Wheat Marketing and its Efficiency in India

The study examines the marketing of wheat in India, focusing on the private marketing system, the marketing efficiency and quality. Wheat is now a major food staple in India, crucial to India’s food economy and security. With production reaching 70 to 75 million tons and a large demand, India’s wheat economy is the second largest in the world. The efficiency of marketing is crucial to farmer incomes, consumer welfare, as well as government budgets and the economy. Substantial changes are taking place in the marketing of wheat. The study finds that the farmers now almost invariably sell in the nearby primary markets rather than to village traders. The farmer choice of varieties is now becoming market oriented with quality and market acceptance becoming as important as yield. The typically market intermediary provides hardly any special, value adding or developmental services in return for the commissions and margins. The farmers see considerable scope for improvement in the marketing system. The consumer demand for wheat varies considerably across the country. But wheat has made inroads into food consumption in the east and the south. The retailers are increasingly conscious of consumer demand and quality, and keep a varietiy of wheat and wheat products. Direct buying of wheat grain, storing, and own recourse to processing are common in the north and the west, whereas direct purchase of wheat products such as flour is the norm in the east and the south. The trend is towards direct purchase of processed wheat products, and within this from loose to packaged branded wheat products. The estimated average total marketing cost of wheat is found to be of the order of Rs. 266 per quintal, and in this transport has the largest share of 40 percent, commission and taxes make up 25 percent, and wastage another 15 percent. When compared to the consumerfarmer price spread, the marketing costs account for 74 percent of the spread, leaving 26 percent for margins – this is fairly efficient but there is significant scope for improvement. On an average, the farmers receive 66 percent of what the consumer pays. The government channel marketing cost is reported to be Rs. 309 per quintal, but this does not cover the whole chain and is not strictly comparable. Examination of the question of market integration for wheat is difficult due to data and quality difference problems. Co-integration analysis using monthly price data for eight markets for the period April 1997 to June 2004 indicates that nationally the markets are integrated but the LOP (Law of One Price) does not hold, and the presence of six common stochastic trends implies the absence of full pairwise co-integration. [IIM A WP]