Karnataka J. Agric. Sci.

,25 (1) : (77-81) 2012

Value addition and marketing efficiency in arecanut processing units*

ANAND S. KOLUR, C. MURTHY , S. B. MAHAJANASHETTI AND C. K. VENUGOPAL

Department of Agribusiness Management, University of Agricultural Sciences, Dharwad- 580 005, India
Email: cmurthy1966@gmail.com
(Received: August, 2011 ; Accepeted : January, 2012)
Abstract : Arecanut (Areca catechu Linn.) is an important commercial crop in India and is popularly known as betelnut.
Arecanut being a tropical palm, its distribution is mainly confined to South East Asian countries. The production of arecanut
covers an area of 7.02 lakh hectares with a total production of 8.54 lakh tonnes. The study focused on the value addition and
marketing efficiency of arecanut processing units. For the study, Sirsi taluk in Uttar Kannada district was purposively
selected and the data was collected for the year 2010-2011. From Sirsi taluk, one co-operative unit and 5 private arecanut
processing units were randomly selected for detailed study. Further, 5 wholesalers, 5 retailers and 5 big traders were considered
for assessing the margins, price spread and efficiency of various channels in procurement and marketing of products. The
purchase price was ` 11,000 per quintal in co-operative unit and ` 10,650 per quintal in private units. Co-operative unit was
dominant in both procurement as well as sales of arecanut. The co-operative unit incurred lowest cost in value
addition for arecanut, because the unit procured larger quantity of ingredients for processing of arecanut, which
reduced unit cost of procurement.
Key ward: Marketing Channels, Marketing cost, Price spread, Processing cost, Procurement

Introduction the total area under arecanut in India. To smaller extent, it is

Arecanut or Betelnut plays an important role in Asian culture,
especially in India. Arecanut is a widely grown cash crop in the
malnad belt of Karnataka. Arecanut is among the most important
crops (along with coconut and paddy) of most farmers in these
regions. The post harvest processing consists of deshelling
arecanut and its boiling followed by drying of the boiled arecanuts.
This results in significant value addition to the arecanut. However,
on the farmers’ part it requires upfront investment for the process.
In India has the largest area under arecanut cultivation (1.74
lakh hectares) with a production of 2.31 lakh tonnes constituting
about 45 per cent of the total area and 48 per cent of the total
production of the India. It is followed by Kerala which has an
area of 1.08 lakh hectares with a production of 1.10 lakh tonnes
and Assam with an area of 0.70 lakh hectares with a production
of 0.68 lakh tones (Anon., 2009). In Karnataka state, Shimoga,
Dakshina Kannada, Davangere, Tumkur, Chickmagalur and
Uttara Kannada are the important districts where arecanut is
extensively grown. These districts nearly comprise 81.20 per
cent of the total area and 83.28 per cent of the total production of
arecanut in the state (Anon., 2008-09).
Arecanut is being mainly used for chewing in tender, ripe or
processed forms and not for any other commercial purpose.
Hence, the scope for the export of arecanut is limited. India is
traditionally an arecanut growing country. In 1947, nearly 50 per
cent of the total area under arecanut was lost to Pakistan. Even
then at present, India has attained self sufficiency with regard to
arecanut production which accounts for 60 per cent of the total
world production. Major portion of the arecanut production is
exported to countries like Nepal, Singapore, Kenya, Saudi Arabia
and United Kingdom in various forms.
The states of Kerala, Karnataka and Assam where arecanut
is grown extensively together accounts for about 93 per cent of
also grown in Maharashtra, Tamil Nadu, West Bengal and Tripura
(Anon., 2008-09).
In Karnataka, cultivation of arecanut is concentrated in the
districts of Dakshina Kannada, Shimoga, Uttara Kannada and
Chickmaglur, which receive fairly heavy rainfall. These districts
account for more than 75 per cent of the total area under arecanut
in the state. Arecanut is also grown in the plains of Tumkur,
Chitradurga and Hassan districts and in parts of the districts of
Mysore, Coorg, Bangalore and Mandya.
The important factors affecting the quality of arecanut are
colour, tenderness, gleam, shape, weight etc. In Karnataka, 90
per cent of the total production of arecanut is processed. There
are mainly two types of processing in arecanut such as Chali
(ripe sun dried nuts) and Rashi (tender boiled). Chali is mainly
produced in Dakshina Kannada district and parts of
Chickmagalur and Uttara Kannada district. It is used in
preparation of scented supari and is greatly demanded in
Northern India. Rashsi is prepared in Shimoga and
Chickmagalur districts and is used for chewing. This type has
a greater demand in Southern India. Rashsi can be further
graded into Api/Hasa, Bette and Gorabalu. Api is more tender
and commands a premium price in the market followed by Bette
and Gorabalu. The arecanut products include herbal mouth
wash, writing ink, heel ointment, cola type soft drink, mouth
fresheners to wine, gutka, pan masala ‘kaju supari’ having
ingredients such as cashewnut and arecanut can be consumed
completely. Though some ayurvedic medicines use arecanut as
ingredients, the quantity of the commodity used is less. With
limited market, these value-added products command a limited
consumption area.
Many varieties of scented suparis are now prepared by
blending the dried, broken bits of arecanut with flavoured

*Part of M.Sc. (Agri.) thesis submitted by the first authour to the University of Agricultural Sciences, Dharwad - 580 005, India
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Karnataka J. Agric. Sci.,25 (1) : 2012

mixtures. Some commercial supari preparations are made by
cutting dried arecanuts into bits and roasting them in fat to
which flavouring, sweetening agents and condiments are added.
Pan masala is a mixture of supari (arecanut or betel nut), slaked
lime, betel leaf, flavorings and spices.
Material and methods
One co-operative processing unit was selected for detailed
study as in Uttara Kannada district; it was the only unit
undertaking the processing of arecanut. Similarly, 5 units were
selected from private activities in arecanut. Also 5 wholesalers,
5 retailers and 5 big traders were considered for assessing the
margins and price spread and efficiency of the channels in
procurement and marketing of products.
In order to examine value addition in arecanut and study of
marketing efficiency, data was collected from primary. Data
relating to the procurement of arecanut were drawn from the
records of respective units. Figures pertaining to the costs and
margins have been taken from co-operative unit and private units.
Relevant data pertaining to the financial aspects of the unit for
the study period were collected from the balance sheet and profit
and loss accounts from the secondary source. The primary data
were collected for the year 2010-11 and was related to quality of
arecanut processed by the units, procurement management, and
value addition, distribution channels, pricing efficiency and
marketing practices through pre-tested schedule.
The chain of intermediaries through which the various farm
commodities pass between producers and consumers is called a
marketing channel. These were the routes through which the
producer seller sold their arecanut in the market. Channel-I, Channel-
II, Channel-III, and Channel-IV were identified are as follows.
Channel-I: Cooperative à Trader à Wholesaler cum commission
agent → Retailers
Channel-II: Cooperative à Wholesaler cum commission agent
→Retailer
Channel-III: Trader à Wholesaler cum commission agent →
Retailer
Channel-IV: Trader → Retailer
This refers to the net profit to the different market
intermediaries of a particular produce after deducting costs
incurred by them for handling the commodity.
Price spread refers to the difference between the price paid by
the consumer and the price received by the producer for an
equivalent quantity of the product. The spread consists of market
cost for the services they render and profit margin for
intermediaries.
The data collected were presented in tabular form to facilitate
easy comparison. This technique of presentation was employed
for estimating the cost of processing and returns from it. The
data were summarized with the aid of statistical tools like
averages, percentages, etc. to obtain meaningful results.

Table 1. Cost incurred in value addition of arecanut scented sweet supari

(`/q)
Products Co-operative unit Private Unit
Total Rate (`/Kg) Total Total Rate Total
quantity amount (`) quantity (`/Kg) Amount (`)
Sugar 25 kg 30 750 27 kg 28 810
(17.78) (17.12)
Cardamom 200 gm 285 57 200 gm 300 60
(1.38) (1.27)
Tulsi 1 kg 25 25 1 kg 30 30
(0.59) (0.63)
Natural sweetner 500 ml 1140 570 500 ml 1180 590
(13.52) (12.85)
Perfum 500 ml 1340 670 500 ml 1440 720
(15.88) (15.68)
Honey 1 kg 150 150 1.5 kg 150 225
(3.55) (3.27)
Packing material 15kg 52 780 15 kg 60 900
(18.49) (19.61)
Miscellaneous cost - - 45 - - 45
(1.07) (0.98)
Marketing cost 750 900
(17.78) (19.61)
Manufacturing Cost 420 450
(9.96) (9.80)
Value Addition cost (A) 4217 4730
(100) (100)
Raw material cost (B) 11000 10560
Total cost (A+B) 15217 15290
Sales price 20000 19508
Net Profit (due to value Addition) 4783 4218
Marketing Efficiency 1.31 1.28
Note: Figures in parentheses indicates percentages to respective total

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Value addition and marketing efficiency in...

Results and discussion
Value of the commodity can enhance by change in the form
of the produce and by packing in small pouches. The co-
operative and private units are involved in such value enhancing
activities and sell scented sweet supari in small pouches. The
weight of the scented supari filled in 5 gram and per pouch is
one rupee. Value addition in arecanut requires ingrediants like
sugar, cardamom, tulsi, natural sweetener, perfume, honey,
packing material and other miscellaneous items.
The costs associated with value addition in arecanut
across different units are presented in Table 1. On an average
cost of value addition per quintal of arecanut worked out to be
` 4,217 in the case of co-operative unit and ` 4730 by private
units. The total cost of value addition in co-operative unit was
` 15,217 and in private units it was ` 15,290. The cost incurred
towards purchase of packing material was the major portion
accounted for ` 780 (18.49 %) followed by cost of sugar and
marketing, each accounting for (17.78%). The cost of packing
material was seen higher in private units than in co-operative
unit because the private units used better quality packing
materials than co-operative unit to advertise their product
efficiently.
The cost towards Tulsi (0.59 and 0.63 %), miscellaneous
cost (1.07 and 0.98%), cardamom (1.38 and 1.27%), honey (3.55
and 3.27%), natural sweetener (13.52 and 12.85%) and perfume
(15.88 and 15.68%) were the other minor items in the total cost
incurred for value addition in arecanut of co-operative and
private units respectively. Raw arecanut cost was ` 11,000 and
` 10,560 in the case of co-operative and private units,
respectively. The co-operative unit incurred lowest cost on
value addition for arecanut, because the unit procured larger
quantity of ingredients for processing of arecanut; hence cost
of procurement was low. However, in the case of private units
where they procured less quantity of ingredients, cost was
higher.
On an average, per quintal sale price of finished product
by co-operative was ` 20,000 and private units were ` 19,508.
The co-operative unit earned a net profit of ` 4,783 and of
private units got net profit of ` 4,218.

Table 2. Price spread in marketing of arecanut in different channels (`/q)

Particulars Channel-I Channel-II Channel-III Channel-IV
A. Producer’s net price 11000 11000 11500 12000
(61.21) (61.21) (67.65) (70.59)
B. Marketing cost incurred by
1. Co-operative 276.01 276.01 - -
(1.54) (1.54)
2. Trader 497.67 - 572.77 742.47
(2.77) (3.37) (4.37)
3. Wholesaler cum commission agent 722.10 803.57 735.75 -
(4.02) (4.47) (4.33)
4. Retailer 945.00 996.20 966.60 1071.63
(5.26) (5.54) (5.69) (6.30)
Total marketing cost 2440.78 2075.78 2275.12 1814.10
(13.59) (11.55) (13.39) (10.67)
C. Margin earned by
1. Co-operative 1223.99 1223.99 - -
(6.81) (6.81)
2. Trader 1002.33 - 1727.23 457.53
(5.58) (10.16) (2.69)
3. Wholesaler cum commission agent 1077.90 2496.43 564.25 -
(6.00) (13.89) (3.32)
4. Retailer 1225.00 1173.80 933.40 2728.37
(6.82) (6.53) (5.49) (16.05)
Total margin 4529.22 4894.22 3224.88 3185.90
(25.20) (27.24) (18.97) (18.74)
D. Producer’s selling price 11000 11000 11500 12000
(61.21) (61.21) (67.65) (70.59)
E. Co-operative selling price 12500 12500 - -
(69.56) (69.56)
F. Trader selling price 14000 - 13800 13200
(77.91) (81.18) (77.65)
G. Wholesaler cum commission agent selling price 15800 15800 15100
(87.92) (87.92) (88.82)
H. Retailer selling price 17970 17970 17000 17000
(100.00) (100.00) (100.00) (100.00)
I. Price spread 6970 6970 5500 5000
J. Marketing Efficiency 5.89 7.01 6.11 7.81
Note: Figures in parentheses indicates percentages to respective total
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Karnataka J. Agric. Sci.,25 (1) : 2012

Marketing efficiency is a tool that measures the profitability
of any firm involved in marketing of any produce. As a general
rule a firm having higher marketing efficiency is good indication
of their business. It was worked out to 1.31 in case of co-operative
and 1.28 in private units. (Table 1)
In Table 2 the producer’s net price, marketing costs and
profits for individual intermediaries are presented.
Arecanut passed through various intermediaries from
producer till it reached ultimate consumers. The intermediaries
involved rendered a variety of services in the process of
marketing of arecanut with a view to earn profit. The quantum of
margin of the intermediaries serves as an indicator or efficiency
of the marketing system. In order to have clear picture of
marketing, price spread, producer’s share in consumer’s rupee
and the marketing efficiency of different channels were worked
out and presented in Table 2.
In channel – I; producer’s share was 61.21 per cent in consumer’s
rupee. The marketing costs and total margins were 13.59 per
cent and 25.20 per cent in consumer’s rupees respectively. The
margins shared by cooperative unit, trader, wholesaler cum
commission agent and retailer were 6.81, 5.58, 6.00 and 6.82 per
cent respectively of the consumer’ rupee. In this channel, the
marketing cost included transportation cost, rent on shop and
godown, electricity charges, value of storage losses, packing,
grading, and loading and unloading. Producer’s share in
consumer’s rupee was lowest (61.21 %) and marketing efficiency
was also low at 5.89 mainly because of involvement of many
intermediaries in this channel.
In Channel-II; producer’s share was earned 61.21 per cent in
consumer’s rupee. Marketing costs were 11.55 per cent and total
margins were 27.24 per cent in consumer’s rupee. The margins
shared by co-operative unit, wholesaler cum commission agent
and retailer were 6.81, 13.89 and 6.53 per cent, respectively of
the consumer’s rupee.
This was the second important channel in operation. Farmers
supplied their produce to co-operative unit. The co-operative
unit sold their produce to wholesaler cum commission agent.
The producer’s share worked out to be 61.21 per cent, which
was mainly due to value added in different channels. In channel-
II, all the intermediaries got less margin compared to Channel- I.
The margins retained by co-operative unit, wholesaler cum
commission agent and retailer were ` 1223.99 (6.81 %), 2496.43
(13.89 %) and ` 1173.80 (6.53 %). However, this channel was
found to be efficient since, the marketing cost was lower
compared to Channel-I and Channel-III because of less number
involvement of intermediaries. The marketing efficiency in
Channel- II was higher at 7.01 compared to channel-1.
In Channel – III; producer got 67.65 per cent of the consumer’s
rupee. The marketing costs and total margins were 13.39 per
cent and 18.97 per cent of consumer’s rupee respectively. The
margin of trader, wholesaler cum commission agent and retailer
were 10.16, 3.32 and 5.49 per cent of consumer’s rupee
respectively. The traders purchased the produce at farm gate.
The marketing cost was found to be higher than in Channel- II
and IV. The producer’s share was worked out to be 67.65 per
cent. In this channel, a majority of intermediaries got less margin
compared to Channel- I and II. The margins retained by trader,
wholesale cum commission agent and retailer were ` 1,727.23
(10.16 %), ` 564.25 (3.32 %) and ` 933.40 (5.49 %) respectively.
Channel – IV: producer’s share was 70.59 per cent in consumer’s
rupee. The marketing cost was 10.67 per cent in consumer’s
rupee and total margin was 18.74 per cent. The margin of trader
and retailer was 2.69 per cent and 16.05 per cent of consumer’s
rupee respectively.
Through this channel, the bulk of the produce was being
disposed of. In channel IV, the producer’s share in consumer’s
rupee was highest (70.59%). The margin retained by different
intermediaries in Channel IV indicated that retailers received
` 17,000 followed by trader (` 13,200). This channel was found
to be most efficient since the marketing cost was lowest
compared to other channels because of lesser number of
intermediaries in the marketing. The marketing efficiency in this
channel was recorded the highest (7.81). Similar results were
revealed by Raman Rao (2008) where lower price spread was

Table 3. Marketing cost incurred by co-operative unit and traders in different channels
(`/q)
Co-operative Unit Traders
Particulars Channel-I Channel-II Channel-III Channel-IV Channel-I Channel-II Channel-III Channel-IV
Transportation charges 10.00 10.00 - - 120.00 - 189.00 220.00
(3.62) (3.62) (24.11) (32.40) (29.63)
Rent on shop & godown 2.65 2.65 - - 45.00 - 45.00 70.00
(0.96) (0.96) (9.04) (7.85) (9.43)
Electricity charges 0.36 0.36 - - 6.67 - 6.77 7.67
(0.13) (0.13) (1.34) (1.81) (1.05)
Value of storage losses 180.00 180.00 - - 230.00 - 230.00 321.80
(65.21) (65.21) (46.21) (40.15) (43.34)
Packing charges 60.00 60.00 - - 75.00 - 80.00 95.00
(21.74) (21.74) (15.07) (13.96) (12.79)
Grading charge 18.00 18.00 - - 13.00 - 15.00 18.00
(6.52) (6.52) (2.61) (2.61) (2.42)
Loading & unloading charges 5.00 5.00 - - 8.00 - 7.00 10.00
(1.82) (1.82) (1.62) (1.22) (1.34)
Total 276.01 276.01 - - 497.67 - 572.77 742.47
(100.0) (100.0) (100.0) (100.0) (100.0)

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Value addition and marketing efficiency in...

Table 4. Marketing cost involved in wholesaler cum commission agents and retailers under different channels
(`/q)
Wholesaler Cum Commission
Particulars Channel-I Channel-II Channel-III Channel-IV Channel-I Channel-II Channel-III Channel-IV
Transportation charges 24.40 34.45 26.44 -
(3.38) (4.30) (3.58)
Rent on shop & godown 233.00 267.00 238.00 - 290.00 307.80 293.40 328.43
(32.26) (33.23) (32.34) (30.70) (30.89) (30.35) (30.64)
Electricity charges 11.70 13.70 12.11 - 12.00 13.40 12.30 15.20
(1.62) (1.70) (1.64) (1.27) (1.34) (1.28) (1.42)
Value of storage losses 270.00 290.42 271.00 - 393.00 410.00 395.90 428.00
(37.39) (36.15) (36.88) (41.58) (41.15) (40.95) (39.95)
Packing charges 95.00 98.00 98.20 - 50.00 65.00 52.00 40.25
(13.15) (12.19) (13.34) (5.29) (6.52) (5.37) (3.75)
Grading charge 68.00 78.00 70.00 - 200.00 200.00 213.00 259.75
(9.43) (9.70) (9.51) (21.16) (20.10) (22.05) (24.24)
Loading & unloading charges 20.00 22.00 20.00 -
(2.77) (2.73) (2.71)
Total 722.10 803.57 735.75 - 945.00 996.20 966.60 1071.63
(100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0)

seen in the shortest chain with less number of intermediaries.
The index of marketing efficiency of the different channels
indicated that Channel-IV (7.81) was found to be most efficient
than Channel-II (7.01), Channel-III (6.11) and Channel-I (5.89).
The break up marketing cost incurred by co-operative unit,
traders, wholesaler cum-commission agents and retailers in
different marketing channels are presented in Table 3 & 4, 6 rIn
Table 3 indicted that co-operative unit incurred the marketing
cost in form of storage loss to the ton of 65.21 per cent of total
marketing cost in Channel I and Channel II. The marketing cost
incurred by co-operative was least in respective of electricity
charges in both Channel I and Channel II. The marketing cost
incurred by trader (Table 4) was maximum in forms of storage
losses at 46.21 per cent in channel 1, 40.15 per cent in Channel
III and 43.34 per cent in Channel IV. The cost incurred by these
intermediaries were list in respect of loading and unloading, which
was 1.62 per cent, 1.22 per cent and 1.32 per cent respective
Channel I, Channel III and Channel IV. Wholesale cum commission
agent also incurred maximum amount of cost in the form of storage
losses in Channel I, Channel II and Channel III at 37.39 per cent,
36.15 per cent and 36.88 per cent respectively. Electricity charges
had list proposition in the total marketing cost 1.62 per cent, 1.70
and 1.64 per cent respectively. Table 4 revealed marketing cost
incurred by retailer, here also storage losses had largest proposition
in the total marketing cost, which was around 40 per cent in all the
four channels. The electricity charges accounted for minimum
proposition in the marketing cost in all four channels at 1.27 per
cent in Channel I, 1.28 percent in Channel III and 1.42 per cent in
Channel IV (Table 4).

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