Lateral View: Wealth creation among the hillbillies…!!!

Some time back, before Reliance retail was launched, I had seen a panel discussion on TV which was part of some symposium organized by NDTV. One of the discussion points was what is the most critical need for the rural sector?

He was not the most articulate among the elite panelist nor did he speak in his best, Bigger Ambani said the immediate need is a strong distribution system whereby rural farmers have good and quick access to urban market. Though it was the simplest and shortest, but to me it was the most profound (maybe there could be some ulterior motive as Reliance Retail was on the anvil, and they planned to source directly from the rural farmer. Anyway that’s not the point)…

Disparity of wealth is one of the worst byproduct of capitalism and maybe it’s one of the most uttered social evil not only in India but also across the world. The mission of curbing this social evil to me is noble and should be in the top priority list in any government’s strategy anytime. In our entire 62 years of independence almost everyone tried to curb this evil through different form of redistribution of wealth vehicle, few of the latest being loan waiver, NREGs, et al. However, I haven’t heard or read any scheme or “yojna” which actually delivers…do you? Well, corruption is the easiest scapegoat year on year and it’ll be for years to come. If it’s going to continue for years to come then are we saying that we will never come out of this vice?

I have a lateral views on this.

There is a passage in the Bible: “Give a man a fish; he’ll eat for a day. Teach a man how to fish, he’ll eat for a lifetime”

Our leaders sure have heard of this and they’ve been trying to implement by using certain eradication vehicles like education, priority sector lending, loan waivers, minimum job guarantee, free lunch, etc. I’m not saying all these are less important, Yes!!! they are indeed essential…but to me, all this sounds more of giving a fish then teaching them how to fish (strictly personal view though).

The solution to me lies in providing a “robust distribution system” and that is what I will term closest to teaching them how to fish.

When I say distribution system it’s not just about the infrastructure like roads or railway tracks, but an environment which is a combination of infrastructure and a concoction of social, economic and political factors which will give rural producers access to market place and also motivate them to use this market place without being exploited.

Today, we have the infrastructure and distribution channels which source goods from the interior parts and bring them to the urban market place, but in this entire supply chain, I feel the long list of middlemen siphon off the maximum value-addition undeservingly, more than the producer and the consumer. They create artificial shortage and extort from consumers and then create artificial shortage/excess so that they source goods from the rural producers at blood sucking rate.

More then the urban consumers, the rural producers are the ones who are hit the most in this entire sinister set-up because: Unlike the urban consumer who has the information, the social net to fight back and also the option of buying from different seller or buy substitute products, the rural producers are vulnerable. They are heavily dependent on the middlemen to en-cash their harvest.  

My strong feeling for robust distribution system stems from the fact that majority of our brethren in rural belt are cultivator by profession and they will continue to be. And all the few educated (who benefits from certain governments’ education initiative) would attrite to the urban location and become part of the urban economy. 

The only way to create wealth for a cultivator is to first have a surplus harvest. However, surplus in itself doesn’t create wealth unless they can be converted into money or unless they are bartered with other necessities (which off course is not feasible in this age). So the only option left is to be able to convert those surpluses into liquids which will only be possible if those surpluses reach the market place and fetch the right return.

  • Since I’ve not traveled to all lengths and since I’m still young to know all the social and economic construct of all parts of the country 🙂 I’ll be basing all my prophecy purely on the social and economic construct in a jhoom society/economy because that’s what I’ve seen from my childhood. What is Jhoom cultivation? Also known as “slash and burn” method done by burning a piece of forest land and cultivating crops for certain period of time till the land is fertile and then move onto another piece of land.     

To make the perspective more palpable, let’s draw some corollary of lack of distribution system from a village which I know, called Santing :  Despite the fact that they are endowed with CASH CROPS that can bring them the much needed surplus, the people here adopt subsistence cultivation of less productive crops (like jhooming rice).

This small hamlet is situated in one of the mountain range (extensions of the Himalayas) of Manipur. The mountains are a natural fertile which host plethora of cash crops like tea, coffee, cane, bamboos, banana, jack fruits, chilies, turmeric, passion fruits, oranges, timbers, orchids (to name a few), which is endowed in wilderness by Mother Nature. The main occupation of the people here is “Jhoom Cultivation”; they crop rice in the mountain slope by planting seed by seed, unlike large scale production technique used in paddy fields in the plains. Despite the high requirement of labor, productivity is low.

Then now the question is why do these hillbillies crop rice in the first place when they are naturally endowed with more productive and more money generating crops/plants? (To add to the woes, there is hardly anything called irrigation system, and you know rice cultivation requires huge quantity of water).

I know you will blame education or lack of awareness for this subsistence form of occupation, sitting from your urban house. You know what, the village has a catholic school apart from the old mission school run by the local church since ages and the nearest town which has all modern amenities like TV with cable connection, newspaper, electricity and mobile phone is just about 90 Kms away. To add to it, at least half of the people would have undergone some form of primary education and thus know how to read and write…And a state highway runs through the village (though it could be the bumpiest and most curved road)…..then why-O-why?

Hypothesis 1:

To this hillbillies the only market for cash crops is the local market consumption which is the 90 Km far town and the small trader who is also located in the town, who in turn supply it to some bigger wholesaler located in bigger city. This small trader are middlemen of different bigger wholesalers; they would trade in produce which is easiest and most viable for him for that particular season. Hence they will buy only produce which comes to their doorstep rather then those which need to be transported from the source. These suppliers are in turn dependent on whether they can export it to mainland part of the country (which can be a separate topic). Since consumption capacity of the local market is small (few populations), unless suppliers buy it, bringing the cash crop to the local market in bulk will not make them break even – because supply increase, there is reduction in selling price. To aggravate the situation, the local market has limited consumption capacity, hence demand elasticity is minimal. There is no considerate increase in off take with reduction in price. Hence, to produce crops in bulk has a lot of risk involve.

To give a clearer picture, let’s build a probability tree if villagers were to grow cash crop.

jhoom_pic1

Hypothesis 2:

Why do they cultivate rice when it’s not only tough but also not conducive for the land?

For people at the bottom of the pyramid, stability is more important then ambitions and dreams. Because when you are dependent on hard labor and the vagaries of nature you would not have much room for aiming a life with sophistication, because it requires higher risk and which in turn requires brain power.

Since these people are natural rice eater (though it’s a bit weird) cultivation of rice guarantee them a year supply of their staple food, with some additional sourcing of forest produce like wild fruits, herbs, hunting, timber, etc. they manage the year without starvation.

But the paradox is that this system of cultivating their staple diet (rice) provides them only subsistence living, there is no improvement in their economic status from the previous year because they consume whatever they produce, with no rooms for any surplus and hence zilch savings. And the cycle goes on… 

Now let’s compare the two hypotheses:

·         Hypothesis 2 gives you an almost 100% chance of survival though with 0% wealth creation.

·         Hypothesis 1 will give you 25% chance of being wealthy, 12.5% chance of survival (break event), 25% chance of being in lost (selling at throw away price) and 37.5% chance of being in debt (not able to sell).

Even a seasoned punter might not bet for a 25% chance (being wealthy) when the odd of being in debt and at lost is at 62.5% (25% + 37.5%).

But…

If we were to ensure that transportation between the village and the local market is 100%, then the equation will turn into:

·         Wealthy: 50%, Lost: 50%, as the other branch of the probability tree will be wiped out completely.

If I go a step further and increase the suppliers’ chance of exporting to mainland part of the country, this will improve the chance of the suppliers buying good from the farmers, then the probability of Wealthy will go up and the probability of Lost will come down. If I can ensure a system where in the probability of wealthy goes up say till 75%, then there will be a situation wherein in a span of 3 years, the farmer will be wealthy for 2 years and will be in lost for just 1 year, which to me is an affordable risk even for a farmer (75% : 25%).

But then the question is how do I build this so called Utopian type of distribution system? The answer is limitless and will be unending debate…As I’ve taken the pain of penning down such long prophecy, let me put few top of my mind thoughts:

·         Create a market place which has a minimal ceiling price for farmers to sell their produce, so that he is guaranteed that at the end of the year he will be able to sell his produce at least at that minimal price.

What will this ensure? This will motivate and promote the less aware farmers to cultivate more productive and profitable products rather then follow subsistence farming. Any ceiling price always create economic imbalances, which is demand exceed supply, though in this case supply will exceed demand. To avoid such situation, there should be allocation in the type of crops to be cultivated for all farmers based on some form of demand forecasting (for say a year or few years). And this ceiling price system should only be for certain time period till the entire system is stabilized.

·         Build a network where in goods are easily transferred within markets depending on demand and supply. E.g. if supply of ginger is more in the east for a particular year then there should be an effective and efficient system of exporting it to a South or West where there might be a demand for ginger in that year.

·         In all this system not only government participation, but even private participation should be mandated. Like in banking where some portion of their assets should be placed in priority sector, manufacturing companies, retail and trading companies should be mandated to source their raw materials from these priority locations?

There is a flipside to every theory and one of it here is that this will not lead to an optimum productivity point for the economy. The economy will not be decided by demand supply equation hence it will not hit the optimum point.

Anyway have we ever reached that optimum point and do we really intend to do it with a “mixed economy”? Or is the ethos of our country to attain that point rather then the welfare of everyone in the pyramid?…

FINALLY…So what am I conjuring by writing this thick article? In simple term, inorganic ways of solving issues like providing minimal employment guarantee, loan waiver, monthly cash, lower price of grains, etc. will only feed him till the time the dough last (In a coalition political set-up, it will not last long…) and he will come back to the road once the dough is finished. We need to create and instill an organic system within him whereby he creates the dough by himself…So this “robust distribution system” is what I will called the organic system by which the Joomers will be able to fish for himslef…

Adios!

Boi

Advertisements
This entry was posted in Society and tagged , , , , . Bookmark the permalink.

2 Responses to Lateral View: Wealth creation among the hillbillies…!!!

  1. saurabh says:

    boi, that is profound man.

  2. Sandeep Mallik says:

    I must commend Boi for beautifully picking up holes in the current agricultural product supply chain. The article very beautifully brings out that lack of access to the market is primarily responsible for the current plight of the rural economy. Where it disappoints a tad is in the solutions it presents

    I believe that most of the solutions suggested have either been tried or is not possible in short run. Efficient transportation presupposes the good infrastructure so that the transportation costs are within control. Any infrastructure would always take a long time. Over fifty years of priority sector lending norms doesn’t seem to have solved this issue. Given the recent experiences of private sector banks I don’t think we have profitable and civil(ie using the legal collection methods) model for private participation in this market.

    Does this mean that we have no solution. Well…look .no further than Amul experiment . It has completely changed the landscape as far as the milk distribution is concerned. A robust and supportive cooperative society is the one way forward to make the distribution model robust (and profitably so). I am sure a lot more success stories are present.

    Ironically I also believe that schemes like Employment Guarantee has an important role to play. Once the rural population understands that it has an alternate source of income, it would be able to manage the risks of a crop loss etc much better as also the problem of disguised employment. That should give the rural folks more reasons to participate in the economy.

    There are other models available – ITC’s e-choupal being one of them(I don’t know how profitable that is though). The question is do we want to lauch this Operation Redistribute!!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s