Producer s share in consumer rupee in marketing of fresh grapes

Internationl Research Journal of Agricultural Economics and Statistics Volume 3 Issue 1 March, 2012 12-17 Research Paper Producer s share in consumer rupee in marketing of fresh grapes VILAS JADHAV, B. CHINNAPPA, M. ARUN AND G. S. MAHADEVAIAH See end of the paper for authors affiliations Correspondence to : VILAS JADHAV Department of Agricultural Economics, University of Agricultural Sciences, G.K.V.K., BANGALURU (KARNATAKA) INDIA Email: vilasagri@ gmail.com Paper History : Received : 27.05.2011; Revised : 01.11.2011; Accepted: 06.12.2011 ABSTRACT : The present investigation was conducted in Bijapur district of Karnataka to examine the producer s share in consumer rupees its and market efficiency. The study was based on primary data obtained from 60 grape growers, 10 pre-harvest contractors, 10 wholesalers and 10 retailers. Descriptive statistics was used to analyse the data. The study revealed that there were two major channels of marketing involving pre-harvest contractors and wholesalers through which the fresh grape moved from producers and consumers. This channel was found to assure greater share to producers in consumer s rupee (79.07%) and efficient with an market efficiency index of 2.37. The analysis of price spread and marketing margins revealed that pre-harvest contractors cornered 3577/ tonne, while retailers accounted for 2033/ tonne. The price-spread was higher in channel-i (pre-harvest contractor) presumably due to higher marketing costs and profits. There is possibility of enhancing the grower s share by scaling down the marketing costs particularly commission charges and transportation charges. KEY WORDS : Consumer rupee, Marketing margins, Producer share, Price spread, Market efficiency, Marketing intermediartes HOW TO CITE THIS PAPER : Jadav, Vilas, Chinnappa, B., Arun, M. and Mahadevaiah, G.S. (2012). Producer s share in consumer rupee in marketing of fresh grape, Internat. Res. J. agric. Eco. & Stat., 3 (1) : 12-17. INTRODUCTION Marketing helps producer in disposal of produce ensuring reasonable returns for his hard work. Production process is not complete until the produce reaches the hands of final consumer. Marketing efficiency depends largely on the costs, margins and producer s share in consumer s rupee. An efficient marketing system is a pre-requisite for ensuring remunerative price to the growers. Grapes is one of the most important fruit crops grown in India mainly in Karnataka, Maharastra, Andhra Pradesh. Grapes is cultivated predominantly in Bijapur, Bagalkot, Bangalore and Kolar districts of Karnataka. The area under the crop has been increasing at an annual growth rate of 10.64 per cent and Karnataka has become an important grape growing state in the country. Marketing is equally important for commercial fruit crops like grapes. Keeping this in view the above study was undertaken with the following objectives : To identify distribution channels. To determine costs and margins of various market intermediaries. To study the price spread and to compute market efficiency of distribution channels. MATERIALS AND METHODS The present study was conducted in Bijapur district of Karnataka. Bijapur district is in northern part of Karnataka. Bijapur district has very congenial climate and soil suitable for grape cultivation. Among grape growing districts of the state, Bijapur district was selected for the study. This forms the first stage of sampling procedure. Grapes is being cultivated in all the Taluks of Bijapur district. However, larger area is concentrated in Bijapur Taluk. Hence, this Taluk was selected for study which formed second stage of sampling procedure. Further, a list of villages cultivating grapes in Bijapur Taluk was prepared with the help of Assistant Director of Horticulture. From the list, five leading villages in grape cultivation were randomly selected. This was the third stage of sampling. From each village, 12 grape growers were selected thus marking a

VILAS JADHAV, B. CHINNAPPA, M. ARUN AND G. S. MAHADEVAIAH total sample of 60. The sample farmers were then post classified into large, medium and small growers. The primary data were collected from the sample growers through personal interview with the help of pre-tested and well structured schedule. The data included, general information, disposal pattern of grapes, cost of marketing, channels etc. Market intermediaries such as pre-harvest contractors (10) wholesalers (10) retailers (10) were chosen from the local Bijapur market. A separate schedule was prepared for collecting information from market intermediaries involved in marketing of grapes. The schedule included information on quantity handled, price paid, price received, costs, margins etc. Personal interview method was adopted to ensure that the data were reliable, comprehensive and precise. The data were analysed using descriptive statistics like averages and percentages. RESULTS AND DATA ANALYSIS The experimental findings of the present study have been presented in the following sub heads: General characteristics of sample growers : The general characteristics of the sample growers is given in the Table 1. The study covered 60 growers spread over five villages in Bijapur Taluk of Bijapur district. The average family size of grape growers was 8 members in case of large farmers, 7 members in case of medium farmers and 5 in case of small farmers. The total land holding of grape growers was in order of 6.25 ha, 3.21 ha and 1.44 ha in case of large, medium and small farmers, respectively. The proportion of area under grape cultivation was in the order of 52.16 per cent, 50.15 per cent and 64.58 per cent, respectively in case of large farmers, medium and small farmers. The age of grape plantations ranged between 3-15 years. The economic life span of grapes was found to be 25years in the study area. On an average, 4464 plants / vines could be planted on one hectare of garden land. Table 1 : General characteristics of sample farmers Large Medium Particulars (n=20) (n=20) Small (n=20) Family size (numbers) 8 7 5 Age (years) 42 40.50 37.55 Land holding (ha) 6.25 3.21 1.44 Area under grape (ha) 3.26 1.61 0.93 Percentage of grapes to total land holding Variety grown 52.16 50.15 64.58 Thomson seedless Age of grape (year) 3-15 Economic lifespan (years) 25 Number of plants / ha 4464 General information regarding marketing intermediaries: The general information on marketing intermediaries engaged in marketing of grapes is given in Table 2. The average age of pre-harvest contractors was in the range of 35-50 years. On an average, the pre-harvest contractors had 7 years of experience in this line of business. They were engaged for all most 6 to 8 months in a year. The wholesalers were in the age group of 38-55 years while the retailers were relatively younger (41 years) as compared to the pre-harvest contractors. The retailers were busy for a period of about 7 months. They become active and busy as soon as fresh grapes arrives in wholesale market. They buy grapes in requisite and smaller quantities from the wholesalers and PHC s and sell to consumers directly. Retailers are the last link in the chain of marketing of grapes. They are the personal representatives of final consumers. Such is the reputation they enjoy in grape marketing. Wholesalers on the other hand, buy in large quantities and sell to retailers and processers. They have all the required basic infrastructure to deal with large quantities viz., transportation, finance, storage, labour force etc. Table 2: General characteristics of market intermediaries Experience Period of business Particulars No. Age in business in a year 1. Pre-hervest contractors 10 35-50 7.00 10 months 2. Wholesaler 10 38-57 7.25 7 months 3. Retailers 10 41.00 14.75 12.00 Distribution channels : The marketing channels consist of various marketing agencies performing functions in a sequence as the grape produce moves from the growers to final consumers. There are two major marketing channels through which grapes moves to consumers from producers : Producer Pre-harvest contractor Retailer Consumer. Producer Wholesaler Retailer Consumer. In the first channel, producers sold their produce to the pre-harvest contractors who entered into agreement with them when the produce was ready for harvest. The pre-harvest contractors i nturn sold the produce to wholesalers. Out of 60 sample grape growers only, 20 (33 per cent) sold to PHC s. In channel II, the marketable surplus of grape was disposed off through wholesalers in the market. Major portion of the grape produce (69.5 per cent) was sold through the channel. This indicates that vast majority of the grape growers preferred this channel as compared to the channel-i in terms of both number and quantity of the produce (Table 3). Internat. Res. J. agric. Eco. & Stat. 3(1) March, 2012: 12-17 13

PRODUCER S SHARE IN CONSUMER RUPEE IN MARKETING OF FRESH GRAPE Table 3: Grape grower s preference for marketing intermediaries Particulars Units Channel-I Channel-II Total Grape growers Number 20 (33.33) 40 (66.67) 60 (100.00) Quantity sold Tonnes 1443 (30.45) 3296.30 (69.55) Table 4 : Marketing cost incurred by grape growers in marketing of grapes Rs./tonne Particulars Value Per cent 1. Transportation 447.25 23.95 2. Packing 249.28 13.35 3. Hamali 139.90 7.49 4. Commission 1000.92 53.50 5. Misc. 30.14 1.61 Total 1867.49 100.00 4739.30 (100.00) Marketing cost : The details of marketing cost incurred by the grower is given in the Table 4. The large growers had incurred considerable amount and expenditure in marketing towards cost of packing, commission, transportation, weighment, hamali charges and other miscellaneous charges. The share of commission charge was 53.60 per cent amounting to Rs. 1000.92 per tonne followed by transportation costs accounting for 23.95 per cent or Rs. 448 per tonne. The cost of packing materials worked out to Rs. 250 per tonne which constituted 13.35 per cent of the total marketing cost. The hamali charge was Rs 140 per tonne. This accounted for 7.49 per cent of the total marketing cost. Miscellaneous expenses was the least item of the total marketing cost with Rs 30.14 per tonne or 1.61 per cent. Thus, on an average large farmers, had incurred 1867.49 per tonne towards marketing of grapes. The details of marketing cost incurred by pre-harvest contractor indicated that they spent about Rs. 777.80 per tonne towards marketing of grapes which consisted of interest on their investment was highest at Rs. 302 per tonne constituting 38 per cent (at 12%). Next in order was transportation cost amounting to Rs. 205 per tonne sharing about 26.86 per cent of the total marketing cost. Packing, hamali charges and miscellaneous expenses together came to Rs. 270 per tonne accounting for 34.84 per cent. Table 5 : Cost Incurred by pre-harvest contractor Particulars Per tonne percentage Interest on investment at 12% 301.80 38.80 Labour 90.00 11.57 Packing at 35/ basket 135.50 17.42 Transportation 205.00 26.36 Incidental expenses / misce. 45.50 5.85 Total 777.80 100.00 The cost incurred by the wholesaler as evident from Table 6 was Rs. 124.77 per tonne of which labour (60.11 per cent) charges alone formed a major component. The other important costs were shop rent, interest on investment, telephone and personal expenses etc., which together came to Rs 49.77 per tonne constituting 39.89 per cent. The retailer is the last link in the distribution channel. He incurred on an average an expenditure of Rs. 411.16 for marketing one tonne of fresh grape. Of this major portion went towards personal expenses at Rs. 105.15. Next in order were depreciation and packing charges. Table 6 : Cost incurred by wholesaler in marketing of grapes Particulars Per tonne percentage Shop rent 7.11 5.70 Electricity 4.55 3.65 License fee 3.54 2.84 Interest on shop advance 11.53 9.24 Interest on investment 2.56 2.05 Depreciation 0.35 0.28 Interest on telephone advance 0.02 0.02 Labour 75.00 60.11 Stationery 0.81 0.65 Telephone bill 4.30 3.45 Association membership fee 0.18 0.14 Incidental / Misc. 14.82 11.87 Total 124.77 100.00 Table 7 : Cost Incurred by retailers in marketing of grapes Rs./tonne Sr. No. Particulars Per tonne per centage 1. Electricity 60.04 14.60 2. Depreciation 68.08 16.56 3. Transportation 73.01 17.76 4. Hamali 34.00 8.27 5. Market fee 5.88 1.43 6. Packing 65.00 15.81 7. Personal expenses 105.15 25.57 Total 411.16 100.00 14 Internat. Res. J. agric. Eco.& Stat. 3(1)March, 2012: 12-17

VILAS JADHAV, B. CHINNAPPA, M. ARUN AND G. S. MAHADEVAIAH Marketing margins : The marketing intermediaries incur expenditure for the services rendered by them in the process of moving fresh grapes from growers to ultimate consumers. While doing so, they make profits to sustain in the business. The marketing margins in the context of grape marketing is determined as the difference between the grape grower s price and the price paid by the ultimate consumer. The margins include two components namely the marketing cost and profits of marketing intermediaries. The size of marketing margins throw light on the efficiency with which grape market is functioning in the study area. The marketing margins have been estimated by aggregating the margins of various marketing intermediaries using the following formula. Sp Pp = i= Q MM n 1 where, MM = marketing margins S p = Sale price of produce P p = Purchase price of produce Q = Quantity sold n = number of intermediaries An examination of the marketing costs and margins in the major channels will enable to understand the buying and selling activities of grapes in a better manner. It may be noted that in channel-i, the gross price received by the producer was Rs13,450 per tonne and this constituted 62.56 per cent of the retail price. The farmer does not incur costs for transportation to market as it is taken care by the PHC who buys the standing crop. The total marketing cost incurred by the PHC formed 3.62 per cent of the retail price. The marketing costs of PHC consist of cost of transportation from the garden to market, packing, interest on investment, labour charges for loading and unloading and personal expenses. The total realization of PHC from sale is Rs18100 per tonne of grapes when sold to retailer. The profit of PHC worked out to Rs. 3578 after making provision for his costs and purchase price. The total marketing cost of retailer formed 6.35 per cent of the retail price while his Table 8 : Price spread in grape marketing Rs./tonne Particulars Channel-I Channel II Amount Per cent Amount Per cent I. Producer Gross price 13450 62.56 17000.00 79.07 Marketing cost -- -- 1867.49 8.69 Net price 13450 62.56 15132.51 70.38 II.Pre harvest contractor Purchase price 13450.00 Costs 779.35 3.62 Profit margins 3577.74 16.64 Sale price 18100.00 III.Wholesaler Purchase price -- 17000.00 Costs inclusive of post-harvest losses -- 407.44 1.90 Profit margins -- 692.56 3.22 Sale price -- 18100.00 IV.Retailer Purchase price 18100.00 18100.00 Costs 1366.20 6.35 1366.20 6.35 Margins 2033.80 9.46 2033.80 9.46 Sale price to consumer 21500.00 21500.00 Price spread 8050.00 6367.49 Producer s share 62.56 79.07 Internat. Res. J. agric. Eco. & Stat. 3(1) March, 2012: 12-17 15

PRODUCER S SHARE IN CONSUMER RUPEE IN MARKETING OF FRESH GRAPE margin was 9.46 per cent. The margins were relatively higher as compared to costs. This pointed out to lower marketing efficiency. In the channel-ii involving grape growerwholesalers- retailers- consumers, the marketing functions were performed by the grower himself unlike in the channel-i where the PHC performed these functions. He harvested the crop, assembled the crop, packed it, transported and sold it to the wholesaler. The costs incurred by the grower for the above functions was in the order of Rs. 1867 constituting 8.69 per cent of the retail price. The net price received by the grower was Rs. 15132.51 which constituted 70.38 per cent of the retail price. This is the merit of this channel, If he had sold his crop to the PHCs, he would have obtained Rs13450 per tonne. This leads to conclusion that the grower reaped an additional income of Rs1682.51 per tonne. The marketing costs of wholesalers was Rs. 407.44 which included the establishment, electricity, transportation, labour, packing etc. The margins earned by him came to Rs. 692.56 per tonnes which formed 3.22 per cent of the retail price. He sold the produce to retailers at an average price` Rs.18,100 per tonne. The retailers marketing cost was 1366.20, while his margins were Rs. 2033.80 forming 9.46 per cent of the final price. Market efficiency : Market efficiency is defined as ratio between output and input. It is essentially the degree of market performance. The market efficiency is composed of technical and economic efficiency. Technical efficiency relates to handling of produce at various levels of marketing and economic efficiency relates to cost effectiveness of delivering the product to consumers. The market efficiency (ME) was determined by using Acharya s approach. Table 9 portrays the details of market efficiency. As per the table the marketing efficiency was higher in the channel- II. Higher efficiency in this channel is attributable to lower marketing costs and margins of market intermediaries. Table 9: Marketing efficiency Rs./ per tonne Particulars Channel I Channel II 1. Consumer s price/ retail price 21,500 21,500 2. Marketing costs 2438.46 3641.13 3. Marketing margins 5611.54 2726.36 4. Farmer s price 13450 17000 5. Marketing efficiency by Acharya s method (MME) 1.67 2.37 Growers share : The grapes grower s share in consumer s rupee does not remain constant. Higher the grower s share higher is the market efficiency and vice versa. It refers to the price received by the grape grower and is expressed as percentage of the ultimate consumer s price. It has been determined by using the following formula : G G s= C p p where, G s = Grower s share G p = Grower s price C p = Consumer s price The producer s share in the consumer rupee was 62.56 per cent and 79.07 per cent in channel-i and channel-ii, respectively. (Singh, 1975). The producer s share in the consumer rupee was higher in channel-ii compared to channel- I indicating its superiority. This was an indicator of higher marketing efficiency (Table 9). This testifies to the fact that the grape growers should sell their produce in regulated markets which assures them better price rather than selling it in the village itself to pre-harvest contractor. Channel-I involving preharvest contractors has proved to be bane for grape growers of Karnataka with lower share in consumer s rupee. Price spread : An efficient market is essential for increasing agricultural production as this assures reasonable returns to farmer s efforts and sacrifices. The efficiency of marketing system is judged based on the size and price spread of a commodity. Lower price spread indicates greater marketing efficiency while higher price spread indicates inefficiency of the marketing system. Price spread refers to the difference between the producer s price and consumer s price. For studying price spread, the costs and margins of various intermediaries have to be ascertained at various levels of marketing. The price-spread computed for fresh grapes as indicated in the Table 8 came to Rs. 8050 and Rs. 6367 for channels I and II, respectively. The price spread was higher in channel-i due to higher costs and profits of preharvest contractors. Conclusions : The study revealed that grape growers were following the marketing channels involving pre-harvest contractors and wholesalers for disposal of their produce. The second channel involving wholesalers was found to be most preferred channel since this channel assured them greater share in consumer rupee. The efficiency test by Acharya s approach testified that the second channel was most efficient with index of 2.37. The marketing margins was higher in case of I channel involving pre-harvest contractor due to higher marketing cost incurred and higher profit margins retained by him. There is possibility of increasing grower s share in consumer rupee by rationalizing the marketing charges in consistence with the services rendered in the market. This is possible by providing free transport 16 Internat. Res. J. agric. Eco.& Stat. 3(1)March, 2012: 12-17

VILAS JADHAV, B. CHINNAPPA, M. ARUN AND G. S. MAHADEVAIAH services to grape growers to transport their produce to market and rationalize the commission charges as these two are major components which eat into consumer rupee. Authors affiliations: B. CHINNAPPA, M. ARUN AND G.S. MAHADEVAIAH, Department of Agricultural Economics, University of Agricultural Sciences, G.K.V.K., BENGALURU (KARNATAKA) INDIA Singh, K. and Kahlon, A.S. (1969). Marketing margins in grapes in Punjab. Agric. Marketing, 11(4):1-4. Singh, S.K. (1975). Price spread and marketing margins of grapes in and around Hyderabad. Agric. Marketing, 17(4): 6-8. Venkataraman, J.V. (1964). Economics of production and marketing of grapes in Bangalore south Taluk. M.Sc. (Ag.) Thesis, Madras University, CHENNAI, T.N. (India). LITERATURE CITED Kahlon, A.S. and Singh, K. (1968). Marketing of grapes in Punjab. Agric. Marketing, 10 (4): 2-4. * * * * * * * * Internat. Res. J. agric. Eco. & Stat. 3(1) March, 2012: 12-17 17