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CHAPTER 1
INTRODUCTION
Mankind is considered the superior to the living things in the world. Civilization
transformed that into producer of food and other basic requirements from the nomadic
behavior in which hunting and snatching were the way of life. Land cultivation and food
production marked the beginning of civilization particularly in the riparian lands. Mother
Nature has to offer Her blessings to satisfy the food needs of all living creatures. Land
cultivation, otherwise known as farming is influenced by the behavior of natural events
like rainfall, drought, flood, storm and so on and so forth. Food production has its
limitations and so all food cannot be produced in all places. In other words, food
production is restricted to specific locations where the soil, weather and moisture favor
that activity. Nevertheless food produced has to be consumed worldwide by the human
beings, animals, birds and others in need. A group of people specializing in food
production and identified as farmers shoulder the noble responsibility of feeding the
entire world. Hence there is no need to emphasis that food produced at specific places
has to be distributed to other places of consumption. It is in this juncture, marketing
plays its vital role.
Marketing is as critical to better performance in agriculture as farming itself.
Therefore, market reform and marketing system improvement ought to be an integral
part of policy and strategy for agricultural development. Although a considerable
progress has been achieved in technological improvements in agriculture by the use of
high-yielding variety seeds and chemical fertilizers, and by the adoption of plant
protection measures, the rate of growth in farming in developing countries limping
behind the desired levels. This has been largely attributed to the fact that not enough
attention has been devoted to the facilities and services which must be available to
farmers that would support agricultural sector for its development. Marketing is one of
those facilities needed for over all economic development of nations.
Concept and Definition
The term agricultural marketing is composed of two words – agriculture and
marketing. Agriculture, in the broadest sense, means activities aimed at the use of
natural resources for human welfare, i.e., it includes all the primary activities of
production. But, generally, it is used to mean growing and/or raising crops and livestock.
Marketing encompasses a series of activities involved in moving the goods from the
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point of production to the point of consumption. It includes all activities involved in the
creation of time, place, form and possession utility.
Philip Kotler has defined marketing as a human activity directed at satisfying the
needs and wants through exchange process.
American Marketing Association defined marketing as the performance of business
activities that directs the flow of goods and services from producers to users.
According to Thomsen, the study of agricultural marketing comprises all the
operations, and the agencies conducting them, involved in the movement of farm-
produced foods, raw materials and their derivatives, such as textiles, from the farms to
the final consumers, and the effects of such operations on farmers, middlemen and
consumers.
Agricultural marketing is the study of all the activities, agencies and policies
involved in the procurement of farm inputs by the farmers and the movement of
agricultural products from the farms to the consumers. The agricultural marketing system
is a link between the farm and the non-farm sectors. It includes the organization of
agricultural raw materials supply to processing industries, the assessment of demand for
farm inputs and raw materials, and the policy relating to the marketing of farm products
and inputs.
According to the National Commission on Agriculture (XII Report, 1976),
agricultural marketing is a process which starts with a decision to produce a saleable
farm commodity, and it involves all the aspects of market structure or system, both
functional and institutional, based on technical and economic considerations, and
includes pre- and post-harvest operations, assembling, grading, storage, transportation
and distribution.
Agricultural marketing system in developing countries including India can be
understood to compose of two major sub-systems viz., product marketing and input
(factor) marketing. The actors in the product marketing sub-system include farmers,
village/primary traders, wholesalers, processors, importers, exporters, marketing
cooperatives, regulated market committees and retailers. The input sub-system includes
input manufacturers, distributors, related associations, importers, exporters and others
who make available various farm production inputs to the farmers.
However, as Acharya has described, in a dynamic and growing agricultural
sector, the agricultural marketing system ought to be understood and developed as a
link between the farm and the non-farm sectors. A dynamic and growing agricultural
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sector requires fertilizers, pesticides, farm equipments, machinery, diesel, electricity,

packing material and repair services which are produced and supplied by the industry
and non-farm enterprises. The expansion in the size of farm output stimulates forward
linkages by providing surpluses of food and natural fibres which require transportation,
storage, milling or processing, packaging and retailing to the consumers. These
functions are obviously performed by non-farm enterprises. Further, if the increase in
agricultural production is accompanied by a rise in real incomes of farm families, the
demand of these families for non-farm consumer goods goes up as the proportion of
income spent on non-food consumables and durables tends to rise with the increase in
real per capital income. Several industries, thus find new markets for their products in
the farm sector.
Agricultural marketing, therefore, can be defined as comprising of all activities
involved in supply of farm inputs to the farmers and movement of agricultural products
from the farms to the consumers. Agricultural marketing system includes the
assessment of demand for farm-inputs and their supply, post-harvest handling of farm
products, performance of various activities required in transferring farm products from
farm gate to processing industries and/or to ultimate consumers, assessment of demand
for farm products and public policies and programmes relating to the pricing, handling,
and purchase and sale of farm inputs and agricultural products. Of late trade in the
domestic and international markets also become the part of it.
Scope and Subject Matter
Agricultural marketing in a broader sense is concerned with the marketing of farm
products produced by farmers and of farm inputs and services required by them in the
production of these farm products. Thus, the subject of agricultural marketing includes
product marketing as well as input marketing.
The subject of output marketing is as old as civilization itself. The importance of
output marketing has become more conspicuous in the recent past with the increased
marketable surplus of the crops and other agricultural commodities following the
technological breakthrough. On one hand surplus production in agriculture resulted in
problem of distribution to consumption centres and on the other transformed agriculture
into a commercial venture where market needs came to the lime lite. Input marketing is a
comparatively new subject. Farmers in the past used such farm sector inputs as local
seeds and farmyard manure. These inputs were available with them; the purchase of
inputs for production of crops from the market by the farmers was almost negligible. The
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importance of farm inputs – improved seeds, fertilizers, insecticides and pesticides, farm
machinery, implements and credit – in the production of farm products has increased in
recent decades. The new agricultural technology is input-responsive. Thus, the scope of
agricultural marketing must include both product marketing and input marketing. In this
book, the subject-matter of agricultural marketing has been dealt with; both from the
theoretical and practical points of view. It covers what the system is, how it functions,
and how the given methods or techniques may be modified to get the maximum benefits.
Specially, the subject of agricultural marketing includes marketing functions, agencies,
channels, efficiency and costs, price spread and market integration, producer's surplus,
marketing institutions, government policy and research,
imports/exports of agricultural commodities and commodity and futures trading.
New Role of Agricultural Marketing
Agricultural marketing scenario in the country has undergone a sea-change over
the last six decades owing to the increases in the supply of agricultural commodities and
consequently in their marketed surpluses; increase in urbanization and income levels
and thereby changes in the pattern of demand for farm products and their derivatives;
slow and steady increase in the linkages with the overseas markets; and changes in the
form and degree of government intervention in agricultural markets. Therefore, the
framework under which agricultural produce markets function and the factors which
influence the prices received by the farmers now need to be understood in a different
perspective compared to that in the past. The role of marketing now starts right from the
time of decision relating to what to produce, which variety to produce and how to prepare
the product for marketing rather than limiting it to when, where and to whom to sell.
Markets and Marketing
Market – Meaning
The word market originated from the latin word 'marcatus' which means
merchandise or trade or a place where business is conducted.
Word 'market' has been widely and variedly used to mean: (a) a place or a
building where commodities are bought and sold, e.g., super market; (b) potential buyers
and sellers of a product; e.g., wheat market and cotton market; (c) potential buyers and
sellers of a country or region, e.g., Indian market and Asian market; (d) an organization
which provides facilities for exchange of commodities, e.g., Bombay stock exchange;
and (e) a phase or a course of commercial activity, e.g., a dull market or bright market.
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There is an old English saying that two women and a goose may make a market.
However, in common parlance, a market includes any place where persons assemble
for the sale or purchase of commodities intended for satisfying human wants. Other
terms used for describing markets in India are Haats, Painths, Shandies and Bazar.
The word market in the economic sense carries a broad meaning. Some of the
definitions of market are given below:
1. A market is the sphere within which price determining forces operate.
2. A market is the area within which the forces of demand and supply converge to
establish a single price.
3. The term market means not a particular market place in which things are bought
and sold but the whole of any region in which buyers and sellers are in such a
free intercourse with one another that the prices of the same goods tend to
equality, easily and quickly.
4. Market means a social institution which performs activities and provides
facilities for exchanging commodities between buyers and sellers.
5. Economically interpreted, the term market refers, not to a place but to a
commodity or commodities and buyers and sellers who are in free
intercourse with one another.
6. The American Marketing Association has defined a market as the aggregate
demand of the potential buyers for a product/service.
7. Philip Kotler defined market as an area for potential exchanges.
A market exists when buyers wishing to exchange the money for a good or
service are in contact with the sellers who are willing to exchange goods or services for
money. Thus, a market is defined in terms of the existence of fundamental forces of
supply and demand and is not necessarily confined to a particular geographical location.
The concept of a market is basic to most of the contemporary economies, since in a free
market economy, this is the mechanism by which resources are allocated.
Components of a Market
For a market to exist, certain conditions must be satisfied. These conditions
should be both necessary and sufficient. They may also be termed as the components of
a market.
1. The existence of a good or commodity for transactions (physical existence is,
however, not necessary);
2. The existence of buyers and sellers;
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3. Price at which the commodity is transacted or exchanged

4. Business relationship or intercourse between buyers and sellers; and
5. Demarcation of area such as place, region, country or the whole world.
Dimensions of a Market
There are various dimensions of any specified market. These dimensions are:
1. Location or place of operation
2. Area or coverage
3. Time span
4. Volume of transactions
5. Nature of transactions
6. Number of commodities
7. Degree of competition
8. Nature of commodities
9. Stage of marketing
10. Extent of public intervention
11. Type of population served
12. Accrual of marketing margins
Any individual market may be classified in a twelve-dimensional space.
Classification of Markets
Markets may be classified on the basis of each of the twelve dimensions already
listed.
1. On the Basis of Location or Place of Operation
On the basis of the place of location or place of operation, markets are of the
following types:
(a) Village Market: A market which is located in a small village, where major
transactions take place among the buyers and sellers normally residing in that village, is
called a village market.
(b) Primary Markets: These markets are located in towns near the centres of
production of agricultural commodities. In these markets, a major part of the produce is
brought for sale by the producer-farmers themselves. Transactions in these markets
usually take place between the farmers and primary traders.
(c) Secondary Wholesale Markets: These markets are located generally at
district headquarters or important trade centres or near railway junctions. The major
transactions of commodities in these markets take place between the village traders and
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wholesalers. The bulk of the arrivals in these markets are from other markets. The
produce in these markets is handled in large quantities. There are, therefore, specialized
marketing agencies performing different marketing functions, such as those of
commission agents, brokers and weighmen in these markets. These markets help in
assembling commodities from neighboring district/tehsil/state.
(d) Terminal Markets: A terminal market is one where the produce is either
finally disposed of to the consumers or processors, or assembled for export. In these
markets, merchants are well organized and use modern methods of marketing.
Commodity exchanges exist in these markets which provide facilities for forward trading
in specific commodities. Such markets are located either in metropolitan cities or at sea-
ports. Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Cochin are terminal markets in
India for many commodities.
(e) Seaboard Markets: Markets which are located near the seashore and are
meant mainly for the import and/or export of goods are known as seaboard markets.
These are generally seaport towns. Examples of these markets in India are Mumbai,
Chennai, Kolkatta and Cochin (Kochi).
2. On the Basis of Area/Coverage
On the basis of the area from which buyers and sellers usually come for
transactions, markets may be classified into the following four classes:
(a) Local or Village Markets: A market in which the buying and selling activities
are confined among the buyers and sellers drawn from the same village or nearby
villages. The village markets exist mostly for perishable commodities in small lots, e.g.,
local milk market or vegetable market.
(b) Regional Markets: A market in which buyers and sellers for a commodity are
drawn from a larger area than the local markets. Regional markets in India usually exist
for food grains.
(c) National Markets: A market in which buyers and sellers spread at the
national level. Earlier national markets existed for only durable goods like jute and tea.
But with the expansion of roads, transport and communication facilities, the markets for
most of the products have taken the form of national markets.
(d) World or International Market: A market in which the buyers and sellers are
drawn from more than one country or the whole world. These are the biggest markets
from the area point of view. These markets exist for the commodities which have a
world-wide demand and/or supply, such as coffee, machinery, gold, silver, etc. In recent
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years many countries are moving towards a regime of liberal international trade in
agricultural products like raw cotton, sugar, rice and wheat. It is expected that the
international trade in such commodities will become free from many restrictions that exist
now.
3. On the Basis of Time Span
On this basis, markets are of the following types:
(a) Short period Markets: The markets which are held only for a day or few
hours are called short-period markets. The products dealt within these markets are of a
highly perishable nature, such as fish, fresh vegetables, and liquid milk. In these
markets, the prices of commodities are governed mainly by the extent of demand for,
rather than by the supply of, the commodity.
(b) Periodic Markets: The periodic markets are congregation of buyers and
sellers at specified places either in villages, semi-urban areas or some parts of urban
areas on specific days and time. Major commodities traded in these markets is the farm
produce grown in the hinterlands. The periodic markets are held weekly, biweekly,
fortnightly or monthly according to the local traditions. These are similar to 'spontaneous
markets' in several developed countries.
(c) Long-period Markets: These markets are held for a longer period than the
short-period markets. The commodities traded in these markets are less perishable and
can be stored for some time; like foodgrains and oilseeds. The prices are governed both
by the supply and demand forces.
(d) Secular Markets: These are markets of a permanent nature. The
commodities traded in these markets are durable in nature and can be stored for many
years. Examples are markets for machinery and manufactured goods.
4. On the Basis of Volumes of Transactions
There are two types of markets on the basis of volume of transactions at a time.
(a) Wholesale Markets: A wholesale market is one in which commodities are
bought and sold in large lots or in bulk. These markets are generally located in either
towns or cities. The economic activities in and around these markets are so intense that
over time the population tends to get concentrated around these markets. These
markets occupy an extremely important link in the marketing chain of all the commodities
including farm products. Apart from balancing the supply and demand and discovery of
the prices of a commodity, these markets and functionaries in them serve as a link
between the production system and consumption system. The wholesale markets for
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farm products in India can be classified as primary, secondary and terminal wholesale
markets. The primary wholesale markets are in the nature of assembling centres located
in and around producing regions. The transactions in primary wholesale markets take
place mainly between farmers and traders. Secondary wholesale markets are generally
located between primary wholesale and terminal markets. The transactions in these
markets take place between primary wholesalers and traders of terminal market. The
terminal markets are generally located at the large urban metropolitan cities or export
centres catering to the large consuming population around them or in the overseas
markets.
(b) Retail Markets: A retail market is one in which commodities are bought by
and sold to the consumers as per their requirements. Transactions in these markets take
place between retailers and consumers. The retailers purchase the goods from
wholesale market and sell in small lots to the consumers in retail markets. These
markets are very near to the consumers.
The distinction between the wholesale and retain market can be made mainly on
the basis of buyer. A retail market means that the buyers are generally ultimate
consumers, whereas in the wholesale market the buyers can be wholesalers or retailers.
But sometimes-bulk consumers also purchase from the wholesale markets. The quantity
transacted in retail markets is generally smaller than that in the wholesale markets.
5. On the Basis of Nature of Transactions
The markets which are based on the types of transactions in which people are
engaged are of two types:
(a) Spot or Cash Markets: A market in which goods are exchanged for money
immediately after the sale is called the spot or cash market.
(b) Forward Markets: A market in which the purchase and sale of a commodity
takes place at time t but the exchange of the commodity takes place on some specified
date in future i.e., time t + 1. Sometimes even on the specified date in the future (t + 1),
there may not be any exchange of the commodity. Instead, the differences in the
purchase and sale prices are paid or taken.
6. On the Basis of Number of Commodities in which Transaction Takes Place
A market may be general or specialized on the basis of the number of
commodities in which transactions are completed:
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(a) General Markets: A market in which all types of commodities, such as

foodgrains, oilseeds, fibre crops, gur, etc., are bought and sole is known as general
market. These markets deal in a large number of commodities.
(b) Specialized Markets: A market in which transactions take place only in one
or two commodities is known as a specialized market. For every group of commodities,
separate markets exist. The examples of specialized markets are foodgrain markets,
vegetable markets, wool market and cotton market.
7. On the Basis of Degree of Competition
Each market can be placed on a continuous scale, starting from a perfectly
competitive point to a pure monopoly or monopsony situation. Extreme forms are almost
non-existent. Nevertheless, it is useful to know their characteristics. In addition to these
two extremes, various midpoints of this continuum have been identified. On the basis of
competition, markets may be classified into the following categories:
(a) Perfect Markets: A perfect market is one in which the following conditions
hold good:
(i) There is a large number of buyers and sellers;
(ii) All the buyers and sellers in the market have perfect knowledge of demand,
supply and prices;
(iii) Prices at any one time are uniform over a geographical area, plus or minus
the cost of getting supplies from surplus to deficit areas;
(iv) The prices of different forms of a product are uniform, plus or minus the cost
of converting the product from one form to another.
(b) Imperfect Markets: The markets in which the conditions of perfect
competition are lacking are characterized as imperfect markets. The following situations,
each based on the degree of imperfection, may be identified:
(i) Monopoly Market: Monopoly is a market situation in which there is only one
seller of a commodity. He exercises sole control over the quantity or price of the
commodity. In this market, the price of a commodity is generally higher than in other
markets. Indian farmers operate in monopoly market when purchasing electricity for
irrigation. When there is only one buyer of a product, the market is termed as a
monopsony market.
(ii) Duopoly Market: A duopoly market is one which has only two sellers of a
commodity. They may mutually agree to charge a common price which is higher than the
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hypothetical price in a common market. The market situation in which there are only two
buyers of a commodity is known as the duopsony market.
(iii) Oligopoly Market: A market in which there are more than two but still a few
sellers of a commodity is termed as an oligopoly market. A market having a few (more
than two) buyers is known as oligopsony market.
(iv) Monopolistic Competition: When a large number of sellers deal in
heterogeneous and differentiated form of a commodity, the situation is called
monopolistic competition. The difference is made conspicuous by different trade marks
on the product. Different prices prevail for the same basic product. Examples of
monopolistic competition faced by farmers may be drawn from the input markets. For
example, they have to chose between various makes of insecticides, pumpsets,
fertilizers and equipments.

8. On the Basis of Nature of Commodities

On the basis of the type of goods dealt in, market may be classified into the
following categories:
(a) Commodity Markets: A market which deals in goods and raw materials,
such as wheat, barley, cotton, fertilizer, seed, etc., are termed as commodity markets.
(b) Capital Markets: The market in which bonds, shares and securities are
bought and sold are called capital markets; for example, money markets and share
markets.
9. On the Basis of Stage of Marketing
On the basis of the stage of marketing, markets may be classified into two
categories:
(a) Producing Markets: Those markets which mainly assemble the commodity
for further distribution to other markets are termed as producing markets. Such markets
are located in producing areas.
(b) Consuming Markets: Markets which collect the produce for final disposal to
the consuming population are called consumer markets. Such markets are generally
located in areas where production is inadequate, or in thickly populated urban centres.
10. On the Basis of Extent of Public Intervention
Based on the extent of public intervention, markets may be placed in any one of
the following two classes:
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(a) Regulated Markets: These are those markets in which business is done in
accordance with the rules and regulations framed by the statutory market organization
representing different sections involved in markets. The marketing costs in such markets
are standardized and, marketing practices are regulated.
(b) Unregulated Markets: These are the markets in which business is
conducted without any set rules and regulations. Traders frame the rules for the conduct
of the business and run the market. These markets suffer from many ills, ranging from
unstandardised charges for marketing functions to imperfections in the determination of
prices.
11. On the Basis of Type of Population Served
On the basis of population served by a market, it can be classified as either
urban or rural market.
(a) Urban Market: A market which serves mainly the population residing in an
urban area is called an urban market. The nature and quantum of demand for
agricultural products arising from the urban population is characterized as urban market
for farm products.
(b) Rural Market: The word rural market usually refers to the demand originating
from the rural population. There is considerable difference in the nature of embedded
services required with a farm product between urban and rural demands.
Rural markets generally have poor marketing facilities as compared to urban
markets. According to the survey of the Directorate of Marketing and Inspection (DMI) of
Government of India, only 46 per cent of rural primary markets, of the country have the
facility of market yards; 6.4 per cent have office buildings, 3.2 per cent have cattle shed,
3 per cent have canteen, 4.9 per cent have storage facilities, 5.1 per cent have auction
platforms, 12.9 per cent have drinking water facility and 5.2 per cent markets have
electricity facility. Marketing support services such as godowns, cleaning, price
information and extension services were found completely non-existent in most of these
rural markets.
12. On the Basis of Market Functionaries and Accrual of Marketing Margins
Markets can also be classified on the basis of as to who are the market
functionaries and to whom the marketing margins accrue. Over the years, there has
been a considerable increase in the producers or consumers co-operatives or other
organizations handling marketing of various products. Though private trade still handles
bulk of the trade in farm products, the co-operative marketing has increased its share in
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the trade of some agricultural commodities like milk, fertilizers, sugarcane and sugar. In
the case of marketing activities undertaken by producers or consumers co-operatives,
the marketing margins are either negligible or shared amongst their members. In some
cases, farmers themselves work as sellers of their produce to the consumers. On the
basis, the market can be (a) farmers markets, (b) cooperative markets or (c) general
markets.
It must be noted that each market or market place can be classified on the basis
of the 12 criteria mentioned above. A 12-dimensional classification of markets is shown
in Chart 1.1.
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Chart: 1.1 12 – Dimensional Classification of Markets

VILLAGE MARKETS
PRIMARY MARKETS
SECONDARY WHOLESALE
ON THE BASIS OF LOCATION
MARKETS
TERMINAL MARKETS
SEA-BOARD MARKETS

LOCAL/VILLAGE MARKETS
REGIONAL MARKETS
ON THE BASIS OF AREA OR
NATIONAL MARKETS
COVERAGE
WORLD/INTERNATIONAL
MARKETS

SHORT PERIOD MARKETS

PERIODIC MARKETS
ON THE BASIS OF TIME SPAN
LONG PERIOD MARKETS
SECULAR MARKETS

ON THE BASIS OF VOLUME OF WHOLESALE MARKETS

TRANSACTIONS RETAIL MARKETS

ON THE BASIS OF NATURE OF SPOT/CASH MARKETS

TRANSACTIONS FORWARD MARKETS

ON THE BASIS OF NUMBER OF GENERAL MARKETS

COMMODITIES TRANSACTED SPECIAL MARKETS

PERFECT MARKETS
MONOPOLY MARKETS
ON THE BASIS OF DEGREE OF
DUOPOLY MARKETS
COMPETITION
OLIGOPOLY MARKETS
MONOPOLISTIC
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COMPETITIVE MARKETS

ON THE BASIS OF NATURE OF COMMODITY MARKETS

COMMODITIES CAPITAL MARKETS

ON THE BASIS OF STAGE OF PRODUCING MARKETS

MARKETING CONSUMING MARKETS

ON THE BASIS OF EXTENT OF REGULATED MARKETS

PUBLIC INTERVENTION UN-REGULATED MARKETS

ON THE BASIS OF TYPE OF URBAN MARKETS

POPULATION SERVED RURAL MARKETS

ON THE BASIS OF MARKET FARMERS MARKETS

FUNCTIONARIES AND CO-OPERATIVE MARKETS
ACCRUAL OF MARKETING GENERAL MARKETS
MARGINS

Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production

and consumption, but in accelerating the pace of economic development. Its dynamic
functions are of primary importance in promoting economic development. For this
reason, it has been described as the most important multiplier of agricultural
development.
India's age-old farming practices have taken a turn in recent decades. There has
been a technological breakthrough – the evolution of high-yielding variety seeds,
increasing use of fertilizers, insecticides, pesticides, the installation of pumping sets, and
tractorization. This technological breakthrough has led to a substantial increase in
production on the farms and to the larger marketable and marketed surplus. To maintain
this tempo and pace of increased production through technological development, an
assurance of remunerative prices to the farmer is a prerequisite, and this assurance can
be given to the farmer by developing an efficient marketing system.
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The agricultural marketing system plays a dual role in economic development in

countries whose resources are primarily agricultural. Increasing demands for money with
which to purchase other goods leads to increasing sensitivity to relative prices on the
part of the producers, and specialization in the cultivation of those crops on which the
returns are the greatest, subject to socio-cultural, ecological and economic constraints. It
is the marketing system that transmits the crucial price signals. On the other hand, and
in order to sustain the growth of the non-agricultural sector, resources have to be
extracted from the agricultural sector – physical resources to guarantee supplies of food
and raw materials for the agro-industry and financial resources for investment in non-
farm economy as well as for re-investment in agriculture.
On the basis of IADP experience, Kiehl has shown that the "marketing problem"
begins to emerge in the process of shifting from traditional to modern agriculture
because of production surpluses generated by the shift. Indeed, the term modern
agriculture implies a market-oriented agriculture. The scope for moving towards modern
agriculture must include market dimensions if the momentum of production
transformation is to be sustained.
The importance of agricultural marketing in economic development is revealed
from the following:
(i) Optimization of Resource use and Output Management
An efficient agricultural marketing system leads to the optimization of resource
use and output management. An efficient marketing system can also contribute to an
increase in the marketable surplus by scaling down the losses arising out of inefficient
processing, storage and transportation. A well-designed system of marketing can
effectively distribute the available stock of modern inputs, and thereby sustain a faster
rate of growth in the agricultural sector.
(ii) Increase in Farm Income
An efficient marketing system ensures higher levels of income for the farmers
reducing the number of middlemen or by restricting the cost of marketing services and
the malpractices, in the marketing of farm products. An efficient system guarantees the
farmers better prices for farm products and induces them to invest their surpluses in the
purchase of modern inputs so that productivity and production may increase. This again
results in an increase in the marketed surplus and income of the farmers. If the producer
does not have an easily accessible market-outlet where he can sell his surplus produce,
he has little incentive to produce more. The need for providing adequate incentives for
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increased production is, therefore, very important, and this can be made possible only by
streamlining the marketing system.
(iii) Widening of Markets
An efficient and well-knot marketing system widens the market for the products
by taking them to remote corners both within and outside the country, i.e., to areas far
away from the production points. The widening of the market helps in increasing the
demand on a continuous basis, and thereby guarantees a higher income to the
producer.
(iv) Growth of Agro-based Industries
An improved and efficient system of agricultural marketing helps in the growth of
agro-based industries and stimulates the overall development process of the economy.
Many industries like cotton, sugar, edible oils, food processing and jute depend on
agriculture for the supply of raw materials.
(v) Price Signals
An efficient marketing system helps the farmers in planning their production in
accordance with the needs of the economy. This work is carried out through transmitting
price signals.
(vi) Adoption and Spread of New Technology
The marketing system helps the farmers in the adoption of new scientific and
technical knowledge. New technology requires higher investment and farmers would
invest only if they are assured of market clearance at remunerative price.
(vii) Employment Creation
The marketing system provides employment to millions of persons engaged in
various activities, such as packaging, transportation, storage and processing. Persons
like commission agents, brokers, traders, retailers, weighmen, hamals, packagers and
regulating staff are directly employed in the marketing system. This apart, several others
find employment in supplying goods and services required by the marketing system.
(viii) Addition to National Income
Marketing activities add value to the product thereby increasing the nation's
gross national product and net national product.
(ix) Better Living
The marketing system is essential for the success of the development
programmes which are designed to uplift the population as a whole. Any plan of
economic development that aims at diminishing the poverty of the agricultural
 18

population, reducing consumer food prices, earning more foreign exchange or

eliminating economic waste has, therefore, to pay special attention to the development
of an efficient marketing for food and agricultural products.
(x) Creation of Utility
Marketing is productive, and is as necessary as the farm production. It is, in fact,
a part of production itself, for production is complete only when the product reaches a
place in the form and at the time required by the consumers. Marketing adds cost to the
product, but, at the same time, it adds utilities to the product. The following four types of
utilities of the product are created by marketing:
(a) Form Utility: The processing function adds form utility to the product by
changing the raw material into a finished form. With this change, the product becomes
more useful than it is in the form in which it is produced by the farmer. For example,
through processing, oilseeds are converted into oil, sugarcane into sugar, cotton into
cloth and wheat into flour and bread. The processed forms are more useful than the
original raw materials.
(b) Place Utility: The transportation function adds place utility to products by
shifting them to a place of need from the place of plenty. Products command higher
prices at the place of need than at the place of production because of the increased
utility of the product.
(c) Time Utility: The storage function adds time utility to the products by making
them available at the time when they are needed.
(d) Possession Utility: The marketing function of buying and selling helps in the
transfer of ownership from one person to another. Products are transferred through
marketing to persons having a higher utility from persons having a low utility.
The foodgrain marketing system is more important in India than the marketing of
other agricultural commodities because of the following reasons:
(a) Foodgrains account for around two-thirds of the gross cropped area and 40
per cent of the gross value of crop output in the country. Foodgrain marketing, therefore,
provides income to most Indian farmers so that they may buy the required inputs for the
farm as well as purchase items of domestic need;
(b) The foodgrain marketing business provides livelihood to lakhs of traders,
processors, commission agents and other persons engaged in the foodgrain trade; and
(c) The foodgrain marketing system helps in providing food for consumers and
fodder for livestock.
 19

CHAPTER 2
MARKET STRUCTURE CONDUCT AND PERFORMANCE

Market Structure – Meaning

The term structure refers to something that has organization and dimension –
shape, size and design; and which is evolved for the purpose of performing a function. A
function modifies the structure, and the nature of the existing structure limits the
performance of functions. By the term market structure we refer to the size and design of
the market. It also includes the manner of the operation of the market. Some of the
expressions describing the market structure are:
1. Market structure refers to those organizational characteristics of a market
which influence the nature of competition and pricing, and affect the conduct of business
firms,
2. Market structure refers to those characteristics of the market which affect the
traders' behaviour and their performances,
3. Market structure is the formal organization of the functional activity of a
marketing institution.
An understanding and knowledge of the market structure is essential for
identifying the imperfections in the performance of a market.
Components of Market Structure
The components of the market structure, which together determine the conduct
and performance of the market, are:

1. Concentration of Market Power

The concentration of market power is an important element determining the
nature of competition and consequently of market conduct and performance. This is
measured by the number and size of firms existing in the market. The extent of
concentration represents the control of an individual firm or a group of firms over the
buying and selling of the produce. A high degree of market concentration restricts the
movement of goods between buyers and sellers at fair and competitive prices, and
creates an oligopoly or oligopsony situation in the market.
2. Degree of Product Differentiation
Homogeneous or other nature of the product affects the market structure. If
products are homogeneous, the price variations in the market will not be wide. When
 20

products are heterogeneous, firms have the tendency to charge different prices for their
products. Everyone tries to prove that his product is superior to the products of others.
3. Conditions for entry of Firms in the Market
Another dimension of the market structure is the restriction, if any, on the entry of
firms in the market. Sometimes, a few big firms do not allow new firms to enter the market
or make their entry difficult by their dominance in the market. There may also be some
government restrictions on the entry of firms.
4. Flow of Market Information
A well-organized market intelligence information system helps all the buyers and
sellers to freely interact with one another in arriving at prices and striking deals.

5. Degree of Integration
The behaviour of an integrated market will be different from that of a market
where there is no or less integration either among the firms or of their activities.
Firms plan their strategies in respect of the methods to be employed in
determining prices, increasing sales, coordinating with competing firms and adopting
predatory practices against rivals or potential entrants. The structural characteristics of
the market govern the behaviour of the firms in planning strategies for their selling and
buying operations.
Dynamics of Market Structure – Conduct and Performance
The market structure determines the market conduct and performance. The term
market conduct refers to the patterns of behaviour of firms, especially in relation to pricing
and their practices in adapting and adjusting to the market in which they function.
Specifically, market conduct includes:
(a) Market sharing and price setting policies;
(b) Policies aimed at coercing rivals; and
(c) Policies towards setting the quality of products.
The term market performance refers to the economic results that flow from the
industry as each firm pursues its particular line of conduct. Society has to decide the
criteria for satisfactory market performance. Some of the criteria for measuring market
performance and of the efficiency of the market structure are:
1. Efficiency in the use of resources, including real cost of performing various
functions;
 21

2. The existence of monopoly or monopoly profits, including the relationship of

margins with the average cost of performing various functions;
3. Dynamic progressiveness of the system in adjusting the size and number of
firms in relation to the volume of business, in adopting technological innovations and in
finding and/or inventing new forms of products so as to maximize general social welfare.
4. Whether or not the system aggravates the problem of inequalities in inter-
personal, inter-regional, or inter-group incomes. For example, inequalities increase
under the following situations:
(a) A market intermediary may pocket a return greater than its real contribution to
the national product;
(b) Small farmers are discriminated against when they are offered a lower return
because of the low quantum of surplus;
(c) Inter-product price parity is substantially disturbed by new uses for some
products and wide variations and rigidities in the production pattern between regions.
The market structure, therefore, has always to keep on adjusting to changing
environment if it has to satisfy the social goals. A static market structure soon becomes
obsolete because of the changes in the physical, economic, institutional and
technological factors. For a satisfactory market performance, the market structure should
keep pace with the following changes:
(i) Production Pattern
Significant changes occur in the production pattern because of technological,
economic and institutional factors. The market structure should be re-oriented to keep
pace with such changes. Emergence of producers groups or group marketing practice is
likely to alter market structure.
(ii) Demand Pattern
The demand for various products, especially in terms of form and quality, keeps
on changing because of change in incomes, the pattern of distribution among
consumers, and changes in their tastes and habits. The market structure should be re-
oriented to keep it in harmony with the changes in demand.
Change in the consumption pattern and tastes and preferences of consumers leads to
specific or exclusive marketing practices followed by the companies to cater to the
specific needs of that group.
(iii) Costs and Patterns of Marketing Functions
 22

Marketing functions such as transportation, storage, financing and dissemination

of market information, have a great bearing on the type of market structure. Recent policy
encourages group marketing or operation of producer groups and this is likely to reduce
the number of buyers and/or sellers actually taking part in marketing functions.
Government policies with regard to purchases, sales and subsidies affect the
performance of market functions. The market structure should keep on adjusting to the
changes in costs and government policy. Number of players in the market must be in
accordance with the marketing functions performed and size of operations to take
advantage of size economy.
(iv) Technological Change in Industry
Technological changes necessitate changes in the market structure through
adjustments in the scale of business, the number of firms, and in their financial
requirements. Establishment of retail chains and entry of MNCs in the food retailing
effected conspicuous change in the structure of vegetable markets in India
Agricultural Marketing and Economic Development
Orderly and efficient marketing of food grains plays an important role in solving
the problem of hunger. Most of those who go hungry do so because they can not pay
higher prices for food grains. If marketing system is not efficient, price signals arising at
the consumers' level are not adequately transferred to the producers, as a result farmers
do not get sufficient price incentive to increase the production of the commodities which
are in short supply. Thus, an inefficient marketing system adversely affects the living
standards of both the farmers and consumers. In agricultural-oriented developing
countries like India, agricultural marketing plays a pivotal role in fostering and sustaining
the tempo of rural and economic development. Markets trigger the process of
development.
The development of an efficient marketing system is important in ensuring that
scarce and essential commodities reach different classes of consumers. Marketing is not
only an economic link between the producers and the consumers but it also helps to
maintain a balance between demand and supply. The objectives of price stability, rapid
economic growth and equitable distribution of goods and services cannot be achieved
without the support of an efficient marketing system.
Marketing Functions and their Classification
The marketing functions may be classified in various ways. For example,
Thomsen has classified the marketing functions into three broad groups. These are:
 23

(i) Primary Functions Assembling or Procurement

Processing
Dispersion or Distribution
(ii) Secondary Functions Packing or Packaging
Transportation
Grading, Standardization and Quality Control
Storage and Warehousing
Determination or Discovery of Prices
Risk Taking
Financing
Buying and Selling
Demand Creation
Dissemination of Market Information
(iii) Tertiary Functions Banking
Insurance
Communications – Posts & Telecommunication
Supply of Energy – Electricity
Kohls and Uhl have classified marketing functions as follows:
(i) Physical Functions Storage and Warehousing
Grading
Processing
Transportation
(ii) Exchange Functions Buying
Selling
(iii) Facilitative Functions Standardization of Grades
Financing
Risk Taking
Dissemination of Market Information
Converse, Huegy and Mitchell have classified marketing functions in a different
way. According to them, the classification is as follows:
(i) Physical Movement Storage
Functions Packing
Transportation
 24

Grading
Distribution
(ii) Ownership Movement Determining Need
Functions Creating Demand
Finding Buyers and Sellers
Negotiation of Price
Rendering Advice
Transferring the Title to Goods
(iii) Market Management Formulating Policies
Functions Financing
Providing Organization
Supervision Accounting
Securing Information

Marketing Agencies
In the marketing of agricultural commodities, the following agencies are involved:
(i) Producers
Most farmers or producers, perform one or more marketing functions. They sell
the surplus either in the village or in the market. Some farmers, especially the large ones,
assemble the produce of small farmers, transport it to the nearby market, sell it there and
make a profit. This activity helps these farmers to supplement their incomes. Frequent
visits to markets and constant touch with market functionaries, bring home to them a fair
knowledge of market practices. They have, thus, an access to market information, and
are able to perform the functions of market middlemen,
(ii) Middlemen
Middlemen are those individuals or business concerns which specialize in
performing the various marketing functions and rendering such services as are involved
in the marketing of goods. They do this at different stages in the marketing process. The
middlemen in foodgrain marketing may, therefore, be classified as follows:
(a) Merchant Middlemen
Merchant middlemen are those individuals who take title to the goods they
handle. They buy and sell on their own and gain or lose, depending on the difference in
 25

the sale and purchase prices. They may, moreover, suffer loss with a fall in the price of
the product. Merchant middlemen are of following types:
Wholesalers: Wholesalers are those merchant middlemen who buy and sell
foodgrains in large quantities. They may buy either directly from farmers or from other
wholesalers. They sell foodgrains either in the same market or in other markets. They
sell to retailers, other wholesalers and processors. They do not sell significant quantities
to ultimate consumers. They own godowns for the storage of the produce.
The wholesalers perform the following functions in marketing:
(a) They assemble the goods from various localities and areas to meet the demands
of buyers;
(b) They sort out the goods in different lots according to their quality and prepare
them for the market;
(c) They equalize the flow of goods by storing them in the peak arrival season and
releasing them in the off-season;
(d) They regulate the flow of goods by trading with buyers and sellers in various
markets;
(e) They finance the farmers so that the latter may meet their requirements of
production inputs; and
(f) They assess the demand of prospective buyers and processors from time to
time, and plan the movement of the goods over space and time.
Retailers: Retailers buy goods from wholesalers and sell them to the consumers
in small quantities. They are producers' personal representatives to consumers.
Retailers are the closest to consumers in the marketing channel.
Itinerant Traders and Village Merchants: Itinerant traders are petty merchants
who move from village to village, and directly purchase the produce from the cultivators.
They transport it to the nearby primary or secondary market and sell it there. Village
merchants have their small establishments in villages. They purchase the produce of
those farmers who have either taken finance from them or those who are not able to go
to the market. Village merchants also supply essential consumption goods to the
farmers. They act as financers of poor farmers. They often visit nearby markets and
keep in touch with the prevailing prices. They either sell the collected produce in the
nearby market or retain it for sale at a later date in the village itself.
Mashakhores: This is a local term used for big retailers or small wholesalers
dealing in fruits and vegetables. Earlier, the mashakhores used to deal only in one or
 26

two vegetables, purchasing from the commission agents or wholesalers in substantial

quantities usually three to four quintals of vegetables like potato, onion, carrot, okra,
tomato and spinach. They usually sell to the bulk consumers like hotelwalas, para-
miliary units or small retailers/vendors in lots of around 5 kg to 10 kg each. However, in
recent years, mashakhores have started retailing to all types of customers without the
condition of a minimum quantity. In other words, the mashakhores are now working
more like ordinary retailers.
(b) Agent Middlemen
Agent Middlemen act as representatives of their clients. They do not take title to
the produce and, therefore, do not own it. They merely negotiate the purchase and/or
sale. They sell services to their principals and not the goods or commodities. They
receive income in the form of commission of brokerage. They serve as buyers or sellers
in effective bargaining. Agent middlemen are of two types:
Commission Agents or Arhatias: A commission agent is a person operating in
the wholesale market who acts as the representative of either a seller or a buyer. He is
usually granted broad powers by those who consign goods or who order the purchase. A
commission agent normally takes over the physical handling of the produce, arranges for
its sale, collects the price from the buyer, deducts his expenses and commission, and
remits the balance to the seller. All these facilities are extended to buyer-firms as well, if
asked for.
Commission agents or arhatias in unregulated markets are of two types, Kaccha
arhatias and Pacca arhatias: Kaccha arhatias primarily act for the sellers, including
farmers. They sometimes provide advance money to farmers and itinerant traders on the
condition that the produce will be disposed of through them. Kaccha arhatias charge
arhat or commission in addition to the normal rate of interest on the money they
advance. A Pacca arhatia acts on behalf of the traders in the consuming market. The
processors (rice millers, oil millers and cotton or jute dealers) and big wholesalers in the
consuming markets employ Pacca arhatias as their agents for the purchase of a
specified quantity of goods within a given price range.
In regulated markets, only one category of commission agent exists under the
name of 'A' class trader. The commission agent keeps an establishment – a shop, a
godown and a rest house for his clients. He is, therefore, preferred by the farmers to the
co-operative marketing society for the purpose of the sale of the farmer's produce.
Commission agents extend the following facilities to their clients:
 27

(i) They advance 40 to 50 per cent of the expected value of the crop as a loan to
farmers to enable them to meet their production expenses;
(ii) They act as bankers of the farmers. They retain the sale proceeds, and pay
to the farmers as and when the latter require the money;
(iii) They offer advice to farmers for purchase of inputs and sale of products;
(iv) They provide empty bags to enable the farmers to bring their produce to the
market;
(v) They provide food and accommodation to the farmers and their animals when
the latter come to the market for the sale of their produce;
(vi) They provide storage facility and advance loans against the stored product up
to 75 per cent of the value;
(vii) They arrange, if required by the farmer, for the transportation of the produce
from the village to the market; and
(viii) They help the farmers in times of personal difficulties.
Brokers: Brokers render personal services to their clients in the market; but,
unlike the commission agents, they do not have physical control of the product. The main
function of a broker is to bring together buyers and sellers on the same platform for
negotiations. Their charge is called brokerage. They may claim brokerage from the buyer,
the seller or both, depending on the market situation and the service rendered. They
render valuable service to the prospective buyers and sellers, for they have complete
knowledge of the market – of the quantity available and the prevailing prices.
Brokers have no establishment in the market. They simply wander about in the
market and render services to clients. There is no risk to them. They do not render any
other service except to bring the buyers and sellers on the same platform. In most
regulated markets, brokers do not play any role because goods are sold by open auction.
Their number in foodgrain marketing trade is decreasing. But they still play a valuable
role in the marketing of other agricultural commodities, such as gur, sugar, edible oil,
cotton seed and chillies.
(c) Speculative Middlemen
Those middlemen who take title to the product with a view to making a profit on it
are called speculative middlemen. They are not regular buyers or sellers of produce.
They specialize in risk-taking. They buy at low prices when arrivals are substantial and
sell in the off-season when prices are high. They do the minimum handling of goods.
They make profit from short-run as well as long-run price fluctuations.
 28

(d) Processors
Processors carry on their business either on their own or on custom basis. Some
processors employ agents to buy for them in the producing areas, store the produce and
process it throughout the year on continuous basis. They also engage in advertising
activity to create a demand for their processed products.
(e) Facilitative Middlemen
Some middlemen do not buy and sell directly but assist in the marketing process.
Marketing can take place even if they are not active. But the efficiency of the system
increases when they engage in business. These middlemen receive their income in the
form of fees or service charges from those who use their services. The important
facilitative middlemen are:
Hamals or Labourers: They physically move the goods in marketplace. They do
unloading from the loading on to bullock carts or trucks. They assist in weighing the bags.
They perform cleaning, sieving, and refilling jobs and stitch the bags. Hamals are the hub
of the marketing wheel. Without their active co-operation, the marketing system would not
function smoothly.
Weighmen: They facilitate the correct weighment of the produce. They use a
pan balance when quantity is small. Generally, the scalebeam balance is used. They get
payment for their service through the commission agent. The weighbridge system of
weighing also exists in big markets.
Graders: These middlemen sort out the product into different grades, based on
some defined characteristics, and arrange them for sale. They facilitate the process of
prices settlement between the buyer and the seller.
Transport Agency: This agency assists in the movement of the produce from
one market to another. The main transport means are the railways and trucks. Bullock
carts or camel carts or tractor-trolleys are also used in villages for the transportation of
foodgrains.
Communication Agency: It helps in the communication of the information about
the prices prevailing, and quantity available, in the market. Sometimes, the transactions
take place on the telephone. The post and telegraph, telephone, newspapers, the radio
and informal links are the main communication channels in agricultural marketing.
 29

Advertising Agency: It enables prospective buyers to know the quality of the

product and decide about the purchase of commodities. Newspapers, the radio, television
and cinema slides are the main media for advertisements.
Auctioners: They help in exchange function by putting the produce for auction
and bidding by the buyers.
Marketing Institutions
Marketing institutions are business organizations which have come up to operate
the marketing machinery. In addition to individuals, corporate, co-operative and
government institutions are operating in the field of agricultural marketing.
They perform one or more of the Marketing functions. They assume the role of
one or more marketing agencies, described earlier in this section. Some important
institutions in the field of agricultural marketing are:
(a) Public Sector Institutions
(i) Directorate of Marketing and Inspection (DMI)
(ii) Commission for Agricultural Costs and Prices (CACP)
(iii) Food Corporation of India (FCI)
(iv) Cotton Corporation of India (CCI)
(v) Jute Corporation of India (JCI)
(vi) Specialized Commodity Boards
 Rubber Board
 Tea Board
 Coffee Board
 Spices Board
 Coconut Board
 Oilseeds and Vegetable Oils Board
 Tobacco Board
 Cardamom Board
 Arecanut Board
 Coir Board
 Silk Board
 National Horticulture Board (NHB)
 National Dairy Development Board (NDDB)
 30

(vii) Others
 Central Warehousing Corporation (CWC)'
 State Warehousing Corporations (SWCs)
 State Trading Corporation (STC)
 Agricultural and Processed Food Export Development Authority (APEDA)
 Export Inspection Council
 Marine Products Export Development Authority (MPEDA)
 Silk Export Promotion Council (SEPC)
 The Cashewnuts Export Promotion Council of India (CEPCI)
 Agricultural Produce Market Committees (APMC)
 State Agricultural Marketing Boards (SAMB)
 Council of State Agricultural Marketing Boards (COSAMB)
 State Directorates of Agricultural Marketing
 Research Institutions and Agricultural Universities
(b) Cooperative Sector Institutions
(i) National Cooperative Development Corporation (NCDC)
(ii) National Agricultural Cooperative Marketing Federation (NAFED)
(iii) National Cooperative Tobacco Growers Federation (NTGF)
(iv) National Consumers Cooperative Federation (NCCF)
(v) Tribal Cooperative Marketing Federation (TRIFED)
(vi) Special Commodity Cooperative Marketing Organizations (Sugarcane, Cotton,
Milk)
(vii) State Cooperative Marketing Federations.
(viii)Primary Agricultural Cooperative Marketing Societies
PRODUCER’S SURPLUS
Producer's Surplus of Agricultural Commodities

In any developing economy, the producer's surplus of agricultural product plays a

significant role. This is the quantity which is actually made available to the non-producing
population of the country. From the marketing point of view, this surplus is more
important than the total production of commodities. The arrangements for marketing and
the expansion of markets have to be made only for the surplus quantity available with
the farmers, and not for the total production. This is because, only a portion of the total
 31

production is sold in the market after personal consumption by the members of farm
household and retention in the farm for several reasons.
The rate at which agricultural production expands determines the pace of
agricultural development, while the growth in the marketable surplus determines the pace
of economic development. An increase in production must be accompanied by an
increase in the marketable surplus for the economic development of the country. Though
the marketing system is more concerned with the surplus which enters or is likely to enter
the market, the quantum of total production is essential for this surplus. The larger the
production of a commodity, the greater will be the surplus of that commodity and vice
versa. The knowledge of marketed and marketable surplus helps the policy-makers as
well as the traders in the following areas:
i. Framing Sound Price Policies: Price support programmes are an integral part of
agricultural policies s necessary for stimulating agricultural production. The knowledge of
quantum of marketable surplus helps in framing these policies.
ii. Developing Proper Procurement and Purchase Strategies: The procurement
policy for feeding the public distribution system has to take into account the quantum
and behaviour of marketable and marketed surplus. Similarly, the traders, processors
and exporters have to decide their purchase strategies on the basis of marketed quantity
iii. Checking Undue Price Fluctuations: A knowledge of the magnitude and extent of
the surplus helps in the minimization of price fluctuations in agricultural commodities
because it enables the government and the traders to make proper arrangements for the
movement of product from one area, where they are in surplus, to another area which is
deficient.
iv Export/Import policies: Advance estimates of the surpluses of such commodities
which have the potential of external trade are useful in decisions related to the export and
import of the commodity. If surplus is expected to be less than what is necessary, the
country can plan for imports and if surplus is expected to be more than what is
necessary, avenues for exporting such a surplus can be explored.
v. Development of Transport and Storage Systems: The knowledge of marketed surplus helps in
developing adequate capacity of transport and storage system to handle it.

Meaning and Types of Producer's Surplus

 32

The producer's surplus is the quantity of produce which is, or can be, made
available by the farmers to the non-farm population. The producer's surplus is of two
types:
1. Marketable Surplus
The marketable surplus is that quantity of the produce which can be made
available to the non-farm population of the country. It is a theoretical concept of surplus.
The marketable surplus is the residual left with the producer-farmer after meeting his
requirements for family consumption, farm needs for seeds and feed for cattle, payment
to labour in kind, payment to artisans – carpenter, blacksmith, potter and mechanic –
payment to landlord as rent, and social and religious payments in kind. This may be
expressed as follows:
MS = P – C
Where
MS = Marketable surplus
P = Total production, and
C = Total requirements (family consumption, farm needs, payment to
labour, artisans, landlord and payments for social and religious work).
2. Marketed Surplus
Marketed surplus is that quantity of the produce which the producer-farmer
actually sells in the market, irrespective of his requirements for family consumption, farm
needs and other payments. The marketed surplus may be more, less or equal to the
marketable surplus.
Whether the marketed surplus increases with the increase in production has been
under continual theoretical scrutiny. It has been argued that poor and subsistence
farmers sell that part of the produce which is necessary to enable them to meet their cash
obligations. This results in distress sale on some farms. In such a situation, any increase
in the production of marginal and small farms should first result in increased on- farm
consumption.
An increase in the real income of farmers also has a positive effect on on-farm
consumption because of positive income elasticity. Since the contribution of this group to
the total marketed quantity is not substantial, the overall effect of increase in production
must lead to an increase in the marketed surplus.
Bansil writes that there is only one term – marketable surplus. This may be
defined subjectively or objectively. Subjectively, the term marketable surplus refers to
 33

theoretical surplus available for sale with the producer-farmer after he has met his own
genuine consumption requirements and the requirements of his family, the payment of
wages in kind, his feed and seed requirements, and his social and religious payments.
Objectively, the marketable surplus is the total quantity of arrivals in the market out of the
new crop.
Relationship between marketed surplus and marketable surplus
The marketed surplus may be more, less or equal to the marketable surplus,
depending upon the condition of the farmer and type of the crop. The relationship
between the two terms may be stated as follows:

Marketed surplus  Marketable surplus


1. The marketed surplus is more than the marketable surplus when the farmer retains a
smaller quantity of the crop than his actual requirements for family and farm needs. This
is true especially for small and marginal farmers, whose need for cash is more pressing
and immediate. This situation of selling more than the marketable surplus is termed as
distress or forced sale. Such farmers generally buy the produce from the market in a
later period to meet their family and/or farm requirements. The quantity of distress sale
increases with the fall in the price of the product. A lower price means that a larger
quantity will be sold to meet some fixed cash requirements.
2. The marketed surplus is less than the marketable surplus when the farmer retains
some of the surplus produce. This situation holds true under the following conditions:
(a) Large farmers generally sell less than the marketable surplus because of their better
retention capacity. They retain extra produce in the hope that they would get a higher
price in the later period. Sometimes, farmers retain the produce even up to the next
production season.
(b) Farmers may substitute one crop for another crop either for family consumption
purpose or for feeding their livestock because of the variation in prices. With the fall in
the price of the crop relative to a competing crop, the farmers may consume more of the
first and less of the second crop.
3. The marketed surplus may be equal to the marketable surplus when the farmer
neither retains more nor less than his requirement. This holds true for perishable
commodities and of the average farmer.
 34

Factors Affecting Marketable Surplus

The marketable surplus differs from region to region and, within the same region,
from crop to crop. It also varies from farm to farm. On a particular farm, the quantity of
marketable surplus depends on the following factors:
(i) Size of Holding: There is positive relationship between the size of the holding
and the marketable surplus.
(ii) Production: The higher the production on a farm, the larger will be the
marketable surplus, and vice versa.
(iii) Price of the Commodity: The price of the commodity and the marketable
surplus have a positive as well as a negative relationship, depending upon
whether one considers the short and long run or the micro and macro levels.
(iv) Size of Family: The larger the number of members in a family, the smaller the
surplus on the farm.
(v) Requirement of Seed and Feed: The higher the requirement for these uses, the
smaller the marketable surplus of the crop.
(vi) Nature of Commodity: The marketable surplus of non-food crops is generally
higher than that for food crops. For example, in the case of cotton, jute and
rubber, the quantity retained for family consumption is either negligible or
very small part of the total output. For these crops, a very large proportion of
total output is marketable surplus. Even among food crops, for such
commodities like sugarcane, spices and oilseeds which require some
processing before final consumption, the marketable surplus as a proportion
of total output is larger than that for other food crops.
(vii) Consumption Habits: The quantity of output retained by the farm family depends
on the consumption habits. For example, in Punjab, rice forms a relatively small
proportion of total cereals consumed by farm-families compared to those in southern or
eastern states. Therefore, out of a given output of paddy/rice, Punjab farmers sell a
greater proportion of paddy/rice, Punjab farmers sell a greater proportion than that sold
by rice eating farmers of other states.
The functional relationship between the marketed surplus of a crop and factors
affecting the marketed surplus may be expressed as:
M = f(x1, x2, x3, x4)
where
M = Total marketed surplus of a crop in quintals
 35

x1 = Size of holding in hectares

x2 = Size of family in adult units
x3 = Total production of the crop in quintals
x4 = Price of the crop

Relationship between prices and marketable surplus

Two main hypotheses have been advanced to explain the relationship between
prices and the marketable surplus of foodgrains.
Inverse Relationship
There is an inverse relationship between prices and the marketable surplus. This
hypothesis was presented by P N. Mathur and M. Ezekiel. They postulate that the
farmers' cash requirements are nearly fixed, and given the price level, the marketed
portion of the output is determined. This implies that the farmers' consumption is a
residual, and that the marketed surplus is inversely proportional to the price level. This
behaviour assumes that farmers have inelastic cash requirements.
The argument is that, in the poor economy of underdeveloped countries, farmers sell
that quantity of the output which gives them the amount of money they need to satisfy
their cash requirements; they retain the balance of output for their own consumption
purpose. With a rise in the prices of foodgrains, they sell a smaller quantity of foodgrains
to get the cash they need, and vice versa. In other words, with a rise in the prices of
foodgrains, they sell a smaller quantity of foodgrains to get the cash they need, and vice
versa. In other words, with a rise in price, farmers sell a smaller, and with the fall in price,
they sell a larger quantity. Olson and Krishnan have argued that the marketed surplus
varies inversely with the market price. They contend that a higher price for a subsistence
crop may increase the producer's real income sufficiently to ensure that the income
effect on demand for the consumption of the crop outweighs the price effect on
production and consumption.
Positive Relationship
V.M.Dandekar and Rajkrishna put forward the case for a positive relationship
between prices and the marketed surplus of food grains in India. This relationship is
based on the assumption that farmers are price conscious. With a rise in the prices of
food grains, farmers are tempted to sell more and retain less. As a result, there is
increased surplus. The converse, too, holds true.
 36

CHAPTER 3
MARKETING CHANNELS, MARKETING COST, MARKETING EFFICIENCY AND MARKET
INTEGRATION

Marketing Channel

In this chapter, we discuss marketing agencies, marketing institutions and

marketing channels through which farm products move from producers to consumers. A
very small proportion of farm produce moves directly from farmers to consumers. Most
of the farm products move to consumers through several agencies/institutions and
channels. The role played by marketing agencies and institutions in the marketing
system in quite indispensable as these perform important marketing functions. They also
help in expanding the markets for farm products and add value to the products.
The production of a produce is complete only when it reaches the hands of those
who need it – the consumers. All the commodities cannot be produced in all the areas
because of variations in agro-climatic conditions. Hence, there is a need for their
movement from producers to consumers.
There are two main routes through which agricultural commodities reach the
consumers:
(i) Direct Route: Sometimes, agricultural commodities directly pass from
producers to consumers. There is a complete absence of middlemen or intermediaries.
But it is only a very small proportion of the agricultural commodities which moves directly
from producers to consumers.
(ii) Indirect Route: Agricultural commodities generally move from producers to
consumers through intermediaries or middlemen. The number of intermediaries may
vary from one to many. In the modern era of specialized production, both the horizontal
and vertical distance between the producer and the consumer has increased, resulting in
a reduction of direct sales. The role of market middlemen has increased in the recent
past because a substantial part of the produce moves through them.
The role, functions and other details of some of these institutions have been
discussed in relevant chapters.

Marketing Channels
Marketing channels are routes through which agricultural products move from
producers to consumers. The length of the channel varies from commodity to
commodity, depending on the quantity to be moved, the form of consumer demand and
degree of regional specialization in production.
 37

Definition
A marketing channel may be defined in different ways according to Moore et al.,
the chain of intermediaries through whom the various foodgrains pass from producers to
consumers constitutes their marketing channels. Kohls and Uhl have defined marketing
channel as alternative routes of product flows from producers to consumers.

Factors Affecting Length of Marketing Channels

Marketing channels for agricultural products vary from product to product,
country to country, lot to lot and time to time. For example, the marketing channels for
fruits are different from those for foodgrains. Packagers play a crucial role in the
marketing of fruits. The level of the development of a society or country determines the
final form in which consumers demand the product. For example, consumers in
developed countries demand more processed foods in a packed form. Wheat has to be
supplied in the form of bread. Most enables have to be cooked and packed properly
before they reach the consumers. Processors play a dominant role in such societies. In
developing countries like India, However, most foodgrains are purchased by consumers
in the raw form and processing is done at the consumer's level. Again, the lots
originating at small farms follow different route or channels from the one originating in
large farms. For example, small farms usually sell their produce to village traders; it may
or may not enter the main market. But large farms usually sell their produce in the main
market, where it goes into the hands of wholesalers. The produce sold immediately after
the harvest usually follows longer channel than the one sold in later months.
With the expansion in transportation and communication network, changes in the
structure of demand and the development of markets, marketing channels for farm
products in India have undergone a considerable change, both in terms of length and
quality.

Marketing Channels for Cereals

Marketing channels for various cereals in India are more or less similar, except
the channel for paddy (or rice) where rice millers come into the picture. For pulse crops,
dal mills appear prominently in the channel. The flow chart in Fig.5.1 enables us to know
the marketing channels for general food grains in India.
Some common marketing channels for wheat have been identified as follows:
(i) Farmer consumers;
(ii) Farmer retailer or village trader consumer;
(iii) Farmer wholesaler retailer consumer;
 38

(iv) Farmer village trader wholesaler retailer consumer;

(v) Farmer co-operative marketing society retailer consumer;
(vi) Farmer Govt. agency (FCI, etc.) fair price shop consumer;
(vii) Farmer wholesaler flour miller retailer consumer.
The channels for paddy-rice and pulses are broadly the same, except that the
rice millers or dal millers come into the picture before the produce reaches retailers or
consumers.

Marketing Channels for Oilseeds

Marketing channels for oilseeds are different from those for foodgrains, mainly
because the extraction of oil from oilseeds is an important marketing function of
oilseeds. The flow chart in Fig.5.2 reveals the movement of oilseeds from producers to
consumers in India.
The most common marketing channels for oilseeds in India are:
(i) Producer to consumer (who either directly consumes the oilseeds or gets it
processed on custom basis);
(ii) Producer to village trader to processor to oil retailer to consumer;
(iii) Producer to oilseed wholesaler to processor to oil wholesaler to oil retailer to oil
consumer;
(iv) Producer to village trader to processor to oil consumer;
(v) Producer to government agency to processor to oil wholesaler to oil retailer to
oil consumer.

Marketing Channels for Fruits and Vegetables

Marketing channels for fruits and vegetables vary from commodity to commodity
and from producer to producer. In rural areas and small towns, many producers
performs the function of retail sellers. Large producers directly sell their produce to the
wholesalers or processing firms. Some of the common marketing channels for
vegetables and fruits are:
(i) Producer consumer;
(ii) Producer primary wholesalers retailers or hawkers consumer;
(iii) Producer processors (for conversion into juices, preserves, etc.);
(iv) Producers primary wholesalers processors;
(v) Producers primary wholesalers secondary wholesalers
retailers or hawkers consumers;
(vi) Producers local assemblers primary wholesalers
 39

retailers or hawkers consumers.

An important feature of marketing channels for fruits and vegetables is that these
commodities just move to some selected large cities/centres and subsequently are
distributed to urban population and other medium size urban market centres. The
wholesale markets of these urban centres work as transit points and thus play an
important role in the entire marketing channel for fruits and vegetables. Large wholesale
markets for fruits and vegetables are concentrated in 10 major cities viz., Delhi, Kolkata,
Bangalore, Chennai, Mumbai, Jaipur, Nagpur, Vijayavada, Lucknow and Varanasi.
These cities account for 75 per cent of vegetables marketed in major urban areas in
India. Further, the transit trade takes place through the cities with more than 20 lakh
population which account for 68 per cent of the fruits and vegetables grown in the
respective regions. There are 65 urban wholesale markets for fruits and 81 for
vegetables. Each market, on an average, serves a population of about 7 lakhs.

Marketing Channels for Eggs

The prevalent marketing channels for eggs are:
(i) Producer consumer;
(ii) Producer retailer consumer;
(iii) Producer wholesaler retailer consumer;
(iv) Producer co-operative marketing society wholesalers
Retailers consumers;
(v) Producers egg powder factory.
Sometimes, the wholesaling and retailing functions are performed by a single
firm in the channel.

Marketing Channels for Pulses

Most of the studies on the identification of marketing channels for agricultural
commodities have concentrated on a concept of marketing channel which defines the
flow of the produce from the producer (farmer) to the consumer. But as the
commercialization (market orientation) of agriculture is increasing and as the farmers
and consumers are located in different states or different countries, the marketing
channels that are emerging go across state or even national boundaries. This apart,
unless quantities flowing into various channels are estimated, the relative importance of
alternative channels cannot be assessed. Such an analysis was done by Acharya for
gram grains in Rajasthan. According to this study, there are three points of entry of gram
grain in the marketing channel, viz., farmer level, wholesaler level (from outside the
 40

state) and processor level (also from outside the state). There are 28 marketing
channels, village traders appear in 8 channels, grain wholesalers appear in 18 channels,
processors appear in 15 channels, dal (split) wholesalers appear in 5 channels and
retailers appear in 15 channels. Assuming the farmers' surplus entering the marketing
channel as 100 units, the entry from outside the state at wholesaler and processor level
was 4.24 per cent of the farmers surplus. The percentage quantities moving in 28
channels are given in Table 3.1.

Table 3.1
Quantity of Marketed Surplus of Gram moving in Various Marketing Channels

Channel No. Agencies involved Quantity (%)

1. F - - - - - C 0.17
2. F - - - - R C 0.76
3. F V - - - - C 0.91
4. F V - - - R C 0.17
5. F V W - - R C 0.65
6. F V W - - - G 0.13
7. F V W P - R C 0.02
8. F V W P S R C 0.70
9. F V W P - - O 1.68
10. F V W - - - O 3.30
11. F V W - - R C 8.80
12. F - W - - - H 1.76
13. F - W P - R C 0.32
14. F - W P S R C 9.44
15. F - W P - - O 22.80
16. F - W - - - O 44.88
17. F - - P - R C 0.04
18. F - - P S R C 1.02
19. F - - P - - O 2.45
Sub Total 100.00
20. O - - P - - O 1.45
21. O - - P - - C 0.02
22. O - - P S R C 0.60
 41

Sub Total 2.07

23. O - W - - R C 0.22
24. O - W - - - G 0.04
25. O - W - - - O 1.11
26. O - W P - - O 0.56
27 O - W P S R C 0.23
28. O - W P - R C 0.01
Sub Total 2.17
Grand Total 104.24

F = Farmer, C = Consumer, R = Retailer, V = Village Trader,

W = Wholesaler, G = Government Agency, P = Processor,
S = Dal Wholesaler O = Outside Rajasthan
Source: Acharya, S.S., Agricultural Production, Marketing and Price Policy in India,
Mittal Publication, New Delhi, 1998, pp.308-12.

Innovative Marketing Channels (Direct Marketing)

It has been realized that the marketing channel for farm products which are
highly perishable (fruits, vegetables and flowers) should be as short as possible.
Perishable farm produce should move quickly from farmers to consumers. If farmers
directly sell their produce to the consumers, it will not only save losses but also increase
farmer's share in the price paid by the consumers. Therefore, direct marketing by the
farmers is being encouraged as an alternative channel. Some examples of these
channels are given below:
(i) Apni Mandi / Kisan Mandi
An innovative concept of 'Apni Mandi' has been introduced in some states. Apni
Mandi is also called 'Kisan Mandi', as it is different from the traditional mandi or market
yard, where the produce moves to the buyer through either a commission agent or
trader. In Apni Mandi there is a direct contact between the farmer producer and the
buyer who is generally the consumer. This system does away with the middlemen. In
Apni Mandi, farmers sell their produce directly to the consumers without involvement of
the middlemen. The price spread in Apni Mandi is considerable low. These are working
satisfactorily in the case of fruits and vegetables. These, 'Apni Mandi' are similar to the
Saturday markets of United Kingdom and United States of America.
 42

Objectives
The main objectives of popularizing the concept of Apni Mandi are:
(i) better marketing of agricultural produce especially of fruits and vegetables;
(ii) ensuring direct contact of the producer-farmers and the consumers and
thereby enhancing the distributional efficiency of the marketing system;
(iii) increasing the profitability of agricultural crops for the producers by
minimization of marketing costs and the margin of the middlemen;
(iv) ensuring the availability of fresh fruits and vegetables and other farm produce
at reasonable prices to the consumers;
(v) removing social inhibitions among the farmers for retail sale of their produce;
(vi) encouraging additional employment to the producers and thereby enhancing
their incomes;
(vii) promoting rational integration by inviting the farmers of other states to sell the
produce grown by them directly to the consumers in Apni Mandis of other
states; and
(viii) providing business techniques to the farmers so that in the long-run they may
adopt this practice for other crops and enterprises too.

History
The first Apni Mandi was started in Punjab by the Punjab Mandi Board at
Chandigarh in February, 1987. Punjab Mandi Board took the initiative with a view to
providing small farmers around cities a direct access to consumers. Similarly, in
Haryana, the first Apni Mandi was started at Karnal in 1988. In Rajasthan also, this
scheme has been introduced in several district towns. The initiative is worth emulating.

Functioning
The market committee of the area where Apni Mandi is located provides space,
water, sheds, counters, balances and other facilities to the farmers in Apni Mandis. The
Market Committee Staff need to work hard with dedication for the success of Apni
Mandis. The State Marketing Boards provide financial assistance to the Market
Committees for these services rendered by them to the Apni Mandi. This scheme is
being implemented with certain resistance from middlemen. Some farmers also have
reservations about the success of the scheme as it assumes adequate skills of retailing
on the part of farmers. However, farmers as well as consumers would benefit from the
Apni Mandi Scheme and its popularity may pick up after sometime.
(ii) Hadaspar Vegetable Market
 43

Hadaspar vegetable market is a model market for direct marketing of vegetables

in Pune city. This sub-market yard is situated nine kms away from Pune city. This
belongs to the Pune Municipal Corporation and the fee for using the space in the market
is collected by the municipal corporation from the farmers. This is one of the ideal
markets in the country for marketing of vegetables. In this market there are no
commission agents/middlemen. The market has modern weighing machines for
weighing the produce. Buyers purchase vegetables in lots of 100 kgs. or 100 numbers.
The produce is weighed in the presence of licensed weighmen of the market committee
and sale bill is prepared. The purchasers make payment of the value of produce directly
to the farmer. The purchaser is allowed to leave the market place along with the produce
after showing the sale bill at the gate of the market. Disputes, if any, arising between
buyers and sellers are settled by the supervisor of the market committee after calling the
concerned parties. The market committee collects one per cent sale proceeds as market
fee for the services and facilities provided by the committee to the farmers and buyers.
(iii) Rythu Bazars
Rithu bazaars have been established in the major cities of Andhra Pradesh state
with the prime objective to provide direct link between farmers and consumers in the
marketing activity of fruits, vegetables and other essential food items. Both producers
and consumers are benefited from Rythu Bazars as producer's share in the consumers
rupee is more by 15 to 40 per cent and consumer's get fresh vegetables, fruits and food
items at 20 to 35 per cent less prices than the prevailing prices in nearby markets.
Further, marketing costs are at the minimum level as middlemen are completely
eliminated from the marketing activities in Rythu Bazars. The maintenance expenditure
of Rythu Bazars is being met from financial sources of Agricultural Produce Market
Committee (APMC) nearer to the Rythu Bazars.
Rythu Bazars started functioning in the Andhra Pradesh State from January 20,
1999. Presently there are 95 Rythu bazaars operating in all the 23 districts of the state.
There is no government involvement in price fixation. This function is left to farmers who
organize themselves into committees and these committee are fixing sale prices daily
after taking into consideration the wholesale and retail prices prevailing in the nearby
towns. Generally, in the Rythu Bazar, prices are fixed 20 per cent over the wholesale
prices and 15 to 20 per cent less than local market prices. Prices fixed are displayed at
several places all over the Rythu Bazar for the benefit of the consumers.
The major highlights of Rythu bazaars are:
 44

 District collectors are making the land available for the Rythu Bazars.
 Permanent infrastructure with all support system are being constructed in the
Rythu Bazars by the concerned Agricultural Produce Market Committee.
 The vegetable cultivators in the identified villages are provided the photo identity
cards and only these cultivators are permitted to sell vegetables in these bazaars.
 State Government arranges special buses on most routes for transport of
vegetables.
 Temporary storage facilities are on anvil.
 Coordination exists between revenue, marketing and horticulture departments for
smooth functioning of these markets.
 A distinct and common identity of such markets across the state is being
established.
 Other essential commodities like pulses and edible oils are also sold in these
markets at reasonable prices.
 Vegetable production programme in the area is also undertaken by the horticulture
department of the state to ensure regular supplies of vegetables to the consumers.
Rythu Bazars have generated a great deal of enthusiasm both among farmers
and consumers as farmers get better prices for their produce due to curtailment of
commission and overhead costs on account of the non-existence of middlemen and the
consumers get vegetables at low prices compared to the prices in other markets.
(iv) Uzhavar Sandies
Uzhavar Sandies (Farmers' Market) were established in selected municipal and
panchayat areas of the Tamil Nadu by the state government. In these markets, farmers
enjoy better marketing infrastructure free of cost and also receive considerably high
prices for the products than what they use to receive from middlemen at village or
primary markets of towns. Farmers are additionally benefited in the form of interaction
with other farmers and with departmental personnel. Farmers also get good quality
seeds and other inputs in the market yard itself. The consumers in these markets are
benefited by getting fresh vegetables at relatively lower prices.
(v) Shetkari Bazar
On the lines of Rythu Bazars in Andhra Pradesh and Uzhavar Sandies in Tamil
Nadu, Government of Orissa has taken a programme of establishing Krushak Bazars in
the state of Orissa in the year 2000-01 with the purpose to empower farmer-producer to
 45

compete effectively in the open market to get a remunerative price for his produce and to
ensure products at affordable prices to the consumers.
The government provides following incentives for opening of the Krushak Bazars
in the state:
(a) Provides 1 to 2 acres of land at suitable place, free of cost, for establishing the
bazaar.
(b) A cluster/group of villages within the proximity of market area and farmers
growing vegetable are identified having the surplus produce for sale.
(c) The identified farmers are allowed to use marketing facilities so that there is no
intervention of middlemen and farmers get better prices for their produce.
(d) Public utility facilities viz., drinking water, electricity, toilet, canteen and rest
house are provided to farmers by the Krushak Bazars.
(e) Identified farmers are provided inputs like seeds and fertilizer at the reasonable
prices in the Krushak Bazars, and
(f) Storage facilities in the market area are also provided to the farmers in Krushak
Bazars.

(vii) Mother Dairy Booths

Mother Dairy, basically handling milk in Delhi, was asked to try its hand in retail
vegetable marketing by direct purchasing vegetables from the farmers, moving them in
specially built vehicles, storing them in air conditioned godowns and distribute them to
the consumers through its retail outlets in 1989 after the notorious onion and potato price
crisis. Mother Dairy management has opened retail outlets in almost all important
colonies of Delhi for providing vegetables to the consumers at reasonable prices.

Market Integration, Efficiency, Costs, Margins and Price

Spread Market Integration
Meaning

Integration shows the relationship of the firms in a market. The extent of

integration influences the conduct of the firms and consequently their marketing
efficiency. The behaviour of a highly integrated market is different from that of a
disintegrated market. Markets differ in the extent of integration and, therefore, there is a
variation in their degree of efficiency.
Kohls and Uhl have defined market integration as a process which refers to the
expansion of firms by consolidating additional marketing functions and activities under a
single management. Examples of market integration are the establishment of
 46

wholesaling facilities by food retailers and the setting up of another plant by a milk
processor. In each case, there is a concentration of decision making in the hands of a
single management.

Types of Market Integration

There are three basic kinds of market integration.
(i) Horizontal Integration
This occurs when a firm or agency gains control of other firms or agencies
performing similar marketing functions at the same level in the marketing sequence. In
this type of integration, some marketing agencies (say, sellers) combine to form a union
with a view to reducing their effective number and the extent of actual competition in the
market. In most markets, there is a large number of agencies which do not effectively
compete with each other. This is indicative of some element of horizontal integration.
Horizontal integration is advantageous for the members who join the group. Similarly, if
farmers join hands and form co-operatives, they are able to sell their produce in bulk and
reduce their cost of marketing. Horizontal integration of selling firms is generally not in
the interest of the consumers of buyers.
The schematic arrangement of a horizontally integrated firm is shown in Figure
9.1. In this arrangement, there are four firms engaged in buying and selling of foodgrains
under the direction of the parent agri-business firm. All the four business firms perform
the same type of marketing function but their locations and areas of operations are
different. Cases of such an integration are very commonly found. Frequently a firm will
have a central headquarter with a large number of local branches that carry on
operations at the local level. Such a network enables the organization to achieve the
economies associated with size of the firm. It also helps the firm to organize some
complex types of operations and services which are needed by the local units but
individually, they may not be able to perform with ease and/or efficiency.
(ii) Vertical Integration
Vertical integration occurs when a firm performs more than one activity in the
sequence of the marketing process. It is a linking together of two or more functions in the
marketing process within a single firm or under a single ownership. For example, if a firm
assumes the functions of the commission agent as well as retailing, it is vertical
integration. Another example of vertical integration is a flour mill which engages in
retailing activity as well.
 47

The schematic arrangement of a vertically integrated firm is illustrated in Fig. 9.2.

In this arrangement a firm is not only engaged in grain purchasing and storage of grains
but also owns trucks for transporting the produce from threshing floors/villages to mandi
and vice versa. In addition to trading in foodgrains the firm may also be processing the
grain for making livestock feed which it sells to the livestock rearers or feed retailers.
There have been many reasons for the development of such integrated
operations. This type of integration makes it possible to exercise control over both the
quantity and quality of the product from the beginning of the production process until the
product is ready for the consumer.
Vertical integration leads to some economies in the cost of marketing. A vertically
integrated firm has an advantage over other firms in respect of greater market power
either in terms of sources of supplies or distribution network. Vertical integration reduces
the number of middlemen in the marketing channel. It is of two types, forward or
backward, depending upon the stage at which the integration occurs.
(a) Forward Integration: If a firm assumes another function of marketing which is
close to the consumption function, it is a case of forward integration; for example, a
wholesaler assuming the function of retailing.
(b) Backward Integration: This involves ownership or a combination of sources of
supply; for example, when a processing firm assumes the function of
assembling/purchasing the produce from villages.
Firms often expand both vertically and horizontally. The modern retail stores are
a good example of this. Retailing firms have grown horizontally by expanding either retail
stores or a number of commodities they deal in. They have grown vertically by operating
their own wholesale, purchasing and processing establishment.
(iii) Conglomeration
A combination of agencies or activities not directly related to each other may,
when it operates under a unified management, be termed a conglomeration. Examples
of conglomeration are Hindustan Lever Ltd. (processed vegetables and soaps), Delhi
Cloth and General Mills (Cloth and Vanaspati), Birla Group, Tatas, J.K. Group and
NAFED.
The schematic arrangement of a business conglomerate is shown in Figure 9.3.
The conglomerate is involved in a number of different and frequently unrelated
activities. For example, the firm may be dealing in foodgrains trading; processing of
horticultural products; cloth milling; selling and repairs of electronic equipments; and
 48

manufacturer of vanaspati. Such a conglomeration of activities serves as a means of

spreading the risk and helps in expanding the activities to additional markets.
Most of the business firms have some degree of vertical integration, horizontal
integration and conglomerate character. The main objective of such an arrangement is
to undertake closely related activities that will permit them to effectively meet the
requirements of their customers. The most common type of integration which exists in
our rural markets is that a firm which buys and sells the grains is also engaged in selling
of fertilizers, insecticides and pesticides, feed and such other items with the main
objective of meeting the multiple needs of their customers, most of whom are farmers.

Degree of Integration
There are two types of integration.
(i) Ownership Integration
This occurs when all the decisions and assets of a firm are completely assumed
by another firm. The example of this type of integration is a processing firm which buys a
wholesaling firm.
(ii) Contract Integration
This involves an agreement between two firms on certain decisions, while each
firm retains its separate identity. When dal mills of an area jointly agree on the pricing of
the dals and processed product, it is a case of contract integration. Another example of
contract integration is tie up of a dal mill with pulse trades for supply of pulse grains.

Effects of Integration
Integration is an attempt at organizing or co-ordinating the marketing processes
to increase operational efficiency and acquire greater power over the selling and/or
buying process. Like decentralization, integration in the marketing process may have
both advantageous and disadvantageous effects. Whether a particular case of
integration is advantageous to society or the individual can be judged by the motive with
which it has been undertaken.
The vertical integration of firms may be actuated by the following motives:
(i) More profits by taking up additional functions;
(ii) Risk reduction through improved market co-ordination;
(iii) Improvement in bargaining power and the prospects of influencing prices; and
(iv) Lowering costs through achieving operational efficiency.

Horizontal integration may be actuated by the following motives:

 49

(i) Buying out a competitor in a time-bound way to reduce competition;

(ii) Gaining a larger share of the market and higher profits;
(iii) Attaining economies of scale; and
(iv) Specializing in the trade.

Horizontal integration in the food industry is limited because of its potential

impact on competition.

Conglomeration integration may be actuated by the following motives:

(i) Risk reduction through diversification;
(ii) Acquisition of financial leverage; and
(iii) Empire-building urge.
Marketing Efficiency
Marketing efficiency is essentially degree of market performance. In this sense
the concept is broad and dynamic. It encompasses many theoretical manifestations and
practical aspects. Broadly, one may look at efficiency of a market structure through the
following:
(i)

(i) Whether it fulfils the objectives assigned to it or expectations from the system at
minimum possible cost or maximizes the fulfillment of objectives with given level of
resources (or costs); and
(ii) Whether it is responsive to impulses generated through environmental
changes and whether impulses are transmitted at all levels in the system. Expectations
from or objectives assigned to the system are of critical importance in assessing the
efficiency because various participants have different expectations from the system,
which quite often conflict with each other. For example:
(i) Farmers expect quick market clearance and higher prices for their produce.
They expect the market to buy the products when they are offered for sale at reasonable
prices;
(ii) Consumers expect ready availability of products in the form and quality
desired by them at lower prices;
(iii) Traders and other functionaries expect steady and increasing incomes; and
 50

(iv) Government expect the system to safeguard the interest of all the three
sections and in a proportion which is considered to be fair so that overall long-run
welfare of the society is maximized.

Definition of Marketing Efficiency

The concept of marketing efficiency is so broad and dynamic that no single
definition encompasses all of its theoretical and practical implications. Some of the
definitions are given below:
Kohls and Uhl: Marketing efficiency is the ratio of market output (satisfaction) to
marketing input (cost of resource). An increase in this ratio represents improved
efficiency and a decrease denotes reduced efficiency. A reduction in the cost for the
same level of satisfaction or an increase in the satisfaction at a given cost results in the
improvement of efficiency.
Jasdanwalla: The term marketing efficiency may be broadly defined as the
effectiveness or competence with which a market structure performs its designated
function.
Clark: Marketing efficiency has been defined as having the following three
components:
(i) The effectiveness with which a marketing service is performed;
(ii) The cost at which the service is performed; and
(iii) The effect of this cost and the method of performing the service on production
and consumption.
Of the three components, the last two are the most important because the
satisfaction of the consumer at the lowest possible cost must go hand in hand with the
maintenance of a high volume of farm output.

Efficient Marketing
The movement of goods from producers to consumers at the lowest possible
cost, consistent with the provision of the services desired by the consumer, may be
termed as efficient marketing. A change that reduces the costs of accomplishing a
particular function without reducing consumer satisfaction indicates an improvement in
the efficiency. But a change that reduces costs but also reduces consumer satisfaction
need not indicate increase in marketing efficiency. A higher level of consumer
satisfaction even at a higher marketing cost may mean increased marketing efficiency if
the additional satisfaction derived by the consumer outweighs the additional cost
incurred on the marketing process.
 51

An efficient marketing system for farm products ensures that:

(i) Increase in the farm production is translated into a proportionate increase in
the level of real income in the economy, thereby stimulating the emergence of additional
surpluses;
(ii) Good production years do not coincide with low revenues to the producers
achieved through effective storage, proper regional distribution and channelising of
latent demand; and
(iii) Consumers derive the greatest possible satisfaction at the least possible
cost.
An efficient marketing system is an effective agent of change and an important
means for raising the income levels of the farmers and the levels of satisfaction of the
consumers. It can be harnessed to improve the quality of life of the masses.

Approaches to the Assessment of Marketing Efficiency

Traditionally, efficiency of the marketing system has been looked at from the
following two angles:
(i) Technical or Physical or Operational Efficiency
This aspect of the efficiency pertains to the cost of performing a function.
Efficiency is said to have increased when cost of performing a function for each unit of
output is reduced. This can be brought about either by reducing physical losses or
through change in the technology of the function viz., storage, transportation, handling,
and processing. A change in the technique may result either in the reduction of per unit
cost (storage cost for a month, transportation cost to a distance of 100 kms or the cost of
converting 100 kg of oranges to orange juice) or the increase in the output for a given
level of cost.
(ii) Pricing or Allocative Efficiency
Pricing efficiency means that the system is able to allocate farm products either
overtime, across the space or among the traders, processors and consumers (at a point
of time) in such a way that no other allocation would make producers and consumers
better off. This is achieved via pricing of the product at different stages, at different
places, at different times and among different users and hence called pricing efficiency.
In simple terms, the pricing efficiency is achieved when following conditions hold:
a. Price differences between spatially separated markets do not exceed
transportation cost;
b. Intra-year price rise is not more than storage cost; and
 52

c. Price differences between forms of the product (pulse grain and split dal or wheat
grain and wheat flour) do not exceed processing cost.
The pricing efficiency refers to the structural characteristics of the marketing
system, where the sellers are able to get the true value of their produce and the
consumers receive true worth of their money.
Whenever functions of transportation, storage and processing are performed,
cost is incurred, value is added and the product is priced again. The efficiency of
marketing is concerned with the extent to which the prices (after these functions are
performed) deviate from what the cost of performing these functions warrant. The pricing
aspect of marketing efficiency is affected by the extent of competition, dissemination of
market information and attitude of the functionaries.
Marketing efficiency in this context may be termed as the pricing efficiency of the
marketing system. The relationships between marketing costs and marketing margins
and that between gross margins and prices in spatially separated markets between or at
different stages of marketing reflect this aspect of marketing efficiency.
The above two types of efficiencies are mutually reinforcing in the long run; one
without the other is not enough.

Empirical Assessment of Marketing Efficiency

Some simple measures to assess the efficiency of the marketing system for
agricultural commodities are:
(i) Ratio of Output to Input
Conceptually, efficiency of any activity or process is defined as the ratio of output
to input. If 'O' and 'I' are respectively output and input of the marketing system and 'E' is
the index of marketing efficiency; then

O
E
100
I
A higher value of E denotes higher level of efficiency and vice versa. When
applied in the area of marketing, output is the 'value added' by the marketing system and
'input is the real cost of marketing (including some fair margins of intermediaries)'. The
measurement of 'value added' is not easy. The difference in the price at the farm level
(price received by the farmer) and that at the retail level (price paid by the consumers)
may be used to measure the 'value added' but it has limitations mainly because of
market imperfections. Assuming that degree of imperfection is pervasive, this measure
has been used to compare the marketing efficiency of two spatially separated markets,
 53

of two commodities or at two points of time. Consider the following examples of

marketing efficiency.

Marketing Costs, Margins and Price Spread

Market functionaries or institutions move the commodities from the producers to
consumers. Every function or service involves cost. The intermediaries or middlemen
make some profit to remain in the trade after meeting the cost of the function performed.
In the marketing of agricultural commodities, the difference between the price
paid by consumer and the price received by the producer for an equivalent quantity of
farm produce is often known as farm-retail spread or price spread. Sometimes, this is
termed as marketing margin. The total margin includes:
(i) The cost involved in moving the product from the point of production to the
point of consumption, i.e., the cost of performing the various marketing functions and of
operating various agencies; and
(ii) Profits of the various market functionaries involved in moving the produce
from the initial point of production till it reaches the ultimate consumer. The absolute
value of the marketing margin varies from channel to channel, market to market and time
to time.

Concepts of Marketing Margins

There are two concepts of marketing margins.
(i) Concurrent Margins
These refers to the difference between the prices prevailing at successive stages
of marketing at a given point of time. For example, the difference between the farmer's
selling price and retail price on a specific date is the total concurrent margin. Concurrent
margins do not take into account the time that elapses between the purchase and sale of
the produce.
(i) Lagged Margins
A lagged margin is the difference between the price received by a seller at a
particular stage of marketing and the price paid by him at the preceding stage of
marketing during an earlier period. The length of time between the two points denotes
the period for which the seller has held the product. The lagged margin concept is a
better concept because it takes into account the time that elapse between the purchase
and sale by a party and between the sale by the farmer and the purchase by the
consumer.
 54

The method of calculating lagged margins is based on the same principle as that
involved in the first in-first out method of accounting. However, it is difficult to obtain data
on time lags between purchase and sale with a view to maintaining continuous series of
marketing margins.

Importance of Study of Marketing Margins and Costs

Studies on marketing margins and costs are important, for they reveal many
facets of marketing and the price structure, as well as the efficiency of the system.
(i) The magnitude of the marketing margins relative to the price of the product
indicates the efficiency or otherwise of the marketing system. It refers to the efficiency of
the intermediaries between the producer and the consumer in respect of the services
rendered and the remuneration received by them. While comparing the efficiency of the
marketing system by means of marketing margins over space or time, the difference in
the value added to the product through various services/functions is taken into account;
(ii) Such studies help in estimating the total cost incurred on the marketing
process in relation to the price received by the producer and the price paid by the
consumer. The cost incurred by each agency in different channels and the share of each
agency in the cost have been revealed. This knowledge ultimately helps us to identify
the reasons for high marketing costs and the possible ways of reducing them; and
(iii) The knowledge of marketing margins helps us to formulate and implement
appropriate price and marketing policies. Excessive margins point to the need for public
intervention in the marketing system.

Estimation of Marketing Margins and Costs

Regular monitoring of marketing margins at regional levels are essential for the
formulation and successful implementation of marketing and price policies. A study of
marketing margins should include an estimation of the producers' share in the
consumer's rupee, the cost of marketing functions and the margins of intermediaries.
Marketing margins and costs vary from commodity to commodity, and depend on the
amount of processing involved and the market structure for handling of the commodity.
Even for the same commodity, the margin may vary from place to place and time to time.
A number of factors, such as the method of assembling, the location of the market and
the mode of transportation, influence marketing costs and margins. The method of sale,
weighment and other facilities, too, affect the marketing costs. Because of a lack of
standard grading in agricultural commodities, it is very difficult to make valid
 55

comparisons of price data. Adequate precautions have, therefore, to be taken when

comparing marketing margins for commodities under different situations.
Inspite of these difficulties, various studies have been conducted in India to study
marketing margins and costs with a view to assessing the farmers' share in the
consumer's rupee and to suggesting measures for improvements in the marketing
system. These studies have used different approaches, and vary considerably in their
depth.
Three methods are generally used in the computation of marketing margins and
costs.
(i) Lot Method
A specific lot or consignment is selected and chased through the marketing
system until it reaches the ultimate consumer. The cost and margin involved at each
stage are assessed. The difficulties or limitations of this method are:
(a) It is difficult to chase the movement of a lot from the producer to the ultimate
consumer.
(b) Most of the lots lose their identity during the process of marketing, because
either the product gets processed or the lot gets mixed up with other lots.
(c) There is no assurance that the lot selected is representative of the whole
product.
This method is appropriate for such perishable farm commodities as fruits,
vegetables, and milk, because the lag between the time the commodity enters the
marketing system and time of its final consumption is very small.
(ii) Sum of Average Gross Margins Method
The average gross margin at each successive level of marketing is worked out
by dividing the difference of the money value of sales and purchase by the number of
units of the commodity transacted by a particular agency. The average gross margins of
all the intermediaries are added to obtain the total marketing margin as well as the
break-up of the consumer's rupee.
The following formula may be used to work out the total marketing margins:

n
 Si  Pi 

M T  



where i1  Qi 
MT = Total marketing margin
 56

Si = Sale value of a product for ith firm

Pi = Purchase value of a product paid by the ith firm
Qi = Quantity of the product handled by ith firm
i = 1, 2, ……n, (number of firms involved in the marketing channel)
This method requires considerable effort in the location and examination of the
records kept by the intermediaries. The main difficulties in using this method are:
(a) Traders may not allow access to their account books. It would then be difficult
to obtain complete and accurate information. Moreover, some traders often make
manipulated entries in their account books to evade sales tax and income tax; and
(b) This method necessitates adjustment for the difference between the
quantities purchased and sole because a part of the product is wasted during handling.
(iii) Comparison of Prices at Successive Levels of Marketing
Under this method, prices at successive stages of marketing at the producer's,
wholesaler's and retailer's levels – are compared. The difference is taken as the gross
margin. The margin of an intermediary is worked out by deducting the ascertainable
costs from the gross margin earned by that intermediary. This method is appropriate
when the objective is to study the movements of marketing costs and margins in relation
to prices and cost indices. The main difficulties encountered in the use of this method
are:
(a) Representative and comparable series of prices for the same quality of
successive stages of marketing are not readily available for all the products;
(b) Adjustment for a loss in the quality of the product at various stages of
marketing due to wastage and spoilage in processing and handling is difficult;
(c) The price quotation may not cover the price of a product of a comparable
quality; and
(d) The time lag between the performance of various marketing operations is not
properly accounted for.
The following general rules may be adopted in selection of the method for
calculating marketing margins and costs of various agricultural commodities:
Commodities Method Recommended
(a) For perishable farm products like fruits, Chasing of lot or consignment method.
vegetables and milk, where the time lag
between the commodity entering the
marketing system and the time of final
 57

consumption is very small.

(b) Commodities which require processing Concurrent margins should be
before sale to consumers such as calculated by finding the differences in
paddy, oil-seeds, etc. the prices prevailing on the same date
at successive levels of marketing.
(c) Commodities not requiring processing By comparing the prices prevailing at
before sale to consumers, such as successive levels of marketing on the
wheat, maize, bajra, jowar, etc. same date either for the same market
or for a pair of markets.
Irrespective of the method followed, the following information is required for
computing marketing costs and margins:
(a) Data on prices of the same variety and quality of the commodity at different
stages of marketing, either for one market or for a pair of markets;
(b) Data on marketing charges in cash or kind;
(c) Cost of transportation of the produce at different levels of marketing;
(d) Cost of processing and estimates of the conversion factor from the raw material
to finished products;
(e) Cost of all other operations in the marketing process.
Various measures of the price spread and for the computation of marketing costs
and margins, and the procedures followed have been given in the paragraphs that
follow.

Producer's Price
This is the net price received by the farmer at the time of first sale. This is equal
to the wholesale price at the primary assembling centre, nminus the charges borne by
the farmer in selling his produce. If PA is the wholesale price in the primary assembling
market and CF is the marketing cost incurred by the farmer, the producer's price (PF)
may be worked out as follows:
PF = PA - CF
Producer's Share in the Consumer's Rupee
It is the price received by the farmer expressed as a percentage of the retail price
(i.e., the price paid by the consumer). If Pr is the retial price, the producer's share in the
consumer's rupee (Ps) may be expressed as follows:
PS = (PF  Pr) 100
Marketing Margin of a Middleman
 58

This is the difference between the total payments (cost + purchase price) and
receipts (sale price) of the middleman (ith agency). Three alternative measures may be
used.
(a) Absolute margin of ith middleman (Ami )
Ami = PRi – (PPi + Cmi)

(b) Percentage margin of ith middleman (Pmi )

PRi  (PPi  Cmi )
100
Pmi =
PRi

(c) Percentage mark-up of the ith middleman (Mi )

PRi  (PPi  Cmi )
Mi = 100
PRi
where
PRi = Total value of receipts per unit (sale price)
Ppi = Purchase value of goods per unit (purchase price)
Cmi = Cost incurred on marketing per unit
The margin thus calculated include the profit of the middleman and the returns
which accrue to him for storage, the interest on capital and overhead, and establishment
expenditure.

Total Cost of Marketing

The total cost, incurred on marketing either in cash or in kind by the producer
seller and by the various intermediaries involved in the sale and purchase of the
commodity till the commodity reaches the ultimate consumer, may be computed as
follows:
C = CF + Cmi + Cm2 + Cm3 + …. + Cmn
where
C = Total cost of marketing of the commodity,
CF = Cost paid by the producer from the time the produce leaves the farm till he
sells it, and
Cmi = Cost incurred by the ith middleman in the process of buying and selling the
product.
Some of the costs are linked with the quantity marketed and some are linked with
the value of the commodity. The former is a fixed charge, while latter is a variable one.
The actual rates of charges are converted in terms of the weight unit or Rs.100 worth of
 59

produce sold. The ad valorem charges are calculated on the basis of the actual market
price for the physical unit or Rs.100 worth of produce sold.

Farmer's Share and Gross Marketing Margins

According to Acharya (2003), the gross marketing margins (GMM) can be broken
down into three components viz., cost of performing various marketing functions,
statutory taxes or levies payable in the marketing channel, and net marketing margins
(NMM) retained by market functionaries.
Marketing cost varies from commodity to commodity and changes overtime and
space. Marketing costs depend on the perishability of the commodity, need for cold
storage facilities, need for processing before consumption, necessity of storage and
transportation, distance for transportation and nature of packaging needed. The
marketing costs are, therefore, generally high for fruits, vegetables, flowers, oilseeds,
sugarcane and cotton compared to foodgrains. Statutory marketing charges include
taxes and levies (sales tax, market fee, octroi, special duty or cess on commercial crops
etc.) which are paid in the process of transactions of commodity at different stages of
marketing. The rates of these charges vary from state to state, market to market and
commodity to commodity. Most of these taxes and levies are on ad valorem basis and
as such their incidence is higher on high value crops. The market players have no
control on these taxes and levies as these are of statutory in nature. These statutory
charges exert considerable effect on gross marketing margins and farmer's share in
consumer's rupee. Net marketing margin (NMM) is the amount retained by different
market functionaries. The size of net marketing margin depends on the nature of
competition, structure of markets and scale of business. Larger the net marketing
margin, greater is the inefficiency of the marketing system.
It is now increasingly realized that higher marketing costs do not always reflect
inefficiency of the marketing system. The factors, which cause high marketing costs,
could be geographical localization of production away from the markets, necessity of
storage from production season to the lean season and involvement of processing
function in the marketing process. Under such situations, the size of marketing costs
reflects only one side of the coin and the other aspects viz., consumer satisfaction is not
given any weightage.
Over the period, gross marketing margins (GMM) decreased in foodgrains and
oilseed crops due to better competitive conditions in the trade of these commodities. On
the other hand, GMM increased in fruits and vegetables due to the expansion in the
 60

markets for these crops and their products. As against this, over the period, however,
total cost of marketing in absolute terms have shown an increase due to:
(i) increased necessity of packing all goods;
(ii) increased availability of facilities of transportation, communication and storage
leading to long distance transportation and storage from production to lean
season of the year;
(iii) widening of markets due to liberalization of trade and expansion in size of
markets leading to movement of products to distant domestic and foreign
markets;
(iv) increase in the consumer's income leading thereby to higher demand of
processed, packed and branded products;
(v) increase in the general price level in the economy thereby leading to increase in
the cost of marketing as many marketing charges are linked to the value of the
commodity; and
(vi) increase in the statutory marketing charges overtime by the government, which in
some cases account for 12 to 18 per cent of the gross marketing margins.
A comprehensive review of Indian Literature reveals that studies on price-spread
and marketing margins for the period 1960 to 1975 are available for only a few crops
(wheat, rice, sorghum, pearl millet, chickpea and groundnut). However, in the later
period i.e., 1975-2000 the studies have covered almost all agricultural products –
foodgrains, oilseeds, cotton, fruits, vegetables and flowers. (For a summary of results
see Acharya, 2003).
There is ample evidence of large variability of the producers share in consumer
rupee as well as marketing margins and costs across the crops and study areas.
Disregarding the extremities, the farmers share in consumers rupee has been estimated
as 56 to 89 per cent for paddy, 77 to 85 per cent for wheat, 72 to 86 per cent for coarse
grains, 79 to 86 per cent for pulses and 40 to 85 per cent for oilseeds. The farmer's
share in consumer's rupee for perishable farm products (fruits, vegetables and flowers)
is generally lower and varied from 32 to 68 per cent.
The studies in general reveal that the producer's share in consumer's rupee has
varied with the marketing channel adopted by the farmers. The DMI studies reveal
(Table 3.2) that the costs were higher when farmers adopted private channels in
marketing of surplus produce compared to the institutional channels and hence farmer's
share was lower when they sell through private channels.
 61

Table 3.2
Price Spread in Private and Institutional Channels in Selected Agricultural
Commodities in India (1982-83)

(Percentages of Consumer's Price)

Commodities Marketing Farmer's Marketing Net Marketing
Channel Share Costs Margins
Price Private 65.0 17.0 17.3
Institutional 66.0 27.0 7.0
Wheat Private 65.8 20.0 14.2
Institutional 66.8 27.5 5.7
Apple Private 41.9 35.0 23.1
Institutional 52.2 26.2 21.6
Onion Private 40.6 35.7 23.7
Institutional 42.2 36.1 21.7
Groundnut Private 63.6 19.0 17.4
Institutional 87.6 11.2 1.2
Source: Directorate of Marketing and Inspection, Government of India, Faridabad
(1985).
A recent comprehensive analysis of statutory charges/taxes and transport and
storage costs of wheat by Ramesh Chand has shown that the mark up over farm harvest
price prevailing during post-harvest season in a surplus state (like Punjab) needed to
attract private sector in wheat trade is 74 per cent to 126 per cent (Goa) for the month of
next March. This implies that for wheat supplied to a consumer in Goa in the month of
next March, the share of a Punjab wheat grower (based on the price received in the
preceding harvest month of May) in the consumer's price is 44.2 per cent. This also
means that the statutory charges and marketing costs (storing wheat from May to next
March and transportation from Punjab to Goa included) add up to 55.8 per cent of the
consumer's price.
Sale of fruits through pre-harvest contractors is also common in fruit producing
areas. The studies on estimates of marketing costs and margins reveal that farmers
receive a lower price when they sell through the contractor.
The gross marketing margins in marketing of agricultural products have also
been worked out from National Accounts Statistics by Acharya, S.S. (1998). In this
approach, difference between the total consumers expenditure on a particular farm
 62

product and the value of the output at the farm level has been used to estimate gross
marketing margin. Based on an aggregate accounting, the gross marketing margin
(GMM) as percentage of consumer's price is 19.2 in cereals, 7.2 in oilseeds, 32.9 in
fruits and vegetables, 6.7 in milk and milk products, and 37.2 in sugarcane with an
overall average of 19.3 per cent for all agricultural commodities. The estimates are
shown in Table 3.3.

Table 3.3
Gross Marketing Margins for Major Agricultural Commodities in India Using Aggregate
Accounting Approach Based on data for 1986-87

(Percentages)
Crop Groups/Crops Gross Marketing Margin
Cereals 19.2
Oilseeds 7.2
Fruits & Vegetables 32.9
Milk and Milk Products 6.7
Sugarcane/Sugar/Gur 37.2
Overall 19.3
Source: Acharya, S.S., AgriculturalMarketing in India: Some Facts and Emerging Issues,
Indian Journal of Agricultural Economics, 53(3), July-September 1998, pp.311-
32.
Factors Affecting the Cost of Marketing
Studies on the cost of marketing reveal that there is a large variation in the cost
per quintal or per Rs.100 worth of the produce. The factors which affect marketing costs
are:
(i) Perishability of the Product: The cost of marketing is directly related to the
degree of perishability. The higher the perishability, the greater the cost of marketing,
and vice versa.
(ii) Extent of Loss in storage and Transportation: If the loss in the quality and
quantity of produce, arising out of wastage or spoilage or shrinkage during the period of
storage or in the course of transportation is substantial, the marketing cost will go up.
(iii) Volume of the Product Handled: The larger the volume of business or
turnover of a product, the less will be the per unit cost of marketing.
 63

(iv) Regularity in the Supply of the Product: If the supply of the product is
regular throughout the year, the cost of marketing on per unit basis will be less than in a
situation of irregular supply or supply restricted to a few months of the year.
(v) Extent of Packaging: The cost of marketing is higher for the commodities
requiring packaging.
(vi) Extent of Adoption of Grading: The cost of marketing of ungraded product
is higher than that of the products in which grading can be easily adopted.
(vii) Necessity of Demand Creation: If substantial advertisement is needed to
create the demand of prospective buyers, the total cost of marketing will be high.
(viii) Bulkiness of the Product: The marketing cost of bulky products is higher
than that of which are not bulky.
(ix) Need for Retailing: The greater the need for the retailing of a product, the
higher the total cost of marketing;
(x) Necessity of Storage: The cost of the storage of a product adds to the cost
of marketing, whereas the commodities which are produced and sold immediately
without any storage attract lower marketing cost.
(xi) Extent of Risk: The greater the risk involved in the business for a product
(due to either the failure of the business, price fluctuations, monopsony of the buyer or
the prevalence of unfair practices), the higher is the cost of marketing.
(xii) Facilities Extended by the Dealers to the Consumers: The greater the
facilities extended by the dealer to the consumer (such as return facility for the product,
home delivery facility, the facility of supply of goods on credit, the facility of offspring
entertainment to buyers, etc.), the higher the cost of marketing.

Reasons for Higher Marketing Costs of Agricultural Commodities

Generally, the cost of marketing of agricultural commodities is higher than that of
manufactured products. The factors responsible for this phenomenon are:
(i) Widely Dispersed Farms and Small Output per Farm: There are
innumerable producers of agricultural products, each producing a small quantity.
Producers are widely dispersed. Hence the cost of assembling is high.
(ii) Bulkiness of Agricultural Products: Most farm products are bulky in
relation to their value. This results in a higher cost of transportation.
(iii) Difficult Grading: Grading is relatively difficult for agricultural products. Each
lot has to be personally inspected during purchase and sale – a fact which increases
 64

marketing costs. The sale or purchase by contract or sample is not easy because an
inspection of each lot of the product is required by reason of variation in their quality.
(iv) Irregular Supply: Agricultural products are characterized by seasonal
production. Their market supply, therefore, fluctuates during the year. In times of glut,
prices go down and the cost of marketing functions, on value basis.
(v) Need for Storage and Processing: There is a greater need for the storage
of agricultural products because of the seasonality of their production. The processing of
agricultural products is a necessity because all the agricultural products are not
consumed in the raw form. Storage and processing add to the cost of marketing. Losses
of agricultural products in storage are also high because of their perishability.
(vi) Large Number of Middlemen: In foodgrain marketing, the number of
middlemen is larger because there is no restriction on their entry in the trade. Contrarily,
there are mainly restrictions on the entry into the trade of industrial products. For
example, the cumbersome licensing procedure, high risk and high capital requirement
make entry into trade in non-farm goods somewhat difficult. The larger the number of
middlemen, the higher the marketing costs.
(vii) Risk involved: The risk of price fluctuations is higher in agricultural
products. The higher risk leads to higher risk premium, which adds to the marketing cost.
Marketing Cost in India and Other Countries
In India, the marketing cost of foodgrains is lower than in developed countries.
The factors responsible for this difference are:
(i) Foodgrains are sold in a relatively unprocessed form in India, whereas in
developed countries, consumers want them mostly, in a processed form. India, the
processing of foodgrains is undertaken at the consumers' level. Therefore, the cost of
marketing is lower, and the farmers' share in consumer's rupee is higher in India.
(ii) Human labour is relatively cheap in India, a fact which keeps the labour
component of the marketing cost lower in India than in the developed countries.
Marketing Costs of Foodgrains Over Time
Over time, there has been an increase in the marketing cost of foodgrains in
India. Some of the factors which have been responsible for this increase are:
(i) Shifting Tendency from Subsistence to Commercialised Farming:
Previously, each farmer used to produce foodgrains needed by him; but now, because of
specialization in agricultural production and increasing urbanization, the distance
 65

between producers and consumers has increased. The cost of moving foodgrains from
producers to consumers has, therefore, increased.
(ii) Technological Advances in Preservation and Storage: Formerly, many
food products were consumed only during the season of production. Specialization in
production and the evolution of short duration high-yielding varieties have resulted in
large-scale production, thereby necessitating their storage. Technological advances in
storage and preservation, though have facilitated handling of large volumes but have
increased the costs and widened the spread between the producers' and the consumer's
prices.
(iii) Change in the Form of Consumer Demand: There has been a change in
the consumer's behaviour over time. Consumers now like the product in a processed
and ready-to-use form following the increasing impact of urbanization. The desire for
attractive packaging and home delivery system, too, has had its influence on consumer
demand. Their demand for marketing service has, therefore, increased.

How to Reduce Marketing Costs

There are various ways of reducing marketing costs. No single factor can bring
about any perceptible reduction in these costs. However, a combination of factors may
bring about a significant reduction in the cost of marketing. Some ways of reducing
marketing costs for farm products are:
(i) Increase the Efficiency of Marketing
An increase in the efficiency of marketing can be brought about by a wide range
of activities between producers and consumers. Some major areas in which improved
efficiency may result in a reduction in marketing costs are:
(a) Increasing the Volume of Business: By increasing the quantity to be
handled at a time, one can effectively reduce marketing costs and increase marketing
efficiency.
(b) Improved Handling Methods: The new methods of handling, such as pre-
packaging of perishable products, the use of fast transportation means, the development
of cold storages and an efficient use of labour are some of the methods by which
efficiency may be increased and costs reduced.
(c) Managerial Control: The adoption of proven management techniques
increases efficiency. By a constant monitoring of costs and returns, the efficiency at
each stage in marketing may be stepped up.
 66

(d) Change in Marketing Practices and Technology: Changes in marketing practices

and technology (such as sale of orange juice instead of orange, retailing food services through
super markets, and integration of marketing functions) reduce marketing costs and increase
marketing efficiency.
(ii) Reduce Profits in Marketing
Profits in the marketing of agricultural commodities are often the largest because of the
inherent risk at various stages of marketing. The risk may be reduced by:
(a) The adoption of hedging operations, improvements in market news service, grading and
standardization; and
(b) Increasing the competition in the marketing of farm products.
A decline in marketing margins and costs generally benefits both the producer and the
consumer. Only in extreme cases are all the benefits derived either by the producers or by the
consumers (when there is no change in the price received by the producers). Apart from such
cases, the gains in the efficiency of marketing practices are shared by both. The extent to which
these benefits are shared is determined by the nature or characteristics of the supply of, and
demand for, the product. For example:
(a) If the supply and demand curves have the same elasticity, producers and consumers
share the benefits equally;
(b) If demand is more elastic than supply (e.g., for farm products in the short run), the
producers get a larger share of the benefits; and
(c) If the supply is more elastic than the demand (e.g., of many farm products over a longer
period), consumers get a larger share of the benefits.
 67

External Trade in Agricultural Products

One other important aspect of agricultural marketing is the marketing of agricultural commodities
across the nation's borders usually termed as external trade. As far as an individual country is
concerned, external trade is done in the form of either exports or imports. Exports provide the market
support for the country's surpluses and generate foreign exchange earnings which increases the
country's capacity to import other goods, but at the same time in the short run, they reduce the domestic
availability of the commodities exported and consequently raise the domestic price level. Imports, on the
other hand, though reduce the foreign exchange reserves, augment the domestic availability of goods
and if these pertain to the capital goods or inputs, expand or improve the production capacity but in the
short run, they depress the domestic prices. The effect of exports and imports of final goods on the
domestic price level is such that, in the absence of any public intervention in the domestic market, the
producers gain by exports and lose by imports. One other point to be noted in this regard is that the
levels of exports and imports of a country are inter-related as the capacity of imports depends on its
ability to export.

International trade or marketing essentially involves buyers and sellers of two different countries.
Usually the currencies are different and convertibility is quite often not automatic. This apart, depending
on the development philosophy, domestic economic levels; natural resource endowments and national
objectives like self-sufficiency or self-reliance, there are quite a few barriers-physical, tariff, subsidies
etc. that are imposed by the national governments. Therefore, the buying and selling of commodities
across national boundaries usually have not been taking place in the framework of free market
environment.

Trade Policy for Agriculture

Over the last five decades of Indian planning, the perception about the importance of external
sector in economic development has gone through a number of changes. These changes can be
categorized as under:
(i) During the first half of 1950s, i.e., the period of first five year plan, the foreign trade was considered to
be almost irrelevant for economic development in India and hence export policies did not receive
emphasis.
(ii) During mid 1950s and 1970s (1955 to 1975), the foreign trade was seen as a constraint on growth
and India followed a moderately outward looking economic policy. During second five year plan (1956-
61), agricultural items hardly received any export incentives. Rather several items were under export
restrictions. The third five year plan (1961-66) marked a radical departure in the export policy. Various
export promotion measures were introduced in the form of fiscal incentives, import entitlement scheme,
 68

direct financial incentives and marketing incentives from the government. Following the devaluation of
Indian rupee in 1966, many of the export promotion measures were abolished. The promotion of India's
exports continued during the fourth five year plan period (1969-74). To facilitate agricultural exports, the
fourth plan extended the compulsory quality control and grading under Agmark. This period was also
marked by the establishment of organizations aimed at providing services to the exporting community.
These include Export Promotion Councils, Commodity Boards, and the Trade Development Authority,
which were set up in early 1970's.
(iii) During late 1970's to early 1980's, the external trade got more prominent place. In 1977, a Task
Force on Agricultural Exports, headed by G.V.K. Rao, in its report submitted to the Government of India,
criticized the adhocism applied to agricultural trade. The report pointed out that India did not have an
independent export policy for agricultural commodities and agricultural export policy during the 1970's
remained 'adhoc, short term and mere reaction to the situation'. The report suggested that long term
policies should be formulated and frequent changes in export policies should be avoided. Another
committee was appointed by Government of India under the Chairmanship of P.E.Alexander in 1977 to
review the export-import policies and procedures. The Committee in its report submitted in 1978,
recognized that the export control measures for agricultural commodities have resulted in supply
uncertainties and loss of market share. The Committee recommended for the stability of export policies,
advocated more transparency in making these policies, replacement of licensing system by the tariff
system, rationalization of export incentives, elimination of multiplicity of incentives, and strengthening of
institutional infrastructure for export promotion. Another Committee on trade policies under the
chairmanship of Abid Hussain was appointed by the Government of India in 1984 to review the trade
policies and suggest rationalization and improvements in these policies. The Committee realized that
incentive element in these policies was small and was not sufficient to offset the negative export bias
implicit in other domestic policies. The report proposed rationalization of duty drawback schemes, tax
concessions, and increased fiscal concessions to increase the relative profitability of exports.
(iv) Mid 1980's to early 1990's marks the period when India started liberalization of the external sector. It
began in mid 1980s but gathered pace only since 1991. However, upto mid 1990s, agriculture remained
largely a protected sector in the Indian economy. During this period, the main policy objectives were to
ensure stability of domestic prices of agricultural items. The government actively regulated agricultural
exports through a variety of measures like export taxes, export ceilings, canalization and export
prohibitions. Monitoring of agricultural exports was done on adhoc and short term basis to keep the
domestic supply of agricultural goods stable.
(v) In July 1991, India introduced radical policy reforms in various economic sectors including trade.
These include devaluation of rupee in 1991 and making rupee partially convertible. Trade restrictions on
agricultural products were left mostly untouched in the 1991 reforms but during subsequent trade policy
changes, restrictions on agricultural products were gradually lifted. India signed the Uruguay Round
 69

Agreement on 15th April 1994 at Marrakesh. The treaty introduced agricultural trade in the multilateral
agreement for the first time. The aim of this treaty was to eliminate physical controls on agricultural trade
by replacing them with bound tariff rates. The Agreement on Agriculture came into effect from January
1, 1995 which marked the beginning of a new era of agricultural trade policy in India.
The macro-economic reforms recently introduced in India aim at liberalization of trade and industry
and at progressively moving towards linking the Indian economy with the world economy. As the reform
package is extended to the farm sector also, it is expected that various forms of the so-called subsidies
presently available to the agricultural sector will be phased out. The export of agricultural commodities
as also agro-based processed products is being encouraged and controls/restrictions on trade in
agricultural commodities have been increasingly relaxed. The physical controls on import/export of
agricultural commodities have been replaced by tariffication, which are also being progressively
reduced.
Apart from the macro-economic reforms, the end of the cold war, the disintegration of the erstwhile
Soviet Union – one of India's major trading partners accounting for about 16 per cent of total Indian
export basket and a source for about 8 per cent of India's imports – and the new international trade
agreement under WTO have important implications for the agricultural sector. As the public intervention
in agricultural marketing is being reduced and international trade is being liberalized, it is necessary to
have a look at the current status of import and export of agricultural commodities, the world trade in
these commodities and prospects for India in this regard.

Share of Agricultural Products in Total Imports/Exports of India

In 1960-61, exports of agricultural and allied products (AAP) were valued at Rs.284 crores which
accounted for 44.2 per cent of total value of exports. Over the years, though the exports of AAP (in
value term) increased but as the exports of other commodities increased at a rate faster than that of
AAP, the share of AAP in the total exports of the country has gone down. In 1990-91, exports were
valued at Rs.6317 crores but they represented only 19.4 per cent of total exports (Table 4.1). After
1990-91, the exports of AAP from India in value terms increased at a faster rate. In 1995-96, exports of
AAP were valued at Rs.21,138 crores. During this period the exports of other commodities also
increased at a rapid rate. Even then, the share of AAP in total exports from India at about 20 per cent,
was higher than that during the preceding five years.
In 2001-02, exports of AAP were valued at Rs.29,312 crores. During 1995-96 to 2001-02, the
exports of other commodities increased at a rapid rate than the exports of AAP and as such the share of
AAP in total exports from India came down further to only 14 per cent. The share of agricultural and
allied products export in India's total exports during the last four decades (1960-61 to 2001-02) has,
however, been declining continuously. It came down from 44 per cent in 1960-61 to 14 per cent in 2001-
02.
 70

As regards the imports, the country during 1960-61 imported food articles (cereals and fats)
valued at Rs.186 crores representing 16.6 per cent of total imports. The imports of food articles
increased to Rs.89 crores during 1980-81, but their share in total imports

Table 4.1
Trend and Shares of Food and Agricultural Products in Imports and Exports of India

(Rs. in crores)
Imports Exports
Year
Total Food Share of food articles Total Agricul-tural and Share of agricultural
Imports* articles* in total imports (%) Exports allied products & allied products
in total Exports (%)
1960- 1122 186 16.6 642 284 44.20
61
1970- 1634 252 15.4 1535 487 31.72
71
1980- 12549 809 6.4 6711 2057 30.65
81
1985- 19658 880 4.5 10895 3018 27.70
86
1990- 43193 508 2.2 32553 6317 19.41
91
1995- 122678 2340 1.9 106353 21138 19.88
96
1998- 178332 8799 4.93 139752 26104 18.68
99
1999- 215236 9007 4.18 159561 25016 15.68
00
2000- 230873 6183 2.68 203571 28582 14.04
01
2001- 245199 562 0.02 209018 29312 14.02
02
* Includes only cereals, cereal preparations and animal and vegetable oils and fats.
Source: Government of India, Indian Economic Survey, 1996-97, Ministry of Finance, New Delhi.

declined to 6.4 per cent. In 1985-86 the imports of food articles increased to Rs.880 crores but their
share in total imports further declined to 4.5 per cent of total imports. In the subsequent years, the
imports of food articles declined both in absolute terms as well as in terms of its share in total imports. It
came down to Rs.508 crores or 2.2 per cent of total imports in 1990-91. The imports of food articles
 71

increased since then to Rs.2340 crores in 1995-96 and to Rs.9007 crores in 1999-2000. The share of
imports of food articles in total imports has shown a mixed trend, i.e., first reduced to 1.9 per cent in
1995-96 and increased to 4.2 per cent in 1999-2000 and again shown a declining trend both in absolute
as well as in the per cent share thereafter. Though in absolute terms, India's imports of food articles
have been increasing over the decades from mere 186 crores in 1960-61 to over 9000 crores in 1999-
2000 but their share in total imports of the country has decreased from 16.6 per cent to 2.6 per cent
during this period.
Changes in India's Agricultural Export Basket
A number of agricultural commodities are exported from India. The commodities exported from
India fall broadly in three categories:
(i) Traditional export items – These products are cashew nuts/shelled; castor oil; coffee; raw
cotton, cotton waste; fruits, spices, sugar and molasses; tea and tobacco-unmanufactured.
(ii) Non-Traditional items but uncertain – These items are raw jute; raw wool; gums, resins and
lac, essential vegetable oils; and non-essential vegetable oils (excluding castor oil).
(iii) Non-Traditional items with good prospects – These items are floriculture products; HPS
groundnut; oil meals; meat and meat preparations; processed fruits and juices, processed vegetables;
sesame and niger seeds; shellac; wheat and rice.
The growth in the export of non-traditional new items has been at a rate higher than that of
traditional items (Table 4.2). Tea, coffee, tobacco, cashew kernels and spices are the traditional export
items. During 1990-91, they together accounted for 36.1 per cent of the total AAP exports but their
share decreased to 23.10 per cent in 2001-02. As against this, the exports of non-traditional items like
marine products, basmati rice, fruits, vegetables, oil meals and processed foods have been increasing
in the export basket of the country. Among the non-traditional items, the increase has been conspicuous
in rice and fish and fish preparations. Rice accounted for 7.3 per cent of total exports of AAP in 1990-91
which further increased to 10.8 per cent in 2001-02. Similarly the share of fish and fish preparations
increased from 15 to 20 per cent during this period. The relative importance of various commodities in
total agricultural and allied products exports has substantially changed during the last four decades.

Table 4.2
Exports of Agricultural and Allied Products from India

(Value in Rs. crores)

1960- 1970- 1980- 1990- 1995-96 2001-02
Commodity
61 71 81 91
Tea and Coffee 131 173 640 1332 2674 2814
Oil cakes/meals 145 55 125 709 2349 2263
Tobacco 16 33 141 263 447 808
Cashew kernels 19 57 140 447 1237 1652
Spices 17 39 11 239 794 1497
 72

Sugar and Molasses 30 29 40 38 506 1782

Raw Cotton 12 14 165 856 204 43
Rice - 5 224 462 4568 3174
Fish & Fish 5 31 217 960 3381 5897
Preparations Meat & meat 1 3 56 140 627 1193
Preparations Fruits, Vegetables & Pulses 6 12 80 216 802 1560
Processed Foods 1 4 36 213 745 1236
Others 32 31 182 952 2804 5393
Total Agricultural and Allied products 284 487 2057 6317 21138 29312
Source: Economic Survey 2002-03, Ministry of Finance and Company Affairs, Economic
Division, Government of India, New Delhi, pp.S-84-86.
During the nineties, agricultural exports have received special attention since it is in this area
that there exists great potential for raising farm incomes, tackling unemployment problem and earning
foreign exchange. The impetus for accelerated growth in agricultural exports is envisaged through
increased infrastructure support and by building up conducive policy environment. Some of the
measures undertaken in this connection include, market determined exchange rate policy, lowering
import duties on capital goods, particularly machinery necessary for food processing, easier availability
of credit for exports, removal of restrictions on export of agricultural products and several concessions to
export-oriented units.
Some of India's major export markets for various agricultural commodities are shown in Table 4.3.

Table 4.3
India's Major Export Markets for Various Agricultural Commodities

Name of Commodity Apr 2005 - Feb 2006 Apr 2006 - Feb 2007
Export Value of Goods
(INR in Crores) (US$ in Millions) (INR in Crores) (US$ in Millions)
1.GEMS & JEWELLARY 61,369.32 13,867.33 62,586.53 13,785.00
2.PETROLEUM 47,016.18 10,624.02 76,683.05 16,889.83
CRUDE & PRODUCTS
3.RMG COTTON
INCL ACCESSORIES 25,535.86 5,770.21 27,520.53 6,061.54
4.MACHINERY AND 19,773.71 4,468.17 26,512.59 5,839.53
INSTRUMENTS
5.DRUGS,PHRMCUTES 19,553.87 4,418.49 21,833.63 4,808.97
& FINE CHEMLS
 73

6.MANUFACTURES 16,674.57 3,767.87 20,156.05 4,439.47

OF METALS
7 TRANSPORT 16,374.62 3,700.09 19,064.44 4,199.04
EQUIPMENTS
8 COTTON YARN,FABRICS, 15,638.97 3,533.86 16,682.33 3,674.37
9.IRON ORE 14,505.39 3,277.71 15,074.03 3,320.13
10.PRMRY & SEMI- 11,641.69 2,630.62 17,856.68 3,933.02
FNSHD IRON & STL
11.PLASTIC & 11,239.89 2,539.82 13,132.29 2,892.45
LINOLEUM PRODUCTS
12.OTHER COMMODITIES 10,157.94 2,295.34 22,636.02 4,985.70
13.ELECTRONIC GOODS 8,454.86 1,910.51 11,453.82 2,522.76
14.INORGANIC/ORGANIC/ 7,726.50 1,745.92 8,584.59 1,890.80
AGRO CHEMLS
15. MANMADE YARN,
FABRICS,MADEUPS 7,691.74 1,738.07 8,765.30 1,930.60
16. MARINE PRODUCTS 6,401.16 1,446.44 6,417.69 1,413.53
17 .DYES/INTMDTES
& COAR TAR CHEML 6,029.60 1,362.48 9,207.34 2,027.96
18. NON-FERROUS
METALS 4,923.14 1,112.46 14,323.19 3,154.76
19.PROCESSED
MINERALS 4,433.27 1,001.76 5,182.24 1,141.42
20.OTHER ORES AND
MINERALS 4,152.38 938.29 6,390.75 1,407.59
21.RMG MANMADE
FIBRES 4,078.58 921.62 3,645.04 802.84
22.OIL MEALS 3,960.66 894.97 4,710.21 1,037.45
23.RUBR MFD. PRDCTS
EXCPT FOOTWR 3,603.10 814.18 4,209.44 927.15
24.PAPER/WOOD
PRODUCTS 3,420.08 772.82 4,102.55 903.61
25.CARPET(EXCL. SILK)
HANDMADE 3,279.38 741.03 3,572.51 786.86
 74

26.FOOTWEAR OF
LEATHER 3,169.30 716.15 3,886.61 856.05
27.RICE (OTHER THAN
BASMOTI) 2,929.21 661.90 3,668.38 807.98
28.RESIDL CHEMICL
& ALLIED PRDCTS 2,865.65 647.54 3,016.44 664.39
29.GLS/GLSWR/CERMCS
/REFTRS/CMNT/ 2,856.98 645.58 3,450.60 760.01
30.RICE -BASMOTI 2,718.14 614.20 2,477.56 545.70
31.LEATHER GOODS 2,648.14 598.39 2,849.61 627.64
32.FINISHED LEATHER 2,532.20 572.19 2,794.80 615.57
33.MEAT & PREPARATIONS 2,474.31 559.11 2,925.45 644.34
34.CASHEW 2,389.86 540.02 2,255.92 496.88
35.COTTON RAW
INCLD. WASTE 2,233.23 504.63 5,027.31 1,107.29
36.IRON&STL BAR/ROD ETC 2,229.39 503.77 3,394.22 747.59
37.COSMETICS/TOILETRIES 1,965.51 444.14 2,248.64 495.27
38. SPICES 1,894.59 428.11 2,718.26 598.71
39. HANDCRFS(EXCL
.HANDMADE CRPTS) 1,867.24 421.93 1,539.14 339
40.NATRL SILK YARN,
FABRICS,MADEUP 1,744.91 394.29 1,799.35 396.32
41.PAINTS/ENAMELS/
VARNISHES ETC. 1,690.16 381.92 1,682.52 370.58
42.RMG OF OTHR TEXTLE MATRL1,595.12 360.44 1,855.51 408.68
43. TEA 1,589.85 359.25 1,859.71 409.61
44. RMG WOOL 1,508.88 340.95 1,530.53 337.11
45. LEATHER GARMENTS 1,402.70 316.96 1,316.37 289.94
46. COFFEE 1,391.80 314.5 1,717.29 378.24
47.RMG SILK 1,032.17 233.23 1,062.41 234.00
48.FERRO ALLOYS 1,008.15 227.81 1,417.38 312.19
49.PULSES 985.36 222.66 716.65 157.85
50.FRESH FRUITS 938.58 212.09 1,167.26 257.10
 75

51.GUERGUM MEAL 929.61 210.06 1,016.15 223.81

52. MACHINE TOOLS 916.16 207.02 964.67 212.47
53. TOBACCO UNMANUFACTURED 887.42 200.53 1,108.72 244.2
54.MISC PROCESSED ITEMS 886.47 200.31 997.64 219.74
55. CASTOR OIL 862.98 195.00 992.84 218.68
56.FRESH VEGETABLES 823.33 186.04 1,322.54 291.3
57.ALUMINIUM OTHR THAN
PRODUCTS 798.88 180.52 1,191.20 262.37
58.LEATHER FOOTWEAR
COMPONENTS 723.21 163.42 883.08 194.5
59.DAIRY PRODUCTS 703.71 159.01 475.70 104.78
60 .SESAME SEEDS 659.18 148.95 703.45 154.94
61.PROJECT GOODS 596.72 134.84 412.62 90.88
62.WHEAT 556.95 125.85 35.86 7.90
63.COIR & COIR MANUFACTURES 541.16 122.28 586.88 129.26
64.SPORTS GOODS 532.61 120.35 529.22 116.56
65.PROCESSED FRUITS & JUICES 517.71 116.99 635.35 139.94
66. JUTE HESSIAN 460.71 104.10 349.66 77.01
67. OTHER CEREALS 437.07 98.76 562.21 123.83
68. GROUNDNUT 430.08 97.18 698.25 153.79
69. PROCESSED VEGETABLES 426.99 96.48 539.67 118.87
70.COMP.SOFTWARE IN
PHYSICAL FORM 372.00 84.06 210.85 46.44
71.SUGAR 368.89 83.36 2,651.86 584.09
72. WOLLEN YARN,FABRICS
,MADEUPSETC 341.44 77.15 342.13 75.36
73. MANMADE STAPLE FIBRE 335.84 75.89 790.07 174.02
74.SADDLERY AND HARNES 299.58 67.69 335.89 73.98
75. POULTRY PRODUCTS 298.82 67.52 262.00 57.71
76. FLOOR COVERING OF JUTE 288.26 65.14 276.05 60.80
77.TOBACCO MANUFACTURED 274.75 62.08 372.28 82.00
78.RESIDUAL ENGINEERING ITEMS 273.87 61.89 320.57 70.61
79.FLORICLTR PRODUCTS 272.45 61.56 356.68 78.56
 76

80.SPIRIT & BEVERAGES 232.82 52.61 226.53 49.89

81.OTHER JUTE MANUFACTURES 227.82 51.48 249.70 55.00
82.FOOTWEAR OF RUBBER/CANVAS. 223.00 50.39 212.21 46.74
83.COAL 220.5 49.83 339.25 74.72
84.JUTE YARN 210.05 47.46 229.39 50.53
85.SHELLAC 145.64 32.91 133.05 29.30
86.SILK CARPET 95.05 21.48 118.28 26.05
87.FRUITS / VEGETABLE SEEDS 75.67 17.10 97.65 21.51
88. MICA 69.07 15.61 69.07 15.21
89.NIGER SEEDS 53.70 12.13 56.61 12.47
90.MOLLASES 26.93 6.09 119.37 26.29
Total 404,719.56 91,452.54 510,488.44 112,437.68

Recent Policies on Trade

Export-Import Policy, 1992-97
The Government of India announced a new five year export-import policy effective from
April 1, 1992 which gave further push to liberalization of imports and intended to give significant
boost to exports. Under this policy, the international trade was made free subject to a negative
list of imports and exports. But as far as farm products and related goods are concerned, most
of them remained a part of the negative list, as per the following details:
Negative List of Exports
(i) Permitted Subject to Licensing -
Coconut, copra, seeds and planting materials, cotton seed, vegetable oils, groundnut
cakes, rice bran, milk, cattle, camels, chemical fertilizers.
(ii) Permitted through Canalising Agency -
Onion (NAFED), Niger Seed (NAFED/TRIFED), Powdered Milk (NDDB), Ghee (NDDB).
(iii) Permitted without a licence but subject to terms and conditions -
Basmati rice, non-basmati rice, wheat, barlet, maize, bajra, jowar, ragi, HPS groundnut,
raw cotton (Bengal desi, Assam comilla, staple cotton, yellow picking), sesame seed, sugar,
gram and gram flour, wheat flour, deoiled groundnut cake, deoiled rice bran, VFC tobacco,
soyabean extractions, cotton yarn, black pepper etc.
Negative List of Imports
(i) Canalised Items -
All fertilizers (MMTC), edible oils (STC, HVOC), seeds of oilseed crops (STC, HVOC),
 77

Cereals (FCI).
(ii) Restricted Items -
Livestock, plants, seeds and other materials (licence from the department of Agriculture).
The import of pulses, raw cashewnut, seeds of vegetables and flowers, plants, tubers and
bulbs of flowers etc., were placed in the negative list.
The philosophy underlying these massive trade policy reforms include the following:
(i) Trade – both exports and imports can flourish in a free regime.
(ii) Trade policy should go far beyond balancing of imports and exports and should lead
to better technology, greater investment and more efficient production at home.
(iii) Liberalization and removal of licensing, quantitative restrictions and other
discretionary controls on matters relating to exports and imports are essential
to trade policy reforms. This meant fewer governmental restrictions, greater freedom
to trade and lesser administrative controls.
The process of pruning the negative list and decanalization has continued in recent
years.
Main Features of Export-Import (EXIM) Policy, 2002-07

 Removal of all quantitative restrictions and decanalization of exports

(except a few sensitive items) of farm products.
 Scheme of Special Economic Zones (SEZ) strengthened.
 Major thrust to promote agricultural exports by setting up of Agri Export
Zones and by removing export restrictions on designated items (agro and
agro-based products).
 Transport subsidy provided for export of fruits, vegetables, floriculture,
poultry and dairy products.
 Simplification of procedures to further reduce transaction costs.
 Widening of the scope of Market Access Initiative Scheme to include setting
up of Business Centres in Indian Missions abroad for focused market
promotion of exports.
 Dereservation from small scale industry provisions of over 50 items
including agricultural implements.

Agri-Export Zones
The Government announced the proposal to set-up Agri-Export Zones in the EXIM Policy
2001-02 for the purpose of developing and sourcing raw materials and their processing/packing
leading to final exports. The concept essentially embodies a cluster approach of identifying the
 78

potential products and the geographical regions in which such products are grown and adoption
of end-to-end approach of integration of the entire process. Under the scheme, the state
government would identify products with export potential which have comparative advantage in
the local area. APEDA is the nodal agency of the Central Government to promote setting up of
Agri-Export Zones.
Till December, 2002, the Central Government has sanctioned and notified 41 Agri-Export
Zones (AEZs) which are being set up in 16 states-West Bengal, Uttaranchal, Karnataka, Punjab,
Uttar Pradesh, Tamil Nadu, Maharashtra, Andhra Pradesh, Tripura, Jammu & Kashmir, Madhya
Pradesh, Bihar, Gujarat, Sikkim, Himachal Pradesh, Orissa and Jharkhand. Agricultural products
covered under these AEZs are Litchi, pineapple, potatoes, onion, garlic, mangoes (Kesar,
Chausa, Dusshari, Alphonso), grapes, flowers, apples, vegetables, walnuts, gherkins, wheat,
ginger, turmeric, basmati rice and seed spices. A projected export of more than Rs.3000 crore
during the next 5 years and a substantial amount of direct and indirect employment is likely to
be generated as a consequence of setting up of these zones. These 41 AEZs will entail an
estimated investment of Rs.1142.5 crores, out of which Rs.333.68 crores will flow from various
Central Government agencies like APEDA, NHB, Ministry of Food Processing Industry and
Ministry of Agriculture; Rs.168.61 crores from state governments and Rs.640.24 crores from the
private sector.
International Trade Agreements
GATT (The General Agreement on Trade and Tariffs)
The General Agreement on Trade and Tariff (GATT) was a multinational treaty to liberalize
world trade. It took effect on 1st January, 1948 and ended when 117 member states signed the
Uruguay Round of negotiations in Marrakesh, Morocco on 15th April, 1994. GATT's
administrative structure in Geneva was succeeded by the World Trade Organization (WTO)
under the Uruguay Round agreement.
GATT established a code of conduct for international trade, based on the principle that the
trade should be conducted without discrimination, tariffs should be reduced through multilateral
negotiations, and member, countries, should consult each other to overcome trade problems.
GATT centre operated jointly with the United Nations Conference on Trade and Development to
assist developing nations in promoting their exports.
Under GATT, a total of eight round of talks of trade negotiations brought about phased
reductions in tariffs and other trade barriers. The prolonged eighth round of talks began in
September, 1986 at part del Este, Uruguay. In this, the participants agreed to expand the
negotiations to include banking investment, intellectual properties and telecommunications. The
talks were concluded in December, 1993 and resulted in the far reaching trade liberalization in
the history. Trade in the agricultural commodities was included in the agreement for the first
 79

time.
The Uruguay Round launched over 1986-94 was the most ambitious so far. This round
also established the World Trade Organisation (WTO). The successor to the General Agreement
on Trade and Tariff (GATT). It brought international trade rules to areas previously excluded or
subjected to weak rules (agriculture, textiles and clothing), services, Trade Related Investment
Measures, and Trade Related Intellectual Property Rights (TRIPS) and strengthened the dispute
settlement mechanism. Despite these achievements, the global trading system faces major
challenges. Against these challenges, the ministerial conference in Doha in November, 2001
adopted the Development Agenda, which calls for a more coherent approach to trade and
development and puts the needs and interests of the developing countries at the heart of the
WTO's work program.
World Trade Organisation (WTO)
WTO is an international body to supervise and encourage international trade. The
Uruguay Round of trade talks concluded in 1994 resulted in setting up of the World Trade
Organisation (WTO) to take over the functioning of GATT for encouraging multilateral trade in
goods and services. The WTO began functioning on 1st January, 1995. The Agreement on
Agriculture (AoA) under WTO requires clear understanding.
Agreement on Agriculture (AoA) under WTO
The provisions under AoA can be understood to consist of five broad groups:

 Market Access Commitment

 Reduction Commitment for Aggregate Measure of Support (AMS)
 Reduction Commitment for Export Subsidy
 Sanitary and Phyto-Sanitary Measures (SPS)
 Trade Related intellectual Property Rights (TRIPS)

(i) Market Access

The provisions under market access commitment include the following:

 Tariffication of all non-tariff barriers (like converting quantitative restrictions to import

duty)
 Reduction of all tariffs in a time bound framework as follows:

Countries Period Reduction %

* Developed 6 years 36
* Developing 10 years 24
 80

* Less Developed - 0
* Those with BP problem - 0

1. If imports of foreign goods to the domestic market is less than three per cent in the base
period (1986-88), it must be brought to three per cent and to further raise it to five per cent
in the implementation period.
2. If dumping is proved, the countries will have the freedom to increase the import duty.

(ii) Aggregate Measures of Support (AMS)

The aggregate measures of support for a country's agriculture is the sum of product specific
and non-product specific subsidies. If AMS in the base period (1986-88) is more than the
permissible limit, it should be reduced by the following amount during the implementation
period:

Permissible AMS Reduction commitment if exceeds the limit (%)

Country
(% of GDP)
* Developed 5% 20%
* Developing 10% 13%
* Less Developed NA -
* Those with BP problem - 0
(iii) Export Subsidies
The reduction commitment for export subsidies require that (a) the developed countries
would reduce it by 36 per cent in six year; and (b) the developing countries would reduce it by 24
per cent in 10 years.
(iv) Sanitary and Phyto-Sanitary Measures (SPS)
The SPS provisions of AoA require all exporters to employ international standards
relating to sanitary and phyto-sanitary conditions. In the case of default, the importing countries
are allowed to prohibit imports from defaulting countries.
(v) TRIPS
Trade related intellectual property rights include copyrights, trade-marks, geographic
indications, industrial designs, and patents. According to AoA, all the countries are required to
provide for arrangements for protection of plant varieties. The developing countries were given a
period of five years to evolve such arrangements.
The main features of the WTO Agreement on Agriculture (AoA), which are of concern to India,
are:
(i) India has been maintaining quantitative restrictions (QRs) on import of 825 agricultural
 81

products as on 1st April, 1997. Under the provisions of the Agreement, such QRs were to be
eliminated. India had sought to remove them in three phrases within an overall time frame of six
years i.e. upto 31st March, 2001. These QRs have since been replaced with appropriate tariffs.
(ii) The Agreement also imposed constraints on the level of domestic support provided to the
agricultural sector. In India's case, it may have, in future, some implications on minimum
support prices given to farmers and on the subsidies given on agricultural inputs. However, the
Agreement allows us to provide domestic support to the extent of 10% of the total value of
agricultural produce. Our support to the Indian farmers continues to be less than permissible
limit.
(iii) Disciplines on export subsidy do not affect us as India is not providing any export subsidy
on agricultural products.
(iv) The Agreement allows unlimited support to activities such as:

1. Research, pests & diseases control, training, extension and advisory services;
2. Public stock holding for food security purposes;
3. Domestic food aid; and
4. Income insurance and food needs, relief from natural disasters and payments under the
environmental assistance programmes.
 82

CHAPTER.5

COOPERATIVE AGRICULTURAL MARKETING INSTITUTIONS

Co-operative Marketing

The establishment of co-operative marketing societies was another step which

has been taken to overcome the problems arising out of the present system of marketing
agricultural produce. The objectives of economic development and social justice can be
furthered by channelising agricultural produce through cooperative institutions.
Private agencies dominate the Indian food grains trade. Farmers complain of the
marketing system because they get lower prices, due mainly to high marketing charges
and the prevalence of malpractices. The efforts of the government to improve the
marketing system of agricultural commodities have been only partially successful in
creating healthy conditions for scientific and efficient marketing. Moreover, the progress
of regulated markets is not uniform in all areas. The need for strengthening co-operative
organization has, therefore, been recognized for the marketing of the produce of farmers
and for making inputs available for them at the right price and time. The co-operative
institutions are expected to function as competitors of private traders in the market. These
organizations pool the produce of the small farmers having a small surplus to market and
improve their bargaining power. They have also helped government agencies in the
execution of the policy decisions bearing on the procurement and distribution of food
grains and other essential commodities.
Meaning
A co-operative sales association is a voluntary business organization established
by its member patrons to market farm products collectively for their direct benefit. It is
governed by democratic principles, and savings are apportioned to the members on the
basis of their patronage. The members are the owners, operators and contributors of the
commodities and are the direct beneficiaries of the savings that accrue to the society. No
intermediary stands to profit or loss at the expense of the other members.
Co-operative marketing organizations are associations of producers for the
collective marketing of their produce and for securing for the members the advantages
that result from large-scale business which an individual cultivator cannot secure because
of his small marketable surplus.
In a co-operative marketing society, the control of the organization is in the hands
of the farmers, and each member has one vote irrespective of the number of shares
 83

purchased by him. The profit earned by the society is distributed among the
members on the basis of the quantity of the produce marketed by him. In other words, co-
operative marketing societies are established for the purpose of collectively marketing the
products of the member farmers. It emphasizes the concept of commercialization. Its
economic motives and character distinguish it from other associations. These societies
resemble private business organization in the method of their operations; but they differ
from the capitalistic system chiefly in their motives and organizations.
Functions
The main functions of co-operative marketing societies are:
(i) To market the produce of the members of the society at fair prices;
(ii) To safeguard the members for excessive marketing costs and malpractices;
(iii) To make credit facilities available to the members against the security of the
produce brought for sale;
(iv) To make arrangements for the scientific storage of the members' produce;
(v) To provide the facilities of grading and market information which may help them
to get a good price for their produce;
(vi) To introduce the system of pooling so as to acquire a better bargaining power
than the individual members having a small quantity of produce for marketing
purposes;
(vii) To act as an agent of the government for the procurement of foodgrains and for
the implementation of the price support policy;
(viii) To arrange for the export of the produce of the members so that they may get
better returns;
(ix) To make arrangements for the transport of the produce of the members from the
villages to the market on collective basis and bring about a reduction in the cost
of transportation; and
(x) To arrange for the supply of the inputs required by the farmers, such as improved
seeds, fertilizers, insecticides and pesticides.
History
The history of co-operative marketing in India dates back to 1912, when the Co-
operative Marketing Societies Act, 1912 was passed. The first Co-operative Society was
formed in Hubli in 1915 to encourage cultivation of improved cotton and to sell it
collectively. In 1918, The South Canara Planters Co-operative Sale Society was formed
in the then Composite Madras Province for joint sale of arecanut. The Royal
 84

Commission on Agriculture (1928) stressed the need for group marketing instead
of individual marketing. The Central Banking Enquiry Committee (1931) also underlined
the need for organized marketing. The XI Conference of Registrars of Co-operative
Marketing also emphasized the need for cooperative marketing. In 1945, the Co-
operative Planning Committee recommended that at least 25 per cent of the marketable
surplus should be channelised through Co-operative societies within the next 10 years by
forming one society for a group of 200 villages.
The All India Rural Credit Survey Committee (1954) brought to light the dismal
performance of the existing marketing co-operatives. In a simple of 75 districts surveyed,
there was no co-operative marketing society in 63 districts. In remaining districts only
around one per cent of the total sale of agricultural produce was done through the
societies. The committee suggested the establishment of primary co-operative marketing
societies and linking of credit with marketing. The First Five Year Plan (1951-56) laid
stress on the establishment of agricultural marketing and processing co-operative
societies. In 1958, the National Agricultural Co-operative Marketing Federation (NAFED)
was established as the apex body of co-operative marketing. In 1963, the National Co-
operative Development Corporation (NCDC) was set up for promoting programmes
relating to co-operative societies. The Mirdha Committee (1965) recommended that the
membership of agricultural marketing societies should be restricted to the agriculturists
and traders should not be allowed to join agricultural marketing societies.
The Dantwala Committee (1966) stressed the need for co-operation and
integration among the various co-operative organizations after reviewing the pattern of
co-operative marketing, distribution of inputs to farmers and supply of consumers
products. Based on the survey of the co-operative marketing societies in 1968, the
Reserve Bank of India recognized that effective linking of credit with marketing was
necessary. The All India Rural Credit Review Committee, 1969 also recommended the
strengthening of co-operative marketing, with a view to helping the government agencies
in the execution of price support programmes. There is a multi-state cooperative
marketing Act in place now.
Types
On the basis of the commodities dealt in by them, the co-operative marketing
societies may be grouped into the following types:
(i) Single Commodity Co-operative Marketing Societies
 85

They deal in the marketing of only one agricultural commodity. They get sufficient
business from the farmers producing that single commodity. The examples are
Sugarcane Co-operative Marketing Society, Cotton Co-operative Marketing Society and
Oilseed Growers Co-operative Marketing Society.
(ii) Multi-Commodity Co-operative Marketing Societies
They deal in the marketing of a large number of commodities produced by the
members, such as foodgrains, oilseeds and cotton. Most of the co-operative marketing
societies in India are of this type.
(iii) Multi-purpose, Multi-commodity Co-operative Marketing Societies
These societies market a large number of commodities and perform such other
functions as providing credit to members, arranging for the supply of the inputs required
by them, and meeting their requirements of essential domestic consumption goods.
Structure
The co-operative marketing societies have both two-tier and three-tier structure. In
the states of Assam, Bihar, Kerala, Madhya Pradesh, Karnataka, Orissa, Rajasthan and
West Bengal, there is a two-tier pattern with primary marketing societies at the taluka
level and state marketing federation as an apex body at the state level. In other states,
there is three-tier system with district marketing society in the middle. At the national
level, NAFED serves as the apex institution. The pattern of the three-tier structure is as
follows:
(i) Base Level
At the base level, there are primary co-operative marketing societies. These
societies market the produce of the farmer members in that area. They may be single
commodity or multicommodity societies, depending upon the production of the crops in
the area. They are located in the primary wholesale market, and their field of operations
extends to the area from which the produce comes for sale, which may cover one or two
tehsils, panchayat samitis or development blocks.
(ii) Regional/District Level
At the regional or district level, there are central co-operative marketing unions or
federations. Their main job is to market the produce brought for sale by the primary co-
operative marketing societies of the area. These are located in the secondary wholesale
markets and generally offer a better price for the produce. The primary co-operative
marketing societies are members of these unions in addition to the individual farmer
 86

members. In the two-tier structure, the State societies perform the functions of
district level societies by opening branches throughout the district.
(iii) State Level
At the state level, there are apex (State) co-operative marketing societies or
federations. These state level institutions serve the state as a whole. Their members are
both the primary co-operative marketing societies and the central co-operative unions of
the state. The basic function of these is to coordinate the activities of the affiliated
societies and conduct such activities as inter-state trade, export-import, procurement,
distribution of inputs and essential consumer goods, dissemination of market information
and rendering expert advice on the marketing of agricultural produce.
The cooperative marketing network of the country includes 27 state level
marketing federations 199 district/regional marketing co-operative societies, and 4398
primary cooperative marketing societies besides NAFED at the national level.
Membership
There are two types of members of co-operative marketing societies:
(i) Ordinary Members
Individual farmers, co-operative farming societies and service societies of the area
may become the ordinary members of the co-operative marketing society. They have the
right to participate in the deliberations of the society, share in the profits and participate in
the decision making process.
(ii) National Members
Traders with whom the society establishes business dealings are enrolled as
nominal members. Nominal members do not have the right to participate in decision
making and share in the profits of the societies.
Sources of Finance
In 1966, the Dantwala Committee estimated a capital base of Rs.2.00 lakhs for a
co-operative marketing society. At 2003 prices, it should be at least Rs.40.00 lakhs. The
following are the major sources of finance of a co-operative marketing society:
(i) Share Capital
Farmer-members and the State Government subscribe to the share capital of co-
operative marketing societies. Members may purchase as many shares as they like. They
are encouraged to invest sufficiently in the share capital. They are also persuaded to
invest their dividend and bonus in the shares of co-operative marketing societies.
 87

(ii) Loans
Co-operative marketing societies may raise their finance by way of loans from the
Central and State Co-operative Banks and from commercial banks by pledging and
hypothecation and also by clean credit to the extent of 50 per cent of owned capital.
(iii) Subsidy
The Co-operative marketing societies get a subsidy from the government for the
purchase of grading machines and transport vehicles to meet their initial heavy
expenditure. They also get a subsidy for a part of the cost of the managerial staff for a
period of 3 years to make them viable.
Functioning
The important functions carried out by the co-operative marketing societies are:
(i) Sale on Commission Basis
Co-operative marketing societies act as commission agents in the market, i.e.,
they arrange for the sale of the produce brought by the members to the market. The
produce is sold by the open auction system to one who bids the highest price. The main
advantage, which the farmer-members get by selling the produce through co-operative
marketing societies instead of a commission agent, is that they do not have to accept
unauthorized deductions or put up with the many malpractices, which are indulged in by
individual commission agents. As there is no individual gain to any member in the
marketing of the agricultural produce through co-operative marketing societies, no
malpractices are expected to be indulged in.
This type of marketing is not risky for co-operative societies. But sometimes
traders in the market form a ring and either boycott the auction or bid a low price when
the produce is auctioned on the co-operative marketing societies shops. These tactics of
the traders reduce the business of co-operative marketing societies. Therefore, farmers
hesitate to take their produce for sale in the market through co-operative marketing
societies.
(ii) Purchase of Members' Produce
Co-operative marketing societies also enter the market as buyers. A society
participates in bidding together with other traders, and creates conditions of competition.
The commodities thus purchased by a society are sold again when prices are higher.
This system of the outright purchase of the produce by the society involves the
risk of price fluctuations. If the managers of societies lack business experience, they
hesitate to adopt the outright purchase system. In 1964-65, the National Cooperative
 88

Development Corporation recommended that the outright purchase system

should be adopted only by a society which possesses the following qualities:
(a) The society has a trained manager, i.e., one who is capable of understanding the
intricacies of the trade;
(b) The society is financially sound and has adequate borrowing facilities;
(c) The society is affiliated to a good viable central level society; and
(d) The society possesses processing facilities.
(iii) Advancement of Credit
Co-operative marketing societies advance finance to farmers against their stock
of foodgrains in the godowns of the societies. This increases the holding power of the
farmers and prevents distress sales. Generally, societies advance credit to the extent of
60 to 75 per cent of the value of the produce stored with them. The recoveries are
effected from the sale proceeds of the produce of the farmer. This function involves no
risk to the society. Moreover, it increases the business.
(iv) Procurement and Price Support Purchases
Co-operative marketing societies act as agents of the government in the
procurement of foodgrains and other agricultural commodities at the announced
procurement or support prices.
(v) Other Functions
The following functions are also carried out by them, depending upon the
availability of funds and other facilities:
(a) They assemble the marketable surplus of small and marginal farmers and transport
this surplus from villages to the society headquarters for disposal;
(b) They make arrangements for the grading of the produce and encourage producers
to sell the produce after grading so that they may get better prices;
(c) They undertake the processing of produce;
(d) They make arrangements for the export of agricultural commodities in collaboration
with the State Level Co-operative Marketing Federation and the National
Agricultural Co-operative Marketing Federation;
(e) They undertake inter-state trade in agricultural commodities; and
(f) They distribute agricultural production inputs, such as fertilizers improved seeds,
pesticides, agricultural implements, and such essential consumer articles as sugar,
kerosene oil and cloth.
(vi) Integrated System of Co-operative Marketing
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An integrated programme of co-operative development embracing credit,

marketing, processing, warehousing and storage has been formulated. The important
features of the integrated system are linking up of credit with marketing, development of
agro-processing on co-operative lines and promotion of storage and warehousing.
Cooperative Processing
Co-operative processing is also making good progress in addition to co-operative
marketing. The structure of processing units established in the co-operative sector is of
two distinct patterns, i.e., those which are set up by independent processing societies,
such as co-operative sugar factories and spinning mills and those which are established
as adjuncts of co-operative marketing societies, e.g., small and medium co-operative
processing units, such as rice mills, jute baling mills and cotton spinning and processing
units.
Progress
Information on the progress of co-operative marketing societies in India is given
in Table 5.1.
Table 5.1
Progress of Co-operative Marketing and Processing Societies in India

Particulars 1960-61 1970-71 1980-81 1991-92

1. Primary Agricultural Co-operative
Marketing Societies:
(a) Number of societies 3108 3222 3789 7871
(b) Membership (Lakhs) 13.93 26.71 34.51 48.27
2. Value of agricultural produce 179 649 1950 7100
marketed by Co-operatives (Rs.
Crores)
3. Value of agricultural inputs 36 317 1114 2475
distributed by Co-operatives (Rs.
Crores)
4. Number of co-operative Sugar 56 123 179 231
factories (licensed)
5. Number of Cotton Co-operative 155 234 327 327
Ginning & Processing Societies
6. Total Agro processing units in the 300 - - 2300
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co-operative sector
The value of agricultural produce marketed through the co-operative marketing
societies increased from Rs.53 crores in 1955-56 to Rs.7871 crores in 1991-92. The
produce marketed through these societies account for 8 to 10 per cent of the marketed
surplus. The important commodities marketed by these societies are foodgrains,
sugarcane, cotton, oilseeds, fruits, vegetables and plantation crops. The progress of co-
operative marketing societies has varied from State to State and within each State from
commodity to commodity. Maharashtra, Uttar Pradesh, Gujarat, Punjab, Karnataka,
Tamil Nadu and Haryana together account for more than 80 per cent of the total
agricultural produce marketed through co-operatives in the country.
The other important function performed by these societies is the marketing of
agricultural inputs viz., fertilizers, improved seeds, insecticides, pesticides, agricultural
implements and machinery. Over 70,000 retail outlets of these societies deal in these
inputs. The value of agricultural inputs marketed by co-operative marketing societies has
increased from Rs.36 crores in 1960-61 to more than Rs.2475 crores in 1991-92.
During the last forty years, the number of Primary Agricultural Cooperative
Marketing Societies increased from 3108 in 1960-61 to 7871 in 1991-92. By the end of
March, 1992, there were 2933 general purpose primary cooperative marketing societies,
4938 special commodity primary cooperative marketing societies, 191 district/regional
marketing societies and 29 state cooperative marketing federations. These apart, there
are 16 commodity-marketing federations, National Agricultural Cooperative Marketing
Federation (NAFED) and National Cooperative Development Corporation (NCDC) at the
national level. The value of produce handled by the cooperatives multiplied manifold from
Rs.179 crores in 1960-61 to over Rs.7100 crores in 1991-92. In addition, these
institutions had supplied inputs to their members for agricultural activities valued at
Rs.2475 crores in 1991-92 compared to Rs.36 crores in 1960-61. The cooperatives have
continued to maintain their share at around 30 per cent in the total fertilizers distributed to
the farmers in India.
The cooperatives have constructed warehouses with a total storage capacity of
13.55 million tones by the end of March, 2000 compared to 8.0 lakh tones by the
end of March, 1961. For specific commodities viz., cotton and oilseeds, growers societies
in cooperative sector also exist at regional level with state level federations at state level
to deal with the specific problems in marketing of these crops produced in specific areas.
For the benefit of sugarcane growers, there are 231 cooperative sugar factories in the
 91

country which provide marketing and price support to the sugarcane growers of
their hinterlands. The cooperative sugar factories account for around 60 per cent of the
total sugar produced by 408 sugar factories in the country. In northern states, where
private sugar factories dominate the cane market, there are several cane growers
cooperative societies to manage the supply of cane produced by the farmers to sugar
factories. There was also two-fold increase in cotton spinning and processing societies
in the country during the last forty years.
In Gujarat, Maharashtra, Andhra Pradesh and Tamil Nadu, considerable
quantities of the food grains are marketed by co-operative societies. In Maharashtra and
Uttar Pradesh, 75 per cent of sugarcane, in Maharashtra and Gujarat, 75 per cent of
cotton, and in Karnataka 84 per cent of plantation crops are marketed by the co-
operative societies. However, the progress of co-operative marketing societies has been
far from satisfactory in most states of the country because farmer-members do not
patronize these societies for the sale of their produce. Instead, they use the services of
commission agents.
The success of cooperative marketing is not universal across commodities,
sectors and geographical regions.
(i) The performance of cooperatives in dairy and sugarcane sectors is
noteworthy. Dairy cooperatives present the most successful example of cooperative
marketing.
(ii) The success of cooperatives and transforming the social and economic
landscape of Gujarat state and some other parts of the country is a testimony of the role
of cooperatives in agricultural marketing in the country.
(iii) The role of the cooperatives in improving the marketing environment for
farmers have also been quiet significant.
However, the cooperatives as a whole account for only 10 per cent of the total
quantities of agricultural commodities marketed by the farmers. This share needs to be
improved in the light of predominance of small-scale farmers, technological changes in
marketing practices and as a long-term solution for improving farmer's price realization.
Reasons of slow Progress of Cooperative Marketing
The main reasons of the slow process are:
(i) Co-operative marketing societies are generally located in big markets/towns and
quick and cheap transport facilities are not available for the carriage of the
produce from the villages to the societies;
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(ii) Farmers are indebted to local traders and enter into advance contracts with them
for the sale of the crop;
(iii) Farmers are in immediate need of cash after the harvest to meet their personal
obligations. They, therefore, sell their produce to local traders; they cannot wait
for the time required to move the produce to the mandi;
(iv) There is lack of loyalty among members to co-operative marketing societies
because of their poor education and absence of the co-operative feeling;
(v) In some cases rivalries among farmer-members result in indecision, which
hampers the progress of the societies;
(vi) Members lack confidence in co-operative organizations, for most of the co-
operative sector enterprises run at a loss;
(vii) The societies do not act as banks for the farmers;
(viii) Managers of societies do not offer business advice to members;
(ix) Societies do not provide facilities of food and shelter to farmers when they visit
the market for the sale of the produce;
(x) The managers of the societies are often linked with local traders and become
impersonal to the needs of a majority of small and marginal farmers;
(xi) There is lack of sufficient funds with the societies to meet the credit needs of the
farmers against pledging of the produce brought for sale. Nor do they make an
advance payment of the value of the produce purchased or sold through them;
(xii) Co-operative marketing societies are not capable of carrying on their business in
competition with traders and commission agents, because of the absence of
adequate business expertise among their employees; and
(xiii) There is a lack of sufficient storage facilities with the societies. They, therefore,
try to dispose of the produce soon after their arrival; a fact which results in lower
prices for the farmers.
Suggestions for Strengthening of Cooperative Marketing Societies
(i) The area of the operations of the societies should be large enough so that they
may have sufficient business and become viable. Most of the societies at present
are not viable because of the small volume of their business.
(ii) Co-operative marketing societies should develop sufficient storage facilities in the
mandi as well as in the villages.
(iii) The societies should give adequate representation to the small and marginal
farmers in their organizational set-up.
 93

(iv) The co-operative feeling among members should be inculcated by proper

education by organizing seminars and by the distribution of literature.
(v) In the selection of the officials of co-operative marketing societies, weightage
should be given to business experience and qualifications. After their selection,
the officials should be given proper training so that they may deal efficiently with
the business of the society. The efficiency should be rewarded, wherever
possible.
(vi) There is a need for bringing about a proper co-ordination between credit and
marketing co-operative societies to facilitate the recovery of loans advanced by
credit societies, and make available sufficient finance for marketing societies.
(vii) The societies should-acquire the transport facility to bring the produce of the
members from the villages to the mandi in time and at a lower cost.
(viii) Co-operative marketing societies should diversify their activities. They should sell
the produce and inputs, and engage in the construction of storage facilities.
(ix) Marketing societies, like the private traders, should provide accommodation and
the drinking water facility for their members when the latter come to the mandi.
(x) The public procurement and public distribution programmes should be
implemented through co-operative marketing societies to increase their business;
and
(xi) The cooperatives should be made free from government control.
NAFED
The National Agricultural Co-operative Marketing Federatiopn of India (NAFED) is
an apex organization of marketing cooperatives in the country. It deals in procurement,
processing, distribution, export and import of selected agricultural commodities. The
NAFED is also the central nodal agency for undertaking price support operations for
pulses and oilseeds and market intervention operations for other agricultural
commodities.
The National Agricultural Co-operative Marketing Federation (NAFED) was
established in October, 1958. The State Level Marketing Federations and the National
Co-operative Development Corporation are its members. The head office of NAFED is at
Delhi, and its branch offices are located at Mumbai, Kolkata and Chennai. NAFED's area
of operation extends to the whole country. It has established branches in all the major
port towns and capital cities in the country.
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Objectives
The main objectives of NAFED are:
(a) To co-ordinate and promote the marketing and trading activities of its affiliated co-
operative institutions;
(b) To make arrangements for the supply of the agricultural inputs required by member
institutions;
(c) To promote inter-state and international trade in agricultural and other
commodities; and
(d) To act as an agent of the government for the purchase, sale, storage and
distribution of agricultural products and inputs.
Activities
The NAFED performs the following activities:
(a) Internal Trade
NAFED is engaged in interstate trade in agricultural commodities, particularly
foodgrains, pulses, oilseeds, cotton, jute, species, fruits, vegetables and eggs with a
view to assuring better prices to the producers. The objectives of internal trade
operations are both the market support to farmers and maintaining steady supply of
commodities to consumers of reasonable prices. NAFED purchases agricultural
commodities through the co-operatives, public sector organizations and state agencies.
Turn over of NAFED over five years period from 2004-05 is presented in Fig. 5.1

NAFED Domestic Turn over

700000

600000

500000
in lakhs Rs.

Series1
400000

300000

200000
2004-05 2005-06 2006-07 2007-08 2008-09
100000
years
0

Fig. 5.1 Domestic Turn over of NAFED over years

(b) Foreign Trade – Export and Import of Agricultural Commodities
 95

Exports – Exports of agricultural commodities through the co-operative marketing

system developed on a large scale after the establishment of NAFED. The NAFED
exports agricultural commodities, particularly onions (canalized), potatoes, ginger, garlic,
nigerseed, sesameseed, gum, deoiled cake of groundnut, soyabean and cottonseed,
fresh and processed fruits and vegetables; spices – black pepper, cardamom, turmeric,
cuminseed, coriander seed; cereals – rice, barley, bajra, jowar, and ragi and jute bags to
various countries including Sri Lanka, England, Mauritius, Australia, Belgium, Canada,
Fiji, Hong Kong, Japan, Malaysia, the USA and number of African, West Asian and Gulf
countries.
The market intervention undertaken by NAFED has many times helped the
growers of such crops as onion, potato, copra, chillies and other's in realizing reasonable
prices even in those years when market prices crashed. Export turn over of NAFED in
lakhs of Rs. over five years from 2004-05 is presented in Fig. 5.2.

EXPORT TURN OVER OF NAFED

120000

100000

80000
LAKHS RS.

Series1
60000

40000
20000

0
2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

Fig. 5.2 Export Turn Over Of NAFED Over years

Imports – The NAFED also arranges for the imports of pulses, fresh fruits, dry
fruits, nutmeg (Jaiphal), mace (Javitri), wetdates and chicory seeds and inputs
particularly fertilizers and machinery as and when asked to do so by the Government.
(c) Price Support Operations
NAFED is being appointed as the agency of the government to undertake
support price purchases of commodities like groundnut since 1976-77, soyabean and
mustard seed since 1977-78, gram, tur, moong and urad since 1978-79 and bajra, jowar,
maize, barley, toria and sunflower seed since 1985-86. Government of India has
 96

designated NAFED as the nodal agency for implementing the price support policy
for oilseeds and coarse grains during Seventh Five Year Plan period (1985-90). NAFED
has standing instructions to intervene in the market when ruling market price falls below
the minimum support levels for oilseeds and pulse crops. Since 1991, NAFED has been
designated as nodal agency for undertaking price support operations for oilseeds and
pulses on a regular basis. Price support purchases of pulses and oilseeds are shown in
table 5.2.
Table 5.2 Procurement of Oilseeds by NAFED under Price Support Scheme

Particulars Year Quantity Procured

(Tonnes)
1. Groundnut Pods 1992-93 88
1993-94 61
2000-01 28858
2001-02 163918
2. Mustard Seed 1984-85 76614
1985-86 13445
1988-89 69
1992-93 2746
1993-94 66
2000-01 247956
2001-02 329524
2002-03 467629

3. Soyabean 1984-85 3709

1985-86 62726
1998-99 4480
1999-00 494938
2000-01 54754
4. Safflower Seed 1989-90 25
1992-93 790
1998-94 14925
2000-01 6534
 97

2001-02 3201
2002-03 2020
5. Sunflower Seed 1992-93 4430
1993-94 15286
1994-95 45
1995-96 1196
1997-98 80
1999-00 47950
2000-01 47950
2000-01 19502
2001-02 25
2002-03 17
6. Copra 1989-90 2736
1990-91 25099
1994-95 61749
1995-96 5619
1996-97 485
1998-99 1168
1999-00 2955
2000-01 235491
2001-02 50300
2002-03 5854
Source: Agricultural Statistics at a Glance, 2002 and 2003, Directorate of
Economics and
Statistics, Ministry of Agriculture, Government of India, New Delhi.
Business in Oilseeds
Purchases
NAFED procured around 35044 MTs of various oilseeds and oils including Assorted
Oils,Copra,Mustard Oil,Mustard Seed,Sunflower Seed and Sunflower Oil valued at Rs.
86.29 crores in outright account, as per details given below:
 98

Purchase of Oil and Oilseeds by NAFED

[ qty. in mts/value in rs.lakhs
]
S.NO Commodity Quantity(in MTs) Value (Rs.in lakhs)
1 Assorted Oils 0.43 74.06
2 Copra 710.27 301.83
3 Mustard Oil 60.74 5.41
4 Mustard Seed 34131.66 8184.89
5 Sunflower Seed 79.46 21.97
6 Sunflower Oil 61.10 41.15
Total 35043.66 8629.31
Sales
A total quantity of around 56293 MTs of various oilseeds valued at Rs. 155.10
crores was sold in outright account during the year 2008-2009.
The details are given as below:
Sales of Oil and Oilseeds by NAFED
S.NO Commodity Quantity(in MTs) Value(Rs.in lakhs)
1 Assorted Oils 0.27 80.53
2 Copra 381.29 154.24
3 G.N.Pods 5984.27 1508.21
4 Mustard Oil 133.12 11.98
5 Mustard Seed 45940.40 12806.52
6 Soyabean 3710.94 840.44
7 Sunflower Oil 142.68 107.99
Total 56292.97 15509.91
Business in Pulses
Purchases

During the year 2008-09 NAFED purchased around 24423 MTs pulses viz.
Gram, Masoor, Arhar, Moong, Urad,Rajmah,Moth and Peas,Assorted Pluses valued at
Rs.
60.56 crores in its outright
account. The details are given
below:
 99

Purchase of Pulses by NAFED

[qty. in mts/value in rs.lakhs ]
S.NO Commodity Quantity(in MTs) Value (Rs.in lakhs)
1 Gram 20162.61 4723.15
2 Masoor 701.58 223.25
3 Arhar 458.20 124.44
4 Moong 1093.06 321.23
5 Urad 24.96 8.33
6 Rajmah 11.08 4.29
7 Peas 475.37 99.45
8 Assorted Pulses 496.03 551.52
Total 4422.89 6055.66

Sales
During the year 2008-09 a total quantity of around 45085 MTS of various pulses, such as,
Gram, Masoor, Moong, Peas, Moong, Rajmah, Arhar, and Urad valued at Rs. 107.62
crores was sold in outright account as per details given below.
Sale of Pulses by NAFED
S.NO Commodity Quantity (in MTs) Value (Rs.in lakhs)
1 Gram 28342.62 6423.11
2 Masoor 764.11 272.03
3 Moong 5722.47 1394.08
4 Peas 476.84 105.83
5 Rajmah 282.97 88.40
6 Moth 63.37 12.74
7 Arhar 4280.64 1118.17
8 Urad 3695.86 793.04
9 Assorted Pulses 1456.58 555.01
Total 45085.46 10762.41
 10
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Business in Horticulture Products
Purchases

During the year 2007-08. NAFED purchased 11764 MTs of various horticultural
commodities including Onion, Potato, Apple and fresh fruits & vegetables valued at Rs.
13.55 crores in outright account. The details of various horticultural commodities
purchased are given below:
Purchase of Horticulture Commodities by NAFED
[ qty. in mts/value in rs.lakhs ]
S.NO Commodity Quantity (in MTs) Value (Rs.in lakhs)
OUTRIGHT
1 Onion 7407 773.40
2 Potato 2708 136.44
3 Apples 734 250.00
4 Ginger 80 17.70
5 Garlic 30 14.42
6 Fresh Fruits & Vegetables 805 162.96
Total 11764 1354.92
Sales
A total quantity of 5686 MTs of various horticulture items including Onion, Potato
and assorted fresh fruits & vegetables of the value of Rs. 6.06 crores was sold in outright
account during the year as per details given below:
Sale of Horticultural Commodities by NAFED [ qty. in mts/value in rs.lakhs ]

S.NO Commodity Quantity (in MTs) Value (Rs.in lakhs)

OUTRIGHT
1 Onion 1105 86.03
2 Potato 3391 235.40
3 Apples 289 83.00
4 Ginger 75 17.68
5 Garlic 30 15.26
6 Fresh Fruits & Veg. 796 168.22
Total 5686 605.59
 10
1
Food Grains Business
Purchases
During the year 2007-08. NAFED purchased 948572 MTs foodgrains, such as,
Bajra, Guar, Jowar, Maize, Paddy, Rice and Wheat Barely valued at Rs.885.85 crores in
its outright account besides procuring 24930 MTs Rice valued at Rs. 33.38 crores on Tie-
up basis.The details are given as under:
Purchase of Food Grains by NAFED
S.NO Commodity Quantity (in MTs) Value (Rs.in lakhs)
OUTRIGHT
1 Bajra 1000 60.58
2 Guar 2592 419.70
3 Jowar 7105 465.09
4 Maize 32160 2117.20
5 Paddy 116025 9325.82
6 Rice 485519 43997.85
7 Wheat 300614 31902.49
8 Barley 3557 295.91
Sub Total 948572 88584.64
TIE-UP
1 Rice 24930 3337.88
Total 973502 91922.52
Sales

During the year 2007-08, NAFED sold 849203 MTs foodgrains, such as Bajra,
Guar, Jowar, Maize, Paddy, Rice and Wheat valued at Rs.954.96 crores in outright
account.
Sale of Food Grains by NAFED
S.NO Commodity Quantity(in MTs) Value(Rs.in lakhs)
OUTRIGHT
1 Bajra 117 7.50
2 Guar 2283 379.69
3 Jowar 2515 179.46
4 Maize 45771 3355.48
 10
2
5 Paddy 66921 8546.43
6 Rice 447057 50729.50
7 Wheat 280953 215.00
8 Barley 3586 333.18
Sub Total 849203 95495.52
Business in Spices
Purchases

During the year 2008-09,NAFED procured around 4511 MTs of various spices
viz.Turmeric, Black Pepper,Red Chillies, Methiseed, Dry Ginger, Cloves,
Cardamom(small) etc. valued at Rs.58.22 crores in its outright account.The details are
given below:
Purchase of Spices by NAFED
[ qty. in mts/value in rs.lakhs ]
S.NO Commodity Quantity (in MTs) Value(Rs.in lakhs)
1 Turmeric 189.90 73.79
2 Black Pepper 4023.10 5570.70
3 Cardamom Small 0.50 2.68
4 Assorted Spices 0.09 50.55
5 Cloves 0.15 0.55
6 Dry Ginger 72.06 61.91
7 Methi Seed 225.60 61.56
Total 4511.40 5821.74
Sales
A total quantity of around 5048 MTs of various spices, such as,Turmeric,Black
Pepper,Red chillies,Methiseed,dry ginger, and Cardamom(small) valued Rs.55.84 crores
was sold in outright account during the year as per details given below:
Sale of Spices by NAFED
[ qty. in mts/value in rs.lakhs ]

S.NO Commodity Quantity(in MTs) Value(Rs.in lakhs)

1 Tumeric 203.80 89.23
2 Red chillies 533.08 231.35
 10
3
3 Black Pepper 4006.65 5058.04
4 Cardamom Small 0.35 1.71
5 Assorted Spices 0.09 55.15
6 Dry Ginger 77.02 75.64
7 Cloves - 0.01 Neg
8 Methi Seed 227.39 72.29
Total 5048.38 5583.78
Miscellaneous Business
Purchases
NAFED procured around 28852 MTs of various miscellaneous agricultural
commodities valued at Rs. 105.34 crores in outright account as per details given below:
Purchase of Miscellaneous commodities by NAFED
[ qty. in mts/value in rs.lakhs ]
S.NO Commodity Quantity(in MTs) Value (Rs.in lakhs)
1 Rubber 959.00 690.28
2 Tea 173.42 159.44
3 Misc. Items 9818.20 671.18
4 Atta - 45.46
5 Sugar 309.41 52.54
6 Palm Oil 16507.58 8853.48
7 Salt 293.00 13.32
8 Barrel 791.60 48.73
Total 28852.21 10534.43
Sales
A quantity of 28498 MTs of various miscellaneous agricultural commodities
valuing Rs.60.26 crores was sold during the year 2008-09 in outright account as per
details given below.
Sale of Miscellaneous Commodities by NAFED
[ qty. in mts/value in rs.lakhs ]
S.NO Commodity Quantity(in MTs) Value (Rs.in lakhs)

1 Rubber 824.00 787.13

 10
4
2 Salt 293.00 13.45
3 Tea 180.63 186.46
4 Misc. Items 9769.88 805.41
5 Atta - 47.72
6 Sugar 183.68 44.26
7 Palm Oil 16368.33 4053.64
8 Psyllium 86.82 37.98
9 Barrel 791.60 49.94
Total 28497.94 6025.99

(d) Production and Marketing of Agricultural Inputs

NAFED helps the farmers by supplying them agricultural machinery like
harvesting combines, tractors, spare parts and such other inputs as bio-fertilizers.
NAFED also imports some of the machines and spare parts from abroad to ensure timely
availability of genuine spare parts at reasonable prices. The technical know-how to
operate and maintain the machines is also provided to the farmers. The NAFED through
its service centres also sells farm tools, agricultural implements and spare parts produced
by Krishi Yantra Udyog, Bhiwadi in Rajasthan.
Bio-fertilizers are gaining importance for increasing yields of pulses and oilseeds
crops. The NAFED has set up a unit for production of rhizobium culture at Indore
(Madhya Pradesh) in 1985 with a capacity to produce biofertilizers for 12 lakhs hectares a
year. NAFED maintains contact with the input supplying institutions such as the National
Seeds Corporation and the Fertilizer Corporation of India.
(e) Promotional Activities
NAFED maintains expert staff which conducts market studies, collects data and
circulates the results among the members. Other promotional activities of NAFED are
intensive development of selected marketing societies as pilot centres for co-operative
marketing of agricultural produce in each state; improvement in market intelligence
services for co-operative marketing societies; conduct of market surveys; training of
market personnel; promotion of market regulations and development of infrastructures.
(f) Developing Co-operative Marketing of Tribal Produce
A separate cell to develop the marketing of produce of the tribal areas (minor
forest products) having economic value has been set up with the assistance of NAFED.
 10
5
NAFED arranges market intelligence, establishes better system for auction of
tribal produce and develops markets for other commodities like chilgoza, gum, karya etc.
Keeping in view the importance of marketing of tribal produce, a separate Tribal Co-
operative Marketing Development Federation (TRIFED) has been set up.
(g) Setting of Scientific Storage System
NAFED has set up a cold storage along with an ice factory and a warehouse in
Delhi. NAFED has also made pioneering effort in finding ways of developing modern
storages. It has set up an onion warehousing complex at Nagapattanam.
(h) Processing of Fruits, Vegetables and Others
NAFED has set up a multi-commodity fruit and vegetables processing unit at Delhi
and at Vellore (Tamil Nadu). The basic purpose is to develop the processing industry in
co-operative sector in a major way so as to make fruits and vegetable marketing and
processing to the advantage of the farmers. NAFED also manufactures jute goods in joint
venture with Konark Jute Limited – promoted by Industrial Development Corporation of
Orissa.
Business Highlights of NAFED
NAFED achieved a turnover of Rs. 4706.65 crores as against the turnover of Rs.
6381.38 crores achieved during the last year, a decline of approx.26.24% mainly due to
reduced PSS operations And negligible activities in Tie-up business. It incurred a net loss
of Rs.56.69 crores due to huge interest liability on account of outstanding loans due to
Tie-Up business defaulters. The share capital with NAFED was Rs. 1097.33 lakhs upto
31.3.2008. Membership of the Federation increased from 824 to 832 upto 31.3.2008. As
a Central Nodal Agency of the Government of India, NAFED procured various
commodities such as, Copra, Mustard seed, Sesamum and Safflower seed of the value
of Rs. 124.35 crores under Price Support Scheme during 2007-08. NAFED continued to
be the nodal agency of the Govt. of India for implementation of Market Intervention
Scheme for commodities not covered under Public Support Syatem. NAFED continued to
be one of the canalizing and monitoring agencies for export of Onion. NAFED Continued
to enjoy the status of "Three Star Export House" as per certificate of recognition issued
by the Ministry of Commerce, Government of India. NAFED was allowed to import Pulses
by Government of India under zero percent duty with reimbursement of losses to the
extent of 15%. Under the scheme, NAFED imported a quantity of 234272 MTs valuing
RS.412.17 crores of different Pulses namely Urad, Moong, Toor, Yellow peas etc.
NAFED imported 92500 MTs Crude palm Oil and 9500
 10
6
MTs Soya Degum Oil in its commercial account to improve availability of edible oil
in the country to stabilize domestic prices. NAFED was appointed as one of the agencies
for procurement of Paddy directly from the farmers under the de-centralized Scheme of
State Gov. NAFED procured 796817 MTs of Paddy valuing Rs.573.55 crores during
2007-08. A quantity of 2,00,077 MTs of Wheat valuing Rs.170.37 crores was purchased
by NAFED on behalf of FCI. The exports of NAFED during the year were of the order of
Rs.542.30 crores which include exports of different agricultural commodities in its outright
account besides Onions through its Associate Shippers. The agricultural commodities
exported were Onion (Rs.504.20 crores), Potato (Rs.0.05 crores), Rice (Rs. 2.90 crores),
Turmeric (Rs. 0.18 crores), Red Chilies (Rs. 1.57 crores) mustard seed & mustard oil
(Rs.0.75 crores), Maize (Rs2.00 crores), and Wheat(Rs.2.33 crores). Rice valuing
Rs.27.94 crores was also exported in Tie-up account. In its commercial operations,
NAFED achieved a turnover of Rs.4164.35 crores in domestic trading of various
agricultural commodities, which also include PSS/Tie-up business. NAFED distributed
chemical Fertilizers valuing over Rs. 88.58 crores in the states of Bihar, UP, Maharashtra,
Chhattisgarh, MP, Jharkhand, North Eastern and Southern States. It also distributed
Seeds of various crops valuing over Rs. 35.13 crores to State Seed Corporations and
State Agricultural Departments as also farmers through network of marketing societies.
Special thrust was given to promote marketing of consumer items all over India. NAFED
marketed consumer products like edible oils, processed foods, spices, tea, rice, pulses
etc. valued around Rs. 36.15 crores in the directly to the brand name of NAFED and
marketed products of other reputed companies. To assist poultry farmers and consumers,
NAFED procured and marketed eggs valued at Rs. 1.72 crores. As the Corporate Agent
of IFFCO-TOKIO General insurance (ITGI), NAFED continued in the field of non-life
insurance and undertook a business of Rs. 6.64 crores. NAFED handled jute products
valued at Rs.120.26 crores on agency/consignment basis in domestic trade. NAFED
completed construction works of Warehouse of 10,000 MT capacity each at Dewas, (MP)
& Sriganganagar (Rajasthan). Renovation & repair works of warehouse at Vashi, Navi
Mumbai was also started. Total warehousing capacity of NAFED is approx. 51900 MTs,
in addition to 4400 MTs capacity for storage of Onion. NAFED is also constructing two
Multi-Commodities pack houses of 500 MT capacities each with ancillary units for sorting
& grading (through 11 Collection Centers) pre-cooling etc. At Umranala and Sausar in
Chindwara (Madhya Pradesh). NAFED is one of promoter members of National Multi
Commodity Exchange and participated in the
 10
7
trading activities at NMCE, MCX and NCDEX. The futures trading activities are
being undertaken in almost all agricultural commodities viz. Rubber, Pepper, Turmeric,
Chilli, Soya bean, Mustard Seed, Mentha, Potato, Jeera etc. Achieved turnover of Rs.319
crores in Futures Trading business. NAFED inducted fresh M.B.A. Graduates as
Management Trainees selected from Vaikunth Mehta National Institute of Cooperative
Management (VAMNICOM), Pune, AMITY, Noida and RICM, Bangalore to
professionalize the managerial cadre.
Other National Cooperative Organizations
National Cooperative Development Corporation (NCDC)

The National Cooperative Development Corporation (NCDC) was set up in March,

1963 under an Act of Parliament for promoting, guiding and supporting rural economic
activities on cooperative principles. The corporation focuses on programmes of
promoting, strengthening and developing farmers’ cooperatives for marketing, processing
and storage of agricultural products as also for supply of agricultural inputs and essential
consumer goods in rural areas. It tries to equip cooperatives with facilities for promoting
income-generating activities including poultry, fishery, handlooms and minor forest
products. The corporation supplements the efforts of the state governments in promoting
cooperatives.
The NCDC provides financial assistance to cooperative societies through or on
the guarantee of the state governments. NCDC provides financial assistance to large
number of cooperatives and their activities. This includes:
(a) State level cooperative marketing/commodity marketing federations for margin
money to raise working capital from banks or increasing marketing and distribution
activities.
(b) Agro-based processing units including large size oil complexes and small and
medium size units for foodgrains, plantation, commercial and horticulture crops;
(c) Viable or potentially viable primary agricultural cooperative societies, large size
agricultural multipurpose cooperative societies (LAMPS), farmers service societies
(FSS), commodity cooperatives and processing cooperatives for construction of
godowns;
(d) Cooperatives for the establishment of new cold stores and expansion of the
existing units as well as for setting up of ice plants;
(e) State governments to supplement their resources for share capital participation in
the new cooperatives related to processing, repair and custom hiring services;
 10
8
(f) Cooperatives dealing in fruits and vegetables for development of marketing,
establishment of processing units, purchase of transport vehicles, construction of
storage sheds and retailing;
(g) Fishery cooperatives for development of inland and marine fisheries;
(h) Cooperatives for dairy development in areas which are outside the operation flood
programmes of NDDB;
(i) Integrated poultry projects including poultry sheds, feed mix units and hatcheries;
and
(j) Scheduled caste cooperatives for supply of notified commodities, strengthening of
share capital base of tribal development cooperative federations, cooperative-
marketing societies in hilly areas, rural consumer cooperatives and student
cooperative stores.
NCDC has not only provided financial support to the cooperatives but also
provided technical guidance to them. The promotional and developmental role of NCDC
has led to continuous expansion and diversification of cooperative programmes under its
purview.
Tribal Cooperative Marketing Federation (TRIFED)
The Tribal Cooperative Marketing Federation (TRIFED) was established in 1987
to develop the system of marketing of forest products produced by the tribals in the
country. TRIFED arranges marketing and export of minor forest products produced by
the tribals in the tribal dominated areas and protects the tribes from exploitation by the
private traders because of poor demand and production in small lots.
Co-operative Marketing and Processing of Milk and Oilseeds
Milk
With a view to providing marketing support to the milk producers, a sound
network of dairy cooperatives has taken shape in the country which has been
instrumental in what is called the 'White Revolution' in the country. The network consists
of milk producers cooperative societies at the Village level, District Milk Co-operative
Unions at the district level, State Co-operative Dairy Federations at the state level and
National Dairy Development Board (NDDB) at the national level. Apart from providing
market support to the producers in rural areas, this network has been instrumental in
supplying liquid milk and dairy products to the urban consumers at reasonable prices.
 10
9
NDDB
The National Dairy Development Board was created to promote, finance and
support producer-owned and controlled organisations. NDDB's programmes and
activities seek to strengthen farmer cooperatives and support national policies that are
favourable to the growth of such institutions. Fundamental to NDDB's efforts are
cooperative principles and cooperative strategies.
Philosophy of NDDB
 Cooperation is the preferred form of enterprise, giving people control over the
resources they create through democratic self-governance.
 Self-reliance is attained when people work together, have a financial stake, and
both enjoy the autonomy and accept the account ability for building and
managing their own institutions.
 Progressive evolution of the society is possible only when development is
directed by those whom it seeks to benefit. In particular, women and the less
privileged must be involved in cooperative management and decision-making.
 Technological innovation and the constant search for better ways to achieve our
objectives is the best way to retain our leading position in a dynamic market.
 While our methods change to reflect changing conditions, our purpose and
values must remain constant.
The National Dairy Development Board (NDDB) was founded in 1965 to replace
exploitation with empowerment, tradition with modernity, stagnation with growth,
transforming dairying into an instrument for the development of India's rural people.
NDDB began its operations with the mission of making dairying a vehicle to a
better future for millions of grassroots milk producers. The mission achieved thrust and
direction with the launching of "Operation Flood", a programme extending over 26 years
and which used World Bank loan to finance India's emergence as the world's largest milk
producing nation. Operation Flood's third phase was completed in 1996 and has to its
credit a number of significant achievements. As on March 2009, India's 1,33,349 village
dairy cooperatives federated into 177 milk unions and 15 federations procured on an
average 25.1 million litres of milk every day. 13.9 million farmers are presently members
of village dairy cooperatives.
Since its inception, the Dairy Board has planned and spearheaded India's dairy
programmes by placing dairy development in the hands of milk producers and the
professionals they employ to manage their cooperatives. In addition, NDDB also
 11
0
promotes other commodity-based cooperatives, allied industries and
veterinary biologicals on an intensive and nation-wide basis.
Constitution
The National Dairy Development Board has been constituted as a body
corporate and declared an institution of national importance by an Act of India's
Parliament. The National Dairy Development Board -- initially registered as a society
under the Societies Act 1860 -- was merged with the erstwhile Indian Dairy Corporation,
a company formed and registered under the Companies Act 1956, by an Act of India's
Parliament - the NDDB Act 1987 (37 of 1987), with effect from 12 October, 1987. The
new body corporate was declared an institution of national importance by the Act. The
general superintendence, direction, control and management of NDDB's affairs and
business vests with the Board of Directors.
Office Network
Head Office PB No. 40, Anand 388 001 Telephone: (02692)
260148/260149/260160 Fax: (02692) 260157 email: anand@nddb.coop Telegram:
DAIRYBOARD
Regional Offices
PB No. 9506 VIII Block, 80 Feet Road, Koramangala Bangalore 560 095 Telephone:
(080) 25711391/25711392 Fax: (080) 25711168 email: bangalore@nddb.coop
3rd Floor, SCO-230-231 Sector 34-A Chandigarh 160 022
Telephone: (0172)
5071283/5001282 Fax: (0172) 5071282 email: chandigarh@nddb.coop
2nd Floor, Vivekanand Corner Club Road, Desai Cross Hubli 580 020
Telephone: (0836) 2257237/2257238 Fax: (0836) 2257236 email: hubli@nddb.coop
38, Sunder Nagar Girdhar Marg, Malviya Nagar Jaipur 302 017 Telephone: (0141)
2550191/2723765 Fax: (0141) 2550086 email: jaipur@nddb.coop
DK Block, Sector II Salt Lake City Kolkata 700 091 Telephone: (033)
23591885/23591886 Fax: (033) 23591883 email: kolkata@nddb.coop
1st Floor, IPL Building 3, Gokhale Marg Lucknow 226 001 Telephone: (0522)
4006952/4006953 Fax: (0522) 4006834 email: lucknow@nddb.coop
PB No. 9074 Western Express Highway Goregaon (East) Mumbai 400 063 Telephone:
(022) 26856675/26856678 Fax: (022) 26856122 email: mumbai@nddb.coop
Plot No. A-3 Sector-1 Noida 201 301 Telephone: (0120) 4262336/4262337 Fax: (0120)
4262347 email: noida@nddb.coop
Sumati Place 4th Floor, Boring Road, Patna – 800001 Telephone: (0612)
2525319, 2523288 Fax: (0612)-2526561 email: patna@nddb.coop
 11
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India Tower Edapazhinji Junction Vazhuthacaud Thiruvananthapuram 695 014
Telephone: (0471) 2321355/6572895 Fax: (0471) 2335543 email:
trivandrum@nddb.coop
59-14-8, Silpa Arcade Opp. Maris Stella College Vijayawada 520 008 Telephone: (0866)
2492398/2473764 Fax: (0866) 2492400 email: vijayawada@nddb.coop
The Operation Flood (OF) programme initiated by NDDB in 1970 was a planned
attempt to revive India's Dairy Industry from a premature stagnation. The OF programme
not only propelled the growth of dairy development in India, it also helped India become
the world's largest milk producer.
OF enhanced the incomes and quality of life for millions of India's dairy farmers,
most of them poor and many of them women. It has become India's largest Dairy
Development Programme.
OF (1970-1996) created a strong foundation to transform India's dairy sector into
a vibrant business activity. It paved the way to take up new initiatives and create new
conditions to firm up India's world leadership in milk production. The new challenge for
the Dairy Industry was to explore ways to emerge stronger using the network created
under OF. The response is Perspective 2010, a plan that attempts to take the dairy
cooperative movement to its highest potential.
Perspective 2010 focuses on four key areas. These include Strengthening
Cooperative Business, Production Enhancement, Assuring Quality and creating a
National Information Network. The State Milk Marketing Federations and the Milk
Producers' Cooperative Unions, the architects and key beneficiaries have identified the
thrust areas. The plan is designed keeping at helm the benefit to farmers at large. NDDB
facilitated the planning process and will provide technical support and need-based
finance for implementing Perspective 2010.
Perspective 2010 Goals
Increase liquid milk procurement by cooperatives to 33 per cent (488 lakh
kilograms per day) of the marketable surplus in Operation Flood areas, constituting 80
per cent of the national milk produced (i.e. Quadruple liquid milk procurement by year
2010). Increase liquid milk sales to 365 lakh kilograms per day, more than 60 per cent of
the market shares in metros, and on average of close to 50 per cent in the Class I cities
served by cooperatives (i.e. Treble fluid milk marketing by year 2010)
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Strategy
A systemic and planned strategy for the identified thrust areas has been
formulated to meet the above goals
Strengthening Cooperative Business
Action Plan
 Institution Building Development
 Orientation/induction programmes for farmers
 Training of Management Committee Members and Society Secretaries in
preparing business plans and its implementation
 Reorientation of union staff to new roles identified to meet Perspective
2010 goals
 Strong Financial Base
 Increase in dairy cooperative owned funds
 Increase in cooperative contribution to union share capital
 Expanding Marketing

 Assistance in planning, implementation and monitoring of business plans

of milk unions geared to meet the targets envisioned in Perspective 2010
 Offering financial and technical help to milk unions and federations in
areas such as sales promotion, consumer education, distribution
infrastructure development etc.
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 Standardisation of artwork, colour, logo and retail outlet design across
regional cooperative brands with a view to promoting better recall by
consumers under a common mnemonic umbrella
 Introduction and improvement of marketing systems and processes
necessary to perform better in a competitive marketplace
 Training and development of management and staff of milk unions and
federations
Legislative Framework
Supporting efforts aimed at enactment of progressive legislative framework for the
cooperatives at the State and the Centre
Encouraging and assisting dairy cooperatives in incorporation under progressive
and enabling laws
Women's Participation
Increasing women membership in dairy cooperatives to 50 per cent recognising
the potential of this segment as decision makers having practical knowledge about animal
husbandry practices
Undertaking measures for significantly improving women's participation in the
governance of dairy cooperatives at all levels
Promoting organisation of women's thrift and credit groups/cooperatives
Production Enhancement
Action Plan
Breeding

 Increase productivity of cows and buffaloes

 Increase percentage of animals in milk
 Expand AI coverage
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 Increase inseminations
 Reduce AI per conception
 Take up genetic improvement programmes in selected milksheds to
supply semen of evaluated bulls to all milksheds
 Animal Health and Veterinary Services
 Create first-aid facilities in DCSs
 Increase vaccination for HS and BQ
 Increase de-worming of animals
 Promote mastitis control
 Undertake Brucellosis control activities in affected areas
 Promote use of GIS in AI and veterinary health services
 Create Disease Free Zones by
- Undertaking mass vaccinations
- Ear-tagging and passbooks
- Animal movement management
- Effective outbreak management
- Sero-monitoring
 Disease control in Animals
- Enactment of national legislation for Prevention of Infectious and
Contagious Diseases in Animals

 Animal Nutrition
 Raise installed cattle feed plant capacity
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 Raise cattle feed plant utilisation capacity
 Increase and strengthen quality control laboratories
 Increase number of mineral mixture plant
 Increase production and utilisation quality fodder seeds
 Husbandry Extension
 Enable dairy cooperatives to operate as full-service extension centres for
their members by providing
- Introduction and support of technology
- Link actively with union's technical experts
Strategy
Identify and address quality related problems at every stage from the producer at
the village cooperative, to the dairy plant and the process of final delivery to the
consumer
Facilitate improvement of hygiene, sanitation, food safety and operating efficiency
in the dairy plants and sensitise dairy personnel to product quality aspects as per
international standards
Assuring Quality
Action Plan
 Phytosanitary, bacteriological and organoleptic quality at all stages
 Development of a comprehensive database on raw milk quality at every
stage from producer to consumer
 Identification of key intervention technologies for each stage
 Orientation of Union technical inputs and other support services to
emphasise compliance to national and international quality standards
 Encouragement of quality incentives supported by educational
programmes for Dairy Cooperative Society staff, transporters and farmer
producers
 Establishment of village-level chilling as first stage in cold chain reaching
to the plant and on to the consumer
 Facilitating dairy cooperatives in ISO-9000-2000 (Quality Management
Systems), ISO HACCP (Safety Management Systems) certification and
maintain the required plant conditions under the accreditation on a
sustainable basis
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Information and Policy Research

Strategy
 Link large cooperatives, Unions, Federations and NDDB in a national
network that collects, adds value and disseminates information
 Ensure availability of analytical information for Policy Planning and
Decision Support
 Action Plan
 Integrated Dairy Industry Information Service
 Facilitate decision-making at various levels in cooperative institutions with
the help of an extensive on-line computer network that analyses relevant
data obtained from :
- Village Dairy Cooperative Societies
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- District Milk Producers' Unions
- State Milk Marketing Federations
- NDDB
- Research Institutions and others

 National Database
 Generate data on following :
- Milk supply (producer, animal and village data)
- Milk and milk product demand (consumer and urban data)
- Performance data (societies, unions and federations)
- Secondary data (domestic and international)
 Geographical Information System
 Monitor following field activities :
- Milk procurement
- Veterinary health care
- Artificial Insemination
- Society information
 Policy Research
 Take up problem specific and area specific need-based special studies
for policy support
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 Conduct regular field studies concerning business interest
Dairy Cooperatives account for the major share of processed liquid milk marketed
in the country. Milk is processed and marketed by 170 Milk Producers' Cooperative
Unions, which federate into 15 State Cooperative Milk Marketing Federations.
The Dairy Board's programmes and activities seek to strengthen the functioning of
Dairy Cooperatives, as producer-owned and controlled organisations. NDDB supports the
development of dairy cooperatives by providing them financial assistance and technical
expertise, ensuring a better future for India's farmers. Over the years, brands created by
cooperatives have become synonymous with quality and value. Brands like Amul
(GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini (Karnataka), Milma
(Kerala) and Gokul (Kolhapur) are among those that have earned customer confidence.
Some of the major Dairy Cooperative Federations include:
Andhra Pradesh Dairy Development Cooperative Federation Ltd
(APDDCF) Bihar State Cooperative Milk Producers' Federation Ltd
(COMPFED) Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF)
Haryana Dairy Development Cooperative Federation Ltd. (HDDCF)
Himachal Pradesh State Cooperative Milk Producers' Federation Ltd
(HPSCMPF) Karnataka Cooperative Milk Producers' Federation Ltd (KMF)
Kerala State Cooperative Milk Marketing Federation Ltd
(KCMMF) Madhya Pradesh State Cooperative Dairy Federation Ltd
(MPCDF) Maharashtra Rajya Sahakari Maryadit Dugdh Mahasangh
(Mahasangh) Orissa State Cooperative Milk Producers' Federation Ltd
(OMFED) Pradeshik Cooperative Dairy Federation Ltd (UP) (PCDF)
Punjab State Cooperative Milk Producers' Federation Ltd
(MILKFED) Rajasthan Cooperative Dairy Federation Ltd (RCDF)
Tamilnadu Cooperative Milk Producers' Federation Ltd
(TCMPF) West Bengal Cooperative Milk Producers' Federation Ltd.
(WBCMPF) Oilseeds
Recognising the success of the 'Amul Pattern' of dairy co-operatives network, the
concept has been extended to the oilseeds sector. Oilseeds growers co-operative
societies at the village level and State Co-operative Oilseeds Growers Federations have
been organized in many States. The nomenclature differs from state to state.
 11
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In Rajasthan, the State level Co-operative Oilseeds Growers Federation, known
as Tilam Sangh was set up in July, 1990. The main objectives of the Federation/Sangh
are:
(i) To organize the oilseeds growers at grass root level;
(ii) To augment the production and productivity of oilseeds by providing package of
practices;
(iii) To procure the oilseeds of farmers at their doorstep at premium price;
(iv) To eliminate the intermediaries and to retrieve the oilseed growers from their
clutches;
(v) To establish oilseed processing units; and
(vi) To undertake seed multiplication programme to provide quality seeds to the
member producers.
Tilam Sangh has established eight plants for processing of mustard in different
mustard growing areas with a total processing capacity of 1.41 lakh tones of mustard.
These plants are located at Kota, Fatehnagar (Udaipur); Bikaner, Jalore, Mertacity
(Nagaur); Jhunjunu, Sriganganagar and Gangapurcity (Sawai Madhopur). At present,
967 oilseeds growers co-operative societies are working in different mustard project
areas under Tilam Sangh with a total membership of over one lakh members. In addition
to mustard plants, Tilam Sangh has also established soyabean and groundnut
processing plants. The Tilam Sangh purchases oilseeds from the farmers through the
co-operative societies at fair prices and makes available edible oils to the consumers at
reasonable prices. With a view to making available improved seeds of oilseed crops, a
farm of 40 hectares has also been transferred by the State Government to the Tilam
Sangh.
The popularity of edible oils produced by the Tilam Sangh has been increasing
continuously among the consumers. Presently, Tilam Sangh is supplying 'Tilam brand'
edible oils in 1, 2, 5 and 15 litres/kgs packing to the consumers.
State Level Cooperative Marketing Organizations
(i) RAJFED : RAJFED in Rajasthan, a state level co-operative marketing organization,
has been playing a very important role in agriculture marketing. The Rajasthan Co-
operative Marketing Federation (RAJFED) was established on November 26, 1957. It is
an apex body at the state level. The main aim of establishing RAJFED is to co-
operatively handle purchase and sale of agricultural commodities for the benefit of
farmers as well as consumers. Following are the main functions of RAJFED:
 12
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(a) Purchase and sale of agricultural commodities
RAJFED purchases the agricultural produce from markets by an open auction
method and thus creates condition of competition. Farmer-producers get fair prices of the
produce. The commodities so purchased by RAJFED are sold later on when prices are
high. In its marketing operations, the RAJFED collaborates with NAFED, Tilham Sangh
and other co-operatives. The primary cooperative marketing societies act as commission
agents for making the purchases of agricultural commodities on behalf of the RAJFED.
RAJFED pays commission to these societies for this work.
(b) Production and Supply of Agricultural Inputs
RAJFED is also engaged in the supply of agricultural inputs such as fertilizers
(DAP, Urea, CAN), improved seeds, pesticides, plant protection implements and gypsum.
(c) Production of Animal Feed
RAJFED has established a unit of production of animal feed at Jaipur with a
capacity of 12,000 tonnes per annum. The animal feed is distributed through various units
of cooperative societies, government departments and private dealers.
(d) Production of Isabgol Bhushi
RAJFED has established a Isabgol Bhushi production plant at Abu Road in 1982
with the help of NAFED with a capacity of 450 tonnes per annum.
(e) RAJFED has also established a cold storage and ice-plant at Jaipur.
(f) RAJFED works as an important state agency for price support operations whenever
need arises.
(ii) MARKFED – MARKFED is the state level organization in the state of Punjab.
It is a federation of marketing cooperative societies. Its main objective is to help the
farmers to secure better prices for their produce by taking care of the market needs and
providing agricultural inputs. To achieve this objective, MARKFED's present activity
includes sale of farm inputs (fertilizers, seeds and pesticides); maintenance of godowns
and procurement of agricultural commodities through its member societies. Markfed has
also entered the export business and helping establish contract-farming arrangements in
the state.
(iii) Other State Federations – Almost all states have state level federations of
cooperative marketing societies. These may be general purpose federations or
commodity specific federations. Some examples of state level federations are State
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Dairy Cooperative Federations, State Oilseed
Federations and State Cotton Federations.
TANFED
The Tamil Nadu Cooperative Marketing Federation Ltd., popularly known as
"TANFED" commenced its business on 20.2.1959. The area of operation is whole of
Tamil Nadu except composite Thanjavur and Nilgiris Districts. From the inception
(i.e.1959) till June 1976, there was elected board of Management. Subsequently, from
November 1998 to 25.6.2001 TANFED functioned under the elected Board of
Management. Now TANFED is functioning under the control of Special Officer.
Membership
The Members are:-
(a) Primary Cooperative Marketing Societies working at taluk levels (except
those PCMS in the districts of Thanjavur, Thiruvarur and Nagapattinam Districts which
come under the purview of Thanjavur Cooperative Marketing Federation Limited,
Thiruvarur and (ii) Nilgiris District).
(b) Thanjavur Cooperative Marketing Federation Limited, Tiruvarur.
(c) Tamil Nadu Warehousing Corporation,
(d) Government of Tamil Nadu.
Authorised and paid up share capital
The authorised share capital is Rs.5 crores which is made up of one lakh
shares at rupees five hundred each. The admission fee is Rs.50/-. Details of share
capital as on 31.3.2008 are furnished in Table 5.3.
Table 5.3 Authorised and paid up share capital of TANFED
(Rs. in lakhs)

S.No. Name of the Member No.of Share

shares Capital

(1) Co-operative Marketing Societies 109 79.94

(2) Thanjavur Co-operative Marketing Federation 1 0.10
(3) Tamil Nadu Warehousing Corporation 1 0.10
(4) Government of Tamil Nadu 1 118.17
112 198.31
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Organisation
From the inception till June 1976, there was elected board of
Management. From June 1976 to November 1998 managed
by the Special Officers. From November 1998 to 25.6.2001,
functioned under the elected Board of Management.
Subsequently, the Board was superseded by the Government of Tamil Nadu with
effect from 26.5.2001 and thereafter, the TANFED is functioning under the control of
Special Officer in the cadre of Additional Registrar of Cooperative Societies.
Organisational Setup
The Head Office consists of functional divisions such as Administration, Accounts,
Internal audit, Fertilizers, Seeds and Pesticides, Agricultural Marketing and Civil
Engineering.
TANFED HEAD OFFICE AT CHENNAI

Each division is managed by General Managers who are drawn from Tamil
Nadu Government in the cadre of Joint Registrar of Cooperative Societies and
Deputy Registrar of Cooperative Societies. Two General Managers in the cadre of
Joint Registrars are in charge of Inputs and Finance, Marketing and Estate. In addition,
a Secretary is in charge of Administration and Board functions. At district level there are
18 Regional Offices in Tamil Nadu State. As on 31.5.2010, the staff strength is 224
(exclusive of four persons deputed from the Government).
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Functions and Objectives
1. To identify the agricultural input requirements of the farmers and arrange for storage
and distribution of Fertilisers, Seeds, Pesticides and Agricultural Implements through Co-
operative outlets.
2. To provide market support to the affiliated member Co-operative Marketing Societies
in procuring, storing and marketing of agricultural commodities.
3. To provide storage facilities of specialized nature of perishable agricultural
commodities and agro-based products by maintaining cold storage plants.
4. To undertake manufacture of agricultural inputs such as granulated fertilisers,
manure mixture and quality seeds.
5. To undertake the distribution of kerosene.
Activities
A) Distribution of Fertilisers
The crop loan issued by Cooperative banks consists of cash portion and kind
portion. The kind portion includes Fertilisers, Pesticides, Seeds and Agricultural
Implements which are being supplied by Tamil Nadu Cooperative Marketing Federation
through Primary Agricultural Cooperative Banks. TANFED purchase Chemical
Fertilisers from the leading manufacturers like M/s.IFFCO, IPL, Coromandal,
KRIBHCO, FACT, RCF, GNFC, SPIC, etc. and distributing through Primary
Agricultural Cooperative Banks.
Details of Chemical Fertilisers distributed during the last 5 years are as follows :
Tabe 5.4
Chemical Fertilizers Distributed by TANFED

Year Quantity (Mts) Value (Rs. in crores)

2003 - 2004 78,597 48.78
2004 - 2005 1,46,765 90.10
2005 - 2006 1,68,310 105.80
2006 – 2007 2,18,077 141.07
2007 – 2008 2,93,849 207.14
2008 – 2009 8,83,144 606.64
2009 – 2010 8,21,120 569.03
2010-2011 81,094 56.48
(Upto31.5.2010)
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TANFED has cash sales of fertilisers since it started The farmers get fertilisers at
lesser price than the market price under this scheme.
B) MANUFACTURE OF FERTILISERS
Pamani Fertilizer Plant at Mannargudi

TANFED is undertaking manufacture of its own granulated mixtures of Pamani

17:17:17 fertilisers with right mix up of NPK with special ingredient, ie., neem cake.
This product is very popular among the farmers in Tamil Nadu. This Plant was
commissioned in April 1971 with the cost of Rs.110/- lakhs with an annual production
capacity of 30,000 Tonnes. It is situated at Pamani Village, Mannargudi, Tiruvarur
District. Details of production and sale of Pamani NPK 17:17:17 for the last 5 years are
given below in Table 5.5.
Table 5.5
Production and Sale of Pamani NPK 17:17:17 Fertilizer by TANFED

Year Production Sales

Qty.in MTs. Value Qty.in MTs. Value
(Rs.in Lakhs) (Rs.in Lakhs)
2003-04 1023 166.10 3421 278.71
2004-05 5391 402.45 6279 513.82
2005-06 16188 1138.47 15186 1244.48
2006-07 18650 1303.95 18099 1492.32
2007-08 18711 1338.98 20322 1649.41
2008-09 17895 882.85 12039 1004.65
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2009-10 14813 1099.42 14248 1189.00
2010 – 675 55.82 826 75.17
2011
(Upto
31.5.2010)

Pamani Fertilisers are sold through PACBs. In addition, Tamil Nadu

Government has permitted TANFED to appoint private dealers, to sell the Pamani
17:17:17 from Dec.2005 onwards. TANFED has proposed to increase its production
from 2 shifts to 3 shifts at the Pamani Fertiliser Plant.
C) TANFED FERTILISER MIXTURES
At present Fertiliser mixtures are produced in Trichy, Madurai and Vellore.
Details of production and sale of Mixtures for the last 5 years are as given in Table 5.6.
Table 5.6
Production and Sale of Fertilizer Mixtures by TANFED

Year Production Sales

Qty.in MTs. Value Qty.in MTs. Value
(Rs.in Lakhs) (Rs.in Lakhs)
2003-04 1062 35.71 1021 4020
2004-05 1933 62.08 1987 7845
2005-06 5545 188.59 5474 228.30
2006-07 8839 304.69 8810 375.20
2007-08 11157 385.57 10961 476.73
2008-09 21537 835.42 20856 894.31
2009-10 20689 802.53 19838 850.65
2010 – 2011 2276 105.36 2441 129.37
(Upto 31.5.2010)

D) DISTRIBUTION OF PESTICIDES, SEEDS & AGRICULTURAL IMPLEMENTS

TANFED draw Pesticides, Seeds and Agricultural Implements from leading
manufacturers and distribute through the Primary Cooperatives in the districts.
The details of the value of these inputs distributed during past few years are as
given in Table 5.7.
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Table 5.7
Distribution of Pesticides, Seeds and Implements by TANFED

(Value : Rs.in Lakhs)

Year Pesticides. Seeds Implements Total
2003-04 10.75 7.23 0.32 18.30
2004-05 23.44 3.70 3.04 30.18
2005-06 107.88 28.16 6.02 142.06
2006-07 77.87 23.86 4.87 106.60
2007-08 140.80 34.74 11.77 187.31
2008-09 117.53 33.72 20.67 171.92
2009-10 213.00 189.00 39.00 441.00
2010 – 2011 (Upto 11.20 11.40 14.69 37.29
31.5.2010)

TANFED owns a seed processing plant at Mannargudi which was commissioned

during 1980 with a cost of Rs.3/- lakhs where quality paddy seeds are processed and
distributed to the farmers to the extent of 300 MTs annually.
E) AGRICULTURAL MARKETING
Being a marketing Federation, TANFED does the work of procurement of
Agricultural commodities such as cotton, chillies, coriander, pulses, oil seeds, pepper,
turmeric, etc.
Procurement operation is undertaken through the Cooperative Marketing
Societies and the Regulated Markets to fetch remunerative price for the farmers. This
activity is being done under joint venture basis, tie-up arrangements with National
Agricultural Cooperative Marketing Federation (NAFED) etc.

Year-wise performance made in the activity of Agricultural Marketing is as follows

in Table 5.8.
Table 5.8
Turn Over Made by TANFED

Year Qty.in MTs. Value

(Rs.in Lakhs)
2003-04 2287 645.27
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2004-05 1852 328.92
2005-06 1334 272.26
2006-07 1161 218.86
2007-08 1072 209.98
Copra 5676 2054.93
2008-09 2486 443.96
2009-10 2625 553.45
Copra 27045 12035.00
2010 – 2011 (Upto 440 140.16
31.5.2010) 2505 1114.82
Copra ( upto 31.5
2010)

TANFED sell crackers at very reasonable price to the general public. In 2006 the
total sales was Rs.19.77 lakhs whereas in 2007 the total sales was Rs.99.29 lakhs.
TANFED also act as Nodel Agency for distributing crackers to the rural area through
PACBs in the State during the last 3 years.
F) COLD STORAGES
TANFED has established two Cold Storage units at Chennai for the purpose of
storing vegetables, fruits and perishables of the traders and General Public. The storage
space are allotted on monthly rental basis.
% of Utilisation Rent earned
Cold Storage I 80% 4.07 lakhs
Cold Storage II 56% 9.08 lakhs
(upto 31.5.2010)
(1) BASIN BRIDGE
The first Cold Storage Godown of TANFED was established in the year 1973 at
Basin Bridge , Chennai. The installed capacity of this godown is 1350 tonnes. Total cost
of this project is Rs.9.55 lakhs and the details of funding are as follows :-

1. NCDC Loan - 2.94 lakhs

2.Govt.Share Capital assistance - 4.90 lakhs
3.TANFED Share - 1.71 lakhs
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Total - 9.55 lakhs

(2) KOYAMBEDU
TANFED installed its second Cold Storage with 2500 MTS capacity at
Koyambedu Vegetable Market Complex availing loan facility from NCDC, Share Capital
assistance from the State Govt. and subsidy from Ministry of Food Processing.
The total cost and pattern of financial assistance received are as follows.
1. NCDC Loan 44.00 lakhs
2. Govt. Share Capital assistance 55.00 lakhs
3. TANFED Share 47.75 lakhs
4. Subsidy from Ministry of Food Processing Industries. 52.00 lakhs

Total 198.75 lakhs

COLD STORAGE GODOWN AT KOYAMBEDU

G) STORAGE GODOWNS
For the purpose of storing agricultural inputs as well as agricultural commodities,
TANFED constructed 39 godowns with the financial assistance from NCDC at various
places with a combined storage capacity of 28,140 MTs. In addition to the own godowns
TANFED hired 9 godowns with the capacity of 3,450 MTs. in needy areas with a view to
minimise the transport carrying cost of agricultural inputs.
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H) KEROSENE DISTRIBUTION
TANFED installed one kerosene bunk at Kodambakkam with a storage
capacity of 15 Kilo Litres in the year 1969 and continue its function as wholesaler till
date. In addition to the wholesale distribution, in order to cater to the needs of the
ration card holders, four retail kerosene bunks are functioning in Kodambakkam
(Chennai), Mannargudi, Madurai and Coimbatore under Public Distribution
Scheme. Around 50,000 litres of kerosene is supplied to the card holders every month in
each of these retail outlets. The allocation of kerosene for both wholesale and retail
distribution is made by the Civil Supplies Department and is drawn from the Indian Oil
Corporation Limited. The details of distribution of Kerosene as wholesaler and retailer
during the past years are as follows in Table 5.9
Table 5.9
Distribution of Kerosene by TANFED

Year Qty.in Kilo Value

Litres (Rs.in Lakhs)
2003-04 2517 267.99
2004-05 2426 233.20
2005-06 3428 288.00
2006-07 3428 272.94
2007-08 3019 250.37
2008-09 2876 242.33
2009-10 2703 228.85
2010 – 2011 (Upto 31.5.2010) 437 37.09
Finance and Accounts
Sources of Funds

TANFED has raised its funds from

a) Share Capital paid by members
b) Reserves & Surplus from out of profit
c) Borrowings in the form of short term loans, long term loan from State / Central
Government, NCDC and cash credit from financing bank,
i.e., Tamilnadu State Apex Cooperative Bank.
Accounts
As in the case of Public Limited Companies, TANFED also maintains its
accounts under 'Double Entry System of Book Keeping'. But instead of preparing Trial
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Balance, TANFED is preparing Receipts and Charges statement as
directed in the Tamil Nadu Cooperative Societies Act from the Receipts and
Charges statement, the final accounts are prepared. Every year Budgets
are prepared and approved by the Board. The Annual accounts are
prepared as per the Act.
Computerisation
The entire accounting system were computerized for which a
separate Computer wing is working with six terminals under LAN
system with one Pentium II server. The computer environment commenced
from 1.4.1998 at the cost of Rs. 10/- lakhs. It is working under Foxpro
software package. In addition to the above systems, six more latest Pentium
IV are installed for general purpose. Plan to switch over the present software
to latest software is under progress.
Audit
The Audit Wing consists of Internal Audit and Statutory Audit. The
Internal Audit constituted with the own staff of TANFED. The Statutory audit
of the TANFED is being done by the Audit Officers of Director of Co-
operative Audit which is working under the Finance Department of the State
Government. There are one Assistant Director, 5 Co- operative Audit Officer
and 1 Co-operative Auditor working in TANFED on concurrent basis. The
Audit Certificate up to 2006 – 2007 had been received. The audit for 2007 –
2008 has been completed.
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CHAPTER 6

STATE TRADING and QUALITY CONTROL

One of the responsibilities of the government is to ensure the supply of essential

commodities to the people. This may require direct intervention on its part in trading of
agricultural commodities.
Objectives
The objectives of state trading are:
(i) To make available supplies of essential commodities to consumers at reasonable
prices on a regular basis;
(ii) To ensure a fair price of the produce to the farmers so that there may be an
adequate incentive to increase production;
(iii) To minimize violent price fluctuations occurring as a result of seasonal variations
in supply and demand;
(iv) To arrange for the supply of such inputs as fertilizers and insecticides so that the
tempo of increased production is maintained;
(v) To undertake the procurement and maintenance of buffer stock, and their
distribution, whenever and wherever necessary;
(vi) To arrange for storage, transportation, packaging and processing;
(vii) To conduct surveys and provide the required statistics to the government so that
it may improve the conditions of the farmers; and
(viii) To check hoarding, black-marketing and profiteering.
Types of State Trading
State trading may be partial or complete, depending upon the extent of
intervention desired by the government.
(i) Partial State Trading
In partial state trading, private traders and government coexist. Traders are free
to buy and sell in the market. The government may place some restrictions on them,
such as declaration of stocks, limits on the stocks which can be held at a point of time
and submission of regular accounts. The government enters the market for the
purchase of commodities directly from producers at notified procurement price. It
undertakes the distribution of commodities to consumers through a network of fair price
shops. In this way, it safeguards the interest of producers and consumers alike, and
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keeps a check on the undesirable activities of traders.
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(ii) Complete State Trading
This is the extreme form of trading adopted by the government when partial
state trading fails to ensure fair prices to producers and make goods available to
consumers at reasonable prices. The purchase and sale of commodities is undertaken
entirely by the government or its agencies. Private traders are not allowed to enter the
market for purchase or sale. Under this form of state trading, the government remains
the sole purchaser and distributor of the commodity.
Complete state trading necessitates the outlay of huge finance, and the
provision of storage facilities at important production and consumption centres, and
calls for appointment of efficient men so that the purchase and distribution functions of
professional traders may be effectively taken over by a governmental agency. In India,
complete wholesale trade in wheat was taken over by the government in 1973; but it
had to be given up very soon.
Experience of Wholesale Trade Takeover in Wheat
On the recommendation of Chief Ministers' conference held in February, 1973,
the wholesale trade in wheat and paddy was taken over by the government from the rabi
season of 1972-73. It was intended to eliminate the wholesalers, who were considered
to be responsible for creating an artificial scarcity by hoarding with a view to raising
prices. It was expected that the direct purchase of foodgrains by the government and
their subsequent objectives of the complete takeover of wholesale trade were to:
(i) Eliminate unwarranted profits of middlemen;
(ii) Ensure remunerative prices to producers;
(iii) Guarantee an assured supply of foodgrains to consumers at reasonable prices;
(iv) Arrest the price rise; and
(v) Excise effective public control over the marketable surplus of agricultural
commodities – an item of essential necessity for the masses.
Under the wholesale trade takeover scheme, public sector agencies like the
Food Corporation of India, the Civil Supply Departments of State Governments and Co-
operative Marketing Societies were entrusted with the responsibility of purchasing the
marketed surplus and its subsequent disposal to consumers through a network of fair
price shops.
The scheme of wholesale trade takeover in wheat did not succeed, and was
withdrawn immediately. It was planned to purchase 30 to 35 per cent of the total
production of wheat in the country during that year; but government agencies could
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procure only half of the targeted quantity of 8.5 million tones of wheat. The
reasons of the failure of the scheme were:
(i) Very low procurement prices, i.e., Rs.76 per quintal;
(ii) Coaxing farmers by disgruntled traders. Traders were the main sufferers when
this scheme was introduced; and they undermined the arrivals of wheat in the
market;
(iii) Over-estimation of the marketable surplus in various States;
(iv) Inconvenient public purchase system resulting in a long wait by farmers for many
hours, and sometimes for more than one day for their turn to hand over the
produce and get payment for it. Farmers had to travel long distances to sell their
produce at official depots;
(v) Skewed distribution of marketed surplus in favour of big farmers, who have
retention power;
(vi) Slackness on the part of State Governments in implementing the policy because
of lack of sufficient and experienced staff capable of handling the work; and
(vii) Lack of storage facilities with the government for storing the procured foodgrains.
The government realized that takeover of rice trade would be much more difficult
than wheat trade due to its operation on a wide area in the country and also due to the
existence of surplus regions within deficit states. Hence government gave away the
complete wholesale trade takeover. However, partial state trading has continued mainly
through Food Corporation of India and National Agricultural Cooperative Marketing
Federation.
EXPORTS FROM INDIA
STC exports a diverse range of items to a number of destinations throughout the
world. Exports by STC vary from traditional agricultural commodities to sophisticated
manufactured products. Besides negotiating, contracting and shipping, STC seeks to
introduce new products, explore new markets and undertake wide ranging ancilliary
functions such as Product Development, Financing, Quality Control and Import of
machinery and raw materials for export production. STC makes purposeful use of its
world-wide connections, abundant experience, up-to-date information about the market
trends and long term perspective on various commodities to ensure competitive prices,
right quality and adherence to delivery schedules to the buyers abroad.
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Principal Items of Export Agricultural Commodities
Wheat, Cashew, Coffee, Rice, Tea, Tobacco & Rubber, Sugar Extractions,
Opium, HPS Groundnut, Spices, Castor oil & Seeds, Jute Goods
Export of Manufactured Products
Chemicals, Drugs & Medical Disposables, Engineering & Construction Materials,
Consumer Products, Textiles and Garments, Leather ware, Processed Foods, Iron Ore
and Steel Raw Materials.
IMPORTS INTO INDIA
STC imports a number of essential commodities to cover the domestic shortfalls
and hold the price line. STC serves the national objective by arranging timely imports at
most competitive prices. In the process, the Corporation makes best use of its strength
in handling bulk imports, vast infrastructure and above all an experience of over four
decades in fulfilling the needs of the industry.
Principal Items of ImportAgricultural Commodities
Edible oils, Sugar, Wheat, Fatty Acids, Pulses
Manufactured Products
Hydrocarbons, Gold & Silver, Minerals/Metals, Petro-chemicals, Fertilisers,
Scientific Instruments & Hospital/ Police equipments, FMCG Goods and IT Products
SERVICES
While undertaking import and export operations, the Corporation renders
following services :
To the Overseas buyer
STC acts as an expert guide for buyers interested in Indian goods. For them, STC
finds the best Indian manufacturers, undertakes negotiations, fixes delivery schedules,
oversees quality control - all the way to the final shipment to the entire satisfaction of the
buyer.
To the Indian Industry
The Indian manufacturers, whose products sail the seas via STC, benefit a lot from its
expertise. STC helps thousands of Indian manufacturers to find markets abroad for their
products. STC assists the manufacturers to use the best raw materials, guides and helps
them manufacture products that will attract buyers abroad. Some of the other services
offered by STC to the Indian manufacturers include :
* Financial assistance to exporters on easy terms.
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* Taking products of small scale manufacturers to international trade fairs and
exhibitions.
* Import of machinery and raw material for export production.
* Assistance in the areas of marketing, technical know-how, quality control, packaging,
documentation, etc.
* Supply of imported goods in small quantities as per convenience of buyers.
* Market intervention on behalf of the Government.
To the Indian Consumer
The Indian consumers also benefit from STC's expertise and infrastructure. STC
imports essential commodities for them to cover shortfalls arising in the domestic
market. During the last one decade, STC imported sugar, wheat and pulses to meet
domestic requirements at a very short notice.
EDIBLE OIL
Import of Edible oils is one of the major activities of STC. Subsequent to the
placement of imports of Edible oils under OGL by the Govt. of India, STC in addition to
import of oils for PDS, has been importing various oils on commercial account for
domestic buyers including actual users. Imports are undertaken against the firm
advance indents of the prospective buyers. STC invites offers for the indented oils,
negotiates the best possible terms and finalises the deal with the consent of the buyers
as per their requirement. The entire operation is based on actual costs plus a fixed
service margin charged by STC. Various components of actual cost are generally as
under.CIF cost of the goods.
Bank charges - relating to opening of L/C, negotiation of documents,
etc. Customs duty, taxes and levies, as applicable from the time to
time.
Expenses on clearing, handling and insurance etc. (presently estimated @ Rs.
100/- PMT).
Storage charges on actuals or at a fixed rate wherever STC's own storage tanks
are used.
Vessel demurrage, if any, at actual.
Service charge : a nominal service charge is taken.
Deliveries are organised on high seas as well as ex-tank basis.
Delivery period : generally 30 days from the date of arrival/PHO clearance of the
oil.
Payment mechanism
(a) STC makes payment to the foreign supplier against sight LC.
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(b) Domestic buyers are required to make payment prior to taking delivery.
(c) Credit facility to the buyer is available upto 120 days against internal LC/co-accepted
Bill of Exchange by the reputed bank. STC charges interest on funds deployed at the
cash credit rate plus 1% per annum basis (currently 12.50% p.a.)
Earnest Money: Orders are placed by STC on receipt of earnest money deposit
at the time of placement of indents by the Indian buyers followed by a PBG/additional
Cash Deposit immediately after placement of the orders. EMD is returned to the party
together with interest after satisfactory execution of the contract by the buyer.
STC is quite flexible in various terms & conditions. Any constructive proposal
from the buyer is analyzed objectively in the interest of growth of business. In case any
further information is required, please contact Shri Prakash Chand, GM-I/C, Telephone
No. 23701074 (direct), 23313177 / 23701100 Extn : 2064 at our Corporate Office at New
Delhi or Branch Manager of STC's offices at Ahmedabad, Mumbai, Chennai, Hyderabad,
Kolkata.
Corporate Office
Jawahar Vyapar Bhawan
Tolstoy Marg, New Delhi - 110001, INDIA
Tel: 91-11-23313177 Fax : 91-11-23701191, 23701123 E-mail :
co@stc.gov.in
Website: www.stc.gov.in
Branch
Offices
Mumbai
The State Trading Corporation of India Ltd.
Maker Chambers IV, 6th Floor, Nariman Point, Mumbai - 400021,
INDIA Phone : 91-022-22024878 Fax : 91-022-22024877 , 22852411
E-mail : mumbai.stc@nic.in
Kolkata
The State Trading Corporation of India Ltd.
"Nilhat House", 9th & 10th Floor, 11, R.N. Mukherjee Road, Kolkata - 700001, INDIA
Phone: 91-033-22305464, 22436490, 22435492 Fax : 91-033-22480777, 22488165
E-mail: kolkata.stc@nic.in
Chennai
The State Trading Corporation of India Ltd.
"Chennai House", 4th Floor, 7, Esplanade, Chennai - 600108, INDIA
Phone: 91-044-25340211 Fax: 91-044-25340469 , 25341784
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E-mail : chennai.stc@nic.in
Ahmedabad
The State Trading Corporation of India Ltd.
"H.K. House, 6th Floor", Behind Jivabhai
Chambers, Ashram Road, Navarangpura, Ahmedabad -
380009, INDIA
Phone : 91-079-6580797, 6589605, 6581021 Fax : 91-079-6587533
E-mail : ahmedabad.stc@nic.in
Bangalore
The State Trading Corporation of India Ltd. "Chandrakiran",
2nd Floor, 10-A, Kasturba Road, Bangalore - 560001, INDIA
Phone : 91-080-22270221 Fax : 91-080-22275183
E-mail : bangalore.stc@nic.in
Hyderabad
The State Trading Corporation of
India Ltd. 5th Floor, Mogul's Court,
Basheerbagh, Hyderabad - 500001,
INDIA
Phone : 91-040-23237389, 23296460 Fax :91-040-23236786
E-mail : hyderabad.stc@nic.in
Jalandhar
The State Trading Corporation. of India Ltd.
A-6, Sports & Surgical Goods Complex,
Kapurthala Road, Jalandhar - 144021, INDIA
Phone : 91-0181-2650436 Fax : 91-0181-2650461
E-mail : jalandhar.stc@nic.in
Agra
The State Trading Corporation of India Ltd.
M. G. Road, Bharatpur House, Civil Lines, Agra - 282002,
INDIA Phone : 91-0562-2521045, 2521244 Telefax :91-
0562-2150622 Sub Branches : Cochin,
Gandhidham, Guntur, Raipur Quality Control in Agricultural
Products
Quality control of agricultural commodities is the responsibility of the Directorate
of Marketing and Inspection. The Directorate has prescribed grade standards for various
agricultural products under the Agricultural Produce Grading and Marking Act, 1937.
Agricultural commodities are graded under this Act on the basis of the specifications laid
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down under the grade standards. Graded products bear the AGMARK label,
indicating the purity and quality of the product. Consumers are benefited when they buy
graded products. The details of the mechanics of grade standards for agricultural
products and the progress of grading in India have been discussed in Chapter 4.
Manufactured Products
Manufactured products are graded in accordance with the standards laid down
by the Indian Standards Institution, now Bureau of Indian Standards and bear the ISI
label. Manufacturers have to use proper ingredients in specified proportions and follow
the technique of manufacture given in the standards laid down by the Indian Standards
Institution. The ISI label is an indicator of the good quality of the product.
Indian Standards Institution (ISI)
Standardization on an organized basis started in India with the establishment of
the Indian Standards Institution. The Institution, popularly known as the ISI; was set up
in 1947 with the active support of the industrial, scientific and technical organizations in
the country. The ISI frames standards in consultation with, and as a result of the co-
operation of, the community – industrialists, scientists, administrators and the public.
Standardization plays a vital role in the industrial development of a country. Apart from
helping the commercial movement and industrial exchanges, standards conserve the
production effort by reducing costs and making mass production possible. Thus,
standards lead to the best utilization of the human and material resources of a country.
The institution operates under an Act of Parliament (ISI Certification Marks Act), under
which manufactured items are stamped with the ISI mark of certification. This mark acts
as a third party guarantee to the purchaser that the goods bearing the ISI mark have
been produced in accordance with the provisions of the relevant Indian standards.
The World Standards Day is celebrated annually on 14 th October, for it was on
this day in 1946 that the United Nations Co-ordinating Committees decided to set up the
International Organization for Standardization. This international organization now has
one lakh experts from 82 countries directly involved in its work, and help it to create
more and better international standards.
The aims and objects of the ISI are:
(i) Preparation of standards for products, commodities, materials and processes on
national and international bases;
(ii) Promotion of the general adoption of the standards prepared by it at national and
international levels;
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(iii) Certification of industrial products and assistance in the production of quality
goods;
(iv) Dissemination of information relating to standards and standardization;
(v) Conduct of surveys and training programmes for assistance to Indian industries
in organizing their in-plant standards activity;
(vi) Collaboration with international organizations dealing with standardization for
promotion of international trade;
(vii) Imparting training in industrial standardization to scientists and technologists from
abroad; and
(viii) Performing a watching function in regard to the quality of Indian exports. The
Export Inspection Council exempts certain products, such as light engineering
products, diesel engines and power-driven pumps, from preshipment inspection if
they carry the ISI mark.
The Indian Standards Institution functions through nine Divisional Councils,
which are responsible for the work of standardization in their respective fields. These
divisional councils are; agricultural and food products, chemical, civil engineering,
consumer products, electro-technical, mechanical engineering, structurals and metals,
textiles and cargo movements, marine products and packaging.
ISI has set up about 2,000 technical committees, sub-committees and panels
dealing with different subjects with a membership of more than 24,000 experts
representing various interests such as manufacturers, purchasers, consumers, scientific,
technical and research organizations and government departments. These experts work
in an honorary capacity and evolve national standards by consensus. Each standard
specification is finalized after an exhaustive process of testing in laboratories, discussion
in the committees and circulation to hundreds of interested parties all over the country.
Formulation of standards through consensus of different interests concerned
generally ensures their smooth implementation. In addition, Central and State
Governments; local bodies and statutory organizations generally adopt standards in their
purchases. Some State Governments decided to give preference to ISI certified products
while some others have established standards cell for effective implementation of Indian
Standards.
ISI also uses different media of public relations and publicity to spread the
message of standardization. As a result, more than 90 per cent of Indian Standards have
been adopted by various official and non-official organizations. Various promotional and
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instructional programmes are carried out. The promotional programmes include
management conferences and group meetings. The instructional programmes comprise
survey, training programmes and seminars.
For effective implementation of national standards and for bringing the
advantages of standardization within the reach of the common consumer, the institution
is operating a certification marks scheme under the ISI (Certification Marks) Act. This
Act enables ISI to grant licences to manufactures to use the ISI mark on their products.
Every licence includes a scheme of testing and inspection which the licencee is
required to follow strictly. During the operation of the licence, ISI carries out regular and
surprise inspections of the manufactures to make sure that the scheme of testing and
inspection is being properly adhered to. Samples of certified products are drawn from
the production line and from the open market and tested in independent laboratories.
As a safeguard for the consumer the scheme provides for free replacement of ISI
marked goods found to be of substandard quality.
The certification scheme was started in 1955-56. The licencee covers a range of
570 products including consumer products and industrial items such as biscuits, infant
milk food, ink, cables, conductors, jute products, steel, paints, shoe polish, pressure
cookers, aluminium utensils, coffee, electrical appliances, sports goods and water
meters. In the rural sector, the ISI has formulated standards for grain storage structures,
fertilizers, pesticides, seeds, farm machinery and implements, pumping sets, gobar gas
plants and animal husbandry and dairy equipments. Some items in the market, however,
do not conform to these standards because they are produced in the small and tiny
sectors without any facility or funds for quality testing.
For adoption of national standards to regulate the quality of industrial
manufactures, in-plant standardization is an important requirement. Since 1961, ISI has
promoted the concept of in-plant standardization through conferences, symposia and
training programmes.
The institution has established a central laboratory at New Delhi and regional
laboratories in Mumbai, Kolkata and Chennai for conducting testing of products covered
under the certification marks scheme. These laboratories also undertake investigational
work covering food, chemical, electrical and mechanical items for the purposed of
evaluation of standards. Laboratory personnel from government agencies and industries
covering their products under the ISI certification marks scheme avail of the training
facilities provided by the Institution in its laboratories.
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ISI serves the interests of the country in the field of international standardization
by close collaboration with the international organizations such as ISO (International
Organization for Standardization) and the IEC (International Electro Technical
Commission) for standardization. It is represented on important administrative bodies of
these organizations.
The ISI also works in close collaboration with the similar organizations for
standardization in other countries of the ECAFE (Economic Commission for Asia and
Far East) Region with a view to promoting standardization activities. It actively
participates in the work of the Asian Standards Advisory Committee (ASAC).
The ISI has benefited the consumers as well as the manufacturers. It promotes
overall economy and brings about the best utilization of human and material resources
by bringing the advantages – minimization of wastages, cutting down unnecessary
varieties of products, increasing productivity and reducing costs. It protects the
consumers through assured quality. It acts as a third party guarantee. The scheme
brings to the consumers the benefits of lower price, better quality, more safety and
repair services. To manufactures, it helps in adopting, the process of standardization.
This reduces wastage, cost of material, cost of production and increases the chances of
profits. It has introduced the metric system of weights and measures. The ISI took up
the steel economy project involving a comprehensive standardization programme to
give a fillip to the steel industry and introduce economies in the use of structural and
special alloy steels. The project resulted in a saving of 24 per cent in the use of metal
according to an evaluation by NCAER. Another notable achievement is the preparation
of the National Building Code streamlining housing construction practices all over the
country. Bureau of Indian Standards (BIS)
The Indian standards Institution has been renamed as the Bureau of Indian
Standards (BIS) with effect from April 1, 1987. Along with the change in its name, its
status and scope of activities have also been enlarged. The Bureau of Indian Standards
carry on all the functions of ISI as before with greater thrust to consumer protection,
improving the level of quality of Indian products, harmonizing the standards formulation
and the certification/inspection activities in the country by providing a larger network of
testing and consultancy services.
The Bureau has been established by the Bureau of Indian Standards Act, 1986
and has become a statutory body. As such all the activities of the Bureau viz.,
standards formulation, product certification, quality assurance, consultancy services,
quality
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assessment, testing and development of test methods have assumed statutory
status. The ISI was a registered society and statutory powers were confined to it only in
respect of the operation of the certification marks activity.
Over the past five decades, it has built up over 17,000 Indian Standards
covering products in different sectors like food and agriculture, chemicals, civil,
mechanical and electrical engineering, electronics, textiles and many other products.
The standards are constantly reviewed and updated to keep pace with technological
innovations and the new social needs. The production of small-scale items based on
Indian standards provides competitive capability with large-scale sector.
The Bureau has also made special efforts in the sphere of rural development by
formulating over 2,000 standards relevant to the rural sector in areas of agricultural
inputs like fertilizers, pesticides, agricultural machinery and farm implements, pumping
sets, gobar gas plants and also in the sphere of post-harvest technology. The BIS has
also formulated three standards for water.
The Bureau is one of the largest certification agencies with over 11,000 licences
in operation for a wide range of products. It has become an institution of quality
assurance for the consumers.
Standards certification is mandatory for items of mass consumption particularly
those affecting health and safety of the consumers. Provision of voluntary certification
for items such as colour television, control switches, sodium vapour lamps, jute and
canvas products, bus and truck tyres and greases also exists.
Some of the latest highlights of BIS activities are:
(i) BIS has adopted IS/ISO 9000 series of standards. Now BIS quality certification is
on the lines of international norms and is accredited by RVA Neitherlands.
(ii) With growing concern for environmental friendly industrial activity, BIS has
started ISO 14001 EMS Certification.
(iii) BIS is also undertaking HACCP certification. HACCP Certification is a process
control system designed to prevent microbial and other hazards in food
production. It is based on Quality Management System and IS 15000 which is
equivalent to CODEX ALI NORM 97/13A.
(iv) BIS also works as central enquiry point for WTO.
(v) BIS has so far formulated more than 17000 standards.
(vi) BIS has also formulated three Indian standards for water.
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Consumer Protection
Food products have the distinction of meeting an essential need of all the
consumers, irrespective of their economic and social status. Protecting the consumer's
interest relating to food products means providing him wholesome, hygienically prepared
and pre-tested quality products to enable him to lead a healthy life. The consumers are
often cheated through deceptive and defective weights and measures and adulteration.
The doctrine of "caveat emptor", i.e., 'let the buyer beware' has long been the
corner-stone of the consumer laws in India and this is virtually not acceptable to the
average consumer now. The doctrine put forward in his favour with the growing
consumer awareness is "caveat venditor", that is, 'let the seller beware'.
Various Acts were framed by the government from time to time to protect the
consumers. Some of the main Acts enacted and statutory orders passed by the
Government to subserve the interest of the consumers are:
1. The Indian Sale of Goods Act, 1930.
2. The Agricultural Produce (Grading & Marking) Act, 1937.
3. The Drugs and Cosmetics Act, 1940.
4. The Indian Standards Institution (Certification Marks) Act, 1952 and now Bureau of
Indian standards Act, 1954.
5. The Essential Commodities Act, 1955.
6. The Fruit Products Order, 1955.
7. The Sugar Control Order, 1956.
8. The Export (Quality Control and Inspection) Act, 1963.
9. The Vegetable Oil Products (Control) Order, 1967.
10. The Monopolies and Restrictive Trade Practices Act, 1969, and amended in 1984.
11. The Meat Food Products Order, 1975.
12. The Packaged Commodities Order, 1975.
13. The Standards of Weights and Measures Act, 1976.
14. The Cold Storage Order, 1964 and 1980; and
15. The Consumer's Protection Act, 1986, 1991, 1993, 2002.
The above list of legislations is quite impressive for the protection of the
consumers. In practice the situation appears obscure due to poor enforcement of them.
Under the latest Act, i.e., the Consumer's Protection Act of 1986, there is a provision that
a consumer may get his defective goods replaced or price refunded or get compensation
for any loss due to the unfair trade practices of the traders.
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Many voluntary agencies are working in the country for giving strength to the
consumers movement and the protection of consumers. The important ones are
Consumers Guidance Society of India, Mumbai 1966; Consumer Council,
Vishakhapatnam, 1970; Consumer Education and Research Centre, Ahmedabad;
Consumer Action Forum, Kolkata; Karnataka Consumers Service Society, Bangalore
and Grahak Panchayats, Mumbai and Pune. The Government has established
Consumer's Protection Councils at the State and district levels for the protection of the
consumers. The work done by these agencies has been commendable in extending the
rights of the consumers by keeping the producers conscious of consumer rights and
interests. The main contributions of the organizations are in areas of consumer
education (providing information about availability of goods, prices and trade practices),
product rating (testing of products) and liaison with government and producers of
products.
Quality Management in Food
(a) HACCP
The rejection of Indian wheat consignments by Iraq, gherkin containers by
European Union and grape containers by U.K. and domestic complaints of presence of
rat droppings in wheat are some of the examples quoted as non-compliance of food
safety norms. It has harmed our business both on the export front and in the local
market. By and large, the 'Made in India' label is considered as sub-standard produce
by people of many countries. Therefore, there is a need to change this perception to
make a significant dent in the food export market especially in the processing sector.
Food processing sector comprising fruits and vegetables, grains, milk, fish, meat,
poultry products, soft drinks, and alcoholic beverages is one of the largest sector in
terms of production, consumption, employment generation and from export prospects.
As such adoption of HACCP concept is important. There is a need to generate
continuous awareness and run educational programmes for exporters and also have a
legislation to ensure safety norms.
This concept was not so important when the food chain was localized and people
consumed locally produced fresh harvested or cooked food without prolonged storage.
In recent times, food has become a global issue. Good-looking fresh fruits and
vegetables might contain hazardous chemicals and bacteria which may cause ill effects
on the health of the consumers, instantaneously or at a later date. Quality management
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of food is, therefore, essential in fruits and vegetables and other processed
products from the safety point of view.
A new era in food safety started in 1960s when USA planned to send astronauts
in spaceship to moon. For such a mission, it was necessary to ensure that food
provided to the astronauts would not cause illness while on board. With this objective,
Pillsbury of
N.A.S.A. (National Aeronautics and Space Administration) developed and used
HACCP as preventive system for preparation of food for astronauts.
HACCP and Risk Analysis is a modern concept of quality management applied
to food items. The concept of HACCP gained recognition and acceptance globally as a
system of choice for good safety due to following reasons:
(i) To identify food safety hazards for different farm products and their process of
production.
(ii) To accept responsibility for food safety instead of relying upon compliance with
official regulation and inspection by food safety inspectors.
(iii) Necessity of creating awareness among people to realize their role and
responsibility for food safety.
(iv) To improve the design of food products and process for achieving safe food, and
(v) To prepare food companies for future HACCP based food safety regulations and
trade specifications.
International food safety standards are developed by the Codex Alimentarius
Commission (CODEX). This is a joint commission of FAO and WHO and recognizes
HACCP based system for food. As per the WTO requirement, only Codex standards are
acceptable for international trade. Therefore, Codex-HACCP is minimum international
standard for trade among countries in future. Based on this analysis, appropriate action
can be taken to ensure that the areas identified as critical control points are kept under
control and are not allowed to endanger the items produced.
There are seven principles of Codex-HACCP.
(i) Conduct a hazard analysis.
(ii) Determine the critical control points (CCPs)
(iii) Establish critical limit
(iv) Establish a system to monitor control of the CCP
(v) Establish the corrective action to be taken when the monitoring indicates that a
particular CCP is not under control.
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(vi) Establish procedure for verification to confirm that the HACCP system is working
effectively.
(vii) Establish documentation concerning all procedures and records appropriate to
these principles and their application.
Food safety is analysed in terms of hazards and risks. A hazard is the capacity
of a thing to cause harm under certain conditions. The probability that a defined harm
will occur is the risk associated with the hazard. The hazards may be physical, chemical
or micro-biological and can occur at any stage from raw material to the consumption by
the consumer.
The benefits of testing food by HACCP are;
(i) Avoids human sufferings;
(ii) Reduces burden from over burdened health care system;
(iii) Increases the export of food products;
(iv) Attracts more foreign tourists; and
(v) Increases earning potential of citizens.
(b) ECOMARK
The Government of India instituted a scheme known as ECOMARK in February,
1991 for labeling environment friendly products. This scheme is administered by the
Bureau of Indian Standards (BIS). The scheme provides for labeling of household and
other consumer products which meet certain environmental criteria along with quality
requirements prescribed in relevant Indian Standards. For a product to be eligible for
ECOMARK, the product shall confirm to the relevant Indian Standards as well as
additional requirement incorporated for ensuring environment friendly nature of the
product. The mark is a combination of BIS Standards Mark (ISI) and the Eco logo.
(c) Mark to Identify Vegetarian/Non-Vegetarian Food Products
The Government of India by an amendment in the Prevention of Food
Adulteration Act, 1955 on 4 th October, 2001 and 20th June, 2002 has made it mandatory
for the manufacturers of food products to put a label indicating whether the food has
been prepared using meat and allied products or otherwise. Under this amendment, the
packed food products bearing a mark of a dot in a square in green colour is indicator of
vegetarian product and a mark is brown colour is indicator of non-vegetarian food. This
amendment is applicable throughout the country.
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(d) Mark of FPO
The products carrying a mark of FPO in an oval with two hanging strips (making
inverted – V shape) is mandatory on packed containers of fruits and vegetables
processed products. This indicates the quality of the product and conveys that the
production of processed fruit products has been carried out under clean and sanitary
conditions. This mark is issued by the Ministry of Food Processing Industries of
Government of India, New Delhi.
Currently, there are 27 laws relating to food in the country. The Government of
India has constituted a group of Ministers to prepare a modern food law by integrating
all of the multifarious laws and regulations.
Consumer Education and Research Centre (CREC)
The Consumer Education and Research Centre (CREC) is a political, non-profit
organization situated at Ahmedabad. It is a public charitable trust registered under the
Bombay Public Trust Act, 1950. The CREF is recognized as consumer organization by
the Government of Gujarat. This is the only consumer organization recognized as
Research Institute by the Central Government on the recommendation of the
Department of Science and Technology.
The main objectives and functions of this centre are:
(i) To create an enlightened consumer consciousness and public opinion through
the mass media;
(ii) To study analytically and do research on the working of the public utility services;
(iii) To carry academic programmes for training the workers and leaders for
consumer protection;
(iv) To approach the legislators for lobbying with them for taking up consumer
protection issues on the floor of parliament/assemblies.
(v) To mobilize and motivate people and other voluntary organizations for protection
of consumers from various ills in the society.
(vi) To take recourse to court for redressal of grievances of the consumers.
(vii) To establish a two-way dialogue with the consumer organizations in the country
and those of abroad for mutual benefit and support;
(viii) To set up consumer product testing laboratory for testing and evaluation of the
product such as food, pharmaceutical and domestic electric appliances; and
(ix) To set up consumer library with facilities for increasing the consumers'
knowledge.
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CHAPTER 7
WAREHOUSING AND FOOD CORPORATION OF INDIA

Warehousing

Meaning and Functions

Warehouses are scientific storage structures especially constructed for the

protection of the quantity and quality of stored products. Warehousing may be defined as
the assumption of responsibility for the storage of goods. It may be called the protector
of national wealth, for the produce stored in warehouses is preserved and protected
against rodents, insects and pests, and against the ill-effect of moisture and dampness.
The warehousing scheme in India is an integrated scheme of scientific storage,
rural credit, price stabilization and market intelligence and is intended to supplement the
efforts of co-operative institutions. The important functions of warehouses are:
1. Scientific Storage: Here, a large bulk of agricultural commodities may be
stored. The product is protected against quantitative and qualitative losses by the use of
such methods of preservation as are necessary.
2. Financing: Warehouses meet the financial needs of the person who stores
the product. Nationalized banks advance credit on the security of the warehouse receipt
issued for the stored products to the extent of 75 to 80 per cent of their value.
3. Price Stabilization: Warehouses help in price stabilization of agricultural
commodities by checking the tendency to making post-harvest sales among the farmers.
Farmers or traders can store their products during the post-harvest season, when prices
are low because of the glut in the market. Warehouse helps in staggering the supplies
throughout the year. They thus help in the stabilization of agricultural prices.
4. Market Intelligence: Warehouses also offer the facility of market information
to persons who hold their produce in them. They inform them about the prices prevailing
in the period, and advise them on when to market their products.
This facility helps in preventing distress sales for immediate money needs or
because of lack of proper storage facilities. It gives the producer holding power; he can
wait for the emergence of favourable market conditions and get the best value for his
product.
Types of Warehouses
Warehouses may be classified on two bases:
1. On the Basis of Ownership
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(a) Private Warehouses: These are the warehouses which are owned by the
government and are meant for the storage of goods of any member of the public against
a prescribed storage charge. The method of operation and the charges for storage are
regulated by the government.
(b) Bonded Warehouses: These warehouses are specially constructed at a
seaport or an airport and accept imported goods for storage till the payment of customs
by the importer of goods. These warehouses are licensed by the government for this
purpose. The owner of the warehouse gives an undertaking to the government that
customs duty will be collected from the person before he is allowed to remove the goods
from the warehouse. In other words, the goods stored in this warehouse are bonded
goods. They may be owned by the dock authorities or privately-owned; but they have to
work under the close supervision and control of the customs authorities. The following
services are rendered by bonded warehouses:
(i) The importer of goods is saved from the botheration of paying customs duty all
at one time because he can take delivery of the goods in parts.
(ii) The operation necessary for the maintenance of the quality of goods –
spraying and dusting, are done regularly.
(iii) Entrepot trade (re-export of imported goods) becomes possible. The importer
may take delivery of the goods without paying the customs duty if they are to be re-
exported. He is thus saved from the botheration of first making the payment of customs
duties on imported goods and then getting a refund on re-exported goods.
2. On the Basis of Type of Commodities Stored
(a) General Warehouses: These are ordinary warehouses used for storage of
most of foodgrains, fertilizers etc. In constructing such warehouses no commodity-
specific requirement is kept in view.
(b) Special Commodity Warehouses: These are warehouses which are
specially constructed for the storage of specific commodities like cotton, tobacco, wool
and petroleum products. They are constructed on the basis of the specific requirements
of the commodity.
(c) Refrigerated Warehouses: These are warehouses in which temperature is
maintained as per requirements and are meant for such perishable commodities as
vegetables, fruits, fish, eggs and meat. The temperature in these warehouses is
maintained below 30o to 50oF or even less, so that the product may not get spoiled by
high atmospheric temperature.
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Warehousing in India
In 1928, the Royal Commission on Agriculture underscored the need for a
warehousing system in India. The Central Banking Enquiry Committee, 1931, too, drew
attention to this need. The Reserve Bank of India emphasized the need for warehouses
as early as in 1944, and proposed that every State Government should enact legislation
to regulate the functioning of warehouses. The All-India Rural Credit Survey Committee
of the Reserve Bank of India (set up in 1951 and submitted its report in 1954) also made
comprehensive recommendations for the development of warehousing as an integrated
scheme of rural credit and marketing. As a result of the recommendations of the
Committee, the Government of India enacted the Agricultural Produce (Development
and Warehousing) Corporations Act, 1956. The Act provided for:
(a) The establishment of a National Co-operative Development and Warehousing
Board (which was set up on 1 st September, 1956);
(b) The establishment of the Central Warehousing Corporation (which was
established at Delhi on 2nd March, 1957); and
(c) The establishment of State Warehousing Corporations in all the States in the
country (which were established in various states between July 1957 and August 1958).
In 1962, the Government of India decided to break up the Act of 1956 into two
separate Acts – the National Co-operative Development Corporation Act, 1962, and the
Warehousing Corporations Act, 1962. The Warehousing Corporations Act came into
operation on 18th March, 1962. The Act defines the specific functions and the area of
operations of Central and State Warehousing Corporations. It enlarged the list of the
number of commodities meant for storage.
(a) National Co-operative Development and Warehousing Board
This board was set up on 1st September 1956 to perform the following functions:
(i) To advance loans and grants to State Governments for financing co-operative
societies engaged in the marketing, processing or storage of agricultural produce,
including contributions to the share capital of these institutions;
(ii) To provide funds to warehousing corporations and the State Governments for
financing co-operative societies for the purchase of agricultural produce on behalf of the
Central Government.
(iii) To subscribe to the share capital of the Central Warehousing Corporation and
advance loans to State Warehousing Corporations and the Central Warehousing
Corporation;
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(iv) To plan and promote programmes through co-operative societies for the
supply of inputs for the development of agriculture; and
(v) To administer the National Warehousing Development Fund.
In March 1963, the Board was converted into the National Co-operative
Development Corporation (NCDC), and its functions were limited to co-operative
development.
(b) Central Warehousing Corporation (CWC)
This Corporation was established as a statutory body in New Delhi on 2 nd March,
1957. Under the new Act, the Central Warehousing Corporation was formally re-
established on March 18, 1963. This Corporation which made a modest start with seven
warehouses, with 7,000 tonnes capacity, in December 1957, had set up 458
warehouses in different places in the country, with a total storage capacity of 78.87 lakh
tones at the end of March 2001. Of this, the present utilization is nearly 85 per cent of
the total available capacity. CWC is operating 487 Warehouses across the country with
a storage capacity of 10.6 million tonnes providing warehousing services for a wide
range of products ranging from agricultural produce to sophisticated industrial products.
Warehousing activities of CWC include food grain warehouses, industrial warehousing,
custom bonded warehouses, container freight stations, inland clearance depots and air
cargo complexes. Apart from storage and handling, CWC also offers services in the area
of clearing & forwarding, handling & transportation, procurement & distribution, dis
infestation services, fumigation services and other ancillary activities.
The Central Warehousing Corporation provides safe and reliable storage facilities for
about 120 agricultural and industrial commodities. The areas of operations of these
central warehouses include centres of all-India and inter-state importance.
The functions of the Central Warehousing Corporation are:
(i) To acquire and build godowns and warehouses at suitable places in India;
(ii) To run warehouses for the storage of agricultural produce, seeds, fertilizers
and notified commodities for individuals, co-operatives and other institutions;
(iii) To act as an agent of the government for the purchase, sale, storage and
distribution of the above commodities;
(iv) To arrange facilities for the transport of above commodities;
(v) To subscribe to the share capital of State Warehousing Corporations; and
(vi) To carry out such other functions as may be prescribed under the Act.
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While foodgrains, sugar and fertilizers occupy 78 per cent of the total utilized
storage capacity, in the remaining 22 per cent are stored cement, chemicals and other
commodities. Warehouses of the corporation are fairly full all through the year.
Besides the conventional storage godowns, the Central Warehousing
Corporation is running air-conditioned godowns at Kolkatta, Mumbai and Delhi, and
provides cold storage facilities at Hyderabad. Special storage facilities have been
provided by the Central Warehousing Corporation for the preservation of hygroscopic
and fragile commodities. The Corporation has been able to evolve a technique for a
proper and scientific preservation of jaggery during the hot and rainy seasons by
selective aeration and controlled conditions. It has set up special warehouses at some
centres for the storage of jaggery. The jaggery stored in warehouses fetches a premium
price in the market. The Corporation has also evolved techniques for the storage of
spices, coffee, seeds and other commodities.
The Corporation is operating a number of customs bonded warehouses at
important centres in Delhi, Amritsar, Ludhiana, Kolkata, Kandla, Ahmedabad, Baroda,
Surat, Bhopal, Cochin, Ernakulam and Mumbai to enable exporters/importers to keep
their commodities in a good condition, pending their shipment. It has also undertaken the
storage and handling of export and import cargo at the international air-port at Palam,
New Delhi. At this complex, all the facilities, including inspection and clearance by
customs, the payment of duty into the bank, and space for clearing agents, have been
provided by the corporation. It has put up a similar air cargo complex at Amritsar for the
export/import of goods. It has been expanding its capacity at the port towns to serve the
industry and co-operative bodies. It has already established a sizeable capacity at
Mumbai, Kolkata, Cochin, Chennai, Mangalore, Paradeep, Kandla, Haldia and Vizag.
The Corporation has introduced a scheme, called the Farmers Extension Service
at selected centres to educate farmers about the benefits of a scientific storage and use
of public warehouses. The Central Warehousing Corporation also provides a package of
services, such as handling and transport, safety and security of goods; insurance,
standardization, documentation, and other connected services and facilities.
Administrative Setup
The Corporate Office is located at "WAREHOUSING BHAWAN" 4/1 Siri
Institutional Area, August Kranti Marg, New Delhi - 110016. CWC has 17 Regional
Offices located in major state capitals of the country. The details of the Senior
Executives is as under:
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1. B.K. Saha, IAS (Retd.)

Chairman, Central Warehousing Corporation,
Tele: 91-11-26515980 Fax : 91-11-26962411
E-mail: chrmn.cwhc@nic.in ,
2. B.B. Pattanaik,
Managing Director, Central Warehousing Corporation,
Tele: 91-11-26515160 Fax : 91-11-26967844
E-mail: mdcwc@nic.in
3. G N Nair,
Director ( Finance), Central Warehousing Corporation,
Tele: 91-11-26966295, 26566107 / 103 Fax : 91-11-26534146
E-mail: gnnair.cwhc@nic.in
4. G.Mathialagan, Director ( Personnel), Central Warehousing Corporation,
Tele: 91-11-26852825, 26566107 / 104 Fax : 91-11-26850575
E-mail: dirpers.cwhc@nic.in
5. T.K. Doshi, Director (MCP), Central Warehousing Corporation,
Tele: 91-11-26967245 Telefax: 91-11-26518031
E-mail: dmcp.cwhc@nic.in
6. Vineet Pandey, Chief Vigilance Officer, Central Warehousing Corporation,
Tele: 91-11-26966219 Fax : 91-11-26964082 E-mail : cvo.cwhc@nic.in
7. Dr. S C Batra, OSD (Recovery), Central Warehousing Corporation,
Tele: 91-11-26851410 Fax : 91-11-26852248 E-mail :
8. O P Bharati, General Manager (Com), Central Warehousing Corporation,
Tele: 91-11-26967712 / 26850568, Fax : 91-11-26967712
E-mail: gmcomm.cwhc@nic.in, bharti.cwhc@nic.in
9. A V Jawakar, Secretary, Central Warehousing Corporation,
Tele: 91-11-26518013, 26566107 / 104 Fax : 91-11-26966268
Email: secycwc@nic.in
10. N K Grover, General Manager (F&A)
Central Warehousing Corporation,
Tele: 91-11-26515148, Fax : 91-11-26964082 E-mail: grover.cwhc@nic.in,
11. J V Bendre, Dy. General Manager (Per.) , Central Warehousing Corporation,
Tele: 91-11-26515178 Fax : 91-11-26967256
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Our Services offered by CWC
Scientific storage and handling services for more than 400 commodities include
Agricultural produce, Industrial raw-materials, finished goods and variety of hygroscopic
and perishable items. Scientific Storage Facilities for more than 200 commodities
including hygroscopic and perishable items through network of 487 warehouses in India
with its 5,765 trained personnel. Import and Export Warehousing facilities at its 36
Container Freight Stations in ports and inland stations. Bonded Warehousing facilities ,
Disinfestation services Handling, Transportation & Storage of ISO Containers.
CWC’S FORAYS INTO DEVELOPMENT OF RAILSIDE COMPLEXES
Railways has vast network for not only operating passenger trains but also for
freight movement, an imminent need was assessed to augment the utilization level of
Railway transportation system so as to reduce the pressure on road traffic by making it
cost effective and efficient operation for the trade. As such, concept of Rail Side
Warehousing facilities was evolved by the Corporation as value addition to the rail
transport system which extends benefits to the users in avoiding multiple handling of
their stocks and resultant escapable losses on this account; curtailing handling cost and
having a hassle free efficient operation. For transforming the concept into tangible
shape, CWC successfully developed a pilot project of Rail Side Warehousing facility at
Whitefield, Bangalore in association with South Western Railway in February 2002 and
on the strength of fruitful effect of this project on the front of increase in traffic/freight
revenue and the kind of satisfaction that trade enjoyed out of it on availing this value
added services in the arena of rail transportation, CWC and Ministry of Railway joined
their hand in the avenue of developing Rail Side Warehousing facilities at 22 strategic
locations of Railway Terminal to provide better services through total logistic solution to
Rail users for, not only to attract additional traffic, but also to provide a cost beneficial
and efficient transport cum storage service to the trade under single window concept.
Under the purview of MoU entered between MoR and CWC, the Corporation has
commenced the expansion of RWC facilities at Whitefiled, Bangalore to meet even
growing demand of users. The Corporation has started construction of RWC facilities at
Nishatpura (Bhopal) - West Central Railway; Shakurbasti (Delhi); Alamnagar (Lucknow);
Roza (Shahjahanpur) - all under Northern Railway and Sanathnagar (Hyderabad) -
South Central Railway after the agreements entered with respective Divisional Railway
Managers. A subsidiary in the name of "Central Railside Warehouse Company Ltd." was
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incorporated on 10.07.2007, under the Companies Act 1956 which commenced its
business on 24.07.2007.

Aircargo Complexes
Ambitious expansion of CWC over the years has also brought CWC in the
operation of Aircargo Complexes which is a major step towards providing complete
services as a multi-modal transport operator. Presently, CWC is operating 4 Aircargo
Complexes at the International Airports of Amritsar, Goa, Singanallur and
Virugambakkam besides managing the accompanied/mishandled cargo warehouse at
Indira Gandhi International Airport at New Delhi.
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Disinfestation and Pest Control Services

Govt. of India, vide Notification dated 23rd March 1968, entrusted additional
responsibility to CWC to undertake Disinfestation/Pest Control Services beyond its
warehouses in respect of Agricultural produce or other notified commodities.
Over the years, CWC has developed the expertise in Pest Management in the following
areas
 Rodent Control
 House hold Pest Management- Cockroaches, Mosquitoes, House Flies, Bed
Bugs, Spiders, Lizards, Carpet Beetles, Fleas, Crickets, Ants, Wasps, Locusts
etc.
 Storage Pest Management.
 Anti-termite treatments (Pre & Post Construction)
 Container Fumigation.
 Ship Fumigation(on Board)
 Pre-shipment fumigation of Export Cargo
 Rail Coach disinfestations
 Aircraft disinfestations
 Hospital & Nursing Homes Treatments
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 Disinfestations of Hotels & Restaurants
 Disinfestations of Commercial Complexes & Office premises.
 Disinfestations of Oil Refineries
 Disinfestations of Airports & Ports
 Disinfestations of Delhi Metro Rail Premises
CWC the only organization in the public sector recognized by the Directorate of
Plant Protection Quarantine and Storage, Ministry of Agriculture, Govt. of India as well
as the Export Inspection Council of India to undertake Pre-shipment fumigation and Ship
(on board) fumigation of exportable commodities. CWC earned a major breakthrough in
disinfestation of aircrafts of Air India using timer device. CWC has thus earned the
status of a National Pest Control Agency.
CWC has taken lead in accreditation of its pest control operators under newly
introduced National Standards on Phytosanitary Measures NSPM 11 & 12 to facilitate
MBr fumigation treatment of export/import cargo carrying wood packaging material
(WPM) in compliance to the FAO/IPPC guidelines issued through International Standard
on Phytosanitary Measures ISPM -15. Under this accreditation regime, the Corporation
is catering to quarantine treatments at the following major centres:-
CFS-JN Port , CFS-Tuticorin (Tamil Nadu), CFS-Chennai, CFS-Adalaj
(Ahmedabad), CFS-Kandla Port (Gandhidham), CFS-Vizag, CFS-Whitefield
(Bangalore), CFS-Panambur (Mangalore), ICD-Patparganj (Delhi), CW-Nampally
(Hyderabad), CW-Kakinada (Hyderabad), CWC-Regional Office Bhopal, CWC-Regional
Office Kolkata, CW-Cochin (Hyderabad), CWC-Regional Office- Mumbai.
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Major clients of CWC for pest control services include:-Many leading grain
exporters, shippers for containerized cargo, Indian Railways, Air India, Air Sahara, Air
Deccan, Indian Airlines, Jet Airways, Airport Authority of India, Indian Oil Corporation,
GAIL (India) Limited, Reserve Bank of India, AIIMS, Central Public Works Department,
VSNL, ONGC, AIR etc

.
Pre-shipment fumigation and ship fumigation facilities are offered at the following
ports:- Mundra, Kandla, Jamnagar, Pipavav, Mangalore / Karwar, Tuticorin,
Visakhapatnam, Kakinada, Kolkata, Haldia, Navi Mumbai, Port Blair.
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Some of the Grain exporters who have availed CWC’s pest control services during the
recent past include:-
Satnam Overseas, Cargill India Ltd., Adani Exports Ltd., MMTC, PEC, STC,
Vicnivas Agencies, PUNSUP, Seaways, Bishan Swaroop Ram Kishan Agro, Olam
International, LMJ International, SS Exports, V. Arjun, Vishal Exports, Ruchi Soya,
VASS Exports, CWC also takes POD guarantee for off-loading pest free cargo at the
foreign destinations (country of import) at a nominal cost in addition to the usual
fumigation charges.
CWC is keen to enter into agreements with users for providing Pest Control
Services as well as Strategic Alliance with other pest control service providers/firms
dealing with pest control related activities for further widening its clientele.
Pest Control Information Please contact:
Mr. Sher Jagjit Singh, Dy. General Manager, (Pest Control Services)
Central Warehousing Corporation, 4/1, Siri Institutional Area,
August Kranti Marg, Hauz Khas, New Delhi-110016.
Telefax: 011-26862977 Mobile: 9891937407 e-mail: cwcpcs07@gmail.com>
(c) State Warehousing Corporations (SWCs)
Separate warehousing corporations were also set up in different States of the
Indian Union. The first state warehouse was set up in Bihar in 1956. At the end of March
2001, State Warehousing Corporations were operating 1440 warehouses with a total
capacity of over 131.38 lakh tones.
The area of operation of the State Warehousing Corporations are centres of
district importance. The total share capital of the State Warehousing Corporations is
contributed equally by the concerned State Governments and the Central Warehousing
Corporation. The SWCs are under the dual control of the State Government and the
Central Warehousing Corporation.
Working of Warehouses
Acts: The warehouses (CWC and SWCs) work under the respective
Warehousing Acts passed by the Central or State Governments. They are lincensed
under the provisions of the Act.
Eligibility: Any person may store notified commodities in a warehouse on
agreeing to pay the specified charges. The person is required to bring his produce to the
warehouse for storage. The commodity is inspected, and the quality of the product is
determined.
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Warehouse Receipt (Warrant): This is a receipt/warrant issued by the
warehouse manager/owner to the person storing his produce with them. This receipt
mentions the name and location of the warehouse, the date of issue, a description of the
commodities, including the grade, weight and approximate value of the produce based
on the present price.
The warehouse warrant is a negotiable instrument and can be transferred by a
simple endorsement and delivery. A delivery of part of the goods may be taken through
this warrant by the depositor. Sometimes, the warrant may be non-negotiable.
Use of Chemicals: The produce accepted at the warehouse is preserved
scientifically and protected against rodents, insects and pests and other infestations.
Periodical dusting and fumigation are done at the cost of the warehouse in order to
preserve the goods.
Financing: The warehouse receipt serves as a collateral security for the purpose
of getting credit. Commercial banks advance up to 75 per cent of the value of the
produce stored in the warehouse.
Delivery of Produce: The warehouse receipt has to be surrendered to the
warehouse owner before the withdrawal of the goods. The holder may take delivery of a
part of the total produce stored after paying the storage charges.
The main provisions of the Act governing the grant of a license to run
warehouses were: (a) Any person, including a company, association or corporate
body may apply to the State Government for the grant of a license to carry on the
business of warehousing.
(b) The government grants the license after examining the warehouse building
and the financial soundness of the party, and after the realization of the prescribed fees.
(c) The license has to be renewed periodically on payment of prescribed fees.
(d) The warehouse owner is authorized to receive only notified commodities for
storage in his warehouse and issue receipts in a prescribed form.
(e) It is the responsibility of the warehouse owner to keep the premises clean,
keep different lots of goods separately in the warehouse, and carry on such operations
as are necessary to protect the goods against losses from damage and pilferage.
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Number and Capacity of Warehouses
The Government, the Food Corporation of India, Co-operative Marketing
Societies and Central and State Warehousing Corporations have taken important
measures for the creation of warehousing facilities in the country. As a result, a large
number of warehouses/godowns have been built throughout the country in all important
rural and urban centres, metropolitan cities, ports and railway stations.
(a) Central and State Warehousing Corporations (CWC and SWC)
The number and capacity of warehouses of CWC and SWC in the country at
different points of time have been given in Table 7.1.
Table 7.1
Number and Capacity of Warehouses in India (including hired)

Year Number Capacity in Lakh Tonnes

CWC SWC Total CWC SWC Total
1957-58 7 - 7 0.07 - 0.07
1960-61 40 266 306 0.79 2.78 3.57
1970-71 102 601 703 8.36 18.11 26.47
1980-81 330 1050 1380 37l89 50.00 87.89
1990-91 495 1331 1826 66.48 93.54 160.02
1992-93 465 1350 1815 64.41 90.74 155.15
1993-94 458 1364 1822 63.73 95.58 159.31
1994-95 457 1370 1827 64.31 101.72 166.03
1995-96 458 1371 1829 69.24 114.71 183.95
199-00 451 1440 1891 74.79 123.74 198.53
2000-01 466 1639 2105 83.91 148.99 232.90
2001-02 475 1540 2015 89.17 815.49 274.66
Source: a) Central Warehousing Corporation of India; quoted in Fertilizer Statistics,
Various issues, Fertilizer Association of India, New Delhi, December 1994,
p.111-64, and Economic Surveys, Various issues, Government of India, New
Delhi.
b) Government of India, Annual Report, 1995-96, and Foodgrains – Monthly
Bulletin, July 1996, Ministry of Food, New Delhi.
Considerable efforts were made to increase the storage capacity in the country.
The number of warehouses, which had increased from only seven during 1957-58, to
306 during 1960-61, and 703 during 1970-71, went up to 1380 during 1980-81 and
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further to more than 2000 during 2001-02. The total capacity of warehouses which was
almost negligible during 1957-58 went up to 275 lakh tones at the end of March 2002.
Out of the total storage capacity of 275 lakh tones, nearly 89 lakh tones was with the
Central Warehousing Corporation and remaining 186 lakh tones with State Warehousing
Corporations.
The number of commodities stored in the warehouses has steadily increased.
These include foodgrains, fibre crops, fertilizer, cement, rubber, cotton yarn, textiles,
paper and leather.
Food Corporation of India
An efficient management of the food economy with a view to ensuring an
equitable distribution of food grains at reasonable prices to the vulnerable sections of
society is essential in the present socio-economic environment of the country. The
government felt the necessity of an organization which can act as its main agency for
handling food grains, acquire a commanding position in the food grain trade as a
countervailing force to the speculative activities of private traders and, at the same time,
work on commercial lines. Towards the end of 1964, Parliament decided to transfer the
government's function of trading in food grains to the public sector. Legislation was
enacted; and the Food Corporation of India (FCI) was born on January 1, 1965.
OBJECTIVES
 Effective price support operations for safeguarding the interests of the farmers.
 Distribution of food grains throughout the country for public distribution system
 Maintaining satisfactory level of operational and buffer stocks of food grains to
ensure National Food Security
In its 45 years of service to the nation, FCI has played a significant role in India 's
success in transforming the crisis management oriented food security into a stable
security system. FCI's Objectives are:
 To provide farmers remunerative prices
 To make food grains available at reasonable prices, particularly to vulnerable
section of the society
 To maintain buffer stocks as measure of Food Security
 To intervene in market for price stabilization
OPERATIONAL NETWORK
FCI operates through a country-wide network with its Corporate Office in New
Delhi, 5 Zonal Offices, 23 Regional Offices practically in all the State capitals, 165
 16
4
District Offices(as on 01.10.2008) and 1470 depots (as on 01.01.2007). Most of the
Revenue Districts in the country are covered by FCI. It has a manpower of 33,473
officers and staff /employees as on 31.03.2010 and about 53,646 regular food handling
workers besides approximately one lakh food handling contract labourers being engaged
by the Handling & Transport Contractors, as on 31.03.2010. The general
superintendence, direction and management of the affairs and business of the
Corporation shall vest in a board of directors which exercise all such powers as may be
exercised or done by the Corporation under this Act. The board of directors, in
discharging its functions, act on business principles having regard to the interest of the
producer and consumer and shall guided by such instructions on questions of policy as
may be given to it by the Central Government.
Today, the FCI is the unrivalled food marketing agency, serving the interests of
both the farmers and consumers. Its market operations prevent the speculative trader
from acting against the interest of the farmer by assuring him a remunerative price for
his produce. It ensures a prompt and uninterrupted supply of food grains to the
vulnerable sections of society all over the country. Operationally, the FCI reaches the
remotest corners of the country through its vast network of offices and storage centres.
Financially, it is one of the largest public sector undertakings, with an annual turnover of
over Rs.25400 crores.
Functions
The main functions of the Food Corporation of India are:
(a) To procure a sizeable portion of the marketable surplus of foodgrains and
other agricultural commodities at incentive prices from the farmers on behalf of the
Central and State Governments;
(b) To make timely releases of the stocks through the public distribution system
(fair price shops and controlled items shops) so that consumer prices may not rise
unduly and unnecessarily;
(c) To minimize seasonal price fluctuations and inter-regional price variations in
agricultural commodities by establishing a purchasing and distribution network; and
(d) To build up a sizeable buffer stock of foodgrains to meet the situations that
may arise as a result of shortfalls in internal procurement and imports.
Growth and Structure
The Corporation discharges its responsibility to the nation through a country wide
network of offices and points of contact, it is divided into five zones, each region
 16
5
generally coinciding with the geographical boundary of a State. Each region has district
offices. The Corporation now has five zonal offices, 19 regional offices, four sub-regional
offices, four offices of Joint Managers (operations), 173 district offices, and thousands of
operating points throughout the country for its purchase and distribution operations.
Organisational Structure of FCI

The tremendous growth of the organization is the direct result of the staggering increase
in the volume of its business. The progress of the FCI in various areas may be assessed
from the following:
(i) Procurement
The Food Corporation of India undertakes the procurement of food grains on
behalf of the Government of India and State Governments in the States where it has
been entrusted with this responsibility either as a sole agency or jointly with other public
procurement agencies. It also undertakes massive price support operations for cereals
on behalf of the Central and State Governments to protect the interests of the growers. It
prevents distress sales by ensuring to the farmers, predetermined procurement/support
prices. It also handles huge stocks of food grains procured by other agencies for the
central pool, and utilizes the services of co-operative societies to the maximum extent
possible.
The Food Corporation of India purchases food grains from producers during both
the seasons, directly or through the agency of co-operatives or purchasing agents, and
from millers under various arrangements of procurement determined by different State
Governments. The quantities procured in different years by the Food Corporation of
 16
6
India are given in Table 7.2. A glance at the procurement of food grains by the
Corporation would show the vital and effective role it has played in the national
economy. Commercial purchases of some commodities, viz., cereals and pulses, are
also made by the Corporation at market prices with a view to supplying them to the
defense services.
Table 7.2
Procurement of Food grains by Food Corporation of India

(thousand tones)
Calendar year Rice Wheat Coarse grains Total
1965 2951 375 705 4031
1970 3043 3183 488 6714
1975 5042 4098 423 9563
1980 5210 5866 102 11178
1985 9568 10355 184 20107
1990 12792 11094 105 23991
1995 9997 12327 - 22324
1995-96* 10047 12327 - 22374
1996-97* 12960 8157 - 21117
1997-98* 15486 9298 - 24784
1998-99* 12590 12652 - 25242
1999-00* 18207 14143 - 32350
2000-01* 20824 16356 - 37180
2001-02* 22129 20630 - 41910
2005-06 14785 27656 1154 43595
2006-07 9226 25107 0.20 34333
2007-08 11127 28491 203 39821
2008-09 22682 33683 1375 57740
2009-10 25382 23687** 320** 49389**
*Figures are for marketing year (October-September for rice and April-March for wheat)
Source : (i) Govt. of India, Department of Food, New Delhi.
(ii) Govt. of India, Agricultural Statistics, At a Glance, 2002 and 2003, New
Delhi.
(iii) ** As on 8.3 2010
 16
7
(ii) Storage
The provision of adequate and proper scientific storage facilities for food grains
from the time of procurement till their distribution is another important function performed
by the Corporation. Its responsibility for storage has increased with the transfer to it of
the responsibility for building up a buffer stock by the government. Food grains are
stored in go downs which are scientifically constructed for protection against dampness,
rats and fungus.
Till the beginning of 1968, there had been a more or less complete ban on the
construction of new go downs. With the onset of the green revolution, there was an
urgent necessity of augmenting substantially the storage facilities for food grains at the
production and consumption centres. The Corporation, therefore, launched a crash
programme for the construction of go downs. It also encouraged private parties to
construct modern food grain go downs on a guaranteed occupation basis. Constant and
effective inspection and treatment of food grains in storage ensures that the stocks are
kept in good condition. New and cheap methods for the preservation of stocks have
been developed by the technical experts of the Corporation. Storage losses in FCI go
downs have been brought down to less than one per cent as against its former very high
percentage loss (up to 10%). The activities undertaken by the FCI for this purpose are:
(a) It has constructed 28.30 million tones of storage capacity – well-built go
downs, silos and CAP (Cover and Plinth) located at strategic points near the production
and consumption centres and major ports. CAP storages are in large open areas and
are scientifically planned to hold thousands of bags of grains under polythene covers.
(b) The FCI has taken over the construction of silos in order to switch over to the
bulk handling and storage of food grains in a phased manner. Silos are tall and massive
structures with huge storage facilities and facilities for mechanical handling. As a result,
the losses arising out of handling are reduced. As a result, the losses arising out of
handling are reduced. Handling charges, too, are brought down. The construction of
silos has been taken up in Punjab, Haryana, Uttar Pradesh and Delhi.
(c) The FCI uses air strips, army barracks and former palaces for the storage of
food grains during the massive procurement season.
(d) The FCI has a chain of 138 quality control laboratories which develop quality
control measures to ensure the safe storage of food grains. In addition, scientists,
technicians and workers air, rotate and fumigate stocks at regular intervals so that
quality does not deteriorate.
 16
8
Storage Capacity with FCI
( in Million Tonnes as on 1st April)
Capacity. 2003 2004 2005 2006 2007 2008 2009
Covered
Owned 12.82 12.82 12.91 12.93 12.94 12.95 12.97
Hired 13.77 10.85 10.46 9.90 9.34 8.71 12.01
Total 26.59 23.67 23.37 22.83 22.28 21.66 24.98
CAP ( Cover and Plinth)
Owned 2.26 2.21 2.25 2.21 2.29 2.20 2.31
Hired 2.88 1.36 0.41 0.51 0.63 0.03 0.42
Total 5.14 3.57 2.66 2.72 2.92 2.23 2.73
Grand Total 31.73 27.24 26.03 25.55 25.20 23.89 27.71
(iii) Transportation
The Food Corporation of India organizes swift and massive movement of food
grains, both by rail and road, to ensure timely arrivals in the areas of consumption and of
storage. This activity of the Corporation enables it to maintain a steady public distribution
system – from the procurement centres and the ports to the areas of consumption and
storage without any serious difficulty. It is one of the largest users of the railways. The
quantity transported by rail and road during 1966-67 was 1.238 million tones, which
increased to an average of more than 20 million tones during the last five years.
(iv) Imports
The Food Corporation of India handles the entire quantity of imported foodgrains
at all major ports. This responsibility was entrusted to it by the government in 1969-70.
The imported food grains are speedily dispatched to various destinations to avoid
congestion at the ports and to augment supplies to the public distribution system.
(v) Distribution
Another important function of the Corporation is the distribution of procured/
imported food grains through nearly 4.91 lakh fair price shops all over India. Food grains
are issued on the basis of the allocations made by the Central Government. The Food
Corporation of India makes food grains available to the vast majority of population at
reasonable prices. The quantity of food grains distributed through public distribution and
open sales has varied between 17.4 to 25.8 million tones during the last 5 years.
 16
9
(vi) Processing
The Food Corporation of India has made notable strides in the field of food
processing. It has acted as a pace-setter in the modernization of food processing
operations. It has set up 24 modern rice mills in different States to increase the
availability of rice and extract oil from rice bran. It has also set up a Paddy Processing
Research Centre at Tiruvarur in Tamil Nadu in collaboration with the Government of
Tamil Nadu and the Union Ministry of Agriculture with a view to evolving a new
technology for increasing the outturn of rice at rice mills, better utilization of bran for the
extraction of edible oil and proper use of by products. A solvent extraction plant at
Sembanarkoil (Tamil Nadu) has also been set up for the manufacture of edible and
industrial grade oil from rice bran. These have served as models for private interests in
this line to set up such mills elsewhere.
The Corporation has set up paddy dryers in Thanjavur district in Tamil Nadu and
a maize dryer at Khanna in Punjab to dry the grain and transport it to other districts
without any damage by quick sprouting diseases which break out because of high
moisture content. The FCI has also set up a solvent extraction plant at Ujjain (M.P.) to
process groundnut. The FCI has set up a maize mill at Faridabad (Haryana) to
manufacture a variety of maize products. It has set up a dal mill at Lucknow (U.P.) to
meet the purchase requirements of the army.
The FCI also produces (about 40,000 tonnes per annum) a protein-rich food
(Balahar), a midday meal for school children, Balahar is a mix of wheat flour, groundnut
meal, vitamins and minerals.
(vii) Consultancy
The Food Corporation of India has taken a new function of consultancy service,
and provides technical and scientific assistance to other public and private undertakings
as well as co-operatives in the country and abroad. The consultancy service offers
assistance in the modernization of rice and dal mills and other agro-processing units.
The service includes the conduct of feasibility and technoeconomic studies,
management systems and optimization studies, and market surveys.
(viii) The corporation also collects and manages levy sugar on behalf of the government
of India.
 17
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Buffer Stocking, Procurement and Distribution of Food grains
Buffer Stocks
The term buffer stock of food grains refer to the stock of food grains maintained
by the government to be used as a buffer to cushion the shocks of fluctuating supply and
price, to meet the emergency needs and to meet the situations arising out of serious
unexpected shortages resulting from transport bottlenecks, natural calamities like war,
flood, famine, earthquakes, and from the influx of refugees.
The main advantages of maintaining a buffer stock are:
(i) It helps in the stabilization of prices by counteracting the effects of the
activities of speculators and hoarders;
(ii) It safeguards the producers against low prices, specially during the surplus-
production years; and
(iii) It imparts stability to the country's food economy.
The government enters the market and purchases food grains for the
maintenance of the buffer stock. This buffer stock can be built either by internal
purchases or by imports from foreign countries. It is maintained by the Food Corporation
of India and has averaged more than 10 million tones annually since 1976, as against a
normal stock of less than 5 per cent tones before that year. After 5 years of a very
comfortable position in food grains, the year 1981 witnessed some tightening in the
supply position. The all-time record off take of 14.9 million tones in 1980, the relatively
low procurement of 11.2 million tones, and the estimated exports of 2 million tones of
food grains in repayment of a wheat loan led to a sharp decline in the size of stocks. The
procurement of wheat boosted the food grains stocks to 13.5 million tones by the end of
July 1981. These stocks, though adequate, were well below the level during the five
years from 1976 to 1980.
In mid-eighties, a buffer stock of 10 million tones comprising 5 million tones of
wheat and equal quantity of rice was considered adequate. It should be noted that this
buffer stock is over and above the operational stocks. Considering both together, a stock
of around 20 million tones was considered necessary for a country of India's size.
However, the stock, which can be considered optimum, depends on the level of public
distribution of food grains intended by the government. On July 1, 1990, the food rains
stock with the government of India was 20.3 million tones. But on the same day, a year
before (July 1, 1980), the stock was only around 13 million tones.
 17
1
Apart from CWC and SWCs, the Food Corporation of India has also created storage
facilities. The Food Corporation of India has a storage capacity of 21 million tones. Most
of the capacity is of covered type which include conventional but scientifically designed
godowns and silo complexes but a part of the storage capacity is of covered and plinth
(CAP) type. The CAP storage capacity consists of cemented floor as the base and
tarpaulins or other similar sheets as the cover (Table 7.3).
Table 7.3
Storage Capacity of Food Corporation of India

(Lakh Tonnes)
At the end of Covered Cover and Total
Plinth (CAP)
1990-91 Owned 119.97 10.42 130.39
Hired 75.95 14.74 90.69
Total 195.92 25.16 221.08
1995-96 Owned 168.24 57.66 225.90
Hired 40.29 - 40.29
Total 208.53 57.66 266.19
2001-02 Owned 126.10 83.38 209.48
Hired 141.07 - 141.07
Total 267.17 83.38 350.55
Source: Food Corporation of India, New Delhi and Ministry of Food, Government of
India, New Delhi.

PROCUREMENT OF RICE FOR CENTRAL POOL (Marketing Season: October- September)

PROCUREMENT OF RICE FOR CENTRAL POOL

(Figures in lakh tonnes)
Procurement
Year FCI State Agencies Total
2005-06 109.77 166.80 276.56
2006-07 168.85 81.90 250.75
2007-08 124.28 160.65 284.93
 17
2
2008-09 27.63 309.22 336.85
2009-10* 10.55 143.07 153.62
*Position as on 31.12.2009
PROCUREMENT OF RICE (INCLUDING PADDY IN TERMS OF RICE)
Total Procurement during KMS 2009-10 = 153.62 Total
Procurement during KMS 2008-09 = 152.00
2009-10 2008-09

State Quantity % of Quantity Quantity % of Quantity

Procured Procured
Andhra Pradesh 9.01 5.87 14.80 9.74
Chhattisgarh 11.28 7.34 10.21 6.72
Haryana 18.03 11.74 13.75 9.05
Madhya Pradesh 0.40 0.26 0.61 0.40
Source: Annual Report-2009-10, Department of Food & Public Distribution Procurement
of Rice (Including Paddy in terms of rice) During KMS 2008-09 for the Central Pool
Total procurement = 336.85 lakh tonnes
State Quantity Procured % of Quantity
Procured
(in lakh tonnes) to Total
Procurement
Andhra Pradesh 90.61 26.90
Chhatisgarh 28.48 8.45
Haryana 14.25 4.23
Madhya Pradesh 2.45 0.73
Maharashtra 2.61 0.77
Orissa 27.90 8.28
Punjab 85.53 25.39
Tamilnadu 11.99 3.56
Uttar Pradesh 36.87 10.95
Uttarakhand 3.49 1.04
 17
3
Total 304.18 90.30
Others 32.67 9.70
Grand Total 336.85 100.00
The share of procurement of paddy by State Agencies out of the total procurement
during
KMS 2009-10(31.12.09) and 2008-09 in major States has been as under: -
State Quantity Procured % of Quantity Procured by
(In Lakh Tonnes) State Agencies to Total

Agencies FCI State Agency Total % of state agency to

others in the state
Andhra Pradesh 0.18 0.19 0.37 51.35
Chhatisgarh 3.48 3.48 100.00
Haryana 0.42 25.82 26.24 98.40
Madhya Pradesh 0.12 0.12 100.00
Maharashtra 0.29 0.29 100.00
Orissa 0.06 0 0.06 0.00
Punjab 6.69 131.15 137.84 95.15
Tamilnadu 0.33 0.33 100.00
Uttar Pradesh 1.44 1.44 100.00
Uttarakhand NEG 0.05 0.05 100.00
Total 7.35 162.82 170.22 95.65
Others 0.21 1.09 1.30 83.85
Grand Total 7.56 163.96 171.52 95.59
The State-wise procurement of wheat and the share of different States during the last 5
years is given below:-
Total Paddy procured during KMS 2009-10 (As on 31.12.2009)

State Quantity Procured % of Quantity Procured by

(In Lakh Tonnes) State Agencies to Total

FCI State Total

Andhra Pradesh 0.18 0.19 0.37 51.35
Chhatisgarh 3.48 3.48 100.00
Haryana 0.42 25.82 26.24 98.40
 17
4
Madhya Pradesh 0.12 0.12 100.00
Maharashtra 0.29 0.29 100.00
Orissa 0.06 0.06 0.00
Punjab 6.69 131.15 137.84 95.15
Tamilnadu 0.33 0.33 100.00
Uttar Pradesh 1.44 1.44 100.00
Uttarakhand NEG 0.05 0.05 100.00
Total 7.35 162.82 170.22 95.65
Others 0.21 1.09 1.30 83.85
Grand Total 7.56 163.96 171.52 95.59
Position as on 31.12.09
Procurement made by the State Agencies
State 2005-06 2006-07 2007-08 2008-09 2009-
10
Haryana 45.29 22.29 33.50 52.36
69.24
M.P. 4.84 Neg 0.57 24.09
19.68
Punjab 90.10 69.46 67.81 99.40
107.25
Rajasthan 1.59 0.02 3.83 9.35
11.50
U.P. 5.60 0.49 5.46 31.37
38.80
Others 0.43 0.00 0.11 10.32
7.35
All India 147.85 92. 26 111.28 226.89 253.82
(c) Co-operative Sector
The co-operative sector has also built a storage capacity of 13.55 million tones
up to March 2002. The co-operatives have also constructed 175 cold storage
warehouses with a total capacity of 2.14 lakh tones. The National Co-operative
Development Corporation had helped in contracting 55988 rural godowns and 9363
 17
5
cooperative marketing godowns by the end of March, 2002. These co-operative
godowns are used by the Food Corporation of India in times of need, and provide a
readily available cushion when the procurement of foodgrains is at peak.
The spatial distribution of CWC, SWC, FCI and Cooperative marketing societies
godowns constructed in the country is uneven across states with relatively poor storage
facilities in the eastern states of the country. The available storage facility is also poor in
the hilly and desert areas.
Table 7.4
Storage Capacity Available in India 2000-01

(Million Tonnes)
Storage capacity (owned)
Storage Capacity Created by the Agency
1969 March 2001
1. Food Corporation of India and Department of 3.68 15.0
Food
2. State Governments 2.66 -
3. Central Warehousing Corporation (CWC) 0.96 6.5
4. State Warehousing Cooperations 0.83 11.2
5. Cooperatives 2.60 13.6
6. Rural Godowns and Godowns Created by - 13.5
Marketing Societies
7. Others - 10.3
Total Storage Capacity 10.91 70.1
Source:(i) Government of India, Planning Commission, Fourth Five-Year Plan 1969-74,
New Delhi, 1969, p.131 Quoted in the Book "Indian Foodgrains Marketing by
Moore, John R; Johl, S.S. and Khusro, A.M., Prentice Hall of India, New
Delhi, 1973, p.127.
(ii) Report of the Expert Committee on Strengthening and Developing of
Agricultural Marketing, Ministry of Agriculture and Cooperation, Government
of India, New Delhi, June 2001.
(iii) Planning Commission, Tenth Five Year Plan (2002-07), pp.548.
(d) Total Storage Capacity in India
There are three main agencies, which are involved in the creation of storage
facility in the public sector in the country viz., Food Corporation of India, Central
 17
6
Warehousing Corporation and State Warehousing Corporations. Cooperative Marketing
Societies also provide storage facilities at the primary marketing level. Recently rural
godowns have also been constructed in rural areas under the Gramin Bhandaran Yojana
initiated by the Government of India.
Total storage capacity available in India is shown in Table 4.14.
Total storage capacity available in the country in 1969 was only 10.9 million
tones. This has increased in 70.1 million tones in 2000-01. However, this is considerably
short of the requirements. The available storage capacity is sufficient only for 30 per cent
of total foodgrains production provided cent per cent of the available capacity is utilized
only for the storage of foodgrains. Private sector has also created facilities for storage of
agricultural commodities nearby their place of business but most of these storage
structures are unscientific and are located in the congested lanes of cities/towns. Union
Budget 2010 of India announced that deficit in the storage capacity would be met
through an ongoing scheme for private sector participation – FCI to hire godowns from
private parties for a guaranteed period of 7 years.
The storage plan of the Ministry aims at providing the capacity required for buffer
and operational stock of food grains to maintain the public distribution system and
general warehousing.. The Board approach is to provide scientific storage capacity and
reduce dependence on the capacity under cover and plinth. The Ministry has also been
making efforts to improve the traditional storage practices in vogue at the farm level.
Food grain Storage and General Warehousing there are three agencies in the
public sector which are engaged in building large scale storage/warehousing capacity
namely. Food Corporation of India (FCI) Central Warehousing Corporation (CWC) and
17 State Warehousing Corporation (SWCs). Over a period of time sizeable scientific
storage/warehousing capacity has been developed by these public sector agencies and
they are implementing plans to increase it further. While the capacity available with FCI
is used mainly for storage of food grains that with CWC and SWCs is used for storage of
food grains as well as certain other items.
Table 7.5
Storage capacity of FCI , CWC and SWCs 01.02.2010

(Figure in lakh MT)

State FCI CWC SWC Grand Total
Andhra Pradesh 37.87 15.87 19.33 73.07
Arunachal Pradesh 0.22 0.00 0.00 0.22
 17
7
Assam 2.71 0.65 2.50 5.86
Bihar 6.71 1.24 2.65 10.60
Chhatisgarh 8.28 2.79 8.33 19.40
Delhi 3.67 1.51 0.00 5.18
Goa 0.15 0.41 0.00 0.56
Gujrat 6.62 7.95 1.52 16.09
Haryana 23.44 5.07 16.81 45.32
Himachal Pradesh 0.25 0.07 0.00 0.32
Jammu & Kashmir 1.29 0.00 0.00 1.29
Jharkhand 1.20 0.35 0.00 1.55
Karnatka 8.44 6.70 9.18 24.32
Kerala 5.37 1.23 2.02 8.62
Madhya Pradesh 10.56 5.36 18.86 34.78
Maharashtra 19.18 16.98 13.66 49.82
Manipur 0.20 0.00 0.00 0.20
Meghalaya 0.26 0.00 0.11 0.37
Mizoram 0.23 0.00 0.00 0.23
Nagaland 0.28 0.13 0.00 0.41
Orissa 6.60 3.16 4.09 13.85
Punjab 69.76 6.69 52.07 128.52
Rajasthan 15.53 3.99 7.67 27.19
Sikkim 0.11 0.00 0.00 0.11
Tamilnadu 9.70 6.32 6.37 22.39
Tripura 0.51 0.24 0.00 0.75
Union Territories 3.51 0.22 0.00 3.73
Uttar Pradesh 26.55 11.65 32.60 70.80
Uttara Khand 2.38 0.71 0.00 3.09
West Bengal 11.10 6.38 2.50 19.98
Grand Total 282.68 105.67 205.24 588.62
 17
8
The capacity of the FCI includes101.08 lakh MT capacity hired from the CWC and SWCs.
Details of the Storage capacity constructed by FCI and CWC over years are given. Storage
capacity constructed by FCI and CWC over years
Agency 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-
09
FCI 0.94 1.32 0.97 0.23 0.20 0.17
0.02
CWC 3.59 2.98 1.17 2.78 3.78 2.40
0.54
Total 4.53 4.30 2.14 3.01 3.98 2.57
0.56
Capital Structure
The authorized share capital of the Corporation is Rs.100.00 crores. There has
been no change in the Corporation’s subscribed share capital and the paid up share
capital during 31.03.2009 is Rs.68.02 crores.
Physical Performance
Growth in Storage Capacity
As would be seen from the following table 7.6 below, the owned warehousing
capacity with the Central Warehousing Corporation has grown over the years.
Table 7.6
Owned and Hired Warehousing Capacity with CWC

(in Lakh
Tonnes)
As on Owned Hired Total
31.03.2000 54.47 20.32 74.79
31.03.2001 56.12 27.79 83.91
31.03.2002 58.89 30.28 89.17
31.03.2003 63.53 27.61 91.14
31.03.2004 65.46 28.70 94.16
31.03.2005 66.57 35.29 101.86
31.03.2006 66.61 33.77 100.38
31.03.2007 66.99 35.21 102.70
 17
9
31.03.2008 67.63 31.15 98.78
31.03.2009 67.60 37.65 105.25
01.02.2010 67.91 38.56 106.47
Capacity Utilisation
The average utilization of the Warehousing Capacity of the Corporation during
the year 2009-10 has been to 86 % upto 01.02.2010).
Diversification
Over the years, the Corporation had diversified its activities.. As on 31.03.2009 it
had 75 Custom Bonded Warehouses & ( as on 01.02.2010 72 Custom Bonded
Warehouses.) To cater to the needs of export trade it is operating Air Cargo Complexes
at Amritsar, Goa , Singanallur and Virugambakkam , Truck Terminal at a land custom
station at Petrapole on Indo Bangladesh Border . Holds a Category – I Pan India license
to operate container trains . The CWC is also operating 36 Inland Container Deport
ICD/Container Freight Station (CFS)
FINANCIAL PERFORMANCE
Turnover Profit and Dividend The turnover increased from RS 255.64 crores in
the year 1998-99 to RS 849.25 crores during the year 2008-09 . The Corporation has
been consistently earning profits and paying dividends to the Government of India and
other stakeholders. The Corporation has been making profits and paying dividends
consistently.
Receipts for Food Corporation of India in Rs. crores
Year Turnover Net Profit( Pre-tax) Central Govt. Others Total

1998-99 255.64 41.50 4.49 3.67 8.16

2000-01 276.34 48.30 4.49 3.67 8.16
2001-02 339.86 73.33 7.49 6.11 13.6
2002-03 379.94 90.72 7.49 6.11 13.6
2003-04 471.08 47.62 4.12 3.36 7.48
2004-05 522.87 60.42 4.50 3.65 8.15
2005-06 619.5 71.00 7.86 6.40 14.26
2006-07 686.44 133.80 10.10 8.23 18.33
2007-08 778.23 154.76 11.23 9.14 20.37
2008-09 849.25 110.44 11.23 9.16 20.39
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Internal Resources

The Corporation has been generating internal resources which have grown
significantly over the years and are sufficient for funding its own storage construction
programmed as well as contributing to the State Warehousing Corporation equity.
The Central Warehousing Corporation has 17 associates in the State
Warehousing Corporations offers with operated capacity 315.25 Lakh MTs at 1993
locations . The Total investment of the Central Warehousing Corporation, is Rs. 60.12
crores shareholder in the equity of State Warehousing Corporation as on 31.03.09. The
State Warehousing Corporation paid a total dividend of Rs. 268.88 crores to the Central
Warehousing Corporation during 2008-09 .
The cover storage capacity available with the State Warehousing Corporation is given in
following table. (in Lakh Tonnes)
As on Owned Hired Total
31.03.2000 82.20 41.54 123.74
31.03.2001 105.80 41.33 147.13
31.03.2002 104.28 58.50 182.78
31.03.2003 151.55 47.76 199.31
31.03.2004 158.05 48.76 206.81
31.03.2005 128.84 66.36 195.20
31.03.2006 127.64 69.41 197.05
31.03.2007 119.55 72.65 192.20
31.03.2008 124.27 63.05 187.32
31.03.2009 126.30 70.52 196.82
01.02.2010 133.08 72.16 205.24
Utilization of Warehousing Capacity
The utilization of warehousing capacity of the Central Warehousing Corporation
was only 42 per cent in 1959-60, which increased over time to 96 per cent in 1970-71.
The utilization of the capacity of State Warehousing Corporations increased from 64 per
cent in 1960-61 to 75 per cent in 1968-69. At present, about 85 per cent of their storage
capacity is being utilized. Of the total storage capacity with CWC, 57 per cent is utilized
for foodgrains, seven per cent for fertilizers and 36 per cent for other purposes. But the
available storage capacity, is mostly utilized by traders or public agencies. A study has
indicated that only 29 per cent of the warehousing capacity of the Central Warehousing
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Corporation and six per cent of that of State Warehousing Corporations was utilized by
farmers or their cooperatives.
The main reasons for the very low utilization of warehouses by farmers are:
1. Lack of knowledge about the facility of warehousing available for the farmers;
2. Locational disadvantages for warehouses to most of the cultivators located in
villages;
3. Complicated and time-consuming procedure of depositing and withdrawing the
produce from the warehouses;
4. Non-existence of nationalized banks in villages and the problem of arranging
finance at the time of taking delivery of the receipt from the bank; and
5. Small quantity of surplus produce available with most farmers, and the
pressing need for finance.
These apart, there are some fundamental factors responsible for lower use of
warehouses and consequent slow progress in rural areas.
Causes of slow progress
The following are the main causes of the slow progress of warehousing in the
agricultural sector in India:
(i) Indian farmers are small landowners. Obviously, the marketed surplus
available with them in small. Often, it is not worthwhile for them to store the produce in a
warehouse;
(ii) Indian agriculture is largely dependent on the monsoon and occasional
failures of crops in one or another part of the country are common resulting in lack of
regular business for the warehousing;
(iii) Agricultural products are more perishable than industrial products;
(iv) Agricultural commodities are heterogeneous. Their grading is, therefore,
essential before placing them in a warehouse. This facility is not available in most of the
markets;
(v) The warehouses are located in urban centres, near railway stations and big
cities. The transport facility from the villages to these centres is not easily available;
(vi) The cost of warehousing per unit of the produce is high;
(vii) Warehouse receipts are papers having no intrinsic value, unless the lenders
are sure that these receipts are backed by tangible assets. Often, the lenders are not
interested in lending against this collateral security.
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In this context, it must be recognized that storage of the produce is at a cost. It is
not only the charges of the warehouse that are to be paid but also the interest on the
value of the produce and the premium for risk of a lower price at a later date are to be
met. With the prevailing rate of interest, the interest component of the storage cost is no
less significant. Moreover, the intra-year price rise may not cover the entire cost of
storage every year. The probability of returns from storage being positive is not one. This
means that the gains from storage depend on the decision on the timing of the purchase
and sale. This necessitates acumen of astute trading, which every farmer does not
possess. This apart, farmers in surplus-producing states like Punjab and Haryana sell
their produce at the minimum support price to the public agencies and as the minimum
support price remains the same till the next harvest season, such farmers do not gain by
storing the produce, unless open market prices in the lean season rise to such levels as
to cover the cost of storage and still leave a margin as an incentive to store, which rarely
happens. The worry on low utilization of warehouses by the farmers should be seen in
this light. Even if the facility is utilized by the traders, it indirectly helps the farmers by
way of augmenting the demand for commodities stored by the traders.
Suggestions
The projected availability of food grains and the currently available storage
capacity in India show that there is big gap in storage capacity. This gap has to be
bridged as early as possible if advantage is to be taken of the benefits of increased
agricultural production. The Union Government, therefore, constituted a Working Group
on Warehousing to go into this question. The Working Group, in its report submitted to
the Ministry of Agriculture made the following recommendations:
(i) A network of rural storage centres should be built on a priority basis in order to
prevent distress sales, wastage and loss arising out of inadequate and defective storage
facilities;
(ii) These storage centres may be constructed and managed by panchayats, co-
operatives and other suitable agencies selected by the State Government;
(iii) These centres may have a storage capacity of 100 to 250 tonnes, mainly for
foodgrains and other agricultural produce;
(iv) The cost of the construction of these structures, may be met by a 50 per cent
subsidy and 50 per cent bank loans. Out of the subsidy part, 35 per cent may be borne
by the Central Government and 15 per cent by the State Government.
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(v) Each rural storage centre should have a manager, preferably from the area
served by the centre. The manager should be trained in the basic essentials of
warehousing by attaching him to a warehouse of the CWC or SWC;
(vi) Technical guidance, supervision and assistance in the design, construction
and management of the centres should be provided by the CWC/SWC free of charge, or
at a nominal charge;
(vii) Farmers should be provided with receipts for the commodities stored by
them. Each receipt should be a negotiable instrument to enable them to obtain credit
from banks;
(viii) The banks should provide credit to the extent of 90 per cent of the value of
the stocks stored by the farmers; and the credit should be provided at concessional rates
of interest;
(ix) The scheme of rural storage centres should be linked with the procurement
machinery for foodgrains and also with the public distribution system, and
(x) The programme should be co-ordinated by a state level co-ordination
committee, of which representatives of State Governments, the department of
agriculture, rural development, co-operation and panchayats, the SWC, FCI and
nationalized banks, should be the serving members.
However, it must be recognized that the success of the warehousing scheme
depends on winning the confidence of the depositors and making people at all levels
aware of the intrinsic merits of warehousing. Steps taken by the Government of India to
overcome the problems in marketing of agricultural commodities include the following
among others.
P rovide proje ct import s ta tus with a conce s s iona l import duty of 5 pe r ce nt for the
setting up of mechanised handling systems and pallet racking systems in ‘mandis’ or
warehouses for food grains and sugar as well as full exemption from service tax for the
installation and commissioning of such equipment.
P rovide proje ct import s ta tus a ta concessional customs duty of 5 per cent with full
exemption from service tax to the initial setting up and expansion of ♦Cold storage,
cold room including farm pre-coolers for preservation or storage of agriculture and
related sectors produce ; and Processing units for such produce.
P rovide full e xe mption from cus toms duty to re frige ra tion units re quire d for the
manufacture of refrigerated vans or trucks.
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P rovide conce s s iona l cus toms duty of 5 pe r ce nt to s pe cifie d a gricultura l ma chine ry
not manufactured in India;
P rovide ce ntra l e xcis e e xe mption to s pe cifie d e quipme nt for pre s e rva tion, s tora ge
and processing of agriculture and related sectors and exemption from service tax to the
storage and warehousing of their produce; and
Cold Storages
The term cold storage refers to a refrigerated chamber for the storage of such
perishable commodities as fruits, vegetables, fish, eggs, meat, dairy products, etc: In
these storage structures, the temperature is controlled and maintained so that the stored
perishable products may not deteriorate in quality. In a cold storage, the temperature is
maintained in the range of -1.1oC to 10oC (30o to 50oF). The other form of cold storage is
the freezer storage, in which the temperature is kept below 1.1 oC (30oF), and the product
remains in a frozen state.
In addition to the preservation of the quality of perishable products, the cold
storage offers the following advantages:
(i) It makes possible the even placement of perishable commodities in the
market. This would not have been possible without the cold storage facility.
(ii) It helps in the price stabilization of perishable commodities by removing the
gluts occurring in the production season.
(iii) It helps in widening the market for the products, lowering marketing costs,
raising the price realized by the producer and lowering the price to consumers, and
ensures that products are available throughout the year.
(iv) Cold storage facilities have made it possible for consumer to live in greater
comfort.
Till recently, the establishment of cold storage industry remained under
regulation. The Central Government issued Cold storage Order in 1964 and later in
1980. However, some State Governments like that in West Bengal, Uttar Pradesh,
Punjab and Haryana were permitted to promulgate their own orders. The Cold Storage
Order was promulgated by the Government of India under Section 3 of the Essential
Commodities Act, 1955. It was being administered by the Directorate of Marketing and
Inspection to achieve the following objectives:
(i) To ensure hygienic and proper refrigeration conditions in the cold storage;
(ii) To regulate the growth of the cold storage industry in a planned manner;
(iii) To render technical guidance for scientific preservation of foodstuffs; and
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(iv) To safeguard the interests of farmers and other depositors.
Cold Storage Order, 1964 and also of 1980 was applicable all over the country
except in the States of Uttar Pradesh, West Bengal, Punjab and Haryana, where the
State Governments have enacted their own Cold Storage Acts. West Bengal and Uttar
Pradesh sought permission to enact their own Acts in 1960 and 1975. Punjab and
Haryana Governments were permitted to promulgate their own State orders for
regulating the cold storage industry in 1979.
Under the Cold Storage Order, the prospective entrepreneur was required to
obtain the permission from the Agricultural Marketing Advisor to the Government of India
for construction of a cold storage. With effect from 1 st January, 1965, it was obligatory for
a cold storage, with a capacity exceeding 8.50 cubic metres to obtain a licence before
storing any foodstuff. The Agricultural Marketing Advisor to the Government of India was
the authority under the Cold Storage Order, and it is he who is empowered to licence the
setting up of a cold storage.
The Cold Storage Order, 1980 was rescinded in May, 1997. The repeal of the
cold storage order of 1980 aimed at enabling the government in the removal of licensing,
price control and requisitioning of the cold storage space with a view to allowing the
functioning of free marketing mechanism for demand based growth of cold storage
industry in the country free from all kinds of administrative interference.
Most of the cold storages are in the private sector. The National Commission on
Agriculture in 1976 had recommended for adequate measures to be taken by co-
operatives and public sector undertakings to provide cold storage facilities in production
areas and terminal markets. As a follow-up, the National Cooperative Development
Corporation prepared a project for setting up 4.8 lakh tones of cold storage capacity in
the co-operative sector by 1985 with the World Bank assistance in the states of Uttar
Pradesh, Bihar, West Bengal and Madhya Pradesh.
The first cold storage was established in India as early as in 1892 at Kolkata. But
noticeable progress in expansion of the cold storage industry was not made until 1947.
Even up to 1955, the total cold storage capacity in the country was only 0.771 lakhs
tones. The number of cold storage units and their capacity in India are given in Table
7.7.
Table 7.7.
Growth of Cold Storage Facility in India

Year Number of Cold storage Storage Capacity

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Units in Operation (Lakh Tonnes)
1947 4 0.031
1952 100 0.592
1955 NA 0.771
1960 359 3.055
1965 615 6.820
1970 1218 16.380
1975 1615 20.530
1980 2283 39.650
1985 2522 50.991
1990 2795 68.150
1995 3167 85.800
1996 3253 87.300
2001 4199 153.85
Source:(i) Economic Survey, Various Issues, Ministry of Finance, Government of India,
New Delhi.
(ii) Directorate of Marketing and Inspection, Ministry of Agriculture and Rural
Development, Government of India, Faridabad.
The rapid strides in the expansion of cold storage capacity were made after
1955. The cold storage capacity increased to 3.055 lakh tones in 1960, 16.38 lakh tones
in 1970, 39.65 lakh tones in 1980, 68.15 lakh tones in 1990 and further to 153.85 lakh
tones in 2001. The total number of cold storage units in the country in 1996 has been
3253, which increased to 4199 in 2001. There is a wide inter-state variation in the
availability of cold storage facilities in India.
Table 7.8
Sector wise Distribution of Cold Storage Facilities in India

Sector Number of Cold storage Capacity of Cold Storage

Units Units (Lakh Tonnes)
Private 3739 (89.04) 146.13 (94.98)
Cooperative 310 (7.39) 6.80 (4.42)
Public 150 (3.57) 0.91 (0.60)
Total 4199 (100) 153.85 (100)
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Note : Figures in parentheses are percentages of the total number and total capacity
of storage units.
Source: Report of Expert Committee on Strengthening and Developing of Agricultural
Marketing, Ministry of Agriculture and Cooperation, Government of India,
June, 2001.
Potato is the main product which is stored in the cold storage. Out of the total
capacity utilization, 88 per cent is used for storing potato. Commodity-wise utilization of
cold storage units in India can be seen in Table 7.9.
The construction of a cold storage requires heavy investment in terms of building
and machines. Similarly, to run the cold store, the cost on electricity input is very high
and it amounts to 50 per cent of total running or variable cost. As such there is need to
develop low cost and energy saving cold storage units.
Table 7.9
Commodity-wise Percentage Distribution in Cold Storage Units in India

Commodity Number of cold Capacity utilization

storage units (%) (%)
Potato 63.0 88.3
Fruits & Vegetables 1.1 0.4
Milk & Milk Products 6.9 0.7
Meat 0.8 0.1
Fish 11.3 0.9
Meat and Fish 2.1 0.4
Multi-purpose 9.7 8.0
Others 5.1 1.2
Total 100.0 100.0
Source: Agricultural Marketing, XXIX(1), April-June, 1986.
For promotion of cold storage units in the private sector to meet their increasing
needs, a capital investment subsidy scheme for construction/expansion/modernization of
cold storages/storages for horticultural produce has been initiated by Government of
India. This scheme is implemented by National Horticulture Board. Under this scheme,
the promoters of cold storage units are provided 25% back-ended capital investment
subsidy, 50% is provided as term loan and 25% is promoter's contribution. The
proposals are considered and sanctioned by National Cooperative Development
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Corporation (NCDC) under cooperative sector. This scheme is implemented in those
States/Union Territories, which do not control rentals for cold storages under any
statutory or administrative order.
The available capacity of cold storage is much less than the country's
requirements. It is barely sufficient for 15 per cent of potato production and for less than
one per cent of fruits, vegetables and fish production. The cold storage requirement has
further increased in view of the need to promote exports of processed foods.
There is a considerable scope for expansion of the cold storage industry in India.
However, due to large capital requirements, lack of proper technical guidance,
inadequate and fluctuating power supply and lack of appreciation for stored products,
the entrepreneurs are not attracted to establish cold storage units. The lack of cold
storage facilities is leading to heavy losses and violent fluctuations in prices of fruits and
vegetables. There is a need to encourage cold storage industry in several regions of the
producing areas as well as in large urban centres.
In India, the production patterns, dietary habits and economic considerations
warrant long period of storage in large quantities of onion and potato. The conditions
required for the storage of potato and onions are distinctly different. While the potato
requires low temperature and high relative humidity, onions require low temperature and
low relative humidity. Most of the cold storages in the country meet the storage
requirements of these two vegetables. For other vegetables, temporary storage
structures for short period usually not exceed a week are needed along the route of their
movement from producing areas to consuming centres.
As per the estimates of the Expert Committee on Strengthening and Developing
of Agricultural Marketing (Government of India, June 2001), there is a need for
construction of 15000 cold storage units with 45 lakhs tones capacity in the next ten
years for storage of increased output of horticultural products. There is also need for
technological upgradation for cost effective refrigeration machinery and improvement in
the methods of scientific preservation of perishable commodities.
The country would also need reefer containers/vans for transport of perishable
commodities for domestic and export marketing. Their availability was nil in fifties but
increased in recent years to 400. During the next 10 years, it is estimated that atleast
3000 reefer containers/vans each of 8 tonnes capacity would be needed to handle the
available surplus of perishable agricultural products (Government of India, June 2001).
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Considering the fact that an average farmer may not need and have access to
mechanical refrigerated cold stores; ventilated storages like direct evaporation cooled
structures; energy cool chambers; cool homes and forced evaporation cool stores have
been developed. These structures provide relatively lower temperature and high
humidity as compared to ambient conditions because of natural/forced evaporative
cooling. These can be constructed with locally available materials. The zero energy cool
home, AADF CIP design cool home and two-tier structures can be afforded by the
farmers on their farms. However, other improved structures can be constructed by
growers co-operatives or owners of large size farms.
The Associated Chamber of Commerce and Industry (Assocham), highest body
of the Chambers of Commerce of India (CCI), providing a forum for dialogue between
business and government said in its report “Food Processing and Agri Business” that the
country is short by 10 million tonnes of cold storage capacity due to which about 30-
40% of agricultural produce goes waste every year. The report is jointly prepared by
Assocham and international advisory company – KPMG.
According to Assocham’s latest study report, against a requirement of over 31
million tonnes of cold storage, India has a capacity of nearly 21.7 million tonnes, leading
to a loss of about 40% of the agri-produce post harvest. About the new study on cold
storages S Jindal, president – Assocham, said, “Cold storage facilities now available are
mostly for single commodity like potato, orange, apple, grapes, pomegranate and
flowers, resulting in poor capacity utilisation. Long and fragmented supply chain in India
along with inefficiencies lead to huge losses due to wastage or shrinkage of perishable
commodities.” The industry body has also asked the government to build new cold chain
infrastructure to increase its storage capacity.
At present, the Indian cold chain market is worth $2.6 billion. This market is
expected to grow to $12.4 billion by 2015. Uttar Pradesh and West Bengal have 65% of
the total installed capacity of cold storage in the country. Cold chains are used primarily
for fruits and vegetables, meat and marine products, floriculture, dairy products, ice
creams and confectionery. Further, the report said that entire supply chain in the country
is dominated by unorganised players with several intermediaries adding to wastage from
farm to consumer via retailer, processor or exporter. In a long supply chain, one level is
unaware of requirements of next level, leading to disconnection between farmer and
processor. Secondly, absence of any structured market hampers discovery of correct
price and availability of consistent quality of produce.
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India is losing food items worth a whopping Rs 50,000 crore (Rs 500 billion) every year
due to poor post-harvest handling of farm produce, a development that analysts say may
jeopardise the Centre’s plan to formulate a food security law, especially in view of a
“below-normal” monsoon. “The level of wastage of agricultural food items is estimated to
be about Rs 50,000 crore (a year), occurring at various stages of handling after
harvesting,” food processing minister Subodh Kant Sahai said in a written reply in the
Rajya Sabha.
Identifying the need for food safety and quality, the Ministry of Food Processing
Industry, Government of India, has earmarked Rs 250 crore towards the sector under the
11th Five-Year Plan. Deliberating in the oneday seminar on ‘Sensitizing Programme on
Food Safety Systems,’ organised by the Confederation of Indian Industries (CII), K
Rajeshwara Rao, Joint Secretary, Ministry of Food Processing Industries said, “it is vital to
sensitize masses about important aspects of protecting themselves against foodborne
diseases.’’ Sharing details about a scheme implemented by the Central Government in
assoication with CII, NGOs and municipal bodies to improve food safety in the streets,
Rao said, “this scheme lays down standards, quality upgradation and capacity building of
street food vendors in about 50 cities across the country through microfinance linkages.’’
“Safe farm produce could be unfit for human consumption during transportation,
storage, packaging, food preparation in kitchens, if handled unhygienically,’’ said Utpal
Sen Gupta, chairman, CII AP chapter and vice chairman, Agrotech Foods Limited.
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CHAPTER 8
AGRICULTURAL PRICES AND RISK MANAGEMENT

Administered Prices

Commission for Agricultural Costs and Prices (CACP)

Another method of intervention in the market mechanism has been the

announcement of different administered prices viz., minimum support prices, statutory
minimum prices, procurement prices and issue prices. These prices are announced for
different agricultural crops by the Government of India on the recommendations of
Commission for Agricultural Costs and Prices (CACP). This Commission was originally
set up in January, 1965 in the name of the Agricultural Prices Commission (APC).
(i) The Agricultural Prices Commission was set up on the recommendations
of the Foodgrains Prices Committee headed by Shri L.K.Jha with the aim of
advising the Government on price policy of agricultural commodities with due
regard to the interests of both producers and consumers. The price policy of the
country aims at evolving a balanced and integrated price structure taking into
account the overall needs of the economy and with due regard to the interests of
both the groups of the economy
Price Policy
The government has formulated a price policy for agricultural produce that aims
at securing remunerative prices to farmers to encourage them to invest more in
agricultural production. Keeping this in mind, the government announces minimum
support prices for major agricultural products every year. These prices are fixed after
taking into account the recommendations of the Commission for Agricultural Costs and
Prices (CACP). The Commission of Agricultural Costs and Prices while recommending
prices takes into account important factors, such as:
Cost of production
Changes in input prices
Input/Output Price Parity
Trends in market prices
Inter-crop Price Parity
Demand and supply situation
Effect on Industrial Cost Structure
Effect on general price level
Effect on cost of living
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International market price situation
Parity between prices paid and prices received by farmers (Terms of Trade)
The terms of reference of the Commission were made broad based in March,
1980 with the change in its name to Commission for Agricultural Costs and Prices. Since
1966, the Commission has set up a fairly logical scheme for arriving at the administered
prices of farm products. The Commission has been recommending two sets of
administered prices viz., minimum support prices and procurement prices.
The Commission for Agricultural Costs and Prices is a statutory body. The
Commission submits separate reports recommending these prices for the kharif and rabi
season crops. The Central Government after considering the report of the Commission
and views of the State Government and keeping in view the demand and supply situation
in the country, takes decision on the level of administered prices.
The Commission for Agricultural Costs and Prices (CACP), which was
instrumental in evolving a balanced and integrated price structure in the country, has
been manned by several eminent and experienced agricultural economists.
The main objectives of the Government's price policy for agricultural produce, aims at
ensuring remunerative prices to the growers for their produce with a view to encourage
higher investment and production. Towards the end, minimum support prices for major
agricultural products are announced each year which are fixed after taking into account,
the recommendations of the Commission for Agricultural Costs and Prices (CACP). The
CACP while recommending prices takes into account all-important factors, viz.
Cost of Production, Changes in Input Prices, Input/Output Price Parity, Trends in
Market Prices, Inter-crop Price Parity, Demand and Supply Situation, Effect on Industrial
Cost Structure, Effect on General Price Level, Effect on Cost of Living, International
Market Price Situation and Parity between Prices Paid and Prices Received by farmers
(Terms of Trade).
Of all the factors, cost of production is the most tangible factor and it takes into
account all operational and fixed demands. Government organises Price Support
Scheme(PSS) of the commodities, through various public and cooperative agencies such
as FCI, CCI, JCI, NAFED, Tobacco Board, etc., for which the MSPs are fixed. For
commodities not covered under PSS, Government also arranges for market intervention
on specific request from the States for specific quantity at a mutually agreed price. The
losses, if any, are borne by the Centre and State on 50:50 basis. The price policy paid
rich dividends.
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Procurement / Minimum Support / Statutory Minimum Prices Fixed By The
Government For Agricultural Commodities in Absolute term (As On 12.2.2001)
(Rs. per quintal)

CROP 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01

Paddy 360 380 415 440 490 510
Jowar 300 310 360 390 415 445
Bajra 300 310 360 390 415 445
Maize 310 320 360 390 415 445
Ragi 300 310 360 390 415 445
Wheat 380 475X 510Y 550 580
Barley 295 305 350 385 430
Tur(Arhar) 800 840 900 960 1105 1200
Moong 800 840 900 960 1105 1200
Urad 800 840 900 960 1105 1200
Gram 700 740 815 895 1015
Groundnut 900 920 980 1040 1155 1220
-in- shell
Soyabean 600 620 670 705 755 775
Black
Soyabean 680 700 750 795 845 865
Yellow
Sunflower seed 950 960 1000 1060 1155 1170
Rape & Mustard 860 890 940 1000 1100
Toria 825 855 905 965 1065
Safflower 800 830 910 990 1100
Cotton 1150 1180 1330 1440XX 1575xx 1625xx
1350 1380 1530 1650 1775 1825
Jute 490 T 510 T 570 650 750 785
Sugarcane # 42.50 45.90 48.45 52.70 56.10
Tobacco(VFC) 19.00 19.00 20.50 22.50 25.00 26.00
Black Soil
Light Soil 21.50 22.00 23.50 25.50 27.00 28.00
(Rs.per kg.)
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Copra Milling 2500 2500 2700 2900 3100 3250
(For Calender Year)
Ball 2725 2725 2925 3125 3325 3500
Sesamum 850 870 950 1060 1205 1300
Niger Seed 700 720 800 850 915 1025

Note:
X
- Including a Central Bonus of Rs. 60.00 per quintal payable on wheat offered for
sale to the procurement agencies for central pool upto 30.6.97.
XX
- For J-34 variety also.
Y
- Including a central Bonus of Rs. 55 per quintal payable on wheat offered for sale
to the procurement agencies for central pool up to 30.6.98.
RISK IN MARKETING AND ITS MANAGEMENT
Meaning and Importance of Risk

Hardy has defined risk as uncertainty about cost, loss or damage. Risk is inherent
in all marketing transactions. There is the risk of the destruction of the produce by fire,
rodents or other elements, quality deterioration, price fall, change in tastes, habits or
fashion, and the risk of placing the commodity in the wrong hands or area.
There is a time lag between the production and consumption of farm products.
The longer the time lag, the greater will be the risk. The risk associated with marketing
cannot be dispensed with, for this risk contributes to profit. Someone has to bear the risk
in marketing process. But most of the risk is taken by market middlemen, as they have
the capacity to bear it.
Whenever risks are greater and varied, the margin taken by the risk-bearers is
higher, and vice versa. One who holds the commodity in the process is the bearer of the
risk, because of which he may be better off or worse off.
Types of Risk in Marketing
The risks associated with the marketing process are of three basic types:
(i) Physical Risk: This includes a loss in the quantity and quality of the product
during the marketing process. It may be due to fire, flood, earthquake, rodents, insects,
pests, fungus, excessive moisture or temperature, careless handling and unscientific
storage, improper package, looting or arson. These together account for a large part of
the loss of the product at the individual as well as at the macro level. Such losses are a
loss to society, too, and must be averted to the extent possible.
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(ii) Price Risk: The prices of agricultural products fluctuate not only from year to
year, but during the year from month to month, day to day and even on the same day.
The changes in prices may be upward or downward. Price variation cannot be ruled out,
for the factors affecting the demand for, and the supply of, agricultural products are
continually changing. A price fall may cause a loss to the trader or farmer who stocks the
produce. Sometimes, the risks are so great that they may result in a total failure of the
business, and the person who owns it may become bankrupt.
(iii) Institutional Risks: These risks include the risks arising out of a change in
the government's policy, in tariffs and tax laws, in the movement restrictions, statutory
price controls and the imposition of levies.
Minimization of Risk
The agencies engaged in marketing activities worry about the risk associated at
every stage; and they continually try to minimize the effects of these risks. A risk cannot
be eliminated because it also carries profit. The agencies which do not take risks hardly
earn profit. The risk management by the adoption of some of the measures listed below
may minimize the risks:
1. Reduction in Physical Loss
The physical loss of a product (quantity and quality both) may be reduced by the
adoption of the following measures:
(a) Use of fire-proof materials in the storage structures to prevent accidents due
to fire;
(b) Use of improved storage structures and giving necessary pre-storage
treatment to the product to prevent losses in quality and quantity arising out of excessive
moisture, temperature, attacks by insects and pests, fungus and rodents;
(c) Use of better and quicker transportation methods and proper handling during
transit; and
(d) Use of proper packaging material.
2. Transfer of Risks to Insurance Companies
The burden of physical risk may be minimized by shifting it to insurance
companies. There are specialized professional agencies to bear such risks. They collect
some premium and provide full compensation to the party in case of loss due to the
reasons for which the products are insured. In this way, the company insures a number
of farmers against losses.
3. Minimization of Price Risk
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The risk associated with the variations in the prices may be minimized by the
adoption of the following measures:
(a) Fixation of minimum and maximum prices of commodities by the government
and allowing movements in prices only within the specified range:
(b) Marketing arrangements for the dissemination of accurate and scientific price
information to all sections of society over space and time. This should include
information on market demand, acreage under a particular crop, estimates of market
supply and of the import and export of commodities;
(c) An effective system of advertising may reduce price uncertainty and create a
favourable atmosphere for commodity;
(d) Operation of speculation and hedging. The price risk associated with the
commodities for which the facility of forward trading is available may be transferred to
professional speculators through the operation of hedging. A detailed exposition of
speculation and hedging follows.

Risk Management Strategies in Agricultural Marketing

Speculation and Hedging
Speculation and hedging are important ways of minimizing price risk in business.
In the former, risk is taken by the person specializing in the business without much
consideration of business trends, while in the second, a calculated risk is taken.
Speculation
The fundamental idea underlying speculation is the purchase or sale of a
commodity at the present price with the object of sale or purchase at some future date at
a favourable price. The speculator is normally concerned with profit-making from price
movements. He purchases when prices are low. He is, therefore, not a normal or regular
trader. The difference in the prices prevailing at two times constitutes his profit.
Speculator may lose in this process. The essentials of a speculator are:
(i) He enters the trade at current prices;
(ii) The transactions of speculators are completed on some future date;
(iii) The speculators enter the trade with the sole object of making profit from price
movements. Sometimes, they indulge in hoarding as well;
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(iv) Except in a few cases, the physical delivery of produce is neither taken nor given.
Only the difference in the prices is paid or taken; and
(v) Speculators are not regular buyers and sellers in the market. They do not conduct
any regular business apart from speculative business.
Based on the legalities involved, speculation is of two types:
(i) Speculation Proper
Speculation proper refers to speculation on the part of a person who makes it his
profession. Such professional speculators devote their whole time and energy to the
collection of information about the future course of price movements. The decisions of the
speculator are not hunch decisions. These are intelligent forecasts based on predicted
trends. This type of speculation is beneficial for the economy as a whole and is usually
accepted by the society.
(ii) Illegitimate Speculation
This is a gamble in business. The speculators adopt such manipulative practices
as create conditions of artificial scarcity in the market and lead to a rise in prices. The
main aim of the speculator is to earn a big profit. This type of speculation is not based on
any rationale, though it influences the prices of products. Such speculation is prohibited
by the government in the best interest in the economy.
Economic Benefits of Speculation
(i) Speculation Dampens Price Fluctuations: Speculators buy at current prices in
anticipation of a rise in prices in the future which results in pushing up the current prices.
This encourages production and discourages consumption. Other speculators, who sell
in the present period in the expectation of a fall in future prices, bring about a fall in the
current prices, which encourages consumption and discourages production. The sum
total of the effects of these speculative activities results in dampening price fluctuations.
(ii) The price differentials in different markets are bridged to some extent.
(iii) Speculation helps in the adjustment of the supply of, and demand for,
commodities at normal prices.
Related Terms
(i) Spot/Cash Transactions: A transaction in which payment is made on the
spot or within a prescribed short period, and delivery is taken on the same day or within
a specific period are known as spot or cash transactions. Three things are essential in
cash transactions:
(a) The purchaser has to take the delivery of the produce immediately after sale;
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(b) The seller has to deliver the goods immediately; and
(c) Payment for the produce has to be made immediately.
(ii) Futures Transactions: This is a transaction in which prices of commodities
are settled in cash but the commodities are delivered on some future date as agreed.
Generally, in futures transactions, the loss or profit is paid or received on the expiry of
the time instead of the physical handing over of the commodity.
In futures transactions, two groups of persons are involved, i.e., the bulls and the
bears. Persons who expect that prices will go up in future are bulls; but those who expect
that prices will go down in future are bears. The futures transactions take place as a
result of action on the part of these two groups of persons.
(iii) Contract: A contract is a promise to deliver or accept delivery of specific
grade of a commodity at a specified time in future.
Hedging
Meaning
Hedging is a trading technique of transferring the price risk. It protects traders
from extreme crash in prices. Hedging has been defined as follows:
"Hedging is executing opposite sales or purchases in the futures market to offset
the purchases or sales of physical products made in the cash market".
- Shepherd
"Hedging is the practice of buying or selling futures to offset an equal and
opposite position in the cash market and thus avoid the risk of uncertain changes in
prices".
- Hoffman:
Hedging refers to the purchase or sale of a commodity in a futures market
accompanied by a sale or a purchase in the cash market. In this approach, each sale is
entered into with an equivalent, purchase of the commodity. It is assumed that prices in
the two markets move exactly parallel, and that the losses arising in one market are offset
by profit in another market. Hedging is based on two assumptions:
(a) The future and cash commodity prices move up and down together, i.e., the
basis of price changes remains unchanged.
(b) The mechanics of hedging includes the making of simultaneous transactions,
but of opposite nature, in the futures and cash markets.
Benefit of Hedging
The benefits of hedging are:
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(i) It protects the hedger from sustaining loss and enables him to earn his normal
trade profit;
(ii) Hedging enables him to keep the trade margins at a lower level because there
is no risk; and
(iii) Hedging facilities the financing of inventories of stored commodities to the
maximum possible extent.
Hedging is employed by many traders to protect themselves against losses due to
market price fluctuations by executing cash purchases and sales practically
simultaneously with future transactions in the opposite side. It is the performance of
mainly the two contracts of an opposite, though corresponding nature at the same time,
one in the spot market where the commodity physically is handled, and the other in the
futures market; where the commodity exchange takes place. In short, there are two
opposite responsibilities balancing each other.
One other example should make the operation and logic of hedging clear.
Suppose, a cotton trader contracts a deal with some overseas firm in February 2010 to
supply 1000 quintals of cotton lint at a price of Rs.4200 per quintal to be shipped in May
2010. In order to protect himself from a possible loss, he buys cotton futures at a ruling
futures price of say Rs.4210 per quintal. Now in the month of May 2010, he discovers that
the ruling spot price of cotton is Rs.4250 per quintal. As he had contracted to ship 1000
quintals at a price of Rs.4200, he looses Rs.50 per quintal on this deal. But the future
prices also have moved up (say) to Rs.4260 per quintal, in sympathy with the spot or
ready or cash prices. Hence, he sells cotton future at Rs.4260 per quintal (which he
purchased at Rs.4210 per quintal) and gains Rs.50 per quintal. This way, his loss on the
spot or ready or cash market is compensated by the gain in futures market.
Difference between Speculation and Hedging
The basic differences between speculation and hedging are:
Speculation Hedging
(i) Purchases and sales in the cash as The purchases and sales in the cash
well as in future markets are made with and futures markets are made to
the objective of making profit. protect oneself against excessive price
fluctuations.
(ii) The activities of buying and selling are The activities of buyers and sellers are
not necessarily opposed to each other. always opposed to each other.
(iii) It is not necessary that the two types of It is obligatory to buy and sell the goods
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transactions should be of equal in equal quantities in the two markets.
quantity.

(iv) Under speculation, the speculator The commodities are not stored by
purchases goods and sells them when traders. Only the difference in the price
prices rise as per his expectations. is given or taken on the due date.

Futures Trading
Meaning
Futures trading is a device for protection against the price fluctuations which
normally arise in the course of the marketing of commodities. Stockists, processors or
manufacturers utilize the futures contracts to transfer the price risk faced by them.
Futures trading includes both hedging and speculation. But since hedging is its
raison deter, it is also known as hedge-trading. Futures markets are, therefore, known as
"hedge" markets.
Widely divergent views exist on the effects of futures trading. A few are convinced
that commodity futures trading tend to stabilize prices and reduce price variations. Others
not only disagree with this view but vigorously allege that, more often than not, futures
trading aggravate the price trends and increase both the magnitude and frequency of
price variations. A third group denies that futures trading have any influence, either
favourable or adverse, on commodity prices.
Futures trading in various groups of commodities was established about the end
of 19th century. In cotton, futures trading was started in Bombay. The Europeans took a
hand in founding the Bombay Cotton Traders Association in 1875 for the regulation of
cotton trade, which was the first step in the evolution of an organized futures market. The
futures markets were established for oilseeds at Bombay in 1900, for wheat at Hapur in
1913, for raw jute and jute goods at Kolkata in 1912, and for bullion at Mumbai in 1920.
Subsequently, similar markets for these commodities were established at other places
also. To provide against unhealthy speculation, forward trading in agricultural
commodities was regulated under the Forward Contracts (Regulation) Act, 1952. The Act
was enacted with a view to regulating forward contracts prohibiting options in goods and
dealing with certain other related matters. This job has been assigned to the Forward
Market Commission, which was established in September, 1953. The government has
regulated or banned forward trading in several commodities in order to
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check unhealthy speculation. The Act has been amended from time to time to plug the
loopholes.
The Forward Markets Review Committee, set up by the Government of India
under the chairmanship of Prof. M.L.Dantwala, recognized the need for futures trading
even in conditions of short supply, and upheld the view that speculations in futures
markets should be recognized as a necessary factor for their proper working.

Commodities for Futures Trading

The commodities permissible under futures trading must satisfy the following
conditions:
(i) Commodities should be in plentiful supply. If a commodity is in short supply, a
few traders may corner the whole supply and charge any price they like to the buyers.
(ii) The commodity must have a minimum degree of perishability, i.e., it must be
storable for futures delivery.
(iii) The commodity should be homogeneous and capable of being graded so that
its future deliveries may be made without problems regarding quality.
(iv) The commodity should have a large demand from a number of independent
consumers so that a single buyer may not be in a position to impose his terms for his
purchase.
(v) The supply of the commodity should not be controlled by a few large firms. It
should be available with a large number of suppliers.
(vi) The price of the commodity should be liable to fluctuations over a wide range,
and
(vii) There should be free flow of the commodity to and from the market without
any outside interference/control.

Services Rendered by a Forward Market

The forward market renders the following services to the economic system:
(i) It enables the merchants, stockists and processors to protect themselves
against the risk of adverse fluctuations in the prices of the commodity. It reduces price
fluctuations so that the margin of profit may be small;
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(ii) The highly competitive character of the market smoothens out price
fluctuations and ensures an even flow of goods from the purchaser to the consumer,
avoiding gluts in the peak season and shortages in the slack seasons;
(iii) It brings about an integration of the price structure of commodities at different
points of time in the same way as transportation and communications bring about an
integration of prices in different parts of the market;
(iv) It facilitates large purchases and sales of the commodity at short notice in
advance of delivery and in the absence of production; and
(v) It brings about a co-ordination of the current and future expectations by a
continual revaluation of stocks of goods in the light of the changing supply and demand
conditions.
Dangers of Forward Market
The dangers arising out of the forward market are:
(i) The forward market opens out the way for a large number of persons with
insufficient means, inadequate experience and information to enter into commitments
which may be beyond their means. In such conditions, market gets demoralized.
(ii) It enables unscrupulous speculators, with little interest in the actual supply of,
and demand for, a particular commodity, to corner the supplies and organize bear raids
and bull raids on the market in the hope of making easy money for themselves. This
results in violent fluctuations in prices.
Forward Market Commission
The Forward Market Commission (FMC) was established Under Section 3 of the
Forward Contracts (Regulation) Act, 1952 and has executive as well as advisory
functions. The functions assigned to the commission are:
(i) To advise the government in respect of recognition or withdrawal of
recognition of associations conducting forward trading.
(ii) To keep forward markets under observation.
(iii) To draw the attention of the government to the various developments that are
taking place in the different forward markets with suitable recommendations.
(iv) To collect and publish information as regards trading conditions in respect of
markets falling under its jurisdiction.
(v) To submit periodical reports to government on the operation of the Act and on
the working of the forward markets, and
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(vi) To inspect accounts of recognized associations generally with a view to
improving the organization and working of forward markets.

Contract Farming/Contract Marketing

(Farmer – Processor Linkages)
Meaning
Contract farming or marketing essentially is an arrangement between the farmer-
producers and the agri-business firms to produce certain pre-agreed quantity and quality
of the produce at a particular price and time. It can only be a pure procurement
transaction or can extend to the supply of inputs or even beyond.
Contract farming is emerging as an important mode of procurement of raw
materials by agri-business firms in India due to the development in the field of
agricultural marketing, changes in food habits and in agricultural technology in the new
economic environment. This is an important initiative for reducing transaction costs by
establishing farmer-processor linkages in addition to the already existing methods of
linking the farmers to the consumers.
The distinction between 'sales' and 'contract to sell' needs to be understood
clearly. In the case of sale, the title or ownership of goods is transferred at once whereas
in the 'contract to sell', the goods are transferred at a later date. A contract to sell is not
in the true sense of the word a sale, rather it is merely an arrangement to sell. A contract
is an agreement but an agreement is not necessarily a contract.
In contract farming, companies or organizations engaged in processing and
marketing of agricultural products are entering into contracts with the farmers. They
provide inputs to the farmers and buy back the product at a rate specified in advance.
Following type of inputs and services are normally provided by the company to the
farmers:
 Seeds of the variety they need for processing/marketing
 Guide lines to grow the crops
 Pesticides which do not result in residual toxicity
 Extension services
 Fertilizers/harmones required for the crop
 Other material if not locally available.
The contract may be entered into by parties anytime from the start of the sowing
or planting to the harvesting, processing, packaging and marketing stage of the crop.
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Normally, the contract is entered before the start of the sowing or planting because the
buyer can then stipulate the conditions of cultivation, use of the seed variety needed by
them, use of pesticides and insecticides, and requirement of onfarm grading, sorting,
packaging and processing. The buyer of the product generally keeps the right to monitor
the crop at every stage of its growth.
Following documents are obtained/given to selected farmers by the companies:
 Application/Registration form
 Contract farming agreement
 Issue of pass book
 Issue of ID Card

Advantages of Contract Farming

Contract farming/marketing is beneficial both for the producer-farmers as well as
to the processing company in several ways:
To the farmer, contract farming
(i) Reduces the risk of price/production
(ii) Ensures the price as market is assured
(iii) Increases the quality consciousness
(iv) Ensures higher production because of better quality seeds and pesticides
(v) Reduces marketing costs
(vi) Provides financial support in cash or kind
(vii) Ensures efficient/timely technical guidance almost free of cost.
To the processing company, contract farming –
(i) Ensures supply of quality agricultural produce at right time and at lesser cost
to the company.
(ii) Canalizes direct private investment in agricultural activities.
(iii) Ensures that the toxicity level is reduced as per requirement for export.
Government is increasingly looking towards the corporate sector to augment the
rural incomes and employment through agro-processing. In this context, policy makers
see the contract farming/marketing as an important avenue to ensure greater private
sector participation in agriculture.
Flip Side of Contract Farming
The important weaknesses of contract farming are:
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(i) Contract farming is involved mostly in cash crops which may lead to shift in
area from food crops which, beyond a limit may endanger food security, biodiversity and
agricultural crops cycle of the country.
(ii) Contract farming may create the danger of imposition of undesirable seeds.
(iii) The temptation of getting commercial profits from cultivation of a variety of
the crop may cause permanent damage to the land.
(iv) Market making outside the country may cause market breaking inside the
country.
However, contract farming is a welcome development. But the contract should be
made under high scrutiny possibly because of exploitation of the farmers. The terms of
the contract should be spelt out in advance and a consent letter is obtained both from the
farmer and the company. The government should establish a monitoring mechanism and
a dispute settlement body to ensure that both parties adhere to the terms of contract.
Experience in Contract Farming
The following companies are presently under the tie-ups in India for contract
farming for the products specified:
Poultry - Contract farming of broilers between the Coimbatore
hatchery with farmers
Pulpwood - ITC/WIMCO/JK Papers and farmers in Andhra Pradesh,
Orissa, Punjab and Uttar Pradesh.
Organic dyes - Marigold farmers and extraction units in Coimbatore.
Dairy Processing - Chitale of Pune and small farmers in Maharashtra and
Gujarat.
Tomato Pulp - Pepsi Company and farmers of Punjab and Rajasthan for
tomato growing
Exotic vegetables - Trikaya Foods/VST and small farmers of Maharashtra
and Andhra Pradesh
Mushrooms - NAFED and Sonepat (Haryana) farmers
Gherkins - Exporters with farmers of Bangalore
Edible oils - ITO Agro-Tech and sunflower cultivators in Andhra
Pradesh and Karnataka

Other areas where farmer processor linkage (contract farming) are being
practiced in India are:
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 Baby corn cultivation
 Tomatoes for manufacture of sauce and ketchup
 Chillies for manufacture of chilly paste
 Garlic and onion for manufacture of paste, powder and dehydrated products
 Special varieties of Banana
 Potato for making chips and wafers
 Barley in making of beers
 Onions and Mandarin Oranges
 Durum Wheat
Presently contract farming is confined to few selected crops in selected pockets.
However, there is enormous scope for contract farming/marketing because with the
increasing income, consumers are becoming more health and quality consciousness
and look for branded products.
Incentives for Promoting Contract Farming
Contract farming is means of allocating/distribution of risk between processor
and the farmers. It will succeed if both the parties share the risks and rewards.
The Ministry of Food Processing Industries of Government of India has launched
a scheme entitled 'Grant Under Backward Linkages' to promote contract farming. Under
this scheme, a grant of 10 per cent of value of raw material purchased from the contract
farmers (subject to a maximum of Rs.10 lakhs per annum) is provided to food
processing units upto three years. The Ministry has also prescribed a model agreement
form. The criteria for the grant are:
(i) The processing unit should provide seed, insecticides, fertilizers and extension
services to contract farmers at reasonable charges;
(ii) The number of contract farmers should be atleast 25;
(iii) There should be an agreement prior to the period of contract farming for a
maximum period of one year;
(iv) The processing unit should give advance intimation about its contract with
farmers to the Ministry as well as State Nodal Authority (One Month before the
contract comes into operation).
(v) The claim for reimbursement should be recommended by the State Nodal
Authority.
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