MAM 052 Block-2

MAM-052
Agribusiness Management and

Indira Gandhi National Open University Policies
School of Agriculture
Block
2
AGRIBUSINESS POLICIES
UNIT 6
An Overview of Agribusiness Policies
UNIT 7
Marketing and Pricing Policies
UNIT 8
Trade Related Policies
PROGRAMME DESIGN COMMITTEE
Prof. R. P. Das, PVC, IGNOU Dr. Anjali Ramtake, Associate
Professor, SOMS, IGNOU
Prof. S.K. Yadav, Director, SoA,
IGNOU Dr. Leena Singh, Assistant Professor,
SOMS, IGNOU
Dr. B.K. Sikka, Former Dean, College of
Agribusiness Management, GBPUAT Prof. Sunil Gupta, SOMS, IGNOU
Dr. V.C. Mathur, Former Professor and Dr. P. Vijayakumar, Associate Professor,
Head, Div. of Agri. Econ. IARI, New SoA
Delhi Dr. Mita Sinhamahapatra, Associate
Dr. Pramod Kumar, Principal Scientist Professor, SoA
(Agri. Econ.) IARI, New Delhi Dr. Mukesh Kumar, Assistant Professor,
Prof. M. K. Salooja, School of SoA
Agriculture, IGNOU
Dr. P. K. Jain, Associate Professor and
Programme Coordinator, SoA
Programme Coordinator: Dr. Praveen Kumar Jain

Block Preparation Team
Unit Writers Editors
Units 6, 7 & 8: Prof. K. Elumalai
Dr. K. Purna Chandra Rao, Hyderabad Professor of Law (Retd.),
Email: nicmkel@gmail.com
Course Coordinator: Dr. Praveen Kumar Jain

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October, 2022
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BLOCK 2 AGRIBUSINESS POLICIES
Block 2 is entirely devoted to Agribusiness Policies. It consists of three units viz. An
Overview of Agribusiness Policies (Unit 6), Marketing and Pricing policies (Unit 7), and
Trade Related Policies (Unit 8).
Unit 6, broadly deals with aspects such as (a) the relationship between agriculture and
agribusiness, (b) the role of agricultural policy, (c) the nexus between agricultural policies
and agribusiness policies, (d) dimensions of agricultural policy, (e) conflicts perceived in the
process of implementation of agribusiness policies, (f) constraints faced by agribusiness
sector in India, (g) government support to food processing and agribusiness sectors, and (h)
need to bring improvement in agribusiness environment.
Unit 7, broadly covered the following important aspects viz. (a) the role played by agriculture
prices in the Indian economy, (b) the role of agriculture marketing in India, (c) the
evolutionary process of agricultural prices and marketing policies, (d) the impact of
agriculture price and marketing policies, (e) The role importance and functioning of the
public distribution system (PDS), (f) the need for developing agricultural marketing
infrastructure in India, (g) The role of information and technology in marketing agricultural
produce, and (h) reforms needed for improving agriculture marketing and price policies in
India.
Unit 8, emphasized the following aspects: (a) the basis for trade between countries, (b)
UNCTAD, GATT, and its evolution to WTO, (c) the major obligations of member countries
under WTO, (d) the implications of WTO agreement on Indian agriculture (e) the need for
movements of agricultural products at global level, (f) trade policies followed in India, (g)
The incentives provided under Exim Policy/Foreign Trade Policy, the current outlook of
global and Indian agricultural trade.
The material provided in this block is supplemented with various examples and activities to
make the learning process simple and interesting. We have also provided Check Your
Progress questions for the self-test at a few places in these units which invariably lead to
possible answers to the questions set in those exercises. What perhaps you ought to do, is to
go through units and jot down important points as you read, in the space provided in the
margin. This will help you in assimilating the content. A list of reference books has been
provided at the end of each unit for further detailed reading.
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UNIT 6 AN OVERVIEW OF AGRIBUSINESS POLICIES
Structure
6.0 Objectives
6.1 Introduction
6.2 Agriculture and Agribusiness
6.2.1 Traditional Farming
6.2.2 Green Revolution
6.2.3 Development of Agribusiness
6.3 Role of Policy
6.4 Agricultural Policies vs. Agribusiness Policies
6.4.1 Support to Domestic Companies
6.4.2 Competition from International Companies
6.5 Dimensions of Agribusiness Policy
6.5.1 Retention Price Scheme for Fertilizer Companies
6.5.2 Era of Liberalization
6.5.3 Research and Development Investments
6.5.4 Contract Farming and Private Markets
6.6 Conflicts in the Implementation of Agribusiness Policies
6.6.1 Failure of Regulation
6.6.2 Apprehension of Exploitation in Private Markets
6.6.3 Fear of entry by Multinational Companies
6.7 Constraints in Agribusiness Sector in India
6.8 Government Support to Food Processing and Agribusiness Sectors
6.9 Improving Agribusiness Environment
6.10 Indian Food Processing Industry: Current Scenario
6.11 Let Us Sum Up
6.12 Keywords
6.13 Suggested Further Readings / References
6.14 Answers to Check Your Progress
6.0 OBJECTIVES
After studying this unit, the learner shall be able to:
 distinguish between agriculture and agribusiness;
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 discuss the concept of agribusiness policies;
 appreciate the difference between agricultural policy and agribusiness policy;
 learn about the different dimensions of agribusiness policies;
 perceive how possible conflicts can arise from the implementation of any agribusiness
policy;
 identify the ways and means of overcoming constraints faced by the agribusiness sector;
and
 Chart out how the agribusiness environment can be improved.
6.1 INTRODUCTION
In India, agribusiness is treated separately from agriculture, which focuses on production.
Supply of agricultural inputs, credit, and marketing of agricultural produce, including value
addition through processing, transportation and storage, and distribution are the major
concerns of agribusiness. But, in western countries, agricultural production is also treated as a
part of agribusiness. Agribusiness policies of respective Governments are aimed at increasing
agricultural production and value addition such that resource productivity increases and the
income of the farmers and improvement in the overall conditions of agricultural laborers.
Generally, agricultural and agribusiness policies are complementing each other but, at times,
they can be conflicting as well. As the agribusiness companies grow in size and number, they
are in a position to influence the policies of the Government to corner a major part of the
benefits to the detriment of the farmers. Subject to protecting the interest of farmers,
Governments should try to encourage more investments in agribusiness to reduce the physical
losses and add value to the agricultural produce. The unique disadvantages like seasonality
and high working capital requirements inherent in agribusiness should be kept in mind while
designing the agribusiness policies in the country. This unit discusses the trends in
agribusiness policies and focuses on the problems and prospects of the agribusiness sector in
the country.
6.2 AGRICULTURE AND AGRIBUSINESS

You may, perhaps aware of what agriculture means and how it is different from agribusiness.
In developed countries, agribusiness is defined as the total output arising from farm
production and product processing both at the farm level as well as after it leaves the farm
gate. In India, it is so far distinguished from farm production and has three distinct sub-
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sectors, viz. (i) farm inputs, (ii) agro-processing, and (iii) marketing and trade. The National
Income Statistics treat agricultural production as the unit of the primary sector and
agribusiness activities as part of the secondary and tertiary sectors. To conform to the global
view, we can redefine agribusiness as “an integrating and encompassing science and
practices, with backward and forward linkages, related to production, processing, marketing,
trade, and distribution of raw and processed food, feed and fiber, including the supply of
inputs and services for these activities.”
Agriculture has been one of the oldest crafts that human beings have learned while the
concept of agribusiness is of the most recent origin. India, being one of the cradles of ancient
civilization, has a long history of the evolution of agricultural practices. At one stage, like
anywhere else, human beings in India were hunters and gatherers. They were collecting
useful grains, roots, leaves, and fruits from nature and feeding on them. They were also
hunting the animals and eating their meat. But this method of survival did not provide them
assured supply of food. So, they gradually learned to select and collect the seeds of useful
plants and sow them nearer their homes. This method of raising food grains, leaves, roots,
and fruits helped them to have a settled life and relatively more abundant food. They also
domesticated useful animals to have access to milk and meat. The remnants of the plow and
plant systems that the ancient tribes developed can be seen in the hilly and remote areas of
the country even now!
BACKWARD LINKAGES BACKWARD LINKAGES
Agricultural Inputs Retail Chains
Agricultural Processing
Agricultural
Agricultural Labour
Production
Agricultural Marketing
Agricultural Credits Agricultural Exports
Fig. 6.1: Agriculture and Agribusiness
In Fig.6.1, Agricultural production, which is used synonymous with agriculture, is the central
activity. Agricultural credit, agricultural inputs, and agricultural labour are classified under
backward linkages and they contribute inputs to agricultural production. Retail chains,
agricultural processing, agricultural marketing, and agricultural exports are the forward
linkages to agricultural production activity and are classified under output marketing. The
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entire set of activities may be considered agri-business as per modern convention. The
traditional view treats agricultural production as agriculture and all other activities in the
other seven boxes as agribusiness.
Activity 1:
Visit a village nearer to your place and talk to a few farmers about farming and how they
access their inputs and market their outputs. After the visit, list down three agricultural
activities and three agribusiness activities commonly seen in the village.
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6.2.1 Traditional Farming

As the growth in human population kept on increasing, farmers started developing new and
better methods of farming to achieve higher yields from a unit area. As the people observed
that total dependence on rain was yielding smaller harvests, they gradually learned how to
supplement rainwater with stored water to secure higher yields from the crops. Yet, they were
suffering from droughts and floods, often facing famines and starvation deaths. After the
British colonized India, they introduced improved methods of farming in tea, coffee, and
other plantation crops to secure higher yields by investing more capital. But the bulk of India
was still following traditional methods of farming using mostly land and labor. Even as late
as 1942-43, India suffered from the Great Bengal Famine in which nearly three million
people died of hunger and disease. The partition of the country into India and Pakistan also
caused supply shocks and the country had to import food grains from other countries. The
dependence of the country on imports increased till the mid- 1960s when we imported one
ton of food grains for every five tons produced in the country! This became necessary
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because of the fast growth in population despite increasing food grain production
substantially through horizontal expansion i.e., by using more land and labor. The use of
capital was very less and it comprised only selected seeds, organic manures, and bullock-
drawn implements.
6.2.2 Green Revolution

Our political leadership and scientists wanted to achieve self-sufficiency in food grain
production and gradually mastered the new methods of breeding and evolved improved and
hybrid varieties of crops that yielded higher levels of output. These new varieties also
responded well to water application and higher doses of nutrients. As organic sources of
nutrients were inadequate, chemical fertilizers were applied to improve higher yields. Farm
mechanization gained momentum and drilling technologies made the use of groundwater
possible. All these new inputs required more capital and conversion from organic to inorganic
farming. These new methods of cultivation and new crop varieties made it possible to achieve
higher crop yields and helped the country to achieve self-sufficiency in food grain production
by around 1990. Similar advances in milk production, fish production, and oilseed production
added the shades of white, blue, and brown revolutions to the green revolution to supplement
the cereal diets with more and better quality foods. Potato, fruits, and vegetables also
registered impressive growth to provide food and nutrition security to the ever-growing
population of the country. While the population increased by nearly three and a half times,
food production increased by nearly four and a half times! While we still have poverty,
hunger, and malnutrition to a considerable extent in the country, we travelled a long way
from the days of famines and moved towards ensuring food security for the vulnerable
sections of the people in the country.
6.2.3 Development of Agribusiness

Indian agriculture comprised largely of subsistence farmers at the time of Independence and
they were trying to produce most of the needed agricultural products on their own farms.
Some of the agricultural commodities and most of the services were traded in and around the
villages through the barter method of exchange. Farmers were using mostly farm-produced
inputs and were marketing their surplus outputs in the local markets. The index of
commercialization was very low. But after Independence, it grew quite fast due to the
integration of markets and gained further momentum after the green revolution. Several
companies started producing and marketing modern agricultural inputs like improved/ hybrid
seeds, chemical fertilizers, micronutrients, pesticides, growth hormones, tractors, farm
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equipment, sprinklers, drip irrigation systems, greenhouses, shade nets, poultry and animal
feeds, poultry cage systems, milking machines, meat processing equipment, etc., Similarly,
several marketing and processing firms have come up to procure, process, store, transport,
and export agricultural products. Cash transactions of farmers increased many folds and
agriculture has become more of a business than a way of life. The agribusiness companies
which supply inputs to farmers and those which procure and process farm produce have
invested in improved technologies to reduce the losses and wastages and to improve the
precision in farming. Thus, agribusiness firms have become extensions of the agricultural
sector on either side.
Despite the phenomenal growth of the agribusiness sector during the last five decades, it
contributes only about 4 to 5 percent of the GDP in the country, while agriculture still has a
share of 15.4% percent of the GDP. In the United States of America, the agribusiness sector
contributes about 13 percent to GDP, while agriculture adds a mere 2 percent to the GDP. It
shows that the agribusiness sector in India still has a lot of potential for growth.
6.3 ROLE OF POLICY

The policy is defined as a course of action, guiding principle, or procedure considered
expedient, prudent, or advantageous to attain some desired outcomes. While an individual or
a business company or a cooperative may also have a policy, we generally have an interest in
the policy of a Government towards agribusiness policies. As Governments are expected to
work for the common good of the people, most of the debate is about the stated policy of the
Government and the actual impact of the policy on different sections of society.
For example, the policy of government may be framed to achieve one or some or all the
purposes stated below:
1. To attain self-sufficiency in food production and also to minimize the quantum of imports
of food into the country
2. To ensure that there is food security for all the people in the country, minimizing the
incidence of hunger and malnutrition among the people
3. To maximize the comparative advantage of the country and export commodities that can
be produced cheaply and import the commodities that can only be produced at a high cost
4. To ensure that the farmers and agricultural labour have decent incomes to sustain their
families
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5. To aim at the improvement in the quality of soil and water required in agriculture while
producing the agricultural commodities needed by the people
While all the above five objectives appear to be desirable, each of them will entail different
policy instruments and strategies. Some of them can be attained only with a sacrifice in the
fulfillment of other objectives. Often these conflicts are ignored and the concerned
Governments aim to achieve a large number of desired outcomes by overlooking the
inconsistencies between them.
Regarding agriculture and agribusiness sub-sectors, the policies of maximizing agricultural

production, minimizing physical losses and wastages of agricultural commodities, and
reducing marketing costs and margins appear to be desirable. Yet, the choice of policy
instruments may result in more benefits to one sub-sector and less or no benefit to the other
sub-sectors. Thus, policy-making and implementation is a complex and arduous task, often
requiring changes and mid-course corrections to balance the interests of different
stakeholders.
In the United States of America, the lobbying power of agribusiness companies is so great
that agricultural policies are largely influenced as well as shaped by their desires. The
interests of the farmers are served through income support measures and minimum
guaranteed prices. In India, where farmers and agricultural labor form the bulk of the
population, the policies are framed in their favor but the loopholes in the implementation
bring benefits in favor of the companies to a larger extent.
Fig. 6.2: Role of Government Policy
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6.4 AGRICULTURAL POLICIES VS. AGRIBUSINESS POLICIES
The Government can frame agricultural policies with the focus and emphasis that modern
agricultural inputs should be produced in large quantities in a competitive environment so
that the farmers can buy them at the lowest possible prices and produce them at a lesser cost
and get remunerative prices to their outputs. In this policy stance, the interests of agribusiness
companies become secondary to the interests of farmers. But with this policy slant of perfect
competition, some of the less efficient agribusiness companies may incur losses and will have
to exit the scene. Gradually, the competition gets restricted to a few efficient and financially
strong companies and they will acquire the capacity to dictate the prices of the inputs. The
multinational companies which have access to the latest technologies and finances may
emerge, as winners, often leaving the farmers at their mercy and paying higher prices for the
inputs. The Governments may resort to price controls and impose limits on the profits earned
by the companies. The experiences far have shown that these policies do not succeed and
may create shortages of inputs which will enhance their prices in the parallel or illegal
market. Even the best possible intentions to promote farmers’ welfare are defeated in the
course of implementation.
6.4.1 Support to Domestic Companies

The Government, on the other hand, may seek to promote domestic agribusiness companies
to grow by ensuring a reasonable return on their investment with the hope that the economies
of scale will eventually reduce the input prices. ‘Entry barriers’ may also be placed on foreign
multinational companies for an initial few years to protect domestic agribusiness companies
in their infancy. But such policies in the past have only ended up in having domestic
monopolies with outmoded technologies, resulting in inferior quality inputs selling at higher
prices. The agricultural outputs will then be produced at a higher cost and will not be
competitive in the international market. The issue of Intellectual Property Rights protection
will be raised by the companies and the grant of product and process patents will give them
monopoly power to charge higher prices for the inputs. At some stage, when foreign firms are
allowed to enter, the domestic companies seek to enter into alliances and collaborations with
them, often ending up in mergers.
6.4.2 Competition from International Companies

India followed largely the Import Substitution Policies till 1991 and later opened the field to
international competition. Both these phases have yielded some positive and some negative
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impacts. It is a matter of debate and difference of opinion as to which policy has better served
the interests of the country and the farmers. The Bt cotton has become the bone of contention.
Many argue that cotton productivity improved in the country at a rapid pace and the use of
pesticides declined to result in benefits to the farmers. But the critics point to the loss of
biodiversity and the enormous profits earned by Monsanto and Monsanto Mahyco Biotech
Foundation are at perils to the environment. The resistance by some NGOs is delaying the
commercialization of Bt technology in vegetables like brinjal, cabbage, and cauliflower. The
issue has many dimensions of technology, foreign capital, food safety, and appropriate price
of seeds thereby making it difficult for the Government to arrive at meaningful and
purposeful decisions. Similar are the issues in allowing multinationals in multi-brand retail
trade. This move is temporarily stalled but may soon be allowed.
Fig. 6.3: Possible conflict between agricultural and agri-business policies
In figure 6.3, it is portrayed that both the agricultural and agri-business policies result in the
same increase of 50% in the total income. But, with the agricultural policy, farmers continue
to get the same 70% share in the benefits as earlier (new situation 1) while their share falls to
60% in the benefits in the case of agribusiness policy (new situation 2). Obviously, the policy
favouring the agri-business results in a 40% share in the benefits to the agribusiness sector
when compared to the 30% share which the agri-business was getting earlier.
Check Your Progress 1
Note: a) Use the space given below for your answers.

b) Check your answer with those given at the end of the unit.
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1) Is the use of an oil engine for the lifting of water an agribusiness activity? If yes, why?
and if not, why not?
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2) Do you consider a vermin-compost making unit of a small entrepreneur for the sale of
vermin compost to farmers an agribusiness activity? Why?
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3) Give an example of agricultural policy.

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4) Why permitting of a fertilizer mixing plant is an agribusiness policy?

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5) Whether increasing the Minimum Support Price (MSP) of paddy help the farmers and
the consumers of rice in the same way or in the opposite way?
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6.5 DIMENSIONS OF AGRIBUSINESS POLICY

The Governments have been encouraging the setting up of agribusiness companies ever since
Independence. Initially, when the private sector was hesitant to invest in agribusiness
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companies, the Government of India set up the National Seeds Corporation (1963) and
Fertilizer Corporation of India (1961) in the public sector to produce and supply the seeds
and fertilizers needed by the agriculture sector. It has also established some modern farms
under the State Farms Corporation of India (1969) to demonstrate modern technologies and
to produce the seeds of improved varieties. State Seed Corporations were set up virtually in
all the states to enhance seed production and supply seeds to farmers.
6.5.1 Retention Price Scheme for Fertilizer Companies
One major policy initiative taken by the Government of India was to encourage private and
cooperative investment in the fertilizer industry. After the oil crisis of 1973, the Government
of India introduced the retention price scheme for the production of fertilizers. Each fertilizer
plant’s cost of production would be calculated by allowing 12% post-tax profit on the equity
capital invested in the company. The Government announces the uniform sale price for all
types of fertilizers and the difference between the cost of production and the sale price will be
paid to the plant as a subsidy. This policy helped to nurture the fertilizer industry in the
country and ensured the supply of required fertilizers in the country. The gap between the
demand and supply was bridged by fertilizer imports. Such a stable policy helped in
increasing the production of food grains and other agricultural commodities.
6.5.2 Era of Liberalization
The liberalization policies ushered in 1991 onwards have removed the entry barriers to
agribusiness companies. There is competition between the states to attract investment into
their states. Agri-Export Zones (AEZ) were set up in the states to promote value addition and
exports. A few State governments are either allocating land for the agribusiness companies or
helping them to procure land to set up the agribusiness units. The Ministry of Food
Processing Industries, Government of India is encouraging them by providing capital
subsidies, while the state governments are providing their sales tax exemptions and power
tariff concessions to some extent. The Mega Food Parks that are being set up in some parts of
the country are providing several integrated services to help agribusiness companies prosper.
6.5.3 Research and Development Investments
Several seed companies have invested in Research and Development (R&D) and developed
hybrid varieties. They were protecting their Intellectual Property Rights by trade secrecy
method. The Protection of Plant Varieties and Farmers Rights Act, 2001 has offered
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protection to the intellectual property of the companies and enabled them to register their
novel varieties with the notified authority. The new molecules developed by agrochemical
companies can seek patent protection. This method of providing exclusive marketing rights
on the new molecules offers the companies enough incentive to invest in Research and
Development activities. Similarly, agricultural engineering companies can claim petty patents
for their new machinery designs.
6.5.4 Contract Farming1 and Private Markets
Different methods of contract farming are in vogue in the country. The companies are able to
access agricultural commodities of a specified quality for meeting their marketing/ export or
processing requirements. Since corporate farming is not feasible on a large scale, companies
are resorting to contract farming by providing the farmers with all the necessary quality
inputs to obtain outputs of desired quality. The governments are encouraging such contract
farming arrangements.
As a part of marketing reforms, even private companies and cooperatives are allowed to set
up their own markets. The idea is to promote more competition and choice to farmers to sell
their produce by eliminating the monopoly power of Agricultural Produce Market
Committees (APMCs) presently in vogue. Retail marketing chains can have their own
procurement centers. Even multinational firms may be allowed soon to enter procurement
and retail marketing.
Thus, agribusiness policies are designed to encourage both domestic and international
companies to produce and supply quality inputs to farmers and to take up value addition
activities through the establishment of cold chains, processing, and marketing facilities with
the objectives of minimizing physical losses and improving marketing efficiency.
Activity 2:
Visit a Sugar factory or any other factory or units engaged in Agricultural activities nearer to
your place and talk to factory staff and farmers to know about the terms of contract farming
between the farmers and the factory. What role do commercial banks play to support contract
farming arrangements between the farmers and the factory?
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Please refer to Contact farming ventures in India. A few successful cases, SPICE, Vol. 1, No.4, March, 2003
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6.6 CONFLICTS IN THE IMPLEMENTATION OF AGRIBUSINESS

POLICIES
When agribusiness policies are formulated, they appear to be lofty and beneficial to all. Let
us take the example of regulated markets. At the time of Independence, there were only 272
regulated markets in the country. In most of the markets, the traders were arbitrarily deciding
the prices for different marketing lots of the farmers. The weighing was not proper. Instead of
75 kg, they were placing 77 or 78 kg weights and were paying for 75 kg. The payments to
farmers were often delayed by a week or two or even more. It was thought that by regulating
the functioning of the markets, the competition among the traders can be increased and that
the prices will be determined by open auction or sealed tender method. Correct weighing of
produce and same-day payment to farmers was ensured in regulated markets. The number of
regulated markets had increased to 72000 over the last 75 years or so. But the marketing
problems of farmers largely remained unsolved. There is often collusion between the traders
thereby leading to lower prices paid to farmers. Because of the connivance of the officials of
the marketing department with the traders, the problems of over-weighing and delayed
payments are not eradicated completely. Even when the farmers do not bring their produce to
the regulated market and sell their produce either to traders or processors or exporters, the
produce attracts a marketing fee when it enters the jurisdiction of a particular market.
Because of the monopoly power given to the Agricultural Produce Market Committee
(APMC), the fee is collected without providing any service. The implementation of the policy
of regulated markets has only increased marketing costs. Several APMCs even started
levying entry-free regardless of the facilitation of the sale of produce brought in.
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6.6.1 Failure of Regulation
The Government of India has off late realized that it is the competition and not the regulation
that will benefit the farmers. In order to increase the competition, it has suggested setting up
multiple markets. Even private marketing companies or cooperatives have been enabled to set
up agricultural markets. The Government of India prepared a model marketing act and
circulated it to all the State Governments to amend their Agricultural Produce Market
Committee (APMC) Acts and facilitate setting up more markets. Even the retail marketing
chains are allowed to establish such markets or procurement centers for effective backward
integration. In the present scenario, this appears to be a better policy option.
6.6.2 Apprehension of Exploitation in Private Markets
There is a genuine apprehension that once the policy is implemented, some farmers may
complain of exploitation in the private markets and seek their regulation. Implementation is
as important as the formulation of well-meaning policies. Many good plans and policies in
India are defeated in implementation. Why is the implementation bad?
It is because there are several conflicting interests and the powerful people are able to have
their way. The weak and unorganized farmers are often exploited by the strong and organized
lobbies of traders and officials.
6.6.3 Fear of entry by Multinational Companies
Theoretically, the entry of big firms with the latest technologies and strong finances should
increase competition and lead to better prices for farmers and a better product range for
consumers at competitive prices. But, going by the experience of several countries where
such policies were tried, there is an apprehension that the farmers, consumers, and petty
traders will have to bow before the financial might of marketing giants.
Intellectual Property Rights (IPR): Intellectual Property Rights (IPR) are the rights given
to persons over the creations of their minds. They usually give the creator an exclusive right
over the use of his/her creation for a certain period of time (eg.: 20 years in the case of
patents). Unless there is an incentive of benefiting from exclusive marketing rights,
companies would not make the heavy investments needed for developing a new product.
Research and Development activities are very capital-intensive and there are risks at every
stage of product development and marketing. To induce companies to make heavy and risky
investments, society will have to offer the promise of providing product/ process patents and
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the right of exclusive marketing rights for a specified period under respective laws. As an
example, Du Pont, a chemical company, made substantial investments in the invention of
plastic. That company obtained a patent and made considerable profit by marketing it for
several years. But eventually, the whole world benefited from the use of plastic. In developed
countries, strong IPR protection is provided to encourage R&D activity and to keep the
innovation activity going on. But, in the context of developing countries like India, there is
fear and opposition to a strong IPR regime as it leads to the emergence of monopolies with
exploitative power. Much of the opposition in India to biotechnology comes not so much
because of the technology but because of the ownership of technology by a multinational
giant like Monsanto.

1) In the retention price cum subsidy scheme for fertilizers, how much profit is ensured for
the fertilizer companies?
………………………………………………………………………………………………
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2) Have the liberalization policies restricted or improved the competition between

companies?
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3) Do the Intellectual Property Rights (IPR) promote or inhibit technological progress?

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4) How many regulated markets are established in the country?
15
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5) Which company invented plastic?

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Source: Ministry of Commerce and Industry, GOI, 75th Azadi Ka Amrit Mahotsav.
Activity 3:
Visit a regulated market nearby your place and note down the facilities provided to the
farmers for marketing their produce. Interact with a few farmers and find out the changes
needed for improving the functioning of markets further.
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6.7 CONSTRAINTS IN AGRIBUSINESS SECTOR IN INDIA

Despite rapid growth in the index of commercialization, the agribusiness sector still has a lot
of potential for growth. In the wake of liberalization policies in India, one of the leading
consultancy firms, Mckinsey & Co., came out with a FAIDA report in 1995 in which it was
predicted that the food processing industry in India will grow rapidly at a rate of 15 to 20
percent per year. But the actual growth registered by the food processing industry in India
during the decade of 1995-2005 was only by 6 to 7 percent. The agricultural inputs sub-
16
sector, which includes seeds, fertilizers, pesticides/ insecticides, farm and irrigation
equipment, repair and maintenance services, organic manures, livestock feeds, and fodders,
electricity/ diesel etc. has an annual sales turnover of Rs. 150,000 crores.
India’s agricultural and processed food products exports had grown at a steady pace in the
last decade notwithstanding challenges faced by them in the global trade of commerce.
Exports of products under the APEDA (Agricultural and Processed Food Products Export
Development Authority) basket rose to USD 20,674 million during 2020-21 from USD
17,321 million during 2011-2012.
Cereals (non-basmati rice and wheat) and livestock products exports have a major share in
APEDA’s export basket 2.
APEDA has been engaged with state governments for the implementation of the Agriculture
Export Policy. Several states like Maharashtra, Tamil Nadu, Punjab, Karnataka, and 14 other
states have finalized the State Specific Action plan for exports.
According to World Trade Organisation (WTO) data, India’s Agricultural Exports touched
USD 37,371 million in 2019 against 23,106 million in 2010, recording a compound annual
growth rate of 5.49% during the last 10 years.
The slower than expected growth in the agribusiness sector, in general, and the food
processing sector, in particular, has many reasons:
1. Diversity of Indian Agriculture: India is a sub-continent with a large diversity of

climate, soils, and growing environment. As we move from south to north, the climate
changes from tropical to sub-tropical and to temperate. The soil types change from
sandy red soils (20% area) in the south to black soils in the middle of the country
(about 40% of the area) and to the alluviums in the north (about 40% area). A little
more than one-third of the area is irrigated, while about one-third of the area is rain-
fed but with adequate rain to see through a crop. About one-third of the area is rainfed
with low and highly variable rainfall and the probability of raising a successful crop is
quite low. But because of diverse ecologies and agricultural conditions, many crops
can be grown around the year in some parts of the country or the other. Some fresh
produce of many commodities is always seen in the market but in varying quantities
and prices. Because of this situation, there is a preference for buying agricultural
commodities in fresh form rather than in processed form.
2
Source: Ministry of Commerce & Industry, GoI, 75th Azadi Ka Amrit Mahotsav.
17
2. Non- suitability of produce for Processing: Most of the agricultural commodities
are produced for the fresh market and they are not often suitable for processing. The
varieties suited for processing are different from those meant for the fresh market. The
processing firms have to motivate the farmers to grow varieties suited for processing
through some contract farming or marketing arrangements including private
marketing arrangements.
3. Land laws and small size of farms: The land reform policies were aimed at
providing security to the tiller and tenants. The average size of farm holdings is less
than a hectare with many fragments. Although land leasing is prevalent on a
substantial scale, most of the lease agreements are oral. Large farms are rare and the
scope for corporate farming is very limited. The only possibility of accessing land for
the production of a specific quality of produce is through contract farming. While
there are a few cases of contract farming that stood the test of time, it is difficult to
enforce contract farming on a wide scale. Both the companies as well as farmers may
jump the contracts when the market conditions are favorable to them.
4. Significant costs of the procurement: Due to the dispersed nature and small size of
farms, the cost of supervising the quality of production as well as the cost of
procurement and assembling the produce is substantial. Grading and processing of
agricultural commodities also add to the cost of processed products. Due to the
availability of raw materials for a limited period of a year, the working capital
requirements of food processing firms are enormous. The processing units can be
operated only for a limited period. The interest and depreciation costs per unit
quantity processed goes up because of these reasons.
5. Taxes and overhead costs: The Governments do levy various taxes on processed
foods, as they are considered as luxury and status symbols of consumption for the
well-to-do and rich consumers. The limited period of raw material availability and
operation of the units imposes high fixed costs per unit.
6. High costs of distribution and retailing: The costs of distribution and retailing
margins add up to raise the prices of processed products while trying to reach the
consumers through a network of traders. Costs of packaging, advertising, and brand
building are also substantial. The final prices of processed products are easily three to
five times the comparable cost of fresh produce.
18
7. Widespread sickness: There are many failed enterprises in food processing because
of their inability to market their products at a sufficiently large margin to keep them
floating. For every successful food processing unit, there is at least one failed unit. A
lot of investment remains wasted and remains idle as the sick units close down after a
few years of operation. Policymakers need to devise appropriate policies that can
make at least 70% of the units profitable. Only those companies with financial power
or with foreign collaborations and investments have the capacity to withstand the
losses in the initial years and survive in the market successfully. Many small firms
perish in the competition due to inefficient technology, inability to build brands, and
inadequate financial base.

1) Which is the report that raised a lot of expectations about the food processing sector in
India?
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2) What is the average size of a farm in India?

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3) What problems do the agribusiness units face due to the seasonal availability of raw
materials?
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4) What do you understand by contract farming?
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5) What is the estimated annual sales turnover of the agricultural inputs sub-sector in India?
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6.8 GOVERNMENT SUPPORT TO FOOD PROCESSING AND

AGRIBUSINESS SECTORS
The Government of India has set up a Ministry of Food Processing in 1988 with a view to
developing a strong and vibrant food processing industry in the Country. It is responsible for
the formulation and administration of the rules, laws, and regulations relating to the food
processing industry. It acts as a catalyst and facilitator for attracting domestic and foreign
investments towards developing large integrated processing facilities and in creating a
conducive policy environment, including rationalization of taxes and duties. It processes the
applications for setting up Export-Oriented Units (EOUs). It deals with fruits and vegetable
processing industries, the food grain milling industry, the dairy industry, the processing of
eggs and poultry, meat and meat products, fish processing, confectionary units, convenience
foods, Oil seed, and oil meal processing, beer, alcoholic drinks, aerated waters, soft drinks,
specialized packaging and technical assistance to the food processing industry. It also works
closely with promotional bodies like Agricultural Products Export Development Authority
(APEDA), Marine Products Export Development Authority (MPEDA), Coffee Board, Tea
Board, Cashew Board, National Horticulture Board (NHB), National Research Development
Corporation (NRDC) and National Cooperative Development Corporation (NCDC), National
Dairy Development Board (NDDB).
Despite all the encouragement given to the food processing industry and the rising per capita
incomes of the people over the last two decades, the level of processing remains quite low,
particularly in the case of fruits and vegetables. Only about 2 to 3 percent of fruits and
vegetables in India are processed. It is much lower compared to other countries like the
Philippines (78 percent), the United States (65 percent), and China (23 percent), etc., India’s
20
production accounts for about 9% of world fruit production and 11% of world vegetable
production. The share of fruits and vegetables processed in India is much less when
compared to other agricultural products such as milk (35%) and marine products (26%). Lack
of processing and storage facilities in the case of fruits and vegetables results in huge
wastages estimated at 35% of production in physical terms and valued at Rs. 33,000 crores
per year in value terms. The vision 2015 statement developed by the Government proposed to
increase the processing level of perishables from 6% to 20%; value addition from 20% to
35% and the share in global agricultural trade from 1.5% to 3%. The investment requirements
of the food processing industry during 2005-15 were estimated at Rs. 100,000 crores. The
private sector was expected to invest Rs. 45,000 crores and raise Rs. 45,000 crores from the
financial institutions, with the Government sector putting in the remaining Rs. 10,000 crores
towards the infrastructure and incentives. During the eleventh plan period, the Government
outlay for this sector was fixed at Rs. 5, 006 crores. During the twelfth plan period, the
Ministry of food processing sought an allocation of Rs. 15, 000 crore for the food processing
sector. The Government of India proposed to set up a Mission on Food Processing in
partnership with the state governments during the twelfth five-year plan period.
Activity 4:
Visit an agro-processing unit in your area and find out how many days in a year it is
operating and the constraints it is facing towards increasing its turnover and profitability.
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6.9 IMPROVING AGRIBUSINESS ENVIRONMENT
21
As the population grows, we need to improve the production-oriented technologies and
quality of inputs used in agriculture to meet the growing food requirements, both in quantity,
quality, and variety. The wastages in storage, processing, and transportation have to be
drastically minimized by making investments in cold chains, rural warehouses, and improved
processing technologies. The proposed Mission on Food Processing should help in improving
the efficiency of the food processing sector in particular and the agribusiness sector in
general. The government should also act on the policy front to reduce sickness in the
agribusiness sector. Contract farming has to be promoted in a big way to benefit the farmers
as well as the food processing firms. Marketing reforms have to be pursued to improve
competition and to increase the share of the farmer in the consumer’s sale price. For a few
years, Governments should resist the temptation to tax processed farm products. The growth
in agricultural production and agribusiness sectors is crucial to maintain growth momentum
in the economy and also to ensuring food and nutrition security to the people in general and
the poorer sections of the population in particular. Hundreds of institutions are offering
courses in agribusiness management to supply trained manpower to agribusiness firms and
public sector entities to pursue their business plans. Appropriate risk-sharing and insurance
schemes have to be devised to share the greater risks inherent in agriculture and agribusiness
by the society and economy at large. Let us hope that all these initiatives will improve the
agribusiness environment and remove the constraints faced by agribusiness firms to a
considerable extent.
6.10 INDIAN FOOD PROCESSING INDUSTRY: CURRENT

SCENARIO
Indian Food Processing Industry is the world’s second-largest producer of food next only to
China. The Indian Food Processing Industry accounts for 32% of the total food market. The
Government of India has played a very major role in increasing the said share.
During the last five years ending 2019-20, the Food Processing Industries sector has been
growing at an annual growth rate of around 11.18%. As per the Annual Survey of Industries
(ASI) 2018-19, Indian food processing was ranked 1 st in total persons engaged in the
manufacturing sector.
Under PMKSY, 41 Maha Food Parks, 348 Cold Chain Projects, 68 Agro-Processing Clusters,
281 proposals under creation/expansion of Food Processing and Preservation Capacities
(CEFPPC), etc. across the country stand approved.
22
The key sub-segments of Food Processing in Industry inter-alia, inched: Poultry and Meat
Processing, Fruits and vegetables, Fish and fishery Products, and Food Retailing, Dairy
Industry.
India’s Food Processing Sector is one of the largest in the world and its output is expected to
reach USD 535 billion by 2025-26.
The new initiatives like a planned infrastructure spend of around Rs.100/- lakh crore (around
$ 1 Trn.) and Rs.25 lakh crore to boost the rural economy have put the food processing sector
on a high growth path.
6.11 LET US SUM UP

Agriculture in India has a long history but it remained largely traditional till the time of
Independence. But the population pressure and the desire to attain self-sufficiency have seen
the country pass through green, white, blue, and brown revolutions and many modern
agricultural inputs are being used by the farmers. Production and supply of new agricultural
inputs and processing of agricultural produce for value addition required the development of
agribusiness in the country on a very large scale. Initially, domestic agribusiness firms
received the support of the Union and state governments, but many multinational companies
have entered the scene after the advent of the era of liberalization policies. Initially, the
governments emphasized more on the regulation of the agricultural markets but have shifted
the stance more toward promoting competition. It was expected that the agribusiness sector
would develop by leaps and bounds but the actual growth has been much slower than
anticipated. A good number of constraints are limiting the growth of agribusiness in India. In
general, the Governments are supportive of value addition activities by agribusiness firms but
they are apprehensive about the monopoly control and exploitation by agribusiness firms in
general and multi-national firms in particular. Governments have implemented several
agricultural policies in the past, but recent policies are favoring the development of
agribusiness. Some conflicts may arise between the interests of the farmers and those of the
agribusiness firms. The governments have to balance the interests of both the farmers and
agribusiness firms to ensure the development of production as well as value addition
activities in agriculture.
6.12 KEYWORDS
Agriculture : Farming, Cultivation, Crop growing.
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Agribusiness : Is a generic term for the various businesses involved in food
production, seed supply, agrichemicals, farm machinery,
wholesale and distribution, processing, marketing, and retail
sales.
Intellectual property : It is any creative work or invention considered to be the

property of its creator. Often, intellectual property rights are
recognized and protected under the corresponding fields of law.
Liberalization : It is a very broad term that usually refers to fewer government

regulations and restrictions to encourage faster growth.
Policy : A principle or rule to guide decisions and achieve desired

outcomes.
Regulation : A principle, rule, or law designed to control or govern the

conduct of the persons or companies.
6.13 SUGGESTED FURTHER READINGS / REFERENCES

1. Choudhary S.N (2012). Agri-Business Marketing and Management, Oxford Book
Company, New Delhi.
2. Choudhary S.N (2012). Agri-Business Marketing and Management, Oxford Book

Company, New Delhi.
3. Myers Peter and Peter Hansford (1999). Opportunities for Agribusiness in India
Agribusiness Initiative, Primary Industries Division, Department of Natural Resources &
Environment, Government of Australia.
4. Sivakumar,S (2007). Agri-business investments in India- Paper presented at the seminar

on US-India Agricultural Knowledge Initiative, ICRIER, New Delhi, 30 th April, 2007.
5. Sivakumar,S (2007). Agri-business investments in India- Paper presented at the seminar

on US-India Agricultural Knowledge Initiative, ICRIER, New Delhi, 30th April, 2007.
6. Tewari, Deepali and Mukesh Pandey (2010). The Agri-business book : A Marketing &
Value chain Perspective, Riddhi International, New Delhi.
6.14 ANSWERS TO CHECK YOUR PROGRESS

24
1. It is an agricultural activity because the farmer is using the oil engine to lift water and
irrigate his field.
2. It is an agri-business activity because the entrepreneur is producing the vermin compost

to farmers at a profit.
3. The interest subvention scheme of the Government of India is aimed at reducing the
interest burden of the farmers. This is an agricultural policy formulated to increase
production.
4. Permitting a fertilizer mixing plant is an agri-business policy as it augments the supply

of fertilizers to the famers.
5. Increasing the minimum support price of paddy helps the farmers but it hurts the
consumers by raising the price of rice in the market.
1. 12 percent profit after tax.
2. Liberalization policies promote competition between the incumbent and new companies.
3. Intellectual property rights encourage firms to invest more in research and development
which contributes to technological progress.
4. More than 72 thousand regulated markets are established in the country after the
Independence.
5. Du Pont invented plastic.
1. FAIDA report prepared by Mc Kinsey raised expectations about the development of the
food processing sector in India.
2. The average size of a farm in India is about one hectare.
3. Due to the seasonal availability of raw materials, the interest and depreciation costs of
agribusiness companies go up.
4. A farmer producing to supply a commodity of specific standards at a pre-determined

price to a company is called contract farming.
5. Rs 150,000 crores
25
UNIT 7 MARKETING AND PRICING POLICIES
Structure
7.0 Objectives
7.1 Introduction
7.2 Role of Agricultural Prices in the Indian Economy
7.2.1 Resource Allocation
7.2.2 Income Distribution
7.2.3 Capital Formation
7.3 Role of Agricultural Marketing
7.3.1 Evolution of Agricultural Markets
7.3.2 Market Manipulation
7.3.3 Inefficiency in Markets
7.4 Evolution of Agricultural Price and Marketing Policies
7.4.1 Agricultural Price Policy
7.4.2 Agricultural Marketing Policies
7.4.3 Restrictions on the Movement of Agricultural Produce
7.5 Impact of Agricultural Price and Marketing Policies
7.5.1 Relationship between Minimum Support Price and Open Market Price
7.5.2 Impact of Agricultural Marketing Interventions
7.6 Farm Laws
7.7 Public Distribution System (PDS) and Its Role
7.7.1 Growth of Public Distribution System (PDS)
7.7.2 Providing Economic Access to Food
7.7.3 Ensuring Food Security
7.8 Improving the Agricultural Marketing Infrastructure
7.8.1 Emphasis on Regulation
7.8.2 Focus on Competition
7.9 Role of Information in Marketing
7.9.1 Governments Efforts for Providing Market Information
7.9.2 Cob-Web Phenomenon
7.10 Reforms for Improving the Agricultural Marketing and Price Policies
7.10.1 Trade-off between Short and Long Term Interests
7.10.2 Focus of Agricultural Marketing Policies
1
7.11 Let Us Sum Up
7.12 Keywords
7.13 Suggested Further Readings/ References
7.0 OBJECTIVES
After going through this unit, the learner shall be able to:
 explain the role of agricultural prices in the economy;
 highlight the importance of agricultural marketing;
 discuss the impact of agricultural price and marketing policies;
 identify the role of the Public Distribution System in India;
 describe the need for bringing improvement in marketing infrastructure and,
 discuss the reforms needed for improving agricultural marketing and price policies.
7.1 INTRODUCTION
Agricultural prices play a major role in influencing the resource allocation, income
distribution, and capital formation of an economy. Agricultural marketing is crucial in
moving agricultural produce to the doorsteps of consumers at the least cost possible and the
farmers get a big share in the price paid by consumers as possible. The Governments have
started announcing the Minimum Support Prices for about 25 major agricultural commodities
and are backing them up through procurement. But most of the quick perishables
commodities are not covered by such policies and are left to the market situation for price
determination. Agricultural Price Policy has largely helped the farmers towards producing
more quantity of goods without fear of drastic fall in prices during periods of excess supply.
Agricultural marketing has initially focused on regulation through the formation of
Agricultural Produce Market Committees (APMCs). The regulated markets have been able to
create physical facilities. The regulated markets are successful in breaking the monopoly
power of traders in influencing the prices to some extent only. In the recent past, the focus is
shifted towards increasing competition by encouraging even private markets. Procurement,
storage, and transportation by the public sector agencies have provided the backup to the
huge Public Distribution systems in the country, which is providing physical access to food to
the genuinely needy people. Governments have been subsidizing food to the poorer sections
of the consumers and are presently trying to ensure food security for the vulnerable sections
2
of society. The Indian parliament enacted the National Food Security Act in the year 2013,
with the objectives to (a) provide for food and nutritional security in the human life cycle
approach, and (b) by ensuring access to adequate quantity of quality food at affordable prices
to people to live a life with dignity, etc. This Unit discusses the evolution and impact of
pricing, marketing policies, and the role of the public distribution system in providing food
security to the poor.
7.2 ROLE OF AGRICULTURAL PRICES IN THE INDIAN

ECONOMY
Agricultural prices in India have three major roles to perform in the economy as detailed
below:
a) To have a bearing on the allocation of resources between sectors and commodities within
the agricultural sector.
b) To impact the income distribution between the agricultural producers and other sections
of rural and urban people.
c) To influence the capital formation in the agricultural sector vis-a-vis the other sectors of
the economy.
7.2.1 Resource Allocation

The level of agricultural prices decides the extent of land, labor, capital, and entrepreneurship
that are required to be allocated to agriculture when compared with other sectors of the
economy. The higher the level of agricultural prices, the greater will be the proportion of the
basic production-related resources required to be employed in agriculture. By nature, most of
the land is allocated to agriculture, even though the share of land allocated for industry,
business, housing, recreation, and infrastructure development is also increasing over time.
Traditionally, most of the rural workforce is employed in the agriculture sector due to
excessive dependence on agricultural land, illiteracy, lack of skills needed in other sectors,
and costs of mobility. But the share of capital employed in agriculture certainly is influenced
by the level of agricultural prices. A higher level of agricultural prices means better recovery
of costs and returns in the agricultural sector. If the rate of return on the capital employed in
the agriculture sector is higher than the same in other sectors, more capital will be deployed
in agriculture. In the same way, most of the land and rural labor will be retained in
agriculture, reducing the migration to cities and towns.
3
The role of agricultural prices will be more pronounced in the case of the allocation of
resources between different crops, livestock, fish, and forest products. You might have seen
that the price of onions and tomatoes sometimes goes up to as high as Rs.80 per kg or more
and sometimes goes down to as low as Rs.5 per kg or even lower. It is because of the
mismatch between demand and supply that responds to the expected price. Reduction in the
supply of agricultural commodities drives up the price and the excess supply drives it down.
Price expectations influence the acreage allocations and intensity of labor and capital
employed in the production of a particular commodity. The price expectations depend upon
past price behavior and profits/losses earned.
7.2.2 Income Distribution

Higher agricultural prices at the farm gate level will lead to higher incomes in the hand of the
agricultural producers. On the contrary, higher prices will lead to an increase in the payment
of agricultural wages and the incomes of agricultural workers. Similarly, the services of the
rural craftsmen will be better rewarded. Thus, higher levels of agricultural prices would
improve better living standards for the farmers, agricultural laborers, and rural craftsmen.
However, the lower and non-remunerative prices, as observed in recent times, shall lead to
low levels of living standards, and mounting debts, forcing the farmers to resort to the
extreme step of committing suicide. The income distribution among the producers of
different commodities like rice, wheat, jowar, maize, cotton, ground nut, mustard, red gram,
milk, eggs, meat, fish, silk, etc., is influenced by their relative prices,
7.2.3 Capital Formation
Capital formation is very important for the development of the agriculture sector just as in the
case of industry, trade, services, banking, hotel, tourism, etc., Farmers need to invest in farm
buildings and equipment viz. irrigation wells, tractors, threshing machines, spray machines,
fencing, etc., for improving the productivity of farm products in the long run. If the
agricultural prices remain high for some years, farmers will have some savings and will have
an incentive to invest in long-term assets in the hope of realizing sustained earnings/surplus.
Farmers will also be able to invest in the health and education of family members, which will
be an investment in human capital. But if the agricultural prices remain low, farmers will
have no surplus, hence, will not venture to invest in capital assets.
4
Thus, the level of agricultural prices is very crucial in deciding the resource allocation,
income distribution, and capital formation within the agricultural sector as well as between
different sectors of the economy.
7.3 ROLE OF AGRICULTURAL MARKETING

Agricultural marketing may simply mean buying and selling farm produces. Agriculture
marketing in its broadest sense refers to the sale of farm produce generated by farmers as well
as agricultural inputs used in the production of farm produce. The agriculture marketing
system serves as a link between agricultural and non-agricultural sectors. Agriculture
marketing is important not just for increasing productivity and consumption, but also for
accelerating economic growth. Agriculture marketing may refer to the study of all related
activities agencies and policies involved in farmers procuring farm inputs and agricultural
products making from farms to consumers. The determination of prices when the demand and
supply forces interact is very crucial for the distribution of income and commodities between
people. Agricultural deals with commodities that are bulky in nature. To move agricultural
goods physically to the market and store the products when the prices are low are difficult
tasks. In the absence of markets, farmers were following the strategy of subsistence farming.
They were trying to produce most of their requirements like food grains, pulse, oilseeds,
cotton, eggs, meat products, etc., for their own consumption rather than for sale. This strategy
of subsistence farming was strenuous as they had to produce several products. Farmers
evolved a method of the barter exchange system in the local markets to make their life easier.
In this method, farmers would exchange their surplus products with others and they evolve
some ratios of exchange based on the relative effort involved in the production of
commodities. As the communications and modes of transport improved between places, even
the barter exchange was found less convenient.
7.3.1 Evolution of Agricultural Markets

The farmers of a particular area may have a comparative advantage in the production of some
commodities which limits the opportunities for barter exchange. The practice of weekly fairs
gained importance such that the farmers could move their commodities to longer distances
and exchange them with others who have some useful products to give in exchange. The
evolution of money as a medium of exchange has facilitated the exchange of goods but built a
haze of uncertainty on the ratios of exchange. The traders who know what a commodity can
5
fetch in distant markets would buy it at a cheaper rate in one market and sell it dearer in
distant markets, thus making a surplus.
7.3.2 Market Manipulation

Since the bulk of production of a particular commodity comes to the market within a short
period of time eg. 3-6 months the prices tend to move lower. The farm harvest prices, the
average prices realized by the farmers during the harvest period, are generally low and they
tend to go up as the traders buy and store them or move them to distant places. The surplus
earned by the traders is far higher than what is justified by the storage or transportation costs
incurred by them. Usually, the wedge between the prices received by the farmers and those
paid by the consumers is very wide when compared with the marketing, storage, processing,
and transportation costs incurred by them. These extra-normal profits flowing from
speculation and manipulation of markets are being sought to be reduced through policy
interventions by the government in agricultural marketing. The barometer for the success of
agricultural marketing policies is the reduction in the marketing costs and margins coupled
with an increase in the share of a farmer in the price paid by consumers.
7.3.3 Inefficiency in Markets

It is often argued that the chain of agricultural marketing is too long and, hence, the
marketing costs and margins of various functionaries add up to the high cost. The farmers get
a smaller share of the consumer’s rupee because of the inefficient marketing chain. But the
long chain argument explains only a part of the huge difference between the price paid by the
consumer and the same received by the farmer. The remaining part is due to collusion
between traders and their speculative and manipulative practices. While the diagnosis of the
problems in agricultural marketing is very elaborate and much highlighted, the actual
prescriptions to cure the ills did not work well so far.
Activity 1:
Visit a nearby agricultural market and observe how the prices of agricultural products are
decided. Record your impressions on competition/collusion between the traders and whether
the marketing officials and commission agents are helping the farmers to realize remunerative
prices.
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7.4 EVOLUTION OF AGRICULTURAL PRICE AND MARKETING

POLICIES
During the initial decades of Indian independence, it was the situation that the Indian farmers
had limited cash needs because of the subsistence nature of farming and they will sell a larger
part of their production if the agricultural prices are lower and they need to sell a smaller part
of their produce if the agricultural prices are higher. This perverse behavior attributed to
Indian farmers dominated the policymakers to follow a “negative” price policy. But the
empirical evidence brought in the early 1960s reverted the above fallacious theory and laid
the foundations for a “positive” price policy. It is widely accepted that there is nothing
perverse about the behavior of Indian farmers and that they respond positively and
significantly to price changes. Higher prices will motivate them to produce more.
7.4.1 Agricultural Price Policy

The setting up of the Agricultural Prices Commission (which was later named as Commission
on Agricultural Costs and Prices (CACP)) and the institution of a mechanism to monitor the
costs of production of different agricultural commodities covered by the price policy in the
important and major agricultural crop growing states of the country. This commission arrives
at a weighted average cost of production for the commodities in question and recommends a
‘Minimum Support Price’ (MSP). The Government is supposed to consider the
recommendations of the Commission and announce the MSPs for the commodities covered
by the price policy around the time of sowing. The Government set up the Food Corporation
of India’(FCI) in the year 1964 with the primary objective to procure food grains from
farmers or traders and maintain a buffer stock of food grains to meet the requirements of the
Public Distribution System. As and when the market prices fell below the MSPs, the FCI
steps in, to the rescue of the farmers and procures the commodities at the MSPs. Thus the
MSPs serve as the floor prices so that the farmers could produce more without the fear of
7
falling prices. But if the market prices rule above the MSPs during the years of scarcity, the
Government may have to offer higher ‘procurement prices’ than the MSPs to procure the
quantities needed for public distribution. The Government also decides the ‘Issue prices’ of
commodities at which the FCI releases them to the Public Distribution System (PDS). Thus,
the CACP, FCI Minimum Support Prices, Procurement Prices, and Issue Prices form the
important institutional mechanism of agricultural price policy in the country.
7.4.2 Agricultural Marketing Policies

After Independence, Union and State Governments relied upon ‘regulation’ of agricultural
markets to improve the functioning of agricultural markets. A number of Agricultural
Produce Market Committees (APMCs) were formed to function as watchdogs of the
agricultural markets with the help of the functionaries of the state marketing departments.
The number of regulated markets in the country increased from 272 at the time of
Independence to more than 7000 by now. This includes 2477 principal regulated markets and
4850 sub-market yards regulated by APMCs. Besides these, more than 20, 000 weekly
markets and fairs are also functioning. About one-third of these weekly markets and fairs
were also brought under the frame of regulation. The regulated markets were supposed to
curb the malpractices like excess weighing, delayed payments, and arbitrary methods of price
fixation. The marketing lots brought by the farmers are supposed to be sold either by open
auction or sealed tenders. But the hopes and expectations from regulated markets did not
materialize. While some of them function satisfactorily, some others do not function well.
Some are defunct. The assemblers and traders directly procure the commodities from the
farmers in the villages and sell them in distant markets or to processors or wholesalers or
exporters. But when the commodities cross the check posts of the market committees, they
have to pay the market fee although the goods do not pass through the markets and no service
is received. This gives monopoly power to the APMCs which is often used to increase the
marketing costs and not to reduce them. Traders, marketing department personnel, and
APMC office-bearers collude quite often and try to exploit the farmers.
7.4.3 Restrictions on the Movement of Agricultural Produce

The state governments started placing restrictions on the movement of agricultural
commodities between and within states, between and within districts, and, sometimes, even
between one part of the district to another part of the same district. These restrictions are
imposed in the initial years of independence to ensure the supply of commodities in the
districts and states to protect the interests of the consumers. Some of these restrictions were
8
felt needed even in the 1960s when food shortages were rampant. But the same restrictions
continued even after the situation transformed into a surplus scenario due to the emergence of
the green, white and blue revolution. These movement restrictions depress the prices and
limit the freedom of the farmers. They hampered the development of a national market for
agricultural commodities. The markets remained segmented and controlled even when there
is no justification for the same.

1) Why the farmers are unable to invest in farm development when the prices of wheat are
low?
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2) If the minimum support price of rapeseed- mustard is increased but that of Bengal gram
is not increased, what will happen to the area allocated by the farmers to Bengal gram?
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3) What is the basis for mixing the minimum support price for agricultural commodities
covered by agricultural price policy?
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Activity 2:
Go to a village near your place and talk to a group of farmers to know what is their cost of
producing one quintal of paddy/groundnut/red gram and how it compares with the minimum
support price announced by the government.
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7.5 IMPACT OF AGRICULTURAL PRICE AND MARKETING

POLICIES
If we look back and assess the impact of agricultural price and marketing policies on
agricultural commodities in the country, we can safely conclude that they helped the farm
sector to some extent but they did not succeed in removing the constraints and problems
faced by the farmers in a significant manner. The fixation and announcement of MSPs have
created a psychological floor to market prices. Before 1965 i.e. creation of FCI, it was quite
common for the market prices to fall drastically whenever there is an expectation of bumper
harvest and production. But the declaration of MSP and the prospect of intervention by the
FCI have changed this trend to a large extent. It does not mean that FCI is always effectively
intervening in the market whenever the market price tends to fall below the MSP. It is
generally intervening in the states producing surplus agricultural commodities in most of the
years. But the same can not be said in the case of deficit states. And, the intervention is
largely confined to rice and wheat. Very rarely does the FCI intervene in the case of coarse
grains, Sorghum, or Millet even when their market prices fall below the MSP. FCI’s
operations in the surplus states like Punjab, Haryana, Uttar Pradesh, Andhra Pradesh, and
Tamil Nadu are targeted to procure rice and wheat for the PDS requirements in the deficit
states.
7.5.1 Relationship between Minimum Support Price (MSP) and Open

Market Price
The market prices during the past several years remained a little above the MSPs and
procurement is done at procurement prices through a compulsory levy on rice millers in the
10
case of paddy and wholesalers in the case of wheat. In a few years, market prices fall below
MSPs and the state governments have to lobby with the Union Government to procure the
grains at MSP during such period FCI does the procurement at MSP after imposing cuts for
moisture, chaff, discoloration, and other quality parameters. When natural calamities like
floods, typhoons, and heavy rains damage crops, farmers get very low prices, hence, farmers
are adversely affected very much. But in the absence of FCI or State Corporations, farmers
had received even lower prices in the traditional markets. Thus, due to the agricultural price
policy and also the timely intervention of the Government procurement agencies, the farmers
immensely benefited. However, the FCI and state procurement agencies by and large are
riddled with corruption, inefficiency, wastage, and low operational efficiency. In the wake of
liberalization policies that began in 1991, the Union Government is trying to reduce the food
stocks and gradually transfer the primary responsibility of procurement, storage, and stock
holding to the state governments by offering necessary financial help. But the states have
resisted this move by pointing out that the agricultural price policy and its implementation is
the primary responsibility of the union government. The inefficient handling of the operations
by the FCI is adding to the burden of food subsidies. The National Food Security Act passed
in the year 2013, intending to provide subsidized food grains to the needy people of the
country had added to the responsibility of the Union Government. Some states have refused
to share the burden of food security as provided under the Act, 2013 on the plea that it is a
welfare measure initiated by the Union Government.
7.5.2 Impact of Agricultural Marketing Interventions

State intervention in agricultural markets is regarded as counter-productive since it promotes
harassment of traders, and makes the government the biggest procurer of food grains. The
Economic survey noted that on the one hand, the country has surplus farm output and at the
same time the sector is governed by laws such as the Essential Commodities Act of 1955 and
FCI Act of 1964 enacted during the food scarcity era.
The impact of agricultural marketing policies can not be rated, at least, as positive as that of
agricultural price policies. Only about one-fourth of the markets are functioning regularly.
But many markets function only in the peak seasons of crop arrivals. The marketing
infrastructure is grossly inadequate and farmers are not happy at all with their functioning. A
substantial number of markets exist only in papers and farmers bypass them. But even these
have market committees and officials to collect the market fee when the commodities are
transported beyond their sphere of operation. Farmers express resentment towards these
11
markets for collecting fees without offering any service. The monopoly power acquired by
these market committees and officials has become counter-productive and exploitative.
Overall, farmers are unhappy with the functioning of agricultural marketing policies as
symbolized by the agricultural market committees and their market yards. The Government
of India has been trying to reform the agricultural marketing system for the last couple of
decades. The burden of expectations from the agricultural marketing system was so heavy
that it could not carry it well. The attempt made by the Government in the year 2020 to enact
two new laws i.e. (i) to create a national framework for contract farming through an
agreement to be made between farmer and buyer and (ii) to permit Intra and interstate trade
of farmers produce faced severe opposition from farmers across the country. Even the
attempt made to bring change in the Essential Commodities Act, 1955 to ensure delivery of
certain commodities, etc. was equally questioned. Ultimately, the government had to repeal
the said three controversial laws. Finally, the traders emerged still powerful. They are able to
penetrate the functions of processing, storage, and transportation. The hope that the officials
of the marketing department will be able to protect the interests of the farmers and consumers
has been washed away. They find it easy to collude with traders and local politicians and
share the spoils rather than standing on the side of the farmers. All the inefficiencies in
agricultural marketing add up to the marketing cost and to the final price that the consumers
have to pay. A number of small traders and service providers hang on to the system without
adding any benefit but contributing to the cost escalation. The elaborate marketing chain
remains an enigma as it could not be broken or shortened with seventy-odd years of reform
and regulation. Now and then, some cooperative marketing, processing, production, &
distribution units, some innovators, and some officials embark upon new initiatives and they
appear to be path-breaking and worth emulating for some time. But they failed to make a big
mark on the entire system and wither away with a change of persons at the helm of affairs. It
is a pity that some of these promising initiatives have not been absorbed and emulated by the
agricultural marketing system in India in a big way. While one may express dissatisfaction
over the agricultural marketing policies that did not perceptibly improve the system, it should
be admitted that there is an improvement in the marketing infrastructure, practices and
operation to some extent.

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1) How many markets were brought under regulation after Independence?
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2) What is the effect of having a long chain of intermediaries in the agricultural marketing
system?
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3) Why the farmers’ organizations and researchers not happy with the impact of
agricultural price and marketing policies?
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Activity 3:
Visit a weekly agricultural market or fair and list out the reasons why they are popular with
the people and what problems are noted there.
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7.6 FARM LAWS
The Indian parliament passed three important laws in September 2020 as detailed below:
1. Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020. The
primary objective of this law was to create a national framework for contract farming
through an agreement between the farmers and a buyer prior to the production or
rearing of any farm produce.
2. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm

Services Act, 2020. The primary objective of this law was to permit Intra and
interstate trade of markets produce beyond the physical premises of APMC markets
and other markets notified under the state APMC Acts.
3. Essential Commodities (Amendment) Act, 2020. This law aimed to amend the law
passed in the year 1955 on the same subject to ensure the delivery of certain
commodities or products, the supply of which if obstructed owing to hoarding or
block marketing would affect the normal life of people.
Farmers across the country had been protesting against these laws even before and during
the preparatory stage of these laws. The common man believed that these laws will
benefit only very big farmers and large corporate houses and ultimately hurt small and
marginal farmers. Even the Supreme Court of India had to step in to resolve the deadlock
by constituting a Committee to look into the broader aspects affecting the common man.
Ultimately the government with the intention to give due respect to the sentiments of the
people of the country had repealed the said three laws w.e.f. November 19, 2021.
7.7 PUBLIC DISTRIBUTION SYSTEM (PDS) AND ITS ROLE

The origin of the Public Distribution System in India can be traced back to the Second World
War period, wherein there were shortages of essential commodities in the country. To
overcome such a grave situation, the British rulers resorted to rationing essential agricultural
goods in some cities. But after Independence, it has grown rapidly and covered the entire
country now. In the initial decades of independence, there was an acute shortage of food
grains, and the distribution system was confined mainly to the urban areas. Only rice and
wheat were supplied in limited quantities at subsidized prices. Later it was expanded to the
rural areas and all the states and union territories. Gradually, the coverage of commodities
under PDS extended to sugar, kerosene, edible oils, pulses, and in a few places processed
14
foods also. Cooking gas is also supplied to consumers through the outlets of oil and gas
marketing companies functioning in the public sector. The Food Corporation of India (FCI)
and the State Civil Supplies Corporations facilitate the Public Distribution System with the
materials. They first procure the grains and other commodities from rice millers, wholesale
traders, and other supply agencies. They also hold adequate stocks to meet the lean and
emergency period requirements as precautionary measures. Stocks are carried to the next
season to tide over shortages resulting from bad or erratic monsoons. FCI moves the grains
from surplus states to deficit states through rail and road transport. When shortages are
anticipated, food grains and other commodities are also imported into the country through
specialized agencies and trading houses. In the same way, commodities are exported to other
countries to ease the congestion in storage structures.
7.7.1 Growth of the Public Distribution System (PDS)

The elaborate network of procurement, storage, transport, and export/ import stands behind
the Public Distribution System in the country. These operations are as important as the
production of commodities for effectively reaching the consumers spread over all the nooks
and corners of the country. India has largely succeeded in insulating the people from the
effects of droughts and floods through food procurement storage and distribution through
Public Distribution System. During British rule, it was quite common to experience the
shocks of famines, virtually, every third or fourth year in some part of the country or the
other. After Independence, the Union and State Governments have been able to prevent
severe droughts from developing into famines and starvation deaths. While undernutrition
and malnutrition remain constrained to some extent, starvation deaths have been eradicated to
a large extent. The physical access to essential food grains has been improved by the
procurement, storage, and public distribution networks built across the country.
7.7.2 Providing Economic Access to Food

The Union and State governments have also concentrated on the welfare aspects and on
translating physical access into economic access. As a natural corollary, the income
distribution has only benefited the rich, particularly after embracing the policies of
liberalization, privatization, and globalization since 1991. The efforts of the governments
through several welfare measures have succeeded in reducing the extent of poverty to some
extent, but not absolute poverty. Many people are unable to participate in the process of
development and share the benefits of the rapid economic growth that took place in the last
few decades. The Union and State Governments are trying to protect weaker and socio-
15
economically disadvantaged sections by offering some basic essential commodities to them at
subsidized rates. The Public Distribution System is supplying essential commodities to all the
consumers covered under this system at less than the economic cost. Thus, there is an
inherent subsidy inbuilt into the system even when the commodities are bought by the
relatively upper state of the communities. This is ensured by keeping the issue prices lower.
For the economically weaker sections, the Public Distribution System supplies the food
grains at 50% of the economic cost or even lower. There is an Antyodaya Anna Yojana
(AAY) scheme under which the poorest of the poor can get about 25 kg of wheat at Rs. 2 per
kg or rice at Rs. 3 per kg during a month. There is the Annapurna scheme which supplies
foodgrains to destitute families even cheaper than in the AAY scheme. Some of the state
governments are supplying basic food grains at nominal prices as their contribution to the
welfare of the poor people. In this era of competitive populism, some limited quantities of
food grains are supplied even free of cost by some of the states.
7.7.3 Ensuring Food Security

The Union Government has recently passed the National Food Security Act, in the year 2013.
It covers up to 75% of the rural population and 50% of the urban population under the AAY
which covers the poorest of the poor. About two-thirds of the population in the country are
covered under this law. As per this law:
(a) Every person belonging to a priority household will be entitled to receive 5 k.g. of
food grains per person per month at the subsidized price specified in schedule-I and
from the state government under targeted PDS.
(b) The household covered under AAY will be entitled to 35 k.g. of food grains per
household per month and subsidized prices specified in schedule-I. Under this law,
Rice (at Rs. 3 per kg) or wheat (at Rs. 2 per kg), or Coarse Grains (at Rs. 1 per kg)
can be accessed for a period of 3 years and thereafter, at price fixed by the central
government. The subsidy cost of this scheme is estimated at Rs. 90,000 crores. The
procurement target has to be doubled to back up this scheme. The agricultural
production has to be increased to at least 300 million tons to procure the grains
needed for this scheme. The Public Distribution System has to be diversified and
strengthened to reach such a large number of target beneficiaries.
The procurement, storage, transportation, and distribution networks have to be speeded up to

support such an ambitious food security scheme.
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The long experience of the Government in handling procurement, storage, transportation, and
distribution over the last 70 years has given the confidence that food security can be ensured
to the people of the country. The estimates of poverty in the country tell us that less than one-
third or one-fourth of the people in the country are only living below the poverty line. Yet,
the target population for food security is set at two-thirds. Such a liberal target is to avoid
errors of omission even at the risk of committing errors of commission. The idea is to
eradicate hunger, reduce malnutrition, and improve the Human Development Index. The
country is confident of bearing the cost of food subsidies from the tax and non-tax revenues
and public debt.
But the Public Distribution System has to be revamped. There are allegations and research
findings that corruption and large-scale diversion of commodities from the PDS to the open
market are rampant. The state governments and union territories implementing PDS have not
been able to improve the functioning of the PDS. The nexus between PDS shop owners and
the officials and local politicians to share the benefits have been noted in several parts of the
country. A vigilant monitoring system has to be put in place to reduce the leakages if the
laudable objective of ensuring food security to all needy persons is to be achieved. There is a
complaint about the quality of food grains supplied through PDS. At least good quality grains
need to be supplied to meet the needs of the poorer sections of the consumers.
7.8 IMPROVING THE AGRICULTURAL MARKETING

INFRASTRUCTURE
The population growth in the country has been quite rapid, however, slowed down slightly in
recent decades, India accounts for a meager 2.4% of the World Surface Area yet it supports
and feeds the belly of over 17.7% of the World Population. The trend of urbanization is
picking up rapidly due to the lack of employment opportunities in the home district/ state.
Very soon, we may have nearly one-half of the population dependent on urban areas. It is
projected that our population may overtake that of China by 2050 or 2060. All these
predictions are sounding warning bells to our country! India should aim to bring down the
population growth rate near zero level over the next three or four decades. The road, rail, air,
and water transport networks have to be improved at a rapid pace by making huge and
judicious investments. The implications for spreading and strengthening the agricultural
marketing network can be inferred easily.
7.8.1 Emphasis on Regulation
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Our food production has to be raised to at least 350 million tons from the present level of 250
million tons by 2050. It means that we only have 38 cropping seasons to increase food
production by 100 million tons. This itself is a tough task as the land and water resources are
already fully and optionally used and not many technological breakthroughs are in sight.
With the kind of crop specialization and a high degree of commercialization taking place at
rapid space, most of the produce has to be marketed through various market channels to reach
the final consumers within the shortest possible time. The growth in the consumption of dairy
products, meat, eggs, edible oils, cotton, condiments, fruits, vegetables, and other agricultural
commodities has been faster than in the case of food grains.
Most of the food products are produced in rural areas and a disproportionately high share of
purchasing power lies in the urban areas. Marketing and trade include all the multiple levels
of exchange, besides the important functions of transportation, storage, and value addition
through primary, secondary, and tertiary processing activities. The marketing infrastructure
refers to the improvement of all these activities along the value chain. The number of
physical markets has to go up appreciably nearer to production units. As the intensity of
production increases in the villages, the markets have to be located closer to the villages.
About 30,000 markets are functioning regularly or part-time. Besides these, a number of
assemblers, commission agents, and small traders procure the commodities from the villages
and transport them to processors, wholesalers, and exporters.
7.8.2 Focus on Competition

The Union and State Governments are trying to erode the monopoly power of the
Agricultural Produce Market Committees (APMCs) set up earlier at a grassroots level. The
intention is not to dismantle them but only to free the markets from their monopoly power
and exploitation. In fact, the physical facilities available in the existing markets need to be
strengthened further to serve the needs of the farmers better. The farmers’ cooperatives or
private traders should be encouraged to set up new markets. Markets should compete with
each other to attract farmers and traders by providing efficient marketing services at
reasonable charges. The retail chains can establish procurement centers to buy the produce
from the farmers directly. They may enter into various forms of contract farming
arrangements to enhance the production of quality produce to meet the choice and
preferences of their consumers. It is only a matter of time before foreign firms are allowed to
enter multi-brand retail trade in the country. Competition from a variety of players is
expected to result in the reduction of wastage and improvement of marketing efficiency. The
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face of markets may change with heavy investments coming into marketing infrastructure,
cold storage, and specialized transportation trucks to increase the speed at which products are
moved from the point of production to the consumers. With virtual commodity markets
operating, greater precision may be achieved in operations to cut down the costs of
marketing. Forward contracts and international marketing arrangements may help in better
price-getting and resource allocation. Some regulation may be required to thwart the
formation of monopolies and price manipulation by them. But a lot needs to be done in the
present development model on competition and market information for achieving better
market integration and improved marketing performance.

1) How large scale famines managed by the Governments through their policy actions?
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2) How many kg of food grains a poor family can access per month from the Public
Distribution System at subsidized prices under the Antyodaya Anna Yojana scheme?
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3) Why the policy stance of the government has shifted from regulation to increasing
competition?
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Activity 4:
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Visit an outlet of public distribution system nearer to your place and note the different
schemes under which food grains are sold at various prices to cardholders of different colors
and categories.
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7.9 ROLE OF INFORMATION IN MARKETING

“Information is power” is the widely believed and accepted dictum. In agricultural marketing,
the traders are armed with the power to acquire information, besides the enormous financial
power they wield. Farmers are generally less literate and have the least idea of what is
happening at distant markets. They also do not have the financial power to wait till a better
price is offered for marketing their outputs. Lack of storage facilities and urgent requirements
for cash force them to resort to distress selling even when there is a glut in the market. The
traders who have the financial power and also information that the market may improve in a
few days will buy the produce at a cheaper rate and sell it at a later date for a higher price.
The information about the expected size of the harvests in different states and countries and
the potential demand for the commodity will help the traders in making informed decisions.
Farmers generally lack such information and miss the opportunity for realizing a better price.
7.9.1 Governments Efforts for Providing Market Information

The Directorate of Marketing and Inspection (DMI), Ministry of Agriculture, Government of
India runs ‘AGMARKNET’ (Agricultural Marketing Information Network) online service
and displays the prices of different agricultural commodities both in the spot and futures
market. This information on various prices can be used by the farmers and farmers’
organizations to take decisions on time to market their produce. It runs a Kisan Call Centre
which answers the queries of farmers regarding marketing operations and decisions. It also
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prepares Market Research Reports and places them on its webpage for the benefit of farmers,
marketing department officials, and researchers. The farmers can track the commodity prices
in the futures markets and try to assess the demand-supply situation during the harvest time
and take their decisions at the time of sowing. The state marketing departments are also
trying to place electronic sign boards displaying the price information in the markets. The
electronic and print media is also giving information on prices, new technologies, and
policies of the governments to help the farmers towards making informed decisions.
7.9.2 Cob-Web Phenomenon

Normally, farmers tend to over-adjust and get caught by the cob-web phenomenon. It refers
to a situation where the farmers after noticing the prices of a particular agricultural
commodity shoot through the roof during a season of scarcity, resort to boosting the
production on the premise of the pre-existing demand and prices, leading to a problem of
plenty. This is a cob-web phenomenon in agriculture. For example, if the price of cotton is
high in a particular year, farmers tend to allocate more area for production to it in the next
year. Due to this bandwagon approach, more cotton will be produced in the next year and the
price may fall drastically. Farmers end up in losses and reduce the area under it in the next
year. Then there may be a shortage of cotton supply relative to demand again in the third year
and prices may go up. But, the farmers’ associations and extension officers should analyze
such phenomena and advise the farmers to keep a balance in acreage allocations so that they
will not get caught and crushed in the cobwebs. By making only moderate adjustments in
acreage allocations, the farmers can take advantage of changing trends in the demand-supply
scenario in case of major commodities they grow. Some of the risks of price fluctuations can
be avoided by entering into contract farming arrangements and through participation in
forward markets. If an individual farmer is too small to participate in forward markets,
farmers’ associations and cooperatives can step in and pass on the benefits to their members.
Quick and considered responses can be formulated to the changing market conditions to
survive and prosper as groups of producers. Making use of information that is now available
quite fast at a low cost is crucial to formulate production and trading strategies by the
farmers’ groups.
7.10 REFORMS FOR IMPROVING THE AGRICULTURAL

MARKETING AND PRICE POLICIES
In India, every political system, authority, and analyst swears to work hard for the welfare of
farmers and the rural and urban poor. But the marketing system and price policies have not
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benefitted these vulnerable sections of the population. The share of agriculture in the GDP
declined fast without much reduction in the proportion of the labor force dependent on
agriculture. This caused a relative impoverishment of rural people who are losing interest in
farming. The low surplus available in farming is pushing young people in rural areas to
migrate to urban centers in pursuit of more profitable avenues of employment. Agriculture
and rural enterprises are not able to retain young and educated people. Unless this situation is
reversed by pro-agricultural price policies with concomitant improvements in the marketing
system, the food security of the nation may be at stake!
7.10.1 Trade-off between Short and Long Term Interests

Trade-off means exchanges that occur as compromises particularly when land is managed
with multiple objectives. There is a trade-off between high agricultural prices in the short run
and moderate and stable agricultural prices in the medium to long term vis-à-vis low
agricultural prices in the short run and high and unstable prices in the medium to long term.
Presently, the Government is following the second option. In order to contain food inflation,
agricultural prices are kept at a low in the short run. But this is making farming a losing
profession thereby, throwing farmers into a debt trap and the crisis erupting in the form of
farmers' suicides and migration. This situation is not sustainable and does not augur well for
the food security of the nation. It needs bold steps to push up the agricultural prices in the
short run so that the farmers make a surplus, come out of the debt trap and start investing for
capital formation in agriculture. A reasonably profitable farm sector will retain youth in
agriculture and lead to productivity growth that will ensure food security and price stability in
the medium to long term. For a long time, the real prices of food and agricultural
commodities declined because of technological change ushered in by the green, white, blue,
and brown revolutions. But the gains of technological change have tapered off and increased
productivity is now possible through the use of more purchased inputs and labor inputs that
are increasingly becoming costly! High prices of petroleum products are making fertilizers,
agrochemicals, improved seeds, plastics, farm and irrigation equipment, diesel, power, and
labor inputs quite costly. The MSPs and market prices of agricultural commodities should
reflect the increase in cost. The National Farmers’ Commission headed by Dr. M.S.
Swaminathan, has recommended giving a markup of 50% on the cost of production to make
farming profitable. This recommendation needs to be implemented at least halfway to redeem
the status of farming. The price policy should provide enough incentives to farmers for
increasing food grain production and ensuring food security.
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7.10.2 Focus of Agricultural Marketing Policies
The agricultural marketing policies should have a greater emphasis on promoting competition
and laying down a basic structure for regulation. The initiatives for private markets and
terminal markets for the perishables commodities should be pursued with greater vigor to
increase competition and to attract more investments for increasing storage and cold storage
facilities and for bringing the latest technologies for handling and processing greater volumes
to reduce unit costs and attaining greater physical and marketing efficiency. The entry of
multi-national retail marketing chains is stalled temporarily but may be allowed in the near
future to get the benefits of technology and investment. The marketing reforms should be
targeted to reduce corruption, wastage, and inefficiencies. Further freeing of lease markets
and promotion of contract farming will be needed to encourage processing and value-addition
activities in the agricultural sector. The final acid test for the success of marketing reforms is
the reduction in the unit costs and margins of marketing and increasing the price realization
for the farmers and shoring up their share in the consumer’s rupee. The package of positive
prices and forward-looking marketing policies will benefit the farmers as well as the
consumers of agricultural commodities in the country.
Activity 5:
Go to retail chain stores like’ Reliance fresh ‘or ‘More ‘or ‘Spencers’ and compare the prices
and quality of vegetables there and with the shops of the roadside vendors or hawkers. Make
your notes on the tradeoff between price and quality.
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7.11 LET US SUM UP
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Agricultural prices act as signals that tell us about the demand-supply imbalances for
agricultural products in the country. They influence the allocation of resources like land,
labor, and capital among different crops. They also impact the income distribution between
agricultural producers and consumers. They also have a bearing on the decisions of the
farmers to make capital investments in the farm's activities. When the agricultural marketing
system was only rudimentary, farmers carried out subsistence levels of agriculture. With the
development of agricultural markets and transportation and storage facilities, farmers started
producing for markets. But often they are subjected to exploitation due to the economic
power of traders and their manipulating capacity. Bringing the agricultural markets under
regulation has improved the situation to some extent. The Minimum Support Price policy
pursued by the Government has helped the farmers to produce more without fear of a crash in
the market price. The procurement operations of the Food Corporation of India (FCI) and
state civil supplies corporations help maintain the market prices above the minimum support
prices. They are also helping in maintaining the buffer stocks and in supplying the essential
commodities to the elaborate Public Distribution System (PDS) built throughout the length
and breadth of the country. The government schemes like Antyodaya Anna Yojana (AAY),
Annapurna, etc., are helping the poor to have economic access to food. The Government is
moving towards ensuring food security to all the poor at affordable prices. To achieve this
goal, agricultural production needs to be increased by providing remunerative prices to the
farmers through marketing reforms and by increasing competition. The transport, storage, and
processing infrastructure have to be strengthened. Promoting contract farming would help in
providing assured prices to farmers. A package of price and marketing policies had to be put
in place to increase food production and in making it accessible to the poor.
7.12 KEYWORDS
Competition : Rivalry, opposition, struggle.
Inefficiency : Incompetence, wastefulness.
Infrastructure : Communications, road and rail network, transportation.
Intervention : Interference, involvement, intercession.
Manipulation : Management, handling, exploitation.
Security : Safekeeping, protection, and safety measures.
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7.13 SUGGESTED FURTHER READING/ REFERENCES
1. Acharya, S.S and N.L. Agarwal (2007). Agricultural Marketing in India- Fifth edition,
Oxford & IBH publishing company Pvt. Ltd., New Delhi.
2. Gulati, Ashok (2002). Trade Liberalization and Indian Agriculture, Oxford University
Press, New Delhi.
3. Gupta, R.K (2002). Agricultural Subsidies & their economic Implications, Deep & Deep
Publications, New Delhi.
4. Mohan Raj, J (2009). Agricultural Marketing Strategies in India, Abhijeet Publications,

New Delhi.
5. Narasaiah, M.L (2005). Markets and Agricultural Development, DPH Publishers, New
Delhi.

Check your progress 1
1. If the price of wheat is low, farmers will have less income and they will not have
enough resources to invest in capital items needed for farm development
2. The farmers are expected to allocate less area for Bengal gram cultivation because its
minimum support price is not increased. They may increase the area allocation to
rapeseed mustard as its minimum support price is increased.
3. The weighted average cost of production is the basis for fixing the minimum support
prices of agricultural commodities
1. More than 7000 markets were brought under regulation after the Independence.
2. When there is a long chain of intermediaries, the marketing costs go up and the
farmers will get a lower share of the consumer’s rupee.
3. Despite the implementation of many agricultural price and marketing policies,

farmers' organizations and researchers feel that the farmers are not getting
remunerative prices and that the exploitation by traders goes on unabated in the
agricultural markets.
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1. Despite droughts and no increase in food production in some years, the governments
are averting famines by holding considerable quantities of food grains in buffer stocks
and by moving food grains to deficit areas from the surplus areas and improving the
purchasing power of people by providing them alternate employment opportunities.
2. A poor family covered by Antyodaya Anna Yojana (AAY) scheme can access 25 kg
of rice at Rs. 3 per kg or wheat at Rs. 2 per kg in a month from the public distribution
system.
3. The Government initially believed that the exploitation of agricultural markets by the
traders can be reduced by regulating the functioning of the markets. But since the
experience with the regulation has only yielded limited benefits, the government has
shifted its policy stance to increasing competition.
26
UNIT 8 TRADE RELATED POLICIES
Structure
8.0 Objectives
8.1 Introduction
8.2 Basis of Trade between Countries
8.2.1 Absolute Advantage
8.2.2 Principle of Comparative Advantage
8.2.3 Protectionist Tendencies
8.3 UNCTAD, GATT and WTO
8.3.1 General Agreement on Tariffs and Trade (GATT)
8.3.2 The Uruguay Round
8.3.3 Dunkel Draft Text (DDT)
8.4 Obligations of Countries under WTO Agreement
8.4.1 Market Access
8.4.2 Aggregate Measure of Support (AMS)
8.4.3 Export Subsidies
8.4.4 Sanitary and Phyto-Sanitary Standards (SPS) and Technical Barriers to Trade (TBT)
8.4.5 Trade Related Intellectual Property Rights (TRIPS)
8.5 Implications of WTO agreement on Indian Agriculture
8.5.1 Competitiveness
8.5.2 Ministerial Meets
8.6 International Movement of Agricultural Products
8.6.1 Surplus in Agricultural Trade
8.6.2 Changing Composition of Agricultural Exports
8.6.3 Agricultural Trade Performance
8.7 Trade Policy of India
8.7.1 Schemes to Encourage Exports
8.8 Incentives under EXIM Policy/ Foreign Trade Policy (2015-2020)
8.8.1 Incentives to Exports from Rural Sector
8.9 Future Outlook for International Agriculture Trade
8.9.1 Outlook for Indian Agricultural Exports
8.10 Let Us Sum Up
8.11 Keywords
8.12 Suggested Further Readings / References
1
8.0 OBJECTIVES
After studying this unit, you will be able to:
 explain the basis of trade between countries;
 discuss the GATT and its evolution to WTO;
 identify obligations of countries under WTO agreement;
 explain the implications of WTO agreement to Indian agriculture; and
 discuss the trade policy of India and incentives under EXIM policy; and
8.1 INTRODUCTION
The basic principle of trade is to promote free competition and gain a comparative advantage.
Whether a country has an absolute advantage or not in the production of agricultural
commodities, it will find its comparative advantage in the production of some commodities or
the other and can participate in trade by following the free and fair competition. There is a
tendency for countries to protect their own home markets by charging high tariffs on
imported goods. But after the General Agreement on Tariffs and Trade (GATT) was formed
in 1947, the tariffs were gradually reduced to promote more trade. The Uruguay Round talks
led to the formation of the World Trade Organization (WTO) to oversee and facilitate trade
by resolving trade disputes amicably. Trade in agricultural commodities was partially
liberalized and the Doha Round talks initiated in 2001 was to further liberalize it. The broad
objective of the Doha round is to reduce distortions in agricultural trade caused by high tariffs
and other barriers, export subsidies, and some kind of domestic support. The Doha round
remained inconclusive due to differences among major trading countries. Doha round was
further followed by (i) The Cancun Ministerial Conference, 2003, (ii) The Hong Kong
Ministerial Conference, 2005, (iii) The Nairobi Package, 2015, and (iv) Buenos Aires
Ministerial Conference, 2017, etc. India has always been a net exporter of agricultural
commodities but its surplus in agricultural trade is fast shrinking. As the technological
progress in agriculture slowed down and resource shortages are becoming more acute, the
cost-push inflation is increasing agricultural prices rapidly. Cost-push inflation by definition
is caused by an increase in prices of inputs like labour, raw materials, etc. The increased price
of factors of production leads to a decreased supply of such goods. In the case of agriculture,
while the demand remains constant, the price of agricultural commodities increases thereby
causing a rise in the overall price level. The outlook for international agricultural trade does
not seem to be promising in general and to India in particular. This unit focuses on the
2
obligations of the countries to open up under the World Trade Agreement and the policy
initiatives of the Government of India to increase exports. The incentive schemes and the
outlook for the expansion of agricultural exports are assessed.
8.2 BASIS OF TRADE BETWEEN COUNTRIES

Why do countries trade? Because trade plays a crucial role in providing livelihoods for
farmers and people employed along the food supply chain. It also contributes to reducing
food insecurity across the globe and provides greater choices in consumer goods. The
Portuguese, the Dutch, the French, and the British came to India’s coastal towns only for
trade. Even earlier than the arrival of European traders, trade did take place with other
countries by land and sea routes. Large multinationals want to exploit the opportunities to
trade in as many countries as possible. Hitler started the Second World War as trade barriers
in the form of high tariffs were making it difficult to trade and earn foreign exchange to pay
for the reparations imposed on Germany after the defeat in the First World War. Trade
interests are as important as security interests for the countries to form blocks and unions.
8.2.1 Absolute Advantage

The basis for trade between countries is the same as in the case of trade between a farmer and
a weaver in the same village. Instead of producing both food and cloth required by his family,
a farmer produces more food than what he needs and exchanges his surplus food with a
weaver who supplies him with the cloth. The weaver has the skills of making cloth, while the
farmer knows the art of growing food. Thus, there is a rudimentary division of labor between
the two and the exchange of goods between them makes both of them better off! It is the
principle of comparative advantage that forms the basis for trade at the village level. The
same principle explains the reason for the exchange of goods and services between people
belonging to different tehsils, districts, and states in India. Up to the level of a country, this
process is easily understood because there is easy mobility of people and goods within a
country in a relative sense. But there are usually many restrictions on the movement of people
and goods between countries. So, trade between countries requires agreements and
restrictions, although the basis for trade is the same principle of comparative advantage.
8.2.2 Principle of Comparative Advantage

Each country is endowed with considerable resources of land, water, labor force with
required entrepreneurial and managerial skills, etc., These resources of one country may
favor the production of one commodity (say cotton) at less cost relative to another
3
commodity (say silk). If there is another country where the silk can be grown at less cost
relative to cotton, both countries can benefit if the farmer country specializes in the
production of cotton and sells it to the latter country in exchange for silk. We may sometimes
have a pair of countries with the farmer country having the ability to produce both cotton and
silk cheaper than in the latter country. Yet, these two countries can specialize and trade
between them, if, for example, the cost of production of cotton in the former country is only
one-half of that in the latter country while the cost of production of silk in the former country
is three-fourths of that in the latter country. Since the former country has a greater advantage
in the production of cotton, it can specialize in cotton. Although the latter country does not
have an absolute advantage in the production of silk, it can still specialize in silk, as it has a
relative advantage in it. Thus, even a country with a poor resource base and skills can also
participate in the production and trade of some commodities or others as per the principle of
comparative advantage. Both countries will benefit when they specialize and trade.
8.2.3 Protectionist Tendencies

Agricultural protection is part of the agricultural policy of almost every country. The
countries populations basic needs, and economic policies framed to achieve the protection of
the agricultural sector from foreign completion, protects the interests of all groups: producers,
consumers, and the economy as a whole. Further, most often, several countries perceive self-
sufficiency and self-reliance as the desired objectives. It is believed that some rich and
powerful countries manipulate the prices to their advantage and it is not prudent for poor
countries to depend on others for the supply of important agricultural goods for consumption.
Some of these misgivings may be borne out of apprehensions but some are based on real past
experiences. Virtually no country can manage without trade. But the degree of dependence of
a country on external trade is influenced by its policy orientation and its assessment of
benefits and threats from trade.
8.3 UNCTAD, GATT AND WTO

At the beginning of the twentieth century, there was more openness to trade between
countries. The average tariff level was only about 10 percent. But the two world wars and
mutual distrust between countries raised the average tariff level to over 40 percent by 1945.
In the aftermath of the Second World War, the countries joined together to establish a United
Nations Organization and several subsidiary organizations under it. The United Nations
4
Conference on Trade and Development (UNCTAD) was established to deal with issues
related to trade and development.
8.3.1 General Agreement on Tariffs and Trade (GATT)

Parallel to UN organizations, the rich countries met at Bretton Woods in the USA and set up
an International Bank of Reconstruction and Development (IBRD) for long-term lending and
the International Monetary Fund (IMF) for medium-term lending. The main difference
between them lies in their respective functions. The IMF oversees the stability of the global
monetary system, whereas, the goal of the IBRD (World Bank) is to reduce poverty by
offering assistance to middle and low-income countries.
After lending for reconstruction in war-ravaged countries, IBRD has started lending to
development projects in developing countries and has acquired the name of ‘The World
Bank’. A lot of deliberations took place to set up an ‘International Trade Organization (ITO)
but it was not favored by the USA at that time. As a short-term substitute, a provisional
organization called ‘General Agreement on Tariffs and Trade (GATT) was set up in 1947 to
reduce tariffs and promote trade between countries. Between 1948 and 1973, there were
seven GATT agreements that liberalized the trade in industrial products by reducing the
average tariff level from 40 to 6.5 percent. It has resulted in rapid growth in the world
merchandise trade, leading to the globalization of markets. While the world economy grew at
an average rate of 3 percent per annum, World Trade grew at an average rate of 12 percent
per annum between 1950 and 1990. During the first seven GATT agreements, the member
countries of GATT could choose the agreements they would like to join and keep out of those
they do not like. The member countries can retain their membership of GATT even if they do
not join any agreements in a particular round of talks. All seven agreements dealt with trade
in industrial products and did not touch the trade in agricultural commodities. So all seven
rounds of trade talks under the aegis of GATT did not become controversial at all.
8.3.2 The Uruguay Round

But the eighth round of talks began in 1986 in Uruguay and became controversial. Before the
onset of these talks, a group of 16 countries met at Cairns (a city in Queensland, Australia)
and demanded that the trade in agricultural products should also be liberalized just as it
happened in the case of industrial products. When this Cairns group of 14 countries led by
Australia proposed for liberalization of trade in agricultural commodities, some countries
(USA & EU Members) opposed it by arguing that the agricultural sector has multi-
functionality like maintaining ecological balance and preserving the scenic beauty and should
5
not be considered as a mere producer of commodities. But agricultural trade entered the
agenda for Uruguay round talks along with other issues like Trade Related Intellectual
Property Rights (TRIPS), Trade-Related Investment Measures (TRIMS), General Agreement
on Trade in Services (GATS), Anti-dumping measures (ADM), Issue of the country of origin
of products and so on. The agenda became long and heavy and the talks continued up to
December 1991. While the talks were going on, the socialist economies in USSR and Eastern
Europe crumbled one after another under the heavy weight of subsidies and operational
inefficiencies. The bipolar world has become one with a single economic philosophy of
Liberalization, Privatization, and Globalization.
8.3.3 Dunkel Draft Text (DDT)

Mr. Arthur Dunkel, who was the Director General of GATT, prepared a draft text and
circulated it to all the member countries. This Dunkel Draft Text (DDT) became quite
controversial and sections of people in many countries agitated against it. It proposed setting
up a regular trade body i.e. World Trade Organization (WTO) with a permanent secretariat
and an elaborate dispute settlement mechanism in place of GATT. All the 13 agreements
negotiated in the Uruguay Round would be treated as a single undertaking. The member
countries were either to take them all or leave them all. It means that the countries can not
pick and choose the agreements they would join. They should join all the agreements and
have to forego the membership if they would not join the agreements. Trade in agricultural
commodities was touched in a limited way, paving the way for some liberalization. Because
of many new and rigid provisions, there was a big uproar against DDT in many countries. But
when Peter Sutherland, the successor of Arthur Dunkel, set a deadline of December 15, 1993,
to sign the agreement, about 108 countries signed it including member countries in GATT
(91). The number swelled to 125 by 1994 April when the Commerce Ministers of countries
ratified it in Morocco. In India, there was a fierce campaign against the agreement, but the
Government signed it by executive decision without a discussion in the Parliament. India
became a founder member of WTO by promulgating a couple of ordinances to facilitate it.
WTO came into being on January 1, 1995, while GATT ceased to exist after December
31, 1995. During the period of one year when both organizations co-existed, members of
GATT joined WTO after completing the necessary formalities.
Activity 1:
6
Visit cold storage near your place and record the products stored there, the costs incurred in
maintaining it and the charges levied from the farmers/traders. Summarize your impressions
about its usefulness.
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8.4 OBLIGATIONS OF COUNTRIES UNDER WTO AGREEMENT

We confine the discussion on obligations of countries only to the Agreement on Agriculture
(AOA), Sanitary and Phyto-sanitary Standards (SPS), Technical Barriers to Trade (TBT), and
Geographical Indications (GI), Patents, and Plant Variety Protection Certificates under the
agreement on Trade Related Intellectual Property Rights (TRIPS) as they are the major
provisions that are relevant for Agriculture and Agro- business sectors.
8.4.1 Market Access

Market Access for goods in WTO means the conditions of tariff and non-tariff measures,
agreed by members for the entry of specific goods into their Markets Tariff Commitments for
goods are set out in each members schedules of concessions on goods.
All the countries have to provide minimum market access to products from other countries.
The developed countries should start with a minimum access of 3 percent of their
consumption in the base year and reach a level of 5 percent within a period of 10 years. The
developing countries should start with an access level of 2 percent of their consumption in the
base year and go up to 3.33 percent by 2004. If the current access is higher than the minimum
access specified, it should be maintained. All the non-tariff measures of protection should be
converted into tariffs and the total tariff should be reduced by 36 percent, on average, over
the period of the agreement by the developed countries. The developing countries should
7
reduce them by 24 percent. The reduction on a single tariff line should be by 15 percent for
the developed countries and by 10 percent for the developing countries. This minimum access
and tariff reduction proposals are aimed at a token liberalization of trade in agricultural
commodities in the international market.
8.4.2 Aggregate Measure of Support (AMS)

The Aggregate Measure of Support means the annual level of support (subsidies) expressed
in monetary terms, provided for an agricultural product in favour of the producers (product
specific) of the basic agricultural product and non-product provided in favour of agricultural
producers in general. AMS consists of two parks-product-specific subsidies and non-product
subsidies. Product Specific Subsidy refers to the total level of support provided for each
individual agricultural commodity. Non product specific subsidy refers to the total level of
support given to the agriculture sector as a whole.
Another important measure is to compute the Aggregate Measure of Support (AMS) after
allowing exemptions under the green box, blue box, and special exemptions granted to
developing countries and reducing it if it exceeds the permissible level. Green box measures
are considered non-distorting to the market and include expenditures on research, extension,
training, quality control, etc., relief granted during calamities, support to insurance schemes,
and income support, etc., There is no upper limit for expenditures made for green box
measures. Blue-box or production-limiting programmes to balance supply with demand are
also exempted from the computation of AMS but they have an upper cap on them.
Developing countries can also exempt capital subsidies on surface irrigation projects, the
support provided to resource-poor farmers, and incentives given to farmers to wean them
away from growing illegal crops from the computation of AMS. After all these exemptions,
the remaining support provided by all levels of Government to agriculture has to be added up
to compute product specific support in the case of 21 basic products listed in the agreement
and sector-specific support that is provided in general to farming. In the case of product-
specific support, market and non-market support given to specific products have to be added
up. The input subsidies given to fertilizer, irrigation water, power, and interest subsidy on
loans given to agriculture are to be added up to arrive at sector-specific support. The product-
specific or sector-specific support should not exceed 5% of the value of output or agricultural
GDP in the case of developed countries. If they exceed the permissible level, the excess
support should be reduced by 20% over 6 year period. In case of the developing countries, the
8
permissible support is 10% of the value of the product or agricultural GDP. The excess
support has to be reduced by 13.33% spread over10 the years.
8.4.3 Export Subsidies

The elimination of agricultural export subsidies is one of the central elements of the “Nairobi
Package” adopted at the 10th Ministerial Conference held in December 2015.
The third provision in the AOA is the limit on export subsidies. A developing country giving
export subsidies should reduce them by 36% and reduce the quantities subsidized by 21%. In
the case of developing countries, the reduction requirements are 24% for value and 14% for
quantities. Countries that did not give export subsidies in the base years should not give them
after the agreement. But the developing countries are permitted to subsidize the internal and
external freight and marketing costs.
8.4.4 Sanitary and Phyto-Sanitary Standards (SPS) and Technical

Barriers to Trade (TBT)
The agreement on the application of Sanitary and Phyto-Sanitary measures (SPS) came into
force with the establishment of WTO on January 1, 1995. It concerns the application of food
safety and animal and plant health regulations. It allows countries to set their own standards.
Also, regulations must be based on science.
Besides AOA, SPS and TBT are also important for international trading in agricultural
products. They acquired the name of secondary tariffs and are often used to prevent imports
by specifying a very high level of safety and technical standards. SPS relates to the standards
required to protect the health of plants, animals, and humans. Some examples are aflatoxins
in groundnut, bacterial contamination in case of fish and prawns, pesticide residues in case of
spices, fruits, and vegetables, and heavy metal contamination in commodities, etc., Member
countries can publicize the standards they will impose from a later date, although they are
advised to limit the requirements to those recommended by international bodies like Codex
alimentarus or HACCP. They are required to apply the same standards for their domestic
production also and should not discriminate between countries from which the products are
imported. The developed countries and WTO would train the personnel from the developing
countries so that they will be able to attain the required standards. Technical standards relate
to product quality, specifications, and safety to the handlers in the case of machinery and
toys. These two agreements recognize the right of countries in specifying the standards for
9
the products imported but stipulate that they should not be used to discourage imports and for
discrimination purposes.
8.4.5 Trade Related Intellectual Property Rights (TRIPS)

The WTO agreement on TRIPS negotiated during the Uruguay round introduced Intellectual
Property Rules for the first time into the Multilateral Trading System. The agreement whole
recognizing Intellectual Property Rights (IPRs) as private rights, also established minimum
standards of protection that each government has to give to IPRs in each of the WTO member
countries. The member countries' Geographical Indications (GI) relate to the characteristics
of products acquired because of soils or climates that are unique to a particular growing area.
They are like trademarks and are protected through labeling. Wines and spirits were given
stronger protection than other commodities in the agreement. Some examples of GI in India
are Darjeeling tea, Ratnagiri Alfonso mangoes, etc., Member countries can legislate to give
special trademark protection to some products that acquire special characteristics when they
are grown in a particular area. Patents are the strongest form of Intellectual Property Rights
(IPR) and they are granted when a new product passes the tests of Novelty, Usefulness, and
Inventive step which is not obvious to an ordinary practitioner of an art. The member
countries were asked to give patent protection to both product and process patents. New
animal or plant forms can be exempted from patent protection, but biochemical and
microbiological processes need to be given patent protection. The countries where product
patents are not in vogue are given a 10 year grace period to introduce them. But they should
provide a mailbox provision to establish the seniority for patent applications and provide
exclusive marketing rights for 5 years provided that the product has already received patent
protection in another Member country. Plant varieties should be protected either by a grant of
patents or through a sui generis method. Sui Generis means “of one’s own or its own kind”.
In law, this is a term of art to identify a legal classification that exists independently of other
categorizations because of its uniqueness. For granting plant variety protection to a new
variety, the tests of Distinctness, Uniformity, and Stability have to be passed. The companies
have to register the varieties and declare the parentage and breeding methods used in
developing the New Variety. New machinery can be protected by granting Utility Patents.

10
1) The cost of producing a ton of tea is $500 in Sri Lanka, while it is $600 in India. Rubber
is produced in Sri Lanka at a cost of $ 800 per ton, while it is $1200 per ton in India.
i) In the above example, which country has an absolute advantage in the production of
tea and rubber?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
ii) In which commodity does Sri Lanka have a comparative advantage? Does India have
a comparative advantage in any of the two commodities?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
iii) What should be the joint trade strategy of the two countries to maximize the benefits
for both countries?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
2) When was GATT established?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
3) What is the permissible support that a developed country can give to the agricultural
sector?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
11
Activity 2:
Go to an agricultural export company and find out about the products they export, the prices
at which they procure, the costs they incur, and the profits/ losses they make in the export of
agricultural products.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
8.5 IMPLICATIONS OF WTO AGREEMENT ON INDIAN

AGRICULTURE
When India become a member of WTO on 1st January 1995, the domestic prices of
agricultural commodities were much lower than their prices in the international market due to
cheap labor available in the country. The Government felt that India has an unassailable
competitive advantage in agricultural commodities and that it will be able to increase exports
rapidly. Liberalization of agricultural trade and reduction of domestic subsidies were
expected to push up international prices. Since India was having a problem of the balance of
payments, it was argued that minimum market access commitments do not apply to India.
Since the level of domestic support is quite low, there was no need to reduce the AMS in
India. It was also felt that India can use the 10 year grace period to postpone the grant of
patents and that the plant varieties can be protected by the sui generis method which allows
both the farmers' and breeders’ rights.
8.5.1 Competitiveness
During the 1990s, there was price inflation in India which was faster than that in the trading
partner countries, due to which the competitive edge enjoyed by agricultural commodities
was rather lost. The international prices of agricultural commodities did not increase as the
12
rich countries increased the support under the green and blue box provisions which have
more than offset the subsidy reduction under the amber box provisions.
In WTO terminology subsidies, in general, are identified by ‘boxes’ which are given the
colours of traffic lights” green box refers to permitted list/level, amber (slow down i.e. need
to be reduced) red refers to forbidden items.
Blue box is the amber box with conditions designed to reduce distortion in prices. The green
box is defined in Annex. II of the Agriculture agreement. In order to qualify, green box,
subsidies must not distort trade.
India also came out of the balance of payments problem in 1997 due to which quantitative
restrictions had to be withdrawn. India went ahead with the passing of the protection of ‘Plant
Varieties and Farmers’ Rights Act, 2001 in the parliament. Due to all these reasons, India’s
export of agricultural commodities increased slower than anticipated. But the agricultural
imports surged mainly because of allowing edible oil imports at zero duty. Still, India has a
trade surplus in the case of agricultural trade. There is an increase in the proportion of the
value of agricultural imports to the value of agricultural exports. The overall trade deficit
increased rapidly due to increased oil imports at very high prices. India also faced problems
because of arbitrary changes in SPS and TBT standards by rich countries. However, there is
an increased awareness about quality issues like reducing pesticide residues and promoting
organic products to reach the international market. India participated quite actively in the
anti-dumping litigation at WTO on both sides. Some issues cropped up with some companies
in advanced countries trying to patent basmati rice, neem, and turmeric products.
8.5.2 Ministerial Meets

The ministerial conference is the top decision-making body of WTO, which usually meets
once in two years. It brings together all members of WTO.
In general, the public opinion in India with regard to WTO is generally negative. It is not
perceived as a facilitator of trade. Unfortunately, it is viewed as an abettor of exploitative
trade practices of the developed countries. The once-in-a-two-year Ministerial Conferences of
WTO have become quite controversial with the disagreements between developed and
developing countries ever-growing, thereby making it impossible to arrive at another
agreement. The Doha round which started in 2001 has not come to fruition fully so far. It is
supposed to address the implementation issues arising out of the 1994 GATT agreement. The
future of WTO looks quite bleak and is also under threat due to the rise in tariff and non-tariff
13
trade barriers and protection now. The trade interests have created a gulf between the
expectations of developed and developing countries. There is no agreement between the
United States on the one hand and European Union and Australia on the other side on how
the stalemate can be resolved. India, Pakistan, and China are on one side in trade negotiations
despite political differences among them. The Hong Kong Ministerial meeting in 2005 agreed
on some broad parameters but the countries could not thrash out the differences at a specific
level. As and when there will be a new agreement, it should take some more steps toward
agricultural trade liberalization. But, at the moment, it looks unlikely that the member
countries of WTO will conclude another agreement.
8.6 INTERNATIONAL MOVEMENT OF AGRICULTURAL

PRODUCTS
Agricultural commodities are also traded between countries. There is differences in climate,
soil types and suitability conditions, etc. in each country. They produce a set of commodities
in greater quantities than their requirements and sell the surplus to other countries which can
not produce them or produce them at a high cost. In the same way, they buy some products
from other countries which have a comparative advantage in producing them. India was
actively participating in trade at the time of Independence. In 1948, India had a share of 2.2
percent in the world exports of merchandise and a 2.3 percent share in the world imports of
merchandise. But these shares dropped to 0.5 percent in 1973 both in the case of exports as
well as imports. The Government of India followed import substitution policies due to export
pessimism that permeated the economic policy. It was felt that the world markets were
controlled and manipulated by the rich countries and poor countries should participate in
trade to the minimum extent possible. But, this policy slant changed after 1991 but due to
inadequate preparedness, the shares of India in world trade did not increase much. In 2010,
which was a good year for India in respect of international trade, India’s exports had a share
of 1.75% in world merchandise exports and a share of commercial service export of 3.5% in
the year 2019 while its imports clocked 2.4 percent share in world merchandise imports
during the same year.
8.6.1 Surplus in Agricultural Trade

Over the last 70 years of Independent India, the country always had a trade deficit because
the value of our merchandise imports was always higher than that of our merchandise
exports. But in the case of trade in agricultural commodities, the country always had a
surplus. The value of agricultural exports was always higher than that of agricultural imports.
14
But the agricultural trade surplus is gradually decreasing. At one time, the value of
agricultural exports was about five times that of agricultural imports. But, in the recent
period, agricultural imports are about two-thirds that of agricultural exports. The tapering off
of green revolution gains and extreme scarcity of land and water and lower doses of labor and
capital employed in the agricultural sector are responsible for this state of affairs. In the year
2020, India realised a USD 15.8 billion trade surplus of the agricultural, fishery, and fishery
goods.
8.6.2 Changing Composition of Agricultural Exports

The nature of agricultural exports has changed from mere raw products to more processed
and value-added products in a relative sense over a period of time. But the growth in
agricultural exports is hampered by high domestic requirements and a reduction in the
competitive advantage enjoyed by high domestic inflation. The country’s dependence on
edible oil imports and imported fertilizers and agrochemicals is swelling the import bill. The
difference between the rate of growth in non-agricultural sectors and that in the agricultural
sector is widening over time. The share of agriculture in the Gross Domestic Product (GDP)
is gradually increasing in 2018-19 (17.6%), and 2020-21 (20.2%). The proportion of people
dependent on agriculture for their livelihood and income is 70% (2017-18) declining only at a
slow pace. This structural maladjustment is causing disenchantment of people engaged in
agriculture, leading to rising debts, sagging hopes, and despair, evidenced by suicides and the
exit of youth from agriculture forcing them to migrate to urban and metropolitan areas. Based
on a study, it was noticed that India, in the pre-WTO era attempted to achieve specialization
in agricultural exports whereas, no such effort was made in the past WTO era. It means that
WTO has a mixed impact on India’s Agricultural exports. It has helped India to improve its
position in global agricultural exports but did not allow India to gain expertise in the exports
of agricultural products.
8.6.3 Agricultural Trade Performance

International trade in agricultural products is expanding but at a much slower rate than in
non-agricultural products. In 2010, world agricultural exports grew at a rate of 7.5 percent,
while the total world merchandise exports increased by 14.0 percent. Between 2005 and
2010, world agricultural production rose at an annual rate of 2.0 percent, but the trade in
agricultural exports increased at an annual rate of 3.5 percent. In the case of India also, both
agricultural production, as well as exports, grew at much smaller rates than in the non-
agricultural sectors. International prices of agricultural products are rising, but the domestic
15
price inflation in agricultural products is rising even faster, making domestic agricultural
products less competitive. India’s Trade performance is given in Table 8.1.
Table 8.1: India’s Market Share (Global) in Agricultural Products
Unit: USD in billion
Units/Volumes 2017 2018 2019 2020
1 Total Exports 32.2 32.7 31.0 33.4
2 Total Imports 27.8 22.3 22.7 22.1
3 Import from USA 1.9 1.9 2.1 1.6
Source: Directorate General of Foreign Trade, Ministry of Agriculture and Farmers Welfare,
Trade Data Monitor, GoI.

1) Does India have a surplus or deficit in agricultural trade with other countries?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
2) What change was noted in the composition of agricultural exports over the last few
decades?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
3) Why is the growth in agricultural exports lagging behind that in total exports of the
country?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
16
Activity 3:
Collect the data from the website of the Commerce Ministry, Government of India regarding
the major agricultural exports and major agricultural imports during the last two decades and
analyze which export commodities are showing rapid growth and which agricultural imports
are surging.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
8.7 TRADE POLICY OF INDIA

The Foreign Trade Policy of India, 2009-14, aims to arrest and reverse the declining trend of
exports and to provide additional support to the sectors badly hit by the world recession. It set
an immediate target of achieving a 15% growth in exports per year till 2011 and achieving a
high export growth rate of 25% per year between 2011 and 2014. Between 2009 and 2014,
the target was to double the exports and the long-term target for 2020 was to double its share
in world exports.
8.7.1 Schemes to Encourage Exports

To encourage agricultural exports, the Special Agriculture and Village Industry Scheme,
Agriculture Infrastructure Incentive Scrip, Export Promotion Capital Goods (EPCG) scheme
for agro units, a single window system for the export of perishable agricultural products, and
special support for the marine sector were introduced. All other general schemes of export
promotion can also be availed by the exporters of agricultural products. Many special focus
initiatives like market diversification, technology up-gradation, and incentives to status
holders can be availed by them. Special Economic Zones/ Agro-export Zones continue to
receive special exemptions. Schemes like Assistance to States for the Development of Export
17
Infrastructure and Allied Activities (ASIDE), Market Access Initiative (MAI), Market
Development Assistance (MDA), Towns of Export Excellence (TEE), Focus Product
Schemes, Duty Exemption, and Remission Schemes, Advance Authorization Scheme, Duty-
Free Import Authorization Scheme, Duty Entitlement Passbook Scheme, etc., are introduced
or strengthened to encourage exports. Agricultural exporters may utilize the benefits of these
schemes to reduce some costs and compete in the international market. The recent weakening
of the rupee has improved the competitiveness of Indian exports to some extent and it will be
able to offset the adverse impact of domestic inflation on export competitiveness. But the
economic difficulties the Euro Zone is experiencing and a general slowdown in the world
economy are the challenging factors that Indian exports have to overcome.
8.8 INCENTIVES UNDER EXIM POLICY/ FOREIGN TRADE

POLICY (2015-2020)
The EXIM policy, 2009-14 provided support to the exporters in diversifying the exports to 29
new countries in Latin America, Africa, Asia, and Oceania. The incentives provided in the
focus marketing scheme are increased from 2.5% to 3.0% and the incentives under the focus
product scheme have been increased from 1.25 % to 2.0%. The outlay for the Market Linked
Focus Marketing Scheme has been increased significantly and it ensures support to exports to
Latin America, Africa, and major Asian markets like China and Japan. To achieve
technological upgradation, The Export Promotion Capital Goods (EPCG) scheme has been
extended to marine products and rubber and rubber products in the wider agricultural sector,
besides many other products in the non-agricultural sectors. The rules for claiming a 3%
incentive under EPCG have been simplified to help the exporters in using it. Under Advance
Authorization Scheme (AAS), the requirement for value addition is fixed at 15% of the
import value of inputs to receive benefits and to encourage value addition in exports. The
status holder incentive scrip scheme has also been extended to marine products. All eligible
status holders of agricultural exports will be incentivized up to 10% of the value of exports
towards the Agricultural Infrastructure Incentive subject to a limit of Rs. 100 crore per year.
The Exim policy 2015-20 introduced two new schemes i.e. (i) Merchandise Exports from
India Scheme(MEIS) for the export of specified goods to specified markets and (ii) Senesces
Exports from India scheme (SEIS) for increasing Exports of notified services. For the grant
of rewards under MEIS, the countries have been categorized into 3 groups. The rates of
rewards under MEIS range from 2% to 5%. Under SEIS the selected services would be
rewarded at the rates of 3% to 5%.
18
8.8.1 Incentives to Exports from Rural Sector
Under the Agriculture and Rural Industry sector, there are a number of schemes like Vishesh
Krishi and Gram Udyog Yojana which confers many benefits to agricultural products,
handlooms, and handicrafts. Duty credit Scrip benefits are granted to compensate for high
transportation costs and other disadvantages. These benefits are provided up to 5% of the
value of the Free On Board (FOB) value of exports in the case of most agricultural exports.
Additional benefits of up to 2% of the value of exports can be availed by the exporters of
fruits, vegetables, and flowers. The capital goods imported under the EPCG scheme will be
allowed to be installed anywhere under Agro- Export Zones (AEZ). So far, 45 agro-export
zones are established in the country. AEZs are being established to facilitate end-to-end
development for the export of specific products from a geographically contiguous area. AEZs
are to be identified by the state governments and would evolve a comprehensive package of
services provided by all state government agencies, state agricultural universities, and all
institutions and agencies of the union government for intensive delivery in these zones.
Corporate bodies with proven credentials will be allowed to sponsor new agro-export zones
or take over fully or partly the all ready notified AEZs for intensive promotion of agro-
exports. To reduce transaction and handling costs, a single window system of facilitating the
export of perishable agricultural produce has been introduced. Under Market Access
Initiative (MAI), the exporters can claim benefits up to 25% to 100% of the total cost
depending on the activity and implementing agency. Under Market Development Assistance
(MDI), support is provided to exporters to participate in trade fairs, seminars and special
visits to the countries under consideration. Under the Advance Authorization Scheme for
agro-exports, the import of inputs like pesticides is permitted. Additional flexibility for agro-
infra scrip scheme has been allowed for limited transferability of scrip to other status holders
and units in the Food Parks. In the case of the marine sector, imports for technological
upgradation under EPCG in the fishery sector are exempted from minimum export obligation.
Duty-free import of specified specialized inputs/ chemicals and flavouring oils is allowed to
the extent of 1% of the FOB value of the preceding year’s export value. Agricultural
exporters can take advantage of the support provided by the “India Brand Equity Foundation”
for popularizing “Made in India” brands to make the agricultural exports appealing to
consumers in the importing countries. All these incentives provided under the EXIM policy
are designed to compensate the exporters for higher transportation and marketing costs
incurred with agricultural exports. But, basically, competitiveness is determined by the cost
19
of production and the inflation pressures in the domestic economy, and the demand situation
in the importing countries.
Export incentives are regulatory legal, monetary, or tax programmes that are designed to
encourage businesses to export certain types of goods and services. The Foreign Trade Policy
2015-20 (FTA) has contained several incentives for exports to make the Indian product
competitive. One of the benefits provided is the “Transport and Marketing Assistance (TMA)
for specified Agricultural products to aid with the international component of freight and
marketing of agricultural produce. The prime objective of TMA is to promote brand
recognition for Indian Agricultural Products in the specified overseas markets and to reduce
the higher cost of transportation due to the transshipment of export of specified agricultural
products. The TMA assistance under FTP (2015-20) aimed to provide benefits through bank
transfer of freight incidence on exports by Indian Exporter at specified rates. The FTP 2015-
2020 also provided for (i) Eligibility for Assistance, (ii) Conditions and restrictions for
availing Assistance under TMA, (iii) Manner and method of submission of application etc.

1) What is the target set for export growth between 2011 and 2014 by the Foreign Trade
Policy, 2009-14?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
2) What is the long term target for export growth which India seeks to achieve by 2020?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
3) How many agro-export zones are set up in the country so far?

………………………………………………………………………………………………
………………………………………………………………………………………………
20
………………………………………………………………………………………………
………………………………………………………………………………………………
Activity 4:
Pay a visit to one of the agro-export zones located near your place and record the facilities
established there, and the incentives provided to the exporters and processors there.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
8.9 FUTURE OUTLOOK FOR INTERNATIONAL AGRICULTURE

TRADE
The outlook for international agricultural trade looks rather uncertain. The Doha Work
Programme initiated in 2001 has not concluded and the existence and relevance of WTO,
itself, are under a cloud. Trade blocks and protectionist policies pursued by countries are
limiting the potential for international trade in agricultural commodities. Economic growth is
slowing down in the world and rich countries are repeatedly dipping into recession. In
response to low growth and high unemployment, the countries are going into protective
shells. But these protectionist policies are what these countries are preaching against for a
long time. The double standards practiced by the developed countries have become naked as
they prescribe liberalization to developing countries but follow protectionist policies in their
own countries. Because of competitive protectionism, the US and EU are unable to agree on
the liberalization of trade in agricultural products and are mainly responsible for the
breakdown of the Doha Work Programme.
The OECD-FAO Agricultural Outlook projects that demand for food, agriculture, and
fisheries products will continue to grow over the new decade. However, growth will be at a
21
slower pace than in the recent past, when exceptionally strong growth in China and the larger
policy-induced expansion of biofuels spurred demand. Food trade will increase and
contribute to building global food security, assuming current prices. Technological
developments and digitalization in particular expected to evolve rapidly, and productivity
growth, sustainable resource use, and climate change may require urgent attention, etc.
8.9.1 Outlook for Indian Agricultural Exports

India’s dependence on the rest of the world for crude, fertilizers, and raw materials for
fertilizers is only increasing over time. So, this is the case with edible oil imports from
countries in South East Asia. But the potential for increasing agricultural exports remains
limited. Population and incomes continue to grow in the country which is driving up demand
for food in general and high-value, quality food articles in particular. But there are severe
supply constraints in the agricultural sector. The basic resources, land, and water, are under
severe strain both in terms of quantity as well as in terms of quality. Technological progress
has slowed down and productivity increases are possible only with more intensive use of
inputs. With the rapid growth in input and labour costs, the cost of production per unit of
output is increasing, squeezing out the profit margins of farmers. Farmers are deeply indebted
and do not want to continue production unless the prices of outputs increase sharply. Any
such increase in prices would make agricultural products non-competitive in the international
market. This process is likely to further accentuate in the future. Many analysts predict that
India may become soon an import-dependent country, as the supply fails to keep pace with
the demand growth. Any technological breakthrough would delay this inevitable prediction.
But the prediction of import dependence is likely to happen by 2050 or by 2100 A. D. From
1948 to 2000 A.D., food and agricultural production increased faster than population growth
and supply increased a little faster than demand, making it possible to export some of the
agricultural products. But in the present century, supply is increasing slower than demand,
and food and agricultural production may rise slower than even the population growth.
As this situation persists for a long time, import dependence may spread to more and more
agricultural products. What started with edible oils and pulses may eventually spread to
fruits, vegetables, dry fruits, processed foods, and, finally, food grains. Dairy and marine
products may also join the bandwagon as demand growth for them outstrips supply. India’s
agri-exports depend heavily on normal monsoon to come close to USD 50 billion mark
achieved last year (2020-21). India as a nation also has to increase the shipment of other
22
products that have a potential for uprising eg: organic cereal, millets, select horticulture
products, and a few value-added items to keep the agri-export momentum growing.
In 2021-22 the exports have valued at USD 2 billion, a little more than a 3-fold rise. At
present with wheat export being banned barring exceptional circumstances, non-basmati rice,
which was the top exchange earner among all agricultural commodities in 2021-22, has to
step up this year as well.
8.10 LET US SUM UP

Trade takes place between countries based on the principle of comparative advantage. Every
country can find its comparative advantage in the production of some commodities even
when it does not have an absolute advantage in any of them. Free trade will benefit all but
countries resort to protectionist policies by raising high tariff walls to shield domestic
producers from competition. By the time of the Second World War, the average tariff reached
a high of 40 percent. General Agreement on Tariffs and Trade (GATT) was established in
1947 to facilitate negotiations on reducing tariffs and promoting trade. The GATT agreement,
1994 paved the way for setting up the World Trade Organization (WTO) and for partial
liberalization of trade in agricultural products, among many other aspects. But the Doha
round of work program initiated in 2001 has not been completed so far due to the
protectionist policies of different countries. The impact of the WTO agreement has been
mixed for India. India always enjoyed a surplus in agricultural trade but the surplus is fast
eroding due to resource crunch and slow technological progress. The Trade Policy of India,
2009-14 has set ambitious targets but the export growth is far short of the targets. Slow
economic growth in the world and rising inflation in the country is impacting India’s
competitiveness in agricultural trade. A few incentives announced in the policy are helpful
but are not strong enough to accelerate the growth in agricultural exports. The Foreign Trade
Policy 2015-20 (extended up to 2022 due to covid 19) has contained the following major
highlights: (i) Simplification and Merger of reward schemes (MEIS & SEIS), (ii) Boost to
Make in India, (iii) Trade facilitation and ease of doing business, and (iv) new initiatives for
Export Oriented Units (EOUs). Electronic Hardware Technology Parks (EHTPs), and
Software Technology Parks (STPs).
8.11 KEYWORDS
Access : Right to entry, entrance, admittance.
23
Barrier : Wall, blockade, hurdle.
Geographical indication : Environmental, ecological.
Incentive : Inducement, motivation.
Intellectual property right : Recognition to property emanating from intellect.
Patent : Exclusive rights given to invention.
Sanitary : Hygienic, clean.
Tariff : Duty, tax, levy.
8.12 SUGGESTED FURTHER READING/ REFERENCES

1. Ahmad, Rais (ed) (2010). WTO and Indian Agricultural (3 Parts), Mittal Publications,
Delhi.
2. Bhat, T. (2011). Structural changes in India’s foreign Trade, Institute for Studies in
Industrial Development, New Delhi.
3. Bhattacharya, B. (2001). State of the Indian Farmer, Millennium study, Volume 18:
Agricultural Exports, Academic Foundation, New Delhi
4. Hoda, Anwarul (2002). WTO Agreement & Indian Agriculture, Bergham Books, Delhi.
5. Ramphul (2010). WTO and Indian Agriculture, serials Publication, New Delhi.

1. i) Sri Lanka has an absolute advantage in the case of both tea and rubber.
ii) Sri Lanka has a comparative advantage in the case of rubber, while India has a
comparative advantage in the case of tea.
iii) The joint strategy should focus on India specializing in tea and exporting it to Sri
Lanka and importing rubber from it. Sri Lanka should specialize in rubber production.
This strategy would benefit both countries.
2. GATT was established in 1947.
3. A developed country can give support to its agricultural sector only to the tune of 5% of
its agricultural GDP under the WTO agreement.
24
1. India always had a surplus in agricultural trade which means that the value of agricultural
exports exceeded that of agricultural imports every year.
2. The composition of agricultural exports has undergone a change in that the share of raw
agricultural products exported decreased while the share of processed products increased
over the last few decades.
3. The growth in agricultural exports is lagging behind the growth in general exports
because the supply of agricultural products is falling short of the demand for the same and
the competitiveness of agricultural exports is eroding due to the cost-push inflation.
1. The Trade policy of India, 2009-14 has set a target of 25% annual growth in exports
between 2011 and 2014.
2. The trade policy has set a long-term target of doubling the share of India’s exports in total
world exports by 2020.
3. 45 Agro-Export Zones were set up so far in the country.
25

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MAM-052

Agribusiness Management and

Programme Coordinator: Dr. Praveen Kumar Jain

Course Coordinator: Dr. Praveen Kumar Jain

6.2 AGRICULTURE AND AGRIBUSINESS

BACKWARD LINKAGES BACKWARD LINKAGES

Agricultural Inputs Retail Chains

Agricultural Credits Agricultural Exports

Fig. 6.1: Agriculture and Agribusiness

6.2.1 Traditional Farming

6.2.2 Green Revolution

6.2.3 Development of Agribusiness

6.3 ROLE OF POLICY

Regarding agriculture and agribusiness sub-sectors, the policies of maximizing agricultural

Fig. 6.2: Role of Government Policy

6.4.1 Support to Domestic Companies

6.4.2 Competition from International Companies

Fig. 6.3: Possible conflict between agricultural and agri-business policies

Check Your Progress 1

Note: a) Use the space given below for your answers.

3) Give an example of agricultural policy.

4) Why permitting of a fertilizer mixing plant is an agribusiness policy?

6.5 DIMENSIONS OF AGRIBUSINESS POLICY

6.5.1 Retention Price Scheme for Fertilizer Companies

6.5.2 Era of Liberalization

6.5.3 Research and Development Investments

6.5.4 Contract Farming1 and Private Markets

6.6 CONFLICTS IN THE IMPLEMENTATION OF AGRIBUSINESS

6.6.2 Apprehension of Exploitation in Private Markets

6.6.3 Fear of entry by Multinational Companies

Check Your Progress 2

Note: a) Use the space given below for your answers.

2) Have the liberalization policies restricted or improved the competition between

3) Do the Intellectual Property Rights (IPR) promote or inhibit technological progress?

4) How many regulated markets are established in the country?

5) Which company invented plastic?

6.7 CONSTRAINTS IN AGRIBUSINESS SECTOR IN INDIA

1. Diversity of Indian Agriculture: India is a sub-continent with a large diversity of

Check Your Progress 3

Note: a) Use the space given below for your answers.

2) What is the average size of a farm in India?

4) What do you understand by contract farming?

6.8 GOVERNMENT SUPPORT TO FOOD PROCESSING AND

6.9 IMPROVING AGRIBUSINESS ENVIRONMENT

6.10 INDIAN FOOD PROCESSING INDUSTRY: CURRENT

6.11 LET US SUM UP

Intellectual property : It is any creative work or invention considered to be the

Liberalization : It is a very broad term that usually refers to fewer government

Policy : A principle or rule to guide decisions and achieve desired

Regulation : A principle, rule, or law designed to control or govern the

6.13 SUGGESTED FURTHER READINGS / REFERENCES

2. Choudhary S.N (2012). Agri-Business Marketing and Management, Oxford Book

4. Sivakumar,S (2007). Agri-business investments in India- Paper presented at the seminar

5. Sivakumar,S (2007). Agri-business investments in India- Paper presented at the seminar

6.14 ANSWERS TO CHECK YOUR PROGRESS

2. It is an agri-business activity because the entrepreneur is producing the vermin compost

4. Permitting a fertilizer mixing plant is an agri-business policy as it augments the supply

Check Your Progress 2

1. 12 percent profit after tax.

5. Du Pont invented plastic.

Check Your Progress 3

2. The average size of a farm in India is about one hectare.

4. A farmer producing to supply a commodity of specific standards at a pre-determined

7.2 ROLE OF AGRICULTURAL PRICES IN THE INDIAN