Potato J (2017) 44 (2): 89-94

ECONOMIC ANALYSIS OF MARKETING SYSTEM

OF POTATO IN KANGRA DISTRICT OF HIMACHAL
PRADESH
Vikalp Sharma1, Harbans Lal1 and Divya Sharma1
ABSTRACT: Potato is one of the principal cash crop grown in Himachal Pradesh and occupies 14,685 hectares of area which
is about 20% of the total area under vegetables in the state. The study is based on data collected from 60 farmers selected
through proportional allocation from selected villages of two blocks namely Bhawarna and Nagrota Bagwan. The marketable
surplus of potato accounted for nearly 94% of its total production. The total production, losses and family size turned out
to be most important factors affecting the marketed surplus of potato. The channel-IV involving local traders, commission-
agent-cum-wholesalers, retailers and consumers were the most important channel. The producer’s share in consumer’s rupee
was highest in Channel-I (92.61%) where the farmers sold potato directly to the consumers. The channel-IV (involving
producers, local traders, wholesalers, retailers, consumers) was found to be most efficient and prominent in the study area
from the view point of higher net price received by farmers and higher marketing efficiency index.

KEYORDS: Marketing channel, marketing efficiency, marketable surplus.

INTRODUCTION undertaken in Kangra district of Himachal

The production of potato in Himachal
Pradesh is 1.81 lakh tonnes (Statistical
Yearbook of Himachal Pradesh, 2014-15).
In Kangra District it is cropped over 12,550
hectares in 15 blocks and make production
around 14,170 tones. Potatoes grown in
this region have high dry matter content
and are suitable for processing. The crop
is generally harvested in May and can be
supplied till July by the local farmers. In
the Kangra district, specifically along the
Palampur and Nagrota Bagwan belt the
catch is generally got demand from the
food processing industries. The supply of
cultivable land in the state is very limited
because of geographical and topographical
reasons. In spite of these, the diversification
towards there high value cash crops in
the state is gaining momentum as these
crops provide higher returns and promote
value added agribusiness enterprises. With
this background, the present study was
Pradesh with the specific objective of study
the marketing system along with marketing
costs, margins and marketing efficiencies.
MATERIALS AND METHODS
Two stage stratified random sampling
technique was employed for selection of
potato growing villages (stage I) and farmers
(stage II). Keeping the time and resources
availability at the disposal of the researcher
in view, a manageable sample of 60 farmers
was drawn from the selected villages through
the proportional allocation technique. With
the help of cube root cumulative frequency
(3√f) method, the farmers were classified
into two categories. In this way, 28 small and
32 large farmers were selected. In addition
to this, a sample of ten traders including
market functionaries was drawn to study
the marketing aspects of potato. The costs,
margins, and price-spread involved in potato
marketing were analyzed.

Department of Economics, CSK HPKV, Palampur-176062, Himachal Pradesh, India

1

Email: vikalpecon77@gmail.com
Vikalp Sharma, Harbans Lal and Divya Sharma
RESULTS AND DISCUSSION
Marketing channels are the alternative
routes through which a commodity passes
from producers to the consumers. The four
main marketing channels identified in the
marketing of potato during the course of study.
Channel I Producer → Consumer
Channel II Producer → Retailer → Consumer
Channel III Producer → Wholesaler → Retailer
→ Consumer
Channel IV Producer → Local trader →
Wholesaler → Retailer → Consumer
The perusal of the Table 1 reveals that
channel IV involving local traders, commission
agent cum wholesalers, retailers and consumers
was the most important channel followed by
about 42 per cent of farms through which
about 43 per cent of the total marketed surplus
of potato was disposed off. This marketing
channel was quite popular in both the
categories of farms. The channel II consisted
of producers, retailers and consumers was
the next most important marketing channel
through which more than 45 per cent of
farms sold about 32 per cent of the marketed
surplus. The channel III was followed by 22
per cent of farms. The proportion of the total
marketed surplus routed through this channel
was found to be around 20 per cent on an
average farm. This channel was not so popular
among small farms because of comparatively
small quantity of surplus produce available
with them as compared to large farms. It can
be seen further in the table that all though
channel I was usually followed by more than
70 per cent of the farms but only five per cent
of total quantity sold was routed through the
channel. Thus, it was clear that channel IV
involving local traders and channel II involving
retailers were the most important channels
for marketing of potato as the maximum
quantity (75.13%) of marketed surplus could
90
Table 1. Marketing channels patronized by sample farms
(quintal/farm)
Sr. Particulars Small Large Overall
No.
1 Channel I 1.33 5.19 3.26
2 Channel II 12.77 46.00 30.00
3 Channel III 20.67 43.40 38.15
4 Channel IV 20.33 66.00 44.08
Total marketed surplus 17.86 63.91 42.42
be sold through these channel in the study
area. During the survey it was found that local
trader were residents of the same village and
were also found to grow and market potato.
They were found to purchase the produce
from the farmers and were directly selling to
commission agents. They were operating as
the main agency for potato disposal in case
of small farmers.
The marketable surplus in agricultural
sector in developing countries is of crucial
importance because it leads to capital formation
on the farm which may be invested on land,
modern inputs and farm implements thereby
increasing the overall productivity and income
of the farms. Out of the total production of
about 46 quintals on an average farm, only
six per cent was utilized as retention for
domestic use, seed purpose, gift to relatives
and others (Table 2). The marketable surplus
of potato which constitutes the produce left
with the farmer after meeting the requirement
of home consumption and retention for other
purposes accounted for nearly 94.17 per cent
of its total production across the different
categories of farms. It is further noticed that
the marketed surplus got further reduced
to about 92 per cent on an average farm
because of post-harvest losses incurred during
the storage and transit of produce from its
harvesting/assembling period up to selling
of the produce by the buyers/traders. The
losses incurred were to the tune of for only
one to two per cent of total production. The
Potato J 44 (2): July - December, 2017
 Economic analysis of marketing system of potato in Kangra

Table 2. Marketable and marketed surplus of potato on sample farms (quintal/farm)

Sr. No. Particulars Small Large Overall

1 Total production 19.64 (100.00)* 68.91 (100.00) 45.92 (100.00)
2 Utilisation
Home consumption 0.55 (2.80) 1.29 (1.87) 0.94 (2.06)
Gifts and others 0.39 (1.99) 1.03 (1.49) 0.73 (1.59)
Sub total 1.45 (7.39) 4.02 (5.83) 2.82 (6.14)
3 Marketable surplus 18.19 (92.61) 64.89 (94.17) 43.10 (93.86)
4 Losses 0.35 (1.78) 0.97 (1.42) 0.68 (1.48)
5 Marketed surplus 17.84 (90.83) 63.92 (92.75) 42.42 (92.37)
*Figures in the parentheses indicate percentages to the total in each category

table also portrays that on per farm basis, the
large farms marketed nearly four times more
quantity of potato than those of small farms.
A critical examination of marketing costs
and margins is of immense help in indicating
the efficiency of the marketing system. The
marketing cost incurred by the various
marketing agencies in marketing of potato
has been analysed. Various items of marketing
cost per quintal (q) of produce incurred by
farmers in marketing of potato are presented
in Table 3. The total marketing cost paid by
farmers varied from Rs 46.27/quintal (channel-
IV) to Rs 84.27/quintal (channel-II) among
the various cost items. The cost incurred
in grading, filling and stitching of bags
accounted for a major share of total marketing
cost across the different marketing channels.
The cost incurred on account of storage also
accounted for more than 23 per cent of total
marketing cost. The total cost of marketing
paid by the wholesaler given that among
various components of total marketing cost,
the commission charges, handling /packing
charges, losses during storage and market fee
were prominent and each item accounted for
nearly 21 to 26 per cent of total marketing
cost across the different channels of marketing
(Table 4). The retailer incurred a maximum
marketing cost of Rs 57.62/q in case of channel
III and channel IV. The losses/wastage,
packing cost and transportation charges were
the main components of costs. The marketing
cost for storage and losses accounts nearly 33
per cent in channel I.
The perusal of Table 7 indicates that among
the different channels, the producer’s share in
consumer’s rupee was highest in channel I

Table 3. Marketing cost incurred by sample farms (Rs. /quintal)

Sr. Particular Marketing channels

No.
Channel I Channel II Channel III Channel IV
1 Storage and losses 17.87 (32.93) 22.93 (27.21) 17.87 (25.62) 10.87 (23.49)
2 Cost of grading, filling, stitching 31.40 (57.86) 31.40 (37.26) 31.40 (45.02) 31.40 (67.87)
3 Loading and transportation charges 3.00 (5.53) 20.47 (24.29) 14.47 (20.75) 3.00 (6.48)
4 Unloading charges - 3.47 (4.12) 2.00 (2.87) -
Others 2.00 (3.68) 6.00 (7.12) 4.00 (5.74) 1.00 (2.16)
Total 54.27 (100.00) 84.27 (100.00) 69.73 (100.00) 46.27 (100.00)
Note: Figures in the parentheses indicate percentages to the total in each category

Potato J 44 (2): July - December, 2017 91

Vikalp Sharma, Harbans Lal and Divya Sharma

Table 4. Marketing cost incurred by commission agent -cum- Table 6. Marketing cost incurred by local traders (Rs/quintal)
wholesalers (Rs. /quintal)
Sr. Particulars Marketing channel
Sr. Particulars Marketing channels No. (Channel IV)
No.
Channel I Channel II 1 Transportation charges 11.00 (25.29)
1 Wastage/spoilage 18.00 (21.92) 18.00 (22.76) 2 Storage and losses 24.50 (56.33)
2 Commission 20.50 (24.97) 20.50 (25.92) 3 Loading/unloading 4.00 (9.19)
3 Handling/packing 20.00 (24.36) 20.00 (25.28) 4 Others 4.00 (9.19)
4 Market fee 17.60 (21.44) 17.60 (22.25) 5 Total 43.50 (100.00)
5 Others 6.00 (7.31) 3.00 (3.79) Note: Figures in the parentheses indicate percentages to the
6 Total 82.10 (100.00) 79.10 (100.00) total in each category

*Figures in the parentheses indicate percentages to the total

in each category
Table 5. Marketing cost incurred by retailers (Rs/quintal)

Sr. Particulars Marketing channels

No.
Channel II Channel III Channel IV
1 Wastage/spoilage 20.00 (37.71) 20.13 (34.93) 20.13 (34.93)
2 Commission charges/market fee - 6.54 (11.35) 6.54 (11.35)
3 Loading/unloading 4.60 (8.67) 4.60 (7.98) 4.60 (7.98)
4 Transportation charges 18.34 (34.58) 14.25 (24.73) 14.25 (24.73)
5 Packing cost 7.10 (13.38) 7.10 (12.33) 7.10(12.33)
6 Others 3.00 (5.66) 5.00 (8.68) 5.00 (8.68)
7 Total 53.04 (100.00) 57.62 (100.00) 57.62 (100.00)
*Figures in the parentheses indicate percentages to the total in each category

Table 7. Price-spread of potato in different marketing channels (Rs. /q)

Sr. Particulars Channel Per cent of Channel Per cent of Channel Per cent of Channel Per cent of
No. I consumer II consumer III consumer IV consumer
price price price price
1 Price received by farmer 900.00 100.00 912.00 77.95 912.00 74.14 905.00 72.40
2 Cost incurred by farmer 54.27 7.39 84.27 7.20 69.73 5.67 46.27 3.70
3 Net price received by the farmer 845.73 92.61 827.73 70.75 842.27 68.48 858.73 68.14
4 Cost incurred by local trader - - - - - - 43.50 3.48
Sale price of local trader 980.00 78.40
5 Gross margin of local trader 75.00 6.00
6 Net margin of local trader 31.50 2.52
7 Cost incurred by wholesaler - - - - 82.10 6.67 79.10 6.33
8 Sale price of wholesaler - - - - 1050 85.37 1110.00 88.80
9 Gross margin of wholesaler - - - - 138.00 11.22 130.00 10.40
10 Net margin of wholesaler - - - - 55.90 4.54 50.90 4.07
11 Cost incurred by retailer - - 53.04 4.53 57.62 4.69 57.62 4.61
12 Gross margin of retailer - - 258.00 22.05 180.00 14.63 140.00 11.20
13 Net margin of retailer - - 204.96 17.52 122.38 9.95 82.38 6.59
14 Sale price of retailer/consumer 900.00 100.00 1170.00 100.00 1230.00 100.00 1250.00 100.00
purchase price
15 Price spread - - 258.00 318.00 345.00

92 Potato J 44 (2): July - December, 2017

 Economic analysis of marketing system of potato in Kangra

where the farmers sold potato directly to the
consumers. Among different intermediaries
involved, the margin of retailer was found to
be highest among different channels. It was to
the tune of about 17 per cent of consumer’s
rupee in channel II, which was a short channel.
The margin of wholesaler varied from four to
five per cent from channel III to channel IV.
The local trader was operating only in one
channel where he earned 2.52 per cent of
consumer’s rupee. Among different channels,
price spread was found to be highest in
channel IV (Rs 345).
It is clear from the Table 8 that marketing
efficiency in channel I (15.58) was very high
because in this channel producers were directly
sold, their produce to the consumers, followed
by channel IV (2.95) and channel II (2.42) and
lowest in case of channel III (2.17). Thus, the
analysis of marketing channels shows that
farmers of the study area could not patronize
the most efficient marketing channel for the
sale of potato. This was due to the fact that
in these channel growers could sell a limited
quantity of the potato. Among the other
marketing channels, channel I turned out
to be more efficient on the basis of higher
marketing efficiency index and no price spread
as compared to other channels of marketing.
Channel IV was found to be most efficient &
prominent in the study area from the view
point of higher net price received by farmers
and higher marketing efficiency index.
Total production (X1), losses (X2) and
family size (X4) were the most important
factors affecting marketed surplus of potato
(Table 9). The total production and family
size showed positive relationship with the
marketed surplus whereas the losses show
a negative significant relationship with the
marketed surplus. The table further reveals
that on large category of farms education of
head of the family had significant positive
effect on the marketed surplus. The size of

Table 8. Marketing efficiency of different marketing channels

Number Marketing channel Price paid by consumer Marketing cost + Marketing Marketing efficiency
(Rs/q) margins (Rs/q)
1 I 900 54.27 15.58
2 II 1170 342.27 2.42
3 III 1230 387.73 2.17
4 IV 1250 316.27 2.95

Table 9. Estimated regression equations of marketed surplus of potato

Number Particulars Regression Small Large Overall

coefficient
1. Total production (X1) b1 1.0252* (0.0819) 1.0542* (0.0327) 1.0854* (0.0227)
2. Losses (X2) b2 -0.0221 (0.0339) -0.0146*** (0.0107) -0.0334** (0.0185)
3. Family size (X3) b3 0.3040** (0.1903) 0.0031 (0.0433) 0.0892*** (0.0684)
4. Education of the head of family (X4) b4 -0.0003 (0.0334) 0.0298* (0.0145) -0.0047 (0.0216)
5. Operational holding (X5) b5 0.1455** (0.0947) -0.014 (0.0469) -0.0123 (0.0485)
Adjusted coefficient of multiple determination R2 0.9696 0.9768 0.9720
F- value 111.83 1313.00 1102.00
Note: Figures in parentheses indicate standard error
*Significant at 1% level of significance
**Significant at 5% level of significance
***Significant at 10% level of significance

Potato J 44 (2): July - December, 2017 93

Vikalp Sharma, Harbans Lal and Divya Sharma
operational holding showed direct relationship
with the marketed surplus of population
in case of small category of farms. This
shows that under small category of farms,
the marketed surplus could be increased by
increasing the operational holding and family
size. The variables viz., head of the family and
operational holding size did not display any
statistically significant relationship with the
marketed surplus on an average farm. This
confirms that with the increase in holding size
it is not possible to increase the of potato crop
under average and large category of farms
in the study region as it is a highly labour
intensive crop.
CONCLUSIONS
According to the findings the local traders
were the main marketing agency operating
in the study area, for marketing of potato,
as they handled about 43 per cent of total
marketed surplus. The marketing cost incurred
by producer was maximum in channel II
(involving producers, retailers and consumers).
The channel IV (involving producers, local
traders, wholesalers, retailers, consumers) was
found to be most efficient and prominent in the
study area from the view point of higher net
price received by farmers and higher marketing
efficiency index. The marketing system is
totally unorganized so there is a strong need
to encourage potato farmers to form their
own cooperatives/self-help institutions for
increasing their bargaining power and ensure
efficient marketing of potato.
94
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MS received: 12 November 2017; Accepted: 26 December
2017
Potato J 44 (2): July - December, 2017