TYBMS – V Sem Rural Marketing

RURAL MARKETING

DEFINITION

Market:
‘Market means not a particular market place in which things are bought and sold
but the whole of any region in which buyers and sellers are in such a free
intercourse with one another that the prices of the same goods tend to equality,
easily and quickly.’-Cournot

Marketing:
‘Marketing as a process by which goods and services are exchanged and their
value is determined in terms of money prices.’ – H. E. Mitchell

Agricultural Marketing:
According to National Commission on Agriculture – XII Report “Agricultural
marketing is the process which starts with a decision to produce a suitable farm
commodity or product & it involves all aspects of market structure or systems,
both functional and institutional, based on technical and economic considerations
and include pre and post harvest operations like assembling, grading, storage,
transportation, and distribution. ”

Historical Perspective Of Agricultural Marketing:

Historical perspective of agricultural marketing is mainly divided in to four periods
they are as fallows:

1. Ancient period
2. Medieval period
3. Colonial period
4. Post independence/ modern period

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Ancient period:
During the ancient period barter system was present where people used to
exchange their goods or commodities in terms of another commodity.
Kautilya in Arthashastra has mentioned that trade, commerce and finance formed
the basis of the state.

Medieval period:
During the medieval period the main four kingdoms were:
a. Delhi Sultan’s Dynasty.
b. Mughal Dynasty.
c. Vijayanagar kingdom.
d. Peshwas Regime.

Delhi Sultan’s Dynasty:

 Internal trade: Were of two kind, namely;

(i) Costal trade, and (ii) Inland trade
 External trade: Was mainly between four countries i.e. Afghanistan,
Central Asia, Persia and Iraq.
 Trade centers: were situated at Delhi, Banaras, Allahabad, Ajmer, Pune,
and the towns on highways like Agra, Patna, Ahmedabad, Barhampur,
etc.
 Main commodities: Food grains, spices and sugar were the main
commodities for the export

Mughal Dynasty:

 Mughal controlled the sea – borne trade in Indian marine territories right
from eastern coast of Africa up to the straits of Marucca.

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 There where mainly four outlets of sea – Cambay, Malabar, Coromandal

coast and Bengal coast.
 Main commodities: rice, sugar, edible oils, fat and spices, commercial
crops like silk and sandalwood had also a large market.
 Internal trade: during the Mughal period was of three kinds, namely,
Coastal trade - Cochin to Cambay
Riverine trade - through Ganga - Jamuna River and Bengal delta.
Surface trade - from North region to central province.
 Market centers: Kanpur, Agra, Delhi, Patna, etc.

Vijaynagar Kingdom:

 External trade: Portugal, Kuwait and Egypt

Major commodities: husked and cleaned rice, palm, sugar, coconut, fruits,
tobacco, spices etc.
 Internal trade: were of three kinds:
Costal trade- Cambay to Cochin
Reiverine trade- through Godavari, Krishna, Tungabhadra, Kauvery.
Surface trade- Cambay, Bhatkal, Mangalore, Malbar, Cochin and Calicut etc.
Trade centers: Musalipatanam, Calicut, etc.
Major Commodities: rice, coconut, edible oil, jaggery and other commodities.

Peshwas Regime:
 External trade: China, Afghanistan and Persia.
 Internal trade: Was carried out through water and land
 Main commodities: sugar, spices, dry fruits, and food grains.
 Trade centers: Poona, Satara, Kolhpur, Nasik, Solapur, Kalyan and Miraj.

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Colonial period:

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

in the form of a proportion of actual produce in kind, into a fixed payment
of land revenue in the form of cash.
 The land revenue was calculated to be 5% of gross produce per acre in
Central Provinces, 7% in Berar, 7% to 13% in Delhi & Bombay and 20%
Gujrat.
 Zamindari system was introduced during this period. This all led to debt
traps to the poor farmers.
 Brokers and dalals came in to existence between the farmer and the
consumer.

Post independence/ modern period:

Five-year plan was introduced:

First five year plan:

Regulated markets were established in Bombay, Madras, Punjab, Hyderabad,
Mysore and Madhya Pradesh where the management of these markets was
vested in the committees in which growers (farmers) were also represented. In
this plan the main thrust was laid on cooperative marketing and its aim was to
have minimum 425 regulated markets in India.

Second five year plan:

 To recognize the existing system so as to secure for farmer his due share
of price paid by customer and sub serve the needs of planned
development.
 Total agriculture produce markets were 2500 out of which 725 were
regulated markets.

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Third five year plan:

 Bring remaining markets to regulation, and
 Expand grading program for the commodities.

Fourth fie year plan:

 Aim to improve agriculture market system and
 In interest of producer the measure tasks undertaken were developments
of road, market yards and grading units.

Fifth five year plan:

Development of agriculture marketing through cooperatives. The main thrust
here was of establishing Cooperative Marketing System.

Sixth five year plan:

The main thrust was on
 Further expansion of regulated markets in terms of both more markets and
more commodities to be brought under the scope of regulation.
 Strength and stream lining the arrangement for enforcement to ensure
regulated system of open auction, trade practices and margins of
intermediaries.
 Development of rural markets and potential markets.

Seventh five year plan:

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

Eighth five year plan:

Strength of marketing infrastructure with special reference to perishable
commodities.

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RURAL MARKET PROFILE

Profile of Rural Market can be studied as two topics :

1. Rural consumer
2. Rural demand, its size and composition

1. RURAL CONSUMER:
a. Size of rural consumer population

1971 1981 1991

Rural population 80% 76.3% 76%
Urban Population 20% 23.7% 24%

Majority of the population of India still exist in the Rural Area itself. States
like Uttar Pradesh, Madhya Pradesh, Rajasthan and Kerala have > 80% of the
population in the Rural areas only. While, States like Bihar and Orissa still have >
90% in the Rural area.

b. Consumer Characteristics:
 Low purchasing power
 Low standard of living
 Low per capita income
 Low literacy level
 Low economic and social position
 Tradition bound community
 Religion, culture and even superstition

c. Location Pattern
Urban: Population concentrated in 3200 cities & towns
Rural: Population scattered over 576000 villages.

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6300 villages have population more than 5000 persons

More than 55% villages have population of 500 or less people
More than 1.5 lakh or nearly 25% of the villages have population of
200 or less.
Inference: Rural demand is scattered over a large area.

d. Literacy level:
 Rural India – 23% literacy as compared with 36% of whole country
 In absolute numbers 11.5 crore of literate people are in Rural India
compared with 12 crore in urban India.
 Every year 60 lakh is getting added to the literate population of rural
India.

e. Rural income:

Evidently, rural prosperity and the discretionary income with the rural
consumer are directly tied with agricultural prosperity because, nearly, 60% of
rural income is from Agriculture.
Inference: Rural Demand is Seasonal and Festival linked.

f. Rural savings:

The commercial and co-operative banks have been marketing the saving
habit in the rural areas for quite some years. 70% of rural households are
saving and majority of them belong to salary earners and self-employees non
-farmers.

2. SIZE AND COMPOSITION OF RURAL DEMAND:

 Size of Rural market in non-food consumption items has been increasing from
Rs. 5000 crores in 1969-70 to Rs. 22000 crores in 1993-94.
(Size of market at current prices)

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

basket of rural consumer.
 Product categories like cooking utensils, packaged tea, ornament or jewellery,
bathing soaps, washing soaps, detergents, etc.
 As per an IMRB study, more than 60% of the villages in India now have shops
stocking soaps, detergents, packaged tea and batteries.
 There has also been a rapid growth in consumption of Agri-inputs :
Between 1971 and 1991 consumption of fertilizers grew at an annual
compound growth rate of 10%.
Pesticide consumption grew at compounded rate of 12%.
Tractors - 15%.
Pumps and Tube wells – 11%.

FEATURES / PROFILE OF RURAL MARKET

1. Large and Scattered Market:

The rural market of India is very large, consisting of >600 million consumers,
scattered / spread over 5,76,000 villages.
In terms of business generated too, it is a big market; 22,000 crore rupees worth
of non-food consumer goods are being sold per year.

No. of consumers
Large is in terms of
Business

2. Heterogeneous Market:
The relative status of the rural areas of different states differs. Parameters on
which they differ are Health and education facilities, nature of facilities,
availability of public transport, electricity, TV transmission, banks, post offices,
water supply etc.

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IMRB study reveals that an average village in India has 33 development index
points, Kerala’s average Is 88; Bihar’s average is just 22; while MP, Rajasthan
and UP are close to Bihar; and states like Maharashtra, Haryana, Karnataka
range between 40 and so.

3. Demand, Seasonal and Agriculture dependent:

The basic occupation of people in Rural Indian is Agriculture and agriculture is
seasonal. Rural people have money only during the harvest period and most of
the harvest periods are celebrated as Festivals in India. Hence, Rural demand is
not only harvest linked but also festival linked.

4. Characterised by Great Diversity:

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

5. Steady growth despite inhibiting factors:

The market has grown not only in quantitative terms, but qualitatively also. Many
new products have made entry into rural consumer basket.

CHANGING PATTERNS IN RURAL DEMAND - REASONS

1. New Employment Opportunities:

New Income due to rural development or agricultural advancement. Hence,
increased purchasing power.
Self Employment policy with assistance from bank has become great success in
rural areas.
2. Green Revolution:
A technological breakthrough since 1965 in Indian agriculture. Today, rural India
generates 185 million tonnes of food grains per year and expected to reach 210
million tonnes by 2010.

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

annum (White revolution, Blue Revolution). Operation flood.

3. Better credit facilities through banks:

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

4. Green Card / Credit Card for farmers:

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

5. Improved exports due to Export Policy:

Open market, WTO, GATT, has all resulted in better openings / markets,
increased income, increased purchasing power.

6. Remittances from Indians working abroad:

A sizeable contribution to growing rural income & purchasing power.

7. Expectation Revolution among Rural Masses:

Expectation Revolution brought about a powerful change in the environmental
dynamics.
Awareness Kindled Strengthened Earn Consume
of the their their motivation more more
rural people hopes to work

8. Political & Social changes through favourable Government policies:

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

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9. Marketing Efforts:
Firms like HLL, Bajaj Auto, Godrej soaps, BFL, BrookeBond, etc. have started
penetrating rural market.

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

TAPPING THE RURAL MARKETS

While the rural market of India certainly offers a big attraction to markets, it would
be totally naïve to think that any firm can easily enter the market and walk away
with a sizeable share of it.
- What are these problems?
- How are they peculiar to the rural market?
- How does a firm solve them?

The Problem Areas in Rural Marketing:

1. Physical Distribution
2. Channel Management
3. Sales force Management
4. Promotion and Marketing Communication

I. Managing Physical Distribution in Rural Markets:

The special problems in physical distribution in the rural context are:
(i) Transportation
(ii) Warehousing
(iii) Communication

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i. Transportation problem:

Railway: Though India has the fourth largest railway system in the world; many
parts of the rural India remain outside the rail network.

Road: Nearly 50% of the 576000 villages in the country are not connected by
roads at all. The government had planned to connect at least the bigger villages,
i.e. villages with a population of 1500 or above, with all – weather roads by 1990
– but this is not accomplished yet.

Many parts of rural India have only kuchha roads and many parts of the rural
interiors are totally unconnected by roads with any mandi level town.

ii. Warehousing problem:

Business firms find it quite difficult to get suitable godowns in many parts of rural
India, and there are no public warehousing agencies in the interiors of rural India.

Three tier warehouse structure: -

Top tier CWC and SWC

-At nodal points/ major market centre

Second / Middle tier owned by cooperatives

-At Mandi level

Third / Bottom tier owned by cooperatives

- At villages

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CWC/SWC do not extend their network of warehouses in rural parts.

Warehouses owned by cooperatives provide warehousing service only to their
members.
A business firm has to manage with the CWC/SWC n/w, which stops with
the nodal points, or it has to establish its own depots or stock points run by its
stockists / distributors.

iii. Communication Problems:

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

quite inadequate in rural areas.

Cost-service dilemma –

Maintaining the required service in the delivery of the products at the retail level
becomes very difficult. At the same time, physical distribution costs gets
escalated with 80% of the total rural consumers living in the less than 1000
people category of villages. It means higher costs of transportation; higher
inventory carrying costs and transit or storage losses.

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

average in the rural market, as compared to the urban market. Some companies
have fared two and a half times increase in the cost of distribution in rural areas
compared to urban areas.

Solutions / Firms cope with Physical Distribution:

1. The Firm can share Physical Distribution responsibility with its stockists
or clearing – cum – forwarding agents:

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With a view to keeping the costs low, some of the firms try out remote
control marketing – simply consigning the goods and retiring the bills
through banks – unfavourable for the long term.
Instead, the firms have a network of stockists or c & f agents at the
strategic locations for facilitating Physical Distribution of its products in
the rural areas.
Advantage – The costs of physical distribution can be shared by the
firm and the stockists.

2. Combining different Modes o Transport may be Advantageous:

o The system of rail-cum-trucks for long distance movement;
o Trucks for medium / short distance movement;
o Delivery vans and bullock carts for local haulage;
o Water transport.
Advantages – Bullock carts are cheaper, they are available in plenty
and are ideal for rural roads.

3. Company Delivery Vans:

Companies like HLL, Tomco, Brooke Bond-Lipton and ITC use delivery
vans. These vans takes the products to the retail shops in every nook
and corner of the rural market. It enables the firm to establish direct
salescontact with thousands of rural consumers, it also helps the firm
in the sales promotion.
Disadvantages: the cost of operating such vans is high.
This can work only if the market / area assures
business substantial enough to cover such costs.
4. Syndicated Distribution:
The firms come together and encourage an independent agency to
operate such delivery vans with a view to hiring its service. The
delivery vans here becomes a syndicated service.

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II. Channel Management in the Rural Markets:

i. Multiple tiers, High costs and Administrative Problem:

Manufacturer’s own warehouses / branch office

Wholesaler / Stockist in the town

Mandi Level Distribution

Village Level Shopkeeper

Rural Consumer

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

on Dealers Inescapable-
 Dependence of the firm on intermediaries is very much
enhanced.
 Control is mostly indirect.

iii. Non Availability Of Dealers:

Even if the firm is willing to start from scratch and try out rank newcomers,
the choice of candidates is really limited.

iv. Poor Viability Of Retail Outlets:

Manufacturer incurs additional expenses on distribution and still the retail
outlets find that the business is unremunerated to them.

v. Inadequate Bank Facilities:

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Rural outlets need banking support for three important purposes:

 To facilitate remittances to principals and to get fast replenishment
of stocks
 To receive supplies through bank (retiring documents with the
bank)
 To facilitate securing credit from banks.

vi. Inadequate Credit Facilities From Banks:

The rural outlets are unable to carry adequate stocks due to lack of credit
facilities. They are unable to extend credit to their customers. And the
vicious circle of lack of credit facilities leading to inadequate stocking or loss
of business finally resulting in poor viability of outlets get perpetuated.

Solutions:

 The Existing Market Structure:

Indian rural market is composed of 22,000 primary rural markets and 20 lakh
retail sales outlets of which nearly one lakh are FPS (Fair Price Shops) of the
public Distribution System (PDS). One retail shop serves on an average 60-70
families in the rural areas.
The structure involves stock points in feeder Towns to service. These retail
outlets at the village level. The stock points belong to either the manufacturer or
the marketer / distributor for the area.
 The Available Channel Choices:
 Private shops- FPS
 Co-operative Societies – Village Shandy/ Weekly markets.
The co-operative societies are mainly concerned with distribution of agricultural
inputs are the FPS with distribution of essential commodities. The village shandy
is widely used in rural marketing, but its role is limited in marketing branded
products.

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 The Private Village Shops:

They are the main channel in the rural market for a large variety of consumer
products; they are also the cheapest and the most convenient channel to align
with.
According to the Operations Research Group (ORG) there are 2.02 sales outlet
in rural India.
It is quite natural that firms seeking an effective presence in rural marketing,
willingly embrace the private village shops. It has to select its outlets from out of
existing shopkeepers or select a few freshers & appoint them as the outlets. The
choices are usually confined to the following categories :-
- Existing traditional private shops.
- Moneylenders willing to branch off to trade.
- Land owners willing to branch off to trade.
- Educated unemployed persons.
 Satellite Distribution:
The firm appoints stockists in feeder tours. They take care of financing of
goods, warehousing of goods and sub-distribution of goods in the area covered
by the feeder town. The firm also appoints a no.of retailers in and around the
feeder towns and attaches them to the stockists. The firm supplies the goods to
the stockists either on cash or credit or on consignment basis. The stockists take
care of the sub-distribution job or the terms or conditions determined by the firm.
Over a period of time, some retailers grow in terms of business
turnover. If such retail points also happen to be transportation centers within the
feeder town area, the firm elevates them as stockists. The area of operation of
the original stockists shrinks in this process, but care is taken to see that his
volume of business does not shrink. This is achieved, in practice, on account of

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the growth in demand & deeper market penetration. The process continues as
long as the market keeps expanding.
Advantages:
It helps & facilitates market penetration in the interiors of rural market.

III. Sales Force Management in Rural Market.

Unique Traits required on the part of rural salesman.

1. Willingness to get located in Rural Areas.

2. Cultural congruence: The salesman must have proper
acquaintance with the cultural pattern of rural life in the given
territory.
3. Attitude factors: The rural salesman must have great deal of
patience as their customer is a Traditional & cautious person.
Perseverance is another essential traits
4. Knowledge of the local language: The rural salesman needs a
strong background of the local language. He must be well versed in
the specific lingo and idiom of the local area / community, for, in
rural India, within each major language group, the colloquial
expression and speaking manners vary considerably from locality
to locality.
5. Capacity to Handle Large Number of Product Lines: The rural
salesman usually do not generate economic volume of business if
they handle a large variety of items. Rural salesman are also
required to travel more compared to their urban counterparts.
6. Greater creativity: Rural salesman should introduce new products
in the rural areas through creative selling, using the consumption
pioneers and opinion leaders. Rural marketing also presupposes
the delivery of new standard of living to the rural masses. It is
essentially developmental marketing.

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Managing Rural Sales Force

 Selecting the salesman
 Giving them orientation – more on the job training,
coaching in selected village markets. Educate rural
marketing environment.
 Motivating them.
 Developing them
IV. Marketing Communication in Rural Markets
Problems:
 Low literacy rate: printed word has limited use.
 Tradition bound
 Cultural barriers
 Overall economic backwardness
 Linguistic diversity
It has been estimated that all organized media put together can reach 30% of
the rural population in India.
Various publications reach only 18% of rural population. 33% of total cinema
earnings in the country come from rural India.

Communication Stages in Rural Area

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

gap between them is long, the message loses its edge during this period.
 Creating Awareness
 Altering Attitudes
 Changing

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Solutions
1. Selecting the media mix:
Evidently, in the rural context the firm has to choose a combination of formal
and non-formal media.
Formal / Organised : TV, Cinema, Press, Other print media, direct mail, radio,
point of purchase (POPs), outdoors, etc.
Non-formal / rural Specific Media :
A V vans / Publicity vans, Dance-dramas, Puppet Shows, rural specific art
forms like Harikatha and Villupatu performed at village melas and temple
festivals, demonstrations, study classes, mike announcements, processions,
caparisoned elephants, decorated bullocks carts carrying ad panels, music
records, house to house campaigns by special promotion squads, information
centers on companies products.

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

people actual watch TV.

Radio ; is a well established medium in rural areas while radio as a medium

cannot match TV in potentiality or effectiveness, radio does have a major role in
rural communication.

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

or habit. Short feature films with disguised advertisement. Messages, direct
advertisement, films or documentaries, that combine knowledge or advertisement
can be employed for rural communication.

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

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

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A V vans :Films can exhibit its films or other A-V presentations such as slide
shows, sound or sight presentations, puppet shows, etc. The van is a
comprehensive mobile promotion station at the exclusive command of the
concerned firm. Portable exhibition kits can be carried in the vans.

Disadvantage: The cost is high

Syndicated AV vans : Firms which cannot effort to operate publicity vans of their
own utilize the syndicated AV van service offered independent agencies.

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

delivered:
The theme, the message, the copy, the language or the delivery must match the
rural context.
In rural marketing, usually a greater time lag is involved between introduction of a
product and its economic size sale. This is the rural buyer’s adoption process is
usually more time consuming.

STRUCTURE AND TYPE OF AGRICULTURAL MARKET

Dimensions of Market:
1. Based on Location
2. Based on Area / Coverage
3. Based on Time Span
4. Based on Volume of Transaction
5. Based on Nature of Transaction
6. Based on Degree of Competition
7. Based on Number of Commodities
8. Based on Nature of Commodities
9. Based on Stage of Marketing
10. Based on Extent of Public Intervention

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Classification of Markets

1. Location:
 Village Markets – Located in small villages, major transaction
takes place among buyers and sellers of a village.
 Primary Wholesale Market – Located in big towns, near center of
production of agricultural commodities, a major part of produce is
brought for sale by the producer-farmer themselves. Transaction is
between farmers and traders. Owned by market committees, local
bodies / private individuals and are periodically held wherein every
shopkeeper has to pay rent for the space he occupies.
 Secondary Wholesale Markets – Located in district head quarters
/ important trade centers / near railway junctions, major transaction
takes place between village traders and wholesalers. The bulk arrival
in these markets is from other markets. The produce in these markets
is handled in large quantities. There are specialized marketing
agencies performing different functions such as; commission agents,
brokers, weighmen.
 Terminal Markets – where the produce is finally disposed off
directly to the consumer / processor / assembled for export and
possesses sufficient warehousing and storage facilities covering a
wide area extending over a state or two.
 Sea board Markets – Located near sea shore, meant for import /
export of goods.
2. Area / Coverage:
 Local / Village Markets – Buying and selling activities are confined
among buyers and sellers drawn from same village or nearby
villages, mostly perishable commodities in small lots. Ex: fresh milk,
vegetables
 Regional Markets – buyers and sellers for commodities are drawn
from a larger area. Ex: foograins

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 National Market - buyers and sellers are at national level. Ex: dural
commodities like jute, tea
 World Market - buyers and sellers are drawn from whole world. Ex:
coffee, gold, silver, cotton
3. Time Span:
 Short period Market – few hours, products of highly perishable
nature. Ex: fish, milk
 Long Period Markets – larger period, less perishable. Ex:
foodgrains, oilseeds
 Secular Markets – permanent nature. Ex: manufacture goods,
timber
4. Volume of Transaction:
 Wholesale Markets – Commodities are bought and sold in large
quantities / bulk. Transaction is between traders.
 Retail Markets – Commodities are bought and sold as per
consumer requirements.
5. Nature of Transaction:
a. Spot or Cash Market: A market in which goods are exchanged for
money immediately after the sale.
b. Forward Market: Purchase and sale of commodities takes place at
time ‘t’ but the exchange of commodity takes place on some specific date
in future i.e. ‘t+1’.
6. No of Commodities:
a. General Market: All types of commodities such as food grains, oilseed, fibre
crops etc. are bought and sold.
b. Specialised Market: Transactions take place only in one or two commodities
e.g. food grains market, cotton markets, mango markets.

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7. Degree of competition:
a. Perfect Market: Large number of buyers and sellers.
b. Imperfect Market: Monopoly, Duopoly, Oligopoly, Monopolistic competition 
large no of sellers deal in heterogeneous and differentiated form of a
commodity.
8. Nature of Commodities:
a. Commodity Market: deals in goods and raw materials such as wheat, barley,
cotton etc.
b. Capital Market: deals with bonds, shares and securities.
c. Service Market: deals in providing service e.g. consultancy
9. Stage of marketing:
a. Producing market: Those markets, which mainly assemble the commodities
for future distribution to other markets. Located in producing areas.
b. Consuming Markets: Which collect the produce for final disposal to the
consuming population located in areas where production is inadequate or in
thickly populated urban centers.
10. Extent of public intervention:
a. Regulated markets: Markets in which business is done in accordance with the
rules and regulations framed by the statutory market organisation and
represent different sections involved in markets. The marketing costs are
b. Unregulated markets: Business is conducted without any set rules and
regulations. Traders frame the rules for the conduct of business and run the
market.

METHODS OF SALE:
1. Under cover of a cloth (Hatha system):
The prices of the produce are settled by the buyer and the commission agent of
the seller by pressing/twisting the fingers of each other under cover of a piece of
cloth. Code symbols are associated with the twisting of the fingers and traders
are familiar with these. The negotiations in this manner continue till a final price is

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settled. When all the buyers have given their offers, the name and the offer price
of the highest bidder is announced to the seller by the c.a.
Disadvantage: Provides opportunities for cheating the seller this system has
been abolished by the government.

2. Private Negotiations:
Unregulated markets. The individual buyers come to the shops of commission
agent at a time convenient to the latter and offer price for the produce which, they
think are appropriate after the inspection of the sample. If the price is accepted
the commission agent conveys the decision to the seller and the produce is given
after it has been weighed, to the buyer. In village, private negotiations take place
directly between the buyer and seller.
Disadvantage: Time consuming, slow, not suitable when either large
quantities have to be sold or a large number of buyers exist in the market.
Advantage: Seller gets good price, for buyers are not aware of the price
offered by other buyers.
3. Quotations on sample, taken by commission agent:
The commission agent takes the sample of the produce to the shops of the
buyer. The price is offered, based on the sample, by the prospective buyers. The
commission agent makes a number of rounds to prospective buyers until none is
ready to bid a higher price then the one offered by a particular buyer. The
produce is given to highest bidder.

4. Dara Sale Method:

The produce is mixed and then sold as one lot.
Advantage: Within a short time a large number of lots are sold off.
Disadvantage: produce of good quality and one of poor quality fetch same
price. Therefore, loss of incentive to the farmers to produce quality goods.

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5. Moghum Sale Method:

The sale of produce is effected on the basis of a verbal understanding between
the buyer and the seller without any pre-settlement of price but on the distinct
understanding that the price of the produce to be paid by the buyer to the seller
will be the one as prevailing in the market on that day or at that rate at which
other sellers of the village sold the produce. This method is common in villages,
for farmers are indebted to the local moneylenders.

6. Open Auction Method:

The prospective buyers gather at the shop of the commission agent around the
heap of the produce, examine it and offer bids loudly. The produce is given to the
highest bidder after taking consent of the seller farmer. In most of regulated
markets the sale of produce is permissible only by this method.

Advantage:
1. Fair dealing to all the parties.
2. Auction serves as meeting place for supply of and demand of the goods.
3. It disposes of the market supply promptly.
4. The payment of the price of goods is made immediately after the sale if an
auction has been completed.

Disadvantages:
1. Requires more time for both buyer and seller have to wait for the day and
rime of auction.
2. In big market centers, especially in peak marketing season the time allotted
for auction is short. As a result sellers may receive a low price.
3. Buyers sometimes join hands.
4. Auction leads to a buyer market for buyers have full information about the
supply of and demand for the product.

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3 types of open auctions:

a. Phar system of open auction:

One bid is given for all the lots in a particular shop and all the lots are sold at that
price. One extreme case of this method is when one bid is given for the product
in the whole market.
b. Random Bid system of open auction:
The commission agent invites a few buyers when the produce is brought to his
shop for sale. All the prospective buyers are not informed. As a result competition
is poor.
c. Rostev Bid system of open auction:
The bidding starts from a point in the market at a notified time about which the
prospective buyers are given information in advance. The bidding party after the
auction the produce at one shop moves to the next in a clockwise or anti
clockwise directions till the auction of the produce at all the shops is over or the
scheduled auction time expires. The auction is supervised by the auction clerk or
the person nominated by the market committee.

7. Close Tender System:

The produce displayed at the shop of the commission agent is allotted lot
numbers. The prospective buyers visit the shops inspect the lots offer a price for
the lot which they want to purchase on a slip of paper, and deposit the slip in a
sealed box by buying at the commission agent’s shop. When the auction time is
over the slips are arranged according to the lot number and the highest bidder is
informed by the commission agent that his bid has been accepted and that he
should take delivery of the produce.
Advantage: Time saving, involves minimum physical labour, no possibility of
collision among the buyers. Regulated markets in Tamilnadu have close tender
system method.

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MARKETED AND MARKETABLE SURPLUS

The producer’s surplus is the quantity of produce, which is, or can be,
made available by the farmers to the non-farm population.

The producer’s surplus is of two types:

1) Marketable Surplus: - is that quantity of the produce, which can be made
available to the non-farm population of the country. The marketable
surplus is the residual left with the producer-farmer after meeting his
requirements, for family consumption, farm need, for seeds, and feed for
cattle, payment to Labour in kind, payment to artisans – carpenter,
blacksmith, potter and mechanic – payment to the landlord as rent, and
social and religious payments in kind. MS1=P-C; where MS1= Marketable
surplus, P= Total production and C= Total requirements.
2) Marketed Surplus: - is that quantity of produce, which the producer-farmer
actually sells in the market, irrespective of his requirements for family
consumption, farm needs and other payments.
Bansil writes that there is only one item- marketable surplus, which may
be defined subjectively and objectively.
Subjectively, the term refers to theoretical surplus available for sale with
the producer-farmer after he has met his own genuine consumption
requirements and the requirements of his family, the payment of wages in
kind, his feed and need requirements; and his social and religious
payments.
Objectively, the marketed surplus is the total quantity of arrivals in the
market out of the new crop.
Limitations: a) Limited geographic coverage
b) Small and marginal farmers
c) Inconvenience in borrowing

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Relationship between marketed and marketable surplus:

Marketed surplus can be <, >, or = Marketable surplus

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

smaller quantity of the crop than his actual requirements for family and
farm needs. This is true especially of small and marginal farmers, where
need for cash is immediate. This situation of selling more than the
marketable surplus is termed as distress or forced sale.
2) Marketed Surplus < Marketable Surplus: - When the farmer retains
some of the surplus produce. This situation holds true under the following
conditions:
a) Large farmers generally sell less than the marketable surplus,
because of their better retention capacity. They retain extra
produce in the hope that they would get a higher price in the later
period.
b) Farmers may distribute the crop for another crop, either for family
consumption purpose or for feeding their livestock, because of the
variation in the prices. With the fall in price of the related to a
competing crop, the farmers may consume more of the 1st crop and
less of the 2nd crop.

3) Marketed Surplus = Marketable Surplus: - When the farmer retains

neither more nor less than his requirements. This holds true for perishable
commodities and of the average farmers

Factors affecting marketable surplus:

1) Size of holding – There is positive relationship between the size of holding
and the marketable surplus, according to a study by Dr. Dharm Narayan.
2) Level of Production – Positive relationship.

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

depending upon whether one considers short and long run, or the micro
and macro levels.
4) Size of the family – Larger the number of members in a family, the smaller
the surplus in the farm.
5) Requirement of seeds and farm – Higher the requirements, smaller is the
marketed surplus.
6) Consumption habits – e.g. South India- A.P., Karnataka are predominantly
rice-consuming states, and hence wheat enters the market.
7) Cash requirements – If fixed: Marketable surplus will vary inversely with
price changes. If variable: Marketable surplus will increase in response to
increase in price.
8) Nature of crops – Farmers produce two types of crops: food crops and
cash crops. Food crops are retained, while cash crops enter the market.
9) Mode of production – Use of traditional methods: less marketable surplus;
New technologies, HYV Seeds, chemical fertilizers: more marketable
surplus.

Relationship between prices and marketable surplus:

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

the farmers’ cash requirements are nearly fixed; and given the price level,
the marketed portion of the output is determined. This implies that the
farmers’ consumption is a residual, and that the marketed surplus is
inversely proportional to the price level. This behaviour assumes that
farmers have inelastic cash requirements.
Olson and Krishnan have also argued that the marketed surplus varies
inversely with the market price. They contend that a higher price for a …..
crop may increase the producer’s real income sufficiently to ensure that the
income effect on demand for the consumption of the crop outweighs the price
effect on production and consumption.

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

positive relationship.
Rajkrishnan has pointed that the elasticity of the marketable surplus is not
negative, so long as the substitution effect is non-zero.

MARKETING AGENCIES
1. Producers
2. Middlemen:
i) Merchant Middlemen- Wholesalers, Retailers, Beoparies.
ii) Agent Middlemen- Commission Agents, Arahatias, Brokers.
iii) Speculative Middlemen- Those middlemen who take title to the product
with a view to making a profit on it. They specialise in risk-taking.
iv) Facilitative Middlemen- some middlemen do not buy and sell directly
but assist in the marketing process. E.g. Hamals/Labourers,
Weighmen/Tolas, Grades, Transport Agency, Communication
Agencies, Advertising Agencies, etc.

1) Beoparis:
Village Beoparis have their small establishments in villages. They purchase the
produce of those who have either taken finance from them or those who are not
able to go to the market. Village beoparis also supply essential consumption
goods to the farmers. They act as financiers of poor farmers. They often visit
nearby markets or keep in touch with the prevailing prices. They either sell the
collected produce in the nearby market or retain it for sale at a later date in the
village itself.
Itinerant Beopari are petty merchants who move from village to village, and
directly purchase the produce from the cultivaters. They transport it to the nearby
primary or secondary market and it there.

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(ii) Arahatias/Commision Agents-

Kaccha Arahatias – primarily act for the sellers, including farmers. They
sometimes provide advance money to farmers or itinevant beoparies/traders on
condition that the produce will be disposed of through them. They charge
arahatias/commission in addition to the normal rate of interest on the money they
pay in advance.
Pacca Arahatias- act on behalf of the traders in the consuming market.
The processors (vice millers, oil millers or cotton/jute dealers) and big
wholesalers in the consuming markets employ Pacca arahatias as their agents
for the purchase of a specified quantity of goods within a given price range.

MARKETING FINANCE

Agricultural credit is of two types:

1.Production credit
2.Consumption credit

1.Production credit:
(i) Short term: - 15 to 18 months
Loans to meet daily working capital requirements of
farmers’ purchase of
Inputs, payment of wages, hike charges of machinery or
tools, electricity charges etc.
(a) Cash component
(b) Kind component: Co-operative marketing societies.

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

NABARD 18 months to7 years.
 Creating capital assets.
 Purchase of livestock, agricultural machinery, equipment
etc.

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 Only a part of medium term loan is expected to be

ventured in current production. The remaining is carried
forward over the period of 7 years.

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

Land fencing, mechanization, construction of farm
houses, storage facilities etc.

2. Consumption credit:
It is basically for survival of farm families.
Sources of agricultural credit:

a) Co-operative credit:
i) Primary co—operative credit: Short term
ii) C-operative Land Development Bank: Medium term
Limitations:
i) Limited geographic coverage
ii) Small and marginal farmers
iii) Inconvenience in borrowing
iv) Huge over dues
V) Linked with ownership landholding

b) RBI:
Appointed AIRCSC, recommended:
i) The National Agri. Credit (Long term operations) fund;
ii) The National Agri. Credit (Stabilisation fund)
RBI issues guidelines:
• Margins and security
• Credit norms finance: 30:70 cash: kind
• Recovery or default

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c) SBI:
It provides financial assistance to marketing for processing co-
operatives as well as for co-operative sugar factories, LDB’s,
industrial co-operatives etc.

d) Commercial Banks:
Direct finance is granted for agricultural operations for short and medium
periods.
Indirect finance is granted by providing advances for distribution of fertilizers or
other inputs. These banks also finance for operation of FCI, State Government
and their agencies for procurement.

e) Agricultural Refinance:
Parliament established Devt Corporation: 1963
♦To co-ordinate, guide and assist long-term finance lending institution.
♦Helping in reduction of regional imbalances.
♦Reduction of regional disparities within states.
♦Economic upliftment of weaker section.

f) R.R.B: (Features)
∆ Rural Based
∆ Cater to the needs of backward areas.
∆ Authorised capital structure: Authorised Capital- Rs. 1 Crore, Paid-up
capital- Rs 25 Lakhs, Share Capital Ratio – 50:15:35 i.e. Govt: Own
Deposits: Sponsoring Commercial Bank.
∆ Problems:
 Problems in organization (Multi-agency control)
 Increasing Losses.
 Recovery Problems.
 Problems in Management.

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

h) Government Finance:
∆ Takkavi loans to release distress caused by the draughts, floods and the
other natural calamities.
∆ TO assist the farmers to overcome emergencies.
∆ Land Improvement loans Act 1883 – Long-term loans.
∆ Agriculturists’ Loans Act 1884 – Short-term loans.

Factors Affecting Capital Requirements of an Agriculture- Marketing Firm:

∆ Nature and Volume of Business: Financial requirements for trading in high
value crops like cumin, chillies, Cotton and oilseeds are higher than for
trading in food grains . Whole sale business requires more than retail
business.
∆ Necessity of carrying large stocks: This is in case of seasonal produce.
∆ Continuity of business during various seasons: Financial requirements are
higher for continuing business than the seasonal businesses.
∆ Time required between production and sale: Financial requirements are
higher for durable goods than the perishable ones.
∆ Terms of payment for purchase and sale: Whether payment will be in cash or
credit or by instalments affect financial requirements of manufacturing
middlemen.
∆ Fluctuations in the price: If the prices increase, the financial requirements
increase.
∆ Risk – Taking capacity: A middleman with low risk – taking capacity often
resorts to hedging and needs less finance than the middleman who takes risk.

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

the financial requirements increase, since the marketing agency has to hold
stock for a longer period in anticipation of a price rise.

DEFECTS IN RURAL MARKETING:-

Efficient Marketing is a prerequisite in the development process of any economy.
The basic objectives of an efficient marketing are to ensure remunerative prices
to the producers and a reduction in the marketing costs and margins, to provide
commodities to the consumers at reasonable prices, and promote the movement
of surpluses for economic development. There are many imperfections in the
marketing system for agricultural commodities. They are: -

1) Heavy village scales of agricultural commodities:-

A majority of the farmers in India sell a large part of their produce in the
villages , which result in low returns for their produce .The village sale is 20% to
60% in the food grains, 35% to 80% in cash crops and 80% to 90% in perishable
commodities .The factors responsible for village sale :-
a) Farmers are indebted to village moneylenders ,traders or landlords.
They are often forced either to enter into advance sale contract or sell the
produce to them at low prices .
b) Transport Bottlenecks:
Difficult to carry the produce in bullock carts to the markets which is often
situated at long distances.
c) There is small quantity of marketable surplus with a majority of the
farmers since of the small size holdings .
d) Perishability of the produce or lack of storage facilities.
e) Farmers dislike city markets mainly since of their lack of knowledge
about prevailing market practices , the possibility of theft or robbery in transit.

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

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A majority of the cultivators tend to sell their produce immediately after the
harvest at the low prices prevailing at that time . About 60% to 80% of the food
grains are still marketed in the first quarter of the harvest season.

The reasons for existence of "Distress Sales ":-

a) Poor Retention power of the farmers arising out of their pressing need
for cash to repay their debts and meet their cash needs for payment of land
revenue , the purchase of items of basic necessity , and for meeting their social
obligations.
b) Inadequate storage facilities available in the villages , either private or
public .
c) Fear of loss of produce by fire , theft or other uncertainties .
d) Low risk bearing ability of the farmers .
e) In surplus producing states like Punjab or Haryana , most of the
marketed surplus of the wheat or paddy / rice is sold by the farmers to public
agencies at the support prices and this remains constant during marketing year.
Hence, it is advantageous to sell during post harvest season.

3. Inadequacy of institutional marketing infrastructure and lack of

producer’s organisation:
Farmers are disorganized and market their produce individually. Because of this,
they have low bargaining power and they have to deal with traders having strong
organisation. They cannot therefore, insist on a reservation price for their
produce and they silently watch as the open auction takes place.

The reasons for lack of organisation among them are –

- Caste feeling among the farmers
- Locational disadvantages and difficulty in bringing them under one
organisation.
- Difference in the size of holdings and the surplus available with the
farmers.

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

their ignorance.

4. Existence of many middlemen / Superfluous Middlemen:

There is no restriction from social / government for entry of market middlemen,
therefore, there a number of middlemen between producer and consumer. As a
result of which the length of marketing channel increases and the cost of
marketing and market margins go up. Hence, producers receive less price, while
consumers pay high price.

5. Multiplicity of Market Charges:

The cost of market of produce worth Rs. 100/- is very high for agricultural goods
compared to that of the products of other sectors. A large number of market
charges – commission, brokerage, weighment, hamali, karda (impurity charges),
dhalta (excessive moisture charges), muddat (charge for making cash payment),
darmada (charity for goshala, water hut), etc are paid. The rates of these
charges also vary from market to market.

6. Existence of Malpractices:
Such as – deduction of unauthorized market charges, spurious deductions,
unfair weighment, taking away a part of produce as sample by bidders, bungling
of accounts, etc. this results in an increase in real cost of marketing of produce.

7. Lack of Reliable and up-to-date market information:

There are no of reliable channel for the communication of price information to
producer-farmers, who are isolated in remote villages. In the absence of reliable
information, farmers depend on the hearsay reports which they receive from
village merchants and as result sell their produce at lower rates.

8. Absence of Grading or standardization of produce-

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 TYBMS – V Sem Rural Marketing

A large no. of farmers have little knowledge of the practice of the grading of the
produce prior to its sale. They usually mix up superior or inferior quality products
to make a single lot. As a result, they get a lower price for their produce.
Sometimes, farmers are penalized by traders for the existence of a small
percentage of poor quality produce in the lot.

9. Inadequate storage facilities-

By its very nature, agricultural products is not only confined to few areas but it is
also confined to few reasons in a year, whereas its consumption is spread
throughout the year so the continuous supplies can be assured throughout the
year only by adequate & efficient storage facilities. Presently, the storage
facilities are not only inadequate but also the available godowns are not properly
managed. This has resulted in wastages or reduced supplies, as a result high
prices during off season.

10. Inadequate transport or communication facilities-

Inadequate transport or communication facilities are one of the prime obstacles
in the improvement of marketing efficiency. Since of the resource specificity or
fixity, certain crops and products can be grown only in certain regions. The
surplus produce of these areas has to be distributed to other places, which are in
need of it.

11. High costs of borrowing-

Charging exorbitant rates, cheating illiterate borrowers by inserting larger
amounts than borrowed, non-issue of receipts for repayments were & are major
problems faced by farmers while borrowing from money lenders. The situation
has not improved much with the role of institutional credit as farmers find the
institutional sources more cumbersome & rigid.

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LINES OF IMPROVEMENT

1. Establishment of regulated market-

Regulated markets are placed where transaction are governed by various rules
or regulations. Markets may be regulated either by local bodies or operate under
the state legislation. The market communities consisting of representatives of
growers, traders & the government look after the functioning of these markets.
They are responsible for the employment of the fare trading practices, licensing
of market functionaries, curbing the deduction of unauthorized market charges.
Introduction of open auction system of sales & enforcement of standard weights
or to reduce impartial arbitration in case of disputes. In short, a rural market
offers a package of measures to remove these defects.

2. Use of standard weights and measures: -

There are two acts namely;
(a) The standards of weights and measures act, 1958 which prescribes
compulsory use of metric system of weights and measures in the country.
(b) Standards of weight & measures (packed goods) act, 1977, ensures packing
of goods of the correct weights in the packages already existing.
Regulated markets also ensures weighment of the produce is done by a licensed
weigh man with std. Weights & a platform scale. In some markets, a weighbridge
has been installed. This eliminates short weights & malpractices.

3. Standardization of contracts: -
A series of legislation came into effect to ensure regulation of all marketing
activities. Many of the marketing charges such as darmada, karda, dhalta &
muddat are abolished. Method of sales like hatta system are banned. Recently,
the market charges payable by sellers have been transferred to the buyer.

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4. Provision of marketing news: -

Marketing news & information is vital for taking production & marketing decision.
The domestic demand for food grains may be stable. But the demand for cash
crops like sugarcane turmeric, tobacco etc independent on several other factors
so information on demand pattern, price behaviour, better methods of production
handling& packing etc had to be made available to them appropriate decisions.

5. Improvement of transport facilities: -

The following are some of the suggestions for effecting improvements in
transport functions reducing transport costs:
I. There must be full utilization of the capacity of the transportation facility in
terms of load to reduce per quintal cost of transportation.
II. The transportation cost per quintal can be reduced by fixing the rate of
transportation for different means.
III. Use of proper types of wagons to reduce spoilage, damage, breakage or
pilferage.
IV. There should be reduction in the barriers to inter-state movement of
produce.

6. Increased provision of storage & warehousing facilities: -

Different means of storages & warehouses have to be provided. Govt. has
already launched a scheme called national grid of rural godowns (NGRG) in
1979 to the extent of 50% to be shared equally by central & state govt. cold
storage for perishable commodities such as fruits, vegetables, fish, eggs, meat,
dairy products, etc have to be established or made available at affordable cost to
the farmers.
A network of rural storage centres should be built on priority basis in order to
prevent distress sales, wastage and loss arising out of inadequate and

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defective storage facilities. These storage centres may be constructed and

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

7. Improvement in grading and standardisation:

Grading means sorting of unlike lots of the produce into different lots according to
the quality specifications laid down. While, standardisation is determination of
basic limits or grades. Grading or standardisation enables farmers to get a higher
price for their produce, it reduces market costs by minimising the expenses on
the physical inspection of produce, minimises storage losses, ensures better
scope of exports, etc.
Hence awareness of grading & standardisation and its advantages has to be
built up.

8. Development of co-operative marketing:

Co-operative organisations are voluntary business organisations formed by the
members with a felt need to market their own compared to the collectively to
maximize advantages as compared to the private trade.
The following advantages can be derived from co-operative marketing system
I. Marketing co-operatives can generate necessary holding power with
farmers by providing easy and cheap credit to them. This will help check
distress sales.
ii. They can protect the farmers from exploitation at the hands of traders by
offering collective bargaining.
iii. Co-operatives can help to reduce the price spread
iv. Co-operative marketing may have a healthy impact on marketing trends
and will help in the stabilisation of prices.

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

production marketing or processing firms.

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STATE TRADING AND RURAL MARKETING

One of the responsibilities of government is to ensure the supply of essential
commodities to the people. This may require direct intervention on its parts in
trading of agricultural commodities.

Objectives of State Trading:

I. To make available supplies of essential commodities to consumers at
reasonable prices on a regular basis.
II. To ensure a fair price of the produce to the farmers so that there may be
an adequate incentive to increase production.
III. To minimise violent price fluctuations occurring as a result of seasonal
variations in supply and demand.
IV. To arrange for supply of such as fertilizers and insecticides.
V. To undertake the procurement and maintenance of buffer stock and their
distribution whenever and wherever necessary.
VI. To arrange for storage, transportation, packaging and processing.
VII. To check hoarding, black marketing and profiteering.

Types of State Trading:

a. Partial State Trading:

Here, private traders and government coexist. Traders are free to buy and well in
the market the government may place some restrictions on them, such as
declaration of stocks. Limits on stocks which can be held at a point of time and
submission of regular accounts. The government enters the market for purchase
of commodities directly from producers at notified procurement price. It
undertakes the distribution of commodities to consumers to consumers through a
network of price shops.

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b. Complete Shops:
The purchase and sale of commodities is undertaken entirely by the government
or its agencies. Private traders are not allowed to enter the market for purchase
or sale.
In India, complete wholesale trade in wheat was taken over by the
government in 1973; but it had to be given very soon.
State Trading was initially taken up by the food department in the state and
central government. In Jan 1965, the FCI was set up to undertake the purchase,
storage movement, transport, distribution and sale of foodgrains.

Please Note

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

deletion is left to the discretion of the concerned faculty. This notes is
neither a text book nor a guide, but just a reference material.

With Regards,
Mrs. Malini Nagabhushan

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