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Pricing the Wild Gold (Shea Butter) Fairly
             for Mutual Benefit



          Global Shea Alliance Conference


                 4th March, 2013

             Presenter: Zakaria Jalil

       Venue: Sheraton Hotel-Abuja, Nigeria
Questions for Reflection


• What does Fair Pricing Mean?


• When do we say Prices are Fair?/What Constitutes Fair
  Prices?


• Can there ever be Fair Prices?


• Who determines fair Price?




                                                   Title   2
What is Fair Pricing?



• A fair price is the price point for a good or service that is
  considered acceptable to both parties involved in a
  transaction.


• Buying Goods at prices that cover the full cost of
  production and enable a living wage to be earned by
  producers.




                                                         Title    3
Challenges of Fair Pricing in Shea Butter

• Lack of Market Information.


• Market Competition (Cost Differentiation).


• Rising cost of production.


• Weaker producer organizations (efficiency, volume,
  bargaining).


• Poor/Lack of Price regulatory bodies.


                                                       Title   4
Who Determines Fair Prices

•   Buyer
•   Producer
•   Both Buyer and Seller
•   Regulatory Bodies


When Do We Say Prices are Fair?
•   When it Benefits Producers of butter.


•   When it Benefits Buyers of butter.


•   When it Benefits both (Producers/Buyers).
                                                Title   5
Approaches to Fair Pricing
• Cost Driven (Cost of Production).
• Price Driven (Market forces)


Elements of Fair Pricing
• Cost of Production
• Demand and Supply
• Competition
• Quality




                                      Title   6
Cost Driven Approach to Fair Pricing

Cost Breakdown of Processing 1 bag (90kg) of Shea Butter (Pagsung Tamale)

                                                                 Percent of
        Item           Quantity   Unit Cost ($) Total Cost ($)
                                                                 Total Cost

Shea nuts (1 bag)         1           26.3          26.3            65.2

Crushing & milling        1           5.3            5.3            13.0

Labour (Roasting,
                          1           2.6            2.6              6.5
Kneading, Carting)

Fuel wood
                          1           5.3            5.3            13.0
(Roasting/boiling)

Packing in polyethen
                          1           0.3            0.3              0.7
sheets/Paper Boxes

Water (drum) 225
                          1           0.6            0.6              1.6
litres

Total Cost                                          40.4             100

                                                                  Title     7
Cost Driven Approach Cont.

 • Conversion Efficiency Nut to Butter (30-35%)

Scenario 1 :                            Break Even Point is Highlighted Red
Price($)/kg          1.16

                                                                          Gross
Throughput (Qty               Total Sale Total Cost of
                 Unit Cost of                            Gross            Profit
 of Butter After              of Butter   Production
                 Sale ($)/kg                           Profit ($)         Margin
 Processing) kg                ($)/kg      ($)/Bag
                                                                           (%)

        27                       31.3           40.4           -9.1               -0.003
                     1.16

       27.9                      32.3           40.4           -8.1               -0.002
                     1.16

      28.8          1.16         33.3           40.4          -7.0            -0.002
       29.7                      34.4           40.4           -6.0               -0.002
                     1.16

       30.6                      35.4           40.4           -4.9               -0.001
                     1.16

       31.5                      36.5           40.4           -3.9               -0.001
                     1.16

                                                                              Title    8
Cost Driven Approach Cont.


Scenario 2:
                     1.32           Break Even Point is Highlighted Red
Price($)/kg

                                                                            Gross
Throughput (Qty               Total Sale Total Cost of
                 Unit Cost of                            Gross              Profit
 of Butter After              of Butter   Production
                 Sale ($)/kg                           Profit ($)           Margin
 Processing) kg                ($)/kg      ($)/Bag
                                                                             (%)

       27                        35.5         40.4        -4.8               -13.6
                     1.32

      27.9                       36.7         40.4        -3.7               -10.0
                     1.32

     28.8           1.32         37.9        40.4         -2.5              -6.53

      29.7                       39.1         40.4        -1.3               -3.3
                     1.32

      30.6                       40.3         40.4        -0.1               -0.3
                     1.32

      31.5                       41.4         40.4         1.1               2.6
                     1.32

                                                                    Title          9
Cost Driven Approach Cont.

Scenario 3:
                                Break Even Point is Highlighted Red
Price($)/kg         1.42

                                        Total Cost              Gross
Throughput (Qty Unit Cost of Total Sale
                                            of       Gross      Profit
 of Butter After   Sale      of Butter
                                        Production Profit ($)   Margin
 Processing) kg   ($)/kg      ($)/kg
                                         ($)/Bag                 (%)

       27                      38.4        40.4       -2.0              -5.2
                    1.42

      27.9                     39.6        40.4       -0.7              -1.8
                    1.42

     28.8             1.42     40.9       40.4        0.6               1.4

      29.7                     42.2        40.4        1.8              4.4
                    1.42

      30.6                     43.5        40.4        3.1              7.2
                    1.42

      31.5                     44.8        40.4        4.4              9.8
                    1.42


                                                                Title    10
Cost Driven Approach Cont.


Scenario 4:                             Break Even Point is Highlighted Red
Price($)/kg          1.58

                                                                          Gross
Throughput (Qty               Total Sale Total Cost of
                 Unit Cost of                            Gross            Profit
 of Butter After              of Butter Production
                 Sale ($)/kg                           Profit ($)         Margin
 Processing) kg                ($)/kg      ($)/Bag
                                                                           (%)

       27                        42.6            40.4          2.3                  5.3
                     1.58

      27.9                       44.1            40.4          3.7                  8.4
                     1.58

     28.8            1.58        45.5           40.4           5.1                11.2

      29.7                       46.9            40.4          6.5                 13.9
                     1.58

      30.6                       48.3            40.4          7.9                 16.4
                     1.58

      31.5                       49.7            40.4          9.4                 18.8
                     1.58


                                                                          Title     11
SNV-AAK Nut Pre-Financing Model; A Case of Fair Pricing




                                                    Title   12
When Do We actually Say Prices are Fair



“Prices Can be Seen as Fair when Prices being Offered by
 Buyers of Shea butter/Nuts are not lower than Cost of
  Production to Guarantee Profit Margins and Must not
  Heighten what Consumers of end Products of butter
  Consider as Fair for the Buyers to Stay Competitive”




                      Thank you


                                                   Title   13

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Pricing the Wild Gold (Shea Butter) Fairly for Mutual Benefit

  • 1. Pricing the Wild Gold (Shea Butter) Fairly for Mutual Benefit Global Shea Alliance Conference 4th March, 2013 Presenter: Zakaria Jalil Venue: Sheraton Hotel-Abuja, Nigeria
  • 2. Questions for Reflection • What does Fair Pricing Mean? • When do we say Prices are Fair?/What Constitutes Fair Prices? • Can there ever be Fair Prices? • Who determines fair Price? Title 2
  • 3. What is Fair Pricing? • A fair price is the price point for a good or service that is considered acceptable to both parties involved in a transaction. • Buying Goods at prices that cover the full cost of production and enable a living wage to be earned by producers. Title 3
  • 4. Challenges of Fair Pricing in Shea Butter • Lack of Market Information. • Market Competition (Cost Differentiation). • Rising cost of production. • Weaker producer organizations (efficiency, volume, bargaining). • Poor/Lack of Price regulatory bodies. Title 4
  • 5. Who Determines Fair Prices • Buyer • Producer • Both Buyer and Seller • Regulatory Bodies When Do We Say Prices are Fair? • When it Benefits Producers of butter. • When it Benefits Buyers of butter. • When it Benefits both (Producers/Buyers). Title 5
  • 6. Approaches to Fair Pricing • Cost Driven (Cost of Production). • Price Driven (Market forces) Elements of Fair Pricing • Cost of Production • Demand and Supply • Competition • Quality Title 6
  • 7. Cost Driven Approach to Fair Pricing Cost Breakdown of Processing 1 bag (90kg) of Shea Butter (Pagsung Tamale) Percent of Item Quantity Unit Cost ($) Total Cost ($) Total Cost Shea nuts (1 bag) 1 26.3 26.3 65.2 Crushing & milling 1 5.3 5.3 13.0 Labour (Roasting, 1 2.6 2.6 6.5 Kneading, Carting) Fuel wood 1 5.3 5.3 13.0 (Roasting/boiling) Packing in polyethen 1 0.3 0.3 0.7 sheets/Paper Boxes Water (drum) 225 1 0.6 0.6 1.6 litres Total Cost 40.4 100 Title 7
  • 8. Cost Driven Approach Cont. • Conversion Efficiency Nut to Butter (30-35%) Scenario 1 : Break Even Point is Highlighted Red Price($)/kg 1.16 Gross Throughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 31.3 40.4 -9.1 -0.003 1.16 27.9 32.3 40.4 -8.1 -0.002 1.16 28.8 1.16 33.3 40.4 -7.0 -0.002 29.7 34.4 40.4 -6.0 -0.002 1.16 30.6 35.4 40.4 -4.9 -0.001 1.16 31.5 36.5 40.4 -3.9 -0.001 1.16 Title 8
  • 9. Cost Driven Approach Cont. Scenario 2: 1.32 Break Even Point is Highlighted Red Price($)/kg Gross Throughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 35.5 40.4 -4.8 -13.6 1.32 27.9 36.7 40.4 -3.7 -10.0 1.32 28.8 1.32 37.9 40.4 -2.5 -6.53 29.7 39.1 40.4 -1.3 -3.3 1.32 30.6 40.3 40.4 -0.1 -0.3 1.32 31.5 41.4 40.4 1.1 2.6 1.32 Title 9
  • 10. Cost Driven Approach Cont. Scenario 3: Break Even Point is Highlighted Red Price($)/kg 1.42 Total Cost Gross Throughput (Qty Unit Cost of Total Sale of Gross Profit of Butter After Sale of Butter Production Profit ($) Margin Processing) kg ($)/kg ($)/kg ($)/Bag (%) 27 38.4 40.4 -2.0 -5.2 1.42 27.9 39.6 40.4 -0.7 -1.8 1.42 28.8 1.42 40.9 40.4 0.6 1.4 29.7 42.2 40.4 1.8 4.4 1.42 30.6 43.5 40.4 3.1 7.2 1.42 31.5 44.8 40.4 4.4 9.8 1.42 Title 10
  • 11. Cost Driven Approach Cont. Scenario 4: Break Even Point is Highlighted Red Price($)/kg 1.58 Gross Throughput (Qty Total Sale Total Cost of Unit Cost of Gross Profit of Butter After of Butter Production Sale ($)/kg Profit ($) Margin Processing) kg ($)/kg ($)/Bag (%) 27 42.6 40.4 2.3 5.3 1.58 27.9 44.1 40.4 3.7 8.4 1.58 28.8 1.58 45.5 40.4 5.1 11.2 29.7 46.9 40.4 6.5 13.9 1.58 30.6 48.3 40.4 7.9 16.4 1.58 31.5 49.7 40.4 9.4 18.8 1.58 Title 11
  • 12. SNV-AAK Nut Pre-Financing Model; A Case of Fair Pricing Title 12
  • 13. When Do We actually Say Prices are Fair “Prices Can be Seen as Fair when Prices being Offered by Buyers of Shea butter/Nuts are not lower than Cost of Production to Guarantee Profit Margins and Must not Heighten what Consumers of end Products of butter Consider as Fair for the Buyers to Stay Competitive” Thank you Title 13