Agricultural Marketing: Concept and Definitions

Agriculture fulfils the basic need of human kind by producing food. About a century ago,
farmer used to produce food commodities mostly for self-consumption or for exchange with
others (cash or kind) mostly in the same village or nearby places. They were primarily self-
reliant. But, now production environment has changed considerably from self- reliance to
commercialization. Technological advancement in the form of high yielding varieties, use of
fertilizers, insecticides, pesticides, farm mechanization has led to a substantial increase in
farm production and consequently the larger marketable and marketed surplus. The improved
production is accompanied by the increasing urbanization, income, changing life style & food
habits of the consumers and increasing linkages with the overseas market. Today consumers
are not limited to rural areas where food is produced. Further, increasing demand for
processed or semi-processed food products requires value addition in the raw agricultural
produce. These developments require movement of food commodities from producer to
consumers in the form of value added products. Agricultural marketing brings producers and
consumers together through a series of activities and thus becomes an essential element of the
economy. The scope of agricultural marketing is not only limited with the final agricultural
produce. It also focuses supply of agricultural inputs (factors) to the farmers.

Definitions of Agricultural Marketing

The term agricultural marketing is composed of two words- agriculture and marketing.
Agriculture, generally means growing and/or raising of crops and livestock while, marketing
encompasses a series of activities involved in moving the goods from the point of production
to point of consumption. Many scholars have defined agricultural marketing and incorporated
essential elements of time, place, form and passion utility. Some of the definitions of
agricultural marketing are given below;

 Human activity directed at satisfying the needs and wants through exchange process
(Phillip Kotler).

 Performance of business activities that directs the flow of goods and services from
producers to users (American Marketing Association).

 The study of agricultural marketing comprises all the operations, and the agencies
conducting them, involved in the movement of farm produced foods; raw materials and
their derivatives, such as textiles, from the farms to the final consumers, and the effect of
such operations on the farmers, middlemen and consumers (Thomsen). This definition
does not include the input side of agriculture.

 Agricultural marketing is a process which starts with a decision to produce a saleable

farm commodity, involves all the aspects of market structure or system, both financial
and institutional, based on technical and economic considerations, and includes pre- and
post-harvest operations, assembling, grading, storage, transportation and distribution
(National Commission on Agriculture, 1976).
Key aspects of agricultural marketing

 Agricultural marketing comprising of all activities involved in supply of farm inputs to

the farmers and movement of agricultural products from the farms to the consumers.

 The agricultural marketing system includes two major sub-system viz. product marketing
and input (factor) marketing. The product marketing sub-system includes farmers,
village/primary traders, wholesalers, processors, importers, exporters, marketing
cooperatives, regulated marketing committees and retailers. The input sub-system
includes input manufacturers, distributors, related associations, importers, exporters and
others who make available various farm production inputs to farmers.

 The agricultural marketing system is understood and developed as a link between the
farm and non-farm sectors. A dynamic and growing agriculture sector requires fertilizers,
pesticides, farm equipments, machinery, diesel, electricity, packing material and repair
services which are produced and supplied by the industry and non-farm enterprises. The
expansion in the size of farm output stimulates forward linkages by providing surpluses
of food and natural fibres which require transportation, storage, milling or processing,
packing and retailing to the consumers. These functions are performed by the non-farm
enterprises. Further, if the increase in agricultural production is accompanied by a rise in
real incomes of farm families, the demand of these families for non-farm consumer
goods goes up as the proportion of income spent on non-food consumables and durables
tends to rise with the increase in real per capita income. Several industries, thus find new
markets for their products in the farm sector.

 The marketing system should be such as may bring about the overall welfare to all the
segments (producers, consumers, middlemen and traders) society. Government act as a
watch-dog in ensuring the interest of all the groups associated in the marketing.

 The subject of agricultural marketing includes marketing functions, agencies, channels,

efficiency and costs, price spread and market integration, producer’s surplus, government
policy and research, training and statistics on agricultural marketing and imports/exports
of agricultural commodities.

 The overall objective of agricultural marketing in a developing country like Bangladesh

is to help the primary producers viz. the farmers in getting the remunerative prices for
their produce and to provide right type of goods at the right place, in the right quantity
and quality at a right time and at right prices to the processors and/or ultimate consumers
on the other.
 Importance of Agricultural Marketing

Agricultural marketing plays an important role not only in stimulating production and
consumption, but also in accelerating the pace of economic development. It is the most
important multiplier of agricultural development. In the process of shifting from traditional to
modern agriculture, marketing emerges as the biggest challenge because of production
surpluses generated by the shift. The importance of agricultural marketing is revealed from
the following;

1. Optimization of Resource use and Output Management

An efficient agricultural marketing system leads to the optimization of resource use and
output management. An efficient marketing system can also contribute to an increase in
the marketable surplus by scaling down the losses arising out of inefficient processing,
storage and transportation. A well-designed system of marketing can effectively distribute
the available stock of modern inputs, and thereby sustain a faster rate of growth in the
agricultural sector.

2. Increase in Farm Income

An efficient marketing system ensures higher levels of income for the farmers reducing
the number of middlemen or by restricting the cost of marketing services and the
malpractices, in the marketing of farm products. An efficient system guarantees the
farmers better prices for farm products and induces them to invest their surpluses in the
purchase of modern inputs so that productivity and production may increase. This again
results in an increase in the marketed surplus and income of the farmers. If the producer
does not have an easily accessible market-outlet where he can sell his surplus produce, he
has little incentive to produce more.

3. Widening of Markets
An efficient and well-knot marketing system widens the market for the products by taking
them to remote corners both within and outside the country, i.e., to areas far away from the
production points. The widening of the market helps in increasing the demand on a
continuous basis, and thereby guarantees a higher income to the producer.

4. Growth of Agro-based Industries

An improved and efficient system of agricultural marketing helps in the growth of agro-
based industries and stimulates the overall development process of the economy. Many
industries like cotton, sugar, edible oils, food processing and jute depend on agriculture for
the supply of raw materials.

5. Price Signals
An efficient marketing system helps the farmers in planning their production in
accordance with the needs of the economy. This work is carried out through transmitting
price signals.
6. Adoption and Spread of New Technology
The marketing system helps the farmers in the adoption of new scientific and technical
knowledge. New technology requires higher investment and farmers would invest only if
they are assured of market clearance at remunerative price.

7. Employment Creation
The marketing system provides employment to millions of persons engaged in various
activities, such as packaging, transportation, storage and processing. Persons like
commission agents, brokers, traders, retailers, weighmen, hamals, packagers and
regulating staff are directly employed in the marketing system. This apart, several others
find employment in supplying goods and services required by the marketing system.

8. Addition to National Income

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

9. Better Living
The marketing system is essential for the success of the development programmes which
are designed to uplift the population as a whole. Any plan of economic development that
aims at diminishing the poverty of the agricultural population, reducing consumer food
prices, earning more foreign exchange or eliminating economic waste has, therefore, to
pay special attention to the development of an efficient marketing for food and agricultural
products.

10. Creation of Utility

Marketing is productive, and is as necessary as the farm production. It is, in fact, a part of
production itself, for production is complete only when the product reaches a place in the
form and at the time required by the consumers. Marketing adds cost to the product, but, at
the same time, it adds utilities to the product. The following four types of utilities of the
product are created by marketing:

a. Form Utility: The processing function adds form utility to the product by changing the
raw material into a finished form. With this change, the product becomes more useful
than it is in the form in which it is produced by the farmer. For example, through
processing, oilseeds are converted into oil, sugarcane into sugar, cotton into cloth and
wheat into flour and bread. The processed forms are more useful than the original raw
materials.

b. Place Utility: The transportation function adds place utility to products by shifting
them to a place of need from the place of plenty. Products command higher prices at
the place of need than at the place of production because of the increased utility of the
product.
 c.Time Utility: The storage function adds time utility to the products by making them
available at the time when they are needed.

d. Possession Utility: The marketing function of buying and selling helps in the transfer
of ownership from one person to another. Products are transferred through marketing to
persons having a higher utility from persons having a low utility.

Characteristics of Agricultural Products and Production

The subject of agricultural marketing has been treated as separate discipline because
agricultural commodities possess special characteristics than manufactured commodities. The
special characteristics of agricultural commodities are given below:

1. Perishability of the product:

Most farm products are perishable in nature; but the period of their perishability varies
from few hours to a few months. Their perishability makes it almost impossible for
producers to fix the reserve price for their farm grown products. The extent of perishability
of farm products can be reduced by processing function: but they can not be made non-
perishable like manufactured products. The more perishable products require speedy
handling and often-special refrigeration, which raises the cost of marketing.

2. Seasonality of production
Farm products are produced in a particular season of the year. They can not be produced
throughout the year. It leads to intra-year seasonality in the prices. In the harvest season,
prices of farm products fall. But the supply of manufactured products can be adjusted or
made uniform throughout the year.

3. Bulkiness of products
The characteristics of bulkiness of most farm products makes their transportation and
storage difficult and expensive. This fact also restricts the location of production to
somewhere near the place of consumption or processing. The price spread in bulky
products is higher because of the higher costs of transportation, handling and storage.

4. Variation in quality of products

There is a large variation in the quality of agricultural products, which makes their grading
and standardization somewhat difficult. There is no such problem in manufactured goods
because they can be produced of uniform quality.

5. Irregular supply of agricultural products

The supply of agricultural products is uncertain and irregular because of the dependence of
agricultural production on natural conditions. With the varying supply, the demand
 remaining almost constant, the prices of agricultural products fluctuate substantially more
than that of manufactured products.

6. Small size of holding and scattered production

Farm products are produced throughout the length and breadth of the country and most of
the producers are of small size. This makes the estimation of supply difficult and also
creates problem in marketing.

Characteristics of Agricultural Commodities

Related to Related to Related to

production farm consumptio
system products n

 Small scale
production  Need for processing
 Production on before consumption
widely scarred farms  Consumption
 Perishable products
 Production in continuous on daily
 Bulky nature of
specialized areas basis
products
 Seasonality in  Inelastic demand for
 Varying quality of
production most products
products
 Production of joint  Consumption of
products products is necessary
 Irregularity in from birth till death
production

Figure 1. Some distinguishing characteristics of agricultural commodities that make

their marketing system complex and different

7. Product pricing
Apart from the problem in estimation of total supply in a small-farm agriculture, an
individual farmer faces a typical marketing situation. As his share in total supply is very
small, he can not influence the market supply. Further, owing to the inelastic nature of
demand of most of the farm products, the market price for his product is determined
independent of his supply. It is in this context that an individual farmer is supposed to be
operating in a buyer’s market. Contrary to this, most of the manufacturing firms, owing to
their larger share in the market, can control, to some extent, the supply and thus influence
the price of the product they sell.
8. Processing
Most of the farm products need some kind of processing before consumption by the
ultimate consumers. The processing function, though adds value, increases the price
spread of agricultural commodities. Processing firms enjoy the advantages of monopsony,
oligopsony or duopsony in the market. This situation sometimes creates disincentives for
the producers.

The characteristics of agricultural commodities mentioned above make their marketing

system complex and different than that for manufactured goods. These are illustrated in
figure 1.

Growth of agricultural marketing in Bangladesh

Drivers of growth of agricultural marketing in Bangladesh

1. Technological change in Agriculture:

Technological developments in agriculture, such as the evolution of high yielding
varieties of seeds, increased use of modern inputs and cultivation practices in the
agricultural sector, have resulted in substantial increase in farm production. The
marketed surplus of agricultural produce has therefore increase. This has resulted into
the growth on the marketing system.

2. Specialization:
The tendency towards increasing specialization by farmers and regions in certain
crops or livestock has resulted in an increase in their efficiency and the breakdown in
the self-sufficiency of the family unit. Specialization, thus, has resulted in increased
production, which is the base for the growth of marketing and, in turn, of the
economy. This has also resulted in improved use efficiency of natural resources like
land and water.

3. Urbanization:
Urban people are the main buyers of agricultural surpluses. The urban population of
Bangladesh has increased significantly which necessitated a faster growth of
agricultural marketing activities. The rate of growth of urban population is much
higher than rural population (due to rural-urban migration) which has further
increased the importance of marketing system for farm products.

4. Transportation and communication

The increase in transportation and communication facilities has widened the market
for farm products. The length and breadth of the market to which a product is taken
from the production areas have increased. In the absence of these facilities, the
movement of produce from one area to another was limited, and the consumption of a
product was restricted only to the areas of production or; at the most, to nearby areas.
 Characteristics of a Developed Market
A developed market is the sine qua non of any developing economy. It should satisfy the
objectives of marketing system for all the persons associated with marketing in the process of
the movement of produce from producer to consumer. A good developed market should
possess the following characteristics:

1. A good developed market should provide commodities which the consumers want and
are ready to pay for.
2. It should provide a wide variety of products to the consumers so that they may easily
choose for themselves. The varieties should not be so wide as to create confusion for
them.
3. No harmful products should be offered for sale in the market. Precaution should be
taken to protect consumers.
4. The information on the presence of goods in the market and their relative merits
should be available to all the prospective consumers.
5. There should not be any pressure on the consumers to buy products from a particular
trader or class of traders.
6. The retailing services should be available in the market (together with the wholesale
facilities) for small consumers.
7. Prices should be fair and uniform for the products for all the category of consumers.
8. There should not be any wastage of products in the market.
9. The producer should be able to sell his surplus quickly and get a price which is
consistent with the demand and supply of situation.
10. Adequate and efficient storage, transportation and processing facilities should be
available.
11. Proper grading facilities should be available.
12. The methods of packaging should be as per the requirement of different farm
products.

Problems in agricultural marketing in Bangladesh

Bangladeshi system of agricultural marketing suffers from a number of defects. As a

consequence, the Bangladeshi farmer is deprived of a fair price for his produce. The main
defects of the agricultural marketing system are discussed here.

Improper Warehouses: There is an absence of proper ware housing facilities in the villages.
Therefore, the farmer is compelled to store his products in pits, mud-vessels, "Kutcha"
storehouses, etc. These unscientific methods of storing lead to considerable wastage.
Approximately 1.5% of the produce gets rotten and becomes unfit for human consumption.
Due to this reason supply in the village market increases substantially and the farmers are not
able to get a fair price for their produce. The setting up of Central Warehousing Corporation
and State Warehousing Corporation has improved the situation to some extent
Lack of Grading and Standardization: Different varieties of agricultural produce are not
graded properly. The practice usually prevalent is the one known as "dara" sales wherein
heap of all qualities of produce are sold in one common lot Thus the farmer producing better
qualities is not assured of a better price. Hence there is no incentive to use better seeds and
produce better varieties.

Inadequate Transport Facilities: Transport facilities are highly inadequate in Bangladesh.

Only a small number of villages are joined by railways and pucca roads to mandies. Produce
has to be carried on slow moving transport vehicles like bullock carts. Obviously such means
of transport cannot be used to carry produce to far-off placesand the farmer has to dump his
produce in nearby markets even if the price obtained in these markets is considerably low.
This is even truer with perishable commodities.

Presence of a Large Number of Middlemen: The chain of middlemen in the agricultural

marketing is so large that the share of farmers is reduced substantially. For instance, a study
of D.D. Sidhan revealed, that farmers obtain only about 53% of the price of rice, 31% being
the share of middle men (the remaining 16% being the marketing cost). In the case of
vegetables and fruits the share was even less, 39% in the former case and 34% in the latter.
The share of middle- men in the case of vegetables was 29.5% and in the case of fruits was
46.5%. Some of the intermediaries in the agricultural marketing system are -village traders,
Kutchaarhatiyas, puccaarhatiyas, brokers, wholesalers, retailers, money lenders, etc.

Malpractices in Unregulated Markets: Even now the number of unregulated markets in the
country is substantially large. Arhatiyas and brokers, taking advantage of the ignorance, and
illiteracy of the farmers, use unfair means to cheat them. The farmers are required to pay
arhat (pledging charge) to the arhatiyas, "tulaii" (weight charge) for weighing the produce,
"palledari" to unload the bullock-carts and for doing other miscellaneous types of allied
works, "garda" for impurities in the produce, and a number of other undefined and
unspecified charges. Another malpractice in the mandies relates to the use of wrong weights
and measures in the regulated markets. Wrong weights continue to be used in some
unregulated markets with the object of cheating the farmers.

Inadequate Market Information: It is often not possible for the farmers to obtain
information on exact market prices in different markets. So, they accept whatever price the
traders offer to them. With a view to tackle this problem the government is using the radio
and television media to broadcast market prices regularly. The news papers also keep the
farmers posted with the latest changes in prices. However the price quotations are sometimes
not reliable and sometimes have a great time-lag. The trader generally offers less than the
price quoted by the government news media.

Inadequate Credit Facilities: Bangladeshi farmer, being poor, tries to sell off the produce
immediately after the crop is harvested though prices at that time are very low. The safeguard
of the farmer from such "forced sales" is to provide him credit so that he can wait for better
times and better prices. Since such credit facilities are not available, the farmers are forced to
take loans from money lenders, while agreeing to pledge their produce to them at less than
market prices. The co-operative marketing societies have generally catered to the needs of the
large farmers and the small farmers are left at the mercy of the money lenders.

Need for Market Regulation

Under the traditional system of marketing of agricultural products, producer sellers incurred a
high marketing cost, and suffered from unauthorized deductions of marketing charges and the
prevalence of various malpractices. To improve marketing conditions and with a view to
creating fair competition conditions, there is a strong need of market regulation.

A regulated market is one which aims at the elimination of the unhealthy and unscrupulous
practices, reducing marketing charges and providing facilities to the producer-seller in the
market. Any legislative measure designed to regulate the marketing of agricultural produce in
order to establish, improve and enforce standard marketing practices comes under the market
regulation. The establishment of regulated market is not intended at creating an alternative
marketing system. The basic objective has been to create conditions for efficient performance
of private trade, through facilitating free and informal competition. In the regulated markets,
the farmer is able to sell his marketed surplus in the presence of several buyers through open
and competitive bidding. The legislation for the establishment of regulated markets does not
make it compulsory for the farmer to sell his produce in the regulated market yard. The basic
philosophy of the establishment of regulated markets is elimination of malpractices in the
system and assignment of dominating power to the farmers or their representatives in the
functioning of the markets.

Objectives of market regulation:

1. To prevent the exploitation of farmers by overcoming the handicaps in the marketing

of their products;
2. To make the marketing system most effective and efficient so that farmers may get
better prices for their produce, and the goods are made available to the customers at
reasonable prices;
3. To provide incentive prices to the farmers for inducing them to increase the
production both in quantitative and qualitative terms; and
4. To promote and orderly marketing of agricultural produce by improving the
infrastructural facilities.
SCOPE AND SUBJECT MATTER

Agricultural marketing in a broader sense is concerned with the marketing of farm products
produced by farmers and of farm inputs and services required by them in the production of
these farm products. Thus, the subject of agricultural marketing includes product marketing
as well as input marketing.

The subject of output marketing is as old as civilization itself. The importance of output
marketing has become more conspicuous in the recent past with the increased marketable
surplus of the crops and other agricultural commodities following the technological
breakthrough. The market orientation of farming has increased. Input marketing is a
comparatively new subject. Farmers in the past used such farm sector inputs as local seeds
and farmyard manure. These inputs were available with them; the purchase of inputs for
production of crops from the market by the farmers was almost negligible. The importance of
farm inputs-improved seeds, fertilizers, insecticides and pesticides, farm machinery,
implements and credit-in the production of farm products has increased in recent decades.
The new agricultural technology is input-responsive. Thus, the scope of agricultural
marketing must include both product marketing and input marketing. In this book, the
subject-matter of agricultural marketing has been dealt with; both from the theoretical and
prac tical points of view. It covers what the system is, how it functions, and how the given
methods or techniques may be modified to get the maximum benefits.

Specially, the subject of agricultural marketing includes marketing functions, agencies,

channels, efficiency and costs, price spread and market integration, producer's surplus,
government policy and research, training and statistics on agricultural marketing and
imports/exports of agricultural commodities.