Agribusiness Management and Trade

Lesson-27 Agricultural Marketing Functions

27.2 CLASSIFICATION OF MARKETING FUNCTIONS

The marketing functions may be classified in various ways. For example,

• Thomsen has classified the marketing functions into three broad groups. These are:

Primary Functions	Secondary Functions	Tertiary Functions
Processing Dispersion or Distribution	Packing or Packaging Transportation Grading, Standardization and Quality Control Storage and Warehousing Price Determination or Discovery Risk Taking Financing Buying and Selling Demand Creation Dissemination of Market Information	Banking Insurance Communications – posts & Telegraphs Supply of Energy – Electricity

• Kohls and Uhl have classified marketing functions as follows:

Physical Functions	Exchange Functions	Facilitative Functions
Storage and Warehousing Grading Processing Transportation	Buying & Selling	Standardization of grades Financing Risk Taking Dissemination of Market Information

• Huegy and Mitchell have classified marketing functions in a different way. According to them, the classification is as follows:

Physical Movement Functions	Ownership Movement Functions		Market Management Functions
Storage Packing Transportation Grading Distribution	Determining Need Creating Demand Finding Buyers and Sellers Negotiation of Price Rendering Advice Transferring the Title to Goods	Formulating Policies Financing Providing organization Supervision Accounting Securing Information

27.3  PACKAGING

Packaging is the first function performed in the marketing of agricultural commodities. It is required for nearly all farm products at every stage of the marketing process. The type of the container used in the packing of commodities varies with the type of the commodity as well as with the stage of marketing. For example, gunny bags are used for cereals, pulses and oilseeds when they are taken from the farm to the market. For packing milk or milk products, plastic, polythene, tin or glass containers are used. Wooden boxes or straw baskets are used for packing fruits and vegetables.

27.3.1 Meaning of Packing and Packaging

Packing means, the wrapping and crating of goods before they are transported. Goods have to be packed either to preserve them or for delivery to buyers. Packaging is a part of packing, which means placing the goods in small packages like bags, boxes, bottles or parcels for sale to the ultimate consumers. In other words, it means putting goods on the market in the size and pack which are convenient for the buyers.

27.3.2  Advantages of Packing and Packaging

Packaging is a very useful function in the marketing process of agricultural commodities. Most of the commodities are packed with a view to preserving and protecting their quality and quantity during the period of transit and storage. For some commodities, packing acts as a powerful selling tool. The chief advantages of packing and packaging are:

1. It protects the goods against breakage, spoilage, leakage or pilferage during their movement from the production to the consumption point.

2. The packaging of some commodities involves compression, which reduces the bulk like cotton, jute and wool.

3. It facilitates the handling of the commodity, specially such fruits as apples, mangoes, etc., during storage and transportation.

4. It helps in quality-identification, product differentiation, branding and advertisement of the product, e.g., Nandini milk and Amul butter.

5. Packaging helps in reducing the marketing costs by reducing the handling and retailing costs.

6. It helps in checking adulteration.

7. Packaging ensures cleanliness of the product.

8. Packaging with labelling facilitates the conveying of instructions to the buyers as to how to use or preserve the commodity. The label shows the composition of the product.

9. Packaging prolongs the storage quality of the products by providing protection from the ill effects of weather, especially for fruits, vegetables and other perishable goods.

27.4   TRANSPORTATION

Transportation or the movement of products between places is one of the most important marketing functions at every stage, i.e., right from the threshing floor to the point of consumption. Most of the goods are not consumed where they are produced.

All agricultural commodities have to be brought from the farm to the local market and from there to primary wholesale markets, secondary wholesale markets, retail markets and ultimately to the consumers. The outputs from the factories must be taken to the warehouses and from the warehouses to the wholesalers, retailers and finally to the consumers (farmers). Transportation adds the place utility to goods.

Transport is an indispensable marketing function. Its importance has increased with urbanization. For the development of trade in any commodity or in any area transport is a sine qua non. Trade and transport go side by side; the one reinforces and strengthens the other.

27.4.1  Advantages of Transport Function:

The main advantages of the transport function are:

1. Widening of the Market: Transport helps in the development or widening of markets by bridging the gap between the producers and consumers located in different areas.

2. Narrowing Price Difference Over Space: The transportation of goods from surplus areas to the places of scarcity helps in checking price rises in the scarcity areas and price falls in surplus areas.

3. Creation of Employment: The transport function provides employment to a large number of persons through the construction of roads, loading and unloading, playing of the means of transportation, etc.

4. Facilitation of Specialized Farming: Farmers can go in for specialization in the commodity most suitable to their area, and exchange the goods required by them from other areas at a cheaper price than their own production cost.

5. Transformation of the Economy: Transportation helps in the transformation of the economy from the subsistence stage to the developed commercial stage.

6. Mobility of the Factors of Production: Transport helps in increasing the mobility of capital and labour from one area to another.

27.5  GRADING AND STANDARDIZATION

Grading and standardization is a marketing function which facilitates the movement of produce. Without standardization the rule of caveat emptor (let the buyer beware) prevails; and there is confusion and unfairness as well. Standardization is a term used in a broader sense. Grade standards for commodities are laid down first and then the commodities are sorted out according to the accepted standards.

Products are graded according to quality specifications. But if these quality specifications vary from seller to seller, there would be a lot of confusion about its grade. The top grade of one seller may be inferior to the second grade of another. This is why buyers lose confidence in grading. To avoid this eventuality, it is necessary to have fixed grade standards which are universally accepted and followed by all in the trade. Standardization means the determination of the standards to be established for different commodities.

27.5.1 Types of Grading

Grading may be done on the basis of fixed standards or variable standards. It is of three types:

1. Fixed Grading / Mandatory Grading: This means sorting out of goods according to the size, quality and other characteristics which are of fixed standards. These do not vary over time and space.

2. Permissive / Variable Grading: The goods are graded under this method according to standards, which vary over time. The grade specifications in this case are fixed over time and space, but changed every year according to the quality of the produce in that year.

3. Centralized / Decentralized Grading: Based on the degree of supervision exercised by the government agencies on grading of various farm products, the programme can be categorized into centralized and decentralized grading.

Under the centralized grading system, an authorized packer either sets up his own laboratory manned by qualified chemists or seeks access to an approved grading laboratory set up for the purpose by the state authorities / co-operatives / associations / private agencies.

The decentralized grading system is implemented by State Marketing Authorities under the overall supervision and guidance of the Directorate of Marketing and Inspection. This is followed in those commodities which do not require elaborate testing arrangements for quality assessment.

27.5.2 Advantages of Grading;

Grading offers the following advantages to different groups of persons:

1. Grading before sale enables farmers to get a higher price for their produce.

2. Grading facilitates marketing, for the size, color, qualities and other grade designations of the product are well known to both the parties, and there is no need on the part of the seller to give any assurance about the quality of the product.

3. Grading widens the market for the product.

4. Grading reduces the cost of marketing by minimizing the expenses on the physical inspection of the produce, minimizing storage loses, reducing its bulk, minimizing advertisement expenses and eliminating the cost of handling and weighing at every stage.

5. Grading helps consumers to get standard quality products at fair prices.

6. Grading contributes to market competition and pricing efficiency.

27.6   STORAGE:

Storage is an important marketing function, which involves holding and preserving goods from the time they are produced until they are needed for consumption. The storage function, therefore, adds the time utility to products.

The storage function is as old as man himself, and is performed at all levels in the trade.

Producers hold a part of their output on the farm. Traders store it to take price advantage.

The storage of agricultural products is necessary for the following reasons:

1. Agricultural products are seasonally produced, but are required for consumption throughout the year.

2. Storage protects the quality of perishable and semi – perishable products from deterioration;

3. Some of the goods, e.g., woollen garments, have a seasonal demand.

4. It helps in the stabilization of prices by adjusting demand and supply.

5. Storage is necessary for some period for the performance of other marketing functions.

6. The storage of some farm commodities is necessary either for their ripening (e.g., banana, mango, etc.) or for improvement in their quality (e.g., rice, pickles, cheese, tobacco, etc.); and

27.6.1  Risks in Storage:

The storage of agricultural commodities involves three major types of risks. These are:

1. Quantity Loss: The risks of loss in quantity may arise during storage as a result of the presence of rodents, insects and pests, theft, fire, etc.

2. Quality Deterioration: The second important risk involved in the storage of farm products is the deterioration in quality, which reduces the value of the stored products.

3. Price Risk: This, too, is an important risk involved in the storage of farm products. Prices do not always rise enough during the storage period to cover the storage costs.

27.7   PROCESSING:

This activity is discussed in the chapter-35 in detail  

27.8  BUYING AND SELLING:

Buying and selling is the most important activity in the marketing process. At every stage, buyers and sellers come together, goods are transferred from seller to buyer, and the possession utility is added to the commodities.

The objective of selling is to dispose of the goods at a satisfactory price.

27.8.1 Methods in buying and selling:

The following methods of buying and selling of farm products are prevalent in Indian markets:

(i) Under Cover of a Cloth (Hatha System)

(ii) Private Negotiations:

(iii) Quotations on Samples taken by Commission Agent:

(iv) Dara Sale Method

(v) Moghum Sale Method:

(vi) Open Auction Method:

(vii) Close Tender System:

27.9   MARKET INFORMATION:

Meaning: Market information may be broadly defined as a communication or reception of knowledge or intelligence. It includes all the facts, estimates, opinions and other information which affect the marketing of goods and services.

Types of Market Information:

Market information is of two types

a) Market Intelligence: This includes information relating to such facts as the prices that prevailed in the past and market arrivals over time.

b) Market News: This term refers to current information about prices, arrivals and changes in market conditions. This information helps the farmer in taking decisions about when and where to sell his produce.

27.10 FINANCING:

No business is possible nowadays without the financial support of other agencies because the owned funds available with the producers and market middlemen (such as wholesalers, retailers and processors) are not sufficient. The financial requirements increase with the increase in the price of the produce and the cost of performing various marketing services. In the words of Pyle: “Money or credit is the lubricant that facilitates the marketing machine.”

Nature and volume of business, necessity of carrying large stocks, continuity of business during various seasons, time required between production and sale, terms of payment for purchase and sale, fluctuations in prices, risk-taking capacity, general conditions in the economy are the some of the factors affecting capital requirements of an agricultural marketing firm