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Journal of Biology, Agriculture and Healthcare                                                   www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
Vol 1, No.1, 2011

     Price Spread Analysis of Cattle in Hadiya Pastoral Areas

                           Misginaw Tamirat Arficho (Corresponding author)
                       Department of Agricultural Economics, Jimma University
                                    POBOX 307, JIMMA, ETHIOPIA
                                   Email misginaw.tamirat@gmail.com


The research is financed by Institute of Pastoral and Agro-pastoral Studies
Abstract
This study was undertaken in the pastoral areas of Hadiya zone of SNNPR, Ethiopia with the objective
of assessing the efficiency of cattle marketing. The required data were generated from both primary
and secondary sources. The marketing margin analysis manifested that, butchers incurred the highest
cost of 94 Birr per head followed by itinerant and amateur traders while rural collectors made the
largest profit (542 Birr per head) followed by butchers (506 Birr per head). The producers share was
found largest in the direct sale to consumer followed by sales directly to butchers and to butchers
through rural collectors. So as to improve the gain for pastoralists it is better to integrate vertically and
since adding activities adds costs and risks, identifying an appropriate technologies, training on
marketing systems to be undertaken, and providing information and working capital would alleviate the
problem and improve gain from marketing.
Key words: Price spread, Pastoral cattle marketing


1.   Background and Justification


The pastoral sector contributes significantly to Ethiopian economy, employment and agricultural
production and demand creation for agricultural and industrial products, even though evaluation of its
total benefits is difficult (Hatflied and Davies, 2006). The pastoral production system often
geographically located in the lowland areas and their livelihood depends on the movement of livestock
to and from seasonal grazing areas, which in turn may require movement across national boundaries
(Getachew, 2001). It is estimated that the pastoral sector supports over 40% of the country’s livestock,
61% of the total area of the country of which 46% is arable land, and 12% of the population
(Mohammed, 2003).


Livestock markets have a very important effect on pastoralists’ welfare because converting herd
mortality losses into sales could avert widespread, human suffering. This also accelerates both herd
recapitalization (once range conditions improve) and economic growth more broadly by conserving
local wealth (McPeak, 2001). However, the net gain to the producer is influenced primarily by shifts in
retail demand, farm supply, and marketing input prices. But other factors also can be important,
including time lags in supply and demand, market power, risk, technical change, quality, and spatial
considerations.


An efficient marketing system is one capable of moving goods from producer to customer at the lowest
cost consistent with the provision of the services that customers demand (FAO, 1977). Channel
comparisons and price spread analysis are commonly used measures of market efficiency
(performance). The price spread (margin) entails the difference between the price paid by the consumer
and the price received by the producer for an equivalent quantity of farm produce. This spread consists
of marketing costs and margins of the intermediaries, which ultimately determine the overall
effectiveness of a marketing system. The price spread will be helpful in studying the efficiency of the
marketing system if used to show how consumers’ expenditure is divided among market participants at
different levels of marketing system (Jema, 2008).
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Journal of Biology, Agriculture and Healthcare                                                  www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
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2. Research Methodology

2.1. Description of the Study Area

The pastoral and agro-pastoral areas of Ethiopia are mainly found in border areas of the country in
North East, East, South, South West and West. These areas cover about 2/3rd of the country’s total area
and are found in altitude of less than 1500 (Alemayehu, 2007). This study was conducted in two
pastoral and agro pastoral districts of Hadiya zone, south Ethiopia. These are Soro and Gombora
district.


2.2. Data and Sampling Technique

The data for the study were collected from both primary and secondary sources. The secondary sources
are Central Statistical Authority (CSA), International Livestock Research Institute (ILRI), Pastoralists’
Forum Ethiopia, District and Zone Finance and Economic development offices, Districts’ offices of
Agriculture and Rural Development, and the primary data sources include individual pastoral
households, group of pastoralists and traders, and key informants.
For this particular study a two stage purposive sampling (to select the districts and the PAs) followed
by random sampling techniques (to select the households) was used. Factors like percentage of pastoral
population of the districts, number of pastoral PAs and cultural issues (local titles based on cattle
number) were important while selecting the districts. Six major pastoral PAs (Peasant Association)
from Soro district and three PAs from Gombora district (one third of the pastoral PAs from each
district) were then identified based on season the pastoralists are available in the PAs, tribe/clan
distribution, neighbouring ethnic groups and area of production. Market survey was undertaken
through visual observation, and by discussion with buyers and sellers at the time of cattle transaction.


2.3. Data Analysis Technique


The study used price spread and commodity chain analysis (CCA), which involves mapping the chains,
involved in particular production sectors, the different types of activity, geographical location and
actors in different roles at different levels. In addition, it identifies the interrelationships between
marketing agents, opportunities and constraints at the different levels and the different interests and
power relations which influence how value is distributed at these different levels (Adina and Farmer,
2006).
Livestock marketing margins is the difference between the sales price of the animal (meat) and the
costs incurred by the seller including the acquisition price of the animal (Solomon, 2004). The study of
cost of livestock marketing as animals change hands from the producer to consumer involves assessing
the costs and the actual expenses incurred in the marketing process. The costs include not only the
costs of performing the various marketing functions, but different levies as well were considered
(Dhillon et al., 2005). As considered by Solomon (2004 cited from FAO, 2004), the costs considered in
livestock market study are:
    (i)   transporting (trekking, trucking and/or railing);
    (ii)  feeding (including grazing);
    (iii) marketing levies and taxes imposed by local and national authorities;
    (iv)   mortality or loss (some animals die during transit because of diseases or other physical stress;
               some might stray and not be recovered);
    (v) conditioning or/ and processing costs;
    (vi) capital as represented by the interest on the money tied up by the livestock from the point of
               purchase to the point of sale; and
    (vii) the opportunity cost or salary of the operator (trader, etc.)


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Journal of Biology, Agriculture and Healthcare                                                   www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
Vol 1, No.1, 2011
In the marketing margin analysis, Total Gross Marketing Margin (TGMM), the producer's share in
consumer price or Producers’ Gross Marketing Margin (GMMp), the net marketing margin (NMM)
were considered as indicators. While computing TGMM the final price paid by the end buyer used, and
it is expressed as percentage of the final price (Mendoza, 1995).


          TGMM =                                   X 100
(1)
           Where TGMM = Total gross marketing margin.
In order to get producer’s portion or producer’s gross margin (GMMp) which is the portion of the price
paid by the consumer that goes to the producer. The producer’s margin is calculated as:


          GMMp =                                          X 100
           (2)
          Where GMMp = the producer's share in consumer price.
The net marketing margin (NMM) is the percentage of the final price earned by the intermediaries as
their net income after their marketing costs are deducted.


          NMM =                                         X 100
           (3)
          Where, NMM = Net marketing margin.


3.    Results and Discussion

3.1. Cattle Marketing System

Marketing system is a collection of channels, intermediaries, and activities, which facilitate the
physical distribution and economic exchange of goods (Kohls and Uhul 1985). The cattle marketing
system in the study area was discussed with respect to the pastoralists marketing behaviour, which
governs season, amount, and the choice of their marketing channels and outlets.


3.1.1. Purpose of marketing


Markets link producers to consumers. Markets affect producers/pastoralists either when they trade
cattle or purchase food and other necessities. The pastoral households purchased cattle for breeding,
fattening, for gifts (marriage, circumcision, fines) or to be slaughtered and consumed. Moreover, the
sample pastoralists ranked their reasons for selling cattle, 32% to escape the disease and drought, and
27% sold in fear of predators and raids/since both need the fattened animals, 16% to fly to South
Africa, replacement and income need accounted for 14% and 11% (Table 1). But all the respondents
who were engaged in buying, bought cattle for breading purpose and all of them bought steers and
heifers for the purpose. There was a statistically significant (P<0.05) difference among the three off-
take positions with respect to reason of off-take. A shown in the Table 1, about half of the households
in the selling position are risk averse i.e. they sell cattle in expectation of bad weather and or disease.
This is mainly due to the fact that since they have fulfilled their cultural obligations they do not want to
lose their capital for nothing provided that a sales option is there.




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Journal of Biology, Agriculture and Healthcare                                                    www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
Vol 1, No.1, 2011




Table 1. Reason of cattle commercial off-take by commercial off-take position
Reason of sales                   Autarky           Selling         Buying         Total
                                                                                                    χ2-value
                                n%(n=47)         n%(n=50)        n%(n=63)        sample
Escape disaster                         41               47              23          32               6.34**
Insecurity                              20               19              23          27
                c
Fly abroad/SA                           16               26                8         16
Replacement                             10                3              23          14
Income need                             14                3              23          11
Source: survey result, 2009
**Significant at 5% significance level, n= sample size
C
    migrate to South Africa


3.2. Commodity Chain Analysis


Commodity Chain Analysis is used to refer to the overall group of economic agents (or the relevant
activities of those agents) that contribute directly to the determination of a final product (final use).
Thus the chain encompasses the complete sequence of operations which starting from the raw material,
finishes downstream, after several stages of transformation or increases in value, at one or several final
products at the level of the consumer (FAO, 2005).


3.2.1. Actors


According to KIT and IIRR (2008), chain actors includes direct chain actors, which are commercially
involved in the chain (producers, traders, retailers, consumers) and indirect actors, which provide
financial or non financial support services. The agents identified in the area along the commodity chain
are pastoralists and their input suppliers, rural collectors, amateur traders, itinerant traders, brokers, and
butchers.


Pastoralists


As depicted in Appendix 1, pastoralists are the first link along the cattle commodity chain, who decide
on how much to produce, and how much, where and when to sell. The pastoralists travelled long
distances along the commodity chain i.e. they undertake some type of inter-firm upgrading like
medicating, fattening, transporting. Pastoralists sold 12% of their total sale at their farm gate, 17 and
71% at the primary and secondary markets respectively. In the primary market the pastoralists sold 7%
of their total sales to amateur traders, 3% to butchers, 6% to itinerant traders, and 1% to consumers. In
the secondary markets the pastoralists sold 25% of their total sales to amateur traders, 27% to itinerant
traders, 12 and 17% to consumers and butchers respectively. Pastoralists as a seller and pastoralist
trader as village collectors dominate the transactions in the primary markets. They trek cattle to the
nearest village (primary) or secondary markets where they can sale either directly or indirectly through
brokers.


Village collectors


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Journal of Biology, Agriculture and Healthcare                                                 www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
Vol 1, No.1, 2011
According to the group discussion, these actors are buyers and sometimes speculate cattle since in one
way or another they are engaged in cattle production. This category of actors mainly consists of
pastoralist traders and farmer traders. They collect heifers and steers from other markets to sell to the
pastoralists. Village collectors are the major suppliers in the primary and secondary markets, next to the
pastoralists. They bring together the relatively small number of cattle, which individual households
wanted to sell. According to Hailemariam et al. (2009), these actors attract larger traders because they
provide access to larger quantities of cattle and eliminate the need for traders to locate and contact
producers at their scattered yard. They purchased all the sales made at the farm gate by the pastoralists,
and sold 42% of their total sales to amateur traders, 33.5% to itinerant traders, and 17% to butchers, 8%
to consumers (Appendix 1). Village collectors function commonly in the remotest and least accessible
areas where institutional services frequently do not reach, thus providing marketing services for rural
surpluses, and often also fulfilling the consumption needs of the rural communities by selling consumer
goods (Bolokang 2006).


Amateur traders


The amateur traders are those actors who trade cattle sometimes in a year (Williams et al,. 2006).
Appendix 1 shows that these traders purchased 32% from pastoralists directly (7% in the primary
market and 25% in the secondary markets), 42% of the total sale by the village collectors, and sold 5%
to consumers, 7% to itinerant traders and 4% to butchers in the primary markets and sold 57% to
itinerant traders (19% in primary and 38% in secondary), 38% of their total sales to butchers.
According to Solomon (2004) they participate in cattle trading business at the time of high margin,
which is at the time of festivals. In the study area the amateur traders identified includes those who are
engaged in grain trade, cattle medicine and salt trade, small ruminant traders. These traders purchase
cattle in bulk as compared to the rural collectors.


Itinerant traders


Itinerant traders are fulltime traders permanently engaged in cattle trading activity throughout the year
that either have or do not have any cattle-trading license (Solomon, 2004; Umar and Baluch, 2007).
According to the focus group and key informant discussions they have relatively better capital as even
as compared butchers. Four of the livestock traders inherited their business from their family. None of
them have had access to financial institutions. Rather they depend on family and friends/co-traders.
Based on Appendix 1, itinerant traders were buyers in the primary markets and were both buyers and
sellers in the secondary markets. They bought 6% of a total sale of pastoralists, 19% of total sale of the
amateur traders, and 34% of the total sale from village collectors in the primary markets. And in the
secondary markets they bought 27% from pastoralists 38% of total sale of amateur traders and sold
43% their total sale to butchers and 58% to consumers. All of these traders do not have cattle trading
license, more surprisingly three of them (eight itinerant traders) are from one family and two from
another, who informally collude ( for they are tied in blood or marital relations) to dominate the market
to decide on prices and quantity. They used this relationship to dominate the market in setting prices
and cooperate during transportation.


Butchers


Butchers are the final links before the consumers along the commodity chain. They have purchased
20% of total sales by pastoralists, 17% of total sales by rural collectors, 38% of total sales by amateur
traders, and 42% of the total sales by itinerant traders. Three butcheries from Hosanna, Gimbichu and
Jajura towns were considered in this study to make the chain mapping complete. All of the butcheries
used abattoirs built by the municipality of their respective towns. Butcheries are regular purchasers of
cattle (Denbegnas), especially during non festival seasons. In Appendix 1, consumers are the final


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Journal of Biology, Agriculture and Healthcare                                                     www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
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actors of the chain, and represent both local consumers in the study area, and markets outside the study
area so that to help finalise the chain mapping.


3.3. Price Spread Analysis

As Appendix 2 displays different marketing cost components incurred in the course of cattle marketing
by different actors along the cattle marketing chain. Along the chain, butchers incurred the highest cost
of marketing (94 Birr/head) while the pastoralists incurred 25.5 Birr/head. The high cost of the
Butchers is attributed for payment to abattoirs (sanitary and phytosanitory), transport, and labour which
amounts 53.2% of the marketing cost i.e. 50 Birr/head. Whereas other traders incurred more or less
related costs for cattle feed, holding stations, market levy, broker fees and estimated labour costs. The
amateur traders and itinerant traders incurred equivalent cost of 39 Birr/head; this is mainly related
with similarity of value addition.


As also depicted in Table 2, eleven major channels were identified in the process of cattle marketing
from pastoralists to consumers. The share of the market actors was different along each channel. The
total gross margin is the highest in the third (13.2%) and the ninth (13.2% of the consumer’s price)
channels implying relatively shorter channels brings in low total marketing margin. The producer's
share was highest (100%) in the first channel, in which the pastoralists had disposed of their products
directly to the consumer and it was lowest (71.5%) in channel seven (Table 2). The producers’ share in
other channels was lower than channel one because the producers sold their produce through the traders
(traders of all scales including butchers) who reaped away large amount from the consumers Birr. Next
to first channel (i.e. direct sale), the fifth (sales to butchers through rural assemblers), sixth, eighth, and
the eleventh channels (direct sale to butchers) was comparatively profitable channels for sale of cattle
in the study area. In the cattle chain analysis rural collectors get the highest gross margin 750 (23% of
the final consumers’ prices) in channel five, amateur traders get 350 (11%), itinerant traders and
butchers get 550 (17%) and 400 (12.3%) respectively. Table 2 demonstrates the costs and profits that
each agent along the chain make. In their course of action amateur traders made the largest profit of
311 Birr per head followed by butchers (306 Birr per head), village assembler (272.5 Birr per head) and
161 Birr per head by itinerant traders.




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Table 2 Marketing margin calculations along the cattle marketing channels


    Market actors            Marketing measures                                                  Cattle market channels
                                                         CH-1      CH-2       CH-3    CH-4       CH-5      CH-6    CH-7   CH-8   CH-9   CH-    CH-11
                                                                                                                                        10
Cattle (head)                                               18     6          33      24         12        24      86     79     12     202    116
Producers’          Price/head                            2100     2100       2100     2100      2100      2100    2300   2300   2300   2650   2850
Rural collectors    Price/head                                      2300      2300     2650       2850     2650
                    Gross margin/head                                200       200      550       750      550
                    Marketing cost/head                              27.5      27.5     27.5      27.5     27.5
                    Net marketing margin/head                       173.5      173     422.5     442.5     422.5
Amateur traders     Price/head                                                2650                                 2650   2650   2650
                    Gross margin/head                                          350                                  350    350    350
                    Marketing cost/head                                         39                                   39     39     39
                    Net marketing margin/head                                  311                                  311    311    311
Itinerant Traders   Price/head                                                         2850                2850           2850          2850
                    Gross margin/head                                                  200                   200           200           200
                    Marketing cost/head                                                 39                    39            39            39
                    Net marketing margin/head                                          161                   161           161           161
Butchers            Price/head                                                                   3250       3250   3250   3250                   3250
                    Gross margin/head                                                            400         400    600    400                    200
                    Marketing cost/head                                                           94          94     94     94                    94
                    Net marketing margin/head                                                    306         306    506    306                    106
Total gross marketing margin %                              0           8.6   13.2         7     12.3       12.3   18.5   12.3   13.2    7        6.1
Producers portion (%)                                      100         91.4   86.8         93    87.7       87.7   71.5   87.7   86.8    93      93.9
Rank of channels by producers’ share                        1            4     6           3      5           5      7       5    5      3         2


Source: survey result, 2009, CH = channel




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Journal of Biology, Agriculture and Healthcare                                                    www.iiste.org
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4.   Conclusion and Recommendations


Along the pastoral cattle marketing chain five marketing agents were identified. These are the
producers (pastoralists characterized by weak upgrading initiative), rural assemblers, amateur traders,
traders (itinerant), butchers and brokers are the major actors along the chain. As already noted
conflicts, robbery/raiding, absence of markets, drought and disease were critical problems while
absence of marketing and production facilitates were ranked as serious problems in the study area.


The analysis of the marketing costs and margin revealed that pastoralists incurred the lowest marketing
cost and butchers the highest marketing cost of 94 Birr where only butchery costs are 54% and that of
pastoralists was 23.5 Birr. Marketing margin of the participants was different along different channels;
producers get their highest profits in first, fifth, seventh and ninth channels in descending order. None
of the actors incurred losses; this may be attributed to the higher demand for the cattle and or
underestimation of costs because of computational difficulties in non tradable goods and the existence
of public /common property goods.


The chain analysis indicates that there was poor inter group and intra group linkages. And this
relationship minimised the gain pastoralists are supposed to obtain. To improve the return of the
pastoralists in the chain: it is better to increase the number of chain activities the pastoralist undertakes
from rearing, fattening, transportation and trading i.e. vertical integration. Vertical integration shortens
the chain by cutting out traders or other intermediaries by performing their functions. Since adding
activities adds costs and risks, identifying appropriate technologies, training on marketing systems to
be undertaken, and providing information and working capital would alleviate the problem. In addition,
the major problem reported by both the traders and producers was lack of basic facilities and
infrastructure that constrained the progress and/or functioning of the cattle market. Hence provision of
such service like veterinary facility, watering stations, roads, telecommunication, holding stations, and
market yards would improve the performance of the marketing system in the area.


References


Adina S. and Elizabeth F., (2006). Livestock Value Chain Analysis Report for Afar and North Somali
Regions of Ethiopia. Pastoral Livelihoods Initiatives. ADCI/VOCA. p.43
Alemayehu M., (2007). Opportunities and Challenges of Livelihood Strategy. Proceeding of the 15th
Conference of Ethiopian Society of Animal Production. Addis Ababa, Ethiopia. October 4-6, 2007.
pp.1-15
Belachew H., (2003). Livestock Marketing and Pastoralism. Proceeding Of Third National Conference
on Pastoral Development in Ethiopia December 23-24, 2003, Addis Ababa. Pastoral Forum Ethiopia.
pp.77-94.
CSA (Central Statistical Authority), (2007). Federal Democratic Republic of Ethiopia Central
Statistical Agency Agricultural Sample Survey 2006/07 [2000 E.C.] Volume II. Report on Livestock
and Livestock Characteristics. 417 Statistical Bulletins. Addis Ababa, Ethiopia.
Dhillon, A., K. Khatkar, Arun K., (2005). Marketing costs and price spread for manifold flower in
Haryana. Indian quarterly journal of agricultural marketing. Vol.158. No1.:9-13.
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FAO (Food and Agriculture Organization), 1997). Agricultural and Food Marketing Management.
Marketing and Agribusiness Texts 2. Rome, Italy
FAO (Food and Agricultural Organization), (2004). Livestock Environment and Development (LEAD)
Digital Library.CD ROM livestock, environment and development(LEAD) Initiative, animal
production and health division, Food and Agricultural Organization of United Nations (FAO) Rome,
Italy.



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Journal of Biology, Agriculture and Healthcare                                           www.iiste.org
ISSN 2224-3208 (Paper) ISSN 2225-093X (Online)
Vol 1, No.1, 2011
FAO (Food and Agricultural Organization), (2005). Commodity Chain Analysis. Constructing the
Commodity Chain Functional Analysis and Flow Charts. Food and Agriculture Organization of the
United Nations, FAO, Rome, Italy pp.8-27.
Jema H., (2008). Economic Efficiency and Marketing Performance of Vegetation Production in the
Eastern and Central Parts of Ethiopia. Doctoral thesis. Swidish University of Agricultural science.
Upsala, Sweden.
Kohls, L., and Uhul, (1985). Marketing Agricultural Products. Macmillan Publishing Company, New
York. pp. 65-69.
Mendoza, G.,( 1995), A Primer on marketing channels and margins. Lyme Rimer PublishersInc., USA.
p.425
Solomon T., (2004). Performance of Cattle Marketing System in Southern Ethiopia with Special
Emphasis on Borena Zone. M.Sc thesis. Haramaya University, Haramaya, Ethiopia. p.116
Umar, A. and Baluch B., (2007). Risk Taking for Living; Trade and Marketing in the Somali region,
Ethiopia, Addis Ababa Ethiopia; UN-OCHA/pastoral commission initiative project. P. 123
Williams, B., Spycher and Okike I., (2006). Improving Livestock Marketing and Intra-Regional Trade
in West Africa. pp. 36-62. Determining Appropriate Economic Incentives and Policy Framework
ILRI, Nairobi, Kenya.
Marketing, Distribution and Consumers, Handbook of Agricultural Economics, Volume 1, Part B,
2001, Pp.933-970




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Appendix 1: A Sketch of Marketing Channels in the Study Area



                                    Pastoralist/    Producer               *
                                                                           12%
                                    100% (612 cattle)


                                                                                                              Farm gate 12%
         **              **                                                     Village collectors
              7%           42%
                                                                                12% (73 cattle)
                                                                                                          **
                                                        **3%                                                  1%
12%

                                                                                      **
                                                                                         17%

        ***                               **                      **            ***               *
                                                                                                              Primary
             25%                           6%                      33.5%           19%                8% market 17%
Amateur traders
37% (226 cattle)
                                                                               Butchers
                         **                                 ***
                              11%                              27%             48% (294 cattle)

                                      **                                                                ***
                                           2%                                                             42%
13%

        **
          19%

                                    ***                           ***
                                      27%                               100%
                                                                                                         Secondary
        ***
             38% Itinerant traders               ***
                                                      3%    Consumers                                    market 71%
                   28.5% (175 cattle)                       100% (612 cattle)
                                                ***
                                                      58%



Source: survey result, 2009




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Appendix 2: An Estimated Calculation of Marketing Cost


Cost components                   Pastoralist   Rural       Amateur   itinerant    Butcher
                                                assembler   trader    Trader
Cattle sale price /head           2100          2300        2650      2850         3250
Supplementary feed /head          2.5                                              5
Feed & water/day/head                           4           5         5            4
Labour/marketing/day/head         2             2.5         4         4            34
Holding station/day/head          2             2           3         3            3
Tax/head                          7             7           7         7            7
Broker fee/head                   12            12          20        20           25
Butchery costs /head                                                               20
Total marketing cost/head         25.5          27.5        39        39           94
Total costs/head                                2127.5      2689      2889         3344
Profits/head                                    272.5       311       161          306
Source: survey result, 2009




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Cattle Price Spread Analysis in Ethiopia's Hadiya Zone

  • 1. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 Price Spread Analysis of Cattle in Hadiya Pastoral Areas Misginaw Tamirat Arficho (Corresponding author) Department of Agricultural Economics, Jimma University POBOX 307, JIMMA, ETHIOPIA Email misginaw.tamirat@gmail.com The research is financed by Institute of Pastoral and Agro-pastoral Studies Abstract This study was undertaken in the pastoral areas of Hadiya zone of SNNPR, Ethiopia with the objective of assessing the efficiency of cattle marketing. The required data were generated from both primary and secondary sources. The marketing margin analysis manifested that, butchers incurred the highest cost of 94 Birr per head followed by itinerant and amateur traders while rural collectors made the largest profit (542 Birr per head) followed by butchers (506 Birr per head). The producers share was found largest in the direct sale to consumer followed by sales directly to butchers and to butchers through rural collectors. So as to improve the gain for pastoralists it is better to integrate vertically and since adding activities adds costs and risks, identifying an appropriate technologies, training on marketing systems to be undertaken, and providing information and working capital would alleviate the problem and improve gain from marketing. Key words: Price spread, Pastoral cattle marketing 1. Background and Justification The pastoral sector contributes significantly to Ethiopian economy, employment and agricultural production and demand creation for agricultural and industrial products, even though evaluation of its total benefits is difficult (Hatflied and Davies, 2006). The pastoral production system often geographically located in the lowland areas and their livelihood depends on the movement of livestock to and from seasonal grazing areas, which in turn may require movement across national boundaries (Getachew, 2001). It is estimated that the pastoral sector supports over 40% of the country’s livestock, 61% of the total area of the country of which 46% is arable land, and 12% of the population (Mohammed, 2003). Livestock markets have a very important effect on pastoralists’ welfare because converting herd mortality losses into sales could avert widespread, human suffering. This also accelerates both herd recapitalization (once range conditions improve) and economic growth more broadly by conserving local wealth (McPeak, 2001). However, the net gain to the producer is influenced primarily by shifts in retail demand, farm supply, and marketing input prices. But other factors also can be important, including time lags in supply and demand, market power, risk, technical change, quality, and spatial considerations. An efficient marketing system is one capable of moving goods from producer to customer at the lowest cost consistent with the provision of the services that customers demand (FAO, 1977). Channel comparisons and price spread analysis are commonly used measures of market efficiency (performance). The price spread (margin) entails the difference between the price paid by the consumer and the price received by the producer for an equivalent quantity of farm produce. This spread consists of marketing costs and margins of the intermediaries, which ultimately determine the overall effectiveness of a marketing system. The price spread will be helpful in studying the efficiency of the marketing system if used to show how consumers’ expenditure is divided among market participants at different levels of marketing system (Jema, 2008). 59 | P a g e www.iiste.org
  • 2. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 2. Research Methodology 2.1. Description of the Study Area The pastoral and agro-pastoral areas of Ethiopia are mainly found in border areas of the country in North East, East, South, South West and West. These areas cover about 2/3rd of the country’s total area and are found in altitude of less than 1500 (Alemayehu, 2007). This study was conducted in two pastoral and agro pastoral districts of Hadiya zone, south Ethiopia. These are Soro and Gombora district. 2.2. Data and Sampling Technique The data for the study were collected from both primary and secondary sources. The secondary sources are Central Statistical Authority (CSA), International Livestock Research Institute (ILRI), Pastoralists’ Forum Ethiopia, District and Zone Finance and Economic development offices, Districts’ offices of Agriculture and Rural Development, and the primary data sources include individual pastoral households, group of pastoralists and traders, and key informants. For this particular study a two stage purposive sampling (to select the districts and the PAs) followed by random sampling techniques (to select the households) was used. Factors like percentage of pastoral population of the districts, number of pastoral PAs and cultural issues (local titles based on cattle number) were important while selecting the districts. Six major pastoral PAs (Peasant Association) from Soro district and three PAs from Gombora district (one third of the pastoral PAs from each district) were then identified based on season the pastoralists are available in the PAs, tribe/clan distribution, neighbouring ethnic groups and area of production. Market survey was undertaken through visual observation, and by discussion with buyers and sellers at the time of cattle transaction. 2.3. Data Analysis Technique The study used price spread and commodity chain analysis (CCA), which involves mapping the chains, involved in particular production sectors, the different types of activity, geographical location and actors in different roles at different levels. In addition, it identifies the interrelationships between marketing agents, opportunities and constraints at the different levels and the different interests and power relations which influence how value is distributed at these different levels (Adina and Farmer, 2006). Livestock marketing margins is the difference between the sales price of the animal (meat) and the costs incurred by the seller including the acquisition price of the animal (Solomon, 2004). The study of cost of livestock marketing as animals change hands from the producer to consumer involves assessing the costs and the actual expenses incurred in the marketing process. The costs include not only the costs of performing the various marketing functions, but different levies as well were considered (Dhillon et al., 2005). As considered by Solomon (2004 cited from FAO, 2004), the costs considered in livestock market study are: (i) transporting (trekking, trucking and/or railing); (ii) feeding (including grazing); (iii) marketing levies and taxes imposed by local and national authorities; (iv) mortality or loss (some animals die during transit because of diseases or other physical stress; some might stray and not be recovered); (v) conditioning or/ and processing costs; (vi) capital as represented by the interest on the money tied up by the livestock from the point of purchase to the point of sale; and (vii) the opportunity cost or salary of the operator (trader, etc.) 60 | P a g e www.iiste.org
  • 3. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 In the marketing margin analysis, Total Gross Marketing Margin (TGMM), the producer's share in consumer price or Producers’ Gross Marketing Margin (GMMp), the net marketing margin (NMM) were considered as indicators. While computing TGMM the final price paid by the end buyer used, and it is expressed as percentage of the final price (Mendoza, 1995). TGMM = X 100 (1) Where TGMM = Total gross marketing margin. In order to get producer’s portion or producer’s gross margin (GMMp) which is the portion of the price paid by the consumer that goes to the producer. The producer’s margin is calculated as: GMMp = X 100 (2) Where GMMp = the producer's share in consumer price. The net marketing margin (NMM) is the percentage of the final price earned by the intermediaries as their net income after their marketing costs are deducted. NMM = X 100 (3) Where, NMM = Net marketing margin. 3. Results and Discussion 3.1. Cattle Marketing System Marketing system is a collection of channels, intermediaries, and activities, which facilitate the physical distribution and economic exchange of goods (Kohls and Uhul 1985). The cattle marketing system in the study area was discussed with respect to the pastoralists marketing behaviour, which governs season, amount, and the choice of their marketing channels and outlets. 3.1.1. Purpose of marketing Markets link producers to consumers. Markets affect producers/pastoralists either when they trade cattle or purchase food and other necessities. The pastoral households purchased cattle for breeding, fattening, for gifts (marriage, circumcision, fines) or to be slaughtered and consumed. Moreover, the sample pastoralists ranked their reasons for selling cattle, 32% to escape the disease and drought, and 27% sold in fear of predators and raids/since both need the fattened animals, 16% to fly to South Africa, replacement and income need accounted for 14% and 11% (Table 1). But all the respondents who were engaged in buying, bought cattle for breading purpose and all of them bought steers and heifers for the purpose. There was a statistically significant (P<0.05) difference among the three off- take positions with respect to reason of off-take. A shown in the Table 1, about half of the households in the selling position are risk averse i.e. they sell cattle in expectation of bad weather and or disease. This is mainly due to the fact that since they have fulfilled their cultural obligations they do not want to lose their capital for nothing provided that a sales option is there. 61 | P a g e www.iiste.org
  • 4. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 Table 1. Reason of cattle commercial off-take by commercial off-take position Reason of sales Autarky Selling Buying Total χ2-value n%(n=47) n%(n=50) n%(n=63) sample Escape disaster 41 47 23 32 6.34** Insecurity 20 19 23 27 c Fly abroad/SA 16 26 8 16 Replacement 10 3 23 14 Income need 14 3 23 11 Source: survey result, 2009 **Significant at 5% significance level, n= sample size C migrate to South Africa 3.2. Commodity Chain Analysis Commodity Chain Analysis is used to refer to the overall group of economic agents (or the relevant activities of those agents) that contribute directly to the determination of a final product (final use). Thus the chain encompasses the complete sequence of operations which starting from the raw material, finishes downstream, after several stages of transformation or increases in value, at one or several final products at the level of the consumer (FAO, 2005). 3.2.1. Actors According to KIT and IIRR (2008), chain actors includes direct chain actors, which are commercially involved in the chain (producers, traders, retailers, consumers) and indirect actors, which provide financial or non financial support services. The agents identified in the area along the commodity chain are pastoralists and their input suppliers, rural collectors, amateur traders, itinerant traders, brokers, and butchers. Pastoralists As depicted in Appendix 1, pastoralists are the first link along the cattle commodity chain, who decide on how much to produce, and how much, where and when to sell. The pastoralists travelled long distances along the commodity chain i.e. they undertake some type of inter-firm upgrading like medicating, fattening, transporting. Pastoralists sold 12% of their total sale at their farm gate, 17 and 71% at the primary and secondary markets respectively. In the primary market the pastoralists sold 7% of their total sales to amateur traders, 3% to butchers, 6% to itinerant traders, and 1% to consumers. In the secondary markets the pastoralists sold 25% of their total sales to amateur traders, 27% to itinerant traders, 12 and 17% to consumers and butchers respectively. Pastoralists as a seller and pastoralist trader as village collectors dominate the transactions in the primary markets. They trek cattle to the nearest village (primary) or secondary markets where they can sale either directly or indirectly through brokers. Village collectors 62 | P a g e www.iiste.org
  • 5. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 According to the group discussion, these actors are buyers and sometimes speculate cattle since in one way or another they are engaged in cattle production. This category of actors mainly consists of pastoralist traders and farmer traders. They collect heifers and steers from other markets to sell to the pastoralists. Village collectors are the major suppliers in the primary and secondary markets, next to the pastoralists. They bring together the relatively small number of cattle, which individual households wanted to sell. According to Hailemariam et al. (2009), these actors attract larger traders because they provide access to larger quantities of cattle and eliminate the need for traders to locate and contact producers at their scattered yard. They purchased all the sales made at the farm gate by the pastoralists, and sold 42% of their total sales to amateur traders, 33.5% to itinerant traders, and 17% to butchers, 8% to consumers (Appendix 1). Village collectors function commonly in the remotest and least accessible areas where institutional services frequently do not reach, thus providing marketing services for rural surpluses, and often also fulfilling the consumption needs of the rural communities by selling consumer goods (Bolokang 2006). Amateur traders The amateur traders are those actors who trade cattle sometimes in a year (Williams et al,. 2006). Appendix 1 shows that these traders purchased 32% from pastoralists directly (7% in the primary market and 25% in the secondary markets), 42% of the total sale by the village collectors, and sold 5% to consumers, 7% to itinerant traders and 4% to butchers in the primary markets and sold 57% to itinerant traders (19% in primary and 38% in secondary), 38% of their total sales to butchers. According to Solomon (2004) they participate in cattle trading business at the time of high margin, which is at the time of festivals. In the study area the amateur traders identified includes those who are engaged in grain trade, cattle medicine and salt trade, small ruminant traders. These traders purchase cattle in bulk as compared to the rural collectors. Itinerant traders Itinerant traders are fulltime traders permanently engaged in cattle trading activity throughout the year that either have or do not have any cattle-trading license (Solomon, 2004; Umar and Baluch, 2007). According to the focus group and key informant discussions they have relatively better capital as even as compared butchers. Four of the livestock traders inherited their business from their family. None of them have had access to financial institutions. Rather they depend on family and friends/co-traders. Based on Appendix 1, itinerant traders were buyers in the primary markets and were both buyers and sellers in the secondary markets. They bought 6% of a total sale of pastoralists, 19% of total sale of the amateur traders, and 34% of the total sale from village collectors in the primary markets. And in the secondary markets they bought 27% from pastoralists 38% of total sale of amateur traders and sold 43% their total sale to butchers and 58% to consumers. All of these traders do not have cattle trading license, more surprisingly three of them (eight itinerant traders) are from one family and two from another, who informally collude ( for they are tied in blood or marital relations) to dominate the market to decide on prices and quantity. They used this relationship to dominate the market in setting prices and cooperate during transportation. Butchers Butchers are the final links before the consumers along the commodity chain. They have purchased 20% of total sales by pastoralists, 17% of total sales by rural collectors, 38% of total sales by amateur traders, and 42% of the total sales by itinerant traders. Three butcheries from Hosanna, Gimbichu and Jajura towns were considered in this study to make the chain mapping complete. All of the butcheries used abattoirs built by the municipality of their respective towns. Butcheries are regular purchasers of cattle (Denbegnas), especially during non festival seasons. In Appendix 1, consumers are the final 63 | P a g e www.iiste.org
  • 6. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 actors of the chain, and represent both local consumers in the study area, and markets outside the study area so that to help finalise the chain mapping. 3.3. Price Spread Analysis As Appendix 2 displays different marketing cost components incurred in the course of cattle marketing by different actors along the cattle marketing chain. Along the chain, butchers incurred the highest cost of marketing (94 Birr/head) while the pastoralists incurred 25.5 Birr/head. The high cost of the Butchers is attributed for payment to abattoirs (sanitary and phytosanitory), transport, and labour which amounts 53.2% of the marketing cost i.e. 50 Birr/head. Whereas other traders incurred more or less related costs for cattle feed, holding stations, market levy, broker fees and estimated labour costs. The amateur traders and itinerant traders incurred equivalent cost of 39 Birr/head; this is mainly related with similarity of value addition. As also depicted in Table 2, eleven major channels were identified in the process of cattle marketing from pastoralists to consumers. The share of the market actors was different along each channel. The total gross margin is the highest in the third (13.2%) and the ninth (13.2% of the consumer’s price) channels implying relatively shorter channels brings in low total marketing margin. The producer's share was highest (100%) in the first channel, in which the pastoralists had disposed of their products directly to the consumer and it was lowest (71.5%) in channel seven (Table 2). The producers’ share in other channels was lower than channel one because the producers sold their produce through the traders (traders of all scales including butchers) who reaped away large amount from the consumers Birr. Next to first channel (i.e. direct sale), the fifth (sales to butchers through rural assemblers), sixth, eighth, and the eleventh channels (direct sale to butchers) was comparatively profitable channels for sale of cattle in the study area. In the cattle chain analysis rural collectors get the highest gross margin 750 (23% of the final consumers’ prices) in channel five, amateur traders get 350 (11%), itinerant traders and butchers get 550 (17%) and 400 (12.3%) respectively. Table 2 demonstrates the costs and profits that each agent along the chain make. In their course of action amateur traders made the largest profit of 311 Birr per head followed by butchers (306 Birr per head), village assembler (272.5 Birr per head) and 161 Birr per head by itinerant traders. 64 | P a g e www.iiste.org
  • 7. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 Table 2 Marketing margin calculations along the cattle marketing channels Market actors Marketing measures Cattle market channels CH-1 CH-2 CH-3 CH-4 CH-5 CH-6 CH-7 CH-8 CH-9 CH- CH-11 10 Cattle (head) 18 6 33 24 12 24 86 79 12 202 116 Producers’ Price/head 2100 2100 2100 2100 2100 2100 2300 2300 2300 2650 2850 Rural collectors Price/head 2300 2300 2650 2850 2650 Gross margin/head 200 200 550 750 550 Marketing cost/head 27.5 27.5 27.5 27.5 27.5 Net marketing margin/head 173.5 173 422.5 442.5 422.5 Amateur traders Price/head 2650 2650 2650 2650 Gross margin/head 350 350 350 350 Marketing cost/head 39 39 39 39 Net marketing margin/head 311 311 311 311 Itinerant Traders Price/head 2850 2850 2850 2850 Gross margin/head 200 200 200 200 Marketing cost/head 39 39 39 39 Net marketing margin/head 161 161 161 161 Butchers Price/head 3250 3250 3250 3250 3250 Gross margin/head 400 400 600 400 200 Marketing cost/head 94 94 94 94 94 Net marketing margin/head 306 306 506 306 106 Total gross marketing margin % 0 8.6 13.2 7 12.3 12.3 18.5 12.3 13.2 7 6.1 Producers portion (%) 100 91.4 86.8 93 87.7 87.7 71.5 87.7 86.8 93 93.9 Rank of channels by producers’ share 1 4 6 3 5 5 7 5 5 3 2 Source: survey result, 2009, CH = channel 65 | P a g e www.iiste.org
  • 8. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 4. Conclusion and Recommendations Along the pastoral cattle marketing chain five marketing agents were identified. These are the producers (pastoralists characterized by weak upgrading initiative), rural assemblers, amateur traders, traders (itinerant), butchers and brokers are the major actors along the chain. As already noted conflicts, robbery/raiding, absence of markets, drought and disease were critical problems while absence of marketing and production facilitates were ranked as serious problems in the study area. The analysis of the marketing costs and margin revealed that pastoralists incurred the lowest marketing cost and butchers the highest marketing cost of 94 Birr where only butchery costs are 54% and that of pastoralists was 23.5 Birr. Marketing margin of the participants was different along different channels; producers get their highest profits in first, fifth, seventh and ninth channels in descending order. None of the actors incurred losses; this may be attributed to the higher demand for the cattle and or underestimation of costs because of computational difficulties in non tradable goods and the existence of public /common property goods. The chain analysis indicates that there was poor inter group and intra group linkages. And this relationship minimised the gain pastoralists are supposed to obtain. To improve the return of the pastoralists in the chain: it is better to increase the number of chain activities the pastoralist undertakes from rearing, fattening, transportation and trading i.e. vertical integration. Vertical integration shortens the chain by cutting out traders or other intermediaries by performing their functions. Since adding activities adds costs and risks, identifying appropriate technologies, training on marketing systems to be undertaken, and providing information and working capital would alleviate the problem. In addition, the major problem reported by both the traders and producers was lack of basic facilities and infrastructure that constrained the progress and/or functioning of the cattle market. Hence provision of such service like veterinary facility, watering stations, roads, telecommunication, holding stations, and market yards would improve the performance of the marketing system in the area. References Adina S. and Elizabeth F., (2006). Livestock Value Chain Analysis Report for Afar and North Somali Regions of Ethiopia. Pastoral Livelihoods Initiatives. ADCI/VOCA. p.43 Alemayehu M., (2007). Opportunities and Challenges of Livelihood Strategy. Proceeding of the 15th Conference of Ethiopian Society of Animal Production. Addis Ababa, Ethiopia. October 4-6, 2007. pp.1-15 Belachew H., (2003). Livestock Marketing and Pastoralism. Proceeding Of Third National Conference on Pastoral Development in Ethiopia December 23-24, 2003, Addis Ababa. Pastoral Forum Ethiopia. pp.77-94. CSA (Central Statistical Authority), (2007). Federal Democratic Republic of Ethiopia Central Statistical Agency Agricultural Sample Survey 2006/07 [2000 E.C.] Volume II. Report on Livestock and Livestock Characteristics. 417 Statistical Bulletins. Addis Ababa, Ethiopia. Dhillon, A., K. Khatkar, Arun K., (2005). Marketing costs and price spread for manifold flower in Haryana. Indian quarterly journal of agricultural marketing. Vol.158. No1.:9-13. ( FAO (Food and Agriculture Organization), 1997). Agricultural and Food Marketing Management. Marketing and Agribusiness Texts 2. Rome, Italy FAO (Food and Agricultural Organization), (2004). Livestock Environment and Development (LEAD) Digital Library.CD ROM livestock, environment and development(LEAD) Initiative, animal production and health division, Food and Agricultural Organization of United Nations (FAO) Rome, Italy. 66 | P a g e www.iiste.org
  • 9. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 FAO (Food and Agricultural Organization), (2005). Commodity Chain Analysis. Constructing the Commodity Chain Functional Analysis and Flow Charts. Food and Agriculture Organization of the United Nations, FAO, Rome, Italy pp.8-27. Jema H., (2008). Economic Efficiency and Marketing Performance of Vegetation Production in the Eastern and Central Parts of Ethiopia. Doctoral thesis. Swidish University of Agricultural science. Upsala, Sweden. Kohls, L., and Uhul, (1985). Marketing Agricultural Products. Macmillan Publishing Company, New York. pp. 65-69. Mendoza, G.,( 1995), A Primer on marketing channels and margins. Lyme Rimer PublishersInc., USA. p.425 Solomon T., (2004). Performance of Cattle Marketing System in Southern Ethiopia with Special Emphasis on Borena Zone. M.Sc thesis. Haramaya University, Haramaya, Ethiopia. p.116 Umar, A. and Baluch B., (2007). Risk Taking for Living; Trade and Marketing in the Somali region, Ethiopia, Addis Ababa Ethiopia; UN-OCHA/pastoral commission initiative project. P. 123 Williams, B., Spycher and Okike I., (2006). Improving Livestock Marketing and Intra-Regional Trade in West Africa. pp. 36-62. Determining Appropriate Economic Incentives and Policy Framework ILRI, Nairobi, Kenya. Marketing, Distribution and Consumers, Handbook of Agricultural Economics, Volume 1, Part B, 2001, Pp.933-970 67 | P a g e www.iiste.org
  • 10. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 Appendix 1: A Sketch of Marketing Channels in the Study Area Pastoralist/ Producer * 12% 100% (612 cattle) Farm gate 12% ** ** Village collectors 7% 42% 12% (73 cattle) ** **3% 1% 12% ** 17% *** ** ** *** * Primary 25% 6% 33.5% 19% 8% market 17% Amateur traders 37% (226 cattle) Butchers ** *** 11% 27% 48% (294 cattle) ** *** 2% 42% 13% ** 19% *** *** 27% 100% Secondary *** 38% Itinerant traders *** 3% Consumers market 71% 28.5% (175 cattle) 100% (612 cattle) *** 58% Source: survey result, 2009 68 | P a g e www.iiste.org
  • 11. Journal of Biology, Agriculture and Healthcare www.iiste.org ISSN 2224-3208 (Paper) ISSN 2225-093X (Online) Vol 1, No.1, 2011 Appendix 2: An Estimated Calculation of Marketing Cost Cost components Pastoralist Rural Amateur itinerant Butcher assembler trader Trader Cattle sale price /head 2100 2300 2650 2850 3250 Supplementary feed /head 2.5 5 Feed & water/day/head 4 5 5 4 Labour/marketing/day/head 2 2.5 4 4 34 Holding station/day/head 2 2 3 3 3 Tax/head 7 7 7 7 7 Broker fee/head 12 12 20 20 25 Butchery costs /head 20 Total marketing cost/head 25.5 27.5 39 39 94 Total costs/head 2127.5 2689 2889 3344 Profits/head 272.5 311 161 306 Source: survey result, 2009 69 | P a g e www.iiste.org
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