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Pricing the Wild Gold (Shea Butter) Fairly for Mutual Benefit

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Pricing the Wild Gold (Shea Butter) Fairly for Mutual Benefit

  1. 1. Pricing the Wild Gold (Shea Butter) Fairly for Mutual Benefit Global Shea Alliance Conference 4th March, 2013 Presenter: Zakaria Jalil Venue: Sheraton Hotel-Abuja, Nigeria
  2. 2. Questions for Reflection• What does Fair Pricing Mean?• When do we say Prices are Fair?/What Constitutes Fair Prices?• Can there ever be Fair Prices?• Who determines fair Price? Title 2
  3. 3. What is Fair Pricing?• A fair price is the price point for a good or service that is considered acceptable to both parties involved in a transaction.• Buying Goods at prices that cover the full cost of production and enable a living wage to be earned by producers. Title 3
  4. 4. Challenges of Fair Pricing in Shea Butter• Lack of Market Information.• Market Competition (Cost Differentiation).• Rising cost of production.• Weaker producer organizations (efficiency, volume, bargaining).• Poor/Lack of Price regulatory bodies. Title 4
  5. 5. Who Determines Fair Prices• Buyer• Producer• Both Buyer and Seller• Regulatory BodiesWhen Do We Say Prices are Fair?• When it Benefits Producers of butter.• When it Benefits Buyers of butter.• When it Benefits both (Producers/Buyers). Title 5
  6. 6. Approaches to Fair Pricing• Cost Driven (Cost of Production).• Price Driven (Market forces)Elements of Fair Pricing• Cost of Production• Demand and Supply• Competition• Quality Title 6
  7. 7. Cost Driven Approach to Fair PricingCost Breakdown of Processing 1 bag (90kg) of Shea Butter (Pagsung Tamale) Percent of Item Quantity Unit Cost ($) Total Cost ($) Total CostShea nuts (1 bag) 1 26.3 26.3 65.2Crushing & milling 1 5.3 5.3 13.0Labour (Roasting, 1 2.6 2.6 6.5Kneading, Carting)Fuel wood 1 5.3 5.3 13.0(Roasting/boiling)Packing in polyethen 1 0.3 0.3 0.7sheets/Paper BoxesWater (drum) 225 1 0.6 0.6 1.6litresTotal Cost 40.4 100 Title 7
  8. 8. Cost Driven Approach Cont. • Conversion Efficiency Nut to Butter (30-35%)Scenario 1 : Break Even Point is Highlighted RedPrice($)/kg 1.16 GrossThroughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 31.3 40.4 -9.1 -0.003 1.16 27.9 32.3 40.4 -8.1 -0.002 1.16 28.8 1.16 33.3 40.4 -7.0 -0.002 29.7 34.4 40.4 -6.0 -0.002 1.16 30.6 35.4 40.4 -4.9 -0.001 1.16 31.5 36.5 40.4 -3.9 -0.001 1.16 Title 8
  9. 9. Cost Driven Approach Cont.Scenario 2: 1.32 Break Even Point is Highlighted RedPrice($)/kg GrossThroughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 35.5 40.4 -4.8 -13.6 1.32 27.9 36.7 40.4 -3.7 -10.0 1.32 28.8 1.32 37.9 40.4 -2.5 -6.53 29.7 39.1 40.4 -1.3 -3.3 1.32 30.6 40.3 40.4 -0.1 -0.3 1.32 31.5 41.4 40.4 1.1 2.6 1.32 Title 9
  10. 10. Cost Driven Approach Cont.Scenario 3: Break Even Point is Highlighted RedPrice($)/kg 1.42 Total Cost GrossThroughput (Qty Unit Cost of Total Sale of Gross Profit of Butter After Sale of Butter Production Profit ($) Margin Processing) kg ($)/kg ($)/kg ($)/Bag (%) 27 38.4 40.4 -2.0 -5.2 1.42 27.9 39.6 40.4 -0.7 -1.8 1.42 28.8 1.42 40.9 40.4 0.6 1.4 29.7 42.2 40.4 1.8 4.4 1.42 30.6 43.5 40.4 3.1 7.2 1.42 31.5 44.8 40.4 4.4 9.8 1.42 Title 10
  11. 11. Cost Driven Approach Cont.Scenario 4: Break Even Point is Highlighted RedPrice($)/kg 1.58 GrossThroughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 42.6 40.4 2.3 5.3 1.58 27.9 44.1 40.4 3.7 8.4 1.58 28.8 1.58 45.5 40.4 5.1 11.2 29.7 46.9 40.4 6.5 13.9 1.58 30.6 48.3 40.4 7.9 16.4 1.58 31.5 49.7 40.4 9.4 18.8 1.58 Title 11
  12. 12. SNV-AAK Nut Pre-Financing Model; A Case of Fair Pricing Title 12
  13. 13. When Do We actually Say Prices are Fair“Prices Can be Seen as Fair when Prices being Offered by Buyers of Shea butter/Nuts are not lower than Cost of Production to Guarantee Profit Margins and Must not Heighten what Consumers of end Products of butter Consider as Fair for the Buyers to Stay Competitive” Thank you Title 13

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