A STUDY OF INTERMEDIARIES’ INTERVENTION IN AGRICULTURE SUPPLY CHAIN AND ITS EFFECT ON FARMERS’ INCOME A Project Report Submitted to G. B. PANT UNIVERSITY OF AGRICULTURE AND TECHNOLOGY PANTNAGAR-263145, (U. S. NAGAR) Uttrakhand, India Submitted by Prince I.D. No. 31996 IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF Master of Business Administration (Food Retail and Supply Chain) May,2011
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A STUDY OF INTERMEDIARIES’ INTERVENTION IN AGRICULT URE
SUPPLY CHAIN AND ITS EFFECT ON FARMERS’ INCOME
A Project Report
Submitted to
G. B. PANT UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
PANTNAGAR-263145, (U. S. NAGAR)
Uttrakhand, India
Submitted by
Prince
I.D. No. 31996
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE DEGREE OF
Master of Business Administration (Food Retail and Supply Chain)
May,2011
i
CERTIFICATE
We, the undersigned, members of Project Advisory Committee of Ms. Prince,
I.D.No. 31996, a candidate for the degree of Master of Business
Administration (Food Retail and Supply chain), agree that the project report
entitled “A Study of Intermediaries’ Intervention in Agricul ture Supply
chain and its effect on Farmers’ Income” may be submitted in partial
fulfillment of the requirements of the degree.
Advisory Committee
(Ashutosh Singh)
Chairman
(Mukesh Pandey) (Nirdesh Kumar Singh)
Member Member
ii
ACKOWLEDGEMENT
I take this opportunity to express my sincere and deepest gratitude to Govind Ballabh
Pant University of Agriculture & Technology and college of Agribusiness Management
for providing me a chance of learning. This project not only helped me to understand
about the Indian agriculture, but widened this vision in field of management too, by
virtue of being associated with an esteemed and professional institute.
This report is the result of contribution made by numerous people too many to mention
individually, therefore I thank all the respondents who have given their valuable time,
views and authentic information for this project. At the very outset, I would like to
thank my advisor Dr.AshutoshDr.AshutoshDr.AshutoshDr.Ashutosh Singh,Singh,Singh,Singh, Associate professor, department of Human
Resource and personal management for providing me all types of support, constant
encouragement and his relentless efforts to motivate me to achieve my goal. His close
supervision and precious input have made me able to refine this project to this extent. I
consider it my privilege to express my deep sense of gratitude to Dr. Mukesh Pandey,Dr. Mukesh Pandey,Dr. Mukesh Pandey,Dr. Mukesh Pandey,
Associate Professor Department of marketing and Mr. Niredesh KumarMr. Niredesh KumarMr. Niredesh KumarMr. Niredesh Kumar Singh,
Assistant professor, for their continuous guidance, motivation and providing valuable
suggestion and critically analyzed my project work.
I am grateful to Dr B.K.KumbherDr B.K.KumbherDr B.K.KumbherDr B.K.Kumbher, Dean post graduate studies for providing me the
necessary research facilities. Also I would like to express my sincere thanks to
Dr.Devendra Kumar Dean, College of Agribusiness Management, Dr.B.k. Sikka
Former Dean, College of Agribusiness Management, Pantnagar for providing a chance
to undertake this present study.
This acknowledgement would be incomplete if I don’t mention a special regard to my
parents, my sister Preety, my batch mates, administrative staff of my college and all
those who motivated me to perform better than the best.
Last but not the least; I thank The ALMIGHTY, for blessings me with enough patience
endurance and strength in accomplishment of the Endeavor.
Pantnagar Prince
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EXECUTIVE SUMMARY
Intermediaries in agri-supply chain are very important component with various pros and
cons. Among the several shortcomings that plague this sector is the high intermediary margin as
a result of numerous intermediaries in the agri-supply chain. These intermediaries add-on their
margins to the produce during its transit from farm gates to the final consumer.
The proposed study was conducted in Rudrapur, Kashipur, Bazpur, Gadarpur and Jaspur
block of district Udham Singh Nagar. The study was conducted in two phases; the initial phase
was survey, information collection regarding farmers and intermediaries while second phase of
study was to analyse the data of survey.
This study was conducted to identify the intermediaries in agri-supply chain and to
compare the income of farmers who market through commission agents and through Rice/flour
millers. The study also analyses the impact of intermediaries on cash flow of the farmers. During
the study it was found that four types of intermediaries are involved namely commission agent,
rice/flour millers, wholesaler and retailers. A major portion of farmers sell their produce through
commission agents .It was also revealed that the farmers who sold their produce to rice millers
received higher profit as compare to farmers who sell through commission agents. The various
facilities provided by intermediaries include assured prices, advance credit, information about
agricultural input and transportation facilities. As a result of these activities the income of
farmers increase considerably.
The study suggests that the farmers should sell their produce directly to the rice/flour
millers as it gives them higher profit. Commission agents are necessary evil in agri-marketing.
But, it is expected that as a result of better extension activities and enforcement of APMC act
the role of commission agent is expected to decrease in future.
iv
TABLE OF CONTENTS
S.No Title Page No.
Acknowledgement
i
Executive summary
ii
Table of Contents iii
List of Exhibits
iv
List of Tables
iv
1 Introduction 1-3
Background 1
1.1 Agriculture Marketing in India
1
1.2 Role of Intermediaries
2
1.3 Problem Statement
3
1.4 Objectives
3
2 Review of Literature
4-6
3 Research Methodology
7-10
3.1 Research Design
7
3.2 Information required
7
3.3 Data source
7
3.4 Area of Study
8
3.5 Sampling Plan
8
3.6 Research Instrument
9
3.7 Duration of Study
9
3.8 Data Analysis 10
v
4 Result and discussion
11-20
4.1 Classification of farmers
11
4.2 Intermediaries in agri-Supply chain
12
4.3 Different links in supply Chain of Wheat and Rice
12
4.4 Income of Farmer who sell directly 14
4.5 No. of farmers who are taking credit 16
4.6 Factor affecting the selection of Commission agents by Farmers 17
4.7 Income of farmer who sell through Intermediaries 17
4.8 Comparison of Farmer’s Income 18
4.9 Factor affecting the selection of Farmers by Intermediaries 18
4.10 Facilities Provided by Intermediaries to the Farmers 19
4.11 Increase the Income of Farmer 22
5 Conclusion
23
6 Suggestions
24
Reference
vi
Annexure I
vii
Annexure II
viii
Vita
vi
LIST OF EXHIBITS
S.No Exhibit No. Title of Exhibit Page No.
1 Exhibit 4.1 Classification of farmers
10
2 Exhibit 4.2 Intermediaries in Agri-supply chain
11
3 Exhibit 4.3 Different links in agri –supply chain 13
4 Exhibit 4.5 No. of farmers who are taking credit 16
6 Exhibit 4.6 Factor affecting the selection of Commission agents by Farmers
17
5 Exhibit 4.8 Comparison of income of farmer
18
7 Exhibit 4.9 Factor affecting the selection of Farmers by Intermediaries
18
8 Exhibit 4.10 Facilities Provided by Intermediaries to the Farmers
20
9 Exhibit 4.11 Increase the Income of Farmer 22
vii
LIST OF TABLES
S.No Table No. Title of Table Page No
1 Table4.1 Variable Cost of Production 14
2 Table 4.2 Changes in the cash flow of farmer 21
1
1. INTRODUCTION Background The marketing as a term is broader than traditional trading and agricultural marketing as a
concept is still evolving in the Indian agrarian society. The National Commission on
Agriculture defined agricultural marketing as a process which starts with a decision to
produce a saleable farm commodity and it involves all aspects of market structure of system,
both functional and institutional, based on technical and economic considerations and
includes pre and post- harvest operations, assembling, grading, storage, transportation and
distribution.
Agricultural marketing also reflect another dimension from supply of produce from rural to
rural and rural to urban and from rural to industrial. In modern world it became challenging
with the latest technologies and involvement of middlemen, commission agents who keep
their margins and move the produce further. As it is well known more the number of
mediatory more will be the costs as each transaction incurs expenses and invites profits.
Ultimately when it comes to the producer the cost of the produce goes up steep. In the entire
process of marketing the producer gets the lowest price and the ultimate consumer pays the
highest as the involvement of more middlemen.
1.1 Agriculture Marketing in India In the case of agricultural marketing in India it is
not exactly the marketing in the literal sense and we can call it as ‘distributive handling’ and
to go further we may call it as ‘distributive handling’ of agricultural produce as there are
number of intermediaries who are involved in marketing the agricultural produce. Marketing
systems are dynamic; they are competitive and involve continuous change and improvement.
Businesses that have lower costs, are more efficient, and can deliver quality products, are
those that prosper. Those that have high costs, fail to adapt to changes in market demand, and
provide poorer quality, are often forced out of business. Marketing has to be customer-
oriented and has to provide the farmer, transporter, trader, processor, etc. with a profit. This
requires those involved in marketing chains to understand buyer requirements, both in terms
of product and business conditions.
Activities include market information development, marketing extension, training in
marketing and infrastructure development. Improvement of marketing systems necessitates a
2
strong private sector backed up by appropriate policy and legislative frameworks and
effective government support services. Such services can include provision of market
infrastructure, supply of market information, and agricultural extension services able to
advise farmers on marketing. Training in marketing at all levels is also needed.
1.2 Role of Intermediaries The number of middlemen or intermediaries is shrinking
dramatically as the structure of the food and agriculture system changes. Major customers are
requiring their producer-suppliers to perform many of the services previously accomplished
by middlemen. This fact may be detrimental to small- to mid-sized producers in maintaining
their access to important customers. Producers attempting to accomplish all of the assembly
and distribution functions otherwise performed by intermediaries will need to bear that cost
themselves. In some cases, producers may be able to perform those functions profitably but in
many cases the actual costs of assembly and distribution are underestimated by producers,
resulting in losses. Some producers may be in a position to accomplish all of the necessary
assembly and distribution functions themselves or as a group. However, for others not in that
position, eliminating “middlemen” may not be as desirable at first glance as producers might
think, unless they can accomplish all of those functions at a lower cost as those individuals or
firms who performed those assembly and distribution activities on their behalf.
Intermediaries are an important link in the supply chain. One should not forget that even if
there are 3 to 4 intermediaries in the existing supply chain, still the chain is very efficient.
Just ignoring them will lead to no fruitful result. Taking out the middle man from the chain
does not guarantee a higher realization of price for the farmers. The Commission agents play
a very important role by providing finance to the farmer. Though there are arguments that the
intermediaries is exploiting the farmer by charging high interest rate and also that the farmer
is forced to sell the produce to the middle man but he provides finance to farmer when it is
required, procures from the farm level, gives extra credit to meet the house hold needs of the
farmer. The farmer knows that he is not getting the best price from the middleman; He is
fully aware where the mandi is even in the mandi he has to sell to commission agent so why
not sell the produce in the village itself without the hassle of additional transportation cost.
3
1.3 PROBLEM STATEMENT
The traditional agriculture supply chain model that is operational in India results in
significant reduction in farmers’ income. The farmers have the option to sell his produce in
various agriculture agencies. However selling in mandis in most cases is unprofitable due to
two notable reasons – (1) cost issues involved in transporting produce to mandi, and (2)
structural deficiencies rampant at mandis. On an average, the distance between regulated
markets (mandis) and farm field ranges from 7.7 kilometres to 15 kilometres in India. Indian
agriculture being dominated by small and marginal famers, it may not be economically viable
nor commercially feasible for a small farmer to sell their produce directly to consumers. Here
the agri intermediaries play a crucial role, they add values at several stages of the goods
movement in the value chain because of their specialized role which everyone cannot does
and the biggest role they are playing is the aggregation of goods from large number of small
farmers scattered across a vast area but the negative impact of the agri intermediaries in
downgrading the efficiency of the agricultural marketing in India. It won’t be fallacious to
state that intermediaries also have a role in increasing price of several food commodities. So
the proposed study has been undertaken with the following objectives.
1.4 OBJECTIVES
1. To identify different intermediaries who are involved in supply chain of rice and wheat.
2. To compare the revenue of farmers who market through commission agents and through
Rice/flour millers.
3. To analyse the impact of intermediaries on Income of the farmers.
4
2. REVIEW OF LITERATURE
Patel (2009) in his study found that agriculture intermediaries in form of commission agents
at mandis (government regulated markets) operate at 4-5 percent margins, intermediaries at
wholesale markets get around 30 percent, and retail vendors make around 20 – 40 percent.
Consequently, the price of commodities that range between Rs 5 – 7 per Kg at farm gate
eventually costs in the range of Rs 15 per kg at the consumer. Among the several
shortcomings that plague this sector is the high intermediary margin that results from the
numerous intermediaries in the agri value chain. These intermediaries add-on their margins to
the produce during its transit from farm gates to the final consumer.
Vasisth and Bhardwaj (2009) observed that Farmers have been at the mercy of traders or
intermediaries while selling their produce, who pay less to farmers and in turn sell it at
exorbitant rates and thus getting huge trading margins as the margin between consumer price
and producers’ price gets added due to several levels of intermediaries prevalent in India
mainly due to the market infrastructure. Many farmers lack instant access to the present
market price.
Michael and Jusman(2008) states that the rationale for emergency of intermediary
institutions in marketing channel has been the focus of research for marketing scholars
review of the work done in this area reveals two broad approaches of this issue. One group of
scholars focus on the ability of intermediary institutions to reduce the cost of the physical
flow of goods and services from producers to users. Another approach adopted by several
researchers has been focus on the role of marketing intermediary in facilitating transmission
of information within the marketing channel between producers and users.
Thorat (2007) analyzed the state level APMC acts, acc. to that the products of the early
1960’s and 1970’s and enacted with the view that the state alone could protect farmers from
exploitation at the hand of traders to overcome this the APMC act were passed, wherein
wholesale trade was conducted under the presence of the responsible government officials
who are designated. The market mandis were administrated by a marketing committee
comprising of representative of farmers traders and other stockholders.
Mohana Rao(2005) in his study formal credit institutions have largely failed to provide
access to farm credit to small and medium-scale landowners, or zamindars. This paper
examines interlocked transactions between traders and landowners in the wheat markets in
5
UP that facilitate the provision of credit by traders. It is concluded that the case examined
provides an example where traders lend to landowners in a segment of the credit market that
approximates competitive behavior, without surplus extraction by traders. Key conditions
resulting in this favorable outcome are the existence of both competition for market share and
information sharing on borrowers between traders. Whether this outcome is also beneficial
for other rural groups who may borrow from landowners, in particular sharecropping tenants,
is independent of market relations between landowners and traders and is not determined
here.
Verma and Patidar (2004) describe in his study that the producers may either send their
produce to commission agents who arrange the sale in market or they may themselves bring
the produce to the commission agent premises for sale. After purchasing from the agents, the
wholesaler and exporters sort the crop, pack and then dispatch to different distributing or
consuming market. In the process of marketing the producer has to incur various marketing
costs. Agriculture marketing is costly with high commission charges, trader’s profit margins,
wastage and malpractices.
Bieri (2002) states that the welfare consequences of price instability critically depend on the
type of market intermediary. Both a producer marketing board and a pure middleman will
stabilize consumer prices; but the latter, unlike the producer marketing board, will find it
advantageous to "manufacture" price instability for producers.
Deepak et al.(1999) worked against the backdrop of viewing marketing intermediaries in
developing countries as parasites, Necessary information was collected from all major
stakeholders such as farmers, collectors and commission agents, and the relative position of
farmers in terms of their gains was analyzed. Marketing margin and farmers’ share of gross
income are also analyzed ‘with’ and ‘without’ the cost of malicious practices by marketing
intermediaries.
Matsuda (1997) in his study addressed that functional structure of agricultural electronic
marketplaces, together with associated pricing mechanisms. The analysis of transaction costs
suggests that electronic commerce with intermediaries provides more efficient trading
environments than electronic marketplace without intermediaries. This indicates that existing
intermediary institutions will remain important for agricultural transactions even after the
6
adoption of electronic market systems. Compared to other industries or markets, agricultural
markets are characterized as competitive markets and pricing is a key factor for efficient
resource allocations.
7
3. RESEARCH METHODOLOGY
Keeping in view the formulated objectives, the project was carried out with the following research methodology-
3.1 Research Design
The methodology adopted for the completion of study was descriptive and analylitical
research approach. Descriptive research was used for the identification and role of
intermediaries’ in marketing of agriculture produce while, analytical research approach was
used for analysing the impact of intermediaries on farmers’ income.
3.2 Information Required
For completing the study, information required was about background of Udham Singh
Nagar district, data regarding different blocks and villages of district. Data related to land
holding of farmers, their cropping pattern, their socio-economic status..
3.3 Data Source
Secondary data as well as primary data were used for the information generation. The
inferences were drawn mainly from primary source.
Secondary Data-Secondary data were collected from internet, journals, book research
articles, different mandis and government booklet issued by district agricultural department.
Primary Data-This data was first hand information for the study. This was collected with
the help of survey method using a self structured questionnaire consisting of both open ended
and close ended questions. The questionnaire was used for conducting the personal interview
of farmers and intermediaries.
3.4 Area of Study
The study was conducted in the Udham Singh Nagar district of Uttrakhand within the district
Udham Singh Nagar different areas like Rudrapur, Gadarpur, Bazpur, Kashipur, Jaspur was
taken.
8
Figure 3.1 Map of district Udham Singh Nagar
3.5 Sampling Plan
3.5.1 Universe
The universe of sampling was comprises of farmers, intermediaries government personnel
who are directly or indirectly related with marketing of agriculture produce of district
Udham Singh Nagar.
3.5.2 Sampling Unit- Farmers and intermediaries were the sampling units for the study.
These were selected from two villages of each block.
9
3.5.3 Sample Size-
S.No Block Farmer Intermediaries
1 Rudrapur 25 4
2 Gadarpur 25 4
3 Bazpur 25 4
4 Kashipur 25 4
5 Jaspur 25 4
Total 100 20
3.5.4 Sampling Technique-Convenience and simple random sampling employed for the
selection of farmers and intermediaries. Farmers were selected on the basis of their land
holding. In some places judgemental sampling was also used for selecting intermediaries.
3.6 Research Instrument
Questionnaire containing both open and close ended questions was used as main research
instrument. Questionnaire was structured in such a way that it has contained all the questions
which was helpful in getting the objectives of study fulfilled.
3.7 Data Analysis
Data obtained from the survey of samples was analyzed with the help of graphical
representation, tabulation and classification of data and by using statistical tools like 5 point
scale method, bar diagram, pie charts and other related methods. 5 point scale method is used
for analyzing the factors which are affecting the selection of commission agent by the
farmers.
3.8 Duration of Study
The period of study was from 7th of March to 30th April, 2011.
10
3.9 Limitation of Study
i. There may be discrepancies in the actual data and the recorded data due to
misinterpretations and wrong selection of respondents.
ii. Topic is vast but availability of information and timeline was short.
iii. In some cases there were some contradictory answers given by farmers which were
create confusion regarding intermediaries’.
4. RESULT AND DISCUSSION
In accordance with the objective of the study,
sources were analyzed and interpreted.
4.1 Classification of Farmers
It is very important to know that
socio-economic status. The farmers are classified into three main categories
Farmer, small Farmer and Large Farmer.
It is evident from the Exhibit 4.1 that out of total sample, 17 percent are marginal farmers, 50
percent are small farmers and 33 percent belongs to the category of large farmer.
Exhibi t 4.1 Classification of Farmers
Small Farmer
Marginal Farmer
4. RESULT AND DISCUSSION
the objective of the study, the data collected from primary and secondary
were analyzed and interpreted.
4.1 Classification of Farmers
It is very important to know that the categories of the farmers for understanding the
The farmers are classified into three main categories
Farmer and Large Farmer.
It is evident from the Exhibit 4.1 that out of total sample, 17 percent are marginal farmers, 50
percent are small farmers and 33 percent belongs to the category of large farmer.
t 4.1 Classification of Farmers
Large Farmer
33%
Small Farmer
50%
Marginal Farmer
17%
11
the data collected from primary and secondary
of the farmers for understanding their
The farmers are classified into three main categories –Marginal
It is evident from the Exhibit 4.1 that out of total sample, 17 percent are marginal farmers, 50
percent are small farmers and 33 percent belongs to the category of large farmer.
4.2 Identification of Different Intermediaries involved in
Wheat
Farmers producing agricultural produce are scattered in remote villages
to reach to the consumers for its final use and consumption. There are dif
and functionaries through which this produce passes and reaches
channel or channel of distribution is therefore defined as a path traced in the direct or indirect
transfer of title of a product as it moves from a p
user. There are several channels of distribution which
need. Exhibit- 4.2 shows that
agents, 35 percent farmers
farmers sell their produce to others
Exhibit 4.2 Proportion of Intermediaries in
4.3 Different links in Supply Chain of W
The Exhibit 4.3 illustrates that in Supply chain of wheat and rice in Udham Singh Naga
district, there is linkage of four
millers/ flour millers, wholesaler and retailers
produce from farmer to ultimate consumer.
Commission agents
60%
ent Intermediaries involved in Supply Chain of Rice and
Farmers producing agricultural produce are scattered in remote villages and t
consumers for its final use and consumption. There are dif
and functionaries through which this produce passes and reaches to the consumer. A market
channel or channel of distribution is therefore defined as a path traced in the direct or indirect
transfer of title of a product as it moves from a producer to an ultimate consumer or industrial
annels of distribution which used by farmers according to their
shows that, 60 percent farmers sell their produce to the commission
ers sell to the rice/ flour millers directly and on
others (Wholeselor and Retailers).
Intermediaries in Distribution of sold produce
erent links in Supply Chain of Wheat and Rice
that in Supply chain of wheat and rice in Udham Singh Naga
of four kinds of intermediaries that is Commission agents, Rice
millers/ flour millers, wholesaler and retailers. These intermediaries are involved for flow of
produce from farmer to ultimate consumer.
Rice/Flour millers
35%
Commission agents
other
5%
12
Supply Chain of Rice and
and this produce has
consumers for its final use and consumption. There are different agencies
the consumer. A market
channel or channel of distribution is therefore defined as a path traced in the direct or indirect
roducer to an ultimate consumer or industrial
used by farmers according to their
their produce to the commission
to the rice/ flour millers directly and only 5 percent
Distribution of sold produce
that in Supply chain of wheat and rice in Udham Singh Nagar
of intermediaries that is Commission agents, Rice
intermediaries are involved for flow of
13
Exhibit 4.3 Different links in Agri-Supply Chain of Rice and Wheat
Farmer
Commission
agent
Rice millers
/Flour millers
Others
Wholesaler
Retailer
Consumer
Export
14
4.3.1 Different Types of Marketing Channel for Rice and Wheat