A Shirt in Market
A shirt that is available for sale in the market makes a long journey, right from production of cotton to the buyer in supermarket. There is a chain of markets involved in this journey with buying and selling taking place at every step.
A cotton farmer's life
Majority of farmers have small holdings of land. They need to do backbreaking work to get a good harvest of cotton. Picking cotton from cotton farm is a tough task. It takes many days to harvest cotton because all the cotton bolls do not burst at one go.
Cotton farming requires high levels of inputs, such as fertilisers and pesticides. Farmers often have to borrow money from the local traders for meeting these expenses.
The traders charge a high rate of interest. They also put a condition that the farmer would sell cotton only to that trader and not anywhere else. This forces a farmer to sell cotton at a price which is lower than the market rate.
Traders are powerful men in the villages. A farmer depends on such traders for money in exigencies, like illness, education, marriage, etc. Moreover, farmers also need to borrow money in order to survive during lean season.
An Agricultural Produce Market Committee (APMC) is a marketing board established by state governments of India. APMC acts on two principles:
- Ensure that intermediaries (and money lenders) do not compel farmers to sell their produce at the farm gate at extremely low price. This ensures that farmers are not exploited.
- All food produce should first be brought to the market yard and then be sold through auction.
Under APMC Acts, a state is geographically divided and Markets (Mandis) are established at different places within the states. Farmers have to sell their produce through the auction in mandi. To operate in Mandi, a trader has to get license. Wholesale, retail traders (e.g. shopping mall owner) or food processing company cannot buy farm output directly from farmer. They have to get it through the Mandi.
The cloth market of Erode
Erode, a city in Tamil Nadu has a bi-weekly cloth market. It is one of the largest cloth markets in the world. It boasts of a large variety of clothes. The people involved in this market either directly or indirectly are,
Cloth that is made by weavers from the nearby villages is bought here for sale. The weavers make cloths as per requirements of merchants.
They have their offices around this cloth market. They buy from weavers and sell to garment manufacturers and exporters around the country. They purchase the yarn and give instructions to the weavers regarding what type of cloth is to be made from the yarn.
Other traders from other south Indian towns also come here for purchases.
Putting out system
It is a system whereby the merchant supplies raw material and receives the finished product. The merchant books orders from his customers. He distributes work among weavers and instructs them to make cloth as per an order's specification.
Advantages for the weavers
- Cost Saving: They do not have to spend money on purchase of yarn. They also save on the money spent on selling (money spent on finding customers and other sales related costs) of the finished cloth.
- Clarity of Work: The weavers have clarity regarding what cloth they should make and how much is to be woven.
Therefore, the weavers depend on merchants for raw materials and markets. This high level of dependence proves that merchants have a lot of power.
Disadvantages for the weavers
- Low Wages: The merchants pay a very low amount to the weavers for making the cloth.
- Lack of vital information: The weavers have no way of knowing who they are making the cloth for and at what price it will be sold.
It is a merchants' market in the sense that it works more in the favour of merchants. They sell the cloth to garment factories.
Input cost for weavers
The main cost of inputs is cost of looms. The weavers invest all their savings or borrow money at exorbitant interest rates for buying looms. A loom costs Rs 20,000. A weaver who has two looms has to shell out Rs 40,000. Since the work on these looms cannot be done alone, another adult family member works with him. They work upto 12 hours a day. They earn a meagre amount of Rs 3,500 per month in spite of working so hard.