MARKETING AGRICULTURAL PRODUCTS
F. R. WILCOX*
Chairman, Advisory Council
American Arbitration Association
Los Angeles, California
PRESIDENT RUDDER, President Heldenfels, members of the Board, ladies and gentlemen: My credential for being here today is one that President Earl did not mention; namely, that we obtain a major part of my income from agricultural production. Naturally, there is great interest in the types of programs which you have outlined and in a few minutes I'd like to review some of the specific things that all of us need to be aware of, and need to think about in the marketing of our products. I have always felt and feel strongly at the moment that agriculture is entitled to a satisfactory income, for our investment, for our labor and for our know-how. There is a lot of know-how in the field of agriculture, and I have no patience with anyone who feels that agriculture is “just a way of life.” It is a way of life and a good way of life and will be a better way of life as long as it is profitable for those who are engaged in this great industry.
think those of us who have lived for the major part of this century has experienced the greatest changes that have taken place in all other history of the world. And yet, as we visualized things that are with us today and things that are to come, I think those who live for the next 50 years will think of this period of the last 5 or 6 decades as being rather drab. Even if this be only partially true, the vision to see and the courage to do will be essential for any major industry in this country including the most important industry of all, agriculture. Wisely, the leaders of this great institution have recognized future difficulties and future opportunities and are helping all of us chart plans which will continue to make agriculture our nation's leading industry and the outline of work which I have had the opportunity of reviewing by your experts here is well conceived. I am going to copy and recommend this program to the President of our state university.
I think we have to live in a very practical world and deal with those things that immediately confront us. I have looked at the world population as that population to whom I think we have the right, and to whom I think we will have the opportunity of selling in the next 3 decades. This population will be in excess of 3 billion people; we’ll not need to go into countries that don't like us; we’ll not need to go into countries that do not have ability to pay, but we will have more than a 3-billion market outlet for the products of the free countries of the world. Equally important with this and equally important as every merchandiser knows, is not only numbers of persons, but what can they do? Do they have the ability to buy? According to the best studies, buying power will increase at least 60 percent by the year 2000.
Now with this brief and almost dogmatic background, then what do we have? What do we need to do? I say to you in all frankness, that a profitable agriculture will not just “happen” but I think that a profitable agriculture in this United States and in this great state will come about through efforts that will be under the leadership of universities and more particularly under the leadership of such men and women who are gathered here today. Great effort is required Congratulations on your background study to be used as a basis for study in depth today and tomorrow. From this, may we review a few matters to be considered in the field of marketing and distribution which after all is basic in giving us a reasonable and profitable farm income.
Marketing begins with production and I have never felt that we have over-emphasized production. We should encourage exhilarated research to the end of increased production, for which there can be a profitable market provided costs are kept at a minimum. Production research must emphasize quality to meet consumer demands. We have a lot of production in this country that is not profitable because consumers are not willing to buy poor quality.
ay I use just two examples: in our own production or citrus fruits, and I am going to use citrus fruits for a few illustrations and only for that purpose, our Valencia crop which is being harvested will sell the off-grade fruit for an income of about $40 a ton f.o.b. to packing house. The first-rate fruit which, fortunately, will represent about 70 percent, will be sold for in excess of $120 a ton at the packing house. Every orange, every box, regardless of its quality costs exactly the same to produce. Some producers will have 95 percent first-quality, other producers will have 40 percent and the 40 percent producer of high quality will not have a satisfactory income.
Unless we can produce quality merchandise, we cannot succeed. The beef cattlemen and experts in this room know better than anyone the difference between the high cuts of meat and the low cuts of meat. The difference in return that is paid to the producer, the difference in the price paid by the consumer is common knowledge. These are evidences of a trend that I think is going to become even more severe in the future than it has in the past. People will pay good prices for quality products. It's with this in mind, then, that in our production process much of which we have learned from this and other similar colleges throughout the United States must emphasize not only more, but better quality at the lowest possible cost before the marketing process can actually begin.
Next, I think that we need to deal very definitely with physical handling. This may seem a bit trite and a bit local as compared to some of the broad international prospects that we have already been discussing this morning. But, nevertheless, if we fail in our consideration of proper packing, economical harvesting, efficient transportation and storage sales, returns will be less than satisfactory. The cotton industry has learned to reduce harvesting cost. This is an example of what can be done and in many cases cost can be reduced by more than 50 percent. I've seen as you have seen in the market places in the great centers of population waste and destruction of merchandise that has not reached the consumer with the high quality it had when it left the farm. Little is accomplished by producing well and handling well at the farm or at the local packing house or processing plant unless those same high qualities reach the consumer.
New products have a great future. This is one of the great changes that will come about to give marketing people the kind of products in agriculture that marketing experts in other fields have had for many years. Change the model to attract customers. We need to change the types of commodities that people are using, not let the consumers get ahead of us, but let us stay ahead of the consumer. This is a difficult field and yet with research and understanding of consumers' problems this can be done. We've made some progress. Let's not hide our efforts under a bushel because this great industry of agriculture has done more in my opinion, by and large, than any other major industry to, give consumers good value. We've developed frozen foods. We've developed dried foods. We've developed improved packaging. All of which has increased sales and equally important, has reduced the costs. I hasten to say that the actual spread between producers and consumers, as many of the ladies know, has increased because of the convenience type of products. Very few people use flour in the space age. The citrus industry, again which I use only as an example, would be less than profitable had it not have been for the frozen products that are produced primarily in Florida.
Another item of handling is transportation. When piggyback first came out, any sales people said, this is the worst thing that's happened to us. We'll lose control of the commodity. In just a few years piggyback has come to be a great aid to agriculture. Let's work with the steamship and the airplane manufacturers. I can visualize a fleet of planes almost a chain of air transportation for our commodities to the market centers of this nation. These things must be done for two reasons: First, to reduce and minimize costs because this cost of transportation for agriculture is a great part of the total consumer's dollar. This gives research people the opportunity for a great deal of study to the end of cost reduction and also equally important is getting the commodity to the consumers at the same high quality as when produced and with a minimum of waste.
Wholesalers and Retailers
Wholesale and retail markets have come in for a lot of study and I dare say that everyone or us, who are producers in this room, at some time or another, have criticized these people, have questioned their services, and have questioned their performances. I say to you, after dealing with them all my business life, that without the wholesale and the retail trade agriculture would be in great difficulty at this particular moment. I do not approve of all of their practices. I think some changes and modifications should be made. Next week a study will come from a special group appointed by the Congress of which a great man from this state is one of the commissioners and out of that study will probably come some recommendation for changes in the retailing and the wholesaling trades for agriculture commodities. That will be helpful. But the job will not be done unless we as producers take an interest and perform a service by working with, not fighting, these people. Retailers are experts just as you are experts in the production and the primary marketing of agricultural commodities. They can and do perform a service provided we work with them. And I recommend this for your careful consideration.
The next project I want to mention briefly is to analyze and visualize changing consumer demand. This again is a difficult thing, and may I say, that the Universities, I think, have steered away too much from this because it does represent some difficult tasks. Here is a field that I think agriculture has neglected. Other manufacturers, other producers, help their sales people by making studies of the trends and consumer wants and consumer demands. We need to do this in agriculture. I'm very pleased as the President indicated that you have here today a number of women who have a de finite interest in this field. They can contribute much to a better understanding of this phase of marketing. Always remember that we, like any other industry, are dependent upon consumers. The rest of the chain, the wholesalers, the retailers, the transportation and others, all get their income from the consumer dollar and finally there's some left for producers. We need to know more about these consumers. I would like to chat for just a minute more about the basic problem of marketing and selling.
First, there is no magic. I see no p articular difficulty in selling, if we follow basic principles. It is a matter of bringing together demand and supply. The processes of doing this are difficult. I am strongly of the opinion, and I say this from my own experience in California, that farm people, those of us engaged in the production of agriculture, have left too much of this essential phase of agriculture to others. Other great industries, General Motors, the firms who make the household appliances, place as much emphasis and put as much of their manpower and their brainpower into selling as they do into production. They recognize one as an integral part of the other. We can, in our respective industries Influence supply and demand and become involved in this whole process of distribution. It is not easy to do in many instances, and I would like to echo one suggestion
that has been here this morning because it involves, in. many instances, subjecting our individual feelings, our individualism to group action which I think must be done if we are to accomplish the right sales processes for agriculture. And in saying this, I should like to emphasize that this in no way does away with the individuality which as agricultural producers we like to have. We get paid for what we produce, not only the quantity but the quality.
I hope we will never be grouped together and lose our individuality in this whole field of production. But then, we come to a point of where we’re dealing today more than ever with large business enterprises, with great buying power and we can meet this and have met it in some instances, so that we can obtain the maximum from the consumer dollar and, more importantly, become the essential force in this whole factor of selling agricultural products and not leave this function to someone who has only an indirect interest with little or no concern in the profits and the returns that we get as agricultural producers, May I mention just a few ways of doing this.
Cooperatives are one answer, and l urges you to consider it. In California and Arizona, now with one of the commercial marketers having just affiliated with Sunkist, this permits the cooperative to handle about 85 percent of the total citrus crops produced in these two states. This gives possibilities of doing things that could not be done otherwise. And I hasten to say that this places a great responsibility on the board of directors and management because they are responsible not only for the 85 percent but for price levels on 100 percent. Cooperative organizations offer definite opportunities, which I may say frankly to you, have not been fully and properly exercised. Trade associations can be most helpful. I commend the Cotton Council, Livestock Association, the dairy group for getting into this field of selling products of all producers. More of this can be done. Marketing agreements have possibilities. I think that we have the authority from State and Federal legislation to make use of marketing agreements to a greater extent than in the past. These are tools under which we as producers and as handlers and processors can have an effect on the supply and demand of the products without losing control or any sense turning our responsibilities over to the government, which I oppose.
We can control production through a more intelligent process of understanding by producers. What is the future for this commodity or for that commodity? The Extension Services in this state and throughout the United States, equipped with basic, sound good information can bring understanding to this intelligent group of farm people that are now relatively few in number. Your leaders will take a more prominent role in presenting sound programs to all agricultural people.
Advertising and Merchandising
We can affect demands to a certain extent through advertising and merchandising. I am amazed at how many people engaged in agriculture feel that their job is done when the product is dumped at the front gate of the farm or turned over, even before that to some buyer. This is far from the truth. We have been niggardly in our agricultural expenditures to build demands and markets. The demand and the markets for all great industries in this country have been built through advertising and merchandising.
Some manufacturers spend more than 40 percent of their total receipts for advertising. I think we need not be in that bracket. Some of the razor blade people last year spent 28 percent of their total sales income in advertising. Again we need not, reach this plateau in agriculture, but I think in studying each of our commodity groups that we do need to double, to triple and in some instances start from scratch because nothing has been done.
The most interested party in advertising farm products is the producer himself. Earlier we spoke of the Cotton Council and the Meat Institute. I think that their investment in selling must be at least doubled in the next 5-year period if they are to maintain a market which will benefit the producers in those particular
commodities. I believe that for fruits and vegetables we must double, if not triple, in the next 5 years, the expenditures for advertising and merchandising if we are to have a successful industry. We are in the most competitive field that I know of anywhere. Again, I use the citrus industry as an example---25 years ago people wanted Vitamin C, and the home economists and the other people trained in diets here know that Vitamin C is essential every day. If consumers wanted Vitamin C they bought citrus fruits or tomatoes. This was the whole-sale pitch that has built the citrus industry in Texas and Florida and California with the Vitamin C story going back in to history. Today, people don’t have to buy these commodities to get Vitamin C. Any drug store has Vitamin C and in many instances they can be bought cheaper on a unit basis than they can the same units can be bought from agricultural commodities which have furnished these products. This is real competition and is one of dozens of examples which compel agricultural producers to sell and merchandise. And, here again, I want to emphasize the need of working with the trade to improve handling. We need the trade support. I do feel that vertical production and then need to assert ourselves in this whole field of merchandising and utilize all of the facilities that we possibly can in this matter of selling. I’d like to also state, which I’m sure you’re aware of, that there’s great waste in advertising. Here is the field, Mr. President, where the University can perform a great service for agriculture. When do we reach the point of diminishing? Next let’s consider prices.
We change the price, upwards or downwards, simply to influence the amount of the commodity that consumers buy. And yet, I feel that in all of agriculture we sometimes have changed prices in both directions without having any influence on the consumer because these prices are not reflected at the consumer level. In many cases this is true on the up side as well as on the down side. How do you establish a price? What's the mechanism? We've used auction methods. Livestock people have used various methods in their selling. The cotton exchanges, the grain exchanges. In all of this, I wonder if we have established the right processes for establishing optimum prices to benefit both producers and consumers. I think we have not. Better informed groups in agriculture can have a greater influence on the price structure than we have had in the past. This again is a difficult field of study and many people have shied away from it. I hope we will no longer do this.
We may now consider the scope of our markets. We should avoid artificial barriers because to your state and to my state and many other states this is the most ridiculous thing that we can have. If Texas can produce citrus and sell it more cheaply and better in Chicago than California, then Texas ought to produce it. Let's do away with the local situations that dull markets and recognize that we have a national competitive market and those who run the fastest will win the race. But over and beyond the domestic market we have a great world market which I have indicated will in the free world be more than 3 billion people by the year 2000. We can look for very little comfort in tariff regulations and other international restrictions. We must look towards a free market and in the long pull this will be good. But it gives to us as producers even a greater responsibility to be sure that we get our share of the world market. We can and will sell in all of the free countries and perhaps some of the other countries of the world on a competitive basis. Here again we must be a party to building markets outside of the United States through our marketing processes and this can be done using the same programs that we use domestically. With the Common Market, the Kennedy round of tariffs and so forth, I think that we must gear ourselves to world markets both for imports and exports and it is my studied opinion that we can meet world competition and give our agriculture in the United States a profitable income if we will unite in sales efforts abroad just as we must unite in sales efforts in the United States.
102 PROCEEDINGS TEXAS PECAN GROWERS ASSOCIATION
In summary, I may quickly review. First, agriculture is entitled to a fair profit. There's no crime about talking about profit in any industry. We should produce and sell for the purpose or getting net income for efficient agricultural producers.
Secondly, we must justify profit through efficiency of production and marketing and in making wise decisions for the future. This is planning.
Thirdly, we must work closely and perhaps take the lead in building a greater demand. People can get along without many or our products. We have import competition. There will be imports or fruits, beef and, other items. We need to sell. Consumers are willing and happy to buy our good products because of the confidence in the industry which we must justify.
Fourth, I hope that we will recognize that all forces strengthen the agricultural image. The chemical people have performed a great service in giving us greater efficiency in production. The transportation people have given us the greatest system of transportation in the world. It needs improvement. The banks, the Farm Credit Administration, have all given us a strong financial position. Let's work with these people to the end of having the type of credit needed because we will need more credit in the agricultural industry. Let's work with the wholesale and the retail trade as partners---not fight them. We need all of these groups not only to improve our immediate returns but more than ever before because of the decrease in the farm population. Our allies are essential if we are to continue to be a strong industry.
Next, be prepared to deal with buyers from a position of strength. Individual farmers do not give up free enterprise by cooperating in selling. They simply recognize that they can't take their product to New York, Chicago, Dallas and College Station and sell it at a profit but if they will combine their interest, if they will advertise it, if they will merchandise it, if they'll hire good men to do these jobs, then this industry can be profitable to them.
Next, recognize the consumer. Sometimes, there is an antagonism between producers and consumers. This just can't be. Consumers are folks on whom we rely, and I think through institutional work, through education, and through understanding with the news media, that we can have consumers change their understanding of agriculture and this needs to be done because under subsidy programs of the government they have come to think of agriculture as a big bad enemy. This cannot exist.
Finally, I suggest there is a great future in agriculture and with competitive inducements we can and must attract the best qualified people to farm, to sell and through research find answers to complex problems. This industry is second to none in offering opportunities to qualified men and women.