The level of demand for eggs is determined by the price, the number of potential consumers, their purchasing power and by the extent to which they prefer to buy eggs rather than alternative foodstuffs. From the point of view of supply, a price must be high enough to cover production, storage and transport costs. It is unlikely that suppliers will continue to supply eggs if the price remains below that required to cover their costs and give them at least as high a standard of living as they could obtain in other ways. Hence in the long run, market prices must be both low enough for consumers to purchase and high enough to ensure that producers will supply.
Usually market demand and supply determine egg prices. It is important for producers to ascertain market prices for eggs and the price trends over a one-year period. Once market prices are known, producers will be able to calculate if that price or prices in a market or various markets will cover their costs and give them a sufficient profit. It must be remembered that prices change and that pricing information must be up to date when calculating possible profits. In some countries there are seasonal variations in both production and demand which affect the level of prices at various times of the year. These variations in prices should be noted by the producer in planning his/her production and marketing.
Producers must calculate both production costs and marketing costs.
Production costs
Refer to Chapter 1 for a detailed description of production costs. Tables 4 and 6 in that chapter are models that could be used for record keeping.
Marketing costs
Marketing costs will vary according to the method of marketing chosen (see Chapter 4). The main operating expenses for marketing include:
Packaging and storage costs. Costs for packaging include the materials used for packaging, which may vary from a simple basket to a carton made of plastic, and labelling. The cost of storing the eggs must also be considered.
Handling costs. The cost of packaging the eggs, putting them into storage, loading them for transport and unloading them at their destination must all be calculated as handling costs. Each individual handling cost may not amount to much; however, the sum total of all such handling costs can be significant.
Transport costs. Costs for transport will vary according to the method of transport used and the distance covered.
Product losses. Produce can be lost during the marketing period. There are two types of losses - quality and quantity. Eggs exposed to heat with consequent deterioration is an example of quality loss. Breakage of eggs during transport on a bumpy road is an example of quantity loss.
Fees, taxes and unofficial payments. It may be that set fees have to be paid, for example, to a local authority for the use of a market stall. Taxes will have to be paid and, in some situations, bribes may be required to pass a roadblock or to access determined markets. These are all costs that must be considered.
Unexpected costs. It is always important to calculate expenses for unexpected events that may raise costs. For example, it could happen that a road is closed and this may result in a longer distance to be covered to consign eggs. This will raise costs.
In Table 9 we can see marketing costs in tabular form.
Table 9
Marketing costs
|
Costs |
US$ |
|
Packaging/storage |
|
|
Handling |
|
|
Transport |
|
|
Product losses |
|
|
Fees, taxes, unofficial payment |
|
|
Unexpected costs |
|
|
Total costs |
|
The producer must calculate both production and marketing costs together as shown in Table 10.
At the end of the year, the producer can work out the production and marketing costs and the average market price for eggs over the year. After verifying how many eggs were sold during the year, the producer can calculate whether or not a profit was made.
Table 10
Total costs
|
Production costs |
US$ |
|
Rearing (carried forward from Table 4) |
|
|
Houses |
|
|
Equipment |
|
|
Feed |
|
|
Labour |
|
|
Vaccinations |
|
|
Mortality |
|
|
Various expenses |
|
|
Total production costs |
|
|
Marketing costs |
|
|
Packaging/storage |
|
|
Handling |
|
|
Transport |
|
|
Product losses |
|
|
Fees, taxes, unofficial payments |
|
|
Unexpected costs |
|
|
Total marketing costs |
|
|
Total costs |
|
Price differences between markets
One way of checking pricing efficiency in a marketing system is to compare the prices of similar qualities and types of eggs in different markets. Where the differentials reflect the necessary cost of some essential marketing service such as transportation, the marketing system can be regarded as fairly efficient. In other cases, it may be found that these differentials are larger than might be expected. Poor reporting and communication of market news as well as bad transport and storage facilities are among the most common causes of such discrepancies.
It is normal for prices to be lower in production areas than in deficit centres of consumption. Sometimes, however, the differential is much larger than the transport and other marketing charges would warrant. Lack of market information may make it difficult for wholesalers to judge how much produce a market will absorb and to estimate accurately the quantities that are being brought in by other buyers. Lack of storage facilities may be another contributory factor. Storage facilities would enable the wholesalers to move eggs in and out of storage to correct imbalances of supply and demand. Frequently, transportation between production and consumption areas is expensive, difficult to organize and risks heavy losses. Provided there is competition between traders in these markets, such price differentials should contract as these defects are corrected.
Seasonal variations and cyclical movements
Seasonal changes in the prices of eggs mainly reflect variations in production. In temperate climates, the natural laying season is during the spring. Prices tend to be lower in the spring because of the plentiful supply and tend to be much higher in autumn when eggs are scarcer. In climates where seasonal changes are less marked, variations in the availability of feed often cause fluctuations in marketing supplies of eggs. Producers should plan to get the eggs to market when prices are high. An important consideration in adjusting to such cycles is not whether prices are high or low by any particular standard, but whether other producers decide to expand or cut down their breeding flocks in response to them. The main aim is to secure a more even supply of eggs over the year at relatively stable prices.
Most producers and traders are interested in expanding their markets. The simplest approach is to dispatch a selected lot of eggs to some consumer centre where prices appear attractive and find out by experiment whether the net return is greater than that obtained locally. If this proves successful, other consignments of eggs may be sent. Before large consignments are prepared for distant markets, it is recommended that market potentials be investigated. By undertaking some marketing research, the risk of losses can be minimized and the chances of developing profitable trade relationships greatly increased.
Investigation of potential markets
In planning a sales development programme the following points merit careful attention:
Available supply. The number, type and quality of eggs possible to produce must be estimated realistically. A proportion of the eggs produced may not meet the quality standards desired. Seasonal and year-to-year variations in the supply are an important consideration.
Potential markets. Potential markets should be investigated by looking at the following criteria:
Controls. Each potential market may have control restrictions such as minimum quality standards as well as packaging and disease controls. These must be investigated accurately. Also, there may be informal restrictions on new producers who want to enter a market and these have to be verified.
Type and quality of produce. In a potential market the type and quality of eggs required for that market must be assessed carefully. Marketing research (see Chapter 6) can be used to determine the quality and form in which eggs are desired by consumers, and in what units and packaging they wish to buy them. Estimates of how much consumption would change and in what direction if a shift in income or price occurred could also be verified.
Selling arrangements
When a potential market has been located the next step is to establish trade contracts. It is important to select wisely the agent, distributor or retailer through which sales will be made. One must ascertain the reliability, contacts and facilities of the person or organization involved. Importantly, a contract should be stipulated that clearly defines the duties and obligations of all parties concerned and the duration of the agreement.
