My business trip to India - Part 3/6
Here is the third part of Kay's exciting trip to India.
We often hear that India is a poor country, but this is not quite correct. It is true, that a lot of people have a humble economic status. But this doesn’t mean that the county is poor. For example, a farmer cannot be called poor just because he does not have liquidity. In some parts of the country, an acre of farmland (about 4,047 m²) costs about 30,000 euros, and with a certain size of the field, the owner even has staff. A worker costs around 4.40 euros a day. So, sometimes there is “just” a lack of liquidity to find. For this reason, agriculture is an industry that pre-finances loans and long-term dates of payment.
Some loan or deferred payments are organized in such a way that famers have to make unfavorable decisions over and over again, which further limits their liquidity. For example, the farmer can often buy fertilizers with a long-term date of payment that is right after harvest. So he has to sell his crop immediately after harvesting, even if the price is very low. He could probably earn more money if he could choose the time when to sell his crop. Moreover, the distributor may offer long-term dates of payment to farmers predominant in the case of products with high margins. So the farmer finds himself in a dilemma.
The concept of the long-term date of payment continues throughout the whole trade chain. No trader can afford prefinancing fertilizers for all his customers, and those who could, don’t seem to be willing to do it. Consequently, the money has to be collected quickly right after the harvest from the customers.
When talking about a journey, one often speaks about the country and its people. Since I’ve talked a lot about people so far, I will tell you something about the country now. On the way back from Nashik to Pune, we passed through a valley. This is a tiny foothill of the mountains that meanders from north to south along India’s west coast. Pune and Nashik are located in the interior of the country, Mumbai is located at the western coast. The climate between the two areas differs from one another. For example, the humidity in Mumbai is higher than in the interior of India.
If you take a look at the field structures, you can see a lot of small plots. Farmers rely on diversification and risk spreading. Overproduction of one crop causes a drop in prices. As a result of risk spreading, not all harvests have to suffer from this. I realized that sometimes the same crop is harvested on several adjoining plots –but why? The reason is that the plots have different owners. Farmers are not willing to exchange farmland in order to get larger ones that are connected. There are several reasons as missing irrigation, or that their own field is perceived as better. So there is a huge patchwork of small fields and plots, restraining the usage of bigger farming machines. This might be another starting point for improving the indian farming business.