Medicine MRP carries trade margins at every level of the supply chain, CCI study shows
The price printed on a medicine pack includes margins added at each stage from manufacturer to retailer, not just the cost of making the drug, a Competition Commission of India study shows.
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A patient at a chemist's counter pays the MRP printed on the medicine pack. But that final price is not just the cost of manufacturing the drug. The trade margins added at different levels of the distribution chain, from the manufacturer to the stockist, wholesaler and retailer, also affect the final price.
This chain of pricing is made clear by a study of the pharmaceutical sector by the Competition Commission of India (CCI). The study, titled "Market Study on the Pharmaceutical Sector in India", examined several price points, including the manufacturer's price, distribution margin, wholesale and retail margins, and taxes. It shows that the price printed on the pack is not simply the cost of production.
The medicine trade chain generally runs from the company to the stockist, from the stockist to the retailer and from the retailer to the patient. The price at which the company sells to the stockist is treated as one price, and the price at which the stockist sells to the retailer as another. The MRP for the customer is then fixed.
According to the CCI study, the statutory trade margin for scheduled drugs covered by the Drugs (Prices Control) Order is 24 per cent. Of this, the retailer's share is 16 per cent and the wholesaler's share is 8 per cent. No cap is fixed for non-scheduled drugs, so a margin structure of 10 per cent at the wholesale level and 20 per cent at the retail level is used.
According to information from drug companies, this margin does not stay the same down to the last level but keeps building up. This is why the rise in the price of the drug becomes visible.
Some companies also factor in electricity bills, employee salaries and other administrative costs along with production costs while fixing the MRP. There is a margin at every level: manufacturer, stockist, distributor and retailer. The amount a patient pays thus includes the margins of all these levels.
S. Chandrashekhar of the national sales department of Arjenics Health Care Pvt Ltd shared this information. According to him, customers ask chemists for a discount, but out of whose margin that discount is given is an important question.
