Setting the price for your export product requires research. It’s a calculated process to penetrate and maintain presence in a market while balancing several other factors.
You need to study target markets and competitors. Consumers are price-sensitive. Some markets are more sensitive than others.
Certain consumers are willing to pay any price for good quality specialty coffee, while others prefer soluble ground coffee and do not want the hassle of grinding beans every morning.
Most Ugandan consumers prefer ground coffee, while developed markets prefer whole roasted beans.
The cost of production and packaging is a key factor that will determine export pricing. Manufacturing, packaging, and labelling are all included in the final cost.
This figure is transferred to buyers. Production with economies of scale helps reduce the per unit cost of each product so customers do not feel the pinch.
The cost of producing packaged coffee or tea is a combination of different costs. Every time a consumer buys value-added Ugandan coffee, they enable producers to stay in business.
It is a vote of confidence. Producers should, therefore, maintain and continue to improve the quality of their coffee.
Transportation and logistics can contribute up to, and sometimes over, 40% to the final price. For a landlocked country like Uganda, the cost of airfreight, shipping, insurance, and handling charges is high.
This is why government subsidies are not a favour but a necessity to keep Uganda’s exports competitive. Transport subsidies will promote export trade and encourage new investors in the sector.
Tariffs and taxes — both local and international — will impact the final export cost of a product. Whereas Uganda’s exports are largely tax-free, selected products attract a tax when exported without value addition.
Import duties, customs fees and other government levies in the target market increase the cost and affect the final price.
The presence of these taxes might dictate the type of product you choose to specialise in. Fortunately, Uganda has duty-free and quota-free access to several preferential markets such as the European Union, China, Common Market for Eastern and Southern Africa and East African Community.
Market demand and the presence of competitors affect product pricing. Uganda is not the only country producing and selling coffee. South America is a strong competitor — particularly Brazil — and Vietnam from South East Asia holds the silver medal.
Last year, both countries experienced poor harvests due to weather hazards. As a result, Uganda benefitted and experienced a high coffee boom.
However, we must be aware that the honeymoon will not last forever. Entrepreneurs must be knowledgeable of price levels of similar products and consumer willingness to pay in destination markets.
The exchange rate prevalent in markets is an important consideration. Make it a habit to check exchange rates on the Bank of Uganda website and at local foreign exchange bureaus.
Study the trend over the past 12 months and form an objective opinion. Look at the Uganda Revenue Authority website for trending rates every month. Currency fluctuations can cut into company profits.
In addition, legal and regulatory requirements differ by product and market. Compliance costs related to certifications and quality standards impact the final price.
Distribution and retail margins taken by agents or retailers in the target country need to be carefully considered. Economic conditions in the destination market are also key parameters.
The overall economic stability and purchasing power in export markets require research. Consumers in specific markets are willing to pay top prices for good quality coffee.
In certain countries, coffee is not just a beverage but a lifestyle. Export pricing is an ongoing process— not a one-time event. Make changes to your prices when the market dictates.
Daniel Karibwije is an Export Trade Specialist.
dankarib@gmail.com
