Agriculture Padhai Online Classes

ECONOMICS

 Economics is the Queen of Social Sciences.

 Father of Economics "Adam Smith".
 Father of Modern Economics “ Keyens”
 Wealth of Nation Book written by "Adam Smith".
 “Arthshastra” book written by great Indian statement Koutilya.
 Principles of Economics book written by “Alfred Marshall”.
 The concept of consumers surplus is based on the theory of demand introduce by Marshall in
1985.

Definition of Economics
 The word Economics has been appeared from the Greek Word “OIKONOMICAS”

OIKOS + NOMOS

Meaning

Household Management
 That means the field of Economics deals with household management.

Wealth Definition of Economics:

 Acc/to Adam Smith: An enquiry into the nature and cases of the wealth of nations.
 Acc/to J.S. Mill: The practical science of production and distribution of wealth.

Welfare Definition of Economics:

 Acc/to Alfred Marshall: Economics is the study of human behavior in the daily business
of life i.g. economic and non-economic activity.
 Scarcity definition Acc/to Lionel Robbins: Economics is the science which studies
human behavior as relationship between ends scare means which have alternative uses.
(Superior definition to Wealth and Welfare) Or Modern definition Human wants are
unlimited and the study of choice making behavior.

Growth Definition of Economics:

 Acc/to Keynes: The study of administration of scare resources and of the determination
of employment and income.

Subject matter of Economics/ Division of Economics

 The subject matter of economics can be explained under two approaches:
1) Traditional approach 2) Modern approach

1) Traditional approach: It is divided into four divisions:

1. Consumption : Distraction of Utility
2. Production: Creation of Utility.
3. Exchange: Transfer of goods from one plsce to other.
4. Distribution: Sharing to all whatever produced.

2) Modern approach: It is divided into two divisions (By Ragnar Frisch)

1) Micro-economics 2) Macro-economics
 The term Micro and Macro-economic were first coined and used by Ragnar Frisch in
1933.

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1. Micro-Economics or Price Theory:

 The term “micro-economics” is derived from

‘Greek’ word “micro” means small or a millionth part.

 It is an analysis of the behavior of small decision-making unit, such as a firm, or an

industry, or a consumer, etc
 It is studies of Employment in a firm or in an industry.
 The theory of product pricing factor and economic welfare is micro economics.

2. Macro-Economics or Theory of Income and Employment:

 The term „macro-economics is derived from

‘Greek’ word “macro” means “large”.

 Macro-economics is an analysis of aggregates and averages pertaing to the entire

economy, such as national income, gross domestic product, total employment, total
output, total consumption, aggregate demand, aggregate supply.

Methods of Economics Investigation

There are two methods of economic investigation that are used in economic theory i.e.
1) Deductive method and 2) Inductive Method

1) Deductive method
It is the inference from the universal to the individuals.
It is also known as the abstract, analytical, hypothetical or apriori method.

2) Inductive Method
It involves reasoning from the individual to the universal.
It is also known as Concrete method, historical method or realistic method.

Agricultural economics
Agricultural economics began in the 19th century as a way to apply economic principles
and research methods to crop production and livestock management.

Agricultural economics is an applied field of economics in which the principles of choice

are applied in the use of scarce resources such as land, labour, capital and management in
farming and allied activities.

According to Prof. Gray has defined agricultural economics as “The science in which the
principles and methods of economics are applied to the special conditions of agricultural
industry”

Factor of Production
1. Land
2. Labour
3. Capital
4. Raw Material
5. Organization

1. Land:

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 It is fixed in quantity.
 land has no supply price
 Land has original and indestructible properties.
 Land lacks mobility in the geographical sense.
 Land differs in fertility.
 Reward of Land is Rent.

2. Labour:
 It is a active factor.
 Labour cannot be separated from the labourer.
 Labour is highly perishable.
 Labourer has a weak bargaining power.
 The supply of labour changes slowly..
 Labour is not so mobile as capital due to differences in language.
 Reward of Land is wages.

3. Capital:
 Man made material.
 The produced means for further production.
 Money used to buy capital goods is called Capital.
 It is perishable.
 Supply of capital is elastic.
 It is highly mobile.
 Reward of Land is Interest.
Note: All capital is wealth but all wealth is not capital.

4. Enterprise or Organization
 An entrepreneur is the co-coordinator of all other factors of production.
 He has to plan, organize and direct other factors of production arrange for marketing
the produce and take risks and uncertainties.
 Reward of Land is Profit.

Functions of an Entrepreneur
1) Function of initiation:
2) Function of choice of location
3) Function of co-ordination
4) Function of innovation
5) Function of bearing risk and uncertainty

Cooperatives in India
 Cooperative movements in India started in 1904.
 Father of Cooperative movements in India – F. Nicholson.
 Limitation: No Any Provision for the formation of non-credit society.

State Bank of India

 The Imperial Bank of India was established in 1921 by the amalgamation of the
Presidency Banks
1. Bank of Bengal-1804
2. Bank of Bombay-1840 and
3. Bank of Madras-1843.

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 In 1955, the state Bank of India Act was passed and Imperial Bank India was named as
the State Bank of India. In 1959, State Bank of India (Subsidiary Banks) Act was passed
and seven Associate Banks or Subsidiary Banks of SBI were started functioning.

Reserve Bank of India

 RBI came into existence on 1st April 1935.
 RBI act Pass in 1934.
 It has been nationalized on 1 Jan 1949.
 First Governor of RBI-Mr. Osporne A Smith.
 Nationalization banks- First time July 1969 and Second Time April 1980

Land Development Bank (LDB)

 First mortgage bank was established in 1920 at Jhang (Punjab).
 Actual started by the establishment of central land mortgage bank in 1929 at Madras.
 The name of this bank was changed into Land Development Bank (LDB) in order to give
credit facilities to the farmers for development of Agriculture.
 LDB finances long term loans for the following objectives:
1.The settlement of old debts
2.Improvement of agricultural lands
3.Giving credit facilities to the farmers for purchasing irrigation equipments and tractors.

Regional Rural Banks (RRBs)

 Committee on Rural Banks headed by M. Narasimhan (1975).
 RRB came into existence as a result of measures taken under 20 point economic
programme in 1975 by Indira Gandhi.
 First of all 5 RRBs were established
State Dist. Sponsored bank
1. Moradabad Syndicate Bank
U.P.
2. Gorakhpur SBI
Haryana 3. Bhiwani Punjab National Bank
Rajasthan 4. Jaipur United National Bank
W.B . 5. Malda United Bank of India

 The share capital of RRBs was subscribed by Central Govt. State Govt. an8 sponsored
bank; and share of each agencies were 50%, 15% and 35% respectively.
 Main objective of RRBs: Provision of credit and other facilities, especially to small and
marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas.

IMP
 Taccavi: It is the name of Govt. Loan which is given by the govt. in case of famine and
distress condition.
 FSS means Farmer Service Society.
 PACS: Primary Agricultural Cooperative Society.

Cost Concepts
 The cost is the outlay of funds for productive services.
i) Cost A1: consists of following 16 items of costs:
1) Value of hired human labour (Permanent & Casual)
2) Value of owned bullock labour
3) Value of hired bullock labour
4) Value of owned machinery
5) Hired machinery charges

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6) Value of fertilizers
7) Value of manure (Produced on farm and purchased)
8) Value of seed (both farm-produced and purchased)
9) Value of insecticides & fungicides
10) Irrigation charges (both of the owned & hired tubewells, pumping sets etc.
11) Canal-water charges
12) Land revenue, cesses and other taxes
13) Depreciation on farm implements (both bullock drawn & worked with human labour)
14) Depreciation on farm buildings, farm machinery and irrigation structures.
15) Interest on the working capital
16) Miscellaneous expenses (wages of artisans, cost of ropes & repairs to small farm
implements)

ii) Cost A2 = Cost A1 + Rent paid for Leased Land

iii) Cost B = Cost A2 + Imputed Value of Owned Land (less land revenue paid there
upon)+ Imputed interest on Owned Fixed Capital (excluding land)
iv) Cost C = Cost B + Imputed Value of Family Labour where cost C is the cost of
cultivation.
Note: It means cost C consists of 20 items viz.

Fixed Cost or Overhead Cost: -

 It does not change with the level of Production.
 It is also known as Sunk Cost and may be cash or non-cash fixed costs,
 The examples of fixed cash cost are Land taxes, Interest , Insurance premiums, annually
hired labour and the non-cash fixed costs are depreciation on capital investment, cost of
family labour and costs of management, machinery equipment, interest on capital
management.

Variable Cost or Prime Cost

 It is the cost of using the variable inputs.
 It is change with level of Production.
 Factors are directly related to the production.
 Examples of variable cost are cost of seed , feed , fertilizer, water, labour hired
occasionally , interest on current investment, current repair replacement, diesel etc Here
farming expenses are the function of farm output.
 It means higher the production; higher will be the variable cost.
 Variable cost is also known as Prime Cost or Special Cost or Direct Cost.

Opportunity Cost or Social or Alternative Cost

 The farm resources have normally a number of alternative uses.
 For example a farmer raises paddy on his farm instead of maize. It means the farmer
utilizes the other opportunity by giving up the first altemative.
 Here the Social cost of raising paddy will be the amount of maize sacrificed in the
process.
 Therefore in modern economics the real cost is presented as opportunity cost or
Alternative Cost.
Market -The word market comes from the latin word “marcatus” which means merchandise or
trade or a place where business is conducted.

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Agricultural Marketing: It is the study of all the activities, agencies and policies involved in
the procurement of farm inputs by the farmers and the movement of agricultural products from
the farms to the consumer.

Components of a Market:
A) The existence of a good or commodity for transactions(physical existence is, however, not
necessary),
B) The existence of buyers and sellers;
C) Business relationship or intercourse between buyers and sellers; and
D) Demarcation of area such as place, region, country or the whole world.

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

Components of Market Structure:

 Concentration of market power
 Degree of product differentiation
 Conditions for entry of firms in the market
 Flow of market information
 Degree of integration.

Classification of Market:

1. ON THE BASIS OF LOCATION

1.VILLAGE 2.PRIMARY 3.SECONDARY 4.TERMINAL 5.SEABOARD

MARKETS WHOLESALE WHOLESALE MARKETS MARKETS
MARKETS MARKETS
A market which These markets are These markets are A terminal market is Markets which
is located in a located in big located generally in one where the are located near
small village, towns near the district headquarters produce is either the seashore
where major centers of or important trade finally disposed of to and are meant
transactions production of centers or near the consumers or mainly for the
take place agricultural railway junctions. processors, or import and/or
among the commodities. major transactions assembled for export. export of goods
buyers and Transactions in in commodities take Such markets are are known as
sellers of a these markets place between the located either in seaboard
village. usually take place village traders and metropolitan cities or markets.
between the wholesalers. in sea-ports – in Examples of
farmers and Bombay, Madras, these markets in
traders. Calcutta and Delhi. India are
Bombay,
Madras,
Calcutta.

2. ON THE BASIS OF AREA/COVERAGE

1.LOCAL OR VILLAGE 2.REGIONAL 3.NATIONAL 4.WORLD MARKET
MARKETS MARKETS MARKETS

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The village markets exist
mostly for perishable
commodities in small lots,
e.g., local milk market or
vegetable market.
A market in A market in which A market in which the buyers
which buyers buyers and sellers are and sellers are drawn from the
and sellers for a at the national level. whole world.
commodity are National markets are These markets exist in the
drawn from a found for durable commodities which have a
larger area than goods like jute and world-wide demand and/or
the local tea. supply, such as coffee,
markets. machinery, gold, silver, etc
Ex- Food grain

3. ON THE BASIS OF TIME SPAN

SHORT-PERIOD LONG-PERIOD
MARKETS 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.
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.
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 DEGREE OF COMPETITION

1. PERFECT MARKETS
 A perfect market is one in which the following conditions hold good:
 There is a large number of buyers and sellers.
 All the buyers and sellers in the market have perfect knowledge of demand, supply and
prices.
 Prices at any one time are uniform over a geographical area, plus or minus the cost of
getting supplies from surplus to deficit areas.
 The prices are uniform at any one place over periods of time, plus or minus the cost of
storage from one period to another.
 The prices of different forms of a product are uniform, plus or minus the cost of
converting the product from one form to another.

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2. IMPERFECT MARKETS
MONOPOLY MARKET DUOPOLY MARKET OLIGOPOLY MONOPOLISTIC
MARKET COMPETITION

Monopoly is a market A duopoly market is A market in When a large number of

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.
one which has only which there are sellers deal in heterogeneous
two sellers of a more than two and differentiated form of a
commodity. but still a few commodity, the situation is
They may mutually sellers of a called monopolistic
agree to charge a commodity is competition.
common price which termed as an The difference is made
is higher than the oligopoly conspicuous by different trade
hypothetical price in market. marks on the product.
a common market. A market having Different prices prevail for the
The market situation a few (more than same basic product.
in which there are two) buyers is Examples of monopolistic
only two buyers of a known as competition faced by farmers
commodity is known oligopsony may be drawn from the input
as the duopsony market. markets. For example, they
market. have to choose between
various makes of insecticides,
pump sets, fertilizers and
equipments.

5. ON THE BASIS OF EXTENT OF PUBLIC INTERVENTION

REGULATED MARKETS UNREGULATED MARKETS

Markets in which business is done in
accordance with the rules and regulations
framed by the statutory market organization
representing different sections involved in
markets.
The marketing costs in such markets are
standardized and practices are regulated.
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 unstandardised charges for marketing
functions to imperfections in the determination
of prices.

PRODUCERS SURPLUS OF AGRICULTURAL COMMODITIES

Meaning: 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.
2. Marketed Surplus.

1. Marketable Surplus:

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 The marketable surplus is that quantity of the produce which can be made available to the
non-farm population of the country.
 The marketable surplus is the residual left with the producers farmers after meeting his
requirement for family consumption, farm needs for seeds and feed for cattle, payment to
labour in kind, payment to artisans, blacksmith, potter and mechanic payment to landlord
as rent and social and religious payments in kind

2. Marketed Surplus
 Marketed surplus is that quantity of the produce which the producer farmer actually sells in
the market, irrespective of the 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 continual
theoretical security.
 An increase in the real income of farmers also has a positive effect on-farm consumption
because of positive income of farmers also has a positive effect on-farm consumption
because of positive income elasticity.
 Since the contribution of this group to the total marketed quantity is not substantial the
overall effect of increase in production must lead to an increase in the marketed surplus.

RELATIONSHIP BETWEEN MARKETED SURPLUS AND

MARKETABLESURPLUS
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 < surplus
=
More: 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.
Less: The marketed surplus is less than the marketable surplus when the farmers retains some
of the surplus produce.
Equal: 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 of the average farmer.

Marketable surplus depends on the following factors:

1. Size of holding. 2. Production.
3. Price of the Commodity. 4. Size of family.
5. Requirement of Seed and Feed. 6. Nature of Commodity.
7. Consumption Habits.
The functional relationship between the marketed surplus of a crop and factors affecting the
marketed surplus may be expressed as:
M = f (x1, x2, x3,.......)
x1 = Size of holding in hectares’
x2 = Size of family in adult units
x3 = Total production of the crop in quintals
x4 = Price of the crop
Where M = Total marketed surplus of a crop in quintals the other factors may be
specified..

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MARKETING FUNCTIONS

 Any single activity performed in carrying a product from the point of its production to
the ultimate consumer may be termed as a marketing function.
 A marketing function may have anyone or combination of three dimensions, viz., time,
space and form.
 Thomsen has classified the marketing functions into three broad groups. These are:

1. Primary Functions : Assembling or procurement

Processing
Dispersion or Distribution
2. Secondary Functions : Packing or Packaging
Transportation

Grading, Standardization and

Quality Control

Storage and Warehousing

Price Determination or Discovery

Risk Taking

Financing

Buying and Selling

Demand Creation

Dissemination of Market

Information

3. Tertiary Functions : Banking

Insurance

Communications – posts &

Telegraphs Supply of Energy –

Electricity

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Kohls and Uhl have classified marketing functions as follows:

1. Physical Functions : Storage and Warehousing

Grading
Processing
Transportation
2. Exchange Functions : Buying
Selling
3. Facilitative Functions : Standardization of grades
Financing
Risk Taking

Dissemination of Market

Information

MARKET INFORMATION:

 It is the lifeblood of a market.

 Market information may be broadly defined as a communication or reception of knowledge or

intelligence.
 It includes all the facts, estimates, opinions and other information which affect the marketing of
goods and services.

Types of Market Information:

1. Market Intelligence:
 This includes information relating to such facts as the prices that prevailed in the past and market
arrivals over time.
 These are essentially a record of what has happened in the past. Market intelligence is therefore, of
historical nature.
 An analysis of the past helps us to take decision about the future.

2.Market News:
 This term refers to current information about prices, arrivals and changes in market conditions.
 This information helps the farmer in taking decisions about when and where to sell his produce.
 The availability of market news in time and with speed is of the utmost value. Sometimes, a person
who gets the first market news gains a substantial advantage over his fellow-traders who receive it
late.
 Market news quickly becomes obsolete and requires frequent updating.

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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

(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.

1. Merchant Middlemen:
 Merchant middlemen are those individuals who take title to the goods they handle.
 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.

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:
 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:
 It has 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.

2. Agent Middlemen:

 Agent middlemen act as representatives of their clients. They do not take title to the produce
and, therefore, do not own it.
 Agent middlemen are of two types

a. 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.
 Commission Agents or Arhatias in unregulated markets are of two types,
1. Kaccha arhatias
 primarily act for the sellers, including farmers.
 They sometimes provide advance money to farmers and intinerant traders on the
condition that the produce will be disposed of through them.
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 Kaccha arhatias charge arhat or commission in addition to the normal rate of interest on the
money they advance.
2. pacca arhatia
 He 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.

b. Brokers:
 Brokers render personal services to their clients in the market; but unlike commission agents, they
do not have physical control of the product.
 The main function of a 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,

3. Speculative Middlemen

 Those middlemen who take title to the product with a view to making a profit on it are called
speculative middlemen.

4. Facilitative Middlemen

 Some middlemen do not buy and sell directly but assist in the marketing process.
 The important facilitative middlemen are:
1. Hamals or Labourers:
2. Weighmen:
3. Graders:
4. Transport Agency:
5. Communication Agency:
6. Advertising Agency:
7. Auctioners:

The remedial measures for the problems of marketing are classified into the following types:
 Reduction and regulation of market charges.
 Organization of cooperative marketing, and
 Government legislations.
 The Central Government is aided and advised by two organizations under its control, namely,
1. Directorate of Marketing and Inspection (DMI)
2. 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.
 Established in 1935.
 The organization setup of the DMI is as under:-Head Office : Faridabad
 Branch Head Office: Nagpur
 Regional Office: Chennai, Delhi, Guntur, and Mumbai.
 Central Agmark Laboratory is located at Nagpur.
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Functions
 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;
 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

 It 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;
 To offer educational programmes in agricultural marketing for supplementing the existing facilities.

Grading and Standardization:

 The Agricultural Produce (Grading & Marking) Act,1937 empowers the Central Government to fix
quality standards, known as „AGMARK‟ standards and
 To prescribe terms and conditions for using the seal of AGMARK‟.

Central Warehousing Corporation:

 Central Warehousing Corporation(CWC) is a premier warehousing agency in India, established

during 1957 providing logistics support to the agricultural sector, and one of the biggest public
warehouse operators in the country offering logistics services to a diverse group of clients.
 CWC is operating 475 Warehouses across the country with a storage capacity of 10.3 million tonnes
providing warehousing services for a wide range of products ranging from agricultural produce to
sophisticated industrial products.

Functions:

To acquire and build godowns and Warehouses at suitable places in India.
 To run Warehouses for storage of agricultural produce, seeds, fertilizers and notified
commodities for individuals, co-operatives and other institutions.

To act as an agent of the govt. for purchase, sale, storage and distribution of the above
commodities.

To arrange facilities for the transport of above commodities.

To subscribe to the share capital of SWC.

FOOD CORPORATION OF INDIA

 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 1964 to implement the
Following objectives of the National Food Policy:

 Effective price support operations for safeguarding the interests of the farmers
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 Distribution of foodgrains throughout the country for Public Distribution System

 Maintaining satisfactory level of operational and buffer stocks of Foodgrains to ensure National
Food Security

Agricultural price policy :

 Agricultural Price policy 1947 – 1965 i.e before setting up of APC

CACP: Commission for Agricultural Costs and Prices,

 Agricultural Price Commission, APC was established in 1965 on the recommendations of Foodgrains
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.

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:

1. Minimum Support Price, (MSP) : Price fixed by the government to protect farmers
against excessive fall in prices.

2. Procurement Price: Refers to the price at which government procures from producers to
maintain buffer stocks and feed Public Distribution System.
3. Issue Price: Price at which the commodity is made available to consumers at fair price
shops. It is always higher than procurement price.

Marketing Channels:
 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.

Important channels of distribution:

Producer or manufacturer – Retailer – Consumer.
Producer or manufacturer – Consumer.
Producer or manufacturer – Wholesaler – Retailer – Consumer.
Producer – Commission agent.
Factors considered while choosing a Channel:
Nature of the product.
Price of the product. No. of
units of sale. Characteristics
of the user. Buyers and their
buying units.

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Types of market integration :
1. Horizontal integration
2. Vertical Integration
3. Conglomeration

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.
 Horizontal integration is advantageous for the members who join the group.
 Eg:-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.

2. Vertical Integration:
 It occurs when a firm performs more than one activity in the sequence of the marketing process. It
is linking together of two a more functions within a single firm or under a single ownership.
 Eg: - If a firm assumes the functions of the commission agent as well as retailing.

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).

Marketing efficiency:
 It is the ratio of market output (satisfaction) to marketing input (cost of resources).
 An increase in ratio represents improved efficiency and vice versa.
 It is essentially the degree of market performance. It is a broad and dynamic concept.

Components of marketing efficiency:

a) Effectiveness with which a marketing service is performed.

b) The cost at which the service is provided.
c) The effect of this cost and the method of performing service as production and consumption.

Empirical Assessment of Marketing Efficiency:

According to Khols and Uhl: -
 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.
O
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Shepherd’s formula of marketing efficiency :

V
ME = -1 x100
I
ME = Index of marketing efficiency
V = Value of the goods sold or price paid by the consumer (Retail price)
I = Total marketing cost or input of marketing.

Marketing Costs:
 The movement of products from the producers to the ultimate consumers involves costs,
taxes, and which is called marketing costs.
 These costs vary with the channels through which a particular commodity passes through.
 Eg: - Cost of packing, transport, weighment, loading, unloading, losses and spoilages.

Marketing costs would normally include :

a) Handling charges at local point
b) Assembling charges
c) Transport and storage costs
d) Handling by wholesaler and retailer charges to customers
e) Expenses on secondary service like financing, risk taking and market intelligence
f) Profit margins taken out by different agencies.
g) Producer’s share in consumer’s rupee.

Factors affecting marketing costs:

 Perishability
 Losses in storage and transportation
 Regularity in supply : Costless irregular in supply –
cost is more o Packaging : Costly (depends on the
type of packing)
 Extent of adoption of grading
 Necessity of demand creation (advertisement)
 Bulkiness
 Need for retailing : (more
retailing – more costly) o
Necessity of storage
 Extent of Risk
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.
 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.

Price Spread:
 It is defined as the difference between the price paid by the consumer and price received by
the farmer.
 It involves various costs incurred by various intermediaries and their margins.

Mob. 8461968163 Page 1

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