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Babb, E.M. 1990. Marketing new crops. p. 6-11. In: J. Janick and J.E. Simon (eds.), Advances in new crops. Timber Press, Portland, OR.

Marketing New Crops

Emerson M. Babb


  1. INTRODUCTION
  2. MACRO FORCES
    1. Consumption Trends
    2. Consumer Behavior
    3. Marketing Channels
    4. Offshore Competition
    5. Strategic Response
  3. MICRO FACTORS
    1. Scope of Market
    2. Competitive Advantage
    3. New Firm Failures
    4. Saturated Markets
    5. Strategic Response
  4. SUMMARY
  5. REFERENCES

INTRODUCTION

For purposes of this paper, the term new crops refers to crops whose products have a set of attributes that are different than those of existing crops. Thus, a new crop may simply be a new cultivar with different product characteristics. One attribute may be that consumers just perceive that the product is different and purchase the product to satisfy the need for variety. A totally new grain that had the exact attributes of maize and totally replaced maize in the market is not considered in this paper because there would be no change from a marketing standpoint. This paper draws upon research on marketing fruit and vegetable crops that are characterized as specially, tropical, and exotic for illustrations.

During the 1980s, interest in the production of new crops has been intense. The financial stress in agriculture has been partly responsible for this heightened level of interest. Farmers have expanded their search for more profitable enterprises and they view new crops as one means to diversify and presumably reduce risk (Weimar and Hallam 1988). The possibilities for growing new crops seems unlimited. We can grow most of the world's 20,000 known edible plants in the U.S. and farmers are not reluctant to experiment with new or exotic enterprises including such things as garbanzo beans, elephant garlic, shiitake mushrooms and tamarind. There are numerous problems related to the production of new crops, but these are minor in comparison to marketing problems. Farmers frequently do not know who will buy these commodities, how much they will buy or what they will pay (Babb and Long 1987).

A second reason for interest in new crops arises from the growing number of new and part-time farmers who do not have a history of producing traditional crops. These farmers, recognizing that they have difficulty, being competitive with large, specialized farmers who produce food and feed grains, seek niches where they, might be more competitive. In addition, many part-time farmers are located close to consumers who provide a market for their production.

A final reason for interest in new crops, and the most important one from a marketing standpoint, is the increased demand by consumers for new foods (Learn 1987). More affluent consumers and larger numbers of persons from varied ethnic and cultural backgrounds are expanding the demand for new and exotic foods. More families now purchase foods that are different in order to add variety to meals and to enhance status among peers. We are thus presented with an opportunity to introduce new products and to expand sales of some minor crops simply by adding new cultivars.

There are many problems and obstacles associated with production of new crops which relate to information, entrepreneurship, human capital, infrastructure for handling new commodities, and venture capital (Babb and Long 1988). In this paper, some of the problems and opportunities are described by focusing on forces which are impacting the industry and firms in it and by suggesting s to these forces. The paper is thus organized in two sections, one dealing with macro or industry level forces and responses and a second dealing with micro or firm level forces and responses. As will be evident, this division is somewhat arbitrary, because many of the forces simultaneously impact the industry and its firms.

MACRO FORCES

Four major forces which affect the marketing of new crops at the industry level are described below. These forces are consumption trends, consumer behavior, marketing channels, and offshore competition.

Consumption Trends

While the total food intake of consumers is finite, consumption of new crops and specialty commodities is likely to expand for a number of reasons. Consumption of fruits, vegetables and poultry are increasing while consumption of red meats is declining. Away-from-home eating continues to expand. Consumption trends are influenced by income, food prices, population, demographics, lifestyles and preferences.

Projections of fruit and vegetable consumption provide some guidelines for sales potential of new crops since many of the new crops will be in these categories. Consumption of fruits and vegetables in the U.S. has been projected to increase in the range of 1.5 to 1.8% per year over the next 20 years (Blaylock and Smallwood 1986). These increases in consumption are the result of 0.9% per year increase in population, a 1% increase per year in real income and a growing number of persons over 45 who consume substantially more fruits and vegetables than do younger persons. Since many of the new crops may not compete directly with traditional crops and because many of the new crops will be novel and start from a small base, consumption may expand by 2 to 4% annually. The effectiveness of market development will greatly influence the extent to which new crops reach their full potential.

Important trends in consumption may be masked by aggregate figures which are published. Consumption of vegetables has increased about 2% per year, but consumption of some vegetables such as broccoli and cauliflower has increased as much as 10 to 15% per year (Smallwood and Blaylock 1984). The number of cultivars and types of food available to satisfy the diversity of consumer taste and preferences has been rapidly expanding. For example, consumers no longer purchase just iceberg lettuce, but choose among many types and varieties of lettuce. Diversity of food preferences will favorably influence new crop potentials.

Consumer Behavior

Changing consumer behavior is partially responsible for observed and projected consumption trends. Medical research and technology are raising health consciousness of consumers. Consumption will expand for foods considered nutritious, low in calories, free of chemical and pharmaceutical additives, and low in substances associated with heart and circulatory problems (Havlicek 1986).

Consumers seek more than nutrition from the food they purchase. The decision process used to purchase new foods may be quite complex and reflects a search for variety, good taste, convenience, status, self-esteem and many other attributes. This provides the basis for new product introductions and support for the diversity, of products. Many consumers prefer and are willing to pay for quality and variety.

Studies of consumer purchase patterns may quantify the effects of specific factors on consumption and be used in the design of marketing programs. A recent study of tropical fruits found that the following conditions may be expected to result in increased tropical fruit expenditure: residing in the Western region, living in a central city area, having a college education, being of Spanish origin, having both spouses involved in meal planning, having higher income, and having a higher proportion of household members over 15 years of age (Acon 1988). Tropical fruit expenditures increased about 6% for each 10% increase in income. About 85% of the increase in consumption of tropicals associated with increases in income was the result of market entry by nonconsuming households as opposed to higher levels of consumption by households already, purchasing tropicals. As discussed later, this suggests that marketing programs targeted on households not consuming tropicals may be more effective.

Marketing Channels

New crops will be sold in four channels: ingredient channel where products are used for further processing, food service channel which serves away-from-home eating places, private label and unbranded products channel, and branded products channel. Some establishments in the food service channel and private label and unbranded products channel may seek the products of new crops to satisfy their customers' need for variety and excitement, but by and large, these outlets do not represent outlets where there will be aggressive acceptance and marketing for new crops. Branded product channels employ strategies that are better suited to introduction of new products but many of the new crops may not be branded.

The use of distribution outlets varies among food categories and those used by tropical fruits may, be typical for many new crops. Terminal markets, brokers and jobbers, and grower/shippers each distribute about one-third of tropical fruits (Lim and McLaughlin 1986). Final sales to consumers are made as follows: supermarkets 60%, away-from-home eating establishments 23%, specially produce markets 8% and others 9%.

Offshore Competition

U.S. markets for raw and finished products have become more open; therefore, marketing strategies must be established with an international perspective. Imports are still a relatively small part of the fresh fruit and vegetable market, but they have been growing.

The numerous countries that have low production costs may have comparative advantage for some new crops which are native to them. Many less developed countries (LDC) are shifting from traditional to nontraditional crops with the hope that exports can be expanded. For example, Guatemala exports have changed from 10% to 35% nontraditional crops in the past ten years. LDC's are also getting better market information and becoming more sophisticated in serving U.S. customers. The International Trade Center of the United Nations now provides market news on 150 commodities to about 30 LCDs. Most of these commodities are nontraditional; tropical vegetables and fruits, spices, cut flowers, leather goods and the like. Large food companies are obtaining more raw products off-shore or processing finished products there (Moulton 1987). Therefore, U.S. competitiveness in new crops must be carefully analyzed.

Strategic Response

There are six general categories of marketing strategies: product diversification, geographic diversification, branding, advertising, pricing, and customer focus. Business decisions to implement strategies in all of these six areas will be undertaken for any new crop. Specific strategic responses at the industry level which are pertinent to new crops are described below

Product Diversification. By definition, new crops are expected to result in the introduction of new food products. New products must be developed and existing products modified because most food products have a life cycle. Sales increase after introduction or modification, but reach a plateau and then decline. This seems to be the pattern for many tropical fruits and might be expected. While some consumption may have an ethnic basis, a large part may be the result of the consumers' search for products which add diversity and variety. Potential sales which satisfy diversity needs may be far greater than those associated with purchasers who are accustomed to the product. In this situation, sustained sales expansion in the industry may depend on the introduction of new tropicals and modifications of existing fruits. Plant breeding and genetic engineering may be used to create desired attributes in products such as low caloric value, seedlessness, sweetness, or firmness. The development of new fruits and new cultivars with different attributes may also be the most important source of remaining competitive with off-shore producers. If the U.S. is in a leadership position in research and development, producers and marketers here may be able to enter the product life cycle during the growth period, rather than at the point of maturity or decline. An aggressive development effort may be one of the most effective strategies to realize new crop potentials and to enhance competitiveness.

Geographic Diversification. The current trade imbalances and concerns about U.S. competitiveness have focused attention on imports. We must be careful not to overlook export opportunities for new crops. There are some good track records for export of specially/minor crops, such as grapefruit, oranges, almonds and rice. Many crops that are new in the U.S. originated in other countries. It may be easier to sell these products which are already in the diet of persons in those countries than to sell our surplus agricultural products which are not part of the diet. Success in exporting food products requires considerable information about eating habits, trade channels and the array of food products available in the target country. Just as a firm would develop a marketing plan for introducing a new product or entering a new trade channel, a marketing plan should be developed for each country where entry is contemplated.

Consumer Information. The introduction of a new crop is, in principle, like the introduction of a new product by a food manufacturer. The food manufacturer obtains information on consumer motivations, needs, desires and attitudes that can be used to identify voids in existing product mixes which a new or modified product might fill. Product development and testing then proceeds. Unfortunately, the path for most new crops involves developing the crop first and then figuring out how to sell it.

A marketing plan for a branded product includes advertising, promotion, pricing, packaging and merchandising, all targeted to some segment of the market. The marketing plan is the blue print for establishing a consumer franchise which in turn is the basis for favorable treatment by food retailers regarding shelf space and location. While such a plan would be most helpful for new crops, there is often not an organization which can act collectively in the development and implementation of such a plan.

In the tropical fruit industry, marketing problems have been identified relating to lack of promotional support and handler training, erratic supply and lack of information about how to use the product (Lim and McLaughlin 1986). There are 24 major and 38 minor cultivars of Florida avocados having distinctly different characteristics, but being sold together. Even an avocado connoisseur may have difficulty in selecting the cultivar with the desired attributes. Most consumers cannot tell whether they purchased a sweet or sour carambola before taking a bite. While an industry marketing plan for a new crop may not be as sophisticated as that for a branded product, it should be possible to provide information to consumers that will enhance industry sales. Almost by definition, consumers will need much information about a new crop. Consumer information lends itself to collective action by those in the industry.

Coordination. There are several forms of collective action which provide industry planning and coordination including marketing orders, cooperatives and trade associations. Providing consumer information as discussed above is only one area where industry coordination can make a difference. Other areas include maintenance of standards for identity, quality and food safety, product development and modification including new varieties, demand expansion programs including information on export market potential, and market intelligence. New crops will be more bountiful in an industry where coordination is cultivated.

If a new crop proves profitable, there is a high probability that production will expand to the point that profitability disappears. Many producers enter or expand production near the height of the growth segment of the product cycle, just in time to experience the plateau or decline in sales. One then hears calls for industry to manage supply, coordinate production and erect entry barriers. This is one area where industry coordination efforts have been mediocre to dismal. One of the best documented principles of economics is that firms will enter and expand production as long as there is an incentive to do so.

Goals. New crops, in the context used in this paper, will not solve the farm problem or the financial crisis facing agriculture today (Babb and Long 1988). The farm problem is the consequence of excess productive capacity. Withdrawal of resources from old crops to produce new crops will not have much effect on old crop production (Weimar and Hallam 1988). For example, only about six million of the 336 million acres in crops are used to produce fruits and vegetables. If this six million acres were doubled as a result of new crop planting, it would have little effect on the production of old crops, especially when the effects of new technology are considered. New crops are important because they may improve the well being of those in production and of consumers who can enjoy a greater variety of foods. Unless people understand what contributions can and cannot be made by new crops, there will be disappointments and frustration.

MICRO FACTORS

Forces which are particularly relevant to firm growing and marketing new crops are next described and strategic responses are suggested. The forces considered include scope of market, competitive position, new firm failures and saturated markets. Of course, firms growing and marketing new crops share the other economic, business and environmental forces that are common to all firms.

Scope of Market

Markets for new crops may be local, regional, national or global. Some firms will have a choice as to market scope. Growers who are in close proximity to consumers may select a local market and perform many or all of the marketing functions. As the scope of the market expands, marketing functions become more complex and the coordinating role becomes more important. Economies may be realized if production and marketing functions are concentrated geographically. These economies may arise from synergistic relations among firms, development of a pool of persons with needed skills and knowledge, size economies in production or processing, visibility and reputation for quality and dependability, and sharing of technologies.

Competitive Advantage

Firms marketing new crops can target their products with regard to market channels, geographic outlets, product forms and the like. These choices are made with the view of positioning the firm in products and markets where it will have the greatest competitive advantage. Competition may come from firms in other regions or off-shore and from other products. The competitive position of a firm is influenced by a host of factors, many beyond its control, and is constantly changing. For example, the competitive position of a firm may be affected by changes in exchange rates, changes in transportation rates, changes in import restriction, introduction of new cultivars which are best suited to some other production area, and changes in state environmental regulations. The firm must continually reposition its activity in view of these changes.

New Firm Failures

The high failure rate for new firms is well known. Between 85 and 90% of failures are caused by lack of business experience in a line of business, lack of managerial experience and incompetence. Many of the new crops will be marketed by old firms who have been marketing other food products. They are probably less at risk than growers of new crops. In either case, risk management strategies need to be designed so that failure of a new crop is less likely to result in failure of the firm. Most, but not all, new crops will be more risky than old ones. Some Iowa farmers might think the risk of financial loss of growing ginseng is less than for corn, and they could be right.

Saturated Markets

The dynamics of the product life cycle for many new crops was discussed earlier. The timing of entry into the production and marketing of new crops may be the most critical factor to the success of the firm. For both growers and marketing firms, the entry decision should be based on a careful assessment of whether the new crop will achieve sufficient sales growth for entry to be profitable and whether sales will be sustained for a long enough period for returns on investment to be adequate.

Strategic Response

The marketing strategies which would be used by a firm introducing a new product or entering a new market segment have application for growers and marketers of new crops. Some specific responses to forces affecting such firms are described below.

Assessment of Business Opportunity. Marketing strategies are chosen to position the firm with respect to products and market segments that will be most profitable. This selection relies on considerable information and analysis of customer needs, motivations and preferences, the array of products available, the marketing strategies of rivals, and the firms own endowment of resources, capabilities and skills. There is no mass market for new crops, but market segments to be developed. Firms must have the right products, in the right market segment, at the right time.

Sales Expansion. Available evidence and logic suggests that households not purchasing new products are prime targets for efforts to expand demand. Increased purchases by consuming households will be modest. The growth portion of the new crop life cycle can be increased and extended by attracting new customers in regions where exposure to the product has not been great, in market channels where use has been light, e.g., food service, in consumer segments where consumption is low, e.g., young persons, high income families, and by new uses of the product. Available advertising, promotional and other sales support should be used to introduce people to the new crop.

The favorable effect of new cultivars on sales was earlier discussed. Private firms can and do develop new crops and new cultivars. This may generate more benefits to the firm than use of publicly developed varieties, but the costs of development are high.

Firms can enter export markets in several ways. They can acquire firms in other countries, license production of their products in other countries, or export finished products directly. Other governments may provide incentives which make one option more attractive than another. U.S. firms frequently establish some type of relationship with firms in the other country, or operate subsidiaries there.

Risk Management. There are risks for both new and old crops which can be measured by the variance in returns resulting from natural (weather) and market causes. Using a mean-variance criterion, growers would require a higher average return to produce new crops if the variance in returns were greater than for old crops. Risk may be reduced and transferred by such devices as crop insurance, government programs, futures markets, contracts, joint ventures, cooperatives and diversification. The first three methods of reducing risk are generally not available for new crops. It should be pointed out that diversification would not reduce risk if returns on crops added were perfectly, positively correlated. To minimize risk, one would select crops whose returns were perfectly, negatively correlated. Contracting appears to be the most important mechanism to reduce or share risk for new crops.

Entrepreneurship. The rewards from new crops will be greater, as is the case for old crops, for those with superior managerial skills and business acumen. These skills can be improved in a variety of ways. New crops may require more entrepreneurial skills and these are more difficult to acquire. These skills relate to a searching for new opportunities, assessing the risk-reward balances, and willingness to enter uncharted waters if the incentives appear to be favorable. If you want to find a real entrepreneur, there are many growing and marketing new crops.

SUMMARY

Interest in new crops has been stimulated by financial stress in agriculture, the growing number of part-time farmers located close to urban customers, and the expanding demand for foods which add variety to the diet. Consumption trends, consumer behavior, marketing channels and offshore competition are factors which influence new crop performance at the industry level. Strategic responses to these forces include development of new cultivars to extend product life cycles, export of new crops to countries where the products are already in the diet, design of information for consumers about the products of new crops, and development of industry programs related to standards for identity, quality and safety.

Scope of market, competitive advantage, high failure rates for new firms, and market saturation are factors which influence the performance of firms growing and marketing new crops. Strategic responses to these forces include assessment of business opportunities and identification of market niches, selection of trade channels and customer segments which will best respond to merchandising and promotional activities, management of risks through such devices as contracts, joint ventures, cooperatives and diversification, and adoption of entrepreneurial approaches to business.

New crops will not solve the farm problem which is a consequence of excess productive capacity in agriculture. They can, however, improve the income of growers and marketers and provide consumers with an ever greater variety of food.

REFERENCES


Last update February 12, 1997 by aw