Question

Take the hypothetical example of mango. Assume that a consumer purchased one kilogram of mango at $5. The costs per kilogram of mango are given in the table. Calculate marketing efficiency using Shepherd’s formula

Activity Cost ($) Land preparation 7 Sowing 1.5 Plant protection 1 Sorting and grading 1 Transportation 1.5 Loading and unloading 1

Answer 1

Shepherd’s marketing efficiency (ME) = (V/I) - 1 * 100

Where V is price paid by consumer and I is marketing cost.

In the question the costs are of two types: production costs and marketing costs. Therefore, we need to segregate marketing costs because we need only marketing costs to calculate marketing efficiency

Activity	Cost ($)	Type of cost (production/marketing)
Land preparation	7	Production
Sowing	1.5	Production
Plant protection	1	Production
Sorting and grading	1	Marketing
Transportation	1.5	Marketing
Loading and unloading	1	Marketing

Land preparation, sowing and plant protection are costs incurred in production of mango; therefore they are production costs. Sorting and grading; transportation and loading and unloading are post production costs incurred in bringing the produce to market. Therefore they are marketing costs.

Now we shall calculate marketing efficiency:

ME= (V/I) - 1 * 100

V = $5

I= (1+1.5+1) = $3.5

ME= (5/3.5) – 1 * 100

= (1.42- 1) * 100

= 0.4285 * 100= 42.85.

Therefore marketing efficiency is 42.85 %