DOWN-STREAM OF-FARM AGRIBUSINESS
ARIZONA STATE UNIVERSITY
AGB 410 - AGRIBUSINESS MANAGEMENT
WEEK 3
1. Agricultural/Agroindustrial Product Processing Management Subsystem:
In essence, processing is part of production. In the process of producing raw/fresh
materials (on-farm), the term agricultural production is used, while producing semi-finished
or finished goods (off-farm), the term processing or agro-industry is used.
Processing of agricultural products is a component of agribusiness activities to produce
secondary products (of- farm) after primary agricultural production (on-farm). Many farmers
are unable to carry out processing due to various reasons, even though they realize that
processing activities are important because they can increase added value. Farmers are often
found selling agricultural products directly (not through processing) because they want to get
cash for urgent needs, resulting in low added value of agricultural products. For example, you
can find cocoa farmers who harvest and dry their cocoa beans and then sell them. This
method reduces the added value if no fermentation process is done.
According to Soekartawi (1999:93), the processing component of agricultural products
is important due to considerations that can increase added value, improve the quality of
products, increase labor absorption, improve producer skills, and increase producer income.
Value-added; research shows that good processing by producers (farmers) can increase
value-added. For farmers, processing activities have been carried out, especially farmers who
have processing facilities (grinding machines, drying floors, storage and processing
machines, etc.). Quality of produce; one of the objectives of processing produce is to improve
quality, with better quality produce, the value of goods becomes higher and consumer desires
are fulfilled. Differences in quality not only lead to differences in market segmentation, but
also affect the price of the goods themselves. Labor absorption; if farmers directly sell their
crops without processing them first, they deprive others of the opportunity to work on
processing activities that should be done. Conversely, if processing is done, then a lot of labor
is absorbed. Improving skills; with processing skills, there will be a cumulative increase in
skills so that in the end it will also obtain greater agribusiness revenue. Increasing income;
the logical consequence of better processed products will lead to higher total revenue. If
circumstances permit, it is recommended that farmers process their own crops to obtain a
better quality of produce that has a higher price and ultimately a higher total revenue or
profit.
The production system in the processing of agricultural products (of-farm) agribusiness
is termed agro-industry because agro-industry or processing of agricultural products is part of
the agribusiness system of farm. Agroindustry can be interpreted as an industry made from
the main raw materials of agricultural products and as a stage of development as a
continuation of agriculture. According to Soekartawi (2000: 11), sustainable agro-industrial
development is development based on the concept of sustainable agro-industrial
development-sustainable‖ where agro-industry is built and developed with regard to natural
resource aspects. So all the technologies used as well as the institutions involved in the
development process are directed to the interests of present and future humans. Furthermore,
Soekartawi (2000: 11) says the characteristics of a sustainable agro-industry are (1)
productivity and profits can be maintained or increased in a relatively long time so as to meet
human needs in the present or future; (2) natural resources, especially agricultural resources,
which produce agro-industry raw materials that can be well maintained and even
continuously improved because the sustainability of the agro-industry is highly dependent on
the availability of raw materials; and (3) the negative impact of the use of natural resources
and the existence of agro-industry can be minimized.
In the process of processing agricultural products (down-stream / off-farm), the
production system is a vehicle used in changing inputs (inputs) resources to create useful
goods and services, while the production process is the process of transformation or
conversion, as shown in Figure 4.2 (Buffa, 1993: 8). While the production process according
to Downey and Steven (1992: 397) consists of: (1) the process of decomposition or analysis
is to create many types of products from one type of material, for example corn is processed
into corn oil, corn flour, and fried and canned corn; (2) the process of synthesis is to create
one type of product from many types of materials, for example glass, rubber, and steel
materials are created into harvesting tools; (3) extractive efforts are to remove products from
their natural environment, for example when trees are cut down to be used as blocks and logs;
and (4) processing (fabrication) is to change the form of materials to make it easier to market,
for example cattle into beef jerky.
The inputs of resources in manufacturing operations can be various, including raw
materials, labor, machinery, physical facilities, energy, and information and technology. If
the system is service-oriented, some of the inputs may be labor, but depending on the system,
machinery, infrastructure, information and technology may also be inputs. In the provision of
food, raw materials are also an important input. The conversion process involves not only the
application of technology, but also the management of various controllable variables. This is
where agribusiness production/operations management (of-farm agribusiness) comes in to
plan, design, refine and control the operating system.
When viewed from the management of agribusiness production/operations (of-farm),
what is effective is to maintain the relationship of all variables and as far as possible view the
entire process so that an integrated system. If everything goes as it should, then the output in
the form of products (goods and services) meets the quantity, quality, continuity, and cost
that can be obtained when needed (Figure 4.2).
Basically, production management in crop processing is an activity in which resources
(inputs) involved in a system are combined and transformed in a way to obtain added value
(output) (Mulyo, 2001:2). Operations management or production processing as a system can
be seen in Figure 4.3.
Every environmental process management will have an influence. Environmental
influences called -random fluctuations‖ are factors that are always changing, unwanted, and
cannot be controlled that will randomly affect the production process so that the output will
be different from the desired one. Random fluctuations can be in the form of influences from
within and outside the organization, namely (1) other functions within the organization. (2)
the environment outside the company, such as government regulations, laws, socio-political
conditions, and the economy (Sumayang, 2003: 8) For example in agricultural businesses
(Figure 4.1), including weather, inflation, government regulations or equipment damage. The
influence of the environment or the existence of random fluctuations is a necessity that can
only be reduced through the efforts of hard management work. Meanwhile, feedback is a
series of monitoring systems that provide information to management in order to make
decisions, whether rearrangements of organizational activities are needed.
All production/processing processes form part of a comprehensive production network.
The overall network can take the form of one of two types of production, namely continuous
processes and intermittent processes. The main difference between the two processes is the
length/shortness of time it takes to set up the production equipment to produce a product
(several products) without change.
Continuous processes; continuous production processes, the flow of inputs continues
through a standardized system to produce basically the same output, for example an agro-
chemical company that works non-stop. The above characteristics are characterized by: (1)
Usually the output produces a large amount, small product variations and has been
standardized, (2) Usually using a system or arrangement of equipment based on the order of
workmanship of the products produced (departementation by product), (3) the machines used
are special (special purpose machines / SPM) and semi-automatic, (4) invidual influence of
the operator on the product produced. (5) if there is a machine breakdown, the entire
production process will stop, (6) because it uses SPM, the job structure and number of
workers are relatively small, (7) the inventory of raw materials and materials in the process is
relatively small, (8) requires maintenance specialists with high knowledge and skills, and (9)
usually materials are moved with fixed path equipment such as conveyors.
Intermittent processes; intermittent production processes that involve different outputs,
changing procedures, and often also involve different inputs, for example a dairy processor
that produces butter, cheese, ice cream and various other dairy products. The above
characteristics are characterized by: (1) products produced are relatively small in quantity,
large variations and based on orders, (2) equipment layouts are usually arranged based on
their functions (departmentation by product) so that equipment that has the same function is
grouped in one place, (3) the machines used are general purpose machines, (4) the influence
of individual operators on the quality of output is very large, so high expertise is required for
operators, (5) the production process will not be interrupted by equipment failure, (6) a
variety of supervision is required, because the machine is general and the product variation is
large, (7) the stock of raw material inventory is usually high because it can be determined
what the customer orders, (8) materials are usually moved with fixable handling equipment
(such as carts, etc.), and (9) frequent transfers back and forth, so there is a need for large
space and space where materials are in process.
Production management functions in down stream/of-farm agribusiness agribusiness
processing consists of planning, organizing, directing, coordinating and supervising.
a. Planning:
Agribusiness off-farm management requires careful planning in producing goods and
services according to consumer desires in terms of quantity, quality, price, and time.
According to Downey and Steven (1992:400), the consideration factors involved are facility
location, plant size, and layout.
1) location, in choosing a place for facilities, agribusiness managers generally consider
those related to sources of raw materials or supplies, labor availability, location of
markets, and special incentives offered in different areas;
2) optimal size of plant is an important dimension of agribusiness. Generally, larger units
are easier to operate, but a plant that is too large will only be a waste of money if
various factors are not considered. The most important factors in considering plant size
are economies of scale, seasonality and patterns of production, impact of inflation,
quantity of output needed, and number of shifts;
3) layout, in planning the physical layout of a factory, it is necessary to consider all the
processes and procedures that the factory will undergo, the quantity and quality
required, and any future changes in product type, quality, or demand. The main
categories of layout are process layout and product layout.
b. Organizing
The hierarchy of agribusiness operations should be filled with personnel who meet
certain requirements and also need motivation so that instructions in production can be
received openly. Because of its nature, the staffing function plays an important role. Staffing
and organizing are two management functions that are closely related where organizing is the
preparation of legal containers to accommodate the various activities that must be carried out
in an agribusiness organization, while staffing is related to the people who hold each position
in the agribusiness organization. Staffing in management functions according to Manullang
(1996: 19) is one of the management functions in the form of personnel preparation in an
organization from recruiting manpower, its development to efforts so that each officer gives
maximum use to the organization. Moreover, with the dynamics of society the possibility of
changes is always there so that changes in agribusiness processes, agribusiness technology,
and agribusiness production methods adapted to the demands of society do not encounter
challenges.
c. Directing
Effective agribusiness programs and organizations alone are not necessarily enough to
ensure that work can be done well, but motivation needs to be given. Motivation in
management functions according to Manullang (1996: 20) is the provision of inspiration,
enthusiasm, and encouragement to subordinates, so that subordinates carry out activities
voluntarily according to what is desired by the superior. Motivation is given by leaders or
managers to employees so that employees increase their activities or they are more
enthusiastic in carrying out their duties. Motivation can be realized with things that are
monetary (wages, salaries, and other incentives) and non-monetary (praise for the work of the
products produced, providing modern ways of working, providing opportunities to
participate, express ideas, and others), and of course these activities are carried out at the
right time.
d. Coordinating
Coordinating is one of the management functions to carry out various agribusiness
activities so that there is no chaos, confusion, vacuum activities by connecting, uniting, and
aligning the work of subordinates so that directed cooperation in an effort to achieve the
goals of the agribusiness organization. Efforts that can be made to achieve coordinating
objectives in agribusiness production are by providing instructions and orders before carrying
out the production process even at the time the process is carried out, holding meetings to
provide explanations of the production process, guidance or advice, and conducting coaching
and if necessary giving a warning if the manager sees employees who make mistakes outside
the agribusiness production process procedure (off-farm).
e. Supervision (controlling)
The production controlling function of agribusiness consists of supervision which
ensures that activities are carried out properly, comparisons try to check whether the results
of work are in accordance with the desired, corrections to eliminate difficulties or deviations,
both work and change plans that are considered too grandiose. According to Reksonadiprodjo
and Gitosudarmo (2000: 10) management usually has to lay the foundation of supervision for
each production operative function, namely: (1) product research and development such as
budgets, evaluation bases (ROI and payback period), personnel skills, and evaluation of
monitoring market capacities / own reasech and development (R&D) section; (2) plant siting
activities, such as transport costs, production costs, raw materials such as sources, markets
(volume), labor (supply), and society (attitude); and (3) activities to determine the location of
physical facilities in the factory, such as production systems, production processes,
equipment, and material control tools.
2. Agribusiness Marketing Management Subsystem
a. Agribusiness Market
The term market has various meanings. Some define it as a meeting place between
sellers and buyers, goods or services offered for sale, and the transfer of ownership. In
addition, some also state that the market is a demand made by a group of potential buyers for
a good or service. According to Sudiyono (2002: 2) The definition of the market as a
producer (seller) is as a place to sell goods or services produced, consumers (buyer) defines
the consumer market as a place to buy goods and services so that consumers can fulfill their
needs and desires, while as a marketing institution the market is certain marketing functions
so that marketing institutions can profit.
These definitions are still general in nature and are usually viewed from an economic
point of view. While a more specific understanding and from a marketing point of view
according to Gitosudarmo (1997: 4) the market in the marketing sense is people or
organizations that have a need for the products we market and they have sufficient purchasing
power to meet their needs. Then according to Beierlein and Woolverton (1991: 329) market
is a group or potential consumers with similar unmet needs and purchasing power.
Furthermore, according to Tjiptono (2001: 59) the market in the marketing sense consists of
all potential customers who have certain needs or desires who may be willing and able to
involve themselves in the exchange process to satisfy these needs or desires. Thus, the size of
the market depends on the number of people who have needs, have resources that other
people or parties are interested in, and are willing to offer these resources in exchange in
order to meet their needs and desires.
In economic theory, the terms perfect competition market, monopolistic competition
market, oligopolistic competition market, and monopoly market are often encountered by
sellers or producers and have their own characteristics.
A perfect competition market has the following characteristics: there are many sellers;
the goods sold are homogeneous; the goods sold by one seller are homogeneous; the goods
sold by one seller are homogeneous sellers are a small fraction of the total goods in the
market; each seller has the freedom to enter or exit the market, the knowledge of sellers and
buyers about the state of the market is perfect / complete; and the mobility of economic
resources throughout the market is free and there are no barriers.
A monopolistic competition market is characterized as follows: A market in which there
is more than one seller/producer; A large firm/combination of firms and several small firms
as sellers in which the large firm has more influence over market supply and prices; Forms
between a pure competition market and a pure monopoly market. A pure competitive market
is a large number of sellers of a particular good but among them there are sellers who can
influence the sales of every other seller until a reaction arises and a pure monopoly market is
a firm/seller producing a good that is sufficiently differentiated in the minds of consumers
against close substitutes.
A monopoly market is characterized as follows: the market has only one seller; there are
no other sellers who can sell substitutes for the output sold; there are barriers, both natural
and artificial, for other firms to enter the market (barriers to entry).
Oligopoly competition markets are characterized as follows: there are only a few sellers,
so the actions of one producer will encourage other producers to react; there are more than
two sellers or producers, for example 3 and 4 sellers or producers. While duopoly is a form of
market where there are only two sellers of a particular product.
According to Hanafiah and Saefuddin (1986: 42), what buyers do is a monopsony
market, which is when there is one or a body of buyers for a particular object, so that it can
affect the price of the goods; and a duopsony market, which is the opposite of a duopoly
market, where there are only two buyers of a particular object.
Markets were originally defined as a meeting place for sellers and buyers to exchange
their goods (a place to barter). The definition of a market that is often suggested by
economists is a group of buyers and sellers who make transactions over a certain number of
products or product classes. The market can also be interpreted as a place of supply and
demand, transactions, bargaining over value (price), and or transfer of ownership through an
agreement on price, payment method, delivery method, place of collection or receipt of
products, type and quantity of products, specifications and quality of products and other
agreements related to the transfer of product ownership.
So the agricultural/agribusiness market is a place where there are transactions between
the forces of supply and demand for agricultural products, bargaining for the value of
agribusiness products, transfer of ownership, and agreements related to the transfer of
ownership.
b. Agribusiness Marketing
Marketing is a human activity directed at satisfying wants and needs through the
exchange process (Radiosunu, 1983: 2) Meanwhile, according to Beierlein and Woolverton
(1991: 329), marketing is all those business activities that help satisfy consumer needs by
coordinating the exchange process the flow of goods and services from producers to
consumers or users (Marketing is all business activities that help consumer needs by
coordinating the flow of goods and services from producers to consumers or users).
Furthermore, according to Downey and Steven (1992: 506) Marketing is a study of the flow
of products from producers through intermediary traders to consumers. According to Kotler
(2000: 8) Marketing is a societal process by which individuals and groups obtain what they
need and want through creating, offering, and freely exchanging products and services of
value with others (marketing is a process of socializing individuals and groups to achieve
what they need and want through creating, offering, and freely changing products and other
service values). Meanwhile, according to Kartajaya (2002: 11), marketing is a strategic
business discipline that directs the process of creating, offering, and changing values from
one initiator to its stakeholders.
Agricultural marketing is the process of commodity flow accompanied by the transfer of
property rights and the creation of time utility, place utility, and form utility carried out by
marketing institutions by carrying out one or more marketing functions (Sudiyono, 2002:10).
Meanwhile, according to Said and Intan (2001:59), agricultural marketing is a number of
business activities aimed at providing satisfaction from goods and services exchanged to
consumers or users in agriculture, both inputs and agricultural products.
Examined from the various definitions of marketing and agricultural marketing above,
the definition of agribusiness marketing management is an effort made by marketers
(entrepreneurs, managers, suppliers, and other business actors) in flowing products
agriculture from inputs, processes, and outputs, even to the outputs by using management
functions in agribusiness.
In the agribusiness marketing system, the terms marketing system approach, marketing
utilities, and marketing functions are recognized.
Several approaches are taken in the marketing system according to Sudiro (1995: 27),
namely the all-goods approach, the all-function approach, the all-institution approach, and the
all-management approach. An all-goods approach, which is a marketing approach that
involves the study of how certain goods move from the point of producers to end consumers
or industrial consumers; an all-function approach, namely the classification of activities or
functions which include exchange functions, supply functions, and supporting functions; an
all-institutional approach, which studies marketing in terms of organizations / institutions
involved in marketing activities such as producers, wholesalers, retailers, and supporting
agents; and an all-management approach, which studies marketing by focusing on the
opinions of managers and the decisions they make.
The usefulness of marketing according to Beierlein and Woolverton (1991: 31) consists
of time utility involves storing the product until the time it is desired by the consumer; Place
utility involves transporting the product to a location desired by the consumer; form utility
involves processing the product into a from desired by the consumer; and possession utility
involves allowing consumers to again take ownership of the product so they can legally use it
(Time utility involves storing the product until the time desired by the consumer; place utility
involves moving the product to the location desired by the consumer; form utility involves
processing the product into a from desired by the consumer; and possession utility involves
allowing consumers to again take ownership of the product so they can legally use it)
consumer ownership to become property rights or product ownership so that they can use it
legally / officially). Meanwhile, according to Gitosudarmo (1997: 15), the usefulness of
marketing consists of: the usefulness of form, namely the industry that seeks to transform an
object (basic material) into another object that is different in shape so that it becomes more
useful for humans / society; the use of place, namely businesses engaged in transportation or
transportation, both goods and human transportation; the use of time, namely businesses
engaged in storage; and the use of ownership, namely businesses engaged in trade or shops.
Marketing functions carried out by marketing institutions in principle there are 3 (three)
types of marketing functions. According to Beierlein and Woolverton (1991:29): the
exchange functions (buying and selling); the physical functions (storage, transportation, and
processing); and the facilitating functions (grades and standards, financing, risk taking, and
market information). (The exchange function consists of selling and buying; the physical
function consists of storage, transportation, and processing; the facilitating function consists
of standardization and grading, financing, risk taking, and market information). The 3 (three)
functions can be described as follows:
(1) The exchange function consists of selling, which is transferring goods to the buying
party at a satisfactory price, and purchasing, which is buying for consumption, basic
factory materials, and for resale;
(2) The physical procurement function consists of transportation (transport), which is
moving from the place of agribusiness production to the place of sale and storage,
which is holding goods in the period between being produced or received until the
goods are sold;
(3) The facility / facilitator function consists of capital (financing), namely finding and
managing capital that will be related to the transaction of the flow of goods from the
agribusiness production sector to the consumption sector: risk coverage, namely dealing
with uncertainty (costs, losses, and damage) and price fluctuations; agribusiness market
information, namely for decision making; Standardization, namely determination based
on classes and classes, for example shape, size, and taste; and grading, namely entering
into classes and classes determined by standardization.
According to Sudiyono (2002: 13) said that agricultural marketing is a discipline that
stands alone, it has been stated by Bateman (1976) in an article entitled "Agricultural
Marketing: a Review of the Literature of Marketing Theory and of Selected Applicaton", put
forward 7 (seven) reasons to answer the statement. First, agricultural marketing was first
developed by focusing on policies through government intervention; Second, there are real
reasons that students study agricultural marketing because they are interested in the problems
of farmers who receive relatively little attention; Third, the concentration of agricultural
marketing attention on foodstuffs which is one of the areas of marketing studies in general is
closely related to the interests of producers and consumers, so it is very open to being
influenced by political interests by policy makers; Fourth, marketing as a business subject is
divided into several specializations such as consumer marketing, industrial marketing, and
international marketing. Agricultural marketing as a business subject is very difficult to
divide into sub-divisions as above, because the division of agricultural marketing into
consumer marketing and industrial marketing is not very good.
Fifth, optimal marketing decision-making by a company is highly dependent on the
market environment, i.e. the activities of other companies. One aspect of the market
environment is government policy. Sixth, agricultural marketing involves everything that
happens between the farmgate and the consumer, including the processing of foodstuffs;
Seventh, in the context of economics the government has two main functions, first to produce
and offer its own goods and services, and second to act as a regulator in order to achieve
economic efficiency, if the goods or services are produced by the private sector. If the two
roles of government are more business-oriented, it will be faced with the problem of how to
meet -what consumers want‖ and what is produced, which includes planning, promotion,
distribution, and pricing.
As a stand-alone scientific discipline, agricultural marketing certainly has an ontological
aspect that is to answer
-"What is known by studying marketing science?" or in other words, "what is the study
of agricultural marketing science?". For this reason, the fields of agricultural marketing
research are very diverse.
According to Quilkey (1986) cit Sudiyono (2000:15) in general the areas studied in
agricultural marketing include marketing margins, economic engineering, facility planning,
grading, consumer preferences, supply and demand response, demand analysis and pricing,
as well as location theory and market integration. Furthermore, Shepherd (1949) cit Sudiyono
(2000:15) more specifically said that the scope of agricultural marketing can be divided into a
narrow and broad sense. In a narrow sense, it is carried out for transporting agricultural
products from the point of harvest to the consumer's table. While the broad sense, covering
all the forces that give rise to agricultural marketing problems so that it includes consumer
demand research (associated with income, elasticity and demand changes). Furthermore,
citing the opinion of Norton (1949) cit Sudiyono (2000:16) said that producers to consumers
also include price-equilibrium relationships, the effects of competitive relationships in the
market, demand objectives and others. and the purpose of agricultural marketing research is
to increase consumption of agricultural products and improve farm welfare.
c. Agribusiness Marketing Institutions and Channels
Marketing institutions are business entities or individuals that organize marketing,
distribute services and commodities from producers to end consumers and have relationships
with other business entities or individuals. Marketing institutions arise because of the desire
of consumers to obtain commodities that fit the time, place, and form that consumers want.
Then the task of marketing institutions is to carry out marketing functions and fulfill
consumer desires as much as possible. Consumers provide services to marketing institutions
in the form of marketing margins.
Efforts to smooth the flow of goods/services from producers to consumers, then one
factor that should not be ignored is choosing the right distribution channel (channel of
distribution) used in the context of efforts to distribute goods/services from producers to
consumers.
According to Darlymple and Parsons (1983: 468) distribution is concerned with
organizing a system of transportation, storage, and storage communication so that goods and
services will be readily available to customers. Meanwhile, according to (Sudiro, 1995: 73)
the definition of distribution channels is first, the path through which the flow of goods from
producers to intermediaries and to consumers / users; and second, the structure of
organizational units within the company and outside the company consisting of agents,
wholesalers and retailers, through which channels / channels a good / service is marketed.
The process of distributing products to the hands of end consumers can use long or short
channels according to the distribution channel policy that the company wants to implement.
Then the distribution chain according to its form is divided into two according to Angipora,
(1999: 86), namely: First, direct distribution channels (Direct Channel of Distribution),
namely: distribution of goods or services from producers to consumers without going through
intermediaries, such as Selling at the point of production, selling at the producer's retail
store, selling door to door, Selling through mail; Second, indirect distribution channels
(Indirect Channel of Distribution), namely a form of distribution channel that uses the
services of intermediaries and agents to distribute goods or services to consumers.
Intermediaries are those who buy and sell these goods and own them. They are engaged in
wholesale trade and retailers. Meanwhile, agents are people or companies who buy or sell
goods for large trade (manufacturers).
The role of intermediaries in marketing is very helpful for producers or fishermen in
channeling products to reach consumers based on type, quantity, price, place, and time of
need.
According to Hanafiah and Saefuddin, (1986: 32) that the bodies that are trying in the
field of commerce, moving goods from producers to consumers through buying and selling
are known as middlemen intermediary). Meanwhile, intermediaries according to Stanton et
al. (1990) cit Tjiptono, (2001: 185) are people or companies that connect the flow of goods
from producers to end consumers and industrial consumers.
In general, middlemen are divided into merchant middlemen and agent middlemen. The
two main forms of merchant middlemen are wholesalers (distributors or jobbers) and
retailers (dealers). A merchant middleman is an intermediary who owns goods (by buying
from producers) for resale. Meanwhile, an agent middleman (broker) is an intermediary who
only finds buyers, negotiates and carries out transactions on behalf of the producer, so he
does not own the goods being negotiated (Stanton et al., 1990 cit Tjiptono, 2001). Based on
the ownership of merchandise can be divided into 2 (two) groups, namely first, traders who
own merchandise consists of traders collectors (middlemen, bakul or palele), wholesalers
(Wholesaler), exporters, importers, and retail traders (retailer); while Second, traders who do
not own merchandise consists of functional traders or agents.
Wholesalers are middlemen who buy in large volumes and resell to retailers in case lots
(Wholesalers are middlemen who buy in large quantities and resell to retailers in smaller
quantities) (Darlymple and Parsons, 1983: 471), further stated by Darlymple and Parsons
(1983. 473) retailers perform a variety of useful functions for the producer including the
carrying of inventory, advertising, promotion, credit, delivery, and shopping
convenience:473) retailers perform a variety of useful functions for the producer in cluding
the carrying of inventory, advertising, promotion, credit, delivery, and shopping convenience.
Middlemen are agribusiness marketing institutions that are directly related to farmers.
Middlemen market traders, to improve the efficiency of the implementation of agribusiness
marketing functions, the number of commodities in the collecting traders must be
concentrated again by the marketing institution (large traders). These traders, in addition to
concentrating (collecting) agribusiness commodities from collecting traders, also carry out
the distribution process (distribution) to sales agents or retailers; Sales agents, agricultural
products that have not or have undergone processing at the level of large traders must be
distributed to sales agents and retailers. These sales agents buy commodities owned by
traders in large quantities at relatively low prices compared to retailers; Retailers, are
agribusiness marketing institutions that deal directly with consumers. This retailer is actually
the spearhead of a commercial production process, meaning that the continuation of the
production process carried out by marketing institutions is highly dependent on the activities
of retailers in selling products to consumers.
Its control of agribusiness commodities traded by marketing institutions can be divided
into three, namely first, institutions that do not own but control objects, such as intermediary
agents, brokers (brokers, selling brokers, and buying brokers); Second, institutions that own
and control agricultural commodities traded, such as intermediary traders, middlemen,
exporters, and importers; and third, marketing institutions that do not own and control
agricultural commodities traded such as companies providing transportation facilities,
agribusiness marketing insurance, and agricultural product quality determination companies
(surveyors). transportation facilities, agribusiness marketing insurance, and companies that
determine the quality of agricultural products (surveyors).
d. Functions of Agribusiness Marketing Management
The functions of management of agribusiness marketing consist of planning, organizing,
monitoring, and policy.
1) Planning
Marketing planning according to Assauri (1987: 268) cit Soekartawi (2002: 49) is the
formulation of efforts that will be carried out in the field of marketing by using existing
resources in a company in order to achieve certain goals and objectives in the field of
marketing at a certain time in the future. In the marketing planning process, it can consider
market and competition analysis, environmental analysis and projections, market
segmentation, market potential, target markets, and marketing mix programs (marketing mix
or 4P), such as product, price, place/distribution, and promotion (Gitosudarmo, 1997: 106)
then the 4C concept such as customer solutions, cost, convinence, and communication (Figure
4.4).
Agribusiness market analysis can consider factors such as market demand in the form
of products (goods and services), market size, market growth rate, stage of development,
trends in the distribution system, and unmet opportunities. Then competition analysis can be
in the form of understanding who the competitors are, how the competitor's product or market
position, how the competitor's strategy, as well as strengths and weaknesses; environmental
analysis in the form of population growth and government regulations (economic, social, and
political), technological developments, and inflation rates. Then agribusiness projections in
the form of forecasting (forcast) with times series data and estimation (estimation) with cross
section data; segmentation agribusiness market by dividing the market based on variables
such as demographics, geography, psychography, and buyer behavior; agribusiness market
potential, can be considered population structure, purchasing power, and consumption
patterns; agribusiness market targets can be concentrated marketing (target market only
one) and differentiated marketing (several target markets); then the agribusiness marketing
mix program in the form of product (product), price (price), place / distribution (place /
distribution), and promotion (promotion).
The combination of these 4 things (product, price, place, and promotion) is a weapon
for agribusiness entrepreneurs or tools that can be used to influence consumers in marketing
their products or serving their consumers.
P (first) Product, agribusiness entrepreneurs can influence consumers through the
products they offer, in this case making the product in such a way that the product can attract
consumer attention, such as making products with attractive colors or even striking colors,
good packaging and so on.
P (second) Price, agribusiness entrepreneurs can use low prices with discounts, in this
way attracting the attention of consumers to immediately make purchase transactions. In
terms of new product pricing strategies, it can be done at low prices (penetration pricing) or
at high prices (skimming pricing) (Tjiptono, 2000: 172) Penetration pricing is a relatively
low pricing strategy in the early stages of the Product Life Cycle (PLC) with the aim of
gaining a large market share and at the same time preventing competitors from entering.
Meanwhile, Skimming Pricing is a high pricing strategy for a new product equipped with
vigorous promotional activities with the aim of covering the costs of promotion and research
and development.
P (third) Place, agribusiness entrepreneurs carry out placement or distribution to meet
consumer needs so that consumers who are loyal to product brands cannot switch to other
products because their needs and desires can be met at any time.
P (fourth) Promotion, agribusiness entrepreneurs carry out promotions to introduce
these products so that consumers become familiar and know, or those who already know
become more like it even those who have forgotten are expected to remember it again.
Promotion can be done with a promotion mix, for example advertising / advertising (print and
electronic media, brochures, posters, etc.), sales promotion / selling promotion (exhibitions,
coupons, rebates, sweepstakes, etc.), public relations / public relations (seminars, speeches,
lobbying, etc.), face-to-face sales / personal selling (door to door, etc.), and direct marketing /
direct selling (telemarketing, mail, fax mail, e-mail, etc.).
In terms of agribusiness marketing mix, there are differences between on-farm
agribusiness marketing and off-farm/down stream agribusiness marketing (Table 4.1)
Marketing mix is a tool that can be used by marketers to influence their consumers through
product, price, place/distribution, and promotion.
In the context of horizontal organization, marketing oriented company will shift to
customer driven company (Wibowo et al, 1997:69). In the most extreme situation, the
marketing function will not really play a role anymore in practical matters because everyone
in the company has thought of satisfying needs profitably in processing customer service. So
the marketing mix consisting of product, price, place, and promotion or 4Ps has been
redefined. Customer driven companies need 4C before using 4P. So in reviewing internal
factors, the 4Ps are needed as the company's weapon in conducting customer service.
marketing while the external factor is 4C as a tool to provide customer satisfaction
(Figure 4.5.).
Table 4.1. Agribusiness Marketing Mix
Marketing
Mix
Agribusiness Marketing
On-Farm
Of-Farm/Down-
Stream
1. Product
Products can be
packaged (packing) or
not
packed
Packed (packing)
with various styles of
good packaging
2. Price
Relatively cheap
price and less
varied
Prices are relatively
expensive and vary due to
long lasting
3. Place
Relative range
near
Relatively long
range
(exported)
4.
Promotion
Advertising is
limited because
finding partners
and markets
More diverse
advertising
variety, because the
market is wide
The first C (customer solution), Consumers are now increasingly individualized by
requiring products based on their own needs (needs) and desires (wants) so that producers
must add other services to convince them.
The second C (cost), the costs incurred by consumers will affect their purchasing power,
because consumers are already smart to calculate the total financial consequences of
comparing one product with another. -Cheap prices for producers are not necessarily cheap
for consumers‖ as consumers still have to incur other costs.
Figure 4.5. The 4Ps and 4Cs
C third (convinience), convenience / convenience will provide satisfaction for customers
because there is no need to come to the producer to get the product they want because it can
be directly delivered to the consumer's place even though the producer's place is far away so
that consumers are no longer exposed to travel / transportation costs especially for new
products producers; and
Fourth C (communication), in this era consumers often feel bombarded by various
promotions with increasingly negative connotations, therefore producers must understand
what is needed by consumers based on profession and time conditions. For this reason, there
is a need for interactive communication where consumers are fully involved in providing
input in product development (goods / services), pricing, and product places they want.
So we should think according to 4C first and then 4P, then the concept is so that we can
recognize the mindset of the customer (customer).
2) Organizing
Grouping and determining employees or workers of the agribusiness marketing group so
that tasks and authority are effective, it needs to be well designed so that each employee and
leader can carry out their tasks efficiently. To facilitate this task, human resources can be
classified according to the organizational structure so that leaders or managers can easily
identify who sells products of a certain quality, when consumers usually make purchases (on
Saturdays and Sundays, every heart, or every month after they receive a salary), what kind of
goods consumers want, why they buy these products, and how consumers buy these products
(cash or credit). Of course, the classification is based on rational decision-making based on
the situation and conditions in the field.
3) Implementation (Realization)
The implementation function in agribusiness marketing management consists of the
marketing environment and marketing targets. The marketing environment consists of
controlled and uncontrolled aspects, as well as diagnostics.
Controlled implies that the economic behavior of the variable is deterministic and can be
predicted or determined in advance (Soekartawi, 2002: 71). For example, to determine sugar
consumption, it is necessary to identify the deterministic variables that affect it.
Y = β0 + β1 X1 + β2X2 + β3 X3 + β4 Z+ μ
Description:
Y
: Quantity of sugar required
a : Intercep/constant
β1...β4: Regression direction coefficient of each independent variable
X1....Z
X1 : Number of those suspected of consuming sugar
X2 : sugar price
X3 : income level
Z
: New government regulations governing sugar distribution take effect indefinitely
μ : stochastic disturbance or error (disturbance term)
X variables are deterministic variables (can be controlled) and Z variables are called
stochastic variables (cannot be controlled by the researcher or manager). Stochastic variables
are not deterministic and cannot be predicted in advance. Such events are commonly found in
society. Acceptance of agricultural products is in many ways influenced by competition and
environmental factors.
Diagnosis, researchers or company managers need to know how symptoms affect the
company's performance. What do they do if sales turnover suddenly drops. Diagnose what
they should do if something like that happens.
For this reason, the diagnoses identified are those that are related to marketing systems
and subsystems. Marketing researchers and managers must know exactly how the marketing
system and subsystems work. The marketing system consists of various subsystems, namely
(a) functions required in the product, such as product name, labeling, brand, packing, price,
and so on; (b) channels; and (c) product quality marketing, (c) marketing administration
(management), for example how planning, budgeting, supervision, and evaluation; and (d)
Promotion consists of mass selling (advertising and publicity), sales promotion, public
relations, and direct marketing.
4) Supervision (Controlling)
The role of supervision in agribusiness marketing management can be stated as an
activity that is able to direct the course of the company to the desired goal because
supervision is basically an activity of selling, checking, monitoring a business, so by knowing
these changes it is hoped that existing opportunities can be sought. Judging from the
responsibility of a manager, supervision can be divided into marketers (number,
professionals, salaries, and work results), marketing organizations (effective or ineffective),
and infrastructure and facilities (adequate / supportive or not).
5) Policy
In certain situations and conditions, marketing management in agribusiness needs to be
followed by policies. According to Soekartawi (2002:114) these policies are product, price,
distribution, promotion, research and development policies.
Product policy is carried out for the purpose of reducing the risk of loss by making new
products with existing or new markets or by marketing old products with a combination of
new products that support each other, both old and new markets. For example, a paper factory
not only makes HVS quality paper (of various sizes), but a variety of other products, such as
manila paperboard, wrapping paper, and others. All diversification is intended to minimize
risk. Price policy is determined by the balance of inputs and outputs. In agribusiness
commodities that concern the interests of many people are often regulated by the government,
but for other commodities it is not regulated by the government and the size of the price of
goods is left to the market. The price policy regulated by the government sets two kinds of
prices, namely the floor price and the ceilling price. If the market price is between these two
prices, it means that the private sector can play around/manipulate the price between the floor
price and the ceiling price. Another case with the black market (black market) is rather
difficult to predict the price mechanism because most market participants carry out
manipulation or dumping actions; Place / distribution policy (place / distribution wisdom)
regulates goods so that they are distributed according to consumer needs, for example
Indonesia consists of hundreds of islands so that distribution policy becomes very important;
Promotion policy (promotion policy), policy is very important to do especially if the product
is new, of course the marketing area is a new area. Various ways can be done, including
through print media (newspapers and magazines) or electronics (radio and TV) and so on;
Policy of research and development can be done in various ways, whether in the form of
technology, skills, intelligence and so on. For the research and development program to be
successful, it needs to be supported by the availability of man-power of sufficient quantity
and quality, adequate equipment to work well, financial guarantees in the form of adequate
salaries, guarantees of appreciation for employees or workers who have achievements, and
companies willing to send employees to continue their expertise, both to domestic and
foreign institutions.
