(These are notes are for reference, if any topics are missing, please check your ref books)

CHAPTER 1

PROFILE OF RURAL MARKETING

Definition of Rural                                                                                                    (Nov. 05)

Government agencies from IRDA & NCAER define ‘Rural’ as “a village with a population of less than 5,000 with 75% of the male population engaged in agriculture etc.”

Definition of Rural Marketing                                                                     (Nov. 03, May 08)

According to National Commission on Agriculture “Rural marketing is a process which starts with a decision to produce a salable farm commodity and it involves all the aspects of market system, and includes pre and post harvest operations i.e. assembling, grading, storage, transportation and distribution”.

Rural Profile  / Features of Rural Market in India (Nov. 08)

1. Large and scattered market: According to 2001 census rural population is 72% of total population and it is scattered over a wide range of geographical area.
2. Diverse socio-economic background: This is different in different parts of the country and brings diversity in rural markets.
3. Changing demand pattern: Demand pattern of rural customer is fast changing due to increasing in income and credit facilities offered by banks like ‘kisan credit card’.
4. Major income comes from agriculture: About 60% of the rural income is from agriculture and hence the demand for consumer goods is high during harvesting season.
5. Saving habits: Rural consumer is now having saving habits due to the efforts of co-operative and commercial banks.
6. Traditional outlook: Rural customer values old customs and traditions.
7. Low standard of living: Rural consumer have low standard of living because of low literacy, low per capita income and social backwardness.
8. Poor infrastructure facilities: Facilities like roads, warehouses, communication system, etc. are inadequate in rural areas. Hence physical distribution becomes costly.
9. Media reach: The reach of pint media is 10% followed by TV 31%, radio 31% and cinema 33%.

10.  Communication: As per Indian Express report about 6 lakhs villages are without telephone facilities.

11.  Electrification: About 88% of villages have been electrified and rest will soon get electricity by “Rural Electricity Corporation”.

Potential of Rural Market (May 04, 07, 08)

With urban market showing signs of saturation, companies are excited about the potential of rural India. Some major companies that have focused in the rural sector are Philips, Parle, Proctor & Gamble, Colgate-Palmolive, Godrej Soap, Bajaj Auto, TVS, Atlas Cycle and HUL.

Following points indicate the potential of rural markets:

Scope / Attractiveness of Rural Market / Why Companies Go Rural (May 06)

1. Large Population: According to 2001 census rural population is 72% of total population and it is scattered over a wide range of geographical area
2. Rising Rural Prosperity: Average income level has improved due to modern farming practices, contract farming, industrialisation, migration to urban areas and remittance of money by family members settled abroad.
3. Growth in Consumption: There is a growth in purchasing power of or rural consumers. The average per capita household expenditure is Rs. 382.
4. Changing Lifestyle: Lifestyle of rural consumer changed considerably.
5. Life Cycle Advantage: The products, which have attained the maturity stage in urban market, is still in growth stage in rural market. E.g. popular soaps, skin cream, talcum powder, etc.
6. Market Growth Rate Higher than Urban: As per the survey made by NCAER the growth rate of FMCG market and durables market is higher in rural areas. The rural market share is more than 50% for products like body talcum powder, toilet soaps cooking oil, hair oil etc.
7. Rural Marketing is not Expensive: To promote consumer durables inside a state costs Rs one crore while in urban areas it will costs in millions.

Constraints in Rural Marketing (Nov. 06) *(May 06)

1. Vastness and Uneven Growth: India has about 5 lakhs villages, which are scattered over a wide range of geographical area, and also they are not uniform in size.
2. *Transport Problem: Transportation infrastructure is very poor in rural India. Though India has the fourth largest railway system in the world, many villages remain outside the railway network. Many villages have only kaccha roads while many of rural interiors are totally unconnected by roads. Because of this the physical distribution is difficult in rural areas.
3. Communication Problems: Communication infrastructure consisting of posts, telegraphs and telephones is inadequate.
4. Warehousing Problems: Central Warehousing Corporation and State Warehousing Corporation do not extend their services to the rural parts. The warehouses at mandi level are managed by co-operative societies who provide services to members only.
5. Many Languages and Dialects: The number of language and dialects vary widely from state to state, region to region and even from district to district. Though the recognized languages are only 16 the number of dialects is around 850.
6. Market Organisation & Staff: Rural marketing needs large marketing organisation and staff to have an effective control, which requires huge investment.
7. Non-Availability of Dealers: It is not possible to have direct outlets in each rural market; firms have to have service of dealers, which is not easily available.
8. Hierarchy of Market: Rural consumers have identified market places for different items of their requirements. Thus depending upon the purchase habit of rural people, the distribution network of different commodities has to be different.

Factors Contributing to the Growth of Rural Markets

1. Employment Opportunities: The income from new employment and rural development efforts has increased the purchasing power of rural people.
2. Green Revolution: Due to green revolution a technological break through has taken place in rural India, which results into substantial wealth generation in these areas.
3. Favourable Government Policies: Tax exemption in backward areas, subsidy, concession, incentives and heavy investment in rural development programmes in has brought rapid growth of rural markets.
4. Literacy Growth: Literacy rate is increasing in rural areas, nearly 45% of rural Indians are literate. This brings social and cultural changes in buying behaviour of the rural customers.
5. Rising Disposable Income: Good monsoons, green revolution and Administered Pricing Mechanism (PAM) have raised disposable income in rural areas.
6. Attraction of Higher Standard of Living: Rural people have been motivated to change their lifestyles and have higher standard of living.
7. Spread of Cable Television: The growth of satellite TV channels has made a major impact on villages. This has led to a change in lifestyle and consumption pattern.

Market Segmentation in Rural Market

1. Geographic Segmentation: Segmentation on the basis of geography is done depending on various factors such as

Region: North, South, East and West.

Village Size: < 500 people, 501 – 2000 people, 2001 – 5000 people, > 5000 people

Proximity to the feeder town:

Density:  The number of people per sq. km

Climate: Moderate, rain fed or dry with scanty rainfall.

Level of Irrigation: Whether good, moderate, scanty or none at all.

2. Demographic Segmentation: It is based on the population, age group, literacy level and income of the rural consumer.

3. Psychographics / Behavioral Segmentation: Such segmentation is done using variables such as Lifestyle of the people, (whether rigid, traditional or changing), Occasion, (whether on a regular day or a special occasion), Benefits sought from the product (such as Quality, Price and Service), and Loyalty to brands, (whether Low, Medium or High.)

Recent Development in Rural Market (May 04)

Changing Pattern of Rural Demand (Nov. 04, May 08)

The position in the rural market was totally different twenty years ago. At preset there is a demand for products like TV, fans, oil engines, readymade garments, medicine, etc. New products like toiletries, baby care products and consumer durables are now getting good demand. Demand pattern of rural markets are changing due to the following reasons:

1.      Production of food grains has increased. This enhanced the rural purchasing power.

1. Due to 2000 Exim policy, export of Indian agricultural products increased.
2. Credit facilities extended by public sector banks by kisan credit cards helps farmers to buy agricultural and consumer goods on installments.
3. Co-operative and public sector banks are extending loans to the rural people and creating job opportunities for them.
4. Cable TV has played important role in bringing change in lifestyle and consumption habits of rural people.
5. Liberalisation facilitated contract farming thus the farmer has ready market for their produce.

4 A’s of Rural Marketing

1. Availability: The first challenge is to ensure availability of products and services. India’s 627,000 villages spread over 3.2 million sq. km, given the poor state road; it is not easy to reach 700 million rural Indians.
2. Affordability: The second challenge is to ensure affordability of the products and services. With low disposable income products need to be affordable to the rural consumers. Some companies consider it by introducing small unit packs, e.g. Godrej introduced Fair glow in 50 gm packs.
3. Acceptability: The third challenge is to gain acceptability for the products and services. Therefore there is a need to offer products that suites the rural consumer needs and customs. E.g. LG developed a customised TV for the rural market and promoted ‘Sampoorna”.
4. Awareness: Events like fairs, festivals, haats etc. are to be used for brand communication. Ideas like putting sticker on the hand pumps, walls of the wells, tin palates on trees surrounding the ponds etc. are some of the innovative media used by soap companies like Lux, Lifeboy, Rin and Wheel. The idea is to advertise at the time of consumption.

Project “BHARAT” of HUL                                                                                   (May 06)

Under project “Bharat” HUL vans visited villages and sold small packs of low unit price. It includes detergent powder, toothpaste, face cream and talcum powder for Rs. 15. During the sale the company representative also demonstrate the use of the products with the help of a video show. This created awareness about HUL product categories and availability of affordable packs.

CHAPTER 2

PROFILE OF RURAL CONSUMER

Profile of Rural Consumer

1. Size of the rural consumer
2. Location pattern of rural consumer
3. Low literacy level of rural consumer
4. Occupation of rural consumer
5. Income of rural consumer
6. Savings of rural consumer
7. Reference groups: Primary health workers, doctors, teachers, and panchayat members.
8. Conscious customer: Though not educated, very conscious about value for money.
9. Brand loyalist
10. High degree of involvement: He checks and rechecks particularly for purchasing expensive and durable products.
11. Interpersonal communication: Its accounts 80% of the communication process in village. Hence word of mouth recommendation by users has great influence.
12. Media habits: TAMASHA in Maharashtra and NAUTANKI in UP is a popular form of entertainment which can be used as promotional media.

Classification of Rural Consumer

1. Affluent Group: This group is very small and almost negligible. This group can afford luxury products. E.g. chilly merchants in Guntur (AP) and wheat farmers in Punjab.
2. Middle Class: This class is about 300 million in size and continues goes on expanding. It forms the base for demand of manufactured goods in the country. E.g. jute farmers in West Bengal and sugarcane farmers in UP.
3. Poor: This class is about 250 million in size. Their purchasing power is very low. E.g. poorest farmers of jawar and bajra of Bihar and Orissa.

Methods for Motivating Rural Consumers

1. Mass Communication
2. Education
3. Sales Force
4. Physical Distribution
5. Live Demonstration

Rural Customer v/s Urban Customer (Nov. 04)

URBAN MARKET	RURAL MARKET
Mostly concentrated	Widely spread and scattered
High infrastructural level	Low infrastructural level
High density of population per sq km	Low density of population per sq km
Good physical connectivity and high mobility	Poor physical connectivity and low mobility
Incomes are more stable and permanent	People work in less certain environment
Occupations are government employment, business, industry etc.	Mostly agricultural occupation
Income received at regular income	Acute seasonality in income receipts
Large number of interactions with persons and less frequent between same persons	Less number of interactions with persons and more frequent between same persons
Social norms are less visible	Social norms influencing individuals
Cast influence indirect and less visible	Cast influence direct and strong
High exposure to variety of products	Low exposure to variety of products
High brand awareness	Low brand awareness
High exposure to marketing researchers and multiple source of information	Low exposure to marketing researchers and limited source of information
More convenient buying, more retail outlet per 1000 population	Less convenient buying, less retail outlet per 1000 population

CHAPTER 3

PRODCUT STRETEGY

PRODCUT STRETEGY (Nov. 02)

1. Small Unit Packaging

Small packs are preferred due to the following reasons:

1. Small packs help the rural consumer to pick the product at affordable price.
2. Individual use products like shampoo; toilet soaps, etc. are bought in smaller size.
3. Small packs are easy to display and they increase the visual appeal.
4. Small packs are convenient to retailer to do his business.

Example:

1. Cavin Kare introduced shampoo in 4 ml sachets at 0.50 paise.
2. Rasna is now available in sachet at Re. 1
3. Ponds introduced 20 gm talcum powder
4. Tiger biscuit is available in four biscuits pack at Re. 1

2. New Product Design

The products are designed as per the rural lifestyle.

Example:

1. PVC shoes and chappals are designed to work in adverse conditions.
2. LG electronics launched “Sampoorna” TV that can withstand power fluctuations.
3. Philips introduced small refrigerators especially for rural consumers.

3. Sturdy Products

Sturdiness of a product is an important factor for rural consumers. The rural consumers believe that heavier the, higher he power and durability.

Example:

1. Bullet motorcycle is popular in village due to its ruggedness.
2. Escorts has positioned their motorcycle “Rajdoot” as a tough vehicle.
3. Rural consumer prefer dry battery cell, which are heavy.

4. Utility Oriented Products

Rural consumers are more concerned with the utility of the product and its appearance.

Example:

1. Philips introduced low cost radio “Bahadur” with only medium wave receiver, which was failed and fund that rural consumer purchase radio not only for news but also for entertainment.

5. Brand Name

Rural consumers are more brand loyalists than urban consumer. The brand name should instantly be understood by the rural consumers. Rural consumers are unfamiliar with English and absurd names. More preferably rural brand is a symbol, logo or color.

Example:

1. Everyday battery with a cat symbol – rural consumers remember it as ‘billi wali battery’.
2. Lifebuoy soap – rural consumers remember it as ‘lal saboon’
3. Mahindra tractor’s brand ‘Bhumiputra’
4. Slogan of Red Label Tea “jiyo mere lal” proved very effective to promote sale.

DUPLICATE AND COUNTERFEIT PRODUCTS IN RURAL MARKET

Spurious products are the copy of established brand name at a cost of few thousand rupees and sold it in the rural market. This duplication takes place in all sectors and especially in FMCG, food items and medicines.

Counterfeiting is a kind of duplication where the fake products bear the identical name of the original product, its packaging, graphics, color pattern, design and even same name and address as the genuine manufacturer. A pass-off product is one that comes with a few minor changes from the original product. The slight changes are made to avoid legal problems.

Example:

Head and Shower – Head and Shoulder

Pantane – Pantene

Sunmilk – Sunsilk

Lifebuoy – Loveboy

Climik Plus – Clinic Plus

Parla G – Parle G

Vikas – Vicks

CHAPTER 4

PRICING STRATEGY

PRICING STRATEGY                                                                                           (Nov. 02)

1. Low Cost Products

Rural customer is price conscious manly because of low income. The price can be kept low, by low unit packaging. This is a common strategy adopted by many companies marketing in rural areas. Example – same as of small unit packs.

2. Application of Value Engineering

The aim of value engineering is to reduce the value of the product so that a larger segment of population can afford it to buy.

Example:

1. Soya protein can be used instead of milk protein, nutrition content of both is same but the soya protein is cheaper then milk protein.

3. Refill / Reusable Packaging

Refill packs benefits the rural consumers in terms of price and also the packaging material should be reusable in rural areas.

Example – Many farmers demand for fertilizers packed in LDPE or HDPE sacks. They feel that they get sacks free of cost by purchasing fertilizers.

4. Discounts

In order to motivate the rural retailer to sell more, a discount of 5-10% is given on the MRP particularly in case of FMC goods.

5. Promotional Schemes

Rural consumer normally buys household articles during festivals like Eid, Diwali, and Pongal etc. special promotional schemes could be introduced on such occasions like exchange offers, special discounts, etc.

RURAL PRICING OBJECTIVES

1. Deeper penetration of market: Basically rural markets are adopted for deeper penetration and expansion because of its size. Hence the pricing objectives are different for rural and urban markets. E.g. VIM washing bar is Rs. 15 (400 gm) in the urban market but it is offered for Rs. 4 (200 gm) in rural markets.
2. Long run profit maximisation: A company enters in rural market should wait for success in long run. Hence penetration-pricing strategy is the best option.
3. Recover distribution cost: The pricing objective of a rural marketer should recover the costs involved in distribution alongwith production cost and dealer margin.
4. Competing pricing: Rural marketer should study the pricing strategy of its competitors and accordingly fix its prices.
5. Increaser sales and market share: The pricing objectives should be such that it boosts the sales in rural markets. E.g. Anchor white toothpaste launched with much lower price than the leading brands and captured the market.

CONSUMER CATEGORIES

1. Quality Conscious Consumers – They are very rich and are mainly concerned with quality of the products and services

Pricing Methods:

1. Discriminatory Pricing – charging different customer groups differently.
2. Skimming pricing – Charging high prices at initial level, E.g. P&G launched Tide detergent at high price and then reduced it lower than other brands.

1. Value Conscious Customers – They are of middle class and are mainly concerned with functional benefits and value for money

Pricing Methods:

1. Penetration Pricing – Charging low prices at initial level then increasing gradually when brand name has been established. E.g. Maggie noodles, Vicks, Rin detergent.
2. Value Pricing – Setting the price reasonably lower than the competitor’s price.

1. Price Conscious Customers – They are climbers, aspirants and destitutes. They watch for promotional offers and purchase cheap or fake products.

Pricing Methods:

1. Psychological Pricing – Psychological pricing is one that ends in an odd number e.g. Rs. 99.95. It conveys two notions to consumer that there is a discount or bargain and it belongs to lower price category.
2. Promotional Pricing – It includes mini packs, price-off, special discounts, credit facilities etc.

CHAPTER 5

PROMOTIONAL STRATEGY

Qualities Required for a Rural Sales Person (Nov. 03, May 06, 07)

1. Knowledge of local language
2. Willingness to get located in villages
3. Cultural Congruence: Rural salesman must have proper acquaintance with the cultural pattern of rural life.
4. Attitudes: Rural salesman must have patience as their customers are traditional and conscious, it will not be possible to clinch the sales quickly. He may have to spend lot of time with customer and make several visits to gain favourable response.
5. Capacity to handle number of products lines: Rural salesman usually does not generate economic value of business if he handles few products. He is required to handle much large number of products lines as compared to urban salesman.
6. Greater Creativity: Rural marketing involves greater creativity. If the product is very new in the rural context, He has to introduce it using consumption pioneers and opinion leaders.

ALTERNATIVE MEDIA FOR RURAL COMMUNICATION (May 04, Nov. 04, 07)

* (May 06, 08, Nov. 03)

A] Formal Organised Media

1. Newspapers and Magazines: Local language newspapers and magazines are popular among educated rural families. E.g. Dina Thanthi in Tamilnadu, Punjab Kesri in North and Loksatta in Maharashtra.
2. TV: About 77% of villages receive TV transmission and 27% of rural people actually watch TV. Regional channel is very popular like SUN TV in Tamilnadu and Asianet in Kerala.
3. Cinema: About 29% of rural people watch cinema as regular lifestyle. Short feature films with advertisement message, Ad-films and documentaries that combine knowledge and advertisement are useful for rural communication.
4. Radio: It is a well-established medium in rural areas. Radio reaches large rural population at low cost.
5. * Point Of Purchase: Point of purchase or point of sale is popular promotional tool used in rural market. POPs should be especially designed to suit rural requirements. POPs. Colors, symbols and pictures should be used more than the written words.
6. Outdoors: Outdoors such as hoardings, wall paintings, illuminations and other displays are also now being used for rural communication.

B] Rural Specific Media

1. Music Records: It is an inexpensive medium. On complete language group can be reached on a low budget through cassettes that can be played in the place where rural people gathered.
2. *Puppetry: Puppetry is the indigenous theatre of India; it has been mot popular form of entertainment available to the village people. The performer uses puppets as a medium to communicate, ideas, values and social messages. Example:
   1. Sounds and drama division of the government of India used puppets to promote various government projects.
   2. LIC used puppets to educate rural masses about ‘jeevan beema’ in Lucknow.

Types of Puppet Theatre in India

States	Type of Puppet	Content
Rajasthan	Kathputli	Prithvi Raj Chauhan, Amar Singh Rathod
Orissa	String Puppet	Radha Krishna
Bengal	Rod Puppet	Mahabharat, Radha Krishna
Chennai & Andhra Pradesh	String/Rod Puppet	Lathakali
Orissa, Kerala, Karnataka	Shadow Puppet	Ramayana

1. Folk Theater: Folk theatre is mainly short and rhythmic in form. It has been used as an effective medium for social protest against injustice and exploitation.
2. Interpersonal Media: In many cases, rural people prefer face-to-face communication than mass communication. A firm can contact with audience through fairs & festivals, folk, etc.
3. Group Meeting: It is a component of interpersonal media. Salesman can effectively convey the product message at these meetings. Demonstration of products can also be carried out.
4. House-to-House Campaign: In these campaigns, promotional staff makes house-to-house visits in rural areas. This is different from door-to-door selling campaigns. Promotion staff does not sell the products, they only propagate the products.
5. *Field Demonstrations:
6. *AV Vans: AV van is a comprehensive mobile promotion station. The van can be used for sales campaign in addition to promotion campaigns. AV van exhibits films, audiovisual presentations, slide shows etc. It is very popular with rural marketing firms particularly agro business firms. AV van is very effective tool in rural communication but its cost is very high as the target population is very high.
7. *Syndicated AV Vans: It is an AV van publicity service provided by the independent agencies. Firms, which cannot afford to have their own publicity van, can utilise the syndicate van services.
8. Stalls, Haats, Meals: These are useful media of rural communication to spread the message and to induce brand trials.
9. Wall Paintings: The speech or the film comes to an end but the paintings stay as long as whether allows it to stay. The retailer usually paints its shops wall and name board which acts as a status symbol
10. Use of Logos and Symbols: Illiterate villagers would remember brands only by picture, symbols more than the name.
11. Use of Information Technology: ITC developed a web portal in regional languages to provide information to the farmers about the products and services which they need in order to enhance farm productivity, information on whether, scientific practices, market prices etc.
12. Focus on Reference Groups: They are the opinion leaders and are the key persons of the village e.g. Sir Punch, Gram Sevak, Teachers, Doctors etc. These people should be taken into consideration while chalking the rural communication.

Constraints in Rural Communication

1. Low Literacy Rate: Due to low literacy level, the written words have limited use in rural communication.
2. Low Spending Capacity: Due to low disposable income, they cannot buy radio & TV
3. Joint Families and Strong Kinship Ties: Rural people live in joint families where females depend on their males for information regarding various products. So it becomes difficult to reach female consumers directly.
4. Linguistic and Socio-cultural Differences: Number of languages and different cultural and social norms creating problems for marketers in designing the messages, as mass media in one particular language doesn’t work for entire rural population.
5. Unique Media Habits: Media habits of villagers are such that the newspapers are found mostly at groceries shop, tea stall etc. Magazines are not read at all. The household press subscription is almost absent.
6. Situation Based Leisure Time Activities: Farmers has to work during nighttime and odd hours also. It is difficult to find the leisure time for communication.
7. Expensive Communication: For rural communication to be effective, repeat exposure is a must otherwise the message loss its effect during gap periods. This makes rural communication more expensive.
8. Poor Infrastructure: Due to the lack of roads and telecom facilities reaching rural audience is very difficult. TV viewer-ship is affected by uncertain supply of electricity.
9. Lack of Research Data: Decisions regarding messages and media mix for rural communication depends only on sales force and distributors, which is insufficient.
10. Selective Attention: Rural people select the messages that are have in their interest and ignore others.

CHAPTER 6

DITRIBUTION STRATEGY

METHODS OF DISTRIBUTION

1. Stockist’s Van / Company Owned Vehicles: In this system, a salesman loads the van with stocks and from the company stock point and distribute in the surrounding market. Then he moves the next stock point and covers all surrounding markets. In this way he moves from one stock point to another and returns to company’s stock point. It is the best but an expensive method.
2. Hired Vehicles: In this system, the salesman hire a public carrier like a taxi or a truck. The disadvantage of this system is that the salesman has to spend lot of time in organizing transport.
3. Working by Independent Stockist: In this system, inspite of having salesman, company gives this job to the stockist. Each stockist is asked to cover his surrounding market. It is useful only to companies with high volume turnover.
4. Selling Through Bullock Cart / Camel: This is used to market in remote villages with no motorable roads. In this system the number of outlets covered is limited because of slow transportation.
5. Appointment of Primary Dealers: Here a big retailer in a village is appointed as a primary dealer ad is asked to purchase the goods from nearby stockist with a special discount.
6. Using Urban Wholesalers: Company can ask the urban wholesaler to recommend and sell its products through their rural retailers. In return, company gives them 1% incentives on actual sales made.

PROBLEMS OF RURAL DITRIBUTION

1. Transportation Problems: (from Constraints in Rural Marketing)
2. Warehousing Problems: (from Constraints in Rural Marketing)
3. Communication Problems: (from Constraints in Rural Marketing)
4. Non-Availability of Dealers: (from Constraints in Rural Marketing)
5. Greater Dependence on Dealers: Scope of manufacturers direct outlets in rural market is limited; it is expensive as well as unmanageable. Thus firms have to depend on large network of intermediaries, controlling of which is a difficult task.
6. Higher Cost and Administrative Problems: Distribution chain in the rural context requires large number of tires including village level shopkeeper, mandi level distributor and wholesaler in town. Such multiple tiers and scattered outfits increase the costs and make channel management difficult.
7. Poor Viability of Retail Outlets: Retail outlets suffer from poor viability because the business volume is not adequate enough to sustain the profitability.

RURAL RETAILER BEHAVIOUR (Nov. 05)

1. Seasonal Pattern: There is particular seasonal pattern in stock holding of rural retailer. During the harvest he stocks variety of consumer goods, because the main buying season in rural areas is during harvest.
2. Transfer of Capital: When the harvest is over and cash is realized, the retailers invest in inventories for his shop.
3. Credit Pattern: Credits offered to consumers by retailers is different from area to area. Normally consumers have a running credit with a part of outstanding is paid every month and the balance is paid during the harvest.
4. Purchasing Cycle: In high turnover feeder villages, the retailers make purchases 3 to 4 times a week from urban wholesaler. In other villages they buy once a week or fortnightly.

Multiplier Effect of Rural Demand

Once a product gains acceptance in rural markets, the rural retailer put this item on his shopping list when visiting the wholesaler in the nearby town. This action by the rural retailer starts a chain reaction with the urban wholesaler; once the urban wholesaler knows that for such a product a rural demand is possible, he will start stocking this product and will recommend and push this product to other rural retailers. These rural retailers will in turn, sell to smaller retailers of smaller villages. In this way a multiplier effect create in rural demand.

CHAPTER 7

AGRICULTURAL MARKETING

DEFINITION

According to National Commission on Agriculture “Agricultural marketing is a process which starts with a decision to produce a farm commodity, involves all aspects of market structure and includes pre and post harvest operations like assembling, grading, storage, transpiration and distribution”.

CLASSIFICATION OF MARKETS                                                         (Nov. 06)

1] On the Basis of Location

1. Village Markets: Located in small villages
2. Primary Wholesale Markets: Held weekly or bi-weekly at different villages and locally called as ‘Shandi’ or ‘Haat’.
3. Secondary Wholesale Markets: Located at taluka or district headquarters and towns and known as ‘Mandi’ or ‘Gunj’
4. Terminal Markets: Located in metro cities where buyers and sellers come from different regions or nations.
5. Seaboard Markets: Located near seashore for the purpose of import and export.

2] On the Basis of Area Coverage

1. Local Markets: Buyers and sellers are from same village or nearby villages.
2. Regional Markets: Buyers and sellers come from large areas.
3. National Markets: Buyers and sellers are from whole India.
4. World Markets: Buyers and sellers are from whole world.

3] Time Span

1. Short Period Markets: Perishable products such as fish, milk etc. are traded.
2. Long Period Markets: less perishable products such as oilseed food grains are traded.
3. Secular Markets: Deal in manufactured goods, which are permanent in nature.

4] Volume of Transaction

1. Wholesale Markets: Goods are bought and sold in large quantities.
2. Retail Markets: Goods are bought and sold according to the consumer’s requirement.

5] Nature of Transaction

1. Spot or Cash Market: Money is realized immediately after the sale.
2. Forward Market: Process of purchase and sale is done but goods and money are exchanged at some specific date.

6] Number of Commodities

1. General Market: All types of commodities are bought and sold
2. Specialised Market: Only one or two commodities are sold, e.g. cloth market.

7] Nature of Commodities

1. Service of Market: Deals in service such as professional consultancy
2. Capital Market: Deals in bonds, shares and securities.
3. Commodity Market: Deals on goods and raw materials such as cotton, grains.

8] Degree of Competition

1. Perfect Market: Has large number of buyers and sellers.
2. Imperfect Market: Has monopolistic competition

9] Public Interventions

1. Regulated Market: Business is carried as per rules and regulations framed by statutory organisation.
2. Unregulated Market: Traders frame their own rules for conduct of business and run the market.

MARKETING FUNCTIONS                                                                     (Nov. 06, 07)

1] Primary Marketing Functions

1. Assembling: It is the process of collecting agricultural produce from small cultivators and marketing them in large quantities in wholesale markets. In assembling process number of agents take part. They are:

• Farmers who bring their won produce to market
• Cultivators who collect the produce of other farmers
• Landlords who collect the produce of their tenants
• Merchants are village banias
• Kachha Arhatiya in assembling market
• Pakka Arhatiya, wholesale merchants and manufacturers.

1. Processing: It is a process that adds utility to a commodity. It improves the quality of produce like polishing of rice. In processing highly perishable products are converged into less perishable products.
2. Distribution: It is the process of storage and selling of processed or unprocessed products.

2] Secondary Marketing Functions

1. Standardisation & Grading: It facilitates marketing. It is difficult to grade agricultural products because of the wide variation from region to region and even from farm to farm.
2. Packaging: Packaging protects the products from physical damage and deterioration in quality during transportation.
3. Transportation: It facilitates the movement of products from farm to village market and then to wholesale market and finally to consumers.
4. Storing: Storage is essential in case of agricultural produce as production is seasonal and consumption is continuous.
5. Financing: The service of making credit available to meet the cost of selling products to final consumer is referred as finance function of marketing.
6. Risk Bearing: Farmers and traders are required to bear risk in agricultural marketing arising out of price changes, which may be seasonal or irregular.
7. Selling: It is the main function of marketing. It includes transfer of title of goods and collection of payment.

Private Agencies Involved in Agricultural Marketing                                           *(Nov. 07)

1. Beoparies: He collects the agricultural produce from villages and Haats and brings it to the wholesale market. They normally purchase when the prices are low and sell it when the prices are high. Beoparies act as a financer to poor farmers.
2. Tolas: They are the weighman who not only weigh the produce but also collects samples of the produce from the villages and takes it to the dealers in town. He gets a commission for this.
3. *Arhtias: There are two Arhtias, Kaccha Arhtia is concerned with assembling the produce and Pakka Arhtia is concerned with the distribution.

MWTHODS OF SALES (May 04, 07, Nov. 04, 06, 08)

*(Nov. 01, 06) (Nov. 07) (May 07) (Nov. 02)

1. *Under Cover of a Cloth (Hatta) System: In this system the Kaccha Arahtias or Dalal decides the price of products on behalf of the farmer and bidding starts. When all the buyers have finished giving offers. The name and offers price of highest bidder is announced and sales takes place when the Arahtias twist his finger under the cover of a cloth. This system has been banned by government because of the possibility of cheating.
2. *Open Auction System: In this system, the seller piles-up his produce at one place. Dalal visits each piled-up stocks, pick samples and shows it to the buyers. The agent then invites bids and the produce is sold to the highest bidder. Three types of open auctions are prevalent in different markets.
   1. Phar System: One bid is given for all the lots in a particular shop.
   2. Random Bid System: Dalal invites only few buyers, everyone is not informed
   3. Roster Bid System: Bidding starts from a particular shop in the market and the bidders after the auction of produce at one shop move to the next in a clockwise or anticlockwise direction till the auction at all shops is over.
3. *Closed Tender System: In this system the bidders are asked to quote their offer price in a prescribed form and submit it to the seller. All the bidders are invited on a fix date and time and sealed tender are opened in presence of all bidders. The name and price of highest bidders is announced and goods are sold to him.
4. Mogum Sale: In this system, farmers take advance from the buyer before the harvest without fixing the price, with an understanding that the buyer will pay the prevailing rate after the harvest.
5. Private Negotiations: In this method, buyer comes to the shops of agent, inspects the sample and offers his price. If price is accepted the agent convey the decisions to the seller and the produce is weighed and given.
6. Dara Sale: In this system, the produce of different quality is mixed and sold as one lot at one rate.
7. State Trading: Government purchases huge quantity of food grains for distribution.
8. Forward Sale: In this system, Process of purchase and sale is done but goods and money are exchanged at some specific date
9. *Jalap Sale: as
10. Sale by Sample: In this system, buyer purchases the produce before the harvest at a fixed price. E.g. Dealer of different fruits like mangoes, approach the mango growers and enter into a verbal agreement with them by just looking at the flowers setting.

PRODUCER’S SURPLUS

1. Marketable Surplus (Nov. 03, 04, May 06)

The quantity of produce which can be made available to the non-farm population of the country is termed as marketable surplus. It is the residual left with the farmer after meeting his requirements of:

–          Family Consumption                                                   MS = P – C

–          Farm needs for seeds and feed for cattle                   Where:

–          Payment to labour in kind                                           MS = Marketable Surplus

–          Payment to landlord in kind                                       P = Total Production

–          Any other payment in kind                                         C = Total Consumption

–          Social and religious contribution in kind

2. Marketed Surplus

The quantity of produce which the farmer actually sells in the market irrespective of his requirements is known as marketed surplus. Marketed surplus may be more, less or equal to the marketable surplus.

Factors Affecting Marketable Surplus (Nov. 03, 04, May 06)

1. Level of Production: According to MV Kapde the best predictor of per capita marketable surplus is the per capita output of grains.
2. Consumption Habits: Marketable surplus is determined by the consumption habits of the producers. E.g. Haryana is a wheat consuming state hence marketable surplus of wheat in this state is less and that of rice is less.
3. Cash Requirements: If a cash requirement of the farmers is not fixed, the marketable surplus will increase in response to increase in price as cash requirements of farmers influence marketable surplus.
4. Size of Farm: Small size farms will not bring any marketable surplus in markets. The bulk agricultural surplus is supplied by the medium and large farmers.
5. Nature of Crops: Two types of corps are produced, food crops which are retained for self-consumption and cash crops which entirely brought in market
6. Mode of Production: Under traditional mode of production farmer use only family owned inputs hence entire produces remains for household use. Under capitalist mode of production farmer purchase seeds, fertilizers, pesticides and hire machines, this necessitates creation of surplus to earn profit.

Price and Marketed Surplus (Nov. 01 06, May 04, 07)

1. Inverse Relationship: According to the Mathur and Ezekiel, since the farmer’s cash requirement is nearly fixed, at a given price level, the marketed portion of the output can be determined. This implies that the marketed surplus is inversely related to the price level.
2. Positive Relationship: According to Dandekar and Rajakrishna, farmers are price conscious. With the rise in prices of food grains farmers are tempted to sell more and retain less and vice versa.

MARKET CHARGES AND DEDUCTIONS (Nov. 06)

Arhat – Commission

Basra – Charges for supervision of weightiest to be paid in kind

Bardana – Rent of supply of gunny bags

Borioto – Charges for holding the gunny bags while filling

Chalani – Serving

Dhanak – Charges for pushing the grain in gunny bags

Kavad – Deductions in kind for quality difference

Hamali – Handling charges

Tulai – Weightiest

Munim – Clerk’s allowance

Wata – Refraction allowance

Patti – Cost of sale slip

CHAPTER 8

AGRICULTURAL MARKETING AGENCIES

MARKETING AGENCIES

1] Producers

Farmers sell their surplus either at the farm itself or at weekly market village. Some big farmers assemble the produce of small farmers and sell at nearby market.

2] Middlemen

In food grain marketing, middlemen are classified as follows:

1. Merchant Middlemen: They buy and sell on their own and enjoy the profit or bear the loss. They are of following types:
   1. Wholesaler: They buy and sell food grains in large quantities directly from the farmers or from other wholesalers.
   2. Retailers: They buy from wholesaler and sell to the consumer in small quantities.
   3. Itinerant Traders / Beoparies: He collects the agricultural produce from different villages and Haats and brings it to the wholesale market. They normally purchase when the prices are low and sell it when the prices are high. They act as a financer to poor farmers
   4. Mashakhores: They are small wholesalers or big retailers, dealing in vegetables and fruits.
2. Agent Middlemen: They act as a representative of their clients. They negotiate the purchase or sell on behalf of their clients for which they receive commission or brokerage. They are of two types:
   1. * Commission Agent / Arhtias: They are operating in unregulated wholesale market as a representative of a buyer or seller. There are two Arhtias; Pakka Arhtia acts on behalf of the trader. Kaccha Arhtia act for the sellers and farmers. They charge commission or arhat for his services. In regulated market there is only one category of commission agent under the name of ‘A Class Trader’. He has his own shop, godown and also rest-house facility for his clients.
   2. Brokers: They do not take physical control of the product but they bring buyers and sellers on the same platform for negotiations. They received brokerage for their services.
3. Speculative Middlemen: Speculative middlemen take the title of the products with the intention of the earning profit. They buy at low prices during low demand period and sell it in the off-season when prices are high.
4. Facilitative Middlemen: They do not involve in buying or selling but assist only in marketing process. They receive fees or service charges for their services.
   1. Hamal: Do loading and unloading of goods.
   2. Weighman: Facilitate the weighing of the product.
   3. Grader: Sort out the products into different grades of qualities.
   4. Auctioner: Facilitate the auction or bidding of the products.
   5. Transport Agent: Facilitate movement of goods form one market to another.
   6. Communication Agent: Inform about the price and quality available in market
   7. Advertising Agent: Enable the prospective buyer to know about the quality of product and make purchase decisions.

MARKETING CHANNELS

According to Moore Elar, “A marketing channel is the chain of intermediaries through whom the various food grains pass from producers to consumers”.

Marketing Channels For Paddy & Rice

1. Producer – Commission Agent – Miller – Wholesaler – Retailer – Consumer
2. Producer – Itinerant Merchant – Miller – Wholesaler – Retailer – Consumer
3. Producer – Primary Wholesaler – Miller – Sec. Wholesaler – Retailer – Consumer
4. Producer – Miller – Wholesaler – Retailer – Consumer
5. Producer – Miller – Consumer
6. Producer – Govt. Miller – Govt. Shops – Consumer

Marketing Channels For Other Food Grains

1. Producer – Primary Wholesaler – Flour Miller – Retailer – Consumer
2. Producer – Itinerant Merchant – Wholesaler – Retailer – Consumer
3. Producer – Primary Wholesaler – Secondary Wholesaler – Retailer – Consumer
4. Producer – Village Shopkeeper – Wholesaler – Retailer – Consumer
5. Producer – Consumer
6. Producer – Govt. Flour Miller – Govt. Shops – Consumer

INNOVATIVE MARKETING CHANNELS (DIRECT MARKETING)         *(May 07)

1. *Apni Mandi / Kisaan Mandi: In Apni Mandi there is a direct contact between the farmer and consumer without the involvement of middlemen. The main objective of Apni Mandi increasing the profitability of crops by minimizing the marketing costs and middlemen margin. First Apni Mandi as started by Punjab Mandi Board at Chandigarh in 1987. State government provides various facilities like space, water, sheds, counters etc to the market committee of the area where Apni Mandi is located.
2. Hadapsar Vegetable Market: It is located at Pune and is a model market for direct marketing of vegetables. It has no middlemen or commission agents.
3. Rythu Bazar: It is located in major cities of Andhra Pradesh with basic objective of eliminating middlemen and providing direct link between the farmers and consumers.
4. Uzhavar Shandies: It is located at selected municipal panchayats of Tamilnadu.
5. Shetkari Bazar: Established in Maharashtra for marketing fruits and vegetables.
6. Krushak Bazar: Established in Orissa for marketing fruits and vegetables.
7. Mother Dairy Booth: After the notorious onion and potatoes price crisis, Mother Dairy opened these booths in almost every colonies of Delhi to sell vegetable in retail.
8. Contract Farming: Agro processing companies enter into contract with the farmers that they provide the farmers with the inputs like fertilizers, seeds, pesticides and guidelines to grow crops and buy back the products with a rate specified in advance.

Advantage for Farmers

1. They get the better price for the produce as there is no middle man
2. They have assured markets for their produce
3. They are assured about the quality of seeds and pesticides
4. They received financial support in kind
5. They obtain efficient and timely technical guidance free of cost

Drawbacks of Contract Farming

1. It involves mainly cash crops, which may lead to scarcity of food crops.
2. It may create the danger of imposition of undesirable seeds.
3. Market making outside the country may cause breaking of country market.
4. The temptation of getting profits by cultivating variety of crops may cause permanent damage to the land.

CHAPTER 9

AGRICULTURAL MARKETING FINANCE

NEEDS / TYPES OF AGRICULTURAL CREDITS                  (May 04, 08, Nov, 08)

1] Production Credit

1. Short Term Loans: Credit payable within a period of 15 to 18 months is short-term credit. It is required to meet daily working capital requirement e.g. seed, fertilizers, pesticides, fuel etc. It is also needed for payment of wages, hire of machinery and tools, land revenue and taxes etc.
2. Medium Term Loans: Credit payable within a period of 15months to 5 years is medium-term credit. It is required to purchase capital assets e.g. purchase of agricultural machinery and tools, livestock, diesel engine, electric motor etc. It is also needed for repairing of wells, development of dairy, poultry, piggery etc.
3. Long Term Loans: Credit payable within a period of 5 to 25 years is long-term credit. It is required for permanent improvement or for acquiring new assets. It also needed for mechanization of agricultural processes, fencing of lands, construction of farmhouse, etc.

2] Consumption Credit

It is a part of an agricultural loan used for consumption requirement of farmer’s families. It is necessary because the farmer uses his marketed surplus to pay off previous loans and retain very little to meet family consumption. Then he has to wait for next harvest. In this period he requires cash to meet his household requirements.

INSTITUTIONAL SOURCE OF CREDIT                      (Nov. 01, 03, May 07)

1. C-operative Credit Societies

1. Primary C-operative Credit Societies: (Page 26 of co-ops)
2. Co-operative Land Development Banks: (Page 23 of co-ops)            (May 08)

2. Regional Rural Banks (Page 24 of co-ops)

3. NABARD (Page 22 of co-ops) (Nov.05, 08)

4. RBI (Nov. 07)

–    RBI appointed All India Rural Credit Survey Committee (AIRCS) to solve the problem of rural credit by suggesting ways to improve the existing structure.

–    RBI has setup following two funds on the recommendations of AIRCS:

1.National Agricultural Credit (Long-Term Operations) Funds.

2.National Agricultural Credit (Stabilsation) Funds.

–    RBI helps co-operative sectors to provide agricultural finance.

–    RBI monitors the working of other financial institutions providing agricultural finance.

–    RBI has issued following guidelines to improve rural credit policies:

1. Production loan is given against the hypothecation of the title of land.
2. Short-term loan is given into cash and kind in 30:70 ratios.
3. Bank should ensure the recovery of loan after harvest.

5. SBI

SBI established in 1951 by the nationalization of Imperial Bank of India. It has following roles in rural credit:

–    Provide financial assistance to marketing and processing co-operatives and LDCB.

–    Opened branches in small towns and mandis to generate banking habit in farmers.

–    SBI provides following credit facilities to the farmers:

1. Crop loan to meet cultivation expenses
2. Produce marketing loan
3. Land purchase scheme
4. Land development scheme
5. Farm mechanization scheme
6. Kisan credit cards

6. Commercial Banks (Nov. 07)

–          Commercial Banks provides credits to the farmers in direct as well as indirect ways.

–          Direct finance is given for agricultural operations and for short and medium periods.

–          Indirect finance is given by providing advances for distribution of fertilizers and other inputs.

–    SBI provides following credit facilities to the farmers:

1. Crop loan to meet cultivation expenses
2. Produce marketing loan
3. Land purchase scheme
4. Land development scheme
5. Farm mechanization scheme

1. Minor irrigation loan

Problems faced by Commercial Banks (May 07, Nov. 08)

1. Absence of proper records of land rights, make it difficult to ascertain total indebtness of farmers, which creates problems of over financing and recovery.
2. Difficulty in verifying actual utilisation of loan
3. Difficulty in judging the creditworthiness of borrowers
4. Lack of sufficient supervision of use of loans. This encourages misuse of loans by the farmers.

7. Agricultural Refinance & Development Corporation

The Indian Parliament established ARDC in 1963. It has following objectives and functions:

1. To provide the long-term agricultural finance.
2. To guide and assist long-term finance lending institutions.
3. To reduce in regional imbalance of agricultural development.
4. To ensure economic upliftment of weaker section of society.
5. To diversify the lending by identification of new activities.

8. Government Finance (Nov. 07)

Takkavi is the ancient and traditional form of government assistance to the agriculturist. It has been given to relieve distress caused by droughts, floods, and other natural calamities and to enable the farmers to restart his agricultural operations in the next year.

Land Development Act 1883 and Agriculturist Loans Act 1884 were passed to put the Takkavi operations on regular basis.

NON-INSTITUTIONAL SOURCE OF CREDIT

1. Money Lenders: There are two types of moneylender, agriculturist moneylenders who functions both i.e. farming and money lending and professional moneylender whose only occupation of money lending.
2. Commission Agents & Traders: They provide credit in the form of advance payment for purchase of produce. This source is not desirable as it exploits the farmers by charging heavy interests and compelling the farmers to sell at low price.
3. Landlords: Tenant farmers may get loan from their landlords for consumption purpose.
4. Relatives: Borrowing from relatives is usually in smaller amounts and is contracted in an informal manner. Repayment conditions are also soft.

Importance of Non-Institutional Sources of Finance

1. There are no procedural delays in getting the loans.
2. They do not press to repay the loan, if he is paying the interests regularly.
3. There is no need of security.
4. They provide loans for both commercial as well as consumption purpose.
5. A village moneylender is always easily accessible to the farmers.

Defects of Non-Institutional Sources of Finance

1. They combine both banking and trading business resulting introduction of trade risks into the banking.

1. They are unorganized and do not have nay contact with banking world.
2. They do not distinguish between short term and long-term finance and also between the purposes of finance.
3. They follow traditional methods of keeping accounts and do not give receipts.

Malpractices of Non-Institutional Source of Finance (Nov. 02, 07)

Exploitation of Farmers by Moneylenders (Nov. 08)

1. They charge high rate of interests generally 24% and above.
2. They prepare false bonds as if from farmers and write the amount larger than the actually lent.

1. They deduct huge premiums.
2. They give no receipts for repayment and often deny such repayments.

1. Their main interest is to exploit the farmers and grab their lands.

Remedies Offered by Institutional Source of Finance (Nov. 02, 07)

Lead Bank Schemes (Nov.06, 08)

It is the scheme under which under which a particular commercial bank is entrusted to play a leading role in rural development of a particular district. Only one bank can act as a leader in its area and it coordinates the banking activities of commercial banks, co-operative banks and other financial institution in the district. Lead Banks perform following functions:

1. Encourage small scale and cottage industries to open bank account.
2. Encourage and persuade farmers to open bank accounts and enjoy lending facilities.
3. Encourage and strengthen potentially viable primary lending institutes.
4. Survey the facilities for stocking and warehousing.
5. Examine the facilities for small scale and cottage industry production.
6. Survey the credit needs of the area and allocate it to the recognized institutions.
7. Ensure that the credit expansion goes in favour of weaker section.

Crop Loan (Nov.07)

It is an important form of short-term agricultural credit. It helps the farmer to increase the productivity with the help of modern inputs. Crop loan has two components:

1. Cash Component: Loan is given in the form cash to meet the cash requirement of the farmer during production.
2. Kind Component: Loan is given in the form of various inputs required by the farmers such as seed, fertilizers, pesticides, fuel etc. Advantage of kind loan is that it minimizes the misuse of loan by the farmers.

CHAPTER 10

REGULATED MARKETS

REGULATED MARKETS                                                                                     (Nov. 01)

Definition

A regulated market is one, which aims at the elimination of unhealthy and unfair practices, reducing marketing charges and providing facilities to producer-seller in the market.

Objectives of Regulated Market

1. To prevent exploitation of farmers.
2. To provide ethical environment for proper trade practices by prohibiting malpractice.
3. To promote orderly marketing of agricultural produce.
4. To provide incentive prices to farmers to induce them to increase production.
5. To ensure that farmers get better prices for their produce and consumer get goods at reasonable prices.
6. To avoid wide fluctuations in prices for agricultural produce.

Features of Regulated Markets                                                                               *(Nov. 05)

1. Method of Sale: In a regular market the sale takes place either by open auction or by closed tender. These methods of sale ensure a fair and competitive price and prevent the cheating of farmers.
2. Weighing of Produce: Weighing of produce is done by a licensed weighman with standard weights and scale platforms.
3. Grading of Produce: The produce in regulated market is expected to be sold after grading but only 13 regulated markets have grading facilities.
4. Market Charges: In regulated market, the unwanted market charges such as dharmada, muddat, dhalta and kanda were abolished.
5. Payment of Value: In regulated market it is obligatory to make prompt payment. The muddat system no more exists.
6. Licensing of Market Functionaries: All market functionaries even Hamaal is working in regulated market are have to obtain license from market committee.
7. Settlement of Disputes: Disputes arises between sellers, producers and traders are solved by sub-committee of market committee.
8. * Market Committee: Market committee consists of representatives of farmers, traders, co-operative marketing societies, banks, panchyat and government officials. Its important functions are:

1. Manage the market yards in the interest of farmers and traders.
2. Fix market charges for various functions and services.
3. Provide facilities for grading and standardisation.
4. Take steps for prevention of adulteration of the agricultural products.
5. Issue, renew or withdraw licenses of market functionaries.
6. Realise market fees either from the buyer or seller.
7. Control and regulate the behaviour of traders.

Defects of Regulated Markets (May 04)

1. Not Accessible to All Farmers: Most of the farmers are not aware of the benefits of the regulated markets and also not accessible to the farmers in far villages.
2. Presence of Commission Agents: Presence of commission agents and their heavy charges are unfavorable to the regulated markets.
3. Payment System: Farmers are not given prompt payment by traders; due to this they cannot meet their working capital requirements.
4. Auction System: Auction system has a number of defects for which the farmer has to bear the number of losses.
5. Improper of Representation: Small and marginal farmers are dined to serve on the committee and also there are lots of political interference in the committees.
6. Lack of Incentives: Incentives provided are not sufficient also the illiterate farmers are not ware of the available incentives and subsidies.
7. Defective Transactions: The business of regulated market is confined only to a few fixed hours. The illiterate farmers find it difficult to find out the exact dates and times of transaction.

State Trading in India (May 04, Nov. 07)

State trading means the direct intervention of the government in the trading of essential agricultural commodities to ensure its regular supply.

Objectives of State Trading

1. To ensure regular supply of essential commodities to consumers at reasonable price.
2. To arrange for storage, transportation, packaging and processing.
3. To conduct survey to improve the conditions of farmers.
4. To check hoarding, black marketing and profiteering.
5. To arrange for the supply of inputs such as fertilizers, pesticides, seeds etc. to increase the production.
6. To minimise violent price fluctuation occurring as a result of seasonal variations in supply and demand.

State Agricultural Marketing Boards

SAMB was established in18 states and one union territory by the notification of Agricultural Produce Marketing Act.

Functions of Boards:

1. Train officers and staffs and create facilities for grading and standardisation.
2. Construct roads to approach markets.
3. Construct market yards and sub yards.
4. Advise government on the functioning of marketing committees.
5. Frame byelaws and supervise marketing functions of marketing committees.

Council of State Agricultural Marketing Boards (COSAMB)

COSAMB is an apex body of SAMB established in 1988.

Functions of Council

1. Set up a common forum of national stature.
2. Provide assistance to member states to fix norms for arranging credits from bank.
3. Seek representation of council in various committees of central and state governments
4. Create a national, non-political autonomous body to pursue issues at national level.
5. Set a common organisation to hold seminars and workshops to educate various functionaries.
6. Set common libraries and build a stock literature.

Speculation	Hedging
It is 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.	It is the purchase or sale of future market to offset purchase and sale of cash market.
The activities of buyers and sellers are not necessarily opposed to each other	The activities of buyers and sellers are always opposed to each other
Speculator purchases goods and sells them price rises as per his expectations	Commodities are not stored by hedger, only the difference in price is given or taken on due dates.
It is not necessary to buy and sell the goods in equal quantities.	It is obligatory to buy and sell the goods in equal quantities in tow markets.
Benefits: It controls price fluctuations. Price differences in different markets are bridges to some extent. Adjust demand and supply of commodities at normal price.	Benefits: