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Introduction
Elements for Successful Business
Overview
Why Buyer-Seller Linkages are Needed
Identifying Market Opportunities
Selecting Suitable Enterprises
Selecting Suitable Locations
Selecting Linkage Partners
Specifying the Partners' Roles
Forming and Managing Producer Groups
Designing Buyer-Seller Contracts
Designing Product Pricing Systems
Performance Monitoring and Recording
Non-Quantifiable Outcomes
Alternative Linkage Models
Providing Services to Smallholders
Agricultural and Environmental Practices
Quality Assurance & Human Health and Safety

Current and Future Trends

 


DESIGNING PRODUCT PRICING SYSTEMS

Most companies set the price they pay to smallholders for their products at the open market price (where a local market for the product exists) - i.e. they pay the minimum needed to ensure that they secure the amount of crop that they require.

This pricing system has several disadvantages, both for the smallholders and for the company:

  • it gives smallholders no incentive to sell to the contracting company rather than to any other company (indeed if smallholders have taken loans from the contracting company they have an incentive to sell elsewhere to avoid deduction of these loans);
  • it does nothing to build loyalty between the smallholders and the company.

It is preferable that the smallholders' price is determined in a way that gives them a stake in the success of the purchasing company, and hence an incentive to sell good-quality products to that company rather than to another buyer.

There are various elements of a product pricing system which are essential, desirable and optional.

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Natural Resources Institute 2003