INTRODUCTION

          Renowned economists have mentioned that trade and exchange allow us to benefit from specialization and obtain welfare gains.  Trade and exchange require the existence of markets.  Agriculture markets are the hub of rural economy.  Agricultural marketing today means more than linking the producer with consumer, it includes creation of favorable economic environment for farmers to enthuse him to grow more and get proceeds from transactions.  Many alternative forms, such as, cooperative marketing, group marketing, contract marketing, futures trading, direct marketing and e-com-electronic commerce are in wake to enable the producers to maximize the share in consumers rupee and delivering a quality produce at affordable price to consumer.  Agricultural produce markets are nerve centers from where marketing impulses are transmitted to put all the marketing activity on track and safeguard the interest of both farmers and consumers.

          The manual deals with basic marketing scenario so that all market functionaries and farmers may be benefited and converse themselves with modern marketing practices.

          Adoption of modern production technologies has resulted into massive marketable surplus in the field of agriculture, which has genuinely created need for proper and adequate infrastructural requirement for fostering the marketing of the farm produce efficiently.  Infrastructure is instrumental in effective marketing, pricing, reducing huge losses during post harvest period and converting the produce into acceptable quality in the  international  market.     Specific infrastructural  facility is crucial requirement of importers to stimulate farmers to produce more to cope up with the increasing demand.  Marketing infrastructure includes facilities and amenities, which cater to the need of cost-effective movement of produce from farm to the consumer either inside or outside the country.

          In order to make the agricultural markets more user friendly at all the levels, i.e., primary/rural or national market and most efficient, various infrastructural facilities/amenities have been presented in this manual.  This endeavourance will help to establish agricultural markets well equipped with better infrastructural facilities and amenities.  Since creation of proper infrastructure requires huge investment, Directorate of Marketing and Inspection has launched a scheme CAPITAL INVESTMENT SUBSIDY FOR DEVELOPMENT / STRENGTHENING OF AGRICULTURAL MARKETING INFRASTRUCTURE, GRADING AND STANDARDISATION” to meet the investment requirement of the entrepreneurs through private and public funding.  

Agricultural Marketing:  

            Marketing of the form produce begins with the planning of producing the commodity. Agricultural commodities besides being seasonal and regional in nature are bulky and the consumption of the same is spread throughout the year. Marketing is sum of all activities, which link the producer and consumer.

Strategic Approach for Marketing: Marketing of farm produce needs a strategy, in order to establish a bridge between producer and consumer efficiently and economically. Marketing strategy comprises defined specific objective and action plan to have competitive edge over other players in this area. Prudent producer will analyse the strategy thoroughly, to take up farming to maximise his out put in respect of quantity and quality with cost effective approach for a competitive marketing to drive a reasonable return over cost invested.

           Since the last two decades, India has not only attained self- sufficiency in food grain requirement, but has become an important player in the export market. Keeping in view the domestic requirement, our farmers have been guided very often for producing meticulously market-oriented production. Market oriented production will have to be taken up to match the demand and supply equitably.

Marketing Environment: Soon after harvesting, farmer intends to shift the produce to market, as early as possible. Farmer expects an environment to market the produce, where his decision should not be effected by any other variable factor or forces and is assured of a competitive price. This objective is enshrined in the creation of regulated market. In the management of these markets, a farmer representative serves as a member and this gives him a sense of belonging in the market, which makes the market environment more conducive for completing the transactions. Marketing environment also includes, required infrastructure for efficient handling of the commodity, such as covered auction platform, tested and trusted weighing machines, cleaning, grading and storage / cold storage facility, loading and unloading facilities, internal roads to decongest the vehicular movement, pledge finance availability, banking, postal services, cattle-shade, farmer’s rest house and link road from farm to the market. Trained manpower in these markets increases the conduciveness of the marketing environment. Besides these requirements, big institutional support such as NAFED, CWC/SWC, DMI,
 

NHB, Directorate of     Economics and Statistics, NABARD, APEDA, Commodity Boards, CACP, Forward Market Commission and State Agricultural Marketing Boards – provide much needed fillip to the marketing environment.

Alternative Marketing: The traditional marketing system of farm produce has paved way for other alternative marketing system, which is more need based and sometimes suits the individual partners in the trade. The need of the alternative marketing of farm produce is to reduce the distributive system. Another reason is to explore the possibility of bringing the buyer to the production place, that is, bringing the market at farm. Some of such marketing systems are briefly given below-

(a)        Group Marketing: Group marketing includes, joint planning, funding, implementation, pricing, sharing risk equally in the marketing and reaping the benefit of collective bargaining. This indirectly results into more returns and economises the marketing cost. 

                                              Why group marketing?

¨      To develop entrepreneurial skill

¨      Improve bargaining power

¨      Reducing the risks involved due to price uncertainty

¨      To make available bulk supply

¨      To reduce the marketing cost 

(b)        Cooperative Marketing : This marketing system is pursued through cooperative societies registered under Cooperative Societies Act. This system is pursued on the principle of “self help by mutual help”. It reduces the marketing cost, enhances the bargaining power and there is equitable distribution of the proceeds.presence of marketing cooperatives makes the market more competitive and ensures better returns to the producer. This system is owned and managed by the farmer themselves for their own economic betterment and enhancing marketing efficiency. At the village level, a large network of multipurpose / commodity specific Primary Agricultural cooperative Societies are supporting such marketing system in the country.

Why Cooperative Marketing ?

¨      To improve bargaining power of the farmer members

¨      To get quality input

¨      Presence makes the market more competitive

¨      To enhance the profit

¨      To have  backward and forward linkage

¨      Make presence in remote areas and involve small and marginal farmers

¨      Collective ownership of marketing infrastructure such as cleaning,grading, storage, processing, outlets etc.

¨      Collective distribution

¨      Credit accessibility

(c)        Direct Marketing: Farmers come into direct contact with the consumers and receive the payment directly from the consumers. This system is prevailing in many parts of the country viz.,

(i)                  Apni Mandi: In these mandies, farmer-producers bring the produce for sale  directly to the consumers ,as in Punjab and Rajasthan

(ii)                Rythu Bazrs: In Andhra Pradesh, such markets have been established to provide direct link between farmers and consumers in the marketing of fruit and vegetables and other essential food items.

(iii)               Uzhavar Santhaigal: Government of Tamil Nadu had established farmers markets called Uzhavar Sandies in selected municipal and panchayat areas.In these markets, better marketing infrastructure is provided to farmers free of cost. Farmer get other inputs and quality seeds in these markets .(However it has been discontinued by the present State Government)

(iv)              Raithara Santhegalu : In Karnataka, marketing Board has established farmes market or Raithara Santhe without any middle men and provide a place where farmers and consumers directly interact.

                                                       Why Direct Marketing?

¨       Make the marketing channel shortest

¨      reduces marketing cost and maximises farmer’s share in consumer rupee

¨      Eliminate middle men 

¨      Direct communication with consumer / buyer

¨      Requires minimum infrastructure

¨      Understanding of consumer requirement

¨      Availability of fresh and quality produce within the shortest reach of consumer

(d) Contract Farming:  Contract farming, is a type of farming wherein the industry or perspective buyer enters into a contract with the farmer and promises to buy the farmer’s produce at a pre-negotiated price under pre-negotiated conditions. Besides, the buyer agrees to supply the required farm inputs at the required time. In this process farmers are assured of an established market and a fixed price for their produce. The buyers would be able to procure the produce of a specified quality at much cheaper rate.

   Normally contract farming involves the following basic elements

(a)    Pre-agreed price

(b)   Quality

(c)    Quantity or acreage (minimum/ maximum)

(d)   Time

q       Farmer is contracted to plant the contractor’s crop on his land.

q       Harvest and deliver to the contractor, a quantum of produce, based upon anticipated yield and contracted acreage.

q       This could be at pre-agreed price.

q       Towards these ends, the contractor can supply the farmer with selected inputs

              Thus, under the contract farming, contractor supplies all the inputs required for cultivation, while the farmer supplies land and labour.

ADVANTAGES OF CONTRACT FARMING

To the farmers:

1)      Assured market and support price.

2)      Efficient timely technical guidance- almost free of cost. Crop monitoring on a regular basis.

3)      Financial support in kind.

4)      Assured quality of seeds and pesticides.

5)      Better price for produce- No Middlemen.

6)      Gain of bulk supply instead of small lots.

7)      Remunerative returns and timely payment.

 

To the buyers:

1)      Backward market integration is possible with assured supply.

2)      Ensured required quality- ensures residual toxicity level.

3)      Uninterrupted and regular flow of quality raw material

4)      Protections from fluctuation in market pricing.

5)      Buyers can plan on long term basis.

6)      Buyers select the products, which have international demand.

7)      Selection of location- agroclimatic conditions matching with the commodity’s requirement and less prone to natural calamities.

 

SUCCESS OF COTRACT FARMING LIES IN –

1)      Buyer’s ability to implement the plan.

2)      Monitoring the growth of the plants package of practices, pest management and sanitation measures

3)      On site procurement- processing, packing and forwarding.

Indian Experience in Contract farming:

1)      In Punjab and Rajasthan—Tomato Pulp—Pepsi

2)      In Maharashtra and AP—Exotic Vegetables—Trikaya foods/VST and small farmers.

3)      In Bangalore—Gherkins—Exporter with farmer growers

4)      In AP/Karnataka—Edible oil and Sunflower-ITC Agro –tech

Agri-Clinics and Agri-Business centers:

              Providing testing facilities, diagnostic and control services and other consultancies on a fee for service basis though nearly 5000 such clinics.The programme is implemented jintly through Small Farmers Agribusiness Consortium (SAFC) and National Institute of Agricultural Extension management (MANAGE). These services are provided by well trained graduates and financial support on subsidized manner is being provided by NABARD to establish the needed infrastructure.  

 

FUTURES TRADING/FORWARD CONTRACTS.

 

1.                     Bombay Cotton Traders Assocation (1875), for regulation of cotton trade.

Futures Markets were established for oil seeds in Bombay ( 1900 ) for Wheat in Hapur (1913) raw jute and jute goods in Calcutta (1912)

2.                     FORWARD CONTRACT  (Regulation) ACT – 1952 – to check the unhealthy

Speculation – forward trading was regulated and prohibited in other areas.

 

3.                     FORWARD MARKET COMMISSION –Established in 1953.  The Spices and

Oil seeds Exchange Ltd. Was established Sangli  in–1953.

4.           Central Government has powers to notify the commodities and jurisdiction in      

              Which forward contracts are regulated.

4.                     There is ban in about 100 commodities on forward trading.

5.                     Two broad categories of Operators are namely., Hedgers and Speculators.

 

RISKS IN AGRICULTURAL MARKETING:

a)      qualitative and quantitative

b)      institutional

c)      price risk

 

PRICE RISK.-  Speculation and hedging to overcome this risk.

SPECULATION – absolutely profit motive

HEDGING - executing opposite sales or purchases in futures market to offset the purchases or sales of physical product made in the cash market.

FUTURE TRADING:- also known as Hedge Market.

K.N.Kabra Committee- 1993 - Reviewed the working of Forward Markets.  Allowed futures trading in 17 commodities, for example, cotton, jute, custard oil , pepper and 11 oil seeds, oils and their cakes.

At present, in custard seed, turmeric, pepper, gur (jaggery), potato and hessian, future trading is undertaken. Now future trading is permitted in more than 100 commodities.

   

TYPES OF CONTRACT - 

1) Ready contracts – when delivery of goods and payment thereof, if completed 11 days from the date of contract.  Not covered under the Act.

               2) Forward contracts – when delivery of goods that are not ready-delivery contract, and are governed by the Act.Two types-(1) Specific Delivery Contracts (2) Non- Contracts

               Specific delivery Contracts- are of two types on the basis of transferability of the rights or  / obligations, which is permitted in transferable specific contracts –TSD, and not permitted in Non Transferable Specific Delivery Contracts-(NTSD)-(also called Futures Contract)

             3) Option Contract- for price insurance for producers

                   These contracts are negotiated directly between the parties depending on availability, requirement and negotiated contract terms, such as, quality, price, period of delivery, place of delivery, payment terms etc., are incorporated in the contracts entered into These contracts are entered under the auspices of EXCHANGE OR ASSOCIATION.

4.      Option in Goods – agreement for purchase or sale of a right to buy or sell, or a right to buy and sell goods in future and include a Teji, a Mandi, a Teji Mandi, a Galli, a Put, a Call, or a Put and Call in goods.

Option in goods is totally prohibited under the Act.  A Put – an option that gives the option buyers the right to sell particular futures contract at a specific price.    A Call - an option that gives the buyers the right to purchase a future contract at a specific price.

CHARACTERISTICS OF FUTURE TRADING:

1.      Futures Contact is highly standardized contract.

2.      Organised through exchange/association.

3.      Contract entered is for standard variety known as Basic Variety.  With permission to deliver other identified varieties known as Tenderable Varieties.

4.      Units of price quotation and trading are fixed.  Not alterable.

5.      Delivery period specified.

     

6.      Seller may deliver the gods at exchange or other pre-specified centres.

7.      In Futures Market, actual delivery of goods takes place only in a few cases.

8.      Mostly transactions are squared up before due date of maturity of contract and contracts are settled by payment of differences without any physical delivery of goods.
 

ADVANTAGES;

1.      Price discovery and price risk management with reference to the given commodity.

2.      Producer can get an idea of price likely to prevail at a future point.

3.      Consumer can also get an idea of the price at which commodity would be available.

4.      Useful to exporters, as they get advance indication of the price likely to prevail and help the exporter in quoting the realistic price.  Hedging of risk in futures market.

5.      Price stabilisation, leads to integrated price structure.

6.      Facilitates production and manufacturing activities.

7.      Maintains balance in supply and demand.

8.      Encourages competition and acts as price barometer.

CHARCTERISTICS OF COMMODITIES FOR FUTURES TRADING:

1.      Plentiful supply.

2.      Must be storable – least perishable to undertake future delivery.

3.      Homogeneous, gradable – future delivery without dispute in quality.

4.      Large demand from large number of consumers.

5.      A few large firms should not control supply of commodity.

ON LINE COMMODITY EXCHANGE OF INDIA LIMITED (OCEIL).In Ahmedabad, started functioning on 26th Nov 2002, India’s first demutualized, on line multi- commodity exchange .Electronic trading and demutualized system makes the exchange uique,ensures flawless trading , enhancing the confidence of the trade participants. In demutualized setup, the ownership, management and trading are in the hands of three different sets of people. This completely eliminates any conflict of interest and helps in pursuing policies and practices.

 

        Salient features of exchange -:

A)    Convergence of all offers and bids emanating from all over the country in a single electronic order book of the exchange.

B)     Participation of importers, exporters, grower, brokers, traders etc. using an electronic trading system.

C)    Fair trading practice through checks and balances built in the system.

D)    Trading with the help of information technology and communication network.

E)     Efficient guaranteed clearing and settlement system enabling book entry settlement.

F)     Warehouse receipt system based delivery of underlying commodities.

G)    Real time price trade data dissemination

H)    Reliable, effective and impartial rule based management by professionals having no trade interest.

I)       On-line position monitoring for contracts. Margin calculation, monitoring of positions of the trading and clearing members.

 

               OCEIL has an in-house ClearingHouse at AHMEDABAD. It has connectivity with all members and the clearing banks There is a provision of adequate margin to ensure that the chances of default are reduced .The clearing house is the counter party to each trade and will be responsible to and reporting to the Exchange Officials. A computerized system ensures the on-line calculation of margin. The position is marked to the end of the every trading session to calculate the profit or loss at any given point of time. The clearing bank, having a nationwide network is equipped with electronic fund transfer facility. The Exchange has a trade guarantee fund and proposes to setup a customer protection fund.

          FUTURE PLANNING-:

1) To become National Commodity Exchange. 
2)To emerge as the largest commodity exchange in the country.
3)Consolidation of existing commodity exchanges.

4) Trading in more commodities including sugar.      

5) Greater involvement of institutions.

6) Reaching every corner of the country

            

 OIECL-s strategy is to focus on the securitization of commodities through warehouse receipts system, electronic transfer of stocks in demat form, interface of on-line trading of such stocks to be linked with interest rates and to focus on the participation of commodity funds for investment and banks and institutions for both, finance & investment.   

                                                       Pledge Finance Scheme:

                     On the recommendations made by the All India Rural Credit Survey Report of Reserve Bank of India , in 1954, pledge concept was developed to help the producers to come out of the clutches of the village money lenders and to avoid distress sale and situation of glut in the market .In lieu of the produce stored  with the different agencies, finance was made available to the extent of 70 to 80 per cent of the value of the produce on a very low rate of interest.Pledge loan facility is being provided by CWC /SWC, Agricultural Produce Market Committees in many states and Rural godown Scheme or Gramin Bhandaran Yojana of Directorate of Marketing and Inspection , govt. of India.

               Recently, NAFED has also launched anew scheme to extend pledge loan facility to small and marginal farmers against the stock stored in NAFED’s societies’ godown. Under this scheme, small and marginal farmers will be immediately advanced an amount of up to 80 per cent of the assessed value of the stock on the given day for non-perishable stock and up to 60 per cent for perishable stock, against hypothecation or pledge of stock to NAFED.An interest rate of one per cent per month will be charged by NAFED for this service. (Economic Times-10-4-04).

              Under this scheme the produce must be of defined quality or graded before taken into possession in the warehouses. Quality of the stored produce is maintained on scientific lines to prevent the storage loses and delivers the same to the depositor on his request.

Legal Reforms:  As in the other sectors of the economy, process of reforms in agricultural marketing has started  with the liberalisation. Its initiation was first observed with withdrawal of compulsory quality control on notified commodities by Govt,.of India.To maintain and ascertain the quality of the produce  for export was left with the exporter trader.

                     The ban lifted over the interstate movement of the agricultural produce has provided an opportunity to the farmers to dispose of their produce more profitably anywhere in the country.

                        To avoid the risk due to price fluctuations, more and more agricultural commodities have been notified by the government of India and brought under the ambit of Forward Market Commission for forward / futures trading.                  

 

  Directorate of Marketing and Inspection, Govt.of India, has prepared a model State Agricultural Produce market Act, and proposed certain amendments to provide privatisation of Agri-Business, bringing uniformity in the marketing environment throughout the country and to provide better infrastructure to handle the farm produce  and promote contract farming with legal protection.

                      For the international trade in agricultural commodities and agr-products, quantitative restrictions have been removed in many commodities and they have been brought under the Open General License (OGL) category. Such reforms in the age of open economy are imperative for the promotion of farm produce in the international market and grab the opportunity for getting more profits by entering the new markets.

 

                                                       E. COMMERCE

According to WTO E. Commerce is production, distribution, marketing, sale or delivery of goods and services by electronic means. The world is becoming one whole market.The E.Com. environment is going to be charecterised by free flow of trade .

Commercial transactions may be divided into three main stages-

(1)   Advertising & searching stage

(2)   Ordering & payment stage

(3)   Delivery stage.

E Com is an advance state of electronic technology. It is just an extension of business conducted on net. It is an interactive TV with Internet taking over computing sphere. A complete reinvention of how one does business through E.Com. makes communication, information gathering & trade between companies and consumer easier and faster.      

   E. Com can take two forms-

(1)                     Direct E. COM, Under this product or service such as music or professional legal advice, delivered to the buyer.

(2)                     Indirect E.Com: Here the product is ordered on the net but it is delivered in the normal way eg Book Supply com.

India got internet connectivity in 1989 . There is a good scope for expanding customer base, coupled with quicker service & immediate delivery. Advantages of E COM-

a)      Sale of specialized products to affluent sections- retail sellers on E COM can sell specialized & high priced products that appeals to an audience of affluent society

b)      Wider access to customer globally at a low marginal cost.

c)Sale to institutional members- who have embraced Web most conventionally.

d)      Closer relationship- buyers and sellers can build closer relationship electronically.

e)      Suitability to certain products eg. Soft ware, market research and sports travel can get immensely benefited from E COM.

f) Suitability for the products affected by changes, as they offer only current products on the site-adjusting price in real time in response to fluctuations in demand.

g)      Global prices among productive units, zero transaction cost & no barriers to entry, E com. Economy comes quite close to these features of perfect competition. As large number of buyers and sellers can instantly interact with each other.

h)      Consumers can compare the prices of the products of different sellers and obtain goods at lowest quote.

i)  Development of Cybermediaries.When consumers make a purchase transaction, these cybermediaries record personal details of the consumers ( eg. Consumers income group, their preference for brand, colour, size etc.) and process & analyze this information and new products are developed accordingly.As such, intermediaries are being replaced by the cybermediaries

j)  Smaller production units can easily launch a web site and compete with large firms of the real world.

k)     Free flow of information is expected to result in efficient allocation of resources.

l)  Transaction cost is almost nil for products, which can be converted into digital form and can be supplied online.

Problems of E COM

a)      Indispensability and connection with banking system—business must be linked.

b)      Growth of the credit card culture- the faster the growth of credit card, the faster would gain consumer acceptance and adoption.

c)Absence of retail marketing- this is one of the precondition for adoption of E COM.

d)      Language problem.

e)      Scope for fraud- transactions being impersonal, anonymous and automatic can be manipulated easily.

f)    Absence of legal frame work- like the model law of E COM formulated by the UN Commission on international trade law in 1996. Govt. can effectively Tax E.Com transactions, but tax collection authorities do not have the powers to tax products, which are sold or produced beyond the local/ national boundaries. Since domestic consumers can access the global market, tax collection will be crucial.

g) Backup service and updating web page.

h) Unsuitability to certain industries e.g. foodgrain, cosmetics, perfumes