Tips for setting horticulture produce prices
Important to ascertain market preferences
The cost of production is determined by dividing the total money spent on producing a certain crop by the total quantity harvested.
The Namibian Agronomic Board (NAB) does not regulate the prices of horticulture products, but during closed-border periods, farmers are discouraged from inflating the prices of their produce.
“There are punitive measures that are stipulated in the Market Share Promotion (MSP) scheme rules and procedures to deal with such acts to protect customers,” spokesperson of NAB, Auguste Fabian, said.
NAB, in its latest newsletter, provided tips to farmers on how to determine prices for horticulture products.
Fabian firstly explained that the price determination is influenced by various factors, including production costs, market scarcity or abundance, the local going price, consumer preference and economies of scale, among others.
She explained that the cost of production is determined by dividing the total money spent on producing a certain crop by the total quantity harvested.
“If you harvested 25 000 kilograms of tomatoes in a hectare and spent N$20 000, the unit cost will be N$0.80 per kilogram.”
Fabian said this means it cost the farmer 80 cents to produce one kilogram of tomatoes.
According to her, farmers can then add their mark-up on the unit cost to come up with the price per kilogram.
Market preferences
With regards to consumer preferences, she said it is imperative to ascertain the prevailing market preferences and determine the tastes and inclinations of clientele. “Compare what is sold on the market with what you have, then establish if your product is of better or lower quality.”
Fabian said if the product has a short shelf-life span, it is more likely to be cheaper than the same type of product that has a long-shelf life. “For example, ripe tomatoes or tomatoes that have a weaker shell can be perceived as lower grade and fetch lower prices in the market.”
According to her, production capacity should take into account how large the farm is.
“When your horticulture business is small, then the production costs will also be higher. The larger your horticulture business, the lower your production cost per unit will be due to economics of scale.”
Furthermore, Fabian urged producers to familiarise themselves with local competitors and their market share, adding that increased competition can lead to price pressures. “Therefore, consider cultivating crops that are not commonly grown by competitors or offer complementary products or services to differentiate your offering."
Price vs quantity
According to the spokesperson, price and demand have an inverse relationship and when prices increase, demand tends to decrease and vice versa. She, therefore, said during scarcity or off-season, crops can fetch higher prices.
“Being among the first to enter the market can help a farmer to secure better prices for their produce.” Fabian added that producers should also remembers that price and quantity supplied have a direct relationship.
“When prices increase, the quantity supplied increases, and when prices fall, the quantity supplied decreases.”
She said producers often concentrate on producing the same crop simultaneously, thereby leading to market flooding and, subsequently, the price declines.
To avoid this, Fabian advised producers to vary crops and planting times.
She noted that producers set the price at which they will sell their product, but they cannot force the consumer to buy the product.
“Producers mostly base their prices on production costs and probable consumer purchases at prices based on the market-going price. Ultimately, it is the consumer who decides what they are willing to pay for your produce. Therefore, it is imperative that farmers attach correct prices on their produce.”
NAB monitors monthly average farm gate prices, import parity prices and retail prices, she noted, added that this report is published monthly on the NAB website and serves as a valuable guideline for price setting.
“There are punitive measures that are stipulated in the Market Share Promotion (MSP) scheme rules and procedures to deal with such acts to protect customers,” spokesperson of NAB, Auguste Fabian, said.
NAB, in its latest newsletter, provided tips to farmers on how to determine prices for horticulture products.
Fabian firstly explained that the price determination is influenced by various factors, including production costs, market scarcity or abundance, the local going price, consumer preference and economies of scale, among others.
She explained that the cost of production is determined by dividing the total money spent on producing a certain crop by the total quantity harvested.
“If you harvested 25 000 kilograms of tomatoes in a hectare and spent N$20 000, the unit cost will be N$0.80 per kilogram.”
Fabian said this means it cost the farmer 80 cents to produce one kilogram of tomatoes.
According to her, farmers can then add their mark-up on the unit cost to come up with the price per kilogram.
Market preferences
With regards to consumer preferences, she said it is imperative to ascertain the prevailing market preferences and determine the tastes and inclinations of clientele. “Compare what is sold on the market with what you have, then establish if your product is of better or lower quality.”
Fabian said if the product has a short shelf-life span, it is more likely to be cheaper than the same type of product that has a long-shelf life. “For example, ripe tomatoes or tomatoes that have a weaker shell can be perceived as lower grade and fetch lower prices in the market.”
According to her, production capacity should take into account how large the farm is.
“When your horticulture business is small, then the production costs will also be higher. The larger your horticulture business, the lower your production cost per unit will be due to economics of scale.”
Furthermore, Fabian urged producers to familiarise themselves with local competitors and their market share, adding that increased competition can lead to price pressures. “Therefore, consider cultivating crops that are not commonly grown by competitors or offer complementary products or services to differentiate your offering."
Price vs quantity
According to the spokesperson, price and demand have an inverse relationship and when prices increase, demand tends to decrease and vice versa. She, therefore, said during scarcity or off-season, crops can fetch higher prices.
“Being among the first to enter the market can help a farmer to secure better prices for their produce.” Fabian added that producers should also remembers that price and quantity supplied have a direct relationship.
“When prices increase, the quantity supplied increases, and when prices fall, the quantity supplied decreases.”
She said producers often concentrate on producing the same crop simultaneously, thereby leading to market flooding and, subsequently, the price declines.
To avoid this, Fabian advised producers to vary crops and planting times.
She noted that producers set the price at which they will sell their product, but they cannot force the consumer to buy the product.
“Producers mostly base their prices on production costs and probable consumer purchases at prices based on the market-going price. Ultimately, it is the consumer who decides what they are willing to pay for your produce. Therefore, it is imperative that farmers attach correct prices on their produce.”
NAB monitors monthly average farm gate prices, import parity prices and retail prices, she noted, added that this report is published monthly on the NAB website and serves as a valuable guideline for price setting.
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