Lecture notes on Agricultural marketing

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Published Date:17-07-2017
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LECTURE NOTES: AGRICULTURAL MARKETING Market: Meaning: The word market comes from the latin word „marcatus which means merchandise or trade or a place where business is conducted. Word „market has been widely and variedly used to mean (a) a place or a building where commodities are bought and sold, e.g., super market; (b) potential buyers and sellers of a product, e.g., wheat market and cotton market; Some of the definitions of market are given as follows: 1. A market is the sphere within which price determining forces operate. 2. A market is area within which the forces of demand and supply converge to establish a single price. 3. The term 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. 4. Market means a social institution which performs activities and provides facilities for exchanging commodities between buyers and sellers. 5. Economically interpreted, the term market refers, not to a place but to a commodity or commodities and buyers and sellers who are in free intercourse with one another. Components of a Market: For a market to exist, certain conditions must be satisfied. These conditions should be both necessary and sufficient. They may also be termed as the components of a market. 1. The existence of a good or commodity for transactions(physical existence is, however, not necessary) 2. The existence of buyers and sellers; 3. Business relationship or intercourse between buyers and sellers; and 4. Demarcation of area such as place, region, country or the whole world. The existence of perfect competition or a uniform price is not necessary. Dimensions of a Market: There are various dimensions of any specified market. These dimensions are: 1. Location 2. Area or coverage 3. Time span 4. Volume of transactions 5. Nature of transactions 6. Number of commodities 7. Degree of competition 8. Nature of commodities 9. Stage of marketing 10. Extent of public intervention 11. Type of population served 12. Accrual of marketing margins Market structure Meaning: The term structure refers to something that has organization and dimension – shape, size and design; and which is evolved for the purpose of performing a function. A function modifies the structure, and the nature of the existing structure limits the performance of functions. By the term market structure we refer to the size and design of the market. 1. Market structure refers to those organizational characteristics of a market which influence the nature of competition and pricing, and affect the conduct of business firms; 2. Market structure refers to those characteristics of the market which affect the traders behaviour and their performances; 3. Market structure is the formal organization of the functional activity of a marketing institution. An understanding and knowledge of the market structure is essential for identifying the imperfections in the performance of a market. Components of Market Structure: The components of the market structure, which together determine the conduct and performance of the market, are: 1. Concentration of market power: 2. Degree of product differentiation: 3. Conditions for entry of firms in the market: 4. Flow of market information: 5. Degree of integration: Dynamics of Market Structure – Conduct and performance: The market structure determines the market conduct and performance. The term market conduct refers to the patterns of behaviour of firms, especially in relation to pricing and their practices in adapting and adjusting to the market in which they function. Specifically, market conduct includes: (a) Market sharing and price setting policies; (b) Policies aimed at coercing rivals; and (c) Policies towards setting the quality of products. The term market performance refers to the economic results that flow from the industry as each firm pursues its particular line of conduct. Society has to decide the criteria for satisfactory market performance. Some of the criteria for measuring market performance and of the efficiency of the market structure For a satisfactory market performance, the market structure should keep pace with the following changes: 1. Production pattern: 2. Demand pattern: 3. Costs and patterns of marketing functions: 4. Technological change in Industry: Agricultural Marketing: Concept and Definition: The term agricultural marketing is composed of two words-agriculture and marketing. Agriculture, in the broadest sense, means activities aimed at the use of natural resources for human welfare, i.e., it includes all the primary activities of production. But, generally, it is used to mean growing and/or raising crops and livestock. Marketing connotes a series of activities involved in moving the goods from the point of production to the point of consumption. It includes all the activities involved in the creation of time, place, form and possession utility. According to Thomsen, the study of agricultural marketing, comprises all the operations, and the agencies conducting them, involved in the movement of farm-produced foods, raw materials and their derivatives. Objectives of the Study: A study of the agricultural marketing system is necessary to an understanding of the complexities involved and the identification of bottlenecks with a view to providing efficient services in the transfer of farm products and inputs from producers to consumers. Scope and Subject Matter of Agricultural Marketing: Agricultural marketing in a broader sense is concerned with: · The marketing of farm products produced by farmers · The marketing of farm inputs required by farmers in the production of farm products Subject of agricultural marketing This includes product marketing as well as input marketing. The subject of output marketing is as old as civilization itself. The importance of output marketing has become more conspicuous in the recent past with the increased marketable surplus of the crops following the technological breakthrough. The farmers produce their products for the markets. Input marketing is a comparatively new subject. Farmers in the past used such farm sector inputs as local seeds and farmyard manure. These inputs were available with them; the purchase of inputs for production of crops from the market by the farmers was almost negligible. The new agricultural technology is input-responsive. Thus, the scope of agricultural marketing must include both product marketing and input marketing. Specially, the subject of agricultural marketing includes marketing functions, agencies, channels, efficiency and costs, price spread and market integration, producers surplus, government policy and research, training and statistics on agricultural marketing. Difference in Marketing of Agricultural and Manufactured Goods: The marketing of agricultural commodities is different from the marketing of manufactured commodities because of the special characteristics. The special characteristics which the agricultural sector possesses, and which are different from those of the manufactured sector, are: 1. Perish ability of the Product: Most farm products are perishable in nature; but the period of their perishability varies from a few hours to a few months. 2. Seasonality of Production: Farm products are produced in a particular season; they cannot be produced throughout the year. In the harvest season, prices fall. But the supply of manufactured products can be adjusted or made uniform throughout the year. Their prices therefore remain almost the same throughout the year. 3. Bulkiness of Products: The characteristic of bulkiness of most farm products makes their transportation and storage difficult and expensive. This fact also restricts the location of production to somewhere near the place of consumption or processing. The price spread in bulky products is higher because of the higher costs of transportation and storage. 4. Variation in Quality of Products: There is a large variation in the quality of agricultural products, which makes their grading and standardization somewhat difficult. There is no such problem in manufactured goods, for they are products of uniform quality. 5. Irregular Supply of Agricultural Products: The supply of agricultural products is uncertain and irregular because of the dependence of agricultural production on natural conditions. With the varying supply, the demand remaining almost constant, the prices of agricultural products fluctuate substantially. 6. Small Size of Holdings and Scattered Production: Farm products are produced throughout the length and breadth of the country and most of the producers are of small size. This makes the estimation of supply difficult and creates problems in marketing. 7. Processing: Most of the farm products have to be processed before their consumption by the ultimate consumers. This processing function increases the price spread of agricultural commodities. Importance Of Agricultural Marketing Agricultural marketing plays an important role not only in stimulating production and consumption, but in accelerating the pace of economic development. Its dynamic functions are of primary importance in promoting economic development. Optimization of Resource use and Output Management: An efficient agricultural marketing system leads to the optimization of resource use and output management. An efficient marketing system can also contribute to an increase in the marketable surplus by scaling down the losses arising out of inefficient processing, storage and transportation. Increase in Farm Income An efficient marketing system ensures higher levels of income for the farmers by reducing the number of middlemen or by restricting the commission on marketing services and the malpractices adopted by them in the marketing of farm products. An efficient system guarantees the farmers better prices for farm products and induces them to invest their surpluses in the purchase of modern inputs so that productivity and production may increase. Widening of Markets: A well-knit marketing system widens the market for the products by taking them to remote corners both within and outside the country, i.e., to areas far away from the production points. The widening of the market helps in increasing the demand on a continuous basis, and thereby guarantees a higher income to the producer. Growth of Agro-based Industries: An improved and efficient system of agricultural marketing helps in the growth of agro-based industries and stimulates the overall development process of the economy. Price Signals: An efficient marketing system helps the farmers in planning their production in accordance with the needs of the economy. Adoption and Spread of New Technology The marketing system helps the farmers in the adoption of new scientific and technical knowledge. New technology requires higher investment and farmers would invest only if they are assured of market clearance. Employment: The marketing system provides employment to millions of persons engaged in various activities, such as packaging, transportation, storage and processing, etc. Addition to National Income: Marketing activities add value to the product thereby increasing the nations gross national product and net national product. Better Living: The marketing system is essential for the success of the development programmes which are designed to uplift the population as a whole. Creation of Utility: Marketing adds cost to the product; but, at the same time, it adds utilities to the product. The following four types of utilities of the product are created by marketing: (a) Form Utility: The processing function adds form utility to the product by changing the raw material into a finished form. With this change, the product becomes more useful than it is in the form in which it is produced by the farmer. (b) Place Utility: The transportation function adds place utility to products by shifting them to a place of need from the place of plenty. Products command higher prices at the place of need than at the place of production because of the increased utility of the product. (c) Time Utility: The storage function adds time utility to the products by making them available at the time when they are needed. (d) Possession Utility: The marketing function of buying and selling helps in the transfer of ownership from one person to another. Products are transferred through marketing to persons having a higher utility from persons having a low utility. Classification of Markets: Markets may be classified on the basis of each of the twelve dimensions mentioned below. 1. On the basis of Location: On the basis of the place of location or operation, markets are of the following types: a) Village Markets: A market which is located in a small village, where major transactions take place among the buyers and sellers of a village is called a village market. b) Primary wholesale Markets: These markets are located in big towns near the centers of production of agricultural commodities. In these markets, a major part of the produce is brought for sale by the producer-farmers themselves. c) Secondary wholesale Markets: These markets are located generally in district headquarters or important trade centers or near railway junctions. The major transactions in commodities take place between the village traders and wholesalers. The bulk of the arrivals in these markets is from other markets. d) Terminal Markets: A terminal market is one where the produce is either finally disposed of to the consumers or processors, or assembled for export. Merchants are well organized and use modern methods of marketing. Commodity exchanges exist in these markets, which provide facilities, for forward trading in specific commodities. Such markets are located either in metropolitan cities or in sea-ports – in Bombay, Madras, Calcutta and Delhi. e) Seaboard Markets: Markets which are located near the seashore and are meant mainly for the import and/or export of goods are known as seaboard markets. Examples of these markets in India are Bombay, Madras, Calcutta. 2. On the Basis of Area/Coverage: On the basis of the area from which buyers and sellers usually come for transactions, markets may be classified into the following four classes: a) Local or Village Markets: A market in which the buying and selling activities are confined among the buyers and sellers drawn from the same village or nearby villages. The village markets exist mostly for perishable commodities in small lots. b) Regional Markets: A market in which buyers and sellers for a commodity are drawn from a larger area than the local markets. Regional markets in India usually exist for food grains. c) National Markets: A market in which buyers and sellers are at the national level. National markets are found for durable goods like jute and tea. d) World Market: A market in which the buyers and sellers are drawn from the whole world. These are the biggest markets from the area point of view. These markets exist in the commodities which have a world-wide demand and/or supply. 3. On the Basis of Time Span: On this basis, markets are of the following types: a) Short-period Markets: The markets which are held only for a few hours are called short-period markets. The products dealt within these markets are of highly perishable nature, such as fish, fresh vegetables, and liquid milk. b) Long-period Markets: These markets are held for a long period than the short- period markets. The commodities traded in these markets are less perishable and can be stored for some time; these are food grains and oilseeds. The prices are governed both by the supply and demand forces. c) Secular Markets: These are markets of permanent nature. The commodities traded in these markets are durable in nature and can be stored for many years. Examples are markets for machinery and manufactured goods. 4. On the Basis of Volume of Transactions: There are two types of markets on the basis of volume of transactions. a) Wholesale Markets: A wholesale market is one in which commodities are bought and sold in large lots or in bulk. Transactions in these markets take place mainly between traders. b) Retail Markets: A retail market is one in which commodities are bought by and sold to the consumers as per their requirements. Transactions in these markets take place between retailers and consumers. The retailers purchase in wholesale market and sell in small lots to the consumers. These markets are very near to the consumers. 5. On the Basis of Nature of Transactions: The markets which are based on the types of transactions in which people are engaged are of two types: a) Spot or Cash Markets: A market in which goods are exchanged for money immediately after the sale is called the spot or cash market. b) Forward Markets: A market in which the purchase and sale of a commodity takes place at time „t but the exchange of the commodity takes place on some specified date in future i.e., time t + 1. Sometimes even on the specified date in the future(t+1), there may not be any exchange of the commodity. Instead, the differences in the purchase and sale prices are paid or taken. 6. On the Basis of Number of Commodities in which Transaction Takes place: A market may be general or specialized on the basis of the number of commodities in which transactions are completed: a) General Markets: A market in which all types of commodities, such as food grains, oilseeds, fiber crops, gur, etc., are bought and sold is known as general market. These markets deal in a large number of commodities. b) Specialized Markets: A market in which transactions take place only in one or two commodities is known as a specialized market. For every group of commodities, separate markets exist. The examples are food grain markets, vegetable markets, wool market and cotton market. 7. On the Basis of Degree of Competition: Each market can be placed on a continuous scale, starting from a perfectly competitive point to a pure monopoly or monopsony situation. Extreme forms are almost non-existent. Nevertheless, it is useful to know their characteristics. In addition to these two extremes, various midpoints of this continuum have been identified. On the basis of competition, markets may be classified into the following categories: Perfect Markets: A perfect market is one in which the following conditions hold good: a) There is a large number of buyers and sellers; b) All the buyers and sellers in the market have perfect knowledge of demand, supply and prices; c) Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies from surplus to deficit areas; d) The prices are uniform at any one place over periods of time, plus or minus the cost of storage from one period to another; e) The prices of different forms of a product are uniform, plus or minus the cost of converting the product from one form to another. Imperfect Markets: The markets in which the conditions of perfect competition are lacking are characterized as imperfect markets. The following situations, each based on the degree of imperfection, may be identified: a) Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity. He exercises sole control over the quantity or price of the commodity. In this market, the price of commodity is generally higher than in other markets. Indian farmers operate in a monopoly market when purchasing electricity for irrigation. When there is only one buyer of a product the market is termed as a monopsony market. b) Duopoly Market: A duopoly market is one which has only two sellers of a commodity. They may mutually agree to charge a common price which is higher than the hypothetical price in a common market. The market situation in which there are only two buyers of a commodity is known as the duopsony market. c) Oligopoly Market: A market in which there are more than two but still a few sellers of a commodity is termed as an oligopoly market. A market having a few (more than two) buyers is known as oligopsony market. d) Monopolistic competition: When a large number of sellers deal in heterogeneous and differentiated form of a commodity, the situation is called monopolistic competition. The difference is made conspicuous by different trade marks on the product. Different prices prevail for the same basic product. Examples of monopolistic competition faced by farmers may be drawn from the input markets. For example, they have to choose between various makes of insecticides, pumpsets, fertilizers and equipments. 8. On the Basis of Nature of Commodities: On the basis of the type of goods dealt in, markets may be classified into the following categories: a) Commodity Markets: A market which deals in goods and raw materials, such as wheat, barley, cotton, fertilizer, seed, etc., are termed as commodity markets. b) Capital Markets: The market in which bonds, shares and securities are bought and sold are called capital markets; for example, money markets and share markets. 9. On the Basis of Stage of Marketing: On the basis of the stage of marketing, markets may be classified into two categories: a) Producing Markets: Those markets which mainly assemble the commodity for further distribution to other markets are termed as producing markets. Such markets are located in producing areas. b) Consuming Markets: Markets which collect the produce for final disposal to the consuming population are called consumer markets. Such markets are generally located in areas where production is inadequate, or in thickly populated urban centres. 10. On the Basis of Extent of Public Intervention: Based on the extent of public intervention, markets may be placed in any one of the following two classes: a) Regulated Markets: Markets in which business is done in accordance with the rules and regulations framed by the statutory market organization representing different sections involved in markets. The marketing costs in such markets are standardized and practices are regulated. b) Unregulated Markets: These are the markets in which business is conducted without any set rules and regulations. Traders frame the rules for the conduct of the business and run the market. These markets suffer from many ills, ranging from unstandardised charges for marketing functions to imperfections in the determination of prices. 11. On the Basis of Type of Population Served: On the basis of population served by a market, it can be classified as either urban or rural market: a) Urban Market: A market which serves mainly the population residing in an urban area is called an urban market. The nature and quantum of demand for agricultural products arising from the urban population is characterized as urban market for farm products. b) Rural Market: The word rural market usually refers to the demand originating from the rural population. There is considerable difference in the nature of embedded services required with a farm product between urban and rural demands. 12. On the Basis of Accrual of Marketing Margins: Markets can also be classified on the basis of as to whom the marketing margins accrue. Marketing Functions Any single activity performed in carrying a product from the point of its production to the ultimate consumer may be termed as a marketing function. A marketing function may have anyone or combination of three dimensions, viz., time, space and form. The marketing functions may be classified in various ways. Thomsen has classified the marketing functions into three broad groups. These are: 1. Primary Functions : Assembling or procurement Processing Dispersion or Distribution 2. Secondary Functions : Packing or Packaging Transportation Grading, Standardization and Quality Control Storage and Warehousing Price Determination or Discovery Risk Taking Financing Buying and Selling Demand Creation Dissemination of Market Information 3. Tertiary Functions : Banking Insurance Communications – posts & Telegraphs Supply of Energy – Electricity Kohls and Uhl have classified marketing functions as follows: 1. Physical Functions : Storage and Warehousing Grading Processing Transportation 2. Exchange Functions : Buying Selling 3. Facilitative Functions : Standardization of grades Financing Risk Taking Dissemination of Market Information Huegy and Mitchell have classified marketing functions in a different way. According to them, the classification is as follows: 1. Physical Movement Functions : Storage Packing Transportation Grading Distribution 2. Ownership Movement Functions : Determining Need Creating Demand Finding Buyers and Sellers Negotiation of Price Rendering Advice Transferring the Title to Goods 3. Market Management Functions : Formulating Policies Financing Providing organization Supervision Accounting Securing Information Packaging Packaging is the first function performed in the marketing of agricultural commodities. It is required for nearly all farm products at every stage of the marketing process. The type of the container used in the packing of commodities varies with the type of the commodity as well as with the stage of marketing. For example, gunny bags are used for cereals, pulses and oilseeds when they are taken from the farm to the market. Meaning of Packing and Packaging: Packing means, the wrapping and crating of goods before they are transported. Goods have to be packed either to preserve them or for delivery to buyers. Packaging is a part of packing, which means placing the goods in small packages like bags, boxes, bottles or parcels for sale to the ultimate consumers.. Advantages of Packing and Packaging: Packaging is a very useful function in the marketing process of agricultural commodities. The main advantages of packing and packaging are: 1. It protects the goods against breakage, spoilage, leakage or pilferage during their movement from the production to the consumption point. 2. The packaging of some commodities involves compression, which reduces the bulk like cotton, jute and wool. 3. It facilitates the handling of the commodity, specially such fruits as apples, mangoes, etc., during storage and transportation. 4. It helps in quality-identification, product differentiation, branding and advertisement of the product, e.g., Hima peas and Amul butter. 5. Packaging helps in reducing marketing costs by reducing handling and retailing costs. 6. It helps in checking adulteration. 7. Packaging ensures cleanliness of the product. 8. Packaging with labeling facilitates the conveying of instructions to the buyers as to how to use or preserve the commodity. The label shows the composition of the product. 9. Packaging prolongs the storage quality of the products by providing protection from the ill effects of weather, specially for fruits, vegetables and other perishable goods. Transportation: Transportation or the movement of products between places is one of the most important marketing functions at every stage, i.e., right from the threshing floor to the point of consumption. The main advantages of the transport function are: 1. Widening of the Market: 2. Narrowing Price Difference Over Space: 3. Creation of Employment: 4. Facilitation of Specialized Farming: 5. Transformation of the Economy: 6. Mobility of the Factors of Production: Factors affecting the cost of transportation: Other things remaining the same, the transportation cost of a commodity depends on the following factors: 1. Distance 2. Quantity of the Product 3. Mode of Transportation 4. Condition of Road 5. Nature of Products: a) Perishability (e.g., Vegetables); b) Bulkinesss (e.g., straw); c) Fragility (e.g. tomatoes); d) Inflammability (e.g., Petrol); e) Requirement of a special type of facility (i.e, for livestock and milk). 6. Availability of Return Journey consignment 7. Risk Associated: Problems in Transportation of Agricultural Commodities Problems The important problems arising out of the transportation of agricultural commodities are: 1. The means of transportation used are slow moving; 2. There are more losses/damages in transportation because of the use of poor packaging material. 3. The transportation cost of the farm produce is higher than that for other goods. 4. There is lack of co-ordination between different transportation agencies, e.g., the railways and truck companies. Grading and standardization Grading and standardization is a marketing function which facilitates the movement of produce. Grade standards for commodities are laid down first and then the commodities are sorted out according to the accepted standards. Meaning: Standardization means the determination of the standards to be established for different commodities. Pyle has defined standardization as the determination of the basic limits on grades or the establishment of model processes and methods of producing, handling and selling goods and services. Standards are established on the basis of certain characteristics-such as weight, size, colour, appearance, texture, moisture content, staple length, amount of foreign matter, ripeness, sweetness, taste, chemical content, etc. These characteristics, on the basis of which products are standardized, are termed grade standards. Thus, standardization means making the quality specifications of the grades uniform among buyers and sellers over space and over time. Grading means the sorting of the unlike lots of the produce into different lots according to the quality specifications laid down. Each lot has substantially the same characteristics in so far as quality is concerned. It is a method of dividing products into certain groups or lots in accordance with predetermined standards. Grading follows standardization. It is a sub-function of standardization. Types of Grading Grading may be done on the basis of fixed standards or variable standards. It is of three types: 1. Fixed Grading / Mandatory Grading: This means sorting out of goods according to the size, quality and other characteristics which are of fixed standards. These do not vary over time and space. 2. Permissive / Variable Grading: The goods are graded under this method according to standards, which vary over time. In India, grading by this method is not permissible. 3. Centralized / Decentralized Grading: Based on the degree of supervision exercised by the government agencies on grading of various farm products, the programme can be categorized into centralized and decentralized grading. Under the centralized grading system, an authorized packer either sets up his own laboratory manned by qualified chemists or seeks access to an approved grading laboratory set up for the purpose by the state authorities / co-operatives / associations / private agencies. Grading in respect of commodities such as ghee, butter and vegetable oils where elaborate testing facilities are needed for checking purity and assessing quality has been placed under centralized grading system. The decentralized grading system is implemented by State Marketing Authorities under the overall supervision and guidance of the Directorate of Marketing and Inspection. Advantages of Grading; Grading offers the following advantages to different groups of persons: 1. Grading before sale enables farmers to get a higher price for their produce. Grading also serves as an incentive to producers to market the produce of better quality. 2. Grading facilitates marketing, for the size, color, qualities and other grade designations of the product are well known to both the parties, and there is no need on the part of the seller to give any assurance about the quality of the product. 3. Grading widens the market for the product, for buying can take place between the parties located at distant places on the telephone without any inspection of the quality of the product. 4. Grading reduces the cost of marketing by minimizing the expenses on the physical inspection of the produce, minimizing storage loses. 5 Grading minimizing advertisement expenses and eliminating the cost of handling and weighing at ever stage. 6. Grading makes it possible for the farmer – a) To get easy finance when commodities are stored; b) To get the claims settled by the railways and insurance companies; c) To get storage place for the produce; d) To get market information; e) To pool the produce of different farmers; f To facilitate futures trading in a commodity. 7. Grading helps consumers to get standard quality products at fair prices. 8Grading contributes to market competition and pricing efficiency STORAGE: Meaning and Need: The storage function adds the time utility to products. Agriculture is characterized by relatively large and irregular seasonal and year – to – year fluctuations in production. The consumption of most farm products, on the other hand, is relatively stable. These conflicting behaviours of demand and supply make it necessary that large quantities of farm produce should be held for a considerable period of time. The storage of agricultural products is necessary for the following reasons: 1. The storage of goods, therefore, from the time of production to the time of consumption, ensures a continuous flow of goods in the market; 2. Storage protects the quality of perishable and semi – perishable products from deterioration; 3. To cope with this demand, production on a continuous basis and storage become necessary; 4. It helps in the stabilization of prices by adjusting demand and supply; 5. Storage is necessary for some period for the performance of other marketing functions. 6. The storage of some farm commodities is necessary either for their ripening (e.g. banana, mango, etc.) or for improvement in their quality (e.g., rice, pickles, cheese, , etc.); 7. Storage provides employment and income through price advantages. Risks in Storage: The storage of agricultural commodities involves three major types of risks. These are: 1. Quantity Loss 2. Quality Deterioration: 3. Price Risk: Processing: Processing is an important marketing function in the present-day marketing of agricultural commodities. A large proportion of farm products was sold in an unprocessed form. At present, consumers are dependent upon processing for most of their requirements. Meaning: The processing activity involves a change in the form of the commodity. Processing converts the raw material and brings the products nearer to human consumption. It is concerned with the addition of value to the product by changing its form. Advantages: The specific advantages of the processing function are: 1. It changes raw food and other farm products into edible, usable and palatable forms. The value added by processing to the total value produced at the farm level varies from product to product. 2. The processing function makes it possible for us to store perishable and semi – perishable agricultural commodities which otherwise would be wasted and facilitates the use of the surplus produce of one season in another season or year. 3. The processing activity generates employment.. 4. Processing satisfies the needs of consumers at a lower cost. 5. Processing serves as an adjunct to other marketing functions, such as transportation, storage and merchandising. 6. Processing widens the market. Processed products can be taken to distant and overseas markets at a lower cost. Buying and Selling: Meaning: Buying and selling is the most important activity in the marketing process. At every stage, buyers and sellers come together, goods are transferred from seller to buyer, and the possession utility is added to the commodities. The number of times the selling and buying activity is performed depends on the length of the marketing channel. The buying activity involves the purchase of the right goods at the right place, at the right time, in the right quantities and at the right price. It involves the problems of what to buy, when to buy, from where to buy, how to buy and how to settle the prices and the terms of purchase. The objective of selling is to dispose of the goods at a satisfactory price. The prices of products, particularly of agricultural commodities vary from place to place, from time to time, and with the quantity to be sold. Selling, therefore, involves the problems of when to sell, where to sell, through whom to sell, and whether to sell in one lot or in parts. Methods: The following methods of buying and selling of farm products are prevalent in Indian markets: (i) Under Cover of a Cloth (Hatha System) By this method, the prices of the produce are settled by the buyer and the commission agents 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 offer price of the highest bidder is announced to the seller by the commission agent. This method has been banned by the government because of the possibility of cheating. (ii) Private Negotiations: By this method, prices are fixed by mutual agreement. This method is common in unregulated markets or village markets. Under this method, the individual buyer come to the shops of commission agents at a time convenient to the latter and offer prices 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 villages, too, private negotiations take place directly between buyer and seller. The sellers take the sample to the buyer and ask him to quote the price. If it is acceptable to the buyer, a contract is executed. (iii)Quotations on Samples taken by Commission Agent: By this method the commission agent takes the sample of the produce to the shops of the buyer instead of the buyer going to the shop of the commission agent. The price is offered, based on the sample, by the prospective buyers. The commission agent makes a number of rounds of prospective buyers until none is ready to bid a price higher than the one offered by a particular buyer. The produce is given to the highest bider. (iv) Dara Sale Method By this method, the produce in different lots is mixed and then sold as one lot. The advantages of this method are that, within a short time, a large number of lots are sold off. The disadvantage is that the produce of a good quality and one of a poor quality fetch the same price. There is, therefore, a loss of incentive to the farmer to cultivate good quality products. (v) Moghum Sale Method: By this method, the sale of produce is effected on the basis of a verbal understanding between buyers and sellers 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 the rate at which other sellers of the village sold the produce. This method is common in villages, for farmers are indebted to the local money lenders. (vi) Open Auction Method: By this 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 the consent of the seller farmer. This method is preferred to any other method because it ensures fair dealing to all parties, and because the farmers with a superior quality of produce receive a higher price. In most regulated markets, the sale of the produce is permissible only by the open auction method. The following are the merits of the open auction method: a) A sale by this method inspires confidence among the buyers and sellers. b) The auction serves as a meeting place for supply of, and demand for goods. c) It disposes of the market supply promptly. d) A wide variety of goods are available to buyers for selection. e) The auction method reduces the number of salesmen needed in the process. f) Buyers of small lots are not put to disadvantage against the buyers of large lots. g) The payment of the price of the goods is made immediately after the sale. The disadvantages of the open auction method are: a) The auction method requires more time on the part of both the buyer and the seller, for they have to wait for the day and time of the auction. b) An open auction is a very time-consuming process because of the variation in the quality of the various lots. c) In big market centers, specially in the peak marketing season, the time allotted for auction is short. Both the buyers and the sellers are in a hurry. As a result, sellers may receive a low price d) In an open auction, buyers sometimes join hands. e) The auction leads to a “buyers market”, for buyers have full information about the supply of and demand for the product Some of the problems arising out of the open auction method may be overcome if the grading of agricultural produce is adopted by the cultivators. (vii) Close Tender System: This method is similar to the open auction method, except that bids are invited in the form of a close tender rather than by open announcement. 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 lying 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. Some of the regulated markets have adopted this method of sale, Market information: Market information is an important marketing function which ensures the smooth and efficient operation of the marketing system. Accurate, adequate and timely availability of market information facilitates decision about when and where to market products. Market information creates a competitive market process and checks the growth of monopoly or profiteering by individuals. It is the lifeblood of a market. Meaning: Market information may be broadly defined as a communication or reception of knowledge or intelligence. It includes all the facts, estimates, opinions and other information which affect the marketing of goods and services. Importance: Market information is useful for all sections of society which are concerned with marketing. Its importance may be judged from the point of view of individual groups. These are: a) Farmer-Producers: Market information helps in improving the decision-making power of the farmer. A farmer is required to decide when, where and through whom he should sell his produce and buy his inputs. Price information helps him to take these decisions. b) Market Middlemen: Market middlemen need market information to plan the purchase, storage and sale of goods. On the basis of this information, they are able to know the pulse of the market, i.e., whether the market is active or sluggish.. c) General Economy: Market information is also beneficial for the economy as a whole. In a developed economy, there is need for a competitive market process for a commodity, which regulates the prices of the product. The competitive process contributes to the operational efficiency of the industry. d) Government: Market information is essential for the government in framing its agricultural policy relating to the regulation of markets, buffer stocking, import export and administered prices. Types of Market Information: Market information is of two types a) Market Intelligence: This includes information relating to such facts as the prices that prevailed in the past and market arrivals over time. These are essentially a record of what has happened in the past. Market intelligence is therefore, of historical nature. b) Market News: This term refers to current information about prices, arrivals and changes in market conditions. This information helps the farmer in taking decisions about when and where to sell his produce. The availability of market news in time and with speed is of the utmost value. Criteria for Good Market Information: Good market information must meet the following criteria so that it may be of maximum advantage to the users a) Comprehensive b) Accuracy c) Relevance d) Confidentiality e) Trustworthiness f) Equal and Easy Accessibility g) Timeliness: Financing: The financing function of marketing involves the use of capital to meet the financial requirements of the agencies engaged in various marketing activities. No business is possible nowadays without the financial support of other agencies because the owned funds available with the producers and market middlemen (such as wholesalers, retailers and processors) are not sufficient. Factors affecting Capital Requirements of an Agricultural Marketing Firm: The capital requirements of a marketing agency for its marketing business vary with the following factors: (i) Nature and Volume of Business:. (ii) Necessity of Carrying Large Stocks: (iii) Continuity of Business during Various Seasons (iv) Time Required between Production and Sale (v) Terms of Payment for Purchase and Sale (vi) Fluctuations in Prices (vii) Risk-taking Capacity (viii) General Conditions in the Economy Market functionaries: In the marketing of agricultural commodities, the following market functionaries/marketing agencies are involved: i) Producers: Most farmers or producers, perform one or more marketing functions. They sell the surplus either in the village or in the market. Some farmers, especially the large ones, assemble the produce of small farmers, transport it to the nearby market, sell it there and make a profit. This activity helps these farmers to supplement their incomes. ii) Middlemen Middlemen are those individuals or business concerns which specialize in performing the various marketing functions and rendering such services as are involved in the marketing of goods. The middlemen in foodgrains marketing may, therefore, be classified as follows: (a) Merchant middlemen: Merchant middlemen are those individuals who take title to the goods they handle. They buy and sell on their own and gain or lose, depending on the difference in the sale and purchase prices. Merchant middlemen are of two types:

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