The focus of this paper is on analytical and business approaches to understanding and solving marketing problems in the changing environment in which agriculture-related businesses in Australia produce and sell products.

The main reason for writing such a paper is the recognition that students of marketing of agricultural goods and services need a lot more (and different) skills these days because there is so much more marketing activity than in previous times, and the belief that marketing students ought to be trained to recognise the type of problem they are dealing with and be given the tools to handle the problem.

A related reason for writing this paper is the proliferation in agricultural politics of advocacy and application of flawed ‘policy without theory’ marketing nostrums to help solve farm economic difficulties.

The broad theme in this paper is ‘what do we need to know about marketing to cope with the modern agricultural economy’ rather than pedagogic distinctions per se. There is little that is brand new in the processes of agricultural marketing and production. Farm products still have to be produced in a battle with nature and the rest of the economy and made available to consumers in the form they want them, as well as when, where and how they want the products.

There are some general principles underlying contemporary developments – increasing division of labour, substitution of capital for labour, income elasticities of demand and so on. Who does what and public versus private questions are still important in marketing policy.

The body of disciplinary knowledge and the way of thinking known as agricultural economics matured in Australia in the second half of the twentieth century. As a branch of applied economics, agricultural economics is concerned with the way resources are used to supply agricultural products and the demand for these products. Like economics, the focus is on general tendencies of firms and people to behave in particular ways, given assumptions about motivations for their behaviour.

In parallel with development of agricultural economics, were developments of disciplinary knowledge about the detail of the behaviour of individual producers of agricultural and of the behaviour of individual consumers that make up the demand for agricultural products. Focus on the detail of the behaviour of individual firms and consumers in the context of agricultural marketing, is the domain of fields of inquiry known as farm business management and business marketing.

• A dichotomy of approaches to production and marketing of agricultural products has emerged:
• Agricultural economics has some of the characteristics of a discipline and has a general focus.
• Agricultural business marketing has a broad a focus, and is an interdisciplinary, conceptual and descriptive subset of general field of business management.

There has always been tension between the range of factors considered important in agricultural economics in understanding and explaining agricultural supply, demand and resource use, and those factors considered important in agricultural business marketing in understanding and explaining the behaviour of producers and consumers in particular circumstances.

The distinction between the fields of agricultural economics and farm business management has been well recognised at the production end as two separate fields of inquiry trying to explain different aspects of agricultural production and has not been a significant source of tension. The same cannot be said of the agricultural economics treatment of marketing and agricultural business marketing.

The different emphases of the agricultural economics marketing and agricultural business marketing traditions could be crudely characterised as follows: ‘To agricultural economists marketing is mainly about prices while business approaches to marketing are mainly about everything except price’.

The tensions between these two views are most pronounced when analyses using the two approaches are brought to bear on the same real world phenomena. Inevitably, the different perceptions, training and knowledge of practitioners working within these two traditions lead to markedly different understandings of, and solutions to, the same problems.

Depending on the nature of those real world phenomena and problems, the attempts to understand and prescribe solutions for the problem in question is unlikely to emerge without judicious application of both approaches.

Often, agricultural economists provide general analyses of problems (where factors other than price matter) and get it wrong and business marketers provide analyses of problems of a general nature –also getting it wrong by overlooking the economic dictum that what is good for one under competition and free entry cannot be good for all.

Kenneth Boulding observed that somewhere between the abstract with no meaning and the generality with no content there is an optimum degree of generality (mix of disciplinary knowledge) that will enable problems to be understood sufficiently to be solved, given the current state of knowledge.

The contribution of any analytical framework to specific issues in agricultural marketing rests on the ability to position any issue in a meaningful context. Both economics and marketing have the capacity to enable this to be done. Importantly, and central to this paper, the sophistication to select the most pertinent elements from each discipline, or to define the most relevant conceptual frame, is a rather recent development.

The key to solving problems is bringing the appropriate balance of disciplinary knowledge to bear on the issue at hand. The failures of agricultural economic and business marketing analyses of questions in agricultural marketing are the result of having inappropriate balances of disciplinary knowledge resulting in the question being ill-defined and the solution not being a solution at all.

In essence, the argument in this paper is that agricultural economists, who after all are often saying ‘if competition were the case then this would follow’, would, if exposed to the non-price business and consumer complexities of agricultural supply and demand, be better placed to define the questions they are equipped to answer.

Similarly, business marketers, exposed to the insights of economics, such as the ‘if everyone stands on a tin at the footy no one can see any better’ fallacy, and the silliness of cost accounting and related types of thinking, would also be better equipped to identify questions and thus answer them.

Agriculture is unusual in the sense that change is the outstanding characteristic and yet there are unchanging aspects that have applied forever and will apply in the future. There are some fundamental rules of the farming game today which will be equally valid in the different circumstances of the future. The key to success in agricultural business is to be able to adapt operations which succeed in current circumstances, to be able to succeed in the different circumstances of the future whilst still abiding by the fundamental rules of the game. These fundamental rules are:

As consumers become more wealthy the type of products they buy changes and consumers spend a decreasing proportion of their growing incomes on agricultural products in general, and on the raw agricultural component of agricultural products in particular. This means the share of national income going to agriculture as a proportion of total national income declines over time, and income per farmer is only maintained at levels comparable to incomes of others in the economy by there being less full time commercial farmers operating in the economy. Fewer farmers or poorer farmers is the choice facing the farming community.

Agricultural production activities have to compete with other uses of the resources base owned by farmers own and with other uses of resources available to the wider economy.

This means agricultural businesses have to be as efficient as the agricultural and non-agricultural businesses they compete with, locally and overseas, in order to be able to pay for and acquire the resources they need, in the face of competition from competing users of these resources.

Real prices of agricultural products trend downwards because growth in supply outstrips the growth in people’s ability or desire to demand agricultural products. At the same time costs of production are increasing from competition for resources and rising private environmental costs, so farmers can only remain competitive and maintain their incomes by becoming more technically and economically efficient. Efficient marketing is one means to this end.

More specifically, Davidson (1981) defined a number of conditions for the successful production and marketing of agricultural products in Australia - imperatives that have existed from the beginnings of the modern Australian economy following European settlement. Agricultural activities had to:

• use large areas of land
• use little labour
• produce commodities for which export markets existed
• produce commodities that would not deteriorate during the voyage to overseas markets and were valuable enough in terms of its weight, storability and volume to absorb the cost of transport.

These fundamentals remain the cornerstone of agricultural economic analysis of agricultural marketing. Experience has shown that the fundamental rules of the competitive agricultural product markets cannot somehow be suspended or will not apply ‘this time’. Fundamentalist notions such that agricultural business activity is so special and so different from other forms of business activity that agriculture deserves some special deal, that farm businesses should not be subject to the same competitive pressures as non-farm businesses, are the way to future uncompetitiveness and ultimately economic extinction.

Such protectionist views have never had much economic validity; the economic rationalist debate for more efficient resource use from greater competition and freer trade has been won, and, despite significant backsliding, the thrust will continue towards greater business competition domestically and internationally; perhaps at a faster pace on the domestic front than internationally.

Agricultural marketing activities are most usefully seen as complex, specialised activities in their own right, requiring investment in specialised knowledge, time and capital. There is a great diversity of production, of products and of markets in agriculture. For some products marketing involves very little transformation or transport or middleman functions. For other products, highly developed chains of middlemen are required for a farm product to satisfy consumers’ needs.

In Australia, agricultural products often have to be transported over long distances from large numbers of small scale producers spread over a wide area of the country to numerous small-scale consumers, many of whom reside overseas. There is a big difference between intended (hoped for) and actual output, due for example, to the uncertainty of seasonal conditions, exchange rates, competitive supply conditions and so on. Product characteristics are important in determining the nature and degree of marketing activities that take place.

The agricultural marketing systems of interest to Australian farmers are heavily dependent on export markets and the nature and characteristics of agricultural products have a powerful influence on the institutional arrangements for particular commodities. Difficult concepts in the theory of industrial organisation and practical, political and legal/constitutional problems concerning the distribution of responsibilities between the public and private sectors and Federal-State relationships have to be considered in analysing agricultural markets and marketing.

Observers of agricultural markets have sought unifying themes to describe and understand the process of agricultural marketing. Perhaps the most useful single idea to be emphasised in the serious literature on agricultural marketing is the fundamental role of economic information in coordinating the provision of marketing services necessary to supply the products to consumers, who have diverse requirements and economic characteristics.

Marketing can be regarded as being about information - information generation, management, evaluation and utilisation. Individual operators working along marketing chains need to acquire, analyse, interpret and act upon market information. Competitive markets both require, and generate vast amounts of information, particularly about prices, quantities and qualities.

A direct consequence of greater reliance on competitive markets is that participants will have more information available, and will need more information to manage efficiently. Modern theories of industrial organisation stress different circumstances under which information influencing the operation of firms and markets is embodied in prices, or dealt with administratively within firms.

In the Australian context, gross confusion is created in agricultural marketing by a most ambiguous political concept. The notion of an ‘industry’, reflecting the collective interests of farmers and firms involved in marketing, is frequently invoked in discussions of agricultural marketing. The fundamental distinctions between economic theory and empirical evidence, relevant to analysis and research at the firm and industry levels, are thus often ignored in discussion of marketing policy.

The notion that there is a commonality of interest of individual firms, called ‘the industry’, leads nowhere useful. Producers of similar types of agricultural products, or users of similar types of resources, are not an industry or grouping whose welfare ought to be treated commonly but instead are individuals who are in competition with each other to do the best they can as individual business-people to make themselves as well off as they can manage.

Relatedly, the tradition in marketing circles of insufficiently emphasising the differences between the planning or marketing problems of the individual firm (what is good for one) and those of the aggregate of the firms, which in reality is composed of individual firms competing with one another (what is good for all), needs re-appraisal.

Greater appreciation of the differences between individual firms and a collection of firms would be a sound starting point for useful analysis of marketing options. (The argument applying to inappropriate use of the concept of ‘an industry’ applies equally to nations – nations do not engage in trade, individual firms and individuals engage in trade).

The term ‘market’ is a general term referring to the organisations or procedures that enable buyers and sellers of a commodity to engage in trade or exchange. For trade to take place, both parties have to be satisfied. The buyer accepts that the product has characteristics in terms of form, space and time which meets his/her requirements and, considering the amount available, how keen the seller is to sell, and how keen the buyer is to buy, makes it worth the price. The seller accepts that the price is as good as can be achieved, given the characteristics of the product, the number of other sellers selling the same product, how keen they are to sell it and the keenness of buyers to obtain it.

Marketing of agricultural-related products comprises many different business activities, many different flows of product (called marketing channels) and many different firms (called middle-men) performing two main functions:

• the physical handling, storage, processing and transfer of raw and finished goods as they move from producers to consumers – ‘operational efficiency’.
• the exchange and price setting processes in the market system ‘pricing efficiency’.

Agricultural markets vary enormously in their complexity: ranging from simple roadside stalls, with direct exchange of products between producer and consumer, to the extraordinary functional and institutional specialisation in agricultural marketing now typical of trade within and between advanced economies.

Marketing functions can be performed by anyone, anywhere in the marketing system. One firm could perform all of the marketing functions or there could be specialised firms performing only one marketing function (such as transport). Food processors, for example, usually combine storage, processing and transportation functions. For many farmers, on-farm storage is an integral part of their farming operations.

Although it is possible to eliminate middlemen it is not possible to eliminate marketing functions. Eliminating middlemen involves a transfer of marketing functions and costs to someone else.

For example, farmers may assume the storage, selling and transportation functions themselves, eliminating brokers and commission agents. The cost of performing a marketing function may be reduced, but the function cannot be eliminated from the marketing process.

While the functions may be necessary and indispensable there is a lot of flexibility because they are performed in various places at various times within product markets. A key issue concerning marketing functions is whether these functions are being performed efficiently.

Marketing functions add value as well as cost to products. Additional functions and services generally are performed until the costs approximate the value of the functions. Some functions are most efficiently performed by specialised firms. Other functions are performed more efficiently when combined in multi-function firms. In the food industry, several marketing functions may be combined within a single firm because marketing functions are complementary and it is profitable to perform them jointly.

Farmers need to consider carefully whether they should perform more or less of the marketing functions. There is no guarantee that farmers who assume additional marketing functions will make profits at the margin, even when the functions themselves are profitable when conducted by specialised marketing firms. Carrying out these functions often involves specialised skills, investment and market knowledge.. And as farmers take on additional functions they spread their management skills over more and more activities and economies of specialisation are lost.

The function of the price mechanism is to discover prices as well as coordinate the actions of firms and households. Methods used for price discovery for agricultural commodities reflect product characteristics and market structure.

Price discovery refers to the process by which buyers and sellers arrive at the price and other terms and conditions of sale. The prices of interest are the prices of both the commodity and marketing services, insofar as the prices of marketing services and other commodity attributes can be separately described. Tomek and Robinson (1981), in their standard work on agricultural marketing, identify the following methods of price discovery:

• informal negotiation between individuals or firms;
• trading on organised exchanges or auctions;
• pricing via formulas;
• bargaining conducted by producer associations or cooperatives;
• administrative decisions, both in the private and public sectors.

All these methods are used in domestic and international trade. Quotations from central markets are a reference point for other transactions. The pricing role of central markets should be separated in principle from their traditional role as places where actual exchange of products takes place.

Auction markets persist when physical inspection of the product is required for buyers to be satisfied with the goods being purchased, in the absence of sufficient objective product specification. It is noteworthy that direct marketing between sellers and buyers avoids significant costs of assembly, transport and handling associated with traditional auction markets.

The prices of some marketing services may be determined competitively, even though there are monopolistic features in provision and pricing of other marketing services. Though advocates of single desk exports wish otherwise, in a competitive market, prices will be uniform after the costs of adding or subtracting place, time, form and quality utility are taken into account. For homogeneous commodities, the price of the same grade of the commodity will be the same at all locations at the same time, apart from transport costs. This is the result of bargaining or arbitrage and is an example of the ‘law of one price’.

One significant feature of markets is their role in provision of information, and prices themselves convey an enormous amount of information. Product description or grading provides more information. More efficient marketing in both pricing and operational senses can be possible with product grading. Marketing systems develop which one way or another cope with the difficulties of quality definition, with varying degrees of success.

The longer the marketing chain the more difficult it is for buyers and sellers to agree and enforce terms and conditions of sale. Innovations in price discovery accompany innovations in information sources and provision, and innovations in marketing channels used. Grading can be informal according to agreement by seller and buyer about standards, reinforced by concerns for continuing the relationship and concerns for reputation.

The widespread persistence of auction systems, in wool and livestock marketing, reflect in part the practical approach of buyers averaging across ranges of quality characteristics, and also reflect problems of assessing properties of products that are different at farm and processing levels, as well as the lack of complete objective measurement systems.

Such averaging carries with it inefficiencies in the information-pricing sense but can have efficiencies in an operational sense. The benefit from formal grading systems is when further gains to buyers and sellers are made possible, either by reducing the cost of defining the product and establishing the price, or by defining the product better and reducing uncertainty and earning a price premium, or by facilitating savings in operational costs through changes in handling procedures, with the proviso that the winners benefits outweigh the losers costs from the change.

The case for formal grading is not simply a matter of applying the truism that more information is better: rather the magnitude of all costs and benefits has to be considered with some care. The ongoing debate over meat quality and grading standards, with the implied suggestion that every steak from every beast ought to be of the highest quality, ignores the fact that not all consumers have the wherewithal at their disposal necessary to buy ‘only the best’.

In Australia today, increasing emphasis is being placed by people throughout marketing chains on providing products that are different from that of other suppliers and, perhaps more importantly, fit buyers’ requirements more precisely than before. Thus greater emphasis is being placed on form, time and space differentiation. To add to the difficulty, buyers’ requirements are changing all the time. In particular, consumer requirements become more precise and more elaborate as economic growth proceeds. The theory of price differentiation is fundamental. In business marketing, a distinction is commonly made between commodity trading and marketing of products. 'Marketing' is taken to refer to creating and selling a product that is significantly different from what other sellers have to offer.

Commodity trading is regarded as selling a product that is not significantly different to that of other sellers. A point to note is that the emphasis on differentiation is on meeting needs for ‘form’ utility, yet when ‘time’ and ‘space’ utility are considered, all commodities are in fact differentiated ‘products’.

Market structure and industrial organisation need to be considered both vertically and horizontally. There is a vast array of corporate organisational forms and methods that provide the link between strategy and performance. Transactions costs and between firms have to be considered. Markets are costly to create and maintain. Many cases of ‘market failure’ deemed to require government intervention are really examples of the pervasive influence of transaction costs.

The vertical structure describes the way firms are organised to perform marketing functions, singly or in combination, for goods to move from the producer to the consumer. The vertical structure identifies marketing channels, which in a flexible and competitive marketing system are always in the process of forming and reforming. Just as firms are in competition, there is a sense in which marketing channels are also in competition, as firms seek superior ways of performing marketing functions.

Demand, costs and marketing technology are not static. There is no single ‘best’ vertical marketing structure. Horizontal competition describes competition between firms performing similar marketing functions; Adam Smith’s ‘people of the same trade’, whom if not closely watched, may just as easily decide to collude as compete. Strategic alliances can be thought of as ways in which firms cooperate to manage the supply chain to increase the consistency and security of product supply. The aim of strategic alliances is to exploit complementarities between firms that contribute different component parts to the production and marketing system. Ultimately, the aim is to manage risks and contain transaction costs.

Strategic alliances may be horizontal or vertical and involve forward contracts or some sort of pre-arranged marketing system to connect producers with their customers. The function of the alliance is to achieve gains that cannot be achieved by individual farmers or marketing firms acting on their own. This is an argument based on economies of size in marketing. A related reason for interest in alliances is perceived problems of feedback to producers of market information.

Alliances can reduce costs, and some argue has to do more than this in terms of branded products, product development and market growth. Others worry about strategic alliances affecting adversely the performance of the price mechanism as an information generating and price forming process. This latter is an empirical question, though it is not easy to answer because if the price information is poor, so too is the data available with which to analyse what is happening.

Strategic alliances require high levels of trust between producers and those further along the marketing chain, compared with markets that are more adversarial. It must be noted that often relationships between producers within horizontal groups can be more tenuous than vertical relationships, and meeting the very specific product requirements implied by strategic alliances can be very difficult. Risk management seems to be one of the important incentives for developing strategic alliances, and the benefits or avoided costs from better risk management are often hard to quantify. To answer the question ‘What is the appropriate degree of vertical integration’ is to decide which of a firm’s activities are best achieved through open market transactions, which activities are best achieved through formal contracts with other parties in the production/marketing system and which activities are best carried out within the firm.

These decisions are known as decisions about the firms boundaries. The unique circumstances of every firm means there will be a unique answer to these questions. Ultimately, it is the combination of markets, contracts and within-firm operations that determine the firms production, procurement and marketing costs and profitability. However, the decision about the mix is a complicated one.

The centralisation of decision-making that accompanies increases in vertical integration can achieve economies of size in acquiring and processing information and in operational co-ordination through the system. At the same time, centralisation can cause problems of slowed responses and inflexibility in the face of rapid changes in the market. Considerations about the benefits and costs, and thus appropriate mixes of centralisation and decentralisation of decision making and actions, are central to decisions about the appropriate degree of vertical integration and where to draw the boundaries of the firm. A further critical consideration concerning vertical integration is how to establish the right incentives throughout the system to get the best overall performance from the system.

It is not surprising that in agricultural-political circles there is increasing emphasis on farmers investing beyond the farm gate to capture a greater share of the consumer's dollar. In the past the emphasis on farmers investing in agricultural production beyond the farm gate stemmed in large part from the traditional farmer belief that the share of the consumers dollar farmers receive is an indicator of marketing efficiency or farmer welfare, along with the traditional mistrust of, and understatement of, the roles played in selling a product by the distribution, financing, transformation, transportation, communication, coordination and retailing functions.

Nowadays it is more likely to be based on the belief that the future area of growth will not be in the demand for farm product but in the demand for services added to that product. Therefore, the reasoning goes, if this is where the extra profits are going to be earned, primary producers ought to have some investment further along the marketing chain, ie. be vertically integrated in some investment-ownership sense. This may be seen by some as a ‘put more eggs in the one basket’ approach.

Behind arguments for farmers investing more in value adding activities is the presumption that there must be potentially profitable opportunities to add value which are not already being realised; or that the current marketing functions are not being performed efficiently and there is great scope for producer owned operations to achieve efficiency gains.

These assumptions may be correct in some instances, though there are no obvious reasons why there are at any time, or for very long, 'free lunches' to be picked up along the marketing chain, provided activities along that chain are competitive or contestable. The dynamics of economic growth and of agricultural markets means that there are always some opportunities ‘cropping up’ and briefly awaiting development by those with the good management and good luck to be well situated to grab the chance.

For example, depreciation of the exchange rate creates profitable opportunities for further activities along the marketing chain, as does growing wealth of customers and increasing sophistication and refinement of consumer and processor requirements.

Still, the notion that there are easy, highly profitable net-value adding solutions to increase profitability is an idea whose time has been and gone. Net-value adding means the net returns from using resources to add net value are greater than the opportunity cost of using those resources in some other way.

There are sound net-value adding solutions of course, but they are not the easy road to riches as often portrayed. The question of course is who ought to do the value adding? The answer is simple - whoever can do so most profitably.

The criteria of ‘most profitably’ means that the investment of resources in value adding has to be the best option faced by that individual. This approach emphasises the view that resources have many alternate uses and returns (opportunity costs), and ought to be used in the way which brings the highest return to marginal capital.

Just how many farmer-owned meatworks need to collapse throughout Australian history before modern agro-politicians recognise that glib analyses and solutions to problems are no more ‘the answer’ to complex technical and economic problems in agricultural marketing than is the case in agricultural production? Why do farmers demand for their businesses the highest levels of rigour in science and economic understanding in the field they know best, agricultural production, and yet accept all sorts of superficialities from agro-politicians, scientists and marketers about the operation of the business world beyond the farm gate?

Only in recent years have we seen appropriate mutual deference between marketers and economists with each displaying some awareness of the insights available from the other. A major advantage of this has been the demystification of issues. Thus, where 'value adding' and 'niche marketing' have been introduced as worthy ideas, there is now greater pressure on proponents to be a little more precise about them.

'Value adding' turns out to be about production location issues and vertical integration and not at all about value adding in the (normal) sense of product development; 'niche marketing' turns out to be about market segmentation and targeting (ie. value adding) and not really about market niches at all. In both cases, the trendiness of the language has overtaken the need for accuracy in usage. These are instances of mock marketing speak.

Mainstream business marketing has a general model at its core that is most unhelpful to agricultural marketing. This model is based on the assumption that the product of interest is a branded, tangible good the major features of which are under a high degree of control. In such an environment, with its host of convenient implicit assumptions about the (low) intensity of competition, the nature of demand and the content (or conduct) of competition, the so-called marketing concept is a strategic axiom of considerable force: good returns depend on finding out what the customer wants and giving it to them (subject to marginal cost not exceeding marginal returns).

It is hardly surprising that epithets which make a lot of sense in the unstated oligopolistic nirvana underlying the model have been seized upon by farmers and others as likely sources of improved returns. The most sustained of these notions relates to advertising and promotion (notably: it always works; the only question is to what extent). The very real possibility that every penny expended in a single advertising campaign can be wasted would surprise many a farmer (and an alarming number of advertising agencies).

It has become increasingly obvious, over the past decade, that the business-marketing model is quite unhelpful to much non-agricultural marketing as well. Decades of modifying the general model to ‘fit’ services, even branded services, has led mainly to the conclusion that branded goods constitute a special marketing case, even an aberrant case. Services are the more likely source of a true general model, not least because they are characterised by endemic variability and related problems of control.

Despite the emphasis that is usually placed on day-to-day marketing management activity, it has always been the case that some of marketing’s main contributions are fundamentally strategic in nature. Marketing is the discipline that informs the analysis of ‘the business one is in’, one’s role in the creation of final outputs for final customers, and the identification of the customers for a specific organisation. Marketing sophistication does not often have its payoff at the tactical level. More often it is derived from the meaningful analysis of markets and capabilities to serve them.

This brings us to the main difference in the business marketing approach to agricultural marketing: it starts with consumer needs. ‘Marketing’ in marketing theory is not simply the contemporary buzzword for ‘selling food and fibre’ in this context. The starting point for marketing is the set of benefits customers seek of which a food or fibre may be a part.

This set is composed of ‘functional’ needs (of which hunger or warmth will be one, but fashionability, taste preferences, status, etc will be others) and ‘exchange facilitation needs’ (which price, place and promotion basically serve). Which needs are determinant of choice (between alternative sets) is a question of fact. To start the analysis from the input end (‘why do people buy rump steak?’) is to launch an unhelpful question that may yield a strategically irrelevant answer.

The derived nature of demand for all products (as inputs into 'organisational' or 'household/personal' production processes) means that it is fundamentally question-begging to conceptualise the main processes going on in exchange relationships in terms of well-defined products. The business of acquiring products is about bundles of attributes offering solutions to consumption problems in domestic or organisational contexts. So, therefore, is the business of creating and selling products.

Since, in contestable markets, consumer valuation of system output can be expected to influence strongly all productive activity in a marketing system, looking at marketing systems from the consumer end has merit, as a way of comprehending the value of characteristics of output, compared to the view from the farm forward. It is an approach that informs other significant issues that are conceptually vague.

For example, underlying vertical integration and market targeting is the issue of the sensible definition of the market for a firm's output, or 'who is not my customer?' Likewise, underlying valid analysis of transaction costs and optimal integrative alternatives is the issue of the potential breadth, and acceptability, of quality categories applying to a product flowing through the marketing system. That is, how much stability in aspects of products exists, relative to customer needs, and how intrusive does integration need to be (and at what cost) to achieve adequate control in this context? Or, how risky is a market solution?

Resolution of these issues is context-specific. The basis to resolution rests on (organisational or final) customer preferences and perceptions and the extent of control over pertinent aspects of products that the physical and institutional characteristics of the production and distribution system allow.

The meaningful, but awkward, distinction between 'commodity' and 'product' also relies on this base. There is no guide, other than customer perceptions, to the existence of difference among products; customers own the comparative categories. Brand management activity does not imply differentiation, merely difference in brand. Differentiation is to do with relevant difference. A commodity is a product that a given consumer (segment) perceives to be practically identical across alternative brands (ie, sources of supply). This is as true of 35mm photographic film as it is of ASW wheat for large segments of customers.

The significance of the notion that a product is a commodity rests on the presumption that customer decision making will focus on price rather than other characteristics. This is valid but its relevance is constrained by the fact that perceived differentiation is specific to the market segment.

Functional homogeneity creates incentives for suppliers to identify ways of enhancing product appeal (ie, differentiating) with exchange facilitation aspects or by bundling other functional attributes with the core product. To imagine that relevant homogeneity in the core product necessarily defines commodity status for the bundle of attributes the customer contemplates is to be simplistic.

The scope for differentiation on aspects other than the core product causes it to be rare for pure commodity status to exist. It is common, therefore, for price to be one of a set of choice criteria and for price elasticities of the other criteria to be worth knowing.

The great majority of items in a supermarket are ‘convenience’ goods including, for those who buy them there, fresh foods. The significance of this is that these are ‘low involvement’ products (meaning people are not inclined to lavish too much cognitive effort on the selection process) and that availability is critical. That is, the brand owner is not usually a key supplier of product attributes; the retailer has a much more important role.

The apparent effort committed, by imperfectly competitive brand owners, to tactical marketing activity (especially promotion) over supermarket items creates an unwarranted popular perception of effective marketing. The 'main game' in marketing is the achievement of quasi-monopoly status for products by differentiation on aspects relevant to consumers. Tactical marketing is effective only when this challenge has proven too great and customers are basically indifferent between brands and are looking for the faintest rationalisation to choose one way or the other.

Business marketing theorists rarely contemplate, however, the implications of significant variability in product attributes. Though not problematic in domains other than primary industry, in primary industries variability can cause the relevance of business marketing to wax and wane.

The most extreme example is a price decline of such magnitude for a core product that all non-price differentiation loses value. That is, products drift towards and away from commodity status in uncontrolled, and significantly unpredictable, ways. The application of business marketing approaches to management becomes a strategic bet as to medium-to-long term returns to differentiation. This characteristic of agricultural products has variable importance at different levels of a marketing system and creates incentives for integration and other mechanisms as means of creating stability and enhancing the returns to marketing management.

Perhaps the thorniest issue in agricultural marketing is promotion. Promotion, like fertilising, cannot reasonably be analysed outside its context. This is usually what occurs, however, with predictable consequences for the reliability of generalisation. We see, thus, rather poor marketing science when advertising is analysed. The difficulty is that the focal question in the agricultural marketing context ('is it worth doing?') is rarely considered in business marketing; the imperfectly competitive context has norms about such things - it is done or it is not. To express this another way, there is no such thing as deliberate generic advertising outside the primary industry sector. Questions such as what happens if cola is not advertised simply do not arise.

Despite these observations, the typically 'consumer as black box' model implicit in aggregative econometric studies of advertising effectiveness for agricultural products is vulnerable to serious doubts concerning its validity. There is no need to adopt so abstract an approach. Advertising modifies consumer perceptions of products, absolutely and/or relatively, and these perceptions can be studied directly, as can the impact of advertising on them. The resulting extrapolation of implications for sales/demand is intrinsically problematic but at least this approach is measuring the status of a necessary condition for demand changes.

Increasing competition and complexity in agricultural marketing activity will require more sophisticated analysis and understanding in the future than has been in the past. Insights about agricultural marketing by both agricultural economic and business marketing analysts will be enhanced if they can identify better the dimensions and mix of disciplinary knowledge appropriate to bring to bear on the question at hand, especially if such identification is accompanied by realistic appreciation of what their disciplinary paradigms can and cannot do.

There is a case for a more analytical approach to business marketing, and for economic models that seek to explicitly deal with quality/market segmentation issues. The case exists for research to attempt to make the Lancasterian framework of want attributes more explicitly operational – maybe market research could be linked to this framework? In the area of firm structure, reorganisation of marketing systems through integrated contract marketing has huge implications for quality specification and redistribution of risks from both sides of transactions. There is scope for more interdisciplinary empirical research in this area.

As in all aspects of business, realising potential net gains of efficient marketing activities requires technically sound analyses. Unsophisticated, convenient but banal nostrums that emerge from agro-politics - ‘the market’ is the problem, ‘marketing’ is the answer; usually accompanied by exhortations for farmers to ‘try harder’ – make even less sense in the modern market economy in which Australian agricultural businesses have to perform than was the case under previous, semi-planned business arrangements.