We have taken a look into how prices are decided in vegetable market where Demand-Supply is the main key factor to trade. Now, we will overlook distribution channel and farmers’ profitability and incurred cost upto retail stores.
Overview for the vegetables distribution channel
There are two main distribution channels for farmers,direct sales and vegetable markets.
It is said that 20% of vegetables goes to direct sales , where farmers could take more profit with quoting price and with saving fee for intermediate traders , however they cannot sell so much vegetables physically and also need to take the risk of some left unsold.
In the other hand, they can sell bigger lots for vegetable market,but they need accept the rest which deducted the various costs from the price traded.
Here is the high level diagram for distribution channels.
Farmers’ Profitability by channel
You will see the price at store for one cabbage and break down for each participant to take in two channels. Farmers can save fee for intermediate traders such as JA,market paticaipants ad reatails stores , however as we mentioned, they need to take dead stock risk which is very critical as it is vegetable…. They also have some limitation to sell in direct sales office physically.
To explain about this business flow via vegetable market,
a)farmers send cabbage to JA to ship to Oh-oroshi in vegetable market
b)Oh-oroshi sells it for Naka-oroshi at JPY 67 after either auction(10%) or negotiation(90%).
c)Oh-oroshi sends JPY 59 for JA after their comission JPY 8.
d)JA pays back JPY 47 for farmers after their cost JPY 12.
Of course , the amount farmesrs receive is unknow until trade done in market, also it depends on how much the market price is.
As you could imagine, farmers need to pay cost of sales and operating expenses in advance besides that. It means it is difficult to plan the Cash Flow strategy to run business.
Reference Data : http://www.maff.go.jp/j/kanbo/nougyo_kyousou_ryoku/attach/pdf/nougyo_kyoso_ryoku-37.pdf
Next contents : Farmer’s profitability and Distribution channel(Part2)