Marketing costs are the actual expenses incurred in the performance of the marketing functions as a commodity moves from the farm to the ultimate consumers.
It includes the cost of transportation and handling, assembling, processing, distribution, cost of packaging, sales promotion and advertisement cost, and other taxes, levies, and excise duties.
Marketing costs are often erroneously assumed to be synonymous with marketing margin, but the true relationship is that marketing margin includes marketing costs plus the normal profit earned by the market intermediaries as the commodity passes through the marketing system. Marketing costs can be categorized into fixed and variable costs.
The following are important components of the marketing costs:
i. Transfer costs
ii. Processing costs
iii. Storage costs
iv. Sales promotion and advertisement costs
Transfer Costs in Agriculture
These are the costs of moving products from producing to consuming areas. They consist of terminal costs and transportation costs. Terminal costs are those costs related to the transport of equipment and the cost of functions performed during loading and unloading, sometimes called handling charges.
These costs are incurred irrespective of the distance traveled and are therefore fixed costs. Transfer cost is therefore a function of terminal and transportation costs.
The formula for transfer cost is:
T = C + bR
Where:
T = Transfer cost
C = Terminal cost
R = Transportation cost
b = Unknown coefficient
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Processing Costs in Agriculture
These are the expenses incurred in the creation of utility through transformation. Processing costs depend on the technology used in processing. For example, in the traditional method of processing paddy rice, the following costs are included:
i. Cost of firewood
ii. Depreciation on equipment
iii. Cost of labour
iv. Cost of drying
v. Cost of milling
Storage Costs in Agriculture
These are costs incurred on the preservation of farm produce until the time when they are needed. Most agricultural products are seasonal, and farmers’ harvests therefore have to be stored over time for orderly distribution at a later period.
In computing storage costs, the following elements of costs are considered:
i. Depreciation cost of storage structures
ii. Interest on money invested in stored products
iii. Cost due to physical loss of weight through drying, insect and rodent attack, and deterioration by decay through physiological changes
iv. Rent on storage structure
v. Cost of storage chemicals such as insecticides
vi. Insurance cost, if any
vii. Loss from poor consumer acceptance of the stored product
viii. Loss resulting from price decline while the product is in storage
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Sales Promotion and Advertisement Costs in Agriculture
Sales promotion or advertisement cost is the cost incurred in the process of exhibiting the product for consumer acceptance and in conveying information to consumers on the availability of certain products.
Advertisement costs include the cost of advertising the product over television, newspapers, or radios, while sales promotion costs include the cost of providing free samples and making face-to-face contact between the salesmen and consumers.
In this article, the various components of costs incurred in the performance of marketing functions have been explored. These include transfer costs, processing costs, storage costs, and sales promotion and advertising costs. Understanding these costs is essential for effective agricultural marketing and ensuring profitability in the agricultural value chain.
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