Marketing Margins Agricultural Econ.pptx

Marketing Margins

1. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margins

2. ISO 9001:2015 TÜV-R 01 100 1934918 A. Basic Concepts of Marketing Margin

3. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin refers to the difference between the prices at different levels of the marketing system the difference between what the consumer pays and what the producer receives for his agricultural produce also known as price spread

4. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin between farm and retail may be expressed in notation as: P R -P F

5. ISO 9001:2015 TÜV-R 01 100 1934918 Primary Demand – determined by the response of the ultimate consumers. - retail price and quantity data are used to determine primary demand relationships. Marketing Margin

6. ISO 9001:2015 TÜV-R 01 100 1934918 Derived Demand – used to denote demand schedules for inputs which are used to produce the final product. Example: corn is an important input in the livestock industry, while wheat is used to make a variety of bakery goods. Thus, the demand for wheat and corn is derived from the demand for end products. Marketing Margin

7. ISO 9001:2015 TÜV-R 01 100 1934918 Primary Supply – refers to the relationship at the producer level - empirical estimates are based on farm-level data Marketing Margin

8. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin Derived Supply – the relation at the retail level. - it is derived from the primary relation by adding an appropriate margin.

9. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin Retail price is established at the point where the primary Demand and derived supply relation intersect Farm level price is based on derived demand and primary supply Marketing margin is the difference in the two prices.

10. ISO 9001:2015 TÜV-R 01 100 1934918 SR (Derived Supply) SF (Primary Supply) DF (Derived Demand) PR PF Q Quantity Per unit price Price

11. ISO 9001:2015 TÜV-R 01 100 1934918 B. Components of the Marketing Margin

12. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin can be subdivided into different components In terms of Returns to the factors of production used in providing the processing and marketing services rendered between the farmers and consumers.

13. ISO 9001:2015 TÜV-R 01 100 1934918 Returns to the factors of production Wages - as return to labor Interest – as a return to borrowed capital Rent (return to land and buildings) Profit (return to entrepreneurship and risk capital) they are referred as marketing costs

14. ISO 9001:2015 TÜV-R 01 100 1934918 Categorizing returns according to the various agencies or institutions involved in the marketing of products. Marketing Margin can be subdivided into different components

15. ISO 9001:2015 TÜV-R 01 100 1934918 Returns according to the various agencies or institutions involved in the marketing of products return to retailers for their services to wholesalers for their activities to processors for their manufacturing activities to assemblers for the work they perform - this subdivision is referred to as marketing charges

16. ISO 9001:2015 TÜV-R 01 100 1934918 Net Returns derived by deducting the marketing costs from the marketing margin used to reflect the payment for the risks, management and capital employed in moving a product from one market level to another The wide margin is largely due to the provision of marketing services demanded by consumers

17. ISO 9001:2015 TÜV-R 01 100 1934918 C. Types of Margins

18. ISO 9001:2015 TÜV-R 01 100 1934918 Types of Margins a. Absolute constant margin expressed in terms of pesos and are constant over all quantity ranges. regardless of the volume marketed, the absolute peso difference between prices at various levels remains constant Selling price (farmer)=10.00 Wholesaler =15.00 Retailer=20 Absolute constant margin=5.00 5.00 5.00

19. ISO 9001:2015 TÜV-R 01 100 1934918 b. Percentage margin % margin = Absolute margin X 100 Selling price where absolute margin = selling price – buying price Is computed by dividing the absolute constant margin by the selling price and multiplied by 100.

20. ISO 9001:2015 TÜV-R 01 100 1934918 Example: If a retailer purchased a kilo of ampalaya for P2.70/kilo and sold it for P3.50/kilo The absolute margin is 3.50-2.70 = 0.80 % margin = .80 /3.50 x 100 = 22.86% or 23% Where absolute margin=selling price –buying price

21. ISO 9001:2015 TÜV-R 01 100 1934918 How to calculate margin? • For example, you sell mango for P200 per kilo. Each kilo of mango costs you P150. Compute for the absolute cost margin. • Buying price – P150 • Selling price – P200 • Absolute cost margin = P200 – P150 = P50

22. How to calculate the percentage margin? For example, you sell mangoes for P200 per kilo. Each kilo of mango costs you P150. Compute for percentage margin. • Buying price – P150 • Selling price – P200 • Absolute cost margin = P200 – P150 = P50 • Percentage margin = (P50/P200)x100 = 25%

23. ISO 9001:2015 TÜV-R 01 100 1934918 c. Combination of fixed/ constant and percentage margins middlemen set a fixed margin in addition to the percentage margin he could obtain

24. ISO 9001:2015 TÜV-R 01 100 1934918 Marketing Margin vs. Mark-up they are sometimes used interchangeably however, they are entirely different from each other The percentage markup differs from the percentage margin in that it is the absolute margin divided by the buying price or price paid.

25. Marketing Margin vs Mark-up Percentage mark-up the absolute margin divided by the buying price or price paid % mark up = Absolute margin X 100 buying price

26. Reasons for High Marketing Margins High demand for marketing services by buyers High marketing costs incurred by intermediaries Over profiteering of market intermediaries

27. Breakdown of the Consumer’s Peso a series of figures representing the absolute margins of different types of middlemen or assignable to different marketing functions, divided by the retail price a simple tool that the farmer or any market participant can use to determine who among them in the market chain is reaping the most benefits.

28. The formula for computing each share is as follows: Farmer’s Share = Farm Price Final retail price X 100 Middleman’s Share = Middleman’s Margin’s Final retail price X 100

29. = A bsolute m argins at any two levels Final retail price or consumer’s price Where: Final Retail Price = Farm price + Marketing margin of all middlemen Breakdown of the Consumer’s Peso AM P R

30. Breakdown of the consumer’s peso Suppose the farm price of tomatoes is P10 per kilogram while the final retail price is P50 per kilogram. Find the farmer’s share of the consumer’s peso. Farmer’s share = 10 50 Suppose the first middleman sold the tomatoes he bought from the farmers at P30. Find the middleman’s share of the consumer’s peso. Middleman"s share = 30-10 50 𝑥 100 = 20% 𝑥 100 = 40%

31. Computing Marketing Margins By selecting specific loads of a given commodity and tracing them through the marketing system By comparing prices at different levels of marketing By obtaining data representing gross sales and purchases of each type of marketing agency, and the number of units handled

32. ISO 9001:2015 TÜV-R 01 100 1934918 Thank you!

33. Middleman’s share= 30-20 x100 =-14 45 40-20 x100= 0 50