This document discusses marketing costs and methods for estimating them. It defines key terms like marketing margins, price spread, and producer's share. It outlines three methods for estimating marketing costs: lot method, sum of average gross margins method, and comparison of prices at successive levels. Factors that affect marketing costs are also presented, like perishability, bulkiness, storage needs, and number of intermediaries involved. Agricultural product marketing costs are generally higher than other products due to issues like small farm size, grading challenges, and irregular supply.

1. Marketing costs

2. Contents
• Marketing cost - Cost of marketing functions
• Marketing Margins - Margins of intermediaries
Difference b/w price paid and received
Concurrent margin: Diff. b/w prices prevailing at
successive stages of marketing at a given point of
time/date
Lagged margins: Diff. b/w price received by a
seller at a particular stage of marketing and price
paid by him at preceding stage during an earlier
period. Accounts time elapsed b/w purchase and
sale – by a party and b/w farmer and consumer

3. • Price spread – difference b/w price paid
consumer and price received by the farmer
• Producers' share in the consumer's rupee

4. Marketing costs
Total Cost of Marketing: The total cost, incurred
on marketing either in cash or in kind by the
producer seller/ various intermediaries
involved in the sale and purchase of the
commodity till the commodity reaches the
ultimate consumer
C = CF + Cm1+ Cm2 + Cm3 + …. + Cmi
C = Total cost of marketing of the commodity
CF = Cost paid by the producer -for marketing functions
Cmi = Cost incurred by the ith middleman

5. Methods of estimation of marketing
costs
• Three methods are generally used in the computation
of marketing margins and costs
(i) Lot Method
A specific lot or consignment is selected and chased
through the marketing system until it reaches the
ultimate consumer. The cost and margin involved at
each stage are assessed
 Difficult to chase movement
 Most of the lots lose their identity during the process
of marketing
 There is no assurance that the lot selected is
representative of the whole product

6. ii) Sum of Average Gross Margins Method
• The average gross margin at each successive
level of marketing is worked out by dividing
the difference of the money value of sales and
purchase by the number of units of the
commodity transacted by a particular agency

7. iii) Comparison of Prices at Successive
Levels of Marketing
• Under this method, prices at successive stages
of marketing at the producer's, wholesaler's
and retailer's levels – are compared.
• The difference is taken as the gross margin
• The margin of an intermediary is worked out
by deducting the ascertainable costs from the
gross margin earned by that intermediary

8. Difficulties
• Representative and comparable series of prices for the
same quality of successive stages of marketing are not
readily available for all the products
• Adjustment for a loss in the quality of the product at
various stages of marketing due to wastage and
spoilage in processing and handling is difficult
• The price quotation may not cover the price of a
product of a comparable quality
• The time lag between the performance of various
marketing operations is not properly accounted for

9. Producer’s price
• Net price received by farmer at the time of
first sale
PF = PA-CF
PF - Producer’s price
PA - Wholesale price in the primary assembling
market
CF - Marketing cost incurred by the farmer

10. Producer’s share in Consumer’s Rupee
• It is the price received by the farmer
expressed as percentage of the retail price
(price paid by consumer)
• PS = (PF ÷ Pr)x 100
PS - Producer’s share in consumer’s rupee
Pr - Retail price
PF - Producer’s price

11. Relationships of FP, MC and RP
• FS = (RP - MC)x 100 FS=Farmer’s share (%)
• RP RP = Retail price
• OR MC = Marketing costs
• FS = (PF/RP)x100 including margin
• PF = Price received by
• the farmer

12. The factors which affect marketing costs
• Perishability of the Product
• Extent of loss in storage and transportation
• Volume of the product handled
• Regularity in the supply of the product
• Extent of packaging
• Extent of adoption of grading
• Necessity of demand creation/ Advertisement

13. Contd.
• Bulkiness of the Product
• Need for retailing
• Necessity of storage
• Extent of risk
• Facilities extended by the dealers to the
consumers:

14. Agriculture products Vs other products
• Generally, the cost of marketing of agricultural commodities is
higher than that of manufactured products
• Widely dispersed farms and small output per farm
• Bulkiness of agricultural products
• Difficulty in grading
• Irregular supply
• Need for storage and processing
• Large number of middlemen
• Risk involved