Chapter- 5

Commodity Market
Meaning and Definition of Commodity Market

A commodity market is a marketplace for buying, selling, and trading raw materials or primary
products. There are currently about 50 major commodity markets worldwide that facilitate trade
in approximately 100 primary commodities.

Types of Commodities in the market

Following are types of commodities based on their inherent nature –
Hard commodities
 Precious metals – Gold, platinum, copper, silver, etc.
 Energy – Crude oil, Natural gas, gasoline, etc.
Soft commodities
 Agriculture – Soybeans, wheat, rice, coffee, corn, salt, etc.
 Livestock and meat – Live cattle, pork, feeder cattle, etc.
Features of Commodity Market
Important features of Commodity market are as follow:

1. The commodity market is much older than the financial money market and has evolved over
time. In fact, the very first trading known to mankind was barter trading, where commodities
like food grains would be traded between farmers and the consumers. The earliest known full
functional commodity market was set up in Amsterdam in early 16th

2. The pricing of commodities traded in the commodity market is quite complex and depends on
their individual characteristics. For example, for goods like wheat, barley, there is a storage
cost involved in addition to the forces of demand and supply. The storage cost is required as
these commodities require proper storage mechanisms to save them during transportation or
from natural calamities.

3. There are certain criteria’s that a commodity must possess to be fit for trading in the
commodity exchanges. These characteristics are homogeneity, price fluctuations, open
supply, and durability.

4. The commodity market, though, differs from money markets in terms of the underlying
instrument; the underlying concepts of trading are pretty much the same. The concept of spot
price, future price, expiry, strike price are pretty much the same.
5. The commodity market, though, in general, trade-in generic commodities like coffee or wheat,
but with time it has evolved to include certain differentiated products too. These differentiated
products are a generic commodity but with certain peculiar characteristics. Example of high
octane gasoline for which a generic commodity would be gasoline.

6. Commodities are highly volatile assets compared to financial assets. They are governed not
only by geopolitical tensions, economic expansions, recessions but also by natural forces like
floods or calamity.
7. The major commodity exchanges across the world are the London Metal Exchange, Dubai
mercantile exchange, Chicago Board of Trade, Multicommodity exchange, etc.

Agriculture Marketing in India

Definition of Agriculture Marketing
Agricultural marketing is the market which covers the services involved in moving an agricultural
product from the farm to the consumer. These services involve the planning, organizing, directing
and handling of agricultural produce in such a way as to satisfy farmers, intermediaries and
consumers.
Defects / Problems of Agricultural Marketing in India
Following are some of the main defects of the agricultural marketing in India:
1. Lack of Storage Facility
There is no proper storage or warehousing facilities for farmers in the villages where they
can store their agriculture produce. Every year 15 to 30 per cent of the agricultural produce
are damaged either by rats or rains due to the absence of proper storage facilities. Thus, the
farmers are forced to sell their surplus produce just after harvests at a very low and un-
remunerative price.
2. Distress Sale
Most of the Indian farmers are very poor and thus have no capacity to wait for better price
of his produce in the absence of proper credit facilities. Farmers often have to go for even
distress sale of their output to the village moneylenders-cum-traders at a very poor price.
3. Lack of Transportation
In the absence of proper road transportation facilities in the rural areas, Indian farmers
cannot reach nearby mandis to sell their produce at a fair price. Thus, they prefer to sell
their produce at the village markets itself.
4. Unfavourable Mandis
The condition of the mandis are also not at all favourable to the farmers. In the mandis, the
farmers have to wait for disposing their produce for which there is no storage facilities.
Thus, the farmers will have to lake help of the middleman or dalal who lake away a major
share of the profit, and finalizes the deal either in his favour or in favour of arhatiya or
wholesalers.
5. Intermediaries
A large number of intermediaries exist between the cultivator and the consumer. All these
middlemen and dalals claim a good amount of margin and thus reduce the returns of the
cultivators.
6. Unregulated Market’s
There are huge number of unregulated markets which adopt various malpractices. Prevalence of
false weights and measures and lack of grading and standardization of products in village markets
in India are always going against the interest of ignorant, small and poor farmers.
7. Lack of Market Intelligence
There is absence of market intelligence or information system in India. Indian farmers are not
aware of the ruling prices of their produce prevailing in big markets. Thus, they have to accept
any un-remunerative price for their produce as offered by traders or middlemen.
8. Lack of Organisation
There is lack of collective organisation on the part of Indian farmers. A very small amount of
marketable surplus is being brought to the markets by a huge number of small farmers leading to
a high transportation cost. Accordingly, the Royal Commission on Agriculture has rightly
observed, “So long as the farmer does not learn the system of marketing himself or in cooperation
with others, he can never bargain better with the buyers of his produce who are very shrewd and
well informed.”
9. Lack of Grading
Indian farmers do not give importance to grading of their produce. They hesitate to separate the
qualitatively good crops from bad crops. Therefore, they fail to fetch a good price of their quality
product.
10. Lack of Institutional Finance
In the absence of adequate institutional finance, Indian farmers have to come under the clutches
of traders and moneylenders for taking loan. After harvest they have to sell their produce to those
moneylenders at unfavourable terms.
11. Unfavourable Conditions
Farmers are marketing their product under advice circumstances. A huge number of small
and marginal farmers are forced by the rich farmers, traders and moneylenders to fall into
their trap to go for distress sale of their produce by involving them into a vicious circle of
indebtedness. All these worsen the income distribution pattern of the village economy of
the country.
Remedial Measures for Improvement of Agricultural Marketing
The following are some of the measures to be followed for improving the existing
system of agricultural marketing in the country:
1. Establishment of regulated markets.
2. Establishment of co-operative marketing societies.
3. Extension and construction of additional storage and warehousing facilities for
agricultural produce of the farmers.
4. Expansion of market yards and other allied facilities for the new and existing markets.
5. Provision is made for extending adequate amount of credit facilities to the farmers.
6. Timely supply of marketing information’s to the farmers.
7. Improvement and extension of road and transportation facilities for connecting the
villages with mandis.
8. Provision for standardisation and grading of the produce for ensuring good quality to
the consumers and better prices for the farmers.
9. Formulating suitable agricultural price policy by the Government for making a
provision for remunerative prices of agricultural produce of the country.

Cooperative Marketing in India

Definition
According to Dr. A. P. Gupta, – “Co-operative marketing is the formation of an association
by producers for self-help in marketing their produce collectively and securing economies
emerging from large scale business.”
According to K. R. Kulkarni – “Co-operative marketing is the marketing for the producers
and by the producers that aims at eliminating the chain of middlemen operating between
producers and the ultimate consumer and thus securing the maximum price for their
produce.”
Nature / Characteristics of Cooperative Society
Based on the above definitions, we can derive the following characteristics of cooperative
organizations.

1. Voluntary association
Everybody having a common interest is free to join a cooperative society. There is no restriction
based on caste, creed, religion, color, etc. Anybody can also leave it at any time after giving due
notice to the society.
That is the specialty of any cooperative society. There should be a minimum of 10 members for a
cooperative society, but there is no maximum limit for the membership.

2. Separate legal entity

A cooperative society after registration is recognized as a separate legal entity by law. It acquires an
identity quite distinct and independent of its members can purchase, dispose of its assets, can sue,
and also can be sued.

3. Democratic management
Equalities are the essence of cooperative enterprises, governed by democratic principles. Every
member has got equal rights over the function management of that society.
As such, each member has only single voting right irrespective of the number of shares held or capital
contributed by them.

4. Service motive
The main objective being the formation of any cooperative society is for mutual benefit through self-
help and collective effort. Profit is not at all on the agenda of the cooperative society.
But if members so like, they can take up any activities of their choice to generate a surplus to meet
the day-to-day expenses.

5. Utilization of surplus

The surplus arising from the operation of a business is partly kept in a separate reserve and partly
distributed as dividend among the members.

6. Cash trading
One exception in the cooperative society is that like other businesses, if never go for credit sales. It
sells goods based on cash only.
Hence, the cooperative society hardly comes across financial hardship because of the noncollection
of sales dues. Members can only purchase based on credit, which is an exception to the present rule.

7. Fixed-rate of return

All members are supposed to contribute capital for the formation of a cooperative society or at the
time of joining as a member of the cooperative society.

8. Government control
The government regulates all the cooperative societies of the country through its different rules and
regulations framed from time to time.
Cooperative societies of the country are required to register, and sometimes different State
Governments also frame laws regarding the registration and functioning of cooperative societies for
their states.
9. Capital

The capital of the society is raised from its members by way of share capital.

However, the major part of finance is raised by the society by taking a loan from the government or
by accepting grants and assistance from the Central or State Government or from the apex
cooperative institutions like state and cooperative central banks operating in that state.

Role / Functions of Co-Operative Marketing Societies

The main functions of Co-operative Marketing Societies are:
1. Purchase and Sale of Produce – The marketing co-operatives purchase the produces
from their member growers and sell it in bulk quantities, which enables them to reduce
marketing cost and earn fair returns.
2. Distribution of Agricultural Inputs – The co-operatives supply the agricultural inputs
such as seeds, fertilizers, pesticides, agricultural implements etc., the supply of quality
materials at reasonable prices save cost of the member producers. Sometimes these inputs
may be also given on credit basis.
3. Providing Storage Facility – To provide storage facilities, the societies may have their
own godown or hired godown.
4. Supply of Agricultural Implements – They supply the needed agricultural implements
like tractors, tillers, power sprayers etc., on rent basis to the cultivators for the purpose of
production.
5. Provide Financial Assistance – They make credit facilities to the members against the
security of the produce brought for sale. Members get advances up to 75 percent of the
market value of the produce deposited.
6. Processing of Produce – Some societies undertake processing of agricultural produce,
which ensures high prices to the producers after processing.
7. Providing Transportation Facility – The co-operative societies make arrangements for
the transport of the produce of the members from the villages to the market on collective
basis, which reduces the transportation costs for its members.
8. Providing Market Information – They provide latest information about the new
techniques of production as well as the market information about the market prices from
time to time, which will help the members to get a good price for their produce.
9. Stable Price – The societies adjust the supply of commodities according to the market
demand. In this way, in long run the prices get stabilized, which helps the farmers from the
evil effects of the seasonal price fluctuations.
10. Participation in Foreign Trade – These co-operative societies participate in the export
trade of the country, which helps to get better prices for the growers. Through export trade,
the marketing co-operatives provide wide market to the agricultural produce. The share of
agricultural exports in India’s total exports is around 16 percent.