CHAPTER II

REVIEW OF LITERATURE

This chapter is devoted to present a review of literature on the past

research studies relating to costs and returns, resource-use efficiency and

marketing of agricultural commodities. Though voluminous literature is

available in these areas, only a few important related works are reviewed

here. For better exposition the review has been organised under the

following heads:

(i) Studies Relating to Cost and Returns

(ii) Studies Relating to Productivity and Resource use Efficiency

and

(iii) Marketing and Marketing Agencies of Paddy

2.1 Studies relating to Costs and Returns

Production of any output is a result of prudent and efficient utilization

of different quantities of inputs. Cost of production is defined, as the sum

total of costs of all inputs that aided production and farmers’ profit is

dependent on the cost of production.

25

Cost of production in general comprises four concepts namely, Cost

A1, Cost A2, Cost B and Cost C. Various authors have defined these four

concepts differently. The Directorate of Economics and Statistics used this

concept in many of the cost of production studies and farm management

studies and they are discussed below1

Cost A1 – it approximates the actual expenditure incurred in cash and

kind. It includes value of used human labour, value of bullock labour

(owned and hired), machine labour, value of seeds, manures and fertilizers,

plant protection chemicals, irrigation charges, land revenue and cess, water

rates, interest paid on working capital and depreciation on implements,

machinery and farm buildings.

Cost A2 – it comprises cost A1 plus rent paid for leased land.

Cost B – it includes cost A2 plus rental value of owned land plus

interest on fixed capital excluding land.

Cost C – it includes cost B plus imputed value of family labour.

1 Directorate of Economics and Statistics, Studies in Economics of Farm

Management in Coimbatore District, (Tamil Nadu), Report for the year

1971-72 Controller of Publications, New Delhi, 1977, pp.501-502.

26

Selvan has included annual maintenance costs comprising the land

revenue and other taxes incurred during the current year in the growth phase

of orchard in direct cost. Annual establishment cost up to bearing stage and

interest on fixed and working capital were included in the indirect cost2.

Bhattacharjee in his study, “Reflections on the Approach to Studies in

Farm Economics in India’, reveals national welfare and farmer’s welfare as

objectives of cost schedules. The former included input-output relationship,

utilization of resources and costs at aggregate farm level and the latter

included allocation of resources, the nature and inter-relationship of different

enterprises and the relationship between input and output at individual farm

level3.

An Economic appraisal of the existing spatial distribution of grape

vine-yards by Videv with reference to mean yields, total and net production

per unit, net income, cost price of production and the profitability norm in

Bulgaria revealed that it did not comply with the aims of raising the level of

2 Selvan, V, Problems in Production and Marketing of Country Pear in

Kodaikanal, Madurai District, Report No.2, Agricultural Economics, 212,

Madurai; Department of Agricultural Economics, Tamil Nadu Agricultural

University, 1981, p.30.

3 Bhattacharjee, Reflection on the Approach to Studies in Farm Economics in

India, Indian Society of Agricultural Economics, Bombay ,1961, pp.108-120.

27

production concentration, improving vertical integration or increasing the

production efficiency and achieving a greater degree of specialization in

agro industrial complexes4.

Rajagopalan et.al., in their studies on cost of production of major

crops in Tamil Nadu have included the following cost components5:

1. Cost A

(i) value of human labour including family labour

(ii) value of bullock labour

(iii) value of machinery charges

(iv) value of seed

(v) value of insecticides

(vi) value of manure and fertilizers

(vii) cost of irrigation and

(viii) interest on working capital

4 Videv, V. “Improvement of Spatial Distribution of Vine Growing: An Important

Factor in Raising Production Efficiency”, World Agricultural Economics and

Rural Sociology Abstract, Vol.XIX, No.8, 1977, p.52.

5 Rajagopalan, V. et al., Studies on Cost of Production of Major Crops in Tamil

Nadu, Tamil Nadu Agricultural University, Coimbatore, 1978, pp.2-3.

28

2. Cost C

Cost A plus rent (including actual rent paid by the tenant or rental

value of owned land), interest on fixed capital, land revenue, cess and taxes

plus depreciation of implements and machinery.

Cost A was assumed to be approximately 70 per cent of cost C and

therefore cost A was computed from Cost C, which is highly arbitrary.

Harrison studied the cost and return structure of small and large farms

in his study on “Agricultural Modernisation and Income Distribution”. The

study was conducted in Tanjore District, Tamil Nadu. Primary data were

collected for ADT 27 paddy cultivation in the Kuruvai season (June-

October) in the year 1967-68. His study revealed that small farmers spent

higher amount per hectare on the input. Chemical fertilizer as the highest

input cost was incurred by the small and large farmers, followed by the

input, seed6.

6 James Quingly Harrison, Agricultural Modernisation and Income Distribution, in

Economic Analysis of the Impact of New Seed Varieties on the Crop

Production of Large and Small Farms in India, Ph.D., Thesis submitted to

Princetos University, U.S.A., 1972 (Mimeo).

29

Hanumantha Rao examined the changes in cost and return structure of

high yielding varieties versus local varieties of rice per acre and revealed the

following7:

1) The cost per unit was reduced and the share of profits was

increased under the high yielding varieties technology.

2) The new technology was turned out to be cost saving on three

factors namely land, labour and capital. The greatest cost saving on

land was followed by labour and capital.

3) The unit cost of fertiliser declined significantly.

4) The capital labour ratio was raised.

5) The increase in fertiliser use was positively associated with the

capital labour ratio and

6) The analysis was based on the Farm Management Data for the year

1969-70.

Nirmala in her study on rice cultivation observed that female

labourers were preferred for most of the farm activities. The small farmers

7 Hanumantha Rao, Changes in Costs and Returns with the Use of High Yielding

Seeds, Technological Change and Distribution of Gains in Indian Agriculture,

Macmillan Company of India Ltd., Delhi, 1975, pp.75-88.

30

incurred more expenses on labour employment compared to large farmers.

The input-output ratio per acre in terms of operational cost to total cost was

less for small farmers than for large farmers. The small farmers incurred

higher cost of cultivation and obtained larger quantity of output per acre than

the large farmers8.

Singh and Govindarajalu in their study, “New Technology of Paddy

Yield : Adoption and Yield Differential”, observed that the cost of

production and cost-output ratios reveal the cultivation of high yielding

varieties to be more economical than the local varieties. In the cost structure,

operating cost shared about three fourth of the total cost. The profit per acre

for paddy crops was higher in Hospet than in Mandya, even though the more

intensive use of inputs was done in Mandya taluk. The ratio of total cost of

output for producing one rupee worth of output was Rs.0.47, Rs.0.63 and

0.65 in Hospet, Bhadravathi and Mandya respectively9.

8 Nirmala, V, Economic Analysis of Rice Cultivation, Concept Publishing Co., New

Delhi, 1992, pp.87-102.

9 Singh, J.P. and K.V. Govindarajalu, New Technology of Paddy Yield: Adoption

and Yield Differentials, Sterling Publishers Pvt., Ltd., New Delhi, 1979, pp.3-89.

31

Sunder Singh et al in their study, “Energy and Cost Requirements for

Cultivation of Rice, Wheat and Maize”, point out the following10

:

1. Rice-wheat rotation required 25,056 MJ/hec. energy for

performing various farm operations of which irrigation alone

consumed 68 per cent of energy.

2. In the case of maize-wheat rotation 13,469 MJ/hec. energy was

needed, of which 39 per cent was used in irrigation.

3. Cultivation of maize-wheat was less dependent on commercial

source of energy.

4. Rice consumed more energy from commercial sources than maize.

5. The energy supplied by chemical fertilizers was 19,651 MJ/hec.

for rice-wheat and 15,836 MJ/hec. for maize wheat rotations.

6. Energy ratio and benefit cost ratio were slightly more for maize –

wheat (4.47 and 1.60 respectively).

Haridoss and Sannasi in their study observed that the cost of

production and output per acre on the small farms were higher than the large

farms. The small farmers enjoyed greater monetary benefit than the large

farmers due to better management techniques in the utilization of inputs,

10

Sunder Singh, Madhup Singh, P.S. Rana, V.K. Mittal and Rupa Bakshi, “Energy and

Cost Requirements for Cultivation of Rice, Wheat and Maize”, Indian Journal of

Agricultural Sciences, September 1989, p.558.

32

constant watch, timely application of necessary inputs, concentrated

involvement and utilization of the imputed inputs11

.

2.2 Studies Relating to Productivity and Resource use Efficiency

Sharma in his study, ‘Impact of Selected Aspects of Labour and Land

on per acre Productivity”, fitted a linear production function and analysed

the impact of nine independent variables on productivity. He observed that

in predominantly rice-growing districts, other factors remaining constant,

unit increase in human labour per acre tended to reduce marginal labour

productivity and also observed wider variation in productivity per acre and

also in human labour in respect of wheat and millet growing districts as

compared to rice-growing areas12

.

Peter in his study fitted a Cobb-Douglas model of production function

to estimate the productivity of various inputs used in the banana plantations.

11

Haridoss, R and R. Sannasi, Energy Requirements for Paddy Cultivation – A

Study of Madurai District, Santha Publications, Madurai, 1997, p.125.

12

Sharma, P.S, “Impact of Selected Aspects of Labour and Land on Per Acre

Productivity”, Indian Journal of Agricultural Economics, Vol.XXI, No.1, 1966,

pp.31-43.

33

He proved that there was a highly significant positive response in gross

income to the positive changes in the manuring expenses13

.

Gopalakrishnan and Ramakrishna Rao in their article, “Regional

Variations in Agricultural Productivity in Andhra Pradesh”, examined the

number of factors affecting the productivity. The data were collected from

Season and Crop Report for the year 1959-60. They used the multiple

regression equation to examine the relationship between the value of output

per acre and the two associated variables namely percentage of irrigated area

and percentage of area under food grains14

Singh et al., in their study “Production Functions for Commercial

Crops in Haryana”, used Cobb-Douglas type of production function and

estimated the marginal value productivity of inputs. They concluded that the

13

Peter, D, “Input – Output Relationship of Banana Plantations in Kanyakumari District

(Tamil Nadu)”, Indian Journal of Agricultural Economics, Vol.29, No.2, 1974,

pp.59-65.

14

Gopalakrishnan, M.D and T. Ramakrishna Rao, “Regional Variations in Agricultural

Productivity in Andhra Pradesh”, Indian Journal of Agricultural Economics,

Vol.XIX, No.1, January – March 1964, pp.69-76.

34

marginal products of irrigation and human labour for cotton, fertilizers and

irrigation for sugarcane and human labour for oilseeds were negative15

.

Rathakrishna has examined the productivities of different regions in

Andhra Pradesh by using the production function technique. This study was

based on the farm management data for 70 farms in the First Region and 37

farms in the Second Region during the period 1957-60. Of the two regions

one region was a canal-irrigated area and the other was well-irrigated area.

Paddy was cultivated in two seasons. He expressed the output in value

terms. The following were the conclusions16

:

1. Farm business activity operated under constant returns to scale.

2. Increasing the working expenses in the form of better seeds, more

manures and fertilizers could profitably increase gross income and

3. A higher input of bullock and human labour had a definite impact

on the value of output.

15

Singh, I.J. A.G. Gangwar, O.P. Chikkara and P. Singh, “Production Functions for

Commercial Crops in Haryana”, Indian Journal of Agricultural Economics,

Vol.XXIX, No.3, 1974, pp.143-147.

16

Rathakrishna, D, “A Study of Regional Productivities of Agricultural Inputs”,

Indian Journal of Agricultural Economics, Vol.XIX, No.1, January – March,

1964, pp.76-82.

35

Hiremath et al., in their study on ‘Resource – Use Efficiency in Lime

Orchards, applied the Cobb-Douglas type of production function. The

regression co-efficient for land was 0.71 in medium and 1.57 in large

orchards that were statistically significant at one per cent level. The

regression coefficient of land for small orchards was 0.31 but non-

significant. The regression coefficient of labour was non-significant in small

and large orchards whereas in medium orchards it was 0.66 and significant

at five per cent level. There was no scope for increasing the production of

lime by increasing plant protection chemicals in small sized group and by

increasing farmyard manure in large sized group17

.

Olekar et al, in their study, “Resource Use Efficiency in Sunflower

Production”, found the variables, included in Cobb-Douglas type of

production function, were able to explain the variations in yield of sunflower

to the extent of 91 per cent and 86 per cent for small and large farms

respectively. The output elasticity of human labour, bullock labour and

farmyard manure were found to be significant indicating that there was

17

Hiremath, G.M, K.N.R. Sastry, G.K. Hiremath, V.G. Narawadi and

B.Sundarswamy, “Resource – Use Efficiency in Lime Orchards”, Agricultural

Banker, April-June, 1994, pp.14-17.

36

scope to increase sunflower production further by the increased use of these

inputs18

.

Aswatha Reddy et al, in their study, “Resource use Efficiency in

Groundnut Production under Rainfed Conditions”, state that the regression

co-efficient of land, farmyard manure and seeds were 0.4854, 0.0296 and

0.482 respectively and they were also significant. This meant that one per

cent increase in investment on these resources over and above the geometric

mean level would contribute to the percentage increase in groundnut yield.

The regression co-efficient of bullock labour was non-significant as well as

negative (-0.092) 19

.

Saini in his study, “ Resource Use Efficiency in Indian Agriculture”,

estimated the value with the method of least squares and by using the

production function type of log linear transformation. The analysis was

based on disaggregated farm management data obtained from Uttar Pradesh

18

Olekar,J.N., Kurnal,L.B. and Gaddi,G.M., “Resource use Efficiency in

Sunflower Production”, Agricultural Banker, October–December,1996, pp.18-21.

19

Aswatha Reddy,K.P., Chandrasekar,K.S. and Srinivasa Gowda,M.V. “Resource Use

Efficiency in Groundnut Production under Rainfed Conditions”, Agricultural

Banker, July – September, 1995, pp.29-36.

37

and the Punjab for the year 1956-57. The main findings of this study were as

follows20

:

1. Land and human labour were found to be the most important inputs.

2. An inverse relationship existed between the farm size and productivity

and

3. The marginal value productivity was the highest on small farms and

tended to decrease with an increase in the farm size. It implied that

land appeared to be utilized more intensively on small farms.

Sathilal and Hiremath in their study, “Resource-Use Efficiency in Ber

Orchards”, observed the ratio of marginal value product to marginal factor

cost for land (33.6) and plant protection chemicals (18.74), was more than

unity in small as well as large orchards. According to them there was scope

for increasing returns from Ber orchards by increasing the use of these

resources. The ratios were less than unity for labour and fertilizers in small

20

Saini,G.R. “Resource Use Efficiency in Indian Agriculture”, Indian Journal of

Agricultural Economics, Vol.XXIV, No.2, April – June 1969, pp.43-52.

38

orchards and for labour, farmyard manure and fertilizer in large orchards

indicated that the resources were over-used in production21

.

Gongwar and Singh in their study, “Production Functions for

Commercial Crops in Haryana”, examined the marginal value productivities

of the farm sector of Haryana for different crops namely cotton, mustard,

sugarcane and oil seed. In order to estimate the marginal value productivities

of inputs used in different crops, Cobb-Douglas production function was

used. They collected primary data for their analysis. The conclusions of the

study were22

:

1. The use of fertilizer, irrigation and human labour explained about

87.72 and 59 per cent of the variation in the production of

sugarcane, cotton and mustard respectively.

2. The marginal value of productivity of fertilizer and irrigation for

sugarcane was found to be less than one and

21

Sathilal,G. and Hiremath,G.K. “Resource – Use Efficiency in Ber Orchards”,

Agricultural Banker, July – September, 1995, pp.13-15.

22

GongwarA.C. and Singh,J. “Production functions for Commercial Crops in

Haryana”, Indian Journal of Agricultural Economics, Vol.XXIX, No.3, 1974,

pp.143-144.

39

3. Cotton was more profitable crop than sugarcane and mustard in

Haryana.

Venkataramana and Gowda in their study found that regression co-

efficient of the land area under the tomato crop (0.2881) and staking

materials (0.2076) were significant at five per cent level while those for

fertilizers (0.2049) were significant at both one per cent and five per cent

levels. In the case of large farmers, the co-efficient of fertilizers (0.3010) and

human labour (0.5135) and animal labour (0.1419) were significant at five

per cent levels. The sum of elasticity was 1.0434 and 1.0712 for small and

large farmers respectively. Increasing the area of land in case of small

farmers could increase the output but there was no scope for additional area

under tomato production for the large farmers. The ratio between marginal

value products to factor cost was used as a measure of resource-use

efficiency23

.

Dutta in his study, “Relative Efficiency Farm Size and Peasant

Proprietorship-A Case Study of Ranchi District (Bihar)”, collected primary

23

Venkataramana,M.N. and Srinivasa Gowda,M.V. “Productivity and Resource-Use

Efficiency in Tomato Cultivation – An Econometric Analysis”, Agricultural

Situation in India, September 1996, pp.409-412.

40

data for his analysis and used Lau and Yotopoulos profit function model. His

main findings were24

:

1. Small farms were relatively more efficient with regard to the level

of output in paddy.

2. The peasant farms were relatively efficient than the capitalist

farms.

3. Economic efficiency of large farms in the case of wheat cultivation

was high, and

4. The profit function for large farms had a lower intercept term

suggesting lower level of economic activity.

Mahendra Dev and others in their study aimed to examine the factors

influencing variations in yield, cropping intensity and man-land ratio. For

this purpose cross section data related to 53 National Sample Survey (NSS) -

Agro-Climatic regions in three triennia namely 1962-65, 1970-73 and 1975-

24

Dutta,L.N. “Relative Efficiency Farm Size and Peasent Properietorship – A Case

Study of Ranchi District (Bihar)”, Indian Journal of Agricultural Economics,

Vol.XXXVII, No.1, January – March 1983, pp.76-82.

41

78 were used. Double log linear models were used. The major conclusions

of the paper were as follows25

:

1. The estimates relating to the yield equation indicated that fertilizer,

irrigation and cropping pattern were the major factors that accounted

for variations in aggregate yields. Among these three factors, cropping

pattern seemed to be the most prominent one in all the three triennia.

The availability of labour represented by man-land ratio did not seem

to have an impact on aggregate yields.

2. The estimates for high as well as low labour productivity regions

showed that the net irrigation ratio had greater influence on cropping

intensity.

3. The estimates of high labour productivity region showed that

fertiliser use was the most prominent factor, while, for the low labour

productivity, cropping pattern seemed to have more influence on

aggregate yields and

4. Percentage of area under rice was found to be the single dominant

factor in explaining variations in man-land ratio across all regions and

25

Mahendra Dev, Shantanu Despande and Bandhi Kamaiah, “Inter Regional

Variations in Labour Productivity in Indian Agriculture; A Simultaneous Equation

Approach”, Artha Vijnana, Vol.XXXIII, No.3, September 1991, pp.175-191.

42

across high labour productivity regions. In the case of low labour

productivity regions, it was land productivity, which played a crucial

role in determining the level of man-land ratio across regions.

Elsamma Job and Mukundan in their study, “Economics of Rubber

Cultivation by Small holders in Kottayam District”, evaluate the cost and

returns, cost of production and capital productivity of rubber cultivation by

small holders in the study area. The total cost of cultivation till tapping

stage, namely for seven years was estimated at Rs.11,054 per hectare in

terms of 1980-81 prices. More than half of this was accounted for by labour.

Between the two zones of the study area, Zone I incurred more expenditure.

The reason for this can be attributed to the high expenditure involved in soil

conservation measures and labour cost rates. The cost of production also

showed that Zone II is economically more efficient than Zone I. The pay-

back period, benefit-cost ratio, internal rate of return and net present worth

for the district were 9.51 years, 2.04, 24.20 per cent and Rs.25,597

respectively26

.

26

Elsamma Job and K. Mukundan, “Economics of Rubber Cultivation by Small

Holders in Kottayam District”, Indian Journal of Agricultural Economics,

Vol.XXXIX, No.1, January – March 1984, pp.99-101.

43

2.3 Marketing and Marketing Agencies of Paddy

Progressive agriculture required among other things an efficient

system of marketing of agricultural produce. An efficient marketing system

is the one that makes available goods at reasonable prices to the consumers

and ensures reasonable price to the producers. It should also assist in

generating surpluses needed for development and reduce the wide variations

in price and availability over space and time. The wide variations between

the price the farmer gets ie., ‘producers price’ and the price the consumer

pays i.e. ‘consumer’s price’ is known as ‘price spread’ which is taken away

by the middlemen like the traders, transporters, brokers and other

functionaries.

Radha Raman Singh and G.K.Srivasta in their case study of

Mukundpur Sarasai village of Vishali District emphasise that the task to be

undertaken is to step up agricultural inputs and sell agricultural outputs by

improving the market conditions. They conclude their study saying that the

subsistence farmers who produce food at the minimum productivity rate

make ‘distress sales’ to meet the emergent needs based on their socio-

economic and cultural background, whereas the commercial farmers of the

44

market sector who produce relatively high profitable cash crops and food

crops befitting to farm resources avail considerably better remunerative

prices because of having better capacity to withhold their farm produce.

They respond well to price behaviour whereas the subsistence farmer is

compelled to sell a part of his produce, however small it may be, at harvest

price so that he can buy his bare requirements without considering whether

the price he gets for his produce is high or profit bearing.

According to Radha Raman Singh et.al. lack of organized marketing

system is responsible for rural poverty and it adversely affects both the

subsistence farmer and the commercial farmer and hampers the prospects of

agriculture. These researchers suggest government action to improve the

marketing system in the agricultural sector. They also suggest supply of

subsidized sale of inputs, provision of cheap or free social amenities in rural

areas, establishment of co-operative stores at every central place with

branches in every village with facilities to purchase agricultural products at

reasonable prices and supply of market information27

.

27

Radha Raman Singh and G.K. Srivastava, “Agricultural Marketing Constraints and

Prospects”, Indian Journal of Marketing, Vol.VIII, No.8, April 1978, pp.25-29.

45

Alka Srivastava and Janaki Chundi consider that the village economy

as a whole cannot be developed without effective and efficient rural

marketing which involves a two way marketing process compassing

marketing of products which flow to rural areas and also the products which

flow to urban areas from the rural areas. Since India’s majority of population

is rural and agriculture is their chief means of livelihood, greater emphasis is

given to innovations in efficient marketing of agricultural products, which

will ensure remunerative price for their produce and also supply of the same

to the consumers at reasonable price.

In the present times agriculture is emerging as an industry involving

the establishment of large number of firms under both private and public

sectors such as wholesaling and retailing firms, grading and standardization,

export and import, district market committees, regulated markets

cooperatives, storage and warehousing organizations etc., which offer

immense opportunities for entrepreneurs and executives emerging from

among the farming community and the non farming community. Alka

Srivastava et.al., feel that this scope for increased employment generation

assures not only higher income but also better income distribution among the

rural families. They also emphasise the need for farmers to be well informed

46

of production, market arrivals, day to day prices and changes in the stock

with prices, as such informations will enable them to withstand the

prevailing situation. Though the cooperatives have been playing a useful role

in improving the marketing services, they command only a small share of

the total markets and do not present any challenge to the private trade at

most places28

.

Nafeez, A. Khan’s study on the present state of agricultural marketing

and future strategy indicates the following as the chief problems faced by

agricultural marketing in India: (i) lack of organisation for farmers (ii) lack

of finance (iii) lack of communication facilities (iv) insufficient transport

system (v) inadequate storage facilities (vi) absence of grading and (vii)

superfluous middlemen.

Nafeez Khan suggests the following measures for improving

agricultural marketing: (i) modernization of regulated markets (ii) fixing

minimum standards of quality or size for farm products (iii) construction of

marketing huts at important places for small and marginal farmers (iv)

extension of credit facilities at reasonable rates of interest (v) training

28

Alka Srivastava and Janaki Chundi, “Rural Marketing”, Kisan World, Vol.27, No.3,

March 2000, pp.43-46.

47

farmers in the field of grading and standardization, quality control, packing

and modern methods of marketing (vi) improvement of communication and

information technology and (vii) increasing agro-exports for increasing

India’s share in world trade29

.

Dwelling at length on price determination, price policy, marketing

policy etc., A.S.Kahlon points out that in developing countries market price

tends to decline proportionately to the increase in production during periods

of bumber harvest and hence the need for an incentive support price policy

to guard the farmers against insecurities arising from unfortunate slumps in

rice price. But a support price policy for an agricultural commodity cannot

be decided in isolation. An efficient agricultural price policy requires a

coordinated approach, taking into account policies relating to production

including supply of inputs, credit and marketing including grading and

standardization. Kahlon concludes his analysis by emphasizing that the task

of agricultural price policy is much more than that of determining

appropriate prices in the short run30

.

29

Nafeez, A. Khan, “Agricultural Marketing: Present Position and Future Strategy”,

Kurukshetra, December 1998, pp.11-13.

30

A.S. Kahlon, Integrated Agricultural Marketing and Price Policies”, Agricultural

Situation in India, Vol.XLV, No.10, January 1991, pp.655-657.

48

M. Nazer and P. Chilar Mohamed have made an indepth study of the

role of marketing agencies such as Marketing Cooperatives and Regulated

Markets in rescuing the farmers from ‘distress sales’ of their produce.

According to them the unpredictable nature of the demand and supply

positions as well as the pressing personal needs and conditions of the

farmers are the forces that drive them to the necessity of indulging in distress

sales of their produces at a price not profitable to them. The researchers

suggest that institutional marketing agencies like Marketing Cooperatives

and Regulated Markets should create awareness among farmers about the

marketing services provided by them so as to enable them to get reasonable

price for their produce. Further they suggest improvement and

modernization of facilities of marketing cooperatives with storing facility

and modification in the role of the state and central ware housing

corporation on such lines as to strengthen the hands of the farmers.

Moreover marketing intelligence and marketing information system should

be strengthened at local, regional, state and national level. Government

agencies and the National Agricultural Cooperative Marketing Federation

49

(NAFED) should make special efforts to keep the farmers well informed of

the latest price picture31

.

Prasoon Kumar Roy, et.al., after a close perusal and analysis of the

working of the public distribution system in India, indicate the following

trends in the procurement and distribution of rice in the country. (i) a

positive relationship between production and procurement (ii) Procurement

as percentage of production varied between 9 and 13 and (iii) procurement

during the years 1974-1982 had been adequate, more than adequate for

distribution except in 1976-77 and 1979-80, when production and

procurement declined. According to them the major constraints in the

operation of the public distribution system are (i) low procurement price

which is below the open market price (ii) inadequate transport and storage

facilities (iii) lack of coordination between the state government and the

central government in regard to price policy. Hence they suggest increase in

production, provision of adequate transport facilities and more storage

31

M. Nazer et.al., “Distress Sale of Agricultural Produce and the Role of Marketing

Agencies in Tamil Nadu”, Indian Journal of Marketing, Vol.XXXIII, No.15, May

2003, p.21-22.

50

facilities at places where both procurement and public distribution points are

located or at places with minimum transport cost as remedial measures32

.

B.K.Arora’s study of the procurement system in vogue in our country

i.e. fixing procurement prices for agricultural produce in each season, has

led him to propose an alternative system known as ‘step pricing’ under

which the price of each agricultural produce is to be fixed at one level but it

will increase on a monthly basis. Under the current system of price fixation

the price is fixed by the government on the recommendation of the

Agricultural Prices Commission. Consequent to this, farmers bring their

produce to the market soon after harvest in a very short time which results in

heavy rush and overstraining. The procurement agencies operate only for a

short period after which prices are determined by the traders who tend to

exploit the farmers. Also rush sales and procurement tells upon quality

control. Once the short period of procurement is over, the procurement staff

have no work and hence they are diverted to other jobs. Hence Arora thinks

that this system should be replaced by an alternative system i.e. step pricing

which makes room for not only a support price soon after harvest but also

32

Prasoon Kumar Roy and Punamkumari Verma, “The Public Distribution System in

India at a Glance”, Southern Economist, Vol.26, No.9, September 1987, pp.13-16.

51

for a monthly increase to compensate for storage charges and cost of capital

held in the form of value of produce. The monthly incentive induces the

farmer to avoid distress sales also33

.

The problem of storing food grains has been studied by

K.Singaravadivelu, et.al. According to them several factors contribute to loss

of food grain during storage. If the moisture content of food grains is not

maintained at the required level the chemical composition of the food grain

(bound moisture) will be affected. Beyond a particular moisture level,

insects, micro-organisms and respiratory changes are activated and they

cause spoilage. So also temperature and oxygen availability influence

deterioration. Among biological factors insects, micro-organisms, rodents

and birds are also causing spoilage. Singaravadivelu suggests several

methods to prevent spoilage like proper cleaning and drying of the food

grains, proper ventilation and light facilities in the storage structure, air tight

33

B.K. Arora, “Step Pricing System for Food Grains Procurement”, Yojana, March

1-15, 1989, pp.31-32.

52

containers, and application of chemicals for making the environment

unfavourable for the growth of insects and micro organisms34

.

A.Ranganathan’s study on the latest development in warehousing

technology reveals the fact that in the current international setting, a modern

warehouse is something more than a marketing channel where the concept of

scientific storage is employed to store goods pending their sale. He points

out the significance of a new type of warehouse which can be called a

‘distribution centre’. Explaining the uses of different types of containers

used for conveying goods, Renganathan concludes that the establishment of

container freight stations under the public sector at Bombay, Delhi and

Chennai has contributed a new technological dimension to warehousing

activity. He suggests that in view of the functioning of 450 warehouses

under the Central Warehousing Corporation, currently handling and storing

over 200 commodities, it should be redesignated as ‘National Warehousing

Authority’35

.

34

K. Singaravadivelu and A. Dakshinamoorthy, “Grain Storage”, Kisan World ,

December 2000, p.17-19.

35

A. Renganathan, “Revolution in Warehousing Technology”, Yojana, March 1-15,

1989, pp.12-13.

53

K.Bhaskar has analysed the defective working of regulated markets.

Even though regulated markets are established to provide every convenience

to the farmer in marketing his produce, most of the farmers do not market

their produce through regulated markets for various reasons. Most of the

farmers are not aware of the existence of regulated markets and the benefits

accrue from them. Hence Bhaskar emphasizes the need to remove the

ignorance of the farmers and suggests measures for making regulated

markets more popular as follows: (i) wider publicity about the usefulness of

regulated markets (ii) establishment of more regulated markets

(iii) elimination of commission agents from market yards (iv) more effective

functioning of market officials and market committees (v) strict enforcement

of market regulations (vi) modification or amendment to constitution of

market committees with provision for election of members on democratic

lines and proper representation to small and marginal farmers in market

committees (vii) ensuring prompt payment by traders to the farmers

(viii) longer work hours of regulated markets (ix) concessional treatment to

small and marginal farmers as well as to traders from other states with

54

regard to market charges. Baskar concludes his study giving greater

emphasis to elimination of private trade36

.

N.K.Gandhi has dealt at length with the losses and wastages in storage

of food grains. Efficient storage plays a prominent role in sustaining and

stimulating production. According to Gandhi proper storage system

eliminates wastes and helps to conserve national resources. Further, in order

to share the gains of increased agricultural production and productivity

efficient storage system is very necessary as it helps to prolong the shelf life

of perishable commodities and preserve food-grains from spoilage. Gandhi’s

study reveals nearly 70 per cent of the food grains produced is retained at the

farm level for domestic consumption and seed purposes and the balance

which consists of marketable surpluses is taken to consuming centre through

various government agencies as well as private trade channels. The grains

retained at farm level are stored in indigenously made storage structures

such as Khathis, Bukharies, Bharorolas etc. which can hardly protect the

grains from insects, pests and rodents. The stocks procured by the public

agencies are stored in their own godowns. The grains stored at the farm level

36

K. Bhaskar, “Streamlining the Regulated market System”, Kurushetra, Vol.XXXV,

No.11, August 1987, pp.7-8.

55

suffer the maximum losses. Since the farmers retain 65 to 70 per cent of the

food grains, they should be trained in the scientific storage practices. Though

the government of India launched a ‘Save Grain Compaign’ under which

such training is imparted and demonstrations are given, it is very

insufficient. The public agencies which procure 30 to 40 per cent of the food

grains which is the marketable surplus, do not possess adequate scientific

storage facilities.

In view of the food grain losses due to improper storage at the farm

level and at the level of the organized sector it becomes imperative to create

scientific facilities in rural areas and reduce the unwanted losses of food

grain. Gandhi suggests the adoption of a system in which storage facilities

manned by government agency should be within the reach of small and

marginal farmers. A small farmer should be in a position to deposit or draw

his stock of small quantities as and when needed. This system will

popularize the utility of scientific storage technique among the farmers and

save them from the clutches of money lenders who extend credit facilities

against hypothecation of their stocks. Further, it will help farmers to wait till

favourable prices could be obtained instead of indulging in distress sale.

56

Lastly this system will reduce pressure on transport facilities and enable the

farmers to get agricultural inputs required for increasing production37

.

C.R.Reddy and D.V.Sureshkumar have highlighted the role of

Cooperative Marketing in Agricultural Development. Since the well being of

the farmers depends on the market price they get for their produce, the

government of India adopted a strategy of providing Cooperative Marketing

services in rural areas with an object of eliminating intermediaries who

deprive the farmers of their due share of price paid by the consumers for

their produce. The cooperative marketing structure consists of primary

marketing societies, district marketing societies and state cooperative

marketing federations which act as catalistic agents for increasing

agricultural productivity on one hand and as substitute for exploiting

middlemen on the other. One of the crucial functions of farm cooperatives is

to cater credit, partly in kind in the form of inputs like fertilizers. Further

cooperative marketing has taken up the purchase of produce from growers at

the time of harvest at fair prices and sale of such produce at consuming

centres through its widespread societies. Processing and storage facilities are

37

N.K. Gandhi, “Stepping Up Rural Warehousing”, Kurushetra, Vol.XXXI, No.22,

August 16, 1983, pp.4-6.

57

also handled by the Cooperative Marketing Societies. This has resulted in

more income savings, more investment on agriculture and adoption of

advanced farm technology which leads to higher productivity38

.

M.S.Senam Raju conducted a case study of the Jangoan Regulated

Agricultural Market in the Warangal District of Andhra Pradesh which was

started in 1950. His study reveals the fact that neither commission agents nor

the farmers are aware of the existence of support price fixed by the

government for the benefit of farmers. Even though the Market Act clearly

says that details of support prices should be displayed at the Market

Committee Office, it is not done. In the absence of such an important market

information, bidding price is determined by the forces of supply and

demand. In this farmers are at a disadvantage as the buyers are more

dominant in fixing price. Senam Raju concludes his analysis by saying that

unless changes are effected in the present system, the future of the Jangoan

38

C.R. Reddy and D.V. Suresh Kumar, “Co-operative Marketing in Agricultural

Development”, Indian Journal of Marketing, Vol.XII,No.11, July 1982, pp.23-24.

58

Regulated Market is bleak and the traders and commission agents will

directly purchase produce from the farmers in the village39

.

D.S.Sinthu has dealt with some aspects of agricultural marketing and

pricing policies in India and pointed out that marketing efficiency can be

improved by increasing operational efficiency and by increasing pricing

efficiency. The former focuses on cost effectiveness i.e. reducing costs

involved in the performance of different marketing functions like

transportation, storage, processing etc. and the latter refers to the structural

characteristics of the marketing system under which the sellers get the true

value of their produce and the consumers receive the true worth of their

money. D.S.Sinthu concludes that marketing will be meaningful only if it is

sensitive to the needs of the sellers as well as the buyers40

.

N.Rajan Nair carried out an intensive study of the evolution and

working of the Regulated Markets in Tamil Nadu and came to the

conclusion that the trend in the development of Regulated Markets in Tamil

39

M.S. Senam Raju, “Apprehensions of Farmers on Working of Regulated Agricultural

Markets – A Case Study”, Indian Journal of Marketing, Vol.XXXII, No.10, October

2002, pp.9-13.

40

D.S. Sinthu, “Some Aspects of Agricultural Marketing and Pricing Policies in India”,

Indian Journal of Agricultural Economics, Vol.XLV, No.4, October –December

1990, pp.433-434.

59

Nadu is in no way different from that in other states of India. The growth

achieved so far is not up to the expectations and it is far from satisfactory

because market regulations are not effectively enforced41

.

R.Haridoss opines that the extent of awareness generated by the

Regulated Markets can be measured by the quantum of market arrivals. His

study reveals that market arrivals of all the crops except groundnut, are

determined chiefly by the marketable surplus42

.

Beula Dasan analysed the progress and prospects of Regulated

Markets in the Kanyakumari District and came to the conclusion that since

1975 no regulated market has been opened in the district which is more than

an evidence for the lack of growth of Regulated Markets in the district. She

has also pointed out that the existing Regulated Markets attract only five per

cent of the marketable surplus. The farmers do not go to the Regulated

Markets because of their ignorance, illiteracy and the intervention of local

traders. Traders’ participation in the auctions is also irregular and nearly 40

41

N. Rajan Nair, A Study of the Evolution and Working of Regulated Markets in

Tamil Nadu, (Unpublished Ph.D., thesis University of Cochin), 1982.

42

R. Haridoss, “Determinants of Market Arrivals of Regulated Markets Under Madurai

Market Committee, Tamil Nadu”, Indian Journal of Agricultural Marketing

(Conference Special), 1994, pp.31-33.

60

per cent of their purchases are from the open market. She concludes that the

problems inherent in marketing the agricultural produce such as middlemen,

underweighment, absence of market information, unapproved market

charges etc., still persist within the notified market areas43

.

Baradhan formulated a function for marketed surplus and found that

the response of marketed surplus of paddy to its price was negative while

that of output supply to price was positive. The input prices had positive

effect on marketed surplus whereas they had negative effect on output

supply44

.

Ram and Swarup observed that the marketing costs, margins and

transportation costs were high because of the bulkiness of agricultural

products studied by them. A comparison between regulated and non-

43

Beula Dasan, Progress and Prospects of Regulated Markets in Kanayakumari

District, (Unpublished Ph.D., Thesis, M.S. University), 2002, pp.249-250.

44 K. Baradhan, “Price and Output Response of Marketed Surplus of Food Grains – A

Cross Sectional Study of Some North Indian Villages”, American Journal of

Agricultural Economics, Vol.XXXXXII, No.1, 1970, pp.50-61.

61

regulated markets showed no marked improvement in marketing efficiency

between the two45

.

Ramamoorthy and Srinivasan while analysing the problems of

production and marketing of tomatoes in Coimbatore taluk observed that in

the wholesale market, tomato was sold on volume basis in bamboo baskets

and the retailers sold tomato on weight basis. The farmers were not aware of

the ruling price for tomato in the retail markets, which led to a low share of

consumers’ rupee to the farmers46

.

Bhatia and Ram studied the marketing efficiency in retail vegetable

markets in Delhi through marketing costs and margins, consumer prices,

availability of physical marketing facilities and market competitions. They

found that the retailer’s margins accounted for about 50 per cent of the

consumer’s price and the consumers were to pay high prices due to the

perishability and bulkiness of the product. Among the different classes of

45

G.S. Ram and B. Swarup, “Marketing Costs, Margins and Efficiency in a Regulated

Fodder Market – A Case Study”, Agricultural Marketing, Vol.XVII, No.2, 1974,

pp.12 &17.

46

K. Ramamoorthy and N. Srinivasan, An Economic Enquiry into the Problems of

Production and Marketing of Tomato in Coimbatore Taluk, Department of

Agricultural Economics, Tamil Nadu Agricultural University, Coimbatore, 1975,

p.45.

62

retailers, pavement sellers got the lowest average percentage of net retail

margins47

.

Kahage and Suryawanshi observed that the producer’s share in the

consumer’s price was 47.73 per cent while 43 per cent of the total cost was

the commission and profits of traders. The share of the different

intermediaries in consumer’s rupee worked out to 19.01, 16.12 and 8.47 per

cent for wholesaler, retailer and commission agent respectively in the

marketing of roses48

.

Shashanka et al., while analyzing the structural change in the arecanut

assembling market concluded that changes in buyer and seller concentrations

had opposite effects on the price of arecanut. Increase in buyer concentration

augmented the market price, while increase (decrease) in seller

concentration decreased (increased) the market price49

.

47

G.R. Bhatia and G.S. Ram, “Marketing Efficiency in Retail Vegetables Markets in

Delhi”, Agricultural Marketing, Vol.XX, No.4, 1977, pp.13-17.

48

P.M. Kahage and S.D. Suryawanshi, “Production and Marketing of Roses in

Western Maharashtra”, Indian Journal of Marketing, Vol. X, No.4, 1979,

pp.646-647.

49

Shashanka Bhide, Ashok Chowdhury, Earl O. Heady and M.A. Muralidharan,

“Structural Changes in an Agricultural Assembling market (Arecanut)”, Indian

Journal of Agricultural Economics, VolXXXVI, No.2, pp.25-34.

63

Sundaresan and Thanasekaran in their study on production and

marketing of grapes identified severity of diseases and pest attack, lack of

adequate capital facilities to meet the initial establishment costs and high

cost of inputs as the major production problems, while unorganized market

structure, high marketing costs and unnecessary deductions and lack of

finance facilities rank as the important marketing problems50

.

Warde et al., observed that the rotting losses of stored onion after 120

and 240 days had shown a significant difference. The total loss of onion

bulbs after 90 and 150 days was found to be significant while after 30, 60

and 120 days, it was non significant51

.

Naik et al., concluded that the cost of marketing incurred by farmers

varied not only between different size groups of farmers, but also between

different channels through which the sales were effected. The transportation

charge itself contributed to nearly 50 per cent of the total cost due to location

of market at a distant place followed by package cost. Sixty five per cent of

50

R. Sundaresan and M. Thanasekaran, “Production and Marketing of Grapes in

Madurai District” Indian Journal of Marketing, Vol.XIV, No.8, 1984, pp.26-27.

51

S.D. Warde, S.B. Desale and K.G. Shinde, “Storage Behaviour of Onion Cultivators

in Rangda (Late Rainy) Season”, Vegetable Science, Vol.XXII, No.2, 1995,

pp.120-121.

64

the farmers disposed of 82.83 per cent of their produce through village

traders because of their poor bargaining capacity and debt commitments

with village traders52

.

Gopal studied the existing market structure for vegetables in

Bangalore and concluded that the producers obtained a net share of about 55

per cent in the consumer’s rupee. Among different modes of transport used

by the producers, lorry was the cheapest53

.

Gupta and Ram observed that the producers received only 18 per cent

share in the consumer’s price, whereas the retailer’s margin and marketing

costs were quite high accounting for one fourth of the consumer’s rupee.

Income status and locality of retail buyers played an important role in

influencing retailer’s margin. Transport, packing and labour expenses were

the major components of marketing cost. They concluded that co-operative

52

A.D. Naik, H.G. Shankara Murthy and Kachapur, “Marketing of Onions in Bijapur

District, Karnataka – An Economic Analysis”, The Bihar Journal of Agricultural

Marketing, Vol.III, No.3, 1995, pp.319-324.

53

Gopal, “An Analysis of Problems of Marketing a Few Fresh Vegetables in

Bangalore City”, Thesis Abstracts, Vol.IV, No.1, 1978, pp.4-5.

65

endeavour at both the producer and consumer level and facilities for cold

storage and processing would help in improving marketing performance54

.

To measure the price-spread, Sha and Rao estimated changes in the

ratio value of output of groundnut at the farm level to the value of output in

different terminal markets over time using the value added method. They

concluded that the groundnut growers could realize high returns through the

formation of co-operatives55

.

Venkatraman identified four methods of estimating price-spread

namely, Lagged Margin, Concurrent Margin, Value Added and Residual

Methods. In Lagged Margin Method, price-spread was computed by taking

into account cost of assembling, processing, storage, transportation and

handling charges in moving the commodity from the producers to the

ultimate consumer.

In Concurrent Margin Method, margin was derived as the difference

between the price paid by the ultimate consumer and the price received by 54

A.K. Gupta and G.S. Ram, “Behaviour of Marketing Margins and Costs of

Vegetables in Delhi”, Indian Journal of Agricultural Economics, Vol.XXXIV,

No.4, 1979, p.210.

55

D.C. Sha and K. Hanumantha Rao, “Price Spread in Groundnut Marketing at Macro

Level”, Indian Journal of Agricultural Economics, 34 (4), 1979, pp.149-155.

66

the producer. In Value Added Method, margin was computed at each stage

of marketing and processing by deducting the cost of inputs and processing

cost from the value of output. In Residual Method, margin was derived as

the proportion of price received by the producer after accounting for the

share of all intermediaries in the marketing channel56

.

Shete et. al., in their study on “Measurement of Price-spread of

Tomatoes”, observed that the producer’s share in the consumer’s price was

low at 52.57 per cent and 56.33 per cent in case of rainfed tomatoes and

irrigated tomatoes respectively. This was due to excessive profit margin of

itinerant traders, commission agents and retailers in the trade. Lack of

transport facilities, malpractices of commission agents and itinerant traders,

lack of grading and weighment practices, perishability of tomatoes and lack

of market intelligence facility formed the major problems faced by the

producers in the marketing of tomatoes57

.

56

L.S. Venkatraman, “Price-spread of Agricultural Commodities in Recent Years”,

Indian Journal of Agricultural Economics, 234 (4), 1979, pp.227-241.

57

V.R. Shete, R.G. Patil and Jagannathrao, R. Pawar, “Measurement of Price- Spread

of Tomatoes”, Indian Journal of Marketing, 10 (6), 1980, pp.3-6.

67

Huger et. al., while estimating the price spread of vegetables in

Belgaum City, found that the price spread was relatively higher for sales

through commission agents as compared to co-operative societies. They

observed that retailer’s share formed a significant constituent of total

marketing margin. Marketing costs per quintal incurred by the producer

seller was the highest in tomato. The costs were lower when marketed

through co-operatives than through commission agents58

.

Srivastava, after examining the difficulties that arose in vegetables

marketing, concluded that the producer’s share was inversely related to

consumer’s price. The retailer’s share increased with an increase in the

consumer’s price, whereas producer’s, share decreased with an increase in

the consumer’s price. The benefit derived from an increase in the

consumer’s price was absorbed by the retailers59

.

Nagaraj et al., estimated that the share of producer in the consumer’s

rupee ranged from 37 to 68 per cent in respect of fruits and vegetables.

58

Huger, Lingappa, Bheemappa, “Marketing of Vegetables in Belgaum City – An

Economic Analysis”, Thesis Abstracts, 7 (4), 1982, pp.279-280.

59

G.C. Srivastava, “Dynamics of Vegetable Marketing”, Indian Journal of

Agricultural Economics, 39 (3), 1984, p.229.

68

Retailers appropriated a major share in the total marketing costs. The share

of retailers was larger for fruit crops than vegetables. The supply in

vegetables market was relatively less inelastic than that of fruits. Nearly 90

per cent of the farmers felt that the intermediaries did not accept the

producer graded vegetables60

.

Nanja Reddy et al., found that those producers who sold their onion to

wholesalers got the highest net price per quintal and maximized their

earnings through channel I (producer-village traders – wholesaler – Retailer

– consumer) which could realize the best as compared to other channels61

.

2.4 Research Gap

In this exploratory study, the researcher has presented a few aspects,

concepts and dimensions to throw necessary light on the position,

parameters, problems and prospects of paddy cultivation in Thiruvarur

district of Tamil Nadu. The researcher could analysis the primary and

secondary data and also the views and opinions of the farmers to satisfy his 60

N. Nagaraj, M.G. Chandrakanth and R. Ramana, “Market Appraisal for a Few

Fruits and Vegetables”, Indian Journal of Marketing, 16 (4), 1985, pp.13-19.

61

C. Nanja Reddy, M.S. Shyamsundar and Lalith Achoth, “Price Spread in the

Marketing of Irrigated Onion: An Economic Analysis”, Agricultural Banker, 19 (4),

1955, pp.33-35.

69

objectives and test the hypothesis adopted employing the relevant tools and

techniques carefully.

In order to gain the necessary insights and objective perceptions the

researcher has naturally made an attempt to peruse and review the literature

available relating to the problem chosen.

The earlier works and studies form a veritable wealth of information

and knowledge. They have shed much light on certain aspects like costs,

returns and marketing of paddy.

Still, some gap seemed to remain in this direction. The present study

makes an attempt to fill such research gaps in a modest way.