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

Pricing the Wild Gold (Shea Butter) Fairly

for Mutual Benefit

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?

2 Title

3 Title

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.

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.

4 Title

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).

5 Title

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

6 Title

Cost Driven Approach to Fair Pricing

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

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

Shea nuts (1 bag) 1 26.3 26.3 65.2

Crushing & milling 1 5.3 5.3 13.0

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

Fuel wood (Roasting/boiling) 1 5.3 5.3 13.0

Packing in polyethen sheets/Paper Boxes 1 0.3 0.3 0.7

Water (drum) 225 litres 1 0.6 0.6 1.6

Total Cost 40.4 100

7 Title

Cost Driven Approach Cont.

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

8 Title

Scenario 1 : Price($)/kg 1.16

Break Even Point is Highlighted Red

Throughput (Qty of Butter After Processing) kg

Unit Cost of Sale ($)/kg

Total Sale of Butter ($)/kg

Total Cost of Production

($)/Bag

Gross Profit ($)

Gross Profit

Margin (%)

27 1.16 31.3 40.4 -9.1 -0.003

27.9 1.16 32.3 40.4 -8.1 -0.002

28.8 1.16 33.3 40.4 -7.0 -0.002

29.7 1.16 34.4 40.4 -6.0 -0.002

30.6 1.16 35.4 40.4 -4.9 -0.001

31.5 1.16 36.5 40.4 -3.9 -0.001


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





($)/Bag

Gross Profit ($)

Gross Profit

Margin (%)

27 1.32 35.5 40.4 -4.8 -13.6

27.9 1.32 36.7 40.4 -3.7 -10.0

28.8 1.32 37.9 40.4 -2.5 -6.53

29.7 1.32 39.1 40.4 -1.3 -3.3

30.6 1.32 40.3 40.4 -0.1 -0.3

31.5 1.32 41.4 40.4 1.1 2.6

9 Title


Scenario 3: Price($)/kg

1.42



Unit Cost of Sale

($)/kg


Total Cost of

Production ($)/Bag

Gross Profit ($)

Gross Profit

Margin (%)

27 1.42 38.4 40.4 -2.0 -5.2

27.9 1.42 39.6 40.4 -0.7 -1.8

28.8 1.42 40.9 40.4 0.6 1.4

29.7 1.42 42.2 40.4 1.8 4.4

30.6 1.42 43.5 40.4 3.1 7.2

31.5 1.42 44.8 40.4 4.4 9.8

10 Title


Scenario 4: Price($)/kg

1.58






($)/Bag

Gross Profit ($)

Gross Profit

Margin (%)

27 1.58 42.6 40.4 2.3 5.3

27.9 1.58 44.1 40.4 3.7 8.4

28.8 1.58 45.5 40.4 5.1 11.2

29.7 1.58 46.9 40.4 6.5 13.9

30.6 1.58 48.3 40.4 7.9 16.4

31.5 1.58 49.7 40.4 9.4 18.8

11 Title

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

12 Title

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

13 Title

Business

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