Agriculture Marketing

Concept and Importance

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 involves all the aspects of market structure or system, both functional and institutional, based on technical and economics considerations, and includes pre and post-harvest operations, assembling, grading, storage, transportation and distribution. A dynamic and growing, agricultural sector requires fertilizers, pesticides, farm equipments, machinery, diesel, electricity 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 or food and natural fibers which require transportation, storage, milling or processing, packaging and retailing to the consumers.

Importance

Agricultural marketing plays an important role not only in stimulating production and consumption, but in accelerating the pace of economic development. The agriculture 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.

Agricultural Marketing is one of the manifold problems, which have direct bearing upon the prosperity of the cultivators, as India is an agricultural country and about 70% of its population depends on agriculture.

Most of the total cultivated area (about 76%) is to under food grains and pulses. Approximately 33% of the output of food grains, pulses and nearly all of the productions of cash crops like cotton; sugarcane, oilseeds etc. are marketed, as they remain surplus after meeting the consumption needs of the farmers. Development of technology, quick means of communication and transportation has introduced specialization in agriculture.

Agriculture supplies raw materials to various industries and therefore, marketing of such commercial crops like cotton, sugarcane, oilseeds etc. assumes greater importance.

With the introduction of green revolution agricultural production in general and food grains in particularly has substantially increased. Agriculture once looked as a subsistence sector is slowly changing to a surplus and business proposition.

The interaction among producers, market functionaries, consumers and government that determine the cost of marketing and sharing of this cost among the various participants.

The producer, middleman and consumer look upon the marketing process from their own individual point of view. The producer is primarily concerned with selling his products.

Any increase in the efficiency of the marketing process, which results in lower costs of distribution at lower prices to consumers, really brings about an increase in the national income.

A reduction in the cost of marketing is a direct benefit to the society.

Marketing process brings a new varieties, qualities and beneficial goods to consumers and therefore, marketing acts as a line between production and consumption.

Scientific, systematic marketing stabilizes the price level.

An improved marketing system will stimulate the growth of number of agrobased industries mainly in the field of processing.

A marketing system can become a direct source of new technical knowledge and induce farmers to adopt upto date scientific methods of cultivation.

Marketing is therefore, playing an important role in the economic  development and stability of a country.

Structure and Types Of Rural Marketing

Most Indian farmers are small cultivators, they produce crops that are seasonal in nature, vulnerable to failure, differ from area to area (region to region) and are certainly perishable. Economically agricultural produce is inelastic because it is difficult to vary the output in response to the price. Agricultural produce is bulky in nature hence difficult to transport and very much vulnerable to the forces of nature.

Next, these small cultivators are unorganized and scattered all over the country. They have little time or inclination for gaining knowledge about the marketing side of their operations. These farmers cannot organize themselves so as to bargain on equal terms with buyers to operate on a large scale and have powerful organizations behind them.

Further most of the Indian farmers have loans for sowing and are heavily in debt. Thus they are forced to sell their produce immediately after the harvest and that too in their own villages.

Significance of agricultural marketing

The 2 basic elements of agricultural system are production and marketing. Marketing of agricultural produce is as important as production itself. As a link between producers and consumers marketing plays an important role not only in stimulating production and consumption but also in increasing the pace of economic development. Its dynamic functions are thus of primary importance in promoting economic development activities and for this reason it has been described as the most important multiplier of agricultural development.

The problem of marketing agricultural produce has assumed added significance particularly after the advent of modernization in agriculture. The call to “produce more” without providing efficient marketing machinery, which can ensure fare, returns to the producer-seller. Carries no conviction with the farmer. The United Nations conference on food and agriculture held in October’ 95 at Quepec says, “Marketing is the crux of the whole food and agricultural problems”. It would be useless to increase the output of food and would be equally futile to setup optimum standards of nutrition unless means could be found to move food from the produce to the consumer at a price, which is remunerative to the producer and within the consumer’s ability to pay.

The cost of marketing agricultural produce forms a substantial percentage of the price the consumer pays for it. This cost includes expenses borne by the cultivators till the assembly stage and those borne by wholesellers, distributors and retailers. The total marketing cost cannot be considered independently without relating it to the ultimate price realized by the producer. The marketing sector, infact, plays an active role under certain circumstances by changing the demand and cost functions in agriculture in such a way so as to encourage its expansion.

According to the National Commission on Agriculture “Agricultural Marketing is a process which starts with a decision to produce a saleable farm commodity and it involves all aspects of market structure or system, both functional and institutional, based on technical and academic consideration and involves pre and post harvest operations assembly, grading, storage, transportation and distribution”. In Agricultural marketing we are concerned with demand and supply conditions, marketing operations including marketing functions, functionaries and cost, price fixation, market structure, conduct and performance and marketing efficiency.

Fundamentally there are 3 entities involved in the marketing system they are as follows:

1.      Producer

2.      Consumer

3.      The Middlemen

Each of these entities has its own objectives, which often conflict with the others interest. The producers after making a lot of investment and putting in lot of hard work would naturally look forward to get the largest/best possible returns for his produce. The consumer on the other hand would like to get his required quantities of goods of pure quality at the least possible price. The middlemen would aim at realizing the largest possible net profits from the deal. An efficient marketing system should, therefore, aim at balancing this conflicting interest in such a way that each entity gets a fare deal.

Increase production resulting in greater percentage increase in marketable surplus accompanied by increase in demand from urban population calls for a rapid improvement in the existing marketing system. It is necessary to improve the marketing system to aid the process of agricultural development for 2 reasons.

      Firstly, If the additional produce does not move to the market to bring additional revenue to the farmers, it may work as a disincentive to increase production.

      Secondly, If the system does not support supply food-grains and other agricultural commodities at reasonable prices to the consumer at the time and place needed by them, increased production has no meaning and plays no role in the welfare of society.

Thus the farmer in general sell his produce at an unfavorable place at an unfavorable time and usually gets very unfavorable terms. It could be observed that inadequate credit facility to the farmer is the root cause of all defects in the agricultural marketing system in India where the poor peasants are under the firm grip of the moneylenders.

The market structure in India is saddled in the long chain of middlemen between the cultivators and the ultimate consumer. These middlemen take away the Lion’s share of the price paid by the consumer and consequently the farmer-seller gets a poor price in his share.

Markets for agricultural commodities may be broadly classified into 3 categories viz.

1.      Wholesale Market

The wholesale markets fall into 3 subcategories

      Primary

      Secondary

      Terminal

Primary wholesale markets

Primary wholesale markets, where the bulk of arrivals is from village or village hats. These market are periodically held, either once or twice a week or at longer intervals or on special occasions. Agricultural produce, or livestock or both are sold in these markets. There are about 22000 such markets located mostly in the interior of the country. The area served by a hat or a shandy varies considerably. In some cases it is only one village but in others it may have a radius of 6 or 7 miles.

These markets deal in sale of Fruits and vegetables, food grains, cloth; earthen wares, lac and glass bangles and articles of daily use and transactions take place either for cash or exchange in household requisites.

Such markets are organised by village panchayats and every shopkeeper has to pay some rent for the space he occupies. Here haggling and bargaining is a common feature. The village bania acts as a middleman in return for a small commission.

Such markets are known as Painths or hats in U. P., Bihar, Orissa and West Bengal, and Shandies in south India.

For the up keep of such markets superficially 3 types of taxes are collected viz.

a.       Sales Tax

b.      Service Tax

c.       Place Tax

However in practice a large number of ritualistic deductions and local taxes are applied to the produce sold here.

Secondary wholesale markets

Secondary wholesale markets, also known as mandis and Gunjs, stretch over a wide area covering from 10 to 20 miles. There are about 1,700 such markets in the, country. In these markets, the bulk of the arrivals is from other markets. These are usually situated in the district and taluka headquarters, important trade centres or near railway stations. Here transactions are generally between wholesalers or between wholesalers and retailers.

Secondary Markets functions are usually in urban and semi-urban areas. Here facilities of storage and banking are available. Mostly wholesale as well as retail trade both take place in the same complex simultaneously. A large number of intermediaries exist in these markets. The traders who purchase from the primary markets in wholesale trade, they buy in these markets. The manufacturers who use agricultural produce as a primary input purchase raw material in wholesale in these markets. The wholeseller performs the marketing function of assembly and distribution. It may be noted that the actual producer the “Farmer is completely absent in wholesale markets”.

Terminal Markets

Terminal Markets are those in which the produce is either finally disposed of directly to consumers or processors or assembled for shipment to foreign destinations or for redistribution to surrounding areas. Such markets are usually the ports, which possess sufficient warehousing and storage facilities and cover a very wide area extending over even a State or two.

It may be observed that a particular market may function as a Primary wholesale market for some agricultural commodities, which are produced locally and as a secondary market for other commodities. Again, even for the same commodity a market may function as primary wholesale market for certain parts of the year and as a secondary wholesale market for the rest of the year.

2.      Retail Markets

These markets are found scattered all over the town or a city or concentrated in particular localities. They are owned by the retailers subject to municipal control. They usually deal in all types of produce and serve the needs, of the city people as well as the surrounding villages. Cloth market, sharafa market, grain mandi, vegetable market, shoe market, hardware market, sweetmeat market and grocery market are usually found located in different parts of the city.

Retail (Primary) Markets are basically assembly markets that are not regulated. They serve as convenient points fro assembling, distribution and exchange of goods moving from villages to bigger cities, for consumer goods also these primary assembly markets become convenient points for reverse movement from industrial sectors (big cities) to the villages. The trader being both buyers (of agricultural produce) and sellers (of consumer goods) ignore the interest of the farmers.

3.      Fairs

These are held, on religious occasion, at pilgrim centres and number over 1,700. Of the total 50% deal in live-stock only; 10% deal both in live stock and produce and 40% deal in agriculture products only. Produce fairs are all found in Bihar and Orissa only, While live stock fairs are held in U. P., M. P., Gujarat, Maharashtra, Punjab, Haryana and West Rajasthan. These fairs are held annually specially between the months of October and May and the duration of livestock fairs varies from one day to 3 months. Camels, horses, bulls, donkeys, cows, bullocks, sheep and goats are usually sold at these fairs. Such fairs are organised by District Officers, Local bodies or private agencies.

Such religious fairs are Maghmela at Allahabad, Kartikisnan mela at Kurukshetra, Garhmukteshwar and Pushkar.  

There are various dimensions of markets which can be classified on the basis of the following dimensions:

1.   On the basis of free intercourse or degree of competition

a.    Perfect market: A market said to be perfect, when all potential sellers and buyers are promptly aware of the prices at which transaction takes place, any buyers can purchase from any sellers. The principle underlying a perfect market expects that there must be a uniform price for any one standardized commodity at a particular time at any place, there should not be restriction on the movement of a commodity, there must be a good number of buyers and sellers.

b.   Imperfect market: A market is said to be imperfect where, some buyers or sellers or both are not aware of the prices at which transactions takes place. There is restriction for movement of goods.

 Imperfect markets are:

a.    Monopoly market: There is only one seller of the commodity

b.    Duopoly market: It has two sellers of a commodity.

c.     Oligopoly market: There are more than two but a still a few sellers of commodity

d.     Monopolistic competition: A large number of sellers will deal in heterogenous and differentiated form of a commodity

2.  On the basis of time:

a.       Very short period markets: These are for few hours and are mostly for highly perishable commodities like fruits, vegetables, fish, milk, etc.

b.      Short period market: In these markets commodities are perishable and can be traded for some time. These commodities are like foodgrains and oilseeds.

c.       Long period markets: Time span available is long to adjust supply to meet demand even by managing production. These markets can be for machinery and manufactured goods

3.  On the basis of nature of commodities (Type of goods transacted):

a.       Commodity markets

b.      Produce exchange- commodities are produced and not manufactured. Generally one market in one commodity. e.g. cotton exchange Mumbai.

      Manufactured goods markets: These are markets of manufacture and semi manufactured goods. For e.g. Leather exchange of Kanpur

      Precious stones: These are highly specialized and well organized markets of world for e.g. bullion market of Mumbai

Capital markets:

      Money markets: Broad term include a number of agencies providing a finance to business. These are at large trading centers like Mumbai, London Foreign exchange market: It is international market and largely concerned with export and import trade of countries.

      Stock exchange: This is market for investments stocks bonds debentures shares are purchased and sold in different parts of the countries for e.g Calcutta and Madras stock exchange

4.    On the basis of area of coverage:

1.      Village Markets: Buying and selling activities are confined among buyers and sellers of the village or nearby villages mostly for perishable a commodities.

2.      Regional markets: (District/ Sate) Buyers and sellers for among commodity are drawn large area than the local markets in India there generally exist for food grains.

3.      National Markets: Buyers and sellers are at National level e,g. Durable goods such as Jute, Tea.

4.      World Markets: Buyers and sellers drawn from the world biggest markets form area point of view and exist for commodities having world wide demand e.g., Coffee, Gold, silver.

4.    On the basis of area of coverage:

1.      Village Markets: Buying and selling activities are confined among buyers and sellers of the village or nearby villages mostly for perishable a commodities.

2.      Regional markets: (District/ Sate) Buyers and sellers for among commodity are drawn large area than the local markets in India there generally exist for food grains.

3.      National Markets: Buyers and sellers are at National level e,g. Durable goods such as Jute, Tea.

4.      World Markets: Buyers and sellers drawn from the world biggest markets form area point of view and exist for commodities having world wide demand e.g., Coffee, Gold, silver.

5.  On the basis of location or importance:

a.       Primary Wholesale markets: These are located in big towns near the centres of production of agriculture commodities, transaction mostly take place between farmers and traders.

b.      Secondary Wholesale markets: These are generally located at districts headquarters or important trade centres near railway stations. Produce is handled in large quantity.

c.       Terminal markets: Here produce is either finally disposed off to the consumers or processors or assembled for export. These are located in Metropolitan cities like Mumbai, madras and Calcutta.

Ø      Sea board markets: These are located near seashore and are mainly meant for import and export of goods.

Ø      Fairs: These are held on religious occasions.

6.  On the basis of nature of transaction:

a.      Spot or cash markets: Here goods are exchanged for money immediately after sale of within reasonable short period of time.

b.      Forward or future markets: Here a transaction takes place for a standardized commodity with a promise to pay and deliver a commodity at some future date.

7.  On the basis of volume of transaction:

a.       Wholesale markets: Here commodities are brought by and sold in large lots or in bulks. Transaction takes place generally between traders.

b.      Retail markets: Her commodities are brought by and sold to the consumers as per their requirement.

8.  On the basis of no. of commodities in which transaction take place:

a.       General market: In these markets almost all the types of commodities, such as foodgrains, oilseeds, gut fiber crops etc. are brought & sold.

b.   Specialized markets: In these transaction takes place only in once or two commodities.

For every group of commodities, separate markets exist e.g. Food grain markets, Cotton markets etc.

9.  On the basis of stage of marketing:

a.       Producing markets: These markets mainly assemble goods for further distribution to other markets for production purpose. They are located producing areas.

b.      Consuming markets: Here produce is collected for final disposal to the consuming population. These are located generally in thickly populated areas, where production is adequate.

10. On the basis of extent of public intervention:

a.       Regulated markets: Here business is done as per the rules and regulated by statutory market organization. Market charges are standardized and fixed and practices regulated by Agril Produce Market committee.

b.      Unregulated markets: Here business is conducted without ant set of rules and regulations. Traders frame rules and conduct business. These markets suffer from various defects in functioning.

Chapter 6- Methods Of Sale

One of the most important aspect of marketing in India is concerned with different methods of trading employed in markets. In some cases transactions are settled under a cover of a cloth with the help of fingers and signs. In other cases agricultural produce is auctioned in the open market and the buyer with the highest bid takes the produce. Under another method sellers settle the sale separately and individually with buyers. Still another practice is to settle the trade deal on the basis of the sample of the produce. There is yet another method known as “Dhara Sale” under which heaps of grain of different qualities are sold at a flat rate.

Ways and means in which transactions takes place in the Indian agricultural market.

Many methods of sale are in vogue and simultaneously co-exist in different markets even in the same market different methods are followed for different commodities and some times even the same commodity. Every method has its merits and demerits. We shall discuss each one of these methods in detail. It is however possible that you may find some of these methods having no visible merits at all, but the benefits of such methods are rational and convenience based.

1.  Forward Sale  

Under this system the producer-seller sells his anticipated future produce in advance to the trader directly at a price fixed at the time of striking the deal

either in the village or at the business place of the trader depending upon the willingness of the party that initiates negotiations. This is only an oral contract and is not enforceable in any court of law. The trader usually enters into a contract with a speculative motive and when the price declines subsequently he may force the seller to reduce the price by refusing to lift the produce.

2.      Jalap Sale

Under this method the trader’s purchase the standing crop of the producer well in advance of the harvest at a price fixed on the date of the bargain. The price is usually coated in lump sum for the entire crop and the seller may receive 50% of the value of the sale transaction in advance. Usually the Jalap Sale goes against the agriculturalist seller as the price is fixed and determined by the buyer on the basis of the urgency to sell and not on the basis of the prevailing market rates. Such price quotations are in most cases abnormally low, further if the crop fails to give the expected return the buyer may force the producer to reduce the price further.

 

3.      Maghum Sale or Unbhav Sale

 Under this the seller is bound to deliver the produce to the buyer on a set date within a period prescribed by a verbal understanding between the 2. In return the buyer is supposed to pay the price ruling on the delivery day. This method is usually adopted in interior areas where price fluctuations get communicated within a conventional time lag. It is usually beneficial to the farmer as he dictates the price and the buyer should pay on a future date of his choice. This method is followed when cultivators borrow from traders or where their residence is far away from the market.

 4.      Sale by Sample

It is the most convenient method of sale where the produce is systematically graded. It saves the cost of transportation and inspection. However utmost honesty in the dealing is to be followed. The produce or the commission agent shows the sample to the trader and finalizes the price.

After the establishment of warehousing facilities in some regulated markets, producer as well as traders stores notified agricultural produce. When such depositors will send their stock representative. Samples are given to them from their produce. They can use this as a certified sample

of this produce. In regulated markets, open auctions can also be conducted on the basis of such representative samples. This regulated market process is called quoting on samples. Disputes may arise when the samples prove to be unrepresentative.

5.      Hatta Sale (Undercover)

Popularly known as undercover or secret sale. The sale under this system is open to a variety of malpractices as the seller remains in the dark all the time and it is only the commission agent and the ultimate buyer who really knows the negotiated price. Under this system the commission agent covers his hand with a kerchief and invites offering individually from each buyer. The buyers make these offers in a secret language, which is mostly understood only by the commission agents and the buyers. Most of this secret language is a sign language that involves pressing fingers and finger joints. The highest offer made is intimated to the seller and if he agrees, the bid is closed. Thus a sale gets confirmed. However there is no guarantee that the benefit of this higher price always goes to the producer, as he is unaware of the price offered. Thus the Hatta system of sale operates to the disadvantage of the producer.

6.      Sale by Open Agreement

Whenever the grower or the farmer deals with the buyer to enter into a sale/transaction with him, a sale with an open agreement is said to have been made. There are no middlemen and it is the seller who moves from one buyer to another in search of a remunerative price or offer. The Tobacco and Cotton are the two important commodities sold by an open agreement. In such kind of a sale, ignorance of market conditions may prove to be damaging. Also the buyer may exploit him through over weighing, manipulation of accounts deductions of unauthorized allowances and delays in making payments. Further, oligopsony may result in depressing the prices. Oligopsony means the state of a market controlled by a few buyers in relation to many sellers.

7.      Sale by Open Auction

Under this method the produce is sold through an open auction by the general commission agent or the brokers or some other auctioneer in the presence of the seller or his agent and the competing traders. The offer of the highest bidder is accepted with the consent of the seller. There the seller has the discretion to refuse the offer of the bidder if he considers the bid too low. The objective of the system is to create conditions of perfect competition by eliminating undercover practices and providing for the interaction of the forces of supply and demand in relation to the

quantity and quality variations. This is possible as a pre-auction inspection of the graded lots is allowed and disputes regarding the quality are eliminated. The farmer who views the open auction process gets a kind of a physiological satisfaction. He feels he cannot be cheated due to the open method of price fixation (bidding). The buyers too have the opportunity of putting forward repeat bids to reach a maximum paying capacity for striking a deal.

The demerits of this system are:

1.      The process is very time consuming and requisites an extensively developed system of commercial grading.

2.      The auction has to be done by lots and this results in a large number of traders in the beginning but the number thins out as the day progresses.

Higher bids are few and far between as the buyers are relevant to pay a high price for the produce. They feel that if a product has come up for auction, it is somewhat inferior.

8.      Sale by Tender system

Under this system the produce (preferably a graded one) is arranged lot wise and is open for inspection by the intending buyers. The time is stipulated (fixed) for submission of tenders. The intending buyer after examining the lost records the bids in their tender slip supplied by the market committee. These tender slips are then deposited in a sealed box. While depositing the bid-slip, the buyer also signs a priority register. The objective of using a priority register is that incase of tie-bid, the slip deposited first, as indicated by the register is deemed as the highest. Usually the tender box is opened and the market superintendent or secretary compares the slips. The highest quotation for the lot is recorded in the bid-declaration slip. The maximum price quoted is announced on the public address system for the benefit of the sellers and buyers. If the seller is not willing to sell at the quoted price, he has to inform the market secretary within a predecided and stipulated time limit. In this system the physical system involved is the least for all parties concerned. And there is a certainty of completing the sale of all the lots by the stipulated hour irrespective of the numbers involved. It is further observed that the differences in price offered by the highest bidder and the nearest competitor in many cases is just a few rupees. This clearly indicates that the prices quoted are based more on individual calculations

of profit margins rather than by simply working out the parity price based on terminal prices. The tender system of sale has one definite advantage over the open auction system, as it is time saving.

9.      Dara Sales

In this system, the heaps of grain of different quantities are sold at a flat price. The advantage claimed by the system is that within a short time a large number of sales can be affected.

Chapter 7: Marketing Agencies

The Next important aspect relates to the functionaries operating in the Indian agricultural markets. A very large number of intermediaries have come to exist between producer and consumers of these the major ones are:

1.      Village Beopari is by far the most usual purchaser of the produce, who deals in his individual capacity. He usually collects the produce from the villages and hats and brings it to the wholesale markets and from there it reaches the consumers. Beoparies generally purchase when prices are low and sell it when they are high.

2.      Itinerant Beopari wanders from village to village, collects the produce and takes it to the nearest market. He purchases at cheaper rates owing to the lack of competition from other beoparies.

3.      Tola or Weigh men also to some extent function as intermediaries. Technically speaking they are supposed to only weigh the produce and charge a commission for certifying its weight. But it is more than often seen that these tola also arrange the sale of the producer by carrying samples to dealers in towns. They obliviously charge a commission for this and also ‘Tolai’.

4.      Local landlords and cultivators, especially the medium size holders also sell the produce directly to the village beoparies or town dealers visiting the village markets.

5.      Arhatiyas or Brokers: They usually occupy a very important position

among all the intermediaries. They are of 2 types:

a.       Kutcha arhatiya mainly concentrates on the work of collecting and assembling the produce.

b.      Pucca arhatiya on the other hand arranges for the sale and distribution of the produce.

Both work together in tandem as master and apprentice. They also advance loans to the village merchants and traders on the condition that the produce will be sold to them or through them.  

Although the seller is free to sell his produce in the market directly to the buyer, he in actual practice does it through a commission agent. The intricacies involved in the market transactions have compelled him to adopt this costly agency. Broadly speaking, 70% of the produce is handled by the producers themselves and the balance is handled by trade comprising commission agents, wholesalers, retailers, co-operatives and the governments.

Chapter 8: Marketable Surplus and Marketed Surplus

India is the world’s largest producer in approx. 9 different agricultural commodities. However it is not the largest exporter in even a single segment. This is because of 2 basic reasons viz.

1.      Indian consumers are more in number hence they do not leave any surplus and

2.      Indian products that are surplus are non marketable in nature.

Indian agricultural marketers have the tough task of making non-marketable Indian offers attractive.

Unlike the case of manufactured products where the entire produce is set aside for the market, in agriculture all produce is not sold. The actual amount of crop sold is dependant on a large number of factors. One of the major factors in this case is “Marketable Surplus” the other factors being need for cash, price trends, availability of storage facilities etc. The marketable surplus, in turn depends upon the production on one hand and the growers household and farm requirements on the other.

In agricultural marketing is involved the putting up of the surplus in the market through a definite channel. The surplus may be marketable surplus and marketed surplus. The former indicates the residential quantity left with the producer after meeting his requirements for family consumption, farm needs, and payments-in-kind to casual and

permanent labour, the landlord, artisans and seed and stock to cover the future exigencies including wastage. The latter term refers to the quantity of produce that is actually sold in the market by the producer irrespective of his home consumption and other requirements.

A farmer's marketed surplus can be either more, less or equal to his marketable surplus. If the farmer retains less of the produce than is needed for the consumption at home, the surplus is more. This usually happens when cash is needed immediately after the harvest to meet certain urgent needs. It is less, when a farmer holds some of his surplus produce on the farm or consumes more than normal amounts of it. It is worth noting that marketed surplus of small subsistence farmer’s increases with a price fall because more quantity has to be sold to meet the minimum cash needs. Large farmers market little when prices are low and hold stocks in anticipation or future higher prices. The size of the marketed surplus thus depends upon the relative share of small and large cultivators in the marketing, and may thus vary considerably from one year to another.

Marketable surplus will always be less than the actual production. But it can be higher or lower than the level of marketed surplus during a period depending on the extent of hoarding from the current production or dehoarding of the accumulated stock by the producers. This means the “theoretical surplus available for disposal with the producer, left after his genuine requirements of family consumption, payment of wages in kind, feed, seed and wastage have been met.” Objectively it is the arrivals, direct from the producing areas, out, of the new crop.

It is very difficult to calculate marketable surplus of agricultural crops because production year varies from crop to crop. Old crops cannot be easily demarcated from the new crop. There is always the fear of double counting, farmers and traders have always the tendency to under-estimate the quantity of the crop sold or stored. Further, the quantity retained for use in each farm depends on a variety of factors, such as the size of the farm and the family, the proportion of food grains in the total farm production and the amount of hired labour. Nor is the absolute quantity retained for home use constant from one year to another. Even if one takes into account population changes, which affect rural food requirements, year-to-year changes in the crop size affect marketed surplus in a complex manner.

Therefore, in calculating marketable surplus usually subjective methods are employed, such as acreage under cultivation, average yield per acre in the area, average size of holdings, social conditions prevailing in the region with regard to payment of wages, economic conditions of farmers particularly with regard to indebtedness etc. Besides, the amount of crop to be marketed is also determined by the nature and size of crops, market facilities and the price at the time of sales. Thus, marketable surplus is not a free variant but a forced surplus.

Chapter 9: Defects of Agricultural Marketing

1.      Lack of organization among producers:

Lack of organization among producers is one of the basic and fundamental problems in the Indian Agricultural Marketing scenario. The farmers of India are small and scattered all across the country. The producers have little or no place to store. The produced moreover is small per farmer. Also almost all small farmers are neck deep in debt and need cash reasonable fast due to the unusual structure of agriculturism in India. An organizational attempt at the grass root level usually fails. Cooperative movement in India seems to have failed and thus the small farmers lack organization.

2.      Forced Sale:

In a scenario wherein the farmer producer is disorganized, requires cash at double speed and has no storage facilities at the local level, he is forced to sell at a lower price. Many a times the endrocities of the moneylenders are almost hedging on the farmers to sell their produce at lower than reasonable rates. The forced sale phenomenon is one of the major reasons responsible for the pathetic condition of the rural farmer.

Causes of Heavy Sales in the Villages

The following are chief causes leading to heavy sales in the villages: -

Ø      The most important cause for the high percentage of produce sold in the village is without doubt the indebtedness of' the producer.

Ø      The second important factor, which is responsible for the high percentage of village sales, is the unsatisfactory, nature of communication with the nearest market.

Ø      The element of time is an important factor and this for double reason. The marketing possibilities of perishable commodities depend very largely on the rapidity with which they can be transported to the marketplace.

Most of the cultivators are hard-pressed for cash to meet the claims of their creditors and to pay off rent and other charges. Even when they know fully well that by holding up the crop for a few months they would be able to secure a better net return, they have usually no other alternative but to market the produce immediately in order to meet their urgent liabilities.

 

3.      Superfluous Middlemen:

Traders are the main functionaries in a market. They dominate every activity in the markets. They ignore the interest of the farmer-producers who are the sellers. Due to this the Indian farmer is not getting good returns. The Middlemen intervention is uncalled for, as they are the reason behind the malpractices in agricultural marketing in India. Due to the sales methods adopted by the middlemen the farmer seldom know what price they are to receive for their sale. Infact due to inadequate new facilities most of the time farmers don’t even know the prevailing prices/rates in the market.

Due to the various barriers in taking the produce to the urban market, many farmers prefer to sell these in the local village market, as these village markets are small and distant, there are very few buyers for agricultural produce. Sometimes there is only one buyer. This buyer resorts to monsoly and buys at a very low rate. Moreover he further exploits (resorts to monopoly) by selling consumer goods and agricultural inputs to the farmers at a very high price.

It will thus be noted that there exist as many as 10 to 12 intermediaries comprising of the village bania, itinerant merchant or beopari, dalai, kutcha and pucca arhatiya, co-operative commission agents and wholesale merchants and the retailers. They function at various stages in the process of assembling and distribution of the produce. The existence of a long chain of middlemen reduces the, share of the consumer's price received by the actual cultivator. According to the findings of the Marketing Surveys, the share of producers in a rupee paid by the consumers ranges from 52Paise in the case of rice to 57Paise in case of wheat, in case of linseed it is 62Paise, in case potato 50Paise and in case of groundnuts 45Paise.

4.      Multiplicity of Market Charges:

Market charges are “Those charges that are incurred by the seller or the buyer or both from the time a commodity enters the market for sale till the time the title of ownership of the goods is transferred from the seller to the buyer”. In the course of transacting sale, or a purchase a number of operations involved which cannot be attended to by sellers or the buyers. These necessarily have to be done by the respective functionaries. In order to pay these functionaries, market charges are collected from growers or buyers at prescribed rates. 

One of the main problems is “The multiplicity of market charges and their heavy incidence on the producer-seller.” In the absence of statutory regulations these charges are neither defined, nor are based on any service consideration and are recovered either in cash or in kind, and often both. These charges have no sanctions except usage or customs prevailing. They are always introduced in favor of the traders and the functionaries.

On a sale of produce worth Rs.100, as much as 21.5% of the income of the producer goes to meet the various expenses:  

In the market the cultivator has to arrange with a kachcha arhatiya for the sale of his produce and in the larger markets he has to employ a broker or Dalal to get into contact with the kachcha arhatiya. For their services he has to pay some commission. In addition to the arhat paid to the arhatiya and the dalal, a number of other charges have to be incurred. Tulai has to be paid for the weighing of the produce, palledari to cover the cost of the labourers who help in unloading the cart, preparing the produce, filling the scale-pans, holding the bag open where the produce is being measured, etc. the seller has also to submit to deduction known as garda for impurities in the produce, and dalta for possible loss of weight and dana given to sweepers, watermen, and even beggars. During the measurement and in almost all the markets deductions are made from the amount due to the seller for dharmada or charity, dispensary, gaushalas, pathshalas.

The objectionable feature about the market charges is that they are not only high but are also not clearly defined and specified. The charges vary from market to market and there is also no uniform practice as to charges that are borne by the seller and those that are borne by the buyer. Even within the same market the kachcha arhatiyas may charge lower rates to the village beoparis who visit the market often and have regular trade connections than to the farmer who visits market only occasionally and has, therefore, only small volume of business to offer to the arhatiya. To make things worse many of the market charges are taken in kind and in taking their shares the persons concerned are liable to be generous to themselves. As the Report on the Marketing of Wheat in India points out, “not only the arhatiya and dalal, but the munim (arhatiya's clerk), the chaukidar, the sweeper, the waterman, the arhatiya's cook and a horde of beggars of every description all regard themselves as entitled to a share of his produce.”

Some of these charges and deductions existing in the markets are:

1.      Arhat (Commission)

2.      Dallali (Brokerage)

3.      Hamali (Handling Charges)

4.      Tulai/Dharwari (Weighment)

5.      Chalani (Sewing)

6.      Borioto (charges for holding the gunny bags while filling)

7.      Dhanak (charges for pushing the grain in the gunny bag on to a scale pan)

8.      Charity

9.      Karad (Deductions in kind for the quality difference)

10.  Dhalta/Jhukta (leaving the balance in favor of the buyer)

11.  Namuna (sample)(is shared by the commission agent and the buyers)

12.  Baisari (charges for supervision of weighment to be paid in kind)

13.  Munim (clerks allowance)

14.  Valta/Wata (refraction allowance)

15.  Patti (cost of sale slip)

16.  Bardana (rent for gunny bags supplied)

17.  Rent for cart park

18.  Rent for storage in godowns

 

Charities

      Muthi (to be paid in kind for temples in the market yard)

      Darwada (cowsheds or Balaji’s fund)

      Pathshala (funds for schools in the area)

      Doodh Khawa (fund to pay for milk for the buyers children)

 

Some of these charges are highly outlandish like the farmer has to pay for various charities, which he would be otherwise not inclined to pay for. Also charges such as ‘Shagirdi’ where the seller is supposed to pay fro the Arhatiya’s sweepers and water carriers are uncalled for. Only some of these charges are justifiable. Among these are

      Arhat or Commission

      Hamali

      Tulai

      Charges for sewing

Any deductions in the name of charity in any kind are unwarranted. Similarly payments to the muneem or the apprentice of the Arhatya are uncalled for. Especially when the principle arhatya gets full commission for the services performed by him. Again there is

no case for claming allowances for quality and weight where the produce is subject to thorough examination by the buyer before it is offered for sale. Hence in the light of numerous unwanted deduction and high market charges, it is suggested that markets be regulated.

5.      Malpractices of Middlemen

Due to improper market structure traders or middlemen have become all powerful. They have bent the rules in such a way that it is possible for them to cheat and get away. Moreover the unorganized producers and the market machinery are no match to the powerful trader legally. Even in regulated government markets middlemen resort to malpractices. Some of the malpractices commonly resorted to by middlemen are as follows:

a.       Scales and weights are manipulated against the seller. This practice is rendered easier by the fact that there are no standardised weights and measures nor any provision for regular inspection.

b.      There are all kinds of arbitrary deductions for religious and charitable purposes and for other objects. The burden falls entirely on the seller and he has no effective means of protest against such practice.

c.       Large quantities are taken away from the produce of the cultivator as bangi or sample.

d.      Bargains between the agent who acts for the seller and the one who negotiates on behalf of the buyers are made secretly under a cloth so that the seller remains ignorant of what actually takes place.

e.       The broker whom the cultivator employs is more likely to favour the purchaser with whom he comes into contact almost daily than the seller whom he only sees very occasionally. This tendency becomes all the more pronounced when, as it frequently happens, the same works for both parties.

f.        When disputes arise the cultivator has no means of safeguarding his interest.

g.       Differential prices for the same grade of produce

h.       Levying unfair charges for basic services

i.         Restrictive trade practices

j.        Arbitrary deductions on account of alleged adulteration and inferior quality

Some of the practices obtaining in the market amount to nothing less than common theft.

 

 

6.      Absence of Grading and Standardization:

Although the agricultural produce (grading and marketing) act was passed in 1937 even today in most unregulated markets the practice of grading is unheard of. Whatever limited grading is accomplished is technical in character i.e., commercial grading, which can be understood by the lay farmer, is almost completely absent. If sales of agricultural produce at a higher price are to be augmented without personal physical inspection of every lot by open auction in the regulated markets, commercial standardization and grading are essential. Also if lots are to bulked through cheap and efficient warehousing and transport, standardization and grading becomes imperative. 

Absence of grading and standardising agricultural produce is another defect. The reputation of Indian agricultural producers in the world’s market is low.

There are no standard grades commonly accepted throughout India even for such important commodities as rice and wheat. In the absence of certain standard grades accepted by the whole trade as the basis for commercial transaction, attempt of individual producers merely secures the ordinary market rate. In fact the present practice of dara sales, wherein heaps of both good and bad produce are sold together as one lot common in most markets, gives a premium to the inefficient producer as the good produce is made to carry along with it the poor stuff also. The practice of selling un-graded products of mixed quality has naturally reduced the reputation of Indian agricultural produce in the world markets.

 7.      Inadequate storage facilities:

In most of the villages ryots store their produce in pits or receptacles variously known as kudurus, kallis or thekkas. In the upcountry markets produce is stored in kothis or kuthalas (earthen cylinders) and khattis (pits in ground lined with mud and straw) and in a few centres in pakka khattis made of concrete. But that there is a general inadequacy of good storage facilities both in rural and urban areas can hardly be denied. The indigenous methods of storage adopted in the villages as well as in most of the upcountry markets do not adequately protect the produce from dampness, weevils and other vermin’s.

The losses due to inadequate storage have been estimated to range from 1.5% (Food grains Investigation Committee) to 2% to 2.5% (The Prices Sub-

Committee) to 5% (as estimated by Dr. Baljeet Singh). A recent estimate puts the loss at from 5 to 15% by weight of the production and it is due to defective stage. This in turn is due to moisture absorption, excessive heat, insects, mites, rodents and birds. Even at 5% the loss of cereals, millets, spices, oilseeds, jute, cotton, tobacco would come to over Rs. 4,000 million every year in India.

With the change of temperature, grains loose weight. When wheat is harvested, it contains some moisture, which evaporates in summer and is regained during the monsoon month. Dampness raises the moisture content of the grain thereby making it soft and therefore susceptible to insects. The damage is greater when the grain is stored in kachacha underground pits where the sub-soil water table ranges from 8 to 10 feet below the surface.

It is quite obvious that the food grains stocks held by co-operative societies, grain merchants and even by farmers are not kept in proper conditions. Therefore, the losses are substantially larger. In addition there are crops like jawar, pulses and maize, which are infested by stored grain pests even before harvest. The insects form inside the kernel and are visible until the threshed grains are put in storage. By the time the infection is detected, internal damage to grain becomes very great.

Losses due to rodents are also very great. The rats start damaging the grain right from the field to the time it is consumed. According to Dr. P. J. Deoras, there are approximately 2400 million rats in India. He has estimated that about 20 rats could consume the quantity of food sufficient for one person. On a gross estimate this would mean that rats are spoiling at least one fifth of the grain produced. Calculating on this basis of a tonne of grain being consumed by 100 rats per year, the total consumption by the rat population of 2,400 rnillions would amount to about 24 in. tons. In terms of money this would come to about Rs. 18,000 million when calculated at the rate of Rs. 750 per tonne.

The nature of damage studied by Dr. Deoras is as follows:-

(i) It has been noticed that apart from damaging crops and food grains in storage, rats carry food grains to their nests in burrows. As much as 15 kgs. of grain have been recovered while digging out nests from about 30 rats burrows.

(ii) The rats damage 10 times the quantity of food material they eat. They would execrate about 86 faecal pellets in 24 hours, which would get mixed up with foodgrains.

(iii) They void 1½ gallons of urine during the year, and further contaminate grain by shedding thousands of hair from their bodies.

(iv) In Bombay as many as 9,000 bags of foodgrains are auctioned as they are unfit for human consumption because they are damaged by rats in yards and

godowns.

(v) The small mice in the paddy fields have been found to climb up to the paddy plant and eat every grain while the big field rat usually cuts the whole plant.

Besides rats, “Insects, beetles and moths are prolific and each couple lay anywhere between 100 to 400 eggs and their lifecycle is completed in 4 to 6 months. It has been estimated that weevilled grain in the case of wheat varies from 1 to 2% or more, peas one to 5% or more and arhar upto 2%.”

  8.      Underdeveloped Transport System:

Transport plays a very important role in the marketing of the agricultural produce. A smooth and efficient system of transport from the farmer’s village to the consumer door goes a long way in not only helping the agriculturalist to bring his produce to the market without much difficulty but also helping the consumer in securing his needs with a reasonable time and cost.

In India with her vast distances, the existing means of transport are woefully inadequate. “Communications from the field to the village and from village to the mandi are often extremely poor and defective. Bad roads, lanes and tracts connecting villages with the markets not only add to the loss of transportation and aggravate the strain on bullocks and other pack animals, but also lead to the multiplication of small dealers and intermediaries. They also restrict market by hindering cheap and rapid movement of agricultural produce.” Thus the rural transport network is very bad. The railways established by the British have not been developed further and hence are inadequate by today’s standards. Bad roads lead to delay in supply and also due to the time lag the produce may be damaged.

The bullock carts do most of the transport in rural areas. Some of the agricultural produce needs special storage systems even while being transported. Carts both pulled by bullocks or tractors cannot provide these kinds of facilities. Hence it is very much needed that an initiative be taken to improve transportation facilities.

9.      Lack of Marketing Information:

The importance of an efficient marketing new service particularly for the producer-seller in regulated markets hardly needs any emphasis. This news service acquaints him with the ruling price and thereby strengthens his bargaining power and position. The price information if available grade wise helps him to know the approximate returns he is likely to get for his produce. It also induces him to produce better quality crops and thus raise the standard of farming. Generally the producer-sellers have to depend upon oral information about market conditions, market arrivals, demand conditions, ruling prices

and market trends etc. that reach them through village sahukar or commission agent or their own neighbors.

Absence of market intelligence as to prices is another defect. The villagers have practically no contact with the outside world nor are they in touch with the trend of market prices and they mostly depend on hearsay reports received from the village bane who is not at all interested in supplying them the correct information as to prices obtaining in the wholesale market. Even in cases where information as to prices is available prices are not comparable on account of (i) the lack of standard grades acceptable to the whole country; (ii) Variation in the amount of refractions allowed and the terms of standard contracts obtaining in different markets; (iii) inaccuracy of information supplied by various agencies concerned; (iv) variation in the price quotations give by the local and Central government; (v) the considerable variations in weights and measures used in several markets in the absence of standardisation of weights and measures.

 

10.  Cost of Borrowing:

The most important requirement of growers to facilitate their production activities is credit. Though cooperative credit has been increasingly spreading its fold in the agricultural sector it is still far from occupying a pre-dominant position.

The cultivator is financed by the village sahukar-cum-trader who is in his own turn financed by arhatiya and the indigenous banker. In the absence of warehouses and the lack of facilities for making advances against the security of warehouse receipts there cannot be any system of cheap finance against security of goods. There is at present no proper link between indigenous bankers or commercial bankers and The Reserve Bank of India. The various marketing agents borrow funds at a high rate of interest. This naturally leads to a rise in the cost of marketing with the ultimate result that the share of the price received by the producer is correspondingly reduced.

The case for borrowing private finance and the flexibility in the repayment make it attractive despite many malpractices. Through various surveys it has been proved that though government has taken active measures to provide cheap institutional finance a large majority of farmers are dependent on private moneylenders and commission agents in obtaining credit. It may be noted here that the activities of traders and commission agents through money lending curtail the freedom of the grower-seller to dispose off their produce profitability in market yards and make them permanently indebted. The official machinery has to realize the gravity of the situation and take effective steps to realize the poor and innocent agriculturist from the clutches of the oneylenders cum commission agents.

11.  Multiplicity of Weights and Measures

Till recently, there had been an absurd multiplicity of weights and measures in India. The chaotic state of weights and measures in India has been more clearly brought out in all the reports published by the Central marketing staff. Weights made of sticks, stones and bits of old iron are common feature in the markets and villages.

This multiplicity of weights and measures employed in India has deplorable effects in several ways.

Firstly, it affords greater opportunities for cheating the ignorant cultivator and unscrupulous dealers readily avail themselves of such opportunities.

Secondly, it gives rise to needless complications in practice as between one market and another, which is by no means conducive to the interests of trade and commerce.

Thirdly, for the collection of data on price movements the relative level of prices in different regions, the volume of agricultural production, etc. lack of standard weights and measures is bound to be a great handicap and seriously affects the accuracy of statistical calculation.

The multiplicity of weights and measures make supervision difficult and afford greater opportunities for cheating the producers, creates an element of uncertainty in trade and renders fraud on the part of retailers as easy as it is profitable.

The report of the Marketing Sub-Committee has rightly observed that, “Deliberate malpractices, ignorance and carelessness have all combined to make the consumer in India pay an unnecessarily high price for many goods of different quality.”

12    Adulteration

Adulteration is often resorted to while marketing crops and one of the most important reasons for such deliberate adulteration of agricultural produce is the high amount of refraction (khad) allowed in most markets and the non-mutual terms. In most of the wholesale markets in the producing areas a fixed deduction is made for impurities (say 5%) and the terms are non-mutual, i.e., a producer offering, cleaner produce which has only 1 % of impurities receives the same price as the producer offering produce containing 5% impurities. Naturally when this is the case the seller whether he be the middlemen or the farmer takes care to see that the produce is adulterated to the maximum limit allowed in the market.

Adulteration Of Commercial Crops

Various devices of adulteration are in vogue. Such as: -

Damping of cotton is done by the middlemen on the contention that the kapas comes in

so very hot that if one puts one's hands into it they would grass while curry powder in several cases has been found to be heavily adulterated with horse dung.

“Tomato sauce is often only a mashed pumpkin with a small percentage of tomato, Vinegar in some cases has been found to be acetic acid. Small chippings of white stone have been found in rice in some localities.

“Most of the common salt contains large-quantities of white chalk, while turmeric is adulterated with lead chromate which has a deep Yellow colour. In red chillies, many unscrupulous traders use lead oxide to brighten the colour and add weight.”  

On these finds, Mr. H. Chattopadhyaya has so wittily composed a Poem, which may be reproduced here for the information of the readers; Poem

A SPICY TALE

 

Said Dhania to Zeera :

“Alas my friend, alas !

Men mix us now with grass,

And sell us in the market .......”

 

And Zeera said to Dhania ;

“We should not let it pass !

Let us appeal to the Government,

To cease to be a dunce,

And see to it that such marketeers

Are brought to book, at once ! .. . ..”

While walking through Bazars I heard

Loud cries, which grew too louder !

The helpless agonising cried

Of virgin Curry Powder.

Complaining that she had been raped

While yet so chaste and young

By treacherous traders, without ruth,

Who had now forced her fiery youth

To yield to Horses dung,

Poor Curry Powder sobbed and wept

Till she turned deadly pale.

The country's treacherous traders should

Be forthwith clamped in jail !

 

“Good day, Tomato Sauce !” I said,

She with a saucy smile

Reflected for a while,

And said, after a little pause:

“I am not now what once I was;

I'm only ten per cent of me

Left in the sauce that now you see -

And you can see, if you are not

A credulous country pumpkin,

Nine tenth of me are cleverly

Composed of well Mashed. Pumpkin

 

“I am no more Tomato Sauce,

Since men, as men, are not !

Dishonest traders of our land

Should straight away be shot !”

Said Vinegar ; “My sourness with

Ascetic calm turns placid ;

I am not vinegar, but now

Almost Acetic Acid.”

 

While Rice, humiliated, said :

I cannot but complain

The way disgusting traders have

Been going against my grain.........

Continuing, she choked and said

 

“The nation, flesh and bone,

Is being insulted everywhere,

Our Government should grow aware,

The Marketeers, who hardly care,

Are mixing chips of stone

With me, in order to inflate

The normal quantity and weight.

With the result, through gradual stealth

Doom creeps into the nation's health !”

 

“No ! do not blame the marketers,

It is the Government's fault !

If Chalk is mixed with me and sold

to men !” said Common Salt.

“Or if Lead Chromate, by some trick,

is mixed with honest Turmeric.

Lead Oxide with Red Chillies...........

Say ! is our Government composed

Or nincompoops and sillies ?

If not it is high time they rose,

In holy wrath and punished those

Whose eyes with machination bulge

To ruin a whole nation.

Who, careless of its life, indulge

In rank adulteration ;

Crass criminal offenders, who,

are running the land.

An Straightaway should be put down

With a relentless hand,

A hand that never more shall brook

The presence of a single crook !”

Chapter 10: Lines of Improvement  

Due to various defects in the agriculture market of India the traders (middlemen) occupy a unique position and due to such a unique position, the traders succeed in manipulating the market scenario and to take home a major proportion of the price paid by the consumer. In some cases like rice nearly 48% of the prices charged to the final consumer is siphoned away by the middlemen. A very small proportion of the consumers paid up price actually goes to the producer-seller.

Any program of getting the farmer-producer out of this situation necessarily envolves the breaking up of the monopolistic powers of the trader. Measures to make the producers directly connected with the marketing of the produce are the need of the hour. This may be done by creating a situation where the cultivation has greater confidence in being able to sell his produce in the market. For this it is important to protect the producer’s interest. Further maximum share of the consumer’s routine can be had by the producer if the conditions of orderly marketing are created. Thus a need is felt to tackle the emerging problems of agricultural marketing more resolutely and efficiently than ever before by regulating the markets.

It has been observed that well regulated markets create in the minds of cultivators a feeling of confidence. The producers believe that they get a fare deal in these regulated markets. Such a scenario provide for a mood where the farmer is willing to accept new ideas and strives to increase his agricultural produce. The value of such regulated markets thus can be exaggerated but it is yet to catch on in India.

If the agriculturalist in India is to receive a higher price for his produce, if the needs and preferences of the consumer are to be conveyed to the producer with a minimum amount of delay and friction, and if the large scale industries are to secure a steady and reliable supply of raw material of uniform quality, obviously the defects in machinery for marketing of agricultured produce should be remedied as quickly as possible.

It would be useless to increase the output of food, it would be equally futile to setup optimum standards of nutrition, unless means could be found to move food from the producer to the consumer at a price, which represents a fair remuneration to the producer and is within the consumer’s ability to pay. Similar considerations also apply to other agricultural products and to fish and forest products. It is therefore necessary to remove the defects in the machinery for marketing of agricultural produce.

An improved system of agricultural marketing, which will secure for the cultivator a larger proportion of consumer’s price is a ‘sin qua non’ for agricultural improvement in India.

Establishment of Regulated Markets:

What are Regulated Markets?

Markets that have rules and regulations with respect to the price of the product sold, the method and the produce in which the transactions take place are other similar market operations are said to be regulated markets. These regulated markets ensure a fair and level playing field for all viz. the producer, middlemen and buyer. This is done by eliminating the malpractices at the grass root level.

Establishment and Regulation of Markets in India

The most effective and direct measures to improve the conditions of the markets as taken by the government through regulating the markets and the market practices by legislation. The common objective of the various acts for straight agricultural produce markets is to bring all the parties that is the producer, the commission agent and the buyer to the same level of advantage by eliminating malpractices and rationalizing market charges. The regulated markets provide a unique system of marketing that is only beneficial to developing countries like India. In developed countries besides government legislation semi-independent commodities, commissions or corporations or producer-controlled boards are set up under various acts. These boards, commissions, corporations function to regulate and develop marketing. Added to this cooperative marketing has also made good progress in some developed countries.

In India the situation is however different. Indian producers find it most convenient and least troublesome to sell agricultural produce in the unregulated primary village market. Nearly 2/3rd of the marketable surplus of all agricultural commodities are disposed off (sold) in such markets. If the farmer comes to the assembling center for sale, in non-regulated markets, he is liable to be deceived by the commission agents or broker or traders.

Sale through the cooperative society has not been possible because of the failure of the cooperative movement in India. At the same time the marketing methods followed in advance countries like the establishment of producer controlled marketing boards are not possible in our country as it is difficult to organize such boards on account of small and scattered producers thus the only option left is the regulation market practices in existing unregulated wholesale and retail markets.

Regulated markets in India

The first attempt to regulate the Indian agricultural market was made as early as 1886. Karanja was the 1st regulated market in India. It was situated in the then Hydrebad residency. The process of regulation received wider acceptance in 1918 when the General Cotton Committee appointed by the government of India recommended ‘regulation of market’ as a solution to agricultural marketing

problems. In pursuance of this recommendation, the then government of Bombay was the first to enact the Bombay Cotton markets act in 1927. Infact, it was the first law in the country which attempted the regulations of markets with a view of evolving sound market practices which are fare to the producer as well as the trader 

Since then further act have extended the scope of agricultural legislation to the commodities other than cotton. Today market legislation in India covers almost all agricultural as well as horticultural produce, livestocks and these products and forest produce. However since the regulation of markets is a state subject, these are some variations in the state legislations.

Most of the regulated markets now functioning are, by and large, multi commodity markets. There is however some markets, which deal in simple commodity, like tobacco, vegetables or livestock.

Although legislation provides for the regulation of all types of products in actual practice only some important commodities have been so far brought within the preview of enact. It would, however, be advantageous to the producer-seller if all the commodities are grown in the market are brought within the orbit of regulation. This enables the producer-seller to dispose off their entire marketable surplus in one and the same market. It is, therefore highly desirable that all agricultural commodities, which are commonly grown in notified areas and for which there is a fare marketable surplus, should be included amongst the notified commodities for the markets. Several committees have also recommended this from time to time.

The poor standard of primary and secondary commodity markets where producers convert their produce into cash, the prevalence of various malpractices such as short weights, excessive market charges, unauthorized deductions and allowances made by commission agents, adulteration of produce and the absence of machinery to settle disputes between the seller and buyers were recognized as the main hindrances in agricultural marketing as early as 1928 by the Royal Commission on agriculture on a national scale, which by observed that “these can only be removed by the establishment of regulated markets”.

A regulated market is a market that has rules and regulations with respect to the price of the product sold, the methods or the procedure in which the transactions take place and other similar market operations are said to be regulated markets.

These regulated markets ensure a fair and level playing field for all viz. the producer, middlemen and the buyer. This is done by eliminating the malpractices at the grass root level.

Progress of regulation in India

Regulation of markets in India is today a state subject. The directorate of marketing and inspection at the central level render advice in farming market legislation and its enforcement. In 1938 a model bill was prepared by the central agricultural department (now known as Directorate of marketing information). On the lines of this bill several states drafted and passed their own bills. The progress of regulation was very slow due to the 122 markets were regulated till the end of the war. After independence the planning commission in its 1st and subsequent 5 years plan emphasis the vital role played by regulated markets. Due to this the number of regulated markets grew rapidly after independence. The number of the markets increased from 432 in 1950 to 3631 in 1976.

A number of steps have been taken in the last 50 years to regulate markets. These are aimed at regulating marketing practices, standardizing weight and measures, developing certain infrastructure facilities in assembling markets and introducing quality standards AGMARK certificate.

Though the legal framework has been provided in those state the progress is uneven hence it’s suggested time and again that:

a.       A further expansion of the regulated market system in terms of both market and commodities to be brought within the scope of regulation.

b.      Strengthening the arrangement of enforcement and inspection to ensure a regulated system of open auction, trading practices and margins of intermediaries.

c.       Development of rural markets and shandies and establishment of rural markets in areas where such facilities are not available.

At the central level financial assistance is being provided to select regulated markets for establishment of grading facility for some important items at the producers level. Some schemes are also assisting the development of infrastructure facilities in selected regulated markets both primary and wholesale levels. But despite this the progress is not very satisfactory. Quite a sizeable size of markets remains unregulated even in this day and time.

Benefits or advantages of regulated markets:

Regulated markets have many advantages over unregulated ones. Economically the producers gains by way of reduction of unwarranted multiple market charges and unauthorized market deductions. Socially it profits the producer as he is now directly involved in the management of the market communities. This provides him with a platform where he can discuss matters concerning his

interest and give bent to his grievances. Psychologically the producer occupies a dominant position in the market community and faces the trader with greater confidence.

Market the social and economic benefits accruing to the cultivators, as a result of the regulation of markets may be briefly enumerated as below:

1.      As a result of the rationalization of market charges alone, the producer-seller is benefited to the time of 3-5Rs for every hundred Rupees worth of produce marketed by him in the regulated markets. It works out to be 15-25lakhs on rupees in respect of markets with an annual turnover of 5crores of rupees. This is no small benefit to the tiller of the soil. Besides there has been a reduction in the market charges which varies between 28&69 % inn various markets.

2.      There has been an increase in the number of sellers bringing their produce to these markets. Until 1944, the producers themselves took less than 40% of the produce to the markets. The average percentage has now gone up to 70%.

3.      Markets charges are clearly defined and specified. Excessive charges are reduced and unwarranted ones are prohibited

4.      Market practices are regulated and the undesirable activities of the market functionaries are brought under control so that a fair dealing is assured

5.      Correct weighment is ensured by periodical inspection and verifications of scales and weights. Only correct and stamped beam scales and weights are allowed to be used in the market.

6.      A machinery for the settlement of disputes between traders and sellers is setup this machinery provides suitable arrangements for the settlement of disputes regarding quality, weighment and deduction prevent litigation, safeguard the interest of the seller and smoothens business by creating good relation between sellers and buyers.

7.      Reliable and up to date market news are available to the sellers.

8.      Proper market yards with full facilities like sheds for the sale of produce, cart parking place, better grading and warehousing facilities for accommodation of agricultural produce are duly provided by the market committees.

9.      Open auction methods are strictly followed and unjustified trade deductions like karda, dalta, batta namuna etc are eliminated.

10.  In these markets suitable quality standards and standard terms for buying

and selling are conveniently enforced.

11.  Besides reliable statistics of arrivals, stock and prices are easily available.

Thus regulation of markets has been a boon to the agriculturalists. It has not only introduced a system of competitive buying, helped to eradicate undesirable malpractices, rationalized market charges, standardized weights and measures, protected cultivators from authorized deductions and unduly low quotations but has also developed a machinery for serving impartial settlements of disputes between the practices. Taking the overall picture, regulated markets have produced a wholesome effect on marketing structure and have generally raised the efficiency of marketing at the primary level.

Steps have to be taken in the future not only to bring the remaining assembling and terminal markets but also the primary markets under regulations.

Most of the defects and malpractices to the disadvantage of Producer-seller can be removed by the exercise of proper control over markets and this could be done by the establishment of Regulated Markets in the country. Markets may be regulated either by local bodies or under State legislation.

As a result of the rationalisation of market charges alone, the producer-seller is benefited to the tune of 3 to 5 rupees for every 100 rupees worth of produce marketed by him in these markets. Besides, there has been the reduction in the market charges varying from 28% to 69% in various markets. There has also been an increase in the number of sellers bringing their produce to these markets. Until 1944 less than 40% of the produce was taken to the markets by the producers themselves. The average percentage has now gone to 70%.

 2.      The market yard; amenities and facilities:

A market yard is “A statutory declared area situated within the market proper where all sellers of the notified commodities are supposed to bring them and affect transaction with licensed traders directly through the other license intermediaries under the supervision of the employees of the committee. The market yard is the nerve center for the performance of the activities of a regulated market.

A well laid out market yard includes the provisions of certain basic amenities and facilities. Normally a market yard acquired amenities and facilities such as auction halls or platforms, godowns, market office, space for parking carts, drinking water, rest houses, sanitary arrangements, cattle shed, internal pucca roads, canteen, lighting facilities, post offices, banking facilities, etc. However

no market yard can actually claim to have provided all amenities and facilities laid in the standards for regulated markets formulated by the Indian Standard Institute (ISI).

3.      Use of Standard weights and measures:

The weighing of agriculture produce is an important aspect in the working of a regulated market. It influences the actual earnings of producer-seller and also their perception of the transaction fairness. There are many malpractices connected with weighing and weighment. Some of the traders resort to using unauthorized and faulty weights and scales. Then there is a problem of conventional and marginally over weighment. The buyers demand access weight allowances and insist on arbitrary deduction for counter balance. They also resort to very unethical practice of free taking away of excess left in the lot after weighing. All such malpractices rampantly co-exist due to the absence of an impartial and independent agency for weighing. There is also a complete absence of uniform weighing charges or weighment. The lack of any fixed procedure of supervisors over the actual weighing process is also responsible for the situation.

The multiplicity of weights and measures has deplorable effect on the market scenario. The traders take full advantage of the situation and cheat the ignorant cultivator on every available or possible occasion. Further the multiplicity of weights and measures makes supervision difficult. It creates an element of uncertainty in trade and renders scope for fraud. Mostly weighing of agricultural produce in most regulated markets is done wholly within the premises of the market yard. The produce is weighed by different licensed weighmen simultaneously at different spots in the yard. Depending upon the nature of the commodity the procedure of weighing differs.

Mostly it is done lot by lot by the same weighmen, sometimes if a seller has a high amount of produce to be weighed he engages the service of more than one weighmen. The system adopted however depends on the availability of sufficient number of weighmen, the number of licensed weighmen, in turn it is determined by the size of the market, the frequency, the scale of the commodity arrivals and the possibility of earning sufficient daily income by way of charges collected. It is however observed that in many regulated markets across the country the number of licensed weighmen was small. Many times it so happens that

though the sale transaction are over in the morning the growers have to wait for getting their produce weighed till late in the evening and may be even overnight. This shortage of weighmen in all the markets is due to the fact that the market committees are averse to issue more and more licenses to weighmen. Their logic is that if more weighmen are given licenses the earning of the existing set of weighmen would be adversely affected.

Many suggestions to the improvement in the scenario have been given by various national level committees. It is suggested that the market committees should expedite the process of issuing license to weighmen in the interest of the producer-seller. It is also suggested that the market committees should themselves provide weighing and measuring equipment as against the present practice of traders using their own equipment.

The use of standard weights and measures safeguards the interest of parties against cheating by false or under-weight. It is even now more urgently needed in rural areas in regard to transactions in which the farmer is concerned. The Planning Commission has recommended to adopt the metric weights and measures throughout the country because it is simple, easier to learn and remember; and its use would save time and labour in calculations. The Standards of Weight and Measures Act has been passed in 1958 and enforced in all the states with a view to check fraudulent views of weights and measures.

According to a survey it is estimated that 80% of the transactions were deemed to be proper and fair as 20% is not a small figure. This 20% of malpractices can be eradicated if there is an efficient supervision by authorities of the market at time of weighing. It has been observed that the “surprise inspection” weapon provided to the market committees with respect to weighing provisions is a failure. This is because most market committee member is honorary and thus indifferent to pay such visits and invite trouble. Also the employees appointed as inspection staff by the government are far too inadequate in number. Also this inspection staff (agricultural supervisors) are in the habit of taking bribes from the commission agents and traders for conniving at improper weighing. The surprise visits made by the market securities are rendered ineffective as a result of before hand knowledge of the visit to the supervisors and licensed weighmen. Thus here again it is suggested that market committees take the punitive actions against offenders and check these malpractices. Further it is suggested that the weighing work among the licensed weighmen should be given on a rotation basis. This will minimize the collusionary group affiliations and thus reduce the

malpractices in weighing agricultural produce.

Besides the check from the authorities the grower can also do a lot to eliminate weighing related malpractices. The grower should be diligent and meticulous with respect to the procedure of the weighing laid down by the authorities. The grower should also take the trouble of weighing the produce at their own end before bringing it to the markets. It is observed that the grower seldom do this and thus the loss on this account is sizeable.  

4.      Increased Provision of Storage and Warehousing facilities:

It has been well said that the business of accumulating and storing perishable as well as non-perishable products in times of flush production, preserving them safely and then distributing them in times of scarcity is necessarily a part of production and equal in importance and dignity. By holding back a part of the surplus at harvest time the middlemen prevent a sharp fall in prices of commodities so that the producer's share in the benefit is increased and by letting out produce from the store in seasons when prices are normally likely to rise sharply, they check the rise and bring about some stability in market prices which benefits the consumer immensely." Storing is, therefore, a very important part of marketing. This point was realised by the Royal Commission on Agriculture and subsequently supported by the Central Banking Enquiry Committee.

Storing goods, before they are sold is an important part of marketing. This point was fully realised by the Royal Commission on Agriculture and subsequently supported by the Central Banking Enquiry Committee and later on by the Agricultural Finance Subcommittee, the Rural Banking Enquiry Committee and by the Rural Credit Survey Committee. All these bodies recommended that storage and warehousing facilities should be made available at all nuclear points of trade in agricultural produce.

As mentioned in the previous section, losses in storage are due partly to the change in temperature, dampness and partly to insects etc. These losses in temperature can be reduced by making provision for efficient ventilation in the godowns and by closing them during the monsoons and keeping them open during the dry season. Grains in bags can also be protected by damage. It is necessary that sufficient space be kept between the bags

while preparing a stack-plan.

Storage of farm produce is one of the essential elements of orderly agricultural marketing. It is necessary at various levels to varying degrees. The method of storage at the primary market level depends upon the prevailing traditions, value and the retaining capacity of the commodities to be store, the availability of facilities for storage and the waiting capacity of the producer-seller.

Due to the lack of storage facilities that are adequately and efficient the losses are great. Realising the need for good storage and warehousing facilities the Indian parliament in acted the agricultural produce (development and warehousing) Corporations act in June 1956 in order to accelerate the efforts of building warehousing, the government subsequently passed the warehousing corporations act in 1962.

Accordingly the national co-operative development corporation, the central warehousing corporation (CWC) and the SWC in each state came into existence. A 3 tier storage system was suggested by various committees viz.

The National Level

State and District level

Village and Rural level

In accordance with these suggestions, the food corporation of India and the CWC created storage facilities at centers of all India importance. The state government and the SWC made warehousing and provided for storage facilities at centers of state or district level of importance. Over and above all this villages / Rural storage needs are been looked after by the co-operatives.

These efforts have had a mixed impact but definitely the storage capacity over all has gone up considerably.

Further the government of various states has issued private operators licenses to build and run scientifically designed warehousing and other storage facilities. The licensed warehousing offers other distinctive benefits. The private warehousing storage receipts are transferable and thus the ownership of the goods can be transferred without the actual

movement of produce. The scientific storage eliminates lose from spoilage. The private warehousing also provide for insurance cover against fire, flood and theft. They also help the grading and standardization of various commodities.

 

5.      Improvement of transportation facilities:

Right means of transport at the right time is essential for the smooth functioning of any market. This kind of a facility at reasonable rates will influence substantially the working of market mechanisms. It has been observed that the cost of transport directly affects the price of the agricultural produce.

All involved in agricultural marketing i.e., the farmer, trader and the consumer are affected by the shortage of transport facilities. The market committees are under no statutory obligation to provide for transportation but the nature of the problem is such that it is suggested that they step in.

It is the fact that most farmers due to regulated markets would like to sell their product directly at secondary markets but not at village assemblies centers. However due to bad transportation facilities the farmers are not willing to take the risk of transportation. Here is where it is suggested that the market committees take upon them some responsibility. They should organize some trucks or lorries for the transport of the produce of small farmers from village assembly centers to urban secondary markets. The fact is that the produce of just one farmer may not be enough to fill in an entire truck. Hence the market committees should help coordinate 2-3 farmers to pool their producer together so that an entire truckload is completed. The cost of such facilities provided could be recovered from the sale of the produce.

The method suggested above can be executed as follows:

a.       The individual grower-seller may record their transport requirements with the market committee.

b.      The committee after receiving such requisition pools them and contract lorry supply offices, thus arranging for the transportation.

c.       As mentioned earlier the cost of coordinating and transporting can be

deducted from the sales proceed.

Similarly to assess the traders in having adequate transport facilities, the committee officials may contact transporters as well as railway authorities in obtaining the required number of lorries or wagons.

This would reduce substantially the transport bottlenecks thus benefiting both the farmers as well as the traders. The markets will also function continuously without the need for closure for want of transport.

 

6.      Provision of marketing news:

The Agricultural Commission had recommended that steps should be taken for a better dissemination of the marketing news. The marketing surveys conducted under the direction of the Central marketing staff have shown that “there is at present a surprising lack of co-ordination as between different markets. Prices do not move in harmony even in markets, which are not far from each other. We often find a market glutted with a produce which is scarce in another perhaps only a few miles off.”

The problem of lack of marketing information was discussed earlier. Now having realized the need for a good agricultural marketing news service, the government of India through its 5 year plans has allocated some budget for this activity.

The government of India in collaboration with the various state government help, setup of an all India market news service in the 2nd 5year plan. This mainly benefited the farmers, as initially almost all the news relayed from these centers was agricultural in nature and market oriented.

In 1957, the integrated scheme for the improvement of market intelligence was launched in Bombay. The main objective of this was to give upto–date information to the producers with regards to the wholesale prices of agricultural commodities ruling in various markets. This scheme covered two aspects viz.

a.       Collection and compilation

b.      Information dissemination

Since then the government has given a lot of importance to improving the quality of agricultural marketing news services. All India radiobroadcasts daily, the closing of agricultural commodities and gives information regarding prices. The penetration level of the radio set is almost 90% hence the broadcasts are very useful.

Thus the objective of an efficient market news service should be to aid towards more intelligent production with the ultimate object of achieving effective distribution and fair pricing of farm produce both for the producers and the consumers.

7.      Standardization of contracts and payments of sales proceed:

Business practices worldwide show that the best time to sell ones produce is when the prices are high. Hence the farmer world over stock their produce in anticipation of a price rise. However in India the farmers are very poor and small. They have no waiting capacity to store the harvest produce for a favourable selling time. When they bring the produce to the market their immediate goal is to sell and obtain cash. The traders take advantage of this situation.

The mode of actual payment of sales proceed differ from region to region, market to market and within the same market from transaction to transaction. Most of these modes are exploitative.

Some of these methods are:

      Instead of prompt payment of the total value of the produce purchased, payment by installments is forced on the seller. This happens usually after the delivery of the entire purchase lot.

      In cases where the moneylenders are the buyer it is seen that they make direct adjustments in the debt accounts of the sellers who have earlier borrowed funds from them. The farmers being uneducated, ignorant and illiterate seldom understand such adjustments.

      Most traders insist that all transactions should be on credit and make the seller agree to this. If they cannot convince the seller for a credit transaction they deduct exorbitant amount for cash payment.

      Almost all marketing charges of transport, storage and weighment are pushed on manipulatively to the seller. The buyer behaves as if these are traditional practices and if changed will result in some thing un toward happening. Thus the seller is forced to follow such rules of thumb.

With the setting up of regulated markets all such irregularities can be eliminated to a large extend. The market legislations have clearly provided for insuring prompt payments. But the problem is of implementation. If is recommended that market committees play an active role in implementing such legislations. It is expected that at least this will make direct sales in the markets free and fair.

However in the case of indirect sale the system of payment by the buyer to the

commission agents is more governed by trade convictions. The commission agent may not necessarily recover the amount from the buyer immediately on delivery of goods. There may be a time lag between the delivery of goods and the payment by the buyer, which generally varies. Further it is seen that the commission agents in most of the markets follow the practice of calling on to get their payments. This is particularly so in the case of certain commodities like cotton and groundnuts. The buyers of these commodities are generally the processing factories, which make payments at their own premises. It may be noted that due to this practice of deferred payments the commission agents demand a higher rate of commission from the producer-seller for prompt payments or result to a system of deferred payments to the farmer.

Due to the cash crunch in Indian markets such deferred payments or forward training cannot be avoided. In order to stop unhealthy speculation, forward training of agricultural commodities is regulated under the forward contract regulation act 1952 for enforcing the act the forward market commission was set up in 1953. This commission identified forward markets in raw cotton, groundnut oil, coconut oil, black pepper and other oil seeds. As a policy measures the commission has sort to eradicate monopoly of any kind.

As far as the operations of moneylenders are concerned they are governed by the Bombay Agricultural Produce Market Rules of 1941. The rules state that licensed general commission agents or brokers could give advances either in cash or in kind to the agriculturalist on the condition that

1.      “If an agreement was entered into between the moneylender and the borrower, the lender should supply a copy of the agreement to the borrower and

2.      The lender should keep an account book, recording all advances made by him to an agriculturalist and repayments affected in the manner specified by the committee in its byelaws and should supply a copy of an account book, under his signature, to the borrower, entering therein every load transaction and its recovery”

However the committees have practically no direct control over the credit activities of the traders, general commission agents and the brokers. As co-ordination between the working of the market committees and the administration of the moneylenders act should be attempted.

 8.      Improvement in Grading and Standardization:

Grading of commodities has 3 main purposes.

      Firstly it protects the consumers and the producers through the establishment of standards of quality.

      Secondly it serves as a mean of describing the quality of commodities to be purchased or sold by buyers and sellers all over the country.

      Thirdly it provides a basis for the payment of premium on the quality of commodities.

Further trading on the basis of accepted quality standards makes pricing more precise and equitable. Thereby making the price reporting mechanism more meaningful.

In India grades, standards and appropriate trademarks have been developed under the agricultural produce (grading and marketing) act 1937. The agricultural produce is graded under the trademark ‘AGMARK’. This is done in order to ensure good quality both for export as well as the domestic market.

The act provided for the fixation of grade designations, which indicate the quality of scheduled commodities of agricultural produce. The grading for other commodities is voluntary.

The grading practices of produce at the farmers level need to be emphasized and widely canvassed. This will (it is hope) fetch a competitive price to the grower in the markets compared to the ungraded produce.

9.      Remunerative Prices for Farmers:

It has been increasingly realised that mere increased production could be of little avail so long as the excess production failed to reflect itself in the shape of some extra income to the producer. How to ensure an economic and remunerative return to the producer; how to establish a relationship between the price return and the quality of a produce; how to provide a self-propelling incentive for the maintenance of a standard which will bring the maximum return: how to prepare the produce for the market, how to grade and differentiate – how to pack and transport; what security and what facilities the producer should get in the market; how to keep him informed of market trends and prices; how to keep him abreast of consumer preferences – these have been some of the questions which demanded close attention of those concerned with the agricultural marketing.

 

10.    Development of Co-operative Marketing:

With the commercialisation of agricultural products efficient marketing is as necessary as scientific agricultural operation and so side by side with the progress in cultivation methods of suitable machinery for the efficient sale of farm produce should also be made.

The income of the farmer depends to a great extent on the ability with which he is able to market his produce for a fair price. Even if the production side is strengthened and cultivation improved, the cultivator would not gain much, if there is no proper arrangement for the marketing of his produce as the benefits of better farming would probably be reaped by middlemen intervening between them and the ultimate consumer. It has, therefore been recognised that defects of agricultural marketing may be removed by organising the work through co-operative societies.

Conclusion

In a country like India where, agriculture contributes nearly 49% of the national income and provides purchasing power for over 70% of the population engaged in the production of crops, the marketing of farm produce, which involves all the processes in the movement of goods from the farm to the consumer, has obviously a significant influence on production activities and is patently as vital as the latter. The conditions under which the farmers dispose of their marketable surplus in the villages and nearby mandis will, therefore, have a significant influence on the national production programme as low farm incomes discourage the use of fertilizers and improved seeds and push marginal lands out of cultivation and thus mar the very incentive to produce more. It is, therefore, advocated that the primary consideration for the development of agricultural marketing is to reorganise the existing system so as to secure for the farmer, his due share of the price paid by the consumer to sub-serve the need of planned development. This progress in the country as a whole has been rather slow and it needs acceleration.

Agricultural Marketing Finance in India

INTRODUCTION

Finance in agriculture is as important as development of technologies. Technical inputs can be purchased and used by farmer only if he has money (funds). But his own money is always inadequate and he needs outside finance or credit.

Professional moneylenders were the only source of credit to agriculture till 1935. They use to charge unduly high rates of interest and follow serious practices while giving loans and recovering them. As a result, farmers were heavily burdened with debts and many of them perpetuated debts. There were widespread discontents among farmers against these practices and there were instances of riots also.

Although the co-operative banks started financing agriculture with their establishments in 1930’s real impetons was received only after Independence when suitable legislation were passed and policies were formulated. There after, bank credit to agriculture made phenomenal progress by opening branches in rural areas and attracting deposits.

Since independence India has made substantial progress in respect of agricultural finance. Reports of all India rural credit survey committee and all India rural credit review that farmers were fully dependent of various sources of credit. Agricultural credit in early years was characterised by the growth of cooperative credit and there was decline in the share of moneylenders. Moneylenders were the main sources of credit during 1951-52. However occasional moneylenders like landlords and traders have come up as a important suppliers of rural credit.

Moneylender was the most convenient and easiest source of credit. Moneylender did not make difference between production and consumption credit. His credit was available at the time needed by, the farmer. His administration was simple and quite flexible. He could asses credit worthiness of not only borrower but his entire family. The most important advantage to money lender was the absence of any worthwhile formal source of credit and illiteracy and ignorance of rural community as whole. The social thinkers in India were confined to freedom movement and other religious evils and had little time for assessing the damage done by moneylenders who were essentially Indians during two centuries proceeding independence.

Charging exorbitant interest rates, cheating the illiterate borrowers by inserting larger amounts than borrowed, non-issue of receipts for repayments were the main reasons of malpractice for moneylenders decline. All these activities aimed at grabbing the farmers land, the only productive asset of that poor man. The development of agricultural sector called forth medium and long-term credit large scale. This need was associated with green revolution. The moneylenders depending upon their own fund could not entertain term lending.

The factors accounting for decline of moneylenders apart from malpractice could be their inability to provide term loans. There are certain important positive factors for this. Most important positive factor on the part of authorities was the realisation of needs for institutional credit in agriculture. This let to official patronage for co-operative credit societies by way of extending and liberalising refinance facilities. Further the short lived social control of commercial banks and their subsequent nationalisation, the establishment of low cost regional rural banks and restructuring of apex, have helped in a major way to institutionalise agricultural credit.

Growth of literacy education and communication network has also helped to reduce the importance of indigenous moneylenders in a big way. It should be kept in mind that the informal sources haven’t totally disappeared, but have only declined in relative terms.

AGRICULTURAL CREDIT

Needs and types:

Finance had a very limited role in traditional settings as the transactions were undertaken within the limits of village. Farmer’s dependence on others for input requirement was marginal. Inputs such as cowdungs composts, etc. were supplied by the households. Cash was only needed to pay land revenue or to purchase consumption goods. The need for finance grew with modernisation. Frequent crop failures were another reason for growth of cash transactions. Crop failure forced farmers to borrow from moneylenders for meeting consumptions requirements. Due to this the self-sufficient communities were exposed to credit gap. A gap of over one year implies a perpetual time and over a time spreads to the entire village community.

Agricultural Credit is classified into two:

I.                    Production credit

1.      Short term: The producer requires various factors of production, like capital, land, labourer for production purpose. Some factors are owned by him but for other factors he has to depend on respective markets. The other factors either have to be purchased or hired if they are durable. If the producer has adequate owned funds he does not have to bother about credit. But if he does not have adequate funds he has to depend upon others for credit.

Credit repayable within a period of 15 to 18 months is short term credit. These loans are granted to meet the daily working capital requirements of farmers. Short term loans are granted to purchase seed, fuel, fertilisers, insecticides, pesticides and other input requirements. Payment of wages, hire charges of agricultural machinery and tools, electricity charges, land revenue and other taxes, etc. are other things for which short term loans can be needed.

The important form of short-term credit is the crop loan. Need for crop loan comes from considerable increase in current cost of production. 

Capital intensity has increased the land productivity upto come extent. Crop loans help the farmers to enable the productivity function with the use of modern inputs. Crop loans have two components

      One for meeting current cash outlays and

      Another, which can be distributed in kind.  

a.       Cash component: It is made to meet the cash requirements by the farmers during the time of production.

b.      Kind component: Financial agencies may make necessary arrangements with co-operative marketing societies to supply needed inputs by the farmers instead of giving cash loans which are ultimately meant for purchasing various inputs. It is possible to grant loans in the form of chemical fertilizers, pesticides, insecticides, improved seeds, etc.

The advantage of short-term credit loan is that it minimises the possibility of misuse of loans by the farmers. Part of cash loans can be used for consumption purpose. They should be restricted upto marginal requirements only.

1.                  Medium term loans: Productivity can be improved by improving quality of assets or by creating new assets. Availability of working capital only cannot make much significance on productivity. As the assets are available for many years, cost is spread over those years. It cannot be a repaid fully with one or two cropping seasons. For production purpose, medium term loans are granted. Medium term loans defined by survey committee is one, which is repayable over a period of 15months to 5 years. After the establishment of NABARD medium term period is increased between 18months to 7 years.

Medium term loans are required mainly for creating capital assets. They may also be used for purchasing livestock, agricultural machinery and equipment such as diesel engine, electric motors, etc. In the same way deepening and repairing of wells for improving irrigation, development of activities like dairy, poultry, piggery, etc. are the purposes for which medium term loans are granted.

Only a part of medium term loan is expected to return in current production. The remaining loan is carried forward and can be paid over the period of 7 years.  

2.                  Long term loans: Long-term loan is granted basically for permanent improvement or for acquiring new assets. It is the one, which is repayable between the period of 5 or 7 years to 20 or 25 years. Long term finance is needed by farmers for intensifying the agricultural operations on existing holding by making permanent improvements on land, green revolution is associated with intensive use of capital. Variety of machinery is needed by the farmer. Mechanisation is another important factor determining long-term finance. Land fencing also needs long term finance. In the same way construction of farmhouses, storage facilities, etc. are some of the important items for which farmer requires cheaper term loans. structure is relative and is determined by the repaying capacity of the borrower.

II.                Consumption loans:

Industrial credit is wholly meant for production but a part of it goes for meeting consumption requirements of farm families. A farmer uses his marketed surplus to pay off previous loans and very little to meet family consumption. Farmer

has to wait for next harvest for receipts because there is no continuous daily, weekly or monthly receipts. Therefore he is forced to borrow both in cash and kind for his consumption requirements. Festivals, religious, rites, marriages, etc. also consume a lot of funds. Loan is also required due to crop failures.

In India agriculture is dependent upon nature. Good rainfall leads to good crop failure of monsoon damages the crop. Indian agriculture continues to be a gamble in monsoon. Crop failures reduce the necessary goods for self-consumption and also reduce the prospective returns. Farmers have to borrow for survival. Consumption loan is basically for survival of farm families. They could be considered as production loans. It is difficult to differentiate between production and consumption loans. Both the loans have same importance. Local moneylenders never made any distinction between production and consumption loans therefore they were successful in their lending, activities during the first 2 decades after independence.

MAJOR OBJECTIVES OF INSTITUTIONAL CREDIT IN INDIA:

1.      To bring about greater co-ordination between credit institutions under the multi agency approach.

2.      To direct a larger share of credit to weaker sections of society.

3.      To secure an increase in the total volume of institutional credit for agricultural and rural development.

4.      To improve the recovery of loans to ensure continues recycling of credit and

5.      To reduce the regional imbalance in availability of credit.  

SECURITY:

Safe lending is widely accepted principle. Now lending has been made more objective in priority areas. Security is now been replaced by purpose. Even now for many reasons lending agencies insist on security. There is no dispute about the need for security, but its, problem is regarding the size and nature of security and whether small and marginal farmers have anything to do with it.

There are different agencies in India extending short term credit such as primary credit societies, regional rural banks, commercial banks, etc. Production oriented credit is extended against anticipated crops (crop loans), consumption credit is provided on personal security. Some times, third party guarantees or gold ornaments, etc. are accepted as security.

Loans meant for purchasing equipments machinery are issued on the basis of

hypothecation of relevant machinery. However land mortgage is still insisted upon medium and long term loans. Land mortgage conditions come in the way of tenants who have no right on land. Lending agencies are responsible to the depositors on one hand and being public institutions are expected to be responsible to the society. Responsibility and accountability make them adopt security minded approach. It is more important due to high risk and uncertainty of agriculture in India. Similarly it is also a fact that a large variety of small/marginal farmers are unable to furnish the necessary as security for loans. In case of non-repayment the whole loss is borne by the local lending agency. It is necessary to spread risk for liberalising security conditions by introducing credit guarantee schemes and refinancing.

SOURCES OF AGRICULTURAL CREDIT:

Sources of agricultural credit are divided into institutional and non-institutional. Non-institutional sources were of great importance during 1950's and 1960’s; now due to the growth in institutional sources their importance is declining.

The different sources of agriculture are as follows:

(A) CO-OPERATIVE CREDIT:

Co-operative credit consists of two parts. One engaged in short and medium term.

(i) Primary co-operative credit: Primary co-operative credit cater to short term and land development banks cater to medium and long term credit. Primary credit societies, which cater to short-term credit requirements lie at the bottom of co-operative institutional structure. Primary societies are located in villages and their activities are co-ordinated with central co-operative banks. It is seen that primary societies dependence is extensive on central co-operative banks.

At the top of the co-operative credit stricture are state cooperative banks. They provide short and medium term loans to farmers through central and primary societies. Just as the central co-operative banks control the primary societies, the state co-operative banks control the central co-operative banks. They also keep and lend the funds to central co-operative banks.

(ii) Co-operative land development banks: Farmers also require medium term and long term finance. For meeting such requirements, the government has encouraged the growth of land development banks, on co-operative lines.

Farmers in reed of long term credit have to approach the primary land development bank or the branches of central land development banks. All loans are issued against mortgaging of land. Each loan is limited to 50% value of land

offered for mortgage. Usually land development banks do not accept farmers valuation of land. They have their own values. The loans are granted to meet the specified long term requirements for a period of 5 to 20years. Most crucial problem faced by land development bank is the increasing rate of over dues, which is about 55%. In other words, the fund flow is mostly one way and no banking system can survive for long with over dues despite the best refinance facilities.

Land development bank, obtain funds by the way of share capital reserves, deposits and debentures and bonds issued and refinance now from NABARD.

LIMITATIONS:

1.      Limited geographic coverage: The spread of credit societies has been limited only upto certain states like Himachal Pradesh, Andhra Pradesh, Karnataka, Tamil Nadu, Punjab and Maharashtra. In other states like U.P, Bihar, Madhya Pradesh, West Bengal, Gujarat have not made any head way.

2.      Small and marginal farmers: Majority of farmers in India are small and marginal. They need finance, for their needs but they are unable to obtain it and even societies find it difficult to lend them. These farmers invariably cultivate for self consumption leaving very little marketable surplus. In absence of such surplus they cannot repay loans. Hence the societies go around the large and medium farmers.

3.      Inconvenience in borrowing: Large farmers find it convenient to borrow from commercial banks and other institutions for such institutions do no face any shortage of' funds and have certain targets to be fulfilled. Whereas cooperative societies are forced to depend on central and state co-operative banks and ultimately on government apex body like RBI and NABARD for financial requirements.

4.      Huge overdues: Banking activity is a two way process. Societies will be able to lend only when loan and advances are regularly repaid. But actually in India credit societies are overburdened with huge over dues. This stops continuous activities. The liability to repay loans may be due to poor crops or non and unproductive use of credit.

5.      Linked with ownership landholding: The co-operative credit societies appear to be linked with ownership holding of land. That stops tenant cultivators from the purview of co-operative credit. Similarly small and marginal farmers also would not get adequate credit. Thus the basic purpose of self credit is defeated.

Lastly certain degree of politicalisation of co-operative movement, lack of training and professional attitude of staff; growth of commercial and regional

banks in rural areas are also responsible for the retarded growth of co-operative credit in India.

(B) RESERVE BANK OF INDIA AND RURAL CREDTI:

RBI has taken initiative to appoint the all India rural credit survey committee to solve the problem of rural credit by suggesting ways and means to improve the existing structure.

The RBI has set up two funds on the recommendations of AIRCSC. They are:

I.                    The national agricultural credit (long term operations) fund;

II.                 The national agricultural credit (stabilisation fund)

RBI also keeps an eye on the policies and working of other financial institutions providing agricultural finance, besides helping the co-operative sector and taking lead in the establishment of financial institutions to help the agriculturist. RBI has issued the following guidelines:

I.                    Margins and security: Production oriented loans are given against the hypothecation of title documents of land owned, guarantee of one or two solvent parties crops, etc.

II.                 Credit norms finance: In ratio 30:70 the short term loans are divided into cash and kind components. The bank has to check whether the kind component is lifted by farmers.

III.               Recovery and default: Banks should develop habits of punctual and thrift payments on part of farmers. Schedule of recovery should coincide with cash realisation i.e. after harvest time.

(C) STATE BANK OF INDIA AND RURAL CREDIT:

As a solution to the Problems of cooperative finance in India the all India rural credit survey committee recommended the integrated scheme of rural credit. After the nationalisation of imperial bank of India, SBI came into existence in 1951. SBI has been providing financial assistance to marketing and processing co-operative societies as well as for co-operative sugar factories, land development banks, industrial cooperatives, etc. SBI has opened branches in small towns and mandis to generate banking habits in farmers. The whole group of SBI has a network of branches and sub offices. Nearly 19,400 villages come under the "village adoption scheme". SBI provides credit to all potentially viable farmers.

ASSISTANCE GIVEN BY SBI TO CO-OPERATIVE SECTOR:

SBI is providing assistance to co-operative sector also. Remittances provided to central and state banks are in a liberal way besides granting them with short term loan facilities against government securities at a low rate of interest.

SBI assists land development banks also by subscribing their debentures. It popularises their debentures by giving advances on security of debentures.

Special Activities:

Special and innovative schemes are adopted by SBI, which leads to rural development. SBI has taken broader view through co-operatives in leading the development of rural India.

(D) COMMERCIAL BANKS AND RURAL FINANCE:

For the development of trade and commerce in India banking system is been developed. It caters to the needs of large scale organised industries and its activities are concentrated on urban areas. Commercial banks are extending support, to agriculture in direct as well as indirect way. Direct finance is granted for agricultural operations for short and medium periods. Indirect finance is granted by providing advances for distribution of fertilisers and other inputs. These banks also finance for the operation of Food Corporation of India, State Government and their agencies for food procurement.

Critical review of operations of commercial banks:

In the case of rural credit commercial banks have made achievements, but their operations have got some criticisms. They are as follows:

1.      Rapid expansion and diversification: Due to rapid expansion and diversification the quality of scheme has been deteriorated. One of the problems of deterioration is quality under the anti-poverty programme.

2.      Neglected supervision: There is lack of supervision in rural branches because of which the banks have found sanctioning and monitoring a time consuming and of high cost, ACRC has also found out that there is lack of adequate staff in rural branches of commercial banks.

3.      Profitability affected: Rise in establishment expenses, inadequate business potential, and increase in non performing, advances affect the profitability of banks, The yield on advances his been decreasing, average cost of deposits and borrowings is increasing, reducing the margins available to banks.

4.      Failure in filling the geographical gap: Availability of' credit is not covered geographically by the co-operatives. In the absence of proper geographical spread of bank branches it is found that more than on bank operates in same area, which results in unhealthy competition between 2 or more commercial banks.

5.      Regional Imbalances: The banks have disbursed regional imbalances in the credit. For e.g. in 1994-95 the disbursement of total credit in southern regions stood 51.6%, while in northern, eastern and western regions was just 11.3%, 6.4 and 0.5 % respectively during the same period.

6.      Lack of co-ordination: There is lack of co-ordination not only between two commercial banks but also between banks and government departments. There is lead bank in every district but in many cases number of branches belonging to commercial banks.

7.      Problem of recovery: The recovery position of commercial banks create a problem. This alarming situation calls for a corrective action.

PROBLEMS FACED BY COMMERCIAL BANKS:

1.      Absence of proper records: It becomes difficult to ascertain the total indebtness of some farmers because of the absence of proper records of land rights, which creates problem of over financing or problem of recovery.

2.      Difficulty in verifying actual utilisation of loans: There is often misuse of funds in case of medium term loans. This creates difficulty in verifying the actual utilisation of funds. For e.g. in case of pump sets the dealer would sell an old set instead of new one for which bank would sanction him the loan. Farmer would get additional cash to serve his short- term needs.

3.      Difficulty in judging the creditworthiness: Due to lack of intimate knowledge of the character of the borrower it is difficult to judge their creditworthiness.

4.      Lack of sufficient supervision: There is no sufficient supervisory staff in the bank as a result there is misuse of loans, which plugs in loopholes.

(E) AGRICULTURAL REFINANCE DEVELOPMENT CORPORATION:

Indian farmers take long term loans for following purposes:

I.                    Digging, wells or deep tube-wells or sinking shallows.

II.                 Mechanisation of seasonal operations and for laying out orchards or for

traditional plantation of crops.

III.               Reshaping, levelling or dressing his land.

IV.              Terracing hilly and undulating land.

V.                 Mechanisation of water lifter.

VI.              Installing weirs on small streams, etc.

In the past, improvements in lands were financed by moneylenders and by government. Subsequently, Land development banks, co-operatives came in existence. These banks operated statewise with assistance provided by the state government. But their financial position was weak enough to provide finance for agricultural development schemes. With the adoption of new strategy of agricultural development, long term financial assistance became significant. So, it was recognised that India needed a refinancing body with adequate resources of money and an expert coordinator to guide and assist the long term finance lending institution.

The parliament established the agricultural refinance and development corporation in 1963 with view of above objectives. Apart from the primarily being a refinancing agency the corporation has certain promotional and developmental functions. They are as follows:

I.                    Diversifying the lending by identification of new activities.

II.                 Reduction in the regional imbalances of agricultural development by focussing more attention on less developed regions.

III.               Emphasising on economic upliftment of weaker section of community.

PERFORMANCE OF CORPORATION:

a.       Purpose wise disbursement of refinance: There is highest mean of growth rate in favour of farm mechanism followed by dairy development and fisheries. Decreasing trends have been noticed in rest of the purposes. Increasing share of farm mechanism, dairy development and fisheries are favourable development.

b.      Helping in reduction of regional imbalances: The agricultural refinance and development corporation has been helping in reducing the regional imbalances in the agricultural development.

c.       Reduction in regional disparities within states: ARDC has taken special care in reducing regional disparities within states by allocating schemes and

resources to larger parts of the states.

d.      Economic upliftment of weaker sections: ARDC has provided 100% refinance. It has laid more emphasis for economic upliftment of weaker sections.

             It has also disbursed loans to IDA and IBRD for projects selected by         them for financial assistance.

(F) REGIONAL RURAL BANKS:

The establishment of regional rural banks (RRB) was recommended by the working group on rural banks to provide a helping Land in the effort of commercial banks and co-operatives in extending credit to small and marginal farmers, landless labourers artisans and other rural residents. With a view to reach the rural people more extensively, these banks were started combining the local feel and familiarity with rural problems, which the co-operatives possessed and the degree of business organisation and modernised outlook, which commercial banks had. The staff of RRB's is recruited from neighbouring areas because they have better understandings of local problems, local peoples needs and their constraints.

FEATURES:

1.      Rural based: Primarily the RRB's are rural based. They supplement the co-operative credit societies. These banks are to be sponsored by any national commercial bank.

2.      Cater the need of backward areas: The areas where cooperative and commercial banks have not been established, RRB's are established there. They cater to the needs of tribal and backward areas. Their working procedures are understood by the local people. They provide productive credit and their interest rate changed is also low.

3.      Authorised capital structure: RRB's authorised capital is 1 crore and paid up capital 25lakhs. Share capital ratio is 50:15:35 from which 50% is raised by government, 15% is it own deposits and 35% from sponsoring commercial banks.

PROBLEMS OF RRB'S:

I.                    Problem in organisation: Government contributes 50% capital to RRB. Therefore there is multi-agency control over it. This brings lack of uniformity in their functioning. Besides there is lack of monitoring by the sponsoring banks. RRB operates in a restricted area. Within the institution of RRB there has been

lack of proper system and procedure. 

The process of recruitment and training of RRB staff does not received adequate attention. There is unplanned and unwieldy growth of these banks and branches are opened tinder the pressure of state government.

II.                 Increasing losses: A number of factors are responsible for the increasing losses, which lead to non-viability. They are:

a.       RRB's are confined only to lend to weaker sections where interest earned on loans is very low in the banking system.

b.      There are low margins with high cost of servicing.

c.       RRB's do not have any scope of cross subsidization in the absence of loans yielding higher returns.

d.      Opening branches of RRB's year after year has added to the overhead costs without proportionate increase in income.

e.       Economic environment of RRB's is not satisfactory.

III.               Recovery problem: The high incidence of overdues is due of number of internal and external factors. Internal factors include defective loaning policy, weak supervising and monitoring, failure in recovery. The external factors include political interference, wilful default, droughts and floods, lack of legal and administrative support from state government.

IV.              Problems in management: RRB's staff finds it difficult to take independent decisions in new environment because the sponsor banks have been deputing middle management staff to run them. Meetings of Board of directors are not held regularly. A number of problems come up due to multi agency control of RRB's

(G) NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD):

NABARD is a specialised financial institution in the field of agriculture and rural development. It has been designed specifically as an organisational device for providing undivided attention, forceful direction and pointed focus, to the credit problems of rural sector. Half of NABARD's capital was contributed by RBI and other half by the government. It has enough financial resources to support agricultural and rural development programmes.

Function of NABARD:

a.       It works as an apex body which looks after the financial needs of agriculture and rural development.

b.      It provides short term loans (upto 18 months) to state co-operatives for seasonal agricultural operations.

c.       It provides medium term credit (18 months to 7 years) to state cooperatives and RRB's for approved agricultural purposes.

d.      It maintains research and development fund to be used of promote research in agriculture and rural development.

e.       It has authority to oversee the functioning of co-operative sector through agricultural credit development.

f.        It is entrusted with the responsibility of inspecting central and state co-operative banks and RRB'S.

g.       It provides long term and medium term credit (not exceeding 25 years) for investment in agriculture to state co-operative banks, RRB's and commercial banks.

h.       It provides long term assistance in form of loans to state government not exceeding 20 years for contribution to share capital of co-operative credit institutions.

NABARD and Rural Credit:

  Types of Refinance Facilities

Agency Credit facilities

Commerical Banks      Long term credit for investment purposes

      Financing the working capital requirements of Weavers’ Cooperative Societies(WCS) & State Handloom Development Corporations

Short term Cooperative Structure(State Cooperative Banks, District Central Cooperative Banks,

      Short term (crop and other loans)

      Medium term (conversion) loans

      Term loans for investment purposes

Primary Agricultural Credit Societies)

      Financing WCS for production and marketing purposes

      Financing State Handloom Development Corpoartions for working capital by State Cooperative Banks

Long term Cooperative Structure (State Cooperative Agriculture and Rural Development Banks, Primary Cooperative Agriculture and Rural Development Banks)

      Term loans for investment purposes

Regional Rural Banks (RRBs)

      Short term (crop and other loans)

      Term loans for investment purposes

State Governments      Long term loans for equity participation in cooperatives

      Rural Infrastructue Development Fund (RIDF) loans for infrastructure projects

Non-governmental Organisations (NGOs) – Informal Credit Delivery System

      Revolving Fund Assistance for various micro-credit delivery innovations and promotional projects under Credit and Financial Service Fund (CFSF) and Rural Promotion Corpus Fund (RPCF) respectively

PRODUCTION CREDIT (SHORT-TERM) REFINANCE:

Eligible Institutions:

(a) State Co-operative Banks(SCBs) (b) Regional Rural Banks (RRBS)

Eligible Purposes:

a.       Agricultural production operation and marketing of crops by farmers, farmer co-operatives etc.

b.      Marketing and distribution of iilptlts like fertilisers, seeds, pesticide etc.

c.       Production and marketing activities of village and cottage industries, handicraft, industries, handicrafts, handlooms, artisans, small-scale and tiny

industries and other rural non-farm enterprises.

Period of Credit: Up to 12 months: Rate of Interest (as at December 1998):

(1) Seasonal Agricultural Operations

      For SCBs at 4% to 6.5% per annum depending on the SCBs' own involvement in the total eligible loans disbursed.

      At 4% per annum for financing tribals and Cooperative in North Eastern Region.

      For RRBs at 5.5% per annum

(2) Weavers' Finance by Co-operatives

      8.5% per annum

(3) Short-term finance to RRBs for other than Seasonal Agriciiltural Operations

      7.5% per annum

Other Facilities:

      The short term credit for 12 months can be converted to medium term credit for 3 to 7 years subject to certain conditions when farm productions are affected by natural calamities. 

(H) COVEIZNMEN-I'FINANCE FOR AGRICUL'I'URE:

Takkavi is the ancient and traditional form of government assistance to the agriculturist. It has been essentially distributed to relieve distress cost by droughts, floods and other natural calamities and to assist the farmers to over come emergencies and restart his agricultural operations in the following years.

Takkavi loans had to be distributed in substantial years. The land improvement loans act of 1883 and the agriculturist loans act of 1884 were the two legislative measures passed to put the Takkavi operations on regular basis. The former is concerned with long-term loans and the latter with the short-term loans. Starting as "Distress loans", these loans became regular loans for productive purposes. The state revenues department after the disbursement and recovery of the loans. The nature of security usually for these loans was immovable property and the rate of interest charged were relatively low.

After independence, the need for increase in agricultural production in general and food grains in particulars became urgent. Therefore, grow more food campaign and similar other schemes were undertaken. Besides, rehabilitation of a large number of refugees from Pakistan was to be carried out on a war footing. The Government had therefore to disburse large amount by way of loans and advance to agriculturists.

CRITICAL EXAMINATION:

A critical examination of the working of the takkavi finance was made by Rural Credit Survey Committee. It was observed that the average amount per cultivator was very small in respect of small cultivators. Further the medium and big farmers were able to secure a large share of the available takkavi finance. The main reason was the condition laid down that land had to be provided as a security. The small landholders and tenants could not avail of takkavi loans, as they were unable to furnish the security as required under the rules. Thus the system suffered from defects, which resulted in inadequacy of amount, inequality of distribution and inappropriateness of the basis of security.

Due to overlapping of functions, inadequate supervision and lack of co-ordination between different departments there was too much disbursement of loans. The officials concern were burdened with many responsibilities and were not well equipped to deal either with the task of assessment of credit requirements, or supervising the use of credit when granted. With the coming in of co-operative credit societies and land mortgage banks, there was over financing for the same group of influential agriculturists, keeping the needy farmers high and dry. With lack of supervision there was considerable misutilisation of loans resulting in mounting over dues.

The Rural Credit Survey Committee characterised Takkavi, "To be little else then the ill-performed disbursement of inadequate moneys by an ill-suited agency", and recommended that the Government finance should be strictly limited.

CAUSES OF OVERDUES:

There are certain internal as well as external factors responsible in the growth of overdues. Defective credit policies and procedures are responsible for the creation of overdues. Internal

factors are those on which lending institutions have some control. But they have no operational or administrative control over external factors. 1

Some of the external factors are is follows:

I.                    Lack of proper marketing facilities.

II.                 Changing cropping pattern.

III.               Infructious investments.

IV.              Increased cost of living due to inflation.

V.                 Disposal of assets like tractors, power tillers purchased with the help of credit.

VI.              Delay in getting phones connection to weak points.

VII.            Unforeseen social and religious expenses.

VIII.         Natural calamities.

IX.              Misutilisation of credit.

X.            Failure in projects like societies, sugar and processing factories etc.

XI.         Inability of financial institution to provide credit to defaulting units to bail them out from old debts.

XII.            Inadequate or over financing.

XIII.         Uneconomic holdings.

XIV.         Political and governmental interference.

XV.           Alienation of land through sales gift or mortgage.

XVI.         Death of principal borrower and consequent disputes among heirs.

These were some of the factors on which the lending agencies have very little control.

SUGGESTIONS:

All the committees and sub groups have made certain suggestions some of which are listed below:

I.                    Very old dues may be written off.

II.                 Non-wilful defaulters should be extended rehabilitation credit after careful study of each case.

III.               Lending agencies should take strict action by speeding the arbitration references to execution of awards. Legal actions should be resorted to.

IV.         It is possible to improve the situation by educating the borrowers. This can be done by associating non-officials, voluntary agencies etc.

V.  Credit and marketing of agricultural produce should be linked.

VI.  Stabilisation fund should be given importance.

VII.   Loan policies and procedures should be reoriented.

VIII.  When repayment problem is genuine, loans should be rescheduled and overdues postponed.

IX.  Prosecute rich wilful defaulters.

X.  Chronic overdue areas may be identified and remedial measures takes.

XI.   There should be more closer and effective supervision of credit.

XII.  The mortgaged property should be sold to reveal the intentions of the bank.

XIII.  Loans may be issued by way of non transferable cheques, drawn in the favour of borrowers and payable at bank branches.

XIV.  The lending agencies should set up their own recovery cells.

XV.  There should be full coordination with government.

XVI.  Publicity campaign may be undertaken to impress the need for recycling of funds.

PRIVATE SOURCES OF AGRICULTURAL FINANCE:

I.  Money Lenders:

There are two types of money lenders in the rural areas. The agriculturist money lenders and the village shopkeepers. Besides, there are professional moneylenders whose only occupation is money lending. The agriculturist

money lenders combine farming with money lending. Primarily they may be interested in farming but they carry on money lending as a side business.

The cultivators depend upon the money lender for their requirements, of cash. The importance of money lenders is declining but they are still preferred by some of the farmers who do not have approach to institutional finance and whose requirement of credit is urgent and mostly for meeting the consumption need.

Malpractices of Money Lenders:

II.  They obtain bonds and promissory notes on false pretences from their debtors and enter in them amounts larger than actually lent.

A.   They deduct exorbitant premiums.

B.  They give no receipts for repayment and often they deny such repayments.

C.  They charge high rate of interest often 24% and above.

The money lenders have been responsible for many of the ills of Indian agriculture because their main interest has been to exploit the farmers to their benefits and grab their lands.

III.  Commission Agents and Traders:

Finance provided by commission agents and traders is a sort of production finance, which takes the form of advance payment of a part of purchase price. This source of finance is not very desirable as it leaves scope for deprivation of weaker farmers by powerful interests. The farmer is compelled by trader and commission agents to sell his produce at a low price, thus depriving them of profits.

(3)  Landlords:

Landlords are the important source of finance for farmers, specially the tenant farmers. These loans from landlords are taken by farmers for consumption purposes.

(4)  Relatives:

For tiding over temporary difficulties farmers borrow from their relatives. Relatives provide finance in smaller amounts. This amount is given to meet the emergency needs of farmers. These conditions are also very soft.

IMPORTANCE OF NON-INSTITUTIONAL SERVICES:

The following factors account for the continued significance of non-institutional agencies in agricultural marketing finance:

I.  No procedural delays are involved in granting loans to the farmers by the money lenders. Farmers need not enter into very many formalities while borrowing from the money lenders.

II.  Moneylenders do not press the borrowers for repayment of the principal if they keep on paying the interest regularly.

III.  Non-institutional agencies can provide fresh loans even when no security is offered by the borrower.

IV.  Non-institutional agencies provide credit both for productive and consumption purposes. Commercial banks and cooperative societies are generally reluctant to lend for consumption needs.

V.  A village money lender is always easily accessible to the borrowers.

VI.  Non-institutional agencies can provide fresh loans even when no security is offered by the borrowers.

DEFECTS OF NON-INSTITUTIONAL AGENCIES:

The various defects of non-institutional sources of agricultural marketing finance are as under:

I.   They combine banking with trading and commission business and thus have introduced trade risks in the banking business.

II.  They follow vernacular method of keeping accounts and do not give receipts in most cases. Besides, the interest, which they charge is out of proportion to the rates of interest charged by the other banking institutions in the country.

III.  They are unorganised and do not have any contact with that sections of the banking world.

IV.  They do not distinguish between short-term and long-term finance and also between the purposes of finances.

The RBI has made several attempts to bring the indigenous banker under its control. The government has tried to regulate the activities of non-institutional agencies like money lenders and established more institutional agencies for

agricultural credit with a view to stop malpractices followed by them.

LEAD BANK SCHEME:

It is the scheme under which a particular commercial bank is entrusted to play a leading role in a particular district rehiring to rural development. Lead role means taking initiative for catering banking needs in its area. The lead bank of a particular districts makes an assessment of credit needs of the area, coordinates banking activities of various banks including cooperative banks and then makes provision of sanction and disbursement of the loan.

GENESIS OF INCEPTION OF THE SCHEME:

Before the nationalisation, commercial banks just had a marginal role in the process of rural development. But after nationalisation of 14 major commercial banks in 1969 government took necessary steps to expand banking services in the rural areas. After nationalisation many commercial banks were opened in the rural areas. But this expansion was neither planned nor coordinated. Hence many economists criticised such unruly expansion and put forward an idea of ‘area’ or ‘micro approach’ for smooth, coordinated and rapid development of banking activities in the rural areas. The National Credit Council Study Group (NCCSG) under the chairmanship of Prof. D.R. Gadgil stated this idea. The group strongly recommended for ‘area approach’. Another committee, known as committee of bankers or Nariman committee appointed by the Reserve Bank of India also expressed its support to the idea of ‘area approach’ and christened it as ‘lead bank scheme’. In the same year i.e. 1969, RBI accepted the idea of lead bank scheme and resolved to implement this scheme in all the 380 districts across the country leaving just a few totally urbanised areas such as union territory of Delhi, Goa, Chandigarh and metropolitan cities of Mumbai, Kolkata, and Chennai.

Lead bank were entrusted to perform a leading role in their respective area before surveying the needs of farmers, look after and plan out branch expansion, make available the banking facilities in non-banking area and other function aiming at providing better and coordinated banking facilities all over its jurisdiction.

In essence lead banks were required to perform following functions:

I.   To survey the number of small-scale, cottage industries of the area and identify among those, which have no link with banking sector. Encourage such units to open their accounts in banks.

II.  To survey the facilities for stocking and warehousing, and assess specially

the facilities for storing inputs such as fertilisers, seeds, insecticides etc.

III.   To examine inability of primary lending agencies and in case they are potentially viable, then to encourage and strengthen them.

IV.  To ensure coordination of banking activities with government and semi-government agencies.

VII.  To examine facilities for small-scale and cottage industry production.

 Co-operative Marketing

The Co-operative Development Corporation

The National Co-operative Development Corporation has been promoting and financing a wide range of economic activities in rural areas through co-operatives. The Co-operative is a unique institution in the country catering to the development of the rural economy and agriculture sector through co-operative. There is no other institution in the country which is exclusively for meeting the requirement of co-operatives.

NCDC has been playing special attention to weaker sections co-operatives in various part of the country. The promotional and development role of NCDC had lead to continuous diversification and expansion of co-operative programs under its preview.

Co-operative Marketing Society

When producers of agricultural commodities or any other product form a society with an objective of carrying out marketing of their produce, such society is called as co-operative marketing society. The need for co-operative marketing arose due to many defects observed and experienced in the private and open marketing system. Those are

1.      Several malpractices prevail in the marketing of agricultural produce. For example, arbitrary deductions from the produce, manipulation of weights and measures and cheating the farmers, collusion between the broker and the buyer while fixing the prices, delay in payment of amounts due to farmers, etc. The result is the farmers are indebted to trader - moneylender. In such circumstances co-operative marketing society can largely help the farmers reduce the

malpractices and offer honest and correct services.

2.      There exists a chain of intermediaries between the producer and the final consumer. They include village merchant, itinerant trader, wholesaler, commission agent, pre-harvest contractor and retailer. They take their own margins for the services, they render. But these margins are generally ex-orbitant, making the commodities costly for the consumers and reducing the producer's share in the consumer's price. A co-operative marketing society can eliminate some or all of the intermediaries and can reach to the consumers and establish direct trade relations with them. This will make commodities cheaper to the consumers and also ensure good quality of produce to them because much of the handling is avoided.

3.      There are some services such as transport, storage, financing, grading, packing, loading/unloading which are carried out by some private functionaries who charge high rates for these services. A co-operative marketing society performs these services efficiently and at cheaper rates.

4.      A co-operative marketing society provides market finance to farmers and ensures better returns to their produce. Besides marketing society can act as an agent of credit co-operative society and help to recover loans advanced by credit societies. At present, most of the financial needs of the farmers are fulfilled by trader - moneylenders at very high rates of interest and with the condition that they will sell their produce through them. This can be avoided, if there is co-operative marketing society.

Organization: 

Under the system of co-operative marketing whole responsibility of marketing is taken up by the farmers themselves, organized on co-operative basis. The area of operation of marketing society is usually fixed with reference to local conditions - area based or commodity based. The commodity-based societies related to grapes, oranges, banana, pomegranate, etc. have wider jurisdiction covering the major areas growing each crop. There are societies at the producer's level and they federate at state or national level to deal with bigger markets including foreign markets for export of their produce.

Membership :

Membership of a co-operative marketing society is open to individual farmer who produces the crop for which the society is formed. Other co-operative societies in the area can also become institutional members.

Resources:

The sources of fund of the society are as under:

1.      Share capital

2.      Deposits.

3.    Loans from higher financial institutions including NABARD.

4.      Grants or subsides from the Govt. for godowns, etc.

5.      Reserve funds.

The marketing societies require short-term, medium-term and long-term capital

1.      Short-term capital is needed for financial advances to members for production, packing, transport, etc. to meet contingent expenses.

2.      Medium- term capital is required for purchasing motor trucks, etc.

3.      Long-term loan is required for installation of machinery, construction of building for godown, storage, etc.

Functions :

1.     To arrange for the sale of members produce to the best possible advantage.

2.      To undertake activities in connection with grading, pooling and procurement of produce of the members.

3.      To provide storage facilitates to their members by renting or owning the godowns and thereby facilitate to grant advances against pledge of produce.

4.      To protect members from all types of malpractices eliminates the middleman in the chain of marketing.

5.      Co-operative marketing society ensures grading, etc. and supply of good quality material to consumers.

6.      It teaches business methods to farmers and serves them as agency for supply market information.

7.      The society is able to stabilize prices over a long period by adjusting the supply with the demand.

8.      Marketing societies are also encouraged to undertake export trade so that

they can give better prices to their members.

Weak Co-op. Marketing :

Although, many advantages are envisaged in the co-operative marketing the structure has remained relatively weak as compared to credit co-operatives. There are only about 1000 marketing societies as against 20,000 credit societies in Maharashtra. Their marketing is more difficult involving many technical and commercial aspects. Marketing of perishable is still more different. Arranging quick transport, arranging storage to avoid losses, to keep watch on demand - supply position to ensure good prices to members are all matters need for good marketing. For want of these managerial aspects, desired number of co-operative marketing societies have not come up and those which were started could not succeed. Several marketing surveys/studies at farmer's levels have revealed that among several marketing channels, co-operative channel has offered greater share of consumer's prices to the producers. Whichever, marketing is unorganized, farmer - producers have expressed that marketing co-operative societies should be formed.This was particularly reported in the cases of marketing of perishables.

Few Successes:

Inspite of the difficulties encountered in the marketing of perishables like fruits, vegetables, milk, etc. there are few examples of good success.

1.    Maha-grape - co-operative federation marketing grapes in Maharashtra.

2.      Co-operatives marketing pomegranate.

3.      Co-operatives marketing banana in Jalgaon district.

4.      Vegetables co-operatives in Thane District.

5.      Milk co-operatives in Maharashtra and Gujarat.

6.      Co-operative cotton marketing societies.    

 

State Trading

State trading in its narrow sense means import and export transactions of a state-owned or state controlled agency involving purchase of goods on commercial sale. In a broader sense, it includes purchases from abroad for governmental use and disposal of surplus stores originally purchased for governmental use. A Report prepared by the E.C.A.F.E. Secretariat defines state trading as “Direct participation by the government (or its agent) in foreign trade including those trading activities in which the government (or its agent) holds title to export before transactions and acquires titles to import.”

The main objective of state trading is to facilitate development of trade with countries where trade is in government hand, and to assist the government in solving difficulties and problems for which private trading channels are found to be inadequate. State trading enables the private trading countries to negotiate with equal bargaining power and, thus, safeguard against exploitations, which a large number of private importers and exporters competing with each other, are confronted with monopolistic trading agency.

Benefits of State Trading

State trading has various advantages as compared with private trading.

Firstly, it is an important instrument of export promotion, by removing malpractices of the private exporters; it helps in building reputation of the country's exports.

Secondly, with its vast initial investment, it tries to develop new markets for exports and new sources of supply of imports and also promotes exports of non-traditional items.

Thirdly, state trading helps the state in honouring its bilateral agreements.

Fourthly, it can be directed to patronize national banking, shipping and insurance for encouraging the development of these services.

Fifthly, it undertakes bulk- buying and so lowers the cost of imports, dispenses with the services of middlemen and thereby eliminates their commissions.

Sixthly, it can be used to take advantage of monopoly power in respect of commodities for which the country holds a world monopoly. It can charge maximum price, which the consumers abroad are ready to pay for such commodities.

Seventhly, it is an important instrument in regulating exports and imports for various reasons, viz., to rectify disequilibrium in balance of payments, to restrict

imports of non-essential goods, and to provide protection to domestic industries.

Objectives of State Trading

State trading has the following objectives:

To ensure adequate and regular supplies at reasonable and stable prices of essential commodities to meet local demand;

To effect exports and imports at more favourable prices through increased bargaining power;

To stimulate production of essential agricultural and industrial commodities by means of price and other incentives;

To stabilize the domestic prices of specified products by controlling their production and marketing;

To explore export markets for products and to dispose of exportable surpluses of commodities;

To obtain advantage of bulk transactions;

To facilitate trade with centrally planned economics;

To facilitate the import of goods financed under foreign aid programmes;

To facilitate the implementation of trade agreements and barter deals;

To transfer trade from the control of non-nationals;

To direct trade in accordance with development policies;

To raise revenue for the treasury;

To influence changes in the distribution of income derived from foreign trade transactions; and

To facilitate sanitary and public health controls.

 

State Trading Corporation Of India

The S. T. C. has been constituted as a limited liability company under the Indian Company's Act, 1956. It normally has 10 Directors. As per its Memorandum of Association the objectives of the S. T. C. are, “to organise and effect exports from and imports in to India of all such goods and commodities as may be determined by the Company from time to time, and to undertake the purchase, sale and transport of and the general trade in such goods and commodities in India or anywhere else in the world.”

Functions:

With the passage of time, the role and activities of the Corporation have widened. Besides, the above objective, other important objectives are:

1.      To explore new markets for traditional items of export and develop new items with a view to diversifying and expanding the export trade;

2.      To undertake import and/or internal distribution of commodities in short supply with a view to stabilizing prices and rationalising distribution;

3.      To generally implement such arrangements for import, export trade, and/or distribution of particular commodities as the Union government may specify in the public interest;

4.      To barter, exchange, pledge, manipulate, treat, prepare and deal in merchandise, commodities and articles of all kinds and to carry on any kind of commercial and/or financial business as the company may determine from time to time;

5.      To hold or assist in holding exhibitions in India and elsewhere of the products and articles in which the company is interested;

6.      To manufacture, store, export, import, and deal in all kinds of articles and things, which may be required for the purpose of any business of the company.

7.      To promote long-term export operations and "difficult to-sell" items.

The Committee on Public Undertakings has classified the above functions of the S T C under the following six main heads:'

1.      Exports

a.       To promote export of traditional items, to introduce non traditional items in the world markets and to find out new markets for Indian exports.

b.      To facilitate and organise exports of difficult-to-sell items (such as manure, meal, sodium, dichromate, deoiled linseed cake, cement etc.) by linking essential imports with additional exports and under special trade promotion agreements.

c.       To organise product to meet export demands and to help product units in overcoming difficulties of procuring raw materials and other essential requirements.

d.      To develop new lines of exports.

e.       To ensure implementation of trade plans with East European countries.

f.        To help local producers by procuring reasonable prices and to hold stocks to maintain ultimate production at optimum level of commodities with high export potential, thus, avoiding dislocation in production, maintaining adequate availability for export and ensuring a fair price to local producers.

g.       To participate in fairs and exhibition abroad so as to create atmosphere for expansion of exports and for introducing new products in foreign markets.

 

2.      Imports

a.       To import capital goods, industrial raw materials and certain scarce commodities required for the economic development of the country.

b.      To import items which are canalised by the Government through this Corporation so as to ensure that adequate supplies at the right time and at the economical prices are made and are distributed to the industries and other users in a co-ordinated manner.

c.       To undertake import of commodities where bulk purchase would give better terms.

d.      To undertake imports from state trading countries or from where monopolies are involved.

e.       To import commodities, which is in short supply in the country.

f.        To import speculative and high profit margin items with a view, to stabilise the prices and to do distribution of such commodities in an organised manner at fair prices.

g.       To ensure the implementation of trade plans with the East European countries and other special agreements.

 

3.      Internal Trade

a.       To undertake internal trade in certain commodities like imported cars.

b.      To undertake price support and buffer stock operations with a view to ensure fair prices to the growers of certain agricultural commodities, to stabilize internal production and sustain foreign demand.

 

4.      Trade Promotion Agreements

To arrange for essential imports against additional exports of traditional and non-traditional items which are specified in special agreements.

 

5.      Export Aid to Small Industries

To assist the small-scale manufacturers in exporting their products by giving wide publicity to their products abroad and by arranging attractive packing, providing credit facilities, helping them in matters of shipping and exploring possibilities of exporting their products in various countries.

 

6.      Participation in Export-Oriented Corporation

To lend increasing support in the form of financial and organisational assistance to specialised export agencies like the Handi-crafts and Handloom Export Corporation.

Besides these, S T C had also undertaken price support operations (at the instance of the Central Government) for natural rubber in 1970 and tobacco in 1972. Growers were assured of remunerative prices and surplus quantities, mopped up by the S.T.C., were exported.

Media

Living in Media Darkness

There’s no surprise in learning that over 70%, (roughly 670 million) of India’s teeming masses live in rural areas. Of these, some 260 million live in almost complete media darkness, without access to TV, radio, and beyond the reach of newspapers and magazines. Widespread illiteracy allied with the multitude of languages and dialects puts the most of these people beyond the reach of conventional media planning.

 

Yet the villagers are increasingly important as consumers. A survey by India’s National Centre for Applied Economics and Research revealed double-digit rural growth rates in a cross section of products ranging from scooters to confectionery between 1995 and 1999.

 

For companies such as Unilever, Nestle, Glaxo, Lucky Goldstar rural consumers are a huge market opportunity. About 45% of soaps, 40% of teas and 60% of watches sold in rural India. Now that penetration for many consumer products in urban areas is high, the rural markets are growing in importance for both marketers and their agencies.

Ogilvy Outreach, O&M’s rural arm, started with one employee supported by the head of the media division in 1994. Today it has a team of 1,000 supervisors plus another 5,000 people who work on a project basis

 

According to D. K. Bose, Ogilvy Outreach’s president, selling in rural India is no longer restricted to using mobile vans with television sets screening Hindi film songs interspersed with messages about a product. New avenues include games (with the product being given as a prize), door-to-door sales, folk dances, wall paintings, and even putting up shoe racks in temples, putting tiles in village wells, plus occasionally painting the horns of cows, and putting up scarecrows.

 

Tapping the rural market calls for new insights into what helps consumers remember and understand brand messages. Research carried out by Ogilvy Outreach discovered that the rural audience identifies more with colours, numbers, and visuals of animals all woven together in loud colorful messages. These findings appear supported by the high recall levels enjoyed by brands like Lifebuoy (popularly known as the lal sabun), 555, and Monkey brand tooth powder.

 

McCann Erickson are also developing rural initiatives in India. Their strategy for the rural market is built on two key planks. Consumer Insight which will helps understand rural consumers from their own perspective and Experiential marketing, which executives say will be the most relevant, emotive and impactful tool, given the language and cultural diversity of rural India.

Currently ResultMcCann, which is McCann India's integrated Communications Company, is working for TERI (Tata Energy Research Institute) on a World Bank funded project for Farmer education on Farm Forestry in the rural areas.

 

The knowledge gained from rural marketing in India is already being applied in Bangladesh, Cambodia, Africa, and part of China and may yet prove the pathway that extends the franchise of many brands to Asia’s rural billions beyond the reach of television and the internet.

 

A Table for understanding the media penetration in India

Table 1: Macro Indicators - A Comparison

Media Penetration  (%) Urban'95 Rural'95 Urban'99Rural'99

Radio  25 21 50 26

Satellite  19 3 35 5

English Publications 14.5 1.7 16.4 1.9

Hindi Publications 23.4 7.4 26.6 8.6

Local Language Publications 29.7 12.1 31.9 14.5

Any Publication 55.0 20.4 58.5 23.2

Source: IRS-95 and 99  

Did U SAY Couch potato ….eh ???

There is a wide gap between urban and rural segments in terms of purchasing power, literacy, and readership habits and media exposure. The purchasing power of the rural consumer has been increasing in the recent years with the rise in income levels due to agricultural prosperity.

The trends in media penetration show that the penetration of print media (barring regional publications), radio, and cinema is on the decline in both urban and rural areas; the only media that is growing is Television through Satellite Channels. Also gone are the days when advertisements could be conceived in English and then dubbed in regional languages.

The regional language is becoming an important medium of communication for the booming rural market.

Developing the right Marketing strategy ……..

Marketing companies had initially turned to rural India on a look out for newer markets. Clearly, the possibility of converting approximately 700 million innocents into voracious Cadbury- homping, shampoo lathering consumers has galvanised the industry. The focus of the companies, apart from increasing the geographical width of their product distribution is to capture the television-savvy rural consumer. Introduce their brands and develop marketing strategies specific to the rural consumers. The existence of the divide between the urban and rural consumer triggered these. The seriousness of the efforts is evident from an in-house study conducted by ORG-MARG that revealed that 75% of both Indian and the multinational companies are taking the help of the rural marketing organisations to establish distribution links across the length and breadth of the country.

Some of the recent success stories are:

An Indian farmer working in jeans sounds improbable. But, Arvind Mills did not think so. In the first two months the demand for its Ruf & Tuf kits crossed a million pieces as against a production capacity of 0.25 million kits.

Ø      The rural thrust was a part of HLL’s “Operations Bharat”. Last year, HLL perhaps conducted the most extensive exercise of its kind, to create demand for its products in the rural market. They peddled 15-rupee packs containing soap, toothpaste and a fairness cream in 20,000 villages, which resulted in an incredible 30% conversion.

Ø      Britannia launched Tiger Biscuits especially for rural markets thus increasing its share of the Glucose market from 7% to 15%

Ø      HLL A1 tea became a INR 1000 million brand in less than a year after it was introduced in the rural market

Ø      BPL sells B & W TVs under Ajit brand name.

Ø      Hindustan Motor signs joint venture with OKA Motors of Australia to launch special rural transport vehicle.

Ø      DCW Home products are test–marketing Captain Cook Super White Salt for non – urban areas.

The key to the success of most of these products was that these products were designed keeping the rural consumer in mind and recognising the fact that the two consumer sets are different. Several surveys on rural marketing have pointed out that segmenting urban and rural consumers on the basis of income alone will not help in formulating a correct rural marketing strategy.

Factors like cultural diversity, including lifestyles in the area, literacy levels, standard of living, consumption patterns, types of communication facilities and above all the size of the rural market need to be considered in formulating an appropriate marketing strategy.

The key to the gateway of the rural segment emerged as expansion in distribution and growing media penetration leading to increased usage.

The consumption baskets of the rural and urban markets also show a similar constitution, with the products not very different. Approximately, 50% of the toilet soaps, washing cakes and blades, 40% of the washing powder, tooth powder, tea, salt, digestive, antiseptic cream, half of the market for black & white TVs, motorcycles, pressure cookers, fans, cassette recorders, and blades are purchased by the rural market This paper will analyse the urban and rural markets in the above context.

The objective of this paper is to answer whether a divide exists between the two markets and to measure the magnitude and the flavour of the divide in terms of key marketing parameters like Distribution, Products and Markets

The sources of data for this paper include the ORG–MARG’s Retail Store Audit, Rural Consumer Panel, Indian Readership Survey and other secondary sources like reports of CMIE, NCAER, etc.

The rural market's potential for growth is the cynosure of marketers' eyes. Identifying where the divide exists and how to capitalise on it is the need of the day for FMCGs and consumer durables as the urban market is showing signs of saturation.

MEDIA REACH

"The medium is the message" acquires critical importance for advertisers and marketers in India as different media have varying penetration levels. For example terrestrial TV has the highest penetration among all types of media with 78 per cent penetration in urban India and 36 per cent in rural India. It's reach is the highest in the 14 to 19 age group with 62 per cent. It has an astonishing 91 per cent penetration in urban Himachal Pradesh.

In contrast satellite TV reaches only 13 per cent of India. The medium's highest penetration of 52 per cent is in urban Maharashtra. But in the rural parts of the state it has a penetration of a mere 4 per cent. Similarly in Assam and Orissa satellite TV reaches only 4 per cent of the population.

Given the high literacy levels it is natural that print media has the highest penetration in Kerala. It reaches 76 per cent in urban Kerala and 65 per cent in rural parts of the state. Print media has the lowest reach in Assam with 11 per cent.

Cinema has a high penetration in the southern states of India. In urban Kerala the reach of cinema is 61 per cent. It varies from 40 - 45 percent in other southern states. Cinema

reaches more than 30 per cent of the population in the age group of 15- 25 across the country.

The emergence of new media options like

Ø      DTH & Internet more relevant for the upper SEC class of the population.

Ø      This segment is very difficult to catch and hence innovative media solutions are the order of the day.

Brand building is the order of the day as it is important to synergise media with brand objectives

Definition of Rural Marketing :

No other country exists on earth, which offers such a dazzling array of Entertainment choices as India does!

 

In India, entertainment encompasses a wide plethora of options. Right from cinema (the largest of its kind in the world) to television (amongst the fastest growing in the world) to soothing music (the most diverse in the world) to awesome festivals (richest in culture) and richest-possible food and finally its fanatical devotion to sports like cricket.

Travel in India constitutes a major component of Indian leisure and entertainment industry. India offers mind-boggling variety for travel from highest mountain ranges of the world to serene beaches to historical forts, palaces and temples to beautiful deserts. Exotic forests and national parks in India are un-comparable in the world. Scenic hill-stations (mountain resorts) still remain popular Indian travel hot spots.

 

Music in India is as rich as can be. Music in India is a means for spiritual exploration, a path of realisation, in addition to deriving aesthetic entertainment.

 

Be it classical or the folk or the modern Indian pop-bhangra, Indian music reflects Indian life, having no predetermined beginning or end, but flowing uninterrupted through the composer-performer. The purpose of Indian music is to refine one's soul, discipline one's body, to make one aware of the infinite within one, to unite one's breath with that of space and one's vibrations with that of the cosmos.

 

The basic tenets of classical music have been laid down by numerous ancient texts. The classical music is not pre-conceived but pre-written. While the underlying notes are pre-written, within the framework of the rules governing the raaga, the musician has complete freedom to exercise full imagination and creativity.

 

In tribal societies, from birth to death, songs, dances and musical instruments are used to mark every occasion. The origins of classical music are also traced back to tribal tunes and songs.

 

The music of India is a mosaic of different genres and levels of sophistication. At one extreme, classical music is performed in the urban concert halls for purely artistic reasons, and, at the other, many kinds of functional rural music accompanies life cycle and agricultural rites. In between are many other musical genres of different regions of the country, reflecting the diversity of its peoples, their life-styles, and their languages

 

The Indian society is a complex social system with different castes, classes, creeds and tribes. The high rate of illiteracy added to the inadequacy of mass media impedes reach almost to 80% of India's population who reside in village. Mass media is too glamorous, interpersonal and unreliable in contrast with the familiar performance of traditional artist whom the villager could not only see and hear, but even touch. Besides this villagers are more conservative buyers then their urban counterparts. Their desire to innovate with new product is restricted.

 

Traditional media can be used to reach these people in the marketing of new concept. The traditional media with its effective reach, powerful input and personalized communication system will help in realizing the goal. Besides this when the advertisement is couched in entertainment it goes down easily with the villager.

 

Few of the available options in the traditional media are Puppetry, Folk Theater & Song, Wall Painting, Demonstration, Posters, Agricultural Games, and Post Cards etc.

 

Puppetry

Puppetry is the indigenous theatre of India. From time immortal it has been the most popular form and well-appreciated form of entertainment available to the village people. It is an inexpensive activity. The manipulator uses the puppets as a medium to express and communicate ideas, values and social messages.

 

Types of Puppet theatre in India: -

1.      String puppets or Kathputlis of Rajasthan – Contents - Heroic deeds of Vikramaditya, Prithviraj Chouhan, and Amar Singh Rathore

2.      String puppets of Orissa – Contents - Radha-Krishna

3.      Rod puppets from Bengal: - Contents -Mahabharat, Manas, Radha-Krishna

4.      String and Rod puppets of the south (Tanjavur, Madras and Andhra): -Contents - Kathakali

5.      Shadow puppets of (a) Orissa (b) Kerala (c) Andhra (d) Karnataka: - Contents - Ramayana.

6.      Thus in rural India puppetry is a source of livelihood, avenue for entertainment and creative expression which is ritually sacred and meaningful as a means of social communication and vehicle of social transformation.

 

Song and Drama Division of the Government Of India make wide use of puppets in its campaigns to promote various government projects. Several other organizations, government, semi-government and private, have also used puppets in support of individual schemes.

 

Life Insurance Corporation of India used puppets to educate rural masses about Life Insurance; enlisting the help of the literacy house in Luck now. These plays were shown to the audience in villages in UP, Bihar, & MP. The number of inquires at local Life Insurance Companies during the period immediately following the performance was compared with normal frequency and found to be considerable higher. The field staff of the corporation also reported a definite impact on the business.

 

Indian Institute of mass communication, N.Delhi made a study of comparative impact of puppetry and documentary films, in two villages near Delhi. People in both the villages responded more favorably to the puppet shows then the films.

 

Folk Theater

Folk theaters are mainly short and rhythmic in form. The simple tunes help in informing and educating the people in informal and interesting manner. It has been used as an effective medium for social protest against injustice, exploitation and oppression.Folk Theater / Songs Forms In India

Andhra Pradesh: Veethi Natakam, Kuchupudi, Burratatha

Assam: Ankiya Nat, Kirtania Natak, Ojapali Bihar: Bidesia, Serikela Chhau, Jat-Jatni

Bidpada, Ramkhelia

Gujarat: Bhavai

Haryana: Swang, Naqqal

Himachal Pradesh: Kariyala, Bhagat, Ras, Jhanki, Harnatra Haran or Harin.

Jammu & Kashmir: Bhand Pathar or Bhand Jashna, Vetal Dhamali

Karnataka: Yakshagan, Sanata, Doddata-Bayalata, Tala Maddle or Prasang, Dasarata,

Radhna.Kerala: Kodiyattam, Mudiattam, Therayattam, Chavittu Natakam, Chakiyar Kooth,

KathakaliMadhya Pradesh: Maanch, Nacha Maharashtra: Tamasha, Lalit Bharud, Gondha,

DashavatarOrissa: Pala Jatra, Daskathia, Chhau Mayurbhanj, Mangal Ras, Sowang,

Punjab: Nautanki, Naqaal, Swang

Rajasthan: Khyal, Rasdhari, Rammat, Turra Kilangi, Gauri, Nautanki, Jhamtara

Tamilnadu: Therukuttu, Veethi Natakam, Bhagwat Mela Natakam, Kurvaanji, Pagal

Vasham, Kavadi Chindu

Uttar Pradesh: Ram Leela, Ras Leela, Nautanki, Bhagat, Sang-Swang, Naqqual

Goa, Daman & Diu : Dashavatar, Tiyatra.

Folk songs have been effectively used during revolts of Telangana and Naxalbari and now a days it's best exploiters are Political Parties.

Government has used this media for popularizing improved variety of seeds, agricultural implements, fertilizer etc. Punjab Agricultural University produced Two Audio Cassettes.

A) Balliye Kanak Biye - Wheat Cultivation.

B) Khiran Kepah Narme - Cotton Cultivation.

Both were well received by farmers.

BBLIL used Magician quite effectively for launch of Kadak Chhap Tea in Etawah.

 

Demonstration:

"Direct Contact" is a face-to-face relationship with people individually and with groups such as the Panchayats and other village groups. Such contact helps in arousing the villager's interest in their own problem and motivating them towards self-development.Demonstration may be

A.     i. Method demonstration

ii. Result demonstration

B.     i. Simple Demonstration

ii. Composite Demonstration

The five steps to make any demonstration effective are below:

Information about people

Objectives to be accomplished

Demonstration plan & Execution of the plan

Evaluation of the demonstration

Reconsideration after evaluation.

In result demonstration, help of audio -visual media can add value. Asian Paints launched Utsav range by painting Mukhiya's house or Post office to demonstrate that paint does not peel off.

 

Haats & Melas

The countries oldest tradition holds the key to solving these problems. The mobile supermarkets of rural India.

Facts & Figures: -

Over 47,000 haats and 25,000 melas are held annually.

The average daily sale at a Haat is about Rs.2.25 Lacs

Annual sales at melas amount to Rs.3,500 crore.

Over half the shoppers at haats have shopping lists.

More than 10,000 melas draw visitors from all over India.

Nearly half the outlets at melas are for manufactured goods.

Haats is a better opportunity for promotion after brand building has been done at Mela.Melas are organized after harvest season, so the villager has enough money, which he will be ready to spend.

Demonstration at Haat is essential to convert customers at haats since their atitude is far more utilitarian than that of visitors to a fair.

 

Wall Paintings

Wall Paintings are an effective and economical medium for advertising in rural areas. They are silent unlike traditional theatre .A speech or film comes to an end, but wall painting stays as long as the weather allows it to.

 

Retailer normally welcomes paintings of their shops, walls, and name boards. Since it makes the shop look cleaner and better. Their shops look alluring and stand out among

other outlets. Besides rural households shopkeepers and panchayats do not except any payment, for their wall to be painted with product messages. To get one's wall painted with the product messages is seemed as a status symbol. The greatest advantage of the medium is the power of the picture completed with its local touch. The images used have a strong emotional association with the surrounding, a feet impossible for even a moving visual medium like television, which must use general image to cater to greatest number of viewers.

 

A good wall painting must meet some criteria to generate awareness and remind consumer about the brand. The most frequented shops can be painted from inside also one feet above the ground level.

 

It is courteous to take the verbal permission of owner .The permission is normally given. However by taking the permission of the rural retailers or house owners, one gets the owner morally committed to taking care of wall painting.

 

The message should be simple, direct and clear.

A definite way of arresting is to use bright colors and these do not fade away easily. A good paint will survive the ravages of dust, sand and rainstorms for about three years.

Paintings must be taken after rainfall.

 

It should be peaked up during the festival and post harvest season. To derive maximum mileage their usage needs to be planned meticulously.`

Rural Marketing Strategies

Creation Is A Tradition And Technology A Way Of Life

An appropriate segmentation of highly heterogeneous rural market and identification of the needs and wants of different segments will form the very

basis for rural marketing strategies.

For the rural market, strategies for the 4P’s of the marketing mix would be an ideal one.

A)    Product Strategies

The following are the product strategies for the rural market and rural consumers:

1.      Small unit packing: This method has been tested by products life shampoos, pickles, biscuits, Vicks cough drops in single tablets, tooth paste, etc. Small packings stand a good chance of acceptance in rural markets. The advantage is that the price is low and the rural consumer can easily afford it.

 Also the Red Label Rs. 3.00 pack has more sales as compared to the large pack. This is because it is very affordable for the lower income group with the deepest market reach making easy access to the end user satisfying him.

The small unit packings will definitely attract a large number of rural consumers.

2.      New product designs: Keeping in view the rural life style the manufacturer and the marketing men can think in terms of new product designs.

For e.g. PVC shoes and chappals can be considered sited ideally for rural consumers due to the adverse working conditions. The price of P.V.C items is also low and affordable. 

3.      Sturdy products: Sturdiness of a product is an important factor for rural consumers. The experience of torch light dry battery cell manufacturers support this because the rural consumers preferred dry battery cells which are headier than the lighter ones.

For them, heavier weight meant that it has more over and durability.

Sturdiness of a product either or appearance is an important for the rural consumers. 

4.      Utility oriented products: The rural consumers are more concerned with utility of the product and its appearance Philips India Ltd. Developed and introduced a low cost medium wave receiver named BAHADUR during the early seventies. Initially the sales were good but declined subsequently.

On investigation it was found that the rural consumer bought radios not only for information and news but also for entertainment. 

5.      Brand name: For identification, the rural consumers do give their own brand name on the name of an item. The fertilizers companies normally use a logo on the fertilizer

bags though fertilizers have to be sold only on generic names. A brand name or a logo is very important for a rural consumer for it can be easily remembered. Many a times rural consumers ask for peeli tikki in case of conventional and detergent washing soap.

Nirma made a peeli tikki specially for those peeli tikki users who might have experienced better cleanliness with the yellow colored bar as compared to the blue one although the actual difference is only of the color.

 B)    Pricing Strategies

Pricing strategies are linked to the product strategies. The product packaging and presentation also keeps the price low to suit the rural consumer.

Some of the pricing strategies are discussed below: 

1.      Low cost/ cheap products: the price can be kept low by low unit packings like paisa pack of tea, shampoo sachets, vicks 5 grams tin, etc. this is a common strategy widely adopted by many manufacturing and marketing concerns. 

2.      Refill packs / Reusable packaging: in urban areas most of the health drinks are available. The containers can be put to multipurpose uses. Such measures can a significant impact in the rural market. 

For example, the rural people can efficiently reuse the plastic bottle of hair oil. Similarly the packages of edible oil, tea, coffee, ghee etc can be reused. Pet jars free with the Hasmukhrai and Co Tea, Ariel Super Compact. 

3.      Application of value engineering: in food industry, Soya protein is being used instead of milk protein. Milk protein is expensive while Soya protein is cheaper, but the nutrition content of both is the same. The basic aim is to reduce the value of the product, so that a larger segment can afford it, thus, expanding the market.

 C)    Distribution Strategies

While it is necessary to formulate specific strategies for distribution in rural areas, the characteristic of the product – whether it is consumable or durable, the life of the product and other factors have to kept in mind.

The following strategies formulated for the rural category. 

1.      Coverage of villages with 2000 and above population: Ideally, coverage of villages with up to 2000 and above population could be the break-even point for a distribution setup. By doing so the percentage of villages covered comes to only 10% of all the rural population covered will b substantial. With improved communication facilities it is possible to reach distribution vas to these villages. 

2.      Use of co-operative societies: There are over 3 lacks co-operative societies operating in rural areas for different purposes like marketing cooperatives, farmers service cooperatives and other multipurpose cooperatives. These cooperatives have an arrangement for centralized procurement and distribution through their respective state level federation. Such state level federation can be motivated to procure and distribute consumables items and low value durable items to the members to the society for serving to the rural consumers. Many of the societies extend credit to the members for purchases. 

3.      Utilization of public distributory system: The PDS in the country is fairly well organised. The revamped PDS places more emphasis on reaching remote rural areas like the hills and tribals. The purpose of PDS is to make available essential commodities like food grains, sugar, kerosene, edible oils and others to the consumers at a reasonable price. The shops that distribute these commodities are called fair price shops. These shops are run by the state civil Supplies Corporation, co-operatives as well as private entrepreneurs. Here again there is an arrangement for centralised procurement and distribution. The manufacturing and marketing men should explore effective utilisation of PDS.

4.      Utilisation of multipurpose distribution centres by petroleum/oil companies: In order to cater to the rural areas the petroleum/oil companies have evolved a concept of multipurpose distribution centres in rural areas. In addition to petrol/diesel, lubricants, these outlets also stock consumables agricultural inputs like fertilizers, pesticides and seeds. It is estimated that there are about 450 such outlets in operation in the country. The rural consumer who have tractors, oil-engine pump sets and mopeds frequent these outlets for their requirement. These outlets can be profitably utilised for selling consumables and durable items also. 

5.      Distribution upto feeder markets/mandi towns: Keeping in view the hierarchy of markets for the rural consumers, the feeder markets and mandi towns offer excellent scope for distribution. The rural customers visit these towns at regular intervals not only for selling the agricultural produce but also for purchasing cloth, jewelry, hardware, radios, torch cells and other durables and consumer products. From the feeder markets and mandi towns the stockist or wholesaler can arrange for distribution to the village shops in the interior places. This distribution can be done by mopeds, cycles, bullock-carts, camelbacks etc. depending upon the township.  

6.      Shandies/Haaths/Jathras/Melas: These are places where the rural consumers congregate as a rule. While shandies/heaths are held a particular day every week, Jathras and melas are held once or twice a year for longer durations. They are normally timed with religious festivals. Such places attract large number of itinerant merchants. Only temporary shops come up selling goods of all kinds. It can be beneficial for companies to organize sales of their product at such places. Promotion can be taken, as there will be ready captive audience. For convincing the manufacturing and marketing man with regard to the importance of these places from rural marketing point of view a visit to such places is necessary. It is estimated that over 5,000 fairs are held in the country and the estimated attendance is about 100 million rural consumers. Biggest fair ‘Pushkar Mela’ is estimated to attract over 10 million people. There are 50 such big rural fairs held in

various parts of country, which attract urbanite also like ‘Mankanavillaku’ in Malappara in Kerela, Kumbh Mela at Hardwar in U.P. ‘Periya Kirthigai’ at Tiruparunkunaram in Tamil Nadu. 

7.      Agricultural Input Dealers: Fertilizers should be made available to the farmers within the range of 4-5 km from their residence, as per the essential commodities act. This is why there are about 2 lakh fertilizer dealers in the country, both in cooperative & private sector. Example of Varana Nagar in Maharashtra proved an eye opener in this regard where the sugar and milk co-operatives have totally changed the life style of people. The supermarket in Varana Nagar caters exclusively to rural consumers. Similarly a co-operative supermarket called ‘Chintamani’ in Coimbatore (T.N) arranges free transit of rural consumers to the supermarket of their purchases. 

D)    Promotional Strategies

The promotion measure should be cost effective due to the low literacy rate of the rural population. Word of mouth is an important message carrier in the rural areas and “opinion leader” play a significant role in influencing the prospective rural consumers about accepting or rejecting a product or a brand. There are other attributes in the promotion strategy which are explained as under:

1.      Mass media: In the present world mass media is a powerful medium of communication. The following are the mass media generally used:

Television.

Cinema

Radio

Print media: Handbills and Booklets, posters, stickers, banners, etc.

2.      Personal selling and opinion leaders: In personal selling it is required that the potential users are identified and awareness is created among them about the product, its features, uses and benefits. This can be achieved only by personal selling by highly motivated sales person. In fact the word of mouth information holds lot validity in rural areas even today. This is the reason why opinion leaders and word of mouth are thriving among rural consumers. An opinion leader in rural areas can be defined as a person who is considered to be knowledgeable and is consulted by others and his advice is normally followed. The opinion leaders may be big landlords or politicians or progressive farmers.

3.      Special campaigns: During crop harvest and marketing seasons it is beneficial to take up special promotion campaigns in rural areas. Tractor owners (tonee) conducted by MRF Limited is one such example. Brooks Bond carries out marches in rural areas with band, music and caparisoned elephants to promote their brand of tea.  

Super Star Show

Philips India was among the first consumer durables companies to hit the rural market with its Bahadur brand of Transistors in the 1950s. but somewhere down the line, the rural focus was gone. However, in the mid-1998, Philips felt the need to improve its market share in upcountry markets. It decided to launch a special project in Tamil Nadu and Andra Pradesh at a total cost of Rs. 5 Crore.

Rural consumers need to be seen as ‘different’ and ‘not inferior’. It is with this belief that Philips approached rural buyers in Tamil Nadu and Andra Pradesh. “the idea was to present Philips in a relevant manner to the rural consumer, position it as a truly International brand, the way a rural buyer would understand it,”says V.Swaminathan, Philips general manager (distribution & rural marketing) at its consumer electronics department division. So Philips held road shows, van promotions, merchandising etc. in villages with populations of about 5000.

The Chennai-based Anugrah-Mandison was roped in to help. Together they created a special campaign “Enga veettu superstar” (the super star of our house) for the Tamil Nadu market. The word “Super” is an integral part of the Tamil. Even cine idol Rajnikant is popularly known as a “Superstar”. The campaign became a major hit. In Andra Pradesh, the campaign was redrafted in Telgu as “Maa inti megastar”. Popular cine actor Chiranjeevi is referred to as the “megastar” in the state.

Back in Tamil Nadu, promotions revolving around the word “super” were kicked off. Exhibitions of Philips products titled “Supershows” were organized. Interactive sessions such as “sit and draw” contests for children to create brand recognition were held. The participants were asked to copy the Philips logo. They were also asked to copy the brands “Lets Make Things Better” line English so that Philips name is recognised irrespective of language. In a karaoke contest villagers had to sing along with the catchy Philips jingles and win prizes.

During the exercise, Philips painted 1 lakh square ft of wall area in Tamil Nadu and Andhra Pradesh. 4 ad campaigns- 2 for B&W (Black &White) TV and 1 each of C (Colour) TV and audio systems- were created in Tamil and Telugu. These were executed in cinemas, theatres and through video vans (68% of people in Tamil Nadu watch films and 81% in Andhra). The electronic media ads were slickly used. Philips did not compromise on the production values.

The storyboard was created keeping in mind the way of life. Girls in small towns and villages often embroided the cloth which covers the television sets in the house. The ad shows one such girl spreading the embroidered cloth waiting for her in Dubai to return with a C TV. Of course he does not bring the C TV and explains that Philips makes world-class TVs in India. Predictably, a Philips TV is brought home and lovingly covered could easily relate to the story.

In the ad film for Andhra Pradesh, Philips used popular singer S P Balasubramanyam. The ad showed star complementing his son for buying a world-class Philips TV.

The results of the entire exercise: sales rose by between 25% and 30% in these states in the last 6 months. Now, Philips is extending the exercise to Uttar Pradesh and Maharashtra.

Essence or need for middlemen

Middlemen are considered as an unnecessary link in the chain of intermediaries and it is felt that these middlemen/commission agents must be eliminated. It is observed that the commission agents in the markets are functioning not so much to the advantages of the sellers as to those commission agents that the payments to the sellers on behalf of the buyers are done on the very same day or atleast promptly. It is pointed out that the commission agents pay the sales proceeds to producer sellers out of their pocket at first and realize the amt at a later date from the buyers. Hence it can be concluded that till such time as this function of prompt payment is taken over by another institution, it is not advisable to eliminate the services of the commission agent in the regulated markets.

Conclusion

Marketing according to a leading management theorists Peter Druker can be put in this way " There will be always, one can assume, need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sell itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available."

Through this we feel that the gist of marketing in rural & urban is the same. It is nothing but teasing the minds of people, their desires, needs, expectations & playing with their physiology. But the market for a product may vary in rural & urban area and the marketing strategies to market the product is also different in urban and rural area.

In rural area we find more of a stereotype because of similar socio-economic background. But in an urban area it is a multitude of people & personalities & variance in income, background & lifestyle. It was found that the movies, which were hit in cities, were doing as well in the rural areas. (E.g. Lagaan, Gadar) But movies, which are hit in urban areas (metros), may not be successful in rural areas. (E.g. Dil Chahta Hai) It is also found that people in cities spend more on entertainment than people in rural areas.

We can see that the purchasing power of the people in a city like Mumbai is more than a semi rural area like Ambernath and willingness of the people in the rural area

to spend towards movies or any other mode of entertainment is quite less than that of the people residing in urban area.

Vth Semester November 2001 – Rural Marketing

2 Hours) [Total marks 60]

(1)   Both the Sections are compulsory.

(2)   Section I: All questions are compulsory.

(3)   Section II: Attempt any three out of five questions.

(4)   Marks indicated against the questions.

Section I

1.      Give brief account on the following:

(a)    Primary vs. secondary wholesale market.

(b)   Relationship between marketable and marketed surplus.

(c)    Private Negotiation vs. Quotation on samples.

(d)   Regulated Markets.

(e)    Under cover/Hatha system.

2.      Case Study:

Sai House-holds Ltd. (SHL) is a very well established company in the field of manufacturing and selling of consumer durables like TV, washing machine and water

filter, since 1990. The company has achieved remarkable success in marketing of their products through direct selling method in urban areas.

The Co. started with a team of 100 direct selling salesmen. They have a separate salesforce Training and Development cell now, as there are more than 1500 well-trained salesmen. SHL conducts carefully structured training program and prepares salesmen for different kinds of situations they might encounter.

'The team is trained mainly to attract the housewife as the products deal with household items. The salesmen first develop a casual conversation ad- they enter a house and then move to a practiced sales pitch on the products to demonstrate how the product will make life better for the housewife.

SHL also keeps salesmen's enthusiasm alive with seminars and discussions. it is ensured that they stay highly motivated. Achievers are also rewarded by SHL.

Now, SHL decided to go to semi-urban and rural markets instead of confining to urban markets only.

SHL wants to encash in rural areas also through direct sales. So, it diverted some of its salesmen to nearby town centers and each team was given 10-15 villages of population less than 500 each. The salesmen first contacted the village heads and then made an entry into the area.

As per the earlier experience, salesmen here also tried to start with casual conversation and target the house wives. Over a period of 15 days to one month the salesmen came back to parent department with no success in sales and many had very bad experiences also to share with.

The CEO of SHL fired the salesforce Training and Development cell incharge and asked his Marketing Department to develop a new strategy to focus on the semi-urban and rural areas.

Questions:

(a)    Was CEO right in firing the salesforce Training and Development cell incharqe? If so, why?

(b)   When SHL was doing so well in urban market, why did not the same strategy work in rural areas?

(c)    If you were the Marketing manager, what is the new strategy you would develop to focus in Rural Markets?

Note; Relevant facts and assumptions carries due weightage.

  Section II

3.      3/4th of Indian consumer live in rural areas, but still marketer’s focus more on urban consumers. Why?

4.      A firm planning to venture into rural areas face lack of infrastructural facilities? What are these problems and how can a firm cope up with

5.      As you are aware of defects in agricultural marketing; what in your opinion can be the remedial measure for them?

6.      Moneylenders were the major source of credit to farmers, which are the alternate source available now?

7.      How does co-operative marketing act as a remedial measure to overcome the imperfections in rural marketing?

 

Prelims 2001 – Rural Marketing

(2 Hours) [Total marks 60]

(1)   Question numbers 1 and 2 in Section I are compulsory

(2)   From question numbers 3 to 7 in Section II answer any three.

(3)   Answers to the two sections to be tied together

(4)   Figures to the right indicate full marks

Section I

1. Answer the following in 5-6 lines only.

a)      List out the sources of finance for the Rural Consumer.

b)      What is the basic difference between an urban area and rural area?

c)      Who is an Arhatya and what are his functions?

d)      What is India’s equivalent to America's "Look East"? Why?

e)      List out the intermediaries in an Agricultural Market.

2.      Read the following case study and answer the questions given below it; 

Home Personal Products

Karim and Vijay were discussing the dismal performance of their company’s prime products in Indian Rural Markets. Both were employed with Home Personal Product (HPP), a company that produced and marketed FMCG’s like hair oils, shampoos, toothpaste etc. Karim was the product manager and Vijay was the head of the Rural Sales Department.

Two of the products of HPP were not doing well across all rural segments. The first was a transparent 250ml coconut oil in a plastic bottle branded, “Satellite Coconut Oil.” On its sticker label was a picture of a dish antenna. This product was promoted, across all segments, with the help of a 15% price discount on the combined purchase of two bottles.

The other product was a burgundy colored 200 ml Shampoo in a plastic fiber bottle branded as "Vitality Hair Wash." This product had a printed textual label with a diagram

showing improved hair growth due to the usage of the product. The promotion campaign of the "Vitality scratch card sweepstakes that gave away music CD’s

Like all other HPP products both these products were also advertised on TV and Radio in 10 to 30 second slots using beautiful models and a female voice over.

Vijay thought that the products were doing in urban markets because they were developed by keeping the urban consumer in mind, Moreover, even Karim confessed that a large percentage of the urban market share was attributed to the chain of industrial buyers.

While Karim thought that the problem lay in the media methods and promotion campaigns, Vijay felt that the, problem lay in the branding, packaging and labeling.

Questions:

(i)      Who do you think is right, Karim or Vijay?

(ii)    If you were Karim, what would be your media plan and promotion campaign'?

(iii)   What changes do you think Vijay has in mind with regard to Branding, Packaging and Labeling of the two products"

Section II

3.      What is Rural Marketing? Explain its scope and importance.

4.      Keeping the profile of the rural consumer in mind explain the changing pattern of rural demand in India.

5.     What are the factors affecting Marketed and Marketable Surplus?

6.    State and explain the advantages and disadvantages of the various sources of finance available to the Indian Rural Agriculturist.

7.      Write short notes on any three of the following

a)      Sales Force management in Rural India

b)      Middle Men

c)    Multiplicity of Market Charges in Agricultural Markets in India

d)      Rural Communication