MARGINS AND CHANNELS FOR SHIN KULU (GOLDEN DELICIOUS) APPLE PRODUCED IN PISHIN: A CASE STUDY

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1 Sarhad J. Agric. Vol.24, No.4, 2008 MARGINS AND CHANNELS FOR SHIN KULU (GOLDEN DELICIOUS) APPLE PRODUCED IN PISHIN: A CASE STUDY SYED MOHAMMAD KHAIR, MAQSOOD AHMAD and EHSANULLAH KHAN Balochistan University of Information Technology and Management Sciences, Quetta Pakistan ABSTRACT The aim of this study was to evaluate the marketing margins and costs involved under different markets phases and channels of Shin Kulu apple in the Pishin District, Balochistan, Pakistan. The segregation facilitated to further evaluate the marketing margins of different middlemen involved. The volume of marketing margins generally reflects the efficiency of marketing system. The higher market margins reflect fewer shares of producers and more benefits to marketing middlemen and vice-versa. We study two common marketing channels Producers-Preharvest Contractors-Commission Agents-Wholesalers-Retailers and Consumers (Channel 1) and Producers-Commission Agents-Wholesalers-Retailers and Consumers (Channel 2). The results revealed very higher marketing margins for Shin Kulu apple. The marketing margins were 76 % when apple is marketed through preharvest contractor (Channel 1) while direct marketed (Channel 2) the marketing margins were 58 %. These higher margins also indicates an inefficient marketing system which may deter apple growers the profit they deserve.the result also indicates that apple growers have incentives to directly market apple in relevant markets. However, timely and reliable marketing information is prerequisite for effective grower based marketing systems. Key Words: Channels, Marketing, Margins, Shin Kulu Citation: khair, S.M., M. Ahmad and Ehsanullah Margins and channels for shin kulu (Golden delicious) apple produced in Pishin; A case study. Sarhad J. Agric. 24(4): INTRODUCTION The total area under apple was 47.7 thousand hectares producing thousand tones during in Pakistan. Out of this, 38.0 thousand hectares were cultivated in Balochistan and the production was thousand tones (GOP, 2004). The above figures indicate that Balochistan is the major contributor in apple production, which is 64 % of country s total production. The upland of Balchistan comprising Quetta, Pishin, Loralai, Zhob, Ziarat, Qilla Saifullah, Mastung, Qalat and Khuzdar districts are the main areas of apple production. District Pishin is the major producer of apple. The produce is thousand tones from an area of 5.4 thousand hectares, which contributes about 16 % of the total production of the province (GOB, 2003). The most common commercial apple verities are: Shin Kulu (Golden Delicious), Tor Kulu and Kaja (Red Delicious) while Amri, Mashadi and Kashmiri are mainly used as pollenizers. These varieties contribute about 95 % of apple produced in the province. Shin Kulu is grown on large scale and its share in total apple production is about 40 % while Kaja which is comparatively a newly introduced variety accounts for about 8 % of apple produced in Balochistan (FAO 1990). Among other deciduous fruits apple is the major one i.e., about 70 % of deciduous fruits, which is grown on an area of 35 thousand hectares and its production is 480 thousand tones reflecting its importance in the agricultural economy of Balochistan (GOB Statistics ). Shin Kulu (Golden Delicious), Tor Kulu and Kaja (Red Delicious) are the popular commercial apple varieties grown in Pishin while Amri, Mashadi and Kashmiri are mainly used as pollenizers. Shin Kulu is grown on large scale and its share in total apple production is about 40 % of apple produced in Balochistan (FAO 1990). Previous Literature on Apple Marketing Several studies were undertaken to find out marketing margins of fruits. For example, Bashir et al. (2001), find out the marketing margins for Tor Kulu apple in Pishin which were 71 % of consumer price. Similarly Iqbal (1994) reported that marketing margins for apple are 62 %. The producer s share in consumer price was 38 %, while net marketing margins of preharvest contractor, commission agent, wholesaler and retailer were 7.17, 3.95, 6.39 and % of consumer price respectively, while the rest 28 % were marketing costs. Gross marketing margins for different fruits in several countries were very high, ranged between 30 % to 81 % of consumer price due to large number of intermediaries involve in the marketing process (FAO, 1990).

2 Syed Mohammad Khair et al. Margins and channels for Golden Delicious apple produced in Pishin 756 Farmers in Pishin are facing various problems such as lack of regular dissemination of price information from various markets to the farming community, lack of systematic grading and standardization of fruits. Topping of produce is a common practice in Pishin in which good quality of produce is mixed with the poor quality of produce in the same pack by placing the good quality produce on the top layer of crate and poor quality on the bottom layers. Due to this practice the apple did not fetch substantial price in the market and cause financial losses to the apple growers (Iqbal, 1990). Preharvest contractor plays important role by marketing as more than 80 % of apple growers use this channel for marketing their produce. This is primarily due to shortage of capital, lack of marketing expertise and shortage of man power. Iqbal (1989) also argued that the existence of preharvest contractor is a distinctive character of marketing in Pakistan and marketing middlemen are exploiting the farmers on one hand and the consumer on the other hand. Bashir et al. (2001) has reported several key reasons for low return for apple growers in Pishin. Poor and inadequate roads, lack of credit facilities, poor grading and cold storage facilities for perishable products and shortage of warehouses are the common marketing problems leading to big marketing margins. Ranasinghe (1988) also reported that middlemen behavior, monopolistic operations of transport system and poor storage facilities are the problems eroding the farmer s income on one hand and supply to consumers at a higher price on other hand. Singh et al.(1990), reported that a decline in apple producer s share in consumer rupee are due to, high cost of packaging material, greater dependence of grower on middlemen, malpractice in the market and inadequate facilities of transport. Many studies have highlighted marketing middlemen s exploitation to apple growers evidenced by the existence of huge marketing margins ranging from 30 % to 80 % of consumer price (Abid, 1980; Bashir et al., 2001; Mittendorf and Heritage, 1982; Mohy-ud-din, 1989; Singh et al., 1985; Smith, 1979). However, some studies described the usefulness of middlemen s role in the marketing set up. For example, Sial and Anjum (1990) argued that the role of marketing middlemen is very useful, because they provide interest free loans, supply inputs at the time of need, free food and other marketing facilities to farmers. They also negated the opinion that middlemen are exploiting the farmer s income but they perform a very useful role by providing timely needed capital to farmers which serves as lubricant for moving the wheel of the fruit industry. With the diverse background and views on role of middlemen, this study aim to further contribute to apple marketing system in the District Pishin, Balochistan. The specific objectives of the study are as under: i. To study the prevailing marketing channels of Shin Kulu apple prevailing in Pishin ii. To find out marketing margins and costs involved in Shin Kulu apple marketing iii. To segregate marketing margins and costs to find out the net marketing margins of different middlemen involve in Shin Kulu apple marketing MATERIALS AND METHODS This study is based on primary data collected from Shin Kulu apple producers, preharvest contractors, commission agents, wholesalers, retailers and consumers. Due to time constraints and the availability of respondents the sample size was kept restricted with the assumption of representing the whole population of producers, preharvest contractors, commission agents, wholesalers and retailers. A list of major apple producing villages in sub division Pishin was obtained from the Extra Assistant Director of Agriculture Pishin. A sample of five villages was selected through simple random technique out of entire population. The names of these villages are, Manzaki, Huramzai, Samzai, Kakazai and Alizai. Stratified random sampling technique was used for the selection of apple producers. From the entire population of 195 Shin Kulu apple producers 45 were selected randomly while out of 100 commission agents a sample of 10 was chosen randomly. Some 30 preharvest contractors, 10 wholesalers, 10 retailers and 30 consumers were selected purposively and interviewed. Arithmetic means and weighted averages were used for analysis of data. Computation of Marketing Margins Marketing margin is the difference between price paid by the ultimate consumer and the price received by the producer. Marketing margins can also be computed as the percentage share of final price received by each marketing intermediary. Marketing margins were examined on the basis of data obtained on prices at different stages of the marketing chain. Marketing margins were calculated through computing the absolute margin or price spread, which is essentially the same as the difference between the prices paid and received by each specific marketing

3 Sarhad J. Agric. Vol.24, No.4, agency. The following formula was used to compute %age-marketing margins as earned by each market intermediary in the marketing of broiler. Mm= (Ps/Sp)*100 Where, Mm is the marketing margin, Ps is the price spread availed by specific agency and Sp is the sale price of the same agency. Marketing Costs Marketing costs are the expenditure incurred by various market intermediaries from the time when the produce leaves the farm until it reaches the consumers. These costs are incurred by producers and other marketing intermediaries and have impact on prices as well as on the margins of the market intermediaries. The major cost components included packing, loading, unloading, transportation etc. These costs were computed on per 18 Kg basis by using the following formula: Mc =As qh Where Mc stands for marketing cost of a specific unit quantity, As stands for actual amount spent and qh represents quantity handled. Net Marketing Margin The net margin of a specific agency is the net earnings, which it earns after paying all marketing costs. Net earnings of various market agencies involved in the marketing of Shin Kulu apple were computed with the following formula Nm= Ps - Mc Where, Nm is the net marketing margin, Ps is the price spread by the specific agency and Mc is the marketing cost per unit handled. RESULTS AND DISCUSSION Marketing Channels A business structure, reaching from the point of product origin to the consumer, through which a manufacturer of marketer motivates, communicates, sells, ships, stores, delivers and services the customer s expectations and the product s needs (McCallay, 1996). The marketing channels generally used in the area through which apple reaches from the production to the ultimate consumer are shown as Fig. 1. Through channel 1 some 80 % of apple producers marketed their produce while the remaining 20 % practiced self marketing and eliminating the preharvest contractor. In channel 1 the role of preharvest contractor is significant as he not only performs an important middleman role in the marketing channel but also is an important source of non institutional loan to capital short apple producers at the time of need. Therefore, the apple producers are at the mercy of preharvest contractor and are helpless. Channel-1(80 %) Channel-2 (20%) Producer Producer Preharvest contractor Commission Agent Commission Agent Wholesaler Retailer Wholesaler Retailer Consumer Consumer Fig. 1 Marketing channels of Shin Kulu Apple in Pishin

4 Syed Mohammad Khair et al. Margins and channels for Golden Delicious apple produced in Pishin 758 Apple Producer Margin and Costs The marketing margins for Shin Kulu apple were 76 % in channel-1 and 32 % in channel-2. These higher margins also indicates that 76 and 68 % of consumer price is going to different market middlemen and just 24 and 32 % are going to farmers for Shin kulu apple (Table I). Because the marketing chair is small for chennel-2, in the absence of (preharvest contractor) the net share of apple producer show an increase of 12 %. Marketing margins are also computed as the %age share of final price received by each marketing intermediary. Using the above criteria in the following lines the marketing margins and costs of different marketing middlemen are computed and presented: Preharvest Contractor Margin and Cost Preharvest contractor net margin was 8 % for Shin Kulu while his costs were 29 % of consumer price (Table I). Commission Agents Margin and Cost The net share of commission agent in consumer s price was 6 % for Shin Kulu apple. The costs for Shin Kulu were 2 % of consumer price (Table II). Wholesaler Margin and Cost Wholesaler s net margin in consumer price was 5 %, while his marketing costs were also 5 % for Shin Kulu apple (Table I). Retailer Margins and Cost Net marketing margin of retailer for Shin Kulu apple was 15 %, while his costs were 14 % of consumer s price (Table I). The comparison of wholesaler and retailer net margins indicates that retailer got much higher profit margin than wholesaler. The reasons for this difference are the additional services performed by retailer. The wholesaler gets the title of commodity and only performs the sorting and repacking of commodity and resale it. His transactions are mostly in bulks therefore, his per crate margin is low as compare to retailer. Table I. Marketing margins and costs for Shin Kulu Apple (Rs. /Crate of 18 kg) Trade level Channel-1 Net Margins Channel-2 Net Margins (Rs. per crate) % of consumer price (Rs. per crate) % of consumer price Farmer Pre-harvest contractor Wholesaler Retailer Costs Costs Farmer Pre-harvest contractor Wholesaler Retailer Consumer price Shortcomings and Limitations i. Hesitation and reluctance of respondents to furnish information regarding their income and profits despite of the fact that they were assured about the purpose of the study. ii. Lack of written records with respondents. Information given by the respondents was based on their memories and estimates. iii. However, great care was undertaken to collect reliable and accurate information from respondents. For this purpose check questions were made at various stages of study.

5 Sarhad J. Agric. Vol.24, No.4, Table II. Marketing margins and costs for Shin Kulu (Golden Delicious) Apple (Rs/crate) Channel-I: Producer-Preharvest contractor-c.agent-w.saler-retailer-consumer Trade level and Costs Margin/Cost (Rs.) Net Margin % 1. Farmer - Contracted price = contracted price/consumer = 81/338*100 = 24 % 2. Pre-harvest Contractor i.purchase price ii. Orchard management costs iii. Packing, sorting, grading, packing costs iv. Packing material v. Transport including loading/unloading costs vi. Cold storage charges vii. Commission agent fee viii. Value of physical losses ix. Zilla tax and octroi etc x. Other costs xi. Total costs (add i through x) xii. Gross income (selling through auction) xiii. Net margin (xii minus xi) = P.H.C net margin/consumer = 27.80/338*100 = 8 % 3. Commission Agent i.auction price ii. Net 10 % of auction price Wholesaler i.purchase price ii. Transport charges iii. Rent of shop iv. Sorting and repacking charges v. Wastage vi.total costs (add I through v) vii. Gross income (sale price) viii. Net margin (vii minus vi) W.saler net margin/consumer = 15.34/338*100 = 5 % 5. Retailer i.purchase price ii. Rent of shop iii. Transport charges iv. Labor charges v. Other costs vi. Wastage vii. Total costs (add i through viii) viii. Gross income (sale price) ix. Net margin (vii minus viii ) Retailer net margin/consumer = 50.50/338*100 = 15 % 6. Consumer -Purchase price Note: (Standard weight per crate = 18 kg) Source: Survey 2002 C.Agent = Commission Agent, W.Saler = Wholesaler

6 Syed Mohammad Khair et al. Margins and channels for Golden Delicious apple produced in Pishin 760 Table III. Marketing margins and costs for Shin Kulu (Golden Delicious) Apple. (Rs/crate) Channel-II: Producer-C.Agent-W.Saler-Retailer-Consumer Trade level and Costs Margin/Cost (Rs) Net Margin % 1. Farmer i.sale price 200 ii. Orchard management costs iii. Packing, sorting, grading, packing costs iv. Packing material v. Transport including loading/unloading costs vi. Cold storage charges vii. Commission agent fee viii. Value of physical losses ix. Zilla tax and octroi etc x. Other costs xi. Total costs (add i through x) xii. Gross income (selling through auction) 207 xiii. Net margin (xii minus xi) = Prod.N.M/consumer = /338*100 = 32 % 2. Commission Agent i.auction price 207 ii. Net 10 % of auction price Wholesaler i.purchase price 207 ii. Transport charges iii. Rent of shop iv. Sorting and repacking charges v. Wastage vi.total costs (add i through v) vii. Gross income (sale price) viii. Net margin (vii minus vi) W.saler net margin/consumer = 15.34/338*100 = 5 % 4. Retailer i.purchase price 240 ii. Rent of shop iii. Sorting costs iv. Repacking costs v. Transport charges vi. Labor charges vii. Other costs ix. Wastage x. Total costs (add i through viii) xi. Gross income (sale price) 338 xii. Net margin (xi minus x ) Retailer net margin/consumer = 50.50/338*100 = 15 % 5. Consumer -Purchase price Note: (Standard weight per crate = 18 kg) Source: Survey 2002 C.Agent = Commission Agent, W.Saler = Wholesaler

7 Sarhad J. Agric. Vol.24, No.4, CONCLUSION AND RECOMMENDATIONS The results showed wide range between producer and consumer price i.e. the marketing margin which were 76 and 58 % for Shin Kulu apple in channel-1 and chennel-2 respectively. These enormous marketing margins need to be reduced so that farmers can get the maximum benefits of their produce. To reduce the marketing margins and to improve the marketing system the following measures are suggested: i. Due to lack of market information the farmers losses their profit and are at the mercy of commission agents. Therefore, so proper marketing information systems through the relevant agencies (media) need to be developed. ii. Due to an early recovery of their investments, the farmers are forced either to sell their produce at an early stage at low prices to preharvest contractors or get conditioned loan from the commission agents and do not have time to wait for improved prices resulting into financial losses. Therefore, the loan facilities through Agriculture Development Bank of Pakistan (ADBP) or other commercial banks should be introduced in the area iii. Expensive packaging material further increases the marketing costs causing enormous marketing margins; supply of packaging material near production area is the foremost requirement to benefit farmers. REFERENCES Bashir, M., J. Iqbal and S.M. Khair Marketing margins for Tor Kulu Apple produced in Pishin. A case study. Pak. J. Agric. Econ. Agric. Prices Commission, Islamabad. 4: FAO. 1990a. Outreach and transfer of fruit technology project in Balochistan. Food and Agric. Org. of United Nations and Deptt. Agric. and Coop. Govt. of Balochistan. FAO. 1990b. Outreach and transfer of fruit technology project in Balochistan. Food and Agric. Org. of United Nations and Deptt. Agric. and Coop. Govt. of Balochistan. Govt. of Balochistan Agric. Statistics of Balochistan Agric. Statistics Wing, Agric. (Ext.) Deptt. Balochistan, Sariab Road, Quetta. Govt. of Balochistan Agric. Statistics of Balochistan Agric. Statistics Wing, Agric. (Ext.) Deptt. Balochistan, Sariab Road, Quetta. Govt. of Pakistan Agric. Statistics of Pakistan Ministry of Food, Agric. and Livestock, Econ. Wing, Islamabad, Pakistan. Govt. of Pakistan, Agric. Statistics of Pakistan Ministry of Food, Agric. and Livestock, Econ. Wing, Islamabad, Pakistan. Iqbal, M Pakistan marketing farm products in Asia and the Pacific. Asian Productivity Org. Commercial Agric. Marketing and Storage Ltd., Islamabad, Pakistan. pp Iqbal, M Marketing costs and margins of Apple in Balochistan. Outreach and Transfer of Fruit Tech. Project in Balochistan. pp.14, Food and Agric. Org. of United Nations, Deptt. Agric. and Coop. Govt. of Balochistan. Ranasinghe, Commercial activities and rural development in South Asia. Deptt. Geography, Univ. of Colombo, Colombo, Sri Lanka. pp McCallay, R.W Marketing Channel management; people, products, programmes and markets. A Book Published by Greenwood Publ. Group. 4p. Singh, Economics of apple production in Himachal Pradesh. Agro Econ. Res. Center, Himachal Pradesh, India. Sial, M.H. and M.S. Anjum Returns to investment by market intermediaries in Rawalpindi, Islamabad Market. Pak. J. Agric. Social Sci (1&2):

8 Syed Mohammad Khair et al. Margins and channels for Golden Delicious apple produced in Pishin 762