PRICE SPREAD AND MARKETING EFFICIENCY

PRICE SPREAD

Price spread is defined as the difference between the price paid by consumers and the net price received by the producer for an equivalent quantity of farm produce.

It is expressed as percentage of consumer’s price.

Price spread = (Consumer price – Net price of producer) * 100Consumer price

Costs in price spread includes

(i) the cost involved in moving the product from the point of production to the point of consumption i.e. marketing cost.

(ii) profit of the various market functionaries involved in moving the produce from the initial point of production till it reaches the ultimate consumer.

ESTIMATION OF PRICE SPREAD

1)Lot method: Tracing the lot from production point to consumption point.

2)Sum of average of gross margin method:

Sum of gross margins/Total no of persons involved

3)Comparison of prices at different levels of marketing

MARKETING EFFICIENCY

Marketing efficiency is the degree of market performance.

Marketing efficiency is the ratio of market output to marketing input (cost of resources).

Marketing Efficiency = 𝑂𝑢𝑡𝑝𝑢𝑡

𝐼𝑛𝑝𝑢𝑡

The efficiency of a market structure can be known through the following:

(i) Whether it fullfils the objectives assigned to it or expectations from the system at minimum possible cost or maximizes the fulfillment of objectives with given level of resources (or costs)

(ii) Whether it is responsive to impulses generated through environmental changes and whether impulses are transmitted at all level in the system.

APPROACHES TO ACCESS MARKETING EFFICIENCY

Technical or Physical or Operational efficiency: This aspect of efficiency pertains to the cost of performing a function. Efficiency is said to have increased when cost is reduced for performing a function for each unit of output. This is done by reducing physical losses or through changes in the technology of the function. eg. Storage, packing, transportation, handling and processing.

Pricing or Allocative efficiency: Pricing efficiency means that the system is able to allocate products either over time, across space or among the traders, processors and consumers in such a way that no other allocation would make producers and consumers better off. This is achieved through pricing of the product at different stages, at different places, at different times and among different users and hence called pricing efficiency.

ESTIMATION OF MARKETING EFFICIENCY

1)Conventional method:

ME = (Net price received by farmers – Consumer’s price)

Marketing Cost

2)Shepherd’s formula:

ME = Consumer’s price

(MC + Marketing margin)

3)Acharya approach:

ME = Net price received by farmers

(MC + MM)

RELATIONSHIP BETWEEN PRICE SPREAD AND MARKETING EFFICIENCY

Price spread α1

𝑀𝑎𝑟𝑘𝑒𝑡 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦

i.e., Price spread is inversely proportional to the market efficiency.

The farmer should get price spread of more than 50% for proper function of the market.

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