AGRICULTURAL MARKETING

1.                 BACKGROUND

Agriculture continues to be main stay of life for majority of the Indian population. It
contributes around 25% of the GDP and employs 65% of the workforce in the country.
Significant strides have been made in agriculture production since independence. The
agriculture production of food grains increased from 51 million tones in 1950-51 i.e. before
beginning of the 1st Five Year Plan to 213 million tones in 2003-04. The output of oilseeds went
up to 23 million tones. Similarly, the production of fruit and vegetables also increased to more
than 134 million tones. The subject of agriculture and agricultural marketing is dealt with both
by the States as well as the Central government in the country.

Starting from 1951, the different Five Year Plans laid stress on development of physical
markets, on farm and off farm storage structures, facilities for standardization and grading,
packaging, transportation etc.. Development of horticulture marketing attracted attention of
policy makers during the 3rd Five Year Plan. The year 1965 witnessed coming into existence of
Central Warehousing Corporation, Food Corporation of India, Agricultural Prices Commission
(later renamed as Commission for Agricultural Costs and Prices) and several other organizations.
Besides number of organizations were set up in the form of commodity boards, cooperative
federations and export promotion councils for monitoring and boosting the production,
consumption, marketing and export of various agricultural commodities. The prominent among
them included Cotton Corporation of India Limited (CCI), the Jute Corporation of India Ltd.
(JCI), the National Cooperative Development Corporation Ltd. (NCDC), the National
Agricultural Cooperative Marketing Federation Ltd. (NAFED), the National Tobacco Growers
Federation Ltd. (NTGF), the Tribal Cooperative Marketing Development Federation Ltd.
(TRIFED), the National Consumers Cooperative Federation Ltd. (NCCF), etc for procurement
and distribution of commodities; and the Tea Board, Coffee Board, Coir Board, Rubber Board,
Tobacco Board, Spices Board, Coconut Board, Central Silk Board, the National Dairy
Development Board (NDDB), National Horticulture Board (NHB), State Trading Corporation
(STC), Agricultural & Processed Foods Export Development Authority (APEDA), Marine
Products Export Development Authority (MPEDA), the Indian Silk Export Promotion Council,
the Cashew nuts Export Promotion Council of India (CEPC), etc. for promotion of production
and exports of specific commodities.  

Most agricultural commodity markets generally operate under the normal forces of
demand and supply. However, with a view to protecting farmers’ interest and to encourage them
to increase production, the Government also fixes minimum support/statutory prices for some
crops and makes arrangements for their purchase on state account whenever their price falls
below the support level. The role of Government normally is limited to protecting the interests
of producers and consumers, only in respect of wage goods, mass consumption goods and
essential goods. The role of Government is promoting organized marketing of agricultural
commodities in the country through a network of regulated markets. To achieve an efficient
system of buying and selling of agricultural commodities, most of the state Governments and
Union Territories have enacted legislations (APMC Act) to provide for regulation of agricultural
produce markets. The basic objective of setting up of network of physical markets has been to
ensure reasonable gain to the farmers by creating environment in markets for fair play of supply
and demand forces, regulate market practices and attain transparency in transactions.  

With a view to coping up with the need to handle increasing agricultural production, the
number of regulated markets has also been increasing in the country. While by the end of 1950,
there were 286 regulated markets in the country, today the number stands at 7521 (31.3.2005).
The Central Government advised all the State Governments to enact Marketing Legislation to
promote competitive and transparent transactional methods to protect the interests of the farmers.
Barring a few, most of the States and Union Territories embarked upon a massive programme of
regulation of markets after enacting the legislation. Most of these regulated markets are
wholesale markets. There are in all 7293 wholesale markets in the country. Besides, the country
has 27294 rural periodical markets, about 15% of which function under the ambit of regulation.
The advent of regulated markets has helped in mitigating the market handicaps of
producers/sellers at the wholesale assembling level. But, the rural periodic markets in general,
and the tribal markets in particular, remained out of its developmental ambit. The State-wise
distribution of regulated markets and market yards is given in Annexure-I.
 The area served by each market across the States (Annexure-II) reveals large variations.
The area served per regulated market varies from 74 sq km in Punjab to 2257 sq km in Assam.
On an average, a regulated market serves 459 sq km area in the country which is quite high.
Farmers have to travel long distances with their produce to avail the facility of regulated markets.
The National Commission on Agriculture (1976) had recommended that the facility of regulated
market should be available to the farmers with in a radius of 5 km and if this is
considered a bench mark, the command area of a market should not exceed 80 sq km.
However, in the existing scenario, except Delhi, Punjab, Chandigarh and Pondicherry, in no
State, the density of regulated markets is close to the norm.  

The infrastructural amenities available in the regulated markets of the country are shown
in Annexure -III. Auction platforms are needed in market for settlement of price of the produce
in a congenial atmosphere between buyers and sellers. Both covered and open auction platforms
exist in only two-thirds of the regulated markets. Some commodities when brought for sale
contain higher moisture than desired level and hence there should be a space for drying.
Presently only one-fourth of the markets have common drying yards. Trader modules viz. shop,
godown and platform in front of shop exist in 63% of the markets. Cold storage units are needed
in the markets where perishable commodities are brought for sale. They are brought for sale
only in a few markets. The cold storage units exist only in 9% of the markets and grading
facilities exist in less than one-third of the markets. The basic facilities viz. internal roads,
boundary walls, electric lights, loading and unloading facilities and weighing equipment are
available in more than 80% of the markets. Farmers’ rest houses exist in more than half of the
regulated markets. It is evident from the above that there is considerable gap in the facilities
available in the market yards.

CONSTRAINTS OF PRESENT MARKETS

The purpose of regulation of agricultural markets was to protect farmers from

the exploitation of intermediaries and traders and also to ensure better prices and timely payment
for his produce. Over a period of time these markets have, however, acquired the status of
restrictive and monoplistic markets, providing no help in direct and free marketing, organized
retailing, smooth raw material supplies to agro – processing, competitive trading, information
exchange and adoption of innovative marketing systems and technologies. Farmer cannot sell
his produce directly in bulk except on retail basis to the consumers. Farmers have to bring their
produce to the Market yard. Exporters, processors and retail chain operators can not get desired
quality and quantity of produce for their business due to restrictions on direct marketing. The
processor can not buy the produce at the processing plant or at the warehouse. The produce is
required to be transported from the farm to the market yard and then only it can be purchased and
taken to the plant. There is thus an enormous increase in the cost of marketing and the farmer
end up getting a low price for his produce.

Under the APMC Act, only State Governments are permitted to set up markets. Monopolistic
practices and modalities of the State-controlled markets have prevented private investment in the
sector. The licensing of traders in the regulated markets has led to the monopoly of the licensed
traders acting as a major entry barrier for a new entrepreneur. The traders, commission agents
and other functionaries organise themselves into associations, which generally do not allow easy
entry of new persons, stifling the very spirit of competitive functioning.

NEED FOR REFORMS

Agriculture sector needs well functioning markets to drive growth, employment

and economic prosperity in rural areas of the country. In order to provide dynamism and
efficiency into the marketing system, large investments are required for the development of post
harvest and cold chain infrastructure nearer to the farmers’ field. Projection of production and
marketable surplus of various farm products was recently assessed by an Task Force set up by
the Ministry of Agriculture which estimated that an investment of Rs.12,230 crore in next 10th
Plan would be necessary for infrastructure development for agricultural marketing. A major
portion of this investment is expected from the private sector, for which an appropriate
regulatory and policy environment is necessary. Alongside, enabling policies need to be put in
place to encourage procurement of agricultural commodities directly from farmers’ field and to
establish effective linkage between the farm production and the retail chain and food processing
industries. Towards this end, the Inter-Ministerial Task Force on Agricultural Marketing
Reforms constituted by this Ministry in its report of 28.06.2002 has made the following
important recommendations:

i. Promotion of competitive agricultural markets in private and cooperative sectors, direct

marketing and contract farming programmes by amending the State Agricultural Produce
Marketing Regulation Acts and to provide central assistance for the development of marketing
infrastructure subject to such deregulation and reforms;

ii. Progressive dismantling of controls and regulations under the Essential Commodities Act
to remove all restrictions on production, supply, storage and movement of, and trade and
commerce in respect of all agricultural commodities;

iii. Substantial step up in flow of institutional credit to farmers for marketing of crops (pledge
financing) to enhance their holding capacity to obtain remunerative price for their produce;

iv. Expand availability of warehousing services in rural areas by introducing negotiable

warehousing receipt system for agricultural commodities; and

v. Allow futures trading in all agricultural commodities to improve price risk management and
facilitate price discovery by amending the Forward Contracts (Regulation) Act, 1952;
 The recommendations contained in these Reports were discussed with the State
Governments at a National Conference on 27th September, 2002 and later by a Standing
committee of State Ministers on 29th January, 2003. In the Conference as well as the Standing
Committee, State governments expressed the view that reforms in the agricultural marketing
sector were necessary to move away from a regime of controls to one of regulation and
competition. In view of liberalization of trade and emergence of global markets, it was
necessary to promote development of a competitive marketing infrastructure in the country and
to bring about professionalism in the management of existing market yards and market fee
structure. While promoting the alternative marketing structure, however, Government needs to
put in place adequate safeguards to avoid any exploitation of farmers by the private trade and
industries. For this, there was a need to formulate a model legislation on agricultural marketing.

The Ministry of Agriculture accordingly formulated a model law on agricultural marketing

in consultation with the States Governments. The draft model legislation provides for
establishment of Private Markets/Yards, Direct Purchase Centres, Consumer/Farmers Markets
for direct sale and promotion of Public Private Partnership in the management and development
of agricultural markets in the country. It also provides for separate constitution for Special
Markets for Commodities like Onions, Fruits, vegetables, Flowers etc. A separate Chapter has
been included in the legislation to regulate and promote contract-farming arrangements in the
country. It provides for prohibition of commission agency in any transaction of agricultural
commodities with the producers. It redefines the role of present Agricultural Produce Market
Committee to promote alternative marketing system, contract farming, direct marketing and
farmers/consumers markets. It also redefines the role of State Agricultural Marketing Boards to
promote standardization, grading, quality certification, market led extension and training of
farmers and market functionaries in marketing related areas. Provision has also been made in the
Act for constitution of State Agricultural Produce Marketing Standards Bureau for promotion of
Grading, Standardization and Quality Certification of agricultural produce. This would facilitate
pledge financing, E-trading, direct purchasing, export, forward/future trading and introduction of
negotiable warehousing receipt system in respect of agricultural commodities.

IMPLEMENTATION OF AGRICULTURAL MARKETING REFORMS

A. Implementation of Model Act on Agricultural Marketing

The following steps have been taken to persuade the States to bring changes in the

APMC Act on the lines of the Model Act:

i)                   National level meetings were organized with the State Governments at Delhi on
07.01.2004 and at Bangalore on 19.11.2004.

ii)                 Follow up letter from Union Agriculture Minister sent to State Ministers In-
charge of Agricultural Marketing for amending the APMC Act on 16th July, 2004
and again on February, 2005 and to the Chief Ministers on 25-5-05.

iii)               A new Central Sector Scheme to provide investment subsidy on market

infrastructure development projects implemented in November, 2004. Central
assistance under the scheme is to be provided in those States that amend the
APMC Act on the lines of the Model Act. An amount of Rs.25 crore was also
released to NABARD/ NCDC to provide investment subsidy to eligible projects
through banks in March, 2005.

iv)              Several States have initiated steps for amending the APMC Act. A statement
indicating the latest progress state-wise is at Annexure IV. It is expected that with
the initiatives already undertaken and the subsequent follow up done by the
Department, most of the States may amend the APMC Act by March, 2006.  

B Contract Farming

Contract farming has been prevalent in various parts of the country for commercial crops
like sugarcane, cotton, tea, coffee, etc. The concept has, however, gained importance in recent
times in the wake of economic liberalization. The main feature of contract farming is that
farmers grow selected crops under a buy back agreement with an agency engaged in trading or
processing.

There are many success stories on contract farming such as potato, tomato, groundnut
and chilli in Punjab, Safflower in Madhya Pradesh, oil palm in Andhra Pradesh, seed production
contracts for hybrids seed companies in Karnataka, cotton in Tamil Nadu and Maharashtra etc.
which helped the growers in realization of better returns for their produce.  

In our country contract farming has considerable potential where small and marginal
farmers can no longer be competitive without access to modern technologies and support. The
contractual agreement with the farmer provides access to production services and credit as well
as knowledge of new technology. Pricing arrangements can significantly reduce the risk and
uncertainty of market place.  

Small-scale farmers are frequently reluctant to adopt new technologies because of the
possible risks and costs involved. In contract farming, private agribusiness will usually offer
improved methods and technologies because it has a direct economic interest in improving
farmers' production to meet its needs. In many instances, the larger companies provide their own
extension support to contracting farmers to ensure that production is according to the
specification. Skills the farmer learns through contract farming may include record keeping,
improved methods of applying chemicals and fertilizers and knowledge of the importance of
quality and of the demands of export markets. 

In view of above, contract-farming arrangements need to be encouraged widely. While

doing so, Government needs to protect the interest of both the farmers as well as the industry
equitably. This would require arrangement for registration of sponsoring companies and
recording of contract farming agreements, in order to check unreliable and spurious companies.
A dispute resolution mechanism need to be set up near to farmers which can quickly settle
issues, if any, arising between the farmers and the company under a quasi-judicial manner. The
farmers while raising the contracted crops, run the risk of incurring debt and consequent
displacement from land in the event of crop failure. Farmers need to be indemnified from such
displacement by law. 

Model law on marketing has been formulated keeping these requirements in view. This
law inter-alia provides for an institutional arrangement for registration of sponsoring companies,
recording of Contract Farming Agreement, indemnity to farmers’ land and lays down a time
bound dispute resolution mechanism. The Model law has been discussed with the State
Governments and the representatives of Trade and Industries at the National Conference of State
Agriculture Ministers on 7th January, 2004 and again on 19th November, 2004 and a consensus
has been arrived at to give a major thrust to this programme. Several State Governments have
already initiated legal amendments to APMC Act. Haryana and Gujarat are among the first
States to take steps in establishing an institutional set up for supporting contract farming in these
States. A statement indicating the status of contract farming as reported by DMI is at Annexure
V.

INFRASTRUCTURE REQUIREMENT

             Projections of production and marketed surplus of various farm products

show that the quantities, which the marketing system will be required to handle in future,
are quite large. A marketing system backed by strong, adequate infrastructure is at the
core of agricultural marketing. Market infrastructure is important not only for the
performance of various marketing functions and expansion of the size of the market but
also for transfer of appropriate price signals leading to improved marketing efficiency.
High investment and entrepreneurial skills required for creation and management of
modern markets has to come from private sector. The situation of control by the state has
to be eased to facilitate greater participation of the private sector, particularly to engender
massive investments required for the development of marketing infrastructure and
supporting services. Investment requirement for the development of marketing, storage
and cold storage infrastructure in the country during 10th Plan has been estimated by a
Task Force to be of the order of Rs. 12,230 crores. The outlay required for the segments
is at ( Annexure -VI ). 

With a view to induce large investment in the development of marketing infrastructure as

envisaged above, the Ministry has formulated a scheme for “Development/Strengthening of
Agricultural Marketing Infrastructure, Grading and Standardization”. Under this scheme
investment subsidy is provided on the capital cost of general or commodity specific
infrastructure for marketing of agricultural commodities and for strengthening and modernization
of existing agricultural markets, wholesale, rural and periodic or in tribal areas. The scheme is
reform linked, to be implemented in those States/UTs that amend the APMC Act wherever
required to allow setting up of agricultural markets in private and cooperative sectors. The States
of Madhya Pradesh, Tamil Nadu, Kerala, Manipur, Himachal Pradesh, Andhra Pradesh, Punjab,
Sikkim, Nagaland and Andaman & Nicobar Ilands (U.T.) have so far been notified for
implementation of the Central Sector Scheme, being the reforming States. Under the scheme,
back ended subsidy @ 25% of capital cost of the project is provided in all States and @ 33.3% of
capital cost in case of NE States, hilly areas and SC/ST entrepreneurs.In respect of infrastructure
projects of State Agencies, there is no upper ceiling on subsidy to be provided under the scheme.
There is central allocation of Rs. 190.00 crore under the scheme 10th Plan. An amount of Rs. 25
crore has been released under the scheme during 2004-05. Efforts are being made to make the
people aware about the scheme through newspaper advertisement, distribution of publicity
material and by arranging awareness programmes for officials of States and Banks.

Storage Infrastructure

Storage infrastructure is necessary for carrying over the agricultural produce from
production periods to rest of the year. Lack of adequate scientific storage facilities cause heavy
losses to farmers in terms of wastage in quantity and quality of produce in general and of fruit
and vegetables in particular. It is well known that small farmers do not have the economic
strength to retain produce with themselves till the market prices are favourable. There is a felt
need in the country to provide the farming community with facilities for scientific storage so that
wastage and produce deterioration are avoided and also to enable it to meet its credit requirement
without being compelled to sell the produce at a time when the prices are low. Among the
principal agencies engaged in warehousing and storage, FCI constructs godowns for their own
needs of procurement and public distribution, the storage of CWC/ SWCs is by and large utilised
by FCI, traders and for stocking fertilizers. These principal agencies have, therefore, by and large
tended to bypass the requirement of farming community in the rural areas. To consider various
aspects of the problems relating to storage of agricultural produce and to improve the country’s
storage capacity and also storage technology, the Govt. constituted a High level Expert
Committee which inter alia recommended that about 20 lakh tonne storage capacity may be
created in rural/semi-urban areas. Creation of storage facilities for agricultural produce,
particularly in the rural area has also been emphasized in the National Agriculture Policy. An
Inter-Ministerial Task Force constituted by the Ministry of Agriculture has in its report inter alia
recommended in 2002 that in addition to 78.83 million tonne available storage capacity in the
country additional storage capacity of 130 lakh tonne may be created during 10 th plan period. Of
this 90 lakh tonne capacity is to be created in private and cooperative sector.  

Accordingly the capital investment subsidy scheme titled ‘Gramin Bhandaran Yojana’ has
been launched w.e.f. 01.04.2001. The main objectives of the scheme include creation of
scientific storage capacity with allied facilities in rural areas to meet out various requirements of
farmers for storing farm produce, processed farm produce, agricultural inputs, etc., and
prevention of distress by creating the facility of pledge loan and marketing credit. 

Initially scheme was approved for two years i.e. 2001 to 2003. Since there had been
huge response to the scheme, it was extended up to 30.9.2004. Beyond this date the scheme has
been approved for continuation up to 31.3.2007 with some modifications. Under the pre-revised
scheme, back ended subsidy @ 25% of capital cost of the project has been provided. In case of
NE States, hilly areas and SC/ ST entrepreneurs, subsidy has been provided @ 33.33% of the
capital cost of the project. Under the revised scheme, subsidy @ 25% will be given to all
categories of farmers, Agriculture graduates, cooperatives & CWC/ SWCs. All other categories
of individuals companies and corporations would be given subsidy @ 15% of the project cost. In
case of NE States/hilly areas & SC/ST entrepreneurs and their cooperatives, subsidy shall be
33.33%. 

Though a total of 90 lakh tonne capacity of Rural Godown was targeted during 10th Plan
period, the same has now been revised upwards to 140 lakh tonne on the target of 90 lakh tonne
capacity was already achieved during 2004-05 itself. Increased requirement of Rural Storage has
been necessitated on account of increase in the production of food grain and its continuing
increasing trend. During last three years 9483 storage projects having a capacity of 141.83 lakh
tonne have already been sanctioned under the scheme by now. The statement showing state-wise
progress is enclosed at Annexure-VII. The capacity-wise break-up of godown are given
below:- 

Capacity-wise breakup of sanctioned project  

100-500 tonne 501-1000 tonne 1001-5000 tonne 5000-10000 tonne Total

 5602 1224 2221 436 9483

  Out of 9483 godowns sanctioned so far, 335 godowns are in public sector, 2376 are in
farmers cooperative, 5050 godowns belong to farmers and 1722 godowns are owned by others
like traders, companies, etc.

The year-wise physical and financial performance under the scheme has been as under:-

Financial (Rs. in crores)

Target Achievement R.E. Expenditure
2001-03 20 67.35 84.86 84.86
2003-04 27 37.57 80.00 80.00
2004-05 38 36.91 100.00 100.00
2005-06 26 -- 80.00 --
2006-07 10 -- 35.00 --
Total 121 141.83 369.86 264.86

The scheme has now been made farmers’ friendly by allowing subsidy for smaller
godowns of 50 MT size in general and of 25 in hilly areas. Five lakh tones capacity to be created
is reserved for small farmers and the target of construction in the Tenth Plan is enhanced from 90
to 140 lakh tonne.

Marketing Research & Information Network

With a view to provide to electronic connectivity to all the important wholesale

markets in the country, this Department is implementing a Marketing Information Network
Scheme viz. ‘AGMARKNET’. The aim of the scheme is to collect and disseminate (price and
market related) information in respect of agricultural commodities. The scheme was launched in
the year 2000-01 and as on date 1269 markets from all over the country have been linked to a
central portal. It is planned to connect 2700 important markets to the AGMARKNET Portal by
March 2007.
Price related information: Information on price of agricultural commodities is collected by
Auction Officers in the mandi through the process of auction that takes place from early in the
morning and goes up to lunchtime. The data is usually sent by e-mail from the mandi in the
afternoon indicating the day’s minimum price of the commodity, the maximum price and the
modal price, i.e. the price at which the maximum sales have taken place. The quantity of arrivals
is also reported. E-mail from all the markets are compiled in the DMI/NIC Headquarter and
after verification uploaded on the portal. Information on the portal is in public domain and can be
accessed freely. As on date, price information in respect of more than 300 commodities and
2000 varieties are reported on the Site.

Market related information: In addition to price, several other markets related information
is provided on the portal. These relate to accepted standards of grades, labeling, sanitary and
phyto-sanitary requirements, physical infrastructure of storage and warehousing, marketing laws,
fees payable etc. Efforts are on to prepare a national atlas of agricultural markets on a GIS
Platform that would indicate the availability of entire marketing infrastructure in the country
including storages, cold storages, markets and related infrastructure. Similarly commodity
profiles indicating the post harvest requirements of important commodities in terms of quality,
packing, standards etc. are being loaded on to the portal. Commodities already covered include
Rice, Bengal gram, Red gram and mustard rapeseed.

Links: The portal has links with several Ministries and Central Institutions that are directly
involved in implementing agriculture related programmes. The portal is also linked online with
commodity exchanges, providing future prices in respect of cereals, oilseeds, etc. International
price trends of agricultural commodities available on FAO website can also be acceded through
the portal. The portal is constantly enriched by dissemination of information in regional
languages.
Users: Price and other data reflected on the portal is being made use of by several agencies
including Banks, Commodity Exchanges, Newspapers, Market Committees, Farmers’
Organizations etc. Price information on the portal has credibility since it is generated by the
Government system and acts as a reference point.

Technical Support: Technical support to the site is provided by a team of senior officers at the
NIC Headquarters at Delhi, State coordinator at the NIC Regional Office and the NIC District
Centers located in all districts of the country. Coordination with the State Governments is
achieved through the State Marketing Boards under whose administrative control the State
regulated markets function.

Financial Outlay: This Department has incurred an expenditure of about Rs.25 crores on
the implementation of the Scheme. Outlay for the scheme during 10th Plan is Rs.35 crores.

‘AGMARKNET’ is a unique live portal on agricultural commodities, technically

supported by a high capacity Central server and the programming capabilities of the NIC and the
data is fed into the system and later disseminated to farmers in a decentralized mode through the
voluntary cooperation of mandi staff.