AGRICULTURAL MARKETING AND INTERNATIONAL TRADE
DEPARTMENT OF AGRICULTURAL ECONOMICS TAMIL NADU AGRICULTURAL UNIVERSITY COIMBATORE-641003.
INTRODUCTION Marketing is as critical to better performance in agriculture agricultur e as farming itself. Therefore, market reforms ought to be an integral part of any; policy for agricultural development. Alothough a considerable progress has been achieved in technological improvements in agriculture by the use of high yielding variety seeds and chemical fertilizers by; the adoption of plant protection measures, the rate of growth in farming in developing countries has not attained the expected levels. This has been largely attributed to the fact that not enough attention has been devoted to the facilities and services which must be available to farmers if agriculture is to develop. Agricultural marketing was, till recently, not fully accepted as an essential element in all development in the countries of Asia Asia and far East. East. Although opinions differs to the extent and precedence, there was general agreement till 1970 that the question of markets for agricultural commodities had been neglected. Agricultural marketing occupies a fairly low place in agricultural agricultur al development policies of developing countries. The National Commission Commissio n on Agriculture (1976) has emphasized that it is not enough to produce a crop or an animal product, it must be satisfactorily marketed. Objectives of the study: A decision of an appropriate strategy, the evolution of a proper policy and choice of policy instruments calls for a continual flow of advice, information and assessment of the existing system. Every system generates impulses as a result of of environmental changes. These impulses have to be observed, recorded, analyzed and interpreted for the benefit of the policy makers. A study of agricultural marketing system is necessary to an understanding of the complexities involved and the identification of bottlenecks with a view to providing efficient services in the transfer of farm products and inputs from producers to consumers. An efficient marketing system minimizes costs, and benefits all the section of the society. The expectations from the system vary form group to group and generally, the objectives are in conflict. The efficiency and success of the system depends on how best these conflicting objectives are reconciled. Producer-farmers want the marketing system to purchase their produce without loss of time and provide the maximum share in the consumers rupee. They want the maximum possible price for their surplus produce from the system. Similarly, they went the system to supply them the inputs at the lowest possible price. Producer:
The consumers of of agricultural products are interested in a marketing system that can provide food and other items in the quantity and of the quality required by them at the lowest possible price. However this objective of marketing for consumers is contrary to the objective of marketing for the farmer-producers.
Consumers:
Market middlemen are interested in a marketing system which provides them a steady and increasing income from the purchase and sale of agriculture produce. This objective of market middlemen may be achieved by purchasing the agricultural products from the farmers at low prices and selling them to consumers at high prices. Market middlemen:
INTRODUCTION Marketing is as critical to better performance in agriculture agricultur e as farming itself. Therefore, market reforms ought to be an integral part of any; policy for agricultural development. Alothough a considerable progress has been achieved in technological improvements in agriculture by the use of high yielding variety seeds and chemical fertilizers by; the adoption of plant protection measures, the rate of growth in farming in developing countries has not attained the expected levels. This has been largely attributed to the fact that not enough attention has been devoted to the facilities and services which must be available to farmers if agriculture is to develop. Agricultural marketing was, till recently, not fully accepted as an essential element in all development in the countries of Asia Asia and far East. East. Although opinions differs to the extent and precedence, there was general agreement till 1970 that the question of markets for agricultural commodities had been neglected. Agricultural marketing occupies a fairly low place in agricultural agricultur al development policies of developing countries. The National Commission Commissio n on Agriculture (1976) has emphasized that it is not enough to produce a crop or an animal product, it must be satisfactorily marketed. Objectives of the study: A decision of an appropriate strategy, the evolution of a proper policy and choice of policy instruments calls for a continual flow of advice, information and assessment of the existing system. Every system generates impulses as a result of of environmental changes. These impulses have to be observed, recorded, analyzed and interpreted for the benefit of the policy makers. A study of agricultural marketing system is necessary to an understanding of the complexities involved and the identification of bottlenecks with a view to providing efficient services in the transfer of farm products and inputs from producers to consumers. An efficient marketing system minimizes costs, and benefits all the section of the society. The expectations from the system vary form group to group and generally, the objectives are in conflict. The efficiency and success of the system depends on how best these conflicting objectives are reconciled. Producer-farmers want the marketing system to purchase their produce without loss of time and provide the maximum share in the consumers rupee. They want the maximum possible price for their surplus produce from the system. Similarly, they went the system to supply them the inputs at the lowest possible price. Producer:
The consumers of of agricultural products are interested in a marketing system that can provide food and other items in the quantity and of the quality required by them at the lowest possible price. However this objective of marketing for consumers is contrary to the objective of marketing for the farmer-producers.
Consumers:
Market middlemen are interested in a marketing system which provides them a steady and increasing income from the purchase and sale of agriculture produce. This objective of market middlemen may be achieved by purchasing the agricultural products from the farmers at low prices and selling them to consumers at high prices. Market middlemen:
The objectives and expectations of all the groups of society – producers, middlemen and consumers – conflict with one another. All the three groups are indispensable to society. The government has to act as a watch-dog to safeguard the interests of all the groups associated in marketing. It tries to provide the maximum share to the producer at the lowest possible price, and enough margin to market middlemen so that may remain in the trade and not think of going out out of trade and jeopardize the whole marketing mechanism. Thus, the government wants that the marketing system should be such as may bring about the overall welfare to all the segments of society.
Government:
Scope and subject matter of Agricultural Marketing Agricultural marketing in a broader sense is concerned with the marketing of farm products produced by farmers and of farm inputs required by them in the production of these farm products. Thus, the subject of agricultural agricultura l marketing includes product marketing as well as input marketing. Market The word market is a derivative of the Latin word “Marcatus” meaning thereby merchandise ware, traffic, trade or a place where business is conducted. The term market is widely used and it may mean and include any of the following. It may mean a place as an open space (in a village) or a large building (public or private) where actual buying and selling takes place. An assembly or a meeting together of people for their private purchases and sales of goods at a particular time and place. e.g. Periodical markets, village fairs, where both the buyers and sellers come together and conduct their transactions. An area of operation or the geographical or economic extent of the commercial demand for commodities. commodities . The market may extent to a locality, village, town or a country according to the demand of a commodity. E.g. Market for Mango Fruiti, Indofil-M45. Indofil- M45. An organization by which which the exchange of of goods is effected. This may be an association of private individuals drawn together by common interests or an organized institutions governed by written rules or by state regulations. e.g. Regulated markers. It may mean all the inhabitants of a country. e.g. Indian market. It refers to the total population of India and its purchasing power in aggregate. Definition of Market Below are given a few definitions of market as given by different authors. According to pyle (1936), Marker include both place and region in which buyers and sellers are in free intercourse with one another. Clark and Clark (1947), defined market is a center about which ;or an area in which the forces leading to exchange of title to a particular product operate and towards which the actual goods tend to travel.
H.E. Mitchell viewed that market for most commodities may be thought of not as a geographical meeting place but as getting together of buyers and sellers in person, by mail, telephone, telegraph or any other means of communication. From these definitions it may be inferred that (i) market always refer to a commodity and buyers and sellers, (ii) it deals with transfer of ownership rights. Marketing The term marketing has a broad social meaning. descriptive of marketing today.
Infact, the societal view is more truly
Any niter-personal or inter-organisational relationship making an exchange (transaction) is marketing. That is, the essence essence of marketing is a transaction – an exchange-intended to satisfy human wants (Philip Kotler). Consequently, marketing occurs any time one social unit strives to exchange something of value with another social unit. Marketing consists of all the activities designed to facilitate that exchange. Definition:
The task of definig marketing may be approached from three points of view.
Legalistic, oaf which the example is ‘marketing includes all activities which are concerned with effecting changes in the ownership and possession of goods and services. Economic, of which the examples are, that part of economics which deals with the creation of time, place and possession utilities. “that phases of business activity through which human wants are satisfied by exchange of goods and services for some valuable consideration” Factual or descriptive such as “the performance of business activities that direct the flow of goods and services from producer to consumer or use” In system view marketing is defined as follows: Marketing is a total system of business activities designed to plan, promote and distribute want-satisfying goods and services to present and potential customers at the same time earning normal profits. This definition has the following significant implications: It is a managerial system definition. The entire system of business activities must be market or customer oriented. wants must be reorganized and satisfied effectively.
Customers
This definition suggests that marketing is a dynamic business process – a total integrated process – rather than a fragmented assortment of institutions and functions. Marketing is not any one activity, nor is it exactly the sum of several. Rather, it is the result of interaction of many activities. The marketing program starts with the germ of a product idea and does not end until the customers wants are completely satisfied, which may be some time after the sale is made.
The definition implies that to be successful, marketing must maximize profitable sales over the long run. Thus, customers must be satisfied in order for a company to get the repeat business that ordinarily is so vital to success. Other definitions According to Converse, Hugey Mitchell, Marketing includes all activities involved in the creation of place, time, and possession utilities. Place utility is created when goods and services are available at the places where they are needed, time utility, when they are needed. And possession utililty, when they are transferred to those who needs them. The process of marketing makes goods and services much more valuable when they are wanted and transferred to the people and at a place when they want them. American Marketing Association (1960) defined, marketing as it cosists of the performance of business activities that dierect the flow of goods and services from producer to consumer or user. Duddy and Reizen defined marketing is an economic process by which goods and services are exchanged and their values determined in terms of money prices. Edward W. Cundiff defined, marketing as the process by which product are matched with markets and through which transfer of ownership is effected. By going through the above definitions on marketing we may observe that marketing includes following. Creation of place, time, form and possession utilities. Satisfaction of human needs and wants. Exchange of goods and services. Transfer of ownership rights. Market and marketing Markets ate institutions in marketing e.g. Vegetable market, refers to the various functionaries involved viz., village merchant, commission agent, wholesale trader, retailers etc., where as marketing of vegetables includes all those functions performed by; these agencies in directing the flow of vegetables from the primary producer to the ultimate consumers. Sales to the village merchant, transport, selling through commission agents to the whole sale, purchase by; the retailer, finally purchase by the ultimate consumers, all these functions put together is known as marketing. Marketing and selling Selling focuses on the needs of the seller. It is preoccupied with the seller’s need to convert his product into cash. Marketing focuses on the needs of the buyer. It is preoccupied with the idea of satisfying the needs of the customer by; means of the product and the whole cluster of things associated with creasing, delivering and finally consuming it.
Sometimes the terms, marketing, selling and merchandising are used inter-changeably or one for the other, though there exists difference. Marketing is a comprehensive term, the total of the marketing activities. Selling is one method of promotion and promotion is only a part of the total marketing activities. Merchandising is defined as product-planning. It includes internal planning needed to get the right product or service to the market at the right time, at the right place and in the right colors, quantities and sizes. Importance of marketing Marketing has even greater importance and significance for the society as a whole than for any; of the individual beneficiaries of the marketing process, and can be expressed as follows. Optimization of resource use and output management: An efficient marketing system leads to the optimization of resource use and output management. An efficient marketing system can also contribute to an increase in the marketable surplus by scaling down the losses arising out of inefficient processing, storage and transportation. A well designed system of marketing can effectively distribute the available stock of modern inputs, and there by sustain a faster rate of growth in the agricultural sector. Increase in farm income: An efficient marketing system ensures higher levels of income for the farmers by; reducing the number of middlemen or by restricting the commission on marketing services and the malpractices adopted by them in the marketing of farm products. An efficient system guarantees the farmers better prices for farm products and induces them to invest their surpluses in the purchase of modern inputs. This again results in increases in the marketed surplus and income of the farmers. Addition to National Income: National income comprises of goods and services produced in an economy which attain value only through marketing. Any increase in the efficiency of the marketing process resulting in lower costs of distribution and lower prices to consumers brings about an increase in national income. Employment: The marketing system provides gainful employment to millions of persons engaged in various activities, such as packaging, transportation and processing. Persons like commission agents, brokers, traders, retailers are employed in the marketing system. Price signals: Scientific marketing has a stabilizing effect on the price level as well as the economy; as a whole. Producers produce what consumers want and consumers have a wide choice of products, there are no frequent ups and downs in prices. Widening of markets: A well-knit marketing system widens the market for the produce by taking them to remote corners of the country. The widening of the market helps in increasing the demand on a continuous basis, and thereby guarantees a higher income to the producer. Creation of utility: Marketing ads value of goods by; changing their ownership and by changing their time and place of consumption. Thus, marketing creates form, place, time and possession utilities.
Growth of Agro-based industries: An improved and efficient system of agricultural marketing helps in the growth of agro-based industries and stimulates the overall development process of the economy. Many industries depend on agriculture for the supply of raw materials. Scientific marketing helps to balance the spatial and temporal imbalance between supply and demand of both resources and produced goods. It adds value to the services e.g. Business, medical entertainment and educational services. Pattern of consumption are determined both by the structure of the marketing system which is set up to carry the flow of goods and services from producers to consumers and use, and by the value added to these goods and services through performance of marketing activities. The importance of marketing in underdeveloped and developing countries has been very well indicated by Drucker. He said, Marketing occupies a critical role in respect of the development of developing nations. It steps speedy development in the following ways. •
Development of marketing leads to the integration of various economic sectors of the nation such as agriculture and industry.
•
It makes fullest utilization of the existing assets and productive capacity possible.
•
It makes unknown and untapped economic energy.
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It contributes to the development of entrepreneur and managerial class of the people.
Significance of Horticultural Marketing For the development of agricultural and horticultural sector, it is essential to develop marketing of agricultural and horticultural products so as to match with the production surplus resulting from technological innovations and exploitation of the existing land and water resources. Apart from increasing production, marketing and distribution can significantly help in improving the availability of goods and services and also provide a stimulus to production. Marketing also increases demand which will provide its own incentive to increase supply. eg. development of national market for a specific commodity which is seasonal – assure price and income. Adoption of modern techniques of production has hot to be integrate with the modern techniques of marketing and distribution, because in the ultimate analysis, the key to prosperity depends upon the availability of goods and services. Marketing in sum, tries to find out the right type of production that the firm should manufacture, the right place where it is to be made available and the right channel, through which it is to be brought notice to the consumers. It is the father of innovation and product development, promoter of entrepreneurial talent, developer of economy, simulation of consumption and higher standard of living and guardian of price system.
CLASSIFICATION OF MARKETS Types of markets are determined by nature of commodities, time and nature of business, area and importance of the products. There are several types of markets, the fundamentals of which are the same, the pattern has been changing through out. Classification based on Area
: Local National International
Time
: Very short period Short period Long period
Business type
: Wholesale Retail
Goods
: Commodity market Produce exchange Manufactured goods Bullion market Capital market Money market Foreign exchange market Stock exchange market
Importance
: Primary Secondary Tertiary
Competition
: Perfect competition Imperfect competition
On the basis of area: Local market : Where buyers and sellers belong to a small local area (ie. a town or village) it is called a local market. Their requirements are limited and fulfilled in the area itself. National markets : It is one when for a certain commodity or commodities a nation as a whole could be regarded as one market. e.g. Turmeric market at Bombay. World market : Certain commodities cover the whole world and that is called world market. A market in which buyers and sellers are drawn from the whole world. These markets exist in commodities which have a world-wide demand or supply.
The national market may be further divided into urban and rural markets. Urban markets are those which cover relatively high density population with a developed infrastructure. eg. cities and towns. Rural markets are those which exist in the vast rural areas, where the density of population is low, without any significant infrastructural facilities. The rural markets are generally uninterested interns of communication and physical distribution facilities. On the basis of time Very short period markets : Markets for highly perishable goods like fruits and vegetables are of very short period No attention id generally paid to increase or decrease the supplies. Prices are charged according to the intensity of demand. The markets which are held only for a few hours. Short period markets : These markets are held relatively longer period than the very short period and the commodities traded are less perishables and can be stored for some time. Here some consideration is paid for the supply to meet demand, but sufficient time is not available, hence, demand stands still. Price is fixed by the demand factors to maximum extent eg. Long period market : These are the markets of permanent nature. The commodities traded in these markets are durables in nature and can be stored for many years. These types of markets are also termed as secular markets. e.g. Manufactured goods. Here sufficient time is available to change the supply and the supply can be altered to any extent. Therefore, supply governs the demand factor and in the long run price covers the marginal cost of production. On the basis of business type/volume Based on the business type the markets are classified into whole sale and retail markets. It is also determined by the volume of business. Wholesale market : It is one in which commodities are bought by and sold in large lots or in bulk. Transactions in these markets take place mainly between traders. Retail markets : It is one in which commodities are bought by and sold to consumers as per their requirements. Transactions in these markets take place between retailers and consumers. These markets are very nearer to the consumers. On the basis of goods/commodities Commodity markets : This classification is based on whether the good considered is needed for consumption or production. In order to facilitate the work of classification, commodities are distinguished with each other after giving due consideration to all the qualities of a commodity by specialists while standardizing the goods, they are often sold by a simple standard called FAQ (Fair Average Quality). When gods are sold by description, the percentage of valuable materials determines the quality and if any difference arises, on delivery of inferior goods, it is compensated by playing a amount of difference. These commodity markets are further divided into produce exchange, manufactured goods market and bullion markets. Produce exchange markets : Big and well organized markets for raw materials/products (like wheat, cotton, oilseeds, sugar, iron and coal) are known as produce exchange and are found in cities or developed centers of a country. One market deals in one commodity only but the sale of other produce is not at all restricted. e.g. Cotton exchange of Mumbai.
Manufactured goods markets : These are the markets of manufactured and semi-manufactured goods. eg. Cotton, Jute, leather goods. The best example of commodity market of international importance is Leather Exchange at Kanpur. Bullion market : These are concerned with the purchase and sale of gold, silver and precious stones. These are highly specialized and well organized markets of the world and localized in every developed centre of a country. e.g. Bullion markets of Mumbai, London. Capital markets : Financial requirements of big industrial and commercial concerns are met by money markers/capital markets. Capital market is composed of the following types. Money markets : It is a broad term and includes number of agencies providing finance to business and industrial concerns. Such markers on the one hand help the public to invest or deposit their surplus funds either in industrial concerns or in banks and on the other hand, to allow those who are in need of money to take loan through banks ets., for a reasonable remuneration in return for interest or discount. These are affiliated to larger trading centers like Mumbai, Delhi, Chennai and Calcutta. Foreign Exchange Markets: Foreign exchange refers to the acquisition of means to play for purchases made abroad. Foreign exchange is earned through exports, aid flows, remittances and loans. The international demand for a particular currency to pay for imports/purchases by other countries determines its value in the international market. Stock Exchange : This is the market for investment. Stocks, bonds, debentures, shares and other industrial securities are purchased and sold in these markets which are transformed in to capital investments by the companies concerned. These markets are highly specialised and command a very wide area of operation. eg. Important stock exchanges in India are at Mumbai, Kanpur, Calcutta and Chennai. On the basis of importance Markets for agricultural and horticultural produce may be broadly classified into three categories, the primary, secondary and tertiary markets. Primary markets : These markers are located in big towns near the centres of production of horticultural commodities. In these markets, a major part of the produce is brought for sale by the producers themselves. Transactions in these markets usually take place between the farmers and traders. These markets are also referred as primary wholesale markers. Secondary markets : Also referred as secondary wholesale markets. These markets are generally located in district head quarters or important trade centres. The major transactions in commodities take place between the village traders and wholesalers. The bulk of arrivals in these markets is from other markets. The produce in these markets is handled in large quantities. These are therefore, specialized marketing agencies performing different marketing functions such as Commission Agents, Brokers, Weighmen etc. Terminal markets : These markets are those in which the produce is either finally disposed of directly to consumers or processors assembled for shipment to foreign destinations or for redistribution to surrounding areas. Such markers are usually possess sufficient warehousing and storage facilities and cover a very wide area extending over even a state or too. It may be
observed that a particular market may function as a primary wholesale market for some commodities and as a secondary market for other commodities. Based on competition/free intercourse Markets have been classified on the free intercourse between the buyers and sellers so as to reach a price at which the whole lot of a commodity is exchanged in that market. Perfect market : There must be one price for any one standardized commodity at a particular time in a market. There should be no; restriction on the movement of goods, and there must be a good number of buyers and sellers present in the market. Under perfect competition there can be only one price for a commodity at a given time. Imperfect market: When different prices are charged for the same commodity; at the same time, it is said to be an imperfect market. On the basis of extent of government intervention Regulated markets: Markets in which business is done in accordance with the rules and regulations framed by the statutory market organization and represent different sections involved in markets. The marketing costs in such markets are standardized and practices are regulated. Unregulated markets: These markets are the markets in which business is conducted without any set rules and regulations. Traders frame the rules for the conduct of the business and run the market. These markets suffer from many ills, ranging from unstandaridsed charges for marketing functions to imperfections in the determination of prices. On the basis of nature of transactions The markets which are based on types o; transactions in which people are engaged are of two types. Spot cash markets: A market in which goods are exchanged for money immediately after the sale is called the spot or cash market. Forward markets : A market in which the purchase and sale of a commodity takes place at time ‘t’ but the exchange of the commodity takes place on some specified date in future i.e ‘t+1’. Sometime even on the specified date in the future (t+1), they may nit be any exchange of the commodity. Instead, the differences in the purchases and sales prices are paid or taken.
APPROACHES TO THE STUDY OF MARKETING The branch of marketing can be studied through one of the following four approaches. The functional approach The institutional approach The Commodity approach The Behavioral system or Decision making approach The Functional approach Here the marketing functions are broken down into any functions. Two major functions are buying and selling and both are of equal importance. Supplement to the major above primary functions, some of the physical, exchange and facilitating functions are identified. A marketing function may be defined as a major specialized activity performed in accomplishing the marketing process. The functions are classified as exchange function, physical function and facilitating function. Exchange functions are those activities involved in transfer of ownership or title. There are two exchange functions, buying and selling. Buying and selling are complementary functions around which all marketing efforts revolve. They are basic to the entire marketing process. Physical functions are those activities that involve in handling, movement and physical change of the actual commodity itself. They are involved in solving the problems of when, what and where in marketing g. Storage, transportation and processing are physical functions. Storage function is primarily concerned with making the goods at the desired time. Transportation function is concerned with making the goods available at proper place. Processing function includes all those essentially manufacturing activities that change the basic form of the product such as milling of paddy into rice, mango fruit juice. Facilitating functions are those which make possible the smooth performance of the exchange of title or physical handling of products. However, without them the modern marketing systems would not be possible. They might aptly call the grease that makes the wheels of the marketing machines go round. They are, standardization financing, risk bearing and market intelligence. Standardization is the establishment and maintenance of uniform measurement of both quality and quantity. This function simplifies buying and selling. To gain consumer’s confidence, it establishes a rational relationship between price and quantity. It takes into account size, shape, form weight etc, Financing is the advancing of money t carry on the various aspects of marketing. Risk bearing is the accepting of the possibility of loss in the marketing of a product. These risks are physical and market risks. Physical risks are those which occur from destruction or
deterioration of the product itself by fire, accident, wind, earthquake, cold and heat. Market risks are those which occur because of the charges in the value of the product as it is marketed. Changes in prices, tastes and preference of the customers may lead to losses and come under market risks. Marker intelligence is the job of collecting, interpreting and disseminating the large variety of data necessary to the smooth operation of the marketing process. The main limitation of this approach is that too much emphasis is laid on various marketing functions instead of knowing how they are applied to the specific business operations. The Institutional approach In this approach, principles of marketing area formulated around the institutions performing the marketing functions. Marketing institutions are the wide variety of business organisations which have developed to operate the marketing machinery. The institutional approach considers the nature and character of various middlemen and related agencies and also the arrangement and organization of the marketing machinery. In this approach the human element receives primary emphasis. Hence, institutional approach is simply the study of middlemen. Middlemen are those individuals or business concerns that specialize in performing the various marketing functions involved in the purchase and sale of goods as they are moved from producer to consumers. The middlemen are classified as merchant middlemen, agent middlemen, speculative middlemen, processors and manufacturers and manufacturers and facilitative organizations. Merchant middlemen: Merchant middlemen take title to and therefore own the products they handle. They buy and sell for their own gain. There are tow types of merchant middlemen viz., wholesaler and retailer. Whole saler sells the commodity to retailer and other wholesalers but does. Not sell in significant amount to ultimate consumers. Wholesaler makes up a highly heterogeneous group of varying sizes and characteristics. The local merchants who buy good in the producing area directly from the farmers, the traders who sell the commodities to the retailers come under this group. The retailer buys products for resale directly to the ultimate consumer of the goods. From the functional view point the retailer may perform all the marketing functions. Agent middlemen: Act only as representatives of their clients. They do not take title to and therefore do not own the products they handle. While merchant middlemen secure their income from a margin between the buying and selling prices, agent middlemen receive their incomes in the form of fees and commission. Agent middlemen sell their services to their principals’ not physical goods to customers. There are two types of agent middlemen viz., brokers and commission agents. Brokers: The broker on the other hand usually does not have physical control over the product. He has less discretionary power in price negotiations than commission agents. Commission agents : Commission agent is usually granted with broad powers by the sellers who sell through him. He normally takes over the physical handling of the product, arranges for sale, sells the goods in his name, prepares hills, collects the money from the buyer, extends
credit to the buyers, extends credit to the buyers, deducts his fees and remits the balance to the seller. Speculation middlemen: Are those who take title to products with the major purpose of profiting from price movements. All merchant middlemen, of course, speculate in the sense that they must face uncertain conditions. Wholesalers and retailers take a minimum risk. Speculative middlemen seek out and specialized in taking these risks and usually do a minimum of handling and selling. Serveral names are given to these middlemen such as ‘scalpers’ and ‘spreaders’. They often attempt to earn their profits from short-run fluctuations in prices. Processors and manufactures : They exist primarily to undertake some action on production to change their form. e.g. oil millers. Apart from their main processing work many processors take as active part in other institutional aspects of marketing. Some processors such as flour millers, rice millers, oil millers etc., often act as buying agents in the producing areas. These groups undertake the wholesaling of their finished products to retailers. Facilitative organizations : These organizations aid the various middlemen in performing their tasks. Such organizations do not, as a general rule, directly participate in the speculators. They furnish the physical facilities for handling of products or for the bringing of buyers and sellers together. They may also aid in grading, arranging and transmitting of payment and the like. They receive their income from fees and assessments from those who use their facilities. eg. Regulated markets. Commodity approach Under such a study, specific commodities are selected and they are followed through from the producer to the consumer. For example, when one studies the marketing of tomato, he will have to begin by examining the sources and conditions of supply of tomato, study the nature and volume of demand, for what purpose it is required, who requires it and who sells it, through what methods it is transferred from the fields to the mandies and to the final consumers, what activities in storage, standardization, packaging, branding and financing are undertaken and by whom. The main advantage of this approach is that it is concrete. Since all work relates to a specific produce but it is a time consuming process and other results in excessive repetition. Behavioural System approach Both functional and institutional approaches are useful in analyzing the existing marketing activities. However, the marketing process is continuously changing in its organizational and functional combinations. How to understand and predict change, is a major problem. Either a particular marketing firm or an organization of firms such as marketing channel can be viewed as a system of behaviour. Each is composed of people who are making decisions in an attempt to solve problems. They take decisions on the product, the distribution policies pricing, advertising, selling etc,. In this approach an attempt is made to find out how marketing decisions are made and should be made.
CHARACTERISTICS OF AGRICULTURAL AND HORTICULTURAL COMMODITIES Many of the marketing problems associated with agricultural and horticultural commodities marketing is due to some of the special characteristics of such produce. Similarly, the marketing of agricultural commodities is different from the marketing of manufactured commodities because of the special characteristics of the agricultural sector (demand and supply) which have a bearing on marketing. These special characteristics of the products in a manner different from the governing the supply and demand of manufactured commodities. The special characteristics which the agrl / hortl. Produce have: Perishability of the products : Most farm products are perishable in nature; but the period of their perishability varies from a few hours to a few months. Their perishability makes it almost impossible for producers to fix the resreve price for their products. The extent of perishability of farm products may be reduced by the processing function, but they can ‘t be made durables / non-perishables like manufactured goods. Seasonality of production : Farm products are produced in a particular season, they can ‘t be produced through out the year. In the harvest season, prices fall due to excess supply. But the manufactured goods are produced throughout the year. Their prices therefore remain almost the same through out the year. Bulkiness of the products : The characteristics of bulkiness of most farm products make their transportation and storage difficult and expensive. This fact also restricts the location of production to somewhere near the place of consumption or processing. The price spread in bulky products is higher because of the higher costs of transportation and storage. Variation in quality of the products : There is a large variation in the quality, which makes their grading and standardization somewhat difficult. There is no such problem in manufactured goods, for they are products of uniform quality. Irregular supply : The supply if farm products are uncertain and irregular be cause of the dependence of agricultural production on natural conditions. With the varying supply, the demand remaining almost constant, the prices of farm products fluctuate substantially. Small size of holding and scattered production : Farm products are produced through out the length and breadth of the country and most of the producers of small size. This makes the estimation of supply difficult and creates problems in marketing. Processing : Most of the farm products have to be processed before their consumption by the ultimate consumers. This processing function increases the price spreads of agricultural commodities. Processing firms enjoy the advantage of monopsony, oligopsony or duopsony in the market. This situation creates disincentives for the producers and may have an adverse effect on production in the next year.
MARKETABLE AND MARKETED SURPLUS
In any developing economy, the producers, surplus of agricultural produce plays a significant role. This is the quantity which is actually made available to the non-producing population of the country. From the marketing point of view, this surplus is more important than the total production of commodities. The arrangements for marketing and the expansion of markets have to be made only for the surplus quantity available with the farmers, and not for the total production. The rate at which agricultural and horticultural products expand determines the pace of agricultural and horticultural development, while growth in the marketable surplus determines the pace of economic development. An increase in production must be accompanied by an increase in the marketable surplus for the economic development of the country. Though the marketing system is more concerned with the surplus which enters or is likely to enter the market, the quantum of total production is essential for this surplus. The larger the production of a commodity, the greater the surplus of that commodity and vice-versa. In a planned economy the knowledge of marketed and marketable surplus helps the policy makers in the following areas. Framing sound price policies: Price support and controls are an integral part of agricultural policies necessary for stimulating agricultural production. The quantum of marketable surplus helps in framing these policies. Developing proper procurement strategies: The procurement policy for feeding the PDS has to take into account the quantum and behaviour of marketable and marketed surplus. Checking undue price fluctuations : Magnitude and extent of the surplus helps in minimization of price fluctuations in farm products because it enables the authorities to make proper arrangements for the movement of produce from one area, where they are in surplus, to another which is deficient. Advanced estimates of the surpluses of such commodities which have the potential of external trade are useful in decisions related to export and imports of the commodity. If surplus is expected to be less than what is necessary, the country can plan for import and vice-versa. Marketable surplus It is the residual quantity left with the producer-farmer after meeting his requirements for family consumption, farm needs for seeds, and feed for cattle, payment to labour in kind, payment to artisans, landlords as rent, and social and religious payments in kind. This may be expressed as follows:
MS
=P - C
Where, Ms : Marketable surplus P : Total production C : Total requirements (family consumption, farm needs, payment to artisans; landlord and for social and religious needs.)
labour,
Marketed surplus Refers to the quantity of produce that is actually sold in the market by; the producer, irrespective of his home consumption and other requirements. The marketed surplus may be more, less or equal to the marketable surplus. The marketed surplus is more than the marketable surplus when the farmer retains a smaller quantity of the crop than his actual requirements for family and farm needs. This is true especially of small and marginal farmers, whose need for cash is immediate. This situation of selling more than the marketable surplus is called ‘distress or forced sale’. Such farmers generally buy the produce from the market in a later period to meet their family and/or farm needs. The quantity of distress sale increases with the be sold to meet some fixed cash requirements. The marketed surplus is less than the marketable surplus when the farmers retain some of the surplus produce. This situation holds true under the following conditions. •
•
Large farmers generally sell less than the marketable surplus because of their better retention capacity. They retain extra produce anticipating higher price in the later periods. Sometimes farmers retain even upto next production season. Farmers substitute one crop for another either family consumption or for feeding livestock because of the variation in prices. With the fall in the price of the first crop relative to competing crop, farmers may consume more of the first and less of the second.
The marketed surplus may be equal to the marketable surplus when the farmers neither retain more nor less than his requirements. This holds true for perishable commodities and of the average farmers. Importance of Marketable surplus Agricultural and horticultural marketable surplus is highly significant for economic development as it is used by the non-farm and urban population to meet for food and raw materials. By raising output and also by increasing the marketable surplus, the farmers can make a positive contribution to economic development. Further, part of the marketable surplus would be exported to foreign countries. The increased earning of foreign exchange will help to finance import of capital goods which are so necessary for individual development.
Factors affecting marketable surplus The marketable surplus differs from region to region, crop to crop. It also varies from to farm. On a particular farm, the quantity of marketable surplus depends on the following factors. Level of production : Marketable surplus depends up on the size of production. Larger the size of production, other thing being equal. The larger will be the marketable surplus. In general, marketable and marketed surplus would increase with increase in production. Size of farm : As the size of the farm increases, the marketable surplus also increases. Although the actual quantity retained increases with the increase in the farm area, the production of marketable surplus is higher in medium and large size of holdings. Size of the family : As the size of the family increases the marketable surplus decreases. This is so incase of food grains, milk, egg etc.,. The commercial crops have no binding with the size of family eg. cotton. Consumption pattern : Marketable surplus of food grains is influenced by consumption pattern. The marketable surplus of rice in Punjab and Haryana is more when compared to Tamil Nadu because of the predominance of wheat in their consumption pattern. Cash requirements : The larger the farmers demand for cash, the greater is their incentive to sell more in the market. Further, those who have to meet money obligations will have to sell more and do the so immediately after harvest. Price of the commodity : As the price of the selected commodity increases the farmers will try to dispose as much as possible to earn better income. This will increase the marketable surplus. Price of the commodity and marketable surplus are positively related. Measures for raising marketable surplus : This includes the magnitude as flow of marketable surplus. This means that measures should be taken to increase the productivity as well as to ensure large flow of marketable surplus, out of increased productivity. Increase in production requires input intensification. This involves large outlay in both private and public sectors as well as institutional arrangements. The specific measures measures are: Selection of crops and areas as a mens of increasing marketable surplus a recent approach. e.g. IADP. Non-price incentives : Non-price incentives like provisions of irrigation facilities, credit, improvement in the art of crops management, skills, institutional arrangements are more important in increasing marketable surplus. Well defined price policy : Fixing up a minimum price policy will be helpful for the farmer to take a decision on area to be allotted for the particular crop, intensive use of inputs etc.,. When the minimum price fixed is attractive and when it is spelt out before the season the farmer can increase the productivity and production leading to increased marketable surplus. Establishments of co-operative marketing society: Linking of supply of credit to farmers by the co-operative societies with the marketing of produce.
SELLING BEHAVIOUR OF FARMERS A majority of farmers in India sell a large part of their produce in villages, which results in low returns for their produce. There is a difference in the prices prevailing at different levels of marketing i.e. the village, primary and secondary wholesale market and retail level. The extent of village sales varies form area to area, commodity to commodity, and also with the status of the farmers. The village sale is 20-60 percent in food grains, 35 to 85 per cent in cash crops and 80-90 per cent in perishables. The factors responsible for village sales are: Farmers are indebted to village money lenders, traders or landlords. They were often forced either to enter into advanced sale contracts or sell the produce to them at low prices. Transport bottlenecks: Many villages are not connected byroads. Adequate transport means are not available even in villages connected by roads. It is difficult to carry the produce in bullock carts to market which are often situated at long distances. There is a small quantity of marketable surplus with a majority of the farmers because of small size of holdings. Farmers are hand pressed for money to meet their social and other obligations, and are often forced to sell their produce right in the village. Perishability of the produce: Most of the perishable products need to be marketed in the villages because of their low keeping quality and non-availability of quick transport means. The information on the prices obtaining in the nearby primary and secondary wholesale markets is not readily available to the farmers. Problems in marketing horticultural produce The peculiarities of agricultural and horticultural produce lead to various problem in marketing process. These problems related to Distribution of inputs to the producers widely scattered Collection of the output. Since numerous collection points are required, the collection charges constitute a major component of the total produce. Perishability forces the produce either to be processed quickly or to be transported to the consumers quickly. At the same time since the products are seasonal in nature, it leads to (i) excessive investments for processing and transport facilities and (ii) excessive unutilized processing capacities in the off-season. The seasonality creates money problems for the producers as well as traders. Farmers nee money for inputs through out the production process, where as they get their returns only at the end of production process. And the post-harvest glut erodes the market prices and thereby their income. Similarly, traders are required to lock-up their money heavily at harvest times, which makes them to be speculate to cover their risks.
Seasonality leads to speculative trading business like hoarding and selling in black markets. The environment susceptibility of agricultural and horticultural produce makes the market intelligence to risky and uncertain leading to wastages and damages. The low value of agricultural and horticultural produce and its seasonality makes the private corporates to sky away from investing on research and development on modern marketing process for agricultural and horticultural produce. Often raw exports reduce the potential foreign exchange earnings. Besides, the uncertainties and peculiarities of agricultural and horticultural produce and its seasonality makes it very difficult to have effective check on the marketing process. This paves way for the emergence, existence and persistence of large scale unorganized markets for various agricultural produce in which various defects and malpractices begin to emerge and persist.
MARKETING FUNCTIONS Any specialized activity performed in carrying a product from the point of production to the ultimate consumers may be termed as a marketing function. A marketing function may have any one or a combination of three dimensions viz., time, space and form. The marketing functions involved in the movements of goods from the producer to the ultimate consumer vary from commodity to commodity, market to market, the level of economic development of the country and final form of consumption. The marketing functions may be classified in various ways. For example, Thompson has classified the marketing functions into three broad groups. These are Primary functions : includes assembling or procurement, processing, dispersion or distribution Secondary functions : includes packing or transportation, grading and standardization, quality control storage and warehousing, price determination or discovery, risk taking, financing, buying and selling, demand creation and determination of market information. Tertiary functions : includes banking, insurance, communication, supply of energy. Kohls and Uhl classification Physical functions : storage and ware housing, processing, transportation Exchange functions : buying and selling Facilitative functions : standardization, financing, risk taking, dissemination information
of market
From the above classification, one can find that there are three principal marketing functions, assembling (procurement and concentration), processing (preparation for consumption) and dispersion (distribution) and a set of secondary facilitative services called secondary services like grading, packaging, transporting, storing, financing, assuming risk and selling. Assembling : Assembling means bringing together, collecting and concentrating goods of the same type from the various sources of supply at centrally located places. The horticultural commodities are assembled chiefly for two purposes: (i) for meeting the demand of the consumer and (ii) to provide a sufficient volume of business to middlemen, like wholesalers and retailers. The importance of assembling as a means of facilitating the orderly feeding of market is fairly obvious where these markets are far away from the away from the multitude of small producers responsible for supplying them. In India where 70 per cent of farmers are small and marginal and this function has an important role to play. Processing : Processing helps to create a new demand and maintain the quality of the product for a period. Processing, therefore, may be defined as the act or series of acts by which a product is converted into a more useful form. The processing function would include all of these essentially manufacturing activities that change the basic form of the product. Eg. Wheat into flour and finally into bread.
Dispersion: It is a process exactly opposite to that of assembling. After collecting the products of many farmers in scattered localities and processing the same, the process of dispersion begins. This is the dispersion of these products to many thousands of consuming markets and into the hands of millions of consumers. The dispersion function involves finding: Where potential buyers are located How much and what product they prefer? and What price the are ready to often? It also includes selling of the goods, their physical movement and handling and the transfer of funds back to central and assembling markets. It means keeping a steady flow into consumption of the vast volume of goods which is following into the central markets through the assembling end of the marketing system. BUYING AND SELLING Buying and selling are the most important activities in the marketing process. By this exchange function, possession utility is added to the commodities. The number of times the buying and selling activity is performed depends on the length of the marketing channel. In the shortest channel where no middlemen is involved, this activity takes place only once, (i.e).producer to consumer. But usually in the case of farm products, selling and buying activities are undertaken each time when the produce moves from the farmer to the primary wholesaler, from the wholesaler to retailer to retailer and from the retailer to the consumer. Buying It involves the purchase of the right goods at the right place, at the right time, right quantities and the right place. It involves the problem of what to buy, when to buy, from where to buy, how to buy and how to settle the prices and terms of purchases. Buying function involves the following subsidiary functions before the actual buying function takes place. Planning the purchase of goods: Deciding the quantity of each good to be purchased. Contractual function : Determining the sources of supply and establishing contacts with them Negotiation of price and terms and conditions of buying Final agreement and transfer of goods. Selling It involves the problems of when to sell, where to well, through whom to sell, and whether to sell in one lot or in parts. The objective of selling is to dispose of the goods at a satisfactory price. The selling function thus includes the following sub-functions, the performance of which enables to get a good price for the produce.
Product planning and development : This sub-function includes the activities of determination of the variety quantity of the product to be produced, grading it and deciding about the trade or brand names to be adopted for the product. Contractual function : Includes the activities which are designed to stimulate already existing desire for the satisfaction of the want of a given product. In other words, it means selling the products with which potential consumers are not familiar. Negotiating the prices and selling the terms and conditions of sale with the buyers. Final selling and transfer of the produce. Methods of buying and selling prevalent in India Under cover of a cloth : By this method, the prices of the produce are settled by the buyer and the commission agents of the seller by pressing the fingers of each other under cover of a piece of cloth. This system provides opportunities for cheating the seller, for the seller is not aware of the price that has been offered by other buyers. This method has been abolished now by; the government because of the possibility of cheating, though it continues to be used in some markets. Private negotiation : In this method, prices, are fixed by mutual agreement. This is common in unregulated markets or village markets.
Quotations on samples taken by commission agents : In this method, commission agents takes the samples of the produce to the buyers. The produce is given to the one whose bid is the highest. Dara sale method : The produce in different lots is mixed and then sold as one lot. The advantage is within a short-time, a large number of lots can be sold. The disadvantage is that the produce of a good quality and one of poor quality fetch the same price. Open auction method : The prospective buyer is gather at the shop of the commission agent around the heap of the produce, examine it and offer bids loudly. The produce is given to the highest bidder after taking the consent of the seller farmer. This method is preferred to any other method because the farmers bring a superior quality of the produce receive a higher price. In most regulated markers, the sale of the product is permissible only by the open auction method. Close tender system : In this, bids are invited in the form of a closed tender rather than by a open announcements. The prospective buyers visit the shops, inspect the lots, offer a price for the highest. The advantage of this method of sale is time-saving and labour saving method. There is no possibility of collusion among the buyers. PACKAGING Packaging is a process of putting the commodities into convenient containers or wrappers. It is a very useful function in the marketing process of agricultural commodities. Most of the commodities are packed with a view to preserving and protecting their quality and quantity during the period of transit and storage. Packing means, the wrapping and crating of goods
before they are transported. Goods have to be packed either to preserve them or for deliver the buyers. Packaging is a part of packing, which means placing the goods in small packages like bags, boxes, bottles for sale to the ultimate consumers. Advantages of packing : Packaging contributes to efficient marketing by: It protects the goods against breakage, spoilage, leakage during their movement from production to the consumption point. It reduces the bulk Facilitates the handling of the commodity, specially such fruits as apples, mangoes etc during storage and transportation It helps in reducing marketing costs by reducing the handling and retailing cost. Helps in checking adulteration. It prolongs the storage quality of the products by providing protection from the ill effects of weather, specially for fruits, vegetables and other perishables. Packaging with labeling facilitates the conveying of instructions to the buyers as to how to how to use or preserve the commodity. The label shows composition of the product. TRANSPORTATION Transportation or movement of products across regions is one of the most important marketing functions at every stage. This function is primarily concerned with making goods available at the proper place resulting in creating place utility of horticultural commodities. While it is always desirable to transport horticultural commodities as far as possible to a more remunerative market, and it is equally important to reach these products to the consumers at proper time. An efficient transport system enable to reach the markets far and wide and also without losing time. If transport system is not efficient, a less share of consumers rupee reaches the producer. In order to ensure adequate returns to the farmer, transport must be developed rapidly. Advantages of transport function Widening of the markets : Transport helps in the development or widening of markets by bridging the gap between the producers and consumers located in different areas. Narrowing price difference over space : Transportation of goods from surplus areas to the scarcity helps in cocking price rise in scarcity areas and fall in surplus areas thus reduces the spatial differences in prices. Creation of employment : Provides employment to a large number persons through construction of roads, loading, unloading etc Facilitates specialized farming : Farmers can go in for specialized farming suitable to their areas, and exchange the goods required by them from other areas at a cheaper price than their own production cost.
Transportation helps in transformation of the economy from the subsistence stage to the developed market economy. Mobility of factors of production: Helps in increasing the mobility of capital and labour from one area to another and there by increase efficiency in production. Means of transport The available means of transportation can be classified as follows.
MEANS OF TRANSPORT
LAND
PATHWAYS
HEAD LOAD
RAILWAYS
WATER
ROADS
INLAND
OCEAN
PACK ANIMALS
BULL CART
MOTOR VEHICLES
Land Head load : This form is largely found in hilly tracts where the roads can not be constructed easily and the distance to be covered is a short one. eg. Fruits and vegetables. This is much prevalent in backward areas and cheaper one. Pack animals : Horses, buffaloes, bullocks and camels are used for carrying loads. These serve good purpose for transport of small quantity, when roads are damaged rainy seasons, e.g. Camel is used for transportation in the deserts of Rajastan. In spite of these advantages, the usage of bullock cart is declining in the modern world.
Motor vehicles : This has become more popular in recent times because: it is efficient in delivering to the point which can not be done by railways; affordable for handling moderate quantities; flexibility in carrying capacity and charges and low capital investment needed. Railways : The railways system all over India have made the movement of goods more speedy and reduced damages in transit and handling. It has helped to make cheap and safe transportation of goods and resulted in greater advantage to poor cultivators; it widened markets of horticultural produce and raw materials etc, with an increase in horticultural income; and quicker and bulk movement of perishable commodities provided better utilities for them. Water transport The oldest and cheapest means of transportation is water transport. It proves much useful for carrying bulky and heavy goods to low value. Water transport may be divided in to river, canal and sea. Air transport It is of great importance for transporting to farthest places in a short time. Further, it proves much helpful in case of emergencies like flood, war etc,. India has established regular mail services connecting all important cities. This apart only high value, low volume products are transported through air due to the prohibitive costs. Transportation costs The cost involved in transportation of horticultural commodities. Transportation cost accounts for about 50 per cent of the total cost of marketing. The efficiency of transportation depends on the speed and the cost with which goods move from one place to another, the extent of the facilities provided, and the degree of care with which goods are handled. Factors affecting the cost transportation Distance : With an increase in the distance over which a commodity is transported the total transportation cost increases but the transportation cost per init quantity of the produce decreases after a certain distance. Quantity of the product : Transportation cost per unit quantity of a commodity decreases with the increase in the volume. Mode of transportation : In varies with the mode of transportation. Nature of the products : Cost of transportation per unit is higher for the products having characters such as perishability (vegetables), bulkiness (straw), fragility (tomatoes), inflammability (petrol) requirement of a special type. Risk associated : The cost is less if the produce is transported at he owner’s / sender risk Problem in transportation: Following are some of the important problems arising out of the transportation of horticultural commodities.
There are more losses and damages in transportation because of the use of poor packing materials, over loads, and poor handling, specially of fruits and vegetables, at the time of loading and unloading. Transportation cost per 100 rupees worth of produce is high, because of its bulkiness and the prevailing practice of fixing charges on the basis of weight per volume rather than on the basis of its value. Lack of co-ordination between different transportation agencies. companies.
E.g. railways and truck
GRADING AND STANDARDISATION Grading and standardisation implies the setting up of the basic measures to which the produced goods must conform. Standardisation : Means the determination of the standards to be established for different commodities. Standards are established on the basis of certain characters such as weight, size, colour, appearance, texture, moisture content and performance. The characteristics, on the basis of which products are standardized are termed grade standards. Thus, standardization means making the quality specification of the grades uniform among buyers and sellers over place and over time. Grading : Means the sorting of the unlike of the produce into different lots according to the quality specifications laid down. It is a method of dividing products into certain groups or lots in accordance with predetermined standards. Grading follows standardization. It is a sub-function of standardization. Advantages Grading before sale enables the producer to get a higher price. Grading facilitates marketing as it specifies the quality of the produce. Grading widens the market of a produce since buyers located at different places can purchase the desired quality. Grading helps the consumers to get desired quality. Quality control The Export Promotion Council of India, the Indian Standards Institution, the Indian Statistical Institute, National Productivity Council, The Indian Society for Quality Control and the Indian Institute of Foreign Trade are the responsible for generating awareness about the problems of quality control. There are some legislative measures helped in the production of quality goods. They are Prevention of Food Adulteration Act (1954), Fruit Products Order (1946/0, Vegetables Oil Products Control Order (1947), The Essential Commodities Act (1955), The Standards of Weights and Measures Act (1956), The Trade and Merchandise Marks Act (1958), Forward
Contracts (Regulation) Act (1969), The agricultural Produce (Grading and Marketing) act, 1937, the Indian Standard Institution (Certification Marks) act, 1952. Agricultural Products : The Directorate of Marketing and Inspection, GOI is responsible for the quality control of agricultural commodities. It has fixed grade standards for a number of agricultural commodities for domestic consumption as well as for exports. To improve the quality of agricultural products in India, Grading and marketing were introduced under an act, 1937. This act authorizes the GOI to frame rules relating to the fixing grade standards and the procedure to be adopted to grade the agricultural commodities in the schedule. The agricultural marketing advisor to the GOI, is the authority empowered to implement the provision of the Act and suggest suitable modifications. The agricultural commodities are graded under AP(GM) act, on the basis of the specifications laid down under the grade standards. Graded products bear the label ‘AGMARK’, indicating purity and quality of the products. Such graded products are called ‘Agmark Peoducts’. The agmark label bears a guarantee from the government regarding the quality of material so marked. In Tamil Nadu, agmark is functioning under the Directorate of Marketing with its head office at Trichy. Agmark is a voluntary shame, and in the state both centralized and noncentralised commodities are graded. Centralised : gingerly oil, groundnut oil. mustard oil.
Coconut oil, castor oil, ground spices, honey and
Non-centralised : Rice, pulses, coriander, turmeric, potatoes, egg, fruits, arecanut, cane, jaggery etc. The grading of centralized commodities require chemical analyses carried out by Amark labs and the non-commodities are graded based on physical character of the produce like presence of foreign matter, moister, admixture, admixture, discolored etc,. Grading is compulsory for export. Manufactured products Manufactured products are graded in accordance with the standards laid down by the Indian Standard Institution, now Bureau of Indian Standards and bear the label ISI. Manufactures have to use proper ingredients in specified proportions and follow the technique of manufacture given in the standards laid down by the Indian Standard Institution. The ISI label is an indicator of the good quality of the product. Indian Standards Institution (ISI) Standardistion of an organized basis started in India with the establishment of ISI. It was set up in 1947 with the active support of the industrial, scientific and technical organizations in the country. This institution operates under an Act of Parliament (ISI Certification Marks Scheme), under which manufactured items are stamped with the ISI mark of certification. This mark acts as a third party guarantee to the purchaser that the goods bearing the mark have been produced in accordance with the provisions of the relevant Indian standards.
Aims and Objectives of ISI Preparation of standards for products, commodities, materials and possess on national and international bases. Promotion of general adoption of the standards prepared by it national and internationals level. Certification of industual products and assistance in the production of quality goods. Dissemination of information relating to standards and standardization/ Conduct of surveys and training programmes for assistance to Indian industries in organising their in –plant standards activity. Imparting training in industrial standardization to scientists and technologist from abroad. For effective implementation of national standards and for bringing the advantages of standardization with in the reach of the common consumer, the Institution is operating a certification marks scheme under the ISI (Certification Marks) act. This act enables ISI to grant licenses to manufactures to use the ISI mark on their products. Every licence include a scheme of testing and inspection which the licence is required to follow strictly. During the operation of the licence, ISI carries out regular and surprise inspections of the manufacturers to make sure that the scheme of testing and inspection is being properly adhered to samples of certified products are drawn from the production line and from the open market and tested in independent laboratories. As a safeguard for the consumer the scheme provides for free replacement of ISI market goods found to be of sub-standard quality. The certification sheme was started in 1955-56. The licence covers a range of 570 products including consumer products and industrial products. ISI serves the interests of the country in the field of international standardization by close collaboration with the international organization such as ISO (International Organisation for Standardisation) and IEC (International Electro Technical Commission) for standardization. The ISI also works in close collaboration with the similar organization for standardization in other countries of the ECAFE (Economic Commission for Asia and Far East region) with a view to promoting standardization activities. It actively participates in the work of the Asian Standards Advisory Committee (ASAC). Bureau of Indian Standards The Indian Standards Institution has been renamed as BIS with effect from April 1,1987. The Bureau has been established by the Bureau of Indian Standards Act, 1986 and has become a statutory body. As such all activities of Bureau viz, Standards formulation, product certification, quality assurance, consultancy services, quality assessment, testing and development of test methods have assumed statutory status. Fruit Products Order 1955: The quality control in respect of fruit product was first enforced in 1946 under the fruit products Order. This had been amended and issued under the Essential Commodities Act, 1955. The main objectives of this Order are to develop production of quality foods and ensure that these are manufactured under proper hygienic and sanitary conditions. It exercises control over the production both in the interest of manufactures and consumers.
The Order provides for compulsory licensing of the manufacturers of fruit and vegetables products with a view to ensuring that all manufactured products confirm to the minimum standards in respect of quality, packing etc. To ensure quality control the factories are inspected by staff maintained for the purpose and samples of finished products are taken and analysed at CFTRI in Karnataka. If substandards, the products may be destroyed and the manufacturers prosecuted. Vegetable Oil Products Order, 1947 : The Order vests power in the controller to prohibit or restrict the manufacture, storage, distribution or sale of any variety or quality of vegetable oil products and prices. Prevention of Food Adulteration Act, 1954 : This lays down certain basic requirements of food such as, freedom from adulterants and extraneous matter or decomposition, preparation and handling under sanitary conditions, packing in sound containers, use of certified synthetic colours, restrictions in the use of preservatives and other food activities, use of declarative labels giving accurate information about the quantity and quality of the contents etc,. STORAGE AND WAREHOUSING Storage Storage is an important marketing function, which involves holding and preserving goods from the time they are produced until they are needed for consumption. Storage is an exercise of human foresight by means of which commodities are protected from deterioration, and surplus supplies in times of plenty are carried over to the season of scarcity;. The storage function therefore adds the time utility to the products. Need for storage Agricultural and horticultural products are seasonally produced but are required for consumption through out the year. The storage, therefore ensures a continuous flow of goods in the market. It protects the quality of perishable and semi-perishable goods from deterioration. Helps in the stabilisation of prices by adjusting demand and supply. It is necessary for some periods for performance of other marketing functions. e.g. the produce has to be stored till arrangements for its transpiration are made or during the process of buying and selling or the weighment of the produce after sale and during its processing by the processor. It helps in ripening for some farm commodities (banana, mango, etc,) or for improvement in their quality (rice, pickles, cheese etc,). It provides employment and income through price advantages. e.g. Middlemen store foodgrains by purchasing them at low prices in the peak season and sell them when prices are higher. Risks in storage The storage of horticultural commodities involves three major types or risks.
Quantity loss : The risks of loss in quantity may arise during storage as a result of the presence of rodents, pests etc,. Dehydration too, brings about unavoidable loss in weight. It has been estimated that about 10million tones of foodgrains are lost every year because of poor and faulty storage. Quality deterioration : deterioration in quality reduces the value of the stored products. These losses may arise as a result of attacks by insects and pests, presence of excessive moisture and temperature or as a result of chemical reaction. The loss in quality of the farm products varies with their quality at the time of storage, method of storage and the period. Price risks : Prices do not always rise enough during the storage period to cover the storage costs. At times they fall steeply, involving the owner in a substantial loss. Farmers and traders are generally store their product in anticipation pf price rise, and they suffer when prices fall. Costs and returns on storage: The gross return on storage may be defined as the increase in the price of the stored product at the time of storage till it is destored and either sold or consumed. The cost of storage includes, cost of maintenance of storage structure, interest on the value of the stored goods, risk premium for a possible price fall and damage during storage, and cost of protective materials, and tax payments, payments to labour etc., NR = (P1-P0) – C Where, NR = Net returns to storage P1 = Market price at the time de-storing P0 = Market price at the time storing C = Cost involved storage If NR > 0, implies positive returns on storage ; NR < 0, implies negative returns on storage. The percentage margin (Ms) from storage may be calculated as:
P1 - P0 - C Ms = --------------P0+C Warehousing Warehousing is storing goods on scientific lines which enableeasyretrieval of goods stored. It is package of services which creates time and place utility. Warehouses are scientific storage structures constructed for the protection of the quantity and quality of the stored products.
Today warehousing includes a package of services required for orderly marketing. It includes handling and transport, safety and security, standardisatation ans other related. Scientific storage : A large bulk of farm commodities may be stored. The product is protected against quantitative and qualitative and qualitative losses. Financing : Warehousing meet the financial needs of the person who stores the product. Natonalised banks advances credit on the security of the warehouse receipt issued for the stored product to the extent of 70-80 percent of the value. Price stabililsation : Helps in price stabilization of farm products by checking the tendency to making post-harvest sales among the farmers. Market intelligence : It offers the facility of market information to persons who hold their produce in them. They inform them about the prices prevailing in the periods, and advise them on when to market their products. Types of warehouses On the basis ownerships, private and public and bonded warehouses. On the basis of commodities stored, General, special commodity warehouses, refrigerated warehouses. Warehousing in India : The Royal commission on Agriculture in 1928 and the Rural Banking enquiry Committee in 1950 had exphasised the need for establishing a warehousing system for agricultural produce and creation of a negotiable paper for expansion of institutional credit. The RBI in 1944 had also proposed that every state government should enact legislation to regulate the functioning of warehouses. However, no tangible progress could be made in this direction as warehousing is a highly capital intensive activity with low returns. The private capital was therefore shy of entering in third field. It was only after the All India rural Credit Survey Committee, 1954, the concept of warehousing in the public sector took a concrete shape. This committee’s recommendations paved the way for the enactment of the Agricultural Produce (Development and Warehousing) Corporations Act, 1956 and later replaced by warehousing Corporations Act, 1962 and establishment of central and state warehousing corporations. National Co-operative Development and Warehousing Board (NCDC): It was set up in 1956 to perform the following functions. To advance loans and grants to the state governments for financing co-operative societies engaged in the marketing, processing or storage of agricultural produce, including contributions to the share capital to these institutions. To provide funds to warehousing corporations and the state governments for financing cooperative societies for the purchase of agricultural produce on behalf of central government. To subscribe to the share capital of CWC and advance loans to CWCs and SWCs. To plan and promote programmes through co-operative societies for the supply of inputs for the development of agriculture.
To administer the National Warehousing Development Fund. Central Warehousing Corporation (CWC) This corporation was established as a statutory body in New Delhi, 1957. Under the new Act, the Central Warehousing Corporation was formally reestablished on 18 March, 1963, the CWCs provide safe and reliable storage facilities for about 120 agricultural and industrial commodities. Functions To acquire and build godowns and warehouses at suitable places in India. To run warehouses for the storage of agricultural produce, seeds, fertilizer and notified commodities for individuals, co-operatives and other institutions. To act as an agent of the government for the purchase, sale, storage and distribution of the above commodities. To arrange facilities for the transport of the above commodities. To subscribe to the share capital of SWCs. Besides, the conventional storage godowns, the CWCs running air conditioned godowns at Calcutta, Mumbai and Delhi and provides cold storage facilities at Hyderabad. The corporation has recently introduced a new scheme called the farmers Extension Service at selected centers to educate farmers in the benefits of scientific storage and use of public warehouses. The CWCs also provide a package of services such as handling and transport, safety and security of goods, insurance, standardizations, documentation and other connected service and facilities. State Warehousing Corporations The area of operation of SWCs are centers of district importance. The total share capital of SWCs is contributed equally by the concerned state governments and CWC. The SWCs, are under the dual control of the state governments and the CWCs. PROCESSING Processing is an important marketing function in the present day marketing of agricultural and horticultural commodities. The processing activity involves a change in the form of the commodity. This function includes all of those essentially manufacturing activities which change the basic form of the product. Processing converts the raw materials and brings the products nearer to human consumption. Importance Converts raw food in to edible and palatable forms. The value added by processing to the total value produced at the farm level varies. It is nearly 7 percent for rice and 86 per cent for tea. It makes possible for us to store perishable and semi-perishable commodities and facilitate the use of surplus in one season or another or another or year. e.g. canning and pickling of fruits and vegetables.
It generates employment. It serves as an adjunct to other marketing functions, such as transportation, storage and merchandising. Processing of fruits and vegetables: Although fresh fruits and vegetables are still a delicacy, but with the increase in surpluses and the need to carry the surpluses from producing of fruits and vegetables has gained importance in the recent years. The fruits are converted into such items as jam, jelly, squash and canned fruits. Fresh vegetables are converted into pickles, sauces, dehydrated vegetables etc,. The self life of such processed products is more than that of fresh fruits and vegetables. Though the share of the farmers in the price paid by the consumer of such processed foods continues to be low, the processing industry has helped in providing market clearance to the growers of fruits and vegetables. MARKET RESEARCH Marketing research is a formalized means of obtaining information to be used in making marketing decisions. It is a systematic problem analysis, model building, and fact finding for the purpose of improved decision making and control on the process of marketing goods and services. Thus marketing research includes selection of methods for fact finding in relation to specific problems, selection of methods regarding analysis of collected data and making valid conclusions which help making marketing decisions. The importance of agricultural marketing research has arisen due to rapid changes in the economy from the very little capital investment and few marketing services stage to the monetised and complex one. Specialisation in production has resulted in the concentration of agricultural products in the most favorable area, and the product has to move over long distances and far form the areas of production. The movement over time and space have added new dimensions and complexities to agricultural and horticultural marketing. The need for research in agricultural marketing has been recognized by the planners and policy makers. Research in this field can contribute to the establishment of facts and the evaluation of the policy measures that may be necessary for developing a successful marketing strategy with regard to production, consumption, distribution and pricing. A smooth functioning of the marketing system is essential for prices stability and for proper incentives for the producers at same time helping the consumers. In the present context, when agricultural production is on the increase, the marketing system should be suitably altered to sustain the increases by providing efficient and prompt services. This could be done only by understanding the developments and by anticipating the problems in marketing. Objectives of Market Research To understand the existing and traditional marketing system. To diagonise the problems confronting the farmers, marketing agencies and consumers in a dynamic context and
To analyse and predict the impact and effectiveness of alternative policy measures in solving these problems. Broad areas of Marketing Research Business Economic Research : Covers over all performance of business firms in terms of forecasting for their product, trend analysis etc,. Product Research : Involves the activities connected with gathering information about individual products such as customers needs, product concept and packaging etc., Sales and marketing analysis : Deals with sale volume, salesman performance, market penetration rate, new product performance in that markets, customer related products data as well as company’s effectiveness of its promotional efforts. Advertising Research : Concerned with the effectiveness of given advertising media and the techniques of effectively reaching out the target markets. Steps in Marketing Research Identification the problem : Formulate clear objectives as to what for the study is undertaken. Formulation of hypotheses : Co through relevant existing literature to identify tentative lines of reasoning and testing. Designing the empirical procedure : Decide on the methodology to be adopted in conducting the survey - field survey – primary secondary sources –methods of data collection etc,. Collection and analysis of data : Objectives and hypotheses would greatly help this step. Depending on the need sophisticated mathematical models/computer may be used. Interpretation of results : Formulating plausible situations for the problems identified. Monitoring and follow-up : Repeating the research process to ascertain the dynamics of the solutions prescribed. Sources of information Primary sources : consumer/producer-farmer, retailers wholesaler / miller / processing houses. Secondary sources : Internal (producer/company) records, government sources, trade, professional and business journals, library, private business firms. Methods of data collection: Survey method Observation method Experimental method
Panel research : The same group of informants being contacted more than once to assess the directions of change. MARKET INFORMATION AND INTELIGENCE Accurate, adequate and timely availability of market information facilitates decisions about when and where to market products. Market information creates a competitive market process and checks the growth of monopoly or profiteering by individuals. Market information is defined as a communication or reception of knowledge or intelligence. It includes all the facts, estimates, opinions and other information which affect the marketing of goods and services. Importance It is useful for all sections of the society which are concerned with marketing. Farmer-Producer. Helps in improving the decision making power of the farmers. A farmer is required to decide when, where and through whom he should sell his produce and buy his inputs. Price information helps him to take these decisions. Market middlemen: Middlemen need market information to plan the purchase, processing storage and distribution. They need it to understand the market situation on the basis of which they decide on when to release the produce, where to transport and in what final form. General economy: Market information and its proper dissemination would create healthy competition among the participant of the market and thus contribute to operational efficiency. In the absence of such information imperfect competition would persist, leading to abnormal profits to sections, leading to income inequalities. Government: Market information is essential for the government in framing its agricultural policy in the regulation of the market, bufferstock operation, import and export and pricing. Types of market information Market intelligence: This includes information relating to such facts as the prices that prevailed in the past and market arrivals over time. These are essentially a record of what has happened in the past. Marketing intelligence is, therefore, of historical nature. An analysis of the past helps us to take decisions about in the future. Market news: Refers to current information about prices, arrivals and changes in market conditions. The information helps the farmers to take decisions about when and where to sell his produce. These frequently become obsolete and need to be periodically updated. Criteria for good market information Good market information must meet the following criteria. Comprehensive: It must be complete and comprehensive. It must cover all the agricultural and horticultural commodities and varieties, and all the geographical regions. It must cover prices, production, supply movements, stocks and demand conditions.
Accuracy: Though the collection of accurate market information is tedious and expensive, there need to high degree of accuracy. Relevance: It must be relevant in the sense that it must be collected, arranged and disseminated, keeping in view the user’s interest. Equal accessibility: Every person engaged in marketing must have equal access to the available information. Timeliness: Market information must be made available in time, late dissemination of market information is of no use. Lacuna in the existing market information services Market reports are incomplete in many aspects. Often, there is no mention of quality when the price is quoted, and the price quoted is other than a model price. The reported prices vary considerably from the actuals because of inaccurate field reporting, sampling errors. There is manipulation in collection of information for market reports. Most of the time, there is a great time-lag in the publication of the magazines and reports carrying such information. Thus, the information becomes obsolete from the practical utility point. The market information that is made available is of greater use to the buyers than the producers. Market intelligence in India: Market intelligence is an essential function for the formulation of a sound price policy and its successful implementation. The formulation of a sound price policy requires an analysis of longterm trends in the data on prices, arrivals, demand and supply of and other information. A market intelligence scheme provides necessary information for the evolution of a proper price policy. Different committees, the Food Grains Policy Committee, 1943 and the Pieces Sub Committee of the Policy Committee on agriculture, Forestry and fisheries, 1948 have emphasized the importance of data on market intelligence and of a market intelligence authority. The Ministry of Food and Agriculture appointed an Agricultural Prices Enquiry Committee, 1953. In pursuance of the recommendations of this committee, the Directorate of Economics and Statistics initiated an Integrated scheme for the improvements of Market Intelligence. The market intelligence scheme in India provides for the collection of data on prices, arrivals, dispatches and stocks of important agricultural commodities for the selected market centers of the country. MARKET FINANCE Financing as a marketing function, involves the use of capital to meet the financial requirements of the agencies engaged in the various marketing activities. Finance is required whenever
some transactions takesplace. Till the produce reaches consumer’s hand and got paid, the producer’s money remains unchanged. Kinds of finance Businessmen required permanent or fixed capital to provide land, building, machinery and equipment and working or current capital for the purchase of goods to continue to produce, for resale payment and for the extension of credit to the consumers. There are two bases of credit, the moral and material bases. These base constitute three C’s in credit granting, Character, Capital and Capacity. Character is the moral basis of credit. Capital and capacity are the material bases of the credit, which determine the credit risk limits. An attempt has been made to develop the three C’s basis of credit granting. Character + capacity + Capital
= safety in credit limit
Character + capacity + Insuff Capital
= fair credit risk
Character + Capital + Insuff Capacity
= fair credit risk
Capacity + Capital + Impaired Character
= doubtful credit risk
Character + Capacity – Capital
= limited success
Capacity + Capital - Character
= dangerous risk
Character + Capital – Capacity
= Inferior credit risk
Capital – Character - Capacity
= distinctly poor risk
Character – Capacity – Capital
= Inferior credit risk
Capacity – Character – Capital
= fraudulent credit risk
It is advisable that when granting loans financiers if interested to measure their risk mathematically should give a value of 40 per cent to character, 35 percent to capacity and 25 per cent to capital. No business is possible now a day without the financial support of other agencies because the owned funds available with the producers and market middlemen are not sufficient. The financial requirements increase with the increase in the price of the produce and the cost of performing various marketing services. In the word of Pyle; Credit is the lubricant that facilitates the marketing machine. Factors affecting capital requirement of the horticultural marketing firms: Nature and volume of business Necessity of carrying large stocks Continuity of business during various seasons
Time required between production and sale Terms of payment for purchase and sale Risk bearing ability MARKETING RISK Risk bearing is one of the important facilitating functions of marketing. Market risk may be ;defined as the losses or damages that could accrue due to the inability to accurately predict the future state of variables connected with marketing activities. Thus, there may be physical risks like losses due to storage, flood etc, financial risks due to price changes policy changes of the government etc,. There is always a time lag between the production and consumption of farm products. The longer the time lag, the greater would be the market risk. There is no possibility to dispense with market risk completely and it is risk bearing that leads to profitability. Profit margin in marketing may be defined as Pm = Pm Qm – Cl – Pp Qp Each of the above components are subject to future changes and consequently leads to risk bearing. Whenever risks are greater and varied, the margin taken by the risk bearers is higher and vice – versa. In the process of transferring goods from the producer to the consumer, someone has to take risk and usually the middlemen do it and correspondingly their profit margin are also higher. Types of risks The risks associated with the marketing process are of three basic types. Physical risk : This includes a loss in the quantity and quality of the product during the marketing process. It may be due to fire, flood, earthquake, rodents, insects, pests, excessive, moisture or temperature, improper packing etc. These together account for a large part of the loss of the produce at the individual as well as at macro level. Price risk : The prices of agricultural products fluctuate not only from year to year, but also across seasons. The changes in prices may be upward or downward. Price variation can not be ruled out, for the factors affecting the demand for and supply of, agricultural products are continually changing. A price fall may cause loss to the traders or farmers who stokes produce. Minimisation of risks Though risk can not be eliminated, it can be minised by proper risk management. Reduction in Physical risk : the physical loss of a product (both quantity and quality) may be reduced by Use of fire-proof materials in the storage structures to prevent accidents due to fire.
Use of improved storage structures and giving necessary pre-storage treatment to the product to prevent losses in quality and quantity arising out of excessive moisture, temperature etc,. Use better and quicker transportation methods and proper handling during transit, and proper packing material. Transfer of physical losses to Insurance Companies: The burden of physical risk may be minimised by shifting it to insurance companies. There are specialized professional agencies to bear such risks. They collect premium and provide full compensation to the party in cash of loss due to the reasons for which the products are insured. In this way, the company insures a number of farmers against losses. Minimization of price risks: The price risk may be minimised by Fixation of minimum and maximum prices for commodities by the government and allowing movements in prices only with in the defined range. Marketing arrangements for the dissemination of accurate and scientific price information to all sections of society over space and time. This should include information of market demand, acreage under a particular crop, estimates of market supply and of the import and export of commodities. Operation of speculation and hedging: The price risk associated with the commodities for which the facility of forward trading is available may be transferred to professional speculators through the operation of hedging. Future trading May be defined as an agreement between two parties, one who agrees to sell and other who agrees to purchase and receive a certain kind and quantity of commodity, at some specified future time, at a specified price and according to the conditions of trading prescribed by an organized produce or commodity exchange. It includes both speculation in which products are brought and sold for the purpose of making profits from the price changes and hedging or protective transactions which are entered to avoid for seen losses resulting from price fluctuations. Payment and delivery under such conditions are postponed to a future time for goods may not be even in existence at the time of contract. The contractual dealings of the future trade is said to be in the forward market contracts. A ready or spot contract is one in which a commodity is purchased on condition that the actual delivery takes place immediately and the payment is simultaneously made. When these are to be made at a future date, it is called a forward contract. These are in the form of price insurance and are enabled through produce exchange. Speculation and Hedging Speculation and hedging are the important ways of minimising price risk in business. Speculation: The fundamental ideas underlying speculation is the purchase or sale of a commodity at the present piece with the object of sale or purchase at some future date at a
