Saturday Sprouting Reads (Farm Laws, Collateral Managers, The Problem with India's Sachet Revolution, Climate Change)
Plus! Upcoming Agritech Samvaad (Dialogue) Event: A Designer's Guide to Cracking India's F&V Supply Chain
Greetings from Hyderabad! Welcome to the November edition of fortnightly Saturday Sprouting Reads!.
My name is Venky. I write Agribusiness Matters every week to grapple with vexing questions of food, agribusiness, and digital transformation in an era of Climate change. Feel free to dig around the archives if you are new here.
About Sprouting Reads
If you've ever grown food in your kitchen garden like me, sooner than later, you would realize the importance of letting seeds germinate. As much as I would like to include sprouting as an essential process for the raw foods that my body loves to experiment with, I am keen to see how this mindful practice could be adapted for the food that my mind consumes.
You see, comprehension is as much biological as digestion is.
And so, once in a while, I want to look at one or two articles closely and chew over them. I may or may not have a long-form narrative take on it, but I want to meditate slowly on them so that those among you who are deeply thinking about agriculture could ruminate on them as slowly as wise cows do. Who knows? Perhaps, you may end up seeing them differently.
Repeal of Farm Laws:
On November 19th, India’s Prime Minister Narendra Modi addressed the nation.
While apologizing to the countrymen, today I want to say sincerely that perhaps there must have been some deficiency in our penance that we could not explain the truth like the light of the lamp to the farmer brothers.
Today is the holy festival of Prakash Purab of Guru Nanak Dev ji. This is not the time to blame anyone. Today I want to tell you, the entire country, that we have decided to repeal all three agricultural laws. We will complete the constitutional process to repeal these three agricultural laws in the Parliament session that begins later this month.
Nothing has been polarizing this country more than the farm laws, and this news development, although late, comes with a pregnant opportunity to pursue the difficult path of doing agricultural reforms in a democratic manner.
My analysis on Farm Laws so far:
Part-1: Setting the Context 🔒 | Part-2: No Country for Middle-Men | Part-3: In Defense of the Government 🔒 | Part-4: Samudra Manthan in the World of Agriculture: | Part-5: "Annadata" Conundrum" And Mapping the Cultural Wars of Agriculture 🔒 | Part-6: Can I offer you a grey pill on farm laws? | Part -7: Greta Thunberg and the aftermath of Farm Law Politics in India | My TEDx Talk on the need to dialogue in context with the farm laws.
We are already very late when it comes to agricultural market reforms and enough and more blood (more than 700 farmer deaths) and ink has been spilled due to these agrarian reforms. More than a cause of doom or celebration (depending on your political inclination), this major news development is a moment of stern resolve to dialogue, go beyond the false binary of silent majority vs tyrannical minority, and work urgently towards addressing existential issues of hunger and poverty rural India is currently facing in the wake of the pandemic.
[Subscriber-Only] The Death of a Collateral Manager
When 90% of the warehouses in India are largely private and informal, you need a middleman who will bear the principal risk and take a tax for the services he offers.
Enter the Collateral Manager.
The collateral Manager has been facilitating the transaction between the warehousing service provider and the lender, assuring the latter of the quality and protection of the goods and compensation if anything untoward happens.
Essentially, the Collateral Manager issued a Storage Receipt (warehousing receipt in the case of a licensed warehouse) and the banks issued loans, after taking their margins.
Over the past few years, thanks to demonetization, NPA mess, the collateral management businesses have been shutting down. Data put together by CARE ratings show that the warehouse receipt financing market has shrunk by more than 50%.
How are Collateral Management Players changing their stripes in the post farm laws economic climate? I track some early changes emerging in the warehousing ecosystem.
The Problem with Sachet Revolution
If you are a soap manufacturer, how would you sell your soap in rural India?
Simple. You cut the soap into six pieces and sell them at 1/6th of the price.
Ramakumar writes a wonderful article that thankfully cuts to size the developing countries’ obsession with CK Prahlad’s “Fortune at the Bottom of the Pyramid”.
For many like me who did MBA in the early 2000s (and later realized what an utter time sink it was), CK Prahlad was the “Management Guru” of those times, and “sachet revolution” was India’s “disruptor innovation”. Back in those days, it was a cool case study to talk about in our marketing classes.
The point Ramakumar raises is extremely pertinent: The sachet is not an innovation, but a problem.
As Ramakumar writes,
For any backward economy, the journey of “development” begins in rural areas. Unless incomes in agriculture rise rapidly, a large home market for non-agricultural goods cannot be created. Also, a growing agriculture sector cools down food inflation, makes food more affordable for urban workers and keeps industrialists’ wage bills lower and profits higher. Export markets can never be substitutes for a strong home market, partly because global markets are not open and partly because the volumes are not large enough. Due to these reasons, and more, public policy in backward economies has focused on creating an agricultural surplus by removing barriers to increasing production and raising public investment in agriculture and rural infrastructure..
If you want to understand how “backward” economies went about their journey of development, a good book to check out is “How Asia Works” by Joe Studwell.
Based on the success stories of Japan, South Korea, Taiwan, and China, and failure stories of Thailand, Malaysia, and the Philippines, Joe Studwell identifies a three-part formula that was followed diligently by most developing countries.
Create conditions for small farmers to thrive. (Hint: Land Reform)
Use the proceeds from agricultural surpluses to build a manufacturing base that is tooled from the start to produce exports.
Nurture both these sectors (small farming and export-oriented manufacturing) with financial institutions closely controlled by the government.
How has India fared in contrast with these “developing” countries which applied this three-part formula?
Warning: The facts Ramakumar places on the table are going to hurt.
In India, however, land reforms were a failure except in abolishing statutory landlordism and outside of a few states. Coupled with poor public investment, this meant that aggregate demand in rural India remained trapped in a vicious cycle of low investment, low productivity and low income. In 2018-19, the average monthly income from crop production of an agricultural household was just ₹3,798. More than 50% of agricultural households are estimated to be below the poverty line. More than one-fourth of India’s rural households are landless; 78% of income poverty is concentrated in rural India; and underemployment is the rule in India’s rural labour markets.
Ramakumar presents a damning picture and reminds us that by fixating ourselves on the fortune of the bottom pyramid, we have forgotten how ‘poor rural demand continues to be a major drag on India’s economic growth’.
Ramakumar sums up his article thus:
If India is unable to resolve the long-standing problem of underdevelopment in its agrarian economy, its potential to emerge as a major economic power in the 21st century will remain stymied. Unfortunately, no Indian capitalist worth their salt appears to recognize this as a problem.
Is any Indian agritech entrepreneur worth his or her salt listening?
How Climate Change is Going to Mess With Traditional Ag Investing?
Of course, fixating on poor rural economic demand will not solve our problems in 2021 in an era of Climate Change.
Himanshu Gupta writes an interesting piece on three ways Climate Change is going to mess up traditional Ag Investing. He identifies three myths in particular
Myth #1: Past performance of investments is a predictor of future performance.
Himanshu gives the example of “chill proportions”, a metric used by agronomists in California to ‘determine if the number of hours in a narrow temperature range will enable the plant to reliably produce fruit’.
As he writes,
Accumulated chill portions have been on a gradual decline on a decadal basis, but more importantly, the years between 2012-2017 saw a sharp decline in chill portions compared to the decade before. Therefore, modeling portfolio returns based on historical chill portions can’t be trusted in modeling future yield or expecting future portfolio returns.
Myth #2: Geographic diversification is climate diversification.
Himanshu gives the example of “Extreme Heat Days”. Even if your portfolio is geographically diverse to combat the risks of extreme heat, what will you do when you are faced with sprawling data such as this?
“The map below shows the observational likelihood of extreme heat days, correlated with an asset in the Pacific Northwest (circled in red).”
Myth #3: Climate change is a future risk.
Years signaling a permanent shift in the crop duration season for Maize in Africa in RCP 8.5 (the business-as-usual climate emissions scenario). Source: Nature.
Himanshu uses this graph, which maps the conditions in different parts of sub-Saharan Africa that will become unsuitable for African maize, to corroborate this point. The study looked at how projected heat stress and drought stress impacts the duration of the crop.
If you ask me honestly, to talk about Climate Change disrupting ag investing reminds me of the lone chap who plays the violin in the deck of Titanic. It’s a nice distraction momentarily until the shit gets real.
If you want to get serious about how bad Climate Change could affect developing countries, you might want to first pay attention to countries in which rice is the staple food.
The reason I am emphasizing rice-eating countries here is because of this paper that studies ‘how the rising carbon dioxide concentrations that are fueling climate change could alter the nutritional value of rice’.
To get a better sense of the proportion of impact, look no further than the correlation between rice consumption and poverty estimates in the graphic above.
When the rice that the majority in South East Asia depend on, turns out to be of poorer nutritional value, it is going to impact the lives of billions. As the authors of the study point out,
The role of rising [CO2] on reducing rice quality may represent a fundamental, but underappreciated, human health effect associated with anthropogenic climate change.
What do we do when rice plants produce fewer vitamins and other key nutrients as the atmospheric carbon dioxide levels rise?
Agritech Samvaad: A Designer’s Guide to Cracking F&V Supply Chain Problems in India
The next edition of Agritech Samvaad is here. We are going to do a live visualization dialogue session with a designer turned agritech entrepreneur.
As someone who researches and studies the ongoing developments at the intersection of nascent Agritech and ancient Agriculture, I am fascinated by how outsiders and insiders think of agriculture and the problems that exist in the current design of the system.
Having entered the domain of agriculture and agritech only in 2017, I consider myself an outsider, in some sense, and I would include designer turned agritech entrepreneurs like Anurag Duddu in the same list.
When you are an outsider, you are trying to see the problem from the outside. Sometimes, you could be hopelessly naive. Or sometimes you could be the boy who dares to call the king naked (If you remember the Emperor's Clothes fable).
Over the past few months, I have been interacting with UX Designer turned agritech entrepreneur Anurag Duddu and found his thoughts refreshing. Since he is a designer and I like to think in visuals, we are going to do a live visualization session to talk about F&V supply chain problems and how they could be solved.
Do join in. You can RSVP here. It’s happening on 29th at 12 PM IST.
The event will be live-streamed live on Youtube and LinkedIn.
So, what do you think?
How happy are you with today’s edition? I would love to get your candid feedback. Your feedback will be anonymous. Two questions. 1 Minute. Thanks.🙏
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Farm Laws to a larger extent were clueless effort to ward of Farmer subsidy which happens in the form of MSP in India. Govt is surely on a denial mode for staples like wheat and paddy. But the problem lies in fact that done even suggest other crops and MSP in them to support farmers growing them. A country facing a huge shortfall of Oilseeds has made only some effect in promoting one in these times. Is there a lack of knowledge or willingness to do.