UNIVERSITY OF AGRICULTURAL SCIENCES, DHARWAD

KARNATAKA

COURSE TITLE
AEC 302: AGRICULTURAL MARKETING, TRADE AND PRICES (2+1)

Dr. G. N. Kulkarni
Dr. B.L.Patil
Dr. Mahantesh R. Nayak
Dr. P. S. Dhananjaya Swamy

DEPARTMENT OF AGRICULTURAL ECONOMICS,

COLLEGE OF AGRICULTURE, DHARWAD
2019-20
Course Syllabus: Theory

AEC – 302: Agricultural Marketing, Trade and Prices (2+1)

Agricultural Marketing: Concepts and definitions of market, marketing, agricultural marketing,

marketing mix and market segmentation, classification and characteristics of agricultural markets;
Market structure: meaning and types of market, basic features of perfectly competitive and imperfect
markets. Price determination under perfect competition; short run and long run equilibria of firm and
industry, shut down and break even points; Demand, supply and producer’s surplus of agri-
commodities: nature and determinants of demand and supply of farm products, producer’s surplus –
meaning and its types, marketable and marketed surplus, factors affecting marketable surplus of agri-
commodities; Product life cycle (PLC) and competitive strategies: Meaning and stages in PLC;
characteristics of PLC; strategies in different stages of PLC; Pricing and promotion strategies: pricing
considerations and approaches–cost based and competition based pricing; market promotion–
advertising, personal selling, sales promotion and publicity –meaning, merits and demerits. Marketing
process and functions: Marketing process-concentration, dispersion and equalization; exchange
functions–buying and selling; physical functions–storage, transport and processing; facilitating
functions–packaging, branding, grading, quality control and labelling (Ag-mark); Market functionaries
and marketing channels: Types and importance of agencies involved in agricultural marketing; meaning
and definition of marketing channel; marketing channels for different farm products, factors affecting
marketing channels; Integration, efficiency, costs and price spread: Meaning, definition and types of
market integration; marketing efficiency; marketing costs, margins and price spread; factors affecting
cost of marketing; reasons for higher marketing costs of farm commodities; ways of reducing marketing
costs; Role of Govt. in agricultural marketing: Public sector institutions-CWC, SWC, FCI, APEDA,
CACP, KAPC, DMI & KSAMB–their objectives and functions; Cooperative marketing in India-
NAFED; Risk in marketing: Types of risk in marketing; speculation & hedging; an overview of futures
trading; Agricultural prices and policy: Meaning and functions of price; administered prices; need for
agricultural price policy; Trade: Concept of International Trade and its need, Absolute and comparative
advantage and modern theory, Present status and prospects of international trade in agri-commodities,
WTO-Genesis, objectives and functions, Agreement on Agriculture (AoA) and its implications on
Indian Agriculture, IPR.
 UNIVERSITY OF AGRICULTURAL SCIENCES, DHARWAD
College of Agriculture, Dharwad– 580005
Department of Agricultural Economics

Course Title: Agricultural Marketing, Trade and Prices: AEC - 302(2+1)

COURSE OUTLINE

Week
THEORY TOPICS
ending
Agricultural Marketing: Concepts and definitions of market, marketing, agricultural
1-2 marketing, marketing mix - meaning and types, market segmentation- meaning,
classification and characteristics of agricultural markets.
Market structure: meaning and types of market, basic features of perfectly competitive and
3
imperfect markets.
Price determination under perfect competition; short run and long run equilibria of firm and
4
industry, shut down and break even points.
Demand, supply and producer’s surplus of agri-commodities: Determinants of demand and
4 supply of farm products, producer’s surplus – meaning and its types, marketable and marketed
surplus, factors affecting marketable surplus of agri-commodities.
Product life cycle (PLC) and competitive strategies: Meaning and Stages in PLC;
5
characteristics of PLC; strategies in different stages of PLC.
Pricing and promotion strategies: pricing considerations and approaches–cost based and
6-7 competition-based pricing; market promotion–advertising, personal selling, sales promotion
and publicity –meaning, merits and demerits.
Marketing process and functions: Marketing process-concentration, dispersion and
equalization; exchange functions–buying and selling; physical functions–storage, transport and
8-9
processing; facilitating functions–packaging, branding, grading, quality control and labelling
(Ag-mark)
Market functionaries and marketing channels: Types and importance of agencies involved
10-11 in agricultural marketing; meaning and definition of marketing channel; marketing channels for
different farm products, factors affecting marketing channels.
Integration, efficiency, costs and price spread: Meaning, definition and types of market
integration; marketing efficiency; marketing costs, margins and price spread; factors affecting
12-13
cost of marketing; reasons for higher marketing costs of farm commodities; ways of reducing
marketing costs.
Role of Govt. in agricultural marketing: Public sector institutions namely-CWC, SWC, FCI,
14-15
APEDA, CACP, KAPC, DMI & KSAMB– their objectives and functions.
16 Cooperative marketing in India- NAFED: Genesis, objectives and functions
Risk in marketing: Types of risk in marketing; Meaning: speculation & hedging; an overview
17 of futures trading; Agricultural prices and policy: Meaning and functions of price;
administered prices; need for agricultural price policy;
Trade: Concept of International Trade and its need, Absolute and comparative advantage and
18
modern theory, Present status and prospects of international trade in agri-commodities,
WTO-Genesis, objectives and functions, Agreement on Agriculture (AoA) and its implications
19
on Indian Agriculture, IPR.
 PRACTICALS
S.N. TOPICS
1. Study of Basic concepts of marketing
2. Plotting of Demand Curve and Calculation of Elasticities
3. Plotting of Supply Curve and Calculation of Elasticities
4. Study of Relationship between Market Arrivals and Prices of some selected commodities
5. Computation of Marketable and Marketed Surplus of Important Commodities
6. Index Numbers
7. Study of Price Behaviour over Time for some Selected Commodities
Visit to a Local Market to Study Various Marketing Functions Performed by Different
8.
Agencies
9. Identification of Marketing Channels for Selected Commodity
10. Price Spread Analysis
11. Price Determination Under Different Market Situations
Visit to Market Institutions – Weekly Shandy to Study their Organization and
12.
Functioning
13. Visit to Market Institutions–TAPCMS to Study their Organization and Functioning
14. Visit to Market Institutions–SWC and CWC to Study their Organization and Functioning
15. Visit to Market Institutions–FCI to Study their Organization and Functioning
16. Visit to Market Institutions–APMC to Study their Organization and Functioning
17. Study on NAFED
18. Application of Principle of Comparative Advantage in International Trade
Practical Examination
Agricultural Marketing: Concepts and definitions of market, (Components & Dimensions of
market) marketing, agricultural marketing, marketing mix - meaning and types, market
segmentation- meaning, classification and characteristics of agricultural markets.

Concept of marketing

Mankind is considered the superior to the living things in the world. Civilization transformed
that into producer of food and other basic requirements from the nomadic behavior in which hunting and
snatching were the way of life. Land cultivation and food production marked the beginning of
civilization particularly in the riparian lands. Mother Nature has to offer Her blessings to satisfy the food
needs of all living creatures. Land cultivation, otherwise known as farming is influenced by the behavior
of natural events like rainfall, drought, flood, storm and so on and so forth. Food production has its
limitations and so all food cannot be produced in all places. In other words, food production is restricted
to specific locations where the soil, weather and moisture favor that activity. Nevertheless food
produced has to be consumed worldwide by the human beings, animals, birds and others in need. A
group of people specializing in food production and identified as farmers shoulder the noble
responsibility of feeding the entire world. Hence there is no need to emphasis that food produced at
specific places has to be distributed to other places of consumption. It is in this juncture, markets and
marketing plays their vital role.

Marketing is as critical to better performance in agriculture as farming itself. Therefore, market

reforms and improvement of marketing system necessarily is an integral part of the policy and strategy
for agricultural development. Although a considerable progress has been achieved in technological
improvements in agriculture to increase production by the use technologies in the form of high-yielding
variety seeds, chemical fertilizers, weedicides, adoption of plant protection measures, and use of
implements and equipments, the rate of growth in farming in developing countries lagging/limping
behind the desired levels. This has been largely attributed to the fact that not enough attention has been
devoted to the marketing facilities and services which must be available to the farmers that would
support agricultural sector for its development. Thus, marketing is one of those facilities needed for over
all economic development of nation.

Markets and Marketing concepts & definitions

Market – Meaning
The word market originated from the latin word 'marcatus' which means merchandise or trade or
a place where business is conducted.
Word 'market' has been widely and variedly used to mean:
(a) a place or a premise or a building where commodities are bought and sold. Commodity is
either displayed or stocked there for buying and selling, e.g., super market; or any market in the ordinary
sense
(b) It is a place where the potential buyers and sellers of a product assemble or meet to exchange
goods and services;
e.g., wheat market, chillies market, jute market and cotton market; transport market,
(c) It is a place where potential buyers and sellers of a country or region assemble or meet to
exchange goods and services,
e.g., Indian market and Asian market; import and export markets
(d) It is a social institution or an organization which performs various activities and provides
facilities for exchange of commodities,
e.g., Bombay stock exchange; Commodity exchanges and
(e) a phase or a course of commercial activity under taken through exchange process,
 e.g., a dull market or bright market phases may prevail in the market.
There is an old English saying that two women and a goose may make a market. However, in
common parlance/terminology, a market includes any place where persons assemble for the sale or
purchase of commodities intended for satisfying human wants.
In India these markets are known by different names in local languages and they are Mandi,
Shandies, Bazar, Haats, and Painths.

The word market in the economic sense carries a broader/wider meaning. Some of the
definitions of market are given below:

1. A market is the sphere within which price determining forces operate. (forces are Supply and
demand)
2. A market is the area within which the forces of demand and supply converge to establish a single
price.
3. The term market also means not a particular market place in which things are bought and sold
but the whole of any region in which buyers and sellers are in such a free intercourse with one
another that the prices of the same goods tend to equality, easily and quickly.
4. Market means a social institution which performs activities and provides facilities for
exchanging commodities between buyers and sellers.
5. Economically interpreted, the term market refers, not to a place but to a commodity or
commodities and buyers and sellers who are in free intercourse with one another.
6. The American Marketing Association has defined a market as the aggregate demand of the
potential buyers for a product/service.
7. Philip Kotler defined market as an area for potential exchanges.

Widely accepted definition of market: “Market implies the whole area over which buyers and sellers
are in such contact with each other, directly or through middlemen, that the price of the commodity in
one part influences it in the other parts of it.”

Thus, this definition implied of

o Existence of a commodity/commodities,
o Existence of buyers and sellers & contact between them
o Competition among buyers and sellers
o Existence of communication
o Existence of forces of supply and demand
o Geographical area

A market exists when buyers willing to exchange the money for a good or service are in contact with
the sellers who are willing to exchange goods or services for money. Thus, a market is defined in terms
of the existence of fundamental forces of supply and demand and is not necessarily confined to a
particular geographical location. The concept of a market is basic to most of the contemporary
economies, since in a free market economy, this is the mechanism by which resources are allocated.

Components of a Market

For a market to exist, there is a need for certain conditions to be satisfied. These conditions should be
both necessary and sufficient conditions. These conditions are termed as the components of a market.
 1. The existence of a good or commodity for transactions:
For a market to exist there should be minimum of a commodity. However, the physical existence
of a commodity is not necessary, i.e., it can be traded (purchased or sold) even in the absence of
commodity physically. Ex: Futures/Forward markets, e-Commerce, spot/cash
markets.
2. The existence of buyers and sellers: In any market there should be buyers who are willing to
buy the commodity or demand and the sellers who are willing to sell or supply the commodity.
The willingness to buy and sell constitute important forces in the market.
3. Business relationship or intercourse/ interaction between buyers and sellers: Business
interactions and negotiations b/n buyers and sellers is a must. It can be either direct interaction or
indirectly through middlemen the exchange price of the commodity is determined.
4. Demarcation of the market area: Market area should be clearly demarcated such as place,
region, country or the whole world. The will provide the information on the area from where the
buyers and sellers assemble.
5. Existence of competition in the market: It is necessary to have a completion between buyers
and sellers in the market. The nature of competition can be of perfect or imperfect type.

Dimensions of a Market

There are various dimensions of any specified market any individual market that exists may be classified
in a twelve-dimensional space. These market dimensions form as a basis for classifying the markets in to
different types. These dimensions are:

1. Location or place of operation

2. Area or coverage
3. Time span
4. Volume of transactions
5. Nature of transactions
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. Extent of marketing margins

Classification of Markets:
Markets may be classified on the basis of each of the twelve dimensions or criteria’s already listed.
1. On the Basis of Location or Place of Operation
On the basis of the place of location or place of operation, markets are of the following types:
(a) Village Market: A market which is located in a small village. Thus, the area of operation is confined
to small village or group of villages, where major transactions take place among the buyers and sellers
normally residing in that village, or group of villages called a village market. Such market may be held
regularly or occasionally in their operation area.
Ex: Daily market, Weekly market, etc
(b) Primary wholesale Markets: These markets are located in big towns (taluk place) near the centres
of production of agricultural commodities. In these markets, a major part of the produce is brought for
sale by the producer-farmers themselves. Thus, is a pooled produce from the village markets is traded.
Transactions in these markets usually take place between the farmers and primary traders.
(c) Secondary Wholesale Markets: These markets are located generally at district headquarters or
important trade centres or near railway junctions. They deal with major agril. commodities of the area
Such as paddy, chillies, cereals, oilseeds, pulses, commercial crops etc. The major transactions/trade of
commodities in these markets take place between the village traders and wholesalers. The bulk of the
arrivals in these markets are from PWS markets and other markets. The produce in these markets is
handled in large quantities. In these markets, there are specialized marketing agencies performing
different marketing functions, such as commission agents, brokers and weighmen, Graders, Brokers,
These markets help in assembling commodities from neighboring district/tehsil/state.
(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. In these markets, merchants are well organized and
use modern methods of marketing operations for large quantities of produce. Commodity exchanges
exist in these markets which provide facilities for forward trading in specific commodities. Such markets
are located either in metropolitan cities, state capitals, or at sea-ports (transportation hubs). Delhi,
Mumbai, Chennai, Bengaluru, Kolkata and Cochin are terminal markets in India for many commodities.
(e) Seaboard Markets: Markets are located near the seashore and are meant mainly for the import
and/or export of goods and are known as seaboard markets. These are generally seaport towns. In these
markets, Scientifically standardized and graded agril. commodities area traded/handled.
Examples of these markets in India are Mumbai, Chennai, Kolkatta and Cochin (Kochi).
2. On the Basis of Area/Coverage
On the basis of the area coverage from which buyers and sellers usually assemble 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 smaller quantities, e.g., local milk market, Fruits & vegetable market, Fish
market. These markets are held daily, or weekly. Ex: Shandies, Raitha Santhe
(b) Regional Markets: A market in which buyers and sellers for a commodity are drawn from a larger
area than the local markets. Thus, the area of operation is larger than local market. They conduct
business transactions regularly for the notified commodities. Regional markets in India usually exist for
food grains (Pulses & cereals).
(c) National Markets: A market in which buyers and sellers assemble are spread across the nation and
hence the area of operation extends to the whole of the country from where the supply and demand
emerge. Earlier the National markets were generally found for durable goods like jute, cotton, textile,
coffee and tea. But with the expansion of roads, transport and communication facilities, the markets for
most of the products have taken the form of national markets. Ex: Textile market, Jute market, Coffee &
Tea markets, Coconut market, Silk market.
(d) World or International Market: A market in which the buyers and sellers are drawn from more
than one country or the whole world. These are the biggest markets from the point of view of market
area. These markets exist for the commodities which have a world-wide demand and/or supply, such as
coffee, Tea, spices, condiments, cut-flowers, processed products, machinery, gold, silver, etc.
In the recent years countries are eliminating trade restrictions and moving towards liberalization of trade
in agricultural products like raw cotton, sugar, rice and wheat thereby making it free trade.

3. On the Basis of Time Span: On the basis of time span for which the market is held the they are
classified in to following types:
(a) Short period Markets: The markets which are mainly held for a short period and may be held only
for a day or few hours in a day are called as short-period markets. The products dealt within these
markets are of a highly perishable nature, such as fish, fresh vegetables, flowers and liquid milk. In these
markets, the prices of commodities are governed mainly by the extent of demand for, rather than the
supply of the commodity. As in the short period the supply of the commodity is constant/fixed/given and
can’t be increased or decreased during the market period i.e., Supply is zero elastic.
(b) Periodic Markets: The periodic markets are congregation of buyers and sellers at specified places
either in villages, semi-urban areas or some parts of urban areas on specific days and time. Major
commodities traded in these markets is the farm produce grown in the hinterlands. The periodic markets
are held weekly, biweekly, fortnightly or monthly according to the local traditions. These are similar to
'spontaneous markets' in several developed countries.
(c) Long-period Markets: These markets are held for a longer period than the short-period markets.
These are markets of a permanent nature. The commodities traded in these markets are durable in nature.
The agril. commodities traded in these markets are less perishable and can be stored for some time; like
foodgrains and oilseeds. In case of machinery and manufactured goods they can be stored for many
years. The prices are governed both by the supply and demand forces.
4. On the basis of volume of transactions
Following are two types of markets on the basis of volume of transactions
a) Whole Sale Markets: A wholesale market is one in which commodities are bought and sold in large
quantity or in bulk. Transaction in these markets takes place mainly between traders. Located in big
towns or cities of commercial importance.
The wholesale markets are the important link in the marketing chain of all commodities.
Helps in balancing supply and demand force both during deficit and surplus supply conditions to the
demand condition in the market and determine price. i.e., helps in adjusting the quantities of supply to
the demand condition. They are the link between the production and consumption systems at any point
of time.

b) Retail Markets: A retail market is one in which commodities are bought and sold to the consumers
as per their requirements. Transactions in these markets take place between retailers and consumers. The
retailers purchase in wholesale markets in smaller quantities and sell in small lots to the consumers.
These markets are located very near to the consumers.

5. On the Basis of Nature of Transactions

The markets which are based on the types or nature 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. The sale and purchase transactions of commodities are settled
immediately in cash on the spot.

(b) Forward Markets: A market in which the purchase and sale of a commodity takes place at time “t”
but the actual exchange of the commodity takes place on some specified date in future i.e., time t + 1.
Sometimes even on the specified date in the future (t + 1), there may not be any exchange of the
commodity. Instead, the differences in the purchase and sale prices are paid or taken.

6. On the Basis of Number of Commodities in which Transaction Takes Place

On the basis of the number of commodities transacted the markets are classified as :

(a) General Markets: A market in which all types of commodities as bought and sold, such as
foodgrains, oilseeds, fibre crops, gur, etc., is known as general market. These markets deal in a large
number of commodities and meet variety of consumer demands.

(b) Specialized Markets: A market in which transactions take place only in one or two specific
commodities or deals with specific commodity is known as a specialized market. Specialised markets
exists because of specialization in production. For every group of commodities, separate markets exist.
The examples of specialized markets are food grain markets, vegetable markets, chilly market, wheat
market, wool market, Jute market, Fish 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 market to
imperfect market conditions. Among imperfect market conditions showing a pure monopoly, duopoly,
oligopoly, monopolistic situations. Extreme forms of markets namely perfect and imperfect markets are
almost non-existent and difficult to see them in real life situations. The degree of competition varies
between perfect point to imperfect point. However, it is useful to know the characteristics of various
market conditions based on the degree of competition that exist between two extreme market conditions.

On the basis of degree 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 are a large number of buyers and sellers: The number is so large that no individual seller or
buyer can influence the price of the commodity in the market. They only adjust their quantities to the
prevailing prices in the market.
b) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices;
c) Prices remain uniform over geographical area, over time and for different forms of products
i) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies
from surplus to deficit areas or from one place or market to another place or market;
ii) The prices are uniform at any one place over periods of time, plus or minus the cost of storage from
one period to another;
iii) The prices of different forms of a product are uniform, plus or minus the cost of converting the
product from one form to another.
d) Products transacted are homogeneous :The products produced by firm in the industry are almost
identical or uniform or homogeneous w.r.t quality parameters such as size, shape, appearance, quality,
colour, texture, taste, staple length, etc.

e) Free entry and exit of firms: There are no barriers for the entry and exit of the firms in the market or
from the industry. Any body as a seller or buyer can enter the market to do the business or exit from the
market without doing the business.
f) No Government regulation: The Govt. adopts no control policy in the market w.r.t. price, output, entry
and exit of firms etc. Hence, the Govt. adopts “Leisezfair” policy or no control policy in the market.
Thus, it means that the prices in the perfect market are allowed to be determined by the free play of the
forces of supply and demand.
g) Perfect factor mobility : The factors of production can move from one firm to another where they
get higher returns/profits. Example: Markets for various farm/agricultural commodities
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:
Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity.
a) He exercises sole control over the quantity or price of the commodity.
b) No completion from other firms.
c) Price of commodity is generally higher than in other markets.
d) There are no close substitutes for the product offered in the market.
e) The firm and the industry are the same and
f) Objectives is to make maximum profit: firm always aim at super normal profit for being the only
seller of the product in the market.
Indian farmers operate in a monopoly market when purchasing electricity for irrigation.
The other examples are Railways charges by Govt.
On the other hand, 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;
1. Only two sellers of a commodity and
2. Act as rivals in the market.snf
3. Stiff completion between the two firms.
4. They may mutually agree to charge a common price which is higher than the hypothetical price
in a common market.
5. There is both coordination and cooperation between the firm in the duopoly.
6. They agree to have a common strategy w.r.t. pricing, selling strategies etc in the market.
Example: Two retailers in the village. 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
1. There are more than two but still a few sellers of a commodity is termed oligopoly.
2. There are close substitutes available for the products and are dissimilar in nature and
3. Hence, there is a high cross elasticity of demand for the products sold in the oligopoly market.
4. Each firm commands a sizable market share due to its influence in the market.
 5. There is a high interdependence among the firms existing in the market. Therefore, each firm
can’t ignore the presence of the other firms in the market w.r.t. product, pricing, selling strategies
etc as the action of one firm assumes importance to the other firms in the market.
6. The firms will have conflicting attitudes and behave like rivals and have high competition.
7. The firms in this market high promotional strategies through advertisement (as a demand
creation strategy).
8. In case of oligopoly market the features of monopoly are found.
Examples: Firm producing two wheelers brands, Television brands, Textile brands, different air
line/agencies.
A market having a few (more than two) buyers but still a few buyers is known as oligopsony
market.
d) Monopolistic competition:

1. A fairly large number of sellers (The number is not as large in perfect competition)

2. Deal in heterogeneous and differentiated form of a commodity, the situation is called

monopolistic competition.

3. The competition is keen between the firms.

4. The difference in the products is distinct by different trade marks on the products.

5. Each seller is independent to decide the output and price.

6. Commodities offered have close substitutes but not perfect substitutes.

7. The difference in the products is made conspicuous by different trade marks on the product.
Different prices prevail for the same basic product (But, brands are different).
Examples of monopolistic competition faced by farmers may be drawn from the input markets.
Ex; they have to choose between various brands/makes of insecticides, pesticides, pumpsets,
fertilizers and equipments. Similarly, products tea and coffee brands-Tata Tea, Kannan Devan
Tea, Red label, tea, Soaps and detergents (fairly large no. of producers)

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.
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 statutory 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 un standardised 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.

Agricultural Marketing:
Agricultural marketing scenario (India)
-Undergone-sea-change (Over 6 decades) due to
 • Increased supply of Agril. Commodities and Marketed surpluses;
• Urbanization &income levels (Changes pattern of demand-Farm & derivatives);
• Increased linkages with the overseas markets;
• Government intervention (Policies): Regulated Markets, etc

Hence, framework of Agril. marketing & How farmers get prices, what factors influence prices
needs to be understood

Concept of Marketing
• Sole objective (economic activities) is to satisfy wants of the people (society).
• Marketing or process of distribution- Also economic activity.
• Producers may be - Farmers or Manufacturers-satisfy their wants only when they are able to
make their products reach to the final consumers.
• Therefore, Marketing process helps consumers to get Farm/Non-farm Goods&Servicess.
• Thus, Marketing has been defined as “ All activities involved in the creation of place, time, form,
and possession utilities”.

Definitions of marketing
Clark &Clark:
“Marketing consists of all those efforts which effect transfer in ownership of goods and care for their
physical distribution”

Richard Kohls:

“It the performance of business activities involved in the flow of G & S from the point of initial
agricultural production until they are in the hands of ultimate consumers.

Chartered Institute of Marketing:

“It is management process responsible for identifying, anticipating, and satisfying customer
requirements profitably”

Philip Kotler:
“It is satisfying needs and wants through an exchange process”

P. Tailorof learnmarketing.net:
“ Marketing is not about providing products or services. It is essentially about providing changing
benefits to the changing needs and demands of the customer.

American Marketing Association Committee:

It includes “all activities having to do with effecting changes in the ownership and possession of G & S.
It is that part of economics that deals with the creation of time, place &possession utilities and that phase
of business activity through which human wants are satisfied by the exchange of Gs & Ss for some
valuable considerations”.
Thus, Itis the economic process by which Gs & Ss are exchanged b/n producers and consumers and their
values are determined in terms of money prices.

Hence, marketing requires : Planning, Coordination, Implementation of campaigns and Employees with
appropriate skills to ensure marketing success.

Concept &Definitions of Agril. Marketing

Agricultural Marketing is as critical as production itself for a better performance of agriculture/farming.

Therefore, market reforms/policies & marketing system improvement is - An integral part of policy
&strategy for agril. development”.

Although a considerable progress has been made in technological improvements in agriculture by way
of
• Use of HYVs seeds
• Chemical fertilizers,
• Adoption of PPMs
• Machineries, etc
• Growth in farming - Developing countries lagging behind (not as desired).
• Mainly due - Poor marketing facilities.
• Enough attention not devoted to the marketing facilities &services creation
(But, necessary for agril. Development).

The term agricultural marketing is composed of two words-agriculture and marketing.

Agriculture - in the broadest sense, means activities aimed at - use of NRs for human welfare, i.e., it
includes all primary activities of production.
But, generally, used to mean growing &/or raising crops &livestock.

Marketing - Connotes
Series of activities - involved moving goods from the point of production to point of consumption.
Or “all activities involved in creation of time, place, form &possession utilities.

Faryque: Agricultural Marketing comprises of all operations involved in the movement of farm produce
from the producer to the ultimate consumer.

Thomsen,

“study of Agricultural Marketing, comprises all the operations, &the agencies conducting them,
involved in the movement of farm-produced foods, raw materials and their derivatives, such as textiles,
from the farms to the final consumers, and the effects of such operations on farmers, middlemen
&consumers”.

Definition did not include the input side of agriculture/marketing– that farmers use in production and
was considered inadequate.
Because, the process of Agricultural Marketing begins well before the production starts.
Starts from –Stage when producers plan and acquire the resources for production &continues till the
products reach the ultimate consumer.

Acharya and Agarwal:

“Agricultural Marketing is the study of all the activities, agencies and policies involved in the
procurement of farm inputs by the farmers and the movement of agril. products from farms to the
consumers.

Thus, Agricultural Marketing system is a link between the farm and the non–farm sectors.

Agricultural Marketing includes

• Organizations dealing with supply of raw materials to agriculture.
• Processing industries,
• Assessment of demand for farm inputs/raw materials,
• Policy relating to marketing of farm products and inputs”.

The National Commission on Agriculture (XII Report),:

“Agricultural Marketing is a process which starts with a decision to produce a saleable farm commodity,
and it involves -all the aspects of market structure or system, both functional and institutional, based on
technical &economic considerations, and includes pre-and post-harvest operations, assembling, grading,
storage, transportation and distribution.

Agricultural Marketing, therefore, can be defined as comprising of All activities involved in

• supply of farm inputs to the farmers and
• movement of agricultural products from the farms to the consumers.
• AMS includes
• Assessment of demand for farm-inputs and their supply,
• post-harvest handling of farm products,
• performance of various activities required in transferring farm products from farm gate to
processing industries and/or to ultimate consumers,
• assessment of demand for farm products and
• public policies and programmes relating to the pricing, handling, and purchase and sale of farm
inputs and agricultural products.
• Of late trade in the domestic and international markets also become the part of it.

Therefore, in the context of agriculture Dr. M.S. Swaminathan has reportedly said “If farm ecology and
economics go wrong, nothing else will have a chance to go right in agriculture”. The shift in focus from
production only to production as well as efficient marketing has come after a very long time.

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 and services required by
them in the production of these farm products. Thus, the scope and subject matter of AM includes
a) Output/product marketing
 b) Input marketing
Output marketing:
The subject of output marketing is as old as civilization itself. The importance of output
marketing has become more conspicuous in the recent past with the increased marketable surplus of the
crops and other agricultural commodities following the technological (form of Green, white, Yellow,
Blue, etc.) breakthroughs in agriculture and through institutional and policy changes that have helped
to achieve self-sufficiency but also have lead to increased marketable surplus of crops and other agril.
commodities (also of allied activities). On one hand surplus production in agriculture resulted in
problem of distribution to consumption centers and on the other transformed agriculture into a
commercial venture where market needs came to the limelight. The increased output has increased the
marketing orientation of farming both in the domestics markets and international trade with other
countries.
Thus, output marketing includes farmers, traders, wholesalers processors, importers, exporters, service
providers, marketing institutions, and retailers.

Input marketing:
• Input marketing is a comparatively new subject.
• As In Subsistence farming: used inputs as local seeds, FYM, including family labour, and they were
often home produced.
• Purchased inputs from market for production of crops by the farmers was almost negligible.
• Due to commercialization of agriculture: The importance of farm inputs – improved seeds, fertilizers,
insecticides and pesticides, farm machinery, implements and credit – in the production of farm products
has increased in recent decades. The new agricultural technology is input-responsive.
• Thus, the scope of agricultural marketing must include both product marketing and input marketing.
It covers what the system is, how it functions, and how the given methods or techniques may be
modified to get the maximum benefits.
Thus, the Subject matter of Agricultural Marketing includes
• How marketing functions performed • Marketing institutions, government policy and
research,
• Agencies involved, • Imports/exports of agricultural commodities
• Channels followed and
• Marketing efficiency and costs, Price spread • Commodity and futures trading, contract
farming,
• Pattern of market integration, Producer's • Retail chains in marketing, pricing policies, etc
surplus
Characteristics of Agricultural markets:
1. Perishability of the product: Farm/agricultural products are perishable in nature. The period
of their perishability varies from few hours to few months. This nature effects the price fixation
for farm grown products. Also supply is irregular. We can reduce the extent of perishability
through processing but not upto the level of manufactured good.
2. Seasonality of production: Farm produced goods/product are season based. Hence falling in
price situation occur during harvest period due to surplus out come. This is not in case of
manufactured good.
3. Bulkiness of products: Bulkiness nature of farm products (Paddy, fruits, vegetables, food
grains, etc.) makes their transportation and storage difficult and expensive. It restricts the place
of production to somewhere nearer to the place of consumption or processing.
4. Variation in quality of products: Variation in the quality (non-uniform) in all farm products
makes their grading and standardization somewhat difficult.
5. Irregular supply: The supply of agricultural product is uncertain and irregular due to high
dependency on natural conditions.
6. Small size and scattered production: Farm products are produced throughout the length and
breadth of the country and most of the production 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. This situation creates disincentives for the producers (But processors enjoy
advantage of monopsony or duopsony in the market).

Marketing mix or 5 P’s of marketing includes,

Definition: The marketing mix refers to the set of actions, or tactics, that a company uses to promote its
brand or product in the market. The 4Ps make up a typical marketing mix - Price, Product, Promotion
and Place. However, the marketing mix increasingly includes several other Ps like Packaging,
Positioning, People and even Politics as vital mix elements.
1. Product decisions,
2. Price decisions,
3. Place decisions,
4. Promotion decisions and
5. People. : Important as constitute consumers and their changing behaviors due to changes in the
demand influencing people. Their study becomes important and accordingly the strategies are made in
the Marketing strategies.
1) Product decision: refers to the item actually being sold. The product must deliver a maximum
level of performance; otherwise even the best work on the other elements of the marketing mix
won't do any good.

Product means goods or services offered by the firm to its customers.

A product has mainly four components
i) Product range ii) Service iii) Brand iv) Package
• The decisions of a firm to market a product in different quantities and at different periods
depends upon the product adoption and life cycle of the product.
• E. M. Roger researched the adoption and diffusion of new products
• Found that the new ideas relating to the products are diffused through the market in a systematic
stages as follows
1. Awareness: People have heard about the product but lack full information to purchase
2. Interests: Customer develop interest
3. Evaluation: Decides whether to buy the product
4. Trial: Samples the product
5. Adoption: Integrates the product into a regular use pattern
2. Price decisions:refers to the value that is put for a product. It depends on costs of production,
segment targeted, ability of the market to pay, supply - demand and a host of other direct and
indirect factors. There can be several types of pricing strategies, each tied in with an overall
business plan. Pricing can also be used a demarcation, to differentiate and enhance the image
of a product.
Pricing decisions are most important since it affects the total revenue and quantity of goods sold.
Pricing also includes the discounts, credits and offers prices relating to a product.
There are different types in fixing prices. They are:
i) Cost based pricing: cost + profit margin
ii) Return on investment pricing (ROI): certain amount of return on investment
iii) Discount pricing: some % discounts are allowed
iv) Loss–leader pricing: involves offering one or more products in a product mix at a specially
reduced price for a limited time
v) Psychological pricing: emotionally satisfying
vi) Prestige pricing: Higher price for affluent customers. Many people have a strong feeling that
“you get what you pay for” tend to equate price and quality on emotional basis
vii) Penetration pricing: offer the product at very high price and reduce later on
 viii) Skimming the market: Introduce a product at a low price and later on increase the price
3. Promotion decisions: refers to all the activities undertaken to make the product or service known
to the user and trade. This can include advertising, word of mouth, press reports, incentives,
commissions and awards to the trade. It can also include consumer schemes, direct
marketing, contests and prizes.
• Promotion implies efforts made to communicate customers and build up demand for the products
through advertisement/demand creation activities.
• Also include marketing strategies using various methods for informing customers and
convincing them to buy.
• Promotions modify customers’ behaviour influence towards buying decision.
• Promotion mix chosen by the firm is usually includes advertising, personal selling efforts,
general publicity & sales support programme.

4. Place or physical distribution decisions:refers to the point of sale. In every industry, catching
the eye of the consumer and making it easy for her to buy it is the main aim of a good
distribution or 'place' strategy. Retailers pay a premium for the right location. In fact, the
mantra of a successful retail business is 'location, location, location'.
Related to choice of distribution channels, storage/warehousing, sales depots, transport and delivery
system of goods to satisfy its customers. The goods can be distributed through middlemen
and/or can be moved directly to the customers. Such distribution strategies adopted by firms
provide feedback from customers by way of price signals.
5. People: Important as constitute consumers and their changing behaviors due to changes in the
demand influencing people. Their study becomes important and accordingly the strategies are made in
the Marketing strategies.
Market segmentation is part of marketing management strategies where firm distribute its product or
service to the customers in order to satisfy their needs and to accomplish the firm’s objectives.

Market segmentation: Meaning and definitions

• Acc. to Philip Kotler : MS is the subdivision of market into homogenous subsections of
customers, where any subsection may conceivably be selected as a target to be reached with a
distinct marketing mix.
• While Acco. to W. J. Stanton : MS consists of taking the total heterogeneous market for a
product and dividing it into several submarkets or segments where each of which tends to be
homogenous in all significant aspects.
Criteria for segmentation of markets,
Market Segmentation

A market should be defined based on various characteristics such as economic status (income), gender,
age, education, occupation and location (rural and urban). The best opportunity is to identify a market
segment (consumers group) where the firm can sell its products with greater market share. Thus, the
firm should assess its share in the market.
Fundamental aspects to be considered in determining the firm’s market segment are:

1. Size of Consumers: Should be reasonably large to be a profitable group, i.e., Consumers’ number &
their purchasing power (Important for firm).
Ex: Markets for luxuries- Comparatively small but
wealthy. Malabar Gold, Tanish Q, Reliance Retail, etc.

2. Nature of Demand: High in terms of demand.

Ex: Come from sizeable consumer groups (Income, Rural/Urban, Age, Gender, etc)

3. Changing behaviour of consumers be Measurable

Consumer behaviour depends upon economy, status, quality, safety, comforts etc.
4. Position/Status(Size/Volume) of the firm in the industry& its ability to compete with others

5. Firms image among the customers(Consumers Loyalty).

Adequate share in the market is possible only when the firm stresses on quality, reliability,
integrity & service rather than low prices.
Market structure: meaning and types of market structure-Perfect and Imperfect, components of
market structure, basic features of perfectly competitive and imperfect markets.

MARKET STRUCTURE
Meaning:
The term Structure refers to organization &its dimensions in terms of – shape, size &design; and which
is evolved for the purpose of performing various marketing functions. The type of marketing functions
performed modifies the Structure, and the nature of the existing MS determines the performance of
functions.
Term market structure refer to the size &design of the market. It includes the physical set up of market
Comprising of no. of firms and functionaries in the market, their size or volume of business, pricing
approach, and how marketing functions are performed and the manner on how the market is operated &
performed.
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 - Conduct of business &firms performance;
2. Market structure refers to those characteristics of the market which affect the traders behavior and
their performances;
3. MS is the formal organization& functional activity of a marketing institution. Understanding
&knowledge of the Market structure is essential for identifying the imperfections in the performance of
a market.

Components of Market Structure:

The Components of Market Structure, 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
market conduct and performance.
Measured by the number and size of firms existing in the market.

The extent MP concentration represents, Control of an individual firm or a group of firms over buying
and selling of the produce and intern, How far the existing firms able to influence the price of the
product.
A high degree of Market power concentration: Power to influence the price of the commodity is
vested with very few firms (Buyers & Sellers) in the market. High Market power concentration:
Restricts the movement of goods between buyers and sellers at fair and competitive prices, and Creates
an oligopoly (Sellers Market) or Oligopsony (buyers Market) situation or Duopoly, or Monopoly,
Low degree of Market power concentration: The power to influence the price of the commodity is
vested with a very large number of firms in the market.
Low Market power concentration allows free movement of goods between buyers and sellers at fair and
competitive prices, and Creates Perfect market situation. Or oligopoly, monopolistic conditions prevail.
2. Degree of Product Differentiation:
Whether the products are homogeneous or heterogeneous affects the market structure.
If products are homogeneous/Identical: Low price variations in market (not wide). Or prices are
uniform. If products are heterogeneous: Firms have tendency to charge different prices for their
products. Every firm tries to prove that its product is superior to the products of others.

3. Conditions for Entry of Firms in the Market:

Refers to any restrictions, on the entry of firms. Existence of a few big firms do not allow new firms to
enter the market or make their entry difficult by virtue of their dominance in the market. There may also
some government restrictions also on the entry of firms.
4. Flow of Market Information:
A well-organized market intelligence information system helps all the buyers &sellers to freely interact
with one another in arriving at acceptable prices and exchange Goods & Services.

5. Degree of market Integration: Behaviour of integrated markets will be different from that of a
market with no integration either among the firms or in their activities.
Firms adopt many strategies w.r.t.

• Methods employed in determining prices,

• Increasing sales strategies, \
• Co-ordinating with competing firms and
• Market sharing strategy
• Strategies against rivals / New entrants. Etc.

Therefore, the structural characteristics of the market govern the behaviour of the firms in planning
strategies for their selling and buying operations.

Dynamics of MS– Conduct and Performance

Market structure determines Market conduct and Market performance.
Market conduct refers: Patterns of behaviour of firms, especially in relation to pricing and their practices
in adapting & adjusting to market conditions in which they function. The firms are sellers, buyers,
market middlemen, institutions, Govt., etc

Market conduct includes:

(a) Market sharing and price setting policies;
(b) Policies aimed at coercing/competing rivals; and
(c)Policies towards setting the quality of products.

Market performance refers to the economic results that flow from the industry as a result of each firm’s
particular line of conduct in the market.

Criteria for measuring Market performance & efficiency of the Market structure

1. Efficiency in the use of resources, including real cost of performing various marketing functions;
Ex: Lower the real cost, the grater the Market performance

2. The existence of monopoly/monopoly profits, including the extent of margins & average cost of
performing various functions;
Ex: Grater the monopoly profits, lower the market performance

3. Dynamic progressiveness of the marketing system in adjusting the size &number of firms (How
quickly it adjust itself) w.r.t.
• Volume of business,
• In adopting technological innovations and
• In inventing new forms of products to maximize general social welfare.

4. Role of marketing system that aggravates the problem of inequalities in inter-personal, inter-regional,
or inter-group incomes.
Ex: Inequalities increase under the following situations:

(a) If market intermediary take a returns grater than (>) its real contribution to the national product;

(b) If SFs are discriminated by the market system by offering them a lower returns due to low
quantity of surplus;

(c) If Inter-product price parity is substantially disturbed (No equality in the prices of
commodities)by new uses for some products and wide variations & rigidities in the production
patterns between regions.

For satisfactory market performance, the market structure should keep pace with the following changes
The market structure should keep on adjusting to changing environment to satisfy social goals. A static
market structure soon becomes obsolete as there is always changes in the physical, economic,
institutional and technological factors influencing market structure. Hence, for a satisfactory market
performance, the MS should keep pace with the following changes:
(i) Changes in Production Pattern

Changes do occur in the production pattern because of changes in technological factors, economic
factors & institutional factors. Hence, the MS should be re-oriented to keep pace with such changes.
For Ex: Emergence of FPOs or group marketing is likely to alter MS.

(ii) Changes in Demand Pattern

The demand for various products keeps changing due to

• Change in incomes,
• Change in the consumption pattern
• Pattern of distribution to consumers,
• Changes in their tastes &habits.
• Availability of substitutes

Hence, MS should be re-oriented to keep it in harmony with the changing demand

(iii) Costs &Patterns of Marketing Functions

Marketing functions : like transportation, storage, financing and dissemination of market information,
have a great bearing on the type of market structure.

Recently policy encourages: Group marketing or marketing by FPGs

• It is likely to reduce the No. of buyers and/or sellers actually taking part in marketing functions.
• Government policies w.r.t. purchases, sales and subsidies also affect the performance of market
functions.
• The MS should keep on adjusting to the changes in costs &government policy.
• No. of market players must be
o as per the marketing functions performed &
o size of operations.

(iv) Technological Changes in the Industry

Technological changes necessitate changes in the MS through

• Adjustments in the scale of business,
• Number of firms, and in their financial requirements.
• Establishment of retail chains &
• Entry of MNCs in the food retailing effected changes in the structure of vegetable markets in
India

Types of Market structures:

 Types of Market Structure

● The 4 major types of markets can be viewed on

a continuum.

Perfect Monopolistic Oligopoly Pure

Competition Competition (few large firms) Monopoly
(many small firms (many small firms (single firm)
selling identical producing slightly diff.
products) products)

Copyright© 2006 Southwestern/Thomson Learning All rights reserved.

1. Perfect market
2. Imperfect market

Types of market structures: Based on the competition in the market, we have

1. Perfect Markets: Perfect competition is considered as the ideal or the standard market situation. A
perfect market is one in which the following conditions hold good:

1. There is a large number of buyers and sellers: individual buyers and sellers do not impact Price
(through their demand and supply). The firms are just adjusters of their quantities to the price
and hence are price takers. Nobody has power over the market.
2. Full and perfect competition: no barriers to enter, such as advertising costs or large sunk costs.
Freedom to exit, so firms can leave the industry if it proves unprofitable.
3. All the buyers and sellers in the market have perfect knowledge of demand, supply &prices:each
firm and customer is well informed about P. They know if one firm is selling at a lower P.
4.Homogeneous commodities: products are identicalin all respects and all products have perfect
substitutes
5. Uniformity in price and determined through total D & S forces.

a. Prices at any one time are uniform over a geographical area, plus or minus the cost of getting
transportation from surplus to deficit areas
b. The prices are uniform over time, plus or minus the cost of storage
c. The pries of different forms of a product are uniform, plus or minus the cost of converting
the product from one form to another (processing).

6. Perfect mobility of factors

6 Free entry and free exist of firms
8. No transport costs
9. No advertisement cost
10. Forms in perfect competition in the long-run are both productively and allocatively efficient

Imperfect Markets: The markets in which the conditions of perfect

competition are lacking are characterized as imperfect markets.
The are the different types of imperfect markets.

a. Monopoly Market:

1. Monopoly is a market situation where there is only one producer or seller of the product. He
exercises sole control over the quantity/supply or price of the commodity.
2. There is no difference between the firm and industry
3. The product sold by the monopolist has no close substitutes
4. The monopolist has complete control over the supply of his product

5. The monopolist can fix any price he likes. The price at which the commodity is offered is
generally higher than in other markets.
6. Monopoly always aim at supernormal profits
7. There are strong barriers to the entry of rivals into the monopoly industry
8. If the monopolist charges a single uniform price for all customers it is called as simple
monopoly. If he charges different prices for different customers it is called as discriminating
monopoly.
When there is only on buyer of a product the market is termed as a monopsony market.

Example: Indian farmers operate in monopoly market when purchasing

electricity for irrigation.

b. Duopoly Market:

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

2. They may mutually agree to charge a common price which is higher than the hypothetical price
in a common market.
3. The firms act some times as rivals
4. They try to coordinate and cooperate and have common strategies to operate in the market.

The market situation in which there are only two buyers of a commodity is known as the
duopsony market.

c. Oligopoly Market:

1. A market in which there are more than two but still a few sellers of a commodity is termed as
an oligopoly market.
2. Each firm is of a considerable size
 3. A market having a few (more than two) buyers is known as oligopsony
oligop market.

d. Monopolistic Competition: The concept of monopolistic competition was introduced by Prof.

Chamberlin.

1. There exists a large number of small sized firms dealing with heterogeneous and differentiated
forms of products.
2. Firms
irms produce goods which are not identical but are similar.
3. Products are differentiated in some ways e.g., brand name, attractive packets, wrappers, the use
of trade marks, etc
4. There are close substitutes available.
5. Different prices prevail for the same basic product. Each firm fix the price is independently.
Hence, Every producer has a monopoly control over his product and price
6. There is a high competition and hence incur selling
s cost (Advertisement)
7. There is a free
ree entry or free exist of firms
firm
8. Consumers are divided by virtue of product differentiation
Example:

Monopolistic competition faced by farmers may be drawn from the input markets like, various makes of
insecticides, pumpsets, fertilizers and equipments. Eg., Toothpaste, Soaps
oaps and detergents, cosmetics.

Price determination under perfect competition; short run and long run equilibria of firm and industry,
shut down and break even points.

i. Equilibrium Price Determination under perfect competition

Fig. 1: Price determination in-PCM

In the graphical diagram (Fig. 1 above), the following phenomenon is observed.

The PCM or Total Market in PC is the sum of all of the individual firms, i.e., Sum of the supplies and
sum of the demand. Each firm is a price takers due to nature of competition, S & D conditions.

• Buyers buy more at lower price &less at higher price.(Negative relationship P & D).
• Sellers sell more at higher price and less at lower price. (Positive relationship P & S).

• At Equilibrium price is attained through interaction of S & D forces, At that Equilibrium price
Qty Demanded= Qty Supplied (At Rs.30 is where, S=D= 300 units).

• Suppose, price falls below the equilibrium price (At Rs. 20/-), Given the supply. the Qty
Demanded >Qty Supplied.
• Due to short supply, the sellers dominate the market and there is a tendency among the seller to
offer the commodity at higher and higher price. This leads to rise in price level up to equilibrium.
(i.e. from Rs. 20 to Rs. 30).
Hence, the price will come back at original level i.e. equilibrium price (Rs. 30).

• Suppose, price is above the equilibrium price (At Rs. 40/-), Given the supply. the Qty Supplied >
Qty demanded.
• Due to higher supply, the Buyers dominate the market and there is a tendency among the buyers
to purchase the commodity at lower and lower price. This leads to fall in the price level up to
equilibrium. (i.e. from Rs. 40 to Rs. 30).
Hence, the price will come back at original level i.e. equilibrium price (Rs. 30).

• Such automatic adjustment by demand and supply forces will keep single price in market.

• The firms PCM optimize their output considering AC and MC curves (AC=Cost/unit of output
and MC= Additional cost/unit of output). (Fig.2 below)

• The firms’ optimum output is attained when we superimpose MC & AC curves on Price line
(P*).
• The point where MC *& AC intersect gives us the equilibrium output of the firm.

• Hence, firm is willing to produce as long as P recover AC=MC

• This P* represents the AR and MR.
(AR = Total Revenue/ Total output sold =TR/Q =Price=P*
MR = Additional Qty. of output x Price/unit of output = Q x P
= Revenue on Additional unit of Q = Price = P*

Q*=Equilibrium quantity of product where, MR = MC (MR = Price)

P* = Equilibrium price, where each firm gets only Normal
Profit. It is enough to keep the firm producing the product

Normal profit: Is one that is Required for a firm to keep the resources they are using in their current
production. It is enough profit to keep them in the industry.
Anything in excess of normal profits is called Abnormal or Super Normal profits

Figure 2 Equilibrium of the firm and industry in perfect competition (Long-run)

Any price above Equilibrium price (P*)results in SNP

• a 'bonus' for the firms, Results in Abnormal / SNP
• At this Price,they get more than they need for current resource use.
• Provide a signal to other new firms and they will be attracted into the industry.

Any price below Equilibrium price (P*) (Loss):

• Firms have to leave the industry or Production.
• At this Price, they get less than they need for current resource use.
• Provide a signal to existing firms exit out from the industry.

ii. Short-run Consequences on firms-SNP(Fig. 3)

Firms enjoy the SNP in the short-rundue to efficient use of resources in currentproduction.

When a firm enters with a product.

• It sells Q1Qty at P1 Where, Q1 = Equilibrium Qty. where,
Price = MR = AR = P* with AC curve (C) below the Eq.price-P*
• Then the firm at P1 price makeSNP.
 Fig.3 Firm in perfect competition making supernormal profit (Firm)

iii. Impact of SNP in the long-run: Normal Profit (Fig.4)

• When the firms in the short-run make SNP

It attracts New firms to enter into the market
• This results in increased aggregate Supply
• Thus, Supply Curve Shifts to the Right from S1 to S2
• Given the Demand, when Supply increases(from Q1 to Q2), the Market Price falls from P1 to P2
• This will force the firms to abstain from selling at low price(P2) in the beginning.
• But, when P2 becomes new Equilibrium/Market price, Then,all the firms are forced to sell their
produce to the new Eq. price (Only Normal Profits remain).
• This will take away all the Super Normal Profit.

Figure 4: The impact on a market of supernormal profit

iv. Impact in the Long-run:Normal Profits (Fig. 5)

• New Equilibrium Price-P2, enablethesellersonly a Normal Profits in the long-run at which, P2 =

AR =MR = AC = MC

• At the Price P2,Less efficient firms are forced to close/leave the industry and thereby, they shift
their resources to the production of other products
• Thus, the again the long-run equilibrium is attained

Fig. 5 Long run equilibrium in perfect competition

v. Short-run losses&lessons from falling prices(Fig.6)

 In the short-run,
• As long as Price CoversVC& some fixed costs, the firms will not be at risk
• However, the firms with high cost (VC), may face
losses even in the short-run.
• P* is the Market price &C is the cost
• When,Cost > P*,then the firm incur loss(AC >P*)
• Loss = Price-Cost per unitor (TR-TC= OPE1Q*-OCE2Q*)

When they incur loss, the firms will have 2 options;

Either they 1). Reduce the cost and become more efficient,
Or, 2).Forced to leave the industry.

lessons from falling prices:

• Falling prices in the market put pressure on the less efficient firms.
• Firms may be forced to close and shift their resources elsewhere.

Fig.6: Short-run losses

vi. Long-term impact of inefficiency of firms(Fig. 7)

• Due to high cost, some of the inefficient firms leave the industry (Shut down)
• When the firms leave industry, Supply curve to shifts to the left (Supply decrease)
• Then Given demand, the price will go up in the marketuntil the losses are eliminated and that the
firms make Normal Profit.
•
• The long run equilibrium will occur where no firms are making losses and SNP's. (As in Fig 2
and Fig 7)
• PCM is a model of efficient competition as it faces
 Well informed consumers
 Normal profits are made
 Prices are not excessive
 Resources are efficiently used.
 Fig7&Fig.2 : Long-run equilibrium of firm and industry in perfect competition

vii. Shut down price, and break-even price(Fig.7)

a). Break-Even Price:BEP is the price in perfect competition where

normal profits are made and that AR = P = ATC = MC = MR.

Figure 7 Perfect competition - break-even price

b). Shut down price

A firm may even make a loss in the short run, still AVC is being covered and some contribution is being
made to cover fixed costs.

If a firm is unable to cover its AVC's, i.e. variable/operational costs, it will be in risk and will shut down
immediately(Illustrated in Fig.8).
 Figure 8. Shut down point

Here, output of a firm is OQ* at Price P, Where, MR= MC. (Opt. output point)

If firm incur loss:

The Firm will incur a loss of PBCE, as ATC/AC is greater than AR/Price. The Total costis given by the
area ABCD which includes VCs and Fixed costs.

Thus, the firm receiving Eq. Price i.e., OP will not cover all its costs. The returns generated at
Equilibrium Price will recover the only Variable Costs (area APED)and also some fixed costs.

Therefore, as long as VC are recovered, it will be worth remaining for the firm to remain in the business
at least in the short run.

However, if the price were to fall to OP1 which is a shut-down price (the lowest point on the AVC
curve, where, AVC = MC), the firm would shut down immediately as it would be covering neither its
fixed costs nor its variable costs.

Do perfectly competitively industries exist?

No 'perfect' perfectly competitive industries exist. Ironically, one of the closest example today is
probably the market for shares. However, perfect competitive market is still an important model as it
 provides a benchmark against which other markets can be judged. It can help in formulating appropriate
policies to improve uncompetitive markets.

LEC:-Demand, supply and producer’s surplus of agri-commodities : Determinants of demand and supply
of farm products, Producer’s surplus – meaning and its types, Types: Marketable and Marketed surplus,
Factors affecting marketable surplus of agri-commodities.

Demand

Demand &supply play an important role in an economy-Inter-dependent.

Demand : Mother of all forms of economic activities.

Demand determines - size &pattern of market.

All business activities : Demand driven.

The demand for firm’s products make them to adopt following strategies;

Production planning,

Sales and profit targeting,

Revenue maximization,

Pricing policies,

Inventory/Resource management,

Advertisement and

Marketing strategy

All are dependent on the demand for firm’s product. Markets include all “potential buyers
and sellers”
Supply

Supply refers to the actual quantity of commodity offered for sale by sellers at a certain price at
any given time.

Demand determines the supply

Determinants of demand and Supply

SN Determinants of Demand SN Determinants of Supply

1 Tastes, Preferences and Fashions 1 Costs of Production
a. Change in input prices: wages,
Tastes, preferences &fashions change and also raw materials etc.
affected by advertising, trends, health b. Change in technology
considerations etc. c. Organization changes leading to
increased/decreased efficiency
d. Government policy including taxes
&subsidies.
2 Number and prices of related goods 2 Profitability of alternative goods in supply.
Prices of related goods, such as If a farmer makes a greater profit from
Substitutes, Complements, or Independent (with pineapples compared to rice,
no impact) Then, Supply of rice will decrease and
 pineapples increase.
Substitutes - Higher the price of substitute goods,
higher will be the demand for consumed good.
Ex: If the price of coffee rises then demand for
tea will increase.

"As the price of labor increases, the demand for

machineries and equipments increases

Complements - As the price of complements

rises, demand for the complements falls
Ex: If the price of petrol rises then demand for
cars will fall.
3 Income level of the people 3 3. Climatic conditions: Nature, random
Normal Goods :As people’s income rises, the shocks, Weather, Earthquakes, Wars,
demand for Normal Goods and Services also rise. industrial disputes (Lockouts).
However, the exception to this is an
Inferior Goods: As peoples income rises, inferior
goods will fall.
Similarly, The distribution of incomes will have
an effect too.
4 Expectations of future price changes 4 5. Supplier's Expectation of future prices
If people expect prices to rise in the near future of goods
they will try to buy more early and vice versa.
If people expect the change in the technology of If the price of a good is expected to rise
the supplier may hoard stock.
production-more advanced goods to come to the
market. The demand gets influenced by it. This reduce the supply now in order to
benefit later (increase in supply later) or
vice-a-versa
5 Population 5 Profitability of goods in joint-supply
The size and make up of the population affect (Joint-Goods)
demand.
If there is a growing population more food is If the supply of beef increases there will be
demanded. a corresponding increase in supply of
If the population is stable but is ageing (like Italy) leather as one is a by-product of the other.
then the demand for things that old people need Number of sellers/suppliers in your market
will increase - i.e. health care.
6 Number of buyers in the market, 6 Production technology
Increased number of buyers will lead to an An advances in the technology used to
increased demand for the product. produce a product will lead to an increase
The size of the market (region, national and in the production of that product;
international) Ex: Automated food processing

7 Advertisement of commodity 7 Infrastructure development like Transport,

warehousing, Grading, Processing,
8 Govt. Policies pertaining to taxes and subsidies 8 Govt. policies Taxes and subsidies
 Higher the taxes on goods Production reduced when the cost of
Lower will be the demand
production rises due to taxes on inputs or
other Govt. imposed costs
Govt. subsidizes increase the supply of
products

Producer’s Surplus of Agricultural Commodities

From the marketing point of view: Surplus is more important than total production of commodities.

The arrangements for marketing &the expansion of markets: 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, Or, 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 and that bring economic development of the country.

The larger is the production of a commodity, the greater the surplus of that commodity and vice versa.

How the Knowledge of Marketable and Marketed Surplus helps?

Marketed and Marketable surplus helps the policy-makers as well as the traders in the following areas.
I. Framing Sound Price Policies:
II. Developing Proper Procurement and Purchase Strategies:
III. Checking Undue Price Fluctuations
IV. Advanced estimates of the surpluses:
V. Development of Transport, Storage, Processing System

Producers Surplus: Is the Surplus quantity of a commodity produced in the country.

1. Marketable Surplus

Marketable surplus: the 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 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.

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)
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.

Relationship Between Marketed Surplus and Marketable Surplus

The marketed surplus may be more, less or equal to the marketable surplus.
1. Marketed surplus > Marketable surplus
2. Marketed surplus < Marketable surplus
3. Marketed surplus = Marketable surplus

Whether the Marketed surplus increases with the increase in production : Is More - theoretical
security(& is debatable).

For Ex: It is argued that poor & subsistence farmers(MFs & SFs) sell that part of their produce which is
necessary to meet their cash obligations. Unable to retain even for family consumption and are forced
sell (Distress Sale) to meet cash obligations. This results in distress sale on some farms.

The Marketed surplus may be more, less or equal to Marketable surplus, depends upon
Condition of the farmer and
Type of the crop.

1. Marketed surplus > Marketable surplus

This situation seen when the

• Farmer retains a smaller quantity-produce than his actual consumption requirements(family,
farm needs, Payments, Kind payments).

Especially for SFs and MFs, whose immediate cash needs are more pressing.

Forced Sale : The situation of (Marketed Surplus >Marketable Surplus) selling more than the
marketable surplus is termed as distress or forced sale.

• Such (SFs & MFs) 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.
• At lower price he sells larger quantity to meet some fixed cash requirements.

2. Marketed surplus < Marketable surplus

It is observed when the farmers retain some of the surplus produce (Retain Part of the Marketable
Surplus)

This situation observed under the following conditions.

• Large farmers generally sell less than the marketable surplus because of their better retention
capacity.
 They retain extra produce with a hope to sell it at higher price in the later period.

Sometimes, farmers retain the produce even upto 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 firstand less of the second crop.

3. Marketed surplus = Marketable surplus

Observed when the farmer neither retains more nor less than his requirement. This is observed for
perishable commodities-Vegetables/ fruits and of the average farmer.

Factors affecting marketable surplus

The marketable surplus differs from region to region and within the same region, from crop to crop and
based on the nature of produce (Consumable/Non-consumable). 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
ii. Production
iii. Price of the Commodity
iv. Size of family
v. Requirement of Seed and Feed
vi. Nature of Commodity
vii. 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, ……......)

Where,
M = Total marketed surplus of a crop in quintals
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 the other factors may be specified..

Relationship between Prices &Marketable Surplus of foodgrains

There are two main hypotheses used to explain the relationship between prices & marketable
surplus of foodgrains.

1. Inverse relationship:

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

a) This hypothesis was presented by P.N. Mathur & M.Ezetkiel.

 They made hypothesize that the farmers have nearly fixed cash requirements. Or assumes that farmers
have inelastic cash needs.

Given the price level,

Marketed portion of the output is determined based on his cash needs.

Hence, given his cash needs,

If the price of the output is high, qty. of marketed surplus sold by them is low and Vice-a-versa.
i.e., Marketed Surplus is inversely proportional to price level.

In other words, with a rise in price, farmers sell a smaller qty, and with the fall in price they sell a
larger quantity to meet cash needs.

b) Olson and Krishnan have argued that the marketed surplus varies inversely with the market
price.

When price of foodgrains are High

It will increase the producers’s real income
Thus, increased real income sufficiently will have grater effect (outweigh) on his demand than price-
effect on consumption.

They argue that a higher price for a foodgrains may increase the producer’s 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.

2. Positive relationship:

V.M. Dandekar and Rajkrishna showed positive relationship between prices &marketed surplus of food
grains in India.
Based on Assumption that - farmers are price conscious.
With a rise in the prices of food grains,-farmers-tempted to sell more &retain less. As a result, there is
increased surplus.
Similarly, With a fall in the prices,-farmers-tempted to sell less &retain more. As a result, there is
decreased surplus.

LEC:-Product lie cycle (PLC) and competitive strategies

: Meaning and stages in PLC; characteristics of PLC; strategies in different stages of PLC.
Product life cycle stages, Characteristics of PLC
Like any living thing, products in the market have a certain length of life, during which they pass
through different stages. For some products, the life cycle may be as short as a month, a year or so while,
others it may lasts for quite a long period.
There are four main stages in the product life cycle (PLC) as seen in figure.
And the characteristics of the product life cycle stages are discussed in detail along with competitive
marketing strategies to be adopted by the firm.
The PLC contains four distinct stages: Each stage is associated with changes in the product's
marketing position.

1. Product introduction stage,

2. Market growth stage,
3. Maturity stage and
4. Declining stage.

Competitive or marketing strategies adopted in different stages:

The firm can use various marketing strategies in each stage to prolong the life cycle of its products in the
market.

1. Introduction Stage

In the introduction stage, the firm seeks to build product awareness and develop a market for the
product. The marketing mix adopted is as follows:

• Establish a clear brand and quality identity among the consumers

• Intellectual property protection such as patents and trademarks are obtained.
 • Product Pricing adopted may be low penetration pricing (introduce at low price) to build market
share rapidly (low price and high promotion), or
• Adopt High skim pricing (High price and high promotional activity) to recover development
costs.
• Establish linkages with right partners/firms to promote the product
• Provide samples or trials to target markets
• Target the product or service to a specific consumer segment (Once star showing acceptance)
• Promotion is aimed at innovators and early adopters.
• Marketing communications seeks to build product awareness and to educate potential consumers
about the product.

2. Growth stage:In this stage firm mainly aim at rapid sales, high market share and increasing profits.
Firm move from product awareness to product preference phase.
In the growth stage, the firm seeks to build brand preference and increase market share.
• Product quality is maintained or improvedby adding new features and support services.
• Pricing is maintained as the firm enjoys increasing demand with little competition.
• Enter new consumer markets segments
• Increase distribution channels to cope with growing product demand
• Keep pricing as high as reasonable to keep demand and profits high
• Promotion is aimed at a broader audience.
3. Maturity Stage
At maturity, the strong growth in sales diminishes after attaining its peak. High Competition from
similar products. The market will be saturated & firm need to change the marketing tactics to prolong
the PLC. The primary objective at this point is to defend or maintain market share while maximizing
profit.
• Market modification - Includes entering new market segments, redefining target markets,
winning over competitor’s customers, converting non-users
• Product modification-Product features may be modified/added and products are differentiated
from that of competitors. Improve their quality, pricing.
• Lowering the product Price because of the high/new competition.
• Attract consumers by Offering them incentives
• Promotion emphasizes product differentiation.
4. Decline Stage:In this stage, sales and profits decline. It is caused by changes in consumer
preferences, technological advances & alternatives products available in the market. At this stage, the
firm owner will have to decide what strategies to take.
• Try to maintain the product, possibly rejuvenating it by adding newfeatures.
• Reduce expenditure on promotional/advertisement activities
 • Reduce the number of distribution outlets
• Adopt price cuts to get the customers’ attraction towards the product
• Findnew uses for the product
• Wait for competitors to withdraw their products first
• Sell the brand to another business

Many businesses find that the best strategy is to modify their product in the maturity stage to avoid
entering the decline stage.The marketing mix decisions in the decline phase will depend on the selected
strategy.
Pricing and promotion strategies: pricing considerations and approaches–cost based and
competition-based pricing; market promotion–advertising, personal selling, sales promotion and
publicity –meaning, merits and demerits.

Pricing considerations:

Although the price of a product is determined by market supply and demand conditions. Pricing in the
marketing mix: Most important strategy to be adopted by the Entrepreneur pricing products.

There is no single way to calculate the product pricing. As Pricing is influenced by many factors.
However, each firm should have its own pricing policy and certain objectives.

Price considerations/Factors considered in pricing product decisions

The entrepreneur is required to take several decisions in pricing his products and are related to,
Marketing Objectives: are mainly
–Survival of the firm –Market-Share, Leadership
–Current or long-term Profit Maximization –Equity/capital Growth
1. Market strategy to be adopted- address questions related to which market segment to target for
his products.
2. Marketing mix decisions to be made- Mix of 4 P’s
Product to be offered-its design, brand name, quality, packaging, etc., distribution
&promotional strategies to be adopted.
3. Estimate the market demand for product
- nature of the commodity,
- nature of demand and
- how quantity demanded varies with price or Analyze Price–Demand Relationship
- Price Elasticity of Demand
- Consumers perception of price & factors determining price
4. Calculate costs- Both VC and FCs associated with the product in the short-run and long-run.
5. Understand market environment- Type of the market structure, commodity produced,
6. Competition in the market : Firms market strategies/market mix and understand the legal
constraints-government policies, etc.
7. Set the pricing objectives-for example profit or revenue maximization or price stabilization.
8. Determine appropriate pricing.
Factors to Consider when Setting Prices can be represented as

I. Internal Factors II. External Factors

1. Marketing Objectives 1. Nature of the market and Demand
2. Marketing Mix Strategy, 2. Competition in the market
Pricing decisions 3. Other Environmental factors
3. Costs (VC & FC)
4. Organizational consideration for (Economic condition, Resellers (No. of
pricing (Market
Pricing approaches: Structure)
There are two approaches in product pricing firms), Government policies)

1. Cost based pricing

2. Competition-based pricing
1. Cost-Based Pricing: Costs-plus Pricing or mark-up Pricing

Cost-based pricing involves setting prices based on the costs for production, distribution and sale the
product. The firm normally adds a fair rate of return (profit) to compensate for its efforts &risks.
Price of a product is determined by adding a profit margin (some specified % of the production cost is
added) to the cost of production.
Price = Production cost + Profit margin (specified % of production cost)
Types of costs of the firm: Variable (TVC) &Fixed (TFC).
At a given level of production, the price of the commodity should be able to cover total costs (TC= VC
+ FC).

When competition in the market is high, the firms must carefully watch their costs.
If the TC of the firm is more than the cost incurred by competitors for the production & sale of similar
product, then the firm will have to charge a higher price or make less profit.

Example:
Total cost of product (TC) = TVC+ TFC
= Rs 200 + Rs.50 = Rs. 250
Profit margin (Markup %) = Say 25%
Selling price = Total cost of product + profit margin
= 250 + 250 (25/100)
= 250 + 62.50
= Rs. 312.5 (Floor Price)

Cost-based pricing : The firm adds a standard markup or profit margin (specified % of the TC) to the
totalproduction cost. Standard markup account for the profit of the firm over and above costs.

Example :
Lawyers, Accountants and other Professionals use this simple cost-based pricing method to price their
services. In this method they add simple standard markup to the total their costs.

Manufacturing Cost: Variable costs: Rs.10, Fixed costs: Rs. 300,000.

Expected sales: 50,000 units

To calculate the unit cost, we need the following formula:

Unit cost = Variable Cost +Fixed Cost /Unit sales

= Rs 10 +3,00,000/ 50,000 = Rs.16

This cost-based pricing method may appear promising due to its simplicity, but it ignores demand and
competitor prices. Therefore, do not advocate the best price.
Advantages of Cost Based Pricing:
• A straight-forward and simple strategy
• Ensures that all production and overhead costs are covered
• Ensures a steady and consistent rate of profit generation
• If the customers have enough knowledge about product costs and then
will have an upper hand

Disadvantages of Cost Based Pricing:

• May lead to under priced products
• May sometimes ignore consumer's role in the overall market
• May ignore the opportunity cost of the investment

Break-even Pricing and Target-return Pricing : Is another alternative approach to cost-based pricing is
break-even pricing, or target-return pricing.
The firm determines the price at which it will break even or make the target return.

Where total costs and total revenue lines in a break-even chart cross, the break-even volume is reached.
It can be calculated using the following formula:
That means, the company must sell 30,000 units at $20 each to breakeven. If it wants to make a profit, it
needs to sell more than 30,000 units.
With a target return included, the formula changes slightly:

urn Pricing –
For instance, if the company has invested $1,000,000 in the business and wants to set a price to earn a
20% return (=$200,000), it must sell at least 50,000 units at $20 each.

Calculation of Shut down Point, Breakeven Point and Maximum Profit Point
Price of Output = Rs. 1000/q
(Rs. in thousands)

TC GR Profit Remarks
Y TFC TVC
(TFC+TVC) (Rs.) (GR-TC)
(q) (Rs.) (Rs.)
(Rs.) (Rs.)
0 3 0 3 0 -3

2 3 3 6 2 -4 Shout down point at

4 3 4.2 7.2 4 -3.2 Y=3q

6 3 4.8 7.8 6 -1.8

Breakeven point at
8 3 5 8 8 0
Y= 8q

10 3 5.5 8.5 10 1.5

12 3 6.4 9.4 12 2.6

14 3 7.8 10.8 14 3.2 Maximum profit level at Y

 = 14 q

3. Competition-based pricing

It is the process of determining the price of a product or service based on market competition i.e.,
demand and supply, or considering the competitors’ prices. This method is used by firms selling
similar products. The price of competing products is used as a benchmark.

• If Price set > Benchmark/Competitors) price = higher profit per unit But, Lower volume of sales
• If Price set < Benchmark price = Lower profit per unit But,
Large volume of sales

Generally,it is used, once a price for a product/service reaches equilibrium level, which occurs when
a product has been in the market for a long time and there are many substitutes to the product.

Advantageous because; people often find out the market rate/normal rate of similar products before
the purchase and there is no complexity in calculation.
Disadvantage because;If a higher quality product is priced at a lower price just to be in line with the
prices of the competitors.
Additional efforts made like Aggressive advertising, better customer support, market saturation, etc.
may ensure to sell more even its price is more

Market Promotion
Promotion is the function of informing, persuading, and influencing a purchase decision.
It includes the integrated measure of marketing communications and it is the coordination of all
promotional activities such as —Media advertising, Direct mail, Personal selling, Sales promotion, and
Publicity,—to produce customer-focused message to achieve goals of consumers’ satisfaction and
business goal.

Elements of Market promotion create unified message for the good, service, or brand to target
consumers.Market promotion take a broad view and plan for all forms of customer contact.

Promotional mix – Is a combination of personal and non-personal selling techniques designed to

achieve promotional objectives.

1. Personal selling - interpersonal promotional process involving a seller’s face-to-face presentation to a

prospective buyer.
2. Non-personal selling – includes advertising, sales promotion, direct marketing, and public relations.
1. Advertising, 2. Personal selling,
4. Sales promotion, 4. Publicity, and Public Relations.

1. Advertising:
Is one of the most important components of the marketing process. It is a paid and non-personal
communication delivered through various media and designed to inform, persuade, or remind consumers
of a particular market segment.
The firms need to be more and more creative &efficient at getting consumers’ attention.
It is beneficial to manufacturers, traders, consumers and society as a whole.
1. Non-personal from or presentation (no face to face contact) with consumers.
2. Paid form of communication
3. Done by an identified sponsor.
4. It can be oral, written or visual.
5. Done through medias such as press, video, television, cinema, internet etc.
6. Basic function of advertising is to raise the demand for the particular product.
7. Basic form of mass communication
8. Different from publicity as it takes place throughout the life time of a firm or the product.

The merits / benefits of advertising : Manifold& are:

(1) Introduces a new product in the market,
(2) expansion of the market,
(3) increased sales,
(4) fights competition,
(5) enhances good-will,
(6) educates the consumers,
(7) elimination of middlemen,
(8) better quality products,
(9) supports the salesmanship,
(10) more employment opportunities,
(11) reduction in the prices of newspapers and magazines,
(12) higher standard of living!

To create demand: Aimed at

Stimulatesthe demand for product by making people aware of the new products and the existing uses of
the old products. It attracts attention, creates interest and arouses desire among the consumers.

To face competition: Designed to face new competition. it seeks to develop loyalty towards the brand
and to build up permanent customers. it wins over the confidence of the customers in the quality of the
advertised products.

To build goodwill: Well planned advertising programs build goodwill for the enterprise and its
products. Advertising enhances the image and prestige of the advertiser by highlighting the benefits of
 the products and services.

To support salesman: Advertising creates awareness about the merits and demerits of advertised
products. By describing the unique features and use of products, repeated buying is encouraged.
Advertised goods enjoy a ready market and little sales efforts is required for them. Dealers are always
willing to deal in such stocks of goods.

To educate customers: Advertising provides useful information about the uses and features of the
products. it educated customers in buying better functional goods.

To eliminate middleman: Advertised products enjoys recognition and acceptance from public. A
direct link is created between the producers and the customers. Advertising reduces the need of an
middleman for selling goods that reduces the retail price of that commodity.

To improve living standards: Advertising creates a better desire for a better living. It stimulates hard
work and improve the standard of living of the people. If you are aspired to buy a nano car, you shall
definitely work hard towards it to achieve your goal.

To introduce new products: Advertising is very helpful in launching a new product and making it
popular in the market. It helps to convince the consumers about the superiority of a new product over the
competitive products already existing in the market.

Demerits of Advertising
• High cost: One strong objection to advertising is that it is a very costly function. ...
• Misleading Claims made through advertisement. ...
• Encouragement of Monopoly. ...
• High Prices
• Small Businesses Have Restricted Access
• Misdirection of Purchasing Power
• Dangerous Distractions. ...
• Unfulfilled Desires.
• Lack of Feedback: It is very difficult to judge the effectiveness of an advertising message as there is no
accurate feedback regarding its impact.

2. Personal selling
Personal-selling (term is of recent origin) or salesmanship (traditionally in usage) are synonymous terms
in the business world.
Since a salesman, in persuading a prospective buyer to buy a certain product, follows a personal
approach; salesmanship, in the present-day-times in often popularly called as personal selling.

Advantages of Personal Selling

1. It is a two-way communication. So the selling agent can get instant feedback from the prospective
buyer. If it is not according to plan he can even adjust his approach accordingly.
2. Since it is an interactive form of selling, it helps build trust with the customer. When you are selling
high-value products like cars, it is important that the customer trusts not only the product but the
seller also. This is possible in personal selling.
 3. It also is a more persuasive form of marketing. Since the customer is face to face with the
salesperson it is not easy to dismiss them. The customer at least makes an effort to listen.
4. Finally, direct selling helps reach the audience that we cannot reach in any other form. There are
sometimes customers that cannot be reached by any other method.

Disadvantages of Personal Selling

1. Relatively expensive method require high capital costs.

2. Extremely labour intensive method. Require a large sales force to sell successfully.
3. Require training of sales persons and time consuming &costly.
4. It can reach to a limited number of customers.

3. Sale promotion

Is the process of persuading a potential customer to buy the product. Sales promotion is used as a
short-term tactic to boost sales – and is not suitable method to build long-term customer loyalty.
Some sales promotions are always aimed at consumers.

Advantage of sales promotion

1. Stimulates consumers to develop taste towards the product.

2. Creates a better incentive to consumers to make a purchase.
3. Gives direct inducement to consumers for immediate action.
4. Is flexible and used at any stage of a new product introduction.
5. Leads to low unit-cost, due to large-scale production and selling.
6. Helps salesman &makes his effort more productive& effective.
7. The effective promotional tools increase the sales volume.

Sales promotion is effective when:

(a) A new brand is introduced.
(b) Firm want to communicate a major attraction in product.
(c) Expand the result of advertising.
(d) Number of retail stores are increasing to sell out products.
(e) Firm engage in aggressive sales campaign.

Disadvantages/demerits of Sales Promotion:

1. Sales promotions are only supplementary devices which supplement efforts of other promotion tools.
2. Having temporary and short life. The benefits are also short-lived for three or four months.
3. Non-recurring type in their use.
4. Brand image is affected by too many sales promotion activities.
5. Promote the feeling in the minds of the customers that promotional activities are used to sell second
grade products.
6. Immediate increase in demand is stimulated. Hence, it is a short-lived tool.
7. Expensive &leads to a rise in the price of products.

4. Publicity

Publicity is gaining public attention or awareness about a product, service or firm via the mass media.
Publicity is one components of promotion and marketing.

The other elements of the promotional mix are advertising, sales promotion, direct marketing and
personal selling.

The main objectives of public relations are:

• Achieve favorable publicity or influence about the business

• Build the image and reputation of the business and its products, amongst customers
• Communicate effectively with customers and other stakeholders

Advantages of publicity

Biggest advantages of publicity is that it is usually free. It costs a company a significant amount of
money. However, publicity - ranging from newspaper reviews to social media through word-of-mouth -
typically costs nothing.Public relations covers a broad series of activities where a business manages its
relationships with different parts of the public, e.g. customers, the media, local communities, suppliers,
employees and investors.
Marketing process and functions: Marketing process-Concentration, Dispersion and
Equalization; exchange functions–buying and selling; physical functions–storage, transport and
processing; facilitating functions–packaging, branding, grading, quality control and labelling (Ag-
mark)

Agricultural Marketing and Economic Development

Orderly and efficient marketing of food grains plays an important role in solving the problem of hunger.
If marketing system is not efficient, price signals arising at the consumers' level are not adequately
transferred to the producers, as a result farmers do not get sufficient price incentive to increase the
production of the commodities which are in short supply. Thus, an inefficient marketing system
adversely affects the living standards of both the farmers and consumers. In agricultural-oriented
developing countries like India, agricultural marketing plays a pivotal role in fostering and sustaining
the tempo of rural and economic development. Markets trigger the process of development. The
development of an efficient marketing system is important in ensuring that scarce and essential
commodities reach different classes of consumers. Marketing is not only an economic link between the
producers and the consumers but it also helps to maintain a balance between demand and supply. The
objectives of price stability, rapid economic growth and equitable distribution of goods and services
cannot be achieved without the support of an efficient marketing system.

Marketing process:

• Marketing is a process by means of which goods and services are exchanged.The goal of
marketing is to move the products from the producer to the consumer.

• The flow of goods from the place of origin to the place of destination, involves a number of

activities which is not a simple task. These activities of transfer are functions which are known
as marketing process.

The marketing process involves three major activities viz.,

1. Concentration;
2. Dispersion; and advertisements
3. Equalization.

1. Concentration:
The first process of marketing is concentration. Concentration aims at the collection of products at a
central place. Is Assembling of produce
Concentration is necessary because of:

(a) Small Lot of Output:

Agricultural produce, eggs, fruits, vegetables, dairy products, such as milk, butter, ghee etc., are

collected at a central place from innumerable farmers, scattered here and there. These are marketed in

natural form. To make other marketing services such as grading and standardization, for the benefit of
consumers, all produces- rice, wheat, cotton, tea, etc., are brought to a central place.

(b) Assembly of Parts:

Some types of manufactured products need assembly work; f6r example, spare parts of products. These
parts are manufactured at different firms and at different places. To make the final products, assembly or
concentration is essential.

(c) To Facilitate Regular Supply:

To ensure the continuous supply of products to the consumers, concentration is essential. Generally the
jobs are undertaken by wholesalers, exporters, agents, etc.

2. Dispersion:
Concentration takes place because of need for dispersion. Otherwise concentration has no meaning. The

goods or products, assembled at a central place, have to be distributed to the consumers. Some of the

products are dispersed to manufacturers or processors and the remaining goods are dispersed to the final
consumers through a chain of wholesalers, retailers, agents, middlemen etc. The products meant for
ultimate users are sub divided into small lots required to meet the final consumption.
Dispersion is essential, because the buyers are scattered or located not near the firm or in a concentrated
place. In the absence of consumption, production has no meaning. The purpose of production and its
concentration aims at finding consumers at profitable and accepted price.

3. Equalization:
Between the two activities i.e., concentration and dispersion, there is the equalization process. It implies

the reconciliation between demand and supply through storage and transportation, in needed quantity
and quality at the required time and place. Adjustments of supply to demand are effected.

Equalization aims at regular supply of goods which are produced in particular season, but consumed

throughout the year, e.g., paddy, wheat, jawar, fruits, vegetables etc. Similarly some types of goods have
only seasonable demand: but production takes place continuously. For example, rain coats, umbrellas,

sweaters, woollen socks, mufflers etc. This equalization facilitates regular supply. Then transport bring
equalization of supply, place-wise; and warehousing enables equalization of supplies, time-wise.

Concentration, dispersion and equalization constitute the soul of marketing. All the functions are

performed by middlemen. Each process is not independent, but mutually interdependent and equally

important. Middlemen assist in the transfer of ownership to consumers, but do not take title. Such
middlemen are called functional middlemen. The middlemen, who buy goods under an outright sale, are
called merchant middlemen, who sell to consumers.

Exchange functions–buying and selling; physical functions–storage, transport and processing;

facilitating functions–packaging, branding, grading, quality control and labelling (Ag-mark)

Marketing Functions and their Classification

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. The marketing functions may be classified
in various ways.

Marketing Functions and their Classification

The marketing functions may be classified in various ways. For example, Thomsen has classified the
marketing functions into three broad groups. These are:
(i) Primary Functions Assembling or Procurement Processing
Dispersion or Distribution

(ii) Secondary Functions Packing or Packaging Transportation

Grading, Standardization and Quality
Control
Storage and Warehousing
Determination or Discovery of Prices
Risk Taking
Financing
Buying and Selling
Demand Creation
Dissemination of Market Information
(iii) Tertiary Functions Banking
Insurance
Communications – Posts &
Telecommunication
Supply of Energy – Electricity

Kohls and Uhl have classified marketing functions as follows:

i) Exchange Functions Buying

Selling
(ii) Physical Functions Storage and Warehousing
Grading
Processing
Transportation
(iii) Facilitative Functions Standardization of Grades
Financing
Risk Taking
Dissemination of Market Information

Converse, Huegy and Mitchell have classified marketing functions in a different way. According to
them, the classification is as follows:

(i) Physical Movement Functions Storage

Packing
Transportation
Grading
Distribution
(ii) Determining Need
Ownership Movement Functions Creating Demand
Finding Buyers and Sellers
Negotiation of Price
Rendering Advice
Transferring the Title to Goods
 (iii) Market Management Functions Formulating Policies
Financing
Providing Organization
Supervision
Accounting
Securing Information

1. Exchange Functions
1. Buying
2. Selling:

Meaning:

Buying and selling is the most important activity in the marketing process. At every stage,
buyers and sellers come together, goods are transferred from seller to buyer, and the possession utility is
added to the commodities. The number of times the selling and buying activity is performed depends on
the length of the marketing channel. The buying activity involves the purchase of the right goods at the
right place, at the right time, in the right quantities and at the right price. It involves the problems of
what to buy, when to buy, from where to buy, how to buy and how to settle the prices and the terms of
purchase.

The objective of selling is to dispose of the goods at a satisfactory price. The prices of products,
particularly of agricultural commodities vary from place to place, from time to time, and with the
quantity to be sold. Selling, therefore, involves the problems of when to sell, where to sell, through
whom to sell, and whether to sell in one lot or in parts.
Methods:

The following methods of buying and selling of farm products are prevalent in Indian markets:

(i) Under Cover of a Cloth (Hatha System)

By this method, the prices of the produce are settled by the buyer and the commission agents of the
seller by pressing/twisting the fingers of each other under cover of a piece of cloth. Code symbols are
associated with the twisting of the fingers, and traders are familiar with these. The negotiations in this
manner continue till a final price is settled. When all the buyers have given their offers, the name and
offer price of the highest bidder is announced to the seller by the commission agent. This method has
been banned by the government because of the possibility of cheating.

(ii) Private Negotiations:

By this method, prices are fixed by mutual agreement. This method is common in unregulated markets
or village markets. Under this method, the individual buyer come to the shops of commission agents at a
time convenient to the latter and offer prices for the produce which, they think, are appropriate after the
inspection of the sample. If the price is accepted, the commission agent conveys the decision to the
seller, and the produce isgiven, after it has been weighed, to the buyer. In villages, too, private
negotiations takeplace directly between buyer and seller. The sellers take the sample to the buyer and
askhim to quote the price. If it is acceptable to the buyer, a contract is executed.

(iii)Quotations on Samples taken by Commission Agent:

By this method the commission agent takes the sample of the produce to the shops of the buyer instead
of the buyer going to the shop of the commission agent. The price is offered, based on the sample, by the
prospective buyers. The commission agent makes a number of rounds of prospective buyers until none is
ready to bid a price higher than the one offered by a particular buyer. The produce is given to the highest
bidder.

(iv) Dara Sale Method

By this method, the produce in different lots is mixed and then sold as one lot. The advantages of this
method are that, within a short time, a large number of lots are sold off. The disadvantage is that the
produce of a good quality and one of a poor quality fetch the same price. There is, therefore, a loss of
incentive to the farmer to cultivate good quality products.

(v) Moghum Sale Method:

By this method, the sale of produce is effected on the basis of a verbal understanding between buyers
and sellers without any pre-settlement of price, but on the distinct understanding that the price of the
produce to be paid by the buyer to the seller will be the one as prevailing in the market on that day, or at
the rate at which other sellers of the village sold the produce. This method is common in villages, for
farmers are indebted to the local money lenders.

(vi) Open Auction Method:

By this method, the prospective buyers 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 it ensures fair dealing
to all parties, and because the farmers with a superior quality of produce receive a higher price. In most
regulated markets, the sale of the produce is permissible only by the open auction method.

The following are the merits of the open auction method:

a) A sale by this method inspires confidence among the buyers and sellers.
b) The auction serves as a meeting place for supply of, and demand for goods.
c) It disposes of the market supply promptly.
d) A wide variety of goods are available to buyers for selection.
e) The auction method reduces the number of salesmen needed in the process.
f) Buyers of small lots are not put to disadvantage against the buyers of large lots.
g) The payment of the price of the goods is made immediately after the sale.

The disadvantages of the open auction method are:

a) The auction method requires more time on the part of both the buyer and the seller, for they have to
wait for the day and time of the auction.
b) An open auction is a very time-consuming process because of the variation in the quality of the
various lots.
c) In big market centers, specially in the peak marketing season, the time allotted for auction is
short. Both the buyers and the sellers are in a hurry. As a result, sellers may receive a low price
d) In an open auction, buyers sometimes join hands.
e) The auction leads to a “buyers_ market”, for buyers have full information about the supply of and
demand for the product. Some of the problems arising out of the open auction method may be
overcome if the grading of agricultural produce is adopted by the cultivators.

(vii) Close Tender System:

This method is similar to the open auction method, except that bids are invited in the form of a close
tender rather than by open announcement. The produce displayed at the shop of the commission agent is
allotted lot numbers. The prospective buyers visit the shops, inspect the lots, offer a price for the lot
which they want to purchase on a slip of paper, and deposit the slip in a sealed box lying at the
commission agents’ shop. When the auction time is over, the slips are arranged according to the lot
number, and the highest bidder is informed by the commission agent that his bid has been accepted and
that he should take delivery of the produce. Some of the regulated markets have adopted
this method of sale,

2. Physical functions:
1. Storage
2. Transportation and
3. Processing

1. STORAGE:

Meaning and Need:

The storage function adds the time utility to products. Agriculture is characterized by relatively large
and irregular seasonal and year – to – year fluctuations in production. The consumption of most farm
products, on the other hand, is relatively stable. These conflicting behaviours of demand and supply
make it necessary that large quantities of farm produce should be held for a considerable period of time.
The storage of agricultural products is necessary for the following reasons:

1. The storage of goods, therefore, from the time of production to the time of consumption, ensures a
continuous flow of goods in the market;
2. Storage protects the quality of perishable and semi – perishable products from deterioration;
3. To cope with this demand, production on a continuous basis and storage become necessary;
4. It helps in the stabilization of prices by adjusting demand and supply;
5. Storage is necessary for some period for the performance of other marketing functions.
6. The storage of some farm commodities is necessary either for their ripening (e.g. banana, mango, etc.)
or for improvement in their quality (e.g., rice, pickles, cheese, , etc.);
7. Storage provides employment & income through price advantages.

Risks in Storage:
The storage of agricultural commodities involves three major types of risks and they are:

1. Quantity Loss
2. Quality Deterioration:
3. Price Risk:

2. 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.

The main advantages of the transport function are:

1. Widening of the Market:

2. Narrowing Price Difference Over Space:
3. Creation of Employment:
4. Facilitation of Specialized Farming:
5. Transformation of the Economy:
6. Mobility of the Factors of Production:

Factors affecting the cost of transportation:

Other things remaining the same, the transportation cost of a commodity depends on thefollowing
factors:
1. Distance
2. Quantity of the Product
3. Mode of Transportation
4. Condition of Road
5. Nature of Products:
a) Perishability (e.g., Vegetables);
b) Bulkinesss (e.g., straw);
c) Fragility (e.g. tomatoes);
d) Inflammability (e.g., Petrol);
e)Requirement of a special type of facility (i.e, for livestock &milk)
6. Availability of Return Journey consignment
7. Risk Associated: Problems in transportation of agricultural commodities

Problems

The important problems arising out of the transportation of agricultural commodities are:
1. The means of transportation used are slow moving;
2. There are more losses/damages in transportation because of the \
use of poor packagingmaterial.
3. The transportation cost of the farm produce is higher than that for
other goods.
4. There is lack of co-ordination between different transportation
agencies, e.g., therailways and truck companies.

3. PROCESSING :

Processing:
Processing is an important marketing function in the present-day marketing of agricultural commodities.
A large proportion of farm products was sold in an unprocessed form or in the primary form of their
production. At present, consumers are dependent upon processing for most of their requirements.

Meaning:The processing activity involves a change in the form of the commodity. Processing converts
the raw material and brings the products nearer to human consumption. It is concerned with the addition
of value to the product by changing its form.
Advantages:

The specific advantages of the processing function are:

1. It changes raw food and other farm products into edible, usable and palatable forms.
The value added by processing to the total value produced at the farm level varies from
product to product.
2. The processing function makes it possible for us to store perishable and semi – perishable
agricultural commodities which otherwise would be wasted and facilitates the use of the
surplus produce of one season in another season or year.
3. The processing activity generates employment..
4. Processing satisfies the needs of consumers at a lower cost.
5. Processing serves as an adjunct to other marketing functions, such as transportation, storage
and merchandising.
6. Processing widens the market. Processed products can be taken to distant and overseas
markets at a lower cost.

3. Facilitating functions

1. Packaging
2. Branding
3. Grading
4. Quality control and
5. Labeling (Ag Mark)

1. 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.

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.

Advantages of Packing and Packaging:Packaging is a very useful function in the marketing process of
agricultural commodities. The main advantages of packing and packagingare:

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.
5. Packaging helps in reducing marketing costs by reducing 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.

2. Banding

3. Grading and standardization

Grading and standardization is a marketing function which facilitates the movement of produce. Grade
standards for commodities are laid down first and then the commodities are sorted out according to the
accepted standards.

Meaning:
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.

2. Permissive / Variable Grading: The goods are graded under this method according to standards,
which vary over time. 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. The decentralized grading system is implemented by State Marketing Authorities under the
overall supervision and guidance of the Directorate of Marketing andInspection.

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 produce 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.
5 Grading minimizing advertisement expenses and eliminating the cost of handling and weighing at ever
stage.
6. 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 facilitate futures trading in a commodity.
7. Grading helps consumers to get standard quality products at fair prices.
8. Grading contributes to market competition and pricing efficiency

4. Quality control
5. Labeling (Ag Mark)

QUALITY CONTROL to ensure the confidence of consumers, it is essential that grading is done in
accordance with the standards that have been set. For this purpose, the inspection of the goods at regular
intervals by a third party is essential. Inspections are carried out by inspectors appointed by the
government, and not by a producer or a buyer. 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 the inferior grade
produce, etc. after laboratory tests, if the produce is below standards, the licence of the grader is
cancelled and legal action is initiated against him..

Quality Control in Agricultural Products

The products are graded according to the standards fixed by the

Agriculture Marketing Advisor (AMA), GoI, bear the label “AGMARK”.
AGMARK is the abbreviation of Agriculture Marketing. Is the quality certification marks under the
Central Agricultural Produce (Grading and Marketing) Act, 1937. This label indicates that the purity and
the 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 the special
quality paper and issued by the Agriculture Marketing Advisor. They are serially numbered, and the
firm is required to maintain the account of the labels in a register, which are issued to the grader,. 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 is not possible to remove the contents of the package without tampering the AGMARK
label. Each AGMARK package bears the date of the packing and date of expiry of the product.

AGMARK products are pretested &certified for the quality. AGMARK products are of assured quality
&different from adulterated and spurious goods. If any AGMARK product purchased by the consumer
is found to be defective, the consumer gets the product replaced or gets the money back as per the
procedure laid out.

Certificate of Agmark Grading means a certificate in specified proforma issued by an authorised Officer
of the Directorate of Marketing and Inspection (DMI) or a person designated by the approved laboratory
to issue the same in respect of agmark graded consignment which is meant for export.
Market functionaries and marketing channels: Types and importance of agencies involved in
agricultural marketing; meaning and definition of marketing channel; marketing channels for
different farm products, factors affecting marketing channels.

Market functionaries/Intermediaries/Agencies and their importance

In the marketing of agricultural commodities, the following market functionaries/marketing agencies are
involved:
1) 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.

2) 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.
The middlemen in foodgrains marketing may, therefore, be classified as follows:
(A) Merchant middlemen:
Those individuals who take title to the goods they handle.
They buy &sell on their own and gain or lose, depending on the difference in the sale &purchase prices.
Merchant middlemen are of two types:
i) Wholesalers: Those merchant middlemen who buy &sell food grains in large quantities. They may
buy either directly from farmers or from other wholesalers. They sell food grains either in the same
market or in other markets. They sell to retailers.

The wholesalers perform the following functions in marketing:

(a) Assemble the goods from various localities and areas to meet the demands of buyers, (b) Sort out
goods in different lots according to their quality and prepare them for market,
(c) Equalize the flow of goods by storing them in the peak arrival season and releasing in the off-season,
(d) Regulate the flow of goods by trading with buyers and sellers in various markets,
(e) Finance farmers and enable to meet their requirements of production & inputs,
(f) Assess demand of prospective buyers and processors from time to time,
g) Plan the movement of the goods over space and time.

ii) Retailers: Retailers buy goods from wholesalers and sell them to the consumers in small quantities..
Retailers are the closest to consumers in the marketing channel.
iii) 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.
iv) Village Merchants: 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.
(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 or
brokerage.
Agent middlemen are of two types
i) Commission Agents or Is also called as Arhatias:A commission agent is a person operating in the
wholesale market who acts as the representative of either a seller or a buyer. A commission agent 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, Kacchaarhatias and Pacca
arhatias.
Kacch aarhatias: 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 (APMCs), only one category of commission agent exists and they operate in the
name of “A- class traders”.
The commission agent keeps an establishment – a shop, a godown 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.

ii) 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. Brokers have no establishment in the market. In most regulated
markets, brokers do not play any role because goods are sold by open auction.

(C) Speculative Middlemen:

Those middlemen who take title/ ownership to the product with a view to making a profit on it from
future price movements and 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)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:

i). Hamals or Labourers: They physically move the goods in marketplace. They do unloading from and
the loading activities in the market. They assist in weighment of produce. 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.
ii)Weighmen: They facilitate the correct weighment of the produce. They get payment for their services
through the commission agent.
iii) Graders: These middlemen sort out the product into different grades. They facilitate the process of
prices settlement between the buyer and the seller.
iv) Transport Agency: This agency assists in the movement of the produce from one market to another.
vi) Communication Agency: It helps in the communication of the information about the prices
prevailing, and quantity available in the market.
vi) Advertising Agency: It enables prospective buyers to know the quality of the product and decide
about the purchase of commodities. Newspapers, the radio, TV and Internet are the main media for
advertisements.
vii) Auctioners: They help in exchange function by putting the produce for auction and bidding by the
buyers.
E) Processors: Involved in the conversion of raw agril. Products (Primary form) into different value
added and consumable forms. All most all agril. Commodities are subjected to some degree of
processing or the other before they are used for consumption.

3. Marketing institutions / Government:

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 (iii) Food Corporation of India (FCI)
Inspection (DMI) (iv) Cotton Corporation of India (CCI)
(ii) Commission for Agricultural Costs
(v)v) v) Jute Corporation of India (JCI)
and Prices (CACP)

(vi) Specialized Commodity Boards

• Rubber Board • Cardamom Board
• Tea Board • Arecanut Board
• Coffee Board • Coir Board
• Spices Board • Silk Board
• Coconut Board • National Horticulture Board (NHB)
• Oilseeds and Vegetable Oils Board • National Dairy Development Board (NDDB)
• Tobacco Board

(b) Cooperative Sector Institutions

(i) National Cooperative Development (v) Tribal Cooperative Marketing Federation
Corporation (NCDC) (TRIFED)
(ii) National Agricultural Cooperative (vi) Special Commodity Cooperative Marketing
Marketing Federation (NAFED) Organizations (Sugarcane, Cotton, Milk)
(iii) National Cooperative Tobacco Growers (vii) State Cooperative Marketing Federations.
Federation (NTGF) (viii) Primary Agricultural Cooperative Marketing
(iv) National Consumers Cooperative Societies
Federation (NCCF)
(c) Others
• Central Warehousing Corporation (CWC)' • The Cashewnuts Export Promotion Council of
• State Warehousing Corporations (SWCs) India (CEPCI)
• State Trading Corporation (STC) • Agricultural Produce Market Committees
• Agricultural and Processed Food Export (APMC)
Development Authority (APEDA) • State Agricultural Marketing Boards (SAMB)
• Export Inspection Council • Council of State Agricultural Marketing Boards
• Marine Products Export Development (COSAMB)
Authority (MPEDA) • State Directorates of Agricultural Marketing
• Silk Export Promotion Council (SEPC) • Research Institutions and Agricultural
Universities

Marketing Channels
Marketing Channels are routes through which agricultural products move from producers to consumers.

The length of the marketing channel varies from

Commodity to commodity, Quantity to be moved,
Form of consumer demand &Degree of regional specialization in production.

Definition

Marketing channel is defined in different ways.

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.

Moore et al. “The chain of intermediaries through whom the various food grains pass from producers to
consumers constitutes their marketing channels”.

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.

Marketing channels of distribution

The course taken in the transfer of the title of a commodity constitutes its channel of distribution. (OR)
It is the route taken by a product in its passage from its first owner i.e. producer to the last owner, the
ultimate consumer.

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:

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 their
agents.
• Public services like gas, electricity and transport are usually sold directly to the consumer.

Integration, efficiency, costs and price spread: Meaning, definition and types of market integration;
marketing efficiency; marketing costs, margins and price spread; factors affecting cost of marketing;
reasons for higher marketing costs of farm commodities; ways of reducing marketing costs.

MARKET INTEGRATION

Kohls 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.
 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.

2. Vertical integration :
 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: - 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.Close to the
consumption.
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:

Type of integration where firms performing different activities which are unrelated to each other are
integrated under one management. A combination of agencies or activities not directly related to each
other, may operates under a united management is termed a conglomeration.
Eg: Hindustan Lever Ltd. : Delhi cloth and General Mills (cloth & vanaspati).
Tata : Industries, Cement, Steel, Tea, Salt
Reliance : Power, Telecommunication, Industries, Retail business, Insurance
--

MARKETING EFFICIENCY

Marketing efficiency is essentially the degree of market performance. It is a broad concept, complex and
highly dynamic process.

Marketing efficiency therefore comprises or focuses on the following aspects

1. Achieving objective of cost minimization or Maximization of goals of marketing

2. Fulfilling the expectations of market players in the marketing system
Producers with remunerative price for their produce and less marketing cost,
Consumers with reasonable price for the goods & services they demand,
3. Stable and increasing revenue to the middlemen/functionaries for their services,
4. Welfare of all players in the market and of the society at large.

Definition of Marketing efficiency:

According to Kohl and Uhl (1980): It is the ratio of market output (satisfaction) to marketing input
(cost of resources used in marketing). Market output is the value of the output that is distributed per unit
of marketing cost. Or it is the ratio of outflows from the market (output value) to the inflows (cost of
marketing) in to the market.
An increase in ratio represents improved efficiency and vice versa.

According to Jasdanwalla, The term marketing efficiency may be broadly defined as the effectiveness
or competence with which a market structure performs its designated functions.

According to Clark (1954): Marketing efficiency should include the following three components

Components of marketing efficiency:

1. Effectiveness with which a marketing service is performed.(Efficiency of marketing service)

2. The cost at which the service is provided/performed.(Cost of the marketing service)
3. The effect of this cost and the method of performing the service on production and consumption. i.e.
effect of (1) & (2) on production and consumption.

The last two are more/most important as the satisfaction of the consumer is maximum at lowest possible
cost (fair/reasonable price) and must also satisfy producers with remunerative returns to maintain the
volume of farm output.

Value of the output (Satisfaction) O

ME = ---------------------------------------------- x 100 = ----- x 100
Value of the input (Marketing cost) I

ME = Value of the output (O)/ Cost of performing marketing services/functions (I) x 100 =O/I x 100

Higher the ratio value , higher is the marketing efficiency and vice-a-versa.

Example: ME = 3000/500 x 100 = 600%, ME = 3000/1000 x 100 = 300%

Methods of assessment/measuringof marketing efficiency:

1. Technical or Physical or Operational efficiency: It pertains to the cost of performing a function;

Efficiency is increases when the cost of performing a function per unit of output is decreases.
Eg: - Storage processing, transportation, processing, handling etc.

This can be brought about by reducing marketing costs for every unit of commodity marketed to the
consumers and reducing physical losses through changing the technology of marketing functions such as
transportation, storage, processing, and trading etc.

2. Pricing / Allocative efficiency : Pricing efficiency is accomplished when marketing 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.

It focus on the that pricing of the products in the market system that satisfies the producers and the
consumers in addition to the middlemen.
The Pricing/Allocative efficiency is achieved via pricing the product at different stages, places, times
among different users.

The pricing efficiency is achieved when the following conditions hold good;

1. Price difference of the product between the two distant markets is due to transport cost alone
2. Price difference of the product between the two points of time is due to storage cost alone
3. Price difference at a point of time and over space for different forms of the product is due to
processing cost alone

Pricing efficiency therefore, refers to the structural characteristics of the marketing system, where the
sellers are able to get the true value for their produce (that bring continuous supply) and the consumers
receive true worth of their money (that create demand continuously).

Pricing efficiency is affected by

1. Extent of market competition, (No. and size of Buying & selling firms, volume of business,
nature and extent of market integration, conditions for entry and exit, nature of the commodity,
etc)
2. Dissemination of market information: Mode and effectiveness of its availability
3. Attitude of market functionaries : Speculative/non-speculative behaviors

Both the Technical and Pricing efficiencies are mutually reinforcing (dependent on each other) and
hence both are important for achieving overall marketing efficiency in the long run.

Empirical Assessment of Marketing 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
ME = ---- x 100
I
E = level of efficiency
O = value added to the marketing system.
I = real cost of marketing

Example:
Given the satisfaction, If the MC 3000 3000
is reduced, The ME increases ME = ------ x 100 = 600% ME = ------ x 100 = 1000%
500 300

Value of the output per Rupee =Rs.6 =Rs.10

MC
Given the MC, If the satisfaction 3000 5000
is increased, The ME increases ME = ------ x 100 = 600% ME = ------ x 100 = 1000%
500 500

Value of the output per Rupee =Rs.6 =Rs.10

MC
Shepherd ‘s formula of marketing efficiency :

Price paid by consumer or Value of the good sold (V)

ME = [ ----------------------------------------------------------------- - 1] x 100
Total Marketing cost or Marketing Input (I)

V
ME = [ --- - 1] x 100
I

Given the satisfaction, If the MC is 3000 3000

reduced, The ME increases E = ( ------ - 1 ) x 100 = 500% E = (------ - 1) x 100 = 900%
500 300

Value of the output per Rupee MC =Rs.6 =Rs.10

Given the MC, If the satisfaction is 3000 5000

increased, The ME increases E = ( ------ - 1 ) x 100 = 500% E= (------ - 1) x 100 = 900%
500 500
Value of the output per Rupee MC =Rs.6 =Rs.10
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.
This method eliminates the problem of measurement of value added.
Marketing cost-margins-price spreads-factors affecting the costs of marketing reasons for higher
marketing costs of agricultural commodities- ways of reducing marketing costs for farm products.

Marketing Costs
The movement of products from the producers to the ultimate consumers involves costs, taxes, and cess
which are called marketing costs. These costs vary with the length of marketing channels through which
a particular commodity passes through.

Eg: - Cost of packing, transport, weighment, loading, unloading, losses and spoilages.

Objectives of Studying Marketing Costs:

1. To ascertain which intermediaries are involved between producer and consumer.

2. To ascertain the total cost of marketing process of commodity.
3. To compare the price paid by the consumer with the price received by the producer.
4. To see whether there is any alternative to reduce the cost of marketing.

The Marketing cost is generally influenced by

1. Place of production (Distance to the market from production areas): The production places close
to the market will have less cost than those located away from the market.

2. Time of production :Agril. Commodities are seasonally produced but are demanded through out
the year and hence are required to be made available by storing at a cost.

3. Form of the product: Most of the agril. commodities require processing of one or the other form
before their consumption and Hence, need to be processed in the required form

Thus, the analysis of details marketing costs helps us to know whether the MCs are on the lower side or
on the higher side. If are on the higher side, can design ways to reduce them through better marketing
approaches.

Marketing costs would normally include :

i. Handling charges at local point

ii. Assembling charges
iii. Transport and storage costs
iv. Handling by wholesale 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

Producer’s share in consumer’s rupee (PSCR) :

PF Price received by the farmer (PF)

Ps = ---- x 100 = ---------------------------------------- x 100
Pr Retail price paid by the consumer (Pr)

Where,
 Ps = Producer s share
PF = Price received by the farmer
Pr = Retail price paid by the consumer

Total cost of marketing of commodity,

Marketing costs are the actual expenses required in bringing goods and services from the producer to the
consumer.

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.

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.

Or,

It is the difference between the price paid and received by a specific marketing agency in the marketing
of a commodity such as traders, wholesalers, processor &retailer.
Or
is the margin retained by market functionaries in the marketing of a commodity as a remuneration for
their services rendered in addition to the profit.

Estimation of marketing margin helps

• know the efficiency of the marketing system and
• impose restrictions through policy measures if intermediaries are charging excessive margins
disproportion to the marketing service rendered.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.

Marketing margin of a Middleman: The alternative measures may be used.

The three alternative measures which may be used in estimating market margins are.

(a)Absolute margin of ithmiddlemen (Ami)=Sale price–(Purchaseprice + Marketing cost)(Per unit)

= PRi–( PPi + Cmi)

Example: If Purchase price = Rs. 2450, and

Selling price = Rs.2850, &
Marketing cost =Rs.250
Absolute margin of ith middlemen (Ami) = 2850 – (2450+250) = Rs. 150

(b) Percentage margin of ith middlemen (Pmi) = Sale price – (Purchase price + Marketing cost)
-------------------------------------------------------X100
Sale price

PRi - (PPi + Cmi) 150

= --------------------- X 100 = ------- x 100 = 5.26%
PRi 2850

(c) Mark-up of ith middleman (M2) = Sale price – (Purchase price + Marketing cost)
-------------------------------------------------------X100
Purchase price

PRi - (PPi + Cmi)

= -------------------- X 100 = 150
Ppi -------- x 100 = 6.12%
2450
Where,
PRi = Total value of receipts per unit (Sale price)
Ppi = Purchase value of goods per unit (Purchase price)
Cmi = Cost incurred on marketing per unit.

The margin includes profit to the middlemen and returns to storage, interest on capital, overheads and
establishment expenditure.

Price spread:

The difference between the price paid by consumer and the price received by the producer for an
equivalent quantity of farm produce is called price spread.

Or
Farm retail spread (Because, it is difference retail price &farmers’ price). Some times it is also called as
marketing margin.

Total marketing margin includes:

1. Cost of marketing: It is the actual cost incurred in the movement of the produce from the initial
point of production to the ultimate point of consumption.
It includes cost of performing various marketing functions by various market agencies form
production to consumption stage and aggregated for all intermediaries.

2. Profit margin: Margin of profit by various market functionaries involved in the movement of
commodity form producers to consumers.

The marketing margin varies from channel to channel, market to market, commodity to
commodity depending on its nature and from time to time.
Types / methods of computation of Marketing Margins :

Estimation of marketing margin is difficult. The estimation of margin is especially more complex in case
of farm products as it is difficult to follow the path of the marketing channel for a given quantity of the
commodity till it reaches the final consumer. And further, is still difficult if the commodities are
subjected to processing before they are consumed. However, there are two methods/types through which
the marketing margin is estimated.

1. Concurrent margin method:

This method takes into account the difference in price that prevails for a commodity at successive stages
of marketing at a given point of time. Under this method, price at successive stages of marketing at the
producers, wholesalers and retailers levels are compared. The difference is taken as the gross margin.

This method does not take in to account the time element that elapses between every purchase and sale
from production to consumption stage. Only the price differences at successive stages are collected to
know margin at each stage and overall from producers to consumers.

For Ex: Difference between farmers selling price to retailers’ price on a specific day for a commodity is
the total concurrent margin. Or Prices prevailing at Farmers, PWS, SWS, Processors, WS, Retailers
levels is taken to work out margin at each level and total margin between farmers and consumers.

2. Lagged Margin Method:

Lagged margin assessed by taking the difference of price received by an agency and the one paid by the
same agency in purchasing an equivalent quantity of commodity at the preceding stage.
Lagged margin is the difference between the price received by a seller of a commodity at a particular
stage of marketing and the price paid by him at the preceding stage of marketing during an earlier
period. (Lm = Prt – Pp t-1)

The length of the time between buying and selling denotes the period for which product is held.

The lagged margin method is better method as it takes into account the time that elapses between
purchase and sale of produce by every functionary and thus, between sale by farmer and the purchase by
the ultimate consumer. The difficulty in this method is the collection of data on costs & profits of each
intermediary by taking time lag in to account.

Working out marketing margin:

Sum of Average Gross margins method:

The average gross margin at each successive level of marketing is worked out by dividing the difference
of the money value of sales (Sale Value) and purchase (Purchase value) by the number of units of the
commodity transacted by a particular agency.

The average gross margins of all the intermediaries are added to obtain the total marketing margin as
well as the break up of the Consumer’s rupee :
MT = S1-P1 S2-P2 Si - Pi
-------------- + --------------- + - - - - - - - = ---------
Q1 Q2 Oi

n Sale Value ofithfirm - Purchase value by ith firm 2

MT = Σ ------------------------------------------------------------
i=1 Quantity of the product handled by ith firm

n Si - Pi
MT = Σ ---------
i=1 Oi

MT = Total marketing margin.

Si = Sale value of a product for ithfirm
Pi = Purchase value or value paid by the ith firm
Qi = Quantity of the product handled by its firm
i = 1, 2, . . . . n (No. of firms involved in the marketing channel).

Importance of study of marketing margin and costs: The study provides information on

1. Magnitude of marketing margin ( Marketing Costs and Profits) in relation to the price of the
products
Thus, indicates efficiency of marketing system w.r.t. services rendered in the marketing process.
indicates efficiency of intermediaries between Producers and Consumers.
Gives extent of value addition due to various marketing processes over time and space.
2. Helps in estimating total cost incurred on marketing process in relation to product price
Thus, can work out Percentage marketing cost to the producer’s and Consumer’s prices
can work out the share of cost by each marketing agency
3. Identify reasons for marketing higher costs and design ways to reduce them
4. Helps to evolve and implement appropriate policy and marketing process and regulate if
excessive margins are included in the price.

Factors Affecting Marketing costs: Various factors that influence the cost of marketing of agricultural
commodities are enlisted as under

1. Perishability: Cost of marketing is directly related to the degree of perishability. Higher the
perishability of commodity, higher will be the marketing cost and vice-a-versa.

2. Losses in storage, transportation, processing: The extent of loses that arise in quality and
quantity of the produce are more due to wastage or spoilage during storage, transportation,
processing, handling etc. and thus adds to the marketing cost.

3. Volume of the product handled:

Larger the volume of the product– less is the marketing cost
Smaller the volume of the product– more is the marketing cost

4. Regularity in the product supply : Regular the supply of products throughout the year, the
lesser is the marketing cost/unit. Irregular the supply- Higher the marketing cost. Most farm
products are Seasonal in production but demanded throughout.
 5. Extent of Packaging and processing: Costly (depends on the type of packing)
Higher the need for processing and packaging of the commodities, higher will be the marketing
cost and vice-a-versa.
6. Extent of adoption of grading: In case of Ungraded products - marketing cost is high and
while, in case of graded products, marketing cost is low (Graded products fetch higher price
than the ungraded ones).
7. Need for demand creation (advertisement): Higher the need for advertising to create the
demand, higher will be the marketing cost of the products and vice-a-versa.
8. Bulkiness of the product: For bulky products, the marketing cost is high as they require more
pace during transportation, storage, etc, and vice-a-versa.
9. Need for retailing: Greater the need for retailing – more will be the marketing cost and vice-a-
versa)
10. Necessity of storage: Storage cost of commodity adds marketing cost.

11. Extent of Risk: Greater the risks involved in the business, the higher will be the marketing cost.
High risks ssuch as high price fluctuations, failure of business, unfair marketing practices.

12. Facilities extended by dealers to consumers: Greater the facilities extended to the customers,
the higher will be the marketing cost and vice-a-versa. Example: Return facility, home delivery,
credit facility, entertainment.

13. No. of middlemen: Larger the number of middlemen, more will be the marketing cost.

14. Unfair trade practices.

15. Costly and inadequate finance.

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 by adopting hedging.
4. Improvements in marketing intelligence.
5. Increasing the competition in marketing of farm products.

Role of Govt. in agricultural marketing: Public sector institutions- CWC, SWC, FCI, APEDA, CACP,
KAPC, DMI & KSAMB–Genesis their objectives and functions.

Warehousing in India

In 1928, the Royal Commission on Agriculture underscored the need for a warehousing system in India.
The Central Banking Enquiry Committee, 1931, too, drew attention to this need. The Reserve Bank of
India emphasized the need for warehouses as early as in 1944, and proposed that every State
Government should enact legislation to regulate the functioning of warehouses. The All-India Rural
Credit Survey Committee of the Reserve Bank of India (set up in 1951 and submitted its report in 1954)
also made comprehensive recommendations for the development of warehousing as an integrated
scheme of rural credit and marketing. As a result of the recommendations of the Committee, the
Government of India enacted the Agricultural Produce (Development and Warehousing) Corporations
Act, 1956. The Act provided for:

(a) The establishment of a National Co-operative Development and Warehousing Board (which was set
st
up on 1 September, 1956);
(b) The establishment of the Central Warehousing Corporation (which was established at Delhi on
nd
2 March, 1957); and
(c) The establishment of State Warehousing Corporations in all the States in the country (which were
established in various states between July 1957 and August 1958).

Central Warehousing Corporation (CWC) and State Warehousing Corporation (SWC)

Central Warehousing Corporation was established during 1957 to provide logistics support to the
agricultural sector. It is a public Warehouse operator offering logistics services to diverse group of
clients.

CWC operates 432 Warehouses across the country with a storage capacity of 9.96 million tonnes
providing warehousing services.[1][2] These services includes foodgrain warehouses, industrial
warehousing, custom bonded warehouses, container freight stations, inland clearance depots and air
cargo complexes.

Meaning of Warehousing: Warehouses are scientific storage structures specially constructed for the
protection of quantity and quality of stored products. It is a component of human foresight by means of
which commodities are protected from deterioration and surplus supplies are carried over for future
consumption in seasons of scarcity.

The important functions of the warehouse are:

1) Scientific storage 2) Financing
3) Price Stabilization 4) Market Intelligence

Functions
The Warehousing Corporation Act, 1962:Subject to the provisions of this Act, the Central Warehousing
Corporation may--[3]

1. Subscribe to the share capital of a State Warehousing Corporation;

2. Act as agent of the Government for the purposes of the purchase, sale, storage and distribution of
agricultural produce, seeds, manures, fertilizers, agricultural implements and notified
commodities; and

3. Carry out such other functions as may be prescribed.

Operation
CWC operations include scientific storage and handling services for more than 400 commodities include
Agricultural produce, Industrial raw-materials, finished goods and variety of hygroscopic and perishable
items.
 • Scientific Storage Facilities for commodities including hygroscopic and perishable items through
network of 476 warehouses in India with its 5,658 trained personnel.
• Import and Export Warehousing facilities at its 36 Container Freight Stations in ports and inland
stations.
• Bonded Warehousing facilities: Licensed to accept imported goods for storage before payment of
customs duty
• Disinfestation services.
• Handling, Transportation & Storage of ISO Containers.[5]

Below we discuss five types of warehouses:

• Private Warehouse. This type of warehouse is owned and operated by channel suppliers and resellers,
and usedin their own distribution activity. ...
• Public Warehouse. ...
• Automated Warehouse. ...
• Climate-Controlled Warehouse. ...
• Distribution Center.

Warehouse Receipt (Warrant): This is a receipt/warrant issued by the warehouse manager/owner to

the person storing his produce with them. This receipt mentions the name and location of the warehouse,
the date of issue, a description of the commodities, including the grade, weight and approximate value of
the produce based on the present price.
(c) State Warehousing Corporations (SWCs)

Separate warehousing corporations were also set up in different States of the Indian Union. The first
state warehouse was set up in Bihar in 1956. At the end of March 2001, State Warehousing Corporations
were operating 1440 warehouses with a total capacity of over 131.38 lakh tones.
The area of operation of the State Warehousing Corporations are centres of district importance. The total
share capital of the State Warehousing Corporations is contributed equally by the concerned State
Governments and the Central Warehousing Corporation. The SWCs are under the dual control of the
State Government and the Central Warehousing Corporation.

Working of Warehouses

Acts: The warehouses (CWC and SWCs) work under the respective Warehousing Acts passed by the
Central or State Governments. They are lincensed under the provisions of the Act.

Eligibility: Any person may store notified commodities in a warehouse on agreeing to pay the specified
charges. The person is required to bring his produce to the warehouse for storage. The commodity is
inspected, and the quality of the product is determined.
Warehouse Receipt (Warrant): This is a receipt/warrant issued by the warehouse manager/owner to
the person storing his produce with them. This receipt mentions the name and location of the warehouse,
the date of issue, a description of the commodities, including the grade, weight and approximate value of
the produce based on the present price.
The warehouse warrant is a negotiable instrument and can be transferred by a simple endorsement and
delivery. A delivery of part of the goods may be taken through this warrant by the depositor. Sometimes,
the warrant may be non-negotiable.

Use of Chemicals: The produce accepted at the warehouse is preserved scientifically and protected
against rodents, insects and pests and other infestations. Periodical dusting and fumigation are done at
the cost of the warehouse in order to preserve the goods.

Financing: The warehouse receipt serves as a collateral security for the purpose of getting credit.
Commercial banks advance up to 75 per cent of the value of the produce stored in the warehouse.

Delivery of Produce: The warehouse receipt has to be surrendered to the warehouse owner before the
withdrawal of the goods. The holder may take delivery of a part of the total produce stored after paying
the storage charges.
The main provisions of the Act governing the grant of a license to run warehouses were: (a) Any person,
including a company, association or corporate body may apply to the State Government for the grant of
a license to carry on the business of warehousing.
(b) The government grants the license after examining the warehouse building and the financial
soundness of the party, and after the realization of the prescribed fees.
(c) The license has to be renewed periodically on payment of prescribed fees.
(d) The warehouse owner is authorized to receive only notified commodities for storage in his
warehouse and issue receipts in a prescribed form.
(e) It is the responsibility of the warehouse owner to keep the premises clean, keep different lots of
goods separately in the warehouse, and carry on such operations as are necessary to protect the goods
against losses from damage and pilferage.

Number and Capacity of Warehouses

The Government, the Food Corporation of India, Co-operative Marketing Societies and Central and
State Warehousing Corporations have taken important measures for the creation of warehousing
facilities in the country. As a result, a large number of warehouses/godowns have been built throughout
the country in all important rural and urban centres, metropolitan cities, ports and railway stations.

Food Corporation of India (FCI)

An efficient management of the food economy with a view to ensuring an equitable distribution
of food grains at reasonable prices to the vulnerable sections of society is essential in the present socio-
economic environment of the country. Food Corporation of India (FCI) was born on January 1, 1965. It
has initially served only four states in the southern part of the country. Later it extended its services
throughout the country.

The main functions of FCI are

a). To procure a sizeable portion of the marketable surplus of food grains and other agricultural
commodities at incentive prices from the farmers on behalf of the central and state governments.
b). To make timely releases of the stocks through the public distribution system (fair price shops and
controlled item shops) so that consumer prices may not rise unusually and unnecessarily.

c). To minimize seasonal price fluctuations and inter-regional price variations in agricultural
commodities by establishing a purchasing and distribution network and

d). To build up a sizeable buffer stock of food grains to meet the situations such that may arise as a
result of shortage in internal procurement and imports.

Growth and structure: The FCI has now five zonal offices, 19 regional offices, four sub-regional
offices, four offices of joint managers (operational ) and 173 district offices and thousands of operating
points through out the country for its purchase and distribution operations.

Progress of FCI

Procurement: It undertakes the procurement of food grains on behalf of both central and state
governments either as sole agency or jointly with other public procurement agencies. It also undertakes
massive price support operations on behalf of the central and state governments to protect the interest of
the growers. It prevents distress sales by ensuring support price to the farmers.

Transportation: It organizes swift and massive movement of food grains both by rail and road to
ensure timely arrivals in the areas of consumption and of storage.

Imports: FCI handles the entire quantity of imported food grains at all major ports since 1969-70. The
imported food grains are speedily dispatched to various destinations to avoid congestion at the ports and
to augment supplies to the public distribution system.

Redistribution; Another important function of the corporation is the distribution of procured / imported
food grains through nearly 4.43 lakh fair price shops all over India food grains are issued on the basis of
the allocation made by the Central Government. It makes food grains available to the vast majority of
population at reasonable prices.

Processing: The FCI has set up 24 modern rice mills in different states to increase the availability of
rice and extract oil from rice bran. It has also set up a paddy processing research center at Thiruvarur in
Tamil Nadu in Collaboration with the Government of Tamil Nadu and the union Ministry of Agriculture
with a view to evolving new technology for extraction of edible oils and proper use of by-products. It
has set up paddy drier, maize drier, dhal mills and also solvent extraction plant in different parts of the
country.

Consultancy: FCI has taken a new function of consultancy service and provides technology and
scientific assistance to other public/private undertakings as well as corporations in the country and
abroad. The consultancy service offers assistance in the modernization of rice mills and other agro
processing units. The services include conduct of feasibility and techno-economic studies, management
systems and optimization studies and market surveys.
Buffer Stock: 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, food, famine, earth quake and from the influx of
refugees.

Advantages of Food Corporation of India

1. It helps the stabilization of prices by counteracting the effects of the activities of speculators and
hoarders.
2. It safeguards the producers against low prices especially during the surplus production years and
3. It imparts stability to the country’s food economy. Buffer stock is maintained by Food Corporation
of India.

Commission for Agricultural Costs and Prices (CACP)

Agricultural Price Commission (APC) was established in 1965 on the recommendations of Foodgrains
Policy committee under the chairmanship of L.K. Jha. The aim of APC was advising the Government on
price policy of agricultural commodities with due regard to the interests of both producers and
consumers. The APC has been renamed as CACP on similar lines as has been done to the industry in
1985. CACP is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of
India and is a Statutory body, with its head quarter at Delhi. The present chairman of CACP is Vijay
Paul Sharma.

Price Fixation: Fixation of Administered Prices: Minimum support prices (MSP), Statutory
minimum prices, Procurement prices and Issue prices.

The Price Fixation is undertaken by the Government

1. In order to canalize the productive resources in the production of required food commodities.
2. Generate enough income to farmers for decent living
3. For promoting capital formation in agriculture for future production
4. Protect consumers interest, especially people below poverty line (BPL) that the prices are
affordable to them.
5. Bring price stability.

CACP announces different administered prices viz., minimum support prices (MSP), statutory
minimum prices, procurement prices and issue prices. These prices are announced for different
agricultural crops by the Govt. of India on the recommendations of Commission for Agricultural Costs
and Prices (CACP). The CACP submits separate reports recommending prices for Kharif and Rabi
season crops. The GoI after considering the report of CACP and the views of the state Govts, Supply
and demand conditions of the commodities in the country announces the Administered Prices.
The CACP while recommending prices considers following important factors:

1. Cost of production
2. Changes in input prices
3. Input/ Output Price Parity
4. Trends in market prices
5. Inter-crop Price Parity
6. Demand and supply situation
7. Effect on Industrial Cost Structure
8. Effect on general price level
9. Effect on cost of living
10. Domestic and International market prices

As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat,
maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds
(groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial
crops (copra, sugarcane, cotton and raw jute).

Administered Prices :Types of 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. Thus, the main objective of the Administered Prices
is to bring stability in prices. They are fixed for different commodities. These are minimum support
prices (MSP), statutory minimum prices, procurement prices and issue prices.

1. Minimum Support Price, (MSP) :Price fixed by the government to protect farmers against excessive
fall in prices during bumper production years. This price give the price guarantee to the farmers. If
the in the market falls below the MSP due to bumper production then, the entire quantity offered in
the market by the farmers will be purchased by the Govt. agencies at the announced MSP.
The MSPs are announced twice in a year before the commencement of cropping seasons, i.e., once
before Kharif season and another before the Rabi season.

2. Statutory Minimum Price: In case of sugarcane MSP is assigned the status of “Statutory Minimum
Price” and hence is termed as SMP. That is there is a statutory binding on the part of the “Sugar
Factories” to pay the minimum announced price. Any price below SMP is illegal.

3. Procurement Price :Refers to the price at which government procures produce from farmers to
maintain buffer stocks and feed the stock to the Public Distribution System (PDS).

The PP is announced before the harvest season of the crop. It is left to the discretion of the Govt. to
buy the produce if required to maintain buffer stock and is not compulsory. If the Govt. procures the
 produce under compulsion, then it is called “Leavy Price”. The Govt. has no commitment to
purchase all the produce offered by farmers for sale.

Generally, the procurement prices are slightly higher than the MSP and lower than the prevailing
market prices.

4. Issue Price :Price at which the commodity is made available to consumers at fair price shops through
PDS and is mainly to safeguard the interest of consumers. It is always higher than procurement
price.

KAPC: Karnataka Agricultural Prices Commission

Hon’ble Chief Minister of Karnataka in his budget speech dated 12.07.2013 proposed the establishment
of an advisory body to look into all aspects of production, marketing and pricing of agriculture and
horticultural commodities in Karnataka.

The Karnataka Agricultural Prices Commission (KAPC) was constituted with Chairman and 5 members
on 31.01.2014.

The Vision, Mission, Terms of References, Duties, and Structure of price commission are given below:

Broad Goals (Vision):

1. Ensure maximum share of consumer price,

2. Achieve sustainable development in the field of agriculture of the State
3. Provide remunerative price of farm produce and
4. Provide suitable marketing system etc.

Objectives (Mission):

1. To provide remunerative price for the farm produce, through price and non price mechanisms,
2. Critical marketing interventions during the period of glut,
3. Marketing reforms and collective bargaining,
4. Improving the basic facilities for market,
5. Stabilization of market
6. To enhance collective bargaining power of farmers and reach all the sections of farming
community through effective accomplishment of market reforms,
7. Crop insurance,
8. E-trading.
Functions :Terms of references

1. Advice the Government to evolve a balanced and integrated price structure on scientific base
agriculture and horticultural commodities considering inter alia the cost of cultivation, marketing
functions, agro-ecological conditions both in the short term and long run.

2. To assist the Government in providing policies/programs towards well organized, efficient

competitive marketing system, creation of rural infrastructure including threshing yard, storage
structures, transportation, supply chain, processing, grading and packaging services.

3. To suggest measures to enhance bargaining power of farmers and reduce the price risks through
collective action in marketing, price stabilization fund and hedging.

4. To provide measures towards food security with cost effective and sustainable ways considering
rainfed farming, nutrition, climate change and sustainable use of resources.

5. Enable the policy makers, researchers, farmers for appropriate decision making by providing reliable
data and information on all aspects of production and marketing of farm produces.

6. To devise proper methodology for fixing remunerative prices for agriculture & horticultural
commodities and suggest cost effective and efficient measures of implementing the same in consultation
with various stakeholders.

7. To review the current marketing set up and suggest measures to improve efficiency in marketing
reducing the yield gaps of agricultural and horticultural commodities.

8. Suggest regional crop planning for agro-climatic zones based on socio-economic and agro-biological
factors with sustainable use of resources to avoid overproduction and glut in the market.

9. To advice on any problems relating to marketing and pricing of farm products that may be referred to
the Commission by Government from time to time.

10.To act as a liaison between the CACP and the State Govt, and as an agent to coordinate functioning
of various governmental departments and institutions and to harmonize the programs of production,
marketing and pricing of farm produces for the welfare of farmers of Karnataka.

DUTIES/Functions

1. Estimation of cost of cultivation of principal crops of the state including horticultural crops regularly
and systematically using standard cost concepts reflecting the local conditions of demand and supply of
inputs and outputs.

2. Identify periodically, crops for which State Government has to undertake Market Intervention
Program with an initial focus on Ragi, Jowar, Bajra, Minor Millets, Redgram, Groundnut, Potato, Onion
and Tomato.

3. Analysis of production, area coverage, productivity of crops and providing price projection including
supply, demand towards remunerative prices for farm produces.
4. To recommend Fair & Remunerative Price (FRP) for major crops/commodities to be made at least
two months before sowing season ensuring the interest of both producer and consumer.

5. To generate, analyse, and disseminate quality and reliable data, information and research output of
costs, price and other aspects of production, marketing and trading of agricultural and horticultural
commodities.

6. To initiate studies, publish reports / papers and undertake workshops, seminars, consultations of
production, marketing, pricing, trade and related issues of agriculture and horticulture by engaging
researchers, experts, marketing professionals and consultants to address price fluctuations, marketing
risks, high costs and other related issues.

7. Explore, on pilot project basis, collective farming and group marketing initiatives to avoid
superfluous market intermediaries and to formulate supplementary actions to increase food production to
achieve food security goals and to realize programs of the State such as “Anna Bhagya” and Mid day
meal scheme.

8. Suggest specialized commodity markets to reap the benefit of modern marketing such as electronic
trading, future markets, hedging for high value, commercial crops.

9. Develop an Agriculture portal to provide information to farmers and formulate a Special Technical
Cell to update the information on the portal on regular basis for information to farmers on crop
production, marketing and prices for different markets based on the local seasonal and crop conditions.

10.To study the market situation and to suggest the action to be taken by the Government whenever
there is fluctuation in the price of agriculture/horticulture commodities in the market.

STRUCTURE

1. The APC will be headed by a Chairperson with excellent academic background and reputation of
being renowned Agricultural Experts with specialization in Agricultural Economics including
Agricultural Marketing.

2. The Chairman shall be assisted by five Members: one member from the Government shall function as
Member Secretary.

3. Two Official Members with the specialization in the fields of Agriculture Economics / Agriculture
marketing / Farm Management / related disciplines.

4. Two non-official members – Practicing Farmers with a progressive outlook and practical knowledge
marketing of farm products.

5. Supporting Staff: Staff and Technical Personnel can be drawn from the Government
Departments/Agricultural/Horticultural Universities of the State on deputation / others on contractual
basis.

6. Experts / professionals in the fields of Agriculture Price, Marketing and trading can be drawn on
deputation / contractual / outsourcing bases. The term of the KAPCChairmanwould be for three years.
DMI: Genesis, their Objectives and functions

The Directorate of Marketing and Inspection (DMI), an attached Office of the Department of
Agriculture, Cooperation and Farmers Welfare under Ministry of Agriculture & Farmers Welfare , 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 country with view to
safeguard interests of farmers as well as the consumers. It maintains close liaison between Central and
State Governments..

The Directorate of Marketing and Inspection (DMI), an attached Office of the Department of
Agriculture, Cooperation and Farmers Welfare under Ministry of Agriculture & Farmers Welfare , 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.

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 at Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Chandigarh, Jaipur, Lucknow, Bhopal, Kochi
and Guwahati and the Central Agmark Laboratory at Nagpur. Besides, there are 27 Sub-Offices and 11
Regional Agmark Laboratories (RALs) spread all over the country as per the details given below:-

DMI Offices

S.No. Regional Office Sub-Office Regional Agmark Laboratories

1 Delhi Dehradun Okhla
2 Kolkata 1. Patna 2. Bhubaneswar 3. Ranchi Kolkata
1. Nasik 2. Ahmedabad 3. Rajkot 4.
3 Mumbai Surat 5. Madgaon 6. Pune 7. Sangli 8. 1. Mumbai 2. Rajkot
Nagpur
4 Bhopal Raipur Bhopal
5 Chennai 1. Bangalore 2. Madurai 3. Hubli Chennai
6 Kochi 1. Calicut 2. Trivandrum Kochi
7 Hyderabad 1. Guntur 2. Vishakha patanam Guntur
8 Guwahati Shillong
9 Lucknow 1. Kanpur 2. Varanasi Kanpur
10 Jaipur - Jaipur
1. Jammu 2. Amritsar 3. Abohar 4.
11 Chandigarh Amritsar
Shimla

The main functions of the DMI are the following:

1 - Rendering advice on 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 and Marking) Act, 1937.

3 - Promotion and implementation of Integrated Scheme of Agricultural Marketing (ISAM).

4 - Development and Implementation of Agricultural Marketing Research and Information

Network(MRIN) sub scheme.

5 - Implementation of Agricultural Marketing Infrastructure(AMI) Sub scheme.

6 - Agricultural Marketing Reforms.

7 - Training of personnel in agricultural marketing.

8 - Marketing Extension.

KSAMB ;Genesis, their Objectives and functions

The Karnataka State Agricultural Marketing Board was established on 1st September 1972 under
Karnataka Agricultural Produce Marketing (Regulation and Development) Act, 1966 and Rules 1968.
The Board acts as a liaison agency between the Market Committees and the Government of Karnataka
for all round development of agricultural marketing in the State.

OBJECTIVES OF KSAMB

The important functions of the Board as per the provision of KAPM(R&D) Act, 1966. They are as
follows:

1. Promote grading and standardization of agricultural produce.

2. To assist for general improvement of the regulation of marketing in the state
3. Giving aid to financially weak (or needy) market committees in the form of loans and grants.
4. Propaganda and Publicity on matters relating to regulated marketing of agricultural produce.
5. Imparting education in regulated marketing of agricultural produce.
6.General improvement of the facilities for the transport of notified agricultural Produce and the
marketing thereof.
7. Training the officers and staff of Market Committee’s in the state.
8. Advise on matters referred to it by the State Government;
9. To co-ordinate functioning of all the market committees with the help of information service
obtained by both National and International market.
10. To arrange for safety insurance on the life of farmers and if necessary contribute towards premium
payable in respect of all agriculturists in the state.
11. To arrange or organise seminars, workshops or exhibitions on subject relating to agricultural
marketing.
 12. Any other purpose of general interest to regulated marketing of agricultural produce.

ORGANISATIONAL SETUP
The Board is the policy and decision making body. The executive Head of the Board is the Managing
Director. He is assisted in his work by the Chief General Manager and other administration staff. These
are four divisional offices headed by the General Managersat Bangalore Mysore Belgaum and Gulbarga.
There is a printing wing at Hubli headed by a General Manager. “Krishi pete” magazine wing located at
Hubli is headed by the Deputy General Manager. The Karnataka Institute of Agricultural Marketing
Mysore and Agricultural Marketing Training College Hubli are headed by Principals in the cadre of
Deputy General Managers.
ACTIVITIES : DIVISIONAL OFFICE

In order to create awareness among Farmers on the activities and schemes of the Board, Department of
Agril., Marketing & APMCs and also about post harvest operations. The following extension activities
are taken up.

2.Organizing film shows on agricultural marketing in rural areas.

3.Advertising the advantages of regulation of agricultural produce through AIR, TV and other media

4. Production & screening of documentary films on matters relating to agricultural marketing. In

this connection the Board produced short films.

5.Participating in cattle fair for awarding cash prize to the best-adjudged cattle.
6.Organizing district level workshops for undertaking extension activities related to agricultural
marketing
7.Extending all other necessary facilities to undertake various studies on agricultural marketing.

As per the recent restructure, the Divisional Offices are responsible for implementing the schemes
such as Raitha Sanjeevini, Janashree Vima Yojana for Hamals, apart from other different schemes of the
Board relating to APMCs coming under the respective divisions.

TRAINING

The Board has established Two Training Centers at Mysore and Hubli. The training courses conducted in
these centers are as follows:

1. Refreshers CourseforSecretariesandAssistant Secretaries of Marketing Committee.

2. Accountancy and Auditing Course.
3. Graders Training Course.
4.Training Course on Market Intelligence
5.Training Course for Members of Market Committee
6.Office Procedures Training Course
7. Farmers R Training Course.
8. Training Course for the Members of Gram Panchayats.
9. Training Course on Developmental Works.
10. Farmers Training through Radio Lessons

CO-ORDINATE TRAINING PROGRAM WITH NIAM & OTHER INSTITUTIONS

1)Training on legal reforms for the APMC Chairmen/Officers.

2)Training on Warehousing Storage and Rural Go downs for the officials of CWC, SWC and APMCs.
3)Grading, Standardisation and Quality Control for the officials of APMC, Food and Civil Supplies and
Agriculture Department.
4)Training on Information Technology for the Officers of Agricultural Marketing Department/Board.
5)Training on Post Harvest management for progressive farmers.
6)Training on Export Promotion for progressive farmers and Co-operative Societies.
7)Training on Market Infrastructure Development and private participation for the Officers and the Engineers
of Market Development Project, Department of Agricultural Marketing. Implementation of NIAM-USAID
Project on SAMS The Board acted as the nodal agency and successfully implement the NIAM-USAID project
on Strengthening of Agricultural Marketing System in India

PRINTING PRESS

In order to bring out the uniform printing of receipts, registers etc,. Used in the
APMCs the Board has established a printing press at Hubli with latest printing machinery.Krishipete
monthly journal in Kannada is printed in this press.This press also meets the printing requirements of all
the APMCs in the state.
PUBLICATION WING

The Board is publishing a monthly Journal exclusively devoted to agricultural marketing in Kannada
entitled ‘KRISHIPETE’ from December 1974." Circulation of the magazine has crossed 25000 prints
per month. The magazine contains articles written by the experts in the field of agricultural marketing
and allied subjects. The journal is used to publicize the activities of the Department of Agricultural
Marketing Marketing Board APMCs and other activities related to Agricultural Marketing.

OTHER ACTIVITIES

The Board has been continuously advising the State Government and the APMCs on
policies, programs; regulation and development of markets, legal matters, etc, Activities like, Seminars,
Workshops, and Conferences are being taken up by the Board for improvement of agricultural Marketing
system in the state
Cooperative marketing in India- NAFED: Genesis objectives and functions

Meaning

Co-operative marketing organizations are associations 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 of his small marketable surplus.

The history of co-operative marketing in India dates back to 1912, when the Co-operative Marketing
Societies Act, 1912 was passed. The first Co-operative Society was formed in Hubli in 1915 to
encourage cultivation of improved cotton and to sell it collectively. The Royal Commission on
Agriculture (1928) stressed the need for group marketing instead of individual marketing.

The All India Rural Credit Survey Committee (1954) brought to light the dismal performance of the
existing marketing co-operatives. The committee suggested the establishment of primary co-operative
marketing societies and linking of credit with marketing. The National Agricultural Co-operative
Marketing Federation of India (NAFED) is an apex organization of marketing cooperatives in the
country. Established in October 1958, It deals in procurement, processing, distribution, export and
import of selected agricultural commodities. The NAFED is also the central nodal agency for
undertaking price support operations for pulses and oilseeds and market intervention operations for other
agricultural commodities.

The State Level Marketing Federations and the National Co-operative Development Corporation are its
members. The head office of NAFED is at Delhi, and its branch offices are located at Mumbai, Kolkata
and Chennai. 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 the agricultural inputs required by member institutions;
(c) To promote inter-state and international trade in agricultural &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:

The main functions of co-operative marketing societies are:

(i) To market the produce of the members of the society at fair prices;
(ii) To safeguard the members from excessive marketing costs and malpractices;

(iii) To make credit facilities available to the members against the security of the produce
brought for sale;
(iv) To make arrangements for the scientific storage of the members' produce;
(v) To provide the facilities of grading and market information which may help them to
get a good price for their produce;
(vi) 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;
(vii) To act as an agent of the government for the procurement of foodgrains and for the
implementation of the price support policy;
(viii) To arrange for the export of the produce of the members for better returns;
(ix) To make arrangements for the transport of the produce of the members from the
villages to the market on collective basis and bring about a reduction in the cost of
transportation; and
(x) To arrange for the supply of the inputs required by the farmers, such as improved
seeds, fertilizers, insecticides and pesticides.

Activities
The NAFED performs the following activities:

(a) Internal Trade

NAFED is engaged in interstate trade in agricultural commodities, -food grains, pulses, oilseeds, cotton,
jute, species, fruits, vegetables and eggs to ensure better prices to the producers.

The objectives of internal trade operations :both the market support to farmers and maintaining steady
supply of commodities to consumers of reasonable prices.

NAFED purchases agricultural commodities through the co-operatives, public sector organizations and
state agencies.

(b) Foreign Trade – Export and Import of Agricultural Commodities

Exports – Exports of agricultural commodities through the co-operative marketing system developed on
a large scale after the establishment of NAFED. The NAFED exports agricultural commodities,
particularly onions (canalized), potatoes, ginger, garlic, nigerseed, sesameseed, gum, deoiled cake of
groundnut, soyabean and cottonseed, fresh and processed fruits and vegetables; spices – black pepper,
cardamom, turmeric, cuminseed, coriander seed; cereals – rice, barley, bajra, jowar, and ragi and jute
bags to various countries including Sri Lanka, England, Mauritius, Australia, Belgium, Canada, Fiji,
Hong Kong, Japan, Malaysia, the USA and number of African, West Asian and Gulf countries.

(c) Price Support Operations

NAFED is being appointed as the nodal agency of the government to undertake support price purchases
of commodities like groundnut, soybean and mustard seed, gram, tur, moong and urad and bajra, jowar,
maize, barley, and sunflower seed. Government of India has designated NAFED as the nodal agency for
implementing the price support policy for oilseeds, coarse grains and also pulses on a regular basis.

(d) Production and Marketing of Agricultural Inputs

NAFED helps the farmers by supplying them agricultural machinery like harvesting combines, tractors,
spare parts and such other inputs as bio-fertilizers. NAFED maintains contact with the input supplying
institutions such as the National Seeds Corporation and the Fertilizer Corporation of India.

(e) Promotional Activities

NAFED maintains expert staff which conducts market studies, collects data and circulates the results
among the members. Other promotional activities of NAFED are intensive development of selected
marketing societies as pilot centres for co-operative marketing of agricultural produce in each state;
improvement in market intelligence services for co-operative marketing societies; conduct of market
surveys; training of market personnel; promotion of market regulations and development of
infrastructures.

(f) Developing Co-operative Marketing of Tribal Produce

A separate cell to develop the marketing of produce of the tribal areas (minor forest products) having
economic value has been set up with the assistance of NAFED. Keeping in view the importance of
marketing of tribal produce, a separate Tribal Co-operative Marketing Development Federation
(TRIFED) has been set up.

(g) Setting of Scientific Storage System

NAFED has set up a cold storage along with an ice factory and a warehouse in Delhi. NAFED has also
made pioneering effort in finding ways of developing modern storages. It has set up an onion
warehousing complex at Nagapattanam.

(h) Processing of Fruits, Vegetables and Others

NAFED has set up a multi-commodity fruit and vegetables processing unit at Delhi and at Vellore
(Tamil Nadu). The basic purpose is to develop the processing industry in co-operative sector in a major
way so as to make fruits and vegetable marketing and processing to the advantage of the farmers.
Risk in marketing: Types of risk in marketing; speculation & hedging; an overview of futures
trading; Agricultural prices and policy: Meaning and functions of price; administered prices;
need for agricultural price policy;

RISK IN MARKETING AND ITS MANAGEMENT

Meaning and Importance of Risk

Hardy has defined risk as uncertainty about cost, loss or damage. Risk is inherent in all marketing
transactions. There is the risk of the destruction of the produce by fire, rodents or other elements, quality
deterioration, price fall, change in tastes, habits or fashion, and the risk of placing the commodity in the
wrong hands or area.
There is a time lag between the production and consumption of farm products. The longer the time lag,
the greater will be the risk. The risk associated with marketing cannot be dispensed with, for this risk
contributes to profit. Someone has to bear the risk in marketing process. But most of the risk is taken by
market middlemen, as they have the capacity to bear it.
Whenever risks are greater and varied, the margin taken by the risk-bearers is higher, and vice versa.
One who holds the commodity in the process is the bearer of the risk, because of which he may be better
off or worse off.

Types of Risk in Marketing

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 package, looting or arson. These
together account for a large part of the loss of the product at the individual as well as at the macro level.
Such losses are a loss to society, too, and must be averted to the extent possible.

(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, for the factors affecting the demand for, and the
supply of, agricultural products are continually changing. A price fall may cause a loss to the trader or
farmer who stocks the produce. Sometimes, the risks are so great that they may result in a total failure of
the business, and the person who owns it may become bankrupt.

(iii) Institutional Risks: These risks include the risks arising out of a change in the government's policy,
in tariffs and tax laws, in the movement restrictions, statutory price controls and the imposition of levies.

Measures to Minimize Risks in Marketing

The agencies engaged in marketing activities worry about the risk associated at every stage; and they
continually try to minimize the effects of these risks. A risk cannot be eliminated completely because it
also carries profit. The agencies which do not take risks hardly earn profit. The risk management by the
adoption of some of the measures listed below may minimize the risks:

1. Reduction in Physical Loss

The physical loss of a product (quantity and quality both) may be reduced by the adoption of the
following measures:

(a) Use of fire-proof materials in the storage structures to prevent accidents due to fire;

(b) Use of improved storage structures and giving necessary pre-storage treatment to the product to
prevent losses in quality and quantity arising out of excessive moisture, temperature, attacks by insects
and pests, fungus and rodents;

(c) Use of better and quicker transportation methods and proper handling during transit; and

(d) Use of proper packaging material.

2. Transfer of Risks to Insurance Companies

The burden of physical risk may be minimized by shifting it to insurance companies. There are
specialized professional agencies to bear such risks. They collect some premium and provide full
compensation to the party in case of loss due to the reasons for which the products are insured. In this
way, the company insures a number of farmers against losses.

3. Minimization of Price Risk

The risk associated with the variations in the prices may be minimized by the adoption of the following
measures:

(a) Fixation of minimum and maximum prices of commodities by the government and allowing
movements in prices only within the specified range:

(b) Marketing arrangements for the dissemination of accurate and scientific price information to all
sections of society over space and time. This should include information on market demand, acreage
under a particular crop, estimates of market supply and of the import and export of commodities;

(c) An effective system of advertising may reduce price uncertainty and create a favourable atmosphere
for commodity;

(d) 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. A detailed exposition of speculation and hedging follows.
Risk Management Strategies in Agricultural Marketing

Speculation and Hedging

Speculation and hedging are important ways of minimizing price risk in business. In the former, risk
is taken by the person specializing in the business without much consideration of business trends, while
in the second, a calculated risk is taken.

Speculation

The fundamental idea underlying speculation is the purchase or sale of a commodity at the present price
with the object of sale or purchase at some future date at a favourable price. The speculator is normally
concerned with profit-making from price movements. He purchases when prices are low and sell when
they are high. He is, therefore, not a normal or regular trader. The difference in the prices prevailing at
two times constitutes his profit.

Speculator may lose or incur losses in this process, if his predictions go wrong.

The essentials of a speculator are:

(i) He enters the trade at current prices;

(ii) The transactions of speculators are completed on some future date;
(iii) The speculators enter the trade with the sole object of making profit from price movements.
Sometimes, they indulge in hoarding as well;
(iv) Except in a few cases, the physical delivery of produce is neither taken nor given. Only the
difference in the prices is paid or taken; and
(v) Speculators are not regular buyers and sellers in the market. They do not conduct any regular
business apart from speculative business, i.e., they enter the market to buy or sell when the prices
are moving up and down.

Based on the legalities involved, speculation is of two types:

(i) Speculation Proper

Speculation proper refers to speculation on the part of a person who makes it his profession. Such
professional speculators devote their whole time and energy to the collection of information about the
future course of price movements. The decisions of the speculator are not hunch decisions. These are
intelligent forecasts based on predicted trends. This type of speculation is beneficial for the economy as
a whole and is usually accepted by the society.

(ii) Illegitimate Speculation

This is a gamble in business. The speculators adopt such manipulative practices as create conditions of
artificial scarcity in the market and lead to a rise in prices. The main aim of the speculator is to earn a
big profit. This type of speculation is not based on any rationale, though it influences the prices of
products. Such speculation is prohibited by the government in the best interest in the economy.

Economic Benefits of Speculation

(i) Speculation Dampens Price Fluctuations: Speculators buy at current prices in anticipation of a rise
in prices in the future which results in pushing up the current prices. This encourages production and
discourages consumption. Other speculators, who sell in the present period in the expectation of a fall in
future prices, bring about a fall in the current prices, which encourages consumption and discourages
production. The sum total of the effects of these speculative activities results in dampening price
fluctuations.
(ii) The price differentials in different markets are bridged to some extent.
(iii) Speculation helps in the adjustment of the supply of, and demand for, commodities at normal prices.

Related Terms

(i) Spot/Cash Transactions: A transaction in which payment is made on the spot or within a prescribed
short period, and delivery is taken on the same day or within a specific period are known as spot or cash
transactions. Three things are essential in cash transactions:
(a) The purchaser has to take the delivery of the produce immediately after sale;
(b) The seller has to deliver the goods immediately; and
(c) Payment for the produce has to be made immediately.

(ii) Futures Transactions: This is a transaction in which prices of commodities are settled in cash but
the commodities are delivered on some future date as agreed. Generally, in futures transactions, the loss
or profit is paid or received on the expiry of the time instead of the physical handing over of the
commodity.
In futures transactions, two groups of persons are involved, i.e., the bulls and the bears. Persons who
expect that prices will go up in future are bulls; but those who expect that prices will go down in future
are bears. The futures transactions take place as a result of action on the part of these two groups of
persons.

(iii) Contract: A contract is a promise to deliver or accept delivery of specific grade of a commodity at a
specified time in future.

Hedging
Meaning

Hedging is a trading technique of transferring the price risk. It protects traders from extreme crash in
prices. Hedging has been defined as follows:

- Shepherd
"Hedging is executing opposite sales or purchases in the futures market to offset the purchases or sales
of physical products made in the cash market".

- Hoffman:
"Hedging is the practice of buying or selling futures to offset an equal and opposite position in the cash
market and thus avoid the risk of uncertain changes in prices".

Hedging refers to the purchase or sale of a commodity in a futures market accompanied by a sale or a
purchase in the cash market. 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:

(a) The future and cash commodity prices move up and down together, i.e., the basis of price changes
remains unchanged.

(b) The mechanics of hedging includes the making of simultaneous transactions, but of opposite nature,
in the futures and cash markets.

Benefit of Hedging
The benefits of hedging are:
(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 margins at a lower level because there is no risk; and

(iii) Hedging facilities the financing of inventories of stored commodities to the maximum possible
extent.

Hedging is employed by many traders to protect themselves against losses due to market price
fluctuations by executing cash purchases and sales practically simultaneously with future transactions in
the opposite side. It is the performance of mainly the two contracts of an opposite, though corresponding
nature at the same time, one in the spot market where the commodity physically is handled, and the
other in the futures market; where the commodity exchange takes place. In short, there are two opposite
responsibilities balancing each other.

One other example should make the operation and logic of hedging clear. Suppose, a cotton trader
contracts a deal with some overseas firm in February 2010 to supply 1000 quintals of cotton lint at a
price of Rs.4200 per quintal to be shipped in May 2010. In order to protect himself from a possible loss,
he buys cotton futures at a ruling futures price of say Rs.4210 per quintal. Now in the month of May
2010, he discovers that the ruling spot price of cotton is Rs.4250 per quintal. As he had contracted to
ship 1000 quintals at a price of Rs.4200, he looses Rs.50 per quintal on this deal. But the future prices
also have moved up (say) to Rs.4260 per quintal, in sympathy with the spot or ready or cash prices.
Hence, he sells cotton future at Rs.4260 per quintal (which he purchased at Rs.4210 per quintal) and
gains Rs.50 per quintal. This way, his loss on the spot or ready or cash market is compensated by the
gain in futures market.

Difference between Speculation and Hedging: Basic differences between speculation & hedging are:

Speculation Hedging
(i) Purchases and sales in the cash as well as in The purchases and sales in the cash and futures
future markets are made with the objective of markets are made to protect oneself against
making profit. excessive price fluctuations.
(ii) The activities of buying and selling are not The activities of buyers and sellers are always
necessarily opposed to each other. opposed to each other.
(iii) It is not necessary that the two types of It is obligatory to buy and sell the goods in equal
transactions should be of equal quantity. quantities in the two markets.
(iv) Under speculation, the speculator purchases The commodities are not stored by traders and
goods and sells them when prices rise as per only the difference in the price is paid or taken
his expectations. on the due date.
Futures Trading
Meaning

Futures trading is a device for protection against the price fluctuations which normally arise in the
course of the marketing of commodities. Stockists, processors or manufacturers and exporters utilize the
futures contracts to transfer the price risk faced by them.

Futures trading includes both hedging and speculation. But since hedging is its raison deter, it is also
known as hedge-trading. Futures markets are, therefore, known as "hedge" markets.

Widely divergent views exist on the effects of futures trading. A few are convinced that commodity
futures trading tend to stabilize prices and reduce price variations. Others not only disagree with this
view but vigorously allege that, more often than not, futures trading aggravate the price trends and
increase both the magnitude and frequency of price variations. A third group denies that futures trading
have any influence, either favourable or adverse, on commodity prices.

th
In India, Futures Trading in various groups of commodities was established about the end of 19 century.
In cotton, futures trading was started in Bombay. The Europeans took a hand in founding the Bombay
Cotton Traders Association in 1875 for the regulation of cotton trade, which was the first step in the
evolution of an organized futures market. The futures markets were established for oilseeds at Bombay
in 1900, for wheat at Hapur in 1913 (UP), for raw jute and jute goods at Kolkata in 1912, and for bullion
at Mumbai in 1920. Subsequently, similar markets for these commodities were established at other
places also. To provide against unhealthy speculation, forward trading in agricultural commodities was
regulated under the Forward Contracts (Regulation) Act, 1952.

The Act was enacted with a view to regulating forward contracts prohibiting options in goods and
dealing with certain other related matters. This job has been assigned to the Forward Market
Commission, which was established in September, 1953. The government has regulated or banned
forward trading in several commodities in order to check unhealthy speculation. The Act has been
amended from time to time to plug the loopholes.

The Forward Markets Review Committee, set up by the Government of India under the chairmanship of
Prof. M.L.Dantwala, recognized the need for futures trading even in conditions of short supply, and
upheld the view that speculations in futures markets should be recognized as a necessary factor for their
proper working.

Commodities for Futures Trading

The commodities permissible under futures trading must satisfy the following conditions:

(i) Commodities should be in plentiful supply. If a commodity is in short supply, a few traders may
corner the whole supply and charge any price they like to the buyers.
(ii) Commodity must have a minimum degree of perishability, i.e., it must be storable for futures
delivery.

(iii) Commodity should be homogeneous and capable of being graded so that its future deliveries may be
made without problems regarding quality.

(iv) Commodity should have a large demand from a number of independent consumers so that a single
buyer may not be in a position to impose his terms for his purchase.

(v) Supply of the commodity should not be controlled by a few large firms. It should be available with a
large number of suppliers.

(vi) Price of the commodity should be liable to fluctuations over a wide range, and

(vii) There should be free flow of the commodity to and from the market without any outside
interference/control.

Services Rendered by a Forward Market

The forward market renders the following services to the economic system:

(i) It enables the merchants, stockists and processors to protect themselves against the risk of adverse
fluctuations in the prices of the commodity. It reduces price fluctuations so that the margin of profit may
be small;

(ii) The highly competitive character of the market smoothens out price fluctuations and ensures an even
flow of goods from the purchaser to the consumer, avoiding gluts in the peak season and shortages in the
slack seasons;

(iii) It brings about an integration of the price structure of commodities at different points of time in the
same way as transportation and communications bring about an integration of prices in different parts of
the market;

(iv) It facilitates large purchases and sales of the commodity at short notice in advance of delivery and in
the absence of production; and

(v) It brings about a co-ordination of the current and future expectations by a continual revaluation of
stocks of goods in the light of the changing supply and demand conditions.

Dangers of Forward Market

The dangers arising out of the forward market are:

(i) The forward market opens out the opportunity for a large number of persons and if persons enter with
inadequate capital, inadequate experience and information into commitments then it may demoralize
market system.

(ii) It enables unscrupulous speculators, with little interest in the actual supply of, and demand for, a
particular commodity, to hoard the supplies to make easy money for themselves. This results in violent
fluctuations in prices.

Forward Market Commission

The Forward Market Commission (FMC) was established Under Section 3 of the Forward Contracts
(Regulation) Act, 1952 and has executive as well as advisory functions.

The functions assigned to the commission are:

(i) To advise the government in respect of recognition or withdrawal of recognition of associations

conducting forward trading.

(ii) To keep forward markets under observation.

(iii) To draw the attention of the government to the various developments that are taking place in the
different forward markets with suitable recommendations.

(iv) To collect and publish information as regards trading conditions in respect of markets falling under
its jurisdiction.

(v) To submit periodical reports to government on the operation of the Act and on the working of the
forward markets, and

(vi) To inspect accounts of recognized associations with a view to improve the organization & working
of forward markets.

Prices: Characteristics of agricultural product prices-agricultural price stabilization-need for agricultural

price policy, Commission for Agricultural costs and Prices (CACP)- Administered prices: Minimum
Support Price, Procurement Price and Issue price.

AGRICULTURAL PRICES

Price is the Value of the goods and services expressed in monetary terms.

Common objectives of the pricing policy are;

1. Current profit maximization- It takes into account only current profits in the short-run. It may
not be desirable as it does not ensure the long-term profits to the entrepreneur to survive in the
business.
 2. Long-term profit maximization- It aims at maximization long-term profit by increasing market
share (maximum sales) and by lowering the long-term costs.
3. Maximize profit margin per unit of the product.

Functions of Prices:

Prices perform a number of functions in an economics system and functions are:

• Serve as a balance between demand and supply

• Serve as allocation of resources in the production system
• Serve as allocation of consumer’s income
• Serve as distributor of income among different sections of the society/economy
• Regulate the movement of commodities over space and time
• Affect the rate of capital formation in the agricultural and other sectors

History of Agricultural price policy:

Commission for Agricultural Costs and Prices (CACP)

Agricultural Price Commission (APC) was established in 1965 on the recommendations of Foodgrains
Policy committee under the chairmanship of L.K. Jha. The aim of APC was advising the Government on
price policy of agricultural commodities with due regard to the interests of both producers and
consumers. The APC has been renamed as CACP on similar lines as has been done to the industry in
1985. CACP is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of
India and is a Statutory body, with its head quarter at Delhi. The present chairman of CACP is Vijay
Paul Sharma. (Previous chairman :Ashok Gulati from 2011 to 2014).

The main objective of CACP is to work on various formulas for deciding the prices of the crops
Minimum Support Price (MSP) against costs involved in agriculture.

Price Fixation: Fixation of Administered Prices: Minimum support prices (MSP), Statutory
minimum prices, Procurement prices and Issue prices.

The Price Fixation is undertaken by the Government

6. In order to canalize the productive resources in the production of required food commodities.
7. Generate enough income to farmers for decent living
8. For promoting capital formation in agriculture for future production
9. Protect consumers interest, especially people below poverty line (BPL) that the prices are
affordable to them.
10. Bring price stability.

CACP announces different administered prices viz., minimum support prices (MSP), statutory
minimum prices, procurement prices and issue prices. These prices are announced for different
agricultural crops by the Govt. of India on the recommendations of Commission for Agricultural Costs
and Prices (CACP). The CACP submits separate reports recommending prices for Kharif and Rabi
season crops. The GoI after considering the report of CACP and the views of the state Govts, Supply
and demand conditions of the commodities in the country announces the Administered Prices.
It is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of
India.

The CACP while recommending prices considers following important factors:

11. Cost of production

12. Changes in input prices
13. Input/ Output Price Parity
14. Trends in market prices
15. Inter-crop Price Parity
16. Demand and supply situation
17. Effect on Industrial Cost Structure
18. Effect on general price level
19. Effect on cost of living
20. Domestic and International market prices
21. Parity between prices paid and prices received by farmers (Terms of Trade)

As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat,
maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds
(groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial
crops (copra, sugarcane, cotton and raw jute).

Administered Prices :Types of 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. Thus, the main objective of the Administered Prices
is to bring stability in prices. They are fixed for different commodities. These are minimum support
prices (MSP), statutory minimum prices, procurement prices and issue prices.

1. Minimum Support Price, (MSP) :Price fixed by the government to protect farmers against
excessive fall in prices during bumper production years. This price give the price guarantee to the
farmers. If the in the market falls below the MSP due to bumper production then, the entire quantity
offered in the market by the farmers will be purchased by the Govt. agencies at the announced MSP.
The MSPs are announced twice in a year before the commencement of cropping seasons, i.e.,once
before Kharif season and another before the Rabi season.

2. Statutory Minimum Price: In case of sugarcane MSP is assigned the status of “Statutory
Minimum Price” and hence is termed as SMP. That is there is a statutory binding on the part of the
“Sugar Factories” to pay the minimum announced price. Any price below SMP is illegal.
3. Procurement Price :Refers to the price at which government procures produce from farmers to
maintain buffer stocks and feed the stock to the Public Distribution System (PDS).

The PP is announced before the harvest season of the crop. It is left to the discretion of the Govt. to
buy the produce if required to maintain buffer stock and is not compulsory. If the Govt. procures the
produce under compulsion, then it is called “Leavy Price”. The Govt. has no commitmentto
purchase all the produce offered by farmers for sale.

Generally, the procurement prices are slightly higher than the MSP and lower than the prevailing
market prices.

4. Issue Price :Price at which the commodity is made available to consumers at fair price shops
through PDS and is mainly to safeguard the interest of consumers. It is always higher than
procurement price.
Trade: Concept of International Trade and its need, Absolute and comparative advantage and
modern theory, Present status and prospects of international trade in agri-commodities,

International Trade

Domestic trade is trade within the geographical boundaries of a nation and is also known as intra-
regional or home or internal or domestic trade.

International trade : International trade is the exchange of goods and services between countries. It is a
trade beyond the political boundaries of a country or region. It is also some times known as Inter-
regional, or foreign trade.

Trading globally gives consumers and countries the opportunity to access to the goods and services
produced by other country. A product that is sold to the global market is an export, and a product that is
bought from the global market is import.

Global trade allows wealthy countries to use their resources more efficiently (land, labor, technology or
capital). Some countries may produce the same good more efficiently and therefore sell it more cheaply
than other countries. If a country cannot efficiently produce a commodity, it can obtain the same by
trading with another country and is known as specialization in international trade.

Difference between domestic and Foreign trade.

Sl.No. Detail Domestic trade Foreign trade

1 Factors of production Mobile Immobile
2 Currencies Uniform currency- Different currencies and there is a variations in
No difficulty exchange rates between different
currencies. This increases risk
3 Restrictions on trade Relatively less Imposed by
a. Custom duties
b. Fixed quotas
c. Tariff barriers
d. Exchange restrictions
4 Ignorance Less ignorance Difference in culture, religion
language etc.
5 Separate markets India uses right Ethiopia or Netherland uses left hand drive
Hand drive cars cars
6 Transport and Less Impede international trade.
insurance costs

Advantages of IT: The IT has many advantages to the trading countries and are.

1. Optimum allocation of resources in each country: International specialization in production and

geographical division of labour leads to Optimum allocation of resources in each country and thereby
world’s resources.
2. Gains of specialization: Each trading country specialize in the production of certain goods and
services and as a result each country gain from an increase in total production.
3. Enhances wealth: This results in an increased exchangeable value of goods and services and wealth
of each trading country.
4. Larger output: Enlarge world’s aggregate output.
5. World’s welfare: Increase in world’s prosperity and economic welfare of each trading country.
6. Cultural Values: IT enables cultural exchange b/n countries and cultural ties among different
countries
develop trade relationships
7. Better international policies:IT helps in harmonizing international political relationship b/n
countries.
8. Widening of market: Specialization and division of labour helps in expanding output and thereby
finds new markets.
9. Deals with scarcity
10.Advantages of competition: Competition from foreign goods in the domestic market tends to make
home industry to become more efficient to improve and maintain the quality of the products.

Reasons for IT:

International trade is distinctly different from domestic trade and hence required to study it as a separate
discipline and hence necessitates a separate theory.

1. Immobility of factors of production: The labour and capital do not move freely from one country
to another as they move within the country. The immigration laws, citizenship, qualifications,
trainings, etc often restrict the international mobility of labour. Similarly, capital movement is also
restricted and possible through policies of the governments.
2. Heterogeneous markets: Markets are highly heterogeneous in terms of differences in climatic
conditions, incomes, languages, cultures, preferences, habits, customs and traditions in each country.
3. Different political systems/ideologies: Different countries have different political system and
ideologies.
4. Different national policies and Govt. interventions: Economic and political policies differ from
one country to another and have Socialistic, Capitalistic and Mixed economy. Hence, the policies
relating to trade, commerce, exports, & imports, taxation, and tariff ratesetc vary in each country.
5. Different currencies: Each country has different types of currencies and has its own policy w.r.t.
printing of currency, money supply, exchange rates, and foreign exchange.
6. Wants and resources do not match in each country: There is always a difference.
7. Different factor endowment in each country
8. Differences in technological advancements in each country
9. Differences in labour and entrepreneurial skills
10. Comparative advantages differ in each country

Dis-advantages of IT: Undue reliance on IT leads to several disadvantages and are

1. Exhaustion of resources with continuous exports: Specialization in production by each

country results in continuous exploitation of resources in respect of specialized productions (No
diversity in production) and may cause exhaustion of resources.
2. Dumping: Purposeful selling of goods in other country at a lesser price than in domestic
markets.
3. Blow to infant industry: It undermine seriously the growth of new industries.
4. Check Diversification of savings: A greater specialization of production in each country w.r.t.
few commodities and service results in to greater dependence on other countries for meeting the
 diverse requirements of people. Hence, the high propensity to import may cause reduction in
domestic savings of a country. This adversely affect the rate of capital formation.
5. Declining domestic emlployment: Specialization in production w.r.t few products leads to
curtailment of job opportunities to the people in other areas of the economy.
6. Over-interdependence: IT discourages self-sufficiency and self-reliance of the economy.
Therefore, some restrictions are imposed by each country on international trade.

Theories of International Trade:

There are three important theories on international trade advocated by the economists and are;
1. Theory of Absolute Cost Advantage : Advocated by Classical Economist-Adam Smith
2. Theory of Comparative Cost Advantage : Advocated by David Ricardo
3. Modern theory on international trade : Advocated by Bertill Ohlin and Eli Heckscher and
Also called as Heckscher-Ohlin Theorem
1. Adam Smiths Theory of Absolute Advantage:
This theory was put forth by Adam Smith who first stated the simple truth that for two nations to
trade each other voluntarily, both nations must gain. The important assumption of this theory were
labour is the only factor of production, full employment in the economy, labour is perfectly immobile
between the countries and law of constant returns is in operation.

The theory says, “When one nation is more efficient than (or has on absolute advantage over)
another in the productions of one commodity but is less efficient than (or has an absolute disadvantage)
than the other nation in producing second commodity, then both nations can gain by each specializing in
the production of the commodity of its absolute advantage and exchanging part of its output with the
other nation for the commodity of its absolute disadvantage. This way, one resource will be utilized
more efficiently resulting in larger output of both commodities.

Cost of productions in Labour Units

Particulars Country A Country B Comparative Cost Ratio

Commodity X 10 20 10/20 = 0.5

Commodity Y 20 10 20/10 = 2

Domestic exchange ratio 1X=½Y 1X=2Y

The comparative cost ratios worked out in the last column indicates country’s efficiency in
commodity production. With respect to commodity X country A has absolute advantage as ratio
indicated A’s requirement of labour was less composed to B for each unit of X commodity. Hence, A
should specialize in that commodity for which the ratio is less than one and import other commodity for
which the ratio is greater than one.

With respect to commodity Y, country A’s labour requirement per unit is twice that of country B.
Thus, country A has absolute advantage in the production of X and country ‘B’ has absolute advantage in the
production of Y. Thus according to Adam Smith, there could be trade between these two countries. Country
A can export commodity X and import commodity Y from Country B.
 Assume country A export 1 unit of X to B in return for 1Y (exchange rate is 1X = 1Y). To
understand the gains for the trading partners, examine domestic exchange ratios. For country A, the
domestic exchange ratio is: 1X = ½ Y. It means by giving up 1X, it can produce ½ Y domestically.
Thus, if country A can exchange 1X for 1Y with B, it stands to gain ½ Y.

Similarly, by giving up production of one unit of Y, country B can produce ½X internally, but by
entering into trade and exchanging at 1Y=1X with A, country B can also gain ½ X.

The theory of absolute advantage however, explained only a small part of world trade. It
remained for David Ricardo to truly explain with the law of comparative advantage, the basis for and the
gains from trade.

2. Ricardo’s Theory of Comparative Cost Advantage

This is based on the difference in production costs of similar commodities in different countries.
Each country specializes in the production of that commodity in which its comparative cost of production
is the least. Therefore, when a country enters into trade with some other country, it will export those
commodities in which its comparative cost of production is the least and will import those commodities in
which its comparative production costs are high.

Advocated by David Ricardo. According to him the value of any commodity is determined by the
amount of labour embodied in it or by its labour cost of production. Therefore, cost advantage exists due
to the differences in the labour cost in the production of the commodities in each of these countries.

Thus, according to David Ricardo, it is not the absolute advantage but the comparative difference
in the cost that determine trade relationship between two countries.

The comparative cost advantage is because of the differences in the production cost in different
countries. This difference in different countries is mainly due to;

1. Geographical division of labour and specialization in production

2. Differences in climate, natural resources.
3. Geographical location of the country
4. Efficiency of the labour.

As a result of these differences, a country can produce one commodity at a lower cost than other
and thus, each country can specialize in the production of that commodity with respect to which the
comparative cost of production is lowest due to specialization. Thereby, export that commodity and
import the other commodity in which it has comparative cost disadvantage (i.e., produced at highest
cost). Thus, form as a base for international trade.

The theory states that, “the trade between two countries takes place even if a country has an
absolute advantage in the production of both the commodities, but a comparative cost advantage in the
production of one of the commodities.”
Assumptions: The theory assumes the following criteria

1. There are only two countries

2. They produce the same two commodities
3. Labour is the only factor of production
4. All units of labour are homogeneous
5. Labour is perfectly mobile within the country and highly immobile b/n countries
6. Supply of labour is unchanged
7. Similar tastes in both the countries
8. Productions are linearly homogeneous (Constant Returns to Scale)
9. Prices of goods are determined by their real (labour) cost of production
10. Technology is unchanged in both the countries
11. Trade takes place on the basis of barer system
12. Product and factor markets are perfectly competitive
13. Free trade between two countries ( no trade barriers exists)
14. There is no transport cost b/n two countries.

Illustration:

Table 1: Man years of labour required for production of one unit of commodity

Country Wine Cloth

England 120 100
Portugal 80 90

Decision making on CCA between countries:

1. CCA of production between countries:

The CCA in each country w.r.t. a commodity is known by computing wine to wine ratio and
cloth to cloth ratio for both the countries.

Although Portugal has absolute advantage w.r.t. both wine and cloth production (as less labour
units required to produce them) compared to England. However, Portugal necessarily has CCA w.r.t.
one of the commodities.

Portugal has CCA w.r.t. “Wine” production over “Cloth”, therefore it should employ all its
labour units to produce wine and export it. The same is computed as below;

I. Comparative Cost Advantage in Portugal:

Ratio of “W” in Portugal and “W” in Ratio of “Cl” in Portugal and “Cl” in
England England

Ratio of production cost of wine in Portugal to Ratio of production cost of cloth in Portugal
the production cost of wine in England to the production cost of cloth in England
 80/120 = 0.67 less than 90/120 = 0.90

Only 0.67 (67%) labour units of 120 (100%) Only 0.90 (90%) labour units of 100 (100%)
units used in England in wine production are units used in England in cloth production are
sufficient to produce 1 unit Wine in Portugal sufficient to produce 1 unit Cloth in Portugal

Therefore, among the commodities, Portugal has CCA w.r.t. Wine production (0.67 < 0.90)
compared to Cloth because of high labour efficiency in its production.

On the other hand,

II. Comparative Cost Advantage in England:

Although, England has no Absolute Cost Advantage or has Ab. Cost Disadvantage w.r.t. both “Wine”
and “Cloth”, however, its CC disadvantage is least w.r.t Cloth. Therefore, it should employ all its labour
units to specialize in Cloth production and export it. The same is computed as below;

Ratio of “Cl” in England and “Cl” in Ratio of “W” in England and “W” in Portugal
Portugal
Ratio of production cost of cloth in England to Ratio of production cost of wine in England to the
the production cost of cloth in Portugal production cost of wine in Portugal
100/90 = 1.10 less than 120/80 = 1.50
If England wants to produce 1 unit of cloth, it If England wants to produce 1 unit of wine, it
requires 1.10 (110%-10% extra) labour units of requires 1.50 (150%-50% extra) labour units of 80
90 (100%) units used in Portugal (100%) units used in Portugal

Therefore, among the commodities, England has CCA w.r.t. Cloth production (1.10 <1.50)
compared to Wine because of high labour efficiency in its production.
Decision making on CCA of production within each country: This can be established by calculating
Domestic Exchange Rate (DER). The DER gives CCA within each country w.r.t. one of the
commodities.

2. Decision making on CCA between countries:

I. DER between “Wine” to “Cloth” in England and Portugal :
a. DER of “Wine” to “Cloth” for each country
DER England Portugal
Wine to Cloth = 120/100 = 80/90
Ratio = 1.20 = 0.89
(1 Wine = 1.20 Cloth) (1 Wine = 0.89 Cloth)
i.e., England can produce i.e., Portugal can produce
Only 1 unit W 1 unit W
or or
1.20 units Cl only 0.89 units Cl
Prodn. Cost Cl <Prodn. Cost W in Prodn. Cost W <Prodn. Cost Cl in
England Portugal
Therefore, England should specialize in Therefore, Portugal should specialize
Cloth production in Wine production
Similarly, the DER can be calculated by taking Cloth : Wine ratios for both the countries to establish
superiority of Production of Cloth in England and Wine in Portugal.

b. DER of “Cloth” to “Wine” for each country

DER England Portugal

Cloth to Wine = 100/120 = 90/80
Ratio = 0.83 = 1.13
(1 Cloth=0.83 Wine) (1 Cloth=1.13 Wine)

England Specialize in Cloth Portugal Specialize in Wine

production production

Gain from trade: The way how both the countries tend to be benefited is given below;

Country England Portugal

DERatios 1 Wine = 1.20 Cloth 1 Wine = 0.89 Cloth

England is ready to import Portugal is ready to export

1 unit of Wine from Portugal, if 1 unit of wine to
Portugal in exchange is ready to England, if England is
import <1.20 units of Cloth from ready to export
England >0.89 units of Cloth in exchange
Thereby, both the countries England & Portugal tend to be benefited by such an exchange
 WORLD TRADE ORGANIZATION (WTO)

General Agreement on Tariffs and Trade (GATT)

The existence of trade relations between countries is well documented in ancient, medieval and
modern history. India had trade links with Arab and European countries. In fact Vasco-de-Game discovered
the sea route to India for continuing trade links with India. The trade relations among the countries help the
participating countries to grow and develop in faster manner.

The First World War (1914-1918) and the Great Economic depression of 1930’s affected the
international trade very badly and various countries imposed various restrictions on foreign trade for
safeguarding their economics. This resulted in a sharp decline in the world trade. The world trade also
suffered severely during the Second World War (1939-1944). The Second World War damaged
economics of the most of the countries. The impact of World Wars gave thought to develop under-
developed economies in a planned way.

For this “Bretton Woods Conference” was held in 1944 which recommended for the
establishment of International Monetary Fund (IMF), International Bank for Reconstruction and
Development (IBRD) and International trade organization (ITO). ITO had the international desire to
liberalise trade. IMF was established on 27th December 1945 in Washington and started operation on
March 1, 1947. IBRD was established in December 1945 and started functioning in June 1946. However
because of the objections that ITO enforcement provisions would interfere with the autonomy of the
domestic policy making of nations, the ITO was never established. That is the reason why IMF and
IBRD are called “Bretton Wood twins”.

Inspired by the success of IMF and IBRD, for expansion of world trade many nations desired to
have similar cooperation in the field of international trade particularly for relaxing the existing trade
restrictions such as tariff. Again in 1946, at Havana International conference on Trade and Employment
was held where in a proposal was made to establish an agency called “International Trade Organization”
for promoting world trade and employment. It was not translated into practice due to various difficulties
and lack of common agreement.

On October 30, 1947, 23 major trading nations at Geneva signed an agreement related to tariffs
imposed on trade. This agreement is known as General Agreement on Tariff and Trade (GATT). It came
into force on January 1, 1948. Initially GATT was established in the form of a temporary arrangement
but later on it took the shape of a permanent agreement GATT’s Head Quarter was in Geneva in
Switzerland.

On December 12, 1994 GATT was abolished and replaced by World Trade Organization (WTO)
which came into existence on January 1, 1995.

As the name itself suggests, the General Agreement was concerned only with tariffs and trade
restrictions related to international trade. It served as an important international trade. It served as an
important international forum for carrying on negotiations on tariffs. The member countries met at
regular intervals to negotiate agreements to reduce quotas, tariffs and other trade restrictions. It
safeguards to the conduct of international trade.
 The mechanism followed by GATT to promote world trade was called “Rounds System”. The
member countries were brought together for negotiation on trade package. Between 1947 and the last
year of GATT there were 8 rounds of negotiation between participating countries. The first 6 rounds
related to reducing (curtailing) tariff rates. 7th round included non-tariff obstacles. 8th round was entirely
different from the previous ones because it included a number of new subjects for consideration. This 8th
round is known as “Uruguay Round” which gave birth to WTO. GATT is a multilateral treaty, signed by
23 (Founding members) countries and India is one among them.
Objectives of GATT
1. To provide equal opportunity to all member countries in international market for trading
purposes without any favour.
2. To minimize tariffs, elimination of discriminate & other restrictions for ensuring mutual benefits
and to eliminate favours from international trade.
3. To provide amicable solutions to the dispute related to international trade by giving cooperation
and advice to member countries.
4. To increase effective demand for real income growth and goods.
5. To ensure a better standards of living in the world as a whole.
These objectives became guiding force for promoting independent & multilateral trade. GATT
also introduced MFN clause (Most Favoured Nation) & every member country was considered as MFN
& according to MFN any concession/favour given was automatically extended to all the member
countries.

Round Year Venue Major outcomes No. of

Countries
1 1947 Geneva Signature of I GATT Round 23
(Switzerland)
2 1949 Anesi Tariff reduction on specific products 33
(France)
3 1950-51 Torquay Tariff reduction on specific products 34
(England)
4 1956 Geneva Tariff 22
5 1960-61 Geneva Introduction of European community for the first time 45
and 20 % tariff reduction
6 1964-67 Kenedy – 33% reduction in tariff on manufactured goods 48
Geneva
7 1973-79 Tokya – Non-tariff restrictions etc 99
Geneva
8 1986-93 Uruguay – Agriculture, service, TRIPS, TRIMS etc 115
Geneva
9 1995 Murrakesh Trade related negotiations 123
Uruguay Round & Dunkel proposal
The eighth (8th) Round of GATT was started in September 1986 and was popularly known as
Uruguay Round. This round included a number of new subjects including Agriculture which became most
controversial. Mr.Arthur Dunkel, Director General of GATT prepared a detailed document popularly known
as Dunkel proposals. These proposals were finalized on 15th Dec 1993. In all 77 countries including India
signed this agreement on April 1994. It mandated to have trade related negotiations in 7 important areas.
 1. Market Access
2. Agreement on Agriculture (AOA)
3. Textiles
4. Trade Related Investment Measures (TRIMS)
5. Trade Related Intellectual Property Rights (TRIPS)
6. Trade in Services
7. Institutional Matters
World Trade Organization
The Uruguay Round of GATT (1986-93) gave birth to WTO. The Members of GATT signed an
agreement of GATT in April 1994 to establish new organization called WTO. It was officially constituted on
January 1st 1995 with 77 member countries including India. Currently WTO has 164 member countries (29
July 2016) and Roberto Azevêdois the present Director General of WTO.

Features of WTO or Difference b/w GATT & WTO

1. GATT was adhoc& provisional, whereas WTO is a permanent organization.
2. GATT was less powerful, less efficient & dispute settlement process was slow, whereas WTO is
more powerful, efficient & dispute settlement process is faster. (Dispute settlement process is
dilatory in GATT but automatic in WTO)
3. GATT had contracting parties but WTO has member countries
4. Unlike IMF & WB, WTO is not an agent of United Nations Organization (UNO)
5. Unlike GATT, the agreements under WTO are permanent & binding to member countries
6. Unlike GATT, the WTO approach is rule based & time bound
7. Unlike GATT, the WTO has wider coverage & focuses on IPR issues (Intellectual Property
Rights) & several other issues.
Objectives of WTO
1. To ensure reduction of tariffs & other barriers to trade.
2. To eliminate discriminatory treatment in international trade.
3. To facilitate optimal use of worlds resources for sustainable development.
4. To promote an integrated, more viable & durable trading system through multilateral
negotiations.
5. To ensure full employment & broad increase in effective demand.
6. To facilitate higher standards of living and increase in production.
Functions of WTO
1. To provide a platform to member countries to decide future strategies related to trade & tariff
2. To provide facilities for implementation, administration & operation of bilateral & multilateral
trade negotiations
3. To administer the rules & procedures related dispute settlement
4. To assist & cooperate with the IMF & IBRD for establishing coherence in trade & economic policies.

The Ministerial Conference (MC) is at the top of the structural organization of the WTO. It is
the supreme governing body which takes final decisions on all matters. It is constituted by
representatives of (usually Minister for Trade & Commerce) all the member countries. The MC meets
once in every two years.

The General Council (GC) is composed of the representatives of all the member countries. It is
the real engine of WTO which acts on behalf of MC. It also acts as the Dispute Settlement Body (DSB)
as well as the Trade Policy Review Body (TPRB).

Three councils viz., (1) Council for Trade in goods. (2) Council for Trade in Services and (3)
Council for Trade Related aspects of Intellectual Property Rights (TRIPS) operates under the General
Council (GC).

Further three Committees (1) Committee on Trade and Development (CTD) (2) Committee on
Balance of payments Restrictions (CBOPR) and (3) Committee on Budget, Finance and Administration
(CBFA).

The administration of the WTO is conducted by the Secretariat which is headed by Director General
(DG) appointed by the MC for the tenure of 4 years. He is assisted by the 4 Deputy Directors.
Ministerial Conferences of WTO
The mechanism followed by WTO for Promotion of Trade is called as Ministerial Conference.
Since inception of WTO till date Six ministerial conferences have been held.

Member Major outcomes

MC Year Venue
countries

I 9-13 Singapore 123 Agreement on technology and introduction of new issues

Dec 1996

II 18-20 Geneva 134 Standstill agreement on electronic commerce

May 1998

III 30 Nov.– Seattle 135 Market access, agriculture, services, trade facilitation, E-
3 Dec. 1999 commerce

IV 9-14 Nov’ Doha 144 Implementation problems, environment, investment,

2001 competition, TRIPs, Transparency in Government
procurement, trade facilitation, two new working groups
on trade, debt and finance and trade and transfer of
technology were set up.

V 10-14 Sept’ Cancun 148 Trade negotiations failed on various issues especially on
2003 agriculture

VI 13-18, Dec Hong Kong 149

2005

VII 30 Nov -2 Geneva, The WTO, the Multilateral Trading System and the
Dec 2009 Switzerland Current Global Economic Environment

Ministerial Meets

Singapore Ministerial (1996) established working groups on trade and investment, trade and
competition policy, transparency in Government procurement and trade facilitation and decided that
labour issues be dealt by ILO. It also endorsed multilateral Information Technology Agreement

Geneva Ministerial (1998), which marked 50 years of GATT, agreed on zero duty on digital
transmissions.

Failure of the Seattle Ministerial (1999) to start a new round of negotiations

Doha Ministerial Meet (2001) agreed on a work programme (round) to be concluded before January
1, 2005

Partial dilution of pharma patents to help developing country governments face national health
emergencies

Failure of Cancun Ministerial Meet (2003) to arrive at an agreement

Negotiations in 2004 & 2005 led to some draft proposals by July, 2005

Hong Kong meet (Dec, 2005) agreed on a basis for further negotiations

Negotiations on specifics to continue in 2006 and the agreement to be ratified by the 2007
Ministerial Meet

The period of implementation to commence from 2008
Hong Kong Decisions: Market Access and Export Subsidies

All forms of export subsidies and disciplines on all export measures with equivalent effect to be
eliminated by the end of 2013

All forms of export subsidies for cotton will be eliminated by developed countries in 2006

Developed and developing countries will give duty and quota free access for cotton exports from least
developed countries

Four bands for structuring tariff cuts with the exact thresholds to be agreed in the negotiations

Developing countries to have the flexibility to self-designate an appropriate no.of tariff-lines (1 to 15%)
as special products and to resort to special safeguard mechanisms

The cuts for developing countries should be less than 2/3 of the cut for developed countries

Hong Kong Decisions: Proposals for Tariff Cuts

Bands Thresholds Range of cuts (%)

Band -1 0% -20/30% 20-65

Band -2 20/30% - 40/60% 30-75

Band -3 40/60% - 60/90% 35-85

Band -4 > 60/90% 42 -90

Hong Kong Decisions: Domestic Support

A cut of 50% to 80% in the de minimussupport for developed countries

No cut in de minimus support for developing countries with no AMS and for those with AMS cut
should be less than 2/3rd of the cut for developed countries

Shrinking the current 5% ceiling to 2.5% in case of Blue Box support

Green Box to be better tailored to meet the realities of developing country agriculture
Proposed Cuts in AMS
Bands Thresholds (US $ billions) Range of cuts (%)

Band –1 (EU) > 60 70%-80%

Band –2 (US & Japan) 10-60 53%-75%

Band –3 (Other developed) 0-10 31%-70%

Negotiating stances of some important countries

United States

Willing to reduce subsidies by 60 per cent if European Union and Japan agree to reduce subsidies by
75 per cent

Wants to limit ‘Blue Box’ support to 2.5 per cent

Not willing to remove income support from ‘Green Box’

Wants that export credits should be treated as a welfare measure and not as a trade distorting
measure

Supporting an early abolition of export subsidies

Wants tariff reductions on applied rates than on bound rates
European Union

Wants a slower reduction in export subsidies

Wants the same rate of reduction in subsidies for all developed countries

Wants implicit subsidies in export credits to be treated at par with export subsidies

Wants a reform of ‘Green Box’

Does not want a reduction in ‘Blue Box’ support

Wants to exercise discretion in favor of ACP countries through GSP

Wants strong deterrents against environmental issues and concerns

Defends high tariffs in selected commodities
WTO-Stipulations/Components
WTO stipulations include following main agreements

1. Agreement on Agriculture (AOA)

2. Agreement on Trade Related Investment Measures (TRIMS)
3. Agreement on Trade Related Intellectual Property Rights (TRIPS)
4. Agreement on Technical Barriers to Trade (TBT)
5. Agreement on Sanitary & Phyto-sanitary Measures (SPS)
6. Agreement on Subsidies & countervailing measures (SCM)
7. Agreement on Textiles & Clothing

1. Agreement on Agriculture (AoA)

AoA deserves attention of developing countries. It aims at increasing trade in agri goods on par with
other goods. It also aims at establishing fair & market oriented international trade in agriculture.

AoA as a package provides 3 commitments. (a.) Market Access (b.) Domestic support (c.)
Export Subsidies

a. Market Access
The member country is required to convert all non-tariff barriers into tariff (Quantitative trade
restrictions). The tariff rates shall have to be below the bound tariff rates agreed by the member
countries. The developed countries should reduce tariff by at least 15 % with an average reduction of 36
% over six years. The developing countries need to reduce tariff by at least 10 % with an average
reduction of 24 % over ten years.

AoA also provides for minimum (guaranteed) access quota. The minimum (guaranteed) access
quota for a developed country is expanded from 3 % to 5 % of its domestic consumption. The
minimum access quota for a developing country is expanded from 1% to 4 %.

b. Domestic support
It includes subsidies & concessions for production. Developed countries need to reduce their
domestic support by 20 % over six years. While the developing ones need to reduce by 13.3 % over 10
years period. The reduction in support measures is exempted under “green box measures” which include
support for research, plant protection, infrastructure, food security & environmental protection.

Amber Box – Highly Trade distorting

Blue Box – Less/Minimal trade distorting, production limit

Green Box – Not Trade distorting (e.g. research, conservation, non-product specific, de-
coupled payments)

“De Minimis”: Trade distorting but green if it is nonproduct-specific and less than 5% of the
value of production.

c. Export subsidies
Developed countries need to reduce export subsidies by 36 % on values & 21 % on volume over
6 years. Developing countries need to reduce export subsidy by 24 % on value & 14 % on volume over
10 years.

Asymmetries in AOA
• Special and differential treatment to developing countries - promised but not implemented.
• Green Box provisions more aligned with domestic support measures employed by developed countries.
• Developed countries account for 87.5 per cent of support under green box provisions.
• Production-limiting programmes (blue-box) are supported only by developed countries.
• AMS levels in developed countries very high even after exemptions (29 to 48% of value of production)
• Developed countries account for 80% of export subsidies.
• Reduction commitments have a very slow time-frame and do not lead to trade liberalization.
• Tariff escalation by developed countries on commodities of interest to developing countries effectively
blocks market access to developing countries.
2. Trade Related Investment Measures (TRIMS)
It aims to facilitate the flow of investment across international borders to increase economic growth.
Investment policies of govt. restrict Multi-National Companies (MNC’s) to invest in other countries &
distort trade. Investment policies are used by govt. to discourage foreign investors to invest.

The restrictions may be interms of

a. Use of local inputs & manpower

b. Balance of imports to exports
c. Requiring company to sell locally
Here all non-confirming TRIMS are notified & eliminated within 2 yrs for developed countries
& 5 years for developing countries

3. Trade Related Intellectual Property Rights (TRIPS)

TRIPS provide incentives for innovators & devote more time & resources to innovate new things
and activities. In the absence of protection, others can enjoy & take the benefit of innovation without
compensating the innovators. The agreement says product & process patent should be uniformly
available for 20 years. Earlier only process was patented but now product is brought under the perview.
Indian Patent Act (1970)- Patents Process for 14 yrs. Indian Patent Amendment Act (2005)- Patents
Product & Process for 20 years.

4. Sanitary and Phyto-sanitary Measures (SPS)

Application of SPS measures is likely to affect international trade in agriculture. The agreement
recognizes that the developing countries may face problems in complying (meeting) SPS measures of
importing countries particularly the developed countries. The agreement stipulates that SPS measures
should be only to the extent necessary to protect human, animal & plant life or health. These measures
should be based on Scientific principles. Codex standards are considered as international standards.
Standards should not be arbitrary & unjustifiable. Hazardous & Chemical Analysis at Critical Points
(HACCP) provision is also agreed. The basic principle of WTO is that each country should open its
economy to the foreign market. There is the possibility that the access to the markets of developed
countries could be seriously limited by SPS measures.

5. Technical Barriers to Trade (TBT)

This agreement provides a right to member countries to establish trade protection at the desired
level with the objective of correcting market inefficiencies arising from production, distribution &
consumption. The trade barriers should not be arbitrary & unjustifiable and should be based on scientific
principles.

6. Subsidies & Countervailing Measures (SCM)

It permits governmental subsidies & assistance to environmental protection activities. However,
such assistance is limited to 20 % of the cost of adaptation.

7. Agreement on Textile & Clothing

Trade in Textile and Clothing is currently negotiated under Multi-fibre Agreements (MFA).
Agreement on Textiles & Clothing aims to bring clothing & textile sector into WTO agreement & phase
out MFA. Agreement stipulates that all members should take actions to improve market access &
application of fair and equitable trading practices for textile & clothing.

General Agreement on Trade in Services (GATS)

The Principle of free & fair trade is now applicable to service sectors like Banks, insurance
firms, telecommunications, tour, transport & hotel operators who are willing to do business abroad. The
members of WTO have committee to open up (allow) their economies for foreign competition in service
sectors.

GATS cover four modes/groups for internal delivery of services

1. Service travels abroad → software

2. Movement of personal (person providing service travels abroad → doctors, teachers
3. Consumption abroad (person receiving service travels abroad → health care, tour
4. Commercial presence (provision of service abroad through FDI (Foreign Direct Investment) or
representative office.
Types cooperative Marketing societies:

On the basis of the commodities dealt in by them, the co-operative marketing societies may be grouped
into the following types:

(i) Single Commodity Co-operative Marketing Societies

They deal in the marketing of only one agricultural commodity. They get sufficient business from the
farmers producing that single commodity. The examples are Sugarcane Co-operative Marketing Society,
Cotton Co-operative Marketing Society and Oilseed Growers Co-operative Marketing Society.

(ii) Multi-Commodity Co-operative Marketing Societies

They deal in the marketing of a large number of commodities produced by the members, such as
foodgrains, oilseeds and cotton. Most of the co-operative marketing societies in India are of this type.

(iii) Multi-purpose, Multi-commodity Co-operative Marketing Societies

These societies market a large number of commodities and perform such other functions as providing
credit to members, arranging for the supply of the inputs required by them, and meeting their
requirements of essential domestic consumption goods.

Structure
The co-operative marketing societies have both two-tier and three-tier structure. In two-tier pattern with
primary marketing societies at the taluka level and state marketing federation as an apex body at the
state level. In three-tier system with district marketing society in the middle. At the national level,
NAFED serves as the apex institution.
The pattern of the three-tier structure is as follows:

(i) Base Level

At the base level, there are primary co-operative marketing societies. These societies market the produce
of the farmer members in that area. They may be single commodity or multi commodity societies,
depending upon the production of the crops in the area. They are located in the primary wholesale
market, and their field of operations extends to the area from which the produce comes for sale, which
may cover one or two tehsils, panchayat samitis or development blocks.

(ii) Regional/District Level

At the regional or district level, there are central co-operative marketing unions or federations. Their
main job is to market the produce brought for sale by the primary cooperative marketing societies of the
area. These are located in the secondary wholesale markets and generally offer a better price for the
produce. The primary co-operative marketing societies are members of these unions in addition to the
individual farmer members.

In the two-tier structure, the State societies perform the functions of district level societies by opening
branches throughout the district.

(iii) State Level

At the state level, there are apex (State) co-operative marketing societies or federations. These state level
institutions serve the state as a whole. Their members are both the primary co-operative marketing
societies and the central co-operative unions of the state. The basic function of these is to coordinate the
activities of the affiliated societies and conduct such activities as inter-state trade, export-import,
procurement, distribution of inputs and essential consumer goods, dissemination of market information
and rendering expert advice on the marketing of agricultural produce.
Membership
There are two types of members of co-operative marketing societies:

(i) Ordinary Members

Individual farmers, co-operative farming societies and service societies of the area may become the
ordinary members of the co-operative marketing society. They have the right to participate in the
deliberations of the society, share in the profits and participate in the decision making process.

(ii) Nominal/National Members

Traders with whom the society establishes business dealings are enrolled as nominal members. Nominal
members do not have the right to participate in decision making and share in the profits of the societies.

Sources of Finance
In 1966, the Dantwala Committee estimated a capital base of Rs.2.00 lakhs for a co-operative marketing
society. At 2003 prices, it should be at least Rs.40.00 lakhs. The following are the major sources of
finance of a co-operative marketing society:

(i) Share Capital

Farmer-members and the State Government subscribe to the share capital of cooperative marketing
societies. Members may purchase as many shares as they like. They are encouraged to invest sufficiently
in the share capital. They are also persuaded to invest their dividend and bonus in the shares of co-
operative marketing societies.

(ii) Loans
Co-operative marketing societies may raise their finance by way of loans from the Central and State Co-
operative Banks and from commercial banks by pledging and hypothecation and also by clean credit to
the extent of 50 per cent of owned capital.

(iii) Subsidy
The Co-operative marketing societies get a subsidy from the government for the purchase of grading
machines and transport vehicles to meet their initial heavy expenditure. They also get a subsidy for a
part of the cost of the managerial staff for a period of 3 years to make them viable.

The advantages that co-operative marketing can confer on the farmer are multifarious,
some of which are listed below.

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.
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.

Reasons of slow Progress of Cooperative Marketing

The main reasons of the slowProgress are:

(i) Co-operative marketing societies are generally located in big markets/towns and quick and cheap
transport facilities are not available for the from the villages to the societies;

(ii) Farmers are indebted to local traders and enter into advance contracts with them for the sale of the
crop;

(iii) Farmers are in immediate need of cash after the harvest to meet their personal obligations. They,
therefore, sell their produce to local traders; they cannot wait for the time required to move the
produce to the mandi;

(iv) There is lack of loyalty among members to co-operative marketing societies because of their poor
education and absence of the co-operative feeling;

(v Rivalries among farmer-members result in indecision, which hampers the progress of the societies;

(vi) Members lack confidence in co-operative organizations and most co-operatives run at a loss;

(vii) Marketing Coop. Societies do not act as banks for the farmers;
 (viii) Poor business advice to members;

(ix) Societies do not provide basic facilities required when farmers bring their produce for sale like
food and shelter,etc;

(x) Managers of the societies are often linked with local traders and show no interest to the needs of a
small and marginal farmers;

(xi) Lack of sufficient funds with the societies to meet the credit needs of the farmers against pledging
of the produce brought for sale.;

(xii) Co-operative marketing societies are not capable of carrying on their business in competitionwith
traders due to poor business expertise; and

(xiii) Lack of sufficient storage facilities with the societies.

Suggestions for Strengthening of Cooperative Marketing Societies

(i) The area of the operations of the societies should be large enough so that they may have sufficient
business and become viable. Most of the societies at present are not viable because of the small
volume of their business.
(ii) Co-operative marketing societies should develop sufficient storage facilities in the mandi as well
as in the villages.
(iii) The societies should give adequate representation to the small and marginal farmers in their
organizational set-up.
(iv) The co-operative feeling among members should be inculcated by proper education by organizing
seminars and by the distribution of literature.
(v) In the selection of the officials of co-operative marketing societies, weightage should be given to
business experience and qualifications. After their selection, the officials should be given proper
training so that they may deal efficiently with the business of the society. The efficiency should
be rewarded, wherever possible.
(vi) There is a need for bringing about a proper co-ordination between credit and marketing co-
operative societies to facilitate the recovery of loans advanced by credit societies, and make
available sufficient finance for marketing societies.
(vii) The societies should-acquire the transport facility to bring the produce of the members from the
villages to the mandi in time and at a lower cost.
(viii) Co-operative marketing societies should diversify their activities. They should sell the produce
and inputs, and engage in the construction of storage facilities.
(ix) Marketing societies, like the private traders, should provide accommodation and the drinking
water facility for their members when the latter come to the mandi.
(x) The public procurement and public distribution programmes should be implemented through co-
operative marketing societies to increase their business; and
(xi) The cooperatives should be made free from government control.
REFERENCES

1. Acharya, S.S. and Agarwal, N.L., 2006, Agricultural Marketing in India, Oxford and IBH Publishing
Co. Pvt. Ltd., New Delhi.
2. Chinna,S.S., 2005, Agricultural Economics and Indian Agriculture. Kalyani Pub, N Delhi.
3. Dominic Salvatore, Micro Economic Theory
4. Kohls Richard, L. And UhlJosheph, N., 2002, Marketing of Agricultural Products, Prentice-Hall of
India Private Ltd., New Delhi.
5. Kotler and Armstrong, 2005, Principles of Marketing, Pearson Prentice-Hall.
6. Lekhi, R. K. And Jogindr Singh, 2006, Agricultural Economics. Kalyani Publishers, Delhi.
7. Memoria, C.B., Joshi, R.L. and Mulla, N.I., 2003, Principles and Practice of Marketing in India,
Kitab Mahal, New Delhi.
8. Pandey Mukesh and Tewari, Deepali, 2004, Rural and Agricultural Marketing, International Book
Distributing Co. Ltd, New Delhi.
9. Sharma, R., 2005, Export Management, Laxmi Narain Agarwal, Agra.
10. Subbareddy, S and et. Al., 2005,Agricultural Economics. Oxford & IBH Publ. Co.(P), New Delhi.

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