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Introduction, Definition and Scope of Economic Principles as Applied

to Livestock


To explain the meaning of economics from different views of economists and

their criticism.
To illustrate the approaches to the study of economics.
To know the different methods of investigation of economics.
To give in details about the economic system for the production and distribution
of goods .


Economics is the term derived from a Greek word, OIKOS (a house) and
NEMEIN ( to manage ) which in effect meant managing a household using
limited funds available in the most economical manner possible.
Four Important definitions are,
Wealth definition of Adam Smith - Father of Economics
Science of Material Welfare definition of Alfred Marshall
Scarcity definition of Lionel Robbins
Growth definition of Paul Samuelson
Adam Smith defined economics as a science, which studies the nature and causes
of wealth of nations.
Criticism on wealth - Many philosophers like Dickens, Ruskin, Carlyle and
Mathew Arnold strongly criticised the wealth definition. They said that the
science which concentrates only on the study of wealth is a Selfish Science,
Mundane Science, Bastard Science, Bread and butter Science, The
Science of getting riches, the gospel of mammon (song of the devil), a
science of illth and not wealth etc. These philosophers were highly critical of
the wealth definition because they at that time were highly influenced by the
religious sentiments and spiritual values. They considered that mere
acquisition of wealth is not the object of all human activity and they looked at
acquiring wealth with great contempt.
Defects of wealth - Stress in the wealth definition is only on acquiring wealth. But
in reality the human life and activity consists of other considerations like love,
affection, charity, social obligation, family obligation etc. Wealth is only a
means and not an end to human activity. End of human activity is his welfare
i.e. welfare of man. Wealth definition did not include the services of various
professionals like teachers, doctors, veterinarians, lawyers etc.
Alfred marshal (1819) defines economics as: "Political economy, or Economics is
a study of mankind in the ordinary business of life; it examines that part of
individual and social action which is most closely connected with the
attainment and the use of material requisites of wellbeing."
Marshal defined there is a shift of emphasis from wealth to human welfare. In his
view wealth is not an end by itself, it is the means to promote the economic

well being of the people. The term ordinary business of life denotes among
various people and groups of society.
Lionel Robbins (1931), defined economics as the science which studies human
behaviour as a relationship between ends and scarce means which have
alternative uses.

Limitations of Scarcity definition

Resources are limited, but scarcity definition has not taken into account the
possibility of improving resources due to scientific and technological
Scarcity definition is silent about the role of resources towards human welfare.
Problems can arise not necessarily due to scarcity of resources but also due to
abundance. For example more production of eggs and milk than the demand
will bring down the price to such an extent that even the production cost may
not be met.
Scarcity definition does not discuss about employment, economic growth,
determination of value or price etc.
Paul Samuelson defined "Economics is the study of how men and society choose
with or without the use of money, to employ scarce productive resources which
could have alternative uses to produce various commodities over time and
distribute them for consumption now and in the future among various people
and groups of society


In Traditional approach, economics is studied under 5 major divisions.


Satisfaction of human want on use of goods and services is known as



It is the creation of utilities and values. This part of subject deals with economics
of agents or factors of production i.e. land, labour, capital or organisations,
earning wealth for the purpose of satisfaction of human wants.
Marshal makes a distinction between two types of things i.e. material things and
immaterial things.


It is the act of obtaining the desired object from some one by offering something
in return.
Goods produced are not for self-consumption alone. They are primarily for sale.
They are sold in market where buyers buy the commodities and sellers sell the
commodities in particular price.
Thus the process of buying and selling put together constitute exchange.


Production of any commodity requires land, labour, capital and management.

These factors of production are to be rewarded for their services in the process of
The landlord gets rent for land, labour earns wages. The capital is given with
interest or manager is rewarded with profit.
Thus the process of determining wages, rent, interest and profit is known as

Public Finance

Studies that how the Government gets money and how it spends money. Hence in
public finance, taxation, interest structure, Public expenditure etc., are dealt.


Subject matter of economics is divided by modern approach in two as

o Micro economics
o Macro economics

Micro economics

It is also called as Price Theory. Price theory explains the composition, or
allocation, of total production- why more of some things is produced than of
The word Micro means a millionth part. When we speak of microeconomics or
the micro approach, what we mean is that it is some small part or component
of the whole economy that we are analysing.
Thus, micro economic theory studies the economic behaviour of individual
decision - making units such as consumers, resource owners and business

Macro economics

It is also called as Income Theory. Income theory explains the level of total
production and why the level rises and falls.
Macro - economics is concerned with aggregates and averages of the entire
economy, such as national income, aggregate output, total employment, total
consumption, savings and investment, aggregate demand, aggregate supply,
general level of prices, etc.,
It studies the behaviour of economic system as a whole or all the decision making
unit combined together.

Positive or Normative Science

Economics is both positive and normative science. Positive science deals with
things as they are. Hence it says what it is. Eg. The feed unit is sick.
The normative science makes distinction between right and wrong of a thing.
It prescribes what it should be. Positive science describes while normative science


Economics has certain method for discovery of laws and theories.

There are two methods of investigation available to economics.
o Deductive method.
o Inductive method.

Deductive method (Analytical or Apriori method)

o It descends from "generals" to "particulars".

o This method starts with the few indisputable facts about human nature
and draw inferences about concrete individual cases.

Inductive method (Realistic or Historical)

o It goes up from "Particulars" to "generals".

o This method insists on the examination of facts and then laying down
general principles.
Modern economist use both methods and consider that induction and deduction
are both needed for scientific thought as the right and left foot are needed for
walking which of the two methods is to be used in particular situation depends
upon the nature of inquiry the material on hand and stage at which inquiry has
The deductive method seems to be more suitable in the field of pure theory and
inductive method for formulating practical policies


Each economy is a system in which the production and distribution of goods are
organised around people's wants.
There are three important alternative economic systems functioning in the world.
They are,
o Capitalist economy
o Socialist economy
o Mixed economy

Capitalist economy

The prominent characteristics of a capitalist economy are

o Right to private property.
o Prevalence of free enterprise commonly known as laissez faire that is,
free play of price mechanism in determining economic activity.
o Absence of government controls and of central economic planning.
o Profit motive being the moving force behind any economic activity.
o Full freedom for the consumer in the choice of consumption, which is
popularly referred to by the expression Consumer sovereignty.
o USA and UK follow this system.

Socialist economy

The cardinal characteristics of a socialist economy are bound to be the opposite of

o All means of production and natural resources are socially owned.
o There is centralised economic planning .
o There are rigours controls, directing the entire gamut of trade (internal
and international) and production.
o This also means that there is no scope for free play of price mechanism
or market forces. In brief, it is a command economy.
o Consumer sovereignty is severely restricted by means of predetermined
allotment of consumer goods and rationing .
o Welfare is the main goal, all other factors becoming matter of less
importance .
o This system took place in western countries after industrial revolution.

Mixed economy

The features of mixed economy are

o Both private sector and public sector co-exist: supplementing efforts of
each other in attaining targeted economic goals.
o While the market forces are free, prices may still be administered by
state intervention.
o Certain industries (especially monopolies) may be nationalised, areas
such as agriculture may be left in the hands of private enterprise.
o Again, works and services whose benefits are indivisible between
different sections of the society (for instance, the benefits of an army to
the country as a whole) are taken care of by the government, while
operations in which cost-price relationship is straight and simple, are
left in the hands of private entrepreneurs.
o After independence , we follow this system with inclusion of public and
private sectors

2. Common Terms


To know the meaning of common terms like consumption, wants, goods, wealth,
value, price, income and utility.
To explore the classification and charcteristics of wants
To understand the different types of goods.
To illustrate the types of income, wealth and utility


World is at work, the farmers plough their land, factory workers control
machines, feed them with raw materials and transform into manufacture
Buyers and sellers are busy, thus economic activities are circling around.
People want to earn money. They need money to satisfy their wants relating to
food, clothing, shelter and other necessities and luxuries.
Thus wants make people to work, i.e. wants give rise to various kinds of economic
This is the starting point of all economic activities for the existence of human
Goods and wants that satisfy our wants are to be produced.They are produced
with the help of available resources in nature.
The resources that can be used for the production of goods and services are not
available in plenty. They are scarce. Hence the economic problems arise.
The responsible factors for emergence of economic problems are
o The existence of human wants
o Scarcity of available resources

Thus the sign of economics wonders around wants, efforts, and satisfaction


In general, wants may be defined as desires of consumers to obtain and use

various goods and services, which give pleasure and satisfaction.
However, more wish or desire to have goods and services in the economic sense is
not a want.
Therefore, wants can be defined as those effective desires for goods and services
which are associated with the following three essentials.
o Desire to acquire goods or service.
o Ability to pay for the desired goods and
o Willingness to pay for those goods.
The wants originate from one of the following sources
o Desire of the minimum of goods required for existence. Eg. Food,
Clothes etc.
o Desire to maintain the standard of living, giving rise to conventional
necessaries. E.g. Well equipped house, membership of a club etc.
o Desire of distinction and excellence. Eg. Latest model of a car, dress of
latest design etc


Wants can be classified as

o Necessaries
o Comforts
o Luxuries


Necessaries are goods that are essential for human existence and to maintain our
Goods, which are used for our existence, are called necessaries for existence and
goods that we use to improve our efficiency are called necessaries for
E.g. Nutritive food. Goods, which are used out of habit or long established
customs and conventions, are called as conventional necessaries. Eg. Tea,


Comforts are goods that lead to easy living and make our life pleasant.
They also improve our efficiency, but improvement in efficiency is not in a
proportion to the money spending on them .eg. Car, Refrigerator, etc.


Luxuries are goods and services, which are generally non- essential and very
They do not improve the efficiency of the people.
It is just meant for increasing the prestige of a person. Eg. Diamond ornaments


Wants are unlimited

As soon as one want is satisfied another want comes up in it's place.

Wants vary in their intensity

Wants differ in importance. Some wants are more urgent and others are less
urgent wants.

Wants are satiable

A single want can be satisfied at a particular time.

If a person is hungry he can satisfy his want fully by taking sufficient amount of

Wants are recurrent

Wants get themselves repeated at interval of short or long period.

Wants are alternative

A person can substitute coffee in the place of tea.

Wants are competitive

For a hungry person wants for food is more urgent than anything else.
The most urgent wants takes the first position with satisfaction and the less

Wants are complementary

To satisfy particular want we need several things.

For eg. If a person wants to write a letter he needs pen, paper, ink etc


Classification of Goods

Anything that satisfies human wants is called goods or commodity.

Goods can be classified into

Free goods

Air we breath has utility for us. So it is a commodity. For the use of this
commodity we do not pay any price.
Such goods are called free goods. Free goods are available in plenty and not in

Economic goods

Milk is a commodity we have to pay price to get it.

Such goods are called economic goods.
They are available in scarce.

Visible goods and non-visible goods

Egg can be seen and felt by touch. Such goods are called material or visible goods.
Copy write of books or services of a doctor can be sold for money but they cannot
be seen or felt, such types of goods are immaterial or invisible goods.

Consumer and Producer goods

We use goods like egg, pen etc. which satisfy our wants directly. They are called
consumer goods.
We use goods like machine to produce other goods. They do not satisfy our wants
Such goods are called producer goods or capital goods or investment goods.

Durable goods and perishable goods

Goods, which decay quickly, are known as perishable goods. Eg. Milk.
Goods which lasts for long period are called durable goods. Eg. Incubator,
milking machine, etc.

Competitive goods

Production of one good must be forgone in order to produce more of other good.
For example for a given level of maize, one has to give up a certain level of
piggery production in place of increasing broiler production.

Supplementary goods

Some positive level of one good is produced without reduction in output of

another good. For example, women labourer employed in backyard poultry

Substitute goods

If price of one good falls with consequent increase in demand for it, the demand
for other related good decreases and can act as substitute for the first one. Soya
can be substituted for maize in feed ration.

Complementary goods

If production of one good causes the increased production of another goods. For
example a legume in rotation increase the production of grain crops in
alternate years



It refers to the state of economic goods at a particular time, i.e. goods which are
not transferable are not included. E.g. personal skill and ability.
However, it may not be true while calculating wealth of a country, which may
include the skill and ability of its citizens.

Classification of Wealth

This can be classified into three forms

o Personal or individual wealth
A common human being requires this wealth e.g. clothes, books,
scooter etc.,
o Business wealth
This is used for further production of goods and services, e.g. farms,
industries, machines etc.,
o National or Social Wealth
This includes the goods owned by states or local bodies e.g.
educational institutions, public library, transport, electricity etc



In economics we use the term value in the sense of exchange.

Value of commodity means purchasing power of the commodity.


The value is expressed in terms of money it is called price. Eg. A pack of rice.


Income is the remuneration paid to the service rendered by factors of production.

Real income and Money income

Income can be expressed in terms of commodities or money.

When we express income, the terms of commodities it is called real income.
If we say that income of a person is five kg rice, he express his income in terms of
When we express income in terms of money it is called money income.


Utility means capacity to satisfy wants, i.e. want satisfying power of a commodity.
Total utility may be defined as the total satisfaction derived from the
consumption of all the goods or services at the disposal of the consumer, i.e.
aggregate utilities derived.
Different types of utilities are

Form utility

Form utility is added when the processor of the goods (such as milk, paddy and
oilseeds) transforms the material into finished products ready for consumption
(such as cheese, rice and edible oil respectively).
In doing so, he adds form utility to the raw products, i.e. form utility is created by
the processing functions.

Time utility

Time utility is added when products are stored from the time of production to the
time of consumption.
Time utility is created by the operations like storage in ware houses and godowns.

Place utility

Place utility is added by the transporting system

which transfers the goods from
one point where it is not needed to another point where it is consumed.
Hence, transporting agencies contribute to place utility.

Possession utility

Possession utility is added to the product when its ownership is transferred to the
final consumer.
Thus, all the institutions and agents in the marketing chain which enable transfer
of ownership are contributing to possession utility

3. Important Features of Land, Labour, Capital and Organisation


To know the meaning of Land, Labour, Capital and Organisation

To understand the characteristics of factors of production
To explain the importance of factors of production in livestock farming activities


Production is the process by which resources are transformed into products

usable by consumers either directly or indirectly.
Generally, resources or inputs of any production process are otherwise called as
factors of production.
These factors are broadly grouped into four viz.
o land,
o labour,
o capital,
o entrepreneurship management/Organisation



The term land has been given a special meaning in economics.

Land does not mean soil surface alone as it is ordinarily understood, but it
includes the materials and forces which nature gives in land, water, air, light
and heat.
Rent is known as reward of land. Land has some characteristic features. They are
o Land is fixed in quantity
o Land is immobile
o Land is permanent i.e. there are some inherent properties of land which
are original and indestructible.
o Land has infinite variation of degrees of fertility so that no two pieces of
land on earth is same.

It is a reward for land and refers to that part of payment by a tenant which is
made only for use of land i.e free gift of nature.

It is of two types namely economic rent and contract rent.

Economic rent is the payment made for the use of land only.
Contract rent is total payment made by tenant to landlord.


It is defined as an oral
or written contract outlining how a tenant and landlord
will do business and share income, provide for expenses, improve the land and

determine business program, practices and compensation for demage to the
land or termination of lease.
It is of five types in order of risk and return to the tenant.
1. Cash lease - Direct cash payment at end of year
2. Flexible cash lease - Hybrid of cash and crop share.
3. Crop share lease - sharing only crop not cash deal
4. Livestock share lease - Sharing livestock and its income.
5. Labour share lease - Giving way for landlord to acquire extra labour and
suitable for young farmer without enough capital.


Labour means any exertion of mind or body undertaken for a monetary consideration.

Any work done for the sake of pleasure does not fall under labour in economic
sense. Wage is known as reward of labour.

Characteristics of labour

Labour is perishable
o A day without work in workers life is lost forever. He cannot
store his labour and deliver it later.
Labour has a poor bargaining power
o As labour is perishable, they accept even low wages.
Labour is inseparable from labourers
o Labour is an integral part of the labourers personality.
Supply of labour changes very slowly
o Supply of labour cannot be curtailed at once even if wages fall
because the labourers must earn their subsistence.
o It also takes time for children to grow up or people to get trained
in order to increase the supply of labour.
o Labour is not so mobile as capital It happens due to differences
in language, environment, habit etc.


It is a reward for labour. It means payment made for services of labour. It may be
defined as a sum of money paid under contract by an employer to a worker for
his physical or mental service rendered.
It is of two type namely nominal wage and real wage.
Determinants of wages are efficiency, existence of non-competing groups, ability
of learning trade, social acceptance, hazardous and dangerous occupation,
bargaining power.

Nominal Wage
o It is a wage paid or received in terms of money.
Real Wage

o It is not money wage but rather it represents that part of standard of living
of labourer.
o It includes purchasing power of money and constitutes subsidiary earning,
extra work without extra payment, regularity or irregularity of
employment, condition of work, future prospect, etc.


Capital is a stock or fund existing at a given moment.

Capital is man made. Man constructs capital equipment to help him in the
production of other goods and services. Hence capital is defined as produced
means of production. Interest is known as reward of capital.

Characteristics of capital

It is man - made and its supply is therefore, within the control of man.
It involves the element of time as it renders its services over a period of
time. Therefore payment to capital is calculated in terms of so much per
cent per annum.
Production of wealth with the aid of capital has been called the round
about process of production.
Labour can produce more with aid of capital than it was without it.
Since capital is productive, there is demand for capital.
People look forward to getting an income by accumulating capital.
Hence capital is prospective.

Functions of capital

Capital increases productivity by enabling the entrepreneur to acquire

the other factors of production.
It provides subsistence to enable workers to maintain themselves during
the period of waiting for marketing of goods.
It provides appliances or auxiliaries of production to carry on
production effectively on modern lines.
It provides raw materials to feed the machines.


It is a reward or payment for capital use. Capital may be a free or floating capital .
It is of two types ie. Gross interest and Net interest.
Gross interest is the total payment which debtor pays to the creditor.
Net or pure interest is the payment only for the services of capital as such or for
the money borrowed.
Gross interest include net interest, insurance against risk, wage for management,
return for inconvenience



Organisation combines the other factors of production. Viz. Land, labour and
capital and decides on what to produce.
A special skill is required to combine factors of production and accomplish the
difficult task of production.
This task is undertaken by organiser or entrepreneur. Profit is known as reward
of management.

Types of Organisation

There are five forms of organisations viz.

o Sole proprietor
o Partnership
o Joint stock company
o Co-operative societies and
o Public sector undertaking

Sole proprietor

This is the oldest form of entrepreneurial organisation. Even today, from the
point of view of numbers, small firms predominate, such one person firms
range from farmer, shop keeper and small factory-owner who employ other
workers and may even own many separate units.
Nevertheless, all these businesses have the same characteristic of being owned
and controlled by a single person.
It is this person's task to make all decisions regarding the policy of the firm and it
is he alone who takes the profit, bears the brunt of any losses made.


Development of such a firm must proceed slowly because the sources of

capital are limited.
In the event of failure, not only the assets of business but also the
private assets and property of the proprietor can be claimed against by
creditors. In short there is no limited liability.
There is lack of continuity; On retirement or death of the owner, a one-
person firm may cease to function.
Because of these disadvantages, this type is confined to those
businesses, which are just starting up or to certain industries such as
agriculture and retailing.


A large amount of capital is available when persons combine together into a
Normally not more than twenty (ten in case of a banking) may so join.
Each partner provides a part of capital required and shares the profit on an
agreed basis.

Joint stock company

Some kinds of business could not be conducted on a small scale, and these have
to start as joint stock companies, either sponsored by some important interests
or else developed as subsidiaries of existing large firms.
The advantages are limited liability, continuity, and availability of capital and
ease of expansion.

Co - operative societies

They are a form of organisation where people work together or business people
on the basis of natural benefit.
It is a voluntary organisation designated to promote economic interests of its
members. Members have equal right.
Co-operative society has the motto of "each for all and all for each".

Public Sector Company

A company undertaken and run by the local, state and central government are
called as public sector undertaking or a company.
To promote people's welfare, government directly undertakes economic activities.
Public undertakings have been started with the following reasons,
o To bring about rapid economic development.
o Benefits of development are shared by all the people and.
o Inability of private sectors to find huge amount of capital needed to take
up large projects

4. Livestock Produce and Products


To understand the importance of Indian livestock sector

To explain livestock and poultry contribution to national economy
To explore the growth dimension of the different livestock and poultry products


Indian livestock sector plays a critical role in welfare of rural population.

It contributes 5.4 per cent to the total GDP and 27 per cent to the GDP from
agriculture and allied activities engaging 30 million small producers raising
one or two cow or buffaloe.
It is of special importance and a main source of family income in the arid and
semi-arid regions of the country.
In the arid and semi-arid regions, the contribution of livestock to agricultural
GDP is as high as 70 per cent and 40 per cent, respectively.
The sector has excellent forward and backward linkages, which promote many
industries and increase the incomes of vulnerable groups such as agricultural
labourers and small and marginal farmers.
In 2005-06, livestock sector produced 97.1 million tonnes of milk, 46.2 billion
eggs, 44.9 million kg of wool and around 2.31 million tonnes of meat from
organized sector.
All India Summary Reports of the 17th Livestock Census released in July 2006
points out that India possesses the largest livestock populations in the world
after Brazil.
It accounts for about 56 per cent of the worlds buffalo population and 14 per cent
of the cattle population.
It ranks first in respect of buffalo and second in respect of cattle population,
second in goat population and third in respect of sheep in the world


Poultry sector, with total value of output exceeding Rs.26,000 crore and
providing direct and indirect employment to over three million people,
produced around 1.9 MT of chicken-meat in 2005.
Between the 1970 and 2006, the annual per capita availability of eggs has
quadrupled from 10 to 41, while the corresponding increase in chicken meat
has been even faster from 146 grams to 1.6 kgs.
While Indias share of world trade in poultry and poultry products continues to
be very small, in the last decade the value of such exports has increased from
Rs.11 crore in 1993-94 to Rs. 326 crore in 2005-06.
Exports of products, such as live poultry, eggs, hatching eggs, frozen eggs, egg
powder and poultry meat, to countries including Bangladesh, Sri Lanka,
Middle East, Japan, Denmark, Poland, USA and Angola augurs well for the
Uninterrupted supplies of feed as well as preparedness for external shocks such
as avian influenza (Box 8.1) are critical for the continued robust growth of this


India ranks first in the world in milk production, which rose from 17 MT in 1950-
51 to around 100 MT by 2006-07.

Per capita availability of milk has also increased from 112 grams in 1968-69 to
230 grams per day in 2005-06 with ever increasing human population and is
expected to reach about 245 grams per day in 2006-07.
Presently, about 1.13 lakh village level co-operative societies spread over 265
districts in the country form part of the National Milk Grid.
The Grid links the milk producers throughout India with consumers in over 700
towns and cities smoothing the seasonal and regional variations in the
availability of milk, and ensuring a remunerative price to the producers and a
reasonable price for quality milk and milk products to the consumers.
Under Integrated Dairy Development Project, 73 projects with an outlay of
Rs.407.58 crore and spread over 25 States and 1 UT have been approved.
Cumulative expenditure incurred up to end-March 2006 was Rs.274.33 crore.
By end-March 2006, the programme had benefited 10.56 lakh farmers through
16,469 village-level dairy cooperative societies procuring 13.6 lakh litres of
milk per day

5. Livestock Sector in Tamil Nadu


To know the status of livestock and poultry population in Tamil Nadu

To explore the breedable female bovine population
To view the per capita availability and milk production of milk in Tamil Nadu
To understand the animal health care activities


Activities allied to agriculture viz. animal husbandry, fisheries and forestry have
the potential for providing significant employment opportunities to rural and
urban population.
Allied activities provide supplementary occupation to the people besides
contributing to Gross State Domestic Product.
Dependence on the agricultural sector for supporting livelihood is well known
while the allied sectors offer scope for absorbing surplus labour from the
agricultural sector.
The allied sector has the potential for putting the State's rural economy on a
higher growth trajectory


Total livestock population of the State which stood at 259.39 lakhs in 1997 had
increased by 1.01 per cent when compared to the previous 1994 census.
However, the total livestock population in the State as per the provisional figures
of the Livestock Census 2004 was at 249.42 lakhs, recording a marginal
decline of 3.85 per cent over that of 1997 census.

The bovine (cattle and buffaloe) population in the State had witnessed a steady
decline between 1982 and 2004.
While sheep population showed signs of variation, the goat population had
steadily increased during the reference period.
The poultry population at 865.91 lakhs in 2004 had recorded an increase of
137.16 per cent over the previous census.
The State ranks second in poultry population in the country and accounts for 17.7
per cent of the total poultry population in India. The details are given below.

Livestock Census: Tamil Nadu (Lakhs)

Year Cattle Buffaloe Sheep Goats Others Total Poultry

1982 103.66 32.12 55.37 52.46 18.26 261.87 182.84
(-4.03) (4.35) (4.69) (24.85) (135.31) (8.45) (27.44)
1989 93.53 31.28 58.81 59.20 20.85 263.66 215.70
(-9.77) (-2.62) (6.21) (12.85) (14.18) (0.68) (17.97)
1994 90.96 29.31 56.12 58.65 21.75 256.79 238.54
(-2.75) (-6.30) (-4.57) (-0.93) (4.32) (-2.61) (10.59)
1997 90.47 27.41 52.59 64.16 24.76 259.39 365.11
(-0.54) (-6.48) (-6.29) (9.39) (13.84) (1.01) (53.06)
2004 91.41 16.58 55.93 81.77 3.73 249.42 865.9
(1.03) (-39.5) (6.35) (27.45) -- (-3.85) (137.16)
2004 91.41 16.58 55.93 81.77 3.73 249.42 865.9
(1.03) (-39.5) (6.35) (27.45) -- (-3.85) (137.16)
2007 111.89 20.09 79.91 92.72 2.95 307.59 1281.08
(22.00) (21.00) (43.00) (13. (- (23.00) (48.00)
00) 21.00)

As per 17th Quinquennial Livestock Census 2004, the cattle population is

concentrated in 13 districts which together accounted for more than 60 per
cent of the total cattle population in the State.
Of these districts, Villupuram topped the list and shared 9 per cent of the total
cattle population followed by Salem (6.5%) and Vellore (5.5%).
Tamil Nadu Livestock Agency has brought all breeding activities under a single
umbrella and artificial insemination programme is carried out effectively.
A decline in breedable population was noticed in 2004 Quinquennial Livestock
Population from 47.12 lakhs in 2001 to 41.17 lakhs in 2004 in respect of
cattle and from 15.15 lakhs to 9.01 lakhs in case of buffaloes.
The share of exotic and crossbred cattle accounted for 62.9 per cent and that of
indigenous and native pure worked out to 37.1 per cent of the total breedable
cattle population of 41.17 lakhs.

Among buffaloe population the share of the murrah and graded was 32.08 per
cent while indigenous buffaloes accounted for a higher share of 67.92 per cent.

Breedable Age Female Bovine Population(in Lakhs)

Category 1997 2001 2004 2007

Cattle 25.89
- Exotic and Cross 12.61 18.78 15.28 48.09
- Indigenous and 32.02 28.34
Native pure
Total 44.63 47.12 41.17 48.09
Buffaloe 2.89
- Murrah and Graded 3.74 4.97 6.12 9.00
- Indigenous 13.64 10.18
Total 17.38 15.15 9.01 5709

Milk Production and Per capita Availability

Sustained initiatives to augment the production potential of livestock and poultry

and to increase the production of milk, egg and meat to cater to the increased
demand were taken .
Milk production rose from 47.53 lakh tonnes in 2003-04 to 47.84 lakh tonnes in
2004-05 and to 54.74 lakh tonnes in 2005-06.
The State's share in total milk production at the All India level was 5.38 per cent
in 2004-05.

The per capita availability of milk per day which witnessed a marginal increase
from 209 gms, in 2003-04 to 210 gms. In 2004-05 improved further to 234
gms in 2005-06.
Tamil Nadu Cooperative Milk Producer's Federation procured milk through a
chain of Primary Cooperative Societies numbering 7431 in 2004-05 and 7701
in 2005-06 in the State.

Figure 1

The milk production by societies rose by 5.6 per cent from 23.96 lakh litres per
day (LLPD) in 2004-05 to 25.09 LLPD in 2005-06.
The procurement price per litre of buffaloe milk and cow milk was at Rs.22.00
and Rs.20.00respectively.
These societies procured more than 35 per cent of the total milk produced in the
State. The quantity of milk sold had improved from 20.53 LLPD in 2004-05 to
21.59 LLPD in 2005-06 Milk Production (lakh tonnes).

Milk Production and Availability

Year Tamil Nadu All India % Share of Percapita availability

Tamil Nadu (gms. per day)
(Lakhs tones)
Tamil Nadu All India
2003 - 04 47.53(2.8) 881 (1.6) 5.4 209(2.5 ) 231(0.4)
2004 - 05 47.84(0.7) 907 (2.9) 5.3 210(0.5) 232(0.4)
2005 - 06 54.74(14.4) - - 234(11.4) -

Per capita daily requirement 220 gram, (Figures in brackets indicates percentage
change over the previous year)

Milk Yield

Average Yield Rate of Milk (Kgs., / Animal / day)

Breed 2004 - 05 2005 - 06

I. a. Cows
Exotic and Cross Bred 6.244 (1.1) 6.272 (0.4)
b. Indigenous 2.680 (0.6) 2.734 (2.0)
II Buffaloes 4.200 (1.8) 4.161 (-) 0.9
(Figures in brackets indicates percentage change over the
previous year)

Gains from the White Revolution is reflected in the steady increase in average
yield during the period 2002-03 to 2005-06.
The breeding policy, animal health care and fodder development together
contributed to this achievement.
Average daily yield of milk from exotic and crossbred cows had improved from
6.244 kgs. in 2004-05 to 6.272 kgs in 2005-06.
Average daily milk yield of indigenous cows rose from 2.680 kgs. in 2004-05 to
2.734 kgs in 2005-06. Thus, there had been an overall improvement in the
yield rate of cows.
Average daily yield of milk from buffaloe marginally declined from 4.200 kgs in
2004-05 to 4.161 kgs. in 2005-06.

Veterinary Health Care - Veterinary Care Infrastructure

In order to provide health care to animals, promote scientific breeding of cattle

and control of diseases, the State has put in place the requisite infrastructure.

Animal Care Institutions (Nos.)

SI.No Items 2006 - 07

I. Veterinary Health Services
a. Polyclinics 6
b. Clinician Veterinary Units 22
c. Mobile Veterinary Units 55
d. Veterinary Hospitals 139
f. Veterinary Dispensaries 1207
g. Sub - Centres 1385
II Animal Disease Intelligence Units 20
III Cattle breeding and Fodder Development 20
IV Institute of Veterinary Preventive Medicine 1
V Poultry Disease Diagnostic Laboratory 2
VI Artificial Insemination Centres 3177
VII Frozen semen Production stations 3
VIII Frozen Semen Banks 12

Animal Health Care Activities

Livestock health care prevents loss of lives and helps to improve productivity.

Livestock Development Programmes like Kalnadai Padhukappu Thittam is
being implemented in the State.
Livestock rearers get proper medical facilities at their doorsteps. The number of
animals treated in the State rose by 8.7 per cent from 186.15 lakhs in 2004-05
to 202.41 lakhs in 2005-06.
Vaccination and deworming done put together had increased from 426.60 lakhs
in 2004-05 to 635.92 lakhs in 2005-06.
Veterinary health services like vaccination and deworming and breeding coverage
like artificial insemination are provided to livestock in remote villages through
Mobile Veterinary Units (55 Nos.) in the State.

The details of animal health care service provided are given below.

Animal Health Care Activities (lakh numbers)

SI.No. Item 2004 - 05 2005 06

1 Animals treated 186.15 202.41
2 Vaccination done 344.22 449.91
3 Deworming done 82.38 186.01
4 Castration done 6.58 6.44
5 Artificial Insemination Performed 29.23 32.87
6 Calves born 11.09 11.40

To ensure supply of good quality and hygienic meat to consumers, 123 registered
slaughter houses have been established and the animals like sheep, goat, cattle,
buffaloe and pig were slaughtered in these houses.
Number of animals slaughtered in these centres rose by 19.4 per cent from 26.29
lakhs in 2004-05 to 31.40 lakhs in 2005-06.
Sheep and goat accounted for 94.4 per cent of the total animals slaughtered in the
Meat production had gone up by 17.3 per cent from 425.44 lakh kgs. in 2004-05
to 499.11 lakh kgs. in 2005-06.

SI. No. Item 2004 - 05 2005 - 06

1 Registered Slaughter House (Nos.) 123 123
2 Animal Slaughtered(lakhs)
a Sheep 11.29 15.71
b Goat 13.67 13.94

c Cattle 0.71 1.03
d Buffaloes 0.50 0.55
e Pig 0.13 0.16
Total 26.29 31.40
3 Meat Production ( lakh kgs.)
a Mutton 123.50 171.74
b Chevon 166.34 171.80
c Beef 72.14 86.09
d Cara Beef 58.70 63.33
e Pork 4.76 6.15
Total 425.44 499.11


Poultry farming provides livelihood support besides contributing to the

nutritional requirements of the human population.
Poultry activity creates employment opportunities besides providing income to
the workers.
The State stands second in egg production at the All India level.
The introduction of modern scientific techniques and California Cage system of
poultry rearing in the seventies has revolutionised poultry farming in the State.

Poultry Extension Centres, acts as demonstration farms and provide training to
poultry rearers.
The Government organises widespread immunisation campaigns against the
diseases like Ranikhat.
Poultry rearing has become a commercial activity in the districts of Namakkal,
Salem, Erode and Coimbatore.
Namakkal district has become an egg basket and accounts for 65 per cent of the
total egg production in the State and is a major foreign exchange earner too.

Egg Production and Per capita Availability

Tamil Nadu is one of the leading States in egg production and export.
The eco-friendly backyard poultry rearing is practised along with commercial
poultry farming in the State.
The egg production in the State which improved from 3784 million numbers in
2003-04 to 6395 million numbers in 2004-05 and then marginally declined to
6223 million numbers in 2005-06.
Consequently the per capita availability of egg per annum has declined from 102
numbers in 2004-05 to 97 numbers in 2005-06.
A central-state shared poultry development programme (80 : 20) is being
implemented in the Poultry Farm at Kattupakkam with a total outlay of
Rs.74.69 lakhs and at District Livestock Farm, Hosur with a total outlay of
Rs.85.00 lakhs.

Feed and Fodder

Growth of the livestock and poultry industry depends on reliable and cost
effective supply of fodder and feed.
The uncertainties of agriculture and rising prices of feed affect the viability of
such activities.
Supply of green fodder is constrained by limited availability of land. However,
total land available for grazing in the State is only 1.13 lakh hectares.
In addition, 16.99 lakh hectares of common property resources and 16.20 lakh
hectares of open forest area are available for grazing.

Achievement under Fodder Production Schemes

SI. No. Particulars 2004 05 2005 06 % Change in 2005 06

over 2004 - 05
1 Total area under cultivation(acres) 3450 1193 (-) 65.4
2 Fodder Seed Production Units (Nos) 7 7 -
3 Production of
- Slips (lakhs) 20.54 20.54 --
- Seeds (lakhs) 38.60 0.722 (-) 98.1
- Seedlings(lakhs) 0.27 - -
4 Minikits Distributed ( Nos) 10900 6812 (-) 37.50


For Livestock Sector in UP
For Livestock Sector in Kerala
For Livestock Sector in Andhra Pradesh
For Livestock Sector in Karnataka
For Livestock Sector in Maharasta
For Livestock Sector in Madhya Pradesh
For Livestock Sector in Orissa
For Livestock Sector in Bihar
For Livestock Sector in Gujarat
For Livestock Sector in Rajasthan
For Livestock Sector in Punjab
For Livestock Sector in Haryana

For Livestock Sector in Jammu and Kashmir
For Livestock Sector in West Bangal
For Livestock Sector in Megalaya
For Livestock Sector in Nagaland
For Livestock Sector in Assam
For Livestock Sector in Mizoram

6. Demand Projection of Livestock Produce


To define demand projection

To show different methods for projection of the livestock products demand


Information regarding the future demand is essential for both new firms and
those planning to expand the scale of their production.
It is much more important where large-scale production is being planned and
where production involves a long gestation period.
Information regarding future demand is essential also for the existing firms to
avoid under or over-production.
Accordingly they will have to acquire inputs both men and material, plan their
production, advertise the product and organize sales channels.
The firms are hence required to estimate the future demand.
As per capita incomes rise in Third World countries, the demand for livestock
products - meat, milk, and eggs - not only rises faster than that for cereals in
these countries but also more rapidly than demand for livestock products in
the developed countries.
This in turn influences the demand for cereals and other staple foods used as
livestock feed.
Livestock production is also an important source of income and employment in
the rural sector; it helps to meet equity objectives by contributing cash income
to small farmers in the Third World.
Besides providing draft power and manure, livestock in developing countries
convert many agricultural wastes and by-products into food. Finally, livestock
products contribute to export earnings.
Livestock sector plays a significant role in the welfare of rural population of India.
Of the total households in the rural area, about 73 per cent own livestock.
More importantly, small and marginal farmers account for three quarters of
these households.
Income from livestock production accounts for 15-40 per cent of the total farm
households income in different states. Thus, an increase in demand for
livestock products, can be a major factor in raising the income and living
standards of the rural households.
In the low-income countries, the demand for livestock products is more elastic
than the demand for cereals.
This implies that with the rise in per capita income, the demand for livestock
products would rise faster in the third world countries.
The demand projections for livestock products corresponding to 5 per cent GDP
growth rate, generally regarded as closer to the realistic situation.

The estimated consumption in the year 1993 was of 45.02 million tonnes milk,
0.78 million tonnes mutton and goat meat, 0.49 million tonnes beef and
buffalo meat and 0.25 million tonnes chicken and 0.54 million tones eggs.
In the year 2020, the demand would reach 147.26 million tonnes for milk, 12.72
million tonnes for mutton and goat meat, 1.15 million tones for beef and
buffalo meat, 0.81 million tones for chicken and 2.58 million tonnes eggs.
During 1993-2020, the average growth rate (weighted) for the total domestic
demand of milk has been found to be 4.9%.
It is 13.7% for mutton and goat meat, 3.5% for beef & buffalo meat, 4.8% for
chicken and 6.2% for eggs.
These growth rates indicate that the meat industry has bright prospects in the
Techniques of forecasting are many but the choice of a suitable method is a
matter of experience and expertise.
To a large extent, it also depends on the nature of the data available for the
In economic forecasting, the classical methods use the historical data in rather
rigorous statistical manner for making the future projection.
Various methods of forecasting demand may be grouped under the following
o Survey methods
o Market studies and experiments
o Statistical or analytical methods and
o Other methods



Survey Methods

These methods are generally adopted in estimating short-term demand.

These methods include direct interview, complete enumeration, sample survey,
opinion survey, etc.,
Survey methods include
o Survey of consumers plan through direct interview of consumers
o Collection of experts opinion and
o Collection of opinion of sales representatives.

Market studies and experiments

Studies and experiments are carried out in consumers behaviour under actual,
though controlled, market condition.
This method is known in common parlance as market experiment method. This
method has the following serious disadvantages.
o Experimental methods are very expensive and not affordable by small

o Forceful generalization with a high degree of reliability from too small
sample size.
o Results of controlled experiments are questionable in application to the
uncontrolled long-term condition of market.
o Changes in socio-economic conditions, political changes, natural
calamities may invalidate the results.

Statistical Methods

Statistical methods utilize historical (time-series) data and cross-section data for
estimating long term demand.
These methods are considered to be superior techniques of demand estimation
o Element of subjectivity in this method is minimum.
o Method of estimation is scientific.
o Estimation is based on theoretical relationship between dependent and
independent variables.
o Estimates are relatively more reliable and estimation involves smaller
o Frequently used statistical methods for demand projections are
Trend projection method which involves both graphical and fitting
trend equation.
Regression method.

Other methods of forecasting demand

There are several other methods used depending on the availability of data,
purpose and technical competence of forecaster.
These methods include the end-use method, econometric methods like
Barometric Forecasting, Delphi Technique, Box-Jenkins method, moving
average method, etc


It accounts for 97.1 million tones in 2005-06 with 65 per cent of the total value of
livestock output.
Though India is the worlds top milk producer, the percapita milk availability
remains low at 241 grams per day (Economic Survey 2005-06) which is lower
the minimum requirement of 250 grams per day as recommended by Indian
Council of Medical Research.
The demand for milk is estimated to be 191.3 Mt by 2020 assuming the growth
rate of the economy at 5 per cent per annum.
The milk supply projection have indicated a defit of 52.7 Mt by 2020.
The impact of Agreement on Agriculture under globalization process has made
the Indian dairy industry to face several challenges, including structural
changes in production and trade patterns.

India has one of the largest livestock economies in the world sharing 53 per cent
of world buffaloes, 20 per cent of goats, 15 per cent of cattle, four per cent each
of chicken and sheep and one per cent of pigs.
Livestock production in India is predominantly supported with family labour and
nearly 73 per cent of farms own livestock for draught and production of milk,
meat and mutton.
Fifty per cent of the draught power in farms is provided by cattle and 25 per cent
by buffaloes.
In Tamil Nadu, according to 1994 livestock census, cattle account for 35 per cent,
buffaloes 11 per cent, sheep and goats 45 per cent and pigs around two per
During the past 30 years ending 1992, cattle population has grown annually at
0.3 per cent, buffaloes 1.4 per cent, goats 2.2 per cent, and poultry 4.4 per cent.
In the recent five years, however, in white cattle, exotic and cross breeds have
increased by 64 per cent whereas the indigenous cattle population has declined
by 12 per cent, and black cattle has gone down by 6.3 per cent.
Small farms, with less than two hectares in size hold 56 per cent of bovines and
62 per cent of small animals.
Income from livestock is around one-third of farm income and approximately
one-tenth of state domestic income.
In fact, the livestock generates continuous cash flow, unlike that of crops with
seasonal incomes by harvests, which introduce certain degree of stability in
income and employment to farm households.
The demand for livestock products has been increasing mainly due to changes in
per capita income, in population, in dietary habits, and market structure.
Prospectively, the world bank estimates the demand for livestock products in the
year 2020 as, (in million tones)

Products Demand Supply Gap (%)

Milk 497.01 281.51 -43.4
Eggs 7.21 7.69 06.7
Beef 3.74 6.93 85.3
Mutton 2.57 3.09 20.2
Poultry meat 1.35 2.18 61.5

The demand has been projected at an overall growth of 5.5 per cent annually in
GNP while the supply assumes its determinants would be stable over the last
ten years.
One could note that excepting milk all other products would be excess in supply.
In actuals, there would be a supply gap of 216 million tones which needs to be

The status of livestock development at the close of the current millennium
indicates the existence of a small number of large capital intensive and market
oriented livestock and poultry farms.
The state and parastatals have contributed significantly to the organization and
growth of dairy farms whereas private entrepreneurship and investment have
shown the way poultry development could be.
There are a number of issues one could identify for future actions.
The focus is thus on productivity, trade and empowerment through structural,
technological, market and institutional changes.
Livestock in India is the endeavor of large number of small growers and they are
low productive across all species.
They are scattered across the country and depended very much on livestock for
employment, income and continuous cash flows.
Low capital output ratios and high employment absorption render the sector as a
vehicle for rural transformation with high income and employment growth.
However, they reflect low productivity warranting investment and technology
in massive scale.
A system of incentives for adoption of technology for higher productivity would
immediately suggest a set of subsidies and insurance.
Subsidies for livestock production, processing and marketing are mostly indirect
and invisible.
They come through poverty alleviation and rural employment programmes.
Focus could be on institutional susbsidies, on the lines of Self Help Group
support programmes, to get small livestock farmers get organized with seed
money to support activities in production and processing.
Disease control and hygiene are the major problems of livestock sector.
Particular, India can not enter the world market as suppliers of livestock products
unless and until the country becomes disease free for the relevant products.
The annual loss due to foot and mouth disease, in terms of milk, is estimated to
be in the order of Rs. 1252 crores in foreign exchange and another Rs.1650-
Rs.1873 crores as loss of domestic supplies.
In addition, loss due to permanent disabilities, death etc., amounts to Rs.1800
Disease management is thus most crucial and the state can not leave this vital
task to the private trade as disease prevention and control are in the public
domain and form the public good for which little can be expected from market
driven private agencies


This exercise provides an opportunity to make use of the formulas uniting FV,PV,
i and n in the context of planning livestock production.

The Problem

You live in a state called Tamil Nadu and are employed by the Livestock Project
Analysis and Planning Section (LPAPS) of the ministry of agriculture as a
Livestock Planning Officer (LPO).
Your office is based in the capital, Chennai, where together with the other
livestock planning officers you are faced with the following problem. The year
is 2008.
The Minister of Animal Husbandry has just given a speech, making promises as
to the future contribution of the countrys traditional livestock sector to the
countrys consumption of meat and milk products.
The next 5 year plan is due to start in 2010, and he has stated that by the year,
2015, the countrys traditional cattle producers will make it possible to
o reduce countrys beef imports to one quarter of their present level
o reduce the countrys imports of milk and milk products to half their
present level (in terms of raw milk equivalent).
o Increase average per capita consumption of beef by 50%.
o Needless to say, you were not consulted before the Minister made his
speech, and as good civil servants you are now in the position of
o trying to work out whether it is possible to fulfil his promises
o trying to work out reasonable targets for livestock production and a
reasonable strategy for achieving these.
As usual, if it all goes wrong, you will be blamed, so it is important that you make
clear recommendations to the Minister, indicating what he can safely promise,
in your opinion, and what type of measures will be needed to ensure that these
promises become reality.
Also, as usual the information is needed yesterday (if not last week) so you have
to make use of the information available at the moment in your office .

Information About Cattle Production

The majority of Tamil Nadu's cattle (over 99%) are kept by traditional producers,
under an extensive management system.
A few experimental dairy herds can be found on the outskirts of Chennai, and
there is also a small fattening unit, but this is also virtually at an experimental
phase. For the time being, production goals and plans have to be based on the
traditional cattle producers.
The cattle population in according to the 2005 census was 1.773 million.
The 2008 vaccination returns indicate a current population of about 2.1
A detailed survey of herds has come up with the following data.
o Offtake rate
The offtake rate for the whole herd is 10 %, 40 % are old cows,
having an average carcass weight of 100kg each and 60% are
adult males, having an average carcass weight of 175 kg each.
o Milk production
About 23% of the national herd consists of cows in milk, the average
annual milk yield is 275 litres per cow in milk.

Information About Meat and Milk Imports

The figures for 2008 are not available yet, but 2007 meat imports were of 1,700
tonnes of beef, 131,200 tonnes of milk equivalent (imported milk and milk
products in terms of their equivalent in raw cows milk)
o (1 metric tonne = 1000kg)
Imports of animal products have been increasing at about 5 % per year in recent

Information About the Human Population

The human population of Tamil Nadu was 6,346,281 according to the 2001
census. The annual growth rate for the next decade was estimated at 3.1%.

Suggested Steps for Solving the Problem and Coming up with Suitable

o Calculate the % annual growth rate expected from the traditional herd
using the estimated results form the 2005 and 2008 cattle population
o Treat 2008 as your year 0 and work out what local beef and milk
production was, what was imported and what consumption per head of
the human population was.
o Now look at your Ministers promises and work out what these require,
in terms of growth rates of local production.
o Compare them to the quantities that would be produced and required if
current levels of productivity and growth continue unchanged.
o Then, if you think the Ministers promises can be fulfilled, indicate how
(in terms of productivity improvements, changes in offtake rates,
carcass weights etc.). If not, indicate what you think might be
reasonable goals.
Very briefly, what types of projects do you think would be needed to achieve these

7. Theory of Consumer Behaviour


To know the meaning of utility and law of diminishing marginal utility.

To analyse the indifference curve technique.
To understand the assumptions and properties of indifference curve


Utility is a subjective term like pain or joy which can only be felt and which
cannot be measured. Suppose a person starts eating egg one after another.

The first egg gives him great pleasure. By the time he takes the second it gives
him less satisfaction as the second egg is meeting with a less urgent want.
The satisfaction of the third will be lesser than of second, that of the fourth is
lesser than that of the third and so on.
The additional or incremental satisfaction i.e. the marginal utility with every
successive unit of egg will go on decreasing till it drops down to zero.
If the consumer is forced to take more, the satisfaction becomes negative and the
utility changes to dis-utility.
Marginal utility (MU) is defined as the change in total utility (TU) resulting from
unit change in consumption of commodity per unit time.

Units (eggs) Total Utility Marginal Utility

(units of satisfaction) (units of satisfaction)
1 25 25
2 45 20
3 60 15
4 70 10
5 75 5
6 75 0
7 71 -4

Total Utility curve increases at beginning and reaches maximum and decline
eventually with increase in quantity of goods consumed.
Marginal utility slopes downward from left to right.
It reaches zero when total utility reaches maximum and becomes negative if more
of goods consumed after that.
It shows as the quantity of goods consumed increases marginal utility decreases.
It is notable point that marginal utility is zero when total utility is maximum



"The additional benefit which a person derives from a given increase of his stock
of a thing diminishes with every increase in stock that he already has."


The consumer is assumed to be rational.

Cardinal utility The utility of each commodity is measurable in monetary units.
Money has a constant marginal utility.
Utilities of different commodities are independent of one another.

Taste and income of the consumer remains the same.
Commodity is consumed in suitable size and in suitable time.
There is no change in fashion.

Importance of the law

The law helps us to derive the law of demand.

Marginal utility of money to rich people will be smaller than the marginal utility
of money to poor people.
So, the income of the rich people is taxed at a progressive rate.
Law of diminishing marginal utility is the basis for progressive tax system.
This law governs our daily expenditure. Our purchase stop at a point where
marginal utility equals price


This technique has been developed by the modern economists J.R.Hicks and
R.G.D.Allen for the analysis of demand.


Rationality - The consumer is assumed to be rational.

Ordinal utility - Here the measure of utility is viewed as the level of satisfaction
rather than the amount of satisfaction.
The levels of satisfaction are comparable rather than quantifiable i.e. consumer
ranks his satisfaction derived from different goods and he does not know
precisely the amount of satisfaction.
Consistency and Transitivity of choice it is assumed that the consumer is
consistent in his choice i.e. if he chooses commodity A over B in one period, he
would not choose B over A in another period. If A >B, then B<A.
o Similarly it is assumed that consumers choices are characterised by
o If A is preferred to B and B is preferred to C, then A is preferred to C.
Symbolically if A>B and B>C, then A>C

Indifference schedule

An indifference schedule may be defined as a schedule of various combinations of

two goods that would give the same level of satisfaction to the consumer.

Indifference schedule I

Combinations Kgs. of meat No. of eggs

I 1 20
II 2 15

III 3 11
IV 4 8
V 5 6
VI 6 5

Assume a person has the choice of spending a part of his resources on two
commodities, meat and eggs.
The above table shows various combinations of meat and eggs, which give the
consumer the same level of satisfaction.
Since all combination of meat and eggs give the consumer the same level of
satisfaction, the consumer is indifferent whether he gets the first or last of the
two commodities.

Indifference curve (Click here to view the graph)

The figures in the above table, if plotted on a graph give the Indifference curve.
While the Indifference schedule is the tabular statement of different
combinations of two commodities yielding the same level of satisfaction,
Indifference curve depicts the same on a graph.
An Indifference curve may therefore defined as the locus of various combinations
of two commodities which yield the same total satisfaction to the consumer. This
curve is also known as Iso-utility curve (Iso means same).

Indifference map

Consider another Indifference schedule which is as follows.

Indifference schedule II

Combinations Kgs. of meat No. of eggs

I 1 22
II 2 17
III 3 13
IV 4 10
V 5 8
VI 6 7

Consumption of any combination of commodities in the second schedule would

mean that the consumer is on a higher level of satisfaction than with the previous
schedule because the quantity of egg is higher in all the corresponding
combinations in the second schedule.
Obviously any combination in the schedule II is superior to any combination in
schedule I.
Plotting the second schedule, we get an indifference curve above the first curve
implying higher level of satisfaction.
In the same way, we can draw many similar curves representing greater or lesser
Two or more indifference curves drawn on a same graph are collectively called as
indifference map.
In other words indifference map represents a collection of indifference curves
where each curve shows a certain level of satisfaction to the consumer.
While the higher indifference curve implies higher level of satisfaction, lower
indifference curve yield lower utility.

Properties of indifference curves

An indifference curvehas a negative slope, which denotes that if the quantity of

one commodity decreases the quantity of the other must increase if the
consumer is to stay on the same level of satisfaction.
Indifference curves do not intersect.
Indifference curves are convex to the origin. This is because as the consumer adds
more of the commodity, he gives up only less and less of the other.
Any movement of the indifference curves to the right is a movement to greater
total utility
8. Theory of Demand


To know the meaning of demand

To explain different types of demand
To analyse various factors involved in the demand of commodities.
To understand exceptional demand curve, extension and contraction and
increase and decrease in demand


Meaning of Demand

Demand in economics is the desire for something plus the willingness and ability
to pay a certain price in order to possess it.

Demand schedule

Demand schedule is a statement which shows varying quantities of a commodity

purchased at an alternative prices at a given time.
Demand Schedule represents a functional relationship between price and
quantity demanded. It is usually represented in a form of a table.

Demand Curve (Click here to view graph)

The graphical representation of demand schedule is demand curve.

Usually the demand curves slopes downward from left to right indicating inverse
relationship between price and demand for the commodity.

Law of demand

A greater quantity of a commodity is demanded at a lower price and a smaller
quantity is demanded at a higher price.
This inverse relationship between price and quantity demanded is called as "Law
of demand".

Reasons for the inverse relationship

There are two reasons why demand curve slopes downwards (or why people buy
more when the price falls).
o Consumer is able and willing to buy more of a good when its price falls.
Because, a fall in the price of a good is equivalent to an increase in the
income of the consumer, i.e. with the commodity being cheaper, the
consumers real income increases which can be used for purchasing
some more units of the commodity. This is called as income effect.
o If the price of a good falls, it tends to be substituted wholly or partly for
other commodities raising the quantity demanded of this good. This is
called as substitution effect.
The income and substitution effects combine to increase the ability
and willingness of the consumer to buy more of the commodity
whose price has fallen


Price Demand: It refers to various quantities of a commodity or a service that a

consumer would purchase at a given time in market at various prices.
Income demand: It refers to various quantities of a commodity or a service that a
consumer would purchase at a given time in market at various levels of
Cross demand: It means quantities of a good or service which will be purchased
with reference to changes in price not of this good but of other related goods.
Eg. Changes in quantity demanded of coffee with respect to changes in price of
Joint demand: Certain goods are to be used together to satisfy a particular want.
Eg. Pen and Ink. The demand for such commodities is known as Joint demand.
Composite demand: A commodity can be put to several uses and that commodity
may be demanded to satisfy any want or more of such uses. The demand for
such commodity is known as the composite demand. Eg. Electricity may be
demanded for household uses, industrial purpose etc.
Derived demand and Direct demand: Demand for food grains is direct demand
whereas the demand for organic fertilizer to increase food production is
derived demand.


The demand curve instead of sloping downwards may rise upwards when there is
an increase in price showing that more quantity would be demanded when the
price rises. (Click here to view graph)
This tendency was first observed by Sir Robert Giffen in 19th Century.
Hence this exceptional process is called Giffen paradox.
The reason for such exceptional behaviour may be
Fear of scarcity of goods in future
Possession of a goods conferring distinction in the society.


Amount of a commodity or service that a consumer wishes to purchase is called

as quantity demanded of that commodity or service.
Purchase of this quantity is influenced by several factors, which are called as
determinants of demand.
The relationship between the quantity demanded and its determinants are
expressed in the form of a functional equation known as demand function.
o Qd = f {Pi, Pj, Y, T, C, P, I...}
o Where Qd = Quantity demanded
o Pi = Price of that commodity
o Pj = Prices of related goods (substitutes and complements)
o Y = Income of consumer
o T = Tastes and preferences of consumer
o C = Climate or weather
o P = Size and composition of population
o I = Income distribution of the society

Thus the quantity demanded of a commodity is determined jointly by all these
factors indicated.
Changes in any one ortwo or more of these factors listed above would become the
causes for the changes in demand


Demand changes simply because of a change in price. (Click here to view graph)
Though the consumer's demand schedule is fixed, he is solely led by price.
He simply goes up and down in the same curve.


Here the consumer fixes his own demand.

He increases or decreases his demand not with respect to the price but to the
factors other than price like income.
Now, there will not be a movement along the old curve but along a new curve
altogether. (Click here to view graph)

Consumer demand

It refers to the quantity demanded for a good at a defined time period, in a
defined geographical area, in a defined marketing environment by a particular
The determinants of consumer demand can be expressed as follows.

Qx = f (Px ,Pa---n, Y, Ax, T..) Where

Qx = the quantity of good 'X' demanded by the consumer

Px = The price of the good
Pa.n = The price of the other related goods 'a' to 'n'
Y = Income of the consumer
Ax = Advertising expenditure on good
T = Consumer tastes and
= other, unspecified, explanatory variables

Market demand

Market demand reflects total sales of a product at a specific point of time.

The determinants of market demand can be expressed as follows.

Qx = f (Px ,Pa---n, Y, Ax, T..) Where

Qx = the quantity of good 'X' demanded by the market

Px = Price of the good
Pa.n = Price of the other related goods 'a' to 'n'
Y = Incomes of the consumers
Ax = Advertising expenditure on good
T = Consumer tastes and
= other, unspecified , explanatory variables

9. Elasticity of demand


To know elasticity and magnitude of demand

To understand the factors affecting elasticity of demand
To know the concept of Engels law and consumer's surplus



Elasticity of demand is defined as proportionate change in quantity demanded in

response to proportionate change in price.

Price elasticity of demand

It is defined as relative
responsiveness of quantity demanded of a commodity to
the percentage change in its price.

Measurement of price elasticity

Elasticity of demand can be measured by three methods viz.

o Proportional method
o Total outlay method and
o Geometrical method

Proportional method

In proportional method, price elasticity of demand is measured as below.

Price elasticity of demand is the ratio of proportionate change in the quantity
demanded to the proportionate change in the price.

Suppose price of an egg falls from Rs. 1.25 to Re.1 and as a result, the demand
rises from 10 to 15 eggs, then price elasticity of demand (Ep)

This indicates that for one- percent decreases in price, there would be 2.5%
increase in the quantity demanded.

Total outlay method

In total outlay method, from the changes in the total expenditure made on a good
as a result of changes in its price, the price elasticity of demand for the good is
But with this method, we can know only whether the elasticity is equal to one,
greater than one or lesser than one and we cannot precisely work out the
coefficient of elasticity.
If the total expenditure made on the good remains the same, when the price of a
commodity consumed changes, the elasticity of demand is equal to one.
Because, the total expenditure made on the good can remain the same, only when
the proportional change in the quantity demanded is equal to the proportional
change in price.
When the total expenditure made on the good increases as a result of a fall in
price or when the total expenditure decreases as a result of a rise in price, then
the price elasticity of demand will be greater than one.
When the total expenditure decreases as a result of a fall in price or when the
total expenditure increases as a result of a rise in price, then the price elasticity
of demand will be less than one.
Consider the following table, which gives quantity demanded of milk at various

Total outlay and elasticity of demand

Quantity demanded increases from 50 litres to 60 litres and total outlay increases
from Rs. 725 to Rs. 855, when the price decreases from Rs. 4.50 to Rs. 4.25 i.e.
the quantity demanded increases so much that the total outlay on milk
increases indicating thereby that elasticity of demand is greater than one at
these prices.

Price of milk (Rs.) Quantity demanded Total outlay Elasticity of

per litre in litres (Rs.) demand
14.50 50 725.00 -
14.25 60 855.00 e>1
14.00 75 1050.00 e>1
13.75 80 1100.00 e=1
13.50 84 1134.00 e<1
13.25 87 1152.75 e<1

When the price falls from Rs. 4.00 to Rs. 3.75, the quantity demanded increases
from 75 to 80 litres so that total outlay remains the same at Rs. 300.
This shows that price elasticity of demand is unity. When the price of milk further
falls from Rs. 3.75 to Rs. 3.50 and then to Rs. 3.25, total outlay spent on milk
decreases in spite of the increase in the quantity demanded.
Thus, the elasticity of demand for milk at these prices is less than unity.

Geometrical method

Geometrical method tells how to measure elasticity of demand at any point on a

Following is the straight demand curve DD'. Elasticity at a particular point is
represented by a fraction -distance from D' to that point divided by the
distance from the other end.
Thus elasticities of demand on the points P, Q, and R are D' P/DP, D' Q/DQ and
D' R/DR respectively. Since Q is in the middle of the curve, elasticity D' Q/DQ
is equal to one.
Any point above this point will have an elasticity of more than one and points
below Q will have elasticity of less than unity. Therefore, it can be concluded
that elasticity of demand is different at different points of the same curve.
Elasticity calculated in this way can be called as point elasticity. (Click here to
view graph)
Point elasticity can be used only when the demand curve is known. However,
often only scanty data on price and quantity are available in which cases it will
be difficult to find point elasticity.
Instead, we shall have arc elasticity (an arc is a portion or a segment of a curve).
Instead of using old and new price and quantity, here we take the average of both.
Thus the arc elasticity is the average elasticity which is equal to

Income elasticity of demand

It is the responsiveness of change in quantity purchased to change in income.

Luxury goods will have high-income elasticity while the necessaries have low-
income elasticity of demand.

Cross elasticity of demand

It is a measure of responsiveness of demand of goods to given change in the price

of related goods.


On the basis of numerical value five types of elasticity of demand can be


o Elastic Demand: When the coefficient of elasticity of demand exceeds
one, the demand is elastic. That is the percentage change in quantity
demanded is more than that of the price. (Click to view graph)
o Inelastic demand: When the coefficient of elasticity of demand is less
than one the demand is called inelastic. That is the percentage change in
quantity demanded is less than that of price. (Click to view graph)
o Unitary elastic demand: When the coefficient of elasticity of demand is
equal to one the demand is said to be unitary elastic. That is percentage
change in quantity demanded is equal to that of price. (Click to view
o Perfectly elastic demand: When the coefficient of elasticity of demand is
infinite the demand is said to be perfectly elastic. i.e. when the quantity
demanded changes even when the price level remains static, the
demand is said to be perfectly elastic. (Click to view graph)
o Perfectly inelastic demand: When the coefficient of elasticity of demand
is zero, the demand is said to be perfectly inelastic. When the change in
price does not result in change in quantity demanded, the demand is
said to be perfectly inelastic. (Click to view graph)


Nature of commodity
Availability of substitutes at ruling market price
Number of possible substitute uses. E.g. Plastics
Proportion of income spent on the good.
Period of time / range of commodity use.
Possibility of new purchasers / consumption pattern.
Proportion of market supplied at ruling price.


The 19th century statistician Engel noticed that any additional income is tended to
be spent more on luxuries and non essentials than on essentials and his
observation is commonly known as Engels law which can be postulated as
The proportion of personal expenditure devoted to necessities decreases as
income rises. It can be illustrated with the help of following figure.
The Engels law represented diagrammatically illustrates that expenditure on
food and clothes form a larger proportion of total expenditure of people with
low incomes than of those with higher incomes. (Click to view graph)

Practical Importance

The concept of elasticity of demand figures predominantly in both the theoretical

analysis of the economists and the practical decision of the businessmen and
the government.

Theoretical economics

To define perfect competition in selling a good.

As a helpful tool in analysing problems connected with changes in the
conditions of supply.

Business decision

Super market: When it cuts the price of a good the supermarket expects
a considerable expansion in demand by winning customers from
retailers selling at a higher prices.
Monopolists: A monopolist looks at the demand schedule for his good
and fixes the quantity and thus the price at which he makes profit.This
is because he is not faced with the perfectly elastic demand curve.
Government policy

In fixation of sales tax.

Imposition of selective tax or subsidy on goods will affect the size of the


Consumer's surplus is based on diminishing utility.

Concept of consumer surplus is defined as the excess of price, which a person
would be willing to pay rather than go without the good.
In short Consumer's surplus is what we are prepared to pay minus what we
actually pay or it is the difference between total utility and the amount spent.
(Click to view graph)

Consumer's surplus = Total Utility-Total price

No.of eggs Price (Rs) Total Cost Total utility Marginal utility Consumer's surplus
(1) (2) (3) (4) (5) (6) = (4 - 3)
1 25 25 100 -- 75
2 25 50 175 75 125
3 25 75 225 50 150
4 25 100 250 25 150

Consumer is prepared to pay OMPD for four eggs but as a buyer in the
market, he pays only OMPK.
Hence the consumer's surplus is given by OMPD - OMPK = DKP
(selected area)



To define supply, supply curve and supply schedule.

To know the factors affecting supply.
To explain elasticity of supply



Supply of a commodity refers to the various amounts of commodities, which the

producers are willing and able to make available for sale at various prices
during a given time


Supply schedule is a statement showing varying quantities of goods offered for

sale at alternative prices at a given time.

Price of egg Rs / 100 eggs Market supply

150 17,500
140 16,000
125 15,500
110 14,600

Supply curve is the graphical representation of the supply schedule which

represent various amount of goods that would be offered for sale at different
prices during a particular period of time.
Supply curve slopes upward from left to right because as the price rises the
quantity supply increases. (Click to view graph)


Other things remaining constant (ceteris paribus), the higher the price of a
commodity, the larger will be the quantity supplied and lower the price the
smaller will be the quantity supplied.
In mathematical terms supply is an increasing function of price.

Determinants of supply

Price of the commodity when price of a commodity increases, its supply also
Price of a related commodity When price of a good increases , supply of its
substitute declines e.g. mutton and chicken.
Cost of inputs of production When cost of raw materials increases, supply
State of technology Improvement in technology lower the cost of production
and increases the supply.
Factors outside the economic sphere like flood, drought, fire etc.
Tax and subsidy Higher taxation will decrease the supply and granting
subsidies will raise the supply.

Elasticity of supply (Click to view graph)

It measures the rate at which the quantity supplied changes due to changes in

Suppose the price of an egg rises from Rs. 1.00 to Rs. 2 and as a result the supply
increases from 10 to 30 eggs.

For 1 percent increase in price, there is 4 percent increase (change) in quantity


Different types of elasticity of supply

Perfectly inelastic - Esp = 0

Inelastic - Esp<1
Unitary elastic - Esp = 1
Elastic - Esp >1
Perfectly elastic - Esp = Infinite

11.Cost Concepts Principles of Fixed and Variable cost


To explain meaning of various costs in animal husbandry practices.

To discuss about various cost relationships.
To clarify difference between fixed cost and variable cost.
To show the relationship between Total Fixed Cost, Total Variable Cost and Total
To explore the importance of unit cost curves


Production costs

Production costs play an important role in decisions making by the farmers.

Cost of production often becomes a policy issue when producers complain that
the prices they receive for their product do not cover the cost of production.
Cost of production here means the expenses incurred per unit of output.
Costs in farming can be divided into two main categories
o Fixed cost
o Variable cost

Fixed cost (or) over head charges (or) sunk cost

A resource or input is called a fixed resource if its quantity cannot be varied

during the production period and in general costs associated with fixed inputs
are called fixed costs.
Fixed costs have to be incurred even when the production is not undertaken.
E.g., taxes, rent, electricity, water charges, insurance, depreciation, labour hired
on a year -round basis, interest on investment in equipment and livestock, etc
In short run, some costs are fixed and others can be varied. However in long run,
, all costs become variable.

Variable costs

An input is a variable input if its quantity can be varied during the period of
production and the costs associated with variable inputs are called variable
Variable costs vary with the level of production.
These costs will not be incurred in the absence of production.
E.g., seed, tractor fuel, repairs, feed, fertilizer cost, etc.
Labour if hired on daily basis, interest on current investment, hired machines
and other services are also included in variable costs.

Total costs

Total costs of production will include both fixed and variable costs.

Cash costs (explicit cost)

Cash costs are incurred when resources are purchased and used immediately in
the production process.
Cash costs result from purchases of non-durable inputs such as fertilisers, fuel,
oil, and casual labour which do not last more than one production process.

Non-cash costs (implicit costs),

Non-cash costs consist of depreciation and payments to resources owned by the

E.g., Depreciation on tractor, equipment, buildings, payments made to the farmer
himself or family labour, management and owned capital.

Opportunity cost

Opportunity cost of an output is defined to be the income that can be earned in

the next best alternative use.
For example, a farmer with 25 kg concentrate feed which can either be fed to his
cows or sold.
If he gives the feed to his cows, the opportunity cost is the amount of money for
which the feed can sold to others.
If he sells the feed, the opportunity cost is the amount of extra income, which can
be obtained by giving this feed to his animals.
Opportunity cost is defined to be the real cost of any input


Production of output requires input, which cost money, and therefore there exist
a relationship between output and cost.
Total cost curve or cost function represents the functional relationship between
output and total cost.
Cost function can be presented
o Arithmetically (tabular form)
o Geometrically (graphic form)
o Algebraically (equation form)

Tabular form


0 10 0 10
2 10 2 12

5 10 4 14
9 10 6 16
13 10 8 18
17 10 10 20
22 10 12 22

Graphic form

Nature of cost curve depends on nature of the corresponding production

Hence, when cost is portrayed on X-axis and the product on Y-axis, the total cost
curve will have the same shape as total product curve.

Algebraic form

C = f(Y). Where, C-total cost and Y-output


Total fixed cost (TFC) is represented by a straight line parallel to X-axis and it remains
unchanged for all output levels in a time period.
TVC-is zero, when output is zero. It increases as output increases. The shape of TVC
curve depends on the shape of the production function.
TC is the sum of TFC and TVC. When no variable output is added, TC is equal to TFC.
The TC curve is shaped exactly like the TVC curve, but is placed above the total variable
cost by the units of total fixed cost. (Click to view graph)

Opportunity cost

The income which an output can earn in the next best alternative use.

Physical risks

Destruction of the product itself and are due to fire, accident, rain etc.
Risk attached to such natural hazards is often transferred to institutions (Insurance
companies) that specialize in assuming such risk.

Unit costs are

o Average Fixed Cost (AFC),
o Average Variable Cost (AVC),
o Average Total Cost or Average Cost (ATC or AC)
o Marginal Cost (MC).
These unit costs are more important than total costs in decision making process. Plotting
these, we get unit cost curves. (Click to view graph)

Average Fixed Cost

Average Fixed Cost is worked out by dividing Total Fixed Cost by the amount of output.
It is fixed cost/unit of output. AFC will vary for each level of output.
As output increases, AFC continues to decline. When output is zero, AFC=TFC. AFC
always slopes downwards regardless of production function.
AFC = TFC /Output

Average Variable Cost

Average Variable Cost is calculated by dividing Total Variable Cost by the amount of
AVC decreases, reaches a minimum and increases thereafter. AVC cannot be computed
when output is zero.
AVC = TVC / Output

Average Total Cost

Average Total Cost can be computed by dividing Total Cost by output.

ATC, as AVC, first decreases, attains a minimum and increases thereafter.
ATC is the cost of producing one unit of output.
ATC = TC / Output

Marginal Cost

Marginal Cost is the change in Total Cost in response to a unit increase in output.
It is found out by dividing change in total cost (or total variable cost because TFC is not
going to change) by change in output.
MC curve decreases first, reaches its minimum point and then raises upwards and passes
through AVC and AC (ATC) at their minimum points.

In other words, AVC and AC will slope downwards and keep falling as long as MC is
below them


Break-Even Point is the quantity of output corresponding to minimum of average

total cost.
Exactly at this point, the producer neither gains nor looses anything.
Whatever income he gets above this point is his profit.
Suppose the farmer is operating below this point he will be incurring loss towards
his fixed cost.
In short-run, the farmer continues to operate even below this profit. e.g., broiler
In the long run, the producer has to operate above this point to remain in the

Shut-Down Point

Shut-Down Point is the quantity of output corresponding to minimum point of

average variable cost.
Exactly at this point, the producer is in a position to meet the expenses towards
the variable cost alone.
If he operates below this point, he will not be in a position to meet even the
variable expenses .
In short run, the producer must be able to operate at least above this point in
order to sustain in the business.

Long run

Long run is a period oftime during which the quantities of all factors, both
variable and fixed, can be adjusted.
Break Even Unit Cost Curve

Short run

Short run is a period of time, within which the firm can vary its output by varying
only the amount of variable factors such as labour and raw materials.
Fixed factors such as capital, equipment, top management personnel cannot be



AVC = TVC/Y = X . Px/Y = Px . X/Y = Px . 1/AP

AVC * 1/AP
Therefore, AVC is inversely related to AP, i.e., when AP increases, AVC decreases.
When AP is maximum, AVC attains its minimum point and when AP decreases,
AVC increases.
As on a production function, AP measures the efficiency of variable input, for cost
curves AVC provides the same measure.

Relationship between marginal cost and marginal product

Marginal Product Marginal Cost

Increasing Decreasing
At maximum At minimum
Decreasing Increasing

12.Theory of Production


To show relationship between a variable input and an output by use of

production function and its types of returns to scale.
To illustrate Law of diminishing returns and its importance.
To clarify the difference between short run and long run



There can be 3 types of input - output relationships in the production of commodities.

Nature of the relationship between a single input and a single output can be either of the
following or combination of them.

Constant returns production function or constant cost (Click here to view


In constant returns, each additional unit of variable input produces an equal amount of
additional product. i.e., The amount of product increases by the same magnitude for
each additional unit of input.
However, this is not a very common relationship in Animal Husbandry but may be
possible in other industries. (Value of each Unit of input Rs. 1500)


No. of units of Total output (Y) D Y D X MP ( D Y/ D X) Average Variable cost =

Input (X) Unit variable cost /AP

0 - - -

10 500 50 10 5 1500/50 = 300

20 1000 50 10 5 1500/50 = 300

30 1500 50 10 5 1500/50 =300

40 2000 50 10 5 1500/50 =300

50 2500 50 10 5 1500/50 =300

The table and the graph show that every equal increase in the input results in a constant
increase in the output and hence, the given production function is known as a constant
marginal returns function giving a straight line production curve (TP curve) which is
having the same slope throughout its entire range



In this case, every additional or marginal unit of input adds more and more to the total
product than the previous unit. i.e., addition to total product is at an increasing rate.

In actual practice, the cases of purely increasing returns are rarely available.(Value of
one unit of input Rs 500). (Click here to view graph)


No. of units of Total D D MP ( D Y/ Average Variable cost =Unit

Input (X) output (Y) X Y D X) variable cost /AP

10 100 - - - 500/10 =50

20 110 10 10 1 500/5.5 = 90.90

30 190 10 90 9 500/6.33 =78.99

40 300 10 110 11 500/7.5 = 66.67

50 450 10 150 15 500/9.0 = 55.56

Shape of the curve will go steeper and steeper with added inputs


If increasing amounts of one input are added to a production process while all other
inputs are kept constant, the amount of output added per unit of variable input will
eventually start decreasing.
In this type each additional unit of input add less and less to the total product than the
previous unit. Diminishing marginal product exist.
This function exists in almost every practical situation in livestock production. .(Value of
one unit of input Rs 500) (Click here to view graph)


No. of units of Total D D MP ( D Y/ Average Variable cost =Unit

Input (X) output (Y) X Y D X) variable cost /AP

0 50 - - -

10 140 10 90 9 500/14 =35.17

20 210 10 70 7 500/10.5 =47.62

30 260 10 50 5 500/8.6 = 58.14

40 300 10 40 4 500/7.5 =66.67

50 330 10 30 3 500/6.7 =74.63

60 350 10 20 1 500/5.9 =84.75

Elasticity of production

Elasticity of production can be defined as the percentage change in output in response to

the percentage change in input.

A production function with an elasticity of 1 indicate constant returns and the elasticity
of more than one and less than one imply increasing and diminishing returns,


Production function is the relationship between inputs and outputs.

Production function, which relates to factors and products where some resources
are fixed can be termed as short-run production function (Regardless of the
number of fixed resources and level at which each is held fixed).
Those input-output relations which permit variation in all inputs or all factors
(none is fixed) can be termed as long run production function.

Law of Variable Proportion or Law of Diminishing Return


If the quantity of one productive service is increased by equal increments, with

the quantity of other resource services held constant, the increments to total
product may increase at first but will decrease after a certain point
An increase in capital and labour applied in cultivation of land causes in general,
less than proportionate increase in the amount of product raised, unless it
happens to coincide with an improvement in the arts of agriculture - Marshal.
As the amount of variable resource used in production of a product is increased,
the output of the product will at first increase at an increasing rate, then
increase at a decreasing rate and finally a point will be reached, where further
application of the variable resource will result in a decline in the total output of
In short, marginal product of variable input will first increase, then decrease and
finally become negative.

Short Run and Long Run

Short run refers to a period of time in which the supply of certain inputs (e.g.
plant, building and machines, etc.) is fixed or inelastic.
In short run, therefore, production of a commodity can be increased by
increasing the use of variable inputs, like labour and raw materials.
They do not refer to any fixed time period. While in some industries short term
may be a matter of a few weeks or a few months, in some others (e.g., electric
and power industry), it may mean three or more years.
Long run refers to a period of time in which the supply of all the inputs is elastic,
but not enough to permit a change in technology.
In long run, the availability of even fixed factor increases. Therefore, in long run,
production of commodity can be increased by employing more of both,
variable and fixed, inputs.
Economists use another term, i.e., very long period which refers to a period in
which the technology of production is subject to change.

In the very long run, the production function also changes. The technological
advances mean that a larger output can be created with a given quantity of

Short run production with one variable input

Laws of returns state the relationship between the variable input and the output
in the short term.
By definition, certain factors of production (viz., land and capital equipments
such as plant and machinery) are available in short supply during the short
run. Such factors are known as fixed factors.
On the other hand, the factors which are available in unlimited supply even
during the short periods are known as variable factors.
In short run, therefore, the firms can employ a limited or fixed quantity of fixed
factors and an unlimited quantity of the variable factor.
In other words, firms can employ in the short run, varying quantities of variable
inputs against a given quantity of fixed factors. This kind of change in input
combination leads to variation in factor proportions.
The laws which bring out the relationship between varying factor proportions and
output are therefore known as the Law of Variable Proportions, or what is
more popularly known as the Law of Diminishing Returns.

Long term production with two variable inputs

We shall now discuss the relationships between inputs and output under the
condition that both the inputs, capital and labour, are variable factors. This is a
long run phenomenon.
In the long run, supply of both the inputs is supposed to be elastic and firms can
hire larger quantities of both labour and capital. With large employment of
capital and labour, the scale of production changes.
The technological relationship between changing scale of inputs and output is
explained through the production function and isoquant curves techniques.

Production rules for the short run

There are three rules for making production decisions in the short run. They are
o Expected selling price is greater than minimum ATC (or TR greater than
TC). A profit can be made and is maximized by producing where MR =
o Expected selling price is less than minimum ATC but greater than
minimum AVC (or TR is greater than TVC but less than TC). A loss
cannot be avoided but will be minimized by producing at the output
level where MR=MC. The loss will be somewhere between zero and the
total fixed cost.
o Expected selling price is less than minimum AVC (or TR less than TVC).
A loss can not be avoided but is minimized by not producing. The loss
will be equal to TFC.

Application of these rules is as follows. With a selling price equal to MR1, the
intersection of MR and MC is well above ATC, and a profit is being made.
When the selling price is equal to MR2, the income will not be sufficient to cover
total costs but will cover al variable costs, with some left over to pay part of
fixed costs. In this situation, the loss is minimized by producing where
MR=MC, because the loss will be less than TFC.
Selling price should be as low as MR3, income would not even cover variable
costs, and the loss would be minimized by stopping production. This would
minimize the loss at an amount equal to TFC.

Production rules for the long run

There are only two rules for making production decisions in the long run.
o Selling price is greater than ATC (or TR greater than TC). Continue to
produce, because a profit is being made. This profit is maximized by
producing at the point where MR=MC.
o Selling price is less than ATC (or TR less than TC). There will be a
continual loss. Stop production and sell the fixed asset(s), which
eliminate the fixed costs. Money received should be invested in a more
profitable alternative.
This does not mean that assets should be sold the first time a loss is incurred.
Short-run losses will occur when there is a temporary drop in the selling price.
The second long-run rule should be invoked only when the drop in price is
expected to be long lasting or permanent

13.Economics of Disease Losses


To know economic consequences of animal disease loss.

To explore methods of measuring economic benefits of disease control



At present, animal health management becomes more complex phenomenon

involving multiple issues in order to optimize livestock production.
In dealing with animal health issues, economic evaluation has become
increasingly important as the effects of diseases which remain to be controlled
are far more subtle than was the case for epidemic problem.
It is necessary to define the ways in which a particular disease lower productive
Over the years it has become clear from many studies that typically animal health
measures yield very high economic return to livestock producers.
In order to explain unusual nature of effects of disease on animal and hence to
show how economic studies on animal disease should be carried out .

It is necessary to define the exact mechanism by which a disease can influence

Mechanism of Disease on Altered Productivity

Infectious and parasitic diseases cause diversion of feed resources to growth and
multiplication of causative agents.
Non-infectious disease can affect in a different manner. These disease may cause
direct or indirect effect.

Effect of ingestion

Most infectious and non-infectious diseases cause major effect of reduced feed
intake with rare incidence of increased intake.
Reduced feed intake is often called as anorectic effect. Its effect on feed
conversion efficiency is known as specific effect.
This specific effect is of economic relevance and is of two types.
Since lower production is achieved from same feed intake and efficiency of
production process is adversely affected.
Anorectic effect reduces both intake and output without altering efficiency of
This is an important consideration as variable cost in purchased feed and a fixed
cost in feed and fodder establishment.

Effect of Disease on Physiological Process

Diseases generally modify different physiological processes such as nutrition,

metabolism , respiration and excretion.
Mainly protein metabolism is highly affected by many diseases compared to other
every metabolism.
Altered protein metabolism results in depletion of protein in the body of host
leading to weight losses, and production loss.
In rare cases, every metabolism impairment occurs as secondary to protein
This results in every costs of tissue regeneration. Other mineral and
micronutrient metabolisms are also alterd by disease process.
Cobalt, copper, zinc and vitamins status have all been affected by protein
Since lung diseases can adversely affect productivity, another mechanism by
which disease might impair physiological function is a production respiratory
Similarly altered kidney function and liver function can cause production



Premature Death

This is the easiest of all consequences of diseases.

In economic studies, death loss can be measured as a difference between the
potential market value and its value when dead ( which may not be zero), less
the costs which would have been incurred in obtaining market value (extra
feed, care to market age, marketing cost etc.).

Changed value of animal and products from slaughter animal

Diseased animals may have lower marketing value either due to visible lesions or
due to indirect changes in appearance or body confirmation which make them
less attractive.
This reduced value may be due to changes in the ratio of meat to fat or meat to
Presence of lesions of zoonotic diseases may render animal totally unfit for
consumption from aesthetic point of view.
Some external parasitic diseases cause reduction value of skin/hides to their uses.

Reduced Live weight Gain

It is well known fact

that diseased animal gain weight more slowly than
equivalent disease free animals.

Reduced Yield and Quality of Products from Live Animals

Yield of animal products like milk, wool and meat may be reduced by disease.
Quality of these products may also be reduced in term of change in milk
composition (in mastitis) and change in wool quality.
In case of yield reduction, price of commodity will fall and livestock producer will
suffer. But in case of quality change, consumer will suffer the loss.

Reduced Capacity for works

Most important use of animal in developing country is as a source of traction.

There are certain disease like FMD causing reduced capacity to work.
Disease can severely curtail rice paddy field preparation and other task for which
animals are essentials. So this is essential economic loss of producing field.

Altered production of dung for fuel and fertilizer

Dung is used as cooking fuel in most developing countries, apart from using it as
Disease which cause high metabolic rate will indirectly influence rumen
metabolism by reducing the supply of dung.

Altered feed conversion efficiency

Feed conversion efficiency is the ultimate measure of influence of disease on the
production process, but its measure require accurate measurement of feed
intake which is possible only under controlled feeding.
In grazing system, it is reasonable to take changes in feed as an adequate
indication of change in feed conversion efficiency when comparing diseased
and disease free animals kept under identical condition.

Effect of Disease on herd productivity

Effect of disease spreads from individual animal to broader extent of herd


Reduced Productive life of animal

Reduced productive life of animal is due to increased culling which

might be due to reason of low yield or disease or unawareness of facts to

Less accurate genetic selection

If a disease alters any of the components of productivity which are the

subject of genetic selection pressure in the herd (milk or wool yield), it
will affect efficiency with which animals of superior genetic merits are

Effect on capacity to maintain and improve the herd

If less progeny born, fewer animals are available as herd replacement or for sale
to market products.
Thus not only livestock sale income reduced but also management flexibility for
herd improvement will be curtailed.
It will lead to the purchase of breeding animals with all the additional risks that
For example, liver fluke and other gastro-intestinal parasites have been shown to
affect reproductive performance in ewes.
In cattle, bovine leucosis and ephemeral fever have been reported to affect

Effects of disease control measures on productivity of animals

In evaluating economic benefit of disease control, it is necessary to consider not

only the difference in productivity between diseased and healthy animals, but
also the change in productivity following elimination of a disease from an
affected animal i.e. as in mastitis and worm infestation.
Thus selection of an economically optimal control strategy will be strongly
influenced by this consideration


Effect on human nutrition

Major direct effect on human welfare is through reduced supply of high quality
animal protein to young children and adolescents.
Thus animal diseases reduce their nutritional value.

Effects on Community Development

Animals are source of supply of traction power and dung material in most
developing countries.
Further, they are sources of products like wool, hair, hide, feather, fur etc., used
for clothing, decoration, manufacture of utensils. Animal disease may cause
reduced supply of these products.
Another effect of animal disease which are zoonotic is to cause disease in human
as well as the animal population, thus amplifying their impact.

Cultural significance of animal

In most countries animals serve functions far beyond the utilization roles.
In our country, cow is considered as saint and buffaloe is considered as vehicle of
Emedharmaraja (God for killing).

Animal Welfare

Animal disease control is an important issue in protecting the welfare of managed

There have been surprisingly few efforts to qualify welfare effects of diseases and
most of the information available is opinion rather solid evidence.
Greater biological understanding will be required before quantitative
assessments of effects of disease on animal welfare



Main function of measuring benefits of animal disease control is on estimating

benefits of action against disease rather than on economics.
The simplest approach is to compare alternative control programme within
Ideally large number of farms should be included in such study to obtain
estimates of variation in outcome between farms.
In some cases, it may be necessary to conduct a comparison solely between farms
because the farm is the smallest feasible unit.

It requires large number of farms because of the extent of variation in controlled
factors between farms.
There are standard economic techniques which should be used to describe and
summarize the outcome of economic studies.
The most common ones are partial budgeting, cost-benefit analysis and decision
The focus of economic studies must be on estimating the benefit of action against
a disease rather than just on the economic impact of the presence of a disease.
Although it is not possible to get all of the economic data using other analytical
procedures of which computer modeling is among the most useful .
There are standard economic procedures to include an evaluation of risk of each
of alternative course of action.
A rational approach to provision of health care requires that the product and
welfare significance rather than pathological severity of the disease should be
the measuring yardstick for livestock.
In this way health and production issue can be brought together for the benefit of
livestock producer and equally of the consumer.


1. Prabu, M., A.Md.Safiullah and S.Selvam.2004. Evaluation of Economic Losses

due to Foot and Mouth Disease in Bovines of Salem District. Agricultural
Economics Research Review.17(1):77-84.
2. Md Safiullah, A.,R.Prabaharan and P.Sadasivam. 2001.Economic Analysis of
Calving Interval of Hungarian Dairy Cattle.Journal of Applied Nutrtion. (19) 237-
3. Md Safiullah, A.,E.Cenkvari, S.Selvam and N.Meganathan.1997. An Economic
Analysis of losses of dairy cattle in Hungary. Indian Journal of Animal Sciences.
4. Md Safiullah, A., Imre Tell and Eva Cenkvari.1994.Economic Analysis of
productive lifespan of Dairy Cattle. Acta Agronomica Ovariensis.36(1-2) 83-94.
5. Ganeshkumar B., P.K.Joshi, K.K.Datta and S.B.Singh.2008. Economic Losses
due to Avian Flue in Manipur. Agricultural Economic Research Review. 21(1):37-
6. Kumar S.,V.S. Vihar and P.R. Deoghare.2003. Economic Implication of disease
in goats in India with reference to implementation of a health plan
calendar.Agricultural Economic Research Review. 47:159-164.
7. John Christy, R and M.Thirunavukkarasu.2006. Emerging importance of Animal
Health Economics - A note. Tamil Nadu Journal of Veterinary and Animal
Sciences 2(3):113-117.
8. Jeyakumari M., M.Thirunavukkarasu and G.Kathiravan.2003. Economic impact of
post-partum reproductive disorder on dairy farms. Indian Journal of Animal
9. Chauhan, S.K., R.K.Sharma and M.Gupta.1994. Economic losses due to disease
and constraints for dairy development in Kangra district of Himachal Pradesh.
Indian Journal of Animal Sciences 64(1):61-65

14.Livestock Business


To understand concepts, nature and scope of livestock business.

To illustrate characteristics of small livestock business




Livestock business includes both livestock and its products under business
Livestock generally includes all domestic animals which are meant for human
It includes primary activities of rearing all kinds of animals for food and other
Business of livestock and its products encomposes various activities involved in
directing the resources from point of production to consumption point. It
includes various forms of utilities.
Livestock business includes all operation involved in movement of animals, raw
materials and the effect of such operation on livestock farmer, middlemen /
traders, butchers and consumers.
Livestock business comprises all activities, agencies and policies involved in the
procurements of all inputs by livestock producers and movement of livestock
and its products from livestock farmers to consumers.
Livestock business is the link between livestock farmers and non-farm sectors.
Further it includes organization of all material supply to processing of finished
products, their demand and policy relating to farm products.


Livestock business in a broader sense is concerned with livestock and its products
by farmers / traders and of inputs required by them in production of these
animals and their products. This subject of livestock business includes product
marketing as well as input marketing.
Livestock rearing is a age old practice even before existence of agricultural
farming with seed.
Traditionally nomadic farmer reared their livestock wherever the feed and water
were available.
Now days modern animal husbandry activities attract usage of more scientific
knowhow on breeding, feeding and animal health care. Modern practices are
more input intensive.
Thus the scope of livestock business includes both input and output trading.

These are subject mater of livestock marketing includes marketing function,
agencies / traders, channels, efficiency and costs, price spread, market
integration, production surplus, government policy and research, training and
market statistics.
Business of livestock products is a complex process.
It includes all the functions and processes involved in the movement of produce
from livestock farmers to consumers.
Neither producers nor consumers of livestock products are located at one place.
They are spread all over the country.
Time wise, too, the production and consumption of livestock products do not
Moreover, farm products are produced in a form which is different from the one
in which they are consumed. They move in different ways and at different
places and times.
The number and type of functions, the cost of performing these functions, the
margins or profits of those who perform these functions, and the competition
in the trade all these vary from commodity to commodity, from time to time
and from place to place.

Characteristics of livestock business

A good developed livestock business possess the following characteristics

o A good livestock business should provide livestock and livestock
products which the consumers want and are ready to pay for.
o It should provide a wide variety of products to consumers so that they
may easily choose for themselves. The variety should not be so wide as
to create a confusion for him.
o No harmful products should be offered for sale in the market,
precautions should be taken to protect consumers.
o Information on the presence of products in the market and their relative
merits should be available to all the prospective consumers.
o There should not be any sort of pressure on the consumers to buy
products from a particular trader or class of traders.
o Retailing services should be available in the market for small
o Prices should be fair and uniform for the products for all categories of
o There should not be any inefficiency or waste in the market.

Marketed and Marketable Surplus

Marketed surplus is the actual quantity marketed in the market by the producer.
Marketable surplus is the quantity which can be delivered by the producer to the
market after his on-farm consumption. It represents the excess quantity
affordable to the market and it creates the market for certain commodity.

Marketable surplus is expressed as follows
o M=Q-C
Where M - Marketable surplus.
Q - Out put ( Old stock + Current stock)
C - On-farm consumption
To understand this concept at farm level, the following example may be
A farmer has two cows each yielding 25 litres daily. His family composition is with
his wife and two children. Adult members of his family consume 500ml of milk
daily. But each of his children consumes 750 ml daily. What is his marketable
His marketable surplus = 2*25- (0.500*2 +0.750*2) = 47.5 litres daily

15.Marketable Livestock Commodities


To know marketable and marketed surplus

To make clear about relationship between marketed and marketable surplus in
livestock production


Producers Surplus

Producers surplus is the quantity of produce which is, or can be, made available
by the livestock farmers to the nonfarm population.
Producers surplus is of two types:
o Marketable surplus
o Marketed surplus

Marketable surplus

Marketable surplus is that quantity of produce which can be made available to

non-farm population of a country. It is a theoretical concept of surplus.
Marketable surplus is the residual left with producer-farmer after meeting his
requirements for family consumption, payment to labour, payment to landlord
as rent, and social and religious payments in kind. This may be expressed as

MS = P C Where,

MS = Marketable surplus
P = Total production and

C = Total requirements (family consumption, farm needs,
payment to labour, landlord and payment for social and religious

Marketed surplus

Marketed surplus is that quantity of the produce which the producer-farmer

actually sells in the market, irrespective of his requirements for family
consumption, farm needs and other payments. Marketed surplus may be
more, less or equal to the marketable surplus.
Whether the marketed surplus increases with the increase in production has been
under continual theoretical scrutiny.
It has been argued that poor and subsistence farmers sell that part of the produce
which is necessary to enable them to meet their cash obligations.
This results in distress sale on some farms. In such a situation, any increase in
the production of marginal and small farms should first result in increased on-
farm consumption.
An increase in the real income of farmers also has a positive effect on on-farm
consumption because of positive income elasticity. Since the contribution of
this group to the total marketed quantity is not substantial, the overall effect of
increase in production must lead to an increase in the marketed surplus.

Relationship between marketed surplus and marketable surplus

Marketed surplus may be more, less or equal to the marketable surplus,

depending upon the condition of the farmer and of the produce.
The relationship between the two terms may be stated as follows

Marketed surplus < or > or = Marketable surplus

o Marketed surplus is more than marketable surplus when the farmer

retains a smaller quantity of the products 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 termed as distress or forced sale. Such
farmers generally buy the produce from the market in a later period to
meet their family and /or farm requirements. The quantity of distress sale
increases with the fall in the price of the product. A lower price means that
a larger quantity will be sold to meet some fixed cash requirements.
o Marketed surplus is less than the marketable surplus when the farmer
retains 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 in the hope that they would get a higher price in the later

Farmers may substitute one product for another product either for
family consumption purpose and the variation in prices.

Marketed surplus may be equal to marketable surplus when
farmer neither retains more nor less than his requirement. This
holds true for perishable commodities of the average farmer

16.Concept of Market


To define market and marketing.

To explain various concepts in livestock marketing.
To know outline of marketing process


Meaning of Market

Market is a derivative of Latin word 'marcatus' meaning merchandise, wares,

traffic, trade or place where business is conducted.
It may mean and include a place as an open space (in village) or a larger building
where actual buying and selling takes place.
An assembly or a meeting together of people for their private purchases and sale
of goods at a stated time and place e.g. village fairs or periodical markets.
An area of operation or geographical or economic extent of commercial demand
for commodities. The course of commercial activity by which exchange of
commodities is affected. It may mean all inhabitants of an area.


American committee on marketing has defined marketing from the following

three viewpoints
o Legalistic view: Marketing includes all activities, which are concerned
with effecting changes in ownership and possession of goods and
o Economic view: Marketing is that part of economics, which deals with
the creation of time, place and possession utilities.
o Descriptive view: Marketing is the performance of business activities
that direct the flow of goods and services from the producer to the final
user or consumer.
Philip Kotler has defined, "Marketing, as the set of human activities directed at
facilitating and consummating exchanges".
o In simple words, it is defined that the marketing is the process of
providing the right product in the right place at the right price and at
the right time.

Concepts of marketing

Sales concept and marketing concept are clearly distinct from each other.

Sales concept

Starts with the firm's existing products and considers the task as one of
using selling and promotion to stimulate a profitable sales.

Marketing concept

o Starts with firm's existing and potential consumers and their needs; it
plans a coordinated set of products and programmes to serve these needs;
and it hopes to build its profits on creating meaningful value satisfactions.
o In the words of Philip Kotler, the marketing concept is a customer
orientation backed by integrated marketing aimed at generating customer
satisfaction and long-run customer welfare as the key to satisfying
organizational goals.
o Integrated marketing means an intelligent adaptation and coordination of
four P's viz., Product, Price, Place and Promotion.
Price should be made consistent with quality.
The channels of distribution made consistent with price and quality
The promotion made consistent with channels, price and product
o To achieve this type of integration, many companies have created product
managers and market managers.

Based on the new concept of marketing, the marketing process can be

illustrated below:

Here, the marketing process starts with the consumer and ends, with the
After knowing consumer needs and wants, appropriate products and services are
developed and demand for these products and services is stimulated and
created by implementing suitable promotional polices.
Then the said demand is satisfied through an optimum distribution strategy.
Finally, by organizing appropriate marketing information system, feedback is
collected and in the light of this information, appropriate changes are initiated
so as to adopt the marketing elements to the changing situation in the market

Needs for marketing

In developing countries, it is the least developed part of the economy probably,

because of the strong, pervasive prejudice against the middleman.

Marketing would make the producers capable of producing marketable products
by providing them with standards, with quality demands and with
specifications for their products.
Marketing is the most easily accessible, "multiplier" of managers and
entrepreneurs in an "underdeveloped" growth area and they are the critical
needs of these countries.
Marketing can covert latent demand into effective demand. It cannot by itself,
create purchasing power, but it can uncover and channel all the purchasing
power that exists. So it can create conditions for higher level of economic
activity in the developing countries.
Marketing in a developing country is the 'developer of standards' for product and
services as well as of conduct, integrity, reliability, foresight and of concern for
the basic long-range impact of decisions on the customer, supplier, economy
and the society.
Whether the economy developed or developing is immaterial as far as marketing
is concerned because the basic functions of marketing (buying, selling,
transporting , storing, grading, financing, risk bearing and marketing
information ) and the utilities (Time, Place and possession utilities)created by
them are a necessity for any social system.
Marketing provides wide employment opportunity

17.Classification of Market


To explain the different classification of market

To know the various types of market


Markets can be classified on the basis of nature of commodity, time and nature of
business, area, nature of competition etc.

On the Basis of Location

On the basis of the place of location or operation, markets are of the following

Village market

A market which is located in a small village, where major transactions

take place among the buyers and sellers of a village, is called a village

Primary markets

These markets are located in big towns near the centres of production of
In these markets, a major part of the produce is brought for sale by the
producer-farmers themselves.
Transactions in these markets usually take place between the
producers/farmers and traders.

Secondary wholesale markets

These markets are located generally at district headquarters or

important trade centres or near railway junctions.
Major transactions in commodities take place between the village
traders and wholesalers.
Bulk of the arrivals in these markets is from other markets.
Produce in these markets is handled in large quantities.
There are, therefore, specialized marketing agencies performing
different marketing functions such as those of commission agents,
brokers, weighmen etc.

Terminal market

A terminal market is one where the produce is either finally disposed of

to the consumers or processors or assembled for export.
Merchants are well organized and use modern methods of marketing.
Commodity exchanges exist in these markets which provide facilities to
forward trading in specific commodities.
Such markets are located either in metropolitan cities or in sea-ports.
Delhi, Mumbai, Chennai, Kolkatta and Cochin are terminal markets for
many commodities.

Seaboard Markets

Markets which are located near the seashore and are meant mainly for
the import and / or export of goods are known as seaboard markets.
These are generally seaport towns.
Examples of these markets in India are Mumbai, Chennai, Kolkatta and

On the Basis of Area/Coverage

On the basis of the area from which buyers and sellers usually come for
transactions, markets may be classified into the following four classes

Local or Village Market

A market in which the buying and selling activities are confined among
the buyers and sellers drawn from the same village or nearby villages.

The village markets exist mostly for perishable commodities in small
lots, e.g., local milk market or vegetable market.

Regional market

A market in which buyers and sellers for a commodity are drawn from a
larger area than the local market.
Regional markets in India usually exist for foodgrains.

National market

A market in which buyers and sellers are at the national level.

National markets are found for durable goods like jute and tea.

World market

A market in which the buyers and sellers are drawn from the whole
world. This is the biggest market from the area point of view.
This market exists in the commodities which have a world-wide demand
and /or supply, such as coffee, machinery, gold, silver, etc.
In recent years many countries are moving towards a regime of liberal
international trade in agricultural produce like raw cotton, sugar, rice
and wheat.
It is expected that the international trade in such commodities will
become free from many restrictions as they exist now.

On the Basis of Time Span

On the basis of time span, markets are of the following types:

Short-period markets

Markets which are held only for a day or few hours are called short
period markets.
Products dealt within these markets are of a highly perishable nature,
such as fish, fresh vegetables, and liquid milk.
In these markets, the prices of commodities are governed mainly by the
extent of demand for, rather than by the supply of, the commodity.

Long-period markets

These markets are held for a longer period than the short period
Commodities traded in these markets are less perishable and can be
stored for some time; these are foodgrains and oilseeds.
Prices are governed both by the supply and demand forces.

Secular markets

These are markets of a permanent nature. Commodities traded in these

markets are durable in nature and can be stored for many years.
Examples are markets for machinery and manufactured goods.

On the Basis of Volumes of Transactions

There are two types of markets on the basis of volume of transactions at a time.

Wholesale market

A wholesale market is one in which commodities are bought and sold in

large lots or in bulk.
These markets are generally located in either towns or cities.
Economic activities in and around these markets are so intense that
over time the population tends to get concentrated around these
These markets occupy an extremely important link in the marketing
chain of all the commodities including farm products.
Apart from balancing the supply and demand and discovery of the
prices of a commodity, these markets and functionaries in them serve as
a link between the production system and consumption system.

Retail markets

A retail market is one in which commodities are bought by and sold to

the consumers as per their requirements.
Transactions in these markets take place between retailers and
Retailers purchase the goods from wholesale market and sell in small
lots to the consumers in retail markets. These markets are very near to
the consumers.

On the Basis of Nature of Transactions

The markets which are based on the types of transactions in which people are
engaged are of two types

Spot or 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., time t+1.
Sometimes even on the specified date in the future (t+1), there may not
be any exchange of the commodity.
Instead, the differences in the purchase and sale prices are paid or

On the Basis of Number of Commodities in which Transaction takes place

A market may be general or specialized on the basis of the number of

commodities in which transactions are completed.

General markets

A market in which all types of commodities, such as food grains,

oilseeds, fibre crops etc., are bought and sold is known as general
market. These markets deal in a large number of commodities.

Specialized markets

A market in which transactions take place only in one or two

commodities is known as a specialized market.
For every group of commodities, separate markets exist. The examples
are foodgrain markets, vegetable markets, wool market and cotton

On the Basis of Degree of Competition

Each market can be placed on a continuous scale, starting from a perfectly

competitive point to a pure monopoly or monopsony situation.
Extreme forms are almost non-existent. Nevertheless, it is useful to know their
In addition to these two extremes, various midpoints of this continuum have
been identified.
On the basis of competition, markets may be classified into the following

Perfect markets

A perfect market is one in which the following conditions hold good

There is a large number of buyers and sellers;

All the buyers and sellers in the market have perfect knowledge
of demand, supply and prices;
Prices at any one time are uniform over a geographical area, plus
or minus the cost of getting supplies from surplus to deficit areas;

The prices are uniform at any one place over periods of time, plus
or minus the cost of storage from one period to another;
The prices of different forms of a product are uniform, plus or
minus the cost of converting the product from one form to

Imperfect market

Markets in which the conditions of perfect competition are lacking are

characterized as imperfect markets.
The following situations, each based on the degree of imperfection, may
be identified.

Monopoly market

Monopoly is a market situation in which there is only one seller

of a commodity. He exercises sole control over the quantity or
price of the commodity. In this market, the price of a commodity
is generally higher than in other markets.
Indian farmers operate in monopoly market when purchasing
electricity for irrigation (Tamil Nadu Electricity Board). When
there is only one buyer of a product the market is termed as a
monopsony market.

Duopoly market

A duopoly market is one which has only two sellers of a

commodity. They may mutually agree to charge a common price
which is higher than the hypothetical price in a common market
(Bus transport -Private and Public sector).
Market situation in which there are only two buyers of a
commodity is known as the duopsony market.

Oligopoly market

A market in which there are more than two but still a few sellers
of a commodity is termed as an oligopoly market. A market
having a few (more than two) buyers is known as oligopsony

Monopolistic competition

When a large number of sellers deal in heterogeneous and

differentiated form of a commodity, the situation is called
monopolistic competition. The difference is made conspicuous by
different trade marks on the product.

Different prices prevail for the same basic product. Examples of
monopolistic competition faced by farmers may be drawn from
the input markets.
For examples, they have to chose between various makes of
insecticides, pumpsets, fertilizers and equipments.

On the Basis of Nature of Commodities

On the basis of the type of goods dealt in, market may be classified into the
following categories

Commodity markets

A market which deals in goods and raw materials, such as wheat, barley,
cotton, fertilizer, seed, etc., are termed as commodity markets. Specific
commodities are bought and sold in these markets.
These may either be production goods or consumption goods. In such
markets, transactions of specialized commodities take place.
E.g. Mumbai cotton market, Punjab wheat market etc.

Produce exchange

Produce exchanges are the big and well organized markets for
raw produce like wheat, cotton, jute etc. and are found in cities or
developed industrial centres of a country.
One exchange deals in one specialized product.
Typical examples of such exchanges are the wheat exchange,
Cotton exchange and Jute exchange.

Manufactured and semi-manufactured goods market

In these markets, different types of manufactured and semi-

manufactured commodities are bought and sold. E.g. Leather
goods market, Kanpur.

Bullion Market

Bullion markets are concerned with the purchase and sale of

gold, silver and other precious stones.
These are highly specialized and well organized markets of the
world and are localized in civilized as well as industrially
developed centres of a country.
Bullion markets of Bombay, Calcutta, Delhi and Chennai etc., are
of a few examples of such markets.

Capital markets

Capital market is responsible for meeting the financial requirements of
big industrial and commercial concerns.
Capital is required at every stage of business which comes from the
money market, stock exchange and foreign exchange.

Money market

It includes a number of agencies providing finance to business

and industrial concerns.
Such markets, on one hand, help the people to invest or deposit
their surplus funds either in industrial concerns or in banks and
on the other, allow those who are in need of money to take loans
through banks for a reasonable remuneration in turn by way of

Stock exchange market

In this market, shares are purchased and sold in different parts of

the country. Ex. BSE, NSE
These markets are highly specialized and command a very wide
area of operation.
Main purpose of such markets is to make investments in public
and private sector undertakings.

Foreign exchange market

It is a market for buying and selling of foreign currencies. It can

also be called as an international market concerned with the
export and import trade of a country.
Mumbai, London, New Delhi are examples of such markets.

On the Basis of Stage of Marketing

On the basis of the stage of marketing, markets may be classified into two

Producing markets

Those markets which mainly assemble the commodity for further

distribution to other markets are termed as producing markets.
Such markets are located in producing areas. Ex. Uthukkuli Curd

Consuming markets

Markets which collect the produce for final disposal to the consuming
population are called consumer markets.

Such markets are generally located in areas where production is
inadequate, or in thickly populated urban centres.

On the Basis of Extent of Public Intervention

Based on the extent of public intervention, markets may be placed in any one of
the following two classes

Regulated markets

In these markets, business is done in accordance with the rules and

regulations framed by the statutory market organization representing
different sections involved in markets.
The marketing costs in such markets are standardized and practices are

Unregulated markets

These 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
These markets suffer from many ills, ranging from unstandardised
charges for marketing functions to imperfections in the determination
of prices.

On the Basis of Type of Population Served

On the basis of population served by a market, it can be classified as either urban

or rural market

Urban market

A market which serves mainly the population residing in an urban area

is called an urban market.
Nature and quantum of demand for agricultural products arising from
the urban population is characterized as urban market for farm

Rural market

The word rural market usually refers to the demand originating from
the rural population.
There is considerable difference in the nature of embedded services
required with a farm product between urban and rural demands.

On the Basis of Visibility

Black Market

In black markets, scarce commodities are sold at a very high price not
openly but in a secret manner.
The situation arises on account of excess of demand over limited supply.
Black market is an anti-social activity which gives way to black money.
Black money, hidden money or unaccounted money then passes into the
money market where it is invested in different trades and business
The interest and profits so earned on the unaccounted money go on
accumulating, till it attracts attention of the income tax authorities.

On the Basis of Accrual of Marketing Margins

Markets can also be classified on the basis of as to whom the marketing margins
Over the years, there has been a considerable increase in the producers or
consumers co-operatives or other organizations handling marketing of various
Though private trade still handles bulk of the trade in farm products, the co-
operative marketing has increased its share in the trade of some agricultural
commodities like milk, fertilizers, sugarcane and sugar.
In the case of marketing activities undertaken by producers or consumers co-
operatives, the marketing margins are either negligible or shared amongst
their members


Based on number of sellers/buyers in the market

o Monopoly - Only one seller
o Oligopoly - Few number of sellers
o Monopsony - Single buyer
o Oligopsony - Few number of buyers
o Perfect/Pure competition - large number of sellers and buyers
o Bilateral monopoly - single seller and single buyer

18.ShortRun Equilibrium and LongRun Equilibrium


To know the definition of market and normal price.

To illustrate the equillibrium price determination under perfect competition in
short and long run


Short- Run Equilibrium price and output under perfect competition

Show the determination of short run equilibrium price and output under perfect
In this figure, we show the average cost curve (AC) and marginal cost curve (MC) of the
firm, together with its demand curve. We said that the demand curve is also the average
revenue curve is also the average revenue curve and the marginal revenue curve of the
firm, in a perfectly competitive market.
The firm is in equilibrium at point E where MR = MC, i.e., MC curve intersects the MR
curve at the point E. The equilibrium price is OP and equilibrium output is OQ.
Profit per unit of output is the difference between average revenue or price and average
cost. Average revenue or price is QE or OP. Average cost is QS.
Therefore, profit per unit of output is ES. Total profit earned the firm will be equal to
LPxES. Thus, the total profit earned the firm is PESL.

Abnormal Loss (Click here to view graph)

Figure shows the abnormal loss of a firm, where prevailing market price of the product is
such that the price line average and marginal revenue curves lies below the average
In the figure, the equilibrium price and output are determined when MC interest MR at
point E. OQ is the equilibrium output and OP is the equilibrium price.
QE is the average revenue and NQ is the average cost. Since average revenue or price
(QE) is less than average cost (NQ), the loss per unit of output is equal to NE and total
loss will be equal to PENM. This is known as abnormal loss.
Hence, the conditions of firms equilibrium under perfect competition are:
o MC=MR = Price
o MC curve must cut MR curve from below


Figure shows that E is the equilibrium point, where MC curve cuts the MR curve from
OQ is the equilibrium level of output and OP is the equilibrium price level.
AC curve is tangent to the AR curve at the point E, Where the firm incurs normal profit,
when P=AR = MR = AC =MC.

Normal profits (Click here to view the graph for "Short-Run Equilibrium with Normal

Just as land has rent, labour wages, capital rate of interest, the reward for entrepreneur,
under perfect competition, is normal profit.
Thus, normal profits are the remuneration for the entrepreneur, under perfect
Normal profits are those profits which are not large enough to attract any new
entrepreneur into the business nor are they small enough to make the existing
entrepreneurs quit the business



First condition for equilibrium of a firm is that marginal cost must be equal to
marginal revenue and the condition is that marginal cost curve should cut the
marginal revenue curve from below.
The condition is that average revenue or price should equal average cost. In the
short run there is abnormal profits quit business.
This period of entry and by firms is by itself long run. The industry attains
equilibrium when AR or Price = AC.
Price is also equal to marginal cost and revenue. Shows that point E is the long
run equilibrium output.

19.Problems of Peculiaries of Defects in Livestock Marketing


To understand functioning of the marketing of livestock, perishable and non

perishable livestock goods.
To expose to various channels involved in the livestock and livestock products



Lack of producer's organization

The farming community is more or less disorganized at the village level.

Except for a few ,till now no such organization has developed which may prove a
sound basis for strengthening the bargaining power of the farmers.
An individual deals in his own product , he sells his surplus produce in the village
or at the primary market level with his low bargaining power and hence, he is
always at a disadvantage against the organized trading community.

Forced sale

In a country like India,majority of subsistence producers are compelled to sell

their produce immediately after harvest in order to meet the pressing claims of
their lenders even if the prices are not remunerative.
Most producers sell their product, repay debts, face a shortage, and fall in debt
again. Thus they sell to repay debt only to fall in debt again.

Superfluous middlemen

Since the farmer sells a substantial portion of his surplus produce in

the village
and nearby markets, there is always intervention of a number of middlemen

between him and the consumer and naturally share of the consumer's price
received by the producer is reduced.

Malpractices in the market

Malpractice arises on account of multiplicity of market charges, spurious

deductions, unfair weighment and undesirable mode of sale.
Weight and scales are manipulated against the seller.
There are all kinds of arbitrary deductions for religious and charitable purpose.
The burden falls entirely on the seller and he has no effective means to protect
himself against such practices.
Some quantity is taken away from the producer's produce as sample. T
his varies from produce to produce. The producers are not paid for this even
when no sales are effected.

Absence of grading and standardization and inadequate storage facilities

Many state governments have not so far prescribed grades and standards for
many livestock products.
A good number of farmers have little knowledge of grading their produce and
usually mix up good and bad quality product into a single lot which secures
them a lower price for their produce in the market.
There is general inadequacy of good storage facilities both in urban as well as in
rural areas.
The indigenous methods of storage adopted in village do not adequately protect
the produce.
As a result, physical losses go on increasing if the period of storage is lengthened.

Undeveloped modes of transportation

Without a good transporting system, no individual will have the incentive to

produce or to purchase more than minimum.
Unless it is reasonably convenient for the farmer to exchange his surplus produce
for consumer goods or farm production requisites, he is lacking an important
incentive to exploit the full potentials of his animals.
Lack of an efficient transport network is the real limiting factor in the attempts to
increase livestock production in our Country.

Variability in Output

The quantity of farm products available depends upon several factors.

With the gambling nature, one cannot forecast the quantity of products that
would be produced as livestock production is mainly biological depending on
weather, rainfall etc for its main inputs like feed, fodder etc.,

Seasonality in production

Much of farm production is highly seasonal. The production varies from one
season of the year to another.
Hence, storage facilities must be made ready to hold the product until it is
This seasonality in production thus, raises costs of marketing through demand
storage facilities.
The seasonal variability in production of items like milk, egg, butter etc is not as
acute as it used to be years ago.
The widespread use of rapid transportation and refrigeration has tendered to
reduce the seasonality.

Raw materials

Farm out put which mainly sold in the farm of raw materials is used subsequently
for processing.
Sugarcane is to be converted into sugar, oils seeds into oil, animals in to meat,
wool in to cloth before all these are used for consumption.
Hence the raw materials produced by the farmers are to be processed at once
stage or the other before final consumption.


In relation to other products, agricultural products by nature are perishable. All

products ultimately deteriorated.
Eggs, mutton, and milk must move into the place of consumption very quickly,
otherwise they would completely lose their value.
These perishable products require speedy handling and often-special
refrigeration, which raises the cost of marketing.


The differences in variety, colour, palatability, nutritive value, size, quality etc. of
the products are the other determinants of a good market for these products



Perishable Goods (Click here to view graph)

Marketing of livestock and livestock products is different from manufactured or

industrial goods.
Most of the livestock products are perishable in nature and the period of perishability
varies from a few hours to few months.
Most of the farmers are landless, marginal or small. Therefore the produce of individual
is very less.
Lastly, most of the farm products are processed before they are used, purchased and
consumed by the ultimate consumers.

Selling of perishable products like fruits, vegetables, and livestock products (milk, meat,
and egg) require fast movement of the commodities from the producers to the ultimate

Non-Perishable Goods

Non-perishable goods are goods that can be used again and again in the process of
production. They are tangible goods that normally survive many uses. They don't loose
their utility or shape after their first use.
They continue to provide utility over a long period of time, of course their utility over a
long period diminishes in value and utility.
Example factory buildings, machines and equipment are durable. Refrigerators, machine
tools and clothing are non perishable.
Nonperishable goods normally require more personal selling and services command a
higher margin and require more seller guarantees.
The perishable goods as used for the smaller period of time are not having any
Whereas the Non perishable goods (Radio, TV, Refrigerator) are usually provided with
guarantee period.They can classified as M

Durable - TV, Refrigerator

Industrial goods - Milking Parlour, Feed Mill, Machines in Automobile industry, etc



To know definitions of merchandiding

To furnish in detail about product planning and development
To understand the PERT and CPM method in product development



It is the barometer of efficiency in buying and selling and it is closely related to

several aspects of buying and stock management.

Product Planning and Development

Product planning covers a broad area of decisions includingproduct-line

planning, introduction of new products, deletion of the product from product-
line, product modification, packaging, labeling, branding etc.,

Alternative growth stages

Marketers have four alternative ways for growth in sales and profits
o Market penetration
o Market development
o Product development and
o Product diversification.

New product development process

Most of the successful companies employ one or more of the following

alternatives in locating organizational responsibility for new product
o New product committees / departments
o Product mangers/ venture teams.
There are seven stages for new product development process such as Idea
generation, Screening, Concept development and testing, Business analysis,
Product development, Test marketing and Commercialization.

Product Development programme

This is an important stage in atleast three ways i.e.

o It marks the first attempt to develop the product in a 'concrete
o It represents a huge investment for developing a technically
feasible product.
o Lastly, it provides an answer as to whether the product idea can
be translated into a technical and commercially feasible product.
Primarily there are four steps involved in the product development
stage: (i.e) Engineering, Consumer testing, Branding and Packaging.
Other activities involved in the product development stage are
formulation of preliminary advertising and promotion
trade merchandising programme,
application for patent and copy rights etc.
Systematic planning of all phases of new product development and
introduction can be accomplished through the use of such scheduling
methods as the
Programme Evaluation and Review Technique(PERT) and
Critical Path Method (CPM)

21.Marketing Functions


To understand different approach to marketing.

To illustrate the primary and secondary functions of livestock marketing.
To summarize the marketting information and marketting intelligence


Approaches to study of marketing

Marketing can be studied through any one of the following four approaches.
o Functional approach
o Institutional approach
o Commodity approach
o Behavioural system or decision making approach.

Functional approach

Here the entire marketing process is broken down into many functions.
A marketing function may be defined as a specialized activity performed in
accomplishing the marketing process.
The marketing functions are classified into three

Exchange Functions

Exchange functions are those activities involved in the transfer of

ownership of goods. There are two exchange functions viz. buying and
Buying and selling are the complementary functions around which all
marketing efforts revolve and they are basic to the entire marketing

Physical functions

Physical functions are those activities that involve handling of the

products, storage, movement and processing of the goods.
Storage, transportation and processing functions are primarily
concerned with making the goods available at the desired time, at the
proper place and in the correct form.

Facilitating functions

Facilitating functions are those which make possible the smooth

performance of the exchange and physical functions.
These activities are not directly involved in either the exchange or the
physical handling of products.
However, without them, the modern marketing system would not be
They might correctly be designated as the grease that makes the wheels
of the marketing machines go round. They are

Standardization and grading

Risk bearing
Market intelligence

Standardization and grading

It is the establishment and maintenance of uniform

measurements of both quality and quantity. This function
simplifies the process of buying and selling.
It establishes a rational relationship between price and quantity
and hence gains the consumers confidence. It takes into account
size, shape, form, composition, weight etc.


It is concerned with advancing of money to the marketing

functionaries to carry out various functions of marketing.

Risk bearing

It is concerned with the acceptance of the possibility of loss in the

marketing of a product. These risks are classified as physical risks
and market risks.
The physical risks are those which occur from destruction or
deterioration of the product itself by fire, accident, wind,
earthquakes, cold, heat, etc.
Market risks are those which occur because of the changes in the
value of the product as it is marketed.
Changes in prices, tastes and preference of the customers may
lead to losses and they come under market risks.

Market intelligence

This is the job of collecting, interpreting and disseminating a

variety of data necessary for the smooth operation of the
marketing process.

Institutional approach

In this approach, principles of marketing are formulated around the instiutions

performing the marketing functions. This 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 and hence
institutional approach is simply the study of middlemen.

Commodity approach

In this approach, specific commodities are selected and they are followed through
from the producer to the consumer.
For e.g., When we study marketing of milk, we will have to begin by examining
the sources of supply, volume and nature of demand, different marketing
functions involved etc.

Behavioural systems approach or decision making approach or

management approach

Marketing process is continuously changing in its organizational and functional

Understanding and predicting these changes are a major problem in marketing.
Every marketing system is composed of people who are making decisions in an
attempt to solve problems in marketing.
They take decisions on the product to be handled, the distribution polices,
pricing, advertising, selling etc.
In this approach, an attempt is made to find out how marketing decisions are
made and should be made.
In transferring the product from producer to consumer various functions are
carried out by different marketing functionaries and they are called as
marketing functions.
They are, buying, selling, standardizing, grading, transports, storage and risk



Buying and Selling

Buying and selling are the complimentary functions, around which all marketing
efforts revolve and they are basic to the entire marketing process and these two
are known as exchange functions which are involved in the transfer of
ownership of goods.

Physical functions

Storage and
Risk bearing

These are essential to the main functions

of marketing (Assembling, Processing
and Dispersion).
Standardizing and Grading imply setting up of the basic measures which the
goods must conform.

A standard specifies what basic quality a product must have to be consistent with
the established characteristics.
Standards are set with regard to the shape, size, colour, flavour, composition,
weight etc.


Grading is the act of separating goods into different lots according to established
Purpose of grading is to establish a common language easily understood by
buyers and sellers as the basis of judging the quality of the product in relation
to its price.
Grading and standardization also help to cater to the special tastes and liking of
different section of buyers.


It is one of the most important functions of the modern marketing system. This
function is primarily concerned with making goods available at the proper
place resulting in creating place utility of the products.
Transporting is necessary not only to provide the goods to the consumers in time,
but also to find remunerative markets at far away places.
An efficient transport system enables the goods to reach the markets far and wide
without losing the precious time.
Special type of transport is highly essential for the transportation of livestock
E.g. Refrigeration facility is essential for the transportation of milk and meat.


It is the process of holding and preserving goods. Storage creates time utility
whereby goods are made more useful.
Farm products are stored to make them available throughout the year to balance
the periods of plenty and periods of scarcity.
Reasons for storing farm products:
o To even out the seasonal factor in production
o To lengthen the shelf life of the farm products which are mostly
o To improve the quality as well as the value of the products


Risk Bearing

It is accepting the possibility of loss when marketing a product.

Physical risks

Physical risks are those results in the destruction of the product itself
and are due to fire, accident, rain etc.
Risk attached to such natural hazards is often transferred to institutions
(Insurance companies) that specialize in assuming such risk.

Market risks

Market risks are those which occur due to the changes in product prices
and changes in consumer demand for the products.
Market risks can be reduced through accurate forecasting and market

Marketing Information

In the field of marketing, information is of great importance. Like men, money,

machines and materials and information is also a vital input.
As defined by Philip Kotler, Marketing information system is continuing &
interacting structure of people, equipment & procedure designed to gather,
sort, analyze, evaluate, distribute, pertinent, timely and accurate information
for use by marketing decision makers, to improve their marketing planning,
execution and control.
Three type of information come out of the systems are

Recurrent information
Monitored information
Requested information

Sources of marketing information

Sources of marketing information are

o Exeutive experience
It is the direct counter part of the casual experience that we
accumulate from the process of every body living.
o Internal reports
Come from the authorities that work as specialists for the firms.
o Marketing research
Studies are conducted using methods of enquiry, observation and
experimentation and by using available internal reports.
o Marketing models
At a general level, sources may include for example, daily news
papers, technical journals, hand books, and reference materials,
government publication, corporation annual reports and
computer data bases.

Functions of Marketing Information System (MKIS):

MKIS should perform the following six functions.

o Assembly -Searching and gathering marketing data
o Processing - Editing, tabulating and summarizing data
o Analysis - Computation (percentages and ratios), combining sales and
costs data and other mathematical tasks.
o Storage and retrieval - Indexing, filing and locating data.
o Evaluation - Determining the accuracy of information.
o Dissemination - Routing useful information to appropriate decision-

Marketing Intelligence

A marketing intelligence system is a set of procedures and sources used by

managers to obtain their everyday information about pertinent developments
in marketing environment.
It is a product of market research and marketing research. In marketing
intelligence, marketing managers scan the environment in four ways.
o Undirected viewing
o Conditioned viewing
o Informal search
o Formal search
Marketing managers carry on marketing intelligence mostly on
their own by reading books, news papers and trade publications,
talking to customers, suppliers and other outsiders and talking
with other managers, personnels within the company.
Well-recognized companies take additional step to improve the
quality and quantity of marketing intelligence. First they train
and motivate the 'sales force' to spot and report new
development. Sales representatives are company's " eyes and
They are in an excellent position to pick up information missed by
other means. The company must sell its sales force on their
importance as intelligence gatherers. The sales force should be
provided with easy reports to fill out. Sales representatives
should know which type of information to be sent to different
Secondly, the company motivates distributors, retailers and other
middlemen to pass along important intelligence.

Marketing Cost

It is the actual expense incurred in buying goods and services from producers to
ultimate consumer.
It is the difference between final price paid by consumer for a commodity and
price received by the primary producer.

It includes assembling charges, handling charges, transport and storage cost,
processing cost, profit margin to different intermediaries, etc.

Market Spread

Marketing cost is measured by the concept called market or price spread .

Price spread is the difference between price paid consumer and price received
by producer.
Market spread is expressed in percentage of consumer's rupee.

Marketing Channel

Marketing channel can be defined as path through which a product moves from
producer to consumer.
There are mainly tow types of marketing channel i.e Organized and Unorganized.
Organized marketing channel involve participation of government institution or
co-operative federation e.g Tamil Physical risks are those results in the
destruction of the product itself and are due to fire, accident, rain etc. Tamil
Nadu Co-operative Milk producer's Federation. It is basically a service motive
organization where consumer price will not have any violent fluctuation.
Unorganized marketing channel has many participation of private traders having
profit motive e.g. Private milk vendors.

Factor affecting marketing channel

1. Consumer distribution
2. Product characteristics
3. Characteristics of consumer
4. New marketing technologies
5. Changes in management
6. Changes in policies of government
7. Cost requirement

Value chain

Marketing channel adds value to commodities when goods pass through. To

reduce exorbitant price rise in the value chain, market integration is carried out.
There are two types of market integration namely vertical or horizontal .
Vertical integration occur when firms confine activities of different channel. e.g.
wholesaler doing functions of both retailer and wholesaler. This is not only case
in value chain process.
Sometime producers convert their produce from raw material ready to cook or to
ready eat forms.In this case value chain is maintained with heavy investment on
value addition process , cold chain, specialized transportation vehicle, etc.,
Horizontal integration occur when firms gain control over other firms by
performing similar activities at same level in marketing channel

22.Marketing Opportunities


To highlight concepts of marketing opportunities

To understand various principles in consumer behaviour during the buying
To explain the the different pathway of livestock products


Companies must look internally for strength and weakness and externally to the
environment for opportunities and threats. Most opportunities and threats
evolves from
o Changes in the demographic, economic, political, legal and cultural
o Change in the competitive environment, such as a technological break
through by a computer.
o Events that may or may not be under the company's control such as
strike by the work force or a serious fire in an industrial plant.
New market opportunities are determined by discovering customer
groups with unmet needs.
The new market opportunities arise for a variety of reasons in
industrialized societies. One is geographical mobility.
People live where they did not live before and thus create new
The aggressive business firms recognize these new markets and
builds new super markets, new discount houses etc.
Another source of new market is social mobility.
As people become more educated and acquire more sophisticated
social environment their interest change frequently resulting in
markets for new products.
Yet another cause of new market is psychic mobility, when people
change the conception of themselves and their environment
along with physical and social mobility


Consumer behaviour refers to those acts of individuals directly involved in

obtaining and using economic goods and services, including the decision
processes and determines these acts.
Consumer behaviour may be analyzed from the three principal angles as detailed
below :

Steps in the buying process

Broadly, a buying decision involves the following steps/stages
o Decision that there is a need for a product
o Pre-purchase search about its relevant particulars
o Analyzing the importance of different factors involved (i.e.) price,
utility, durability and the like,
o Weighing the pros and cons of alternative products
o Selection of the best available product in the context
o Use of the product and
o Post use review

Role of individuals in the buying process

There are 5 different roles that persons play in a buying decision process.
o Initiator: The person who first suggests or thinks of buying the
particular product.
o Influencer: A person who explicitly /implicitly carries some influence on
the final decision.
o Decider: A person who ultimately determines any part or the whole of
the buying decision -Whether/What/ How/ When/ Where to buy?
o Buyer: The person who makes the actual purchase.
o User: The person (s) who consume or use the product or services

Determinants of buyer behaviour

In a broad sense the determinants of buyer / consumer behaviour may be divided

into two groups as follows:
o Marketing channel can be defined as a path through which product
moves from producer to consumer.
o Hence a short channel of distribution will be an effective tool to reach
the target consumers.
o However, distribution of products having lower unit value and high
turn over like eggs involves a large number of middlemen.
o The channels of distribution serve as a network, which creates value for
the consumer by generating possession, time and place utilities.
o There are number of middleman and merchants, including Government
and co-operative agencies, who act as links between the producers and
o The possible visible channels of distribution for few selected livestock
products (Milk, egg) are given below

23.Import and Export of Animal and Animal Products


To understand the world trade of livestock and livestock products.

To know the import and export of animals and animal products in India.
To show the value of export and import of livestock and livestock products.

To look at the various guidelines for export of livestock and livestock products


India is known for its livestock wealth and ranks high among the nations having
bovine population.
However, despite having huge livestock population, India stands insignificant in
the world trade of livestock products.
The recent concerted efforts made by the government in the era of liberalization
after opening up of the national economy to the international market have
certainly boosted Indias export trade of livestock products to newer heights.
The dairy industry of India is already at a take-off stage and the entry of the
corporate sector following the liberalized policies of government is bound to
complement the efforts of National Dairy Development Board (NDDB) to
usher in a white revolution.
The most important achievement of the dairy industry is the near-self sufficiency
in milk production.
Nonetheless, the possibility of India emerging as a potential exporter of various
livestock products will largely depend on Indias own ability to exploit her
potential in this sector and generate exportable surplus of these commodities,
aside her competitive strength in the world market.

Import Procedure for Livestock Products

Livestock products include meat and meat products of different types that
comprise fresh, chilled and frozen meat as well as tissue or organs of poultry, pig,
sheep and goat.
It also consists of egg and egg powder; milk and milk goods; pet foods of animal
origin and embryos, ova or semen of cows, sheep and goats.
No livestock product may be imported into India without a valid sanitary import


1997-98 to 2002-03.
( Rs. million)
Broad Groups 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03
Livestock 28 14.7 18.8 13.5 17 36.5
Meat and - 0.3 2.6 4.3 5.9 3.7
Edible Meat
Dairy and 300.2 424.3 1811.3 535.7 393.1 946.9
Products and

Animal Fodder 413.5 499.4 668.5 818.5 1227.7 12941.37
and Feed
Leather 5343.1 6142.1 6587.9 8730.6 10330.2 9735.2
Raw Wool and 6127.7 4979.9 4969.4 4686.8 6339.3 8957.3
Animal Hair
All Groups 12212.5 12060.7 14058.5 14789.4 18313.2 32620.97
Source - Directorate General of Statistics&Commercial Intelligence, Calcutta , (DGCIS,
Calcutta )

All live-stock products shall be imported into India subject to the following
conditions, namely:
No live-stock product shall be imported into India without a valid sanitary import
permit issued under clause (3).
All applications for a permit to import consignments by land, air or sea shall be
made in either Form A (Application For Permit To Import Live-Stock Products
For Personal Consumption) Or Form B(For Trading / Marketing ) whichever is
relevant, and sent in triplicate to the Joint Secretary, Trade Division,
Department of Animal Husbandry and Dairying, Ministry of Agriculture,
Government of India .
o The sanitary import permit shall be issued for import of livestock
products if, after a detailed import risk analysis, the concerned
authorities are satisfied that the import of the consignment will not
adversely affect the health of the animal and human populations of this
o The import risk analysis shall be conducted by the concerned officers of
the Department on the basis of internationally recognised scientific
principles of risk analysis and the analysis shall be conducted with
reference to the specific product and the disease situation prevailing in
the exporting country vis-a-vis the disease situation in India .
o The issue of permits shall be refused if the results of the import risk
analysis show that there is a risk of the specific product bringing in one
or more specific diseases, which are not prevalent in the country and
which could adversely affect the health and safety of the human and
animal populations of this country.
o The import permit shall lay down the specific conditions that will have
to be fulfilled in respect of the consignment, including pre-shipment
certifications and quarantine checks.
o The permit shall also specify the post-import requirements with regard
to quarantine inspections, sampling and testing.

o The import permit issued under this clause shall be valid for a period of
six months, but can be extended by the concerned authority for a further
period of six months, on request from the importer and for reasons to
be recorded in writing.
All livestock products shall be imported into India through the seaports or
airports located at Delhi, Mumbai, Kolkata and Chennai, where the Animal
Quarantine and Certification Services Stations are located.
o On arrival at the entry point, the livestock product shall be inspected by
the Officer-in-charge of the Animal Quarantine and Certification
Services Station or any other veterinary officer duly authorised by the
Department Of Animal Husbandry and Dairying, wherever required, in
accordance with the specific conditions laid down in the sanitary import
permit and with general guidelines issued by the Department of Animal
Husbandry and Dairying from time to time.
o After inspection and testing, where-ever required, the concerned
quarantine or veterinary authority shall accord quarantine clearance for
the entry of the livestock product into India or, if required in public
interest, order its destruction or its return to the country of origin.
o Where ever disinfection or any other treatment is considered necessary
in respect of any livestock product , the importer shall, on his own or at
his cost through an agency approved by the Department of Animal
Husbandry and Dairying, arrange for disinfection or other treatment of
the consignment, under the supervision of a duly authorised quarantine
or veterinary officer.
It shall be the responsibility of the importer.
o To bring the livestock product to the concerned Animal Quarantine &
Certification Services Station, or to the place of inspection, disinfection
or treatment or testing as directed by the Quarantine or veterinary
officer duly authorized on this behalf;
o To open, repack and load into or unload from the Animal Quarantine
Station and seal the consignment; and
o To remove them after inspection and treatment or testing, according to
the directions of the Quarantine or veterinary officer duly authorized by
the Department.
The Central Government may, in public interest, relax any of the onditions
specified under this Schedule relating to the permit in relation to the import of
any live-stock product

1997-98 to 2002-03
( Rs.million)
Broad Groups 1997-98 1998- 1999- 2000- 2001-02 2002-03
99 2000 01

Livestock 13.3 47.5 58.9 76.3 90.41 62.82
Meat and Edible Meat 8022.9 7721.3 7964.3 14568.6 11828.4 13575.5
Dairy and Poultry 1155.5 859 1142.9 2081.6 3524.8 3567
Products and Honey
Animal Fodder and 653.06 671.5 418 543.6 973.2 322.41
Leather 11006 11292.7 10384.1 17455.7 21971.4 24705.4
Raw Wool and Animal 64.11 63 38.7 34.2 18.8 22.8
All Groups(Total) 20914.87 20655 20006.9 34760 38407.01 42255.93
Source - Directorate General of Statistics&Commercial Intelligence, Calcutta , (DGCIS,
Calcutta )

Certain documentation takes place while exporting from India. Special

documents may be required depending on the type of product or destination.
Certain export products may require a quality control inspection certificate from
the Export Inspection Agency.
Some food and pharmaceutical product may require a health or sanitary
certificate for export.
Shipping Bill/ Bill of Export is the main document required by the Customs
Authority for allowing shipment.
Usually the Shipping Bill is of four types and the major distinction lies with
regard to the goods being subject to certain conditions which are mentioned
Export duty/ cess
Free of duty/ cess
Entitlement of duty drawback
Entitlement of credit of duty under DEPB Scheme

The following are the documents required for the processing of the
Shipping Bill:

GR forms (in duplicate) for shipment to all the countries.

4 copies of the packing list mentioning the contents, quantity, gross and net
weight of each package.
4 copies of invoices which contains all relevant particulars like number of
packages, quantity, unit rate, total f.o.b./ c.i.f. value, correct & full description of
goods etc.
Contract, L/C, Purchase Order of the overseas buyer.
AR4 (both original and duplicate) and invoice.
Inspection/ Examination Certificate.

The formats presented for the Shipping Bill are as given below:

White Shipping Bill in triplicate for export of duty free of goods.

Green Shipping Bill in quadruplicate for the export of goods which are under
claim for duty drawback.
Yellow Shipping Bill in triplicate for the export of dutiable goods.
Blue Shipping Bill in 7 copies for exports under the DEPB scheme.
Documents Required for Post Parcel Customs Clearance
In case of Post Parcel, no Shipping Bill is required. The relevant documents are
mentioned below:

Customs Declaration Form

o It is prescribed by the Universal Postal Union (UPU) and international

apex body coordinating activities of national postal administration. It is
known by the code number CP2/ CP3 and to be prepared in
quadruplicate, signed by the sender.
Despatch Note, also known as CP2. It is filled by the sender to
specify the action to be taken by the postal department at the
destination in case the address is non-traceable or the parcel is
refused to be accepted.
Prescriptions regarding the minimum and maximum sizes of the
parcel with its maximum weight
Minimum size: Total surface area not less than 140 mm X 90 mm.
Maximum size: Lengthwise not over 1.05 m. Measurement of any
other side of circumference 0.9 m./ 2.00 m.
Maximum weight: 10 kg usually, 20 kg for some destinations.

Commercial invoice

Issued by the seller for the full realisable amount of goods as per trade



The import and export of the cattle/ buffalo germplasm is under restricted list
and is allowed against the license issued by Directorate General of Foreign
Trade, Ministry of Commerce on the recommendation of this Department.
Introduction of temperate dairy breeds in the country for cross-breeding
indigenous non -descript cattle has been accepted for quite some time now.
In pursuance to this, the need has been felt by number of State Governments/
Organisations to import exotic germplasm to produce the quality cross-bred
With the extension of the breeding programme and the artificial breeding
network, a surge in the demand for the exotic germplasm is also expected.

There is a definite demand for the germplasm of Indian breeds of cattle and
buffalo, in South America, South Asia and other countries. Keeping in view our
responsibility towards conservation of the rich diversity, it is important to
broadly categorize the germplasm of cattle and buffalo meant for breeding
purposes and further for the export purposes.
Imposing a complete ban on the export of Indigenous germplasm because of
conservation concern would actually be counterproductive.
Such a ban will only encourage the flow of germplasm through illegal trade and in
a country with such huge land border it will be impossible to control such flow
through illegal trade.
It can be used for the up gradation of the indigenous stock.
o Accordingly, it has been felt that some guidelines should be put in place
for processing such applications for import and export of germplasm.
o Interim Guidelines for export /import of bovine germplasm

Guidelines for the Import of bovine germplasm

Import of live animals (bovine) and bovine germplasm will be permitted

for breeding purpose only.
Eligibility of Importers
o The institutes/Organizations capable of keeping and maintaining
the performance records 'of exotic germplasm should only be
permitted to import bovine germplasm and these institutions will
be evaluated by the Department of Animal Husbandry. Dairying
and Fisheries DADF) for grant of permission.
o Complete genetic and production data /information with respect
to the germplasm should be submitted to this Department before
the actual imports.
o Post import information from the date of import to the date of
disposal in prescribed proforma must be maintained and
submitted to Department of Animal Husbandry, Dairying and
Fisheries and State Governinents six monthly.
o The feeding schedule from the import'ing country should be
supplied along with other documents
o The import should be based on the fat % and lactation yield in
addition to other milk component character standards. The type
evaluation should form the integrated component of selection.
o The guidelines formulated by OlE, Codex Alimentarius and lETS
should be strictly adhered to while importing the genetic
o The pre and post import quarantine measures for live animals
and germplasm should be strictly adhered to according to GOI
health protocols.
o The justifications for import and future roadmap for utilization of
imported germplasm should be supplied with other documents.
o No objection certificate from the concerned State Government
should be submitted before the actual imports.

Screening Committee
o All the applications for the import of germplasm will be
examined. by .the Department of Animal Husbandrx Dairying
and Fisheries (DAD F).
Veterinary Certificates
o The imports should be regulated as per the provision of Livestock
Importation Act, 1898 amended from time to time and as per the
protocols/ veterinary certificates
Order of import
o For import of germplasm, the order of preference should be
frozen semen, frozen embryos, and live animals, which shall be
based on the assessment of the domestic requirement of bulls
and bull mothers and their availability in the country.
Standards for Import of Germplasm
o Semen from progeny tested sires with +ve sire indices/breeding
values (with reliability of> 85%) should only be allowed for
o The selection criterion for milk fat should be a minimum of3.5%
in HF and 5% in Jersey. 6.2 Semen should be procured from the
bulls with daughters average lactation yield ( in 305 days) above
9000 liters in HF and 6000 liters in Jersey.
o Bulls should be improver for type charactersli ke uddera nd feet
o Donor bull should be free from genetic disorders like bovine
leukocyte adhesion disease (BLAD), deficiency of uridine mono-
phosphate synthetase (DUMPS), citrulinemia (deficiency of
argino-succinate synthetasea) and Factor XI
o Embryos should be procured from the donor dams -HF with
minimum lactation yield of'l 000 Its with minimum of 3,5% fat.
Sire should be progeny tested with sire indices/breeding value of
higher order (with reliability of> 85%).
o Embryos should be procured from the donor dams- Jersey with
o lactation yield of 7000 Its with minimum of 5% fat. Sire should
be progeny tested with sire indices/breeding value of higher
order (with reliability of> 85%),
o In case of import of indigenous germplasm, average of top 20%
of genetic
o material on current animal register of the exporting country shall
be considered for import.
o Import of germplasm of other exotic breeds will be allowed only
for experimental purpose subject to condition that the semen is
from progeny tested.
o For import of live animals/ Semen! Embryos of other bovine
breeds, the DADF shall consider and recommend case-to-case

24.Guidelines for export of bovine germplasm


To understand the guidelines involved in the export of bovine germplasm

To know the status of livestock, livestock products and poultry products in export


Export of live animals (bovine) and bovine germplasm will be permitted for
breeding purposes only.
The export of germplasm will be allowed subject to the fulfillment of following
o For export of'germplasm, order '"of preference should be frozen semen,
frozen embryos and lastly live animals.
o Animal should conform to breed characteristics.
o Milk production records of breed averages will be considered during
export of live animals.
o However elite animals (top 20% of the production level) of each breed
having best milk product(on level should not be exported.
o The export component should not exceed 5% of animals of the
concerned breed estimated as qualified for export per year.
o However, export of lIve anImals of some of the Indigenous breeds
categonsed as threatened/ endangered shall not be allowed.
o Countries which are interested in importing bovine germplasm (live
o semen, ova, embryo and gonads) will provide their import policy
documents and health protocols to Govt. of India.
o The exporting agency from India will comply with the rules and
regulations as intimated by DADF.
o The export of germplasm (semen, ova & embryos) of all the breeds may
only be permitted to only those countries, which are willing to have
similar arrangements on reciprocal basis.
o The health certificate requested by the importing authorities will be
provided by the registered Veterinarian authorized by DADF.
o Exporting agency/ State Government will keep the detailed data on the
exported animals and shall regularly inform DADF.
o For export of Embryo/ ova, the collection and processing techniques as
stipulated under section 3.3 Appendix to and micro-
manipulation of the Bovine Embryos at Appendix to of
the DIE Terrestrial Anima1.Health code (2005). as amended from time
to time may be adhered to. ..
o Similarly the collection and processing procedure of semen as per
section 3.2,Appendix to of the DIE Terrestrial Animal
Health code (2005) as amended from time to time may be complied.

o The animals with National Institute/NDDB, registered animals with
CHRS or State Government or Livestock Development Boards, shall be
eligible for Consideration for export of germ-plasm.
o Preferential treatment shall be given to the SAARC countries in terms of
the number of animals and breeds to be exported especially from
Central Cattle Breeding Farms (CCBFs). .
Although India is a world leader in the production of Dairy Animal Products.
India's exports of Animal products has increased from 1266333.38 MT with the
value of Rs. 4109.93 Crores in 2006-07 to 2101759.49 MTwith the value of
Rs.5104.63 Crores in 2007-08.
Indias exports of poultry products has increased from Rs. 318.17 Crores in 2006-
07 to Rs 441.09 Crores in 2007-08.
Birds, eggs, in shell, fresh, preserved or cooked constitute the largest segment
with about 50% share. Processed egg products accounted for about 48% of the
India's export of Buffalo meat and sheep/goat meat products reached 483478.29
MT and 8908.72 MT with the value of Rs. 3549.78 Crores and Rs. 134.10
Crores during 2007-08.
Frozen bovine meat dominated the exports with a contribution of over 97%. The
demand for bovine meat in international market has sparked a sudden
increase in the meat exports from India. The main markets for Indian bovine
meat are Malaysia, Philippines, Mauritius, and Gulf countries.
Concentrated Dairy products such as skimmed milk continues to be the largest
item of export, which together accounts for nearly 78% of net milk and milk
products exports during the year 2006-07.
The exports of Dairy Products reached. 69415.44 MT with the value of Rs.866.58
Crores in 2007-08 as against Rs. 434.58 Crores in 2006-07.
On the other hand butter, butter oil, ghee and other milk fat together accounted
for just over 10% of the net milk and milk product exports from India during
India s exports of Processed Meat and Natural honey attained 1245.47 MT and
12231.19 MT with the value of Rs. 12.96 Crores and Rs. 93.30 Crores in 2007-



Buffalo Meat

India's livestock population includes, 88 million buffaloes, which is 58 per cent of

the world's buffalo population.
Animals which are generally used for production of meat comprise of sheep and
goats, pigs and poultry.
Besides about 3600 slaughter houses, there are live modern abattoirs and one
integrated abattoir meat processing plant for slaughtering buffaloes for exports
and domestic consumption.

There are 24 meat processing plants including 13, hundred percent export
oriented units who are mainly engaged in export of meat products.
In the last one-year three new export oriented units of buffalo meat processing
have been approved and are reportedly under implementation.
In addition, there are few animal casing units engaged in collecting cleaning,
grading and exporting sheep and goat and cattle guts .
The individual products under this sub-head are as below:
o Carcasses Of Bovine Animals(Fresh)
o Meat Of Bovine Animals With Bone (Fresh)
o Boneless Meat Of Bovine Animals (Fresh)
o Carcasses Of Bovine Animals (Frozen)
o Meat Of Bovine Animals With Bon (Frozen)
o Boneless Meat Of Bovine Animals (Frozen )

Areas of Production

The major areas for Buffalo Meat production are Maharastra, Andhra Pradesh ,
Uttar Pradesh

India Facts and Figures

Indias export of Buffalo (bovine) meat has increased from Rs. 3213.75
Crores in 2006-07 to Rs 3549.78 Crores in 2007-08 .

Major Export Destinations (2007-08)

Vietnam, Malaysia, Philippines, Angola, Saudi Arabia

Value in Rs. Lakh

Quantity in MT

2004 - 2005 2005 - 2006 2006 - 2007

Country QTY(2004- Value(2004 QTY(2005- Value(2005 QTY(2006 Value(2006
2005) -2005) 2006) -2006) -2007) -2007
Buffalo 337,777.67 177,451.85 460,593.32 263,389.32 494,506.3 321,374.58
Meat 0
Sheep 9,024.52 8,127.42 7,272.97 8,104.24 5,777.53 6,587.23
Poultry 1,062,265.6 28,774.23 1,185,279.6 31,653.03 711,245.65 31,817.09
Proudcts 5 4
Diary 42,160.04 35,869.20 75,551.39 67,668.26 45,371.84 43,457.85

Animal 552.74 1,263.98 1,125.82 1,751.33 435.97 950.65
Processe 1,359.68 944.84 745.36 724.01 860.69 712.60
d Meat

Sheep and Goat Meat

Goats\Sheep constitute a very important species of livestock in India, mainly on

account of their short generation intervals, higher rates of prolificacy, and the
ease with which the goats as also their products can be marketed.
They are considered to be very important for their contribution to the
development of rural zones and people.
The local initiatives to promote quality labels and innovative products for
cheeses, meat and fibres could help goats in keeping a role for sustainable
development in an eco-friendly environment all over the world.
However, the future of the goat and sheep industry as a significant economic
activity will also be very dependent on the standards of living in the countries
where there is a market for the goat products.

Areas of Production

Rajasthan, Jammu, Kashmir, Uttar Pradesh, Gujarat, Hilly regions of North and
Eastern Himalays are the Indian regions with maximum livestock population.
The individual products under this sub-head are as below.
o Carcasses Of Lamb (Fresh)
o Carcasses Of Sheep (Fresh)
o Meat Of Sheep With Bone (Fresh)
o Boneless Meat Of Sheep (Fresh)
o Carcasses Of Lamb (Frozen)
o Carcasses Of Sheep (Frozen)
o Meat Of Sheep With Bone (Frozen)
o Boneless Meat Of Sheep (Frozen)
India Facts and Figures
o The world production of Sheep meat was 8.89 million tones and Goat
meat was 5.14 million tones in 2007.
o India ranked seventh in sheep and second in goat meat production.
o Indias export of sheep/goat meat has been increased from Rs. 65.87
Crores in 2006-07 to Rs.134.10 Crores in 2007-08 .
Major Export Destinations (2007-08)
o Saudi Arabia, UAE, Qatar, Germany, Oman



Poultry Products

Poultry is one of the fastest growing segments of the agricultural sector in India
today. While the production of agricultural crops has been rising at a rate of 1.5
to 2 percent per annum, that of eggs and broilers has been rising at a rate of 8
to 10 percent per annum.
As a result, India is now the world's fifth largest egg producer and the eighteenth
largest producer of broilers.
The Potential in the sector is due to a combination of factors - growth in per
capita income, a growing urban population and falling real poultry prices.
Poultry meat is the fastest growing component of global meat demand, and India,
the world's second largest developing country, is experiencing rapid growth in
its poultry sector.
In India, poultry sector growth is being driven by rising incomes and a rapidly
expanding middle class, together with the emergence of vertically integrated
poultry producers that have reduced consumer prices by lowering production
and marketing costs.
Integrated production, market transition from live birds to chilled and frozen
products, and policies that ensure supplies of competitively priced corn and
soybeans are keys to future poultry industry growth in India. There are number
of small poultry dressing plants in the country.
These plants are producing dressed chickens. In addition to these plants, there
are five modern integrated poultry processing plants producing dressed
chicken, chicken cut parts and other chicken products. These plants will
manufacture egg powder and frozen egg-yolk for export.

Areas of Production

Over all, Tamil Nadu counts for maximum egg production. In Andhra Pradesh,
Hyderabad is the city with maximum poultry and hatcheries.
Besides the state of Andhra Pradesh, Vishakhapatnam, Chittoor, Karnataka,
Tamil Nadu, Maharashtra, Gujarat, Madhya Pradesh, Orissa and North
Eastern States are the major egg contributors
The individual products under this sub-head are as below
o Live Poultry <=85 Gram
o Other Live Poultry <=185 Gram
o Live Poultry > 185 Gram
o Other Live Poultry >185 Gram
o Edible Poultry Meat (Fresh)
o Edible Poultry Meat (Frozen)
o Other Poultry Meat Not Cut In Pieces
o Cuts & Offals Excluding Livers
o Eggs In Shell
o Other Eggs
o Egg Yolks Dried
o Other Egg Yolks
o Eggs Not In Shell (Dried/Cooked)

o Eggs Not In Shell (Frozen/Preserved)
o India Facts and Figures
o Indias export of poultry products has increased from Rs. 318.17 Crores
in 2006-07 to Rs 441.09 Crores in 2007-08 .
Major Export Destinations (2007-08)
o Kuwait, Afghanistan, Oman, Japan, Denmark.

Dairy Products

India now has indisputably the world's biggest dairy industryat least in terms of
milk production; last year India produced close to 100 million tonnes of milk,
15% more than the US and three times as much as the much-heralded new
growth champ, China.
Appropriately, India also produces the biggest directory or encyclopaedia of any
world dairy industry.
The dairy sector in the India has shown remarkable development in the past
decade and India has now become one of the largest producers of milk and
value-added milk products in the world.
The individual products under this sub-head are as below

Butter Fresh Butter MilK

Butter Oil Fresh Cheese
Milk & Cream in Powder Milk for Babies
Other Fat Skimmed milk powder
Other milk power Whole Milk

Areas of Production

Maharashtra , Himachal Pradesh , Madhya Pradesh , Punjab , Rajasthan

, Tamil Nadu are the major production area of Dairy Products in India .

India Facts and Figures

Concentrated Dairy products such as skimmed milk continues to be the

largest item of export, which together accounts for nearly 78% of net
milk and milk products exports during the year 2007-08.
The exports of Dairy Products reached. 69415.44 MT from 45371.84 MT
. Indias export of Dairy products has increased from Rs. 434.58 Crores
in 2006-07 to Rs 866.56 Crores in 2007-08 .

Major Export Destinations (2007-08)

Bangladesh, UAE, Egypt, China, Algeria



Animal Casing

India, being a country with numerous states and vast area , has resources for
production of animal casings of high quality with excellent calibration and
shining colour .
This makes India one of the major exporter of animal casing in the world.
Animal products including the products or animal casing like Bladders and
Stomachs of Animals, Casings of Other animals, Cattle Casings, Guts for
Animal Casings, Sheep Casings etc.
The individual products under this sub-head are as below
o Cattle Casings
o Sheep Casings
o Casings of other animals
o Guts for animal casings
o Bladders and stomach of animals

India Facts and Figures

Indias export of Animal Casing products has reached to Rs 6.84 Crores in 2007-

Major Export Destinations (2007-08)

Vietnam, Italy, South Africa, Portugal , Spain.

Processed Meat

The total processing capacity in India is over 1 million tons per annum, of which
40-50 percent is utilized. India exports more than 500,000 tons of meat,
mostly buffalo meat.
Indian buffalo meat is witnessing strong demand in international markets due to
its lean character and near organic nature.
Unlike cow slaughter, there is no social taboo in killing buffalo for meat. Goat and
lamb meat are relatively small segments where local demand is outstripping
The production levels in these two categories have been almost constant at
950,000 tons with annual exports of less than 10,000 tons.
The recent trend in India is to establish large abattoirs-cum-meat processing
plants with the latest technology.
India has already established ten state-of-art mechanized abattoirs-cum-meat
processing plants in various states based on slaughtering buffaloes and sheep.

These plants are environmentally friendly, where all the slaughterhouse
byproducts are utilized in the production of meat-cum-bone meal, tallow, bone
chips and other value-added products. Several more are under construction.
The plants follow all the sanitary and phyto-sanitary measures required by the
International Animal Health code of World Organization for Animal Health
(O.I.E.). These plants mostly produce buffalo meat for export.
India is becoming a major buffalo meat producing country and will be a main
player in the international market with additional establishment of the state-
of-art-abattoirs cum meat processing plants.

Areas of Production

Andhra Pradesh , West Bengal , Maharashtra , Kerala, Delhi , Uttar Pradesh ,

Rajasthan are the key areas of Processed meat production in India.
The individual products under this sub-head are as below
o Sausages & Canned Meat
o Homogenized Meat Preparations
o Preserved Meats
o Other Poultry Meat
o Preserved Meat Of Bovine Animals
o Meat Extracts & Meat Juices

India Facts and Figures

India export of Processed Meat productionhas increased from Rs. 7.13 Crores in
2006-07 to Rs.12.96 Crores in 2007-08 and from 860.69 Qty (Mt) in 2006-07
to 1245.47 Qty (Mt) in 2007-08.

Major Export Destinations (2007-08)

Vietnam, Malaysia, Australia, New Zealand, and Ghana

25.Resource Management


To give in details about resource management.

To explain organisational aspects of livestock farms.
To describe sources, procurement of inputs and financial resources


Organizational aspects of livestock farms

Promotion of the welfare of the people is one of the major objectives of the
modern livestock farming. For the attainment of this objective the state attach
high priority on their economic development.
The economic development in turn depends on human, natural and financial
resources. Since in most of the developing countries these resources are not
available in abundance, every care should be taken to make proper use of these
resources to obtain best possible results.
Hence the management of various types of resources assumes special importance
in the developing countries.

Management of human resources

Management of human resources is of vital importance for every country and

organization, A pertinent question which deserves our consideration is as to
what is the process of management of human resources.
This process comprises of four things, acquisition (getting the people),
development (preparing the people), motivation (activating the people) and
maintenance (keeping them).

Management of natural or material resources

Material or the natural resources also play an important role in the economic
development of a country.
Effective managementof natural or material resources is of prime importance.

Management of financial resources

Financial resources are as important for the economic development of the

country as natural and human resources.
It is of vital importance that the limited financial resources should be utilized
with utmost care and all wasteful expenditure be avoided.
Financial management, according to Hiwad and Uptron "involves the application
of general management principles to a particular financial operation."

Sources and procurement of materials

Purchasing procedures of materials include various stages: First, the need is to be

ascertained and recognised.
Accurate statement of quality and quantity of material needed with full descript is
to be prepared.
Purchase requisitions and negotiations with possible sources of supplies are
This is important in the business, as it is more concerned with the economy of the
company or the firm.

Requirement of materials

Type of the material to
be used in the production process is generally determined
by the production department (engineering dept.) of the company, since it has
necessary knowledge and equipment to check the real physical characteristics.


Usually the top management does this. It depends how highly integrated and the
diversified the company is.

Advantages of Making

Delivery on time in right quantity and quality

Cost consideration, less inventory

Advantges of Buying

Less investment in machines and equipment

Simpler to manage in smaller and less diversified companies

Source selection

Procedure involved in the source selection is the preparation of and exhaustive

list of supplies and then sorting them out the one or ones with when to do the
To prepare the list, a buyer can use the following type of supplier information
o Past experiment with the supplier
o Interview with the sales man
o Technical and descriptive catalogues
o Trade fairs and conventions
o Trade directories and journals
o Trade representatives and agencies
o Periodical advertisement in the press


Material procurement activities

Procurement is a generic term, which includes the purchasing and related

Procurement activities are the selection of the vendors, establishing prices and
services, preparation of orders and supply contracts, arrangement of scheduled
delivery of the materials, proper maintenance of the records and relation with

Procurement activity also includes effective communication with the user and
other services department as also with the supplier.
Frequently, however materials management procedures require direct
communication and discussions between the user and the supplier for
technical reasons.
The heart of the industrial management function is the procurement circle, which
may be depicted as shown below

Financial resources

Resources are the inputs we give to the enterprise. Land, labour and capital are
the basic resources. Any form of the capital can be considered as the financial

Types of Financial Resources

Share Capital

A Company issues shares of its capital to raise the fund for its business.
This is done at the time of incorporation of the company and also
subsequently as and when the need arises.
There are two types of share capital
o Preference capital
o Equity capital
Capital of the company is called the share capital. Those who acquire
shares are called as the shareholders.
They are the owners of the company. Shareholders cannot withdraw any
part of the capital except under appropriate legal customeric provisions.
Shareholders can transfer shares held by them to other persons.


Payment of dividend by a company to its shareholders is similar to the

withdrawal made by the owner partners from the business.

Debentures and Bonds

When large amount of money is required which cannot be obtained from a single
source small amounts are borrowed from large number of people. This is done
by issuing debentures/bonds.
Each debenture has a face value which is the amount supposed to be borrowed
from the debenture holder.
Rate of interest, date of issue and date of maturity are indicated on the


Based on the purpose and duration of the borrowings agricultural credits may be
divided into
o Short term credit: Loan for paying wages, hiring labour, purchasing
feeds, seeds and fertilizers. They are payable out of the income of the
next immediate harvest.
o Medium term loan: Comparatively bigger loans required for the
purchase of cattle, pump sets, implements etc., spanning 2-7 years for
repayment. Repayment cannot be made at the next harvest.
o Long term credit: Still larger sums to purchase land, wells, etc., It will
take many years to repay.

Sources of Agriculture finance

Finance for agriculture can be obtained from

o Money lender
o Credit co-operatives
o Commercial banks
o Government
o Regional Rural Banks

26.GATT ,WTO and Agriculture


To know meaning of GATT, ITO and WTO.

To explain in detail about different negotiation and rules in WTO



General Agreement on Tariffs and Trade (typically abbreviated GATT) was the outcome
of the failure of negotiating governments to create the International Trade Organization
GATT was formed in 1947 and lasted until 1994, when it was replaced by the World
Trade Organization during the final round of negotiations in early 1990s.
The history of the GATT can be divided into three phases:
o The first, from 1947 until the Torquay Round , largely concerned which
commodities would be covered by the agreement and freezing existing tariff
o A second phase, encompassing three rounds, from 1959 to 1979, focused on
reducing tariffs.
o The third phase, consisting only of the Uruguay Round from 1986 to 1994,
extended the agreement fully to new areas such as intellectual property, services ,
capital , and agriculture . Out of this round the WTO was born.


World Trade Organization (WTO) is the only global international organization dealing
with the rules of trade between nations.
At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds
trading nations and ratified in their parliaments.
The goal is to help producers of goods and services, exporters, and importers who
conduct their business
In 1993 the GATT was updated (GATT 1994) to include new obligations upon its
One of the most significant changes was the creation of the World Trade Organization
(WTO). The 75 existing GATT members and the European Communities became the
founding members of the WTO on 1 January 1995.
The other 52 GATT members rejoined the WTO in the following two years (the last being
Congo in 1997).
Since the founding of the WTO and 21 new non-GATT members have joined, 29 are
currently negotiating membership. There are a total of 153 member countries in the
Whereas GATT was a set of rules agreed upon by nations, the WTO is an institutional
body. The WTO expanded its scope from traded goods to trade within the service sector
and intellectual property rights .
Although it was designed to serve multilateral agreements, during several rounds of
GATT negotiations (particularly the Tokyo Round) plurilateral agreements created
selective trading and caused fragmentation among members. WTO arrangements are
generally a multilateral agreement settlement mechanism of GATT.


The WTOs Agriculture Agreement was negotiated in the 198694 Uruguay Round and is
a significant first step towards fairer competition and a less distorted sector.
It includes specific commitments by WTO member governments to improve market
access and reduce trade-distorting subsidies in agriculture.

These commitments are being implemented over a six year period (10 years for
developing countries) that began in 1995.
Participants have agreed to initiate negotiations for continuing the reform process one
year before the end of the implementation period, i.e. by the end of 1999.
These talks have now been incorporated into the broader negotiating agenda set at the
2001 Ministerial Conference in Doha, Qatar.
WTO members agreed to initiate negotiations for continuing the agricultural trade
reform process one year before the end of the implementation period, i.e. by the end of
These talks began in early 2000 under the original mandate of Article 20 of the
Agriculture Agreement.
At the November 2001 Doha Ministerial Conference, the agriculture negotiations became
part of the single undertaking in which virtually all the linked negotiations were to end
by 1 January 2005.
Tariff Barriers
Tariff is a set of proportion of the price of good to increase the price at the border of
importing countries. Aim of levying tariff is to stimulate in import-competing industries
and depressing demand by reducing imports. This is needed to safeguard the domestic
producer. It is specified in money term per unit in the form of excise and custom duties.
This is of two type ie. optimum tariff and prohibitive tariff.
o Optimum tariff - Tariff which maximizes country's welfare.
o Prohibitive tariff - It is the increased level of tariff when there is no trade.
Tariff rate Quota (TRQ) - is two tiered tariff structure where minimum access quantity is
charged a low tariff (within quota tariff) while imports above minim access quota are
charged higher tariff (out of quota tariff) which experience prohibitive tariff.
Special Safeguard Clause (SSC) provides imposition of additional import duty if import
exceeds their average of three preceding years by no more than 5% or if CIF import price
of shipment falls below 90% of average reference price.
Non-Tariff Barriers

To facilitate increased flow of commodities across international border is to eliminate

completely some of the non-tariff barriers. Non-tariff barriers (NTB) in AoA are
quantitative restriction, giving preference to domestic supplies in government purchases,
providing subsidy or advantageous taxation allowance to domestic producer, minimum
import prices, discretionary licensing, variable import levies, voluntary export
restrictions, etc.,

Changes in the form of fees for loading and unloading important products, port charges,
custom processing fees, consular charges to imports are in the form of non-tariff
other specific type of non-tariff barriers are technical barrier to trade (TBT) and sanitary
and phyto-sanitary (SPS) measure.
TBT covers all technical regulations, voluntary standards and conformity assessment
procedures. Many TBT can result in unnecessary costs increase to exporters.
TBT measures focus on ensuring imported products satisfy domestic taxes, preferences
and requirements with respect to quality, safety or appropriate consideration of
environmental concern during manufacturing, processing and or shipment of product.
SPS covers all measures whose purpose is to protect human or animal health from food
borne risks, human health from animal or plant carried diseases.

Remedy for this barrier is to harmonise such requirements or standards within union

27.Break Even Analysis


To define and calculate break-even output and margin of safety.

To explain importance of break even and shut down point


Break-even point

Break-even point is the output level corresponding to minimum point of average

total cost.
A farmer must produce at least this amount of product to cover the total cost of
Whatever is produced above this point will be the profit for the farmer.
Point where the farmer recoups his investment is the Break-even point.
Investment is in the form of fixed cost and variable cost, which constitutes the
total cost.
When the total cost is equal to total revenue it is Break-even point. It can be
calculated by,

Service charge = How much one gets by selling an individual unit of output.

Break-even point nearer to the origin indicates less loss and more profit zones.
Break-even point away from the origin indicates more and more loss zone and
less and less profit zone.
Nearness of Break even point to the origin also indicates whatever the farmer is
producing is market worthwhile.
Due to this the farmer will recoup his investment even by producing less number
of units of output.
Break even point away from the origin indicates to recoup the investment the
farmer has to produce larger number of units of output which is an indication
that whatever the farmer is producing is not so market worthwhile.
Find out the break even point of a sheep herd with following information.
o Total fixed cost =Rs.10000, Number of sheep =100. Variable cost of
production = Rs.60000, Gross return =Rs.100000

o Break Even point or output= 10000/{(100000/100)-(60000/100)}= 25

Shut down point

Shut down point is the output level corresponding to minimum point of average
variable cost.
A farmer must produce at least this amount so that he will be able to cover the
variable cost of production.
If the total revenue curve goes below this point, it is better to close the business
instead of incurring losses. So this point is called as Shut down point.

Margin of Safety = Output BEO

Particulars Problem 1 Problem 2 Problem 3 Problem 4 Problem 5

Total Variable Cost Rs.16,000 Rs.40,000 Rs.60,000 Rs.6
Total Cost Rs,24,000 Rs.30,000 Rs.50,000 Rs.8,000
Total Fixed Cost Rs.10,000 Rs.10,000
Milk Production 3,000 lts 3,500 lts
Gross Income Rs.30,000 Rs.35,000 Rs.60,000 Rs.1,00,000
Meat Production 500 Kg. 100
Number of sheep 100
Service charge Rs.15/unit

28. Accounting


To know importance of accounting

To explore definition of accounting


The following are the main objectives of accounting:

To keep systematic records

Accounting is done to keep a systematic record of financial transactions.

To protect business properties

Accounting provides protection to business properties from unjustified and
unwarranted use.

To ascertain the operational profit or loss

Accounting helps in ascertaining the net profit earned or loss suffered on account
of carrying the business.
This is done by keeping a proper record of revenues and expenses of a particular
The profit and loss account is prepared at the end of a period and if the amount of
revenue for the period is more than the expenses incurred in earning that
revenue, then it is said to be a profit. In case the expenditure exceeds the
revenue, there is said to be a loss.
Profit and loss account will help the management, investors, creditors, etc. in
knowing whether running the business is remunerative or not.

To ascertain the financial position of business

The profit and loss account gives the amount of profit or loss made by the
business during a particular period. However it is not enough.
The businessman must know about his financial position i.e, where he stands:
what he owes and what he owns? This objective is served by the balance sheet
or position statement.
The balance sheet is a statement of assets and liabilities of the business on a
particular date.

To facilitate rational decision making

Accounting these days has taken upon itself the task of collection, analysis and
reporting of information at the required points of time to the required levels of
the authority in order to facilitate rational decision making.
The American Accounting Association has defined accounting as the process of
identifying, measuring and communicating economic information to permit
informed judgements and decisions by users of the information


Accounting may be defined as the process of recording, classifying, summarizing,

analyzing and interpreting the financial transactions and communicating the
results thereof to the persons interested in such information Shukla et
An analysis of the definition brings out the following functions of accounting.


This is the basic function of accounting. It is essentially concerned with ensuring
that all business transactions of financial character are recorded in an orderly
Recording is done in the book- journal.


It is concerned with the systematic analysis of the recorded data, with a view to
group transactions or entries of one nature at one place.
The work of classification is done in the book
termed as ledger.


This involves presenting the classified data in a manner, which is understandable

and useful to the internal as well as external end users of accounting
This process leads to the preparation of following statements:
o Trial balance,
o Income statement,
o Balance sheet.

Deals with financial transactions

Accounting records only those transactions and events in terms of money which
are of financial character.
Transactions which are not of a financial character are not recorded in the books
of account.

Analysis and Interprets

This is the final function of accounting.

The recorded financial data are analyzed and interpreted in a manner that the
end users can make a meaningful judgment about the financial condition and
profitability of the business operations.


The accounting information after being meaningfully analyzed and interpreted

has to be communicated in a proper form and manner to the proper person.
This is done through preparation
and distribution of accounting reports


Accounting has three main branches, viz.,

o financial accounting.
o cost accounting.

o management accounting.

Financial Accounting

Financial accounting is primarily concerned with record-keeping directed

towards the preparation of profit and loss account and balance sheet.
The main purposes of financial accounting are
o Recording of the transactions concerning and affecting the business
o Preparation of necessary accounts and balance sheet as required by
statutes and
o Apprising the owners of the business about the results of the business
over a period of time.

Cost Accounting

Cost accounting is the process of accounting for costs.

It is a systematic procedure for determining the unit cost of output produced or
services rendered.
The primary functions of cost accounting are to ascertain the cost of a product
and to help the management in the control of cost.
Both financial accounting and cost accounting are concerned with the
accumulation and presentation of information to serve the needs of

Management Accounting

Management accounting is the term used to describe the accounting methods,

systems and techniques which, coupled with special knowledge and ability,
assist management in its task of maximizing profit or minimizing losses.
Hence, it is the reproduction of final accounts in such a way as will enable the
management to take decisions and to control activities



It is an establishment for the conduct of trade or commerce.

It denotes activities of person or group of persons, undertaken to exchange goods
and/or services with a view to earn income and profit.
o A manufacturing business,
o Banking business
o Insurance business, etc.
Business is a semi-agent or a medium which accepts money from the proprietor
or investor, pays him if profit is earned and demands from him, if loss is


He is the owner of the business.

He invests capital in the business with the invention of earning profit.
He undertakes all risks involved in the business.
He enjoys all the incomes and profits and bears all expenses and losses if any.
He has the claims against net assets of the business i.e., total assets minus
liabilities to outsiders.


These are the material and non-material things or possessions or properties of

the business including the amounts due to it from others.
E.g: Land, buildings, furniture, equipment, plant, machinery, fixtures, cash, bank
balance, debtors bills receivable, stock of goods, investments, etc., are all

Tangible assets

These are assets having physical existence like cash, furniture, land, building etc.

Intangible assets

These are assets with no physical existence. But, their possession gives rise to
some benefits to owners. E.g. Goodwill, Patents, Trademarks, etc.


These denote the amounts, which a business owes to others (other than the
proprietor/s) on different accounts such as;
o Loan from bank
o Loan from other persons,
o Creditors for goods supplied
o Creditors for services rendered to the business, etc.
Liabilities are also called creditors equity i.e., Creditors claims on assets.


It is the amount invested by the proprietor/s in the business.

For the business capital is a liability towards the owner. It is also called net worth
or net assets, i.e., Assets Liabilities = Capital.
Capital is also called owners equity or owners claim against assets.

Assets = Capital + Liabilities


Capital = Assets - Liabilities

Residual value of assets is called capital

Reserves and undistributed profits increase the capital
Losses (which are not transferred to capital) also increase capital.


Any rights or claims to assets or any interest in property or in a business is known

as equity. Therefore, it denotes liabilities.
An equity holder may be a creditor, a partner, a shareholder or a proprietor.
Therefore, all liabilities of a business are the creditors equity and the capital is
owners equity.

Therefore, Assets = Capital + Liabilities

= Owners equity + Creditors equity

Accounting equation

It is a mathematical form of saying that in any business the total assets always
equal to owners equity + creditors equity.

Assets = Owners equity + Creditors equity

Balance sheet

It is a statement of financial position of a business at any given time. It discloses

the assets, liabilities and owners equity or capital of a business at a given time.
The equation i.e., accounting equation is sometimes referred to as Balance Sheet
This balance sheet equation is always maintained in the accounts book keeping.
That is a position of equality (in values) between assets on one hand and capital
and liability on the other hand.


One who owes debt or money is a debtor, i.e., one who owes money to a business
is a debtor.


One to whom a debt is owed or creditor is a person to whom some money is to be

paid for the loan taken or service obtained or goods bought.


It is the value of the cash or goods withdrawn by the owner or proprietor for his
personal or domestic purposes or use. It is opposite of capital.

Revenue and income

Sales of products, merchandise (goods for sales and services) earnings by way of
interest, rents, wages, salaries, commission, etc., are revenues.
Revenue is the gross money receipts which increases owners equity (capital) on
one hand and also the assets (cash or account receivables) on the other hand.
Income is the money or moneys equivalent earned or accrued during an
accounting period increasing the total of previously existing net assets (net
worths) and arising from the sales and rentals of any types of goods or services.
Example: When goods of Rs.10,000/- are sold to Rs.15,000/-, the sum of
Rs.15,000/- is the revenue, whereas Rs.5,000/- is earned over and above the
original asset value of Rs.10,000/- is the income. Similarly the receipts and
amounts receivable for services rendered like rent, wages, salary, interest,
commission, dividend, etc. are income.


It is the money spent in conducting business activities.

It is the expenditure in return for which some benefit i.e., service is received.
Exampe: Expenditure on clerks salary for clerical services, money spent to pay
the wages to labourers for the labour received to the business.


It is depletion or decrease in the value of any asset without resulting in any

revenue or benefit.


It is the work performed by the business to get revenue or the work obtained
from others by spending for the same.
Thus, rendering the service results in income and receiving service results in


These are articles bought for resale to earn profit.


It is the exchange of cash, goods or services in a business.

o Cash transactions: is one where cash receipt or payment is involved in
any exchange.

o Credit transaction: It is the transaction wherein cash is neither received
nor paid at the time of transaction, but involves exchange on credit or
o Non cash transaction: is one where the question of receipt of cash or
payment of cash does not arise at all. Eg. Depreciation, return of goods,

Books of accounts and entry

The various books wherein transactions of varied nature of a business are entered
are the books of account.


Entry is the record of a transaction of a business in a journal.

Gross profit

Difference between selling price and the costprice of the goods is the gross
earning or gross profit of the businessman.

Gross loss

Difference between cost price and selling price of goods.

Net profit (net income)

Surplus remains after charging against gross profit all expenses including
depreciation and other provisions properly attributable to the normal activities
of the particular group.


Summary of similar elements in the transactions relating to a person, thing or

Example:Cash account, goods account, persons account, income and expenses
account, etc., short form A/c or a/c.

Debit and credit

These are symbols used while recording transactions. Debit (Dr) refers to the
receiving account and credit (Cr) to giving account.
If any benefit is received or a person is a receiver of benefit the receiving or
receivers account is said to be debited.
If benefit is given or a person is a giver of benefit, the giving account or givers
account is said to be credited.


It is a written document in support of a business in respect of a transaction,

represented on a carbon or counter copy of a cheque or a receipted bill or an
acknowledgement receipt received.


It is a written acknowledgement of a receipt of cash/money/goods, etc.

It is an accounting document recording physical receipt of something


It means the page (number) of a journal or a ledger (J.F and L.F)

29. Personnel Management


To understand personnel management.

To explain the identification of work study and work measurement.
To show the importance of supervision and division of labour


A manager gets things done through other people. These people (human
resources) use material resources such as land, money, machinery,
equipments, materials, etc.It is the responsibility
of managers to ensure that the employees utilize these resources in optimum
There is minimum wastages of resources and maximum returns on investment
made in resources.
Similarly an enterprise spends considerable amount of money on acquit ion,
training, remuneration, motivation etc., of its employee.
Unless the employee work with devotion, their performance will be poor. They
will not make effective utilization of material resources.
Therefore, the effective utilization of human resources is even more important.
Management is said to be effective, of when enterprise is utilizing its human and
natural resources effectively to achieve its objectives.
But at the same time it does not mean that human resources should be utilized
only as a resources.
Employees are human being with emotions and aspirations of their own.

It is also the duty of management to treat employees with dignity and sense of

Personnel management

Personnel management is the sub area of the general management.

It concentrates on the human activity element of the general management.
It is concerned primarily with manpower resource or inputs.
"Personnel management is the planning, organizing, directing and controlling of
procurement, development, compensation, integration and maintenance of
people for the purpose of contributing to organisation, individual and social

Functions of Personnel Management

Personnel manager has to perform the managerial functions such as planning,

organising, directing, motivating and controlling personnel working in his
In addition to these managerial functions he has to perform the following
operative functions also.
o Procurement - recruitment, selection, placement and induction of the
new employees
o Development - performance appraisal, promotion, transfer of
o Compensation - remuneration in the form of wages, salaries, bonus
o Integration - integrating the organizational, social and individual goals
o Maintenance - health and safety, favourable work environment,
employee benefits and services, labour welfare work, worker
participation in management.
Every work whichever type it may be, to whichever category it may belong is
characterized by certain inherent criteria known as work specifications.
Procedure for securing, organising and combining the important facts related to
work enable the personnel department to assess the quality and characteristics
of the operator in performing the same, is regarded as an essential basis of
work analysis.
The man entrusted with this work is popularly known as work analyst


Identification of work

Organization structure is developed to achieve objectives. Therefore works

necessary for the accomplishment of objectives are determined.
Total work is classified or divided systematically because no one can handle total
work alone.

Identificationand classification of work enables managers to concentrate
attention on important works, to avoid duplication of work and to avoid
overlapping or wastage of efforts.
While identifying and classifying works, management must ensure that
o All necessary works are performed
o There is no unnecessary duplication in performing activities and
o Different workers are performed in a co-ordinated manner.

Work Study

Work-study can conveniently be defined as the tool in the hands of the

management for achieving higher productive efficiency in the organisation.
Work-study can be broadly classified into
o Methods study and
o Work measurement

Methods Study

This can be defined asthe systematic procedure for analysing the existing
methods of doing work including the various human movements involved in it
with the main objective of evolving the best or the most economical methods of
doing the work.
Procedure adopted can be categorized stage by stage as follows:
o Selection of the work to be studied
o Collection of data and recording of the relevant facts about the existing
o Critical examination of the data collected
o Development of most practical, economic and effective method, having
due regard to all contingents circumstances.
o Installation of the new methods and maintaining it by regular routine

Techniques followed in Methods Study

Operation Process Chart - graphical representation by linear diagrams

Flow Process Chart - shows in addition to above the transportation required,
distance travelled storage and delays.
Flow Diagram - same as above but here symbols are used
String Diagram - using string and pins on the template models
Multiple Activity Charts - also known as simo chart (simultaneous motion chart)

Work Measurement

This is the technique of assessing the time content of the work performed by an
The technique involves the determination of the proper time required for the
work and so popularly known as time study.

Optimization of labour input

Optimization of labour in the actual sense means to obtain the most efficient or
optimum use of labour.
Labour must be confined with the other factors of production and cannot be
discussed in isolation.
Proper labour management policy will depend on particular farming situation.
According to Alfred Marshall " labour is any exertion of mind or body undergone
partly or wholly with a view to earning some good or other than pleasure
derived directly from work.
o Labour is not a commodity
o Labour is inseparable from the labourer
o Labour is more perishable than any other commodity
o Labour is less mobile
o Supply of labour is independent of its demand
o It is difficult to calculate the cost of production of labour
o Labourer sells his service and not himself
o Labourer does not have same bargaining power as their employers
o Labourer is not a machine - have ones own liking , feelings , wishes,
thoughts etc.,
o Labourers differ in efficiency

Types of Labour

Hired/Casual - Seasonal
o For special jobs
Temporary - Skilled
o Unskilled
Permanent - Skilled (e.g. Milkers, Clerks,)
o Unskilled (eg.workers, attendants)



Supervision of labour and supervisors


Supervision is referred to as " the key stone in the organizational arch",

supporting the structural member which ties together the management and
workers (Keith Davis).
Supervisors are so to speak, the ligaments and tendons and so views of an
organization (Peter Drucker).
Supervision is a part of a manager's job at all levels. The vertical relationship
among the different kind of mangers is called the management level.

The top and middle management is considered to be the upper level management
and first level managers are referred as supervisors (lower level management).

Supervising the supervisors

Since the first line management play an important role in the organization their
supervision is also important.
This is carried out by the middle level management - called the "supervisor of the
Middle management is the link between the top management where the policies
are framed and the operators' level.

Functions of Management by levels

Division of labour means dividing large tasks into smaller packages of work to be
distributed among several people. This work specialisation allows an employee to
master a task in the shortest time with a minimum skill.

Division of labour

Making of an article is split up into several processes and each process is
entrusted to a separate set of workers. This is known as division of labour.
It is simply a form of specialisation of labour. The division of labour is associated
with efficiency of labour.
There are 3 types of division of labour. They are,

Simple division of labour

A work is done by the combined efforts of a group of workers. It is difficult to say

how much Work each one did. Ex. carrying a heavy object, led by a number of

Complex division of labour

Work is split up into different processes and each worker is assigned a definite
part of the work.
This is the division of labour proper. Ex. Manufacturing of pins, making of bread

Territorial division of labour

This term refers to certain localities or cities or towns specialising in the

production of some commodities.
Eg. Lock -making in Dindugul and match factories in Sivakasi.

Advantages of division of labour

Advantages to the producer Advantages to the workers

Increase in mechanisation Reduction in training period
Increase in production Allocation of work according to ability
Increase in inventions Increase in workers efficiency
Reduction in production cost Increase in mobility of labour
Economic use of machinery Organization of workers
Savings of time

Advantages of specialization

Disadvantages of division of labour

Disadvantages to the worker Disadvantages to the society

Monotony of work Exploitation of women and children

Narrow outlook of workers Physical and moral deterioration of workers
Decline in mobility of labour Struggle between workers and employers
Sense of irresponsibility Sense of irresponsibility

The word specialization is frequently used with the division of labour and
essentially both means the same.
Both mean that each unit of the productive input - each person, each piece of
land, and each machine - does only a part of the total production job.

Merits of Job Specialisation

Employing high grade and experienced men for more specialised work is
economical in the long run.
Lightens the workload on each labourer - making him more physically and
mentally acquainted with the job.
Make the worker to be more skilled and increase his efficiency in the job he does.
Streamlining the capital investment in labour by actually knowing the skill and
specialization of the worker.
Management is easier, so also the supervision.
Increase in production is probably the most important advantage.
Time saving .
Doing the work more times make the worker to know the minutes detail which
may instil new ideas for the modification of the product or the process.
Helps to find out the job of ones taste.
Possibility of employing the right man at the right place.
Maximum exploitation of the skill is possible, enabling to produce good quality

Demerits of Job Specialisation

Risk of unemployment
Monotony of the work
Monopoly of the power
Brings stratification in the society, creating inequality among the individuals
Profit is stipulated as one is concentrating on one product

Labour Efficiency (Qualitative aspect of labour)

Efficiency means the ability to do work so that the productivity is increased with
minimum cost.
Efficiency of labour is a great national asset. The following are some important
factors, which affect efficiency of labour.

Racial qualities

Efficiency of labour depends on hereditary and racial stocks to which he belongs.

Punjabis work harder than other Indians.

Natural and climatic factors

A cool bracing climate is more conducive to work hard than tropical climate.
Hence a labourer in Europe will be more efficient than a labourer in Asia.


Education stimulates and strengthens the right type of instincts and builds up
A technically trained man is naturally more efficient.

Personal qualities

If a worker has a strong physique, is mentally alert and intelligent, his efficiency
will be greater.
Resourcefulness and initiative also increases efficiency.

Organisation and equipment

Labour efficiency also depends on how labour is organised and what quality of
machinery is placed at his disposal.
First-rate work cannot be expected from a third-rate labourer using second-rate


If the surroundings are depressing, labour efficiency is bound to low.

On the other hand, cheerful and bright environments are conducive to better

Working hours:

Workers must have sufficient intervals for relaxation.

Long working hours with no suitable rest or recreation will reduce the efficiency
of labour.

Fair and prompt payment

A well-paid worker is generally contended and puts his heart and soul into his
He must also be paid promptly.

Labour organisation:

An organised effort is more effective.

If labourers are properly organised both inside and outside the place of work in
the form of strong trade union, their efficiency will undoubtedly go up.

Social and political factors:

Social security scheme guaranteeing freedom from want and fear, and
sympathetic state attitude towards labourer will go long way in improving labour

30.Book Keeping


To know the meaning of systems of book keeping

To understand the difference between single and double entry systems of book
To explain the advantages of doble entry system




Book keeping is an art of recording pecuniary or business transactions in a

regular and systematic manner.
This recording of transactions may be done by the following two systems

Single Entry System

An incomplete double entry can be termed as a single entry system.

It is a system of book keeping in which only records of cash and personal
accounts are maintained, it is always incomplete double entry, varying with
This system has been developed by some business houses, who keep only
essential records.
Since all records are not kept, the system is not reliable and can be used only by
small business firms.

Double Entry System

This system is believed to have originated with the Venetian merchants of

fifteenth century and it is the only system of recording two fold aspect of

This system recognises that every transaction has a two fold effect.
If someone receives something then either some other person must have given it,
or the first mentioned person must have lost something, or some service etc.
must have been rendered by him


Complete record of transactions: Double entry system records both aspects of a

transaction. Thus, a complete and reliable record of all business transactions is
Arithmetical accuracy: As both debit and credit aspects of a transaction are
recorded, a trial balance can be prepared and arithmetical accuracy can be
easily verified.
Ascertainment of financial result: Profit and loss account can be prepared to find
out profit earned or loss suffered during a given period.
Ascertainment of financial position: Balance sheet of business can be prepared to
ascertain financial position on a particular date, i.e., amount of assets,
liabilities and capital.
Helps in comparison: Double entry system enables businessmen to ascertain
purchases, sale, expenditure, income, assets, liabilities of the current year as
well as those of previous years to make simple comparison which helps
management to take appropriate decisions.
Detection of frauds if any: Double entry system is a scientific and reliable system.
It prevents commission of frauds, but if it has been committed, it can be easily



Distinction between double entry system and single entry system is as follows:
Under double entry system both the aspects, i.e., debit and credit, of all the
transactions are recorded. But under single entry system, there is no record of
some transactions, some transactions are recorded only in one of their aspects
whereas some other transactions are recorded in both of their aspects.
Under double entry system, various subsidiary books like sales book, purchases
book, etc. are maintained.
Under single entry system, no subsidiary books except cash book which is also
considered as a part of ledger is maintained.
Under double entry system there is a ledger which contains personal, real and
nominal accounts. But under single entry system, the ledger contains some
personal accounts only.
Under double entry system preparation of trial balance is possible.
It is not possible to prepare a trial balance under the single entry system. Hence,
accuracy of work is uncertain.
Under double entry system, Trading and Profit and Loss Account and Balance
Sheet are prepared in a scientific manner.

Under single entry system, it is not possible; only a rough estimate of
profit or
loss is made and a Statement of Affairs is prepared which resembles a balance
sheet in appearance but which does not present an accurate picture of the
financial position of the business

31.Various Types of Account


To understand different types of account books.

To know about the various entries in account books




Journal is the primary or original book of entry in which all transactions are
recorded in the form of entries.
These entries are entered in the order of their
happening of occurrence in a
chronological order. From these journals, entries are transferred to ledger.


It is a book of final entry wherein the transactions that are finally entered in
Memorandum book or journals are finally entered in ledger.
It is also called the Principal Book of Accounts.
Transactions relating to different persons are recorded separately in the name of
each person in a ledger.

Cash book

This is an account book where only cash transactions i.e., both receipts and
payments of cash are recorded.
Purchase book or Purchase Day book or Daybook of purchase, Bought Daybook,
Invoice book, Credit Purchase book, Purchase journal, Purchases register
This book records only credit purchase of goods in which trends deals.

Sales book or Daybook of sales or Sales daybook

In this book only credit sales of goods dealt by the traders are entered.

Purchase returns book

It contains the records of returns of goods purchased by the trader for which no
cash is received.
This happens when the goods are purchased but, the purchased goods are;
o Defective
o Damaged during transit
o Qualities delivered or received may not agree with invoice
o The price charged may be too high
o Goods may have been received quite later
o Substandard
o Terms and conditions may not be suitable

Sales returns book

It records the goods returned by customers out of the sales already made and for
which no cash is paid.

Bills payable book

In this book bills passed or pronotes passed or accepted are recorded.

Bills receivable book

In this book bills already drawn or acceptance received are entered.

Journal Proper

This is the journal in which (this is like miscellaneous journals) those entries are
entered, which cannot be entered in any of the above listed subsidiary journals
or books


Simple cash book

Simple cash book is like an ordinary cash account. Its proforma is given below.


Dat Particular L.F Amoun Dat Particular L.F Amoun

e s . t e s . t

Exercise 1:

Record the following transactions in Simple Cash book.

Jan. 1 Opening cash balance Rs.5,000
Jan. 4 Rent paid Rs.2,000
Jan. 6 Interest received Rs.3,000
Jan. 15 Cash purchases Rs.4,000
Jan.25 Cash sales Rs.8,000
Jan.31 Salaries paid Rs.2,000


Dr. Cr.

Date Particulars L.F. Amount Date Particulars L.F Amount

Jan. 1 To balance 5,000 Jan. 4 By Rent 2,000
Jan.6 3,000 Jan.15 By Purchases
To Interest A/c 4,000
Jan.25 8,000 Jan.31
To sales By salaries A/c 2,000
_______ Jan.31
To balance By Balance c/d 8,000

16,000 ______

8,000 16,000

Cash book is meant for recording all cash transactions. It is a very important
journal of business on account of the following reasons:
o Number of transactions is quite large in every business.
o Chances of fraud being committed regarding cash are higher as
compared to other assets.
o Strict control is, therefore required. Properly maintained cash book
helps in attaining this objective.
o Cash is nerve centre of business. Timely payment to its creditors
increases the reputation of the business.
o Similarly timely payments from its debtors improve the financial
position of the business.
Cash book can be any one of the following types:
o Simple cash book
o Two columnar cash book
o Three columnar cash book
o Multi columnar cash book
o Cash receipts book
o Cash payments book


This type of cash book contains the following three columns on each side:
o Cash column for cash received and cash paid
o Discount column for discount received and discount paid
o Bank column for money deposited and money withdrawn from the bank.
o The proforma of such a Cash book is given below.

Dr. Cr.

D Particul L. Disco Cas Ba D Particul L. Disco Cas Ba

t. ars F. unt h nk t. ars F. unt h nk

Exercise 3

1. Prepare a three column cash book from the following particulars.


Jan. 1 Cash in hand Rs.1,600 and Bank overdraft Rs.1,000.
7 Discounted a bill for Rs.5,000 at 1 % through Bank.
9 Paid into Bank Rs.1,000.
11 Joginder who owed us Rs.2000 became bankrupt and paid us 50 paise in the
15 Withdrew from Bank for private expenses Rs.100.
20 Received repayment of loan Rs.3,000 and deposited out of it Rs.2,000 in the


Dr. Cr.

Dat Particul L. Dis Ban Cash Dat Particul L. Dis Ban Cash
e ars F c. k e ars F c. k
Jan. To Jan By 1,00
1 Balance 4,95 1,600 1 Balance 0 1,000
b/d 50 0 b/d
7 -- 9
To Bill 1,00 By Bank ( 100 2,00
9 receivable 0 15 C) 0
11 To Cash ___ 20 By 6,85 1,700
(C) _ 3,00 Drawings 0
20 2,00 0
To 50 0 By Bank ( ___
Joginder ___ ___ C) ___ __
_ ___ __ _
To loan _ By 4,70
repaid 4,70 balance 7,95 0
7,95 0 c/d 0 ___
To cash ( 0 ___ ___ __
C) ___ __ _

To 0


It has two columns:

o Cash Column, and
o Discount Column
Cash Column is meant for recording cash receipts and payments while discount
column is meant for recording discount received and the discount allowed.
The discount column on the debit side represents the discount allowed while
discount column on the credit side represents the discount received.
Cash column of the cash book serves both the functions of a book as well as an
account but discount column does not serve the function of a discount account.
A separate discount account has to be opened in the ledger in which total debits
and credits from the cash book are posted.
Sometimes, two separate discount accounts are kept in the ledger-one for
discount allowed and the other for discount received.


Dt. Particulars L.F. Discount Cash Dt. Particulars L.F. Discount Cash

Exercise 2

Enter the following items in the two-column cash book.


August 1 Rahul commences business with cash Rs.10,000.

He pays Rs.2,300 for goods purchased; Rs.500 for furniture purchased; Rs.400
for office equipment
2 He pays rent Rs.100; pays legal cost Rs.10.
3 He sells goods for cash Rs.1,800.
4 He sells goods to Naveen on 5 days credit Rs.800
5 He pays wages Rs.15; cartage Rs.5
6 He buys goods for cash Rs.700 and pays a creditor Suresh Rs.425 in settlement
of a claim of Rs.430.
7 He receives cash from Naveen Rs.798 in full settlement of debt.
8 He sells goods for cash Rs.50.


Dr. C

Dat Particular L.F Discoun Cash Dat Particular L. Discoun Cash

e s . t e s F t

Aug. To Capital 2 10,00 Aug By 5 2,300
1 0 1 Purchases
To Sales _____ 500
3 1,800 2 By
To Naveen _____ Furniture 5 400
7 798 5 _____
To Sales 2 By Office
8 _____ 50 6 equipment 5 100
To balance
Aug b/d 8 By Rent 10
____ By Legal
_ Expenses 15

12,648 By Wages 5
_ By Cartage 700

8,193 By 425
By Suresh
By balance _

32.Classification of Accounts


To know rules for debit and credit in accountancy

To explain different types of accounts


Transactions in journal are recorded on the basis of rules of debit and credit.
For this purpose, business transactions have been classified into three categories:
o Transactions relating to persons Personal Accounts
o Transactions relating to properties and assets Real Accounts
o Transactions relating to incomes and expenses Nominal Accounts.

Personal Real Nominal

Natural Personal A/C Tangible Expenses and Losses
Artificial Personal A/C Intangible Incomes and Gains
Representative personal A/C

Personal Accounts

It includes the accounts of persons with whom the business deals. There are three

Natural Personal Accounts

The term Natural Persons means persons who are creation of GOD. For e.g.
Rajas account, Kumars account.

Artificial Personal Accounts

These accounts include account of corporate bodies or institutions which are

recognised as persons in business dealings. E.g. The account of a club, the
account of Government, the account of an insurance company etc.

Representative Personal Accounts

These are accounts which represent a certain person or group of persons.

E.g: For salaries due to employees (not paid), an outstanding salaries account will
be opened. This outstanding salaries account represents the accounts of the
persons to whom the salaries have to be paid.
The rule is
o Debit the receiver
o Credit the giver
E.g: Ravi is giving cash to Rama.
Then the account of Ravi will have to be credited and Ramas account will have to
be debited


Real accounts may be of the following types.

Tangible real accounts

Tangible realaccounts are those which relate to such things which can be
touched, felt, measured etc.
E.g. Cash account, building account, furniture account, stock account etc.

Intangible real accounts

These accounts represent such things, which cannot be touched, though they can
be measured in terms of money.
E.g. patients account, good will account etc.
The rule is
o Debit what comes in
o Credit what goes out
E.g. when furniture is purchased for cash, furniture account should be debited
while the cash account should be credited


These accounts are opened in the books to simply explain nature of transactions.
They do not really exist. For e.g. in a business, salary is paid to manager, rent is
paid to landlord, while salary, rent as such do not exist.
The accounts of these items are opened simply to explain how the cash has been
In the absence of such information, it may be difficult for a person concerned to
explain how cash was utilised.
Nominal accounts include accounts of all expenses, losses, incomes and gains.
The examples of such accounts are rent, insurance, dividends, and loss by fire etc.
The rule is
o Debit all expenses and losses
o Credit all gains and incomes


Livestock farming in the country today is moving towards high level of

In this context, introduction of high yielding breeds which demand a high dosage
of biological inputs such as concentrate feed and fodder, medicines, growth
promoters etc. have increased the demand for money very tremendously.
Since a majority of farmers are engaged in small scale farming, they need money
from outside sources to meet their cash requirements for various farm
They obtain such additional funds in the form of loans from private
moneylenders, cooperative credit societies, or commercial banks etc

33.Recording of Business Transactions


To explain nature of business transactions.

To understand meaning and entry of ledger.


Whatever may be the form of organization business operations follow a certain

common pattern.
Operations are all directed towards the accomplishment of pre-determined
business goals.
To achieve these goals the firm requires economic resources or assets, as they are
called in accounting terminology.
Cash is an important asset. Assets are economic resources which a firm acquires
in the course of its operations for the accomplishment of its goals.
Liabilities are the equity or interests of the creditors in the assets of a firm. Assets
are equal to capital plus liabilities


A business transaction is an economic event that has some effects on the

resources of a firm or on the sources of a firms assets.
These economic events are important and therefore must be recorded and
reported to decision makers.
The following list summarises the business transactions that a firm might have.
Observe the cycle of business operations reflected in these transactions.
o A firm acquires assets from its owners.
o The firm acquires assets from creditors.
o The firm invests resources in buying assets needed to produce goods or
o The firm uses the resources to produce goods or services.
o The firm sells the goods or services produced.
o The firm returns assets to the creditors.
o The firm returns assets to the owners


Documents on the basis of the above transactions are recorded in the books of
account are known as source documents.
Examples of source documents are bills, invoices, receipts, cash memos, vouchers
These documents provide written evidence of a transaction or event that has
taken place.

Accounting Equation

Assets = Equities

The properties owned by business are called Assets.

The rights to properties are called Equities.

Equities may be subdivided into two types: the rights of creditors and the rights
of the owners.
The equity of creditors represents debts of the business and are called liabilities.
The equity of the owner is called capital.
o So,
Assets = Liabilities + Capital (or)
Assets Liabilities = Capital.
The Accounting Equation can be understood with the help of following

Transaction 1

A starts a business with a capital of Rs. 10,000.

There are two aspects of transactions. The business has received a cash of Rs.
It is its asset but on the other hand it has to pay a sum of Rs. 10,000 to A. Thus:

Capital and Liabilities Rs. Assets Rs.

Capital 10,000 C ash 10,000

Transaction 2

A purchases furniture for cash worth Rs. 2,000. The position of his business will
be as follows:

Capital and Liabilities Rs. Assets Rs.

Capital 10,000 Cash 8,000
Furniture 2,000
10,000 10,000

Transaction 3

A purchases cotton bales from B for Rs. 5,000 on credit.

He sells for cash cotton bales costing Rs. 3,000 for Rs. 4,000 and Rs. 1,000 for
Rs. 1,500 on credit to P.

o As a result of these transactions the business makes a profit of Rs 1,500
(i.e. Rs.5,500 - Rs.4,000), this will increase As Capital from Rs.10,000
to Rs.11,500.
o The business will have a liability of Rs.5,000 to B and two more assets
in the form of a debtor P for Rs.1,500 and stock of cotton bales of
Rs.1,000. The position of his business will now be as follows:

Capital and Liabilities Rs. Assets Rs.
Creditor (B) 5,000 Cash(Rs.8000+4000) 12,000
Capital 11,500 Stock of cotton bales 1000
Debtor (P) 1500
Furniture 2000
16,500 16,500

Transaction 4
A withdraws cash of Rs 1,000 and cotton bales of Rs 200 for his personal use.
The amount and the goods withdrawn will decrease relevant assets and As
capital. The position will be now as follows.

Capital and Liabilities Rs. Assets Rs.

Creditor (B) 5,000 Cash (Rs 12000-Rs 1000) 11,000
Capital 10,300 Stock of cotton sales
(Rs 11500-Rs 1200 Debtor (P) Furniture 800
___________ 1,500
15,300 2,000

The result of applying the system of double entry system may be summarized in
the following rule:
o For every debit there must be equivalent credit and vice versa.


Journal records all daily transactions of a business into the order in which they
A journal is defined as a book containing a chronological record of transactions.
It is the book in which transactions are recorded under the double entry system.
Thus journal is the books, of original record.
The journal does not replace but preceds the ledger.
The process of recording transaction in a journal is termed as Journalising. A
proforma of Journal is given below.


Date Particulars L.F Debit Rs Credit Rs

(1) (2) (3) (4) (5)

Date: The date on which the transaction was taken place is recorded here.

Particulars: The two aspects of transaction namely debit and credit are recorded
L.F: It means Ledger Folio. The transactions entered in the journal are later on
posted to the ledger.
Debit: In this column the amount to be debited is entered.
Credit: In this column the amount to be credited is shown.

Closing of accounts: (Closing entries)

Closing entries are entries passed at the end of accounting year to close different
These entries are passed to close accounts relating to incomes, expenses, gains
and losses.
In other words, these entries are passed to close the different accounts pertaining
to Trading and Profit and Loss account.
The accounts relating to assets and liabilities are not closed but they are carried
forward to next year.
Hence no entries are to be passed regarding those accounts which relate to the
balance sheet.
The principle of passing a closing entry is very simple.
In case an account shows a debit balance, it has to be credited in order to close it.
For e.g. if the Purchases Account is to be closed, the Purchases Account will have
to be credited so that it may be closed because it has a debit balance.
The closing entries are passed in the journal proper


Ledger is a book, which contains various accounts.

In other words, Ledger is a set of accounts. It contains all accounts of the
business enterprise whether Real, nominal or Personal.
It may be kept in two forms
o Bound Ledger
o Loose leaf Ledger
The term posting means transferring the debit and credit items from the journal
to their respective accounts in the Ledger.
Book keeping is mainly concerned with recording of financial data relating to
business operations in a significant and orderly manner.
A bookkeeper may be responsible for keeping all records of a business or only of a
minor segment, such as a position of Customers accounts in a departmental
A substantial portion of bookkeepers work is of a clerical nature and is
increasingly being accomplished through the use of mechanical and electronic

34.Analysis of Financial Statement and Trading, Profit and Loss Account


To know various concepts of income and expense

To understand income statement
To explain the trading, profit and loss account


Income statement

Simply stated, income statement is a statement showing excess of revenue over

If expenses exceed revenues, the result is a loss to farm. Income statement is
generally prepared for one agricultural year, i.e. at the end of year.
However it may also be prepared over a period of time, so that one can know the
trend in receipts and expenses which indicates success or failure of farm
business. It shows whether farm is running under loss or profit.
Hence it is also called as Profit and Loss Statement.
It is different from balance sheet in that balance sheet indicates about assets and
liabilities but not about the operational efficiency of farm business in terms of
receipts, expenses, profit and losses.
The objective of preparing Income Statement is to summarise income and
expenses incurred in farm throughout year and present them in a schematic
picture. This statement lists all farm expenses on one hand and all receipts on
the other.


In the revenue realized through the sale of following items are included.

A. Operating Receipts

Crops and feed

Livestock and Poultry sold
Livestock and Poultry Products sold
Custom work- cash
Government payments and patronage dividends, gifts etc.

B. Capital Receipts

Breeding stock
Machinery and equipment
Appreciation in the value of assets

C. Non Farm Income

Interest and dividends


Under the expenses column the following items are included.

A. Operating Expenses

Labour charges
Rents and Leases
Seed and Fertilizer
Livestock expenses (Breeding Vet., etc)
Gas Fuels, Oil
Utilities (Electricity, Gas, Telephone)
Marketing and transport expense
Interest on working capital

B. Live stock and Feed Purchase

C. Capital Expenditure/ Fixed expenses

Machinery and Equipment

Building and Improvement
Interest on fixed Capital
Rental value of owned land

D. Other expenses

By subtracting the expenses from the receipts Net income for a year can be
o Operating ratio= Total Operating expenses / Gross income
o Fixed ratio = Total Fixed expenses / Gross income
o Gross ratio = Total expenses / Gross income


Final Accounts is the general name given for

the Trading and Profit and Loss
Account and Balance Sheet.
o Trading Account is prepared to find out the Gross Profit or loss during
the period.
o Profit and loss Accounts is prepared to find out the net profit/ loss for
the period and

o Balance sheet indicates the overall position of the business at the every
end of period.

Procedure for the preparation of Trading Account

Debit Trading Account with the opening stock, net purchases and their direct
expenses on the goods by transfer of balances from the respective ledger
accounts. Thus, Trading Accounts will be debited with the total cost of the
goods sold and unsold.
Credit the Trading Account for the transfer of net sales from the sales Account.
Since the profit can be found out only in regard to goods sold, the stock at close is
credited to Trading Account on the basis of an Adjusting Journal Entry.
The Profit and Loss (gross) on the Trading Account is transferred to the Profit
and Loss Account by means of a Journal Entry.

List of Expenses chargeable under Trading Account or Profit and Loss


Wages: Productive and Manufacturing.

Freight: Freight Inwards and Freight on Purchases
Carriage: Carriage Inwards, Carriage on Purchase coal gas and water, oil, grease
and waste.
Customs duties, airport duties, dock dues and clearing charges, all factory or
manufacturing expenses.

Procedure for preparing profit and Loss Account

Gross Profit or Loss will be brought down from the Trading Account to the Credit
or Debit side respectively of Profit and Loss Account.
Debit the Profit and Loss Account and Credit the various nominal Accounts for
bringing the various expenses of the business proper into the Profit and Loss
Credit the Profit and Loss Account and Debit the various nominal Accounts for
bringing the various business incomes into the Account.
The difference between the two sides of Profit and Loss Account will represent
the Profit or Loss Account and since the Losses and Gains have to be borne by
the proprietor, Profit and Loss Account will be closed by means of credit (net
profit) and a debit (net loss).
It is most important to note that all business expenses other than those
transferred to Trading Account will have to be transferred to the Profit and
Loss Account.
Likewise, all business incomes will have to be brought into profit and Loss
Account after making adjustments and Provisions if any.
The indirect or selling expenses which find a place in profit and Loss Account
after include, among others, the following:
o Unproductive wages, wages and Salaries, Carriage on sales, Carriage
outwards, Freight on sales/ outwards, all office expenses, trade

expenses not accompanied by office expenses, export duties and taxes
other than income tax


Prepare Trading and Profit and Loss Account of Mr. Kumar for the year ending
31st March 2007.
Stock 1st April, 2006

Sales 50,000
Sales returns 2,89,600
Purchases 9,600
Purchases returns 2,43,000
Freight inwards 3,000
Carriage outwards 4,000
Salaries and wages 6,000
Bank interest paid 30,000
Printing and stationery 2,000
Discount received 7,000
Discount allowed 900
Audit fees 3,000
Insurance premium 600
Trade expenses 2,500
Stock on 31st March 2007 was 70,000
Particulars Rs Rs Particulars Rs Rs
To Stock Opening 2,43,000 50,000 By Sales 2,89,600 2,80,000

To Purchases 3,000 2,40,000 Less: Returns 9,600 70,000

Less: Returns 4,000 By stock ________

To Freight inwards 56,000 3,50,000
By Gross Profit
To Gross profit c/d ________ b/d ________

(Transferred to Profit By Discount

and Loss A/C) 3,50,000 56,000

To salaries and wages ________ 900

To Bank interest 30,000 _______

To Carriage outwards 2,000 56,900

To Printing and 6,000 ______

To Discount
To Audit fees
To Insurance
premium 600

To Trade expenses 2,500

To Net profit 5,200

(Transferred to _______
Capital A/c)