Price competitiveness of crop production

Price competition manifests itself in the attempt of commodity producers to use the price as a lever of holding and strengthening their position in the market. However, by lowering the price for gaining the market, the commodity producer must always take into account such circumstances.

Firstly, the price reduction should not be too great, as it can lead to a reciprocal psychological reaction of buyers - they may stop buying this product, fearing that its low price is due to low quality. In other words, the commodity producer should remember that the price is perceived by buyers and as an accumulated indicator of the quality of goods, and therefore its reduction should not cause consumers' suspicions about its low consumer properties.

Secondly, due to the decrease in the price of a commodity producer, temporary advantages over competitors are achieved, since the latter are able to easily copy this measure, also lowering the price of their goods. Thus, they deprive such a commodity producer of the opportunity to increase the sales of their goods at the expense of the price factor. However, the commodity producer cannot stop at this and decide on further price reduction. Such an event often leads to similar actions of competitors [1, p. 347]. This leads to the emergence of so-called "price wars", which become the reason for competitors to receive low profits and even losses. It should be noted here that such wars can occur when the number of competitor producers of one and the same product is small, and buyers are well informed about the similarity of this product for consumer properties.

Thirdly, in conditions of price competition, the enterprises that produce goods with high price competitiveness, which mean the degree of possible reduction of the commodity producer price of their goods in comparison with the market price, which ensures the break-even of its production, strengthens its position on the market [2, p. 218].

Price Competitiveness (PC) is determined by the formula (1):

PC = (P - TC): P,             (1)

where P - selling price of products;

TC - total cost of products.

Higher price competitiveness has enterprises that are economically able to sell their products at prices lower than the minimum price of competitors and receive profits. The minimum price is an individual price, which is formed at each enterprise, in which it receives a zero profit. Consequently, it is determined by the cost of producing the unit of goods incurred by one or another commodity producer.

We will evaluate the price competitiveness of the Experimental Farm "Podilske", Vinnitsa region, Ukraine. Analyzing the dynamics of price competitiveness of agricultural crops, it can be concluded that the price competitiveness of all agricultural crops during the analyzed period increases (Table 1) .

Table 1

Dynamics of price competitiveness of agricultural crops in the Experimental Farm “Podilske”, 2013 – 2017 years

Indexes	2013 y.	2017 y.	2013 y.	2017 y.
	Winter wheat		Barley
Sold out, centners	26929.00	12364.00	3035.00	4470.00
Total cost, thousand UAH	3364.00	2530.00	408.00	895.00
Revenues from sales, thousand UAH	3691.00	4126.00	593.00	1526.00
Profit (loss), thousand UAH	327.00	1596.00	185.00	631.00
Full cost of 1 centner, UAH	124.92	204.63	134.43	200.22
Price 1 centner, UAH	137.06	333.71	195.39	341.39
Profitability,%	9.72	63.08	45.34	70.50
Price competitiveness	0.09	0.39	0.08	0.41

Based on the data in Table 1 it’s possible to calculate the overall change in price competitiveness due to the influence of each of the factors determined by the formula (2):

(Р1-ТС1):Р1 _ (Р1-ТС1):Р1 * (Р0-ТС1):Р0

(Р0-ТС0):Р0 (Р0-ТС1У-Р0 (Р0-ТС0):Р0 ,

Consequently, hence the price competitiveness of winter wheat will have the form:

(333,71-204,63)/333,71 _ (333,71-204,63)/333,71 * (137,06-204,63)/137,06 (137,06-124,92)/137,06 (137,06-204,63)/137,06 (137,06-124,92)/137,06

(333,71-204,63)/333,71 _ 4 gg (137,06-124,92)/137,06 ,

The left side of the formula reflects the general index of price competitiveness of products. If the numerator of this index subtracts its denominator, then we will get a change in price competitiveness in the reported year compared with the base one. If in the reporting year the degree of price competitiveness was 0.39, and in the basic 0.09, the change of this indicator would be 4.33. In other words, the profitability of sales has increased by 4 percentage points.

The first partial index captures the impact on price competitiveness of the sales price, and the second - the full cost of production. The difference between the numerator and the denominator of each of these partial indices indicates the absolute influence of the investigated factors on the change of price competitiveness in the reported year compared to the base one. The sum of these differences should be equal to the general change in price competitiveness. If the numerator of the first partial index is 0.39, and the denominator -0.49, and the second one, respectively, -0.49 and 0.09, then the difference between them will be -0.80 and -5.44, and the sum of these differences coincides with the general change in price competitiveness.

For an enterprise, it's important that the overall price competitiveness index is greater than one, as it indicates a stronger position on the market. If the difference between the numerator and the denominator of the first partial index is positive, then this indicates an increase in the price competitiveness of the products at the expense of the price factor.

In our example, this difference is -0.8 and means that price competitiveness has increased due to the increase in sales price. In the same way, an estimate is made for the second partial index. The result -5.44 reduction in the full cost price of one centner competitiveness (profitability of sales) has increased.

The price competitiveness of barley will be:

(341,39-200,22)/341,39 _ (341,39-200,22)/341,39 *

(195,39-134,43)/195,39   (195,39-200,22)/195,39

means that due to the

of products, its price

(195,39-200,22)/195,39

(195,39-134,43)/195,39

(341,39-200,22)/341,39

= 1,32

(195,39-134,43)/195,39

If in the reporting year the degree of price competitiveness was 1.41 and in the base 0.31, then the change of this indicator would be 1.32. In other words, the profitability of sales has increased 1.3 times.

If the numerator of the first partial index is 0.41, and the denominator -0.02, and the second one, respectively -0.02 and 0.31, then the difference between them will be -20.5 and -0.06, and the sum of these differences coincides with the general change in price competitiveness. In our example, this difference is -20.5 and means that price competitiveness has increased due to the increase in sales price.

In the same way, an estimate is made for the second partial index. The result obtained -0.06 means that due to the reduction of the full cost per cent of production, its price competitiveness (profitability of sales) has increased.

In order to further assess the price competitiveness of manufactured products, it is important to compare the results obtained with similar indicators of the main competitors (Table 2).

Table 2

Comparison of the indicators of price competitiveness of the Experimental

Farm "Podilske" with competitors

Indexes	Farm "Gordienka" (competitor 1)	Agricultural cooperative"Vid rodzennya" (competitor 2)	Experimental Farm "Podilske"
Winter wheat
Yield, c/ha	24,61	58,66	52,81
Total cost, thousand UAH	421,94	145,60	204,63
Price 1 centner, UAH	329,60	163,60	333,71
Price competitiveness	-0,28	0,11	0,39
Barley
Yield, c/ha	17,46	60,20	40,59
Total cost, thousand UAH	946,83	324,89	200,22
Price 1 centner, UAH	364,42	386,60	341,39
Price competitiveness	-1,60	0,16	0,41

Comparing the indicators of a competitive investigated farm with competitors' figures, one can conclude that the Experimental Farm “Podilske” has significant advantages on the Ukrainian market for growing winter wheat and barley.