Agricultural marketing

FINANCING: 
There is a long interval between the time of production and consumption. Between these 
two points, the ownership of commodities shifts many times – a fact which necessitates 
financial arrangements. Middlemen need finance not only for the purchase of stocks, but 
for the performance of various marketing functions, such as processing, storage, 
packaging, transport and grading. The financing function of marketing involves the use 
of capital to meet the financial requirements of the agencies engaged in various 
marketing activities. 
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.” 
Factors affecting Capital Requirements of an Agricultural Marketing Firm: 
The capital requirements of a marketing agency for its marketing business varies with the 
following factors: 

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(i) Nature and Volume of Bus iness: Financial requirements for trading in high 
value crops like cumin, chillies, cotton and oilseeds are higher than for trading 
in foodgrains. For the wholesale business too, financial requirements are 
higher than for retail business. 
(ii) Necessity of Carrying Large Stocks: It is essential to carry over large stocks 
throughout the year, of goods which are seasonally produced and marketed on 
a wholesale basis. 
(iii) Continuity of Business during Various Seasons: If business is continuous 
throughout the year, the financial requirements will be greater than if business 
is conducted only during a particular season. 
(iv) Time Required between Production and Sale: Some goods are sold 
immediately after production – perishables, for example – while others are 
diposed for after a certain time – rice and cheese, for example. Financial 
requirements in the marketing of the latter goods are, therefore higher. 
(v) Terms of Payment for Purchase and Sale: The terms of transactions – whether 
payment will be in cash, on credit or by instalments – affect the financial 
requirements of the marketing middlemen. 
(vi) Fluctuations in Prices: Financial requirements are higher for goods which 
suffer frequent price fluctuations than for goods that are subject to less 
frequent price fluctuations. 
(vii)
Risk-taking Capacity: The financial needs of the market middlemen vary 
with their risk-taking capacity. A middleman with a low risk-taking capacity 
often resorts to hedging, and needs less finance than a middleman who takes 
risks. 
(viii) General Conditions in the Economy: During the period of price fall or 
recession, the financial requirements increase. The marketing agency has to 
hold stocks for a longer period in anticipation of a price rise. Moreover, the 
recovery of old bills tends to be slow. Whenever, therefore, a new product is 
introduced, the dealer needs more finance temporarily till the demand for it 
picks up in the economy. 
The marketing finance required by the marketing middlemen is of two types – fixed 
capital for land, buildings (shops and godowns), equipment and machinery 
(weighbridge, grading equipment, etc.), and working capital which is required to meet 

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the marketing costs, purchase value, and salaries of the employees. The proportion of 
working capital is higher than that of fixed capital. It is also necessary to make 
arrangements for financing the farmers during the period between the production and 
sale of their produce. This is necessary to improve their holding capacity and to 
avoid the post-harvest sale of the produce when prices are low in the market.
Because of their acute financial needs, many farmers market their standing crops – of 
fruits, for example – or borrow money in advance from local traders/commission 
agents against their crops, and bind themselves to sell the crop through the 
trader/commission agent. This checks their freedom to sell the produce in the open 
market. 
To improve the financial position of the farmers and to strengthen their holding 
capacity, the following steps have been taken by the government. 
(i) Since July 1969, with the nationalization, commercial banks have started 
financing the agricultural sector in a big way and meeting the increasing needs 
of the farmers for production purposes. 
(ii) The co-operatives, too, have developed and entered the field of agricultural 
financing. An integrated scheme of credit and marketing has been introduced.
Under this scheme, co-operative credit societies can realize their credit, 
together with the interest due on it, by the sale proceeds of the produce 
directly by intimation to Co-operative Marketing Societies. These may make 
the payments for the produce to the farmer after deducting their dues. A rapid 
progress has been made in this area. 
(iii) With the development of warehousing facilities in the country, farmers can 
now meet 70 to 80 percent of their credit needs by placing the produce in the 
warehouses. Banks extend the financing facility to farmers against the 
mortgage of the warehouse receipt. This scheme has lessened the financial 
problems of the farmers and of market middlemen. As a result, the tendency 
to sell the produce immediately after the harvest should have been checked.
However, it has met with only limited success. So long as the interest rate 
continues to be more tha n the intra-year rise in prices, storage cannot be a 
profitable proposition.