Thursday, 12 January 2012

Whose Money Is It Anyway ?

I am not an economist.
Neither do I subscribe to The Financial Times nor to The Economist. Nor do I care to seriously read  any of the salmon colored newspapers.

 Despite all of this, I am amazed at how, in the very recent past, there has been a flood of articles, op-eds, stories, blog posts, tweets and re-tweets on the rise in income inequality.  Outrage seems to be on how we have allowed capitalism to grow into the form that it is today - which is killing equality, destroying the world’s ecology  and causing severe environmental degradation .The manner in which there is an overzealousness in  natural resource exploitation , one would imagine that  our natural capital is here for us to last till perpetuity.
The rise of disparity of incomes is not limited to countries such as India, where there has been a history of  stark inequality, but the rise of income inequality is growing notoriously in developed countries such as the US and UK. A recent study done in the US showed that the top 1% households' income grew by 275% - this is just one revealing statistics – there is a lot  more data out there to show that more wealth is shifting to fewer  people, with few bankers having a disproportionate control  over the economy.  As a recent New York Times article puts it – it has been the era of the rise of the super rich. If not the ultra-rich.

Forbes annually tallies the fortunes of the world’s billionaires. The world’s 1,210 current billionaires, Forbes reported in March 2011, hold a combined wealth that equals over half the total wealth of the 3.01 billion adults around the world.  Something is seriously going wrong. Despite India s economy growing anywhere between 7% and 8 % in the last few years, income inequality has doubled in 20 years. Surely, GDP growth cannot be the only measure of development and progress or for that matter prosperity.
Nevertheless, why is all this happening? What are we missing that is driving this rapaciousness? Is it because of our inability to perceive the difference between public benefits and private profits?

I have come to see this polarisation more acutely and closely over the last 12 months in my work with the Karnataka Growers Federation.   I have been working extensively with the small to medium-sized coffee farmer in the southern state of Karnataka. Coffee is now big business in India.  According to India’s Coffee Board, domestic consumption has been witnessing a steady growth of five to six per cent in the last five years. And we can see this – almost all of urban India today is dotted with coffee bars. Coffee is the preferred choice for the upwardly mobile and uber cool. With the ubiquitous CafĂ© Coffee Day, Baristas, Costa Coffee, and the much awaited entry of the more expensive Starbucks into India, the latte and cappuccino are here to stay.

The world has been gulping down so much coffee that  it is now the second most globally traded commodity after oil.  But coffee is one of the few internationally traded commodities that is still mainly produced not on large estates or plantations but on small holdings. The economies of the some of the poorest countries are highly dependent on trade in coffee –in some African countries like Ethiopia and Burundi -but the producer today hardly makes a living from his or her coffee bean, given their small holdings – the majority being anywhere between 2.5 acres  to10 acres.

 The story is no different in India.
Contrary to popular perception, 98.5% of coffee growers in India are small farmers. Today India produces 4.5% of the world’s coffee. This is good news – to some.

The bad news is that coffee is produced by 90 countries globally but consumed by just 40 countries. The global coffee trade today is close to USD 96 billion. Of this USD 96 billion trade, a meagre USD 8 billion comes back to coffee-producing countries. There is not a chance in hell that the farmer, who produces coffee on say a  10 acre holding, has any control on the market prices or access to any share of this mega profit. The producer s share of this profit is unusually low while the usual suspects in between and at the end, laugh all the way to bank. The world’s big four coffee roasters  also have big coffee brands – and therefore enjoy huge margins - while the producer benefits the least. Squeezing the small farmer for the lowest possible price – in the long run is a bad business idea – it will drive the coffee farmer out of business.

Coupled with no control over prices, there is another challenge facing the farmer today – that of unseasonal rain and unpredictable weather patterns. Whilst climate change is just one of numerous factors that may affect global coffee production, the International Coffee Organization considers it will likely be one of the most important ones with smallholders (who produce the majority of the world's coffee) the most vulnerable group.  In Karnataka, the state that produces about 70% of India’s coffee, there were 3 years of continuous drought during the coffee season from 2002 to 2005 followed by heavy rainfall in 2006 and 2007. This lead to severe infestation of pest and disease, like stem borer and leaf rust, which resulted in huge crop loss.  For the first time we heard of suicides among coffee farmers.

When it comes to coffee, India is unique. It is the only country on the world map that grows  all its coffee in the shade. Indian coffee is  grown in forest like conditions –verdant and rich in biodiversity. India also grows both the varieties of coffee – Arabica (Coffea Arabica) and Robusta(Coffea robusta). Arabica is high-end coffee – it is rich and yet delicate in flavour and therefore  commands a higher price.  Robusta is the low-end variety – it  is hardier but commands a lower price. One would think that Indian farmers would want to grow Arabica and get a higher price for their coffee bean. But sadly the trend is the reverse. Arabica-growing farmers instead are opting out of this highly-flavoured cherry to grow the Robusta variety (which requires less care), partly because the Arabica plant cannot stand up to climate variability and unpredictable weather patterns.  And this is the other thing – we are now drinking more and more coffee but of less and less quality.  
So whether Arabica survives or not, or whether farmers only grow Robusta because they have to, I know that if Baba Budan were around today, he would have probably been a very rich man.