An analysis of costs, margins and producer s share in marketing of raisins

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1 Internationl Research Journal of Agricultural Economics and Statistics Volume 3 Issue 1 March, Research Paper An analysis of costs, margins and producer s share in marketing of raisins See end of the paper for authors affiliations Correspondence to : VILAS JADHAV Department of Agricultural Economics, University of Agricultural Sciences, G.K.V.K. BENGALURU (KARNATAKA) INDIA vilasagri@ gmail.com Paper History : Received : ; Revised : ; Accepted: ABSTRACT : The study was undertaken to examine the marketing pattern of raisins in Karnataka. The primary data were obtained from grape growers, commission agents, wholesalers, retailers of Bijapur district. The data were analysed by using descriptive statistics such as percentages, averages and ratios. The study revealed that cost of marketing of one tonne of raisins worked out to for the producer. The grape growers have routed their produce through two channels involving commission agents and the wholesalers. The price-spread in this was found to be Rs. 16, in channel-i and Rs. 10, in channel-ii. The producers share in consumer rupee was per cent and per cent in channel-i and II, respectively, indicating that the channel-ii was more efficient with efficiency index of KEY WORDS : Marketing channels, Marketing costs, Margins, Price spread HOW TO CITE THIS PAPER : Jadhav, Vilas and Chinnappa, B. (2012). An analysis of costs, margins and producer s share in marketing of raisins, Internat. Res. J. agric. Eco. & Stat., 3 (1) : INTRODUCTION Horticultural crops are fast emerging as the most remunerative crops replacing subsistence farming in dry lands, hills, arid and coastal ecosystems. These crops are characterized by high productivity, high returns, high employment potential and exports, low water requirement, and easy adoptability (Nagaraj et al.,1989). Horticultural crops cover large number of fruits, vegetables, flowers, plantation crops, medicinal and aromatic plants and tubers. India can boast of being one of the few countries in the world which can grow large varieties of fruits all the year round. Horticultural crops occupy roughly around 11 per cent of the gross cropped area, and contribute more than 28 per cent of the gross value of agricultural output of the country. India ranks second in fruit production in the world having global share of 10 per cent. Grapes is one of the major fruit crops grown in India and accounts for about 2.5 per cent of total fruit production. A substantial quantity of production is lost during post-harvest handling. The quantum of post-harvest loss is due to perishable nature of fruit, packing, transportation etc. (Madan and Ullasa, 1991). Grape being a high value commercial fruit crop, any loss would hamper availability of fruit to large segment of the population. Processing of fruits into raisins will go a long way enhancing continuous availability of fruit all through the year(shaheen and Gupta, 2004). Processing or conversion of fresh grapes into raisins would prolong the shelf-life of the fruit and result in value addition (Sinha, 1990). Improvement in the quality of the produce and efficient marketing is the need of the hour to increase our share in the global market. Reliable information on marketing costs, marketing margins, price spread and producer s share would be of much use to policy makers at the government level and to researchers, extension workers and grape growers also. Thus, marketing will have an impact both at micro and macro-levels. Very few studies have been conducted to assess the marketing of raisins. Hence, the present study makes a modest attempt in this direction to fill the void. The study addresses the following objectives : Identification of distribution channels Estimation of distribution costs and margins Efficiency and producer s share in marketing of raisins

2 MATERIALS AND METHODS The present investigation was undertaken in Bijapur Taluk of Bijapur district. Bijapur district is known for grape cultivation accounting for over 57 per cent of the total area in the state. Hence, Bijapur district was considered for this study. Grapes are cultivated in all the five Taluks of Bijapur district. But larger area was found in Bijapur Taluk. This Taluk was selected for the study due to larger concentration of area under grapes. A list of villages having larger area was obtained from office of the Senior Assistant Director of Horticulture of Bijapur Taluk. From the said list, five leading villages in grape cultivation were selected. Further from each village, 12 grape growers were chosen for the study thus making total sample size of 60, of this 20 farmers processed grapes into raisins. Bijapur is the major market for raisins. It is from here, the product moves to various parts of the state. For studying, marketing aspects of raisins, 5 commission agents, 10, traders, 10 wholesalers and 10 retailers were randomly selected in Bijapur market. The data were collected from the respondent farmers, and market middlemen using separate schedules on various marketing aspects such as, costs, margins, etc. The data were analysed using tabular method. The averages, percentages were worked out for better interpretation. Shepherd s approach was used to estimate the marketing efficiency of raisins. RESULTS AND DATA ANALYSIS The experimental findings of the present study have been summarized under following heads: Marketing channels : Raisins of Bijapur district is marketed in different parts of Karnataka state and at distant places like Chennai and Mumbai. Raisins of Bijapur district find good market in other states too due their superior quality. The raisins pass through chain of intermediaries (Hiremath, 1993). The channels through which raisins traverse from point of production to consumption are identified as follows ; Channel-I: Producers Commission agents Traders Retailers Consumers Channel II: Producers Wholesalers Retailers Consumers In the present study; producers processed fresh grapes into raisins on their farms. Farmers decide to process grapes into raisins, when the price in the market is not remunerative. About four kg of fresh grapes is required to make one kg of raisins. The producer-sellers sell their produce in the market to wholesalers at wholesale price. The wholesalers are the merchant middlemen located in the big markets who are capable of handling large quantities of produce. They have requisite infrastructure, finance, gowdons, transport facilities to handle such huge quantities of raisins. They also help grapes growers in times of personal difficulties. On the other hand, retailers are also the merchant middlemen who will buy their supplies from wholesalers in requisite quantities and are in direct contact with the consumers. Retailers are the last link in the marketing channel. They are the personal representatives of consumers. Commission agents are agent middlemen. They finalize buying and selling transactions of raisins in the market on behalf of the producers and collect commission charges from producers or traders or both depending upon the situation. They charge commission ranging from 2-5 per cent on the gross value of the produce for the services rendered by them. They deduct their commission charges from the sale value of produce and remit the balance to the producer. They also help the producers when they are in distress by advancing credit without interest for 3 months and at minimal rates of interest thereafter. This is the reason why grape growers prefer them most for selling their grape produce. Marketing costs : The information regarding cost of marketing of raisin makers is presented in the Table 1. The major components of marketing cost include packing, transportation, incidental expenses, commission charges, grading, weighment and hamali charges, in case of producer-seller, shop rent, electricity, labour, transportation, interest on stationery, telephone etc., in case of wholesaler and transportation, loading and unloading charges, packing, personnel expenses etc. in case of retailer. As could be seen in Table 1 that the producer-seller incurred considerable amount of expenditure in marketing of raisins. The marketing cost came to Rs per tonne of raisns. Of this, commission charges alone claimed Rs Packing accounted for Rs The producers used better quality packing materials like boxes covered with plastic wrappers to protect the damages likely to be caused during the transit period. The cost of transportation stood at Rs / tonne. Producers hired luggage autos for transportation of raisins to near by markets who will generally charge higher on the basis of tonnage. The miscellaneous charges (Rs ) included expenses incidental to marketing such as personal expenses of the person who goes to market. The producers sold raisins to wholesalers in Bijapur market. The wholesalers who are Table 1: Marketing cost of producer-sellers in marketing of raisins Particulars Value in Rs./tonne Per cent 1. Packing Transportation Commission Misce llansous Labour charges Total Internat. Res. J. agric. Eco.& Stat. 3(1)March, 2012:

3 AN ANALYSIS OF COSTS, MARGINS & PRODUCER S SHARE IN MARKETING OF RAISINS Table 2 : Marketing cost incurred by the wholesaler in marketing of raisins Particulars Value in Rs./tonne Per cent 1. Shop rent Electricity Licence fee Interest on advance to shop Interest on investment Labour Telephone Personal expenses Others Total financially sound purchase raisins and grade them into superior quality and inferior quality raisins. In the process of buying and selling of raisins, the wholesalers incur expenses towards their establishment, interest on capital, depreciation electricity, salaries etc. The total expenditure towards marketing one tone of raisins came to Rs (Table 2), of which the major chunk was interest on capital at Rs. 894/-. Shop rent, interest on advance, respectively, were Rs and Rs. 12. The other major expenditure items for wholesalers included stationery, telephone charges etc. Wholesalers handle huge quantities of raisins and hence, per unit cost of marketing worked out to be cheaper. They enjoy scale economies in the business. Retailers who are the last link in the marketing chain incurred as much as Rs / tonne (Table 3) of raisins. The major cost items included personal expenses, depreciation transportation Table 3 : Marketing cost incurred by the retailer in marketing of raisins Value in Particulars Per cent Rs./tonne 1. Electricity Depreciaton Interest on investment Transportation Loading and unloading charges Packing Personal expenses Shop rent Total electricity charges, packing, etc. Marketing margins : Market intermediaries move raisins from processors to ultimate consumers. Series of activities are involved in movement of raisins from processors to consumers such as transportation, packing, storage, loading and unloading etc. Every activity involves cost. The difference between the prices of successive stages of marketing or the difference between sale price and the purchase price is known as marketing margins. Study of marketing margins in marketing of raisins is important because the size and magnitude of margins throw light on efficiency of existing marketing system. The knowledge of marketing margins helps to formulate suitable marketing policies. The marketing margin was estimated by taking the difference between the sale price and purchase price of each market intermediary. The formula adopted was. MM = Sp (Pp + Mc) where, MM = Marketing margins Sp = Sale price Pp = Purchase price Mc = Marketing cost The marketing margins of the retailer was found to be highest among all the intermediaries at Rs in Channel- I and II, constituting 4.82 per cent of the retail price paid by the consumer. This was closely followed by margins of the traders (Rs. 3684) forming 3.89 per cent and the commission agent, Rs accounting for 2.11 per cent of the retail price. Generally, retailers retain sizeable margins in marketing of all the agricultural commodities and raisins is no exception as they undertake risk of carrying raisins to the door-steps of consumers. It may be observed that the commission agents had charged commission charges of Rs for arranging for marketing of raisins. This worked out to 2.50 per cent of the gross price received by the producers. The charges are exorbitant and need to be regulated by the government legislations to enhance the net returns of the producers. The marketing margins of the traders were also quite high at Rs accounting for 3.89 per cent of the retail price. They buy raisins from the producer s through commission agents. They incurred an expenditure of Rs per tone on account of transportation, maintenance of shop, staff salaries etc., and tried to earn substantial profits to sustain in the business for long (Table 4). Producer s share : It refers to price received by the producers and is expressed as percentage of the consumer s price (Malik et al., 2000). Suppose if Cp is the consumer s price and Pp is the price received by the producer, then the producer s share Ps is determined as: Internat. Res. J. agric. Eco. & Stat. 3(1) March, 2012:

4 Pp Ps = x100 Cp The producer s share is an indicative of market efficiency. Higher the share, higher is the efficiency and vice-versa. The producer s share was estimated to be and in channel- I and II, respectively. The higher share in channel-ii may be attributed to less number of market intermediaries involved in marketing of raisins. The producer s share indicates the proportion of retail price, the producer gets in the price paid by the ultimate consumer. In the case, per cent of the retail price accrued to the producer in channel-i Rs and per cent Rs in channel-ii. Going by this, the second channel was found to be more profitable for the producers. Hence, it is suggested to follow this channel by the raisin makers to avoid channel-i, where the commission agents play havoc in the lives of grape growers by charging arbitrary and exorbitant rates of commission (Table 4). Table 4 : Marketing margins and price in marketing of raisins Particulars Channel-I Channel II I II III IV Producers Price received Marketing costs Net price received Commission agent / wholesalers Purchase price -- 84, Costs Margins Sale price Traders Purchase price Costs Margins Sale price Retailers Purchase price Costs Margins Retail price/ consumer s price Price spread Net producer s share in consumer s price Market efficiency: Marketing efficiency is the ratio between sale value to marketing cost. Higher the ratio, higher is the efficiency and vice-versa. More explicitly, it is the effectiveness with which market functions. A market is said to be efficient when movement of raisins from producers to consumers take place at the lowest possible cost in consistent with services rendered by the market intermediaries. There are various methods for empirical assessment of market efficiency. For the present study, Shepherds method was used. According to this method, the marketing efficiency is ratio of sale value of products to marketing cost. The detail of calculations of marketing efficiency is presented in the Table 5. As evident that the marketing efficiency index of channel-ii was 9.09 whereas 5.75 in channel-i, indicating that channel-ii was more efficient. Price spread: Table 5 : Marketing efficiency of raisins Particulars Channel- I Channel II 1. Marketing cost of producers Marketing cost of the commission agent / wholesaler Profits of commission agent / wholesaler Marketing costs of traders Margins of traders Marketing costs of retailers Margins of retailers Total marketing costs and margins Retailer s sale price/ consumer s price Net price of producer Market efficiency (9/8) Price spread is one of important parameters of market efficiency which indicates share of the producer in consumer rupee. It indicates the share of the various market intermediaries in the consumer rupee in return to their services rendered while the produce moved from the producer to consumer. The details regarding price-spread analysis is given in the Table 4. The price spread is the difference between producer s price and the consumer s price. The table indicates that the price spread in channel-1 and channel II was Rs and , respectively. The channel II assured more returns than channel- I, because of less middlemen involved in this channel. The price-spread analysis indicated that the market middlemen in channel-i have cornered big chunk of the consumer s price leaving only per cent of it to the producers. It is evident from the Table that retailers, traders and commission agents have retained higher profits of Rs. 4554, Rs and Rs , respectively (Table 4). This calls for regulation of illegal charges of commission agents and traders in the market through government legislations to enhance the share of producers in the final retail price. Authors affiliations: B. CHINNAPPA, Department of Agricultural Economics, University of Agricultural Sciences, G.K.V.K., BENGALURU (KARNATAKA) INDIA 136 Internat. Res. J. agric. Eco.& Stat. 3(1)March, 2012:

5 AN ANALYSIS OF COSTS, MARGINS & PRODUCER S SHARE IN MARKETING OF RAISINS LITERATURE CITED Hiremath, G.M. (1993). Economics of production and marketing of lime in Bijapur district, Karnataka.M.Sc.(Ag.) Thesis, University of Agricultural Sciences, DHARWAD, KARNATAKA (India). Madan, M.S. and Ullasa, B.A.(1991). Post harvest losses in mango: causes and control measures. Mysore J. Agric. Sci., 25 (4): Malik, D.P., Luhach, M.S., Rai, K.N. and Singh, G.P. (2000). Apni mandi- An approach to increase producer s share in consumer s rupee. Indian J. Agric. Mktg., 14(3): Nagaran, N., Lalith and Venkatram, J. V. (1989). Economic analysis of fruit processing and its impact on employment generation: A case of Karnataka Agro-fruit Ltd. Indian J. Agric. Econ., 44(3): Sinha, S. (1990). The development of Indian Silk, a wealth of opportunities. Oxford & IBH Publishing Co.Pvt. Ltd., New Delhi. Shaheen, F. A. and Gupta, S.P. (2004). Economics and potentials of apple processing industry in Kashmir province of Jammu and Kashmir state. Agric. Mktg., 47(3): * * * * * * * * Internat. Res. J. agric. Eco. & Stat. 3(1) March, 2012: