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Produce preparation costs

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. Packaging costs.

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Produce preparation costs

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  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 = [(10+2)/10]+1 = 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 wholesaler’s containers • Produce is carried to and loaded on wholesaler’s truck • Produce is unloaded at wholesale market and weighed • Produce is repacked in retailer’s containers • Produce is unloaded at retailer’s 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 = 2.40+0.17 = 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 • Producer’s Price: • PP = price received by farmer – marketing cost incurred by farmer • Producer’s Share in Consumer’s 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

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