India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

CHAPTER 7
Marketing <strong>and</strong> Distribution System
Overview
Market Structure
The agricultural marketing <strong>and</strong> distribution system consists <strong>of</strong> all commercial agricultural
activities, from the point where raw agricultural products leave the farm to the point
where they are consumed by the final purchaser. These activities include transportation,
private <strong>and</strong> public storage, wholesaling, food processing, <strong>and</strong> retailing. Their cumulative
cost creates a marketing margin, which is the difference between what farmers receive
<strong>and</strong> what consumers pay. An efficient marketing <strong>and</strong> distribution system leads to lower
marketing margins, which results in higher prices for farmers, lower prices for
consumers, more production, <strong>and</strong> greater consumption.
Unfortunately, <strong>India</strong>’s agricultural marketing <strong>and</strong> distribution system is considered to be
largely inefficient. It is characterized by high levels <strong>of</strong> government intervention, poor
quality <strong>and</strong> availability <strong>of</strong> storage <strong>and</strong> transportation infrastructure, a lack <strong>of</strong> alternative
sales outlets for farmers, several layers <strong>of</strong> middlemen, limited access to marketing
information, inadequate grades <strong>and</strong> st<strong>and</strong>ards, <strong>and</strong> few tools for risk management. As a
result, large marketing margins exist for <strong>India</strong>n agricultural products. 1
Most agricultural products are affected by the same inefficiencies as they move through
the <strong>India</strong>n marketing <strong>and</strong> distribution system, whether they are domestically produced or
imported. These inefficiencies generally do not disadvantage U.S. exports relative to
<strong>India</strong>n-produced agricultural products. Goods sold as differentiated products are the
exception. Because most agricultural products in <strong>India</strong> are sold as commodities,
undifferentiated by grade or quality, there is a lower supply <strong>of</strong> high-quality differentiated
products—a market niche imports could occupy. Characteristics <strong>of</strong> <strong>India</strong>’s agricultural
marketing <strong>and</strong> distribution system, <strong>and</strong> its effects on imports, are presented in table 7.1.
The majority <strong>of</strong> <strong>India</strong>’s agricultural output is produced on a subsistence basis by small
family farms. 2 Most food products are consumed after only primary processing, such as
milling <strong>and</strong> crushing <strong>of</strong> grains. 3 Consequently, much <strong>of</strong> <strong>India</strong>’s agricultural production
never enters formal marketing channels but is instead consumed “on-farm,” meaning that
it is eaten by farming households, used as in-kind payment to farm laborers, or bartered
for other goods. The share <strong>of</strong> agricultural production that is marketed is the “marketed
1 Mattoo, Mishra, <strong>and</strong> Narain, From Competition at Home to Competing Abroad, 2007, xvii–xviii.
2 Nearly three-fourths <strong>of</strong> <strong>India</strong>’s population lives in rural areas, <strong>and</strong> more than 60 percent <strong>of</strong> total national
employment is in the agricultural sector. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Statistics, Statistical Pocket Book,
2007, 5–6; Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Agriculture, National Policy for Farmers 2007, 1.
3 Dhankhar, <strong>India</strong>: Food Processing Sector, July 2, 2008, 3.
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