17342559 Rural Marketing Notes

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TYBMS V Sem Rural Marketing

RURAL MARKETING

DEFINITION

Market:

Market means not a particular market place in which things are bought and sold but the

whole of any region in which buyers and sellers are in such a free intercourse with one

another that the prices of the same goods tend to equality, easily and quickly.-Cournot

Marketing:

Marketing as a process by which goods and services are exchanged and their value is

determined in terms of money prices. H. E. Mitchell

Agricultural Marketing:

According to National Commission on Agriculture XII Report Agricultural marketing is

the process which starts with a decision to produce a suitable farm commodity or

product & it involves all aspects of market structure or systems, both functional and

institutional, based on technical and economic considerations and include pre and post

harvest operations like assembling, grading, storage, transportation, and distribution.

Historical Perspective Of Agricultural Marketing:

Historical perspective of agricultural marketing is mainly divided in to four periods they

are as fallows:

1. Ancient period

2. Medieval period

3. Colonial period

4. Post independence/ modern period

Ancient period:

During the ancient period barter system was present where people used to exchange

their goods or commodities in terms of another commodity.

Kautilya in Arthashastra has mentioned that trade, commerce and finance formed thebasis of the state.

Medieval period:

During the medieval period the main four kingdoms were:

a. Delhi Sultans Dynasty.

b. Mughal Dynasty.

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c. Vijayanagar kingdom.

d. Peshwas Regime.

Delhi Sultans Dynasty:

Internal trade: Were of two kind, namely;

(i) Costal trade, and (ii) Inland trade

External trade: Was mainly between four countries i.e. Afghanistan, Central Asia,

Persia and Iraq.

Trade centers: were situated at Delhi, Banaras, Allahabad, Ajmer, Pune, and the

towns on highways like Agra, Patna, Ahmedabad, Barhampur, etc.

Main commodities: Food grains, spices and sugar were the main commodities for

the export

Mughal Dynasty:

Mughal controlled the sea borne trade in Indian marine territories right from

eastern coast of Africa up to the straits of Marucca.

There where mainly four outlets of sea Cambay, Malabar, Coromandal coast

and Bengal coast.

Main commodities: rice, sugar, edible oils, fat and spices, commercial crops like

silk and sandalwood had also a large market.

Internal trade: during the Mughal period was of three kinds, namely, Coastal

trade - Cochin to Cambay

Riverine trade - through Ganga - Jamuna River and Bengal delta.

Surface trade - from North region to central province.

Market centers: Kanpur, Agra, Delhi, Patna, etc.

Vijaynagar Kingdom:

External trade: Portugal, Kuwait and Egypt

Major commodities: husked and cleaned rice, palm, sugar, coconut, fruits,

tobacco, spices etc.

Internal trade: were of three kinds:

Costal trade- Cambay to Cochin

Reiverine trade- through Godavari, Krishna, Tungabhadra, Kauvery.

Surface trade- Cambay, Bhatkal, Mangalore, Malbar, Cochin and Calicut etc.

Trade centers: Musalipatanam, Calicut, etc.

Major Commodities: rice, coconut, edible oil, jaggery and other commodities.

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Peshwas Regime:

External trade: China, Afghanistan and Persia.

Internal trade: Was carried out through water and land

Main commodities: sugar, spices, dry fruits, and food grains.

Trade centers: Poona, Satara, Kolhpur, Nasik, Solapur, Kalyan and Miraj.

Colonial period:

The Colonial Administration converted the traditional payment to the State, in the

form of a proportion of actual produce in kind, into a fixed payment of land

revenue in the form of cash.

The land revenue was calculated to be 5% of gross produce per acre in Central

Provinces, 7% in Berar, 7% to 13% in Delhi & Bombay and 20% Gujrat.

Zamindari system was introduced during this period. This all led to debt traps to

the poor farmers.

Brokers and dalals came in to existence between the farmer and the consumer.

Post independence/ modern period:

Five-year plan was introduced:

First five year plan:

Regulated markets were established in Bombay, Madras, Punjab, Hyderabad, Mysore

and Madhya Pradesh where the management of these markets was vested in the

committees in which growers (farmers) were also represented. In this plan the main

thrust was laid on cooperative marketing and its aim was to have minimum 425

regulated markets in India.

Second five year plan:

To recognize the existing system so as to secure for farmer his due share of price

paid by customer and sub serve the needs of planned development.

Total agriculture produce markets were 2500 out of which 725 were regulated

markets.

Third five year plan:

Bring remaining markets to regulation, and

Expand grading program for the commodities.

Fourth fie year plan:

Aim to improve agriculture market system and

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In interest of producer the measure tasks undertaken were developments of

road, market yards and grading units.

Fifth five year plan:

Development of agriculture marketing through cooperatives. The main thrust here was of

establishing Cooperative Marketing System.

Sixth five year plan:

The main thrust was on

Further expansion of regulated markets in terms of both more markets and more

commodities to be brought under the scope of regulation.

Strength and stream lining the arrangement for enforcement to ensure regulated

system of open auction, trade practices and margins of intermediaries.

Development of rural markets and potential markets.

Seventh five year plan:

Further expansion of regulated markets in terms of area and commodities.

Eighth five year plan:

Strength of marketing infrastructure with special reference to perishable commodities.

RURAL MARKET PROFILE

Profile of Rural Market can be studied as two topics :

1. Rural consumer

2. Rural demand, its size and composition

1. RURAL CONSUMER:

a. Size of rural consumer population

1971 1981 1991

Rural population 80% 76.3% 76%

Urban Population 20% 23.7% 24%

Majority of the population of India still exist in the Rural Area itself. States like

Uttar Pradesh, Madhya Pradesh, Rajasthan and Kerala have > 80% of the population in

the Rural areas only. While, States like Bihar and Orissa still have > 90% in the Rural

area.

b. Consumer Characteristics:

Low purchasing power

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Low standard of living

Low per capita income

Low literacy level

Low economic and social position

Tradition bound community

Religion, culture and even superstition

c. Location Pattern

Urban: Population concentrated in 3200 cities & towns

Rural: Population scattered over 576000 villages.

6300 villages have population more than 5000 persons

More than 55% villages have population of 500 or less people

More than 1.5 lakh or nearly 25% of the villages have population of 200 or

less.

Inference: Rural demand is scattered over a large area.

d. Literacy level:

Rural India 23% literacy as compared with 36% of whole country

In absolute numbers 11.5 crore of literate people are in Rural India compared

with 12 crore in urban India.

Every year 60 lakh is getting added to the literate population of rural India.

e. Rural income:Evidently, rural prosperity and the discretionary income with the rural consumer are

directly tied with agricultural prosperity because, nearly, 60% of rural income is from

Agriculture.

Inference: Rural Demand is Seasonal and Festival linked.

f. Rural savings:

The commercial and co-operative banks have been marketing the saving habit in the

rural areas for quite some years. 70% of rural households are saving and majority of

them belong to salary earners and self-employees non -farmers.

2. SIZE AND COMPOSITION OF RURAL DEMAND:

Size of Rural market in non-food consumption items has been increasing from Rs.

5000 crores in 1969-70 to Rs. 22000 crores in 1993-94.

(Size of market at current prices)

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Composition of demand: Many new products have entered the consumption basket

of rural consumer.

Product categories like cooking utensils, packaged tea, ornament or jewellery,

bathing soaps, washing soaps, detergents, etc.

As per an IMRB study, more than 60% of the villages in India now have shops

stocking soaps, detergents, packaged tea and batteries.

There has also been a rapid growth in consumption of Agri-inputs :

Between 1971 and 1991 consumption of fertilizers grew at an annual compound

growth rate of 10%.

Pesticide consumption grew at compounded rate of 12%.

Tractors - 15%.

Pumps and Tube wells 11%.

FEATURES / PROFILE OF RURAL MARKET

1. Large and Scattered Market :

The rural market of India is very large, consisting of >600 million consumers, scattered /

spread over 5,76,000 villages.

In terms of business generated too, it is a big market; 22,000 crore rupees worth of non-

food consumer goods are being sold per year.

No. of consumers

Large is in terms of

Business

2. Heterogeneous Market :

The relative status of the rural areas of different states differs. Parameters on which

they differ are Health and education facilities, nature of facilities, availability of public

transport, electricity, TV transmission, banks, post offices, water supply etc.

IMRB study reveals that an average village in India has 33 development index

points, Keralas average Is 88; Bihars average is just 22; while MP, Rajasthan

and UP are close to Bihar; and states like Maharashtra, Haryana, Karnataka

range between 40 and so.

3. Demand, Seasonal and Agriculture dependent :

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The basic occupation of people in Rural Indian is Agriculture and agriculture is seasonal.

Rural people have money only during the harvest period and most of the harvest periods

are celebrated as Festivals in India. Hence, Rural demand is not only harvest linked but

also festival linked.

4. Characterised by Great Diversity :

The rural consumers of India are vastly diverse in terms of religious, social, cultural and

linguistic factors.

5. Steady growth despite inhibiting factors :

The market has grown not only in quantitative terms, but qualitatively also. Many new

products have made entry into rural consumer basket.

CHANGING PATTERNS IN RURAL DEMAND - REASONS

1. New Employment Opportunities:

New Income due to rural development or agricultural advancement. Hence, increased

purchasing power.

Self Employment policy with assistance from bank has become great success in rural

areas.

2. Green Revolution :

A technological break through since 1965 in Indian agriculture. Today, rural India

generates 185 million tonnes of food grains per year and expected to reach 210 million

tonnes by 2010.

It produces 15 million eggs, 90 million broilers, 50 million tonnes of milk per annum

(White revolution, Blue Revolution). Operation flood.

3. Better credit facilities through banks :

All types of loans short, medium & long-term loans has helped rural masses in better

investment.

4. Green Card / Credit Card for farmers :

Helps / encourages farmers to buy consumer goods on easily payable credits /

installment basis.

5. Improved exports due to Export Policy :

Open market, WTO, GATT, has all resulted in better openings / markets, increased

income, increased purchasing power.

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6. Remittances from Indians working abroad :

A sizeable contribution to growing rural income & purchasing power.

7. Expectation Revolution among Rural Masses :

Expectation Revolution brought about a powerful change in the environmental dynamics.

Awareness Kindled Strengthened Earn Consume

of the their their motivation more more

rural people hopes to work

8. Political & Social changes through favourable Government policies :

New farm policy, high support price, tax exemption in backward areas, subsidy, etc.

9. Marketing Efforts:

Firms like HLL, Bajaj Auto, Godrej soaps, BFL, BrookeBond, etc. have started

penetrating rural market.

10. Media :

Role of newspapers, radio, T.V., etc. has given rise to new demand for goods and

services.

TAPPING THE RURAL MARKETS

While the rural market of India certainly offers a big attraction to markets, it would be

totally nave to think that any firm can easily enter the market and walk away with a

sizeable share of it.

- What are these problems?

- How are they peculiar to the rural market?

- How does a firm solve them?

The Problem Areas in Rural Marketing:

1. Physical Distribution

2. Channel Management

3. Sales force Management

4. Promotion and Marketing Communication

I. Managing Physical Distribution in Rural Markets :

The special problems in physical distribution in the rural context are:

(i) Transportation

(ii) Warehousing

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(iii) Communication

i. Transportation problem:

Railway: Though India has the fourth largest railway system in the world; many parts of

the rural India remain outside the rail network.

Road: Nearly 50% of the 576000 villages in the country are not connected by roads at

all. The government had planned to connect at least the bigger villages, i.e. villages with

a population of 1500 or above, with all weather roads by 1990 but this is not

accomplished yet.

Many parts of rural India have only kuchha roads and many parts of the rural interiors

are totally unconnected by roads with any mandi level town.

ii. Warehousing problem:

Business firms find it quite difficult to get suitable godowns in many parts of rural India,

and there are no public warehousing agencies in the interiors of rural India.

Three tier warehouse structure: -

Top tier CWC and SWC

-At nodal points/ major market centre

Second / Middle tier owned by cooperatives

-At Mandi level

Third / Bottom tier owned by cooperatives

- At villages

CWC/SWC do not extend their network of warehouses in rural parts.Warehouses owned by cooperatives provide warehousing service only to their members.

A business firm has to manage with the CWC/SWC n/w, which stops with the

nodal points, or it has to establish its own depots or stock points run by its stockists /

distributors.

iii. Communication Problems:

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Communication infrastructure, consisting of posts or telegraph and telephones, is quite

inadequate in rural areas.

Cost-service dilemma

Maintaining the required service in the delivery of the products at the retail level

becomes very difficult. At the same time, physical distribution costs gets escalated with

80% of the total rural consumers living in the less than 1000 people category of villages.

It means higher costs of transportation; higher inventory carrying costs and transit or

storage losses.

Consequently, the total distribution per unit is higher by as much as 50 % on an average

in the rural market, as compared to the urban market. Some companies have fared two

and a half times increase in the cost of distribution in rural areas compared to urban

areas.

Solutions / Firms cope with Physical Distribution:

1. The Firm can share Physical Distribution responsibility with its stockists or

clearing cum forwarding agents:

With a view to keeping the costs low, some of the firms try out remote control

marketing simply consigning the goods and retiring the bills through banks

unfavourable for the long term.

Instead, the firms have a network of stockists or c & f agents at the strategic

locations for facilitating Physical Distribution of its products in the rural areas.

Advantage The costs of physical distribution can be shared by the firm and

the stockists.

2. Combining different Modes o Transport may be Advantageous:

o The system of rail-cum-trucks for long distance movement;

o Trucks for medium / short distance movement;

o Delivery vans and bullock carts for local haulage;

o Water transport.

Advantages Bullock carts are cheaper, they are available in plenty and are

ideal for rural roads.

3. Company Delivery Vans:

Companies like HLL, Tomco, Brooke Bond-Lipton and ITC use delivery vans.

These vans takes the products to the retail shops in every nook and corner of

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the rural market. It enables the firm to establish direct salescontact with

thousands of rural consumers, it also helps the firm in the sales promotion.

Disadvantages: the cost of operating such vans is high.

This can work only if the market / area assures business

substantial enough to cover such costs.

4. Syndicated Distribution:

The firms come together and encourage an independent agency to operate

such delivery vans with a view to hiring its service. The delivery vans here

becomes a syndicated service.

II. Channel Management in the Rural Markets:

i. Multiple tiers, High costs and Administrative Problem:

ii. Scope For Manufacturers Own Outlets Limited, Greater Dependence on

Dealers Inescapable-

Dependence of the firm on intermediaries is very much enhanced.

Control is mostly indirect.

iii. Non Availability Of Dealers:

Even if the firm is willing to start from scratch and try out rank newcomers, the

choice of candidates is really limited.

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Manufacturers own warehouses / branch office

Wholesaler / Stockist in the town

Mandi Level Distribution

Village Level Shopkeeper

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iv. Poor Viability Of Retail Outlets:

Manufacturer incurs additional expenses on distribution and still the retail outlets

find that the business is unremunerated to them.

v. Inadequate Bank Facilities :

Rural outlets need banking support for three important purposes:

To facilitate remittances to principals and to get fast replenishment of stocks

To receive supplies through bank (retiring documents with the bank)

To facilitate securing credit from banks.

vi. Inadequate Credit Facilities From Banks:

The rural outlets are unable to carry adequate stocks due to lack of credit facilities.

They are unable to extend credit to their customers. And the vicious circle of lack of

credit facilities leading to inadequate stocking or loss of business finally resulting in

poor viability of outlets get perpetuated.

Solutions:

The Existing Market Structure:

Indian rural market is composed of 22,000 primary rural markets and 20 lakh retail sales

outlets of which nearly one lakh are FPS (Fair Price Shops) of the public Distribution

System (PDS). One retail shop serves on an average 60-70 families in the rural areas.

The structure involves stock points in feeder Towns to service. These retail outlets at the

village level. The stock points belong to either the manufacturer or the marketer /

distributor for the area.

The Available Channel Choices:

Private shops- FPS

Co-operative Societies Village Shandy/ Weekly markets.

The co-operative societies are mainly concerned with distribution of agricultural inputs

are the FPS with distribution of essential commodities. The village shandy is widely used

in rural marketing, but its role is limited in marketing branded products.

The Private Village Shops:

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They are the main channel in the rural market for a large variety of consumer products;

they are also the cheapest and the most convenient channel to align with.

According to the Operations Research Group (ORG) there are 2.02 sales outlet in rural

India.

It is quite natural that firms seeking an effective presence in rural marketing, willingly

embrace the private village shops. It has to select its outlets from out of existing

shopkeepers or select a few freshers & appoint them as the outlets. The choices are

usually confined to the following categories :-

- Existing traditional private shops.

- Moneylenders willing to branch off to trade.

- Land owners willing to branch off to trade.

- Educated unemployed persons.

Satellite Distribution:

The firm appoints stockists in feeder tours. They take care of financing of goods,

warehousing of goods and sub-distribution of goods in the area covered by the feeder

town. The firm also appoints a no.of retailers in and around the feeder towns and

attaches them to the stockists. The firm supplies the goods to the stockists either on

cash or credit or on consignment basis. The stockists take care of the sub-distribution

job or the terms or conditions determined by the firm.

Over a period of time, some retailers grow in terms of business turnover. If

such retail points also happen to be transportation centers within the feeder town area,

the firm elevates them as stockists. The area of operation of the original stockists

shrinks in this process, but care is taken to see that his volume of business does not

shrink. This is achieved, in practice, on account of the growth in demand & deeper

market penetration. The process continues as long as the market keeps expanding.

Advantages:

It helps & facilitates market penetration in the interiors of rural market.

III. Sales Force Management in Rural Market.

Unique Traits required on the part of rural salesman.

1. Willingness to get located in Rural Areas.

2. Cultural congruence : The salesman must have proper acquaintance with

the cultural pattern of rural life in the given territory.

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3. Attitude factors : The rural salesman must have great deal of patience as

their customer is a Traditional & cautious person. Perseverance is

another essential traits

4. Knowledge of the local language: T he rural salesman needs a strong

background of the local language. He must be well versed in the specific

lingo and idiom of the local area / community, for, in rural India, within

each major language group, the colloquial expression and speaking

manners vary considerably from locality to locality.

5. Capacity to Handle Large Number of Product Lines: The rural salesman

usually do not generate economic volume of business if they handle a

large variety of items. Rural salesman are also required to travel more

compared to their urban counterparts.

6. Greater creativity: Rural salesman should introduce new products in the

rural areas through creative selling, using the consumption pioneers and

opinion leaders. Rural marketing also presupposes the delivery of new

standard of living to the rural masses. It is essentially developmental

marketing.

Managing Rural Sales Force

Selecting the salesman

Giving them orientation more on the job training, coaching inselected village markets. Educate rural marketing environment.

Motivating them.

Developing them

IV. Marketing Communication in Rural Markets

Problems:

Low literacy rate: printed word has limited use.

Tradition bound

Cultural barriers

Overall economic backwardness

Linguistic diversity

It has been estimated that all organized media put together can reach 30% of the rural

population in India.

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Various publications reach only 18% of rural population. 33% of total cinema earnings

in the country come from rural India.

Communication Stages in Rural Area

Rural Communication to be effective - repeat exposures is a must; and if the gap

between them is long, the message loses its edge during this period.

Creating Awareness

Altering Attitudes

Changing

Solutions

1. Selecting the media mix:

Evidently, in the rural context the firm has to choose a combination of formal and

non-formal media.

Formal / Organised : TV, Cinema, Press, Other print media, direct mail, radio, point of

purchase (POPs), outdoors, etc.

Non-formal / rural Specific Media :

A V vans / Publicity vans, Dance-dramas, Puppet Shows, rural specific art forms like

Harikatha and Villupatu performed at village melas and temple festivals,

demonstrations, study classes, mike announcements, processions, caparisoned

elephants, decorated bullocks carts carrying ad panels, music records, house to house

campaigns by special promotion squads, information centers on companies products.

TV : 77 % of villages in India now receive TV transmission and 27 % of all rural people

actual watch TV.

Radio ; is a well established medium in rural areas while radio as a medium cannot

match TV in potentiality or effectiveness, radio does have a major role in rural

communication.

Cinema : 29 % of all rural people do see cinema as a matter of regular lifestyle or habit.

Short feature films with disguised advertisement. Messages, direct advertisement, films

or documentaries, that combine knowledge or advertisement can be employed for rural

communication.

Out doors :Hoardings, wall paintings, illuminations and other displays in rural areas.

Pops :More than written words, symbols, pictures and colours must be used.

A V vans :Films can exhibit its films or other A-V presentations such as slide shows,

sound or sight presentations, puppet shows, etc. The van is a comprehensive mobile

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promotion station at the exclusive command of the concerned firm. Portable exhibition

kits can be carried in the vans.

Disadvantage: The cost is high

Syndicated AV vans : Firms which cannot effort to operate publicity vans of their own

utilize the syndicated AV van service offered independent agencies.

2. Communication for the Rural Market has to be uniquely assembled and

delivered:

The theme, the message, the copy, the language or the delivery must match the rural

context.

In rural marketing, usually a greater time lag is involved between introduction of a

product and its economic size sale. This is the rural buyers adoption process is usually

more time consuming.

STRUCTURE AND TYPE OF AGRICULTURAL MARKET

Dimensions of Market:

1.Based on Location

2.Based on Area / Coverage

3.Based on Time Span

4.Based on Volume of Transaction

5.Based on Nature of Transaction

6.Based on Degree of Competition

7.Based on Number of Commodities

8. Based on Nature of Commodities

9.Based on Stage of Marketing

10.Based on Extent of Public Intervention

Classification of Markets

1.Location:

Village Markets Located in small villages, major transaction takes place

among buyers and sellers of a village.

Primary Wholesale Market Located in big towns, near center of

production of agricultural commodities, a major part of produce is brought

for sale by the producer-farmer themselves. Transaction is between farmers

and traders. Owned by market committees, local bodies / private individuals

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and are periodically held wherein every shopkeeper has to pay rent for the

space he occupies.

Secondary Wholesale Markets Located in district head quarters /

important trade centers / near railway junctions, major transaction takes

place between village traders and wholesalers. The bulk arrival in these

markets is from other markets. The produce in these markets is handled in

large quantities. There are specialized marketing agencies performing

different functions such as; commission agents, brokers, weighmen.

Terminal Markets where the produce is finally disposed off directly to the

consumer / processor / assembled for export and possesses sufficient

warehousing and storage facilities covering a wide area extending over a

state or two.

Sea board Markets Located near sea shore, meant for import / export of

goods.

2.Area / Coverage:

Local / Village Markets Buying and selling activities are confined among

buyers and sellers drawn from same village or nearby villages, mostly

perishable commodities in small lots. Ex: fresh milk, vegetables

Regional Markets buyers and sellers for commodities are drawn from a

larger area. Ex: foograins

National Market - buyers and sellers are at national level. Ex: dural

commodities like jute, tea

World Market - buyers and sellers are drawn from whole world. Ex: coffee,

gold, silver, cotton

3.Time Span:

Short period Market few hours, products of highly perishable nature. Ex:

fish, milk

Long Period Markets larger period, less perishable. Ex: foodgrains,oilseeds

Secular Markets permanent nature. Ex: manufacture goods, timber

4.Volume of Transaction:

Wholesale Markets Commodities are bought and sold in large quantities

/ bulk. Transaction is between traders.

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Retail Markets Commodities are bought and sold as per consumer

requirements.

5. Nature of Transaction :

a. Spot or Cash Market: A market in which goods are exchanged for money

immediately after the sale.

b. Forward Market: Purchase and sale of commodities takes place at time t but the

exchange of commodity takes place on some specific date in future i.e. t+1.

6. No of Commodities :

a. General Market: All types of commodities such as food grains, oilseed, fibre crops

etc. are bought and sold.

b. Specialised Market: Transactions take place only in one or two commodities e.g.

food grains market, cotton markets, mango markets.

7. Degree of competition :

a. Perfect Market: Large number of buyers and sellers.

b. Imperfect Market: Monopoly, Duopoly, Oligopoly, Monopolistic competition large

no of sellers deal in heterogeneous and differentiated form of a commodity.

8. Nature of Commodities :

a. Commodity Market: deals in goods and raw materials such as wheat, barley, cotton

etc.

b. Capital Market: deals with bonds, shares and securities.

c. Service Market: deals in providing service e.g. consultancy

9. Stage of marketing :

a. Producing market: Those markets, which mainly assemble the commodities for

future distribution to other markets. Located in producing areas.

b. Consuming Markets: Which collect the produce for final disposal to the consuming

population located in areas where production is inadequate or in thickly populated

urban centers.

10. Extent of public intervention :

a. Regulated markets: Markets in which business is done in accordance with the rules

and regulations framed by the statutory market organisation and represent different

sections involved in markets. The marketing costs are

b. Unregulated markets: Business is conducted without any set rules and regulations.

Traders frame the rules for the conduct of business and run the market.

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METHODS OF SALE:

1. Under cover of a cloth (Hatha system):

The prices of the produce are settled by the buyer and the commission agent of the

seller by pressing/twisting the fingers of each other under cover of a piece of cloth. Code

symbols are associated with the twisting of the fingers and traders are familiar with

these. The negotiations in this manner continue till a final price is settled. When all the

buyers have given their offers, the name and the offer price of the highest bidder is

announced to the seller by the c.a.

Disadvantage: Provides opportunities for cheating the seller this system has been

abolished by the government.

2. Private Negotiations :

Unregulated markets. The individual buyers come to the shops of commission agent at a

time convenient to the latter and offer price for the produce which, they think are

appropriate after the inspection of the sample. If the price is accepted the commission

agent conveys the decision to the seller and the produce is given after it has been

weighed, to the buyer. In village, private negotiations take place directly between the

buyer and seller.

Disadvantage: Time consuming, slow, not suitable when either large quantities have

to be sold or a large number of buyers exist in the market.

Advantage: Seller gets good price, for buyers are not aware of the price offered by

other buyers.

3. Quotations on sample, taken by commission agent :

The commission agent takes the sample of the produce to the shops of the buyer. The

price is offered, based on the sample, by the prospective buyers. The commission agent

makes a number of rounds to prospective buyers until none is ready to bid a higher price

then the one offered by a particular buyer. The produce is given to highest bidder.

4. Dara Sale Method :

The produce is mixed and then sold as one lot.

Advantage: Within a short time a large number of lots are sold off.

Disadvantage: produce of good quality and one of poor quality fetch same price.

Therefore, loss of incentive to the farmers to produce quality goods.

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5. Moghum Sale Method :

The sale of produce is effected on the basis of a verbal understanding between the

buyer and the seller without any pre-settlement of price but on the distinct understanding

that the price of the produce to be paid by the buyer to the seller will be the one as

prevailing in the market on that day or at that rate at which other sellers of the village

sold the produce. This method is common in villages, for farmers are indebted to the

local moneylenders.

6. Open Auction Method :

The prospective buyers gather at the shop of the commission agent around the heap of

the produce, examine it and offer bids loudly. The produce is given to the highest bidder

after taking consent of the seller farmer. In most of regulated markets the sale of

produce is permissible only by this method.

Advantage:

1. Fair dealing to all the parties.

2. Auction serves as meeting place for supply of and demand of the goods.

3. It disposes of the market supply promptly.

4. The payment of the price of goods is made immediately after the sale if an auction

has been completed.

Disadvantages:

1. Requires more time for both buyer and seller have to wait for the day and rime of

auction.

2. In big market centers, especially in peak marketing season the time allotted for

auction is short. As a result sellers may receive a low price.

3. Buyers sometimes join hands.

4. Auction leads to a buyer market for buyers have full information about the supply of

and demand for the product.

3 types of open auctions:

a. Phar system of open auction:

One bid is given for all the lots in a particular shop and all the lots are sold at that price.

One extreme case of this method is when one bid is given for the product in the whole

market.

b. Random Bid system of open auction:

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The commission agent invites a few buyers when the produce is brought to his shop for

sale. All the prospective buyers are not informed. As a result competition is poor.

c. Rostev Bid system of open auction:

The bidding starts from a point in the market at a notified time about which the

prospective buyers are given information in advance. The bidding party after the auction

the produce at one shop moves to the next in a clockwise or anti clockwise directions till

the auction of the produce at all the shops is over or the scheduled auction time expires.

The auction is supervised by the auction clerk or the person nominated by the market

committee.

7. Close Tender System :

The produce displayed at the shop of the commission agent is allotted lot numbers. The

prospective buyers visit the shops inspect the lots offer a price for the lot which they

want to purchase on a slip of paper, and deposit the slip in a sealed box by buying at the

commission agents shop. When the auction time is over the slips are arranged

according to the lot number and the highest bidder is informed by the commission agent

that his bid has been accepted and that he should take delivery of the produce.

Advantage: Time saving, involves minimum physical labour, no possibility of collision

among the buyers. Regulated markets in Tamilnadu have close tender system method.

MARKETED AND MARKETABLE SURPLUS

The producers surplus is the quantity of produce, which is, or can be, made

available by the farmers to the non-farm population.

The producers surplus is of two types:

1) Marketable Surplus: - is that quantity of the produce, which can be made

available to the non-farm population of the country. The marketable surplus is the

residual left with the producer-farmer after meeting his requirements, for family

consumption, farm need, for seeds, and feed for cattle, payment to Labour in

kind, payment to artisans carpenter, blacksmith, potter and mechanic

payment to the landlord as rent, and social and religious payments in kind.

MS1=P-C; where MS1= Marketable surplus, P= Total production and C= Total

requirements.

2) Marketed Surplus: - is that quantity of produce, which the producer-farmer

actually sells in the market, irrespective of his requirements for family

consumption, farm needs and other payments.

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Bansil writes that there is only one item- marketable surplus, which may be

defined subjectively and objectively.

Subjectively, the term refers to theoretical surplus available for sale with the

producer-farmer after he has met his own genuine consumption requirements

and the requirements of his family, the payment of wages in kind, his feed and

need requirements; and his social and religious payments.

Objectively, the marketed surplus is the total quantity of arrivals in the market out

of the new crop.

Limitations: a) Limited geographic coverage

b) Small and marginal farmers

c) Inconvenience in borrowing

Relationship between marketed and marketable surplus:

Marketed surplus can be , or = Marketable surplus

1) Marketed Surplus > Marketable surplus: - When the farmers retain a smaller

quantity of the crop than his actual requirements for family and farm needs. This

is true especially of small and marginal farmers, where need for cash is

immediate. This situation of selling more than the marketable surplus is termed

as distress or forced sale.

2) Marketed Surplus < Marketable Surplus: - When the farmer retains some of

the surplus produce. This situation holds true under the following conditions:

a) Large farmers generally sell less than the marketable surplus, because of

their better retention capacity. They retain extra produce in the hope that

they would get a higher price in the later period.

b) Farmers may distribute the crop for another crop, either for family

consumption purpose or for feeding their livestock, because of the

variation in the prices. With the fall in price of the related to a competing

crop, the farmers may consume more of the 1st crop and less of the 2nd

crop.

3) Marketed Surplus = Marketable Surplus: - When the farmer retains neither

more nor less than his requirements. This holds true for perishable commodities

and of the average farmers

Factors affecting marketable surplus:

1) Size of holding There is positive relationship between the size of holding and

the marketable surplus, according to a study by Dr. Dharm Narayan.

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2) Level of Production Positive relationship.

3) Price of the communication has both positive and negative relationship,

depending upon whether one considers short and long run, or the micro and

macro levels.

4) Size of the family Larger the number of members in a family, the smaller the

surplus in the farm.

5) Requirement of seeds and farm Higher the requirements, smaller is the

marketed surplus.

6) Consumption habits e.g. South India- A.P., Karnataka are predominantly rice-

consuming states, and hence wheat enters the market.

7) Cash requirements If fixed: Marketable surplus will vary inversely with price

changes. If variable: Marketable surplus will increase in response to increase in

price.

8) Nature of crops Farmers produce two types of crops: food crops and cash

crops. Food crops are retained, while cash crops enter the market.

9) Mode of production Use of traditional methods: less marketable surplus; New

technologies, HYV Seeds, chemical fertilizers: more marketable surplus.

Relationship between prices and marketable surplus:

1) Inverse Relationship: - P.N.Mathur and M. Ezekiel. They postulate that the

farmers cash requirements are nearly fixed; and given the price level, the

marketed portion of the output is determined. This implies that the farmers

consumption is a residual, and that the marketed surplus is inversely proportional

to the price level. This behaviour assumes that farmers have inelastic cash

requirements.

Olson and Krishnan have also argued that the marketed surplus varies inversely with

the market price. They contend that a higher price for a. crop may increase the

producers real income sufficiently to ensure that the income effect on demand for the

consumption of the crop outweighs the price effect on production and consumption.

2) Positive Relationship: - V.M.Dandekar and Rajkrishnan say there is a positive

relationship.

Rajkrishnan has pointed that the elasticity of the marketable surplus is not

negative, so long as the substitution effect is non-zero.

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MARKETING AGENCIES

1. Producers

2. Middlemen :

i) Merchant Middlemen- Wholesalers, Retailers, Beoparies.

ii) Agent Middlemen- Commission Agents, Arahatias, Brokers.

iii) Speculative Middlemen- Those middlemen who take title to the product with a

view to making a profit on it. They specialise in risk-taking.

iv) Facilitative Middlemen- some middlemen do not buy and sell directly but

assist in the marketing process. E.g. Hamals/Labourers, Weighmen/Tolas,

Grades, Transport Agency, Communication Agencies, Advertising Agencies,

etc.

1) Beoparis:

Village Beoparis have their small establishments in villages. They purchase the produce

of those who have either taken finance from them or those who are not able to go to the

market. Village beoparis also supply essential consumption goods to the farmers. They

act as financiers of poor farmers. They often visit nearby markets or keep in touch with

the prevailing prices. They either sell the collected produce in the nearby market or

retain it for sale at a later date in the village itself.

Itinerant Beopari are petty merchants who move from village to village, and directly

purchase the produce from the cultivaters. They transport it to the nearby primary or

secondary market and it there.

(ii) Arahatias/Commision Agents-

Kaccha Arahatias primarily act for the sellers, including farmers. They

sometimes provide advance money to farmers or itinevant beoparies/traders on

condition that the produce will be disposed of through them. They charge

arahatias/commission in addition to the normal rate of interest on the money they pay in

advance.

Pacca Arahatias- act on behalf of the traders in the consuming market. The

processors (vice millers, oil millers or cotton/jute dealers) and big wholesalers in the

consuming markets employ Pacca arahatias as their agents for the purchase of a

specified quantity of goods within a given price range.

MARKETING FINANCE

Agricultural credit is of two types:

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1.Production credit

2.Consumption credit

1.Production credit:

(i) Short term: - 15 to 18 months

Loans to meet daily working capital requirements of

farmers purchase of

Inputs, payment of wages, hike charges of machinery or

tools, electricity charges etc.

(a) Cash component

(b) Kind component: Co-operative marketing societies.

(ii) Medium term: - Survey committee 15 months to 5 years.

NABARD 18 months to7 years.

Creating capital assets.

Purchase of livestock, agricultural machinery, equipment etc.

Only a part of medium term loan is expected to be ventured in

current production. The remaining is carried forward over the

period of 7 years.

(iii)Long term: - 5/7 years to 20/25 years.

Land fencing, mechanization, construction of farm

houses, storage facilities etc.

2. Consumption credit:

It is basically for survival of farm families.

Sources of agricultural credit:

a) Co-operative credit:

i) Primary cooperative credit: Short term

ii) C-operative Land Development Bank: Medium term

Limitations:

i) Limited geographic coverageii) Small and marginal farmers

iii) Inconvenience in borrowing

iv) Huge over dues

V) Linked with ownership landholding

b) RBI:

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Appointed AIRCSC, recommended:

i) The National Agri. Credit (Long term operations) fund;

ii) The National Agri. Credit (Stabilisation fund)

RBI issues guidelines:

Margins and security

Credit norms finance: 30:70 cash: kind

Recovery or default

c) SBI:

It provides financial assistance to marketing for processing co-operatives

as well as for co-operative sugar factories, LDBs, industrial co-operatives

etc.

d) Commercial Banks:

Direct finance is granted for agricultural operations for short and medium periods.

Indirect finance is granted by providing advances for distribution of fertilizers or other

inputs. These banks also finance for operation of FCI, State Government

and their agencies for procurement.

e) Agricultural Refinance:

Parliament established Devt Corporation: 1963

To co-ordinate, guide and assist long-term finance lending institution.

Helping in reduction of regional imbalances.

Reduction of regional disparities within states.

Economic upliftment of weaker section.

f) R.R.B: (Features)

Rural Based

Cater to the needs of backward areas.

Authorised capital structure: Authorised Capital- Rs. 1 Crore, Paid-up capital-

Rs 25 Lakhs, Share Capital Ratio 50:15:35 i.e. Govt: Own Deposits:

Sponsoring Commercial Bank.

Problems:

Problems in organization (Multi-agency control)

Increasing Losses.

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Recovery Problems.

Problems in Management.

g) NABARD: Apex Body, which looks after the financial needs of agricultural and rural

development.

h) Government Finance:

Takkavi loans to release distress caused by the draughts, floods and the other

natural calamities.

TO assist the farmers to overcome emergencies.

Land Improvement loans Act 1883 Long-term loans.

Agriculturists Loans Act 1884 Short-term loans.

Factors Affecting Capital Requirements of an Agriculture- Marketing Firm:

Nature and Volume of Business: Financial requirements for trading in high value

crops like cumin, chillies, Cotton and oilseeds are higher than for trading in food

grains . Whole sale business requires more than retail business.

Necessity of carrying large stocks: This is in case of seasonal produce.

Continuity of business during various seasons: Financial requirements are higher for

continuing business than the seasonal businesses.

Time required between production and sale: Financial requirements are higher for

durable goods than the perishable ones.

Terms of payment for purchase and sale: Whether payment will be in cash or credit

or by instalments affect financial requirements of manufacturing middlemen.

Fluctuations in the price: If the prices increase, the financial requirements increase.

Risk Taking capacity: A middleman with low risk taking capacity often resorts to

hedging and needs less finance than the middleman who takes risk.

General conditions in the economy: During the period of price falls/recession, the

financial requirements increase, since the marketing agency has to hold stock for a

longer period in anticipation of a price rise.

DEFECTS IN RURAL MARKETING:-

Efficient Marketing is a prerequisite in the development process of any economy. The

basic objectives of an efficient marketing are to ensure remunerative prices to the

producers and a reduction in the marketing costs and margins, to provide commodities

to the consumers at reasonable prices, and promote the movement of surpluses for

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economic development. There are many imperfections in the marketing system for

agricultural commodities. They are: -

1)Heavy village scales of agricultural commodities:-

A majority of the farmers in India sell a large part of their produce in the villages ,

which result in low returns for their produce .The village sale is 20% to 60% in the food

grains, 35% to 80% in cash crops and 80% to 90% in perishable commodities .The

factors responsible for village sale :-

a) Farmers are indebted to village moneylenders ,traders or landlords. They are

often forced either to enter into advance sale contract or sell the produce to them at low

prices .

b) Transport Bottlenecks:

Difficult to carry the produce in bullock carts to the markets which is often situated at

long distances.

c) There is small quantity of marketable surplus with a majority of the farmers

since of the small size holdings .

d) Perishability of the produce or lack of storage facilities.

e) Farmers dislike city markets mainly since of their lack of knowledge about

prevailing market practices , the possibility of theft or robbery in transit.

2) Post harvest immediate sales by farmers / distress sales:-

A majority of the cultivators tend to sell their produce immediately after the

harvest at the low prices prevailing at that time . About 60% to 80% of the food grains

are still marketed in the first quarter of the harvest season.

The reasons for existence of "Distress Sales ":-

a) Poor Retention power of the farmers arising out of their pressing need

for cash to repay their debts and meet their cash needs for payment of land revenue ,

the purchase of items of basic necessity , and for meeting their social obligations.

b) Inadequate storage facilities available in the villages , either private or public .

c) Fear of loss of produce by fire , theft or other uncertainties .d) Low risk bearing ability of the farmers .

e) In surplus producing states like Punjab or Haryana , most of the marketed

surplus of the wheat or paddy / rice is sold by the farmers to public agencies at the

support prices and this remains constant during marketing year. Hence, it is

advantageous to sell during post harvest season.

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3.Inadequacy of institutional marketing infrastructure and lack of producers

organisation:

Farmers are disorganized and market their produce individually. Because of this, they

have low bargaining power and they have to deal with traders having strong

organisation. They cannot therefore, insist on a reservation price for their produce and

they silently watch as the open auction takes place.

The reasons for lack of organisation among them are

- Caste feeling among the farmers

- Locational disadvantages and difficulty in bringing them under one organisation.

- Difference in the size of holdings and the surplus available with the farmers.

- Marketing aspect is not given due importance by the farmers, because of their

ignorance.

4.Existence of many middlemen / Superfluous Middlemen:

There is no restriction from social / government for entry of market middlemen,

therefore, there a number of middlemen between producer and consumer. As a result of

which the length of marketing channel increases and the cost of marketing and market

margins go up. Hence, producers receive less price, while consumers pay high price.

5.Multiplicity of Market Charges:

The cost of market of produce worth Rs. 100/- is very high for agricultural goods

compared to that of the products of other sectors. A large number of market charges

commission, brokerage, weighment, hamali, karda (impurity charges), dhalta (excessive

moisture charges), muddat (charge for making cash payment), darmada (charity for

goshala, water hut), etc are paid. The rates of these charges also vary from market to

market.

6.Existence of Malpractices:

Such as deduction of unauthorized market charges, spurious deductions, unfair

weighment, taking away a part of produce as sample by bidders, bungling of accounts,

etc. this results in an increase in real cost of marketing of produce.

7.Lack of Reliable and up-to-date market information:There are no of reliable channel for the communication of price information to producer-

farmers, who are isolated in remote villages. In the absence of reliable information,

farmers depend on the hearsay reports which they receive from village merchants and

as result sell their produce at lower rates.

8. Absence of Grading or standardization of produce-

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A large no. of farmers have little knowledge of the practice of the grading of the produce

prior to its sale. They usually mix up superior or inferior quality products to make a single

lot. As a result, they get a lower price for their produce. Sometimes, farmers are

penalized by traders for the existence of a small percentage of poor quality produce in

the lot.

9. Inadequate storage facilities-

By its very nature, agricultural products is not only confined to few areas but it is also

confined to few reasons in a year, whereas its consumption is spread throughout the

year so the continuous supplies can be assured throughout the year only by adequate &

efficient storage facilities. Presently, the storage facilities are not only inadequate but

also the available godowns are not properly managed. This has resulted in wastages or

reduced supplies, as a result high prices during off season.

10. Inadequate transport or communication facilities-

Inadequate transport or communication facilities are one of the prime obstacles in the

improvement of marketing efficiency. Since of the resource specificity or fixity, certain

crops and products can be grown only in certain regions. The surplus produce of these

areas has to be distributed to other places, which are in need of it.

11. High costs of borrowing-

Charging exorbitant rates, cheating illiterate borrowers by inserting larger amounts than

borrowed, non-issue of receipts for repayments were & are major problems faced by

farmers while borrowing from money lenders. The situation has not improved much with

the role of institutional credit as farmers find the institutional sources more cumbersome

& rigid.

LINES OF IMPROVEMENT

1. Establishment of regulated market-

Regulated markets are placed where transaction are governed by various rules or

regulations. Markets may be regulated either by local bodies or operate under the state

legislation. The market communities consisting of representatives of growers, traders &

the government look after the functioning of these markets. They are responsible for the

employment of the fare trading practices, licensing of market functionaries, curbing the

deduction of unauthorized market charges. Introduction of open auction system of sales

& enforcement of standard weights or to reduce impartial arbitration in case of disputes.

In short, a rural market offers a package of measures to remove these defects.

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2. Use of standard weights and measures: -

There are two acts namely;

(a) The standards of weights and measures act, 1958 which prescribes compulsory use

of metric system of weights and measures in the country.

(b) Standards of weight & measures (packed goods) act, 1977, ensures packing of

goods of the correct weights in the packages already existing.

Regulated markets also ensures weighment of the produce is done by a licensed weigh

man with std. Weights & a platform scale. In some markets, a weighbridge has been

installed. This eliminates short weights & malpractices.

3. Standardization of contracts: -

A series of legislation came into effect to ensure regulation of all marketing activities.

Many of the marketing charges such as darmada, karda, dhalta & muddat are abolished.

Method of sales like hatta system are banned. Recently, the market charges payable by

sellers have been transferred to the buyer.

4. Provision of marketing news: -

Marketing news & information is vital for taking production & marketing decision. The

domestic demand for food grains may be stable. But the demand for cash crops like

sugarcane turmeric, tobacco etc independent on several other factors so information on

demand pattern, price behaviour, better methods of production handling& packing etc

had to be made available to them appropriate decisions.

5. Improvement of transport facilities: -

The following are some of the suggestions for effecting improvements in transport

functions reducing transport costs:

I. There must be full utilization of the capacity of the transportation facility in terms

of load to reduce per quintal cost of transportation.

II. The transportation cost per quintal can be reduced by fixing the rate of

transportation for different means.

III. Use of proper types of wagons to reduce spoilage, damage, breakage or

pilferage.IV. There should be reduction in the barriers to inter-state movement of produce.

6. Increased provision of storage & warehousing facilities: -

Different means of storages & warehouses have to be provided. Govt. has already

launched a scheme called national grid of rural godowns (NGRG) in 1979 to the extent

of 50% to be shared equally by central & state govt. cold storage for perishable

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commodities such as fruits, vegetables, fish, eggs, meat, dairy products, etc have to be

established or made available at affordable cost to the farmers.

A network of rural storage centres should be built on priority basis in order to prevent

distress sales, wastage and loss arising out of inadequate and defective storage

facilities. These storage centres may be constructed and managed by panchayats,

co-operatives and other available by panchayats selected by state government.

7. Improvement in grading and standardisation:

Grading means sorting of unlike lots of the produce into different lots according to the

quality specifications laid down. While, standardisation is determination of basic limits or

grades. Grading or standardisation enables farmers to get a higher price for their

produce, it reduces market costs by minimising the expenses on the physical inspection

of produce, minimises storage losses, ensures better scope of exports, etc.

Hence awareness of grading & standardisation and its advantages has to be built up.

8. Development of co-operative marketing:

Co-operative organisations are voluntary business organisations formed by the

members with a felt need to market their own compared to the collectively to maximize

advantages as compared to the private trade.

The following advantages can be derived from co-operative marketing system

I. Marketing co-operatives can generate necessary holding power with farmers by

providing easy and cheap credit to them. This will help check distress sales.

ii. They can protect the farmers from exploitation at the hands of traders by offering

collective bargaining.

iii. Co-operatives can help to reduce the price spread

iv. Co-operative marketing may have a healthy impact on marketing trends and will

help in the stabilisation of prices.

In brief, co-operative marketing may link, integrate, or streamline production

marketing or processing firms.

STATE TRADING AND RURAL MARKETING

One of the responsibilities of government is to ensure the supply of essential

commodities to the people. This may require direct intervention on its parts in trading of

agricultural commodities.

Objectives of State Trading:

I. To make available supplies of essential commodities to consumers at reasonable

prices on a regular basis.

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II. To ensure a fair price of the produce to the farmers so that there may be an

adequate incentive to increase production.

III. To minimise violent price fluctuations occurring as a result of seasonal variations

in supply and demand.

IV. To arrange for supply of such as fertilizers and insecticides.

V. To undertake the procurement and maintenance of buffer stock and their

distribution whenever and wherever necessary.

VI. To arrange for storage, transportation, packaging and processing.

VII. To check hoarding, black marketing and profiteering.

Types of State Trading:

a. Partial State Trading:

Here, private traders and government coexist. Traders are free to buy and well in the

market the government may place some restrictions on them, such as declaration of

stocks. Limits on stocks which can be held at a point of time and submission of regular

accounts. The government enters the market for purchase of commodities directly from

producers at notified procurement price. It undertakes the distribution of commodities to

consumers to consumers through a network of price shops.

b. Complete Shops:

The purchase and sale of commodities is undertaken entirely by the government or its

agencies. Private traders are not allowed to enter the market for purchase or sale.

In India, complete wholesale trade in wheat was taken over by the government in

1973; but it had to be given very soon.

State Trading was initially taken up by the food department in the state and central

government. In Jan 1965, the FCI was set up to undertake the purchase, storage

movement, transport, distribution and sale of foodgrains.

Please Note

The material being circulated is just my personal copy any addition or deletion is

left to the discretion of the concerned faculty. This notes is neither a text book nor

a guide, but just a reference material.

With Regards,

Mrs. Malini Nagabhushan

Documents

17342559 Rural Marketing Notes