Agriculture Reference
In-Depth Information
The figure indicates that labor and packaging are the largest component of the mar-
keting bill. The size of the marketing bill is affected by changes in the amount and
type of products consumers buy. For example, restaurant meals have more marketing
costs associated with them and are therefore more expensive than foods at grocery
stores. So, as consumers spend more at restaurants, the marketing bill increases in
value. Similarly, as consumers purchase more highly processed food products, such
as microwave-ready dinners, relative to less-processed fruits, vegetables, and meats,
the value of the marketing bill increases. Over the last two decades, the marketing
bill has increasingly taken a larger share of the consumer food dollar, growing from
73 to 81% of consumer food spending from 1982 to 2002 (Elitzak, 2004).
The production and distribution of highly value-added foods as illustrated in the
marketing bill have important consequences for the economy as the food supply
chain tends to be labor intensive in comparison to other industries.
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The second important variable for global food supply chains regards the costs of
bringing food from the farm gate to the end consumer. In particular, one needs to
consider the costs incurred by all firms involved in the global food supply chain,
including transporters, assemblers, processors, distributors, and resellers. In some
cases, the emphasis of supply chains is on reducing costs to make food affordable
to certain segments of consumers. For instance, food firms are finding great market
opportunities in targeting low-income consumers in emerging economies (Prahalad
and Hammond, 2002; Prahalad and Lieberthal, 2003). With sales growth harder
to come by in a competitive world, food companies are seeking expansion among
low- and middle-income classes in developing countries. The food supply chain is
responding with the development of low value-added products that meet the needs of
such large populations at affordable prices, directed primarily to emerging middle
classes in urban areas that are constrained by income levels. Recent trends that are
contributing to decrease the costs of food distribution include
•
Reduction in the price of inputs employed in food distribution.
Under com-
petitive market conditions, reduction in input prices are transmitted to the
end consumer in the form of lower food prices. International transportation
costs, for example, have decreased substantially since the 1980s. Hummel
(1999) argued that containerization in ocean transport is shown to have
changed the composition of freight rates (lowering the cost of distant rela-
tive to proximate travel), particularly since the 1990s.
Improvements in information technology.
•
In the past few decades, there has
been a revolution in information technology that has led to lower communi-
cation costs as a result of technological improvements and increased com-
petition. Information technologies have allowed the functional integration
of many interdependent activities associated with the flow of foods, result-
ing in substantial improvements in the design of global food supply chains
and enhanced food distribution system performance (Byrd and Davidson,
2003; Lewis and Talayevsky, 2004).
