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, marketing plays its vital role.
Marketing is as critical to better performance in agriculture as farming itself. Therefore, market reform and marketing system improvement ought to be an integral part of policy and strategy for agricultural development. Although a considerable progress has been achieved in technological improvements in agriculture by the use of high-yielding variety seeds and chemical fertilizers, and by the adoption of plant protection measures, the rate of growth in farming in developing countries limping behind the desired levels. This has been largely attributed to the fact that not enough attention has been devoted to the facilities and services which must be available to farmers that would support agricultural sector for its development. Marketing is one of those facilities needed for over all economic development of nations.
Concept and Definition
            The term agricultural marketing is composed of two words – agriculture and marketing. Agriculture, in the broadest sense, means activities aimed at the use of natural resources for human welfare, i.e., it includes all the primary activities of production. But, generally, it is used to mean growing and/or raising crops and livestock. Marketing encompasses a series of activities involved in moving the goods from the point of production to the point of consumption. It includes all activities involved in the creation of time, place, form and possession utility.
Philip Kotler has defined marketing as a human activity directed at satisfying the needs and wants through exchange process.
American Marketing Association defined marketing as the performance of business activities that directs the flow of goods and services from producers to users.
According to Thomsen, the study of agricultural marketing comprises all the operations, and 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 and consumers.
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 agricultural products from the farms to the consumers. The agricultural marketing system is a link between the farm and the non-farm sectors. It includes the organization of agricultural raw materials supply to processing industries, the assessment of demand for farm inputs and raw materials, and the policy relating to the marketing of farm products and inputs.
According to the National Commission on Agriculture (XII Report, 1976), 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 and economic considerations, and includes pre- and post-harvest operations, assembling, grading, storage, transportation and distribution.
Agricultural marketing system in developing countries including India can be understood to compose of two major sub-systems viz., product marketing and input (factor) marketing. The actors in the product marketing sub-system include farmers, village/primary traders, wholesalers, processors, importers, exporters, marketing cooperatives, regulated market committees and retailers. The input sub-system includes input manufacturers, distributors, related associations, importers, exporters and others who make available various farm production inputs to the farmers.
However, as Acharya has described, in a dynamic and growing agricultural sector, the agricultural marketing system ought to be understood and developed as a link between the farm and the non-farm sectors. A dynamic and growing agricultural sector requires fertilizers, pesticides, farm equipments, machinery, diesel, electricity, packing material and repair services which are produced and supplied by the industry and non-farm enterprises. The expansion in the size of farm output stimulates forward linkages by providing surpluses of food and natural fibres which require transportation, storage, milling or processing, packaging and retailing to the consumers. These functions are obviously performed by non-farm enterprises. Further, if the increase in agricultural production is accompanied by a rise in real incomes of farm families, the demand of these families for non-farm consumer goods goes up as the proportion of income spent on non-food consumables and durables tends to rise with the increase in real per capital income. Several industries, thus find new markets for their products in the farm sector.
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. Agricultural marketing system includes the 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.
Scope and Subject Matter
            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 subject of agricultural marketing includes product marketing as well as input 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 breakthrough. On one hand surplus production in agriculture resulted in problem of distribution to consumption centres and on the other transformed agriculture into a commercial venture where market needs came to the lime lite. Input marketing is a comparatively new subject. Farmers in the past used such farm sector inputs as local seeds and farmyard manure. These inputs were available with them; the purchase of inputs for production of crops from the market by the farmers was almost negligible. 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. In this book, the subject-matter of agricultural marketing has been dealt with; both from the theoretical and practical points of view. It covers what the system is, how it functions, and how the given methods or techniques may be modified to get the maximum benefits.
Specially, the subject of agricultural marketing includes marketing functions, agencies, channels, efficiency and costs, price spread and market integration, producer’s surplus, marketing institutions, government policy and research,  imports/exports of agricultural commodities and commodity and futures trading.
New Role of Agricultural Marketing
            Agricultural marketing scenario in the country has undergone a sea-change over the last six decades owing to the increases in the supply of agricultural commodities and consequently in their marketed surpluses; increase in urbanization and income levels and thereby changes in the pattern of demand for farm products and their derivatives; slow and steady increase in the linkages with the overseas markets; and changes in the form and degree of government intervention in agricultural markets. Therefore, the framework under which agricultural produce markets function and the factors which influence the prices received by the farmers now need to be understood in a different perspective compared to that in the past. The role of marketing now starts right from the time of decision relating to what to produce, which variety to produce and how to prepare the product for marketing rather than limiting it to when, where and to whom to sell.
Markets and Marketing
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 building where commodities are bought and sold, e.g., super market; (b) potential buyers and sellers of a product; e.g., wheat market and cotton market; (c) potential buyers and sellers of a country or region, e.g., Indian market and Asian market; (d) an organization which provides facilities for exchange of commodities, e.g., Bombay stock exchange; and (e) a phase or a course of commercial activity, e.g., a dull market or bright market.
There is an old English saying that two women and a goose may make a market. However, in common parlance, a market includes any place where persons assemble for the sale or purchase of commodities intended for satisfying human wants. Other terms used for describing markets in India are Haats, Painths, Shandies and Bazar.
The word market in the economic sense carries a broad meaning. Some of the definitions of market are given below:

1. A market is the sphere within which price determining forces operate.
2. A market is the area within which the forces of demand and supply converge to establish a single price.
3. The term market 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.

A market exists when buyers wishing 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, certain conditions must be satisfied. These conditions should be both necessary and sufficient. They may also be termed as the components of a market.

1. The existence of a good or commodity for transactions (physical existence is, however, not necessary);
2. The existence of buyers and sellers;
3. Price at which the commodity is transacted or exchanged
4. Business relationship or intercourse between buyers and sellers; and
5. Demarcation of area such as place, region, country or the whole world.

Dimensions of a Market
            There are various dimensions of any specified market. 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. Accrual of marketing margins

Any individual market may be classified in a twelve-dimensional space.
Classification of Markets
            Markets may be classified on the basis of each of the twelve dimensions 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, where major transactions take place among the buyers and sellers normally residing in that village, is called a village market.
(b) Primary Markets: These markets are located in towns 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. 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. The major transactions of commodities in these markets take place between the village traders and wholesalers. The bulk of the arrivals in these markets are from other markets. The produce in these markets is handled in large quantities. There are, therefore, specialized marketing agencies performing different marketing functions, such as those of commission agents, brokers and weighmen in these markets. 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. Commodity exchanges exist in these markets which provide facilities for forward trading in specific commodities. Such markets are located either in metropolitan cities or at sea-ports. Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Cochin are terminal markets in India for many commodities.
(e) Seaboard Markets: Markets which are located near the seashore and are meant mainly for the import and/or export of goods are known as seaboard markets. These are generally seaport towns. 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 from which buyers and sellers usually come for transactions, markets may be classified into the following four classes:
(a) Local or Village Markets: A market in which the buying and selling activities are confined among the buyers and sellers drawn from the same village or nearby villages. The village markets exist mostly for perishable commodities in small lots, e.g., local milk market or vegetable market.
(b) Regional Markets: A market in which buyers and sellers for a commodity are drawn from a larger area than the local markets. Regional markets in India usually exist for food grains.
(c) National Markets: A market in which buyers and sellers spread at the national level. Earlier national markets existed for only durable goods like jute 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.
(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 area point of view. These markets exist for the commodities which have a world-wide demand and/or supply, such as coffee, machinery, gold, silver, etc. In recent years many countries are moving towards a regime of liberal international trade in agricultural products like raw cotton, sugar, rice and wheat. It is expected that the international trade in such commodities will become free from many restrictions that exist now.
3. On the Basis of Time Span
            On this basis, markets are of the following types:
(a) Short period Markets: The markets which are held only for a day or few hours are called short-period markets. The products dealt within these markets are of a highly perishable nature, such as fish, fresh vegetables, and liquid milk. In these markets, the prices of commodities are governed mainly by the extent of demand for, rather than by the supply of, the commodity.
(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. The commodities traded in these markets are less perishable and can be stored for some time; like foodgrains and oilseeds. The prices are governed both by the supply and demand forces.
(d) Secular Markets: These are markets of a permanent nature. The commodities traded in these markets are durable in nature and can be stored for many years. Examples are markets for machinery and manufactured goods.
4. On the Basis of Volumes of Transactions
            There are two types of markets on the basis of volume of transactions at a time.
(a) Wholesale Markets: A wholesale market is one in which commodities are bought and sold in large lots or in bulk. These markets are generally located in either towns or cities. The economic activities in and around these markets are so intense that over time the population tends to get concentrated around these markets. These markets occupy an extremely important link in the marketing chain of all the commodities including farm products. Apart from balancing the supply and demand and discovery of the prices of a commodity, these markets and functionaries in them serve as a link between the production system and consumption system. The wholesale markets for farm products in India can be classified as primary, secondary and terminal wholesale markets. The primary wholesale markets are in the nature of assembling centres located in and around producing regions. The transactions in primary wholesale markets take place mainly between farmers and traders. Secondary wholesale markets are generally located between primary wholesale and terminal markets. The transactions in these markets take place between primary wholesalers and traders of terminal market. The terminal markets are generally located at the large urban metropolitan cities or export centres catering to the large consuming population around them or in the overseas markets.
(b) Retail Markets: A retail market is one in which commodities are bought by and sold to the consumers as per their requirements. Transactions in these markets take place between retailers and consumers. The retailers purchase the goods from wholesale market and sell in small lots to the consumers in retail markets. These markets are very near to the consumers.
The distinction between the wholesale and retain market can be made mainly on the basis of buyer. A retail market means that the buyers are generally ultimate consumers, whereas in the wholesale market the buyers can be wholesalers or retailers. But sometimes-bulk consumers also purchase from the wholesale markets. The quantity transacted in retail markets is generally smaller than that in the wholesale markets.
5. On the Basis of Nature of Transactions
            The markets which are based on the types of transactions in which people are engaged are of two types:
(a) Spot or Cash Markets: A market in which goods are exchanged for money immediately after the sale is called the spot or cash market.
(b) Forward Markets: A market in which the purchase and sale of a commodity takes place at time t but the exchange of the commodity takes place on some specified date in future i.e., time t + 1. Sometimes even on the specified date in the future (t + 1), there may not be any exchange of the commodity. Instead, the differences in the purchase and sale prices are paid or taken.
6. On the Basis of Number of Commodities in which Transaction Takes Place
            A market may be general or specialized on the basis of the number of commodities in which transactions are completed:
            (a) General Markets: A market in which all types of commodities, such as foodgrains, oilseeds, fibre crops, gur, etc., are bought and sole is known as general market. These markets deal in a large number of commodities.
(b) Specialized Markets: A market in which transactions take place only in one or two commodities is known as a specialized market. For every group of commodities, separate markets exist. The examples of specialized markets are foodgrain markets, vegetable markets, wool market and cotton market.
7. On the Basis of Degree of Competition
            Each market can be placed on a continuous scale, starting from a perfectly competitive point to a pure monopoly or monopsony situation. Extreme forms are almost non-existent. Nevertheless, it is useful to know their characteristics. In addition to these two extremes, various midpoints of this continuum have been identified. On the basis of competition, markets may be classified into the following categories:
(a) Perfect Markets: A perfect market is one in which the following conditions hold good:
(i) There is a large number of buyers and sellers;
(ii) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices;
(iii) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies from surplus to deficit areas;
(iv) The prices of different forms of a product are uniform, plus or minus the cost of converting the product from one form to another.
(b) 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:
(i) Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity. He exercises sole control over the quantity or price of the commodity. In this market, the price of a commodity is generally higher than in other markets. Indian farmers operate in monopoly market when purchasing electricity for irrigation. When there is only one buyer of a product, the market is termed as a monopsony market.
(ii) Duopoly Market: A duopoly market is one which has only two sellers of a commodity. They may mutually agree to charge a common price which is higher than the hypothetical price in a common market. The market situation in which there are only two buyers of a commodity is known as the duopsony market.
(iii) Oligopoly Market: A market in which there are more than two but still a few sellers of a commodity is termed as an oligopoly market. A market having a few (more than two) buyers is known as oligopsony market.
(iv) Monopolistic Competition: When a large number of sellers deal in heterogeneous and differentiated form of a commodity, the situation is called monopolistic competition. The difference is made conspicuous by different trade marks on the product. Different prices prevail for the same basic product. Examples of monopolistic competition faced by farmers may be drawn from the input markets. For example, they have to chose between various makes of insecticides, pumpsets, fertilizers and equipments.

8. On the Basis of Nature of Commodities
            On the basis of the type of goods dealt in, market may be classified into the following categories:
(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: These are those 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, marketing 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 unstandardised 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.
Rural markets generally have poor marketing facilities as compared to urban markets. According to the survey of the Directorate of Marketing and Inspection (DMI) of Government of India, only 46 per cent of rural primary markets, of the country have the facility of market yards; 6.4 per cent have office buildings, 3.2 per cent have cattle shed, 3 per cent have canteen, 4.9 per cent have storage facilities, 5.1 per cent have auction platforms, 12.9 per cent have drinking water facility and 5.2 per cent markets have electricity facility. Marketing support services such as godowns, cleaning, price information and extension services were found completely non-existent in most of these rural markets.
12. On the Basis of Market Functionaries and Accrual of Marketing Margins
            Markets can also be classified on the basis of as to who are the market functionaries and to whom the marketing margins accrue. Over the years, there has been a considerable increase in the producers or consumers co-operatives or other organizations handling marketing of various products. Though private trade still handles bulk of the trade in farm products, the co-operative marketing has increased its share in the trade of some agricultural commodities like milk, fertilizers, sugarcane and sugar. In the case of marketing activities undertaken by producers or consumers co-operatives, the marketing margins are either negligible or shared amongst their members. In some cases, farmers themselves work as sellers of their produce to the consumers. On the basis, the market can be (a) farmers markets, (b) cooperative markets or (c) general markets.
It must be noted that each market or market place can be classified on the basis of the 12 criteria mentioned above. A 12-dimensional classification of markets is shown in Chart 1.1.

ON THE BASIS OF LOCATION		VILLAGE MARKETS
		PRIMARY MARKETS
		SECONDARY WHOLESALE MARKETS
		TERMINAL MARKETS
		SEA-BOARD MARKETS
ON THE BASIS OF AREA OR COVERAGE		LOCAL/VILLAGE MARKETS
		REGIONAL MARKETS
		NATIONAL MARKETS
		WORLD/INTERNATIONAL MARKETS
ON THE BASIS OF TIME SPAN		SHORT PERIOD MARKETS
		PERIODIC MARKETS
		LONG PERIOD MARKETS
		SECULAR MARKETS
ON THE BASIS OF VOLUME OF TRANSACTIONS		WHOLESALE MARKETS
		RETAIL MARKETS
ON THE BASIS OF NATURE OF TRANSACTIONS		SPOT/CASH MARKETS
		FORWARD MARKETS
ON THE BASIS OF NUMBER OF COMMODITIES TRANSACTED		GENERAL MARKETS
		SPECIAL MARKETS
ON THE BASIS OF DEGREE OF COMPETITION		PERFECT MARKETS
		MONOPOLY MARKETS
		DUOPOLY MARKETS
		OLIGOPOLY MARKETS
		MONOPOLISTIC COMPETITIVE MARKETS
ON THE BASIS OF NATURE OF COMMODITIES		COMMODITY MARKETS
		CAPITAL MARKETS
ON THE BASIS OF STAGE OF MARKETING		PRODUCING MARKETS
		CONSUMING MARKETS
ON THE BASIS OF EXTENT OF PUBLIC INTERVENTION		REGULATED MARKETS
		UN-REGULATED MARKETS
ON THE BASIS OF TYPE OF POPULATION SERVED		URBAN MARKETS
		RURAL MARKETS
ON THE BASIS OF MARKET FUNCTIONARIES AND ACCRUAL OF MARKETING MARGINS		FARMERS MARKETS
		CO-OPERATIVE MARKETS
		GENERAL MARKETS

Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production and consumption, but in accelerating the pace of economic development. Its dynamic functions are of primary importance in promoting economic development. For this reason, it has been described as the most important multiplier of agricultural development.
India’s age-old farming practices have taken a turn in recent decades. There has been a technological breakthrough – the evolution of high-yielding variety seeds, increasing use of fertilizers, insecticides, pesticides, the installation of pumping sets, and tractorization. This technological breakthrough has led to a substantial increase in production on the farms and to the larger marketable and marketed surplus. To maintain this tempo and pace of increased production through technological development, an assurance of remunerative prices to the farmer is a prerequisite, and this assurance can be given to the farmer by developing an efficient marketing system.
The agricultural marketing system plays a dual role in economic development in countries whose resources are primarily agricultural. Increasing demands for money with which to purchase other goods leads to increasing sensitivity to relative prices on the part of the producers, and specialization in the cultivation of those crops on which the returns are the greatest, subject to socio-cultural, ecological and economic constraints. It is the marketing system that transmits the crucial price signals. On the other hand, and in order to sustain the growth of the non-agricultural sector, resources have to be extracted from the agricultural sector – physical resources to guarantee supplies of food and raw materials for the agro-industry and financial resources for investment in non-farm economy as well as for re-investment in agriculture.
On the basis of IADP experience, Kiehl has shown that the “marketing problem” begins to emerge in the process of shifting from traditional to modern agriculture because of production surpluses generated by the shift. Indeed, the term modern agriculture implies a market-oriented agriculture. The scope for moving towards modern agriculture must include market dimensions if the momentum of production transformation is to be sustained.
The importance of agricultural marketing in economic development is revealed from the following:
(i) Optimization of Resource use and Output Management
            An efficient agricultural marketing system leads to the optimization of resource use and output management. An efficient marketing system can also contribute to an increase in the marketable surplus by scaling down the losses arising out of inefficient processing, storage and transportation. A well-designed system of marketing can effectively distribute the available stock of modern inputs, and thereby sustain a faster rate of growth in the agricultural sector.
(ii) Increase in Farm Income
            An efficient marketing system ensures higher levels of income for the farmers reducing the number of middlemen or by restricting the cost of marketing services and the malpractices, in the marketing of farm products. An efficient system guarantees the farmers better prices for farm products and induces them to invest their surpluses in the purchase of modern inputs so that productivity and production may increase. This again results in an increase in the marketed surplus and income of the farmers. If the producer does not have an easily accessible market-outlet where he can sell his surplus produce, he has little incentive to produce more. The need for providing adequate incentives for increased production is, therefore, very important, and this can be made possible only by streamlining the marketing system.
(iii) Widening of Markets
            An efficient and well-knot marketing system widens the market for the products by taking them to remote corners both within and outside the country, i.e., to areas far away from the production points. The widening of the market helps in increasing the demand on a continuous basis, and thereby guarantees a higher income to the producer.
(iv) Growth of Agro-based Industries
            An improved and efficient system of agricultural marketing helps in the growth of agro-based industries and stimulates the overall development process of the economy. Many industries like cotton, sugar, edible oils, food processing and jute depend on agriculture for the supply of raw materials.
(v) Price Signals
            An efficient marketing system helps the farmers in planning their production in accordance with the needs of the economy. This work is carried out through transmitting price signals.
(vi) Adoption and Spread of New Technology
            The marketing system helps the farmers in the adoption of new scientific and technical knowledge. New technology requires higher investment and farmers would invest only if they are assured of market clearance at remunerative price.
(vii) Employment Creation
            The marketing system provides employment to millions of persons engaged in various activities, such as packaging, transportation, storage and processing. Persons like commission agents, brokers, traders, retailers, weighmen, hamals, packagers and regulating staff are directly employed in the marketing system. This apart, several others find employment in supplying goods and services required by the marketing system.
(viii) Addition to National Income
            Marketing activities add value to the product thereby increasing the nation’s gross national product and net national product.
(ix) Better Living
            The marketing system is essential for the success of the development programmes which are designed to uplift the population as a whole. Any plan of economic development that aims at diminishing the poverty of the agricultural population, reducing consumer food prices, earning more foreign exchange or eliminating economic waste has, therefore, to pay special attention to the development of an efficient marketing for food and agricultural products.
(x) Creation of Utility
            Marketing is productive, and is as necessary as the farm production. It is, in fact, a part of production itself, for production is complete only when the product reaches a place in the form and at the time required by the consumers. Marketing adds cost to the product, but, at the same time, it adds utilities to the product. The following four types of utilities of the product are created by marketing:
(a) Form Utility: The processing function adds form utility to the product by changing the raw material into a finished form. With this change, the product becomes more useful than it is in the form in which it is produced by the farmer. For example, through processing, oilseeds are converted into oil, sugarcane into sugar, cotton into cloth and wheat into flour and bread. The processed forms are more useful than the original raw materials.
(b) Place Utility: The transportation function adds place utility to products by shifting them to a place of need from the place of plenty. Products command higher prices at the place of need than at the place of production because of the increased utility of the product.
(c) Time Utility: The storage function adds time utility to the products by making them available at the time when they are needed.
(d) Possession Utility: The marketing function of buying and selling helps in the transfer of ownership from one person to another. Products are transferred through marketing to persons having a higher utility from persons having a low utility.
The foodgrain marketing system is more important in India than the marketing of other agricultural commodities because of the following reasons:
(a) Foodgrains account for around two-thirds of the gross cropped area and 40 per cent of the gross value of crop output in the country. Foodgrain marketing, therefore, provides income to most Indian farmers so that they may buy the required inputs for the farm as well as purchase items of domestic need;
(b) The foodgrain marketing business provides livelihood to lakhs of traders, processors, commission agents and other persons engaged in the foodgrain trade; and
(c) The foodgrain marketing system helps in providing food for consumers and fodder for livestock.

Model Quiz

1. Agricultural marketing is a process which starts with _________________ of a saleable farm commodity.
2. The subject matter of agricultural marketing includes _____________ as well as _____________ marketing.
3. The word MARKET originated from the latin word _______________________
4. ___________________ markets are located in towns near the centres of production of agricultural commodities
5. Commodity exchanges exist in _________________ markets.
6. __________________ markets are of a permanent nature.
7. Which of the following is an imperfect market?
8. Monopoly    b. oligopoly    c. both a and b    d. none of these                       Ans:  c
9. In duopsony market there will be
10. One buyer    b. one seller    c. two buyers     d. two sellers.                         Ans : c
11. Pick out the wrong statement                                                                         Ans: d
12. Heterogenous and differentiated form of a commodity is noticed in monopolistic competition.
13. Different trade marks are used in monopolistic competition.
14. Different prices prevail for the same basic product.
15. Sellers in monopolistic competition mutually agree to charge a common price.
16. Converting groundnut into oil creates

a. Place utility  b. form utility     c. time utility     d. possession utility.            Ans: b.
11. Transport function of marketing creates
a. Place utility  b. form utility   c. time utility    d. possession utility.              Ans:  a.
12. Storing milk creates
a. Place utility     b. form utility   c. time utility    d. possession utility.            Ans: c.
13.ABC company buying potatoes from XYZ trader results in
a. Place utility   b. form utility    c. time utility    d. possession utility.             Ans: d.
TRUE or FALSE

1. Commodities traded in secular markets are not durable in nature.  (False)
2. Retail markets are very near to consumers.  (True)
3. In forward markets, exchange of commodity takes place in future time. (True)
4. In perfect markets, commodity prices at a point of time differ only by the cost of transport between the markets. (true)
5. Fertilizer market is an example of oligopoly market. (False)
6. Raw materials are sold in capital market. (False)
7. Retail markets are located in the consuming markets.  (True)
8. Traders frame the rules for the conduct of the business in regulated markets. (False)
9. Marketing margins are usually high in cooperative marketing. (False)
10. Number and size of the firms existing in the market is a measure of market conduct.(False)

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Market Structure – Meaning
            The term structure refers to something that has organization and dimension – shape, size and design; and which is evolved for the purpose of performing a function. A function modifies the structure, and the nature of the existing structure limits the performance of functions. By the term market structure we refer to the size and design of the market. It also includes the manner of the operation of the market. Some of the expressions describing the market structure are:
            1. Market structure refers to those organizational characteristics of a market which influence the nature of competition and pricing, and affect the conduct of                 business firms,
            2. Market structure refers to those characteristics of the market which affect the traders’ behaviour and their performances,
            3. Market structure is the formal organization of the functional activity of a marketing institution.
            An understanding and knowledge of the market structure is essential for identifying the imperfections in the performance of a market.
Components of Market Structure
            The components of the market structure, which together determine the conduct and performance of the market, are:

1. Concentration of Market Power
            The concentration of market power is an important element determining the nature of competition and consequently of market conduct and performance. This is measured by the number and size of firms existing in the market. The extent of concentration represents the control of an individual firm or a group of firms over the buying and selling of the produce. A high degree of market concentration restricts the movement of goods between buyers and sellers at fair and competitive prices, and creates an oligopoly or oligopsony situation in the market.
2. Degree of Product Differentiation
            Homogeneous or other nature of the product affects the market structure. If products are homogeneous, the price variations in the market will not be wide. When products are heterogeneous, firms have the tendency to charge different prices for their products. Everyone tries to prove that his product is superior to the products of others.
3. Conditions for entry of Firms in the Market
            Another dimension of the market structure is the restriction, if any, on the entry of firms in the market. Sometimes, a few big firms do not allow new firms to enter the market or make their entry difficult by their dominance in the market. There may also be some government restrictions on the entry of firms.
4. Flow of Market Information
            A well-organized market intelligence information system helps all the buyers and sellers to freely interact with one another in arriving at prices and striking deals.

5. Degree of Integration
            The behaviour of an integrated market will be different from that of a market where there is no or less integration either among the firms or of their activities.
Firms plan their strategies in respect of the methods to be employed in determining prices, increasing sales, coordinating with competing firms and adopting predatory practices against rivals or potential entrants. The structural characteristics of the market govern the behaviour of the firms in planning strategies for their selling and buying operations.
Dynamics of Market Structure – Conduct and Performance
The market structure determines the market conduct and performance. The term market conduct refers to the patterns of behaviour of firms, especially in relation to pricing and their practices in adapting and adjusting to the market in which they function. Specifically, market conduct includes:

• Market sharing and price setting policies;
• Policies aimed at coercing rivals; and
• Policies towards setting the quality of products.

The term market performance refers to the economic results that flow from the industry as each firm pursues its particular line of conduct. Society has to decide the criteria for satisfactory market performance. Some of the criteria for measuring market performance and of the efficiency of the market structure are:
1. Efficiency in the use of resources, including real cost of performing various functions;
2. The existence of monopoly or monopoly profits, including the relationship of margins with the average cost of performing various functions;
3. Dynamic progressiveness of the system in adjusting the size and number of firms in relation to the volume of business, in adopting technological innovations and in finding and/or inventing new forms of products so as to maximize general social welfare.
4. Whether or not the system aggravates the problem of inequalities in inter-personal, inter-regional, or inter-group incomes. For example, inequalities increase under the following situations:
(a) A market intermediary may pocket a return greater than its real contribution to the national product;
(b) Small farmers are discriminated against when they are offered a lower return because of the low quantum of surplus;
(c) Inter-product price parity is substantially disturbed by new uses for some products and wide variations and rigidities in the production pattern between regions.
The market structure, therefore, has always to keep on adjusting to changing environment if it has to satisfy the social goals. A static market structure soon becomes obsolete because of the changes in the physical, economic, institutional and technological factors. For a satisfactory market performance, the market structure should keep pace with the following changes:
(i) Production Pattern
            Significant changes occur in the production pattern because of technological, economic and institutional factors. The market structure should be re-oriented to keep pace with such changes. Emergence of producers groups or group marketing practice is likely to alter market structure.
(ii) Demand Pattern
            The demand for various products, especially in terms of form and quality, keeps on changing because of change in incomes, the pattern of distribution among consumers, and changes in their tastes and habits. The market structure should be re-oriented to keep it in harmony with the changes in demand.
Change in the consumption pattern and tastes and preferences of consumers leads to specific or exclusive marketing practices followed by the companies to cater to the specific needs of that group.
(iii) Costs and Patterns of Marketing Functions
            Marketing functions such as transportation, storage, financing and dissemination of market information, have a great bearing on the type of market structure. Recent policy encourages group marketing or operation of producer groups and this is likely to reduce the number of buyers and/or sellers actually taking part in marketing functions. Government policies with regard to purchases, sales and subsidies affect the performance of market functions. The market structure should keep on adjusting to the changes in costs and government policy. Number of  players in the market must be in accordance with the marketing functions performed and size of operations to take advantage of size economy.
(iv) Technological Change in Industry
            Technological changes necessitate changes in the market structure through adjustments in the scale of business, the number of firms, and in their financial requirements. Establishment of retail chains and entry of MNCs in the food retailing effected conspicuous change in the structure of vegetable markets in India
Agricultural Marketing and Economic Development
            Orderly and efficient marketing of food grains plays an important role in solving the problem of hunger. Most of those who go hungry do so because they can not pay higher prices for food grains. 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 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:

Marketing Agencies
            In the marketing of agricultural commodities, the following agencies are involved:
(i) Producers
            Most farmers or producers, perform one or more marketing functions. They sell the surplus either in the village or in the market. Some farmers, especially the large ones, assemble the produce of small farmers, transport it to the nearby market, sell it there and make a profit. This activity helps these farmers to supplement their incomes. Frequent visits to markets and constant touch with market functionaries, bring home to them a fair knowledge of market practices. They have, thus, an access to market information, and are able to perform the functions of market middlemen,
(ii) Middlemen
            Middlemen are those individuals or business concerns which specialize in performing the various marketing functions and rendering such services as are involved in the marketing of goods. They do this at different stages in the marketing process. The middlemen in foodgrain marketing may, therefore, be classified as follows:
(a) Merchant Middlemen
            Merchant middlemen are those individuals who take title to the goods they handle. They buy and sell on their own and gain or lose, depending on the difference in the sale and purchase prices. They may, moreover, suffer loss with a fall in the price of the product. Merchant middlemen are of following types:
     Wholesalers : Wholesalers are those merchant middlemen who buy and sell foodgrains in large quantities. They may buy either directly from farmers or from other wholesalers. They sell foodgrains either in the same market or in other markets. They sell to retailers, other wholesalers and processors. They do not sell significant quantities to ultimate consumers. They own godowns for the storage of the produce.
The wholesalers perform the following functions in marketing:

• They assemble the goods from various localities and areas to meet the demands of buyers;
• They sort out the goods in different lots according to their quality and prepare them for the market;
• They equalize the flow of goods by storing them in the peak arrival season and releasing them in the off-season;
• They regulate the flow of goods by trading with buyers and sellers in various markets;
• They finance the farmers so that the latter may meet their requirements of production inputs; and
• They assess the demand of prospective buyers and processors from time to time, and plan the movement of the goods over space and time.

     Retailers: Retailers buy goods from wholesalers and sell them to the consumers in small quantities. They are producers’ personal representatives to consumers. Retailers are the closest to consumers in the marketing channel.
     Itinerant Traders and Village Merchants: Itinerant traders are petty merchants who move from village to village, and directly purchase the produce from the cultivators. They transport it to the nearby primary or secondary market and sell it there. Village merchants have their small establishments in villages. They purchase the produce of those farmers who have either taken finance from them or those who are not able to go to the market. Village merchants also supply essential consumption goods to the farmers. They act as financers of poor farmers. They often visit nearby markets and keep in touch with the prevailing prices. They either sell the collected produce in the nearby market or retain it for sale at a later date in the village itself.
     Mashakhores: This is a local term used for big retailers or small wholesalers dealing in fruits and vegetables. Earlier, the mashakhores used to deal only in one or two vegetables, purchasing from the commission agents or wholesalers in substantial quantities usually three to four quintals of vegetables like potato, onion, carrot, okra, tomato and spinach. They usually sell to the bulk consumers like hotelwalas, para-miliary units or small retailers/vendors in lots of around 5 kg to 10 kg each. However, in recent years, mashakhores have started retailing to all types of customers without the condition of a minimum quantity. In other words, the mashakhores are now working more like ordinary retailers.
(b) Agent Middlemen
            Agent Middlemen act as representatives of their clients. They do not take title to the produce and, therefore, do not own it. They merely negotiate the purchase and/or sale. They sell services to their principals and not the goods or commodities. They receive income in the form of commission of brokerage. They serve as buyers or sellers in effective bargaining. Agent middlemen are of two types:
     Commission Agents or Arhatias: A commission agent is a person operating in the wholesale market who acts as the representative of either a seller or a buyer. He is usually granted broad powers by those who consign goods or who order the purchase. A commission agent normally takes over the physical handling of the produce, arranges for its sale, collects the price from the buyer, deducts his expenses and commission, and remits the balance to the seller. All these facilities are extended to buyer-firms as well, if asked for.
     Commission agents or arhatias in unregulated markets are of two types, Kaccha arhatias and Pacca arhatias: Kaccha arhatias primarily act for the sellers, including farmers. They sometimes provide advance money to farmers and 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. A Pacca arhatia acts on behalf of the traders in the consuming market. The processors (rice millers, oil millers and cotton or jute dealers) and big wholesalers in the consuming markets employ Pacca arhatias as their agents for the purchase of a specified quantity of goods within a given price range.
     In regulated markets, only one category of commission agent exists under the name of ‘A’ class trader. The commission agent keeps an establishment – a shop, a godown and a rest house for his clients. He is, therefore, preferred by the farmers to the co-operative marketing society for the purpose of the sale of the farmer’s produce. Commission agents extend the following facilities to their clients:

• They advance 40 to 50 per cent of the expected value of the crop as a loan to farmers to enable them to meet their production expenses;
• They act as bankers of the farmers. They retain the sale proceeds, and pay to the farmers as and when the latter require the money;
• They offer advice to farmers for purchase of inputs and sale of products;
• They provide empty bags to enable the farmers to bring their produce to the market;
• They provide food and accommodation to the farmers and their animals when the latter come to the market for the sale of their produce;
• They provide storage facility and advance loans against the stored product up to 75 per cent of the value;
• They arrange, if required by the farmer, for the transportation of the produce from the village to the market; and
• They help the farmers in times of personal difficulties.

     Brokers: Brokers render personal services to their clients in the market; but, unlike the commission agents, they do not have physical control of the product. The main function of a broker is to bring together buyers and sellers on the same platform for negotiations. Their charge is called brokerage. They may claim brokerage from the buyer, the seller or both, depending on the market situation and the service rendered. They render valuable service to the prospective buyers and sellers, for they have complete knowledge of the market – of the quantity available and the prevailing prices.
Brokers have no establishment in the market. They simply wander about in the market and render services to clients. There is no risk to them. They do not render any other service except to bring the buyers and sellers on the same platform. In most regulated markets, brokers do not play any role because goods are sold by open auction. Their number in foodgrain marketing trade is decreasing. But they still play a valuable role in the marketing of other agricultural commodities, such as gur, sugar, edible oil, cotton seed and chillies.
(c) Speculative Middlemen
            Those middlemen who take title to the product with a view to making a profit on it are called speculative middlemen. They are not regular buyers or sellers of produce. They specialize in risk-taking. They buy at low prices when arrivals are substantial and sell in the off-season when prices are high. They do the minimum handling of goods. They make profit from short-run as well as long-run price fluctuations.

(d) Processors
            Processors carry on their business either on their own or on custom basis. Some processors employ agents to buy for them in the producing areas, store the produce and process it throughout the year on continuous basis. They also engage in advertising activity to create a demand for their processed products.
(e) Facilitative Middlemen
            Some middlemen do not buy and sell directly but assist in the marketing process. Marketing can take place even if they are not active. But the efficiency of the system increases when they engage in business. These middlemen receive their income in the form of fees or service charges from those who use their services. The important facilitative middlemen are:
     Hamals or Labourers: They physically move the goods in marketplace. They do unloading from the loading on to bullock carts or trucks. They assist in weighing the bags. They perform cleaning, sieving, and refilling jobs and stitch the bags. Hamals are the hub of the marketing wheel. Without their active co-operation, the marketing system would not function smoothly.
     Weighmen: They facilitate the correct weighment of the produce. They use a pan balance when quantity is small. Generally, the scalebeam balance is used. They get payment for their service through the commission agent. The weighbridge system of weighing also exists in big markets.
     Graders: These middlemen sort out the product into different grades, based on some defined characteristics, and arrange them for sale. They facilitate the process of prices settlement between the buyer and the seller.
     Transport Agency: This agency assists in the movement of the produce from one market to another. The main transport means are the railways and trucks. Bullock carts or camel carts or tractor-trolleys are also used in villages for the transportation of foodgrains.
     Communication Agency: It helps in the communication of the information about the prices prevailing, and quantity available, in the market. Sometimes, the transactions take place on the telephone. The post and telegraph, telephone, newspapers, the radio and informal links are the main communication channels in agricultural marketing.
     Advertising Agency: It enables prospective buyers to know the quality of the product and decide about the purchase of commodities. Newspapers, the radio, television and cinema slides are the main media for advertisements.
     Auctioners: They help in exchange function by putting the produce for auction and bidding by the buyers.
Marketing Institutions
                 Marketing institutions are business organizations which have come up to operate the marketing machinery. In addition to individuals, corporate, co-operative and government institutions are operating in the field of agricultural marketing.
They perform one or more of the Marketing functions. They assume the role of one or more marketing agencies, described earlier in this section. Some important institutions in the field of agricultural marketing are:
(a) Public Sector Institutions

• • Directorate of Marketing and Inspection (DMI)
  • Commission for Agricultural Costs and Prices (CACP)
  • Food Corporation of India (FCI)
  • Cotton Corporation of India (CCI)
  • Jute Corporation of India (JCI)
  • Specialized Commodity Boards
    • Rubber Board
    • Tea Board
    • Coffee Board
    • Spices Board
    • Coconut Board
    • Oilseeds and Vegetable Oils Board
    • Tobacco Board
    • Cardamom Board
    • Arecanut Board
    • Coir Board
    • Silk Board
    • National Horticulture Board (NHB)
    • National Dairy Development Board (NDDB)

• • Others
    • Central Warehousing Corporation (CWC)’
    • State Warehousing Corporations (SWCs)
    • State Trading Corporation (STC)
    • Agricultural and Processed Food Export Development Authority (APEDA)
    • Export Inspection Council
    • Marine Products Export Development Authority (MPEDA)
    • Silk Export Promotion Council (SEPC)
    • The Cashewnuts Export Promotion Council of India (CEPCI)
    • Agricultural Produce Market Committees (APMC)
    • State Agricultural Marketing Boards (SAMB)
    • Council of State Agricultural Marketing Boards (COSAMB)
    • State Directorates of Agricultural Marketing
    • Research Institutions and Agricultural Universities

(b) Cooperative Sector Institutions

• National Cooperative Development Corporation (NCDC)
• National Agricultural Cooperative Marketing Federation (NAFED)
• National Cooperative Tobacco Growers Federation (NTGF)
• National Consumers Cooperative Federation (NCCF)
• Tribal Cooperative Marketing Federation (TRIFED)
• Special Commodity Cooperative Marketing Organizations (Sugarcane, Cotton, Milk)
• State Cooperative Marketing Federations.

   (viii)Primary Agricultural Cooperative Marketing Societies
PRODUCER’S SURPLUS
Producer’s Surplus of Agricultural Commodities
            In any developing economy, the producer’s surplus of agricultural product plays a significant role. This is the quantity which is actually made available to the non-producing population of the country. From the marketing point of view, this surplus is more important than the total production of commodities. The arrangements for marketing and the expansion of markets have to be made only for the surplus quantity available with the farmers, and not for the total production. This is because, only a portion of the total production is sold in the market after personal consumption by the members of farm household and retention in the farm for several reasons.
          The rate at which agricultural production expands determines the pace of agricultural development, while the growth in the marketable surplus determines the pace of economic development. An increase in production must be accompanied by an increase in the marketable surplus for the economic development of the country. Though the marketing system is more concerned with the surplus which enters or is likely to enter the market, the quantum of total production is essential for this surplus. The larger the production of a commodity, the greater will be the surplus of that commodity and vice versa. The knowledge of marketed and marketable surplus helps the policy-makers as well as the traders in the following areas:
i. Framing Sound Price Policies: Price support programmes are an integral part of agricultural policies s necessary for stimulating agricultural production. The knowledge of quantum of marketable surplus helps in framing these policies.
ii. Developing Proper Procurement and Purchase Strategies: The procurement policy for feeding the public distribution system has to take into account the quantum and behaviour of marketable and marketed surplus. Similarly, the traders, processors and exporters have to decide their purchase strategies on the basis of marketed quantity
iii. Checking Undue Price Fluctuations: A knowledge of the magnitude and extent of the surplus helps in the minimization of price fluctuations in agricultural commodities because it enables the government and the traders to make proper arrangements for the movement of product from one area, where they are in surplus, to another area which is deficient.
iv Export/Import policies: Advance estimates of the surpluses of such commodities which have the potential of external trade are useful in decisions related to the export and import of the commodity. If surplus is expected to be less than what is necessary, the country can plan for imports and if surplus is expected to be more than what is necessary, avenues for exporting such a surplus can be explored.
v. Development of Transport and Storage Systems: The knowledge of marketed surplus helps in developing adequate capacity of transport and storage system to handle it.
Meaning and Types of Producer’s Surplus
            The producer’s surplus is the quantity of produce which is, or can be, made available by the farmers to the non-farm population. The producer’s surplus is of two types:
1. Marketable Surplus
            The marketable surplus is that quantity of the produce which can be made available to the non-farm population of the country. It is a theoretical concept of surplus. The marketable surplus is the residual left with the producer-farmer after meeting his requirements for family consumption, farm needs for seeds and feed for cattle, payment to labour in kind, payment to artisans – carpenter, blacksmith, potter and mechanic – payment to landlord as rent, and social and religious payments in kind. This may be expressed as follows:
MS = P – C
Where
MS      = Marketable surplus
P          = Total production, and
C         = Total requirements (family consumption, farm needs, payment to labour, artisans, landlord and payments 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 his requirements for family consumption, farm needs and other payments. The marketed surplus may be more, less or equal to the marketable surplus.
Whether the marketed surplus increases with the increase in production has been under continual theoretical scrutiny. It has been argued that poor and subsistence farmers sell that part of the produce which is necessary to enable them to meet their cash obligations. This results in distress sale on some farms. In such a situation, any increase in the production of marginal and small farms should first result in increased on-farm consumption.
          An increase in the real income of farmers also has a positive effect on on-farm consumption because of positive income elasticity. Since the contribution of this group to the total marketed quantity is not substantial, the overall effect of increase in production must lead to an increase in the marketed surplus.
          Bansil writes that there is only one term – marketable surplus. This may be defined subjectively or objectively. Subjectively, the term marketable surplus refers to theoretical surplus available for sale with the producer-farmer after he has met his own genuine consumption requirements and the requirements of his family, the payment of wages in kind, his feed and seed requirements, and his social and religious payments. Objectively, the marketable surplus is the total quantity of arrivals in the market out of the new crop.
Relationship between marketed surplus and marketable surplus
            The marketed surplus may be more, less or equal to the marketable surplus, depending upon the condition of the farmer and type of the crop. The relationship
between the two terms may be stated as follows:
Marketed surplus  Marketable surplus
1. The marketed surplus is more than the marketable surplus when the farmer retains a smaller quantity of the crop than his actual requirements for family and farm needs. This is true especially for small and marginal farmers, whose need for cash is more pressing and immediate. This situation of selling more than the marketable surplus is termed as distress or forced sale. Such farmers generally buy the produce from the market in a later period to meet their family and/or farm requirements. The quantity of distress sale increases with the fall in the price of the product. A lower price means that a larger quantity will be sold to meet some fixed cash requirements.
2. The marketed surplus is less than the marketable surplus when the farmer retains some of the surplus produce. This situation holds true under the following conditions:
(a) Large farmers generally sell less than the marketable surplus because of their better retention capacity. They retain extra produce in the hope that they would get a higher price in the later period. Sometimes, farmers retain the produce even up to the next production season.
(b) Farmers may substitute one crop for another crop either for family consumption purpose or for feeding their livestock because of the variation in prices. With the fall in the price of the crop relative to a competing crop, the farmers may consume more of the first and less of the second crop.
3. The marketed surplus may be equal to the marketable surplus when the farmer neither retains more nor less than his requirement. This holds true for perishable commodities and 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. It also varies from farm to farm. On a particular farm, the quantity of marketable surplus depends on the following factors:

• Size of Holding: There is positive relationship between the size of the holding and the marketable surplus.
•  Production: The higher the production on a farm, the larger will be the marketable surplus, and vice versa.
• Price of the Commodity: The price of the commodity and the marketable surplus have a positive as well as a negative relationship, depending upon whether one considers the short and long run or the micro and macro levels.
• Size of Family: The larger the number of members in a family, the smaller the surplus on the farm.
• Requirement of Seed and Feed: The higher the requirement for these uses, the smaller the marketable surplus of the crop.
•  Nature of Commodity: The marketable surplus of non-food crops is generally higher than that for food crops. For example, in the case of cotton, jute and rubber, the quantity retained for family consumption is either negligible or very small part of the total output. For these crops, a very large proportion of total output is marketable surplus. Even among food crops, for such commodities like sugarcane, spices and oilseeds which require some processing before final consumption, the marketable surplus as a proportion of total output is larger than that for other food crops.

(vii) Consumption Habits: The quantity of output retained by the farm family depends on the consumption habits. For example, in Punjab, rice forms a relatively small proportion of total cereals consumed by farm-families compared to those in southern or eastern states. Therefore, out of a given output of paddy/rice, Punjab farmers sell a greater proportion of paddy/rice, Punjab farmers sell a greater proportion than that sold by rice eating farmers of other states.
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, x4)
where

Relationship between prices and marketable surplus
            Two main hypotheses have been advanced to explain the relationship between prices and the marketable surplus of foodgrains.
Inverse Relationship
            There is an inverse relationship between prices and the marketable surplus. This hypothesis was presented by P N. Mathur and M. Ezekiel. They postulate that the farmers’ cash requirements are nearly fixed, and given the price level, the marketed portion of the output is determined. This implies that the farmers’ consumption is a residual, and that the marketed surplus is inversely proportional to the price level. This behaviour assumes that farmers have inelastic cash requirements.
            The argument is that, in the poor economy of underdeveloped countries, farmers sell that quantity of the output which gives them the amount of money they need to satisfy their cash requirements; they retain the balance of output for their own consumption purpose. With a rise in the prices of foodgrains, they sell a smaller quantity of foodgrains to get the cash they need, and vice versa. In other words, with a rise in the prices of foodgrains, they sell a smaller quantity of foodgrains to get the cash they need, and vice versa. In other words, with a rise in price, farmers sell a smaller, and with the fall in price, they sell a larger quantity. Olson and Krishnan have argued that the marketed surplus varies inversely with the market price. They contend that a higher price for a subsistence crop 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 on production and consumption.
Positive Relationship
            V.M.Dandekar and Rajkrishna put forward the case for a positive relationship between prices and the marketed surplus of food grains in India. This relationship is based on the assumption that farmers are price conscious. With a rise in the prices of food grains, farmers are tempted to sell more and retain less. As a result, there is increased surplus. The converse, too, holds true.

Model Quiz
1.Market conduct includes

• Market sharing and price setting policies
• Policies aimed at coercing rivals
• Policies toward setting the quality of products
• Efficiency in the use of resources                                                                  

Ans: b.
2. Knowledge of marketable surplus helps the
a. farming population   b. non farm population    c. both a and b   d. neither a nor b.
Ans:   c
3. Marketable surplus will be more in the case of
a. rice    b. jowar  c.cotton    d. gram                                                                                  
Ans: c
4. Marketable surplus will be less in the case of
a. rice   b. cotton   c.sugarcane   d. tomato
Ans: a
5. All the following have positive relationship with marketable surplus except
a. size of family   b. size of holding   c. quantity of production  d. a and b                
Ans: a.
6. Commodity price and marketed surplus would have negative relationship in the case of 
a. rice   b. cotton   c. sugarcane   d. jute.
7.Primary function of marketing includes
a. Procurement   b. transport    c. storage    d. banking
Ans: a.
8.Secondary function of marketing includes
a. Assembling   b. grading   c. insurance    d. banking 
Ans: b.
9.Tertiary function of marketing includes
a. Assembling    b. transport   c. storage   d.insurance
Ans: d
10.Physical function of marketing includes
a. Grading    b. buying   c. selling   d. financing 
Ans: a.
11.Exchange function of marketing includes
a. Processing  b. transport   c. selling   d. standardization
Ans:c.
12.Facilitative function of marketing refers to
a. Processing   b. grading  c.buying  d. financing
Ans: d.
13.Physical movement function of marketing refers to
a. Storage    b. Creating demand   c. financing   d. None of these 
Ans : d.
14.Ownership movement function of marketing refers to
a. Packaging   b. distribution   c. negotiation of price   d. supervision
Ans: c.
15.Market management function of marketing refers to
a. Distribution  b. rendering advice  c. determining need   d. financing
Ans: c.
16.Wholesalers perform the following functions except
a. Assembling   b. sorting   c. advancing loans   d. none of these
Ans: d.
17.Commission agents earn their income as
a. Profit    b. per cent of sales value     c. per cent of quantity sold   d. service charge
Ans: b.
18.Brokers differ from commission agents by
a. Not owning the commodity  b. providing financial assistance to farmers  c. g services they offer  d. earning profit.
Ans: c.
19.Risk taking is a function of
a. Agent middlemen   b. merchant middlemen   c. speculator   d. facilitative middlemen
Ans: c.
20.Pick the odd man out from the following
a. FCI  b. CWC  c. NAFED   d. Spices board
Ans: c.

TRUE or FALSE

• Growth in producers’ surplus determines the pace of economic development.  (True)
• Minimising the price fluctuations in agricultural commodities requires knowledge on marketable surplus.    (True)
• Export – import policies of a country is designed based on the marketable surplus expected in the country. (True)
• Higher the rice price in the market, more will be the supply of paddy to the market by the farmers. (False)
• Agent middlemen do not take title to the produce.     (True)
• Brokers do not take title to the produce.                     (True)
• Processors play a dominant role in agricultural marketing in developed countries.   (True)
• Commission agents are important for better performance of Rythu bazaars in India. (False)

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Marketing Channel
            In this chapter, we discuss marketing agencies, marketing institutions and marketing channels through which farm products move from producers to consumers. A very small proportion of farm produce moves directly from farmers to consumers. Most of the farm products move to consumers through several agencies/institutions and channels. The role played by marketing agencies and institutions in the marketing system in quite indispensable as these perform important marketing functions. They also help in expanding the markets for farm products and add value to the products.
The production of a produce is complete only when it reaches the hands of those who need it – the consumers. All the commodities cannot be produced in all the areas because of variations in agro-climatic conditions. Hence, there is a need for their movement from producers to consumers.
There are two main routes through which agricultural commodities reach the consumers:
(i) Direct Route: Sometimes, agricultural commodities directly pass from producers to consumers. There is a complete absence of middlemen or intermediaries. But it is only a very small proportion of the agricultural commodities which moves directly from producers to consumers.
(ii) Indirect Route: Agricultural commodities generally move from producers to consumers through intermediaries or middlemen. The number of intermediaries may vary from one to many. In the modern era of specialized production, both the horizontal and vertical distance between the producer and the consumer has increased, resulting in a reduction of direct sales. The role of market middlemen has increased in the recent past because a substantial part of the produce moves through them.
The role, functions and other details of some of these institutions have been discussed in relevant chapters.
Marketing Channels
Marketing channels are routes through which agricultural products move from producers to consumers. The length of the channel varies from commodity to commodity, depending on the quantity to be moved, the form of consumer demand and degree of regional specialization in production.
Definition
            A marketing channel may be defined in different ways according to Moore et al., the chain of intermediaries through whom the various foodgrains pass from producers to consumers constitutes their marketing channels. Kohls and Uhl have defined marketing channel as alternative routes of product flows from producers to consumers.
Factors Affecting Length of Marketing Channels
            Marketing channels for agricultural products vary from product to product, country to country, lot to lot and time to time. For example, the marketing channels for fruits are different from those for foodgrains. Packagers play a crucial role in the marketing of fruits. The level of the development of a society or country determines the final form in which consumers demand the product. For example, consumers in developed countries demand more processed foods in a packed form. Wheat has to be supplied in the form of bread. Most enables have to be cooked and packed properly before they reach the consumers. Processors play a dominant role in such societies. In developing countries like India, However, most foodgrains are purchased by consumers in the raw form and processing is done at the consumer’s level. Again, the lots originating at small farms follow different route or channels from the one originating in large farms. For example, small farms usually sell their produce to village traders; it may or may not enter the main market. But large farms usually sell their produce in the main market, where it goes into the hands of wholesalers. The produce sold immediately after the harvest usually follows longer channel than the one sold in later months.
With the expansion in transportation and communication network, changes in the structure of demand and the development of markets, marketing channels for farm products in India have undergone a considerable change, both in terms of length and quality.
Marketing Channels for Cereals
            Marketing channels for various cereals in India are more or less similar, except the channel for paddy (or rice) where rice millers come into the picture. For pulse crops, dal mills appear prominently in the channel. The flow chart in Fig.5.1 enables us to know the marketing channels for general food grains in India.
Some common marketing channels for wheat have been identified as follows:

1. Farmer   consumers;
2. Farmer  retailer or village trader  consumer;
3. Farmer  wholesaler  retailer  consumer;
4. Farmer  village trader  wholesaler  retailer  consumer;
5. Farmer  co-operative marketing society  retailer  consumer;
6. Farmer  Govt. agency (FCI, etc.)  fair price shop  consumer;
7. Farmer  wholesaler  flour miller  retailer  consumer.

The channels for paddy-rice and pulses are broadly the same, except that the rice millers or dal millers come into the picture before the produce reaches retailers or consumers.
Marketing Channels for Oilseeds
            Marketing channels for oilseeds are different from those for foodgrains, mainly because the extraction of oil from oilseeds is an important marketing function of oilseeds. The flow chart in Fig.5.2 reveals the movement of oilseeds from producers to consumers in India.
The most common marketing channels for oilseeds in India are:

1. Producer to consumer (who either directly consumes the oilseeds or gets it processed on custom basis);
2. Producer to village trader to processor to oil retailer to consumer;
3. Producer to oilseed wholesaler to processor to oil wholesaler to oil retailer to oil consumer;
4. Producer to village trader to processor to oil consumer;
5. Producer to government agency to processor to oil wholesaler to oil retailer to oil consumer.

Marketing Channels for Fruits and Vegetables
            Marketing channels for fruits and vegetables vary from commodity to commodity and from producer to producer. In rural areas and small towns, many producers performs the function of retail sellers. Large producers directly sell their produce to the wholesalers or processing firms. Some of the common marketing channels for vegetables and fruits are:

1. Producer  consumer;
2. Producer  primary wholesalers   retailers or hawkers   consumer;
3. Producer  processors (for conversion into juices, preserves, etc.);
4. Producers  primary wholesalers    processors;
5. Producers  primary wholesalers  secondary wholesalers  retailers or hawkers  consumers;
6. Producers   local assemblers  primary wholesalers  retailers or hawkers  consumers.

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

Marketing Channels for Eggs
            The prevalent marketing channels for eggs are:

1. Producer    consumer;
2. Producer  retailer  consumer;
3. Producer  wholesaler  retailer   consumer;
4. Producer  co-operative marketing society   wholesalers  Retailers    consumers;
5. Producers   egg powder factory.   

Sometimes, the wholesaling and retailing functions are performed by a single firm in the channel.
Marketing Channels for Pulses

            Most of the studies on the identification of marketing channels for agricultural commodities have concentrated on a concept of marketing channel which defines the flow of the produce from the producer (farmer) to the consumer. But as the commercialization (market orientation) of agriculture is increasing and as the farmers and consumers are located in different states or different countries, the marketing channels that are emerging go across state or even national boundaries. This apart, unless quantities flowing into various channels are estimated, the relative importance of alternative channels cannot be assessed. Such an analysis was done by Acharya for gram grains in Rajasthan. According to this study, there are three points of entry of gram grain in the marketing channel, viz., farmer level, wholesaler level (from outside the state) and processor level (also from outside the state). There are 28 marketing channels, village traders appear in 8 channels, grain wholesalers appear in 18 channels, processors appear in 15 channels, dal (split) wholesalers appear in 5 channels and retailers appear in 15 channels. Assuming the farmers’ surplus entering the marketing channel as 100 units, the entry from outside the state at wholesaler and processor level was 4.24 per cent of the farmers surplus. The percentage quantities moving in 28 channels are given in Table 3.1.

Table 3.1
Quantity of Marketed Surplus of Gram moving in Various Marketing Channels

F = Farmer,                    C = Consumer,                       R = Retailer,      V = Village Trader,
W = Wholesaler,          G = Government Agency,       P = Processor,
S = Dal Wholesaler     O = Outside Rajasthan

Innovative Marketing Channels (Direct Marketing)
            It has been realized that the marketing channel for farm products which are highly perishable (fruits, vegetables and flowers) should be as short as possible. Perishable farm produce should move quickly from farmers to consumers. If farmers directly sell their produce to the consumers, it will not only save losses but also increase farmer’s share in the price paid by the consumers. Therefore, direct marketing by the farmers is being encouraged as an alternative channel. Some examples of these channels are given below:
(i) Apni Mandi / Kisan Mandi
            An innovative concept of ‘Apni Mandi’ has been introduced in some states. Apni Mandi is also called ‘Kisan Mandi’, as it is different from the traditional mandi or market yard, where the produce moves to the buyer through either a commission agent or trader. In Apni Mandi there is a direct contact between the farmer producer and the buyer who is generally the consumer. This system does away with the middlemen. In Apni Mandi, farmers sell their produce directly to the consumers without involvement of the middlemen. The price spread in Apni Mandi is considerable low. These are working satisfactorily in the case of fruits and vegetables. These, ‘Apni Mandi’ are similar to the Saturday markets of United Kingdom and United States of America.
Objectives
            The main objectives of popularizing the concept of Apni Mandi are:

• better marketing of agricultural produce especially of fruits and vegetables;
• ensuring direct contact of the producer-farmers and the consumers and thereby enhancing the distributional efficiency of the marketing system;
• increasing the profitability of agricultural crops for the producers by minimization of marketing costs and the margin of the middlemen;
• ensuring the availability of fresh fruits and vegetables and other farm produce at reasonable prices to the consumers;
• removing social inhibitions among the farmers for retail sale of their produce;
• encouraging additional employment to the producers and thereby enhancing their incomes;
• promoting rational integration by inviting the farmers of other states to sell the produce grown by them directly to the consumers in Apni Mandis of other states; and
• providing business techniques to the farmers so that in the long-run they may adopt this practice for other crops and enterprises too.

History
            The first Apni Mandi was started in Punjab by the Punjab Mandi Board at Chandigarh in February, 1987. Punjab Mandi Board took the initiative with a view to providing small farmers around cities a direct access to consumers. Similarly, in Haryana, the first Apni Mandi was started at Karnal in 1988. In Rajasthan also, this scheme has been introduced in several district towns. The initiative is worth emulating.
Functioning
            The market committee of the area where Apni Mandi is located provides space, water, sheds, counters, balances and other facilities to the farmers in Apni Mandis. The Market Committee Staff need to work hard with dedication for the success of Apni Mandis. The State Marketing Boards provide financial assistance to the Market Committees for these services rendered by them to the Apni Mandi. This scheme is being implemented with certain resistance from middlemen. Some farmers also have reservations about the success of the scheme as it assumes adequate skills of retailing on the part of farmers. However, farmers as well as consumers would benefit from the Apni Mandi Scheme and its popularity may pick up after sometime.
(ii) Hadaspar Vegetable Market
            Hadaspar vegetable market is a model market for direct marketing of vegetables in Pune city. This sub-market yard is situated nine kms away from Pune city. This belongs to the Pune Municipal Corporation and the fee for using the space in the market is collected by the municipal corporation from the farmers. This is one of the ideal markets in the country for marketing of vegetables. In this market there are no commission agents/middlemen. The market has modern weighing machines for weighing the produce. Buyers purchase vegetables in lots of 100 kgs. or 100 numbers. The produce is weighed in the presence of licensed weighmen of the market committee and sale bill is prepared. The purchasers make payment of the value of produce directly to the farmer. The purchaser is allowed to leave the market place along with the produce after showing the sale bill at the gate of the market. Disputes, if any, arising between buyers and sellers are settled by the supervisor of the market committee after calling the concerned parties. The market committee collects one per cent sale proceeds as market fee for the services and facilities provided by the committee to the farmers and buyers.
(iii) Rythu Bazars
            Rithu bazaars have been established in the major cities of Andhra Pradesh state with the prime objective to provide direct link between farmers and consumers in the marketing activity of fruits, vegetables and other essential food items. Both producers and consumers are benefited from Rythu Bazars as producer’s share in the consumers rupee is more by 15 to 40 per cent and consumer’s get fresh vegetables, fruits and food items at 20 to 35 per cent less prices than the prevailing prices in nearby markets. Further, marketing costs are at the minimum level as middlemen are completely eliminated from the marketing activities in Rythu Bazars. The maintenance expenditure of Rythu Bazars is being met from financial sources of Agricultural Produce Market Committee (APMC) nearer to the Rythu Bazars.
Rythu Bazars started functioning in the Andhra Pradesh State from January 20, 1999. Presently there are 95 Rythu bazaars operating in all the 23 districts of the state. There is no government involvement in price fixation. This function is left to farmers who organize themselves into committees and these committee are fixing sale prices daily after taking into consideration the wholesale and retail prices prevailing in the nearby towns. Generally, in the Rythu Bazar, prices are fixed 20 per cent over the wholesale prices and 15 to 20 per cent less than local market prices. Prices fixed are displayed at several places all over the Rythu Bazar for the benefit of the consumers.
The major highlights of Rythu bazaars are:

• • • District collectors are making the land available for the Rythu Bazars.
    • Permanent infrastructure with all support system are being constructed in the Rythu Bazars by the concerned Agricultural Produce Market Committee.
    • The vegetable cultivators in the identified villages are provided the photo identity cards and only these cultivators are permitted to sell vegetables in these bazaars.
    • State Government arranges special buses on most routes for transport of vegetables.
    • Temporary storage facilities are on anvil.
    • Coordination exists between revenue, marketing and horticulture departments for smooth functioning of these markets.
    • A distinct and common identity of such markets across the state is being established.
    • Other essential commodities like pulses and edible oils are also sold in these markets at reasonable prices.
    • Vegetable production programme in the area is also undertaken by the horticulture department of the state to ensure regular supplies of vegetables to the consumers.

            Rythu Bazars have generated a great deal of enthusiasm both among farmers and consumers as farmers get better prices for their produce due to curtailment of commission and overhead costs on account of the non-existence of middlemen and the consumers get vegetables at low prices compared to the prices in other markets.
(iv) Uzhavar Sandies
            Uzhavar Sandies (Farmers’ Market) were established in selected municipal and panchayat areas of the Tamil Nadu by the state government. In these markets, farmers enjoy better marketing infrastructure free of cost and also receive considerably high prices for the products than what they use to receive from middlemen at village or primary markets of towns. Farmers are additionally benefited in the form of interaction with other farmers and with departmental personnel. Farmers also get good quality seeds and other inputs in the market yard itself. The consumers in these markets are benefited by getting fresh vegetables at relatively lower prices.
(v) Shetkari Bazar
            On the lines of Rythu Bazars in Andhra Pradesh and Uzhavar Sandies in Tamil Nadu, Government of Orissa has taken a programme of establishing Krushak Bazars in the state of Orissa in the year 2000-01 with the purpose to empower farmer-producer to compete effectively in the open market to get a remunerative price for his produce and to ensure products at affordable prices to the consumers.
The government provides following incentives for opening of the Krushak Bazars in the state:

• Provides 1 to 2 acres of land at suitable place, free of cost, for establishing the bazaar.
• A cluster/group of villages within the proximity of market area and farmers growing vegetable are identified having the surplus produce for sale.
• The identified farmers are allowed to use marketing facilities so that there is no intervention of middlemen and farmers get better prices for their produce.
• Public utility facilities viz., drinking water, electricity, toilet, canteen and rest house are provided to farmers by the Krushak Bazars.
• Identified farmers are provided inputs like seeds and fertilizer at the reasonable prices in the Krushak Bazars, and
• Storage facilities in the market area are also provided to the farmers in Krushak Bazars.

(vii) Mother Dairy Booths
            Mother Dairy, basically handling milk in Delhi, was asked to try its hand in retail vegetable marketing by direct purchasing vegetables from the farmers, moving them in specially built vehicles, storing them in air conditioned godowns and distribute them to the consumers through its retail outlets in 1989 after the notorious onion and potato price crisis. Mother Dairy management has opened retail outlets in almost all important colonies of Delhi for providing vegetables to the consumers at reasonable prices.

Market Integration, Efficiency, Costs, Margins and Price Spread

Market Integration
Meaning
            Integration shows the relationship of the firms in a market. The extent of integration influences the conduct of the firms and consequently their marketing efficiency. The behaviour of a highly integrated market is different from that of a disintegrated market. Markets differ in the extent of integration and, therefore, there is a variation in their degree of efficiency.
            Kohls and Uhl have defined market integration as a process which refers to the expansion of firms by consolidating additional marketing functions and activities under a single management. Examples of market integration are the establishment of wholesaling facilities by food retailers and the setting up of another plant by a milk processor. In each case, there is a concentration of decision making in the hands of a single management.
Types of Market Integration
            There are three basic kinds of market integration.
(i) Horizontal Integration
            This occurs when a firm or agency gains control of other firms or agencies performing similar marketing functions at the same level in the marketing sequence. In this type of integration, some marketing agencies (say, sellers) combine to form a union with a view to reducing their effective number and the extent of actual competition in the market. In most markets, there is a large number of agencies which do not effectively compete with each other. This is indicative of some element of horizontal integration. Horizontal integration is advantageous for the members who join the group. Similarly, if farmers join hands and form co-operatives, they are able to sell their produce in bulk and reduce their cost of marketing. Horizontal integration of selling firms is generally not in the interest of the consumers of buyers.
            The schematic arrangement of a horizontally integrated firm is shown in Figure 9.1. In this arrangement, there are four firms engaged in buying and selling of foodgrains under the direction of the parent agri-business firm. All the four business firms perform the same type of marketing function but their locations and areas of operations are different. Cases of such an integration are very commonly found. Frequently a firm will have a central headquarter with a large number of local branches that carry on operations at the local level. Such a network enables the organization to achieve the economies associated with size of the firm. It also helps the firm to organize some complex types of operations and services which are needed by the local units but individually, they may not be able to perform with ease and/or efficiency.
(ii) Vertical Integration        
            Vertical integration occurs when a firm performs more than one activity in the sequence of the marketing process. It is a linking together of two or more functions in the marketing process within a single firm or under a single ownership. For example, if a firm assumes the functions of the commission agent as well as retailing, it is vertical integration. Another example of vertical integration is a flour mill which engages in retailing activity as well.
            The schematic arrangement of a vertically integrated firm is illustrated in Fig. 9.2. In this arrangement a firm is not only engaged in grain purchasing and storage of grains but also owns trucks for transporting the produce from threshing floors/villages to mandi and vice versa. In addition to trading in foodgrains the firm may also be processing the grain for making livestock feed which it sells to the livestock rearers or feed retailers.
            There have been many reasons for the development of such integrated operations. This type of integration makes it possible to exercise control over both the quantity and quality of the product from the beginning of the production process until the product is ready for the consumer.
            Vertical integration leads to some economies in the cost of marketing. A vertically integrated firm has an advantage over other firms in respect of greater market power either in terms of sources of supplies or distribution network. Vertical integration reduces the number of middlemen in the marketing channel. It is of two types, forward or backward, depending upon the stage at which the integration occurs.
            (a) Forward Integration: If a firm assumes another function of marketing which is close to the consumption function, it is a case of forward integration; for example, a wholesaler assuming the function of retailing.
            (b) Backward Integration: This involves ownership or a combination of sources of supply; for example, when a processing firm assumes the function of assembling/purchasing the produce from villages.
            Firms often expand both vertically and horizontally. The modern retail stores are a good example of this. Retailing firms have grown horizontally by expanding either retail stores or a number of commodities they deal in. They have grown vertically by operating their own wholesale, purchasing and processing establishment.
(iii) Conglomeration
            A combination of agencies or activities not directly related to each other may, when it operates under a unified management, be termed a conglomeration. Examples of conglomeration are Hindustan Lever Ltd. (processed vegetables and soaps), Delhi Cloth and General Mills (Cloth and Vanaspati), Birla Group, Tatas, J.K. Group and NAFED.
            The schematic arrangement of a business conglomerate is shown in Figure 9.3.
            The conglomerate is involved in a number of different and frequently unrelated activities. For example, the firm may be dealing in foodgrains trading; processing of horticultural products; cloth milling; selling and repairs of electronic equipments; and manufacturer of vanaspati. Such a conglomeration of activities serves as a means of spreading the risk and helps in expanding the activities to additional markets.
            Most of the business firms have some degree of vertical integration, horizontal integration and conglomerate character. The main objective of such an arrangement is to undertake closely related activities that will permit them to effectively meet the requirements of their customers. The most common type of integration which exists in our rural markets is that a firm which buys and sells the grains is also engaged in selling of fertilizers, insecticides and pesticides, feed and such other items with the main objective of meeting the multiple needs of their customers, most of whom are farmers.
Degree of Integration
            There are two types of integration.
(i) Ownership Integration
            This occurs when all the decisions and assets of a firm are completely assumed by another firm. The example of this type of integration is a processing firm which buys a wholesaling firm.
(ii) Contract Integration
            This involves an agreement between two firms on certain decisions, while each firm retains its separate identity. When dal mills of an area jointly agree on the pricing of the dals and processed product, it is a case of contract integration. Another example of contract integration is tie up of a dal mill with pulse trades for supply of pulse grains.
Effects of Integration
            Integration is an attempt at organizing or co-ordinating the marketing processes to increase operational efficiency and acquire greater power over the selling and/or buying process. Like decentralization, integration in the marketing process may have both advantageous and disadvantageous effects. Whether a particular case of integration is advantageous to society or the individual can be judged by the motive with which it has been undertaken.
            The vertical integration of firms may be actuated by the following motives:

1. More profits by taking up additional functions;
2. Risk reduction through improved market co-ordination;
3. Improvement in bargaining power and the prospects of influencing prices; and
4. Lowering costs through achieving operational efficiency.

Horizontal integration may be actuated by the following motives:

1. Buying out a competitor in a time-bound way to reduce competition;
2. Gaining a larger share of the market and higher profits;
3. Attaining economies of scale; and
4. Specializing in the trade.

Horizontal integration in the food industry is limited because of its potential impact on competition.

Conglomeration integration may be actuated by the following motives:

1. Risk reduction through diversification;
2. Acquisition of financial leverage; and
3. Empire-building urge.

Marketing Efficiency
            Marketing efficiency is essentially degree of market performance. In this sense the concept is broad and dynamic. It encompasses many theoretical manifestations and practical aspects. Broadly, one may look at efficiency of a market structure through the following:
(i) Whether it fulfils the objectives assigned to it or expectations from the system at minimum possible cost or maximizes the fulfillment of objectives with given level of resources (or costs); and
(ii) Whether it is responsive to impulses generated through environmental changes and whether impulses are transmitted at all levels in the system. Expectations from or objectives assigned to the system are of critical importance in assessing the efficiency because various participants have different expectations from the system, which quite often conflict with each other. For example:
(i) Farmers expect quick market clearance and higher prices for their produce. They expect the market to buy the products when they are offered for sale at reasonable prices;
(ii) Consumers expect ready availability of products in the form and quality desired by them at lower prices;
(iii) Traders and other functionaries expect steady and increasing incomes; and
(iv) Government expect the system to safeguard the interest of all the three sections and in a proportion which is considered to be fair so that overall long-run welfare of the society is maximized.
Definition of Marketing Efficiency
            The concept of marketing efficiency is so broad and dynamic that no single definition encompasses all of its theoretical and practical implications. Some of the definitions are given below:
Kohls and Uhl: Marketing efficiency is the ratio of market output (satisfaction) to marketing input (cost of resource). An increase in this ratio represents improved efficiency and a decrease denotes reduced 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 of efficiency.
Jasdanwalla: The term marketing efficiency may be broadly defined as the effectiveness or competence with which a market structure performs its designated function.
Clark: Marketing efficiency has been defined as having the following three components:

1. The effectiveness with which a marketing service is performed;
2. The cost at which the service is performed; and
3. The effect of this cost and the method of performing the service on production and consumption.

Of the three components, the last two are the most important because the satisfaction of the consumer at the lowest possible cost must go hand in hand with the maintenance of a high volume of farm output.
Efficient Marketing
             The movement of goods from producers to consumers at the lowest possible cost, consistent with the provision of the services desired by the consumer, may be termed as efficient marketing. A change that reduces the costs of accomplishing a particular function without reducing consumer satisfaction indicates an improvement in the efficiency. But a change that reduces costs but also reduces consumer satisfaction need not indicate increase in marketing efficiency. A higher level of consumer satisfaction even at a higher marketing cost may mean increased marketing efficiency if the additional satisfaction derived by the consumer outweighs the additional cost incurred on the marketing process.
An efficient marketing system for farm products ensures that:
(i) Increase in the farm production is translated into a proportionate increase in the level of real income in the economy, thereby stimulating the emergence of additional surpluses;
(ii) Good production years do not coincide with low revenues to the producers achieved through effective storage, proper regional distribution and channelising of latent demand; and
(iii) Consumers derive the greatest possible satisfaction at the least possible cost.
An efficient marketing system is an effective agent of change and an important means for raising the income levels of the farmers and the levels of satisfaction of the consumers. It can be harnessed to improve the quality of life of the masses.

Approaches to the Assessment of Marketing Efficiency
            Traditionally, efficiency of the marketing system has been looked at from the following two angles:
(i) Technical or Physical or Operational Efficiency
            This aspect of the efficiency pertains to the cost of performing a function. Efficiency is said to have increased when cost of performing a function for each unit of output is reduced. This can be brought about either by reducing physical losses or through change in the technology of the function viz., storage, transportation, handling, and processing. A change in the technique may result either in the reduction of per unit cost (storage cost for a month, transportation cost to a distance of 100 kms or the cost of converting 100 kg of oranges to orange juice) or the increase in the output for a given level of cost.
(ii) Pricing or Allocative Efficiency
            Pricing efficiency means that the system is able to allocate farm products either overtime, across the space or among the traders, processors and consumers (at a point of time) in such a way that no other allocation would make producers and consumers better off. This is achieved via pricing of the product at different stages, at different places, at different times and among different users and hence called pricing efficiency. In simple terms, the pricing efficiency is achieved when following conditions hold:

• • Price differences between spatially separated markets do not exceed transportation cost;
  • Intra-year price rise is not more than storage cost; and
  • Price differences between forms of the product (pulse grain and split dal or wheat grain and wheat flour) do not exceed processing cost.

             The pricing efficiency refers to the structural characteristics of the marketing system, where the sellers are able to get the true value of their produce and the consumers receive true worth of their money.
             Whenever functions of transportation, storage and processing are performed, cost is incurred, value is added and the product is priced again. The efficiency of marketing is concerned with the extent to which the prices (after these functions are performed) deviate from what the cost of performing these functions warrant. The pricing aspect of marketing efficiency is affected by the extent of competition, dissemination of market information and attitude of the functionaries.
             Marketing efficiency in this context may be termed as the pricing efficiency of the marketing system. The relationships between marketing costs and marketing margins and that between gross margins and prices in spatially separated markets between or at different stages of marketing reflect this aspect of marketing efficiency.
The above two types of efficiencies are mutually reinforcing in the long run; one without the other is not enough.
Empirical Assessment of Marketing Efficiency
            Some simple measures to assess the efficiency of the marketing system for agricultural commodities are:
(i) Ratio of Output to Input
            Conceptually, efficiency of any activity or process is defined as the ratio of output to input. If ‘O’ and ‘I’ are respectively output and input of the marketing system and ‘E’ is the index of marketing efficiency; then

             A higher value of E denotes higher level of efficiency and vice versa. When applied in the area of marketing, output is the ‘value added’ by the marketing system and ‘input is the real cost of marketing (including some fair margins of intermediaries)’. The measurement of ‘value added’ is not easy. The difference in the price at the farm level (price received by the farmer) and that at the retail level (price paid by the consumers) may be used to measure the ‘value added’ but it has limitations mainly because of market imperfections. Assuming that degree of imperfection is pervasive, this measure has been used to compare the marketing efficiency of two spatially separated markets, of two commodities or at two points of time. Consider the following examples of marketing efficiency.
Marketing Costs, Margins and Price Spread
            Market functionaries or institutions move the commodities from the producers to consumers. Every function or service involves cost. The intermediaries or middlemen make some profit to remain in the trade after meeting the cost of the function performed.
In the marketing of agricultural commodities, the difference between the price paid by consumer and the price received by the producer for an equivalent quantity of farm produce is often known as farm-retail spread or price spread. Sometimes, this is termed as marketing margin. The total margin includes:
(i) The cost involved in moving the product from the point of production to the point of consumption, i.e., the cost of performing the various marketing functions and of operating various agencies; and
(ii) Profits of the various market functionaries involved in moving the produce from the initial point of production till it reaches the ultimate consumer. The absolute value of the marketing margin varies from channel to channel, market to market and time to time.
Concepts of Marketing Margins
            There are two concepts of marketing margins.
(i) Concurrent Margins
            These refers to the difference between the prices prevailing at successive stages of marketing at a given point of time. For example, the difference between the farmer’s selling price and retail price on a specific date is the total concurrent margin. Concurrent margins do not take into account the time that elapses between the purchase and sale of the produce.
(i) Lagged Margins
            A lagged margin is the difference between the price received by a seller at a particular stage of marketing and the price paid by him at the preceding stage of marketing during an earlier period. The length of time between the two points denotes the period for which the seller has held the product. The lagged margin concept is a better concept because it takes into account the time that elapse between the purchase and sale by a party and between the sale by the farmer and the purchase by the consumer.
             The method of calculating lagged margins is based on the same principle as that involved in the first in-first out method of accounting. However, it is difficult to obtain data on time lags between purchase and sale with a view to maintaining continuous series of marketing margins.
Importance of Study of Marketing Margins and Costs
            Studies on marketing margins and costs are important, for they reveal many facets of marketing and the price structure, as well as the efficiency of the system.
(i) The magnitude of the marketing margins relative to the price of the product indicates the efficiency or otherwise of the marketing system. It refers to the efficiency of the intermediaries between the producer and the consumer in respect of the services rendered and the remuneration received by them. While comparing the efficiency of the marketing system by means of marketing margins over space or time, the difference in the value added to the product through various services/functions is taken into account;
(ii) Such studies help in estimating the total cost incurred on the marketing process in relation to the price received by the producer and the price paid by the consumer. The cost incurred by each agency in different channels and the share of each agency in the cost have been revealed. This knowledge ultimately helps us to identify the reasons for high marketing costs and the possible ways of reducing them; and
(iii) The knowledge of marketing margins helps us to formulate and implement appropriate price and marketing policies. Excessive margins point to the need for public intervention in the marketing system.
Estimation of Marketing Margins and Costs
            Regular monitoring of marketing margins at regional levels are essential for the formulation and successful implementation of marketing and price policies. A study of marketing margins should include an estimation of the producers’ share in the consumer’s rupee, the cost of marketing functions and the margins of intermediaries. Marketing margins and costs vary from commodity to commodity, and depend on the amount of processing involved and the market structure for handling of the commodity. Even for the same commodity, the margin may vary from place to place and time to time. A number of factors, such as the method of assembling, the location of the market and the mode of transportation, influence marketing costs and margins. The method of sale, weighment and other facilities, too, affect the marketing costs. Because of a lack of standard grading in agricultural commodities, it is very difficult to make valid comparisons of price data. Adequate precautions have, therefore, to be taken when comparing marketing margins for commodities under different situations.
             Inspite of these difficulties, various studies have been conducted in India to study marketing margins and costs with a view to assessing the farmers’ share in the consumer’s rupee and to suggesting measures for improvements in the marketing system. These studies have used different approaches, and vary considerably in their depth.
Three methods are generally used in the computation of marketing margins and costs.
(i) Lot Method
            A specific lot or consignment is selected and chased through the marketing system until it reaches the ultimate consumer. The cost and margin involved at each stage are assessed. The difficulties or limitations of this method are:
(a) It is difficult to chase the movement of a lot from the producer to the ultimate consumer.
(b) Most of the lots lose their identity during the process of marketing, because either the product gets processed or the lot gets mixed up with other lots.
(c) There is no assurance that the lot selected is representative of the whole product.
This method is appropriate for such perishable farm commodities as fruits, vegetables, and milk, because the lag between the time the commodity enters the marketing system and time of its final consumption is very small.
(ii) 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 and purchase 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.
The following formula may be used to work out the total marketing margins:

where
MT = Total marketing margin
Si = Sale value of a product for ith firm
Pi = Purchase value of a product paid by the ith firm
Qi = Quantity of the product handled by ith firm
i    = 1, 2, ……n, (number of firms involved in the marketing channel)
             This method requires considerable effort in the location and examination of the records kept by the intermediaries. The main difficulties in using this method are:
(a) Traders may not allow access to their account books. It would then be difficult to obtain complete and accurate information. Moreover, some traders often make manipulated entries in their account books to evade sales tax and income tax; and
(b) This method necessitates adjustment for the difference between the quantities purchased and sole because a part of the product is wasted during handling.
(iii) Comparison of Prices at Successive Levels of Marketing
            Under this method, prices at successive stages of marketing at the producer’s, wholesaler’s and retailer’s levels – are compared. The difference is taken as the gross margin. The margin of an intermediary is worked out by deducting the ascertainable costs from the gross margin earned by that intermediary. This method is appropriate when the objective is to study the movements of marketing costs and margins in relation to prices and cost indices. The main difficulties encountered in the use of this method are:
(a) Representative and comparable series of prices for the same quality of successive stages of marketing are not readily available for all the products;
(b) Adjustment for a loss in the quality of the product at various stages of marketing due to wastage and spoilage in processing and handling is difficult;
(c) The price quotation may not cover the price of a product of a comparable quality; and
(d) The time lag between the performance of various marketing operations is not properly accounted for.
The following general rules may be adopted in selection of the method for calculating marketing margins and costs of various agricultural commodities:

            Irrespective of the method followed, the following information is required for computing marketing costs and margins:

• Data on prices of the same variety and quality of the commodity at different stages of marketing, either for one market or for a pair of markets;
• Data on marketing charges in cash or kind;
• Cost of transportation of the produce at different levels of marketing;
• Cost of processing and estimates of the conversion factor from the raw material to finished products;
• Cost of all other operations in the marketing process.

Various measures of the price spread and for the computation of marketing costs and margins, and the procedures followed have been given in the paragraphs that follow.
Producer’s Price
            This is the net price received by the farmer at the time of first sale. This is equal to the wholesale price at the primary assembling centre, nminus the charges borne by the farmer in selling his produce. If PA is the wholesale price in the primary assembling market and CF is the marketing cost incurred by the farmer, the producer’s price (PF) may be worked out as follows:
PF = PA – CF
Producer’s Share in the Consumer’s Rupee
             It is the price received by the farmer expressed as a percentage of the retail price (i.e., the price paid by the consumer). If Pr is the retial price, the producer’s share in the consumer’s rupee (Ps) may be expressed as follows:

Marketing Margin of a Middleman
            This is the difference between the total payments (cost + purchase price) and receipts (sale price) of the middleman (ith agency). Three alternative measures may be used.

• Absolute margin of ith middleman (Ami)

Ami = PRi – (PPi + Cmi)

• Percentage margin of ith middleman (Pmi)

Pmi = 

• Percentage mark-up of the ith middleman (Mi)

Mi = 

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 thus calculated include the profit of the middleman and the returns which accrue to him for storage, the interest on capital and overhead, and establishment expenditure.
Total Cost of Marketing
            The total cost, incurred on marketing either in cash or in kind by the producer seller and by the various intermediaries involved in the sale and purchase of the commodity till the commodity reaches the ultimate consumer, may be computed as follows:
C = CF + Cmi + Cm2 + Cm3 + …. + Cmn
where
C  =  Total cost of marketing of the commodity,
CF =  Cost paid by the producer from the time the produce leaves the farm till he  
sells it, and
Cmi = Cost incurred by the ith middleman in the process of buying and selling the 
product.
             Some of the costs are linked with the quantity marketed and some are linked with the value of the commodity. The former is a fixed charge, while latter is a variable one. The actual rates of charges are converted in terms of the weight unit or Rs.100 worth of produce sold. The ad valorem charges are calculated on the basis of the actual market price for the physical unit or Rs.100 worth of produce sold.
Farmer’s Share and Gross Marketing Margins
            According to Acharya (2003), the gross marketing margins (GMM) can be broken down into three components viz., cost of performing various marketing functions, statutory taxes or levies payable in the marketing channel, and net marketing margins (NMM) retained by market functionaries.
Marketing cost varies from commodity to commodity and changes overtime and space. Marketing costs depend on the perishability of the commodity, need for cold storage facilities, need for processing before consumption, necessity of storage and transportation, distance for transportation and nature of packaging needed. The marketing costs are, therefore, generally high for fruits, vegetables, flowers, oilseeds, sugarcane and cotton compared to foodgrains. Statutory marketing charges include taxes and levies (sales tax, market fee, octroi, special duty or cess on commercial crops etc.) which are paid in the process of transactions of commodity at different stages of marketing. The rates of these charges vary from state to state, market to market and commodity to commodity. Most of these taxes and levies are on ad valorem basis and as such their incidence is higher on high value crops. The market players have no control on these taxes and levies as these are of statutory in nature. These statutory charges exert considerable effect on gross marketing margins and farmer’s share in consumer’s rupee. Net marketing margin (NMM) is the amount retained by different market functionaries. The size of net marketing margin depends on the nature of competition, structure of markets and scale of business. Larger the net marketing margin, greater is the inefficiency of the marketing system.
             It is now increasingly realized that higher marketing costs do not always reflect inefficiency of the marketing system. The factors, which cause high marketing costs, could be geographical localization of production away from the markets, necessity of storage from production season to the lean season and involvement of processing function in the marketing process. Under such situations, the size of marketing costs reflects only one side of the coin and the other aspects viz., consumer satisfaction is not given any weightage.
             Over the period, gross marketing margins (GMM) decreased in foodgrains and oilseed crops due to better competitive conditions in the trade of these commodities. On the other hand, GMM increased in fruits and vegetables due to the expansion in the markets for these crops and their products. As against this, over the period, however, total cost of marketing in absolute terms have shown an increase due to:

• increased necessity of packing all goods;
• increased availability of facilities of transportation, communication and storage leading to long distance transportation and storage from production to lean season of the year;
• widening of markets due to liberalization of trade and expansion in size of markets leading to movement of products to distant domestic and foreign markets;
• increase in the consumer’s income leading thereby to higher demand of processed, packed and branded products;
• increase in the general price level in the economy thereby leading to increase in the cost of marketing as many marketing charges are linked to the value of the commodity; and
• increase in the statutory marketing charges overtime by the government, which in some cases account for 12 to 18 per cent of the gross marketing margins.

             A comprehensive review of Indian Literature reveals that studies on price-spread and marketing margins for the period 1960 to 1975 are available for only a few crops (wheat, rice, sorghum, pearl millet, chickpea and groundnut). However, in the later period i.e., 1975-2000 the studies have covered almost all agricultural products – foodgrains, oilseeds, cotton, fruits, vegetables and flowers. (For a summary of results see Acharya, 2003).
             There is ample evidence of large variability of the producers share in consumer rupee as well as marketing margins and costs across the crops and study areas. Disregarding the extremities, the farmers share in consumers rupee has been estimated as 56 to 89 per cent for paddy, 77 to 85 per cent for wheat, 72 to 86 per cent for coarse grains, 79 to 86 per cent for pulses and 40 to 85 per cent for oilseeds. The farmer’s share in consumer’s rupee for perishable farm products (fruits, vegetables and flowers) is generally lower and varied from 32 to 68 per cent.
             The studies in general reveal that the producer’s share in consumer’s rupee has varied with the marketing channel adopted by the farmers. The DMI studies reveal
(Table 3.2) that the costs were higher when farmers adopted private channels in marketing of surplus produce compared to the institutional channels and hence farmer’s share was lower when they sell through private channels.

                                                                                                                                                                  (Percentages of Consumer’s Price)

             A recent comprehensive analysis of statutory charges/taxes and transport and storage costs of wheat by Ramesh Chand has shown that the mark up over farm harvest price prevailing during post-harvest season in a surplus state (like Punjab) needed to attract private sector in wheat trade is 74 per cent to 126 per cent (Goa) for the month of next March. This implies that for wheat supplied to a consumer in Goa in the month of next March, the share of a Punjab wheat grower (based on the price received in the preceding harvest month of May) in the consumer’s price is 44.2 per cent. This also means that the statutory charges and marketing costs (storing wheat from May to next March and transportation from Punjab to Goa included) add up to 55.8 per cent of the consumer’s price.
             Sale of fruits through pre-harvest contractors is also common in fruit producing areas. The studies on estimates of marketing costs and margins reveal that farmers receive a lower price when they sell through the contractor.
             The gross marketing margins in marketing of agricultural products have also been worked out from National Accounts Statistics by Acharya, S.S. (1998). In this approach, difference between the total consumers expenditure on a particular farm product and the value of the output at the farm level has been used to estimate gross marketing margin. Based on an aggregate accounting, the gross marketing margin (GMM) as percentage of consumer’s price is 19.2 in cereals, 7.2 in oilseeds, 32.9 in fruits and vegetables, 6.7 in milk and milk products, and 37.2 in sugarcane with an overall average of 19.3 per cent for all agricultural commodities. The estimates are shown in Table 3.3.

                                                                                                                                                                       (Percentages)

Factors Affecting the Cost of Marketing
            Studies on the cost of marketing reveal that there is a large variation in the cost per quintal or per Rs.100 worth of the produce. The factors which affect marketing costs are:
(i) Perishability of the Product: The cost of marketing is directly related to the degree of perishability. The higher the perishability, the greater the cost of marketing, and vice versa.
(ii) Extent of Loss in storage and Transportation: If the loss in the quality and quantity of produce, arising out of wastage or spoilage or shrinkage during the period of storage or in the course of transportation is substantial, the marketing cost will go up.
(iii) Volume of the Product Handled: The larger the volume of business or turnover of a product, the less will be the per unit cost of marketing.
(iv) Regularity in the Supply of the Product: If the supply of the product is regular throughout the year, the cost of marketing on per unit basis will be less than in a situation of irregular supply or supply restricted to a few months of the year.
(v) Extent of Packaging: The cost of marketing is higher for the commodities requiring packaging.
(vi) Extent of Adoption of Grading: The cost of marketing of ungraded product is higher than that of the products in which grading can be easily adopted.
(vii) Necessity of Demand Creation: If substantial advertisement is needed to create the demand of prospective buyers, the total cost of marketing will be high.
(viii) Bulkiness of the Product: The marketing cost of bulky products is higher than that of which are not bulky.
(ix) Need for Retailing: The greater the need for the retailing of a product, the higher the total cost of marketing;
(x) Necessity of Storage: The cost of the storage of a product adds to the cost of marketing, whereas the commodities which are produced and sold immediately without any storage attract lower marketing cost.
(xi) Extent of Risk: The greater the risk involved in the business for a product (due to either the failure of the business, price fluctuations, monopsony of the buyer or the prevalence of unfair practices), the higher is the cost of marketing.
(xii) Facilities Extended by the Dealers to the Consumers: The greater the facilities extended by the dealer to the consumer (such as return facility for the product, home delivery facility, the facility of supply of goods on credit, the facility of offspring entertainment to buyers, etc.), the higher the cost of marketing.
Reasons for Higher Marketing Costs of Agricultural Commodities
            Generally, the cost of marketing of agricultural commodities is higher than that of manufactured products. The factors responsible for this phenomenon are:
(i) Widely Dispersed Farms and Small Output per Farm: There are innumerable producers of agricultural products, each producing a small quantity. Producers are widely dispersed. Hence the cost of assembling is high.
(ii) Bulkiness of Agricultural Products: Most farm products are bulky in relation to their value. This results in a higher cost of transportation.
(iii) Difficult Grading: Grading is relatively difficult for agricultural products. Each lot has to be personally inspected during purchase and sale – a fact which increases marketing costs. The sale or purchase by contract or sample is not easy because an inspection of each lot of the product is required by reason of variation in their quality.
(iv) Irregular Supply: Agricultural products are characterized by seasonal production. Their market supply, therefore, fluctuates during the year. In times of glut, prices go down and the cost of marketing functions, on value basis.
(v) Need for Storage and Processing: There is a greater need for the storage of agricultural products because of the seasonality of their production. The processing of agricultural products is a necessity because all the agricultural products are not consumed in the raw form. Storage and processing add to the cost of marketing. Losses of agricultural products in storage are also high because of their perishability.
(vi) Large Number of Middlemen: In foodgrain marketing, the number of middlemen is larger because there is no restriction on their entry in the trade. Contrarily, there are mainly restrictions on the entry into the trade of industrial products. For example, the cumbersome licensing procedure, high risk and high capital requirement make entry into trade in non-farm goods somewhat difficult. The larger the number of middlemen, the higher the marketing costs.
(vii) Risk involved: The risk of price fluctuations is higher in agricultural products. The higher risk leads to higher risk premium, which adds to the marketing cost.
Marketing Cost in India and Other Countries
            In India, the marketing cost of foodgrains is lower than in developed countries. The factors responsible for this difference are:
(i) Foodgrains are sold in a relatively unprocessed form in India, whereas in developed countries, consumers want them mostly, in a processed form. India, the processing of foodgrains is undertaken at the consumers’ level. Therefore, the cost of marketing is lower, and the farmers’ share in consumer’s rupee is higher in India.
(ii) Human labour is relatively cheap in India, a fact which keeps the labour component of the marketing cost lower in India than in the developed countries.
Marketing Costs of Foodgrains Over Time
            Over time, there has been an increase in the marketing cost of foodgrains in India. Some of the factors which have been responsible for this increase are:
(i) Shifting Tendency from Subsistence to Commercialised Farming: Previously, each farmer used to produce foodgrains needed by him; but now, because of specialization in agricultural production and increasing urbanization, the distance between producers and consumers has increased. The cost of moving foodgrains from producers to consumers has, therefore, increased.
(ii) Technological Advances in Preservation and Storage: Formerly, many food products were consumed only during the season of production. Specialization in production and the evolution of short duration high-yielding varieties have resulted in large-scale production, thereby necessitating their storage. Technological advances in storage and preservation, though have facilitated handling of large volumes but have increased the costs and widened the spread between the producers’ and the consumer’s prices.
(iii) Change in the Form of Consumer Demand: There has been a change in the consumer’s behaviour over time. Consumers now like the product in a processed and ready-to-use form following the increasing impact of urbanization. The desire for attractive packaging and home delivery system, too, has had its influence on consumer demand. Their demand for marketing service has, therefore, increased.
How to Reduce Marketing Costs
            There are various ways of reducing marketing costs. No single factor can bring about any perceptible reduction in these costs. However, a combination of factors may bring about a significant reduction in the cost of marketing. Some ways of reducing marketing costs for farm products are:
(i) Increase the Efficiency of Marketing
             An increase in the efficiency of marketing can be brought about by a wide range of activities between producers and consumers. Some major areas in which improved efficiency may result in a reduction in marketing costs are:
(a) Increasing the Volume of Business: By increasing the quantity to be handled at a time, one can effectively reduce marketing costs and increase marketing efficiency.
(b) Improved Handling Methods: The new methods of handling, such as pre-packaging of perishable products, the use of fast transportation means, the development of cold storages and an efficient use of labour are some of the methods by which efficiency may be increased and costs reduced.
(c) Managerial Control: The adoption of proven management techniques increases efficiency. By a constant monitoring of costs and returns, the efficiency at each stage in marketing may be stepped up.
(d) Change in Marketing Practices and Technology: Changes in marketing practices and technology (such as sale of orange juice instead of orange, retailing food services through super markets, and integration of marketing functions) reduce marketing costs and increase marketing efficiency.
(ii) Reduce Profits in Marketing
Profits in the marketing of agricultural commodities are often the largest because of the inherent risk at various stages of marketing. The risk may be reduced by:
(a) The adoption of hedging operations, improvements in market news service, grading and standardization; and
(b) Increasing the competition in the marketing of farm products.
             A decline in marketing margins and costs generally benefits both the producer and the consumer. Only in extreme cases are all the benefits derived either by the producers or by the consumers (when there is no change in the price received by the producers). Apart from such cases, the gains in the efficiency of marketing practices are shared by both. The extent to which these benefits are shared is determined by the nature or characteristics of the supply of, and demand for, the product. For example:
(a) If the supply and demand curves have the same elasticity, producers and consumers share the benefits equally;
(b) If demand is more elastic than supply (e.g., for farm products in the short run), the producers get a larger share of the benefits; and
(c) If the supply is more elastic than the demand (e.g., of many farm products over a longer period), consumers get a larger share of the benefits.
Relationship of Farmer’s Price, Marketing Costs and Consumer’s Price
             The farmer receives what the consumer pays after the various costs of marketing have been deducted. This residual, expressed as a percentage of the price paid by the consumer (retail price), is the farmer’s share. The farmer’s share may be calculated as follows:

where
FS = Farmer’s share in the consumer price expressed as a percentage
RP = Retail price of foodgrains
MC = Marketing costs, including margins
PF = Price received by the farmer
             The farmer’s share in the amount of the consumer’s outlay at the retail level is not static and undergoes change with the change in market conditions. An increase in the share is taken as an evidence of increase in the efficiency of the marketing system in favour of the farmer, while a decrease in the farmer’s share is taken as evidence of the fact that middlemen retain a larger share. The effect of change in marketing charges or costs on the farmer’s share are shown in Fig. 9.4.
             In period t3 (compared to period t2), the farmer’s share in the consumer’s rupee has increased because of the reduction in marketing costs and margins. It is evident that all the factors which bring about changes in marketing costs affect the farmer’s share as well.
             Several items of the marketing costs are almost sticky, i.e., they do not move up and down with the movement in prices. The basic reason for sticky marketing costs is that many of the items in them are related to the physical volume handled rather than to the value of the product. For example, transport cost, labour cost, weighing cost, storage cost and octroi are charged on the basis of weight.
             With any given level of sticky marketing margin or cost, the farmer’s share (price received) moves directly with the retail price; that is, if the retail price increases, the farmer’s share also increases. But the proportionate change in the farmer’s share is more than the proportionate change in the retail price. To illustrate: let the retail price, the marketing costs/margin and the farmer’s price be Rs.100, Rs.50 and Rs.50 per unit respectively in period t1. Suppose, in period t2, the retail price decreases to Rs.90 per unit, i.e., a fall of 10 per cent. If the absolute gross marketing margin remains the same, i.e., Rs.50 per unit, the farmer’s price falls to Rs.40 per unit, i.e., a fall of 20 per cent. In other words, 10 per cent fall in the retail price results in a 20 per cent fall in the farmer’s price. This has been shown in Table 3.4.

            Another point that emerges from Table 9.11 is that, in period t1, the price received by the farmer was 50 per cent of the price paid by the consumer but that in period t2, the farmer received only 44.4 per cent of the price paid by the consumer. To the extent that marketing margins or costs are sticky, the farmers lose more when the retail price decreases.
Model Quiz

1. A flour mill opening its retail outlet is an example for
   a. Horizontal integration  b. Forward integration  c. Conglomeration    d. Backward integration 
   Ans: b
2. Pepsico company engaging in tomato procurement directly from farmers  is
   a. Horizontal integration  b. Vertical integration    c. Conglomeration    d. Forward integration
   Ans: b
3. Calculating marketing margin and cost in fresh fruits marketing is meaningful when one follows
   a . Lot method    b. Sum of average gross margins method   c. Comparison of prices at successive levels of marketing     d.  Both b and c 
   Ans:a
4. Farmers’ share in consumer rupee will be the least in marketing of
   a. Rice    b. Milk   c. Cotton    d.Gram
   Ans: c
5. Price spread will be the least in marketing of
   a. Rice    b. Milk    c. Green leaves    d. Coconut
   Ans: c

TRUE or FALSE

• Vertical integration enhances specialisation in a particular trade.  (False)
• Enterprise diversification is an act of conglomeration.    (True)
• Pricing efficiency is beneficial to both traders and consumers.  (True)
• Marketing efficiency is enhanced by increasing both operational efficiency and allocative efficiency.  (True)
• Margin earned by intermediaries is not included in price spread.  (False)
• Marketing cost incurred by intermediaries forms part of price spread. (True)
• Concurrent marketing margin method does not take into account the time that elapses between the purchase and sale of produce.  (True)
• Lagged margin method considers the price difference between traders in the same stage of marketing.  (False)

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