Produce preparation costs

1
Produce preparation costs

• Cleaning, such as removing soil and foreign
  matter
• Trimming, to remove unwanted leaves, stems or
  roots
• Grading, to separate produce into similar sizes
  and quality
• - time cost
• - higher costs can be expected to result in
  higher returns

2
Packaging costs

• It provides a convenient way of handling and
  transporting the produce
• It provides protection for the produce
• It can be used to divide the produce into
  convenient units for retail sale
• - different functionaries may use different type
  of packaging

3
example

• Assume that oranges are packed 20 kg at a time in
  wooden boxes which, with occasional repairs, can
  be used for 10 trips. A box costs Rs. 10, repairs
  and cleaning during its life costs Rs. 2 and each
  time the box is transported back empty to the
  producing area costs Rs. 1.
• What will be the packaging cost per kg of orange?

4

• Packaging cost
• (102)/101
• Rs. 2.20 per box
• Rs. 2.20/20
• Rs. 0.11 per kg

5
Handling costs

• Farmer or labourer loads produce on to cart
• Labourers unloads produce at assembly market and
  it is weighed
• Wholesaler or his employees repackages the
  produce in wholesalers containers
• Produce is carried to and loaded on wholesalers
  truck
• Produce is unloaded at wholesale market and
  weighed
• Produce is repacked in retailers containers
• Produce is unloaded at retailers store

6
Transport costs

• Assume that there are 40 meter cube of space
  available in the truck to be used for
  transporting tomatoes and that it costs Rs. 500
  to hire the truck. A container of 0.2 meter cube
  holds 8 kg of tomatoes.
• What will be the transport cost per kg of tomato?

7

• No. of containers 40/0.2 200
• Transport cost Rs. 500/200
• Rs. 2.50 per container
• Rs. 2.50/8
• Rs. 0.31 per Kg

8
Product losses - quantity

• Assume that, 10 percent loss occurs in marketing
  of tomatoes to the trader. The trader buys
  tomatoes from the farmer at Rs. 5 per kg and
  marketing costs are Rs. 2 per kg for the tomatoes
  originally purchased. The selling price of
  tomatoes is Rs. 8 per kg.
• What will be the costs, revenue and margin of
  trader per kg of tomato?

9

• Produce cost Rs. 5 per kg
• Marketing cost Rs. 2 per kg
• Total cost to trader Rs. 7 per kg
• Sale revenue Rs. 8 x 0.9 kg
• Rs. 7.20 per kg
• Margin of trader Rs. 0.20 per kg

10
Product losses - quality

• Assume an example involving a consignment of 100
  kg of tomatoes as follows
• - 50 kg sold at Rs 2.00
• - 20 kg sold at Rs. 1.40
• - 20 kg sold at Rs. 1.00
• - 5 kg sold at Rs. 0.40
• - 5 kg can not be sold due to very poor quality
• Calculate the average selling price of tomato?

11

• Revenue
• 50 x Rs. 2.00 Rs. 100
• 20 x Rs. 1.40 Rs. 28
• 20 x Rs. 1.00 Rs. 20
• 5 x Rs. 0.40 Rs. 2
• Av. Selling price 150/100
• Rs. 1.50 per kg

12
Storage costs

• Assume that a warehouse is hired for 120 days of
  the year at a total cost of Rs. 60000 for storing
  250 bags of potatoes, each containing 100 kg of
  potatoes.
• The present market price of potato is Rs. 5 per
  kg and the bank interest rate is 10 percent per
  year.
• Calculate the cost of storage?

13

• Storage cost
• 60000/250
• Rs. 240 per bag
• Rs. 240/100
• Rs. 2.40 per kg
• Opportunity cost of money per kg
• Rs. 0.17
• Total storage cost 2.400.17 2.57 per kg

14
Market Margin

• Price spread/ Market margin
• Price paid by consumer price received by the
  producer
• - Marketing cost
• - Profits of various market functionaries
• Producers Price
• PP price received by farmer marketing cost
  incurred by farmer
• Producers Share in Consumers Rupee (PC)
• (PP/PC)100

15

• Marketing Margin of a Middleman
• MMM sale price - purchase price - cost incurred
  by middleman
• Marketing Cost
• MC Marketing cost incurred by farmer
  Marketing cost of all middlemen

16
Market efficiency

• Particulars A B C
• Consumer price 1000 1000 1000
• Marketing costs 300 500 300
• Margin of intermediaries 200 100 400
• Price received by farmers 500 400 300
• Value addition 500 600 700
• Market efficiency