However, many studies of marketing costs and margins have been made (Funke, T.B.2006). The published reports seem to follow a general pattern. First, the importance of reducing costs and margins is pointed out. Then, it is said, in order to reduce costs we must know what they are. There follows a description of the method used in obtaining the margin and cost data. Next comes presentation of the findings.
The margins are so much, and it is shown that they are accounted for by certain costs, including materials, labour, equipment, transportation, and miscellaneous items, plus a small profit. From the section of the report labelled "Conclusions," we learn that in marketing certain services are performed, that certain costs necessarily are incurred in rendering them, and that there is no magical way of reducing costs and margins.
The only way of accomplishing this objective, it is wisely concluded, is to make marketing more efficient. Generally, also, it is pointed out that some marketing agencies are much more efficient that other and that, if all could be as efficient as the lowest cost units, marketing costs and margins would be lowered. All of this has been a necessary preliminary to really effective work in this field.
As long as many persons believed that margins represented extreme profits and that in order to eliminate them it was necessary only to "get at the real facts about marketing costs" and thus expose the middleman, consideration of practical steps to improve marketing efficiency and reduce marketing costs could not be expected. Any mere accounting and statistical studies of marketing costs will reveal what appear to be justifications of the existing margins.
Present costs and margins really are justified, if we assume that present facilities and methods are justified. The mere fact that costs are incurred throws little or no light on whether they should or could be reduced. Among the least promising ways of reducing marketing margins is the reduction of the profits of marketing agencies. We all have seen many instances in which heavy risks create profit needs. The same principle applies in agricultural marketing.
A person would be senseless to risk his money and time in the very unstable produce business unless some successful produce dealers made large profits. In general the greater the risk, the greater the need for profits. Not all profits arise out of a need for them. Some are due to imperfect competition of various kinds. Efforts to reduce profits in marketing, however, should not depend too much upon the elimination of "monopoly" or imperfect competition.
I feels certain that efforts along these lines have resulted in more harm than good, by discouraging efficient types of marketing enterprises and placing inefficient operations under the protective wing of the law. Some of the prosecutions of food-marketing concerns by the Competition Commission give evidence of the wide gap which sometimes exists between a lawyer’s and an economist’s definition of monopoly and restraint of trade.
These prosecutions in general have done much harm by preventing or retarding vertical and horizontal integration in marketing and by causing the adoption of trade practices by large firms which are designed to keep them out of trouble with the "Competition Tribunal" rather than to attain maximum efficiency in marketing. Such misguided activities, seemingly directed at modifying conditions of imperfect competition, actually appear to assist inefficient types of marketing enterprises to stay in business.
We should be better off to substitute for such activity the removal of various laws which have been passed at the behest of vested interests of various kinds generally covered by the term "small business." If those who complain about too high profits in marketing really want to do something about it, a start can be made by removing these laws from the statute books.
The biggest difficulty in eliminating such interference with free competition is the fact that a few people who are vitally concerned will work hard to put them across, whereas the general public, which is harmed by them, does not have sufficient apparent interest in the problem to take the time to understand it or try to work it out.
REFERENCES: Traub, L.N., and T.S. Jayne. (2008). The effects of price deregulation on maize marketing margins in South Africa. Food Policy, Volume 3, June 2008, Pages 224-236. Traub, L.N., and T.S. Jayne. (2004). The Effects of Market Reform on Maize Marketing Margins in South Africa. MSU International Development Working Paper No. 82. East Lansing: Michigan State University. Funke, T.B.(2006) "From farm to retail:costs and margins of selected food industries in South Africa" Unpublished Masters Thesis, Faculty of Economic and Management Sciences, University of Pretoria.