MARKETING OF AGRICULTURAL PRODUCE

INTRODUCTION

  • The term agricultural marketing is composed of two words -agriculture and marketing.
  • Agriculture, in the broadest sense means activities aimed at the use of natural rural resources for human welfare, and marketing connotes a series of activities involved in moving the goods from the point of production to the point of consumption.
  • Specification, the subject of agricultural marketing includes marketing functions, agencies, channels, efficiency and cost, price spread and market integration, producer’s surplus etc. The agricultural marketing system is a link between the farm and the non-farm sectors.
  • With the development of means of transport and storage facilities, agriculture has become commercial in character; the farmer grows those crops that fetch a better price.
  • Marketing of agricultural produce is considered as an integral part of agriculture, since an agriculturist is encouraged to make more investment and to increase production.
  • Thus there is an increasing awareness that it is not enough to produce a crop or animal product; it must be marketed as well.
  • Agricultural marketing involves in its simplest form the buying and selling of agricultural produce. But, in modem times, marketing of agricultural produce is different from that of olden days. In modem marketing, agricultural produce has to undergo a series of transfers or exchanges from one hand to another before it finally reaches the consumer.
  • The National Commission on Agriculture defined agricultural marketing as a process which starts with a decision to produce a saleable farm commodity and it involves all aspects of market structure of system, both functional and institutional, based on technical and economic considerations and includes pre and post- harvest operations, assembling, grading, storage, transportation and distribution.

 

PRINCIPLES OF SCIENTIFIC MARKETING FOR FARMERS

  • Always bring the produce for sale after cleaning it: – Impurities, when present, lower the price offered by the traders-buyers in the market. The fall in price is more than the extent of impurity present in the produce would warrant. Clean produce attracts more buyers.
  • Sell different qualities of products separately: – The produce of different varieties should be marketed separately. It has been observed that when different varieties of products are marketed separately, the farmers get a higher price because of the buyer’s preference for specific varieties.
  • Sell the produce after grading it: – Graded produce is sold off quickly. The additional income generated by the adoption of grading and standardization is more than the cost incurred in the process of grading and standardization. This shows that there is an incentive for the farmers for the production of good quality products.
  • Keep abreast of market information: – Price information helps him to take decisions about when and where to sell the produce, so that a better price may be obtained.
  • Carry bags/packs of standard weights: – Farmers should weigh their produce and fill each bag with a fixed quantity. Majority of the farmers do not weigh their produce before taking it for sale and suffer loss by way of a possible malpractice in weighing, or they may have to make excess payments in transit (octroi [ abolished after introduction of GST ] , transport costs, etc.).
  • Avoid immediate post-harvest sales:- The prices of the produce touch the lowest level in the peak marketing season. Farmers can get better prices by availing of warehouses facilities existing in their areas. Farmers can meet their cash needs by pledging the warehouse receipt to nationalized banks.
  • Patronize co-operative marketing societies:- Farmers can get better prices by sales through a cooperative and marketing society and can avoid the possibility of being cheated. The cost of marketing particularly the transportation cost for farmers having a small quantity of marketable surplus is minimized, for transportation is arranged co-operatively by the society and the profit earned by the society is shared among its members.
  • Sell the produce in regulated markets:- The farmers should take their produce for sale to the nearly regulated markets rather than sell them in village or unregulated markets. In regulated markets marketing charges are on very few items. They get the sales slips in the regulated markets, which show the quantity of the produce marketed and the amount of charges deducted from the values of the produce. Sales slips protect farmers against the malpractices of deliberate erroneous accounting or unauthorized deductions.

 

IMPORTANCE AND OBJECTIVES OF AGRICULTURAL MARKETING

  • The farmer has realized the importance of adopting new techniques of production and is making efforts for more income and higher standards of living.
  • As a consequence, the cropping pattern is no longer dictated by what he needs for his own personal consumption but what is responsive to the market in terms of prices received by him.
  • While the trade is much organized the farmers are not Farmer is not conversant with the complexities of the marketing system which is becoming more and more complicated.
  • The cultivator is handicapped by several disabilities as a seller. He sells his produce at an unfavourable place, time and price.

A) The objectives of an efficient marketing system are:

 

a

 

  • To enable the primary producers to get the best possible returns,
  • To provide facilities for lifting all produce, the farmers are willing to sell at an incentive price,
  • To reduce the price difference between the primary producer and ultimate consumer, and
  • To make available all products of farm origin to consumers at reasonable price without impairing on the quality of the produce.

 

FACILITIES NEEDED FOR FARMER IN MARKETING

  • He should have proper facilities for storing his goods.
  • He should have holding capacity, in the sense, that he should be able to wait for times when he could get better prices for his produce and not dispose of his stocks immediately after the harvest when the prices are very low.
  • He should have adequate and cheap transport facilities which could enable him to take his surplus produce to the mandi rather than dispose it of in the village itself to the village money-lender-cum-merchant at low prices.
  • He should have clear information regarding the market conditions as well as about the ruling prices, otherwise may be cheated. There should be organized and regulated markets where the farmer will not be cheated by the “dalals” and “arhatiyas”.
  • The number of intermediaries should be as small as possible, so that the middleman’s profits are reduced. This increases the returns to the farmers.

 

EXISTING SYSTEMS OF AGRICULTURAL MARKETING IN INDIA

a

 

  • Sale to moneylenders and traders:-
    • A considerable part of the total produce is sold by the farmers to the village traders and moneylenders.
    • According to an estimate 85% of wheat, 75% of oil seeds in U.P., 90% of jute in West Bengal and 60% of wheat, 70% of oil seeds and 35% of cotton in Punjab are sold by the farmers in the villages themselves.
    • Often the money lenders act as a commission agent of the wholesale trader.
  • Hats and shanties:-
    • Hats are village markets often held once or twice a week, while shanties are also village markets held at longer intervals or on special occasions.
    • The agents of the wholesale merchants, operating in different mandies also visit these markets. Most of “hats” are very poorly equipped, are uncovered and lack storage, drainage, and other facilities.
    • It is important to observe that only small and marginal farmers sell their produce in such markets. The big farmers with large surplus go to the larger wholesale markets.
  • Mandies or wholesale markets:-
    • One wholesale market often serves a number of villages and is generally located in a city. In such mandies, business is carried on by arhatiyas.
    • The farmers sell their produce to these arhatiyas with the help of brokers, who are generally the agents of arhatiyas. Because of the malpractices of these middlemen, problems of transporting the produce from villages to mandies, the small and marginal farmers are hesitant of coming to these mandies.
    • The arhatiyas of these mandies sell off the produce to the retail merchants. However, paddy, cotton and oilseeds are sold off to the mills for processing. The marketing system for sugarcane is different. The farmers sell their produce directly to the sugar mills.
  • Co-operative marketing:-
    • To improve the efficiency of the agricultural marketing and to save farmers from the exploitation and malpractices of middlemen, emphasis has been laid on the development of co-operative marketing societies.
    • Such societies are formed by farmers to take advantage of collective bargaining. A marketing society collects surplus from it members and sell it in the mandi collectively. This improves the bargaining power of the members and they are able to obtain a better price for the produce.
    • In addition to the sale of produce, these societies also serve the members in a number of other ways.

 

CONTRACT FARMING

1) Introduction 

  • Agriculture growth is under stress at 3.4 per cent in 2017-18 compared with 6.3 per cent in 2016-17.
  • The government recently came out with a Model Contract Farming Act, 2018 with intent to increase farmers’ income by creating an alternative market mechanism that links them to national and international markets.

2) Contract Farming 

  • Contract farming refers to a system in which bulk purchasers, including agro-processing, exporting and trading units, enter into contracts with farmer(s) to purchase a specified quantity of any agricultural commodity at a pre-agreed price.
  • The contracting firm also known as the sponsor provides all production support to the contacted farmers, including extension services with full protection of land rights.

3) Advantages 

  • Contract farming enhances market linkages and reduces dependence on middlemen.
  • Integrate farmers with bulk purchasers including exporters, agro- industries etc.
  • Since the factories will be next to clusters of farms, wastages will be very largely eliminated.
  • Better price realization through mitigation of market and price risks to the farmers.
  • It facilitates better access to technology, crop diversification, extension services, financing and crop
  • Farmers no need to transport their produce to the mandis, as sponsors usually collect the produce from the farm gate.
  • This reduces farmers’ cost and, thereby, translates into increased incomes.
  • Ensures smooth agro raw material supply to the agro industries.
  • Food-processing will get a boost as an employment generator.
  • Encourage the new generation to takeup farming instead of migrating to cities.
  • Rural women, instead of being employed as farm labourers will work in sorting and grading of fruits and vegetables.
  • It also gives farmers an alternative in cases where the procurement mechanism is ineffective.

4) Criticism 

  • Contract farming can be detrimental by encouraging large monoculture farming.
  • Dependency of farmers on companies for seeds and equipment also needs to be looked at.
  • Contracting firms can exploit monopsony situation to their advantage by offering lower prices to
  • High incidence of conflicts in some places between the farmer and the procuring entity on quality/quantity of produce as well as a high risk of post-harvest losses.
  • Being a State subject, Operationalizing agriculture reforms needs State cooperation. Most often,these reforms fall victim to Centre-States political differences.

5) Model Contract Farming Act, 2018 

  • Model Contract Farming Act, 2018 lays emphasis on protecting the interests of farmers.
  • The Model Contract Farming Act, 2018 allows farmers and farmer producer organisations (FPOs) to directly link with companies, thus enhancing market linkage and removing dependence on middlemen.
  • The Act will have an indirect effect on small and marginal farmers for a better say in determining the prices of their produce.
  • The Act insulates land ownership rights of the farmers from any potential infringement from the sponsors or the buyers.
  • The fear of losing their land has always inhibited farmers from embracing any new policy.
  • Shortcomings
    • The Act mandates the sponsor to buy the entire contracted amount of produce from the farmers, even if the quality parameters are not met.
    • This bears heavy on the sponsor, who wanted to procure a specific grade of produce.
    • The sponsor is burdened with the additional cost of insurance support to the farmer. The government can instead consider covering this cost.

6) Way Forward

  • Proactive hand-holding and guidance of the contracting firm at the State level.
  • To tap the full potential of contract farming, the Act needs to be supplemented by well-balanced leasing laws at the State level.
  • Allowing leasing of land will help address the issue of fragmented landholdings and encourage the private sector to make bigger commitments in terms of technology and capital.
  • This will boost productivity, by benefiting from economies of scale.
  • More Centre-State collaboration along with policy interventions will go a long way in fulfilling the intent and the purpose of the Act.
  • The government should focus on providing an enabling environment by fostering competition and bridging information asymmetries between farmers and buyers.
  • Collect no taxes from food processors involved in contract farming. Compel them to invest in lieu in rural infrastructure & farmer upliftment.
  • India, given the diverse agro climatic zones, can be a competitive producer of a large number of Contract farming offers one possible solution.

 

APMCS

A) WHAT ARE APMCS?

  • Agricultural Produce Market Committee (APMC) is a statutory market committee constituted by a State Government in respect of trade in certain notified agricultural or horticultural or livestock products, under the Agricultural Produce Market Committee Act issued by that state government.

B) Intended functions of APMCs

  • Ensuring Transparency in pricing system and transactions taking place in market area
  • Providing market-led extension services to farmers
  • Ensuring payment for agricultural produce sold by farmers on the same day
  • Promoting agricultural processing including activities for value addition in agricultural produce
  • Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale
  • Setting up and promoting public private partnership in the management of agricultural markets

C) Typical amenities available in or around the APMCs are:

  • Auction halls, weigh bridges, godowns, shops for retailers, canteens, roads, lights, drinking water, police station, post-office, bore-wells, warehouse, farmers amenity center, tanks, Water Treatment plant, soil-testing Laboratory, toilet blocks, etc.

D) APMC acts run on two principles:

  • Ensure that intermediaries (and money lenders) do not compel farmers to sell their produce at the farm gate at throwaway prices, meaning the farmers are not exploited
  • All food produced should first be brought to the market yard to be sold through auction, farmers get handsome profits

E) Under APMC Acts:

  • A State is geographically divided and Market/ Mandis are established at different places within the states.
  • Farmers bring their produce to sell it through through the auction.
  • To operate in Mandi, a trader has to get a license.
  • Wholesale, retail traders (e.g. shopping mall owner) or food processing company etc cannot buy farm output directly from farmer. They’ve to get it through the Mandi.

F) Old APMC Acts: Problems?

 

 

 

 

 

 

 

AGRICULTURAL MARKETING IN INDIA: CHALLENGES

  • Fragmentation of markets – for eg. Thousands of APMC markets under respective State Government, with no linkages between them, operating in monopolistic silos.
  • Lack of unrestricted movement
    • Obsolete APMC act mandates that farmer’s first sale shall only be to commission agents, which forces farmers to sell their produce in the immediate market yards.
    • This creates problem of plenty at one market and scarcity at another market, resulting either in price-depression and loss to producer, or inflation and loss to the consumer
  • Less farmers’ price realisation – The share of farmer in consumer’s price is very low, particularly in perishables, due to a large number of intermediaries, lack of infrastructure and poor holding capacity
  • Discourages Direct selling – No direct selling to contract farming sponsors, retailers, food processing unit etc. As a result, farmers are unable to command higher profits, forward linkages to food processing industry are distorted, and private investment is adversely affected
  • Exploitation by intermediaries – Lack of direct selling opportunity also increases exploitation by commission agents, who cartelise themselves, depress gains of farmer, increase prices of consumer, restrict entry of new players, etc.
  • High Incidence of Market Charges – Multiplicity of market levies, taxes, commissions, and fees at the first level of trading has cascading effect on retail prices, thus, causing inflation.
  • Non transparency in utilization of levies collected — Levies do not go to state exchequer and, hence, do not require approval of state legislature. No oversight on its utilization.
  • Political interference & corruption – APMC and APMC boards are occupied by politically influential persons, who are hand in glove with commission agents to wield monopoly power over a particular market area
  • High Wastages in Supply Chain – Inclusion of fruits and vegetables under the purview of APMCs has resulted in Post-harvest losses & large wastage
  • Lack of Infrastructure in Agricultural Markets – No major investment in modern infrastructure such as cold storage, modern warehouses, Electronic weigh-bridges etc
  • High marketing cost — That particularly affects small and marginal farmers who have small marketable surplus = impacts actual price realization

 

GOVERNMENT MEASURES TO IMPROVE AGRICULTURAL MARKETING

  • Marketing surveys: –
    • In the first place the government has undertaken marketing surveys of various goods and has published these surveys.
    • These surveys have brought out the various problems connected with the marketing of goods and have made suggestions for their removal.
  • Rural Godown Scheme: –
    • The scheme of Rural Godowns has been formulated for creation of scientific storage capacity with allied facilities in rural areas by encouraging private and cooperative sector to invest in the creation of storage infrastructure in the country.
    • The eligible promoters for construction of rural godowns are individual farmers, group of farmers/ growers, partnership/ proprietary firms, NGO, companies, corporations, cooperatives, Agricultural Produce Marketing Committees, Marketing Boards and Agro Processing Corporations.
    • Godowns built under the scheme should be structurally sound on account of engineering considerations and functionally suitable to store the agricultural produce
  • Grading and Standardization: –
    • The government has done much to grade and standardize many agricultural goods. Under the Agricultural Produce (Grading and Marketing) Act the Government has set up grading stations for commodities like ghee, flour, eggs, etc.
    • The graded goods are stamped with the seal of the Agricultural Marketing Department -AGMARK. The “Agmark” goods have a wider market and command better prices.
  • AgmarkNet: –
    • Agricultural Marketing ‘AgmarkNet’ is a unique live portal on agricultural commodities anywhere in the world, technically supported by a high capacity Central server and the programming capabilities of the NIC and the data is fed into the system in a decentralized mode through the voluntary cooperation of mandi staff.
    • This is acceptable since the aim of the network is to keep farmers and other market functionaries informed of price and market related information. The portal is in public domain and anybody can access information from the portal as per their requirement.
  • National Agricultural Market Atlas (NAMA): –
    • National Agricultural Market Atlas (NAMA) is an offshoot of the AGMARKNET with an additional component of spatial data. It provides GIS web interface to visualize the daily market scenario on National Map
  • Central Warehousing Corporation: –
    • The Central Warehousing Corporation was set up in 1957 with the purpose of constructing and running godowns and warehouses for the storage of agricultural produce.
    • The states has set-up the State Warehousing Corporations with the same purpose. At present the Food Corporation is constructing its own network of godowns in different parts of the country.
  • Government Purchases and Fixation of Support Prices:-
    • In addition to the measures mentioned above, the Government also announces minimum support price for various agricultural commodities from time to time in a bid to ensure fair returns to the farmers.
    • These prices are fixed in accordance with the recommendations of the Agricultural, Price Commission. If the prices start falling below the declared level (say, as a result of glut in the market), the Government agencies like the Food Corporation of India intervene in the market to make direct purchase from the farmers at the support prices.
    • These purchases are sold off by the Government at reasonable price through the public distribution system.

 

MODEL AGRICULTURAL PRODUCE AND LIVESTOCK MARKETING (PROMOTION & FACILITATION) (APLM) ACT, 2017

A) Objective – To address the aforementioned concerns in agriculture marketing, the Union Government formulated recommendations known as the Model APLM Act, 2017

B) Key features and benefits of the model Act:

  • Unified Market Area: A state government/UT administration may declare the whole state/UT as a single unified market area for the purpose of regulating agricultural produce = Prevents fragmentation of market within the State/UT
  • Setting up of market yards:
    • Setting up of private wholesale market yards and farmer-consumer market yards, to enhance competition among different markets & market players for farmer’s produce
    • Enabling declaration of warehouses/ silos/ cold storages and other structures/ space as market sub-yard to provide better market access/ linkages to the farmers
  • Market yard of National Importance (MNI): A state may declare any market yard as a MNI based on parameters such as its total throughput, number of consumers served, and infrastructure. A separate Market Committee may be constituted to manage the MNI.
  • Promotion of direct interface – between farmers and processors/exporters/bulk-buyers/end users so as to remove intermediaries, reduce the price spread, bringing advantage to both producers & consumers
    • Freedom of choice to farmers – to sell their produce to the buyers and at the place & time of their choice, to whom so ever and wherever they get better prices.
    • Promotion of national market – through provisioning of inter- state trading licence, grading and standardization and quality certification
    • Promotion of E-Trading:
    • To provide infrastructure and services for Pan India trading in agricultural produce
    • To enhance transparency in trade operations and integration of markets across geographies.
    • e-trading platforms maybe integrated with private market yards and sub-yards. Under a unified National Agricultural Market, e platforms shall be interoperable.
    • A person may obtain license to establish and run an e-trading platform.
  • Single point levy of market fee across state:
    • The state Market Committee shall levy market fee on agricultural produce from a buyer only once, whether brought from outside or within the state/UT.
    • Together with unified single trading licence, it will help realise cost-effective transactions
  • Caps on Market fee and Rationalization of market fee & commission charges
  • Full democratization of Market Committee and State/UT Marketing Board.

 

OTHER KEY INITIATIVES FOR REFORMS IN AGRICULTURE MARKETING

  • Launch of e- NAM, a pan India electronic platform to facilitate the participation of buyers and sellers from all over India and create a National Agricultural Market.

 

 

  • Ministry of Agriculture released a Model Contract Farming Act, 2018 which seeks to create a regulatory and policy framework for contract farming.
  • Government is in the process of formulating guidelines to popularise the pledge loan and e-NWR based marketing.
  • State governments have been advised to exempt fruits and vegetables from the purview of APMC act.
  • SAMPADA (Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters) — For creation of modern infrastructure with efficient supply chain management from farm gate to retail outlet, including setting up of new mega food parks (MFP).
  • Operation Greens – To address price fluctuations in tomato, onion, and potato (TOP).
  • Budget (2018-19) announcements
    • Developing & upgrading existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs).
    • GrAMss to be electronically linked to e-NAM and exempted from regulations of APMCs, thus, enabling farmers to make direct sale to consumers & bulk purchasers. –
    • Setting up of Agri-Market Infrastructure Fund with a corpus of Rs.2000 crore for developing and upgrading agricultural marketing infrastructure in the GrAMs and APMCs
  • NITI Aayog has developed the first ever ‘Agriculture Marketing and Farmer Friendly Reforms Index’ to sensitise states about the need to undertake reforms in 3 key areas of Agriculture Market Reforms, Land Lease Reforms and Forestry on Private Land.
  • Launch of an e-marketing portal for Organic Products.
  • Formation of Farmer Producer Companies (FPOs).

 

WHAT MORE CAN BE DONE?

  • Incrementally bring agriculture commodities out of APMC net beginning with vegetable and fruits, and working towards cereals, pulses, oilseeds etc later
  • Persuade states to provide market infrastructure esp. for private markets, so that they can eventually be viable enough to compete with Govt. established APMC markets
  • Persuade states to liberalise FDI in retail to allow investment in market infrastructure, and supply chain strengthening
  • Consider the recommendation of National Commission on Farmers to place agricultural marketing in the Concurrent List.

 

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