AEC 302 Agricultural Marketing, Trade and Prices (1+1) K.R.Karunakaran and S.

Angles, 2015

AEC 302. AGRICULTURAL MARKETING, TRADE AND

PRICES (1+1)

LECTURE NOTES

Course Teacher-K.Manimegalai .,M.sc (Agri)

DEPARTMENT OF AGRICULTURAL ECONOMICS

CENTRE FOR AGRICULTURAL AND RURAL DEVELOPMENT STUDIES
TAMIL NADU AGRICULTURAL UNIVERSITY
COIMBATORE - 641 003
 1. Market -Definitions-Components-Dimensions. Agricultural Marketing- Definition –
Scope and Subject Matter. Classification of Market and Approaches to the Study of
Marketing - Functional, Institutional, Commodity, Behavioral System.

MARKET:
The word market comes from the Latin word "marcatus" which means merchandise or
trade or a place where business is conducted.
Clark and Clark (1947), Defined market is a center about which; or an area in which the
forces leading to exchange of title to a particular product operate and towards which the actual
goods tend to travel.
The market, in economic sense, refers not to a place but to a commodity or commodities,
and buyers and sellers are in free intercourse with one another.
From the definitions it may be inferred that
(i) Market always refer to a commodity and buyers and sellers,
(ii) It deals with transfer of ownership rights.
Components of a Market:
For a market to exist, certain conditions must be satisfied. These conditions should be
both necessary and sufficient. They may also be termed as the components of a market.
1. The existence of a good or commodity for transactions (physical existence is, however,
not necessary);
2. The existence of buyers and sellers;
3. Business relationship or intercourse between buyers and sellers; and
4. Demarcation of area such as place, region, country or the whole world.
5. The existence of perfect competition or a uniform price is not necessary.
Dimensions of a Market:
There are various dimensions of any specified market. These dimensions are:
1. Location
2. Area or coverage
3. Time span
4. Volume of transactions
5. Nature of transactions

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6. Number of commodities
7. Degree of competition
8. Nature of commodities
9. Stage of marketing
10. Extent of public intervention
11. Type of population served
12. Accrual of marketing margins
Any individual market may be classified in a twelve-dimensional space.

Marketing
The marketing is defined as the study of entire gamut activities that direct the flow of
goods and services from the primary producer to ultimate consumer.
Definitions
American Marketing Association (1960) defined, marketing as it consists of the
performance of business activities that direct the flow of goods and services from producer to
consumer or user.
By going through the above definitions on marketing we may observe that marketing
includes following.
Creation of place, time, form and possession utilities.
Satisfaction of human needs and wants.
Exchange of goods and services.
Transfer of ownership rights.

Agricultural marketing
Agricultural marketing is the study of all the activities, agencies and policies involved in
the procurement farm inputs by the farmer and the movement of agricultural products from the
farmer to the consumers. It includes organization of agricultural raw materials supply to processing
industries, the assessment of demand for farm inputs and raw materials.
Subject matter of Agricultural Marketing
Agricultural marketing in a broader sense is concerned with the marketing of farm
products produced by farmers and of farm inputs required by them in the production of these

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farm products. Thus, the subject of agricultural marketing includes product marketing as well as
input marketing.

Scope of Agricultural Marketing

The scope of the field of marketing can be examined from five angles viz.,
producers' interest, consumers' interest, societal interest traders' interest and Government
role
a. Farmers' Interest
Farmers as 'the scare resource users are always on the lookout for the most
rewarding benefits in farming. An assured market environment for the products enlivens
the spirit of the farmers to use the resources most judiciously. It is well
known that technology is scale neutral but it is resource non-neutral, yet the farmers of
all categories do not let the opportunity to go to tap as much productivity as possible
from the resources they employ. Thus a healthy marketing system acts as an incentive for
the farmers to use the resources prudently. Thus efficient input marketing and output
marketing systems are indispensable to bring desired level of welfare to the farmers.
Farmer infact may turn out to be a major beneficiary if the market system properly
functions.
b. Consumers' Interest
Marketing is a system that facilitates the movement of farm commodities from
production centres to consumption centres. Thus it provides scope to the consumers to
choose farm commodities of their choice to satisfy their needs. Consumers' welfare is
brought about through increased marketing output by following efficient methods of
marketing.
c. Society's Interest
It is an extension of individual consumer's interest. When the consumption
requirements are met by an effective marketing system, society at large gets
benefit in this process. It enhances the standard of living of the people. Society's
resources are distributed efficiently among population in the desired direction.
That is to say people's welfare is directly influenced by the efficient marketing

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system. Marketing is a source of l i v e l i h o o d to s e v e r a l people. An efficient
marketing system also brings in price stabilization.
e. Traders' Interest
Market intermediaries or middlemen, are those functionaries apart from the
Government who facilitate the movement of the products from producers. They may be
wholesalers or commission agents or retailers, etc. Through the process of marketing they not
only fulfill the needs of the producers and consumers, but also in the process make out
their living.
f. Government Role
Government as a custodian of people’s welfare h a s to perform certain functions. These
include the procurement of food grains for the maintenance of buffer stocks as well as to
meet the public distribution system through purchases by FCI. Government activities
are also evident from the marketing assistance rendered by Cotton Corporation of India,
Jute Corporation of India, commodity boards, etc. Government regulates marketing
activities through various legislations and marketing policies. Regulated markets are
created to check the malpractices of middlemen and bring about efficiency i n various
marketing operations. Government facilitates any marketing function to be performed
efficiently keeping in view of the welfare of producers, consumers and stabilization of
prices.

Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production and
consumption but in accelerating the pace of economic development.
1. Optimization of resource use and output management: Agricultural marketing leads to the
optimization of resource use and output management. An efficient marketing system can
contribute to an increase in the marketable surplus by scaling down the losses arising out of
the A g r i c u l t u r a l M a r k e t i n g i n e f f i c i e n t p r o c e s s i n g , storage and transportation. A
w e l l - designed system of marketing can effectively distribute the available stock of modern
inputs and there by sustain a faster rate of growth in the agricultural sector.

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2. Increase in farm income: An efficient system guarantees to the farmers better prices for
farm products and induce them to invest their surpluses in the purchase of modern inputs so
that productivity may increase. This again results in increase in the marketed surplus and income
of the farmers.
3. Widening of markets: A well known marketing system widens market for products by
taking them to remote corners of the country to areas far away from the production point e.g.
paddy produced in Punjab and Haryana are sold in remote tribal areas. Another example is potato.
The widening of the market helps in increasing the demand on a continuous basis and there by
guarantees a higher income to the producer.
4. Growth of agro- based industries: The agricultural marketing system helps in the growth of
agro-based industries and stimulates the overall development process of the economy. Many
industries depend on agriculture for the supply of raw materials e.g. sugar industry, cotton
industry, and silk industry.
5. Price signals: An efficient marketing helps the farmers in planning their production in
accordance with the need of the economy. This work is carried out through the price signals.
6. Adoption and spread of new technology: The marketing system helps the farmers in the
adoption of new scientific and technical knowledge.
7. Employment: The marketing system provides employment to millions of persons engaged in
various activities such as packaging, transportation, storage and processing.
8. Addition to National income: Marketing activities add to the nation's Gross National
Product.
9. Better living: Any plan of economic development that aims at diminishing the poverty of
agricultural population, reducing consumer food prices, earning more foreign exchange or
eliminating economic waste has to pay special attention to the development of an efficient
marketing for food and agricultural products.
10. Creation of Utility: Marketing creates the following four types of utilities of the product
a. Form Utility: The processing function adds form utility by changing the
raw material into finished products. e.g. paddy -rice. Wheat -bread,
biscuit, cake. Milk- ghee, cream, cheese, skimmed milk, butter.

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 b. Place Utility: The transportation function adds place utility to products by
shifting them to a place of need from the place of plenty. e.g. potatoes in plain,
milk at urban places.
c. Time Utility: The storage function adds time utility to the products by making
them available at the time when they are needed. e.g. tamarind, Rice in off- season.
d. Possession Utility: The marketing functions buying and selling helps in the
transfer of ownership from one person to another in the marketing system.

Classification of Markets
Types of markets are determined by nature of commodities, time and nature of business,
area and importance of the products. There are several types of markets, the fundamentals of which
are the same, the pattern has been changing throughout.
I. Classification of markets
Markets may be classified on the basis of dimensions like area, time, Business type, Goods,
Importance and competition.
Classification of Markets
Markets may be classified on the basis of each of the twelve dimensions mentioned below.
1. On the Basis of Location or Village Markets
Place of Operation Primary Markets
Secondary Wholesale Markets
Terminal Markets
Sea-Board Markets
2. On the Basis of Area or Local/Village Markets
Coverage (Vegetable) Regional Markets
(Foodgrain) National
Markets(Tea Jute)
3. On the Basis of Time Span World/International
Short Period MarketsMarkets. (Coffee, Meachin, Gold)
Periodic Markets
Long Period Markets
Secular Markets

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4. On the Basis of Volume of Wholesale Markets
Transactions Retail Markets
5. On the Basis of Nature of Spot/cash Markets
Transactions Forward Markets (t+1)
6. On the Basis of Number of General Markets
Commodities of Transacted Specialized Markets
7. On the Basis of Degree of Perfect Markets
Competition Monopoly Markets
Duopoly Markets
Oligopoly Markets
Monopolistic Competitive Markets (insecticide, Pump set,
Fert, Equip)
8 On the basis of Nature of Commodity Markets (Jute Calcutta,)
Commodity Capital Markets
9 On the basis of stages of Producing Markets
Marketing Consuming Markets
10 On the basis of extent of Regulated Market
public intervention Un Regulated Market
11 On the basis of type of Urban Markets
population served Rural Markets
12 On the basis of Market Farmers Market
Functionaries and accrual of Co-operative Market
marketing margins General Market

1. On the basis of Location:

On the basis of the place of location or operation, markets are of the following types:
a) Village Markets: 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 market.
b) Primary wholesale Markets: These markets are located in big towns near the centers of
production of agricultural commodities. In these markets, a major part of the produce is brought

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for sale by the producer-farmers themselves. Transactions in these markets usually take place
between the farmers and traders.
c) Secondary wholesale Markets: These markets are located generally in district headquarters or
important trade centers or near railway junctions. The major transactions in commodities take place
between the village traders and wholesalers. The bulk of the arrivals in these markets is from
other markets. The 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, weigh men, etc.
d) Terminal Markets: 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, for forward trading in specific commodities. Such markets are located either in
metropolitan cities or in sea-ports – in Bombay, Madras, Calcutta and Delhi.
e) 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. Examples of these markets in
India are Bombay, Madras, Calcutta.
2. 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:
a) Local or Village Markets: 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.
b) Regional Markets: A market in which buyers and sellers for a commodity are drawn from a
larger area than the local markets. Regional markets in India usually exist for food grains.
c) National Markets: A market in which buyers and sellers are at the national level. National
markets are found for durable goods like jute and tea.
d) World Market: A market in which the buyers and sellers are drawn from the whole world.
These are the biggest markets from the area point of view. These markets exist in the
commodities which have a world-wide demand and/or supply, such as coffee, machinery, gold,

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silver, etc. In recent years many countries are moving towards a regime of liberal international
trade in agricultural products like raw cotton, sugar, rice and wheat.
3. On the Basis of Time Span:
On this basis, markets are of the following types:
a) Short-period Markets: The markets which are held only for a few hours are called short-period
markets. The products dealt within these markets are of 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.
b) Long-period Markets: These markets are held for a long period than the short-period markets.
The commodities traded in these markets are less perishable and can be stored for some time; these
are food grains and oilseeds. The prices are governed both by the supply and demand forces.
c) Secular Markets: These are markets of permanent nature. The commodities traded in these
markets are durable in nature and can be stored for many years. Examples are markets for
machinery and manufactured goods.
4. On the Basis of Volume of Transactions:
There are two types of markets on the basis of volume of transactions at a time.
a) Wholesale Markets: A wholesale market is one in which commodities are bought and sold in
large lots or in bulk. Transactions in these markets take place mainly between traders.
b) 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 consumers. The retailers purchase in wholesale market and sell in small lots to the
consumers. These markets are very near to the consumers.
5. 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:
a) Spot or Cash Markets: A market in which goods are exchanged for money immediately after
the sale is called the spot or cash market.
b) 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

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exchange of the commodity. Instead, the differences in the purchase and sale prices are paid or
taken.
6. 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:
a) General Markets: A market in which all types of commodities, such as food grains, oilseeds,
fiber crops, gur, etc., are bought and sold is known as general market. These markets deal in a large
number of commodities.
b) 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 food grain markets, vegetable markets, wool market and cotton market.
7. 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 characteristics. 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 categories:
Perfect Markets: A perfect market is one in which the following conditions hold good:
a) There is a large number of buyers and sellers;
b) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices;
c) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting
supplies from surplus to deficit areas;
d) The prices are uniform at any one place over periods of time, plus or minus the cost of storage
from one period to another;
e) The prices of different forms of a product are uniform, plus or minus the cost of converting the
product from one form to another.
Imperfect Markets: The 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:

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a) 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 commodity is generally higher than in other markets. Indian farmers operate
in a monopoly market when purchasing electricity for irrigation. When there is only one buyer of
a product the market is termed as a monopsony market.
b) 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. The market situation in which there are only two buyers of a commodity is
known as the duopsony market.
c) 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 market.
d) 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 example, they have to choose between various makes of insecticides,
pump sets, fertilizers and equipment’s.
8. On the Basis of Nature of Commodities:
On the basis of the type of goods dealt in, markets may be classified into the following
categories:
a) Commodity Markets: A market which deals in goods and raw materials, such as wheat, barley,
cotton, fertilizer, seed, etc., are termed as commodity markets.
b) Capital Markets: The market in which bonds, shares and securities are bought and sold are called
capital markets; for example, money markets and share markets.
9. On the Basis of Stage of Marketing:
On the basis of the stage of marketing, markets may be classified into two categories:
a) 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.

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b) 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.
10. 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:
a) Regulated Markets: Markets in which business is done in accordance with the rules and
regulations framed by the s t a t u t o r y market organization representing different sections
involved in markets. The marketing costs in such markets are standardized and practices are
regulated.
b) 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 market.
These markets suffer from many ills, ranging from unstandardized charges for marketing functions
to imperfections in the determination of prices.
11. 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:
a) Urban Market: A market which serves mainly the population residing in an urban area is
called an urban market. The nature and quantum of demand for agricultural products arising
from the urban population is characterized as urban market for farm products.
b) 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.
12 On the Basis of Accrual of Marketing Margins:
Markets can also be classified on the basis of as to whom the marketing margins accrue.
Over the years, there has been a considerable increase in the producers or consumers co- operatives
or other organizations handling marketing of various products. 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.

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Approaches to the Study of Marketing
Marketing is a subject, which have wide and varied problems. It includes the services
and functions of different specialized institutions and middlemen. Different commodities have
special marketing problems therefore the results of the study of one commodity may not be
applicable to other commodity. Also the same commodity will have different problems in different
regions. Various approaches have been suggested and used to study marketing problems.
These are functional, institutional, commodity and behavioural approaches.
i) Functional Approach
A marketing function is an act, operation on service by which the original producer and the final
consumer are linked producer and the final consumer are linked together. Marketing consists of
many operations and an operation may be performed several times in the marketing process. The
functional approach splits down the field of marketing into a few functions. This method
analyses in detail the specific functions of marketing such as buying, selling, transportation,
storage, standardization, grading, financing, risk taking and marketing research.
The advantages of the functional approach in the study of agricultural marketing problems are:
1. We can make inter functional comparison of the marketing costs.
2. Inter agency comparison of the cost of performing a marketing function can be made.
3. Inter commodity comparison of cost of performing the various functions can also be made.

The defects of this approach are

1. An undue emphasis on functions of marketing does not permit one to know how these
functions are applied to specific business operations.
2. The marketing functions are so numerous that it is difficult to eliminate the unnecessary
from the necessary functions

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ii) Institutional Approach
The institutional approach to study of marketing problems implies a study of agencies
and institutions, which perform various functions in the marketing process. The nature and
character of various middlemen and other related agencies involved in the movement of the
product are studied. The human element receives the primary emphasis. The agencies and
institution, which perform various marketing functions, are individuals, partnership,
corporation, cooperatives, or government organizations.

These agencies vary widely in size and ownership. They get their reward in the form of
marketing margins. This approach helps us to find answers to the problems of 'who does
what' in the marketing process, whether the Marketing and Markets margin of the agency is

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 commensurate with the services rendered, which government regulations are necessary so
that their unlawful activities may be curbed, and how to simplify the procedural system. The
serious limitations of this method are that if leaves one with an inadequate understanding of
marketing. Since the material presented is often largely descriptive and does not show
effectively the inter-relations of the institutions studied.
iii) Commodity Approach
Under this approach, the commodity is the pivot around which all institutional and
functional details are studied. The problems of marketing differ from commodity to commodity
mainly because of the seasonality of production, the variations in its handling, storage,
processing and the number of middlemen involved in them. For example potatoes are stored in cold
storage, while wheat is stored in godowns. Paddy, pulses and oil seeds are processed at miller's
level. The main advantage of this approach is that it is concrete since all work relates to a specific
product but it is a time consuming 'process and often results in excessive repetitions.
iv) Behavioural System Approach
This approach refers to the study of behaviour of firms, institutions and organizations,
which exist in the marketing system for different commodities. The marketing process is
continually changing in its organization and functional combinations. An understanding of the
behaviour of the individuals is essential if changes in the behaviour and functioning of the
system are to be predicted.

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 2. Market Functionaries and Market Forces. Marketing of Agricultural Vs Manufactured
Goods. Characteristics of Agricultural and Horticultural Commodities in Relation to
Marketing.

Market functionaries – Producers – Middlemen (Merchant middlemen, Agent

middlemen, Speculative middlemen, Processors, Facilitative middlemen)-problem in marketing
of agricultural commodities
Market Functionaries:
In the marketing of agricultural commodities, the following market functionaries/marketing
agencies are involved:
(i) Producers:
Most farmers or producers, perform one or more marketing functions. They sell the surplus
either in the village or in the market. Some farmers, especially the large ones, assemble the produce
of small farmers, transport it to the nearby market, sell it there and make a profit. This activity
helps these farmers to supplement their incomes. Frequent visits to markets and constant touch
with market functionaries, bring home to them a fair knowledge of market practices. They have,
thus, an access to market information, and are able to perform the functions of market middlemen.
(ii) Middlemen
Middlemen are those individuals or business concerns which specialize in performing the
various marketing functions and rendering such services as are involved in the marketing of goods.
They do this at different stages in the marketing process. The middlemen in foodgrain marketing
may, therefore, be classified as follows:
(a) Merchant Middlemen: Merchant middlemen are those individuals who take title to the
goods they handle. They buy and sell on their own and gain or lose, depending on the difference
in the sale and purchase prices. They may, moreover, suffer loss with a fall in the price of the
product. Merchant middlemen are of two types:
Wholesalers: Wholesalers are those merchant middlemen who buy and sell foodgrains in large
quantities. They may buy either directly from farmers or from other wholesalers. They sell
foodgrains either in the same market or in other markets. They sell to retailers, other wholesalers

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and processors. They do not sell significant quantities to ultimate consumers. They own godowns
for the storage of the produce. The wholesalers perform the following functions in marketing:
(a) They assemble the goods from various localities and areas to meet the demands of buyers;
(b) they sort out the goods in different lots according to their quality and prepare them for the
market;
(c) They equalize the flow of goods by storing them in the peak arrival season and releasing
them in the off-season;
(d) They regulate the flow of goods by trading with buyers and sellers in various markets;
(e) They finance the farmers so that the latter may meet their requirements of production inputs;
and
(f) They assess the demand of prospective buyers and processors from time to time, and plan the
movement of the goods over space and time.
Retailers: Retailers buy goods from wholesalers and sell them to the consumers in small quantities.
They are producers‟ personal representatives to consumers. Retailers are the closest to consumers
in the marketing channel.
Itinerant Traders and Village Merchants: Itinerant traders are petty merchants who move from
village to village, and directly purchase the produce from the cultivators. They transport it to the
nearby primary or secondary market and sell it there. Village merchants have their small
establishments in villages. They purchase the produce of those farmers who have either taken
finance from them or those who are not able to go to the market. Village merchants also supply
essential consumption goods to the farmers. They act as financers of poor farmers. They often visit
nearby markets and keep in touch with the prevailing prices. They either sell the collected produce
in the nearby market or retain it for sale at a later date in the village itself.
(a) Agent Middlemen: Agent middlemen act as representatives of their clients. They do not take
title to the produce and, therefore, do not own it. They merely negotiate the purchase and/or sale.
They sell services to their principals and not the goods or commodities. They receive income in
the form of commission or brokerage. They serve as buyers or sellers in effective bargaining.
Agent middlemen are of two types
Commission Agents or Arhatias: A commission agent is a person operating in the wholesale
market who acts as the representative of either a seller or a buyer. He is usually granted broad
powers by those who consign goods or who order the purchase. A commission agent takes over

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the physical handling of the produce, arranges for its sale, collects the price from the buyer, deducts
his expenses and commission, and remits the balance to the seller. All these facilities are extended
to buyer-firms as well, if asked for. Commission Agents or Arhatias in unregulated markets are of
two types, Kaccha arhatias and pacca arhatias. Kaccha arhatias primarily act for the sellers,
including farmers. They sometimes provide advance money to farmers and iterant traders on
the condition that the produce will be disposed of through them. Kaccha arhatias charge arhat
or commission in addition to the normal rate of interest on the money they advance. A pacca arhatia
acts on behalf of the traders in the consuming market. The processors (rice millers, oil millers and
cotton or jute dealers) and big wholesalers in the consuming markets employ pacca arhatias as
their agents for the purchase of a specified quantity of goods within a given price range.
In regulated markets, only one category of commission agent exists under the name of
‘A’class trader. The commission agent keeps an establishment – a shop, a godown and a rest house
for his clients. He renders all facilities to his clients. He is, therefore, preferred by the farmers
to the co-operative marketing society for the purpose of the sale of the farmers produce.
Commission agents extend the following facilities to their clients:
(a) They advance 40 to 50 percent of the expected value of the crop as a loan to farmers to enable
them to meet their production expenses;
(b) They act as bankers of the farmers. They retain the sale proceeds, and pay to the farmers as
and when the latter require the money;
(c) They offer advice to farmers for purchase of inputs and sale of products;
(d) They provide empty bags to enable the farmers to bring their produce to the market;
(e) They provide food and accommodation to the farmers and their animals when the latter come
to the market for the sale of their produce;
(f) They provide storage facility and advance loans against the stored product up to 75 percent of
its value;
(g) They arrange, if required by the farmer, for the transportation of the produce from the village
to the market; and
(h) They help the farmers in times of personal difficulties.
(b) Brokers: Brokers render personal services to their clients in the market; but unlike the
commission agents, they do not have physical control of the product. The main function of a

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broker is to bring together buyers and sellers on the same platform for negotiations. Their charge
is called brokerage. They may claim brokerage from the buyer, the seller or both, depending on
the market situation and the service rendered. They render valuable service to the prospective
buyers and sellers, for they have complete knowledge of the market – of the quantity available and
the prevailing prices. Brokers have no establishment in the market. They simply wander about
in the market and render services to clients. There is no risk to them. They do not render any other
service except to bring the buyers and sellers on the same platform. In most regulated markets,
brokers do not play any role because goods are sold by open auction. Their number in food grain
marketing trade is decreasing. But they still pay a valuable role in the marketing of other
agricultural commodities, such as gur, sugar, oil, cottonseed and chillies.
(c) Speculative Middlemen
Those middlemen who take title to the product with a view to making a profit on it are
called speculative middlemen. They are not regular buyers or sellers of produce. They specialize
in risk – taking. They buy at low prices when arrivals are substantial and sell in the off – season
when prices are high. They do the minimum handling of goods. They make profit from short-run
as well as long-run price fluctuations. Processors carry on their business either on their own or
on custom basis. Some processors employ agents to buy for them in the producing areas, store
the produce and process it throughout the year on continuous basis. They also engage in advertising
activity to create a demand for their processed products.
(d) Facilitative Middlemen
Some middlemen do not buy and sell directly but assist in the marketing process. Marketing
can take place even if they are not active. But the efficiency of the system increases when they
engage in business. These middlemen receive their income in the form of fees or service charges
from those who use their services.
The important facilitative middlemen are:
Hamals or Labourers: They physically move the goods in marketplace. They do unloading from
and the loading on to bullock carts or trucks. They assist in weighting the bags. They perform
cleaning, sieving, and refilling jobs and stitch the bags. Hamals are the hub of the marketing
wheel. Without their active co-operation, the marketing system would not function smoothly.
Weighmen: They facilitate the correct weighment of the produce. They use a pan balance when
the quantity is small. Generally, the scalebeam balance is used. They get payment for their

19
services through the commission agent. The weighbridge system of weighing also exists in big
markets.
Graders: These middlemen sort out the product into different grades, based on some defined
characteristics, and arrange them for sale. They facilitate the process of prices settlement
between the buyer and the seller.
Transport Agency: This agency assists in the movement of the produce from one market to
another. The main transport means are the railways and trucks. Bullock carts or camel carts or
tractor trolleys are also used in villages for the transportation of food grains. Communication
Agency: It helps in the communication of the information about the prices prevailing, and
quantity available, in the market. Sometimes, the transactions take place on the telephone. The
post and telegraph, telephone, newspapers, radio, television, Internet and informal links are the
main communication channels in agricultural marketing.
Advertising Agency: It enables prospective buyers to know the quality of the product and decide
about the purchase of commodities. Newspapers, the radio, cinema slides, television and Internet
are the main media for advertisements.
Auctioners: They help in exchange function by putting the produce for auction and bidding by
the buyers.

Market Forces

The key function of a market is to determine the price of the "lot" at which the product
should change hands. This process goes on continually at all times and all the places between
buyers and sellers. The forces which affect the process of price determination, either directly or
indirectly may be termed as market forces. These forces may be tangible, like the quantity of
arrivals at a particular point of time in the market, or heavy rainfall; or they may be intangible,
like the announcement of a particular government policy. All these forces affect price
determination by affecting either the demand behaviour of buyers or the supply behaviour of
sellers.

Demand

The word demand usually refers to the quantity of a product or service which the buyers are
likely to purchase at different prices in a given market at a given time. It must be understood that

20
demand represents the willingness and ability to buy under specified conditions. Even if no
actual transaction takes place, the demand for a product may exist.
Supply
Schedule or quantities of product that will be offered for sale at different price, different
time, and in given market

Simple Market Model and Price Determination

The simplest of the simple market models is one where it is assumed that the quantity
demanded and quantity supplied are affected only by the price of the commodity. The price and
quantity which satisfy both the buyer(s) and seller(s) are called the equilibrium price and
equilibrium quantity. Price determination in the case of this simplified model is illustrated
below by three alternative approaches.

1. Tabular

2. Graphical

3. Simultaneous Equations Model

21
Difference in Marketing of Agricultural and Manufactured Goods:
The marketing of agricultural commodities is different from the marketing of manufactured
commodities because of the special characteristics of the agricultural sector (demand and supply)
which have a bearing on marketing. Because of these characteristics, the subject of agricultural
marketing has been treated as a separate discipline – and this fact makes the subject somewhat
complicated. These special characteristics of the agricultural sector affect the supply and demand
of agricultural products in a manner different from that governing the supply and demand of
manufactured commodities. The special characteristics which the agricultural sector possesses, and
which are different from those of the manufactured sector, are:
1. Perishability of the Product:
Most farm products are perishable in nature; but the period of their perishability varies
from a few hours to a few months. To a large extent, the marketing of farm products is virtually a
race with death and decay. Their perishability makes it almost impossible for producers to fix the
reserve price for their farm-grown products. The extent of perishability of farm products may be
reduced by the processing function; but they cannot be made non-perishable like manufactured
products. Nor can their supply be made regular.
2. Seasonality of Production:
Farm products are produced in a particular season; they cannot be produced throughout the
year. In the harvest season, prices fall. But the supply of manufactured products can be adjusted
or made uniform throughout the year. Their prices therefore remain almost the same throughout
the year.
3. Bulkiness of Products:
The characteristic of bulkiness of most farm products makes their transportation and storage
difficult and expensive. This fact also restricts the location of production to somewhere near the
place of consumption or processing. The price spread in bulky products is higher because of
the higher costs of transportation and storage.
4. Variation in Quality of Products:
There is a large variation in the quality of agricultural products, which makes their
grading and standardization somewhat difficult. There is no such problem in manufactured
goods, for they are products of uniform quality.
5. Irregular Supply of Agricultural Products:

22
 The supply of agricultural products is uncertain and irregular because of the dependence of
agricultural production on natural conditions. With the varying supply, the demand remaining
almost constant, the prices of agricultural products fluctuate substantially.
6. Small Size of Holdings and Scattered Production:
Farm products are produced throughout the length and breadth of the country and most of
the producers are of small size. This makes the estimation of supply difficult and creates
problems in marketing.
7. Processing:
Most of the farm products have to be processed before their consumption by the ultimate
consumers. This processing function increases the price spread of agricultural commodities.
Processing firms enjoy the advantage of monopsony, oligopsony or duopsony in the market. This
situation creates disincentives for the producers and may have an adverse effect on production in
the next year.

Characteristics of Agricultural Produce

The special characteristics, which the agricultural and horticultural produce possess, make them
differ from the manufactured products marketing.
1. Perishability of produce: Most of the farm produce is perishable in nature, but the period
of perishability varies from few hours (flowers) to a few months (grains). The extent of
perishability of the farm produce may be reduced by the processing function (chilling of
milk) but they cannot be made non-perishable like manufactured products.
2. Seasonality of production : Traditional varieties are season bound in production but the high
yielding varieties are not that much season bound but even then the availability of water
facilities, temperature, wind, solar radiation to dry the produce make major part of
agricultural production in particular season.
3. Bulkiness of products : the bulky characteristic of most of farm products makes their
transportation and storage difficult and expensive. These increase the price spread.
4. Variation in quality of produce : Compared to manufacture goods there is large variation
in the quality of agricultural products, which make their grading, and standardization
somewhat difficult.

23
5. Irregular supply of agricultural products : The supply of agricultural products is
uncertain and irregular because of the dependence of agricultural production on natural
conditions. With the varying supply, the demand remaining almost constant, the price of
agricultural produce fluctuate substantially.
6. Small size of holdings : Farm products are produced throughout the length and breadth of
the country and most of the producer’s holdings are small in size. This makes the estimation
of supply difficult and creates problem in marketing.
7. Processing : Most of the farm products have to be processed before their consumption by.
ultimate consumers. The processing function increases the price spread of agricultural
commodities. The processing firms enjoy the advantage of monopsony, duopsony or
oligopsony in the market. This situation creates disincentives for the produces and may
have an adverse effect on production in the next year.

24
 3. Producer Surplus of Agricultural Commodities: Definition and Types of Producer
Surplus. Marketable and Marketed Surplus- Importance and Relationship - Factors
Affecting Marketable Surplus.

In any developing economy, the producer's surplus of agricultural product plays a significant
rote. This is the quantity which is actually made available to the non-producing population of the
country. From the marketing point of view, this surplus is more important than the total production
of commodities. The arrangements for marketing and the expansion of markets have to be made
only for the surplus quantity available with the farmers, and not for the total production.
The rate at which agricultural production expands determines the pace of agricultural
development, while the growth in the marketable surplus determines the pace of economic
development. An increase in production must be accompanied by an increase in the marketable
surplus for the economic development of the country. Though the marketing system is more
concerned with the surplus which enters or is likely to enter the market, the quantum of total
production is essential for this surplus. The larger the production of a commodity, the greater the
surplus of that commodity and vice versa. The knowledge of marketed and marketable surplus
helps the policy- makers as well as the traders in the following areas:
(i) Framing Sound Price Policies: Price support programmes are an integral part of agricultural
policies necessary for stimulating agricultural production. The knowledge of quantum of
marketable surplus helps in framing these policies.
(ii) Developing Proper Procurement and Purchase Strategies: The procurement policy for
feeding the public distribution system has to take into account the quantum and behaviour of
marketable and marketed surplus. Similarly, the traders, processors and exporters have to decide
their purchase strategies on the basis of marketed quantities of different farm products.
(iii) Checking Undue Price Fluctuations: A knowledge of the magnitude and extent of the
surplus helps in the minimization of price fluctuations in agricultural commodities because it
enables the government and the traders to make proper arrangements for the movement of produce
from one area, where they are in surplus, to another area which is deficient. The knowledge of
marketed surplus also helps the traders and the Government in decisions related to storage.

25
 (iv) Export/Import Decisions: Advanced estimates of the surpluses of such commodities
which have the potential of external trade are useful in decisions related to the export and
import of the commodity. If surplus is expected to be less than what is necessary, the country can
plan for imports and if surplus is expected to be more than what is necessary, avenues for
exporting such a surplus can be explored.
(v) Development of Transport and Storage Systems: The knowledge of marketed surplus
helps in developing adequate capacity of transport and storage system to handle it.

Meaning and Types of Producer's Surplus

The producer's surplus is the quantity of produce which is, or can be, .made available by the
farmers to the non-farm population. The producer's surplus is of two types:
1. Marketable Surplus
The marketable surplus is that quantity of the produce which can be made available to the
non-farm population of the country. It is a theoretical concept of surplus. The marketable
surplus is the residual left with the producer-farmer after meeting his requirements for family
consumption, farm needs for seeds and feed for cattle, payment to labour in kind, payment to
artisans-carpenter, blacksmith, potter and mechanic-payment to landlord as rent, and social and
religious payments in kind. This may be expressed as follows:
MS= P- C
where
MS = Marketable surplus,
P = Total production, and
C = Total requirements (family consumption, farm needs, payment to labour, artisans,
landlord and payment for social and religious work).

Factors Affecting Marketable Surplus

The marketable surplus differs from region to region and with in the same region, from crop
to crop. It also varies from farm to farm. On a particular farm, the quantity of marketable surplus
depends on the following factors.
1). Size of holding
2). Production of Commodity

26
 3). Price of the Commodity
4). Size of family and
5). Requirements of seeds and feed
2. 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. The 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
continuous 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.
Bansil" writes that there is only one term-marketable surplus. This may be defined
subjectively or objectively. Subjectively, the term marketable surplus refers to theoretical
surplus available for sale with the producer-farmer after he has met his own genuine
consumption requirements and the requirements of his family, the payment of wages in kind, his
feed and seed requirements, and his social and religious payments. Objectively, the marketable
surplus is the total quantity of arrivals in the market out of the new crop.
Relationship between Marketed Surplus and Marketable Surplus
The marketed surplus may be more, less or equal to the marketable surplus, depending upon
the condition of the farmer and type of the crop. The relationship between the two terms may be
stated as follows:
>
Marketed surplus < Marketable surplus
=
1. The marketed surplus is more than the marketable surplus when. The farmer retains a smaller
quantity of the crop than his actual requirements for family and farm needs. This is true especially
for small and marginal farmers, whose need for cash is more pressing and immediate.

27
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 should be sold to meet some fixed cash requirements.
2. The 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:
(a) 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 period. Sometimes, farmers retain the produce even up to the next production season.
(b) Farmers may substitute one crop for another crop either for family consumption purpose
or for feeding their livestock because of the variation in prices. With the fall in the price of the
crop relative to a competing crop, the farmers may consume more of the first and less of the
second crop.
3. The marketed surplus may be equal to the marketable surplus when the farmer neither
retains more nor less than his requirement. This holds true for perishable commodities and for
the average farmer.
Relationship between Prices and Marketable Surplus
Two main hypotheses have been advanced to explain the relationship between prices and
the marketable surplus of foodgrains.
1. Inverse Relationship: There is an inverse relationship between prices and the marketable
surplus. This hypothesis was presented by P.N. Mathur and M. Ezetkiel. They postulate that the
farmers cash requirements are nearly fixed and given the price level, the marketed portion of the
output is determined. This implies that the farmers consumption is a residual and that the marketed
surplus is inversely proportional to the price level. This behaviour assumes that farmers have
inelastic cash requirements The argument is that, in the poor economy of underdeveloped countries
farmers sell that quantity of the output which gives them the amount of money they need to satisfy
their cash requirements ; they retain the balance of output for their own consumption purpose.
With a rise in the prices of foodgrains, they sell a smaller quantity of foodgrains to get the cash
they need and vice versa. In other words, with a rise in price, farmers sell a smaller, and with the
fall in price they sell a larger quantity. Olson and Krishnan have

28
argued that the marketed surplus varies inversely with the market price. They contend that a higher
price for a subsistence crop may increase the producers real income sufficiently to ensure that the
income effect on demand for the consumption of the crop outweighs the price effect or production
and consumption.
Positive Relationship : V.M. Dandekar and Rajkrishna put forward the case of a positive
relationship between prices and the marketed surplus of foodgrains in India. This relationship is
based on the assumption that farmers are price conscious. With a rise in the prices of foodgrains,
farmers are tempted to sell more and retain less. As a result, there is increased surplus. The
converse, too, holds true.
Factors Affecting Marketable Surplus
The marketable surplus differs from region to region and, within the same region, trom crop
to crop. It also varies from farm to farm. OD a particular farm, the quantity of marketable
surplus depends on the following factors:
(i) Size of Holding: There is positive relationship between the size of the holding and the
marketable surplus.
(ii) Production: The higher the production on a farm, the larger will be the marketable
surplus, and vice versa.
(iii) Price of the Commodity : The price of the commodity and the marketable surplus have a
positive as well as a negative relationship, depending upon whether one considers the short and
long run or the micro and macro levels.
(iv) Size of Family: The larger the number of members in a family, the smaller the surplus
on the farm.
(v) Requirement of Seed and Feed: The higher the requirement for these uses, the smaller
the marketable surplus of the crop.
(vi) Nature of Commodity: The marketable surplus of non-food crops is generally higher
than that for food crops. For example, in the case of cotton, jute and rubber, the quantity retained
for family consumption is either negligible or very small part of the total output. For these crops,
a very large proportion of total output is marketable surplus. Even among food crops, for such
commodities like sugarcane, spices and oilseeds which require some processing before final
consumption, the marketable surplus as a proportion of total output is larger than that for other
food crops.
(vii) Consumption Habits: The quantity of output retained by the farm family depends on
the consumption habits. For example, in Punjab, rice forms a relatively small proportion of total
cereals consumed by farm-families compared to those in southern or eastern states. Therefore,
out of a given output of paddy/rice, Punjab farmers sell a greater proportion than that sold by
rice eating farmers of other states.

29
4. Marketing Functions- Buying and Selling- Packaging and Transportation --Grading and
Standardization--Storage and Warehousing -- Processing and Value Addition

I. Marketing Functions
Any specialized activity performed in carrying a product from the point of production to
the ultimate consumers may be termed as a marketing function. A marketing function may have
anyone or combination of four dimensions, viz., time, space, form and exchange (transfer of
ownership). The marketing functions involved in the movements of goods from the producer to the
ultimate consumer vary from commodity to commodity, market to market, the level of economic
development of the country and final form of consumption.
For example, the marketing of rice may involve bagging, loading on to a bullock cart,
transportation to the primary market, unloading, making heaps in the market yard, auction,
weighing, sieving, deciding the price, taking ownership by the purchaser, payment of value,
repacking, loading on to the truck, transportation to the consuming centre, unloading, sale to the
retailer, weighing by the retailer, and sale to the consumer. Alternatively, if a farmer sells
directly to the consumer in the village itself or at the farm, only weighing, bagging, making
payment to the farmer, taking possession and transportation to the consumer's home are
involved.

a. Classification
The marketing functions may be classified in various ways. For example,
Thomsen classified the marketing functions into three broad groups. Thes'e are:

1 Primary Functions Assembling or Procurement, Processing Dispersion or Distribution

2 Secondary Packing or Packaging, Transportation, Grading, Standardization
Functions and Quality Control , Storage and Warehousing, Determination or
Discovery of Prices, Risk Taking, Financing, Buying and Selling,
Demand Creation, Dissemination of Market Information
3 Tertiary Functions Banking, Insurance , Communications, Posts &
Telecommunication , Supply of Energy-Electricity

30
Kohls and Uhl have classified marketing functions as follows:
Physical Functions Storage and Warehousing , Grading, Processing, Transportation
Exchange Buying and Selling
Functions:
Facilitative Standardization of Grades , Financing, Risk Taking, Dissemination
Functions: of Market Information'

Converse, Huegy and Mitchell have classified marketing functions in a different way.
According to them, the classification is as follows:
Physical Storage, Packing, Transportation, Grading, Distribution
Movement
Functions
Ownership Determining Need',Creating Demand , Finding Buyers and Sellers,
Movement Negotiation of Price, Rendering Advice, Transferring the Title to
Functions Goods
Market Formulating Policies, Financing, Providing, Organization,
Management Supervision, Accounting, Securing Information
Functions
In General from the above classifications, one can find that there are three principal
marketing functions, assembling (procurement and concentration), processing (preparation for
consumption) and dispersion (distribution) and a set of secondary facilitative services called
secondary services like grading, packaging, transporting, storing, financing, assuming risk and
selling.
1. Assembling: Assembling means bringing together, collecting and concentrating goods of
the same type from the various sources of supply at centrally located places. The
horticultural commodities are assembled chiefly for two purposes: (i) for meeting the
demand of the consumer and (ii) to provide a sufficient volume of business to
middlemen, like wholesalers and retailers. The importance of assembling as a means of
facilitating the orderly feeding of market is fairly obvious where these markets are far
away from the multitude of small producers responsible for supplying them. In India

31
 where 70 per cent of farmers are small and marginal and this function has an important
role to play.
2. Processing: Processing helps to create a new demand and maintain the quality of the
product for a period. Processing, therefore, may be defined as the act or series of acts by
which a product is converted into a more useful form. The processing function would
include all of these essentially manufacturing activities that change the basic form of the
product. Eg. Wheat into flour and finally into bread.
3. Dispersion: It is a process exactly opposite to that of assembling. After collecting the
products of many farmers in scattered localities and processing the same, the process of
dispersion begins. This is the dispersion of these products to many thousands of consuming
markets and into the hands of millions of consumers. The dispersion function involves
finding:
 Where potential buyers are located
 How much and what product they prefer? and
 What price they are ready to often?
It also includes selling of the goods, their physical movement and handling and the transfer
of funds back to central and assembling markets. It means keeping a steady flow into consumption
of the vast volume of goods which is following into the central markets through the assembling
end of the marketing system.
II. Buying and Selling
Buying and selling are the most important activities in the marketing process. By this
exchange function, possession utility is added to the commodities. The number of times the buying
and selling activity is performed depends on the length of the marketing channel. In the shortest
channel where no middlemen is involved, this activity takes place only once, (i.e).producer to
consumer. But usually in the case of farm products, selling and buying activities are undertaken
each time when the produce moves from the farmer to the primary wholesaler, from the wholesaler
to retailer to retailer and from the retailer to the consumer.
Buying
It involves the purchase of the right goods at the right place, at the right time, right quantities
and the right place. It involves the problem of what to buy, when to buy, from where to buy, how

32
to buy and how to settle the prices and terms of purchases. Buying function involves the
following subsidiary functions before the actual buying function takes place.
1. Planning the purchase of goods: Deciding the quantity of each good to be purchased.
2. Contractual function: Determining the sources of supply and establishing contacts with
them Negotiation of price and terms and conditions of buying
3. Final agreement and transfer of goods.
Selling
It involves the problems of when to sell, where to well, through whom to sell, and whether to
sell in one lot or in parts. The objective of selling is to dispose of the goods at a satisfactory
price. The selling function thus includes the following sub-functions, the performance of which
enables to get a good price for the produce.
1. Product planning and development: This sub-function includes the activities of
determination of the variety quantity of the product to be produced, grading it and deciding
about the trade or brand names to be adopted for the product.
2. Contractual function: Includes the activities which are designed to stimulate already existing
desire for the satisfaction of the want of a given product. In other words, it means selling
the products with which potential consumers are not familiar.
3. Negotiating the prices and selling the terms and conditions of sale with the buyers. Final
selling and transfer of the produce.
Methods of buying and selling prevalent in India
1. Under cover of a cloth: By this method, the prices of the produce are settled by the buyer
and the commission agents of the seller by pressing the fingers of each other under cover
of a piece of cloth. This system provides opportunities for cheating the seller, for the
seller is not aware of the price that has been offered by other buyers. This method has been
abolished now by; the government because of the possibility of cheating, though it
continues to be used in some markets.
2. Private negotiation: In this method, prices, are fixed by mutual agreement. This is
common in unregulated markets or village markets.
3. Quotations on samples taken by commission agents: In this method, commission agents
takes the samples of the produce to the buyers. The produce is given to the one whose bid
is the highest.

33
 4. Dara sale method: The produce in different lots is mixed and then sold as one lot. The
advantage is within a short-time, a large number of lots can be sold. The disadvantage is
that the produce of a good quality and one of poor quality fetch the same price.
5. Open auction method: The prospective buyer gather at the shop of the commission agent
around the heap of the produce, examine it and offer bids loudly. The produce is given to
the highest bidder after taking the consent of the seller farmer. This method is preferred
to any other method because the farmers bring a superior quality of the produce receive a
higher price. In most regulated markers, the sale of the product is permissible only by the
open auction method.
6. Closed tender system: In this, bids are invited in the form of a closed tender rather than
by open announcements. The prospective buyers visit the shops, inspect the lots, offer a
price for the highest. The advantage of this method of sale is time-saving and labour saving
method. There is no possibility of collusion among the buyers.

III. Packaging and Transportation

a. Packaging
Packaging is the first function performed in the marketing of agricultural commodities. It
is required for nearly all farm products at every stage of the marketing process. The type of the
container used in the packing of commodities varies with the type of the commodity as well as
with the stage of marketing. For example, gunny bags are used for cereals, pulses and oilseeds
when they are taken from the farm to the market. For packing milk or milk products, plastic,
polythene, tin or glass containers are used. Wooden boxes or straw baskets are used for packing
fruits and vegetables.
Meaning of Packing and Packaging:
Packing means, the wrapping and crating of goods before they are transported. Goods have
to be packed either to preserve them or for delivery to buyers. Packaging is a part of packing,
which means placing the goods in small packages like bags, boxes, bottles or parcels for sale to the
ultimate consumers. In other words, it means putting goods on the market in the size and pack
which are convenient for the buyers.

34
Types of Packaging
There are basically three kinds of packaging.
(i) Primary or Sales Packaging: Sales packaging is the packaging of goods meant for delivery
to the final consumer. The examples of this type of packaging are one litre/ half litre packs of
milk, 5 kg/10 kg packs of wheat flour, 200 gm/500 gm/1 kg packets of spices or loaves of breads.
(ii) Secondary or Group Packaging: It is the packaging of a group of consumer packets. Such
packaging is removed to bring out a number of consumer packets. Removal of secondary package
does not affect the basic quality and quantity of the final packets meant for sale to the consumers.
The examples are plastic containers in which 10 or 20 packets of one litre milk or breads are
packaged. Processors undertake secondary packaging for delivery to retailers (or some times
to even wholesaler or stockiest).
(iii) Tertiary or Transport Packaging: This kind packaging is designed to facilitate handling
and transportation of a number of secondary packages to prevent physical damage during
transportation. The examples of transport packets are packaging of 10 or 20 secondary packets into
big wooden cases or hundreds of secondary packages in shipping containers.

Advantages of Packing and Packaging:

Packaging is a very useful function in the marketing process of agricultural commodities. Most
of the commodities are packed with a view to preserving and protecting their quality and
quantity during the period of transit and storage. For some commodities, packing acts as a powerful
selling tool. The chief advantages of packing and packaging are:
1. It protects the goods against breakage, spoilage, leakage or pilferage during their
movement from the production to the consumption point.
2. The packaging of some commodities involves compression, which reduces the bulk like
cotton, jute and wool.
3. It facilitates the handling of the commodity, specially such fruits as apples, mangoes, etc.,
during storage and transportation.
4. It helps in quality-identification, product differentiation, branding and advertisement of the
product, e.g., Hima peas and Amul butter.

35
 5. Packaging helps in reducing the marketing costs by reducing the handling and retailing
costs.
6. It helps in checking adulteration.
7. Packaging ensures cleanliness of the product.
8. Packaging with labeling facilitates the conveying of instructions to the buyers as to how to
use or preserve the commodity. The label shows the composition of the product.
9. Packaging prolongs the storage quality of the products by providing protection from the ill
effects of weather, specially for fruits, vegetables and other perishable goods.

b. Transportation:
Transportation or the movement of products between places is one of the most important
marketing functions at every stage, i.e., right from the threshing floor to the point of
consumption. Most of the goods are not consumed where they are produced. All agricultural
commodities have to be brought from the farm to the local market and from there to primary
wholesale markets, secondary wholesale markets, retail markets and ultimately to the consumers.
The inputs from the factories must be taken to the warehouses and from the warehouses to the
wholesalers, retailers and finally to the consumers (farmers). Transportation adds the place utility
to goods. Transport is an indispensable marketing function. Its importance has increased with
urbanization. For the development of trade in any commodity or in any area transport is a sine
qua non. Trade and transport go side by side; the one reinforces and strengthens the other.
Advantages of Transport Function:
The main advantages of the transport function are:
1. Widening of the Market: Transport helps in the development or widening of markets by
bridging the gap between the producers and consumers located in different areas. Without
transport, the markets would have mainly been local markets. The exchange of goods between
different districts, regions or countries would be impossible in the absence of this function. The
example is the market for Himachal or Kashmir apples. The producers are located mainly in
Himachal Pradesh and Jammu & Kashmir; but apples are consumed throughout the country.
2. Narrowing Price Difference Over Space: The transportation of goods from surplus areas to
the places of scarcity helps in checking price rises in the scarcity areas and price falls in surplus
areas thus reduces the spatial differences in prices.

36
3. Creation of Employment: The transport function provides employment to a large number of
persons through the construction of roads, loading and unloading, plying of the means of
transportation, etc.
4. Facilitation of Specialized Farming: Different areas of the country are suitable for different
crops, depending on their soil and agro climatic conditions. Farmers can go in for specialization
in the commodity most suitable to their area, and exchange the goods required by them from
other areas at a cheaper price than their own production cost.
5. Transformation of the Economy: Transportation helps in the transformation of the economy
from the subsistence stage to the developed commercial stage. Industrial growth is stimulated by
being fed with the raw material produced in rural areas. Manufactured goods from industries to
village or rural areas, too, can be moved.
6. Mobility of the Factors of Production: Transport helps in increasing the mobility of capital
and labour from one area to another. Entrepreneurs get opportunities for the investment of their
capital in newly opened areas of the country, where the prospects of profit are very bright.
Moreover, transportation helps in the migration of people in search of better remunerative jobs.

Problems in Transportation of Agricultural Commodities:

The problems in the transportation of agricultural commodities are very serious because of the
special factors associated with them; for example, the perishability of the produce, its bulkiness,
the small quantity in which it is available, and a large number of suppliers and purchasers. The
following are some of the important problems arising out of the transportation of agricultural
commodities:

VI. Grading and Standardization

Grading and standardization is a marketing function which facilitates the movement of
produce. Without standardization the rule of caveat emptor (let the buyer beware) prevails; and
there is confusion and unfairness as well. Standardization is a term used in a broader sense.
Grade standards for commodities are laid down first and then the commodities are sorted out
according to the accepted standards.
Products are graded according to quality specifications. But if these quality specifications
vary from seller to seller, there would be a lot of confusion about its grade. The top grade of one

37
seller may be inferior to the second grade of another. This is why buyers lose confidence in grading.
To avoid this eventuality, it is necessary to have fixed grade standards which are universally
accepted and followed by all in the trade.

Standardization means the determination of the standards to be established for different

commodities. Pyle has defined standardization as the determination of the basic limits on grades
or the establishment of model processes and methods of producing, handling and selling goods and
services. Standards are established on the basis of certain characteristics-such as weight, size,
colour, appearance, texture, moisture content, staple length, amount of foreign matter, ripeness,
sweetness, taste, chemical content, etc. These characteristics, on the basis of which products are
standardized, are termed grade standards. Thus, standardization means making the quality
specifications of the grades uniform among buyers and sellers over space and over time.

Grading means the sorting of the unlike lots of the produce into different lots according to the
quality specifications laid down. Each lot has substantially the same characteristics in so far as
quality is concerned. It is a method of dividing products into certain groups or lots in accordance
with predetermined standards. Grading follows standardization. It is a sub-function of
standardization.

Types of Grading
Grading may be done on the basis of fixed standards or variable standards. It is of three types:
1. Fixed Grading / Mandatory Grading: This means sorting out of goods according to the size,
quality and other characteristics which are of fixed standards. These do not vary over time and
space. It is obligatory for a person to follow these grade standards if he wants to sell graded
products. For a number of agricultural commodities, grade standards have been fixed by the
Agricultural Marketing Advisor, Government of India, and it is compulsory to grade the produce
according to these grade specifications. Individuals are not free to change these standards. The
use of mandatory standards is compulsory for the export of the agricultural commodities to various
countries.
2. Permissive / Variable Grading: The goods are graded under this method according to
standards, which vary over time. The grade specifications in this case are fixed over time and

38
space, but changed every year according to the quality of the produce in that year. Under this
method, individual choice for grading is permitted. In India, grading by this method is not
permissible.
3. Centralized / Decentralized Grading: Based on the degree of supervision exercised by the
government agencies on grading of various farm products, the programme can be categorized
into centralized and decentralized grading. Under the centralized grading system, an authorized
packer either sets up his own laboratory manned by qualified chemists or seeks access to an
approved grading laboratory set up for the purpose by the state authorities / co-operatives /
associations / private agencies. Grading in respect of commodities such as ghee, butter and
vegetable oils where elaborate testing facilities are needed for checking purity and assessing quality
has been placed under centralized grading system. In this system, the Directorate of Marketing and
Inspection exercises close supervision on grading work of approved chemists through periodical
inspection of the grading stations and the quality of the graded produce.
The decentralized grading system is implemented by State Marketing Authorities under the
overall supervision and guidance of the Directorate of Marketing and Inspection. This is followed
in those commodities which do not require elaborate testing arrangements for quality assessment.
The examples are fruits, vegetables, eggs, cereals and pulses. For these commodities, the grade of
the produce is determined on the basis of physical characteristics.
Advantages of Grading;
Grading offers the following advantages to different groups of persons:
1. Grading before sale enables farmers to get a higher price for their produce. Grading also
serves as an incentive to producers to market the product of better quality.
2. Grading facilitates marketing, for the size, color, qualities and other grade designations of the
product are well known to both the parties, and there is no need on the part of the seller
to give any assurance about the quality of the product.
3. Grading widens the market for the product, for buying can take place between the parties
located at distant places on the telephone without any inspection of the quality of the
product.
4. Grading reduces the cost of marketing by minimizing the expenses on the physical inspection
of the produce, minimizing storage loses, reducing its bulk, minimizing advertisement
expenses and eliminating the cost of handling and weighing at ever stage.

39
 5. Grading makes it possible for the farmer –
a) To get easy finance when commodities are stored;
b) To get the claims settled by the railways and insurance companies;
c) To get storage place for the produce;
d) To get market information;
e) To pool the produce of different farmers;
f) To improve the “keeping” quality of the stored products by removing the inferior
goods from the good lot; and
g) To facilitate futures trading in a commodity.
6. Grading helps consumers to get standard quality products at fair prices. It is easier for them to
compare the prices of different qualities of a product in the market. It minimizes their
purchasing risk, for they will not get a lower quality product at the given price.
7. Grading contributes to market competition and pricing efficiency. The product homogeneity
resulting from grading can bring the market closer to perfect competition, encourages
price competition among sellers, and reduces extraordinary profits. Thus, the grading of
product is beneficial to all the sections of society; i.e., the producers, traders and
consumers of the product.

Manufactured products: Manufactured products are graded in accordance with the standards
laid down by the Indian Standard Institution, now Bureau of Indian Standards and bear the label
ISI. Manufactures have to use proper ingredients in specified proportions and follow the
technique of manufacture given in the standards laid down by the Indian Standard Institution.
The ISI label is an indicator of the good quality of the product.
Indian Standards Institution (ISI)
Standardistion of an organized basis started in India with the establishment of ISI. It was
set up in 1947 with the active support of the industrial, scientific and technical organizations in the
country. This institution operates under an Act of Parliament (ISI Certification Marks Scheme),
under which manufactured items are stamped with the ISI mark of certification. This mark acts as
a third party guarantee to the purchaser that the goods bearing the mark have been produced in
accordance with the provisions of the relevant Indian standards.

40
Bureau of Indian Standards
The Indian Standards Institution has been renamed as BIS with effect from April 1,1987.
The Bureau has been established by the Bureau of Indian Standards Act, 1986 and has become a
statutory body. As such all activities of Bureau viz, Standards formulation, product certification,
quality assurance, consultancy services, quality assessment, testing and development of test
methods have assumed statutory status.

V. Storage and Warehousing

Storage
Storage is an important marketing function, which involves holding and preserving goods
from the time they are produced until they are needed for consumption. Storage is an exercise of
human foresight by means of which commodities are protected from deterioration, and surplus
supplies in times of plenty are carried over to the season of scarcity;. The storage function therefore
adds the time utility to the products.
Need for storage
Agricultural and horticultural products are seasonally produced but are required for
consumption through out the year. The storage, therefore ensures a continuous flow of goods in the
market. It protects the quality of perishable and semi-perishable goods from deterioration. Helps
in the stabilisation of prices by adjusting demand and supply. It is necessary for some periods for
performance of other marketing functions. e.g. the produce has to be stored till arrangements for
its transpiration are made or during the process of buying and selling or the weighment of the
produce after sale and during its processing by the processor. It helps in ripening for some farm
commodities (banana, mango, etc,) or for improvement in their quality (rice, pickles, cheese etc,).
It provides employment and income through price advantages. e.g. Middlemen store foodgrains
by purchasing them at low prices in the peak season and sell them when prices are higher.
Risks in storage
The storage of horticultural commodities involves three major types or risks.
Quantity loss: The risks of loss in quantity may arise during storage as a result of the presence of
rodents, pests etc,. Dehydration too, brings about unavoidable loss in weight. It has been

41
estimated that about 10million tones of foodgrains are lost every year because of poor and faulty
storage.
Quality deterioration: deterioration in quality reduces the value of the stored products. These losses
may arise as a result of attacks by insects and pests, presence of excessive moisture and
temperature or as a result of chemical reaction. The loss in quality of the farm products varies with
their quality at the time of storage, method of storage and the period.
Price risks: Prices do not always rise enough during the storage period to cover the storage costs.
At times they fall steeply, involving the owner in a substantial loss. Farmers and traders are
generally store their product in anticipation pf price rise, and they suffer when prices fall.
Warehousing
Warehouses are scientific storage structures constructed for the protection of the quantity and
quality of the stored products. Today warehousing includes a package of services required for
orderly marketing. It includes handling and transport, safety and security, standardisatation and
other related aspects.
1. Scientific storage: A large bulk of farm commodities may be stored. The product is
protected against quantitative and qualitative and qualitative losses.
2. Financing: Warehousing meet the financial needs of the person who stores the product.
Natonalised banks advances credit on the security of the warehouse receipt issued for the
stored product to the extent of 70-80 percent of the value.
3. Price stabililsation: Helps in price stabilization of farm products by checking the
tendency to making post-harvest sales among the farmers.
4. Market intelligence: It offers the facility of market information to persons who hold their
produce in them. They inform them about the prices prevailing in the periods, and advise
them on when to market their products.
Types of warehouses
 On the basis ownerships, private and public and bonded warehouses.
 On the basis of commodities stored, General, special commodity warehouses, refrigerated

42
Central Warehousing Corporation (CWC)
This corporation was established as a statutory body in New Delhi, 1957. Under the new
Act, the Central Warehousing Corporation was formally reestablished on 18 March, 1963, the
CWCs provide safe and reliable storage facilities for about 120 agricultural and industrial
commodities.
Functions
1. To acquire and build godowns and warehouses at suitable places in India.
2. To run warehouses for the storage of agricultural produce, seeds, fertilizer and notified
commodities for individuals, co-operatives and other institutions.
3. To act as an agent of the government for the purchase, sale, storage and distribution of
the above commodities.
4. To arrange facilities for the transport of the above commodities.
5. To subscribe to the share capital of SWCs.
Besides, the conventional storage godowns, the CWCs running air conditioned godowns at
Calcutta, Mumbai and Delhi and provides cold storage facilities at Hyderabad. The corporation has
recently introduced a new scheme called the farmers Extension Service at selected centers to
educate farmers in the benefits of scientific storage and use of public warehouses. The CWCs
also provide a package of services such as handling and transport, safety and security of goods,
insurance, standardizations, documentation and other connected service and facilities.
State Warehousing Corporations: The area of operation of SWCs are centers of district
importance. The total share capital of SWCs is contributed equally by the concerned state
governments and CWC. The SWCs, are under the dual control of the state governments and the
CWCs.

43
VI. Processing and Value Addition:
The term processing may be defined a deliberate activity which changes the form of a
commodity. It converts farm products into a more usable form. Processing is an important
marketing function in the present day marketing of agricultural and horticultural commodities.
The processing activity involves a change in the form of the commodity. This function includes
all of those essentially manufacturing activities which change the basic form of the product.
Processing converts the raw materials and brings the products nearer to human consumption.
Importance
Converts raw food in to edible and palatable forms. The value added by processing to the
total value produced at the farm level varies. It is nearly 7 percent for rice and 86 per cent for tea.
It makes possible for us to store perishable and semi-perishable commodities and facilitate the
use of surplus in one season or another or another or year. e.g. canning and pickling of fruits and
vegetables. It generates employment. It serves as an adjunct to other marketing functions, such as
transportation, storage and merchandising.
Processing of fruits and vegetables:
Although fresh fruits and vegetables are still a delicacy, but with the increase in surpluses
and the need to carry the surpluses from producing of fruits and vegetables has gained
importance in the recent years. The fruits are converted into such items as jam, jelly, squash and
canned fruits. Fresh vegetables are converted into pickles, sauces, dehydrated vegetables etc,.
The self life of such processed products is more than that of fresh fruits and vegetables. Though
the share of the farmers in the price paid by the consumer of such processed foods continues to
be low, the processing industry has helped in providing market clearance to the growers of fruits
and vegetables.
Advantages of processing
1. It changes raw food into edible and palatable form
2. By processing, the value addition to farm products is increased
Sugarcane -Sugar, gur
Wheat -Flour
Mango -Squash, Pulp, Past~ and Pickles
3. Processing function makes it possible for us to store perishable and semi-perishable
agricultural commodities for later use.
4 . It generates employment
5. It widens market
6. Processing serves as adjunct to other marketing functions such as transportation, storage
and merchandising.

44
 5. Market SCP Paradigm. Market Structure, Conduct & Performance - Definitions-
Components and Their Dynamics
Market Structure – Meaning
The term structure refers to something that has organization and dimension – shape, size and
design; and which is evolved for the purpose of performing a function. A function modifies the
structure, and the nature of the existing structure limits the performance of functions. By the term
market structure we refer to the size and design of the market. It also includes the manner of the
operation of the market. Some of the expressions describing the market structure are:

1. Market structure refers to those organizational characteristics of a market which influence the
nature of competition and pricing, and affect the conduct of business firms,

2. Market structure refers to those characteristics of the market which affect the traders' behaviour
and their performances,

3. Market structure is the formal organization of the functional activity of a marketing institution.

An understanding and knowledge of the market structure is essential for identifying the
imperfections in the performance of a market.

Components of a Market Structure which together determine the conduct and performance of
the market are concentration of market power, degree of product differentiation, conditions of
entry of firms in the market, flow of market information and degree of integration. The market
structure determines the market conduct and performance.
Market Conduct refers to the patterns of behaviour of firms, especially in relation to pricing and
their practices in adopting and adjusting to the market in which they function. Market conduct
includes Market sharing and Price setting policies, polices aimed at coercing rivals and policies
towards setting the quality of products.
45
Market performance refers to the economic results that flow from the industry as each firm

pursues its particular line of conduct.

Components of Market Structure

The components of the market structure, which together determine the conduct and
performance of the market, are:
1. Concentration of Market Power
The concentration of market power is an important element determining the nature of
competition and consequently of market conduct and performance. This is measured by the
number and size of firms existing in the market. The extent of concentration represents the control
of an individual firm or a group of firms over the buying and selling of the produce. A high degree
of market concentration restricts the movement of goods between buyers and sellers at fair and
competitive prices, and creates an oligopoly or oligopsony situation in the market.
2. Degree of Product Differentiation
Whether or not the products are homogeneous affects the market structure. If products are
homogeneous, the price variations in the market will not be wide. When products are
heterogeneous, firms have the tendency to charge different prices for their products. Everyone
tries to prove that his product is superior to the products of others.

46
3. Conditions for Entry of Firms in the Market
Another dimension of the market structure is the restriction, if any, on the entry of firms in
the market. Sometimes, a few big firms do not allow new firms to enter the market or make their
entry difficult by their dominance in the market. There may also be some government
restrictions on the entry of firms.
4. Flow of Market Information
A well-organized market intelligence information system helps all the buyers and sellers to
freely interact with one another in arriving at prices and striking deals.
5. Degree of Integration
The behaviour of an integrated market will be different from that of a market where there is no
or less integration either among the firms or of their activities. Firms plan their strategies in respect
of the methods to be employed in determining prices, increasing sales, co-ordinating with
competing firms and adopting predatory practices against rivals or potential entrants. The
structural characteristics of the market govern the behaviour of the firms in planning strategies
for their selling and buying operations.
Dynamics of Market Structure-Conduct and Performance
The market structure determines the market conduct and performance. The term market
conduct refers to the patterns of behaviour of firms, especially in relation to pricing and their
practices in adapting and adjusting to the market in which they function. Specifically, market
conduct includes:
(a) Market sharing and price setting policies;
(b) Policies aimed at coercing rivals; and
(c) Policies towards specification of the quality of products.
The term market performance refers to the economic results that flow from the industry as each
firm pursues its particular line of conduct." Society has to decide the criteria for satisfactory market
performance. Some of the criteria for measuring market performance and of the efficiency
of the market structure are:
1. Efficiency in the use of resources, including real cost of performing various marketing
functions;
2. The existence of monopoly or monopoly profits, including the relationship of margins with
the average cost of performing various functions;
3. Dynamic progressiveness of the system in adjusting the size and number of firms in

47
relation to the volume of business, in adopting technological innovations and in finding and/or
inventing new forms of products so as to maximize general social welfare.
4. Whether or not the system aggravates the problem of inequalities in inter-personal, inter-
regional, or inter-group incomes. For example, inequalities increase under the following situations:
(a) A market intermediary may pocket a return greater than its teal contribution to the
national product;
(b) Small farmers are discriminated against when they are offered a lower return because of
the low quantum of surplus;
(c) Inter-product price parity is substantially disturbed by new uses for some products and
wide variations and rigidities in the production pattern between regions.
The market structure, therefore, has always to keep on adjusting to changing environment if it
has to satisfy the social goals. A static market structure becomes obsolete because of the changes
in the physical, economic, institutional and technological factors. For a satisfactory market
performance, the market structure should keep pace with the following changes.
(i) Production Pattern
Significant changes occur in the production pattern because of technological, economic and
institutional factors. The market structure should be re-oriented to keep pace with such changes.
(ii) Demand Pattern
The demand for various products, especially in terms of form and quality, keeps on changing
because of change in incomes, the pattern of distribution among consumers, and changes in their
tastes and habits. The market structure should be re-oriented to keep it in harmony with the changes
in demand.
(iii) Costs and Patterns of Marketing Functions
Marketing functions such as transportation, storage, financing and dissemination of market
information, have a great bearing on the type of market structure. Government policies with regard
to purchases, sales and subsidies affect the performance of market functions. The market structure
should keep on adjusting to the changes in costs and government policy.
(iv) Technological Change in Industry
Technological changes necessitate changes in the market structure through adjustments in the scale
of business, the number of firms, and in their financial requirements.

48
6. Marketing Channel -Definition-Channels for Different Products. Marketing Costs,
Margins and Price Spread - Concepts- Importance-Factors Affecting Cost of
Marketing. Reasons for Higher Marketing Costs. Ways of Reducing Marketing Costs.

Marketing Channel
In this chapter, we discuss marketing agencies, marketing institutions and marketing
channels through which farm products move from producers to consumers. A very small
proportion of farm produce moves directly from farmers to consumers. Most of the farm
products move to consumers through several agencies/institutions and channels. The role played
by marketing agencies and institutions in the marketing system in quite indispensable as these
perform important marketing functions. They also help in expanding the markets for farm products
and add value to the products.
The production of a produce is complete only when it reaches the hands of those who
need it – the consumers. All the commodities cannot be produced in all the areas because of
variations in agro-climatic conditions. Hence, there is a need for their movement from producers to
consumers.
There are two main routes through which agricultural commodities reach the consumers:
(i) Direct Route: Sometimes, agricultural commodities directly pass from producers to
consumers. There is a complete absence of middlemen or intermediaries. But it is only a very
small proportion of the agricultural commodities which moves directly from producers to consumers.
(ii) Indirect Route: Agricultural commodities generally move from producers to consumers
through intermediaries or middlemen. The number of intermediaries may vary from one to
many. In the modern era of specialized production, both the horizontal and vertical distance
between the producer and the consumer has increased, resulting in a reduction of direct sales. The
role of market middlemen has increased in the recent past because a substantial part of the produce
moves through them.

Marketing Channel

The chains of intermediaries through whom the various food products pass from
producers to consumers constitute the marketing channel. The length of the channel varies
from commodity to commodity depending upon the quantity to be moved, the form of
consumer demand and degree of regional specialization in production.
49
 Producer Village

Trader Wholesale

Trader Retailer

Consumer

Marketing channels are routes through which agricultural products move from
producers to consumers. The length of the channel varies from commodity to commodity,
depending on the quantity to be moved, the form of consumer demand and degree of regional
specialization in production.
The chain of intermediaries through whom the various food products pass from
producers to consumers constitute the marketing channel. The length of the channel varies
from commodity to commodity depending upon the quantity to be moved, the form of
consumer demand and degree of regional specialization in production.
Definition
A marketing channel may be defined in different ways according to Moore et al the
chain of intermediaries through whom the various foodgrains pass from producers to
consumers constitutes their marketing channels. Kohls and Uhl have defined marketing
channels as alternative routes of product flows from producers to consumers.

Factors Affecting Length of Marketing Channels

Marketing channels for agricultural products vary from product to product country
to country, lot to lot and time to time. For example, the marketing channels for fruits are
different from those for foodgrains. Packagers play a crucial role in the marketing of fruits.
The level of the development of a society or country determines the final form in which
consumers demand the product. For example, consumers in developed countries demand
more processed foods in a packed form. Wheat has to be supplied in the form of bread.

50
Marketing Channels for Cereals

Marketing channels for various cereals in India are more or less similar, except the
channel for paddy (or rice) where rice millers come into the picture. For pulse crops, dal mills
appear prominently in the channel. The flow chart in Fig.5.1 enables us to know the marketing
channels for general food grains in India.
Some common marketing channels for wheat have been identified as follows: (i)
Farmer consumers;
(ii) Farmer retailer or village trader consumer;
(iii) Farmer wholesaler retailer consumer;
(iv) Farmer village trader wholesaler retailer consumer;
(v) Farmer co-operative marketing society retailer consumer;
(vi) Farmer Govt. agency (FCI, etc.) fair price shop consumer;
(vii) Farmer wholesaler flour miller retailer consumer.
The channels for paddy-rice and pulses are broadly the same, except that the rice
millers or dal millers come into the picture before the produce reaches retailers or consumers.

Marketing Channels for Oilseeds

Marketing channels for oilseeds are different from those for foodgrains, mainly
because the extraction of oil from oilseeds is an important marketing function of oilseeds.
The flow chart in Fig.5.2 reveals the movement of oilseeds from producers to consumers in India.
The most common marketing channels for oilseeds in India are:
(i) Producer to consumer (who either directly consumes the oilseeds or gets it
processed on custom basis);
(ii) Producer to village trader to processor to oil retailer to consumer;
(iii) Producer to oilseed wholesaler to processor to oil wholesaler to oil retailer to oil
consumer;
(iv) Producer to village trader to processor to oil consumer;
(v) Producer to government agency to processor to oil wholesaler to oil retailer to oil
consumer.
Marketing Channels for Fruits and Vegetables
Marketing channels for fruits and vegetables vary from commodity to commodity and
from producer to producer. In rural areas and small towns, many producers performs the
function of retail sellers. Large producers directly sell their produce to the wholesalers or processing
firms. Some of the common marketing channels for vegetables and fruits are:

51
(i) Producer consumer;
(ii) Producer primary wholesalers retailers or hawkers consumer;
(iii) Producer processors (for conversion into juices, preserves, etc.);
(iv) Producers primary wholesalers processors;
(v) Producers primary wholesalers secondary wholesalers
retailers or hawkers consumers;
(vi) Producers local assemblers primary wholesalers

retailers or hawkers consumers.

An important feature of marketing channels for fruits and vegetables is that these commodities
just move to some selected large cities/centres and subsequently are distributed to urban
population and other medium size urban market centres. The wholesale markets of
these urban centres work as transit points and thus play an important role in the entire
marketing channel for fruits and vegetables. Large wholesale markets for fruits and vegetables
are concentrated in 10 major cities viz., Delhi, Kolkata, Bangalore, Chennai, Mumbai,
Jaipur, Nagpur, Vijayavada, Lucknow and Varanasi. These cities account for 75 per cent
of vegetables marketed in major urban areas in India. Further, the transit trade takes place
through the cities with more than 20 lakh population which account for 68 per cent of
the fruits and vegetables grown in the respective regions. There are 65 urban
wholesale markets for fruits and 81 for vegetables. Each market, on an average, serves a
population of about 7 lakhs.

52
 Marketing Channels for Eggs
The prevalent marketing channels for eggs are: (i)
Producer consumer;
(ii) Producer retailer consumer;
(iii) Producer wholesaler retailer consumer; (iv)
Producer co-operative marketing society wholesalers
Retailers consumers;
(v) Producers egg powder factory.
Sometimes, the wholesaling and retailing functions are performed by a single firm in the
channel.

Factors considered while choosing a Channel:

1. Nature of the product.
2. Price of the product.
3. No. of units of sale.
4. Characteristics of the user.
5. Buyers and their buying units.
 Low priced articles with small units of sale are distributed through retailers.
 High price special items like radios, sewing machines etc are sold by manufactures and
then agents.
 Public services like gas, electricity and transport are usually sold directly to the
consumer.
Marketing Costs
The cost involved in moving the product from the point of production to the point of
consumption i.e. the cost of performing the various marketing functions and of operating various
agencies is called marketing cost.
The market functionaries involved in moving the produce from the initial point of
production till it reaches the ultimate consumer, charge profit margin for the service rendered.
The cost involved in marketing plus the profit margin changed by the market functionaries for
the service rendered constitute market margin.
Definition: The movement of products from the producers to the ultimate consumers involves
costs, taxes, and cess which is called marketing costs. These costs vary with the channels through

53
which a particular commodity passes through. Eg: - Cost of packing, transport, weighment,
loading, unloading, losses and spoilages.

Marketing costs would normally include:

i. Handling charges at local point
ii. Assembling charges
iii. Transport and storage costs
iv. Handling by wholesaler and retailer charges to customers
v. Expenses on secondary service like financing, risk taking and market intelligence
vi. Profit margins taken out by different agencies.
vii. Producer’s share in consumer’s rupee :
PF
Ps = ---- x 100
Pr
Where,
Ps = Producer’ share
PF = Price received by the farmer
Pr = Retail price paid by the consumer

Total cost of marketing of commodity,

C = Cf + Cm1 + Cm2 + . . . + Cmn

Where, C= Total cost of marketing of the commodity
Cf = Cost paid by the producer from the time the produce leaves till he sells it
Cmi= Cost incurred by the ith middlemen in the process of buying and selling the products.

Price Spread
The difference between the price paid by the consumer and the price received by the
producer for an equivalent commodity is known as price spread, sometimes this is termed as
marketing margin. “Producers Price in Consumer rupee”.
'Three methods are used in the estimation of price spread
1) Lot Method
A specific lot or consignment is selected and chased through the marketing system until it
reaches the ultimate consumer. The cost and margin involved at each stage are assessed and
added to get the price spread.
54
2. Sum-of-Average Gross Margin Method
The average gross margins of all the intermediaries are added to obtain the total marketing
margin as well as the breakup of the consumer's rupee.

where,
MT = Total marketing margin
th
Si = Sale value of a product for i intermediary
th

Pi = Purchase value paid by the i intermediary

th
Qi = Quantity of the product handled by the i intermediary

i = 1, 2 ..N {number of intermediaries involved in the marketing channel

3. Comparison of Prices at Successive Levels of Marketing

Under this method prices at successive stages of marketing at the producer, wholesaler and
retailer level are compared. The margin of an intermediary is worked out by deducting the
ascertainable costs incurred by that intermediary.
The difficulties in the use of the this method are
1. Representative and comparable series of prices for the same quality at successive stages of
marketing are not readily available for all the products.
2. Adjustment for loss in the quality of the product at various stages of marketing due to
wastage and spoilage in processing and handling is difficult.
3. The time lag between the performances of various marketing operations is not properly
accounted for.
Market Margins
Margin refers to the difference between the price paid and received by a specific marketing
agency, such as a single retailer, or by any type of marketing agency such as retailers or assemblers
or by any combination of marketing agencies such as the marketing system as a whole. Absolute
margin is expressed in rupees. A percentage margin is the absolute difference in price (absolute
margin) divided by the selling price. Mark-up is the absolute margin divided by the buying price
or price paid.

55
Reasons for High Marketing Costs:
1. High transportation costs
2. Consumption pattern – Bulk transport to deficit areas.
3. Lack of storage facilities.
4. Bulkiness of the produce.
5. Volume of the products handled.
6. Absence of facilities for grading.
7. Perishable nature of the produce.
8. Costly and inadequate finance.
9. Seasonal supply.
10. Unfair trade practices.
11. Business losses.
12. Production in anticipation of demand and high prices.
13. Cost of risk.
14. Sales service.
Factors affecting marketing costs
1. Perish ability
2. Losses in storage and transportation
3. Volume of the product handled
Volume of the More – less cost
Volume of the Less – more cost
4. Regularity in supply : Costless irregular in supply – cost is more
5. Packaging: Costly (depends on the type of packing)
6. Extent of adoption of grading
7. Necessity of demand creation (advertisement)
8. Bulkiness
9. Need for retailing: (more retailing – more costly)
10. Necessity of storage
11. Extent of Risk
12. Facilities extended by dealers to consumers. (Return facility, home delivery, credit
facility, entertainment)

56
Ways of reducing marketing costs of farm products.
1. Increased efficiency in a wide range of activities between produces and consumers
such as increasing the volume of business, improved handling methods in pre-packing,
storage and transportation, adopting new managerial techniques and changes in
marketing practices such as value addition, retailing etc.
2. Reducing profits in marketing at various stages.
3. Reducing the risks adopting hedging.
4. Improvements in marketing intelligence.
5. Increasing the competition in marketing of farm products.

57
 7. Marketing Efficiency-Operational and Pricing. Market Integration-Vertical,
Horizontal and Conglomeration

Marketing Efficiency
The term marketing efficiency refers to the effectiveness or competence with which a
market structure performs its designated function. Marketing efficiency is essentially the degree
of market performance. It is a broad and dynamic concept.
Def: - If is the ratio of market output (satisfaction) to marketing input (cost of resources). An
increase in ratio represents improved efficiency and vice versa.

Efficient marketing
A reduction in marketing cost without reduction in consumer satisfaction indicates
improvement in efficiency. A higher level of consumer satisfaction at higher marketing cost may
mean increased efficiency if the additional satisfaction derived by consumer outweighs the
additional cost incurred on the marketing process. But a change that reduces cost but also
reduces consumer satisfaction need not indicate increase in marketing efficiency. Efficiency of
marketing system could be looked at two angles.
1. Technical or physical or operational efficiency
2. Pricing or allocative efficiency.

Technical Efficiency or Operational Efficiency

Efficiency is said to have increased when cost is reduced for performing a function for each
unit of output. This can be brought out by reducing physical losses or through change in technology
of the function viz, storage, transportation, handling and processing. A change in the technique
may result in the reduction of per unit cost.
It pertains to the cost of performing a function; Efficiency is increased when the cost of
performing a function per unit of output is reduced. Eg: - Storage processing, handling etc.

58
Pricing Efficiency
Pricing efficiency means that the system is able to allocate farm products either over
time, across the space or among the traders, processors and consumers in such a way that no
other allocation would make producers and consumers better off. This is achieved via pricing of
the product at different stages at different places, at different time and among different users.
System is able to allocate farm products either over time, across the space or among the
traders, processors and consumers at a point of time in such as way that no other allocation
would make producers and consumers better off. This is achieved via pricing the product at
different stages, places and times among different users. Pricing efficiency refers to the structural
characteristics of the marketing system, when the sellers are able to get the true value of their
produce and the consumers receive true worth of their money. The above two types are mutually
reinforcing in the long run
The above two types of efficiencies are mutually reinforcing in the long run, one without the
other is not enough.

Assessment of marketing efficiency:

1. Technical or Physical or Operational efficiency:
2. Pricing / Allocative efficiency.
A reduction in the cost for the same level of satisfaction or an increase in the satisfaction at a
given cost results in the improvement in efficiency. (Khols and Uhl.)
O
E = ---- 100
I
E = level of efficiency
O = value added to the marketing system.
I = real cost of marketing
Shepherd „s formula of marketing efficiency :
V
ME = --- - 1 X 100
I
ME = Index of marketing efficiency

V = Value of the goods sold or price paid by the consumer (Retail price)

59
I = Total marketing cost or input of marketing.
This method eliminates the problem of measurement of value added.

Market Integration
Integration shows the relationship of firms in a market. The extent of integration influences
the market conduct of the firms and consequently their marketing efficiency. Markets differ in the
extent of integration and, therefore, there is a variation in their degree of efficiency. Market
integration is a process which refers to the expansion of firms by consolidating additional
marketing functions and activities under a single management.

Kohis and Uhl have defined “Market integration as process which refers to the expansion
of firms by consolidating additional marketing functions and activities under a single
management”. Eg: - 1. Setting up of milk processing plant.
2. Establishment of wholesale facilities by retailers.
 Integration shows the relationship of firms in a market.
 Integration influences market conduct of firms and consequently their marketing
efficiency.
 Markets differ in the extent of integration.

Types of market integration:

1. Horizontal integration:
When a firm gains control over other firms, performing similar marketing functions.
Some marketing agencies (say, sellers) combine to form a union with a view to reducing their
effective number and the extent of competition in the market.
In this type of integration, some marketing agencies (say, sellers) combine to form a
union to reduce their effective number and the extent of actual competition in the market. e.g.
Primary milk producers cooperative society.
 Horizontal integration is advantageous for the members who join the group.
 If farmers join hands and form cooperatives, they are able to sell their produce in bulk
and reduce their cost of marketing.
 Horizontal integration of selling firms is not in the interests of consumers or buyers.

60
2. Vertical integration:
Vertical integration occurs when a firm performs more than one activity in the sequence
of the marketing process. It is linking together of two or more functions in the marketing process
with in a single firm or under a single ownership. For e.g. if a firm assumes wholesale as well as
retailing, it is a vertical integration or rice processor under taking retailing.

 Occurs when a firm performs more than one activity in the sequence of the marketing
process.
 It is linking together of two or more functions within a single firm or under a single
ownership.
Eg: - 1. If a firm assumes the functions of the commission agent as well as retailing.
2. Floor mill which engages in retailing activity as well.
 Vertical integration leads to some economies in the cost of marketing.
 Enjoys greater market power while reducing the number of middlemen.
There are two types of vertical integration
a). Forward integration : Eg: Wholesaler assuming the function of retailing i.e. assuming
another function.
b). Backward Integration: Eg: Processing firm assumes the function of assembling / purchasing
the produce from villages.
Firms often expand both vertically and horizontally. Eg: Modern retail stocks.
Horizontal : Expanding either retail stores or number of commodities they deal.
Vertical : Operate their own wholesale, purchasing and processing establishment.

3. Conglomeration:
A combination of agencies or activities not directly related to each other, may when it
operates under a united management, be termed a conglomeration. Eg: Hindustan Lever Ltd. Delhi
cloth and General mill (cloth & vanaspati).

61
 8. Factor Market--Marketing of Various Agricultural Inputs-Channel of
Distribution- Input Market Promotional Activities by Firm.

Chemical Fertilizers
Fertilizer is the most important among all the inputs purchased by the farmer for use in
present-day agriculture with a view to accelerate agricultural production. It now accounts for
one-third of the value of total purchased-inputs by the farmers. It has been estimated that 53
percent of the incremental food grain production in India during the seventies was due to fertilizer
use, and its contribution is expected to have increased since then. The demand for chemical
fertilizers has increased with the evolution of new hybrid and dwarf variety seeds, which are more
responsive to chemical fertilizers.
The use of fertilizers increases land productivity, due to the increase in yields and easing
the nutrient constraints on multiple cropping and land development programmers’. Fertilizers
relax the land constraint. Since the yield increase is proportionately more than the
corresponding incremental labour applied, fertilizer use increases labour productivity. The
production, distribution and consumption of fertilizers create additional employment opportunities
is a fact which is extremely important in labour-surplus countries.
Supply
The sources of supply of fertilizers in India are indigenous production and imports. The
chemical fertilizers are produced in all the three sectors-public, co-operative and private. Although
even before independence, Tata Iron and Steel Company had a plant for manufacturing
ammonium sulphate, but it was only after Independence that fertilizer production received serious
attention. The licensed manufacturing capacity in 1950 was only 16,700 tonnes of N and 20500
tonnes of P 20S' Up to the end of December 1959, the capacity expanded to
1.48 lakh tonnes of nitrogen and 0.81 lakh tonnes of P205. Since then, the manufacturing
capacity has continued to expand rapidly.
In November 2009, the installed capacity in the country increased to 13 million tonnes of
N and 6.2 million tonnes of P, with a total of 19.2 million tonnes of both fertilizers combined. A
significant development in fertilizer production capacity during the last 13 years has been the
expansion in production capacity in the private and cooperative sectors. The private and
cooperative sectors together account for 94 percent of total phosphates’ fertilizer manufacturing

62
capacity in the country. It may also be mentioned here that it does not manufacture potassic
fertilizer and all its requirements are met through imports. Even in the case of phosphatic
fertilizers, the import for raw material is quite substantial. Beside potassic fertilizer, India imports
nitrogenous and phosphatic fertilizers to meet its domestic demand. There are 139 fertilizer
manufacturing units in India. This 'is comprised of 29 urea, 19 DAP & NP/NPK complex, 80
SSP, 10 Ammonium Sulphate and one Calcium Ammonium Nitrate (CAN) Unit.
The demand for fertilizers is a derived demand. The fertilizer use per hectare of gross
cropped area which was even less than one kilogram up to 1955-56 increased to 128.6 kg in
2008-09. However, the level is quite low as compared to that in other countries. Not with standing
the low consumption of fertilizer use in India vis-a-vis other countries, there are some states where
fertilizer use is quite high. For example, the average fertilizer consumption per hectare of gross
cropped area in Punjab is 222 kg and in Andhra Pradesh 240 kg. In Haryana, it is 202 kg and in
Tamil Nadu it is 217 kg. In Uttar Pradesh also, the fertilizer consumption is quite high at a level
of more than 163 kg per hectare.
Marketing of Fertilizers
Fertilizers are produced only at selected locations and imported fertilizers arrive at seaports.
The marketing system has to carry out the functions of storage, transportation and selling to the
farmers spread throughout the country. Over time the marketing system for fertilizers has
undergone rapid change both in terms of its capacity and mode of operation. Its evolution has
been mainly guided by the public policy. Since fertilizer was a new input for the farmers, the
spread of know-how and incentives had to accompany the marketing of fertilizers. In fact, initially
the demand for fertilizer had to be created. But the objective of demand creation was not to sell
more fertilizers and earn profit but was to increase agricultural production.
Up to the end of the First Five Year Plan (1951-56), the sale of chemical fertilizers was
the sole responsibility of co-operative societies and State Agriculture Departments. During the
Second Five Year Plan (1956-61), the sale of fertilizers became almost the monopoly of co-
operative societies. This step aimed at popularizing co-operative movement and achieving a
higher efficiency of the distribution system. The village panchayats were also given this
responsibility wherever co-operatives did not exist. In 1965, the Government of India
constituted a comittee, under the chairmanship of B. Shivraman, to suggest changes in policy
relating to production, distribution, and promotion of fertilizer consumption. Based on the
recommendations of Shivraman committee, several changes were brought about to bring

63
marketing of fertilizers into the stream of agricultural development strategy. Later, the
Government granted the fertilizer production units, which had been licensed before dealers. The
fertilizer manufacturers appoint field officers for sales promotion Manufacturers also have their
own Farmer Advisory Services through which farmers' meetings, training programmes and
demonstrations are conducted to guide them to use the recommended dosages of fertilizers in
different crops grown by them.

Costs and Margins in Fertilizer Marketing

The gross marketing margin is the difference between the import or ex-factory price and
the retail price of the fertilizer. It includes the commission of wholesalers, agents and retailers,
transportation costs, storage costs, interest and other overhead costs. In general, the dealer's
commission accounts for 30 to 35 percent, transportation cost 20 percent, handling cost 10
percent, storage cost 10 percent and miscellaneous items account for remaining 25 to 30 percent
of the gross marketing margin.
When the selling price is fixed by the government, as it has happening in India and when
the difference in the economic cost and sale price is borne by the government in the form of
what is called the fertilizer subsidy, the whole market structure becomes over-shadowed by the
public intervention. This is more so when even the prices of raw material used by the fertilizer
manufacturers and the wages are also administratively determined.

Seeds
The process of modernizing agriculture primarily involves intensive use of non-
conventional inputs such as quality seeds, chemical fertilizers, pesticides, weedicides, irrigation,
farm machinery and a network of research and extension infrastructure. The seed is a trigger
point which sets in motion the process of technological change. The returns to investment
depend significantly on the quality of seed that is used in the production of crops. The need of a
suitable seed having desired characteristics such as high yield, better grain quality and resistance
to pests and diseases, is well recognized for increasing the crop yields in any agro-climatic
region. Although seed accounts for only a small part of the total cultivation expenses, yet without
good seed, the investment on fertilizers, water, pesticides and other inputs does not pay the
dividend.

64
 Under the traditional system of farming, most of the farmers retained a part of their produce for
use as a seed during the next crop season. No distinction was made in the marketing channel
between the ordinary produce and the seed except that, at the end of the marketing channel, the
farmer selected a better quality lot if purchase was made for use as seed. Advances in farm-
technological research resulting in the evolution of high-yielding dwarf and disease-resistant
varieties have added a new dimension to the marketing aspect of seed input. Every year new
seeds of hybrid varieties have to be procured and used which necessitates a very close linkage
between the production and marketing of seeds of these varieties.
The seeds used by the farmers should be genetically true to type and should also possess
other desired qualities viz., vigour, stout germination potential, free from exogenous mixtures
and undesirable weeds. When the farner does not get seeds possessing genetic and physical
qualities upto the desired standards, the yield of the crops is adversely affected, which, in turn
entails multiple losses, both to the farmer and the society at large.

Recognising the importance of quality seeds in agriculture, the National Seeds Corporation
(NSC) was set up in 1963 for production and distribution of quality seeds. Later, State Farms
Corporation of India (SFCI) was set up in 1969 to develop modern farms, mainly for the production
of quality seeds. In addition, State Seeds Corporations (SSCs) have been set up in all the states of
the country.

Seed Production and Supply

Seed is available to the farmers in India through three major sources:
(i) Seed retained from the previous year's crop;
(ii) Seed obtained from fellow farmers or grain traders; and
(iii) Seed purchased from formal seed industry. •
For many crops, more than 80 percent of the seed used by the farmers in India is obtained
from the first two sources. The share of organised seed sector is meager on account of high
prices of certified seeds and their non- availability in terms of proper place and time. The
importance of use of self- retained seed for self pollinated crops like cereals can be hardly
emphasized.
Seed production and its marketing involve a high level of technology and a high standard of
proficiency. The seed business is a business of trust. It is one of the most difficult areas of

65
management in agricultural development. The non availability of improved seeds of high quality
deprives the farmers of the advantages of modern technology. With the introduction of the high-
yielding varieties and hybrids in mid-sixties, production and distribution of improved seeds gained
importance in the national programme of agriculture development. Following steps are involved
in the production and marketing of quality seeds:

Seed Marketing and Distribution

Seed marketing is more complicated and specialized process as compared to marketing of
other inputs and of agricultural products. Production of good quality seed is of no value if it does
not reach the farmer in time. Seed is a biological entity. In most cases, seeds are produced far
away from the consumption centres. Further, seed produced in one season is supplied to the
farmers in the following season. Hence, it requires proper storing. Moreover, it has to be taken
for sale to the farmers during the sowing period. Any delay in the supply by a few days may
mean accumulation of unsold seed stocks. There are chances of loss in the germination
percentage if it is to be stored for another year. As the marketing of seed involves procurement,
distribution, sales promotion and linking credit with sales, effective coordination of all the
related agencies is necessary to achieve the objective of making available quality seeds to the
farmers in time.
The seed marketing involves taking of bags of certified seeds to the farmers through the
network of sales outlets of government, cooperative societies and private agencies. The sale of
certified seeds of pulses and oilseeds is handled by the private sector as well as government and
co-operative organisations. The National Seeds Corporation also the State Seeds Corporations have
their own sale points for seed marketing. In some states, Department of Agriculture also sell
seeds through staff. The sales of seeds of vegetables, flowers and other crops are handled by private
traders. The Agro-Industries Corporations of the states encourage private entrepreneurs to establish
agro-service centres in rural areas by providing them with training and arranging supplies of farm
inputs for subsequent sales to the' farmers. Over the years, private trade has come up in the
seed marketing activity in a big way.
Seed companies market most of their seed through a network of private dealers. There are
hundreds of private seed companies operating in the country but they differ significantly in terms
of type and quantity of seed sold. A majority of them are small local companies who do not have
their own breeding programs and sell only seeds of popular varieties or hybrids. Larger seed

66
companies produce and sell seeds of proprietary hybrids. They also produce seeds of popular
varieties and hybrids. Transnational seed companies mainly' develop, produce and sell seeds of
proprietary hybrids.

There are basically two seed distribution channels in vogue in the country.
(i) The first is an organised formal seed industry comprising public seed agencies (NSC, SSCs),
private seed companies, and agricultural research organisations. Under this channel seed is
distributed through a network of distributors, dealers, and retail outlets. The public seed agencies
take the help of state departments of agriculture and cooperatives in the distribution of seeds.
(ii) The second channel of seed distribution is unorganised sector mainly comprising the
unauthorised seed dealers. There is reluctance on the part of these dealers to get their seeds certified.
They generally sell truthfully labelled seeds (TL) of different crops. Some seed companies also
sell TL seeds.
There are quite a few malpractices at various stages right from seed procurement to
distribution all over the country and the seed users (farmers) remain the exploited segment of the
chain.
Structure of Seed Industry
The seed industry consists of a large public sector and a growing private sector
institution.
Public Sector:
. The public sector consists of the -
a) National Seeds Co-operation (NSC);
b) State Farms Corporation of India (SFCI); and
c) State Seeds Corporations (SSCs).
These Corporations multiply and market the varieties bred by the public sector institutions, i.e.,
the research Institutions financed by ICAR and the State Agricultural Universities. The details of
these Corporations are given below:
(a) National Seeds Corporation (NSC)
The importance of improved seeds was realized in India long ago. The National Seeds Corporation,
a central organization was established in March, 1963. This is a Government of India
undertaking set up under the administrative control of the Ministry of Agriculture. The main
functions assigned to the Corporation are:

67
(i) To establish a strong seed production industry in the country;
(ii) To produce foundation seeds based on the breeder seeds evolved research stations;
(iii) To establish seed processing plants in the country;
(iv) To impart technical training in seed technology and to arrange extension education of the
farmers;
(v) To enter into contracts for the distribution and selling of seeds; and
( vi) To undertake, by inspection and other means quality control measures in all phases of the
seed business carried on by or in co-operation with the State Seeds Corporations.
The National Seeds Corporation produces and markets the certified seeds of wheat, rice, maize,
jowar, bajra, jute, fodder crops and vegetable crops. It has also created facilities for the
production, processing and storage of certified seeds and for the production of foundation seeds.
The Corporation selects seed certification agencies for the States in consultation with Central and
State Governments under the Indian Seeds Act, 1966. The National Seeds Corporation has
established quality control and seed testing laboratories at many places. It also exports seeds to
other countries e.g., hybrid maize seed to Sri Lanka and vegetable crop seeds to Ghana. The
National Seeds Corporation arranges for the sale of seeds through government agencies as well
as through private selected traders with a view to making improved seeds available to the
farmers in time. The desisting of State Departments of Agriculture from stocking and distribution
of seeds in 1966-67 made it necessary for the NSC to develop an organised seed marketing
system in the country.

STATE Farms Corporation of India (SFCI)

The SFCI was established in 1969 under the Companies Act, 1956 to set up agricultural farms,
primarily for the production of seeds of food grains, fibre crops, 'oilseeds, plantation crops, fruits
and vegetables in various parts of the country. The Corporation operates large-scale farms in all
the States where State Seeds Corporations have been set up (except Maharashtra). It participates
in each State Seeds Corporation as a share holder; prepares development plans for those of its farms
involved in National Seeds Project regarding production of foundation and certified seeds on behalf
of National Seeds Corporation and State Seeds Corporations and acts as a consultant for farm
development plan of the State Agricultural Universities and other institutions.
Seeds are produced on 12 central government farms under the control of SFCI. Some of
these are Suratgarh and Jetsar farms in Rajasthan, Jhasugarha farm in Orissa, Jalandhar tarm in

68
Punjab; Hisarfarm in Haryaria, Raichurfarmin Karnataka, Mizo Hills farm in Assam and
Cannanore farm in Kerala. The total area under the farms of State Farms Corporation of India is
36141 hectares

(c) State Seeds Corporations (SSCs)

State Seeds Corporations have been established in 15 States to widen the network of production
and distribution channels for certified seeds in the country on the lines of the Tarai Development
Corporation. In Rajasthan, the State Seeds Corporation was established on March 28, 1978.
The main functions of State Seeds Corporation are
(i) production,
(ii) processing,
(iii) storage, and
(iv) marketing of certified seeds
. They are not responsible for the production of breeder and foundation seeds.
Private Sector
There are many private seed firms existing in the country. Private seed firms are
heterogeneous with respect to size, research capacity and product segments. The striking difference
between private and public sector seed firms is
(i) In public sector, research is separate from seed production a marketing whereas these
functions are integrated in the private firms.
(ii) Product type-Private sector largely focuses on hybrid se especially of vegetables, oilseeds,
cereals and cotton whereas public s focuses mainly on major crops of the area.
(ill) Ownership-Private firms are closely held and not listed in the st exchanges although some of
the large firms have sold equity to foreign s companies.

69
 10. Role of Government in Promoting Agricultural Marketing Viz., Regulated Markets,
Cooperative Markets and Farmers Markets. Advantages of Modern Marketing System
over Traditional Agricultural Marketing System.

Agricultural Marketing is a process which starts with a decision to produce a saleable

farm product and involves all aspects of market structure or system, both functional and
institutional, based on technical and economic consideration. Forms of government intervention
in agricultural marketing system consists of framing rules and regulation, promote infrastructure
development, administration of prices and influence supply and demand. The remedial measures
for the problems of marketing are classified into the following types:
1. Reduction and regulation of market charges.
2. Organisation of cooperative marketing, and
3. Government legislations.
Though agricultural marketing is a State subject, the Government of India has an important
role to play in laying down general policy framework, framing of quality standards, conducting
survey and research studies and in providing guidance, technical and financial support to the
State Governments. The Central Government is aided and advised by two organisations under its
control, namely, the Directorate of Marketing and Inspection (DMI) and the National Institute of
Agricultural Marketing (NIAM), Jaipur.

Directorate of Marketing and Inspection:

It is an attached office of the Ministry and is headed by the Agricultural Marketing Adviser
to the Government of India. The organisation setup of the DMI is as under:- Head Office is at
Faridabad, Nagpur Regional Offices are at Chennai, Delhi, Guntur, and Mumbai. Central
Agmark Laboratory is located at Nagpur. Besides, there are 57 sub-offices and 22 Regional
Agmark Laboratories spread all over the country.
The main functions of the Directorate of Marketing and Inspection are :
 Rendering Advice on Statutory Regulation, Development and management of
agricultural produce markets to the States/Union Territories;
 Promotion of grading and standardization of agricultural and allied products under
the Agricultural Produce (Grading & Marketing) Act. 1937;

70
  Market Research, survey and Planning;
Training of personnel in agricultural marketing; and Administration of Cold Storage
Order, 1980 (except regulatory functions) and Meat Food Products Order, 1973.

National Institute of Agricultural Marketing has started functioning at Jaipur (Rajasthan) with
effect from 8th August, 1988. to augment the agricultural marketing infrastructure of the country
through programmes of teaching, research and consultancy services; to design and conduct training
courses appropriate to the specific identified needs of the personnel and enterprises and institutions
that they serve;
 to undertake research to demonstrate and replicate better management techniques in the
field of agricultural marketing;
 to provide consultancy services for formulating investment projects and for problem
solving advice; and
 To offer educational programmes in agricultural marketing for supplementing the
existing facilities.

Regulation and Management of Agricultural Produce Marketing

The DMI, as a central advisory organisation, has been providing technical assistance and
advice to the States in framing suitable market legislation. For this purpose, the DMI has framed
a “Model Act” which not only provides guidelines for framing of legislation but also intends to
bring about uniformity in State legislations. Due to constant endeavour of DMI, all States and
UTs except Manipur, Kerala, Andaman & Nicobar Island, Lakshadweep and Dadra & Nagar Haveli
have enacted legislation. The Jammu & Kashmir Assembly has passed the Bill on Market
Regulation in its State. The DMI is pursuing with remaining States/UTs for enactment of necessary
legislation. Out of 7245 wholesale assembling markets in the country, 7062 markets have been
brought under the ambit of regulation as on 31st March 1998.

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Marketing Institutions
Marketing institutions are business organizations which have come up to operate the
marketing machinery. In addition to individuals, corporate, co-operative and government institutions
are operating in the field of agricultural marketing. They perform one or more of the Marketing
functions. They assume the role of one or more marketing agencies, described earlier in this section.
Some important institutions in the field of agricultural marketing are:
(a) Public Sector Institutions
(i) Directorate of Marketing and Inspection (DMI)
(ii) Commission for Agricultural Costs and Prices (CACP)
(iii) Food Corporation of India (FCI)
(iv) Cotton Corporation of India (CCI)
(v) Jute Corporation of India (JCI)
(vi) Specialized Commodity Boards • Rubber Board
• Tea Board • Cardamom Board
• Coffee Board • Arecanut Board
• Spices Board • Coir Board
• Coconut Board • Silk Board
• Oilseeds and Vegetable Oils Board • National Horticulture Board (NHB)
• Tobacco Board
• National Dairy Development Board (NDDB)
(vii) Others
• Central Warehousing Corporation (CWC)'
• State Warehousing Corporations (SWCs)
• State Trading Corporation (STC)
• Agricultural and Processed Food Export Development Authority (APEDA)
• Export Inspection Council
• Marine Products Export Development Authority (MPEDA)
• Silk Export Promotion Council (SEPC)
• The Cashewnuts Export Promotion Council of India (CEPCI)
• Agricultural Produce Market Committees (APMC)
• State Agricultural Marketing Boards (SAMB)
• Council of State Agricultural Marketing Boards (COSAMB)
• State Directorates of Agricultural Marketing
• Research Institutions and Agricultural Universities
(b) Cooperative Sector Institutions
(i) National Cooperative Development Corporation (NCDC)
(ii) National Agricultural Cooperative Marketing Federation (NAFED)
(iii) National Cooperative Tobacco Growers Federation (NTGF)
(iv) National Consumers Cooperative Federation (NCCF)
(v) Tribal Cooperative Marketing Federation (TRIFED)
(vi) Special Commodity Cooperative Marketing Organizations (Sugarcane, Cotton, Milk)
(vii) State Cooperative Marketing Federations.
(viii)Primary Agricultural Cooperative Marketing Societies
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Regulated market

Markets in which business is done in accordance with the rules and regulations framed by
the statutory market organization and represent different sections involved in markets. The
marketing costs in such markets are standardized and practices are regulated.
It is not compulsory for the farmer to sell his produce in the regulated market yard. Instead
voluntary action on the part of the farmers to take advantage of such a market is assumed. It acts
as an alternative marketing system. The basic philosophy of the establishment of regulated
market is elimination of malpractices in the system and assignment of dominating power to farmers
or their representatives in the functioning of markets.
Under the traditional system of marketing of the agricultural products, producer-sellers
incurred a high marketing cost, and suffered from unauthorized deductions of marketing charges
and the prevalence of various malpractices. To improve marketing conditions and with a view to
creating fair competitive conditions, the increase in the bargaining power of producer-sellers was
considered to be the most important prerequisite of orderly marketing. Most of the defects and
malpractices under, the then existing marketing system of agricultural products have been more
or less removed by the exercise of public control over markets, i.e., by the establishment of
regulated markets in country.
A regulated market is one which aims at the elimination of the unhealthy and
unscrupulous practices, reducing marketing charges and providing facilities to producer-sellers
in the market. Any legislative measure designed to regulate the marketing of agricultural produce
in order to establish, improve and enforce standard marketing practices and charges may be termed
as one which aims at the establishment of regulated markets. Regulated markets have been
established by State Governments and rules and regulations have been framed for the conduct of
their business
The establishment of regulated market is not intended at creating an alternative marketing
system. The basic objective has been to create conditions for efficient performance of the private
trade, through facilitating free and informal competition. In regulated markets, the farmer is able
to sell his marketed surplus in the presence of several buyers through open and competitive bidding.
The legislation for the establishment of regulated markets does not make it compulsory for the
farmer to sell his produce in the regulated market make it compulsory for the farmer to

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sell his produce in the regulated market yard. Instead, voluntary action on the part of the farmers
to take advantage of such a market is assumed. The basic philosophy of the establishment regulated
markets is the elimination of malpractices in the system and assignment of dominating power to
the farmers or their representatives in the function of the markets.

Objectives
The specific objectives of regulated markets are:
1. to prevent the exploitation of farmers by overcoming the handicaps in the marketing of their
products ;
2. to make the marketing system most effective and efficient so that farmers may get better
prices for their produce, and the goods are made available to consumers at reasonable prices ;
3. to provide incentive prices to farmers for inducing them to increase the production both in
quantitative and qualitative terms ;and
4. to promote an orderly marketing of agricultural produce by improving the infrastructural
facilities .

Important features of regulated markets

Under the provisions of the agricultural produce market act, the state government gives
its intention to bring a particular area under regulation by notifying market areas, market yard,
main assembling market and sub market yard, if any, under the principle regulated market. the
meaning of these terms is explained in the following paragraph.
1. Market area: The area from which the produce naturally and abundantly flows to a commercial
centre, i.e., the market, and which assures adequate business and income to the market committee
2. Principle assembling market: It is the main market which is declared as a principal market
yard on the basis of transactions and income generated for the market committee
3. Sub market yard: It is sub yard of the principle assembling market. This is a small market
and does not generate sufficient income to declare as a principal assembling market
4. Market yard: This is a specified portion of the market area where the sale, purchase, storage
and processing of any of the specified agricultural commodities are carried out.

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Some of the important features of the regulated markets are:
1. Methods of Sale: Either open auction or by the closed tender method is followed.
2. Weighment of Produce: It is done by licensed weigh-man with standard weights and
platform scale.
3. Grading of Produce: The produce is sold only after grading.
4. Market News Service: Arrangements are made for proper and correct dissemination of
market prices through various media such as loud speakers and notice boards.
5. Market Charges :the buyers of agricultural produce pay the market charges
6. Payment of the Value without deduction.
7. The buyers should make prompt payments for the produce
8. Licensing of Market Functionaries
9. Supervision: the officials of the market committee supervise the day-to-day functioning
of regulated markets i.e. the Secretary, auction clerks and other staff. The administrative
decisions are taken by the nominated/ elected market committee.

Co-operative Markets
The efforts of the government to improve the marketing system of agricultural commodities
have been only partially successful. The progress of regulated markets is not uniform in all areas.
So the establishment of co-operative marketing societies is another step taken to overcome the
problems arising out of the present system of marketing agricultural produce.
Co operative marketing organizations are association of producers for the collective
marketing of their produce and for securing for the members the advantages that result from
large-scale business which an individual cultivator cannot secure because if his small marketable
surplus. In a co operative marketing society, the control of the organization is in the hands of the
farmers, and each member has one vote irrespective of the number of shares purchased by him.
The profit earned by the society is distributed among the members on the basis of the quantity of
the produce marketed by him. In other words, co operative marketing societies are established
for the purpose collectively marketing the products of the member farmers. It emphasizes the
concept of commercialization. Its economic motives and character distinguish it from other

75
associations. These societies resemble private business organization in the method of their
operations: but they differ from the capitalistic system chiefly in their motives and organizations
Meaning
A cooperative sales association is a voluntary business organization established by its
member patrons to market farm products collectively for their direct benefit. It is governed by
democratic principles, and savings are apportioned among members on the basis of their patronage.
Functions
The main functions of co-operative marketing societies are :
1) To market the produce of the members of the society at fair prices;
2) T o safeguard the members from excessive marketing costs and malpractices.
3) To make credit facilities available to the members against the security of the produce brought
for sale.
4) To make arrangements for the scientific storage of the member's produce. T o provide the
facilities of grading and market information which may help them to get a good price for
their produce;
5) To introduce the system of pooling so as to acquire a better bargaining power than the
individual members having a small quantity of produce for marketing purposes.
6) To arrange for the export of the produce of the members so that they may get better returns
7) To act as an agent of the government for the procurement of food grains and for the
implementation of the price support policies.
8) To make arrangement for the transport of the produce of the members from the villages to
the market on collective basis and bring out a reduction in the cost of transportation. .
9) To arrange for the supply of inputs required by the farmers such as improved seeds,
fertilizers, insecticides and pesticides.

Types of Cooperative Marketing Societies

On the basis of the commodities dealt in by them, the cooperative marketing societies may be
grouped as
i) Single commodity marketing societies e.g. Sugar cane Cooperative Marketing Society,
Cotton Cooperative Marketing Society, Milk Cooperative Marketing Society

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 ii) Multi -commodity cooperative marketing societies.
iii) Multi-purpose, Multi- commodity cooperative marketing societies.
Structure
The cooperative marketing societies have both two tier and three tier structures.

Three-tier structure is found in Assam Bihar, Kerala, Madhya Pradesh, Karnataka,

Orissa, Rajasthan and West Bengal . In all other states two-tier structure is functioning.
The advantages that co-operative marketing

1. Increases bargaining strength of the farmers

Many of the defects of the present agricultural marketing system arise because often one
ignorant and illiterate farmer (as an individual) has to face well-organised mass of clever
intermediaries. If the farmers join hands and for a co-operative, naturally they will be less prone
to exploitation and malpractices. Instead of marketing their produce separately, they will market
it together through one agency.
2. Direct dealing with final buyers
The co-operatives can altogether skip the intermediaries and enter into direct relations
with the final buyers. This practice will eliminate exploiters and ensure fair prices to both the
producers and the consumers.
3. Provision of credit
The marketing co-operative societies provide credit to the farmers to save them from the
necessity of selling their produce immediately after harvesting. This ensures better returns to the
farmers.
4. Easier and cheaper transport
Bulk transport of agricultural produce by the societies is often easier and cheaper.
Sometimes the societies have their own means of transport.

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5. Storage facilities
The co-operative marketing societies generally have storage facilities. Thus the farmers
can wait for better prices.
6. Grading and standardization
This task can be done more easily for a co-operative agency than for an individual
farmer. For this purpose, they can seek assistance from the government or can even evolve their
own grading arrangements.
7. Market intelligence
The co-operatives can arrange to obtain data on market prices, demand and supply and
other related information from the markets on a regular basis and can plan their activities
accordingly.
8. Influencing marketing prices
Wherever strong marketing co-operative are operative, they have bargained for and have
achieved, better prices for their agricultural produce.
9. Provision of inputs and consumer goods
The co-operative marketing societies can easily arrange for bulk purchase of agricultural
inputs, like seeds, manures fertilizers etc. and consumer goods at relatively lower price and can
then distribute them to the members.
10. Processing of agricultural produce
The co-operative societies can undertake processing activities like crushing seeds,
ginning 'and pressing of cotton, etc. In addition to all these advantages, the co-operative marketing
system can arouse the spirit of self-confidence and collective action in the farmers without which
the programme of agricultural development, howsoever well conceived and implemented, holds no
promise to success.

Farmers Markets (Uzhavar Santhai)

Most of the farmers sell their produce through village level markets, fairs, Mandies, Co-
operative Societies etc. In the above process of agricultural marketing, the middlemen exploit
farmers as well as consumers. In order to eliminate the middlemen between farmers and consumers,
the Government of Tamilnadu introduced the new concept, namely “UZHAVAR SANTHAI” in
1999.

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 Generally, the middlemen and wholesale businessmen purchase the Agricultural products
from the farmers at a lower price. They also get the commission from the farmers for the
transactions made. In turn, fresh vegetables and fruits purchased at the lower price from the farmers
are sold out to retail businessmen at higher price and the retail businessmen sell those Agricultural
Products further at higher price to the consumers. As a result, the farmers get only the lower
price for their produce whereas the consumers have to pay higher price for the same produce.
Hence, the Government of Tamilnadu has introduced an alternate scheme of marketing, which is
known as “UZHAVAR SANTHAI” in order to derive more benefits to the farmers as well as
consumers.
Aim:
 To facilitate direct contact between the farmers and public.
 To provide fresh vegetables and fruits at reasonable price daily without any interference
of middlemen.
 To provide correct measurement to the consumers.
 To give full satisfaction to the farmers and public.
 To aim for providing higher price than that of wholesale price to the farmers for their
vegetables and fruits.
 To provide the fresh fruits and vegetables at the lesser price than that of retail price to
consumers.
 The Uzhavar Santhai also functions as a Technical Information Centre to the farmers
 It also acts as a Technical Training Centre to the farmers.
 Seeds and Other Inputs are also provided in some Uzhavar Sandhais
Salient features
The prices of the vegetables and fruits are daily fixed at the average of 20 % higher than the
wholesale prices and 15% less than retail prices by the Committee consisting of the representatives
of farmers and officials.
1. The prices of vegetables and fruits are daily displayed in front of each shop as
well as exhibited in big signboards of the market and it is ensured by the
Department staff that the fruits and vegetables are sold at the fixed rates.
2. Horticultural Department officials identify vegetable growing farmers in the
villages and photo identification cards are issued to those farmers.

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3. Shops are allotted at free of cost to the farmers who bring their produce on first
come first served basis and shops are not permanently allotted to farmers.
4. Aavin, Tan tea stalls are also set up in some places.
5. The farmers are permitted to bring their produce without any fair for their luggage
in special trips from the villages to Uzhavar Santhais
6. Hill vegetables are sold in Uzhavar Santhais through women self help groups,
Cooperative Societies.
7. Weighing scales are provided at free of cost for the use of farmers and they are
retrieved after the sale proceedings are over.
8. Sanitation is being maintained. In some places vermicomposting of vegetable
wastes is also done.
9. Ex-Servicemen /Private security agencies have also been used for the security of
the market.
10. Telephone facilities, Vehicle stand, Canteen, Toilet facilities have also been
provided.
11. The Uzhavar Santhais are functioning on all the days of the week.
12. Water supply is available in the Uzhavar Santhai.
13. To sell unsold items on the next day, storage facilities are available.

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 11. Directorate of Marketing and Inspection – AGMARK - Grading and Quality Control.
NAFED and TANFED, State Agricultural Marketing Boards, and FCI. Activities of
National Horticultural Board, NDDB and Commodity Boards.

I. Directorate of Marketing and Inspection

II. AGMARK Grading
III. National Agricultural Cooperative Marketing Federation (NAFED)
IV. Tamil Nadu Cooperative Marketing Federation (TANFED)
V. Tamil Nadu State Agricultural Marketing Board (TNSAMB)
VI. Food Corporation of India (FCI)
VII. National Horticulture Board (NHB)
VIII. The National Dairy Development Board (NDDB)
IX. Commodity Boards

I. Directorate of Marketing & Inspection

The Directorate of Marketing and Inspection (DMI), an attached Office of the
Department of Agriculture and Cooperation under Ministry of Agriculture, was set up in the year
1935 to implement the agricultural marketing policies and programmes for the integrated
development of marketing of agricultural and other allied produce in the country with a view to
safeguard the interests of farmers as well as the consumers. It maintains a close liaison between
the Central and the State Governments
Rendering Advice on Statutory Regulation, Development and management of agricultural
produce markets to the States/Union Territories; Promotion of grading and standardization of
agricultural and allied products under the Agricultural Produce (Grading & Marketing) Act.
1937; Market Research, survey and Planning; Training of personnel in agricultural marketing;
and Administration of Cold Storage Order, 1980 (except regulatory functions) and Meat Food
Products Order, 1973.
The Directorate is headed by Agriculture Marketing Adviser to Government of India and
has its Head Office at Faridabad (Haryana), Branch Head Office at Nagpur (Maharashtra) and 11
Regional Offices/ Sub-Offices headed by Dy. Agricultural Marketing Advisers at Delhi,
Mumbai, Chennai, Kolkata, Hyderabad, Chandigarh, Jaipur, Lucknow, Bhopal, Kochi and
Guwahati and the Central Agmark Laboratory at Nagpur. Besides, there are 26 Sub-Offices and
11 Regional Agmark Laboratories (RALs) spread all over the country.
The main functions of the DMI are the following:-

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 1. Rendering advice on Statutory regulation, development and management of agricultural
produce markets of the States/Union Territories;
2. Promotion of Standardization and Grading of agricultural and allied produce under the
Agricultural Produce (Grading & Marking) Act, 1937;
3. Marketing Research, Surveys and Planning;
4. Training of personnel in agricultural marketing;
5. Marketing Extension;
6. Administration of Meat Food Products Order, 1973;
7. Promotion of Cold Storage;
8. Agricultural Marketing Information Network; and
9. Construction of Rural Godowns.

II. AGMARK Grading

AGMARK is the abbreviation of Agricultural Marketing. Inspection involves the testing of the
graded goods with a view to determining whether they conform to the prescribed standards. It
ensures quality control. For purposes of inspection, samples of the product are drawn at various
stages-from the manufacturers, the market middleman or the consumer at his doorstep-and are
tested in the laboratory. These inspections are carried out by inspectors appointed by the
government, and not by a producer or a buyer.
The network of Agmark laboratories in the country for testing the quality includes a central
Agmark laboratory at Nagpur and regional Agmark laboratories (RALs). The RALs are located
at Amritsar, Bhopal, Chennai, Guntur, Jaipur, Kanpur, Kochi, Kolkata, Mumbai, and New Delhi.
Besides these, there are many other laboratories.
The Agricultural Produce (Grading and Marking) Act, 1937 empowers the Government to
fix quality standards, known as “AGMARK” standards and to prescribe terms and conditions for
using the seal of „AGMARK‟. So far, grade standards have been notified for 163 agricultural
and allied commodities. The purity standards under the provisions of the Prevention of Food
Adulteration (PFA) Act, 1954 and Bureau of Indian Standards (BIS) Act, 1986 are invariably
taken into consideration while framing the grade standards. International standards framed by
Codex/ International Standards Organisation (ISO) are also considered so that Indian product
can compete in International market.

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 Regular inspection creates confidence among the buyers. Producers, too, know that there is
someone who checks the standards of the produce graded by them. This avoids the temptation of
adopting such malpractices in the grading as mixing of inferior grade produce, etc. After laboratory
tests, if the produce is found to be below standards, the licence of the grader is cancelled and legal
action is initiated against him.
The number of approved grading laboratories functioning in the country increased from 566
by the end March 1984 to 1133 now. These 1133 approved grading and/or testing laboratories
are engaged in the analysis and determination of AGMARK grades.

Labelling
The graded products, according to the standard fixed by the Agricultural Marketing Advisor,
Government of India, bear the label 'AGMARK'. AGMARK is the abbreviation of Agricultural
Marketing. It is a quality certification mark under the Central Agricultural Produce (Grading and
Marking) Act, 1937. This label indicates the purity and quality of the product on the basis of the
standards that have been laid down. The labels of different colours are used to indicate the grade
of the product. The AGMARK labels are printed on special quality paper and issued by the
Agricultural Marketing Advisor. They are serially numbered, and the firm is required to
maintain the account of the labels, which are issued to the grader, in a register. It is a voluntary
scheme. Interested traders and manufacturers are given licence to grade their products under
AGMARK quality certification mark.

AGMARK label is attached to the container of the product in such a way that it will not be
possible to remove the contents of the package without tampering the AGMARK labels. Each
AGMARK package bears the date of packing and date of expiry of the product. AGMARK
products are pretested and certified for their quality. AGMARK products are of assured quality
and different from adulterated and spurious goods. If any AGMARK product purchased by the
consumer is found defective, the consumer gets the product replaced or gets the money back as
per the procedure laid out. There are about 6187 licencees manufacturing and marketing their
products under AGMARK quality certification marks, of which 5742 certificate holders are for
domestic trade and 445 for exports.

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Advantages of Grading
Grading offers the following advantages to different groups of persons:
(i) Grading before sale enables farmers to get a higher price for their produce.
(ii) Grading facilitates marketing, for the size, colour, qualities and other grade designations
of the product are well known to both the parties, and there is no need on the part of the
seller to give any assurance about the quality of the product.
(iii) Grading widens the market for the product, for buying can take place between the
parties located at distant places on the telephone without any inspection of the quality of
the product.
(iv) Grading reduces the cost of marketing by minimizing the expenses on the physical
inspection of the produce, minimizing storage losses, reducing its bulk, minimizing
advertisement expenses and eliminating the cost of handling and weighing at every
stage.
(v) Grading makes it possible for the farmer-
(a) To get easy finance when commodities are stored;
(b) To get the claims easily settled by the railways and insurance companies;
(c) To get storage place for the produce;
(d) To get market information;
(e) To pool the produce of different farmers;
(f) To improve the "keeping" quality ofthe stored products by removing the
inferior goods from the good lot; and
(g) To facilitate futures trading in a commodity.
(vi) Grading helps consumers to get standard quality products at fair prices. It is easier for
them to compare the prices of different qualities. of a product in the market. It minimizes
their purchasing risk, for they will not get a lower quality product at the given price.
(vii) Grading contributes to market competition and pricing efficiency. The product
homogeneity resulting from grading can bring the market closer to perfect competition,
encourages price competition among sellers, and reduces extraordinary profits.
Thus, the grading of product is beneficial to all the sections of society; i.e., the producers,
traders and consumers of the product. The Directorate of Marketing and Inspection, Government
of India, has fixed grade standards for a number of agricultural commodities for domestic

84
consumption as well as for export. These are regularly reviewed and revised from time to time
by DMI.

III. National Agricultural Cooperative Marketing Federation (NAFED)

At the national level, The National Agricultural Co-operative Marketing Federation

(NAFED) was established in October 1958. The State Level Marketing Federation and National
Co-operative Development Corporation are its members. NAFED is registered under the Multi
State Co-operative Societies Act. NAFED was setup with the object to promote Co-operative
marketing of Agricultural Produce to benefit the farmers. Agricultural farmers are the main
members of NAFED, who have the authority to say in the form of members of the General Body
in the working of NAFED. The head office of NAFED is at Delhi and its branch offices are
located at Mumbai, Calcutta and Madras. NAFED's area of operation extends to the whole
country. It has established branches in all the major port towns and capital cities in the country.
Objectives
The main objectives of NAFED are
a) To co-ordinate and promote the marketing and trading activities of its affiliated co-operative
institutions.
b) To make arrangements for the supply of agricultural inputs required by member institutions.
c) To promote interstate and international trade in agricultural and other commodities; and
d) To act as an agent of the government for the purchase, sale, storage and distribution of
agricultural products and inputs.

Functions
To facilitate, coordinate and promote the marketing and trading activities of the cooperative
institutions in agricultural and other commodities, articles and goods;

1. to undertake or promote on its own or on behalf of its member Institutions or the Government
or Government Organisations, Inter-State and international trade and commerce and
undertake, wherever necessary, sale, purchase, import, export and distribution of
agricultural commodities, horticultural and forest produce, other articles and goods from
various sources for pursuing its business activities and to act as the

85
 agency for canalisation of export and import and interstate trade of agricultural and other
commodities or articles under any scheme formulated by the Government of India or
other Government agencies and to facilitate these activities, wherever necessary, to open
branches/sub-offices and appoint agents at any place within the country or abroad;
2. to undertake purchase, sale and supply of agricultural products, marketing and processing
requisites, such as manure, seeds, fertiliser, agricultural implements and machinery,
packing machinery, construction requisites, processing machinery for agricultural
commodities, forest produce, dairy, wool and other animal products;
3. to act as warehouseman under the Warehousing Act and own and construct its own godowns
and cold storages;
4. to act as agent of any Government agency or cooperative institution, for the purchase,
sale, storage and distribution of agricultural, horticultural, forest and animal husbandry
produce, wool, agricultural requisites and other consumer goods;
5. to act as insurance agent and to undertake all such work which is incidental to the same;
6. to organise consultancy work in various fields for the benefit of the cooperative
institutions in general and for its members in particular;
7. to undertake manufacture of agricultural machinery and implements, processing, packing,
etc. and other production requisites and consumer articles by setting up manufacturing
units either directly or in collaboration or as a joint venture with any other agency, including
import and distribution of spare-parts and components to up-keep of the
machinery/implements;
8. to set up storage units for storing various commodities and goods, by itself or in
collaboration with any other agency in India or abroad;
9. to maintain transport units of its own or in collaboration with any other organisation in
India or abroad for movement of goods on land, sea, air etc.;
10. to collaborate with any international agency or a foreign body for development of
cooperative marketing, processing and other activities for mutual advantage in India or
abroad;
11. to undertake marketing research and dissemination of market intelligence;

86
 12. to subscribe to the share capital of other cooperative institutions as well as other public,
joint and private sector enterprises if and when considered necessary for fulfilling the
objectives of NAFED.
13. to arrange for the training of employees of marketing/processing/supply cooperative
societies;
14. to maintain common cadres/pools of managerial/technical personnel required by the
marketing/processing/supply cooperative societies;
15. to establish processing units for processing of agricultural, horticultural and forest
produce and wool;
16. to undertake grading, packing and standardisation of agricultural produce and other
articles;
17. to acquire, take on lease or hire, lands, buildings, fixtures and vehicles and to sell, give on
lease or hire them for the business of NAFED.
18. to advance loans to its members and other cooperative institutions on the security of
goods or otherwise;
19. to guarantee loans or advances or give undertakings to any Society or Company in which
the Federation has a shareholding or financial involvement as a promoter to be able to assist
its development or expansion or for starting any industrial undertaking by such
societies/companies;
20. to guarantee loans or advances or give undertakings on behalf of any such society or
company as mentioned above to any financing institutions:
21. to do all such things or undertake such other business or activities as may be incidental or
conducive to the attainment of any or all of the above objects.

IV. Tamil Nadu Cooperative Marketing Federation (TANFED)

The Tamil Nadu Cooperative Marketing Federation Ltd., popularly known as "TANFED"
commenced its business on 20.2.1959. The area of operation is whole of Tamil Nadu except
composite Thanjavur and Nilgiris Districts.

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A. Functions and Objectives
1. To identify the agricultural input requirements of the farmers and arrange for storage and
distribution of Fertilisers, Seeds, Pesticides and Agricultural Implements through Co- operative
outlets.
2. To provide market support to the affiliated member Co-operative Marketing Societies in
procuring, storing and marketing of agricultural commodities.
3. To provide storage facilities for perishable agricultural commodities and agro-based products
by maintaining cold storage plants.
4. To undertake manufacture of agricultural inputs such as granulated fertilisers, manure mixture
and quality seeds.
5. To undertake the distribution of kerosene.
6. To provide mobile telephone services to farmers through Cooperatives.

B. Activities
A) Distribution of Fertilisers
B) Manufacture of Fertilizers
C) TANFED Fertilizer Mixtures
D) Distribution of Pesticides, Seeds & Agricultural Implements
E) Storage Godowns
F) Agricultural Marketing
G) Cold Storages

i) Distribution of Fertilisers

Nearly 40% of the requirement of Fertilizer in Tamil Nadu is met out by TANFED
through Cooperative Societies. TANFED is undertaking manufacture of its own granulated
mixtures of Pamani 17:17:17 fertilisers with right mix up of NPK with special ingredient,
ie., neem cake. At present Fertiliser mixtures are produced in Trichy, Madurai and Vellore.

ii) Distribution of pesticides, seeds & agricultural implements

TANFED purchases pesticides, Seeds and Agricultural Implements from leading
manufacturers and distribute through the Primary Cooperatives in the districts.

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iii) Storage Godowns

For the purpose of storing agricultural inputs as well as agricultural commodities,

TANFED constructed 39 godowns with the financial assistance from NCDC at various places.
Now, TANFED owns a combined storage capacity of 28,140 MTs.

iv) Agricultural Marketing

 Being a marketing Federation, TANFED does the work of procurement of Agricultural

commodities such as cotton, chillies, maize, coriander, pulses, oil seeds, pepper,
turmeric, etc.
 Procurement operation is undertaken from the farmers through the Cooperative
Marketing Societies and the Regulated Markets to fetch remunerative price for the
farmers. This activity is being done under joint venture basis with Cooperative
Marketing Societies.
 Under the PSS 2010 TANFED is acting as agent to NAFED and copra is procured from
the coconut farmers in 22 procurement centres in Tamil Nadu. Procured copra supplied to
NAFED.

v) Cold Storages
TANFED has established two Cold Storage units for the purpose of storing vegetables,
fruits and perishables of the farmers, traders and General Public. The storage space are allotted
on monthly rental basis.

V. Tamil Nadu State Agricultural Marketing Board (TNSAMB)

The Tamil Nadu State Agricultural Marketing Board (TNSAMB) was constituted by an executive
order of the State Government in Agriculture Department and came into existence from
December 1970.

The TNSAMB was functioning as a Non Statutory Board, has been reconstituted as Statutory
Board in accordance with the new Act "The Tamil Nadu Agricultural Produce Marketing

89
(Regulation) Act 1987" which was brought into force from 1-2-1991, The 1959 Act has been
modified as the Tamil Nadu Agricultural Produce Marketing (Regulation) Act 1987 and Rules
1991 and was brought into force from 1-2-1991

Function:

The Tamil Nadu Agricultural Marketing Board is an apex body of the market committees and
serves as an effective and crucial link among The Government, The Directorate of Agricultural
Marketing and The Market Committees for ensuring uniformity in practice and procedure in the
day to day administration of market committees.

Functions and Powers of the Board

 The co-ordination of the working of the market committees and other affairs thereof
including programmes undertaken by the market committees for the development of
markets and market areas.
 To undertake State level planning of the development of the agriculture produce markets.
 To administer the Market Board Fund and the Market Development Fund.
 To the giving of direction of market committees in general of any market committee in
particular with a view to ensure improvement thereof.
 To supervise and guide the Market Committees in the preparation of plans and estimates
of construction programme undertaken by the market committees.
 To execute all works chargeable to the Market Board Fund.
 To maintain accounts in such forms as may be prescribed.
 To publish annually at the close of the year, its progress report, balance sheet and
statement of assets and liabilities and send copies thereof to each member of the Board and
the Government.
 To make necessary arrangements for propaganda and publicity on matters relating to
marketing of agricultural produces.
 To provide facilities for the training of officers and staff of the Market Committees,
Board, Department of Agricultural Marketing, Producers and Traders in the State.
 To prepare and adopt budget for the ensuing year.

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  To grant subventions or loans to Market Committees for the purposes of this Act on such
terms and conditions as the Board may determine.
 To arrange or organise seminars, workshops, exhibitions etc., on subjects relating to
agricultural marketing.
 To impart education in regulated marketing of agricultural produce.
 To promote schemes for processing, grading and standardization of agricultural produce.
 The collection and dissemination of market information.
 For the publication of market statistics and studies.
 The levy of subscription for collection and dissemination of information relating to
agricultural marketing.
 To conduct market research and market surveys.
 To do such other things as may be of general interest to market committee or considered
necessary for the efficient functioning of the Board.
 Any other function specifically entrusted to it by this Act; and
 Such other functions of like nature as may be entrusted to the Board by the Government.

VI. Food Corporation of India (FCI)

An efficient management of the food economy with a view to ensuring an equitable
distribution of grains of food grains at reasonable prices to the vulnerable sections of society is
essential in the present socio-economic environment of the country. The government felt the
necessity of an organization which can act as its main agency for handling food grains, acquire a
commanding position in the food grain trade as a countervailing force to the speculative
activities of private trades and, at the same time, work on commercial lines. Towards the end of
1964, Parliament decided to transfer the government‟s function of trading in food grains to the
public sector. Legislation was enacted; and the food corporation India (FCI) was born on January
1, 1965. Food Corporation of India was setup on 14th January 1965 under Food Corporations
Act 1964 to implement the following objectives of the National Food Policy :
Objectives
i. Effective price support operations for safeguarding the interests of the farmers
ii. Distribution of foodgrains throughout the country for Public Distribution System

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 iii. Maintaining satisfactory level of operational and buffer stocks of foodgrains to ensure
National Food Security
It is the largest Corporation in India and probably the largest supply chain management in
Asia. It operates through 5 zonal offices and 24 regional offices. Each year, the Food
Corporation of India purchases roughly 15-20 per cent of India's wheat output and 12-15 per cent
of its rice output. The purchases are made from the farmers at the rates declared by the Govt. of
India.
The Food Corporation of India initially operated in the southern part of the country.
Later, it extended its services throughout the country. Today, the FCI is unrivalled food
marketing agency, serving the interest of both the farmers and consumers. Its market operations
prevent the speculative trader from acting against the interests of the farmers by assuring him a
remunerative price for his produce, it ensures a prompt and uninterrupted supply of food grains
to the vulnerable sections of the society all over the country. Operationally the FCI reaches the
remotest corners of the country through its vast network of offices and storage centers. Financially,
it is one of the largest public sector undertakings, with an annual turnover of over Rs.25400 crores.

The main functions of the Food Corporation of India are:

a) To produce a sizable portion of the marketable surplus of foodgrains and other agricultural
commodities at incentive prices from the farmers on behalf the central and state governments
b) To make timely releases of the stocks to public distribution system(Fair price shops and
controlled item shops)so that consumer prices may not raise unduly and unnecessarily
c) To minimise seasonal price fluctuations and inter regional price variation in agricultural
commodities by establishing a purchasing and distribution network and
d) To build up a sizable buffer stock of food grains to meet the situation that may arise as result
of short falls in internal procurement and imports

VII. National Horticulture Board (NHB)

National Horticulture Board (NHB) was set up by the Government of India in 1984 as an
autonomous society under the Societies Registration Act 1860. Board has its head quarter in
Institutional Area, Sector 18, Gurgaon (Haryana). The Managing Director is the Principal

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Executive of NHB who implements various schemes under overall supervision and guidance of
the Board of Directors of NHB as well as the Department of Agriculture & Co-operation, Ministry
of Agriculture, Govt. of India..

Aims & Objectives of NHB Schemes

1. Development of hi-tech commercial horticulture in identified belts

2. Development of modern post-harvest management infrastructure as integral part
of area expansion projects or as common facility for cluster of projects
3. Development of integrated, energy efficient cold chain infrastructure for fresh
horticulture produce,
4. Popularization of identified new technologies / tools / techniques for
commercialization / adoption, after carrying out technology need assessment,
5. Assistance in securing availability of quality planting material by promoting
setting up of scion and root stock banks / mother plant nurseries, carrying out
accreditation/ rating of horticulture nurseries and need based imports of planting
material,
6. Promotion and market development of fresh horticulture produce,
7. Promotion of field trials of newly developed/ imported planting materials and
other farm inputs, production technology, PHM protocols, INM and IPM
protocols, and applied R&D programmes for commercialization of proven
technology.
8. Promotion of applied R & D for standardizing PHM protocols, prescribing
critical storage conditions for fresh horticulture produce, bench marking of technical
standards for cold chain infrastructure etc.,
9. Transfer of technology to producers/farmers and service providers such as gardeners,
farm level skilled workers, operators in cold storages, work force carrying out post
harvest management including processing of fresh horticulture produce, and to the
master trainers,
10. Promotion of consumption of horticulture produce and products.
11. Setting up Common Facility Centers in Horticulture Parks and Agri-Export

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 Zones.
12. Strengthen market intelligence system by developing, collecting and
disseminating horticulture database,
13. Carrying out studies and surveys to identify constraints and develop short and
long term strategies for systematic development of horticulture and providing
technical services including advisory and consultancy services.

VIII. The National Dairy Development Board (NDDB)

The National Dairy Development Board (NDDB) was founded in 1965 for transforming
dairying as an instrument for the development of India's rural people. NDDB began its
operations with the mission of making dairying a vehicle to a better future for millions of grassroots
milk producers.

As on March 2009, India's 1,33,349 village dairy cooperatives federated into 177 milk
unions and 15 federations procured on an average 25.1 million litres of milk every day. 13.9
million farmers are presently members of village dairy cooperatives. Since its inception, the
Dairy Board has planned and spearheaded India's dairy programmes by placing dairy development
in the hands of milk producers and the professionals they employ to manage their cooperatives. In
addition, NDDB also promotes other commodity-based cooperatives, allied industries and
veterinary biologicals on an intensive and nation-wide basis.

Operation Flood: one of the world's largest rural development programmes Launched in
1970, Operation Flood has helped dairy farmers direct their own development, placing control of
the resources they create in their own hands. A National Milk Grid links milk producers throughout
India with consumers in over 700 towns and cities, reducing seasonal and regional price variations
while ensuring that the producer gets fair market prices in a transparent manner on a regular basis.

The bedrock of Operation Flood has been village milk producers‟ cooperatives, which
procure milk and provide inputs and services, making modern management and technology
available to members. Operation Flood's objectives included:

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  Increase milk production ("a flood of milk")
 Augment rural incomes
 Reasonable prices for consumers

IX. Commodity Boards

There are five statutory Commodity Boards that functions under the Department of
Commerce. These Boards are responsible for production, development and export of tea, coffee,
rubber, spices and tobacco.
Commodity boards
1. Tea board
2. Coffee board
3. Rubber board
4. Spices board
5. Tobacco board.

(i) Coffee Board

The Coffee Board is a statutory organisation constituted under Section (4) of the Coffee Act,
1942. The Board is mainly focusing its activities in the areas of research, extension,
development, quality upgradation, economic & market intelligence, external & internal
promotion and labour welfare. The Board has a Central Coffee Research Institute at Balehonnur
(Karnataka) and Regional Coffee Research Stations at Chettalli (Karnataka), Chundale (Kerala),
Thandigudi (Tamil Nadu), R.V.Nagar (Andhra Pradesh) and Diphu (Assam), and a bio- technology
centre at Mysore, apart from the extension offices located in coffee growing regions of Karnataka,
Kerala, Tamil Nadu, Andhra Pradesh, Orissa and North Eastern Region.

(ii) Rubber Board

The Rubber Board is a statutory organisation constituted under Section (4) of the Rubber Act,
The Board‟s headquarters is located at Kottayam in Kerala. The Board is responsible for the
development of the rubber industry in the country by way of assisting and encouraging research,
development, extension and training activities related to rubber. It also maintains statistical data

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of rubber, takes steps to promote marketing of rubber and undertake labour welfare activities.
The activities of the Board are exercised through nine departments viz. Rubber Production,
Research, Processing & Product Development, Training, License & Excise Duty, Statistics and
Planning, Market Promotion, Finance & Accounts and Administration. The Board has five Zonal
Offices and 43 Regional Offices. It has a Central Rubber Research Institute in Kottayam and 10
regional research stations located in various rubber growing states of the country. It also has a
Rubber Training Institute located at Kottayam.

(iii) Tea Board

Tea Board was set up as a statutory body on 1st April, 1954 as per Section (4) of the Tea Act,
1953. As an apex body, it looks after the overall development of the tea industry. The Board‟s
Head Office is situated in Kolkata and there are two Zonal offices-one each in North Eastern
Region at Jorhat in Assam and in Southern Region at Coonoor in Tamil Nadu. Besides, there are
fifteen regional offices spread over in all the major tea growing states and four metros. For the
purpose of tea promotion, three overseas offices are located at London, Moscow and Dubai. Several
Sub regional offices have been opened in all the important areas of small growers concentration to
maintain a closer interface with the growers. The functions and responsibilities of Tea Board
include increasing production and productivity, improving the quality of tea, market promotion,
welfare measures for plantation workers and supporting Research and Development. Collection,
collation and dissemination of statistical information to all stake holders is yet another
important function of the Board. Being the regulatory body, the Board exerts control over the
producers, manufacturers, exporters, tea brokers, auction organisers and warehouse keepers
through various control orders notified under Tea Act.

(iv) Tobacco Board

The Tobacco Board was constituted as a statutory body on 1st January, 1976 under Section (4) of
the Tobacco Board Act, 1975. The Board is headed by a Chairman with its headquarters at Guntur,
Andhra Pradesh and is responsible for the development of the tobacco industry. While the
primary function of the Board is export promotion of all varieties of tobacco and its allied

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products, its functions extend to production, distribution (for domestic consumption and exports)
and export promotion of Flue Cured Virginia (FCV) tobacco.
(v) Spices Board

The Spices Board was constituted as a statutory body on Spices Board Act, 1986. The Board‟s
Head Office is at Kochi with Regional/ Zonal/ Field offices throughout India. It is responsible for
the development of and export promotion of the 52 spices. The primary functions of the Board
include production development of small and large cardamom, development and promotion of
export of spices. The Board is also implementing programmes for development of spices in
North Eastern region, post-harvest improvement of spices and organic spices in the country. The
activities of the Board include issue of certificate of registration as exporter of spices;
undertaking programmes and projects for promotion of export of spices like setting up of spices
parks, support of infrastructure improvement in spices processing, assisting and encouraging
studies and research on medicinal properties of spices, development of new products, improvement
of processing, grading and packaging of spices; and controlling & upgrading quality for
export (including setting up of regional quality evaluation labs and training centres). The research
activities on cardamom are also done by the Board through its Indian Cardamom Research
Institute.

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Other Commodity Boards
Other than the five boards there are few other boards that functions under ministries such as
Coconut Development Board, Coir Board, Tobacco Board and Central Silk Board.
a. Coconut Development Board
Coconut Development Board is a statutory body established by the Government of India
for the integrated development of coconut production and utilization in the country with focus on
productivity increase and product diversification. The Board which came into existence on 12th
January 1981, functions under the administrative control of the Ministry of Agriculture,
Government of India. Headquarters at Kochi in Kerala. Regional Offices at Bangalore
in Karnataka, Chennai in Tamil Nadu and Patna in Bihar.
b. Coir Board:
Coir Board is a statutory body established by the Government of India under a legislation
enacted by the Parliament namely Coir Industry Act 1953 for the promotion and development of
Coir Industry as well as export market of coir and coir products in India as a whole.
c. Tobacco Board
Recognizing the need to regulate production, promote overseas marketing and control
recurring instances of imbalances in supply and demand, which lead to market problems, the
Government of India under the Tobacco Board Act of 1975, established the Tobacco Board, in
place of the Tobacco Export Promotion Council. The Board came into existence from 1-1-1976
and opened its head quarters at Guntur in Andhra Pradesh, India. The mission of the board is "To
strive for the overall development of tobacco growers and the Indian Tobacco Industry." For the
smooth functioning of a vibrant farming system, fair and remunerative prices to tobacco growers
and export promotion."
d. Silk Board
The Central Silk Board (CSB) is a Statutory Body, established during 1948, by an Act of
Parliament. It functions under the administrative control of the Ministry of Textiles, Government
of India. Central Silk Board Head Quarter at Bangalore. With the main objective of promoting
Silk Industry.

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 12. Legal Measures for Improving Agricultural Marketing- APMC Act. Supply Chain
Management for Agricultural Commodities and Value Enhancement.

Agricultural Produce Marketing Committee Act (APMC)

In India, agriculture is a “state subject”. The agriculture markets are regulated in India
through the APMC Acts. The APMC Act was passed during the year 1954. Again it is
revised and model APMC Act was prepared in 2003. The main objective of the APMC Act was
to prevent exploitation of farmers by various intermediaries
Thus, the wholesaling of agricultural produce is governed by the Agricultural Produce
Marketing Acts of various State governments. The specific objective of market regulation is
to ensure that farmers are offered fair prices in a transparent manner. The APMC Act empowers
state governments to notify the commodities, and designate markets and market areas where
the regulated trade takes place. The Act also provides for the formation of agricultural produce
market committees (APMC) that are responsible for the operation of the markets.
The entire State is divided and declared as a market area wherein the markets are
managed by the Market Committees constituted by the State Governments. State is
geographically divided and Market (Mandis) are established at different places within the states.
Farmers have to sell their produce through the auction in mandi. To operate in Mandi, a trader
has to get license. Wholesale, retail traders (e.g. shopping mall owner) or food processing
company etc cannot buy farm output directly from farmer. Currently there are around 7,500
regulated markets in the country. In Tamil Nadu, Tamil Nadu State Agricultural Marketing
Board (TNSAMB) is the Agricultural Market regulatory Board
APMC acts run on two principles:
 Ensure that intermediaries (and money lenders) do not compel farmers to sell their
produce at the farm gate extremely low price so that farmers are not exploited.
 All food produce should first be brought to the market yard and then be sold through
auction.
Objectives of APMC Act
 To provide for development of efficient marketing system,
 Promotion of agri-processing and agricultural exports
 Lay down procedures and systems for putting in place an effective infrastructure for
the marketing of agricultural produce.

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The specific objective of market regulation is to ensure that
 Farmers are offered fair prices in a transparent manner.
 The APMC Act empowers state governments to notify the commodities, and
designate markets and market areas where the regulated trade takes place.
 The Act also provides for the formation of agricultural produce market committees
(APMC) that are responsible for the operation of the markets.
 The entire State is divided and declared as a market area wherein the markets are
managed by the Market Committees constituted by the State Governments.
 Currently there are around 7,500 regulated markets in the country. Once an area is
declared a market area and falls under the jurisdiction of a Market Committee, no person
or agency is allowed freely to carry on wholesale marketing activities.

Responsibilities of the Market Committees under APMC Act

 Ensuring complete transparency in pricing system and transactions taking place in
market area;
 Providing market-led extension services to farmers;
 Ensuring payment for agricultural produce sold by farmers on the same day;
 Promoting agricultural processing including activities for value addition in
agricultural produce; and
 Publicizing data on arrivals and rates of agricultural produce brought into the market
area for sale.
Setup and promote public private partnership in the management of agricultural markets.

Role of APMC:
• According to the provisions of the APMC Acts of the states, every APMC is
authorized to collect market fees from the buyers/traders in the prescribed manner on
the sale of the notified agricultural produce.
• The relatively high incidence of commission charges on agricultural
/horticultural produce renders their marketing cost high, an undesirable outcome.
• This suggests that a single-point market fee system is necessary to facilitate the free
movement of produce, bring price stabilization, and reduce price differences between
the producer and consumer market segments.
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IMG’s recommendation:
• The Inter-Ministerial Group (IMG) on Inflation convened in 2011 has suggested
reforms of APMC Acts to strengthen supply-chain efficiency. Overall, any strategy
for strengthening agricultural marketing needs to have a three-objectives:
• Providing remunerative prices to farmers;
• Strengthening efficiencies of supply chain; and
• Ensuring that end consumers are charged fair and reasonable prices.
• The ministry of agriculture, in consultation with states / union territories, framed a
Model APMC Act and circulated the same to states / union territories, in 2003, for
making necessary amendments in their existing APMC Acts.
Contract farming and direct marketing to retail chains and processing units are the
need of the hour. Regulations to keep pace with these needs are required, which need
alternative marketing mechanisms. Hence, reforms in the APMC Act are
recommended in various fields.
• 19 states & UTs are allow APMC Act to direct marketing , Contract farming.
• 7 states & UTs are not allowed APMC Act to govern agricultural trade.
• And in the states that allow retailers to do this outside the regulated local markets
known as mandi, in practice, poor infrastructure makes that difficult.
• It results in fragmentation of supply chain and often involve middlemen between
producer and consumer.
The APMC have been made specifically responsible for:
• Ensuring complete transparency in pricing system and transactions taking place in
market area;
• Providing market-led extension services to farmers;
• Ensuring payment for agricultural produce sold by farmers on the same day;
• Promoting agricultural processing including activities for value addition in
agricultural produce; and
• Publicizing data on arrivals and rates of agricultural produce brought into the market
area for sale.
• Setup and promote public private partnership in the management of agricultural
markets.

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Supply Chain management
Supply chain management (SCM) represents the management of the entire set of
production, manufacturing/transformations, distribution and marketing activities by which a
consumer is supplied with a desired product. The practice of SCM encompasses the
disciplines of economics, marketing, logistics and organizational behaviour to study how
supply chains are organized and how institutional arrangements influence industry efficiency,
competitions and profitability. SCM provides a means to conceptualize management of the
changes required in the system to efficiently respond to consumer needs, based on integration
and co-ordination of the efforts of all the business units involved in the production and delivery
processes.

• Managing supply chains requires an integral approach in which chain partners jointly
plan and control the flow of goods, information, technology and capital from 'farm to
fork', meaning from the suppliers of raw materials to the final consumers and vice versa.
• Supply chain management results in lower transaction costs and increased margins.
Because of the many activities and aspects involved it demands a multidisciplinary
approach and sustainable trade relations. Supply chain partnerships are based on
interdependence, trust, open communication and mutual benefits.
• Interest in supply-chain management (SCM) in the agribusiness sector emerged as
recently in the 1990s, but has grown rapidly as a result of a number of internal and
external pressures, and is now a key area of research and commercial activity in the
sector. The advantages of the supply chain management approach are numerous.
Advantages:
• Reduction of product losses in transportation and storage.
• Dissemination of technology, advanced techniques,
• Capital and knowledge among the chain partners.
• Better information about the flow of products, markets and technologies.
• Transparency, Tracking & tracing to the source.

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 • Better control of product safety and quality.
• Large investments and risks are shared among partners in the chain.
Value chain
A value chain is a chain of activities that a firm operating in a specific industry performs
in order to deliver a valuable product or service for the market. The concept comes from
business management and was first described and popularized by Michael Porter in his
1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance. In
case of value chain management there is flow of bothphysical flow and information flow
In Supply chain consist of steps in which material transfer from one place to final
place while in value chain instead of transferring we add some certain values to them.
e.g: like fruits transfers to farmers then wholesaler then retailer then consumer but in value
chain we add some values like grading then sorting then packaging then cool and storing etc

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 13. Absolute and Comparative Advantage Trade Theories – Concepts of Domestic
Trade, Free Trade and International Trade. Share of Agricultural Commodities in
Total Trade. Major Exports and Imports of Agricultural and Agri-Allied
Commodities.
International trade
International trade is exchange of capital, goods, and services across international
borders or territories. Where both the countries gain from it. It is a branch of economics,
which, together with international finance, forms the larger branch of international
economics. In most countries, it represents a significant share of gross domestic product
(GDP). While international trade has been present throughout much of history, its
economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational
corporations, and outsourcing are all having a major impact on the international trade
system. Increasing international trade is crucial to the continuance of globalization. Without
international trade, nations would be limited to the goods and services produced within their
own borders.
Difference between International and Domestic Trade
International trade is in principle not different from domestic trade as the motivation
and the behavior of parties involved in a trade do not change fundamentally regardless of
whether trade is across a border or not. The main difference is that international trade is
typically more costly than domestic trade. The reason is that a border typically imposes
additional costs such as tariffs, time costs due to border delays and costs associated with
country differences such as language, the legal system or culture.
Another difference between domestic and international trade is that factors of
production such as capital and labour are typically more mobile within a country than
across countries. Thus international trade is mostly restricted to trade in goods and services,
and only to a lesser extent to trade in capital, labor or other factors of production.
Then trade in goods and services can serve as a substitute for trade in factors of production.

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 Need for International Trade
1. Scarcity and Choice
 Wants exceed resources
 Choices are necessitated by scarcity

2. Countries experience unequal endowments of resources.

 Natural Resources
 Human Resources
 Capital, and
 Technology
Instead of importing a factor of production, a country can import goods that make
intensive use of the factor of production and are thus embodying the respective factor. An
example is the import of labor-intensive goods by the United States from China. Instead
of importing Chinese labor the United States is importing goods from China that were
produced with Chinese labor.
Advantages of Trade
 To provide their citizens with an Increased Standard of Living
 Countries benefit from foreign trade
 They can import resources they lack at home
 They can import goods for which they are a relatively inefficient producer
 Specialization often results in increased output and economies of scale
 Contributes to global interdependence
Risk in international trade
Companies doing business across international borders face many of the same risks as
would normally be evident in strictly domestic transactions. For example,
 Buyer insolvency (purchaser cannot pay);
 Non-acceptance (buyer rejects goods as different from the agreed upon
specifications);
 Credit risk (allowing the buyer to take possession of goods prior to payment);
 Regulatory risk (e.g., a change in rules that prevents the transaction);

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  Intervention (governmental action to prevent a transaction being completed);
 Political risk (change in leadership interfering with transactions or prices); and
 War and other uncontrollable events.
 In addition, international trade also faces the risk of unfavorable exchange rate
movements (and, the potential benefit of favorable movements).
Closed Economy (Autarky)
The word autarky, which comes from the Greek words meaning "self- sufficiency,"
is used to describe the policy of being economically independent of other nations by having
no trade with them. Autarky has many theoretical benefits that make it an attractive policy
for a state that is contemplating its alternatives. The key benefit of autarky is that it
provides an immense measure of independence from other states, since trade necessarily
creates dependency in a state, both on imports (for products not produced
domestically) and on exports (for foreign markets). But this benefit has to date proven to
be nothing but a deception, damaging nations more than it helps them. In our own century,
there are many examples of semi- and completely autarkic practices being adopted by
nations, only to be abandoned later.
In Asia, we find that North Korea, a Communist nation since 1945 (and one of the
few remaining nations committed to Communism), has practiced a semi-autarkic trade
policy for decades and shows no signs of giving it up any time soon. North Korea trades
mainly with Communist and former Communist nations, but the level of trade is low, and
the traded goods are mostly raw materials, where the gains of specialization are minimal
(because there is not much room for specialization, due to the fact that producing raw
materials is mostly digging and chopping, rather than processing).
Their gain, however, is
1. Their independence of action, as they have displayed in their recent negotiations with
the West over nuclear development within the country.
2. Aside from military action against North Korea, there is little any other nation can do
to influence her behavior.
3. North Korea cannot be threatened with being ostracized from a world community she
does not belong to, nor can she be threatened with trade sanctions when she does not
trade.

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4. World public opinion is meaningless to a nation that does not allow in any news from
the outside world or any form of contact between her citizens and those of other
countries.
5. Self-sufficiency has some very real benefits, and North Korea is willing to pay the
price to have those benefits.
These are benefits that every state would like to have; after all, having power is a
natural desire of any organism that has to find for itself, as states do. More independence
of action means less vulnerability to the desires of other states, and thus more power for
the independent state.
Examples
 India had a policy of near-autarky that began after its establishment as an independent
state, around 1950, and ended in 1991.
 North Korea's official state ideology is based heavily in autarky.
 The United States, while still emerging from the American Revolution and wary of
the economic and military might of Great Britain, came close to complete autarky in
1808 when President Jefferson declared a self-imposed embargo on international
shipping. The embargo lasted from December 1807 to March 1809.
Free trade
Free trade is a system of trade policy that allows traders to trade across national
boundaries without interference from the respective governments. According to the law
of comparative advantage the policy permits trading partners mutual gains from trade of
goods and services.
Under a free trade policy, prices are a reflection of true supply and demand, and are
the sole determinant of resource allocation. Free trade differs from other forms of trade
policy where the allocation of goods and services among trading countries are determined
by artificial prices that may or may not reflect the true nature of supply and demand. These
artificial prices are the result of protectionist trade policies, whereby governments intervene
in the market through price adjustments and supply restrictions. Such government
interventions can increase as well as decrease the cost of goods and services to both
consumers and producers.

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 Interventions include subsidies, taxes and tariffs, non-tariff barriers, such as
regulatory legislation and quotas, and even inter-government managed trade agreements
such as the North American Free Trade Agreement (NAFTA) and Central America Free
Trade Agreement (CAFTA) and any governmental market intervention resulting in
artificial prices.
Features of free trade
Free trade implies the following features
 Trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on
imports or subsidies for producers)
 Trade in services without taxes or other trade barriers
 The absence of "trade-distorting" policies (such as taxes, subsidies, regulations, or laws)
that give some firms, households, or factors of production an advantage over others
 Free access to markets
 Free access to market information
 Inability of firms to distort markets through government-imposed monopoly or
oligopoly power
 The free movement of labor between and within countries
 The free movement of capital between and within countries

ABSOLUTE ADVANTAGE OF ADAM SMITH

Adam Smith (wealth of Nations, 1776)
 Introduces principles of division of labor and specialization among countries
 Each country produces goods that it can produce more for the same level of
resources/time.
 “ law of absolute advantage”
Absolute Advantage: Country A has absolute advantage in good X comparing with
country B if country A can produce more units of good X than country B, given that both
countries have the same level of resources, technology and time.

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Assumption:
1. Constant opportunity cost (linear PPF)
2. Two countries with one factor “labor”
3. Two commodities (suppose Fish and Chips)
Country Amount produced / unit of labor
Fish Chips
Canada 100 50
Japan 50 150
So Canada has absolute advantage in producing fish and Japan has absolute advantage in
producing chips.
What is Adam Smith’s suggestion?
Canada produces only fish and Japan produces only chips. Then trade pattern is Canada
exports fish, Japan exports chips.
The Ricardian Model of Comparative Advantage
In economics, the law of comparative advantage says that two countries (or
individuals or firms) can both gain from trade if, in the absence of trade, they have different
relative costs for producing the same goods. Even if one country is more efficient
in the production of all goods (absolute advantage), it can still gain by trading with a less-
efficient country, as long as they have different relative efficiencies.
For example, if, using machinery, a worker in one country can produce both shoes
and shirts at 6 per hour, and a worker in a country with less machinery can produce either
2 shoes or 4 shirts in an hour, each country can gain from trade because their internal
trade-offs between shoes and shirts are different. The less-efficient country has a
comparative advantage in shirts, so it finds it more efficient to produce shirts and trade
them to the more-efficient country for shoes. Without trade, its cost per shoe was 2 shirts;
by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade
occurs (since the more-efficient country has a 1:1 trade-off). The more-efficient country
has a comparative advantage in shoes, so it can gain efficiency by moving some workers
from shirt-production to shoe-production and trading some shoes for shirts. Without
trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2
shoe depending on how much trade occurs.

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 Comparative advantage was first described by David Ricardo who explained it in
his 1817 book On the Principles of Political Economy and Taxation in an example
involving England and Portugal. In Portugal it is possible to produce both wine and cloth
with less labor than it would take to produce the same quantities in England. However the
relative costs of producing those two goods are different in the two countries. In England
it is very hard to produce wine, and only moderately difficult to produce cloth. In
Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal
than England, it is cheaper still for Portugal to produce excess wine, and trade that for
English cloth. Conversely England benefits from this trade because its cost for producing
cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth.
The conclusion drawn is that each country can gain by specializing in the good where it
has comparative advantage, and trading that good for the other.
Assumptions
 Two countries, two goods
 Equal size economies
 Full employment
 Constant opportunity costs
 Perfect mobility of factors of production within countries
 Immobility of factors of production between countries
 Negligible transport cost
 Before specialization, half of each country's available resources are used to
produce each good.
 Perfect competition
1. Labor is only production factor. The technology is constant returns to scale.
2. Identical tastes in both countries. Therefore, relative prices are solely determined by
supply side or technology.
The Ricardian Model of Comparative Advantage
Consider the following table,
country Amount produced / unit of labor Opportunity Cost
Fish Chips Fish Chips
Canada 100 160 1 F= 1.6 C 1 C= 5/8 F
Japan 50 150 1 F=3 C 1F =1/3 C

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 Canada has absolute advantage in both Fish and Chips. Therefore, according to
absolute advantage, no trade occurs. If comparative advantage is considered then there
will be possibility of trade. Suppose that there are two countries, namely Canada and
Japan. They have the total level of resource of L and L* respectively.
Country Amount produced / unit of labor Opportunity Cost
Fish Chips Fish Chips
Canada 1 1/2 1F = ½ C 1C = 2 Fish
Japan 1 1 1F = 1 C 1C = 1F
 Country A has comparative advantage in good X comparing with country B if
country A can produce good X with the lower opportunity cost.
 Given that aLF is the unit cost required to produce fish, aLC is the unit cost required
*
aLF aLF
to produce chips. Then  means that the opportunity cost of fish in
*
a LC a LC

Canada is lower than the opportunity cost in Japan.

 Therefore, Canada has a comparative advantage in fish while Japan has
comparative advantage in chips.
If this is the case, the comparative cost of production for Chips in Canada is more than
the fish production. Instead of chips production they can go for fish production and they
can export fish to Japan. In case of Japan comparative cost of production of both chips
and fish is equal but when compared to Canada the opportunity cost for chips production
is low so Japan can export chips and Canada can import chips.

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 14. Institutions for Promoting Trade in Agricultural Commodities – National and
International- GATT, UNCTAD and WTO. Agreement on Agriculture – Market Access,
Domestic Support and Export subsidy.

Institutions for Promoting Trade in Agricultural Commodities

International Organizations National Organizations

World Trade Organization APEDA
International Monitory Fund MPEDA
United Nations Conference on Trade and Commodity Boards
Development ITPO

GATT
Trade between countries has been an age-old practice. In reality, it was free and there were
not many restrictions. Transportation and settlement systems were the problems of trade
between countries. The mode of transportation was sea, encountering problems like loss of life and
goods due to poor navigation and pirate menace. The settlement was through gold or barter system.
As the communication and transportation facilities improved and new settlement systems evolved,
it was natural to expect increased international trade. However, several restrictions on international
trade started creeping in (1) to protect domestic industry (2) to protect the prices of the goods in
local markets (3) due to balance of payment problems and (4) due to extraneous reasons like
political, favouring one country while discriminating the other. The foreign trade was affected and
led to scarcity of goods in some parts of the world and glut in other parts. Even before the Second
World War ended, the allied countries gave serious thought in developing a system that would end
the chaotic conditions prevailing and pave the way for an orderly conduct of international trade
and promote good monetary relations among the countries. They started working with the
objective of finding a system which would:
1.Help to remove the restrictions on trade.
2.Ensure free convertibility of currencies and
3.Maintain stability in exchange rates among the currencies.
The representatives of 44 allied countries met at Brettonwoods, New Hampshire, USA
in June 1944 to give a concrete shape to their ideas. The conference made recommendations to

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set up three international organizations uiz., (1) International Monetary Fund (IMF) to deal
with the problems of balance of payments (2) International Bank for reconstruction and
Development (IBRD) to deal with the problems of reconstruction and development of
economies of countries shattered in the two world wars and (3) International trade
organization (ITO) to deal with the problems of international trade. The first two were set up in
1945 but there were serious controversies about the ITO. ITO could not be established because the
Havana charter was not ratified by the US Congress.
However 23 countries had agreed to continue the exercise of negotiating for trade
concessions, which were incorporated in the General Agreement on Tariff and Trade (GATT).
This agreement was signed on 30 October 1947 and came into force with effect from 1 January
1948. India was the founder member of GATT. The main purpose of GATT was to ensure
competition in commodity trade through the removal or reduction of trade barriers so as to
bring about all round economic prosperity.

Objectives of GATT
The preamble of the GATT mentions the following as its important objectives.
1. Raising of standard of living of public world over.
2. Ensuring full employment and a large and steadily growing volume of real income and
effective demand in all the countries.
3. Developing full use of resources of the world and
4. Expansion of production and international trade.

GATT has adopted the Following Principles

1.Non-discrimination: The principle of non-discrimination requires that no member country
shall discriminate between the members of GATT in the conduct of international trade. To ensure
non-discrimination, the members of GATT agree to apply the principle of Most Favoured
Nation (MFN) to all member countries on import and export duties. As far as quantitative
restrictions are permitted, they too are to be administered without favour to any country. Each
nation shall be treated as well, as the most favoured nation.
2.Prohibition of Quantitative Restrictions (QRS): GATT rules seek to prohibit quantitative
restrictions as far as possible and limit the restrictions on trade to the less rigid tariffs.

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 However, certain exceptions to this prohibition are granted to countries confronted with
balance of payments difficulties and to developing countries.
3.Consultation: By providing a forum for continuing consultations, GATT seeks to resolve
disagreements through consultation.
On account of persistent follow up by member developing countries for removing or
modifying the provisions which are perceived to be biased against them, eight rounds of trade
negations were held during the period from 1947 to 1994. They were Geneva Round (1947),
Anney Round (1949), Torquay Round (1950), Geneva Round (1955-56), Dillon Round (1959-
62), Kennedy Round (1963-67), Tokyo Round (1973-79) and Uruguay Round (1986-90).

Origin of WTO
The eighth round of multilateral trade negotiations held under the auspices of the GATT is
known as the Uruguay round because it was launched in punta-del-Estae in Uruguay in
September 1986. Arthur Dunkel, the then Director General of GATT,
presented a draft act embodying the negotiations of the Uruguay round. This was popularly known
as Dunkel draft. The final act was signed by Ministers of 125 Governments on 15 th April
1994. The results of the Uruguay Round are to be implemented within ten years - different
time periods are given for effecting the different agreements.
The most important decision at the Uruguay round was setting up of World Trade
Organization (WTO) to replace GATT. The World Trade Organization located at Geneva
(Switzerland) came into effect on 1.1.1995. WTO is the international organization dealing
with the global rules of trade between nations. Its objective is to help trade flow smoothly,
freely, fairly and predictably.

Objectives
The following are the objectives of WTO spelt out in the preamble to the WTO
agreement.
1.In the field of trade and economic development, its relations will be guided by the
following
a.Raising the standards of living.
b.Achieving full employment and increasing the volume of real income and

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 effective demand and
c.Expanding the production and trade in goods and services.
2.Towards the fulfillment of the overall, objective of sustainable development to ensure the
optimal use of world's resources by
a.Promoting the protection and preservation of environment and
b.Augmenting resources commensurate with the respective needs and concerns at
different levels of economic development.
3. For ensuring that the developing countries, particularly the poorest countries, may get a
share in the growth of international trade consistent with their needs of economic
development.
4. For achievement of these objectives to enter into mutually beneficial arrangements
aiming at reduction of barriers and elimination of discrimination in inter- national trade.
5. Based on the past agreements and efforts and their results to develop a more viable and
durable multilateral trading system.
6. For co-ordinating policies in the field of trade, environment and economic
development, to take effective steps.

WTO Agreements
1. Trade Related Investment Measures (TRIMS)
This agreement seeks to bring about multilateral disciplines on investment practices
that distort trade flows. According to this agreement all measures obstructing foreign
investment and distorting trade should be removed within two years by developed
countries, five years by developing countries and seven years by the least developed
countries. The important features of the TRIMS are as follows:
1.All restrictions on foreign capital/investors/companies should be scraped.
2.The foreign investor should be given the same rights in the matter of investment as a
national investor.
3.Restrictions will not be placed on any area of investment.
4.There should not be any limitation on the extent of foreign investment.
5.There should not be restrictions on the imports of raw materials and components.
6.Foreign investor will not be obliged to use local products and materials.

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 7.It is not mandatory on the part of foreign investor to export a part of the output.
8.Elimination of restrictions on repatriation of dividend, interest and royalty.
2. Trade Related Intellectual Property Rights (TRIPS)
The TRIPS agreement encompasses seven areas of intellectual property rights viz., (i)
copy right (ii) trade marks (iii) trade secrets (iv) industrial designs (v) geographical
indications (vi) patents which also includes microorganisms and plant varieties (vii)
layout designs of integrated circuits.
It allows a transition period of one year for developed countries, five years for
developing countries and eleven years for the least developed counties to make their
laws and practices to conform to the rules and conditions laid in the agreement.
3. General Agreement on Trade in Services (GATS)
This agreement is based on the desire to establish a multilateral frame work of
principles and rules for trade in services with a view to expanding such a trade under
conditions of transparency and progressive liberalisation. The services refer to banking
and insurance, transport, communication, mobility of labour etc.
Under GATS, Most Favoured Nation (MFN) principle will apply to all member
countries i.e., if a service of any kind is open to one member country, it should be
extended to all member countries in equal measure. The second requirement is
transparency i.e., all agreements affecting trade in services shall be published. Further each
country is required to make market access commitments on services.
4. Agreement on Agriculture (AOA)
The Agreement on Agriculture (AOA) forms a part of the final act of the Uruguay
round of multilateral trade negotiations, which was signed by the member countries in
April 1994 at Marrakesh, Morocco and came into force on 1st January 1995. The Uruguay
round marked a significant turning point in world trade in agriculture, for the first time,
agriculture featured in a major way in the GATT round of multilateral trade negotiations.
The Uruguay round agreement sought to bring order and fair competition to this highly
distorted sector of world trade by establishment of fair and market oriented agricultural
trading sector.
The main cause of distortion of international trade in agriculture has been the massive
domestic subsidies. (A subsidy is deemed to exist if there is a financial contribution by a

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Government on any public body and a benefit is conferred) given by the industrialized
countries to their agricultural sector over many years. This in turn led to excessive
production and it's dumping in international markets as well as import restrictions to
keep out foreign farm products from their domestic market. Hence, the starting point for
the establishment of a fair agricultural trade regime should be the reduction of dome stic
production subsidies given by the developed countries, reduction in the volume of
subsidized exports and minimum market access opportunities' for agricultural producers
worldwide.

The Agreement on Agriculture (AOA) has three main components;

(i) Market access
(ii) domestic subsidy or domestic support and
(iii) Export subsidies.

i) Market Access: On market access the agreement has two basic elements.
a. Replacement of Non-Tariff Barriers(NTBS) The market access' commitment
required all Non-Tariff Barriers (NTBS) such as Quantitative Restrictions (QRs)
and export, import licensing etc., are to be replaced by tariffs to provide the same
level of protection. Tariffs, resulting from tariffication process together with other
tariffs on agricultural products are to be reduced by 36 per cent over six years in

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 the case of developed countries and 24 per cent over 10 years in the case of
developing countries.
b. Minimum level for imports of farm commodities The second element relates to
setting up of a minimum level for imports of farm commodities by member
countries as a share of domestic consumption. Countries are required to maintain
current levels (1986-88) of access for each individual product. Where the current
level of import is negligible, the minimum access should not be less than 3 per
cent of the domestic consumption. This minimum level is to rise to 5 per cent by
the year 2000 in the case of developed countries and by 2004 in the case of
developing countries. However, special safeguard provisions allow for the
application of additional duties when shipments are made at prices below certain
reference levels or when there is a sudden import surge. The market access
provision, however, does not apply when the commodity in question is a 'traditional
staple' of a developing country.

ii) Domestic Support:

The provisions of the agreement regarding domestic support have two main
objectives: (1) To identify the acceptable measure that support farmers and (2) to deny
unacceptable trade distorting support to the farmers. These provisions are aimed
largely at the developed countries where the levels of agricultural support have risen to
extremely high levels in recent decades.
All domestic support is quantified through the mechanism of Aggregate Measure of
Support (AMS). AMS is a means of quantifying the aggregate value of domestic support
on subsidy given to each category of agricultural product. Each WTO member country
has made calculations to determine its AMS wherever applicable. There was no
requirement in the agreement for reduction commitment if the figure was below 5 per
cent for developed countries and 10 per cent for developing countries . In other cases,
member countries were required to reduce their total AMS by 20 per cent over 6 years
(developed countries) or 13.30 per cent over 10 years (developing countries). The base
period external reference price on which the reductions calculated was 1986-88.
AMS consists of two parts, product specific subsidies and non-product specific

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subsidies. Product specific subsidy refers to the total level of support provided for each
individual agricultural commodity essentially signified by procurement price in India.
Non-product specific subsidy, on the other, hand refers to the total level of support for
the agricultural sector as a whole i.e. subsidies on inputs such as fertilizers, electricity,
seeds, credit and irrigation, etc.
There are three categories of support measures that are not subject to reduction under
the agreement and support within de-minimis (under the de-minimis provision of the
agreement, there is no requirement to reduce trade distorting domestic support or subsidy
where the aggregate value of support does not exceed a certain limit or ceiling. In case of
developing countries the de-minimis ceiling is 10 per cent) level is allowed. The three
categories of exempt support measures are:
a. Measure which have a minimum impact on trade and which meet the basic and
policy specific criteria set out in the agreement (the so called Green Box measures
in the terminology of WTO). These measures include Government assistance on
general services like research, pest and disease control, training, extension and
advisory services, public stock holding for food security purposes, domestic food
aid and direct payments to producers like Governmental financial participation in
income insurance, relief from natural disasters and payments under environ - mental
assistance programmes.
b. Developing country measures other wise subject to reduction which meet the
criteria set out in paragraph 2 of article 6 of the agreement (the so-called special
and differential treatment or S & D Box). Examples of these are investment
subsidies which are generally available to agriculture in developing countries and
agricultural input services generally available to low income and resource poor
producers in developing countries.
c. Direct payments under production limiting programmes (the so called Blue Box
measures). These were relevant from the developed countries point of view only.

iii) Export Subsidies:

Export subsidies also become a major factor in depressing or destabilizing
world market prices for many farm products. The Uruguay round marked a radical

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departure from the earlier GATT disciplines in the areas of agricultural export
subsidies. Members are required to reduce the value of direct export subsidies to a
level of 36 per cent below the 1986-90 base period level over a six year
implementation period. The quantity of subsidized export is to be reduced by 21 per
cent over the same period. In the case of developing countries, the reductions are
two thirds those of the developed countries over a ten year period and there are no
reductions for least developed countries.
Export subsidies are defined as subsidies contingent on export performance and
the list covers export subsidy practices such as direct export subsidies contingent.
On export performance, sales of non-commercial stocks of agricultural products for
export at prices lower than comparable prices for such goods in the domestic
markets, producer financed subsidies such as government programmes which
require a levy on production which is then used to subsidize the export of the
product, cost reduction measures such as subsidies to reduce marketing costs for
exports including handling costs and costs of international freight, internal transport
subsidies applying only to exports etc. All such export subsidies are subject to
reduction commitments in terms of both the volume of subsidized export and
budgetary outlays for such subsidies. However, such measures are non-existent in
India and hence the issue of reduction of export subsidies on agricultural products is
not of particular relevance for India.

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United Nations Conference on Trade and Development (UNCTAD)
The United Nations Conference on Trade and Development (UNCTAD) was established in
1964 as a permanent intergovernmental body. UNCTAD is the principal organ of the United
Nations General Assembly dealing with trade, investment, and development issues. The
organization's goals are to: "maximize the trade, investment and development opportunities of
developing countries and assist them in their efforts to integrate into the world economy on an
equitable basis."
The primary objective of UNCTAD is to formulate policies relating to all aspects of
development including trade, aid, transport, finance and technology. The conference ordinarily
meets once in four years; the permanent secretariat is in Geneva. One of the principal achievements
of UNCTAD has been to conceive and implement the Generalised System of Preferences (GSP).
It was argued in UNCTAD that to promote exports of manufactured goods from developing
countries, it would be necessary to offer special tariff concessions to such exports. Accepting this
argument, the developed countries formulated the GSP scheme under which manufacturers' exports
and some agricultural goods from the developing countries enter duty-free or at reduced rates in
the developed countries. Since imports of such items from other developed countries are subject
to the normal rates of duties, imports of the same items from developing countries would enjoy
a competitive advantage.
The creation of UNCTAD in 1964 was based on concerns of developing countries over
the international market, multi-national corporations, and great disparity between developed
nations and developing nations. The United Nations Conference on Trade and Development was
established to provide a forum where the developing countries could discuss the problems
relating to their economic development. The organisation grew from the view that existing
institutions like GATT (now replaced by the World Trade Organization, WTO), the International
Monetary Fund (IMF), and World Bank were not properly organized to handle the particular
problems of developing countries. Later, in the 1970s and 1980s, UNCTAD was closely associated
with the idea of a New International Economic Order (NIEO).
The first UNCTAD conference took place in Geneva in 1964, the second in New Delhi in
1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth in Manila in 1979, the sixth
in Belgrade in 1983, the seventh in Geneva in 1987, the eighth in Cartagena in 1992 and the ninth
at Johannesburg (South Africa) in 1996.

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 Currently, UNCTAD has 194 member states and is headquartered in Geneva,
Switzerland. UNCTAD has 400 staff members and a bi-annual (2010–2011) regular budget of
$138 million in core expenditures and $72 million in extra-budgetary technical assistance funds.
It is a member of the United Nations Development Group.[2] There are non-governmental
organizations participating in the activities of UNCTAD.
Foundation
 In the early 1960s, growing concerns about the place of developing countries in
international trade led many of these countries to call for the convening of a full-fledged
conference specifically devoted to tackling these problems and identifying appropriate
international actions.
 The first United Nations Conference on Trade and Development (UNCTAD) was held in
Geneva in 1964. Given the magnitude of the problems at stake and the need to address
them, the conference was institutionalized to meet every four years, with
intergovernmental bodies meeting between sessions and a permanent secretariat
providing the necessary substantive and logistical support.
 Simultaneously, the developing countries established the Group of 77 to voice their
concerns. (Today, the G77 has 131 members.)
The main activities of the unit to cover this mandate include:
 Managing, conducting and supporting the evaluation activities of UNCTAD.
 Participating and contributing to inter-agency initiatives on evaluation, such as setting up
evaluation standards or evaluation guidance materials.
 Providing guidance and assistance to programme managers in using results-based
management methodologies, in particular providing input into the definition of results
frameworks and in the preparation of programme performance reports.
 Participating in the review of new project proposals with a view to ensuring the
evaluability of each project's logical framework, as a member of the Project Review
Committee and through the clearance of project documents.
 Contributing to developing capacity for self-evaluations.
 Acting as the focal point for UNCTAD on all evaluation matters, in particular,
external evaluations conducted by OIOS.

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15. New EXIM Policy of India - Role of Agri. Export Zones – Export Promotion Councils –
APEDA, MPEDA and ITPO.

1. Agricultural Exports
At present India emerged as a major exporter of basmati and non-basmati rice. The
international trade in agricultural products is increasingly being dominated by concerns of
quality to safeguard human health. Importing countries are setting higher standards of quality for
food products. It is therefore very important that agro-food-processing industry improves its
functioning and pays attention to hygiene and processors/ manufacturers are made aware of the
high international standards for quality. Keeping the potential of this sector in view, there is
considerable scope for increasing the share of agricultural and food products in the total export
basket. The Government is giving special attention to this area by providing thrust to agricultural
exports through enhanced public investments and by building up a conducive policy
environment.

India’s agri-exports can be divided into three broad categories, i.e. export of a) raw
products, b) semi raw products c) processed and ready-to-eat products. Raw products exported
are essentially of low value high volume nature, while semi processed products are of intermediate
value and limited volume and processed ready-to-eat products are of high value but low volume
nature. The major agri-exports of India are cereals (mostly rice –Basmati and non- Basmati),
spices, and cashew, oilcake/meals, tobacco, tea, coffee and marine products. Value of agri-exports
to total exports of the country 10 per cent.
Export of agricultural commodities from India during 2014-15
Product Qty (tons) % Rs. Crore %
Basmati Rice 3702260 14 27598 21
Non Basmati Rice 8274046 30 20429 16
Guargum 665178 2 9480 7
Wheat 2924070 11 4992 4
Groundnuts 708386 3 4675 4
Maize 2825611 10 4038 3
Cereal Preparations 306329 1 3039 2
Other Processed Fruits &
Vegetables 316059 1 2570 2
Miscellaneous Preparations 372998 1 2438 2
Source: APEDA

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2 Agri-Imports
Agri-imports constitute only a small proportion of the country’s total imports. In recent
years, edible oil has become the single largest agri-import accounting for more than 50 per cent
of the value of total agri-imports. Each of the other agricultural and allied products imported into
the country - cereals, pulses, spices, sugar, milk and milk products, chicken meat etc. Pulses are a
typical example, where there is zero import duty.
Import of agricultural commodities from India during 2011-12

Rank Commodity Quantity (tonnes) Value (1000 $)

1 Palm oil 5973262 6765572
2 Peas, dry (Pulses) 1866735 786758
3 Soybean oil 939375 1210862
4 Cashew nuts, with shell 798281 1146991
5 Sunflower oil 703637 953979
6 Beans, dry 630677 567498
7 Dates 256295 141713
8 Fatty Acids 252270 269029
9 Apples 179015 186279
10 Rubber Nat Dry 158218 705682

3. Export-import Policy (EXIM Policy)

Each and every country has its own export and import (EXIM) policy in order to maintain its
internal demands. The main objectives of the Export Import Policy of our country are as follows:

Objectives of the Exim Policy

1. To encourage economic growth of India by providing supply of essential raw materials,

intermediates, components, consumables and capital goods required for augmenting
production and providing services.
2. To improve the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities and encourage the attainment of internationally accepted standards of quality;
and

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 3. To provide consumers with good quality products and services at internationally competitive
prices while at the same time creating a level playing field for the domestic producers

Highlights of the New EXIM Policy 20015-20:

In the new exim policy the old schems were merged and brought out as single scheme to
look after the needs of all sectors which is called as Merchandise Exports from India Scheme
(MEIS) . The policies related to agriculture are briefed below,

EXIM Policy for Agricultural Products

1. The salient features of a plan of action to promote exports of agricultural products are as
under:
(i) A stable policy regime: maintaining a long term, stable, consistent and by-default „open‟
export policy as against an „on-off‟ policy;
(ii) SPS/TBT issues: effective handling of such issues, which includes:
 Upgrading quality to avoid disruption in trade on account of SPS issues with major
trading partners;

 Effectively challenging unfair practices of trading partners if they resort to

unreasonable SPS measures; and
 Creating physical infrastructure and institutional capacities within India,
responsive to the needs of importing country regulations.
(iii) Post-harvest facilities: shift in focus towards processed and value added exports and niche
products such as organic, culinary herbs and herbal products.
We need a range of facilities and infrastructure on the post-harvest front, such as:
 Cold chain facilities and transport logistics from the farm to the ports and airports;
 Silos with temperature control mechanisms ;
 State-of-the-art pack houses and
 Integrated post harvest facilities and centres for perishable cargo with uninterrupted
power supply and connection to National Highways.

(iv) Organic exports: Promoting organic agri-exports through appropriate policy interventions
and setting up credible and up-to-date organic export certification and accreditation

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 programmes (EU, US and Japan) Support for packaging, branding and marketing such
products and simplification of procedures will also be prioritised.
2. Export strategies for processed agricultural exports and organic product exports.
3. Plantation products, especially spices and tea, being closely and strongly associated with
„Brand India‟.
4. To ensure that plantations remain commercially viable, ( tea, coffee and spices ) In order to do
so, the following issues assume importance:
 Productivity enhancement, expansion of the production area for rubber and spices.
 Coffee plantations are adversely affected by pests particularly the stem borer.
Effective means through scientific and technological methods and collaborative
research.
 Programmes for promoting value added products of tea, coffee and spices along with
support for export after branding of these products will be taken up.
 Quality compliance
 A critical review of all Commodity Boards

4. Agri Export Zones (AEZ)

Agri Export Zone or AEZ is a specific geographic region in a country demarcated for
setting up agriculture based processing industries, mainly for export. With the primary objective
of boosting agricultural exports from India, in March 2001, Government of India announced a
policy of setting up of Agri Export Zones (AEZs) across the country. The Central Government has
sanctioned 60 AEZs comprising about 40 agricultural commodities .AEZs is spread across
20 states in the country.
Objectives :
The objective of setting up AEZs is to converge the efforts made, hitherto, by various
central and state government departments for increasing exports of agricultural commodities
from India. The AEZ takes a comprehensive view of a particular produce/ product located in a
geographically contiguous area for the purpose of developing and sourcing raw materials, their
processing/packaging, and leading to final exports.
The major components of this comprehensive concept are :

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  Cluster approach of identifying the potential products and geographical region in which
these products are grown.
 Adopting an end-to-end approach of integrating the entire process, right from the stage of
production till it reaches the consumption stage.
 Integration of the activities of various agencies connected with the department of the
product.
As on now we are having 60 AEZ throughout the country for different agricultural
commodities. The AEZ located in Tamil Nadu were,

S Product State District/Area Date of

No Notification
1 Cut Tamil Nadu Dharmapuri 8th Feb 2002
Flowers
2 Flowers Tamilnadu Nilgiri District 13th Sep 2002

3 Mangoes Tamil Nadu Districts of Madurai, Theni, Dindigul, 15th Jan 2003
Virudhunagar and Tirunelveli
4 Cashewnut Tamil Nadu Cuddalore, Thanjavur, Pudukottai and 8th November,
Sivaganga 2004

Benefits of Agri Export Zones :

The anticipated benefits to accrue as a consequence of setting up of such zones are as
follows:
i. Strengthening of backward linkages with a market oriented approach.
ii. Product acceptability and its competitiveness abroad as well as in the domestic
market.
iii. Value addition to basic agricultural produce.
iv. Bring down cost of production through economy of scale.
v. Better price for agricultural produce.
vi. Improvement in product quality and packaging.
vii. Promote trade related research and development.
viii. Increase employment opportunities.

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5. APEDA
APEDA- stands for the Agricultural and processed Food Products Export Development
Authority. APEDA is an autonomous organization attached to the Ministry of Commerce of the
Government of India.
The main function of APEDA is to build links between Indian producers and global
markets. APEDA undertakes the briefing of potential sources on government policy and
producers. Along with providing referred services and suggesting suitable partners for joint
ventures. Besides arranging buyer-seller meets. The scope of Agricultural exports is discussed
below.
Development programmes of APEDA
APEDA undertakes the following development programmes :
i. Development of Data Base on products, markets and Services
ii. Publicity and Informatio0n Dissemination.
iii. Invites official and business delegations from abroad.
iv. Organisation of product promotions abroad and visits of official and trade delegations
abroad.’
v. Participation in International Trade Fairs in India and abroad.
vi. Organisation of buyer-seller meets and other business interactions
vii. Information dissemination through APEDA’s newsletter, Feedback Series and Library.
viii. Distribution of Annual APEDA Awards.
ix. Provides recommendatory, advisory and other support services to the Trade and Industry. x.
Problem solving in Government Agencies and Organisations, RBI, Customs,
Import/Export Procedures, problems with Importers through Indian Missions abroad.

6. MPEDA
The Marine Products Export Development Authority (MPEDA) was constituted in 1972
under the Marine Products Export Development Authority Act 1972. The role envisaged for the
MPEDA under the statute is comprehensive - covering fisheries of all kinds, increasing exports,
specifying standards, processing, marketing, extension and training in various aspects of the
industry.

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Structure, Activities & Network
MPEDA functions under the Ministry of Commerce, Government of India and acts as a
coordinating agency with different Central and State Government establishments engaged in
fishery production and allied activities.
Work programme of MPEDA
1. Registration of infrastructure facilities for seafood Export trade
2. Collection and dissemination of trade information .
3. Projection of Indian marine products in overseas markets by participation in overseas fairs
and organising international seafood fairs in India.
4. Implementation of development measures vital to the industry like distribution of insulated
fish boxes, putting up fish landing platforms, improvement of peeling sheds, modernisation
of industry such as upgrading of plate freezers, installation of IQF machinery, generator
sets, ice making machineries, quality control laboratory etc.
5. Promotion of brackish water aquaculture for production of prawn for export.
6. Promotion of deep sea fishing projects through test fishing, joint venture and equity
participation.

7. Export Promotion Councils

The basic objective of Export Promotion Councils is to promote and develop the exports of
the country. Each Council is responsible for the promotion of a particular group of products,
projects and services.
The main role of the EPCs is to project India's image abroad as a reliable supplier of high
quality goods and services. In particular, the EPCs shall encourage and monitor the observance
of international standards and specifications by exporters. The EPCs shall keep abreast of the
trends and opportunities in international markets for goods and services and assist their Members
in taking advantage of such opportunities in order to expand and diversify exports.

The major functions of the EPCs are

1. To provide commercially useful information and assistance to their members in
developing and increasing their exports;

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 2. To offer professional advice to their members in areas such as technology upgradation,
quality and design improvement, standards and specifications, product development,
innovation, etc.;
3. To organise visits of delegations of its members abroad to explore overseas market
opportunities.
4. To organise participation in trade fairs, exhibitions and buyer-seller meets in India and
abroad;
5. To promote interaction between the exporting community and the Government both at the
Central and State levels; and
6. To build a statistical base and provide data on the exports and imports of the country,
exports and imports of their members, as well as other relevant international trade data

8. India Trade Promotion Organisation (ITPO)

India Trade Promotion Organization (ITPO) is a nodal trade promotion agency of the
Government of India. It has been charting a multi-dimensional course for itself in conformity
with its mandated role. Since its inception in 1992 and prior to that in its earlier incarnations of
Trade Fair Authority of India (TFAI) and Trade Development Authority (TDA), ITPO has for
well over three decades, played a multi-faceted role in bringing out the strengths of the Indian
economy and giving a thrust to the country's exports as a premier export promotion organization.
Functions and activities of ITPO
 Organising of fairs and exhibitions in India
 Participation in select overseas fairs and organizing of exclusive Indian trade shows in
select locations abroad
 Promotion through department stores, contact and product promotion programmes, and
market surveys
 Information dissemination on products and markets among trade and industry in India
and abroad.
 Organising seminars, conferences and workshops on trade-related issues
 Upgradation of the facilities of Pragati Maidan to exacting international standards

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The Main Activities & Services of ITPO
o Managing the extensive trade fair complex, Pragati Maidan in the heart of Delhi
o Organising various trade fairs and exhibitions at its exhibition complex in Pragati Maidan
and other centers in India.
o Facilitating the use of Pragati Maidan for holding of trade fairs and exhibitions by other
fair organisers both from India and abroad.
o Timely and efficient services to overseas buyers in vendor identification, drawing
itineraries, fixing appointments and even accompanying them where required.
o Establishing durable contacts between Indian suppliers and overseas buyers.
o Assisting Indian companies in product development and adaptation to meet buyers'
requirements.
o Organising Buyer-Seller Meets and other exclusive India shows with a view to bringing
buyers and sellers together.
o Organising India Promotions with Department Stores and Mail Order Houses abroad.
o Participating in overseas trade fairs and exhibitions.
o Arranging product displays for visiting overseas buyers.
o Organising seminars/conferences/workshops on trade-related subjects.
o Encouraging small and medium scale units in export promotion efforts.
o Conducting in-house and need-based research on trade and export promotion.
o Enlisting the involvement and support of the State Governments in India for promotion of
India's foreign trade.
o Trade information services through electronic accessibility at Business Information
Centre.

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 16. Agricultural Prices - Function and Scope - Price Characteristics of Agricultural
Products. Food Policy and Prices -Procurement of Food Grains- Buffer Stock. Role
of Administered Prices – MSP, SMP & SAP.

Agricultural Prices
In agricultural based economies like India, prices of farm products undergo wide variations
than in industrial goods. They have profound effect on the economy. The characteristics of
agricultural product prices are presented below to design appropriate price policy.
History of Agricultural price policy :Agricultural Price policy 1947 – 1965 i.e before setting
up of APC Food grains prices committee, was set up in 1964 to determine producer prices of rice
& wheat on all India basis for 1964 season subsequently. Food grain policy committee, 1966 was
established. The important aspects pertaing to foodgrains are : (i).Controls on the movement,
(ii).Compulsory levy procurement (iii). Fixation of maximum statutory prices of food grains,
(iv). Rationing, either statutory or informal.
Other crops covered are sugarcane, cotton, jute and oil seeds.
Agricultural Price Stabilization
Price instability does great harm to agriculture. Government takes the responsibility to
stabilize agricultural prices. The objectives of price stabilization assures reasonable level of living,
keeping parity with other sectors, adjustment of production to demand as well as stabilization of
general price level in relation to world prices. With the proposed market intervention plan, the
government would be able to step in when prices of a particular product rises beyond a threshold
limit or fall below a floor price. For stabilizing the agricultural prices various price support
programmes such as
• Minimum support price,
• Procurement price,
• Market Intervention Scheme,
• Market intelligence schemes,
• Buffer Stocking and
• Public Distribution system
to prevent the producers and consumers were implemented by the Government.

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Need for Agricultural Price Policy
Agricultural Price Policy has special significance when there is maladjustment in demand
and supply and jump up and down the equilibrium price level. Several government interventions
were initiated to protect farmers and consumers. Government undertakes the following measures.
1. Procurement operations.
2. Public distribution at fixed issue prices, rationing, restrictions on movement of food grains
from one place to another place i.e. state to state.
3. Maximum controlled prices, assured minimum prices, statutory minimum prices, ban on
exports, stepping up of imports, regulation of futures trading.
4. Minimum price for sugarcane to sugar factories.
5. Floor and ceiling prices, controls on futures trading and imports have been the major
policy measures taken for regulation of prices of raw cotton and jute.

1. CHARACTERISTICS OF AGRICULTURAL PRODUCT PRICES

i. Production and supply of agricultural products cannot be adjusted quickly to changes in
prices or demand.
ii. Variability in cost of production from region to region.
iii. Wide variation in quality of products and hence prices.
iv. The prices of farm products in general exhibit co-movement at least within a group.
v. The prices of farm products vary across space.
vi. The prices of farm products in general remain low in the post-harvest period.
vii. There are multiple prices in the same market at a point of time.

2. FOOD POLICY AND PRICES

Price Stabilization Mechanisms
For stabilizing the agricultural prices various price support programmes such as Minimum
support price, Procurement price, Market Intervention Scheme, Market intelligence schemes,
Buffer Stocking and Public Distribution system were followed to prevent the consumers which are
implemented by the Government.

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a. Minimum Support Price
This is the price fixed by the Government to protect the producer-farmers against excessive
fall in price during bumper production years. These prices give a sort of price guarantee to the
farmers which means that a price not lower than the announced minimum price will be paid to
the farmers when they bring their produce for sale in the market. In case the market price for the
commodity falls below the announced minimum price due to bumper production and glut in the
market, government agencies purchase the entire quantity offered by the farmers at the
announced minimum price.
The minimum price has been assigned a statutory status in case of sugarcane and as such the
announced price is termed as statutory minimum price (SMP). There is statutory binding on
sugar factories to pay the minimum announced price and all those transactions or purchase at a
price lower than this are taken as illegal.
Minimum support prices for different agricultural crops viz., foodgrains; oilseeds, fibre crops,
sugarcane and tobacco are announced by the Government of India before the start of the sowing
season of the crop. This makes it possible for the farmers to have an idea about the extent of
price insurance cover provided by the Government for the crop.
As can be seen, support prices are given for the marketing year. The marketing year for all
kharif crops, including paddy, is defined as October to September, where as for rabi crops it is
defined as April to March. In the case of raw jute, the marketing year is July to June, for cotton
September to August and for sugarcane it is November to October.
b. Procurement Prices
Procurement price of a commodity refers to the price at which government procures the
commodity from producers/manufacturers for maintaining the buffer stock or the public
distribution system. These prices are announced by the Government of India on the
recommendations of the Commission for Agricultural Costs and Prices before the harvest season
of the crop. At these announced prices, government procures the foodgrains (wheat, paddy and
coarse grains) in the needed quantity either for maintaining the buffer stock or for the
distribution through fair price shops.
Procurement prices are fixed generally at a level which is somewhat higher than the level of
minimum support prices but lower than the prevailing market prices. The level of these prices is
recommended by the Commission for Agricultural Costs and Prices based on the estimated size

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of the harvest of that crop and intended quantities to be procured. The procurement prices are lower
in relation to the actual market prices and as such farmers and traders are not willing to sell
their stocks voluntarily to the government. In such circumstances, the government procures
foodgrains at the announced procurement prices either by imposing a levy on the farmers, or on
the traders or through other methods as discussed earlier.
The Commission for Agricultural Costs and Prices may or may not recommend both of these
prices for a commodity at a point of time. Since 1971, minimum support prices for cereals have
been the same as their procurement prices, with the difference, that these are announced before the
sowing season. As a result, the procurement price itself became the support price at which the
government purchased all the foodgrains offered for sale. If there is no levy on farmers or traders
or processors in the strict sense of the term, such a price should be referred to as the purchase price
instead of the procurement price.
Procurement prices also became the minimum support prices because the government was
bound to purchase the foodgrains offered by the producers for sale. The minimum support prices
in general are fixed at a level lower than the market price level to avoid the responsibility of
purchasing the entire marketed surplus. Beginning with the kharif crops of 1991-92, the system
of announcement of procurement prices has been abolished and only minimum support prices
for cereals are announced. In the case of other crops, it was only the minimum support prices
that were being announced. Now for all foodgrain crops, only the minimum support price system
is operative.

c. Market Intervention Scheme (MIS)

MIS is an adhoc scheme of price support. The scheme covers horticultural and other
commodities which are perishable in nature and are not covered under minimum support price
scheme. In order to protect the growers of these commodities from making distress sale, in the
event of bumper crop production, during the peak arrival period when prices fall to a very low
level, the central government implements market intervention scheme for a particular commodity
on the request of the state government concerned. Losses suffered are shared on 50 : 50 basis by
the central and state government.

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d. Public Distribution System
Statutory rationing of food grains was undertaken in the country because of severe shortages.
However, with the improvement in the supply situation, informal rationing has been introduced.
The main purpose is to keep the increasing demand of foodgrains under control. The quantity of
foodgrains is fixed under statutory rationing, depending upon the supply, and is increased or
decreased over time. This is a social measure which was adopted by the government to protect
mainly the vulnerable sections of society who could not afford to purchase foodgrains at open
market prices because of their poverty. The main purpose of rationing is to provide relief to the
poor; the other sections are automatically protected under the constitution.

3. Procurement of Food Grains

The term public procurement refers to securing foodgrains by the government or its
agencies to meet the requirements for the supply to consumers through fair price shops, and to
build a buffer stock to met emergency needs in agriculturally lean years. The prices at which the
procurement operation is carried out are referred to as procurement prices.
In India till 1990-91, procurement price system was in operation for cereals. Procurement
prices were announced and the public agencies tried to procure pre-decided quantities at these
prices. If it was felt that targets of procurement would not be met, inter-state or inter-district
movement restrictions were imposed which resulted in depressing the prices in surplus regions
enabling the public agencies to procure desired quantities. Apart from the imposition of movement
restrictions, several other instruments were used at different points of time to achieve the
procurement targets. Some of these are as follows:
(i) Levy on Producers
It is made legally obligatory on producers to sell a part of their produce to the government at
the procurement price. The quantity to be procured by the government is fixed either in proportion
to the acreage under the crop in that year, or at a flat rate. The procurement of foodgrains may be
done directly by the government or through the agents appointed by it. Co- operative marketing
societies, the Food Corporation of India and private traders are generally appointed agents for this
purpose on a fixed commission basis. In this way, the government procures foodgrains from a large
number of farmers throughout the country, everyone contributing a small quantity. Farmers are
free to sell the surplus at open market prices. Levy on

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producers remained in operation only for a short period during the seventies.
(ii) Levy on Traders and Millers
Under this system, the government procures the required quantity of foodgrains from traders
and millers instead of producer-farmers. Traders and millers are legally bound to deliver a fixed
percentage of the foodgrains purchased/processed by them to the government at the announced
procurement prices. They are free to sell the remaining quantity in the open market at the prevailing
prices. At present, sugar is procured from sugar factories by imposing a levy on the quantity of
sugar processed by them. Similarly, rice millers in several states are required to hand over a fixed
percentage of rice milled by them to the government at a fixed price. (Derived from the support
price of paddy) .
. (iii) Pre-emptive Purchases
In this method, the government purchases foodgrains in the open market. The government assumes
the first right to purchase the grains at a price settled between the trader and the food producer.
(iv) Open Market Purchases
Under this method, no price is announced beforehand. The government or its agency enters
the market as a trader and buys the produce after competing with other traders.
(v) Monopoly Procurement
By this method, the government acquires monopoly rights for the purchase of foodgrains
from farmers. Traders are not allowed to enter the market for this purpose. This method
postulates an adequate infrastructure on the part of the government in terms of manpower,
storage godowns, finance and transport facilities. Monopoly procurement for wheat was introduced
in early seventies but was withdrawn after one season.
To ensure the availability of foodgrains for the masses at reasonable prices, the government has
been procuring substantial quantities of food- grains and maintaining large buffer stocks of food
grains. The foodgrains procured are wheat, rice and coarse grains. Wheat and rice are the two main
foodgrains, accounting for over 99 percent of the total procurement. The coarse grains account for
the remaining one percent.
The responsibility for the procurement of foodgrains has been entrusted by the government to
the Food Corporation of India, Cooperative Marketing Societies and Civil Supplies Departments.
These agencies procure the targeted quantity of foodgrains through their own networks.

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4. Buffer Stock Operations
The term buffer stock of food grains refers to the stock of food grains maintained by the
government to be used as a buffer to cushion the shocks of fluctuating supply and price, to meet
the emergency needs and to meet the situations arising out of serious unexpected shortages
resulting from transport bottlenecks, natural calamities like war, flood, famine, earthquakes, and
from the influx of refugees.
The total annual stock of food grains in the Central Pool is distributed over different quarters
of the year depending upon offtake and procurement patterns. The seasonality of production and
procurement is thus a decisive factor in determining the minimum norm of food grains stocks
required in a particular quarter of the year. For working out buffer stocking norms and making
recommendations for policy decisions, the Government has been setting up from time to time
Technical Groups under the Chairmanship of Union Food Secretary.

Objectives of Buffer Stocks

1. The buffer stocks are required to distribute through TPDS and other welfare schemes,
2. Ensure food security during the periods when production is short of normal demand
during bad agricultural years
3. Stabilize prices during period of production shortfall through open market sales.

The main advantages of maintaining a buffer stock are:

(i) It helps in the stabilization of prices by counteracting the effects of the activities of
speculators and hoarders;
(ii) It safeguards the producers against low prices, especially during the surplus-production
years; and
(iii) It imparts stability to the country's food economy.
The government enters the market and purchases food grains for the maintenance of the
buffer stock. This buffer stock can be built either by internal purchases or by imports from
foreign countries. It is maintained by the Food Corporation of India.
However, the stock, which can be considered optimum, depends on the level of public
distribution of food grains intended by the government. The norms of stocks (called buffer
norms) required by the government for both buffer & operational (PDS) purposes are revised

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every five years by a Technical Group.
The Food Corporation of India is the main agency for procurement, storage and distribution
of food grains. In addition to the requirements of wheat and rice under the Targeted PDS, the
Central Pool is required to have sufficient stocks of these in order to meet any emergencies like
drought/failures of crop, as well as to enable open market intervention in case of price rise. The
Buffer norms are the minimum food grains the Centre should have in the Central pool at the
beginning of each quarter to meet requirement of public distribution system and other welfare
measures. According to the norm the buffer norms of food grains in the Central Pool are follows:

5. Role of CACP and Administered Prices:

CACP: Commission for Agricultural Costs and Prices

Agricultural Price Commission, APC was established in 1965 on the recommendations of
Food Grains Policy Committee under the chairmanship of L.K. Jha. The APC has been renamed
as CACP on similar lines as has been done to the industry in 1985. The CACP is responsible for
fixing the administered prices.

Administered Prices:
Prices fixed by the government with the objective of protecting farmers against a decline
in prices during the year of bumper production, protecting consumers from excessive price
increases and ensuring procurement for buffer stocks or operation of PDS. These are three types :

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1. Minimum Support Price, (MSP) : Price fixed by the government to protect farmers
against excessive fall in prices. Chief function is to set a floor to the downward fluctuations in
the market prices. It is an insurance against price uncertainty. While recommending price
policy of various commodities under its mandate, the Commission keeps in mind the various
Terms of Reference (ToR) given to CACP in 2009. Accordingly, it analyzes
The Determinants of MSP were,
1) demand and supply;
2) cost of production;
3) price trends in the market, both domestic and international;
4) inter-crop price parity;
5) terms of trade between agriculture and non-agriculture; and
6) likely implications of MSP on consumers of that product.

The cost of production is an important factor that goes as an input in determination of

MSP, but it is certainly not the only factor that determines MSP.
2. Procurement Price: Refers to the price at which government procures from producers to
maintain buffer stocks and feed Public Distribution System. Always higher than MSP.
Government procures for deficit states and vulnerable sections of population. APC takes into
account market prices, minimum prices announced in the season, marketing and processing
costs, the likely impact of levels of procurement prices on farmer‟s own cost of living, cost
of production of the agricultural based industries, and the external competitiveness of the
commodities concerned.
3. Maximum Ceiling Prices: APC has not favoured maximum or ceiling prices for agricultural
commodities. In the case of food grains, the states were unable to enforce legally fixed
maximum prices. Private stocks tended to go underground.
4. Issue Price: Price at which the commodity is made available to consumers at fair price
shops. It is always higher than procurement price. These are below open market prices and
always higher than procurement prices. Food grains prices supplied through fair price shops
and rationing at subsidized rates are issue prices.

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 17. Risk in Marketing - Types of Risk- Speculation and Hedging.
Price Risk – Futures Trading. Forward vs Futures Market.
Role of Contract Farming in Risk Management.
Marketing Risk
Risk is defined as uncertainty about cost, loss or damage. Risk is inherent in all marketing
transactions. The risks associated with marketing process are of three basic types viz. physical
risk, price risk and institutional risk. Risk bearing is one of the important facilitating functions of
marketing.
Market risk may be defined as the losses or damages that could accrue due to the inability
to accurately predict the future state of variables connected with marketing activities. Thus, there
may be physical risks like losses due to storage, flood etc, financial risks due to price changes
policy changes of the government etc.
There is always a time lag between the production and consumption of farm products. The
longer the time lag, the greater would be the market risk. There is no possibility to dispense with
market risk completely and it is risk bearing that leads to profitability.
Whenever risks are greater and varied, the margin taken by the risk bearers is higher and
vice – versa. In the process of transferring goods from the producer to the consumer, someone has
to take risk and usually the middlemen do it and correspondingly their profit margin are also higher.
Types of risks
The risks associated with the marketing process are of three basic types.
i) Physical Risk
This includes a loss in the quantity and quality of the product during the marketing
process. It may be due to fire, flood, earthquake, rodents, insects, pests, fungus, excessive
moisture or temperature, careless handling and unscientific storage, improper packing, looting or
arson. This together account for a large part of the loss of the produce at the individual as well as
at the macro level.
ii) Price Risk
The prices of agricultural products fluctuate not only from year to year, but during the
year from month to month, day-to-day and even on the same day. The changes in prices may be
upward or downward. Price variation cannot be ruled out as the factors affecting demand for and
the supply of agricultural products are changing continuously. A price fall may cause a loss to the

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trader or farmer who stocks the produce. Sometimes the risks are so great that it may result in a
total failure of the business, and the person who owns it may become bankrupt.
iii) Institutional risk
These risks include the risk arising out of a change in Government's budget policy, in tariffs
and tax laws, in the movement restrictions, statutory price controls and the imposition of levies.
Minimisation of risks
Though risk cannot be eliminated, it can be minimized by proper risk management.
1. The physical loss of a product may be reduced by
 Use of fireproof materials in the storage structures to prevent accidents due to fire;
 Use of improved storage structures and giving necessary pre-storage treatment to the
product to prevent losses in quality arising out of excessive moisture, temperature, attacks
by insects and pests, fungus and rodents;.
 Use of better and quicker transportation methods and proper handling during transit; and
 Use of proper packaging material.
 Transfer of physical losses to Insurance Companies: The burden of physical risk may be
minimised by shifting it to insurance companies. There are specialized professional agencies
to bear such risks. They collect premium and provide full compensation to the party in cash
of loss due to the reasons for which the products are insured. In this way, the company
insures a number of farmers against losses.

2. Minimization of price risks

a. Fixation of minimum and maximum prices for commodities by the government and
allowing movement of prices only within the defined range.
b. Making arrangements for the dissemination of accurate and scientific price information to
all sections of society over space and time.
c. Operation of speculation and hedging: The price risk associated with the commodities for
which the facility of forward trading is available may be transferred to professional
speculators through the operation of hedging.

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 Speculation and Hedging
Speculation and hedging are the important ways of minimising price risk in business.
Speculation involves purchase or sale of a commodity at the present price with the object of sale
or purchase at future date at a favourable price. Speculator is concerned with profit making from
price movements. He purchases when prices are low, so he is not a normal or regular trader. The
difference in the prices prevailing at two times constitutes his profit. Speculator may lose in this
process.
Speculation: The fundamental ideas underlying speculation is the purchase or sale of a
commodity at the present piece with the object of sale or purchase at some future date at a
favourable price. The speculation is normally concerned with profit making from price movements.
Hedging refers to the purchase or sale of a commodity in a futures market accompanied by a sale
or purchase in the cash market.
Hedging: Refers to the purchase or sale of a commodity in a future’s market accompanied
by a sale or a purchase in the cash markets. In this approach, each sale is entered into with an
equivalent purchase of the commodity. It is assumed that prices in the two markets move exactly
parallel, and that the losses arising in one market are offset by profit in another market.
Hedging is based on two assumptions.
Benefits
i) It protects the hedger from sustaining loss and enables him to earn his normal trade profit.
ii) Hedging enables him to keep the trade margin at a lower level because there is no risk.
iii) Hedging facilitates the financing of inventories of stored commodities to the maximum
possible extent.
Forward / Future Trading
Forward Trading is a device for protection against the price fluctuations, which normally
arise in the course of the marketing of commodities. Producers, processors or manufacturers
utilize the futures or contracts to transfer the price risk faced by them.
Forward contract is a customized contractual agreement where two private parties agree to trade
a particular asset with each other at an agreed specific price and time in the future. Forward contracts
are traded privately over-the-counter, not on an exchange.

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Futures contract — often referred to as futures — is a standardized version of a forward
contract that is publicly traded on a futures exchange like NCDEX, MCX,etc. Like a forward
contract, a futures contract includes an agreed upon price and time in the future to buy or sell an
asset — usually commodities, like gold, silver, basic metals, agricultural commodities etc.

The main differentiating feature between futures and forward contracts are,

Forward Futures
Criterion

A futures contract is a standardized

A forward contract is an agreement
contract, traded on a futures exchange, to
between two parties to buy or sell
Definition buy or sell a certain underlying instrument
an asset at a pre-agreed future point in
at a certain date in the future, at a
time at a specified price.
specified price.

Purpose
Usually used for hedging. Usually used for speculation.

Quality and
Un Standardized Standardized
Quantity

Customized to customer needs. Standardized.

Structure Usually no initial payment Initial margin payment required.
required.

Transaction Negotiated directly by the buyer Quoted and traded on the Exchange
method and seller platform

Market Government regulated market (Forward

Not regulated
regulation Market Commission)

Clearing House –
Institutional The contracting parties-
Both parties must deposit an initial
guarantee No guarantee of settlement
guarantee (margin).

Risk High counterparty risk Low counterparty risk

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 a. Bilateral between producer and Industry, Eg cotton farmer and ginning industry

Supply of Quality Cotton

→
Farmer <------------------------> Ginning industry
←
Financial and Technological assistance

b. Trilateral between producer, Bank and Industry Eg, cotton farmer, bank and ginning industry
Bank

Farmer
∆ Ginning industry

It is a bipartite / tripartite agreement between farmer, industry and financial institutions.

As per the agreement the farmer producer will supply the agreed quantity and quality of raw
material to the industry at a specified date. Services provided by sponsoring firms range from
supply of inputs, extension service, quality monitoring to purchase of output and the financial
institution will provide the financial support to the farmers. However the absence of common legally
binding contractual arrangement gives the way for violation the contract on both sides.
Contract farming is evolving an institutional arrangement of alternative marketing in
India. State like Punjab, Karnataka, Maharastra, Madhya Pradesh and Tamil Nadu have been front
runners in this regard. Experience shows that there is considerable saving of inputs and rising
profitability due to introduction of technology and effective extension service. The farmers
benefit through better and assured price for their produce along with other technical support. The
contract farming reduces the price risk for the formers.

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