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Determining marketing costs and returns in alternative marketing channels

Published online by Cambridge University Press:  18 November 2009

Shermain D. Hardesty  and
Penny Leff
Shermain D. Hardesty*
Affiliation:
Department of Agricultural and Resource Economics, University of California, Davis, CA 95616, USA.
Penny Leff
Affiliation:
Small Farm Center, University of California, Davis, CA 95616, USA.
*
*Corresponding author: shermain@primal.ucdavis.edu
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Abstract

Direct marketing is a popular marketing practice among smaller producers in the United States. We conducted detailed case studies of three organic farming operations of different sizes and compared their marketing costs and profitability in alternative marketing channels. We classified marketing-related activities into three categories: packing and storage, transportation, and selling and administration. By measuring the costs for labor, purchased goods and services, and capital assets associated with these marketing activities, we determined that there are significant variations in marketing costs across marketing channels. For each of our three case-study farms, marketing costs per dollar of revenue were lowest in the wholesale channel and highest in the farmers' market channel. Significant labor costs for the selling activity and transportation expenses offset the higher prices and minimal packaging costs associated with farmers' markets. Profitability can also be significantly affected by marketing factors, such as packing and grading standards, and product that is used for sampling and consumer premiums. Our research demonstrates that the higher prices that producers earn from direct marketing rather than wholesaling are not pure profit; the price premiums are compensation for the costs they incur when direct marketing their produce. Direct marketing channels, such as farmers' markets and Community Supported Agriculture (CSAs), can enable smaller farmers to build financially viable operations, by gaining access to markets, growing their farming operations and reducing their marketing risk. However, to achieve this success, farmers must manage their marketing costs as well as their production costs.

Keywords

farmers' marketsCommunity Supported Agriculturefinancial managementsmall farms
Type
Research Papers
Information
Renewable Agriculture and Food Systems , Volume 25 , Special Issue 1: “Food for Life”: Looking Beyond the Horizon , March 2010 , pp. 24 - 34
Copyright
Copyright © Cambridge University Press 2009

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