Local Marketing of Organic Products in Developing Countries

A few remarks on this chapter:

1. Very propbably costs of production are not completely known, especially fixed costs and calculatory costs  (e.g. of family labour and depreciation). Estimating them is a learning process. Farmers should thus be encouraged to develop an eye for these aspects and try to collect information - with time they will be more accurate.  

 2. When listing estimated costs and quantities make sums and compare them with those of similar farms to check of the estimations are realistic.

3. Include the costs of depreciation for machinery and tools. This prevents you from allowing too thin profit margins. Basic calculation is as follows: Price of tool / years of usage = yearly amount which needs to be saved to replace the tool after the time span estimated. This amount should appear on the costs side, reducing profits.

4. In addition to total expenditure and revenue, calculate the minimum sales price per unit (kilo, piece...) of product. The minimum sales price is the price which covers the cost of production and marketing (no profits, but also no losses). For short periods  it may suffice if the sales price covers the variable costs, but in the long term the sales price must cover both variable and fixed costs! And if you want to make investments or allow for possible risks the price needs to be higher, of course... Calculate the minimum sales price as follows: (Total production costs + marketing costs) / Number of units sold = total costs per unit produced. 

5. Having calculated the minimum sales price a funny thing may happen: The minimum calculated is much higher than the price you have achieved so far - and you are still in business nevertheless! How is this possible? - Well, for one, it is likely that one or more of your estimations of quantities and costs are not realistic (try and compare with similar farms), and secondly, you can keep producing with ruinous prices because your family members work "for free" and/or calculatory costs (depreciation!) are not included and/or you delay investments...

If so, very probably you feel that this situation is not sustainable and want to make improvements. Experience shows that improvements on the marketing side are ten times as effective as efforts to improve production techniques! In other words: Chances are that working out a good marketing strategy will stabilise and increase your household income and put your improvement efforts to better use than if only concentrating on better pest management or the like. 

6. In the table on page 16 there is a mistake (if I am not mistaken): Following the instructions on page 13 and page 14 the costs for personnel are included in production and marketing costs, so they must not be added again on page 16. 

One word on calculating labour costs: If personnel is hired on a long-term basis their wages belong to fixed costs; if it is seasonal labour they belong to variable costs, and if it is family labour then it is hard to quantify: either by comparing with an alternative income (what is this person liekly to earn if working outside the farm?) - this is the income forgone, or through dividing net profit (after taxes...) by the number of family labourers thus calculating their 'wages' (can be very unstable).

Hope this is helpful. If something is unclear ask me back.

Cheers,

Susanne