Agricultural inputs can be categorized into two types- Consumable and Capital Inputs. The former include manures and fertilisers, seeds, insecticides/pesticides, diesel oil and electricity. On the other hand, capital inputs include tractors, trailers, harvesters and threshers, pumpsets, and other implements.
Most of the agricultural input markets are at the level of grain market towns and large villages. There are some general aspects of the rural market like underdeveloped markets, illiterate buyers, lack of communication facilities, many languages, and vast spread of the market, storage, transport problems, seasonality and demand which are applicable to agricultural input markets as well.
However, agricultural input markets differ from other product markets in many ways due to the nature of their products, the nature and location of users and the overall environment in which products are being bought and used.
Nature of Demand:
From the point of marketing-mix concept, the agricultural inputs are between the consumer and the industrial products. The farmers do not use them like consumer products, but as per their demand in the production activities. In this sense, they are derived demand products.
They are similar to consumer products, as far as distribution and promotion aspects are concerned as these two are targeted at the farmer level. But so far as product and its price are concerned, they are more like industrial products as they are derived demand products, complimentary to other inputs, bulky, and high cost.
The inputs are also demanded not individually but as a package because one input decides the need for other inputs. This means that their demand is complementary to each other. For example, a local or hybrid seed will determine whether to use a fertiliser or a pesticide, in the required quantity and quality.
Further, since the product is meant for the production process, its sales are dependent on:
1. The weather in a season.
2. Cropping pattern changes.
3. Nature and health of the crop.
4. Other facilities like govt., price policy, subsidies, loans, and physical facility for the product.
The demand keeps changing from season to season, month to month and even week to week.
The farmers and other rural buyers are now much more open to spending, especially if it helps to raise their levels of income, as now they can see the perceptible change in the lives of those who invest money instead of keeping it as a dead stock. Gone are the days of hard work alone, now it is well thought farming that will survive.
Therefore, the traditional saying that Dab ke wah te raj ke khah (cultivate well and eat well) is later replaced with Soch ke wah te soch ke khah (think before cultivating as well as eating). The farmers are quite skeptical about adopting products which are non-traditional and costly. But, if they are convinced with a demonstration in their fields, they feel much more comfortable with the products. Therefore, such demonstrations have a great role to play in the dissemination of new products and technologies.
In agricultural input markets, there are serious problems of imbalanced usage, under or over-use of inputs especially chemical inputs, wide disparities in their use across regions and high inefficiency in their usage. These altogether, spoil the economics of input usage and therefore, hurt the market for an input due to bad image effect in terms of performance.
Credit plays a crucial role in agricultural input markets as most of the time, the farmers resort to credit purchase of the inputs and intend to repay after the harvest. Therefore, the availability and cost of credit for this purpose influences the quantity and quality of inputs used.
Various inputs like seeds, credit and equipment’s are provided through the rural development schemes of the government. This dampens the open market as they are at lower rate. Also this puts the private channels into difficulty as farmers start comparing the product and price with the govt., supplied ones.
Promotional Media:
Though a lot has changed in the market for inputs, still there are relatively experienced users and influencers who prevail in these markets for various reasons. The opinion makers can be the progressive farmers in relatively less developed areas, and the input sellers and extension agents in more prosperous situations.
Also, some times, even if these opinion makers do not have a sound logic to convince the farmers about a product, they use other modes like tying up the product to some other market transaction.
This is known as interlocking of markets. The retailers play an important role in pushing the products as they hold the faith of farmers who themselves are not too familiar with the product and its usage. Therefore, the retailers become the ultimate sellers of the product. A good quality product may fail, if it does not get the support from retailers.
Kisan melas and other rural fairs, which are increasingly becoming important means of marketing, give the farmers an opportunity to do comparative analysis of products and brands. They also bring together opinion makers in one place, who can be contacted and influenced with low cost.
The farmers are always in a receptive mood to learn and try new products in these fairs. The companies can get feedback on products, channels and promotional tools. New sales leads can be generated and new product ideas can be obtained from the farmers in terms of felt need and local innovations.
Nature of Competition:
The Multi-National Companies (MNCs) are placing new demands before the farmers in terms of the crop varieties and quality required, if the farmers want to work with them, and make more money out of farming. This is being driven through contract farming, joint ventures, leasing of land, and extension to the loosely contracted farmers in a given area.
Also, in some crops, the MNCs are directly competing with the farmers, forcing them to become agri-businessmen who use modern and better inputs. The whole approach to farming is undergoing change with the globalisation of rural production processes and privatisation of various systems. The farmers are compelled to think of farming as a business which needs to compete on its own and still survive. This means that farmers have to be doubly careful in the selection and use of inputs required.
On the other hand, in the input market itself, the competition is increasing. New players and the existing ones are adopting new methods and modern equipments to tap the growing market. There is also competition from substitutes like bio-fertilisers and bio-pesticides in fertiliser and pesticide markets respectively.
The companies are attempting product bundles and aligning inputs with other product lines like agro-product purchase and credit market. Therefore, completion is to be understood in a more strategic sense of buyers, suppliers, new entrants, substitutes and existing competitors.
A Framework for Understanding the Market for Inputs:
The experience of developing countries indicates that the growth of input markets is influenced by a large number of price as well as non-price factors. Studies explaining the growth and fluctuations of fertiliser consumption in India, China and Sub-Saharan Africa, have indicated the relevance of a more comprehensive framework, which can be used for understanding the market environment for agricultural inputs in developing countries.
Based on this, a framework has been developed for understanding the market environment for inputs.
The major components are:
1. Agronomic Potential.
2. Agro-Economic Potential.
3. Effective Demand.
4. Actual Consumption.
The market environment can be conceptualised as unfolding through the developments within and inter-relationship between these components. This framework is depicted in Fig. 2.1.
Agricultural inputs can be considered to be primarily yield saving or yield enhancing inputs. Their basic usefulness to the farmer and therefore their potential comes fundamentally from the quantity of yield they are able to raise or save. This gives the agronomic potential. They may also help to improve quality.
They also help to reduce the uncertainty of obtaining good yields, especially if they are used at the onset or for prevention of disease e.g., pesticide. Research and development is typically necessary for the creation of new agronomic potential for inputs. Expansion of irrigation also raises the agronomic potential.
Inputs are typically expensive units. Unless the value of output that is gained due to the use of inputs or lost due to its non-usage is substantial, farmers will not use inputs. The value of the marginal product must be significantly high relative to the price of the input for the agronomic potential to be transformed into agro-economic potential.
Thus, output markets and demands become important determinants of agro-economic potential. Inputs to be used are typically more in high value cash crops and commercialization of agriculture expands the potential for input use.
Typically, in a developing country, especially with small farm agriculture, creation of an agro-economic potential may not be sufficient for real demand to exist. The farmer must know of this opportunity and must exhibit entrepreneurship in exploiting this opportunity.
Thus, dissemination of information and extension work as well as company promotion become very important. Poor infrastructure and lack of transportation services seriously affect the conversion of a good agro-economic potential into effective demand, especially for small farmers. Since subsistence agriculture lacks cash, and lags are involved in obtaining output, the provision of credit often becomes a very important factor.
Even when effective demand has been created, actual consumption may be strongly restricted unless there is:
i. Adequate Supply:
Adequate and reliable supply of the input is a must – either through production or import. This is determined among other things, by the factors like investment in production, the investment environment, government policies, foreign exchange situation and other factors such as trade barriers and intellectual property rights protection.
ii. Effective Distribution:
A large effective distribution system is required to cater to small farmers scattered over a large area. This is especially difficult in the early stages when the volumes are small.