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Upgrading markets and forts/stronghold/castle each cost 1 food. Just pay attention to what you build and when.
You can destroy upgraded markets if you want to when you conquer province but seriously I would never really do that.
When I started out I was looking for guides how to get more income and everyone was saying get food surplus never upgrade markets and such. I had 30 or 50, sometimes even more food surplus, and then game would end?
In my opinion it is just not worth it, upgrade markets in your wealthiest towns to increase income even more, and build castles inside your army recruiting provinces for more recruitment slots and that's it. You don't really need to upgrade forts anywhere else. But generally it is good idea to have some food surplus for those moments when you start expanding fast and you capture provinces with upgraded castles.
TBO I hate that I cant destroy castles to knock em back to lvl 0 on crappy no bonus lands if the AI wastes its time and money developing them, but if you max out your farming tech early its pretty hard to run into food shortages.
Markets are ok to upgrade to rice exchange or higher by the mid-game, but ONLY on provinces that have high-yield buildings, like a gold mine or a smuggling network. Put a high-level metsuke on these provinces too and you'll be rolling in the cash.
It costs 1,600 koku iirc to build the Exchange. It gives an extra 300 wealth over the base Market, but you only get 30% of that on normal taxation; with a moderate number of provinces, the bureaucratic overhead puts the effective tax rate on "Normal" down to about 20%.
You're looking at between 60 and 90 extra koku a turn income, but you have to break even with the 1,600 you outlaid to actually achieve any profit. A realistic rate is splitting the difference, so like 75.
So that means you don't pay down the cost of the Exchange till you've had 22 turns go by, and that isn't counting any turns spent for its construction. When you do see a profit, it would be minimal, like 50 koku (22 x 75). So a 1,600 koku outlay to see an extra 50 koku per turn, 23-27 turns later.
That breaks down to only an extra 2 koku a turn till you break even, and it's not even 2 extra disposable koku, because the 1,600 is all paid upfront, and while the expectation is you're going to see that in the future, something can happen, like you lose that province in the interim. In real terms, you're out 1,600 for basically nothing.
Now, I left out the growth bonus from the upgraded market, which arguably is going to make the cost benefit not look so bad.
But what is often forgotten when people discuss the growth bonus is that rice surplus is calculated as (amount of surplus X province count), not simply as a whole number.
It's not "+1 rice = +1 benefit to wealth," but rather "benefit of +1 rice = +1 x number of provinces."
So while the upgrade gives +10 to growth, if you have 10 provinces, you also effectively lose 10 growth when you lose a surplus rice for the Exchange. If you had 12 provinces, you lose 12 growth per turn, and so on, meaning that a province with just base market can actually contribute more to empire wide growth bonus by contributing a unit of rice more than it does by losing it for the Exchange.
The +10 from the Exchange is local and only applies to that province; but the effective loss from the rice unit applies to all provinces.
Plus, the base market already gives +5 to growth, so in effect the Exchange only upgrades you by another +5.
With a small number of provinces, this might be more justifiable. Like if you only have 5 provinces, and say +3 rice units, and two of those provinces have markets, then you have (3 X 5) + (5 X 2) = +25 to town wealth per turn; if you upgrade one of the Market to an Exchange, you end up with [(3 X 5) + 10 + 5)] - (1 X 5) = +25 per turn. So at that scale of domain/empire, you get an extra 300 wealth whilst keeping the overall, effective growth rate the same.
But you're still out 1,600 koku or such for construction costs, so we come full circle trying to justify 1,600 in upfront outlay for an extra 60 or so koku a turn.
It just doesn't make sense numbers wise.
If you can actually get +50 rice, that's sweet. That is an extra 1,000 to town wealth per turn for 20 provinces, which means around 200 extra in tax, per turn. And it will just keep growing.
But say you had 10 Exchanges in 20 provinces, you'd be holding static at an extra 600 or so per turn, that does not grow beyond that amount. And you'd be missing the +40 tax from the lost rice (10 rice x 20 province x 20%), so that means 1) the +600 is less than it appears, and 2), even worse, the extra growth would've made that up anyway: +40 to tax per turn for 15 turns = +600 to tax anyway, and it being actual profit instead of paying down the absolutely huge 16,000 koku outlay (1,600 X 10 Exchanges).
PS: So I think the way BastardSword approaches it makes the most sense.
The most cost-effective route is to build markets wherever you can, but you don't want to go down the Exchange path unless you know you are going to turn that area into a "market town," i.e. build up the province as purely an economic center, no military stuff at all. And, with an eye to possibly establishing a Kabunakama there, which means the province has to have craft goods/artisans. Because of the limited number of metsuke, it also means you won't want to have more than a couple such provinces.
By the time the Exchanges start paying themselves off, bureaucratic costs are going to be considerable, so you need a least one metsuke ensuring that a province is wringing in every last koku you can get, so the province your metsuke is doing that in should be one of your richest, and that in turn means you may as well put your Exchange or Kabunakama there to get as much out of it as you can.
So in my estimation, you must have: 1) limited number of Exchanges, 2) only in rich provinces, 3) such provinces must be commercial centers (e.g. a sake house is ok, but not a yari dojo), and 3) a good metsuke with the appropriate skills for overseeing.
Preferably, add on to that to have craft goods, to give the option of going Kabunakama, unless there is a province more enticing, such as one with gold mines.
Anything other than that is not maximizing income, and building Exchanges all over the place is just a recipe for major diminishing returns at the best, or plain waste at the worst.