PRICING STRATEGY OF AGRICULTURAL PRODUCTS

PRICING STRATEGY OF AGRICULTURAL PRODUCTS

Pricing: Price is the amount of money charged for a product or services. It is the total amount that is being exchanged by the customer to obtain a benefit of the product or service owing (Philip Kotler, 2000).

Stanton 2002, define price as the amount of money or goods needed to acquire some combination of another goods and its accompanying services.

Pricing therefore is the process of determining what a company or an organization will receive in exchange for its products.

It refers to the various method used in setting the prices of commodities. The pricing of agricultural products is similar but at the same time different from the pricing of manufactured goods.

It is similar in the sense that is based on the demand cost and competitive consideration. In other words both the agricultural and the manufacturing sectors obey these factors in setting prices of the produces.

However, it is different in the sense that the pricing of agricultural products takes into consideration the seasonal and permissible nature of the goods.

In the case of seasonal goods with no good storage system to help stabilize their supplies, the tendency is for the prices to be very low because the goods can only be in the market at a particular time during the harvest period but will be so scarce during the period of cultivation thereby pushing up the price to ‘sky’ limits.

In the case of perishable goods that have no good storage systems, prices are relatively lower because much of the handling that would have attracted higher costs and subsequent high prices are always avoided by selling directly to consumers. Generally, however, the following methods of price setting are adopted:

1. Private Negotiations: In this method, prices are fixed by mutual agreement. The buyers come 10 the shops of commission agents and offer prices for the product which they think are appropriate after they have inspected the samples, if the price is accepted the commission agent communicates the decision to the seller and the goods are given to the buyer.

This method is common in unregulated markets or village markets. Private negotiations take place directly between the buyers and the sellers.

The advantage of this method is that the seller gets a good price because the buyers may not be aware of the prices offered by other buyers. However, this method is slow and time consuming process and is not suitable when either large quantities have to be sold or a large number of buyers exist in the market.

2. Quotations on sample: Here, the commission agent takes the product to the buyer, the price is offered by the buyers on the sample. The commission agent moves from shop to shop until the buyer is ready to offer a price higher than the one who offered the highest price.

3. Open auction method: prospective buyers gather at the shop of the commission agent and examine the produce. They then offer their bids loudly, the produce is given to the highest bidder after taking permission from the seller farmer.

This method is the most preferred method because it ensures that farmers who being a superior quality of produce will receive higher price. It also ensures far dealing for all the parties.

4. Credit sale method: Here the seller offers his produce to the buyer on the basis of a verbal arrangement without a pre-settlement of the price but on the understanding that the price of the produce be paid by the buyer to the seller on a later date. This method is common in the village market.

5. Variable prices based on market conditions: In this method, the sellers go round the market in the early hours of the morning and collect information on the total supplies for the day, the quantity that is likely to be demanded and the views of their competitors of fellow traders.

As the day progresses, and the sellers find that their stock are moving satisfactorily, they lower their prices to clear the available suppliers.