The shortcomings are a great hindrance for farmers to sell goods to markets. Apart from agricultural goods, handicrafts and industries located in rural areas must also overcome problems in distribution. Losses in transit are high. Farmers are thus unable to get good prices for their produce.
Distribution of agricultural produce is also stymied by government intervention. The result is that despite huge subsidies, distribution of agricultural produce is marked by wastage, loopholes and in efficiencies.
In the absence of investments by the government or the private sector, distribution of agricultural goods is done by agents and traders. The system is marked by inefficiencies at all levels. The consumer ends up paying high prices for farm produce while the farmer is unable to get good prices. Some companies build rural outlets to get over these problems and helps farmers with raw materials and buy their produce as well.
Existing Marketing Systems:
Farmers having surplus produce can sell it in the ways shown in Figure 6.3.
However, a farmer does not have much choice since only one or two channels are available at any given area:
i. Directly to the consumer at a highway near the farm or in a market near the village (farm gate sales).
ii. To retailers and traders at the village who transport and sell it in nearby towns.
iii. At agricultural produce market committee (APMC) designated mandis.
iv. To brokers who facilitate trade with city-based wholesalers.
v. To a cooperative organization or union of farmers.
vi. To government procurement agencies.
vii. To food processing factories situated near the farm.
Some of these choices are not practical, as growers lack marketing infrastructure to store or transport the goods. The task for farmers who have harvested their crops is just one—how to get the stock to an APMC designated market and sell quickly. APMC is a statutory market committee constituted by a state government for trade in notified agricultural, horticultural or livestock products under the Agricultural Produce Market Committee Act issued by that state government.
APMCs are intended to be responsible for:
i. Ensuring transparency in pricing system and transactions taking place in market area.
ii. Providing market-led extension services to farmers.
iii. Ensuring payment for agricultural produce sold by farmers on the same day.
iv. Promoting agricultural processing including activities for value addition in agricultural produce.
v. Publicizing data on arrivals and fates of agricultural produce brought into the market area for sale.
vi. Setting up and promoting PPP in the management of agricultural markets.
The amenities available in or around the APMCs are: auction halls, weigh bridges, go-downs, shops for retailers, canteens, roads, lights, drinking water, police station, post office, bore- wells, warehouse, farmers’ amenity centre, tanks, water treatment plant, soil-testing laboratory, toilet blocks and so on. However, many of these amenities are missing in many of the APMCs.
Here, only the distribution aspects are described:
i. Directly to the Consumer.
ii. To Retailers and Traders.
iii. At APMC Designated Mandis.
i. Directly to the Consumer:
Farmers living near a highway often set up stalls displaying their produce for passing motorists. They can also sell at a market near the farm or in the village. In some places, the APMC sets up Apni Mandis for direct marketing. Farmers bring their produce to the town on fixed days and sell to consumers at these mandis. Such a process eliminates the middleman but requires the farmer to be present at the site for long hours or hire a person, thereby increasing the cost. This method involves high-cost as the stock that is left by evening—if it is perishable in nature—has to be thrown away.
ii. To Retailers and Traders:
To get over the problems in direct selling, farmers prefer to sell the entire stock to a local retailer or trader, who in turn transports it to a nearby APMC mandi. The farmer gets a lump sum in hand and thus avoids wastage and the costs of direct selling, but is at the mercy of traders who generally offer exploitative prices. In such a system, the trader makes a hefty commission while the producer gets low prices.
iii. At APMC Designated Mandis:
Farmers can transport the goods to APMC designated mandis where they have to sell to authorized agents, who again exploit the farmers, squeezing them. Hefty commissions are charged by them – agents take a commission of 6-14 percent merely to trade, as against the international norm of 0.5 percent. In their study of peas marketing in Punjab, Sidhu et al. (2011) show that most of the produce of farmers (89%) was sold by growers in the wholesale market, while sale for local markets was just about 6 percent.
Due to problems in APMC designated Apni Mandis, the majority of growers preferred to sell green peas in the wholesale market. The study further reveals that the net price received by the farmer was about 67 percent of the price paid by the consumer.
The problems identified in Apni Mandis were:
a. Requirement to stay in the mandis for long hours.
b. Non-availability of drinking water, toilets or shelter.
c. Unhygienic conditions in the market, which become more severe in the rainy seasons.
d. Inadequate market infrastructure.
e. Frequent changes in the site of farmers.
f. Dominance of traditional retailers and traders.
It is clear that the system is exploitative and, though heavy commissions are charged, no money is ploughed into the markets to provide better facilities for farmers.
iv. To Brokers:
Large traders or factories appoint brokers who buy from farmers, adding to another level in the marketing channel. Such large traders supply to markets or food processors, since processors and factories located elsewhere are prohibited under APMC Act from buying from the farmers directly. The brokers buy on behalf of their employers at the mandis. The advantage for the farmer is that all the stock is sold. The disadvantage is that they have to add brokerage cost, too.
v. To a Cooperative Organization or Union of Farmers:
Farmers’ cooperatives are probably the best option as they keep the interest of farmers at heart. Some cooperatives help to market the produce or engage in processing the produce, adding value. National Federation of Farmers’ Procurement, Processing and Retailing Cooperatives of India Ltd (NACOF) has been set up to organize and develop cooperative societies.
However, such societies or unions do not exist in all areas, leaving the farmers to fend for themselves. Though there have been spectacular successes in areas like milk marketing, most cooperative societies suffer from political intervention and have been unable either to organize farmers or to set up processing facilities that can help them.
vi. To Government Procurement Agencies:
The government is a major buyer of agricultural produce. Organizations like Food Corporation of India (FCI) buy in bulk with the objective of stabilizing prices, distribution and maintaining buffer stocks. Farmers, however, have to deal with corruption and delayed payments. The committee that studied the working of the FCI says that it has been a total failure in achieving its objectives, reports Indian Express (2015).
The report says that FCI did not provide effective price support to the farmers, as only 6 percent of them received the MSP. The leakage of food-grains supplied to the PDS was as high as 48 percent. The buffer stocks it maintains are often very high leading to huge costs on maintenance, not to mention rotting of grains as it is usually stored in the open.
vii. To Food Processing Factories:
Sometimes, farmers also sell their produce to food-processing, sugar and oil factories situated near their farms. Through contract farming, they are assured of regular supplies from farmers. By entering into contracts with such companies, they get support like agricultural knowhow from the companies and are assured of good prices for their produce. However, such factories are few, as the food processing sector is not well-developed in India. Moreover, the APMC places restrictions on sale of goods to distant factories.
It would be clear from the list that the farmer is not actually free to sell to any channel. The APMC exercises a monopoly that often works to the disadvantage to the farmer.
An Exploitative Marketing System:
The existing system for selling agricultural produce, described here, shows several shortcomings that add to the inefficiencies and also shows the exploitation caused to the farmers. These are summarized in Table 6.6 and explained in detail thereafter.
1. Bringing Goods to Mandis:
Once the crop is harvested, it must be brought to the nearest mandi or marketplace. The farmer piles it on trolleys, which are pulled by tractors or animals. Many farmers have to come a day prior to the auction, especially if the distance is large or when they have to avoid traffic jams due to the peak harvesting season. This adds to cost. Lodging facilities are usually not available. So, farmers have to spend the night sleeping on the trolley. If it rains, the crop is spoiled and loses value.
The mandis are designated by the APMC, which places restrictions on sale and movement of goods and monopolizes this activity. The agents or the arhatiyas come from close-knit communities and set the rules of trade to their advantage. They also know that farmers are in a hurry to sell the crop and return to their villages. This places the farmers at a disadvantage in getting good prices.
3. Display and Sale:
Once at the mandi, the crop is dumped on the ground, usually in the open. Some mandis have a few sheds, but these are inadequate during the harvesting season. Agents inspect the crops visually. Grading is not done scientifically; for example, while measuring the oil content of seeds. Farmers are not able to get better prices for better produce and, so, there is little incentive to improve the quality of crops.
Auction is done orally. Farmers are in no position to hold on to stocks or bargain for better prices and have to accept whatever is offered. Auctions also lead to loss of dignity of the farmers, as the inspection and price setting of their months-long labour and toil is done only within a few seconds.
5. Bagging and Weighing:
Crops must be weighed and bagged for outbound transportation. The cost is borne by farmers. The mandi staff does this work, and since the spillage is considered as part payment for the work, the workers make sure that some amount of crop is always spilled, leading to loss to the farmer. There are also complaints of under-weighing by the mandi workers.
Brokers exploit farmers in another way – by not paying the full amount that is due. Payments are made in instalments. Multiple trips to collect payments mean extra expenses. No interest is paid for delayed payments. Contracts are usually vocal and payment terms are to the advantage of the trader.
7. Outbound Logistics:
Once it leaves the mandis, the produce is sent to retail markets or food processors by the agents. Multiple points of handling, spoilage, octroi and taxes add to the cost of the produce. In the case of fruits and vegetables, spoilage is also very high.
By the time consumers get the goods, cost has been added at various points. Costs at each stage of transactions are also added to the final price. Retailers buy their stocks from traders in towns and cities to sell in their shops. Very often the goods are not fresh by the time they reach urban markets.
This marketing system has been in existence for years and few reforms have taken place over the years. It also points to a severe lack of agricultural infrastructure in the country.
Verrna et al. (2013) studied the costs incurred in supply chains for cumin produce from Rajasthan.
Cumin producers follow two channels for the marketing of cumin:
i. Channel-I – Farmer → Village trader → Wholesaler Retailer
ii. Channel-II – Farmer → Wholesaler (Mandi) → Retailer.
The study shows that the village trader received 5.94 percent, wholesaler received 9.92 percent and retailer got 15.47 percent of the sale price. The margin of retailers was higher due to the sale of cumin in small lots to consumers. The producer’s share in consumer’s rupee in the regulated market of Mandor was 68.2 percent as compared to 62.1 percent in sale at the village level.
In another study done by Gangwar et al. (2007) of kinnow farming in Punjab, it was found that farmers commonly sold to pre-harvest contractors/traders in the area. There was no cooperative marketing society in the area. Thus, farmers get swayed by the price offered by the traders during the harvesting season.
Kinnows are marketed locally in plastic crates, gunny bags or loose. For distant markets, cardboard boxes of 10-kg capacity or wooden boxes of 20-kg capacity are used by the traders.
Kinnow producers followed several marketing channels for selling their produce:
Channel-I – Producer – Pre-harvest contractor – Wholesaler at local fruit mandi – Retailer –Local consumer
Channel-II – Producer – Wholesaler – Local retailer – Local consumer
Channel-III – Producer – Local retailer – Consumer
Channel-IV – Producer – Local consumer
Channel-V – Producer – Pre-harvest contractor – Wholesaler at distant market – Distant market retailer – Consumer
Channel-VI – Producer – Wholesaler (distant market) – Retailer (distant market) – Consumer
This study found that aggregate post-harvest loss from orchards to consumers of kinnow in two different markets ranged from 14.87 percent (in Delhi) to 21.91 percent (in Bangalore). The marketing cost was found to be Rs. 1.94 per kg in the local Abohar market, Rs. 9.05 per kg in the Delhi market and Rs. 14.34 per kg in the Bangalore market.
The cost of boxes, truck freight, commission and marketing fee are the major components of marketing cost. The producer’s share in consumer’s price was found to be higher in the local market sale channel. The net profit to marketing functionaries was estimated to be 49.1 percent, 43.0 percent and 33.2 percent, respectively, in the local, medium-distant and long-distant markets.
The figures show that farmers suffer because of lack of kinnow-processing industries. Development of value-added quality ready-to-serve products minimize post-harvest losses and provide remunerative price to the producers. Efforts should also be made to adopt improved packaging techniques and cold storage facilities at the retailers’ level.