CHAPTER VI MARKET CHANNELS, MARKETING COST, PRICE SPREAD AND MARKETING EFFICIENCY Agricultural marketing plays a vital role in agricultural development which is a pre-requisite for development in other sectors and for the overall development of the economy. The agricultural marketing is defined as the operations involved in the movement of food and raw materials from the farmers to the final consumer and the effect of such operations on producers and middlemen. 1 In India, there exists an elaborate and inter-connected system of agricultural produce markets through which the produce flows from the producer to the consumer. The market system in India comprises 30,000 rural primary markets, 7,000 wholesale assembling markets at the secondary stage and terminal distribution markets in every urban city or town. 2 An efficient marketing is a sine qua non in the economy of all countries, in general and of agricultural countries, in particular. It definitely exerts a powerful influence on a country’s production and consumption pattern; it plays a prominent 1 Lallan Singh, “Relationship between Apex and Primary Co-operative Marketing in Bihar”, The Co-operator, Vol.XXII(9), 1984, p.245. 2 Harish Nayyar and P. Ramasamy (Ed.), Globalization and Agricultural Marketing, Rawat Publications, New Delhi, 1995, p.28.
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CHAPTER VI
MARKET CHANNELS, MARKETING COST, PRICE SPREAD AND
MARKETING EFFICIENCY
Agricultural marketing plays a vital role in agricultural development which
is a pre-requisite for development in other sectors and for the overall development
of the economy. The agricultural marketing is defined as the operations involved
in the movement of food and raw materials from the farmers to the final consumer
and the effect of such operations on producers and middlemen.1 In India, there
exists an elaborate and inter-connected system of agricultural produce markets
through which the produce flows from the producer to the consumer. The market
system in India comprises 30,000 rural primary markets, 7,000 wholesale
assembling markets at the secondary stage and terminal distribution markets in
every urban city or town.2
An efficient marketing is a sine qua non in the economy of all countries, in
general and of agricultural countries, in particular. It definitely exerts a powerful
influence on a country’s production and consumption pattern; it plays a prominent
1Lallan Singh, “Relationship between Apex and Primary Co-operative Marketing
in Bihar”, The Co-operator, Vol.XXII(9), 1984, p.245.
2Harish Nayyar and P. Ramasamy (Ed.), Globalization and Agricultural
Marketing, Rawat Publications, New Delhi, 1995, p.28.
193
role in regulating supply and demand; and it helps in the elimination of
duplication of services and wastages of valuable resources.3
Marketing perhaps has its greatest and most enduring role to play in the
economic changes in developing countries. An efficient internal marketing system
for agricultural commodities holds the key for rural development and for meeting
the challenges thrown up by explosive growth of population in developing
countries. Marketing holds the key for agricultural development which could
determine the quality of urban life.4
The present study is confined to the study of marketing system of banana
in Tirunelveli district. Hence, the present chapter makes an attempt to study the
marketing system in terms of marketable surplus, marketing channels and the like.
Further, an attempt has been made to anlayse marketing cost, marketing margin,
price-spread and marketing efficiency.
3A.P. Gupta, Marketing of Agricultural Produce in India, Vora & Company
Publications Pvt. Ltd., 1975, p.1.
4Food and Agricultural Organisation, “Report on FAO/RED Workshop on the Effective Use of Marketing for the Development of Small Farms in Asia”, held in
Thailand, 1976, p.5.
194
For better exposition, the present chapter is organised under the following
headings:
i. Marketable surplus of banana;
ii. Market Structure;
iii. Marketing cost, Marketing margin and Price-spread;
iv. Marketing Efficiency and
v. Marketing problems.
6.1. MARKETABLE SURPLUS OF BANANA
Marketable Surplus is the estimated quantity to be marketed by producer
and is arrived at after providing some percentage for various items of retention.
These items include provision for seed purpose, payment of wages in kind,
domestic consumption and the like. Hence, this section makes an attempt to
analyse the retention and marketable surplus of the selected farmers producing
banana. Further the functional analysis was made to identify the determinants of
marketable surplus of banana.
Marketable Surplus and Retention
The marketable surplus and percentage of retention of the selected farmers
producing banana are furnished in Table 6.1.
195
TABLE 6.1
MARKETABLE SURPLUS OF BANANA (Quintals per acre
Sl.
No.
Size of Farmers Total
Production
Total
Retention
Total
Marketable
Surplus
Percentage
to Total
Production
1. Small 24.69
(100)
1.91
(7.74)
22.78
(92.26)
92.26
2. Large 23.16
(100)
2.87
(12.39)
20.97
(87.61)
87.61
3. Overall 47.85
(100)
4.78
(9.99)
43.07
(90.01)
90.01
Source: Primary data.
Note : Figures in brackets represent percentages to total.
The total production in sample farms was 47.85 quintals with retention of
4.78 quintals per acre. The variation in the percentage of marketable surplus to
production among the group was found to be minimum. The maximum was 92.26
per cent in small farms and the minimum was 87.61 per cent in large farms.
Purpose-wise Retention
The farmers retain a certain portion of banana harvested for the domestic
use, seeds and other purposes like giving to relatives, friends and labourers. The
analysis of retention would provide an idea of marketable surplus of banana. The
purpose-wise retention of banana in the selected farms is presented in Table 6.2.
196
TABLE 6.2
PURPOSE-WISE RETENTION OF BANANA IN SAMPLE FARMS (Quintals per acre)
Sl.
No. Purpose
Small
Farmers
Large
Farmers Total
1. Domestic use 1.56
(81.68)
2.28
(79.44)
3.84
(80.34)
2. Others 0.35
(18.320
10.59
(20.56)
0.94
(16.66)
Total Retention 1.91
(100)
2.87
(100)
4.78
(100)
Source: Survey data.
Note : Figures in parentheses are percentages of the total.
It is observed from table 6.2 that farmers have retained 1.91 quintals to
2.87 quintals of banana per acre. The quantity of banana retained for several
purposes by small and large farmers constitutes 7.74 and 12.39 per cent
respectively of the total production of banana (Vide in Table 6.1). Out of total
retention, 80.34 per cent is for domestic use and 19.66 per cent is for other
purposes. The marketable surplus is the difference between the total production
and total retention per acre. The marketable surplus creates its own effect on the
marketable decisions of the farmers.
Determinants of Marketable Surplus
In order to identify the determinants of marketable surplus of banana in the
study area, a Multiple Linear Regression Model of the following type was used
for the present study:
197
Y = β0 + β1 X1 + β2 X2 + β3 X3 + U ...... (6.1)
where,
Y = Marketable surplus per farm in quintals
X1 = Area under banana in acres
X2 = Family size
X3 = Price received in rupees per quintal
U = Error term
β0, β1... β3 are the parameters to be estimated. The above 6.1 model
was estimated by the Method of Least Squares and the results are furnished in
Table 6.3.
TABLE 6.3
DETERMINANTS OF MARKETABLE SURPLUS OF BANANA
Number of
Observations
Regression Coefficients R
2 F
ββββ0 ββββ1 ββββ2 ββββ3
300 3.51 75.69*
(5.033)
-0.49
(-0.893)
0.81*
(2.903) 0.09 29.14**
Source: Computed.
Note : Figures in parentheses are the t-values.
* Indicates that the coefficients are statistically significant at the 5 per cent level.
**F-value is statistically significant at the 1 per cent level.
According to Table 6.3, R2
value is indicates that all the three explanatory
are jointly responsible for 81 per cent variation in the marketable surplus of
198
banana expressed in quintals per farm. Further, R2 value indicates that the
function was considered to be a good fit and the interpretation was made for the
significant variables only. The F value shows that the fitted regression is
statistically significant at one per cent level.
Out of three variables included in the regression model, the area under
banana and price of banana were statistically significant at the 5 per cent level
which was also found to be positively related to the marketable surplus. It
indicates that an acre increase in area under banana cultivation, ‘other things
being equal’ would increase the marketable surplus by 75.69 quintals. Similarly,
one rupee increase in price of banana per quintal would result in an increase of
0.79 quintals of marketable surplus per farm.
Thus, it may be concluded from the analysis that the area under banana was
found to be highly significant and it had greater influence on marketable surplus
compared to the variable, price per quintal.
6.3. MARKETING CHANNELS
The marketing channel is the route taken by the title to the goods as they
move from producer to ultimate consumer.5 Marketing channels are combinations
of agencies through which the seller who is often, though not necessarily
5William J. Stanton, Fundamentals of Marketing, McGraw-Hill, Kogakusha
Ltd., 1975, p.254.
199
manufacturers, markets his product to the ultimate consumer.6 Parashwar has
defined market channel as the vehicle of marketing system, the unit within which
all marketing activity takes place.7 Bilgrani has defined market channel as a
distributory that is involved in direct and indirect transfer of title to a product as it
moved from producers to consumers or industrial users.8 In the present study,
marketing channel refers to the collection of agencies and movements associated
with the exchange of banana from the primary producer to the ultimate consumer.
The banana in Tirunelveli district is sold through middlemen namely
commission agents, village traders, wholesalers cum retailers and commission
agents. The marketing channels identified are,
Channel I = Producer – Village Traders – Consumer
Channel II = Producer – Wholesaler cum Retailers– Consumer
Channel III = Producer- Commission Agent – Retailer - Consumer.
The farmers in the study area have chosen only the commission agents in
most cases as the main intermediary. Eighty per cent of the total produce is passed
through the commission agents and wholesalers cum retailers.
6A. Howard John, Fundamentals of Marketing, p.211.
7P.K. Parashwar, “Marketing Channels in Developing Countries”, Agricultural
Situation in India, 23(7), 1991, p.129. 8S.M. Bilgrani, “The Role of Distribution in Marketing”, Indian Journal of
Marketing, 4(5), 1974, pp.25-27.
200
Choice of the Middlemen
It is not only the number of days stored but also the agent or the merchant
middlemen through or to whom the produce sold influences the net price realised
by the farmers. Table 6.4 shows the different types of middlemen through whom
the sample farmers are selling their banana.
TABLE 6.4
MIDDLEMEN CHOSEN BY THE SAMPLE FARMERS
Sl.
No. Middlemen
Small
Farmers
Large
Farmers Total
1. Village Traders 14
(7.37)
14
(12.73)
28
(9.33)
2. Wholesaler cum
Retailers
30
(15.79)
28
(25.45)
58
(19.33)
3. Commission Agents 146
(76.84)
68
(61.82)
214
(71.34)
Total 190
(100)
110
(100)
300
(100)
Source: Primary data.
Note : Figures in parentheses are the percentages of the total
It is observed from Table 6.4 that 71.34 per cent of farmers sold their
produce through the commission agents in the study area. The remaining 19.33
and 9.33 per cent sold their produce through wholesaler cum retailers and village
traders respectively. The commission agents are the most preferred middlemen by
the small farmers than the large farmers because of the facilities offered by them.
The large farmers are more or less equally distributed in all the three channels.
201
Sale to Village Traders
The number of farmers selling and the quantity of banana sold through
village traders are analysed and presented in Table 6.5.
TABLE 6.5
NUMBER OF FARMERS AND QUANTITY OF BANANA SOLD
THROUGH VILLAGE TRADERS (Tonnes per acre)
Sl.
No. Size of Farmers
Number of
Farmers
Percentage
to Group
Concerned
Average
Quantity of
Banana
sold (in
quintals per
acre)
Percentage
of marketed
surplus of
the group
concerned
1. Small 16 8.21 3.81
(8.85) 16.72
2. Large 12 6.15 1.21
(2.81) 5.96
3. Overall 28 9.33 5.02
(11.66) 11.66
Source: Primary data.
Note : Figures in parentheses are the percentages of the total
It is seen from Table 6.5 that in total, 28 farmers are selling their banana
through the village traders. Out of 28 farmers, 16 are small farmers and the
remaining 12 are large farmers. The percentages of quantity sold to the marketed
202
surplus to the group concerned are 16.72 and 5.96 per cent of their respective
totals.
In order to rank the reasons for selling banana through various middlemen
like village traders, commission agents and wholesalers and retailers, the Garrett’s
Ranking Technique9 was adopted.
The respondents were given the reasons and asked to rank them according
to their choice. The order of merit given by the respondents was converted into
ranks by using the formula:
100 (Rij – 0.50)
Per cent Position = ------------------------- ................. (6.3)
Ni
Where,
Rij = Rank given for (ith
factor by jth
farmer)
Ni = Number of constraints ranked by jth
households.
The per cent position of each rank thus obtained was converted into scores
using the table given by Garrett. The scores of individuals representing each
reason were added together and divided by the total number of farmers for whom
the scores were added. The mean scores for all the reasons were analysed in the
ascending order, ranks assigned and the important factors identified.
9Garrett E. Henry, Statistics in Psychology and Education, Vakils and Simons
Pvt. Ltd., Bombay, 1969, pp.328-331.
203
The reasons for selling the banana through village traders are analysed and
presented in Table 6.6.
TABLE 6.6
REASONS FOR SELLING BANANA THROUGH VILLAGE TRADERS
Sl.No. Reasons Score Rank
1. Easy method of sale 52.66 V
2. No price difference 71.16 II
3. Long-term practice 44.22 IV
4. No transport cost 73.11 I
5. No commission charges 67.15 III
6. Immediate payment 31.26 VI
Source: Primary data.
Table 6.6 shows that among the reasons to sell the banana through village
traders, no transport cost ranks first followed by no price difference, no
commission charges, no storage cost, easy method of sale, long term practice and
immediate payment.
Wholesaler cum Retailers
The number of farmers and quantity of banana sold to the wholesalers cum
retailers are analysed and presented in Table 6.7.
204
TABLE 6.7
NUMBER OF FARMERS AND QUANTITY OF BANANA SOLD
THROUGH WHOLESALER CUM RETAILERS (Tonnes per acre)
Sl.
No. Size of Farmers
Number of
Farmers
Percentage
to Group
Concerned
Average
Quantity of
Banana
sold (in
quintals per
acre)
Percentage
of marketed
surplus of
the group
concerned
1. Small 18 9.23 4.30
(9.98) 18.88
2. Large 40 38.10 6.03
(14.00) 29.72
3. Overall 58 19.33 10.33
(23.98) 23.98
Source: Primary data.
Note : Figures in parentheses are the percentages of the total
It is observed from Table 6.7 that 38.10 and 9.23 per cent of large and
small farmers sold their produce through wholesaler cum retailers respectively.
The average quantity of banana sold per acre by small and large farmers is 4.30
and 6.03 quintals respectively. The percentage to the marketed surplus of the
group concerned namely small and large farmers is 18.88 and 29.72 per cent
respectively.
The reasons for selling banana through wholesaler cum retailer are ranked
and presented in Table 6.8.
205
TABLE 6.8
REASONS FOR SELLING BANANA THROUGH WHOLESALER CUM
RETAILERS
Sl.No. Reasons Score Rank
1. Easy method of sale 71.66 II
2. Long term practice 66.24 III
3. No commission charge 75.14 I
4. Credit facilities 31.22 VI
5. Better price 57.13 V
6. More off-take 62.24 IV
Source: Primary data.
Table 6.8 shows that among the reasons, no commission charge ranks first
followed by the reasons namely, easy method of sale, long term practice and more
off-take are ranked II, III and IV whereas the Vth
and VIth
ranks are assigned to
reasons namely better price and credit facilities.
Sale to Commission Agent
The most popular and dominant channel in the district is the commission
agent. The commission agent advances loans with or without interest to the
farmers whenever they need it. The commission agent recovers the entire amount
206
from the farmers at the time of sale. The number of farmers and quantity of
banana sold through commission agent are discussed and presented in Table 6.9.
TABLE 6.9
NUMBER OF FARMERS AND QUANTITY OF BANANA SOLD
THROUGH COMMISSION AGENT
(Tonnes per acre)
Sl.
No. Size of Farmers
Number of
Farmers
Percentage
to Group
Concerned
Average
Quantity of
Banana
sold (in
quintals per
acre)
Percentage
of marketed
surplus of
the group
concerned
1. Small 161 82.56 6.81
(15.81) 64.40
2. Large 53 50.48 9.52
(22.11) 64.32
3. Overall 214 71.33 16.33
(37.92) 64.36
Source: Primary data.
Note : Figures in parentheses are the percentages of the total
It is observed from Table 6.9 that 71.33 per cent of the farmers selected
commission agent to sell their produce. Out of the small farmers 82.56 per cent
sold through the commission agents. In the case of large farmers, 50.48 per cent
have selected the commission agents. The average quantity sold per acre varied
from 14.67 tonnes to 13.05 tonnes with respect to small and large farmers. The
percentages of quantity sold to marketed surplus are 64.40 and 64.32 per cent of
their respective total in the case of small and large farmers.
207
The reasons for the choice of commission agents are presented in
Table 6.10.
TABLE 6.10
REASONS FOR SELLING BANANA THROUGH COMMISSION AGENT
Sl.No. Reasons Score Rank
1. Availability of credit facilities 79.66 I
2. Better price 51.43 III
3. Immediate cash after sale 69.26 II
4. Long term practice 36.26 V
5. Higher off-take 41.22 IV
Source: Primary data.
Most of the farmers prefer the commission agents as their intermediary
because the commission agents provide credit facilities to the farmers whenever
they need. Therefore it is ranked first. Other reasons namely immediate cash after
sale, better price, high off-take and long term practice are ranked II, III, IV and V.
6.4. MARKETING COST, MARKETING MARGIN AND
PRICE-SPREAD
Price-spread would explain in detail the actual price received by the
producers, the price paid by the consumers, costs incurred and margins earned by
the various market intermediaries in the process of marketing banana. The net
price received by the producers, total marketing costs and margins will be
208
analysed in the present study, to evaluate the functional efficiency of different
marketing channels. With this end in view, an attempt has been made in this
section, to analyse the marketing cost, marketing margin and price-spread of
multiplier banana in different channels of marketing in the study area.
Marketing Cost and Marketing Margin
The marketing expenses incurred by the banana cultivators are the
expenses which are incurred after the harvest and prior to the sale of banana. The
expenses are incurred for several purposes like transport, unloading, weighing and
stitching, charity, sample, commission and other purposes. The marketing
expenses very as the farmers sell their produce through different channels. The
cost per quintal incurred by the producer was analysed for large and small farmers
separately in all the three channels and the results are presented in Table 6.11.
209
210
It is observed from Table 6.11 that the average marketing costs incurred by
the farmers per tonnes of banana was Rs.206.26, Rs.214.21 and Rs.173.20 in the
case of small farmers and Rs.177.74, Rs.203.47 and Rs.170.88 in the case of large
farmers through channels I, II and III respectively.
The cost of marketing through Channel I was found to be 80 per cent
higher as compared to other two channels in both small and large farms. This is
due to the payment of commission charges to the commission agent. The
contribution of commission charges are 42.46 and 42.38 per cent to the respective
total marketing cost in small and large farms respectively. In both farms, the
commission charges, storage cost and transportation cost ranked first, second and
third in the marketing cost.
In Channel II, both small and large farmers have incurred Rs.42.18 and
Rs.40.73 per tonnes respectively on the storage facilities. The cost of marketing
through Channel II was found to be higher as compared to other two Channels I
and III.
211
Marketing Cost Incurred by the Intermediaries
Certain expenses relating to marketing were incurred by intermediaries
namely, village traders, regulated markets and commission agents too. These
expenses are borne by the intermediaries from the purchase of banana to the sale
of banana.
Generally, the marketing cost of intermediaries includes labour charges,
transport cost, packaging cost, loading and unloading charges, weighment
charges, shop rent, tax, cost towards wastage and the like. In the study area, the
wholesalers themselves do the retailing business also. No exclusive wholesaler
was found in the market that purchased for the purpose of selling banana to the
retailers. All the intermediaries sold banana only with a profit motive. Their profit
was highly determined by the marketing cost incurred by them. Hence, separate
analysis of marketing cost by village traders, commission agents and wholesalers/
retailers are attempted.
Price – Spread
Price-spread is the difference between the actual price received by the
producers, the price paid by the consumers, costs incurred and margins earned by
the various market intermediaries in the process of marketing of banana. The net
price received by the producers, total marketing costs and margins were analysed
separately for small and large farmers in order to evaluate the marketing
efficiency of different marketing channels.
212
The results of price spread are presented in Table 6.12.
TABLE 6.12
MARKETING COST AND MARKETING MARGIN IN SMALL FARMS
(Rupees per tonnes)
Particulars
Channels
I II III
Amount Percen-
tage Amount
Percen-
tage Amount
Percen-
tage
PRODUCER
Net Price Received 2348.80 83.37 2393.70 84.97 2406.91 85.44