The 
role that marketing agents
 play in the food system is misunderstood by many decision 
makers.  Marketing agents provide many services, including assembling, transporting,
storing, and transforming commodities. To perform these vital services marketing agents
incur costs and take risks, and therefore need to be compensated.
At all stages of the food system there are transactions.  The difference between the price
received by one marketing agent and that paid by another marketing agent is called the
marketing margin
.  A broader concept is the 
gross marketing margin
, which is the
difference between the price received by producers and that paid by consumers.  It is
common to hear decision makers state that these margins are too high.  There are numerous
studies that have evaluated marketing margins and have concluded that given the high cost
of transactions and the risk to invested capital that these margins are often reasonable.
Market distortions
 are also a key concept to understand to interpret prices.  The degree that
the information that is encoded in the prices can be understood depends on the degree that
there are few distortions in the market.  Market distortions include any structure or policy
that restricts competitiveness in the trade of commodities.  When there are market
distortions, the prices may not accurately reflect the supply and demand conditions in that
market.  An example of market distortions is when governments set prices.
Thin markets
 are markets that do not have large volumes of trade, and therefore do not
necessarily reflect the aggregate supply and demand conditions.  The implication is that
there can be large swings in prices (up or down) as a result of changes in supply or demand
even if the structure of the market is competitive.  One concern is that since relatively few
transactions establish prices, prices are susceptible to manipulation.
The term 
market failure
 is often misused.  In common usage, albeit incorrect, it has been
used to mean when the markets are not able provide certain goods either at all or at the
required level. Examples are if a remote rural area does not receive enough food as a result
of its remoteness and the cost of delivering that food is not profitable to a trader. This is
technically not market failure.  In general, market failure arises as a result of (1) non 
excludability and/or (2) non rival consumption of a good. Non excludability means that
individuals who have not paid for a good cannot be prevented from enjoying its benefits (or
the cost of excluding would be too high). If a good is non rival, its consumption by one
person does not preclude its enjoyment by anyone else. Clean air is an example of a good
that has both non rival and non excludable characteristics.
Finally, the concept of 
market sheds
 or market catchment areas is important to
understand.  Market sheds are geographic areas that have prices that move and behave
together.  Identifying market sheds will help understand how certain markets are
connected.
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