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By-product pricing refers to the case where a producer can afford to keep the price of the original product being sold lower as the by-products obtained in the process of production of the original product have a substantial resale value.
For example, when sugar is being produced from sugar beet many by-products are produced that can be used as cattle feed. These are sold to cattle farmers. A similar case applied to the production of starch and malt which also produce cattle feed as by-products.. Sugar produced from sugar cane gives producers an opportunity to produce energy from the by-products. A part of the revenue earned from selling the energy generated can be used to reduce the cost at which the sugar produced is sold.
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