing houses are often operated by agricultural cooperatives.

Introduction

This Bulletin is largely based on my personal experience of agricultural marketing, including food marketing, in Korea during the past eight years. It is because of this experience that I have developed my idea of a new style of agrofood marketing. How does this differ from conventional agricultural and food marketing, and is it relevant to other neighboring countries of Asia?

Three years ago, in August 1999, I officially launched a non-profit, non-governmental organization named the "Agrofood New Marketing Network". It was greeted rather coolly. There was a strong sense of uneasiness over the term, "agrofood new marketing", because it makes existing agricultural and food marketing seem old or conventional. However, after three years of persuasion through lectures, papers and seminars, this new paradigm of agrofood new marketing is now beginning to be accepted in Korea. Nowadays, it is easy to find some examples of this type of marketing in operation.

In August 1998, I organized a study group with six agricultural marketing experts who were interested in the operation of the newly opened food wholesale/retail center, called the "Hanaro Club". It is run by a subsidiary of Korea's National Agricultural Cooperative Federation (NACF). One year later, we launched an association, the Agrofood New Marketing Network, in order to carry out more systematic study, training and consultancy work to improve agricultural marketing in Korea, based on a broadly structured idea of "new agrofood marketing".

The network draws on a wide spectrum of members, from local producers and shippers to urban wholesalers and retailers. Most of our funding comes from membership fees, consultancy fees and donations. The National Agricultural Cooperative Federation, together with primary Agricultural Cooperatives, is our major client. As of May 2002, the network had about 200 individual and organizational members. It organizes monthly seminars on marketing, an annual symposium, and study tours every six months.

All seminars and symposia are concerned with newly emerging agrofood marketing issues. We stress a paradigm shift in theory and practice, from "agricultural marketing" to "new agrofood marketing". The vision and scope of new agrofood marketing goes well beyond conventional agricultural marketing. A new structure is needed for the agricultural marketing system, to cope with all the recent rapid changes in the marketing environment.

These include the globalization of consumer tastes, liberalization of the trade in food products, and the spread of information technology, urbanization and industrialization in Asia. We are constantly meeting with new and different kinds of marketing agents. There are new shippers, new packers, new wholesalers, new retailers and new logistic suppliers. Most important, there is a new kind of consumer, who differs in many ways from those of the past.

Before I discuss new agrofood marketing in detail, I should like to explain how the concept began. Eight years ago, on May 3, 1994, wholesalers and retailers shut down the Seoul Garak wholesale market. This single market channel supplies more than 80% of Seoul's agricultural produce. They did this as a protest against the Government, and in particular, against a recent act to stabilize agricultural prices. Suddenly, Seoul consumers were faced with a grave shortage of agricultural produce and soaring agricultural prices.

At the time, I was chief agricultural policy advisor to President Kim Young-Sam. After reviewing carefully the causes of the incident, I came to the conclusion that in order to avoid this kind of crisis in future, we have to construct a competing new marketing channel which moves agricultural products directly from the producer to urban retailers, without passing through conventional wholesale markets.

One suggestion was a direct connection between shippers in producing areas and urban retailers. This can be done through the national cooperative (NACF) system. To do this, new types of business agents should be introduced at both ends. Local agricultural cooperatives should run "packing houses", which assemble agricultural commodities and produce value-added agrofoods. These packing houses would carry out processing, grading, standardizing and packaging, and finally ship goods to urban retail outlets operated by the national cooperative headquarters of NACF. After heated debate, this idea was adopted as a new policy for agricultural marketing development in 1994.

Four years later, in 1998, the first urban Agrofood Marketing Center (the "Hanaro Club") of NACF was opened in Yangjae, Seoul. This Center, along with the Agricultural Processing Centers (APC), has become an example of the new agrofood marketing system in Korea. At the production end, there are about 164 APCs in operation, run either by agricultural cooperatives or by agricultural companies. The "Agrofood New Marketing Network" was a national development, aimed at promoting education and information exchange.

Below is a series of Figures ( Fig. 1(1288) to Fig. 4(1331)) showing the development of a new marketing environment, and the rise of new marketing agents.

Fig. 1(1288) shows the traditional agricultural marketing system which has largely disappeared from developed countries today, but which is still found in developing countries. At this early stage of economic development, focus is on the production and supply of sufficient agrofood for urban consumers. Since the supply of available agrofoods is limited, the critical question is how to increase the marketable surplus of farmers, and how to quickly assemble and forward this to urban consumers. In this process, all marketing agents such as assemblers, wholesalers and retailers act as middlemen. They all handle and distribute agricultural commodities in as short a time as possible.

In this conventional model, what we call "agricultural marketing" in fact means "distributive handling". There is no concept of marketing in the modern sense, of strategically controlling the "4Ps" (price, product, place, promotion) in the marketing mix. Therefore in this model, the wholesale market, whether in producing or consuming areas, is the single most important organ of finding prices, and the quickest way of clearing undifferentiated commodities by auction.

The emergence of new kinds of retailers in urban areas, such as supermarkets and their chains, discount warehouses, and convenience stores, including those of petrol stations, has revolutionized the sale of agrofood products (see Fig. 2(1332). These new retailers have become major buyers. They are looking for differentiated, graded, standardized, processed and packaged products, rather than undifferentiated ones bought in bulk. Furthermore, they want a stable, year-round supply of products of uniform quality.

This need is largely stimulated by the rise of a new class of urban consumers, who live busy lives and have a lot of money to spend. They demand high-quality food at a reasonable price. They prefer processed, easy-to-cook foods on the one hand, and healthy, safe and fresh agrofoods on the other. Their tastes are diverse. They are also standardized internationally, as a result of the globalization of food resources and services under trade liberalization.

At first, the new style of retailers obtain the agrofoods they need at wholesale markets, but eventually they find business partners in the countryside, and a new kind of shipper develops. Since graded agrofoods are needed, they operate packing houses and processing plants applying advanced postharvest technology. They procure agricultural commodities from specialized growers through purchase, pooling, contracts and/or vertical integration. A large producer may operate its own packing house. A group of small producers may organize a cooperative group to operate a packing house. The packing house becomes a rural marketing center, which assembles and processes agricultural commodities, and produces value-added products. The packing house could be called a "postharvest marketing center". At this stage, we can clearly see that we have a new marketing channel which connects producers and shippers to consumers, via the new type of retailer ( Fig. 3(1270)).

The development of this new marketing channel creates competition with the old ones. As a result, the conventional producer-oriented, auction-based wholesale market has begun to evolve into an urban distribution center for specialized wholesale companies which supply agrofoods to convenience stores, grocery stores, restaurants, institutes, fast food chains, etc.

At a retail level, the rapidly growing food service industry, including fast-food restaurants and delicatessens, and institutes such as schools, hospitals and company dining rooms, are a sophisticated market for a variety of foods. The increasing demand for minimally processed or fresh-cut produce and frozen and dried fruits and vegetables by the food service sector has added a new channel to the new agrofood marketing system.

Information technology has also created a new market. Home shopping by television, printed catalogues and the Internet is a new kind of marketing. Those small-scale farmers who are left out of the new marketing system are finding their buyers at farmers' markets supported by municipal and county offices.

Today, modern consumers in developed countries have the choice of at least five new competing marketing channels for agrofood ( Fig. 4(1331)). The evolution of all these different new kinds of retailers, responding to the new kind of consumer, has brought about the rise of a new breed of producers and shippers in rural areas. In order to survive in this new sytem of agrofood marketing, we need a paradigm shift in our vision of agricultural marketing.

The New Agrofood Marketing System

You will have noticed that I refer to "agrofood" marketing rather than "agricultural commodity" or "product". In this new system "agrofood" means manufactured or processed agricultural commodities (or products). They are the product of postharvest technology sorting, grading, washing and cutting, cooling, processing, packing, brand naming, storing, transporting, etc. They are value-added products. They are highly differentiated. They are made in accordance with the marketing strategy of the firms or cooperatives which produced them. They are planned, positioned and targeted products, based on the results of consumer surveys.

Conventional agricultural products may be characterized as raw materials to be graded and processed. We are accustomed to use the term "food" only for the processed products. However, modern postharvest technology allows for minimal processing, such as chilling and cooling, before agrofood is packaged. Fresh foods are no longer sold in bulk. The production of such agrofoods combines the "primary production" of farming with the "secondary production" of postharvest management ( Fig. 5(1283)).

In the past, the two processes of primary and secondary production were completely separate. However nowadays, the postharvest treatment of agricultural commodities has become more important. This is the main reason for the development of packing houses, or "agricultural processing centers", operated in Korea today by agricultural cooperatives or companies.

Small family farms are not in a position to operate a postharvest center, because it requires a substantial amount of capital investment and specialized knowledge of postharvest technology. This awkward situation creates what I have termed "the problem of accessibility". The only way in which small-scale farmers can take part in the new marketing system is if they pool their resources and operate a joint enterprise. The other alternative is to let agribusiness firms invest and integrate small-scale farmers with their packing houses.

In Korea, agricultural cooperatives are selected to run postharvest marketing centers by the government, which then provides technical and other support. The government also encourages agricultural companies to form joint enterprises with both farmers and non-farmers. Agricultural cooperatives and companies which run a postharvest center eventually join the new kind of shippers, conducting new marketing rather than distributing commodities.

The vision and philosophy of new marketing is not farmer-oriented but consumer-oriented. New marketing differentiates the marketing of value-added agrofoods, from the conventional marketing which handles the marketable surplus of small-scale farmers. It also differentiates modern strategic targeted marketing from distributive handling. Table 1(1274) characterizes and compares the two marketing systems.

The New Agrofood Marketing System

The new agrofood marketing system constitutes a new organization of the food supply. The "new shippers" operating the packing houses and postharvest centers produce "new products (agrofoods)" which are value-added, and differentiated by brand names. They use "new technology" of postharvest management, and "new logistics" such as "unit load systems (ULS)" and "cold chain systems (CCS)". They send their products directly to the "new retailers" through "new market channels". They use "new kinds of transactions", such as trade by description, price bargaining and EDI ("Electronic Data Interchange: the electronic exchange of routine business transactions).

Further, the new type of agrofood marketing system necessitates both a unit load system, and a cold chain which covers the whole marketing process, from producer to consumer. This means that in order to supply high-quality foods to consumers, both shippers and retailers share the responsibility of maintaining both a cold chain system and a unit load system. They must develop and share common standards, and a common code of product classification and logistics ( Fig. 6(1405)).

The most important component in the new marketing system is the packing house and postharvest marketing center. This is the starting point of the whole system. It is the major buyer of agricultural commodities at the farm gate, and also the main producer and supplier to the new retailers and consumers.

Control of the New Marketing System

The most important question in this new food marketing system is: Who controls the packing house and postharvest center? As mentioned above, most packing houses operating in Korea are run by agricultural cooperatives. Farmers are encouraged to participate in the system by supplying their commodities. Shipments from different farms are pooled at the packing house. This means that each shipment has to meet defined quality standards. Therefore, in the new system of agrofood marketing, agricultural production itself becomes part of the total strategic marketing of the packing house.

The challenge for the cooperative packing houses is how to organize small-scale farmers so they are not left out of the new food marketing system. Without the linkage of the packing house, small-scale farmers do not have access to the new marketing system. In developed countries, many small-scale farmers are either excluded from the new marketing system, or become contract workers for agribusiness firms. In order to avoid this, farmers' groups in Asia should change their concept of agricultural marketing, and understand the new agrofood marketing paradigm.

Conclusion

Under this new paradigm, people working in agriculture should look at agriculture from the viewpoint of the modern urban consumer. New agrofood marketing should dictate the nature of agricultural production, and in this way stimulate the rise of a new kind of modern agriculture, in which production is integrated with postharvest processing and marketing. In this way, small family farms can find a way of doing business in the modern system of global sourcing of the agrofood supply. Otherwise, small-scale farmers cannot avoid becoming isolated from the modern agrofood system.

I hope very much that we can save samll family farmers from such isolation. This paradigm of agrofood new marketing is addressed to farmers, middlemen, researchers and administrators. We are asking them to carry out a Copernican revolution in their vision and practice of agricultural marketing.

Index of Images

Figure 1 The Conventional Model: Distributive Handling Centered around a Wholesale Market

Figure 1 The Conventional Model: Distributive Handling Centered around a Wholesale Market

Figure 2 Emergence of New Retailers

Figure 2 Emergence of New Retailers

Figure 3 Development of New Types of Shipper and a New Marketing System

Figure 3 Development of New Types of Shipper and a New Marketing System

Figure 4 Diversified Channels of the New Agrofood Marketing System

Figure 4 Diversified Channels of the New Agrofood Marketing System

Figure 5 Production of Value-Added Agrofoods through the Marketing Network

Figure 5 Production of Value-Added Agrofoods through the Marketing Network

Figure 6 United Load System and Cold Chain System in New Agrofood Marketing

Figure 6 United Load System and Cold Chain System in New Agrofood Marketing

Figure 7 The Place of the Packing House/Postharvest Center in the System of Agrofood Newmarketing

Figure 7 The Place of the Packing House/Postharvest Center in the System of Agrofood Newmarketing

Table 1 New Paradigm of Agrofood Marketing

Table 1 New Paradigm of Agrofood Marketing

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