Guide Z-306

Dr. Cynda R. Clary, Assistant Professor, Department of Agricultural Economics and Agricultural Business

College of Agriculture, Consumer and Environmental Sciences New Mexico State University (Print Friendly PDF)

Planning is important to the success of any business. When developing a marketing plan, it is important to realize that production and marketing decisions are interrelated. The choice of a marketing channel (i.e., fresh market, processed market, specialty market) may affect the varieties that will be grown and the timing of planting and/or harvest. Competitors' strengths and weaknesses, governmental and regulatory influences, production and harvest constraints, and buyer preferences are examples of information that should be examined in a comprehensive marketing plan. Evaluating this information will provide you with a clearer idea of the most profitable direction for your crop.

Developing a Marketing Plan

The best time to do a marketing plan is before a crop is planted. This approach keeps a long-term perspective in the planning process. The "four P's" framework is often used to organize a marketing plan: Product, Place, Price, and Promotion.

Evaluating your product involves looking at more than the physical product (i.e., chile variety). Product packaging, product quality, degree of processing, and your reputation all contribute to what a buyer considers when purchasing chile from you. It is also useful to be able to rate how your product compares with that of other growers. One key to successful marketing is to be able to convince a prospective buyer that your product is different from that of another grower. Buyers are not just purchasing chile--they may also be purchasing:

• consistent, high-quality supply
• timely delivery
• information (recipes showing how to use chile)
• processing services (roasting)
• good feelings (a buyer wants to feel that he or she made the right decision by choosing to buy from you)
• convenient package size (important for restaurants, specialty stores, farmers' markets, pick-your-own operations)

Place refers to the marketing channel where the product will be sold and how the product will get there. Approximately 20% of the New Mexico chile crop is sold through fresh market channels such as grocery stores, farmers' markets, and roadside stands. If you want to sell to grocery stores and institutional markets (schools, hospitals, restaurants), you should contact potential buyers prior to the growing season, to identify varietal, packaging, quality, and delivery requirements. You must be willing to invest a lot of time in developing relationships with buyers for these types of markets. The consequences of making a bad buying decision can be greater in these markets than that of large processing operations, so the buyer must have confidence in your ability to meet his or her specialized needs.

The opportunity for selling at farmers' markets and roadside stands successfully varies by location. Information on regulations for roadside business should be available from local Chambers of Commerce or city/county business license offices.

The other 80% of New Mexico's chile crop is designated for processed products. Green chile is processed either through freezing or canning. Processed red chile is either dried or pickled.

Most red and green chile processors are located in southern New Mexico or close to El Paso, Texas. Growers usually agree on a contract with a buyer prior to harvest. However, some chile (referred to as "wildcat chile") is still grown without the assurance of a prearranged buyer. The uncertainty associated with wildcat chile production highlights the importance of developing and maintaining close relationships with the chile-buying community. Names of chile processors can be obtained from the New Mexico Department of Agriculture, the New Mexico Chile Commission, or your county agriculture Extension agent.

The choice of marketing channel will affect the price you receive. Your bargaining power is usually greatest when you have direct contact with the consumer or are supplying a specialty market. If you deal directly with a buyer or consumer, it may be possible to show how your chile is significantly different (i.e., better) than that of other growers. While the overall supply of chile has the most influence on base-level chile prices, the perception of uniqueness has the most influence on increases in price above the base-level.

Promotion is more than advertising. A well-thought-out promotion strategy can improve an operation's success, no matter which marketing channel is chosen. Promotion includes (but is not limited to):

• professional, friendly service from everyone who comes in contact with the buyer
• following up with buyers after delivery/purchase to measure their satisfaction with your product
• professional-looking logo on packages and signs
• attractive, useful signs for roadside stands, pick-your-own operations, and farmers' market displays
• well-organized produce displays at roadside stands and farmers' markets
• recipe cards included with consumer purchases
• newspaper advertisements

If you regularly have roadside stands, pick-your-own operations, or sell at farmers' markets, you may want to develop a customer mailing list. Each year, you could then mail out information about the current year's product offerings prior to and during the selling season. This list could also be used to evaluate any advertising strategies you may use (i.e., did the customer stop at the stand because of the signs, a newspaper ad, heard about the stand from other customers, etc.). Building positive relationships with consumers is important to the long-term success of any business.

Domestic and International Market Opportunities for New Mexico Chile

Chile demand and supply has increased over the past ten years. Per-capita U.S. consumption of chile has almost doubled since 1980 and is currently equal to 6.5 fresh-equivalent pounds per year. This increase in consumer demand for chile is a result of 1) changes in the American diet, 2) the search for alternative seasonings, 3) the influence of Latin and Hispanic cultures, and 4) an increase in the use of chile compounds in manufacturing.

New Mexico is the largest domestic producer of chile, followed by Texas, California, and Arizona. Imports of chile account for 1/3 of the total U.S. supply, while only 4% of U.S.-produced chile is exported.

NAFTA will influence the U.S. chile supply through its "import sensitive" tariff on chile, which will be phased out over the next 10 years. The tariff rate quota of 29,900 metric tons will be applied during October 1 through July 31 (AVG). The tariff rate quota will be increased 3% each year until the 10th year. Currently, Mexico supplies more than 98% of U.S. fresh import chile.

While the focus of NAFTA agricultural analysis often assumes that the greatest market opportunities exist for Mexican growers to export production to the U.S., there may also be opportunities for U.S. growers in the Mexican food market. With its ever-growing population, Mexico presents a large potential market for certain food products, and chile products are a regular component of Mexican food consumption. However, it has been suggested that while the American chile consumer is looking for "the chile burn," the Mexican chile consumer is looking for variety and flavor. Consequently, chile exported to the U.S. is produced to satisfy the U.S. market and may or may not be the varieties demanded in the Mexican market.

Summary

The development of a marketing plan involves evaluating the four P's (product, place, price, promotion) in the context of your specific situation. In order to be most effective, this plan should be developed prior to the planting season. The opportunities for increasing the demand for New Mexico chile products may include specific varietal production for the Mexican food market.

References

Lucier, G. and C. Greene. "The U.S. Chile Pepper Industry: A Commodity Highlight." Vegetables and Specialties, S&O, TVS-259, USDA, ERS. April 1993.

Mapel, C. "The New Mexico Chile Industry, 1991-1992." Special Report, Division of Marketing and Development, NMDA. April 1993.

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New Mexico State University is an equal opportunity/affirmative action employer and educator. NMSU and the U.S. Department of Agriculture cooperating.

June 1995, Las Cruces, NM