Research Project

 Under Research Grant Scheme (Plan)

 

Name of the Organisation                          :- Department of  Economics and  Sociology,

                                                                      Punjab Agricultural University,

                                                                      Ludhiana - 141 004

 

Type of Project                                            :- OPERATIONAL EFFICIENCY IN THE MARKETING SYSTEM: A

                                                                        CASE STUDY OF WHEAT, PADDY AND COTTON IN PUNJAB  

 Name of the Principal Investigator             :-    B S Dhillon, Senior Farm  Economist

 SUMMARY

Green revolution has been a big blessing to Punjab agriculture.  The agriculture production has increased manifold.  Since 1970-71, wheat, paddy and cotton had shown an increasing trend in production.  The production of wheat and rice has increased from 51.5 lakh tonnes and 6.9 lakh tonnes in 1970-71 to 127.2 and 79.0 lakh tonnes during 1997-98.

            An increased production cannot be beneficial to the producers until it pays the higher returns which is possible only through efficient market system.   If the marketing of produce is not done efficiently, the benefits are availed by the middleman. If we study the present marketing system,  there prevails  many problems and malpractices such as lack  of  proper market  infrastructure, market space, problem of  over-weighment, non-issuance of J-forms, charging undue market incidentals/commission  from producer, etc.  Keeping in view the existing problems, the present study, "Operational efficiency  in the marketing system: A case study of wheat, paddy and cotton” was undertaken with the following objectives:

(a)      to study the efficiency of different marketing functions in respect of paddy, wheat and cotton marketing and quantify the extent of malpractices/exploitations in the marketing of each crop under study;

(b)         to determine the factors affecting the marketing efficiency; and

(c)      to  suggest  the  ways and means to  improve  the  marketing efficiency of wheat, paddy, and cotton in the State.

The  study was conducted in Punjab State.  To achieve  these objectives,  both  primary  and secondary  data  have  been  used regarding  wheat,  paddy and cotton, to  examine  the  operational efficiency  of marketing system regarding the disposal  of  these crops.   Further,  on  the basis of the market  arrivals  of  the particular  crop, e.g. for wheat crop, Khanna and Doraha  markets were selected from Ludhiana district and Bhagtanwala market  from Amritsar  district. For paddy crop,  Jandiala, Khem Karan, Kurali,  Dhumewal,  Bhagtanwala  and  Attari  markets  were  selected.  Similarly  for cotton crop, Rampura and Bathinda  markets   (from Bathinda  district), Kotkapura and Jaiton market (from  Faridkot district)   and  Fazilka  and  Abohar  markets  (from  Ferozepur district)  were  selected.  For the analysis, both tabular and functional techniques were used. To see the growth performance of area,  production  and yield of above mentioned  crops,  compound growth rates were calculated by using the exponential form of the function  for the whole period (i.e. 1970-71 to 1997-98) and  for three sub-periods, i.e. period-I from 1970-71 to 1979-80, period-II  from  1980-81 to 1989-90 and for period-III from  1991-92  to 1997-98.

             For the whole period from 1970-71 through 1997-98, the compound growth rate of area, production and yield of wheat crop were 1.51 per cent, 4.13 per cent and 2.54 per cent respectively. During the decade of seventies and eighties, both the factors, i.e. area and yield have contributed towards increase in  wheat production. But during the decade of nineties, the  growth  in wheat  production has declined due to the stagnation in the  area and  yield in the State.  In case of paddy crop, during  all  the three decades, the increase in paddy production in the state  was mainly due to the result of increase in area.  On the other hand, the productivity of paddy crop has reached a plateau in recent years.

 Similarly, in case of cotton crop, during the  decade seventies,  the  production of cotton has increased  due  to  the significant increase in the area of crop at the rate of 4.52 per cent  per  annum and for the decade of eighties, i.e., 1980-81 to 1989-90,  the  production of cotton increased due to  the  highly significant  increase in the yield of cotton, (9.0 per cent per annum).  On the other hand, during nineties, the production of cotton  recorded  a negative growth of 2.96 per cent per annum mainly  because  of  the  decline in  both  the  area  and  yield variables. Secondly, to examine the operational efficiency from producers as well as from farmers point of view for wheat, paddy and cotton crop, well structured schedules were prepared for collecting the data from farmers and other intermediaries. The reference year of the study was 1997. For all the three selected crops, price spreads were worked out separately  on the basis  of time involved, margins of the middlemen, costs incurred and other market  charges.  In order to compare the  marketing  efficiency, following formulae were used :

(a) Marketing efficiency from farmer’s point of view:

         Net value received by the farmer

        ME = ------------------------------------------ X 100

        Net value that he should have received

 

b) Marketing efficiency from consumer’s point of view:

                   Net margins

        ME = 100 - ----------------- X 100

                   Price spread

     The other important marketing functions considered in the study were storage, loading, unloading, transportation, cleaning, sieving, auction, weighing and lifting and disposal of bags.  The main channel followed for different crops were:

 (1)  Wheat : Producer - Wholesaler - Retailer - Consumer

(2)  Paddy : Producer - Miller - Wholesaler - Retailer - Consumer

(3)  Cotton : Producer - Wholesaler

            It has been concluded from the study that in case of  wheat, Doraha market was more efficient from producer’s point of view and Khanna  market was more efficient from consumer’s point of view. Though the percentage difference between the efficiencies of  the selected  wheat markets was not too high. The  gross-margins  of wheat  crop in various selected markets ranged between 20.38  per cent in Khanna market and 21.85 per cent in Bhagtanwala market of the consumer’s rupee. Overall, in Punjab only 52 and 46 per cent of the selected wheat sample farmers were aware about charges of cleaning and unloading  respectively. The farmers have to pay 26 to  96  per cent excess charges as compared to the statutory wheat  marketing charges payable by them.  Moreover, the excess weighment (1.16 kg per bag) of wheat was observed.  The study also showed that only 32 per cent of the farmers brought cleaned produce to the  market before selling. Among the selected farmers, 90 per cent of them reported that at the time of sale of their produce they were not issued J-form  by the  commission agents.  The procurement staff of various  public agencies  and the marketing staff took illegal payment  from  the farmers  ranging from Rs 1 to Rs 1.25 per wheat bag.  In case of paddy, Jandiala mandi followed by Attari mandi came out to be more efficient because in both the mandies, the narrow price spread has been observed. In various selected paddy markets, the share of producers in the consumers rupee varied from 58 to 60 per cent, as processing was involved. The net margin of the intermediaries in the consumers rupee ranged between  18.7 and 20.6 per cent.  The cost of paddy marketing in the  consumers rupee was observed to be 20 per cent which was higher mainly  due to  the  higher  statutory market charges  fixed  by  the  Punjab Government/Punjab Mandi Board.  Thus, resulting in price spreads for gross margins 42 to 41.6 per cent of the consumers rupee which were on the higher side.  Apart from these, large number of malpractices were also observed.  About 80 per cent of the selected farmers reported shortage of labour and space in mandies. Because of this problem, the farmers had to unload the produce on the roadsides  and on the kutcha places available near the  mandies. The farmers also complaint that the existing market infrastructure  in the mandis could not match with the  increased market arrivals which causes delay  in the sale of their produce.  Similarly, the auction of the produce was not held at a proper time.   The time gap between the auction of the produce and filling  of bags also took 6 to 7 hours which created hurdles  to the farmers, their cost of marketing increased.  Drying machines facilities were also not available in the market.  On the  other hand, only 58 per cent and 48 per cent of the paddy farmers  were aware of prescribed changes relating to unloading and cleaning of the produce.  Overweight is another problem faced by the farmers. An excessive  weightment  of  paddy  in  Ludhiana  district  was observed to be 0.7 kg per quintal and the same was maximum  (1.35 kg/quintal)  in Amritsar district.  Moreover, on an  average,  46 per  cent  of  the sample farmers selected  for  the  paddy  crop reported  that J-form was not issued to them at the time of  sale of  their  produce. These malpractices lead to the market imperfections and inefficiencies in the paddy marketing system. The  producers were estimated to pay Rs 125 crores for  these malpractices prevailing in the paddy markets.    

The study also highlighted that in case of cotton, Fazilka mandi followed by Abohar mandi were more efficient from farmers point of view. While  marketing of the cotton crop, many malpractices  were observed in the selected markets of Bathinda, Faridkot  and  Ferozepur  districts.  About 25 per  cent  of  the selected sample farmers have to bear the increased marketing cost due  to  longer  stay  in the market  as  a  result  of  untimely unloading  of  their cotton produce.  About 35 per cent of the cotton farmers reported lack of basic market facilities like rest house, toilets, lightening, fire brigade, etc. in the selected markets. About 70 per cent of the sample farmers complaint that there was no scope of rechecking of weighment in the system. At village level, over-weighing was also  done  by  the  village traders.   About 27 per cent of the farmers reported the  problem of  delay  in auction.  About 32 per cent of the  sample  farmers complaint  about  the  unauthorised charges by the commission agents.   As in case of paddy and wheat, cotton farmers also reported that they have not received J-form at the time of sale.

            It was observed that the important factors which affect the marketing efficiency include unawareness of farmers regarding marketing system, regarding marketing charges and other rules and regulations, etc.  Multiplicity of charges and malpractices were the other  very  important factors which  affect  the marketing efficiency. Generally farmers bring their produce in markets just after threshing due to some financial and social constraints.  So such type of problems, generate post-harvest gluts in the markets and put heavy pressure on the existing available  facilities in the market. As a result, heavy crop losses and delays in the sale of produce occurs in the  marketing process.

            In  order to sell the produce, the farmers have to stay  for many days in the markets resulting into higher cost of  marketing and neglect of multifarious duties at their farms.  The  dejected farmers  often  resort  to distress  sale  below  the  prescribed minimum support price.  Glut situation in the mandies creates all types of corruption like over-weighment of produce, deduction of higher incidental charges and illegal payment to the  procurement agencies  and  the  marketing staff.  So, it was suggested to rationalize the market charges and there should  be a proper regulations in the market.

Policy Suggestions

            Although, a lot has been done by the government for providing infrastructural facilities and policies in terms of regulated markets, storage facilities, transport facilities, processing facilities, price support procurement, public distribution system etc. yet still lot more is needed to be done.  Some suggestions are offered to improve operational efficiency in the marketing system of the state.

            The study showed that area under paddy has increased to about 23 lakh hectares during 1997-98 (now more than 26 lakh hectares in 2000).  The agriculture scientists suggest that State can sustain only 16 lakh hectares of paddy, so there is need to divert some 10 lakh hectares of area under paddy to some other remunerative/alternative crops.

(Action: State Deptt. of Agriculture and PAU)

            The study further revealed that paddy has become number one crop of the State as far as marketing and market surplus is concerned.  The pattern of market arrivals has also changed over time and now 13 per cent of the produce arrives in the month of September and 71 per cent in October when there is a problem of moisture in this part of the region.  The higher moisture content creates problems in price fixation and proper processing of crop.  There is an urgent need to educate the farmers to transplant the paddy as per the recommendations of the PAU, i.e. from I0th June to 20th June.

                               (Action: Deptt. of Agriculture, Punjab and Extension Agencies of PAU)

            The cleaning of wheat and paddy was not up to the mark in different markets of the State creating malpractices in the system.  The use of mechanical devices in various market operations concerning these crops such as drying, cleaning, loading and unloading should be introduced effectively.

                                                                                                      (Action: Punjab Mandi Board)

 

            Although, all the markets have been regulated under the Markets Act, yet there are large number of malpractices in the State.  These malpractices should be checked through strong hand and proper implementation of Markets Act.

                                                                        (Action: Punjab Mandi Board and State Govt.)

 

            The Agriculture Produce Market Act has become outdated in view of privatization, liberalization and globalization and needs to be amended.                                                                                                   

(Action: Punjab Mandi Board and State Govt.)

            Cooperative marketing societies and private purchases should be encouraged in order to enhance the farmers participation and reducing the role of middlemen in the marketing of wheat, rice and cotton.

                                                                                                        (Action: State Govt.)

            In order to bring efficiency in the marketing system of the State direct purchases should be encouraged.  Godowns of the public agencies and roller flour mills should be declared as purchase centers and farmers allowed to sell their produce directly at these places.

                                                                      (Action: Punjab Mandi Board and Punjab Govt.)

            In order to reduce the marketing cost and storage losses, bulk handling and silo storage of wheat should be encouraged.  These silos should be declared as purchase centers and the farmers patronizing the silos should be made on the spot payments.

                                                                        (Action: FCI and State Procurement Agencies)

 

            In view of post-harvest gluts in the markets, a staggered price policy for wheat should be administered, so that farmers could store their produce at their farms and later on sell to the procurement agencies at an incentive price.  FCI will also be beneficial through reduced handling and storage cost.

                                                                                       (Action: FCI and Deptt. of Food, GOI)

            Even in the State of Punjab, where marketing system is well developed, the farmers are unaware about the market practices and incidental charges to be borne by them.  The Government should take initiative to provide efficient marketing extension service network and should encourage farmers’ friendly market information system so that farmers know about the market situations for their crops.

                                    (Action: Directorate of Marketing, Punjab and Punjab Mandi Board)

            There are large number of malpractices and inefficiencies in the procurement of wheat and rice in the State.  The efficiency of public agencies need to be improved for the benefit of market participants.

                                                                        (Action: Govt. of India and Punjab Governent)

            At present, there is multiplicity of taxes and levies on these crops in the State.  The total taxes work out to be 12 to 12.5 per cent ad valorem which depresses the farmers’ share in the consumer rupee.  There is a scope to reduce these taxes to bring efficiency in the system.

                                                                                                                      (Action: State Govt.)

            In Punjab, the farmers largely depend for the credit on the commission agencies which is costly.  The credit procedure of cooperatives and banks should be made simple so that farmers need not depend on the commission agents for getting loans for agriculture purposes.

                                                                                                 (Action : Cooperatives and Banks)