1.

Rural Marketing Environment

The future lies with those companies who see the poor as their customers."
- C. K. Prahalad

India is a country of diverse cultures, languages and rituals. In these circumstances it has become
a challenge for manufacturers to differentiate their offerings according to the Indian market.
With about 70% of Indian population residing in rural areas the need of the hour for the
marketers is penetrating this market.
 
Driven by green revolution, rural population's purchasing power has grown tremendously over
the years. Accordingly rural demand for industrial and urban related products is also growing. In
this context, a special marketing strategy, namely, rural marketing has emerged. It is very
important to define the rural marketing environment properly.It involves

i. Understanding rural market

ii. Rural consumer
iii. Rural demand
iv. Other aspects affecting the environment

i. Understanding the rural market

The concept of Rural Marketing in India Economy has played an influential role in the lives of
people. The rural market in India is not a separate entity in itself and it is highly influenced by
the sociological and behavioral factors operating in the country The rural market in India is vast,
scattered and offers a plenty of opportunities in comparison to the urban sector. It covers the
maximum population and regions and thereby, the maximum number of consumers.

'Go rural' is the slogan of marketing guru's after analyzing the socio-economic changes in
villages. The Rural population is nearly three times of the urban, so Rural consumers have
become the prime target market for consumer durable and non-durable products, food,
construction, electrical, electronics, automobiles, banks, insurance companies and other sectors
besides hundred per cent of agri-input products such as seeds, fertilizers, pesticides and farm
machinery.

However, the success of the product in the rural market is as predictable as rain. It has always
been difficult to understand the rural markets. Marketers need to understand the social dynamics
and attitude variations within each village. But by overcoming the challenges and looking into
the opportunities which rural markets offers to the marketers it is said that the future is very
promising for those who understand the dynamics of rural markets and exploit them to their best
advantage. Rural markets face the critical issues of Distribution, Understanding the rural
consumer, Communication and Poor infrastructure.
The marketer has to strengthen the distribution and pricing strategies. Improvement in
infrastructure and reach, promise a bright future for those intending to go rural. Rural consumers
are keen on branded goods nowadays, so the market size for products and services seems to have
burgeoned. The rural population has shown a trend of wanting to move into a state of gradual
urbanization in terms of exposure, habits, lifestyles and lastly, consumption patterns of goods
and services.

To expand the market by tapping the countryside, many MNC's are foraying into India's rural
markets. Among those that have made headway are Hindustan Liver, Coca-Cola, LG electronics,
Britannia, Colgate Palmolive and the foreign invested telecom companies. These companies'
foreseeing the vast size and demand in the rural market cannot afford to ignore. Rural market
accounts for half the total market for TV sets, Fans, Pressure cookers, bicycles, washing soap
and tooth powder where FMCG  products in rural products in rural markets is growing much
faster than the urban counterpart.

MNC's like Coca-Cola have tried to customize their offering by introducing "chota-coke"
costing 5 rupees. Ironically though purchasing power in rural India is growing but related
infrastructure, like water & electricity has not kept pace with that. To overcome this
phenomenon, washing machine manufacturers have introduced washing machines which will
keep working even if there is no facility of running water though it's another story that some of
these machines were used to churn curd and prepare buttermilk.
 
Buying behavior of the rural consumer is subservient to varied factors and is different from
urban consumers in many ways. Firstly majority of rural consumers stay in a joint family and
most of the purchase decisions are taken by elders. Secondly lack of knowledge of product usage
by semi literate population hinders market penetration, like Lux soap being used in rural areas
for washing hair. Thirdly and the biggest challenge in rural markets, other than resources and
economic condition, is the traditional mindset to buy things which are according to their cultural
setup. Fourthly, being a closely knit community, opinion-leadership plays a very important role
in purchase decisions in rural areas, making publicity through advertisement almost redundant.
Sarpanch is one such opinion leader who can influence rural consumer's purchase decision.
Idea Telecom Company has used Abhishek Bacchan in one of the advertisements shown as
a sarpanch just to have a positive appeal among the rural customers.
 

The definition of the word ‘rural’ in a market like India is very amorphous. There are multiple
versions of the same idea, which are followed by different entities. Even in the rural marketing
space, there is not one concrete definition. Different brands define ‘rural’ according to their
product and service offerings. In a diverse market like India, which has a population of more
than 1.17 billion people (estimate till July 2009), the urban-rural divide is quite significant.

According to various studies, around 12.2 per cent of the world’s population lives in rural India.
As per the 2001 census, 72.2 per cent of the population lives in about 6, 38,000 villages scattered
throughout the country. The number of people living in each of the Indian villages also varies
considerably. It is found that most of the Indian villages have a population of less than 1,000,
while there are only a few villages where more than 10,000 people live. With such a widespread
array of consumers, marketers have been finding it difficult to penetrate this vast audience, at
least to the extent that they have managed in the urban markets
So inorder to understand the rural market it is very important to focus upon certain
characteristics such as its diverse nature, saturation in urban market,rising disposable income of
rural consumers, rising literacy levels, spread of media.

ii. Rural consumer

With 700 million people living in 638,667 villages more than 70percent of Indians reside in
rural areas, marketers cannot afford to ignore the rural consumer.

a. Low literacy levels:-

It is estimated that the literacy level in rural India is 45 percent as compared to 52
percent for the whole country. The maximum education is till the primary or high school
level. Because of this, the print media and hoardings cannot make a significant impact.
Therefore, product demonstrations become integral to the marketer’s promotion strategy.

b. Low income levels:-

Though rural incomes have grown in the past decade, the money earned by the average
rural consumer is still much lower than that of his urban counterpart. A large part of the
income is spent on basic necessities, leaving a smaller portion for other consumer goods.

c. Location pattern of rural consumer:

-India’s urban population is concentrated in 3200 cities and towns, whereas the rural
poplution is scattered over 638,667 villages.Rural consumers therefore are scattered over
a large area,unlike their urban counterparts, who are highly concentrated.

d. Reference groups:-
Typically, in a rural area the reference groups are primary health workers, doctors,
teachers, panchayat members.The village trader or the grocer, commonly called ‘Baniya’
or ‘Mahajan’may also be an important influence in the decicion-making of rural
customers.

e. Occupation:-
Typically, in a rural area the principal occupation is farming, trading, crafts, and other
odds jobs like plumbing, electric works. The basis for differentiation is obviously the size
and ownership of land, consumption patterns differ according to income levels.

f. Media habits:-
Rural people are fond of music and folkfore. In rural Maharashtra a popular form of
entertainment is the Tamasha. And then there are television,radio, video films.

g. Other variables:-
Culture, language,religion,caste and social customers are some other important variables
for profiling a rural consumer.Rural consumers have a lot of inhibitions and tend to be
rigid in their behavior.
Purchase-decision processes and preferences also show certain characteristics that implication
for marketers. Exhibitions and road shows act as some of the key triggers for information-search
behavior. Opinion leaders and people who are perceived to be knowledgeable play an important
role as information providers and advisors. Word of mouth has more significance in purchase
decisions of rural consumers. Family members, relatives, and friends are consulted before
making purchase decisions of higher-value products. Compared to the urban counterparts, rural
consumers have different interpretations of colors, symbols, and social activities.

Rural consumers show a preference for bold, primary colors; red color connotes happiness and
auspiciousness, and green color prosperity. Ownership of a large tractor, large house, telephone
and other higher-value consumer durables, and education of children in cities are considered as
status symbols. However, as the exposure to mass media and information technology is
increasing, rural consumers are becoming more informed about products and services, and their
dependence on traditional reference groups is gradually waning. Rural consumers also tend to be
more loyal as brand switching has greater perceived risk.

iii Rural demand

The Rural Market is being seen as a Growing Oppurtunity mainly because of the
following –
 Rural Demand is growing rapidly
 Purchasing power has increased
 Cut Throat competition in the Urban Markets
 Rural market is largely unexplored and untapped
 There would be opportunities for new entrants as compared to urban population
being loyal to specific brands
 The volume and the strength of the rural population

Rural demand is increasing as

 Several products already well established in the rural market
 In many products the rural market share is greater than the urban market
 In many products rural market has overtaken the urban in growth rate

 The Indian rural fast moving consumer goods or FMCG market is expected to swell more than
ten times to reach the $100 billion mark by 2025, according to a fresh study by the marketing
and advertising research firm, The Nielsen Company.
In more than half of the largest FMCG categories, growth in rural markets is expected to outpace
the urban markets, the Nielsen study results shared on Wednesday said. Some of the largest
categories include salty snacks, cream, biscuits, refined oil, chocolates, noodles, milk foods, soft
drinks, and grooming products. Food categories are currently driving the bulk of this growth in
the rural market that now stands at $9 billion, according to the research firm.

On the other hand, there has also been a surge in the demand for products in the premium
segment such as hair color and fabric softener, and other grooming products like deodorants. The
rise and stability in rural income rise in purchasing power, and evolved consumer preferences,
backed by increasing awareness, and improved availability were the leading drivers of this
increase in rural consumption.

iii. Other aspects affecting the environment

There are two important challenges faced by the companies while entering rural
markets. They are

1. Pricing Strategies
2. Distribution channels

* The two companies had followed Hub and Spoke distribution model which is
proved effective in rural marketing.

* Pricing should be sensitive to consumers and should be in accordance with the

packing.

* Educate by creating awareness in the rural population about various products and
creating opportunities to them.

* The process followed is a mutual benefit to the company and people involved.
These methods help in cost reduction to the companies where as to people it is a great
opportunity to run their own business in the case of HLL's Shakti.
2.  Factors that have contributed to the growth of Rural Market

a. New Employment Opportunities:

The income from new employment and rural development efforts launched in the
rural areas has increased the purchasing power among the rural people. Self
employment policy with the assistance from the bank has become a great success in
the rural areas.

b. Green Revolution:
A technological breakthrough has taken place in Indian agriculture. Rural India
derived considerable benefit from green revolution. Today, rural India generates 185
million tones of food grains per year and substantial output of various other
agricultural products.

c. Expectation Revolution among Rural Masses:

More than the green revolution, the revolution of ‘rising expectation’ of the rural
people influenced the marketing environment of rural India. It brought about a
powerful change in the environmental dynamics. It enlarged the desires as well as the
awareness of the rural people.

d. Favorable Government Policies:

As a part of the process of planned economic development, the government has been
making concerted efforts towards rural development. The massive investment in the
rural India has generated new employment, new income and new purchasing power.
In the recent years as a part of new farm policy, high support prices are offered for
farm products. Various measures like tax exemption in backward areas, subsidy,
concessions, incentives, assistances, literacy drive in rural areas has brought rapid
growth of rural markets.

e. Literacy Growth:
The literacy rate is on the increase in the rural areas. This brings about a social and
cultural change in the buying behaviour of the rural consumer. They are exposed to
mass media which create new demand for goods and services.
 f. Growth in Income:
The rise in the income resulting from the new farming strategy is adding meaning and
substance to the growing aspirations of the rural people. Remittances from Indians
working abroad have also made a sizeable contribution to the growing rural income
and purchasing power.

g. Attraction for Higher Standard of Living:

The rural consumers have been motivated to change their consumptions habits enjoy
a higher standard of living by the growing awareness about better living and easy
availability of information about the goods.

h. Marketing Efforts:
Firms like Bajaj, HLL, etc., have started penetrating the rural market realizing the
rising expectations and the demand revolution in the rural India.

There are more factors who can really contribute to the success of rural marketing. The taste and
preference of the rural and urban category are almost same, but marketing strategy could not be
like that.
 
Tapping and capturing strategy
 
Prospecting is the first and foremost among the all marketing techniques, today many companies
don’t have adequate customer base. This is reason for failure, prospecting is more important for
the service based industries. If the prospecting strategy is done properly, there is no problem in
procuring customer to the product.
 
So far rural market is untapped fully. There are several difficulties confronting the attempt to
fully explore rural markets. The notion of rural markets in India is still in evolving shape, and the
sector poses a variety of challenges. Distribution costs and non availability of retail outlets are
major problems faced by the marketers. The success of a brand in the Indian rural market is as
unpredictable as rain. Many brands, which should have been successful, have failed miserably.
This is because, most firms try to extend marketing plans that they use in urban areas to the rural
markets.
 
Marketing and Retention Strategy
 
Before marketing of goods, the company must be aware of the unique consumption patterns,
tastes, and needs of the rural consumers should be analyzed at the product planning stage so that
they match the needs of the rural people. Therefore, marketers need to understand the social
dynamics and attitude variations within each village though nationally it follows a consistent
pattern. The main problems in rural marketing is concerned with understand the rural consumer,
poor infrastructure facilities, inadequate distribution channels, inappropriate promotion and
marketing communication. Dynamics of rural markets differ from other market types, and
similarly rural marketing strategies are also significantly different from the marketing strategies
aimed at an urban or industrial consumer.
 
Marketing companies need to understand the consciousness of the rural consumers and then
acting to capture rural customers is recommended. Rural marketing involves more intensive
personal selling efforts compared to urban marketing. Firms should refrain from designing goods
for the urban markets and subsequently pushing them in the rural areas.

To effectively tap the rural market a brand must associate it with the same things the rural folks
do. This can be done by utilizing the various rural folk media to reach them in their own
language and in large numbers so that the brand can be associated with the celebrations,
festivals, melas and other activities where they assemble.

Distribution and Communication strategy

 
Distribution channel is one of the ways could be using company delivery vans which can serve
two purposes, it can take the products to the customers in every nook and corner of the market
and it also enables the firm to establish direct contact with them and thereby facilitate sales
promotion. However, only the bigwigs can adopt this channel. The companies with relatively
fewer resources can go in for syndicated distribution where a tie-up between non-competitive
marketers can be established to facilitate distribution. If marketing managers use these feeder
towns they will easily be able to cover a large section of the rural population.
 
Firms must be very careful in choosing the vehicle to be used for communication. Only limited
part of the rural population has access to a vernacular newspaper. So, the audio visuals must be
planned to convey a right message to the rural folk. The rich, traditional media forms like folk
dances, puppet shows, etc with which the rural consumers are familiar and comfortable, can be
used for high impact product campaigns.

India’s consumer story is undergoing a dynamic change. Gone are the days when companies in
the consumer space would be content with a huge number of consumers to cash in on by
leveraging on their marketing team’s abilities and product portfolio. Now with increasing
competition things have changed, especially the way companies approach the scope of the
markets - rural and urban, available to them. Even as the urban market provides decent and
sustainable sales for companies in the consumer space, the extent of margin expansion has not
been very significant.

In fact, in the past few years, the growth in sales of products for companies in the consumer
space in rural markets has been faster than urban markets. Here is a lowdown on how rural
markets are becoming crucial for companies in the consumer space.

One of the factors responsible for the upswing in company earnings in the consumer space is
robust consumer demand and increasing income level, quite understandably, in the urban market.
However, with the growing number of players coming into the market, competition has grown
immensely, forcing companies in the consumer space to shift their marketing focus from
saturated urban markets to untapped rural markets. The chief reason behind this is the increase in
the disposable income of individuals in rural areas.

Take for instance; the allocation for National Rural Employment Guarantee Act (NREGA) in the
Union Budget. National Rural Employment Guarantee Act is a job guarantee scheme that
ensures one hundred days of employment in every financial year to adult members of any rural
household willing to do public work-related unskilled manual work at a statutory minimum wage
of Rs.100 per day.The Budget in FY11 increased its allocation to this scheme from Rs.113
billion in FY07 to Rs.410 billion in FY11. The social sector spending is pegged at Rs.1, 380
billion, which experts believe would boost rural disposable income and hence rural demand.

Recently, the government increased the minimum wages by 33%. Due to this, an unskilled
worker would get Rs.5,272 per month, semi-skilled worker would get Rs.5,850 and a skilled
worker would get Rs.6,448 per month. This has presented a huge opportunity for companies in
the consumer space to increase their presence. Much of this optimism for rural markets can be
seen in the sales and demand figures. It is estimated that today 53% sales for Fast Moving
Consumer Goods (FMCG) companies come from rural markets.

It is reported that the sales of FMCG companies in the rural market have grown from a -1% in
calendar year 2005 to 18% in calendar year 2009, while on the other hand, sales of FMCG
companies in urban markets have fallen from around 9% in calendar year 2005 to 11% in
calendar year 2009. This pace of growth has become one of the compelling reasons for these
companies in the consumer space to look at the rural market with renewed vigour and
enthusiasm.

Another major factor that has brought rural areas in focus for companies is improvement in
infrastructure, ensuring access to education and communication. Today, farmers have direct
access to markets, which ensures that they sell vegetables directly at a high margin. A case in
point is Bihar, which was found to be one of the fastest growing states of India in the last five
years. In Bihar, school enrolment rose from 160 children to 195 in just six months of opening of
the school.

According to the department of telecom, tele-density in rural areas has increased from around
10% in FY07 to around 25% in FY10. All these factors have brought about a shift in consumer
preferences in rural areas.Today, aspirations of consumers in rural areas have increased
copiously. Two factors have fostered growth of sales of consumer companies in rural areas. A
rural consumer would definitely prefer branded products and is increasingly dependent on non-
farm income. A consumer need not go for a known and prominent brand but an economical and
‘value for money’ brand. In essence, rural consumers go for quality.
Another prominent feature seen among the rural folk is the importance given to pricing of
products. For instance, a rural consumer would buy 10 sachets of 3 ml shampoos instead of 30
ml.Hindustan Unilever, Emami, Dabur and Godrej Consumer Products are four prominent
FMCG players that have more than 40% exposure to the rural markets. Detergent and soap
segments provide maximum volumes for these companies.

While segments such as hair oil, toilet soap, skin cream, shampoo, fruit beverages and toothpaste
remain underpenetrated segments, going forward, these segments are expected to grow faster in
volumes and prove to be significant contributors to the topline of the aforementioned companies.
However for this to happen, companies would also have to fight a stiffer competition with local,
unknown players in the under-penetrated segments. In fact, this competition has resulted in a
situation where companies in the consumer space are fighting wars on many fronts. Some are
trying measures on the organic level, while some are taking the inorganic route to increase the
possibilities of revenue growth and brand presence.

Hindustan Unilever has lost the market share in 10 of its 11 product categories in the last five
years. By employing price cuts and increasing advertising expenditure, the company is
responding to the competition it faces from ITC in the personal care segment and price war from
Procter & Gamble (P&G).

Dabur, on the other hand, has adopted the inorganic route of acquiring brands to increase its
presence. The company had acquired the oral care brand ‘Balsara’. It has toothpaste brands such
as Babool, Promise and Fem Care.

As these players make their war turf stronger and bigger with such measures, one important
factor that stands before them is the unacknowledged competition from local brands in rural
settings. There is still huge demand for these brands considering their volume game strategy and
economical pricing. However, considering the size of these players, companies in the consumer
space wouldn’t find it difficult to acquire them or present stiff competition to nullify their
presence.

 
3.   Recent trends in rural marketing:
Example: Distribution models, organized retailing, Contract farming,
Electronic auction, Microfinance etc

I) Distribution models:-
With the entry of new players in rural markets, marketers are innovating new cost-
effective approaches to reach these markets. Looking at the bottleneck of rural
distribution, the solution is likely to center on maximizing the existing infrastructure
and ensuring the participation and economic sustainability of the stakeholders. The
SHG distribution model (Project Shakti), satellite distribution, syndicated
distribution, the NYKS modes( Project Disha), use of IT kiosks, PDS, Cooperatives,
petrol pumps, agricultural input dealers and other unconventional channel of
distribution.

a) SHG linkage: - SHG is a group 0f 15-20 women organized by government

NGO’s, who come to form a mutual thrift group, to inculcate savings, discipline
and boost feelings of self-worth among women. Members of SHG’s get matching
loans from rural banks to set up income generating enterprises. The rapid growth
of the SHG movement in india has provided an opportunity to establish a path-
breaking distribution model through the linkage of the groups for marketers. The
initiatives taken by HLL, Prestige, TVS mopeds, with strategic implementation
support from MART, in their direction has achieved phenomenal success.

b) Satellite distribution (the HUB and Spoke system):- The concept of satellite
distribution- designed to penetrate rural markets-is emerging as a strong viable
model. And feeder towns. The system works as follows: - Stockists are appointed
in major towns and feeder towns. By and large, they discharge the following
functions of financing, warehousing, sub-distribution. Depending on the size of
the stockists operations and the product line, the functions are performed with
varying degrees of competence. Retailers in and around the town get attached to
the stockists. In some cases, they function as the authorized or franchised dealers
of the company and are recognized officially as forming part of the company’s
marketing network, operating through the stockists.

The manufacturer supplies goods the stockists either on consignment basis or on a

cash or credit purchase basis. The stockists take care of sub-distribution on the
terms and conditions determined by the manufacturer or as agreed upon by the
parties.The main advantage of this system is that the market penetration takes
place into the interiors of rural markets, without the manufacturer having to
expand his direct stock point network.

c) Syndicated Distribution:- Distribution poses a major problem for a new

company targeting a rural market. It requires too many levels in the channel and
the setting of a distribution channel for rural markets is a costly proposition. But
unlike coca cola small companies cannot afford to buy another company for
purposes of using the distribution network. In such a situation, syndicated
 distribution is viable and novel approach to gain entry into the rural markets.
Under this approach two or more companies come together to form a syndicated
trading organization, to jointly distribute a collective group of households
products in rural markets by sharing distribution costs. The successful model of
syndicated distribution is P&G, using rural distribution network of Marico to sell
Ariel, Tide, etc.

d) Petrol Pumps & Extension Counters:- In India, there are over 12,000 petrol
pumps spread across the country, 60 percent of which are located on highway
close to villages. These pumps, in addition to selling petroleum products, have
also started selling consumables like food products and toiletries. Oil companies
are exploring the possibility of selling agri-inputs, LPG cylinders , and other rural
based products in these outlets.

e) Barefoot Agents:- Few insurance companies have taken the initiative of

appointing barefoot insurance agents in order to penetrate rural areas.

f) Agricultural input dealers: - There are 2, 62,000 fertilizer dealers across

country. Fertilizer companies have retail outlets within a range of 5km of any
village. Marketers could explore the possibility of partnering them and utilizing
their infrastructure for selling products.

II) Organized Retailing

An overwhelming proportion of the Rs. 4 crore Indian retail markets are unorganized. The
presence of organized retail market is limited to metro cities only. The organized retail industry
will grow to 1, 60,000 crore by 2005. Given the size and diversity-geographical, cultural and
socio-economical there is no role model for Indian retailers to follow or adapt in their attempts to
expand into the rural market. In rural India haats, mobile traders, form a traditional retail
network. Traditional retailing has existed in India for centuries. It is a low cost structure mostly
owner operated, has negligible real estate and labor costs and pays little or no taxes. Consumer
familiarity that runs from generation to generation is one of the big advantages of the traditional
retailing. In spite of the continuing relevance of the traditional retailing sector, marketers see
great scope for the organized retail format in India. The factors that are expected to drive the
growth of the organized retail format are:-

 Economies of scale:- The large organized store attracts people from a wide
catchment area. These formats deal in multiple product categories, with
impressive brand variants designed to draw variety-seeking consumers.
 Quality service: - Franchised or company-owned stores incorporate services such
as returns and adjustments and offer delivery and assistance in making purchase
decisions.
  Increased brand consciousness:-With the emergence of increased brand
awareness among rural consumers, they want to shop from reliable stores. Thus,
company-owned or franchised outlets enjoy patronage in respect of not only high-
involment goods but also Fmcg.
 Fighting fakes:- To fight the menance of fakes in rural areas, companies prefer to
sell their offerings from organized retail formats. Philip uses ITC’s e choupal to
sell their lighting tubes in rural india.
Examples:- Mahindra Shubhlabh services Ltd.

III) Contract Farming

The Government of India’s National Agriculture Policy envisages that “Private sector
participation will be promoted through contract farming and land leasing arrangements to allow
accelerated technology transfer,capital inflow and assured market for crop production, especially
of oilseeds, cotton and horticultural crops”.

Farming is an age-old means of livelihood for millions of Indians. However, there have been few
systems/models in which farmers are assured of a market for their produce, leave alone a
remunerative price. Farmers have on occasion had to throw their produce away for want of
buyers. This is one side of the coin. On the other is the agri-based and food industry, which
requires timely and adequate inputs of good quality agricultural produce. This underlying
paradox of the Indian agricultural scenario has given birth to the concept of Contract Farming,
which promises to provide a proper linkage between the ‘farm and market.’

Recognizing the need for and merits of such a linkage with the farming/producing community,
several corporates involved in agrocommodity trading, processing, exports, etc. have attempted
to establish convenient systems/models that ensure timely and consistent supply of raw material
of the desired quality and low cost. This article discusses a few successful cases of contract
farming and a brief note on the bottlenecks and criticisms leveled against this emerging
alternative farm business model. Contract farming is defined as a system for the production and
supply of agricultural/horticultural produce under forward contracts between producers/suppliers
and buyers. The essence of such an arrangement is the commitment of the producer/ seller to
provide an agricultural commodity of a certain type, at a time and a price, and in the quantity
required by a known and committed buyer.

Contract farming usually involves the following basic elements - pre-agreed price, quality,
quantity or acreage (minimum/maximum) and time. According to the contract, the farmer is
required to plant the contractor’s crop on his land, and to harvest and deliver to the contractor a
quantum of produce, based upon anticipated yield and contracted acreage. This could be at a pre-
agreed price. Towards these ends, the contractor supplies the farmer with selected inputs,
including the required technical advice. Thus, the contractor supplies all the inputs required for
cultivation, while the farmer supplies land and labour. However, the terms and nature of the
contract differ according to variations in the nature of crops to be grown, agencies, farmers, and
technologies and the context in which they are practised.
 For example, contract farming in wheat is being practiced in Madhya Pradesh by Hindustan
Lever Ltd (HLL), Rallis and ICICI. Under the system, Rallis supplies agri-inputs and know-how,
and ICICI finances (farm credit) the farmers. HLL, the processing company, which requires the
farm produce as raw material for its food processing industry, provides the buyback arrangement
for the farm output. In this arrangement, farmers benefit through the assured market for their
produce in addition to timely, adequate and quality input supply including free technical know-
how; HLL benefits through supply-chain efficiency; while Rallis and ICICI benefit through
assured clientele for their products and services. The consortium is also planning to rope in other
specialist partners including insurance, equipment and storage companies.

IV) Electronic Auction

The government of India is planning to adopt electronic auctions for all non-strategic
procurements, abandoning the existing tendering system to improve transparency and
eliminating inefficiencies in government procurement. All ministries and public sector under
takings will have to compulsorily follow the e-auction system. The move also promises huge
savings for the government as e-auctions cut out several layers of inefficiencies in the tendering
system. This will help in improving the transactions in rural areas.

V) Microfinance

To overcome the constraints and the high cost of reaching the rural poor through banking
services, NABARD has pioneered the concept of thrift and savings groups, commonly known as
SHG’s. Both government and non-government agencies promote the formation of SHG’s.

Less than 20 people from homogenous social backgrounds are brought together to form a group.
This number was chosen to keep the functioning of the group informal and flexible, because a
group with membership beyond 20 is required to register under Cooperative Credit societies Act,
1904, or some other Act. Members agree to save a few rupees every week and deposit the money
in a savings account opened in the name of the group. Each member is given a passbook to
maintain a record of his or her savings, loans.repayments interest and bonus.

Any member can approach group for a productive loan if sanctioned, the member pays 18-24
per cent simple interest per annum. Under the Nabard scheme a mature and regular group can get
a maching loan from their own bank at a low rate of interest. On the timely returned of the loan
the group can avail twice and finally up to four times their own savings as loans, to increase their
kitty to meet the increasing money needs of their members, looking to start economic activities
of their own.
 Rural
Marketing
Assignment No.1
Name: - Neha Raje
Roll No: - PG-09-24