Importance of agricultural marketing in economic development

1. Optimization of Resource use and Output Management -increase in the marketable

surplus by scaling down the losses
2. Increase in Farm Income ensures higher levels of income for the farmers reducing the
number of middlemen or by restricting the cost of marketing services and the malpractices
3. Widening of Markets-The widening of the market helps in increasing the demand on a
continuous basis
4. Growth of Agro-based Industries
5. Price Signals-carried out through transmitting price signals.
6. Adoption and Spread of New Technology-New technology requires higher investment and
farmers would invest only if they are assured of market clearance at remunerative price
7. Employment Creation-provides employment to millions of persons engaged in various
activities, such as packaging, transportation, storage and processing. Persons like
commission agents, brokers, traders, retailers, weighmen, hamals, packagers and
regulating staff are directly employed in the marketing system
8. Addition to National Income
9. Marketing activities add value to the product thereby increasing the nation's gross national
product and net national product
10. Better Living
11. The marketing system is essential for the success of the development programmes which
are designed to uplift the population as a whole
12. Creation of Utility
 MARKET STRUCTURE CONDUCT AND PERFORMANCE

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.

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 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

Homogeneous or other nature of the product 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.
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 behavior 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, coordinating 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 setting 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

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

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

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 real 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. 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 market structure should be re-oriented to keep it in harmony with the changes
in demand.
(iii) Costs and Patterns of Marketing Functions-The market structure should keep on adjusting to the
changes in costs and government policy. Number of players in the market must be in accordance with the
marketing functions performed and size of operations to take advantage of size economy.
(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. Establishment of retail chains and
entry of MNCs in the food retailing effected conspicuous change in the structure of vegetable markets in
India
 Marketing Functions and their Classification

Thomsen has classified the marketing functions into three broad groups
Huegy and Mitchell have classified marketing functions in a different way. According to them,
the classification is as follows
Marketing Agencies
In the marketing of agricultural commodities, the following 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 food

grain 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.
Merchant middlemen are of following 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 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.

Mashakhores: This is a local term used for big retailers or small wholesalers dealing in

fruits and vegetables. Earlier, the mashakhores used to deal only in one or

two vegetables, purchasing from the commission agents or wholesalers in substantial

quantities usually three to four quintals of vegetables like potato, onion, carrot, okra,

tomato and spinach. They usually sell to the bulk consumers like hotelwalas, para-

military units or small retailers/vendors in lots of around 5 kg to 10 kg each. However, in

recent years, mashakhores have started retailing to all types of customers without the

condition of a minimum quantity. In other words, the mashakhores are now working

more like ordinary retailers.

(b) 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 of brokerage. They serve as buyers or sellers in
effective bargaining.
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 normally takes over 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.
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 itinerant 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.

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 is, therefore, preferred by the farmers to the co-operative marketing society for the
purpose of the sale of the farmer's produce. Commission agents extend the following
facilities to their clients: (In Regulated Markets Class A Trader)
(i) They advance 40 to 50 per cent of the expected value of the crop as a loan to farmers to
enable them to meet their production expenses;
(ii) 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;
(iii) They offer advice to farmers for purchase of inputs and sale of products;
(iv) They provide empty bags to enable the farmers to bring their produce to the market;
(v) They provide food and accommodation to the farmers and their animals when the latter
come to the market for the sale of their produce;
(vi) They provide storage facility and advance loans against the stored product up to 75
per cent of the value;
(vii) They arrange, if required by the farmer, for the transportation of the produce from the
village to the market; and
(viii) They help the farmers in times of personal difficulties.
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 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 foodgrain marketing trade is decreasing. But they still play a valuable role in

the marketing of other agricultural commodities, such as gur, sugar, edible oil, cotton

seed 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.

(d) Processors

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.

Marketing Institutions
Marketing institutions are business organizations which have come up to operate the
marketing mechanism. 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
(vii) Others • Central Warehousing Corporation
• Rubber Board
(CWC)'
• Tea Board
• State Warehousing Corporations (SWCs)
• Coffee Board
• State Trading Corporation (STC)
• Spices Board
• Agricultural and Processed Food Export
• Coconut Board
Development Authority (APEDA)
• Oilseeds and Vegetable Oils Board
• Export Inspection Council
• Tobacco Board
• Marine Products Export Development
• Cardamom Board
Authority (MPEDA)
• Arecanut Board
• Silk Export Promotion Council (SEPC)
• Coir Board
• The Cashewnuts Export Promotion Council of
• Silk Board
India (CEPCI)
• National Horticulture Board (NHB)
• Agricultural Produce Market Committees
• National Dairy Development Board
(APMC)
(NDDB)
• 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
Producer's Surplus of Agricultural Commodities
In any developing economy, the producer's surplus of agricultural product plays a
significant role. This is the quantity which is actually made available to the non-
producing population of the country. From the marketing point of view, this surplus is
more important than the total production of commodities.

The arrangements for marketing and the expansion of markets have to be made only for
the surplus quantity available with the farmers, and not for the total production. This is
because, only a portion of the total production is sold in the market after personal
consumption by the members of farm household and retention in the farm for several
reasons.
Relationship between marketed surplus and marketable surplus
The larger the production of a commodity, the greater will be 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:

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 s 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 behavior of
marketable and marketed surplus. Similarly, the traders, processors and exporters have to
decide their purchase strategies on the basis of marketed quantity
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
product from one area, where they are in surplus, to another area which is deficient.
iv Export/Import policies: Advance 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.
 Factors Affecting Marketable Surplus

The marketable surplus differs from region to region and, within 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:
(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. 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 of paddy/rice, Punjab farmers sell a greater proportion than that sold by rice

eating farmers of other states.

Relationship between prices and marketable surplus
Two main hypotheses have been advanced to explain the relationship
between prices and the marketable surplus of foodgrains.

Inverse Relationship

There is an inverse relationship between prices and the marketable surplus.

This hypothesis was presented by P N. Mathur and M. Ezekiel.

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.

Positive Relationship

[Link] and Rajkrishna put forward the case for a positive relationship

between prices and the marketed surplus of food grains in India.

This relationship is based on the assumption that farmers are price conscious. With a

rise in the prices of food grains, farmers are tempted to sell more and retain less. As a

result, there is increased surplus. The converse, too, holds true.