CHAPTER II

REVIEW OF LITERATURE

2.1 Introduction
In the recent decades commercialization of agriculture attracted wide interest
among the researchers. Many studies have been conducted in India and abroad and
their findings have paved the way for further studies and research, in fact the present
study was conceived from the past studies and available information in the field of
agricultural commercialization. Many studies have been conducted on various aspect
of agricultural commercialization but there were only very few studies on market
participation, profitability, and marketing structure. In this chapter an attempt is made
to underline the major findings of such studies which are relevant to this study. In
order to make the analysis of this survey more methodical, the discussion is sub
divided into different sub sections, the first three sub sections deal with introduction,
concepts and various theories associated with the subject, while sections four and five
deal with the extent and determinants. Six and seven subsections will deal with
marketing structure and profitability, subsection eight and nine deal with constraints
and policy options of agriculture commercialization and finally, the last subsection
deals with conclusion and provides glimpses of earlier studies.

2.2 Commercialisation: Concepts

This section deals with basic nature of Agricultural Commercialization.

Different scholars and researchers have defined agricultural commercialization in
different terms, such as commercialization based on production of cash crops,
marketable and marketed surpluses, input used, value of sales as a proportion of the
total value of output, etc.

According to Pingali and Rosegrant (1995) agricultural commercialisation

does not mean only marketing of agricultural output; it also includes the product
choice and input use decisions based on the principles of profit maximization.
Commercial reorientation of agricultural production occurs for the primary staple
cereals as well as for the high value cash crops. On the input side, commercialization
implies that both traded and non-traded inputs are valued in terms of their market

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value. Commercialisation of agricultural systems leads to greater market orientation
of farm production; progressive substitution of non-traded inputs in favour of
purchased inputs; and the gradual decline of integrated farming systems and their
replacement by specialized enterprises for crop, livestock, poultry and aquaculture
products.

Further, according to Gebre (2001) commercialization of the household level

farm is measured simply by the value of sales as a proportion of the total value of
agricultural output. At the lower end, there would always be some amount of output
that even a basically subsistence farmer would sell in the market, in order to purchase
basic essential goods and services. Hence, he was of the view that the ratio of
marketed output up to a certain minimum level cannot be taken as a measure of
commercialization. As the proportion of the marketed output increases beyond this
threshold, the household gets further removed from subsistence production and enters
increasingly into commercialized farming. Then, again at the higher end, there would
be a certain minimum level of marketed output ratio that would mark a structural
switch into commercialization. According to the author, commercialization of
smallholder agriculture entails a process of transition that could be divided into two
stages: Firstly, it involves production of cash crops in addition to staples or even
exclusively, and the increase in the ratio of marketed output, is an indicator of
commercialization. Secondly, commercialization entails widening and deepening the
household's market transactions relating to inputs and outputs as well as capital, land
and labour. Initially, it will be in the product market that the household's transaction
will preponderantly take place. Subsequently, as the marketed output proportion
becomes larger, the household's engagements in the other markets will also increase
in importance. But, these processes by which the household integrates itself into
product and factor markets is far from simple and straight forward due to the endemic
problems of missing markets and market failures in developing countries.

von Braun and Kennedy (1994) define commercialisation of agriculture as a

characteristic of agricultural change. It is more about whether or not a cash crop is
present to a certain extent in a production system. It can take many different forms by
either occurring on the output side of production with increased marketed surplus or
occur on the input side with increased use of purchased inputs. Commercialization is
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the outcome of a simultaneous decision-making behaviour of farm households in
production and marketing.
Further, Mahaliyanaarachchi and Bandara (2006) used marketable surplus of
produce as a measure of commercialization. According to the authors the term
marketable surplus in the context of agricultural produce denotes the quantities of
products available for consumption by the non-farming population and also as raw
materials for manufacturing and processing industries. The concept also helps to
measure the extent of commercialization of the production activities of a particular
crop. While high proportion of marketable surplus indicates greater market orientation
of the producers, lesser proportions of surpluses mean that the producers are more
subsistence-oriented. Accordingly they define the term commercialisation of
agriculture as follows:

 When farmers’ production is aimed mainly for sales.

 Production is oriented to profit maximization.
 It aims at the satisfaction of different needs and interests of consumers.
 It is an agri-business that implies concept of business management.
 It leads to entrepreneurial achievements of farmers.

Satyasai and Viswanathan (1997) point out that commercialisation of agriculture has
taken place at different times in response to different stimuli. Earlier, growing of cash
crops like cotton, sugarcane, jute, tobacco, etc., that was grown exclusively for the
market was considered synonymous with commercialization. But, over time, even
food grains were produced for the market due to the cash needs of the farmers.
Conceptually, commercialisation can either take the form of product
commercialization, which can occur on the output side through increased share of
marketed surplus, introduction of new crop/activities or factor commercialisation
which can occur through increased use of purchased inputs on the input side. In the
former case, the surplus can be had in the form of additional amount, over and above
self-consumption, or in the form of a cash crop which is allotted a higher proportion
of the cultivated area owing to favourable economics. An expected increase of
production and income motivates the farm-firms to enter the exchange economy and
become more commercialized. In the latter case, commercialisation may be

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understood as adoption of modern inputs such as seeds, fertilizers, pesticides,
irrigation and mechanical power, most of which are purchased from market.

2.3 Theories of Commercialization of Agriculture

Agriculture has played the vital role in the upliftment of all the economies of
the world; it has always been the base of all development. The importance of
agriculture in the economies of the developing countries can be judged from the fact
that agriculture growth is associated with the growth of the economy as a whole. The
growth in agriculture in these economies creates surplus in the form of labour,
productivity and income which further creates scope for the economic development.
In all these economies agriculture growth is considered as foundation of all progress
and economic development. This section deals with the reviews on the theories
relating to commercialization of agriculture.

Rostow (1960) has discussed the historical perspective of growth. In his model
the process of economic development has been explained in five stages (1) the
traditional society; (2) the pre-condition for take-off; (3) the take-off; (4) the drive to
maturity; and (5) age of high mass consumption. The model implied that the first
stage is characterized by subsistence ‘primary’ sector economy. In the second stage
commercial agriculture along with spread of technology and changed social structure
comes into existence. Rostow claimed that in the 'take-off stage' the 'secondary'
(manufacturing) sector expands and in the fourth stage multiple industries expand
along with the development of transportation, infrastructure and social infrastructure
(school, universities, hospital, etc.). In the last stage the economy starts moving in an
environment where industrial base dominates and the consumers have disposable
income, beyond all basic needs for buying additional goods. Rostow asserted that all
the economies of the world pass through these stages sooner or later and at varying
lengths.

Schultz (1953) laid emphasis on the interdependence of agriculture and

industry. Schultz specified that when capital accumulation in the modernized sector
raises the wages in urban areas that pulls the surplus labour from agriculture. Further
the research claimed that the economic growth can be promoted manifold by
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reinvesting the profits generated in the industrial sector. For the overall economic
growth free markets, liberalized trade and growing agricultural sector are very
essential.

Lewis (1954) presented a two sector model to explain the growth of less
developed countries with regard to labour transition from subsistence to capitalist
sector. In his model there is a surplus of labour in the subsistence sector that gets
attracted to the growing manufacturing sector where higher wages are offered.
According to him subsistence agriculture is labour intensive as it has abundance of
labour and low productivity while capitalist sector is defined by higher wages, higher
marginal productivity and demand for more workers. The transition of surplus labour
from agriculture to manufacturing sector goes on till the agricultural wages equal the
manufacturing wages and the marginal product of labour in agriculture equals the
marginal product of labour in manufacturing. Labour stops moving to industry when
they don't have any monetary incentive of transition. This transition helps in the
transformation of society into an industrialized and modern one.

Bhaduri (1983) in his study discussed the forced commercialization which is

the matter of exchange and extraction of surplus by the rural rich, mainly money
lenders. The commercialization stimulated trade in the market for the agricultural
products. He studied characteristics of backward agriculture. He also suggested
policies for agrarian change.

Pingali and Rosegrant (1995) in their study, ‘Agricultural Commercialization

and Diversification: Processes and Policies, Food Policy’ classified farming system as
subsistence, semi-commercial and commercial based on market orientation. Their
study argued that subsistence farming system is concerned with maintenance of
household food self-sufficiency. Semi-commercial system is focused at the co-
existence of both marketable surplus and maintaining household food security. But in
commercial system the main motive of farming is profit maximization. Their study
stated that commercialization of agriculture system gives way to raised market
orientation of farm production, progressive substitution of non-traded inputs for
purchased inputs and the gradual downfall of integrated farming systems and their
replacement by specialized enterprises for crop, livestock and poultry.
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2.4 Extent of Commercialization of Agriculture

In this section emphasis is laid on the studies involving the extent of

agricultural commercialization. Different scholars have taken various measures and
indicators like marketable surpluses, marketed surpluses, area under cash crops, level
of production, income, expenditure, consumption level, etc. to know the extent of
commercialization of agriculture.

Martey (2014) examined whether the type of access to market information has
any significant effect on the extent of maize commercialization. The study revealed
that gender, total number of adults that assist with farming activities, education,
market information, farm size, access to land and non-farm income significantly
explain variation in the extent of agricultural commercialization. The study found that
the type of market information access is crucial for market decision-making.
Additionally, informal sources of market information, such as farmer associations,
have a major favourable impact on the level of household agriculture
commercialization. Agricultural development programmes are channeled through
farmer organizations by both governmental and non-governmental organizations, with
a focus on market participation coupled with tangible benefits to ensure effective
participation and sustained interest. He suggest that government policies aimed at
increasing agricultural commercialization and productivity through technology
adoption should target and support educated and relatively large farmers, and that
agricultural commercialization policies should give female farmers recognition
through training and financial assistance.

The paper by Kaur (2018) focuses on measuring the extent of

commercialization of agriculture variations in different districts of Punjab since 1971.
His analysis of area sown shows increasing commercialization of agriculture in
Punjab during 1971 to 2011.The steady rise in commercialization of agriculture has
given rise to increase in income and profits to farmers and it has resulted in improving
the standard of living of farmers but it has caused a decline in natural fertility of soil
and created demand of fertilizers and pesticides. The allurement of profits has urged
the farmers to go for chemical fertilizers and pesticides which gave them quick
bonanzas and has put Punjab agriculture on unsustainable growth path.

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 Mulwafu et al. (2013) studied the commercialization status of the informal
sector farmers and factors contributing to transition to commercialization. The study
shows that in household commercialisation index (HCI) there are three levels of
commercialisation; subsistence, semi-commercial and commercial and also that the
largest chunk was in subsistence level. Computation of crop commercialisation index
(CCI) indicated that vegetables were the best option for commercialisation. Ranked
second, third and fourth were tubers, fruit and food grains in that order. Results of
their study further indicated that more farmers were at subsistence farming who
require support to move towards semi-commercialized to commercialized farming.

Ele (2013) studied the determinant of the household commercialization index

(HCI); the variation in the extent of commercialization among households in the three
agricultural zones, as well as identifies the micro-level factors determining the level
of commercialization in Cross River State of Nigeria. His study employed descriptive,
statistical and econometric methods to analyze the data from a sample of 120
households. Findings showed that the degree of commercialization was moderately
high. On average, households sold about 56.10%, 66.60% and 58.50% of their total
production (in grain equivalent terms) for the Southern, Central and Northern zones
respectively. Tobit regression analysis showed that total quantity of food crops
produced, farming experience, access to agricultural extension service, size of land
used for cultivation, membership in cooperatives and household family size are
important factors determining the level of commercialization of smallholder farms.
The study recommends the formulation of policies to enhance food crop production
and aimed at creating enabling environment for income generation; policies to
encourage the formation of cooperatives to provide a strong mitigation strategy and
more participation in the output market and strengthening of extension delivery.

Nwafor and Westhuizen (2020) in their study in South Africa found disparities
in the level of market participation among farmers. This shows the need for caution in
the quest to commercialize the smallholder farming sector. Within the smallholder
group, differences exist with some farmers receiving appreciable financial returns
while others continue to subsist with meager returns. These returns are invariably
based on both the size of land available and utilized by the smallholder farmer. Their
study further reveals that, while the average level of commercialization is low at 0.48
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among the respondents, there were several respondent farmers already
commercialized, market ready, or market viable, whose potential needs to be
developed to enable them to participate regularly in both input and output markets.
Access to credit, post-harvest practice, and farming experience were factors identified
as having influence on the level of commercialization. Among those on the lower
commercialization levels, support measures are required to improve their ability to
engage with markets. Market engagement is not an option for those who have very
little to sell, and confirms the excess production or marketable surplus requirement
put forward by a group of commercialization advocates.

Martey et al. (2012) analyzed the trend in crop production, level of total
agricultural commercialization in Ghana. They observed that level of the
commercialization increased with increase in farm size. The study argued that the
farm size provides an opportunity to produce surplus production which is critical in
raising the level of market participation. However the research is doubtful on the
impact of education and household size on commercialization. They argued issue of
education is controversial as it can divert population to non-farm activities and
household size can reduce market participation. Extension services, farm size, output
price, distance to market and market information all determine the extent of
commercialization. According to them commercialization covered important aspects
of sale of marketable surplus of traditional crops, diversification into the production
of new crops, introduction of new income generating and post-harvest activities of
farm produce.

2.5 Determinants of Commercialization

The driving forces behind agricultural commercialization are modernization,

marketization, improvement in infrastructure, shift in consumption pattern, economic
policies etc. and non-economic factors which constitute social structure, urbanization,
risk taking tendency of the farmers, etc. This section deals with the studies describing
the determinants of commercialization of agriculture. Factors behind
commercialization of agriculture are both input related as well as output related.

Rao et al. (2006) acknowledge that by improving the connectivity between the
urban demand centre and nearby-urban districts, sustained economic growth and

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increasing urbanization usually stimulate rapid rise in the demand for high-value
commodities. In general, where intensive high-value goods are produced, the density
of roadways and markets is higher. They believe that market access is vital to the
success of high-value agriculture. Their findings suggest that high-value agriculture is
expected to emerge as a significant source of agriculture growth. Foodgrain
production which has begun to show indications of fatigue, owing to a declining
growth in foodgrains yield. Because smallholders have a greater tendency to
diversify, high-value agriculture-led growth is predicted to be more egalitarian.

Rahut et al. (2010) investigated the determinants of commercialisation of

agriculture by small farmers. The result of econometrics analysis shows reveal that
the land size, gender of the household head, livestock assets, ethnicity, education, and
location are important determinants of commercialization. The results also showed
that that the asset endowments contribute to explaining as to why farmers stay in
subsistence farming. Their findings indicate that family system in lower Himalayas
exhibits variations in household assets endowments, agriculture production and
income diversity and that assets exert import effect on commercialization.

 Satyasai and Viswanathan (1997) observe that liberalization of economy from

regulation and control has resulted in creating an atmosphere conducive for
agriculture. Diverse agro climatic condition across the country provides a potential for
new ventures in agro-processing of fruits and vegetables, floriculture cultivation, etc.
Demographic factors, technology, infrastructure, policy environment and global
economic set-up are the prime factors that influence the process of commercialization.
Perpetual inefficiency in agriculture marketing, non-availability of input especially
inadequate priority to research and development, lack of roads, cold storage, etc. are
few among those factors that constraint the pace of commercialization.

Centre for rural research, University of Exeter (2003) in a study shows that in
a continuing process of agricultural adjustment and the growing significance of
diversified activities within the rural economy, an economy which is itself more
complex and diversified, will provide many opportunities for farmers to diversify.

Agwu et al. (2012) recognized that commercialization of and investment in

agriculture are the key strategies for promoting its accelerated modernization,
sustainable growth and development and, hence, poverty reduction in the sector.
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However, to attract investment into agriculture, it is imperative that the constraints
inhibiting the performance of the sector should be identified with a view to unlocking
them and creating a conducive climate for investment in the sector. The result of
empirical studies shows that the coefficient of household size, income, farming
experience, farm size, distance to market, membership of society and access to
credits, are all significant at various probability levels and with different signs
influencing commercialization and these studies therefore recommend promotion of
markets where none exist. Support to facilities in storage, business management
capacity building, packing and processing should be provided. Furthermore, for
interlocked transaction institutional arrangement is recommended.

Purkayastha (2012) in his book “Unpretentious Endeavour, Arunachal

Agriculture in Surge” finds out that about 30% of the area under vegetable cultivation
is in the temperate/sub-temperate agro-climatic zones. Tawang, West Kameng, Lower
Subansiri and Mechuka sub-division of West Siang districts produce about 25000 MT
off-season vegetables out of which about 4000 to 6000 MT is marketable surplus and
marketed in neighbouring districts of Assam and Arunachal Pradesh. He further states
that there has been a conspicuous rise in production of commercial crops like Potato,
Ginger, Mustard, Maize, Turmeric, Chili, Buck Wheat, etc. which has been benefiting
the producers financially, inspite of recurrent natural catastrophe like flash floods,
erratic distribution of rain during critical growth stages of crops, scanty rainfall, etc.
The emerging trend of paradigm shift from production led agriculture towards market
led agriculture has resulted in conceptual changes among the stake holders of the farm
sector.

Singh (2005) in his paper identified that technological improvement is

responsible for revolutionary increase in production. He stated that high yielding crop
varieties, increased use of chemical fertilizers, development of irrigation facilities,
plant protection measures and effective price support programs of farm products are
necessary for improvement of agriculture. Mechanization reduces the requirement of
labour and this surplus labour gets engaged in other non-agricultural activities like
manufacturing, repair and service shops. On the other hand, mechanization helps
creating good scope for commercialization by reducing weather risk, risk of non-
availability of labour and timely marketing (in the form of mechanical transportation,
cleaning and handling) Moreover, more land can be brought under cultivation due to

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decline in area under fodder and feed for draught animals as their use is reduced. He
suggested selective mechanization to counteract the ill effects of mechanization in
case of unemployment and recommends custom hiring to cope up with rising cost of
production. He considered mechanization as the inevitable element for increasing the
agricultural production and productivity to stabilize the economy.

Joshi (2004) demonstrates that agricultural diversification is influenced by a

number of forces both from the supply-side and the demand-side. The variables were
related to infrastructure development (market and roads), technology adoption,
relative profitability, resource endowments and demand-side factors including
urbanization and income. The study shows that assured markets and good road
network could stimulate agricultural diversification in favour of high value crops as
they help maximise profits and minimise uncertainty in the output prices. Inadequate
markets may deprive farmers to take potential benefits of cultivating high-value crops.
Encouraging appropriate institutional arrangements for better markets through
cooperatives or contract farming would go a long way in strengthening farm-firm
linkages. Besides, role of technology cannot be ignored. The high-yielding and more
stable genotypes in fruits and vegetables need to be propagated through developing a
strong seed sector.

Wahyun et al. (2017) made comprehensive analysis of secondary data from

the Agricultural Census 2013 in Tanjung Jabung Timur District, Jambi Province and
primary data from field surveys to determine the performance level of
commercialization of farming and household enterprises rice farmers. Their studies
have found that farming tidal land is entirely run by household. Only a small
proportion of agricultural businesses are managed agricultural enterprises. Farm
households cultivate diverse (diversified) business diverse products of subsistence and
commercial commodities produced. Commercial commodity in the tidal land that has
been developed, farm households have got used to manage annual crops of high
economic value is a commodity areca, coconut/copra, coffee, while the new crops are
oil palm and rubber Other local wisdom is to choose short-term crops (annuals) or
other commercial semi commodities. This was possible because of the chance pull
factors and the push factors of each commodity are: (1) the availability of land
resources (wet and dry); (2) limited human resources/labour, both in quality and
quantity; (3) lack of capita/ capital markets; (4) technological mastery

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commodity/local wisdom, (5) the farmer institutions: farmers' groups
combined/farmers groups and market (the auction market, their product distribution
channels farming and lane farm; land and waterways, price information) and (6) ease
other cash income by obtaining periodic/weekly. Commercialization level of
households and farming of tidal land has not entered full commercial category, but
classified as semi-commercial farming.

Abdullah et al. (2019) analyzed the factors that affect smallholder rice
farmer’s participation in market and also examines the effect of commercialization on
the welfare of smallholder farmers. Result of the their study indicates that gender of
the household head, age, number of family member who assist in farming, household
size, vocational training, and the farmer being landlord and farm size were the major
determinants of market participation. The welfare of the farmer depends whether the
farmer participate in the rice output market. The result also found that rice output, off-
farm income, access to credit, and income from the sale of rice were important factors
influencing the welfare of the household. The study suggested that the participation in
market can be increased by providing subsidized prices for their production, cold
storage houses, vocational training, introducing new technology, increasing contact
with extension agent and providing genetically modified seeds.

Pelli (2002) investigates how external and internal circumstances influence the
process of diversification. Firstly, the impact of the farm household is that farmers
generally express that the family is an important factor throughout the whole process
of diversifying. As employees, depend on the kind of diversification taking place and
whether the farmer’s activity is dependent on seasonal variation. Secondly,
diversifying farmers tend to adapt the diversified activity to their agriculture, their
geographic location, and rural condition. Hence, the relationship between the market
and the diversified activities is characterized by a process of adaption towards each
other, where the personal relationship seems to be decisive. And thirdly, local
networking is important for the diversified activity and this is considered as strength
for the diversified activities. Cooperation with neighbours, relatives, and other
farmers is mainly about the exchange of services, support and, sometimes, it can be of
a more economic nature.

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 Seyoum et al. (2011) examined the factors determining the degree of
Commercialization, found that distance from the market center; previous year’s price
and hired labor partly affect the volume of produce supplied to the market. Besides,
farm size allocated to potato; access to irrigation and access to market information
were found to be the major factors determining extent of market participation of the
producers in the district. The organizations like agricultural extension should provide
market information about prices, consumers’ preference and other related information
which serve as a base for planned production. In their study, producers were found to
be constrained by high price of fertilizers, low level of input supply, lack of improved
seed which is an indication for the low level of market information. The study
recommend that the public extension programs need to promote staggered planting for
those who have access to irrigation and prepare a common platform among producers,
traders and all other actors. The producers need to be organized together so as to
develop their capacity to access to irrigation and access to different agricultural inputs
like fertilizer and improved varieties.

Getahun (2020) in his study of ‘Smallholder Farmers Agricultural

Commercialization in Ethiopia’ subscribes that, to enhance smallholder’s
commercialization generating improved high yielding varieties and adoption of these
newly released technologies through agricultural research is crucial, public
investments in infrastructural development and government policies that improve
institutional arrangements are essential. Development agents at rural peasant
association have to be properly advice farmers on agricultural production and
marketing, farmers’ cooperative and farmers’ organization are required to enable
smallholder farmers collectively accessing agricultural inputs, credit, information and
marketing of their produce. Based on the review of smallholders’ commercialization
rigorous efforts of all stakeholders including governments, research institutions,
universities, farmers, NGOs, and development practitioners are essential to eliminate
the existing bottlenecks to improve the livelihood of smallholder farmers.

Endalew et al. (2020) examined the determinants of Wheat commercialization

among smallholder farmers in Ethiopia and found that, educational status, annual
income, number of oxen, land size allocated to wheat production, farming experience
in wheat production, extension service, and market distance had a statistically

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significant effect on wheat commercialization. The findings of their study indicate
that an attempt to increase smallholder farmers’ participation in the output market
should give special attention to significant explanatory variables. Especially, an
increase in oxen ownership increases the commercialization of smallholder wheat
producer farmers. Special priority should be given to mechanized farming to scale up
the production capacity of smallholder farmers which leads to a high degree of wheat
commercialization. Their study also found that the annual income of the previous year
positively influenced smallholder farmers’ wheat commercialization. This indicates
that income is an important variable that affects the participation of farm households
in the input and output markets. Thus, policymakers and smallholder farmers should
design strategies to diversify their income sources to strengthen their financial
capacity. Additionally, land size allocated to wheat production had a positive effect on
wheat commercialization. As a result, land productivity-enhancing technologies
should be designed and implemented and output-output production-based education,
training, and extension service should be executed to increase land productivity to
surge smallholder farmers’ participation in the output market.

Okezie (2008) studied the increasing commercialization of subsistence

agriculture and identified the driving forces of the commercialization process. Off-
farm income was identified as important source of the commercialization of
agriculture. The farm-level determinants of commercialization were labour, fertilizer
and planting materials. The production elasticity of labour is high and there are
diseconomies of scale. Their study also observes that the full potentials of agriculture
have not been harnessed as agriculture is labour intensive and relies heavily on crude
implements.

Brempong (2013) investigated the key determinants of small holder

commercialization of tomato and pineapple production in Ghana and found that the
key determinants of commercialization among tomato farmers are land productivity
and labour productivity. On the other hand, the main determinants of
commercialization among pineapple smallholder farmers are land productivity and
savings the study also finds that in general commercialization and area under food
crops as well as food consumption per adult equivalent are positively related, but
negatively related to food production per adult equivalent. Moreover, most
smallholders reported being food secures throughout the year with commercialization,

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which shows that, commercialization, is beneficial to them. The study recommends
that both public and private agencies should work together to facilitate the move of
smallholder farmers from mainly subsistence to commercialization because it comes
with several benefits, including higher household incomes, and improvements in
household food security.

Jaleta et al. (2009) explained that the determinants agriculture commercialization

is broadly categorized as external and internal factors. The external ones are factors
beyond the smallholder’s control like population growth and demographic change,
technological change and introduction of new commodities, development of
infrastructure and market institutions, development of the non-farm sector and the
broader economy, rising labour opportunity costs, macroeconomic, trade and sectoral
policies affecting prices and other driving. In addition, development of input and
output markets, institutions like property rights and land tenure, market regulations,
cultural and social factors affecting consumption preferences, production and market
opportunities and constraints, agro-climatic conditions, and production and market
related risks are other external factors that could affect the commercialization On the
other hand, factors like smallholder resource endowments including land and other
natural capital, labour, physical capital, human capital etc. are household specific and
considered to be internal determinants.

Leavy et al. (2007) have identified three critical conditions that need to be in
place if agricultural commercialization is to be a success for the smallholder. These
are market access, access to staple foods and asset accumulation

Abafita et al. (2016) survey conducted on “smallholder commercialization in

Ethiopia”, fertilizer use and ownership of traction power (oxen) found to significantly
and positively influence amount of crops sold. On the other hand available land size
had significant positive effect on values of crops sold and among institutional services
and infrastructure, access to credit and access to all whether road significantly
enhanced volume of crops sold.

Mahaliyanaarchchi and Bandara (2006) in their paper recognized the role of

agricultural extension services in promoting agricultural production which improved
the level of commercialization of agriculture. With more and more commercialization
of agriculture, extension services are also getting commercialized. Role of state is

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worth mentioning in making these services available to poor farmers and thus moving
up the level of commercialization. They treated agriculture as a business and the
farmers as entrepreneurs who must have a wide level of knowledge and skills in
management, marketing and entrepreneurship. The study referred the productivity as
the important variable of agri-business.

The study argued that Agricultural extension services must be promoted to

boost the level of commercialization. These services improve the level of farmer's
knowledge, skills and change their attitude towards agricultural technology, farm
related activities and marketing and management of agro-produce. Extension services
are treated as an essential input for which farmer has to pay in the entrepreneurial
business or industry. Technical advices, technologies, management skills are all paid
in the business set up. Agricultural extension includes the information related to
seeds, planting material, fertilizers, agro-chemicals and machinery. Budgeting
activities, planning activities and marketing activities are all privatized and are to be
paid for to assure profit maximization in farming. Present agriculture is not only
confined to production but has its extension in post-harvest activities like processing
of agricultural produce, marketing of produce etc.

2.6 Marketing Structure

Marketing plays an important role in economic development as it increases

production, avoids unnecessary fluctuation in output and prices and reduced cost of
production. Effective marketing of agricultural produces can bring augmentation as
well as diversification of agricultural produce and thereby enabling the rural
cultivators to make economic gains. Effective marketing is also required in order to
make agricultural produce available to the consumers at reasonable process, at right
time and place. Therefore, agricultural marketing is a crucial aspect for producers,
consumers and other facilitating organizations including the Government.

Mahaliyanaarachchi (2004) observed that, local or village collectors were the most
prevalent marketing outlet. In the process of marketing, his study found that vegetable
growers continue to rely on traditional marketing channels such as local collectors and
retailers. Co-operatives, farmer organizations, exporters, and supermarket chains are
examples of alternative or modern marketing sources that do not play a prominent
role in the marketing process. There could be a number of reasons for this, including a

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lack of knowledge about the marketing opportunities in this sector, apprehension
about entering the business due to local collectors' monopoly, and a lack of important
infrastructure facilities such as proper roads, electricity, telecommunication,
collecting centres, storage, and so on. As a result, there is no competitive market for
farmers. He found that there was no competitiveness among the local collectors when
it came to buying crops from farmers.
The study also highlighted the problems that farmers face, such as a lack of
market competition, a lack of marketing information, and a lack of state intervention
in the market. In terms of farmers' involvement in the marketing system, his
study indicated that when farmers participate directly in marketing, they can prevent
middlemen's influence and thereby boost profit margins. Farmers' responses were
used to determine their level of involvement in marketing activities. Half of the
agricultural population, he found, is rarely active in marketing operations. The
reasoning given was the increased workload in farming activities. Farmers' direct
participation in marketing operations, on the other hand, will improve the price
benefits. The key reason for the limited involvement was a lack of time to participate
in marketing activities.

Christensen (2017) investigated, the Market Channel Performance of Colorado

Fruit and Vegetable Producers, the model results found a positive and significant
relationship between harvest labor and marketing profit and a negative and significant
relationship between sales labor and marketing profit holding all else constant. The
results suggest efforts aimed to support farm profitability should aim to maximize
sales efficiency, therein enabling producers to allocate scarce labor towards harvest
activities. The model also found that there is in fact a trade-off between a market
channel’s lifestyle compatibility and profitability. Accordingly, many beginning and
young farmers choose to enter farming for lifestyle reasons, but an opportunity exists
to identify marketing structures that increase efficiency while still allowing producers
to select markets that work well for their lifestyle.

Zwart and Mcleay (1997) observe that, the problem facing an agricultural
producer involves selecting an appropriate contract form or marketing channel from a
limited set. On the other hand, marketing firms face a problem of developing a set of
contractual arrangements which are then offered to producers. Although these

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different contracts may be simple in structure, they represent different levels of
vertical integration in a marketing channel. Their theoretical model showed that even
in simple situations there are complex trade-offs in the risks and expected levels of
returns to both the producers and buyers of agricultural commodities. It also reveals
that there may not be a single simple optimal or equilibrium contract that is
satisfactory to both parties. It implies that the contracts selected by any one agent or
producer are likely to be influenced by factors such as marketing margin size and
management characteristics of specific enterprises, such as market knowledge,
management competencies, and risk attitudes. External structural characteristics, it
was also believed, will influence the marketing channel choice set that exists in an
industry or for a certain product.
It also shows that farmers who used different marketing techniques used
distinct sales arrangements, implying that internal or strategic factors play a big role
in a marketing and sales channel decision. A farmer's marketing strategy shows not
only the firm's views about marketing risk, but also its interaction with the marketing
place, market expertise, and ability to deal with uncertainty.

Dastagiri et al. (2010) investigated marketing efficiency and farmer’s share in

consumer rupee in various supply chains, revealed that market margins and costs were
the major explanatory variables significantly affecting the marketing efficiency of
potato. It was inferred that with one per cent increase in marketing margins and costs,
the marketing efficiency declined by 0.61 and 0.37 per cent respectively. Cost has a
smaller impact on marketing efficiency than margins in reducing it. Marketing
efficiency was positively and strongly connected to the coefficient of net price
obtained. With a 1% rise in the net price received, it was calculated that marketing
efficiency increased by 0.98 percent. Marketing margins and costs were negatively
and strongly connected to marketing efficiency in the case of tomatoes. As a result, a
1% increase in these variables decreased marketing efficiency by 0.69 and 0.38
percent, respectively. The marketing efficiency was favourably associated to the
coefficient of net price received, increasing it by 1.10 percent.

Mgale, Y. J and Yunxian, Y. (2020) using Acharya and Aggarwal’s composite

index method of marketing efficiency to determine the most efficient rice marketing
channels found that the miller-wholesaler marketing channel is the most efficient. The
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result showed that because of failure, fear, or inability to step out of the farm gate into
the marketplaces, most farmers in rural areas continue to sell their rice to local
collectors. Their study also indicated that rural infrastructure, market information
systems, smallholder access to productive assets, prudent credit use, and collective
action through cell-organized farmers groups throughout the country all need to be
improved.

Kumar et al. (2017) in their analysis of marketing channels, marketing costs,

margins and producer’s share in consumer’s rupee, four market channels were
selected for the study viz. Channel-I: Producer → Govt. Procurement Agency → Rice
miller → Govt. Agency → Fair price shop dealers → Consumer, Channel –II:
Producer→ Village traders → Primary wholesaler → Rice miller → Secondary
wholesaler →Retailer → Consumer, Channel-III: Producer → Primary wholesaler →
Rice miller → Secondary wholesaler → Retailer → Consumer, Channel – IV:
Producer → Rice miller → wholesaler → Consumer. Their study found that, the
marketing charges, margins and the consumers had purchased price were highest in
channel-II followed by channel-III and channel-IV. It was because of the fact that
higher number of intermediaries were involved in channel-II. The marketing
efficiency index of channel-IV was highest as compared to the channel-III and
channel-II. It showed that the channel–IV most efficient. The producer’s share was
found highest in case of channel-IV, where the number of intermediaries were lesser.
The channel-IV had been found to be the most efficient and suitable to the farmers.

2.7 Producers’ Profitability

Profitability plays a crucial role in agricultural commercialization, it provide

an insight about market performance of the farmers. In this section focus is laid on the
studies relating to the farmer profitability. To know the extent of profitability different
scholars have taken various indicators like average cost, average sales price, gross
profit, gross margin, etc.

Umar and Yaro (2017) examined the profitability of fresh tomato retail
marketing in Nigeria. From the findings of their article it could be concluded that
fresh tomato retail marketing is generally profitable and can serve as a way forward

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for reducing unemployment rate level as some significant amount of the literate
people found some means of sustenance in the business.
During the peak season, however, this commodity's marketing is extremely profitable
and efficient, but during the off season, it is not. The study suggests that fresh tomato
retail marketers adopt the concept of collective purchasing in order to reduce
transportation costs and maximise profit. It also suggests that agricultural scientists
find ways to reduce postharvest losses at all levels of marketing in order to keep the
commodity's price relatively stable throughout the year, ensuring the business's long-
term viability.

Kanyua et al. (2015) investigated the factors Influencing Profitability of

Diversified Cash Crop showed that, high value agriculture has potential to improve
financial performance and profitability of smallholder farms even when land is
limiting. HVAC also lead to increased labour demand and employment in the rural
areas reducing rural urban migration. Good rural infrastructure and institutional
infrastructure such as markets when well managed will transform the fortunes of the
many smallholder farmers involved in HVAC production. Fertilizer and organic
manure application have a substantial impact on farm profitability; therefore
promoting agricultural production will necessitate the full development of the input
market. Smallholder agriculture productivity would rise greatly if the input market
could supply these inputs at the proper time and at reasonable rates. Contract farming
has the potential to provide farmers with inputs, and rules encouraging firms to hire
smallholder farmers should be developed. The gross margins from cash crop farming
are also beneficial for both diversified and specialized tea producers, according to the
findings of gross margin research. Diversified farms have a gross margin per hectare
that is 63% higher than specialist tea plantations, with the difference due to cash crop
diversification. Gender of the household head, experience in cash crop farming, the
value of farm tools owned, farm size under cash crops, access to credit, quantity of
labour hired for non-tea harvesting activities, and the quantities of fertilizers and
manure applied to the cash crop fields are all factors that have been identified as
having a significant positive impact on the profitability of diversified cash crop
farming. Off-farm income has a negative and severe impact on the profitability of
diversified cash crop farming.

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 Mugula and Mishili (2018) while analyzing the profitability analysis of
sustainable agriculture practices (SAP) observed that, SAP adopters have a slightly
higher gross margin than non-adopters. SAPs gave environmental and financial
benefits to those who adopted them. The study went on to say that disregarding social
and environmental benefits analyses could lead to a false picture of SAPs' benefits.
Farmers' focus on economic rewards may drive them to choose technology with
shorter-term benefits that have long-term negative consequences. Farmers who
adopted all three principles of SAPs were shown to be better off in terms of profit and
yield than partial/non-adopters, implying that farmers should adopt all three principles
of SAPs if they want to reap all of the benefits to their farms in terms of output and
profit. Furthermore, in order for SAPs to be lucrative for smallholder farmers, the
government should intervene in the most critical sectors of production, such as
infrastructure, inputs, and extension services, and strive to make them affordable to
them. The effect would help in the adoption of SAPs among smallholder farmers by
allowing them to purchase the essential inputs for subsequent SAP adoption.

Samra and Katariya (2017) analyzed the profitability of vegetable growers in

relation to farm showed that small farmers were more into vegetable farming, with
two-thirds of operational area under vegetables, resulting in a considerable increase in
farm income per acre of gross crop area. Small farmers' cropping intensity was 218
percent, providing them a greater farm revenue per acre of gross cropped area, as
vegetables are short-term crops that are largely produced by small farmers. Their
study also showed that small farmers earned a substantial amount of their total farm
income from vegetable farming, which corresponded to the large share of vegetable
crops in gross crop area. Although there was a difference in absolute terms in terms of
variable cost and net returns for different vegetables, analysis of variance revealed
non-significant variances between different farmer categories.

The paper by Samboko (2011) examined the value accruing to producers of

beans and the factors influencing it. The gross margin study revealed that bean
production is unprofitable in Zambia on average. The observed gross margins, on the
other hand, varied across provinces and according to the market channels. Households
that did not sell their produce and those that sold to their neighbours lost money on
average, whereas those who sold to private traders within the district, within the

38
village, and those sold to consumers outside the district recorded profit. The
econometric assessment of factors influencing profitability revealed that yield, price,
land titling, source of power in form of household labor, size of the household, tillage
methods in form of the bunding and the ridging are important determinants of value
accruing to producers of beans.

2.8 Constraints of Commercialization

There were number of studies done to identify the constraints of agricultural

commercialization. The major factors limiting commercialization of agriculture are
lack of credit provisions, slow adoption rate of modern farming technique, quality
problems, a limited quantity of inputs, lack of basic infrastructure facilities, marketing
access and lack of finance, etc.

Borah (1993) while analyzing the constraints of agricultural development in

the hilly regions of North- East India, has observed that the indigenous tribals of the
hills are willing to adopt new crop production methods, whatever they are, as long as
they are profitable and compatible for the local soil. However, if there is  an
imposition from above is made in the name of development without convincing the
indigenous tribal people of the benefits of such programmers, they may react
negatively.

Satyasai and Viswanathan (1997) in their study of Commercialization and

Diversification of Indian Agriculture identify various constraints in commercialization
and diversification.

1. Marketing Constraints: The development of marketed surplus and the

realisation of remunerative prices by farmers has been hampered by an
inefficient agricultural marketing system. The presence of an excessively
large number of middlemen, extensive marketing channels, intermediary
malpractices, and an information gap caused by a lack of free and effective
information flow are all maladies that affect agricultural marketing.

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 2. Technology Constraints: Lack of acceptable technology and the non-
adoption of available technology are the major constraint. Some of the
constraints can be alleviated by technological developments. Drip/sprinkler
irrigation, for example, can help to alleviate the water shortage in rainfed
areas to a great extent. Information gaps in the agricultural marketing system
can be bridged due to recent improvements in information technology.

3. Infrastructure Constraints: In agricultural marketing system, there are

numerous constraints due to a lack of suitable infrastructure. Roads, cold
storage facilities, transportation (including refrigerated) facilities, air freight,
pre-cooling, and other infrastructure are all lacking. Inadequate post-harvest
facilities, such as processing, grading, and packing, as well as unpredictable
electrical supplies, are key roadblocks.

4. Socio-economic Constraints: Socioeconomic profile of the farmers' is not

necessarily conducive to the adoption of new technology. Because green
revolution technology is scale-neutral, it can recruit the cooperation of most
farmers, regardless of farm size, sooner or later. New commercial
agricultural operations, on the other hand, are capital expensive, need in-
depth knowledge, and carry a significant level of risk, therefore they are not
suitable for everyone.

Mahaliyanaarachchi (2004) in their study of Possibilities and Constraints of

Commercialization of Vegetable Production found that –

1. One of the major obstacles is a lack of farm infrastructure. Improved

transportation, well-constructed roads, and the availability of irrigated water,
electricity, and telecommunications would all enable farmers get access to
more advanced production techniques and marketing opportunities.
2. Farmers are resource less to practice hi-technologies such as bio-technologies,
protected farming, etc.
3.  Low quality inputs such as seeds and fertilizer is another constraint to high
quality production.

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 4.  Farmers lack access to an efficient extension service. As a result, they are less
aware of new technology and have limited knowledge of cultivation
techniques and marketing information. Due to a lack of awareness about these
techniques, they used to apply higher or lower seed rates and higher amount of
fertilizer.
5. The dominance of middlemen in the marketing process is a significant
impediment to pursuing a competitive commercially oriented marketing
strategy. The government should intervene in marketing to develop a
competitive marketing plan and reduce the impact of the middleman buying
process.
6. Non-scientific decision is another constraint. This is completely due to lack of
knowledge in commercial oriented farming.
7. Small-scale farm fields make it difficult to use scale-bound technology like
machinery and irrigation methods. But, this could be avoided by employing
more appropriate technologies for small-scale farming.

Horst (1987) in his paper ‘Commercialization of traditional agriculture in

Highland Guatemala and Ecuador’ recognized that, traditional agriculture involves a
complex system of monocropping, intercropping, and multicropping on small and
scattered landholdings; it's a system that defies conventional data collecting and
categorization. Simultaneously, there is the problem of the coexistence of modern and
traditional agriculture methods, which makes it more difficult to gather representative
data on productivity. The physical environment in which tropical highland agriculture
takes place has a considerable impact. The problem of access to remote areas, which
is exacerbated by rugged terrain, exacerbates the problem of data collection.
Traditional agriculture appears to be in the process of commercialization in many
regions of Latin America's tropical highlands, but the rate at which this is happening
and the extent to which specific crops are involved, as well as the basis on which
traditional farmers decide to participate in this transformation, are all unknown. Until
this problem is settled, there will be a lack of knowledge on the commercialization of
traditional agriculture, and change will be haphazard rather than planned.

Rigg (1987) emphasized that; Small farmers responding quickly and on a large
scale to new opportunities can be seen in the emergence of cash cropping. However,
41
the processes and pressures that influenced the shift from a predominantly
subsistence-oriented agricultural economy to one with a significant cash component
have never been fully understood. Road building is vital in making villages more
accessible, but farmers' attitudes toward change are also important. T the private
marketing network can play an important role in maximizing the potential presented,
such as serving as a link between the farmer and the market. It's conceivable that if
there hadn't been such a correlation, agricultural transformation would have been
much slower. Middlemen have been merchants of change and a stimulant to economic
innovation in this regard.

2.9 Options and Policies.

This section deals with the studies describing policy suggestions and
recommendation as based on the observations and finding.

Giriappa and Vivekananda (1984) acknowledge that the policy of

adopting foreign technologies has, no doubt, yielded certain results, however, the
negative effects must be mitigated through indigenous development of an effective
alternative technology and adoption of environmentally friendly technologies based
on renewable energy sources, resulting in greater utilisation of local resources.

Borah (1993) suggested the following policy measures that can be

implemented to minimize various constraints of agricultural development in the hilly
regions of the North eastern India.
1) Before introducing various programmes for agricultural development in hilly
areas, the implementing agencies must be certain of their success in that
location. Instead of being generic, the plan should be area specific.
2) Local farmers should be consulted before any new programme is
implemented, and such programmes should only be implemented once they
have been convinced.
3)  In order to control the exploitation by the middle men, the government may
fix support price for various crops.
4) Agricultural scientists should be entrusted with the responsibility of
developing new high-altitude crop varieties.

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 5) Cadastral survey of the entire hilly areas of the region must be completed as
soon as possible for optimal land use planning.
6) Local youth who are committed to local development and have a social
standing in the village or community might be entrusted with the
motivational task towards scientific cultivation. It is much easier to persuade
farmers to adopt any new crop production innovation if there is a leader
among them.

Tobgay (2005) concedes that commercialization and diversification of agriculture

is ‘pro poor’ and acknowledges that apart from income generation, diversification in
most cases leads to increase employment opportunities not only for the rural poor but
also benefits a broad spectrum of economy.

Tulachan (2001) analyzes the trends for three integral components of mountain
farming systems, namely production of food grains crops, horticulture and cash crops,
and livestock using time series data. Results show that, despite the fact that the area
under foodgrain crops has not increased, yields have not decreased. Crop productivity
has increased in some circumstances. This clearly indicates that mountain farmers are
sustaining foodgrain crop yield for the sake of food security. The findings also imply
that crop diversification toward horticulture and cash crops are becoming more
common. The increased importance of horticulture and cash crops in mountain
farming systems is evidenced by current trends in rapid growth of acreage under these
crops.

Mahaliyanaarachchi and Bandara (2006) suggest that environmental issues

should be given appropriate attention, not just to boost productivity, but also to ensure
the sustainability and balance of the ecosystem, as commercialized extension services
attempt to increase productivity while ignoring environmental issues.

Singh (2012) suggests that farmers need to be made aware of proper marketing
techniques and their abilities must be strengthened in order to take advantage of
chances and obtain a more remunerative price for their produce as market orientation
output increases. Domestic producers have been sensitive to price shocks as a result of
liberalized trade, and farmers have been unable to take advantage of new

43
opportunities that have arisen. As trade becomes more important in the future, farmers
must be prepared to adapt their production and marketing activities to trade (market-
led production), which will necessitate educating farmers about trade impacts, trade
opportunities, export prospects, import substitution, macro policies on tariffs,
international prices, and other similar factors.

Pingali et al. (2005) emphasize on transaction cost involved in the process of

commercialization which determine market entry of small farmers, and suggest that,
lowering transaction costs would go a long way toward enticing farmers to participate
in trade. Second, transaction costs are unique to each household, commodity, and
region, and they fluctuate often. The private sector is best suited to reduce transaction
costs associated with the unique features of the food system. A holistic picture of the
interaction between agricultural commercialization, chain efficiency, and small
farmers is necessary to properly target interventions and take corrective action.

Mahaliyanaarachchi (2004) states that introduction of improved technologies

to the farmers is essential along with the required funding opportunities. It is
necessary to organize loan and/ or subsidy scheme for the farmers to purchase and
practice these hi-technologies as protected farming, bio-technologies, hybrid seeds,
etc. A commercially oriented, efficient, and effective extension service is a must to
eliminate many of the malpractices in vegetable cultivation production and marketing.
It will assist farmers in using better and more appropriate farming technology,
lowering COP and improving output quality. Furthermore, marketing extension
services can assist farmers in making the best marketing selections. It is critical to
build a market information service for these farmers, which is currently absent. Due to
extremely influential local collectors, early involvement of the state sector in
marketing is required. Public sector involvement is important to minimize the non-
competitiveness of marketing and ensure the competitiveness. There should be a well-
thought-out and well-organized framework in place to enable farmers to use
information technology (IT) in their production and marketing decisions. Farmers will
be better able to make scientific decisions in both production and marketing as a result
of this. A major demand is the development of infrastructure facilities. To create a
financially successful vegetable production system in the area, better roads, energy,
telecommunications, and irrigation are required.

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2.10 Conclusion

From the above review of existing literature covering different aspects relating
to agricultural commercialization around the world, we can conclude that different
economists have studied and analyzed the transition of agriculture from subsistence to
commercial and further to modern agriculture. Several research studies have also
focused on the determinants and constraints, a few have also dealt with the extent and
consequences of commercialization of agriculture. All these studies have been
successful in bringing out their findings concerning the determinants, constraints,
extent, and consequences of agricultural commercialization in the countries of the
world.

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