What is Agricultural marketing?

 

Definition:

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. Before learning about agricultural marketing you have must know about what is market and its classifications which is following given below.

MARKET and Its Classifications:

The word market comes from the Latin word ‘Mercatus’ 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., supermarket; (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., the Indian market and Asian market; (d) and 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.

The word market in the economic sense carries a broad meaning. Some of the definitions of the market are given as follows:

  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 that 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.

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;
  3. Business relationship or intercourse between buyers and sellers; and
  4. Demarcation of area such as place, region, country or the whole world.

The existence of perfect competition or a uniform price is not necessary.

Dimensions of a Market:

There are various dimensions of any specified market. These dimensions are:

  1. Location
  2. Area or coverage
  3. Timespan
  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.

What is the MARKET STRUCTURE?

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’ behavior 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:

Whether or not the products are homogeneous affects the market structure. If products are homogeneous, the price variations in the market will not be wide. When 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 behavior of an integrated market will be different from that of a market where there is no 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 behavior 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 behavior 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;
  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 interpersonal, 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:

  1. 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.
  2. 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.
  3. Costs and Patterns of Marketing Functions: Marketing functions such as transportation, storage, financing, and dissemination of market information, have a great bearing on the type of market structure. 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.
  4. Technological Change in Industry: Technological changes necessitate changes in the market structure through adjustments in the scale of business, the number of firms, and their financial requirements.

What is the Agriculture Marketing system?

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 connotes a series of activities involved in moving the goods from the point of production to the point of consumption. It includes all the activities involved in the creation of time, place, form, and possession utility.

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. This definition does not include the input side of agriculture.

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), 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.

Objectives of the Study:

A study of the agricultural marketing system is necessary to an understanding of the complexities involved and the identification of bottlenecks with a view to providing efficient services in the transfer of farm products and inputs from producers to consumers. An efficient marketing system minimizes costs, and benefits all the sections of the society.

The expectations from the system vary from group to group; and, generally, the objectives are in conflict. The efficiency and success of the system depends on how best these conflicting objectives are reconciled.

Producers:

Producer-farmers want the marketing system to purchase their products without loss of time and provide the maximum share in the consumer’s rupee. They want the maximum possible price for their surplus produce from the system. Similarly, they want the system to supply them with the inputs at the lowest possible price.

Consumers:

The consumers of agricultural products are interested in a marketing system that can provide food and other items in the quantity and of the quality required by them at the lowest possible price. However, this objective of marketing for consumers is contrary to the objective of marketing for the farmer – producers.

Market Middlemen and Traders:

Market middlemen and traders are interested in a marketing system that provides them a steady and increasing income from the purchase and sale of agricultural commodities. This objective of market middlemen may be achieved by purchasing agricultural products from the farmers at low prices and selling them to consumers at high prices.

Government:

The objectives and expectations of all the three groups of society-producers, consumers, and market middlemen – conflict with one another. All three groups are indispensable to society. The government has to act as a watch-dog to safeguard the interests of all the groups associated with marketing. It tries to provide the maximum share to the producer in the consumer’s rupee; food of the required quality to consumers at the lowest possible price; and enough margin to market middlemen so that they may remain in the trade and not think of going out of the trade and jeopardize the whole marketing mechanism. Thus, the government wants that the marketing system should be such as may bring about the overall welfare to all the segments of society.

What is the importance of Agricultural Marketing? (scope)

Agricultural marketing in a broader sense is concerned with the marketing of farm products produced by farmers and of farm inputs 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 following the technological breakthrough. The farmers produce their products for the markets. Farming becomes market-oriented. 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 the production of crops from the market by the farmers was almost negligible. The 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 years. 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 method or techniques may be modified to get the maximum benefits.

Especially, the subject of agricultural marketing includes marketing functions, agencies, channels, efficiency and costs, price spread and market integration, producer’s surplus, government policy and research, training, and statistics on agricultural marketing.

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.

The importance of agricultural marketing in economic development has been indicated in the paragraphs that follow.

Importance of Agriculture marketing in economic development

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.

Increase in Farm Income

An efficient marketing system ensures higher levels of income for the farmers by reducing the number of middlemen or by restricting the commission on marketing services and the malpractices adopted by them 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 increased production is, therefore, very important, and this can be made possible only by streamlining the marketing system.

Widening of Markets:

A well-knit 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.

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 depend on agriculture for the supply of raw materials.

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 price signals.

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.

Employment:

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.

Addition to National Income:

Marketing activities add value to the product thereby increasing the nation’s gross national product and net national product.

Better Living:

The marketing system is essential for the success of the development programs which are designed to uplift the population as a whole. Any plan of economic development that aims at diminishing the poverty of the agricultural 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.

Creation of Utility:

Marketing is productive, and is as necessary as the farm production. It is, in fact, a part of the 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.