Agricultural Marketing in India: The Mandi System

chillibreeze writer — Vijender

Pre-Independence Days:
There is a fundamental difference in the marketing of industrial products and agricultural products. In case of industrial products, one manufacturer supplies many wholesalers/dealers – the quantity of production in each factory is large enough to meet such demands – and then products are supplied to retailers and consumers. In case of agricultural products, however, since production of an individual farmer/field is not sufficient, many farmers (read, manufacturers) supply to one wholesaler, before the product can move to retailers and consumers. This fundamental difference necessitates creation of special systems, institutions, and infrastructure in the marketing of agricultural products that are not required in the marketing of industrial products.

In the Indian context, mandis have traditionally fulfilled this requirement of aggregation of small quantities of production into larger lots which wholesalers could move further down the marketing chain. Essentially, these were markets in small towns and cities to which farmers from nearby villages would bring the agricultural produce at harvest time and where traders would buy this produce from them – a large number of farmers selling their produce to a small numbers of traders.

Further, agricultural produce by its very nature is bulky and its transportation is a difficult task. Not all farmers had the means to transport their produce from the fields to the towns. Even if a farmer carried his produce somehow to the town, it was quite impractical for him to carry it from trader to trader to get the best price for his produce.

The role played by brokers and commission agents:
Due to these factors, a class of brokers and commission agents came into existence. They would

i. Either collect the produce from many small farmers in the village and carry it in a single lot to the town/city for sale.
ii. Or take samples from individual farmers to different traders in the city to get the best price. For all these services, they would charge a commission from the farmers.

One more solution was found to this problem of transportation and getting the best price. If the farmer did not find the price quoted by the trader good enough, the trader would offer him to leave the goods with him and wait for some time (days, weeks, or months) until the trader could find another buyer for him at a better price. The farmer would regularly check with the trader the price available and once he agreed to the price quoted, the trader would sell the goods on his behalf. For keeping the goods and arranging to find another buyer at a better price, the trader would again charge some fees/commission. This system came to be known as aadhat – something similar to a consignment sale.

Money lending and rural marketing:
The poor financial situation of the farmers brought another aspect into this system – money lending. The traders by and large were moneyed people. Over years of regular buying of the produce from same farmers, a trader was also reasonably assured that at the time of the next crop also, the farmer would bring the produce to him for sale. The trader therefore found it relatively risk-free to lend money to such farmers in times of his need. A very large number of traders in these markets thus also turned money lenders.

The poor financial status of farmers also meant that they could not afford to sell their produce on credit terms. They toil for months together to grow and harvest the crop – they find it quite impossible to wait further even after the harvest to receive the fruits of their labor. The traders, who acted as aadhatias/moneylenders, found a business for them at this point also. If an aarhita found a buyer who was willing to pay the price demanded by the farmer, but would pay it only after a few weeks/months which the farmer would not agree to, the aarhtia would get the deal settled by paying off the farmer himself immediately and receiving payment from the buyer later, along with interest.

All these were informal and unregulated systems and practices which developed and evolved over centuries as per needs. The farmers, however, were always an unorganized lot, with meager resources, whereas traders/aarhitia/brokers were a wealthier and more powerful lot and had also formed into syndicates. There also were no legal provisions or regulation of the entire system. As a result, gross exploitation of the farmers at every stage, became the order of the day.

With the independence of the country in 1947, many legislative and structural reforms were undertaken by the government to improve the lot of farmers, such as abolition of the zamindari system. Another similar reform was introduced by enacting Agricultural Produce Marketing Committee (APMC) Act, to regulate the system.

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Chillibreeze's disclaimer: This is a contributed article and was published on Chillibreeze in October, 2010. The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article. The relevance of the facts and figures cited (if any) could change after a period of time.

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