CHAPTER 2

AGRICULTURAL MARKETING: EVOLUTION AND

GOVERNMENT INITIATIVES

2. AGRICULTURAL MARKETING IN INDIA

India is an agricultural country and one third population depends on the agricultural sector
directly or indirectly. Agriculture remains as the main stray of the Indian economy since times
immemorial. Indian agriculture contribution to the national gross domestic product (GDP) is
about 25 per cent. With food being the crowning need of mankind, much emphasis has been
on commercializing agricultural production. For this reason, adequate production and even
distribution of food has of late become a high priority global concern.

In earlier days when the village economy was more or less self-sufficient the marketing
of agricultural products presented no difficulty as the farmer sold his produce to the
consumer on a cash or barter basis .But the time has been changed now farmers
successfully undertake the production activities facing the associated pest, disease,
weather and other risk. After overcoming all these hurdles, the produce needs to find a
good price in order to reap the benefits of all his efforts. The marginal and the small
farmers, due to the small surplus often face the problems in marketing their produce.
So ,to in reality they „sell‟ their produce, being unable to successful „market‟ it.

Agricultural marketing is the study of all the activities, agencies and policies involved in the
procurement of farm inputs by the farmers and the movement of agricultural products from
the farmers to the consumers. It includes organization of agricultural raw materials supply to
processing industries, the assessment of demand for farm inputs and raw materials. From
the producer point of view, it is important to know whether the prices prevailing in the market

19
enable him to continue to produce or not, and what he should produce and where and at
what time he should sell it. Large-scale production requires skill to sell it at remunerative
price. A consumer looks at marketing from the point of view of goods and the prices at
which they are offered. Middlemen try to increase his profit margin by discharging
various marketing functions. Agricultural marketing system can be analysed by looking at
the farmers‟ marketing practices, marketing channels and the structure of markets.

Farmers‟ marketing practices and evolution of marketing system are guided by the shelf-life of
the commodity. All agricultural products do not have the same shelf-life. Some products are
perishable, some are less and some are even durable. Cotton and jute versus fruits, vegetables
and milk are contrasting examples of agricultural products having long and short shelf-life. In
between these two extremes are other agricultural commodities. Owing to the increase in
marketed surplus and need to make these available in the off-season and at places other than
production points, functions of storage, processing, transportation, packaging and grading are
required to be performed either by the farmers or by market functionaries.

On the recommendation of the Agricultural Prices Enquiry Committee, (1954), the

Directorate of Economics and Statistics, Ministry of Agriculture (DESMOA) set up 14 Market
Intelligence Units (MIU) in the capitals of Andhra Pradesh, Assam, Bihar, Delhi, Gujarat,
Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu, Uttar
Pradesh, and West Bengal. The market intelligence units are intended to help the DESMOA
in the formulation, implementation and review of the agricultural price policy relating to
procurement, marketing, storage, transportation, import, export and credit, etc.

Majority of the States has enacted the Agricultural Produce Market Acts. The States or Union
Territories yet to enact their own legislation are Kerala, Manipur, Meghalaya, Nagaland,
Sikkim, A&N Islands, Dadra & Nagar Haveli, Daman and Diu and Lakhswadeep.

20
Infrastructure in the regulated markets has been created as per the need in terms of
volume of market arrivals. The regulated market with larger arrivals of produce have been
designated as 33 principal market yards and those with lower arrivals and turn over as
sub-market yards. Each market yard is attached to one or the other principal market to
minimize the establishment costs. On the whole, these are in the ratio of 1:2 i.e., on an
average, each principal yard has two sub-yards.

2.1 ACTIVITIES RELATED TO AGRICULTURAL MARKETING

Agricultural marketing mainly focused on some things, which are the major pillar of the
agricultural marketing .They are explain in the following table.

1. Grading: It helps the producer and seller to determine the price.

It reduces the cost of marketing and helps the consumers to get standard potato at fair price.

It facilitates the scope to widen the avenue for potato export.

It has a direct influence on utilization point of view, as the small to medium sized tubers are
prepared for „seed tubers‟ and large sized tubers for processing Purpose.

Packaging: Handling and packaging of crop is done on farm, not in pack houses as
commonly practiced in fruits and other vegetables. After harvesting, the tubers are kept in
a heaped temporarily and covered with straw. After few days, sorting is done by separating
the diseased and cut tubers, which are further packed in hessian cloth bags or netlon
bags.

Storage: The practice of storage helps to stabilize the prices in the market. Storing crops
for longer period in normal temperature is not possible as it is a living material and through
respiration, the changes occurs due to heat, resulting in loss of dry matter and ultimate
deterioration of quality of crops.
Assembling: Assembling is the first step in marketing of farm produce. It involves collection of
small surpluses from number of small farms scattered over large areas

21
and bulking the same for subsequent distribution in volume. (major assembling
markets of potato in india can be seen in annexure 3)

2.2 ESTABLISHMENT OF REGULATED MARKETS

The establishment of regulated markets helped in creating orderly and transparent

marketing conditions in primary assembling markets. Further, increase in the number of
regulated market yards, from a meagre 286 at the time of Independence to 7,161 in 2001,
helped in increasing the access of farmers to such orderly market places. This development,
coupled with construction of approach roads and roads network linking primary markets with
secondary wholesale and terminal markets, also improved the process of price discovery at
the primary market level where most of the small farmers dispose of their produce. Increase
in physical access of farmers to market places, apart from reducing transaction costs of
farmers, helped small farmers more who have low marketed surplus and could not transport
their surpluses to long distances. Though precise data on the proportion of benefits of
regulated markets going to the small and marginal farmers are not available, there is
evidence to show that expansion of such physical infrastructure in rural areas has helped
small and marginal farmers more by increasing their excess to the markets. The number of
regulated markets is relatively more in geographically larger States like Andhra Pradesh,
Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh and West Bengal. These six states
together account for 61 per cent of total regulated markets in the country. The number of
commodities brought under the ambit of regulation varies from state to state. However, these
include almost all the important agricultural commodities produced in that area/state.

The regulated Mandis working in Uttar Pradesh are supposed to have benefited to producers to a
large extent by way of providing proper marketing `facilities, reducing marketing cost

22
and margins, consequently providing them higher share in the price paid by the consumers.
Over the year, several institutional reforms and policy formulations have been tried to ensure
an orderly marketing system and to mitigate the marketing problems of farmers. Among the
institutional innovation, regulated market, open operations by the state, procurement through
levy and support prices etc. have partially successful. Among these measures, regulated
market deserves special mention. The building up of such market complexes would ensure
more and more bulk arrivals in the market due to prevalence of pricing effectiveness and
efficiency in the marketing of agricultural produce. An efficient form of marketing system is
an important means for raising the income levels of farmers and for promoting development.
The farmers allocate their resources according to their comparative advantage and invest in
modern farm inputs to obtain enhanced production.

2.2.1 Functions of Mandi Samiti/Regulated Market Of The Uttar Pradesh

The market committee shall also be responsible for:

The supply of all such information which the Director or any other Officer not below the
rank of Senior Agricultural Marketing Inspector authorized by the State

government in this behalf may require;

The maintenance of proper checks on all receipts and payments by its officers and
servants;

The proper execution of all works chargeable to the market committee fund;

Keeping a minute book of its proceedings;

Maintaining an account for each cart, truck, consignment or load brought into the
market yards;

Maintaining a register of fees collected;

Taking security from its officers & servants;

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Providing persons authorized to collect fees, a cash box and counterfoil receipts
books;

Keeping accounts in such forms as may be specified in its bye-laws;

Regulating expenditure according to budget;

Preparing and adopting budget for the ensuing agricultural year;

Arranging for temporary storage or stocking of the specified agricultural produce;

Arranging for temporary storage or stocking of the specified agricultural produce;

METHODS OF SALE

The marketing of agricultural produce is generally transacted in one of the following

ways.

Under Cover Or The Hatta System: The sale is affected by twisting or clasping the fingers of
the seller‟s agent under cover of a cloth. The cultivator is not taken into

confidence until the final bid is cleared.

Open Auction System: The agent invites bids for the produce and to the highest
bidder the produce is sold.

Dara System: The system is to keep the heaps of grains of different quantities and
sell them at fiat rates without indulging in weightment etc.
Moghum Sale: Sale is based on the verbal understanding between buyers and sellers and
without mentioning the rate as it is understood that the buyers will pay

the prevailing rate.

Private Agreement: The seller may invite offers for his produce and may sell to one
who might have offered the highest price for the produce.

Government Purchase: The government agencies lay down fixed prices for different
qualities of agriculture commodities. the sale is effected after a gradual

processing for gradation and proper weightment.

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Marketing Agencies: The various agencies engaged in the marketing of agricultural produce can be
classified into two categories, viz., (i) government and quasi private

agencies like the co-operative societies and (ii) private agencies.

MARKETING CHANNELS

Market channel is group of interrelated intermediaries who market the produce from the farmers to
consumer, private and institutional channels are the important marketing channels in the movements
or distribution major agricultural commodities.

A) Private

Different private agencies namely village merchants, wholesalers, commission agents,

processors, retailers are involved in potato marketing channels as follows:-

Producer

wholesaler

Retailer

Consumer

Producer
Commission Agent

Wholesaler

Retailer Consumer


Producer

Cold storage

Commission Agent

Wholesaler Retailer Consumer.

B) Institutional

Marketing of potato is complicated because it is a semi perishable and bulky commodity. It‟s
marketing and export depends upon the type of end uses i.e. either for seed purpose or table
purpose. Various institutions are involved in marketing and export of potato. National Agricultural Co-
operative Marketing Federation (NAFED) and co-operative societies are entrusted for procurement
operations in domestic markets where as the Agricultural and Processed Food Export Development
Authority (APEDA), Marketing Federation (MARKFED) of Punjab deals with potato export. The
institutions involved in the potato marketing channels are as follows:


Producer State Marketing Agencies Retailer Consumer

25


Producer

Cooperative societies
Retailer

Consumer


Producer

NAFED

Retailer

Consumer


Producer

Marketing Federation (MARKFED)

RetailerConsumer Export

2.5 MARKETING COSTS AND MARGINS

2.5.1 Marketing Costs

Marketing costs are the actual expenses required for bringing crop from farm gate to the
consumers. It includes the following:

Handling charges at local points

Assembling charges
Transportation and storage costs

Handling charges by wholesaler's and retailer to consumers

Expenses on secondary services like financing, risk taking and market intelligence

Profit margins taken out by different agencies.

Retailer

Consumer

Producer

State marketing

Agencies

Nafed

Markfed

Export

Co-operative

Societies
26
Market Fee: It is collected from buyers and not from sellers. The rates of market fees
are determined by respective Agricultural Produce Market Committees in some states
like Gujarat, Maharashtra, while in most of the states these are fixed for the entire state
under the respective State Marketing Regulation Acts.

Commission Charges: In some regulated markets, the commission agent exists

and they collect the charges.

Market Charges: These are the charges, which are incurred towards loading,

unloading, weighing, brokerage, cleaning, etc. These charges are fixed by the market committee
and vary from market to market. The operational charges starting from unloading, cleaning,
preparation lot for sale and sometimes weighments are borne by farmers /sellers. From
weighing, the subsequent operational charges are borne by the buyers/ traders. In case of some
regulated markets, entry fee is charged for the vehicle.

2.5.2 Marketing Margins

The marketing margins of crop are the difference between the actual price paid by the
consumer and the price received by farmer for an equivalent quantity and quality of crop.
It may be explained in terms of price spread applied for a particular situation. Studies on
marketing margins or price spread reveals that as the number of market functionaries
increases, they add cost to the commodity in the marketing channel which results in the
fall of producers show in consumer‟s rupee.

2.7 GOVERNMENT INITIATIVES FOR PROPER AGRICULTURAL

MARKETING

Agriculture sector needs structured and functional markets, preferably in vicinity of farmers,
to drive growth, employment, remunerative price and economic prosperity in rural areas of
the country. Enabling mechanism were also required to be put in place for procurement of
27
agricultural commodities directly from farmers‟ field and to establish effective linkage
between the farm production, the retail chain and food processing industries.

With a view to persuade the various State Governments/UTs to implement the

reforms in agricultural marketing through adoption various provisions of Model APMC
Act and to suggest further reforms, the Ministry of Agriculture constituted a
Committee of ten State Ministers, in-charge of Agriculture Marketing, in 2010.

2.7.1 IMPLEMENTATION OF CENTRAL PLAN SCHEMES

1. ‘Grameen BhandaranYojana’( Rural Godown Scheme)

This scheme was launched 01.04.2001with the main objectives of being creation of scientific
storage capacity with allied facilities in rural areas to meet various requirements of farmers
for storing farm produce, processed farm produce, agricultural inputs, etc., so as also to
prevent distress sale. Under the scheme subsidy @ 25% is being given to all categories of
farmers, Agriculture Graduates, Co-operatives & CWC/ SWCs. All other categories of
individuals, companies and corporations are eligible for subsidy @ 15% of the project cost.
Enhanced subsidy is 33.33% in case of NE States/hilly areas, SC/ST entrepreneurs & their
Co-operatives and Women Farmers. The scheme has been recently revised by enhancing
the maximum capacity to 30,000 MT with maximum ceiling on subsidy of Rs. 3 crores for
areas other than North Eastern States and by enhancing the maximum capacity to 25,000
MT with maximum ceiling on subsidy of Rs. 3.333 crores in respect of North Eastern/Hilly
States. The scheme is demand-driven, back-ended and not location specific. The scheme is
further being revised in the EFC under process.

As on 31st January 2013, a number of 30,574 Godown projects have been sanctioned
with creation of storage capacity of 38.36million tonnes under the scheme. An amount of

28
Rs.1017.32crores of subsidy has been released to various banks and Cooperatives
through NABARD and NCDC.

2. Development/Strengthening of Agricultural Marketing, Grading and

Standardisation (AMIGS) Scheme:

The Central sector scheme was launched on 20.10.2004 under which credit linked
investment subsidy is provided for general or commodity specific marketing infrastructure for
agricultural and allied commodities and for strengthening and modernization of existing
agricultural markets, including those of wholesale, rural, periodic in nature. It is a linked to
implementation of three reforms, namely ( i)Setting up Markets in Private and Cooperative
sector,(ii) Provision for Contract Farming and (iii) Provision for Direct Marketing and is being
implemented in those States/ UTs which have amended their APMC Act accordingly. The
assistance is available to various categories which include individuals, group of farmers/
growers/ consumers, Partnership/ Proprietary firms, NGOs, SHGs, Companies,
Corporations, Cooperatives, etc. Under the scheme subsidy of 25% of the capital cost of the
project is provided with a ceiling of Rs.50 lakh per project. In respect of North-Eastern
States, Hilly and Tribal areas and entrepreneurs belonging to SC/ST and their cooperatives,
subsidy of 33.33% is provided with a ceiling of Rs.60 lakh per project.

Since Inception of the scheme up to 31-12-2012, a total number of 8087 marketing

Infrastructure projects have been sanctioned and subsidy of Rs 782.14 crores has
been released.

3. Marketing Research And Information Network (MRIN) Scheme:

An ICT based Central Sector Scheme of Marketing Research and Information Network
(AGMARKNET) was launched in March, 2000 to provide electronic connectivity to

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important wholesale markets in the country for collection, collation and dissemination of
price and market related information for the benefit of farmers and other market users.
The scheme is being implemented in collaboration with Directorate of Marketing and
Inspection, National Informatics Centre, State Agricultural Marketing Directorate/Board
and APMCs. Information relating to prices, arrival of commodities and other market
related information is provided on the portal. Information on prices and arrivals of more
than 400 commodities and 3000 varieties are collected and reported/uploaded on daily
basis. More than 3200 markets are covered under the scheme .

4. Strengthening Of Agmark Grading Facilities (SAGF)

The Agricultural Produce (Grading and Marking) Act, 1937 provides for the grading and
marking of agricultural produce. It involves framing of grades, standards and certification
of agricultural commodities included in the schedule appended to the Act. The SAGF
Scheme aims to support 11 Regional Agmark laboratories and a Central Agmark
Laboratory, Nagpur with lab equipments etc. for carrying out their research and analysis
work for developing and promoting grading and standardization of agricultural
commodities under Agmark. Agricultural Produce (Grading & Marking) Act, 1937 is being
implemented through standards set for various commodities and agricultural produce
under Grading and Marking Rules framed from time to time. So far 108 Rules for
agricultural commodities have been framed.

5. Institutional Intervention in Development of Agricultural Marketing

Department of Agriculture and Cooperation has three Organizations dealing with marketing
under its administrative control, namely, the Directorate of Marketing & Inspection

(DMI) Faridabad for promotion of standards and grading of agricultural and allied produce, to
pursue States to bring marketing reforms and to promote market information network;

30
Ch. Charan Singh National Institute of Agricultural Marketing (NIAM), Jaipur for

providing training in the field of agricultural marketing; and Small Farmers Agri-business

Consortium (SFAC), New Delhi for promoting agri-business for small and marginal farmers.

Directorate of Marketing and Inspection: The Directorate of Marketing and Inspection

(DMI) is an attached Office of the Ministry of Agriculture. It was set up in the year 1935 to
implement the agricultural marketing policies and programmes of the Central
Government. Since its very inception, the Directorate continues to be responsible for
bringing about an integrated development of marketing of agricultural and allied produce
in the country with a view to safeguarding the interests of producer-sellers as well as the
consumers. It maintains a close liaison between the Central and the State Governments
in the implementation of agricultural marketing policies in the country.

Small Farmers’ Agribusiness Consortium (SFAC): Small Farmers Agri-Business

Consortium (SFAC) was registered on 18th January, 1994 as a society under the
Societies Registration Act, 1860. Currently, the members include RBI, SBI, IDBI,
EXIM Bank, Oriental Bank of Commerce, NABARD, Canara Bank, NAFED, United
Phosphorous Ltd. etc. The mission of the society is to support innovative ideas for
generating income and employment in rural areas by promoting private investment in
agri-business projects. A Central Sector Scheme for agri-business development is
being implemented by SFAC in close association with Commercial Banks for
providing:

Venture capital to agribusiness projects and

Assistance to farmers/producer groups for preparing quality Detailed Project Reports

(DPR).

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For effective implementation of the scheme, SFAC has already signed MOU with 21
commercial banks. The scheme is open to women entrepreneurs also. SFAC has
been mandated for promotion of FPOs and procurements of oilseeds and pulses
under MSP and for promotion of clusters for vegetables.

National Institute of Agriculture Marketing (NIAM), Jaipur : Ch. Charan Singh

National Institute of Agricultural Marketing (NIAM) is a premier National level Institute set
up by the Government of India in August, 1988 to offer specialized training, research,
education and consultancy in the field of Agricultural Marketing. NIAM is playing a vital
role in expediting the reform process and availability of quality managers through its
mandate. NIAM is engaged in organising training programmes in the field of agricultural
marketing and allied areas for senior and middle level officers from various line
departments of State Governments, Cooperatives, Marketing Boards and Agribusiness
Entrepreneurs. The institute is also playing an active role in orienting agricultural
extension personnel towards agricultural marketing. NIAM has been actively involved in
Research, Training and Consultancy in the field of Agricultural Marketing.

MAJOR GOVERNMENT OR SEMI GOVERNMENT ORGANIZATION WHICH ARE

MAINLY INVOLVE IN THE MARKETING OF HORTICULTURE

Table 2.1

S.NO

ORGANIZATION

SERVICES PROVIDED
1

Directorate Of


To promote grading of agricultural produce under

Marketing And

the Agricultural Produce (Grading & Marking) Act,

Inspection (DMI),

1937.


To facilitate the construction of marketing

infrastructure of agricultural produce.


To render advice on statutory regulation,

development and management of agricultural

32
markets by states / U.Ts.

Marketing research, surveys and planning

To train personnel in agricultural marketing

Agricultural And

Promote export of agricultural commodities

Processed Food Export

including potato and it’s products to foreign

Development Authority

countries.

(APEDA)


Adopting standards and specifications for the

purpose of export of schedule products.

National Horticulture

To develop post harvest infrastructural facilities of

Board

horticultural commodities including potato.

Ministry Of Food

Grant and support for food park component which

Processing Industries

in turn also help in setting up of Agri Export Zone.

(MOFPI)

National Agricultural

To act as a nodal agency for implementing the

Cooperative Marketing

market intervention scheme to avoid glut situation

Federation of India Ltd

and price craze of potato.

State Marketing Boards

Regulation management and development of

at State Capitals.
marketing in concerned state.

To implement different schemes on agricultural

marketing including potato.

To co-ordinate functioning of all market

committees.

Grading of agricultural produce.

Publicity on regulated marketing of agro produce.

7

Agricultural Produce

For better marketing of agricultural produce the

Market

APMC provide the following facilities :

Committees(APMCs) at

Facilitates drying of produce.

different regulated

Providing grading, weighing and storage facilities

markets of different

of produce, brought to APMC complexes.

states
2.8 ALTERNATIVE SYSTEM OF MARKETING

Forward Trading:- Forward trading means an agreement or a contract between seller and
purchaser, for a certain kind and quantity of a commodity for making delivery at a

33
specified future time, at contracted price. It is a type of trading, which provide

protection against the price fluctuations of agricultural produce.

Benefits

Price risk management of an agricultural commodity e.g potato.

Facilitates production, and improve the quality of produce.

Acts as a price barometer to farmers and other trade functionaries.

It benefits indirectly to the exporters / farmers through better information, lower and
more stable marketing and processing margins. It gives an idea of prices to the
consumers, which enable them to enter forward contract margins.

It ensures a balance in demand and supply position throughout the year.

It promotes an integrated price structure throughout the country

Contract Marketing:- The “Contract marketing” is a system in which the commodity is

marketed by farmers under a pre-agreed buy-back contract with an agency engaged in

trading or processing. In contract marketing, a producer will produce and deliver to the
contractor, a quantum of required quality of produce, based upon anticipated yield and
contracted acreage, at a pre-agreed price. In this agreement, agency contributes input
supply and renders technical guidance. The company also bears the entire cost of
transaction and marketing. By entering in to contract, farmer‟s risk of price reduces and the
agency reduces the risk of non-availability of raw material. The inputs and extension
services provided by the agency include improved seed, credit, fertilizers, pesticides, farm
machinery, technical guidance, extension, marketing of produce etc. In present scenario,
Contract marketing is one of the way by which producers, especially small farmers,
participates in the production of good quality potato to get higher return.

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Table 2.2

Benefits

To farmers

To contracting

agency

Access

Access to

Access to required

inputs

quality of produce

Risk

Minimums prices risk

Minimizes risk

of scarcity in consistent

supply of raw

materials

Quality

Use of good quality

Getting supply of
of inputs like seeds,

desirable quality

fertilizers

supply of produce.

New skills of post

Facilitates the

Adopt more

handling

adoption of new skills

efficient and better

of post harvest

post harvest handling /

handling/practices

practices.

at low cost.

Mutual

Strengthen Long term

Strengthen long term

Relationship

Relationship with

relationship with farmer

buyer for mutual

for mutual interest

interests.

Profit

Increases

Increases


Direct Marketing:- Direct marketing is an innovative concept, which involves marketing of
produce i.e. Red gram by the farmer directly to the consumer/ miller without any middlemen.

Direct marketing helps in better marketing of the produce.

It increases profit of the producer.

It minimizes marketing cost.

It encourages distribution efficiency of the marketing system.

It promotes employment to the producer.

Direct marketing satisfy the consumer.

7. It provides better marketing techniques to producers.

It encourages direct contact between producers and consumer.

35
It encourages the farmers for retail sale of their produce


Co-Operative Marketing: - The co-operative societies sale the member‟s
produce directly in the market, which fetches the remunerative price. Co-operative
societies, market the member‟s produce collectively and secure advantages of
economy of scale to its members.

Benefits

Remunerative price to producers

Reduction in cost of marketing

Reduction in commission charges

Effective use of infrastructure

Credit facilities

Timely transportation service

Reduces malpractices
Marketing Information

Supply of agricultural inputs

Collective processing

36