The funda of farmer suicides

Posting [LIVE] from Peepli.

In recent years, there has been an increased awareness of the unfortunate rise of farmer suicides in rural India. By most estimates, about 200,000 farmers have committed suicide in the last 20 years, with the recent years averaging more than 17,000 a year. Grim statistics indeed. These suicides have largely been concentrated in the Indian agrarian states of Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Goa.

India lives in her villages“, as Mahatma Gandhi didn’t say. About 73% of the Indian population still lives in India, and a large majority of the folks are dependent on agriculture for subsistence. Many of these farmers are poor, manual workers and uneducated- very poorly equipped to compete in the world economy as they are.

The base post on farmer suicides was written by P Sainath, who is the editor for The Hindu, a big and respectable Indian newspaper. Through his award-winning reporting, he brought attention to this subject. Here is a great update post from Sainath on this.

So why are the farmers committing suicide? I am going to focus on two competing, yet reconcilable, narratives that have been put forward. One represents the extremely successful activist community, spearheaded by Vandana Shiva, and the other representing the views of a broader “economist” community.

Simply put, the activist viewpoint is that the greedy multi-national seed and chemical companies have colluded to create monstrous patented and genetically modified monoculture of seeds that cost the farmers their livelihoods, land and, ultimately, lives. Meanwhile, the global trade in seeds creates conditions that allows heavily subsidized American grain to rush into the market, lowering the effective rates. In other words, the rapacious Americans are to blame. This viewpoint has been very eloquently articulated by Vandana Shiva, who has appeared Al Gore-like in her presentations to a shamed-western-media. Here are a couple of great reads: Vandana-on-HuffPost, and here’s an audio post.

Rapid increase in indebtedness is at the root of farmers’ taking their lives. Debt is a reflection of a negative economy. Two factors have transformed agriculture from a positive economy into a negative economy for peasants: the rising of costs of production and the falling prices of farm commodities. Both these factors are rooted in the policies of trade liberalization and corporate globalization.

The other viewpoint takes a more scholarly approach to the grim data. The best point of view I came across was this research published by International Food Policy Research Institute. I initially assumed that this is an industry-funded-one-sided piece, meant to allow greedy seed and fertilizer companies to assert their point of view. I was wrong. This is a well researched and balanced piece of work. It combines a meta-analysis of several other lines of research. The truth, in their opinion, is more nuanced, though no less grim. The multinational seed companies are, indeed, selling patented and GM seeds that are terribly expensive.  The seeds give much higher yields with a careful selection of chemicals, and under irrigated conditions. In India, the farmers are uneducated on their proper use, and still depend on the monsoons for irrigation. This means that the farmers take debt to buy seeds that are essentially a gamble. The yields turn out to be poorer than the costs would justify. Crop failure results infrequently. This created a vicious cycle which ends, sadly, in the farmers committing suicides. Here is the 64-page report, which I recommend highly. Here is the chart that lays out the situation brilliantly on page 45. Too bad they aren’t as eloquent as Vandana Shiva!

Posting [LIVE] from Peepli the next few days

Posting [LIVE] from Peepli!

Over the next week or so, Amit and I will be posting about issues that came up in the new movie “Peepli [Live]”. This isn’t a movie review site, so if that’s what you’re looking for, please check out these fine reviews here, here, here and here.

All you need to know is that the movie is a fantastic satire from the house of Aamir Khan. The issue they tackle is farmer suicides, and the story wheels around other modern Indian issues. The media circus, caste politics, general apathy and perverse incentives. Great stuff, put together in a great movie.

Apple and it’s money

Sometime back I’d blogged about the global and local tendency for companies to hoard cash.  Tech companies in the US have an average cash to asset ratio of 27%.  Apple has $ 46 Bn in cash reserves.  To put the magnitude of that number in context, there are more than 100 countries who have a GDP less than that, and 450 out of the S&P 500 have a lower market capitalisation.

People have spoken about it for a long time.  But one analyst has now gone one step further and written an open letter to Apple.  Full text of the letter available on ZDnet here.  It’s worth reading the whole piece, but if you’re starved of time – here’s the gist:

  • Current cash levels are excessive relative to what Apple requires to run its operations.  The estimated requirement for Apple is $ 10 Bn, leaving a surplus of $ 36 Bn
  • Prevailing returns on cash are very low, destroying shareholder value. Apple earned 0.76% interest on its cash reserves vs. an implied expected return of ~11% on the stock
  • A return of cash would create financial discipline and alleviate investor concerns about a potentially imprudent acquisition. Apple’s burgeoning cash balance creates the perception that the company may spend it on large acquisition(s) that shareholders believe might be value-destroying longer-term
  • A return of cash to shareholders could attract a new class of investors.  Some investors are ideologically opposed to investing in companies that lack a clear policy on cash usage
  • Three broad options exist for a return of cash: (1) a one time dividend; (2) ongoing dividends, and (3) share repurchases. The belief is that investors’ bias – even in the face of changing tax laws – is for Apple to institute a regular dividend coupled with buybacks

Hmm.  I think the argument would be relevant to a whole bunch of Indian companies.  Are there any analysts writing letters out there?

Water, you saying? Firangi Pani, and how!

There’s a fantastic bar restaurant in Bangalore called Firangi Pani. I always go to their sister restaurant, called Saheb, Sindh, Sultan. I was reminded of this bar (which, by the way, translates as “Foreign Water”…in their case referring to alcoholic beverages), when I read this story on Fast Company. Here is the link.

There is a company that is planning to ship water from pristine sources in Sitka, Alaska to India. I was in Alaska a couple of weeks ago and can confirm that, yes, indeed, the water is pristine! Being a desi, I can confirm that water is indeed in short supply in India. QED, no!?

Just in case you think this is crazy, I’ll have you know that one of the first self-made millionaires in the US was a New Englander gentleman called Frederic “Ice King” Tudor, who shipped ice from US’ east coast to the Carribean and, ahem!, India way back in the 1800s. The business model works, despite what our intuition might suggest!

Will add a new twist to the firangi pani story. Hopefully they won’t price it at the same level as Evian.

Juggernautistic: to coin a new business phrase

This is a sensitive topic and I have been thinking about a polite way to present my thoughts. Let me declare right here that the thoughts here are entirely my own, and do not represent the views of the companies that Amit and I work for, and with. Phew!

Coining a new business phrase: Juggernautistic

(noun), a company that is a massive, seemingly unstoppable force in business, and one that is abnormally obsessed with itself, has a short (usu. quarterly) attention span, and is known for communication disorders that don’t allow it to treat others as people.

Eg. usage: SAP’s board thought the company had become juggernautistic under Leo Apothekar, when attempts at reigniting sales resulted in increasingly angry clients and employees. They fired Apothekar, saying ‘it is time to build trust again'”.

Etymology: Juggernaut + Autistic = Juggernautistic

A juggernaut is defined as

(n) a “massive inexorable force that crushes everything on it’s way”.

Another definition…that a juggernaut is a “crude idol of Krishna, the avatar of Vishnu”.

Autism is defined as

(n) ((psychiatry) an abnormal absorption with the self; marked by communication disorders and short attention span and inability to treat others as people)

Big companies are very susceptible to juggernautism. As the companies become bigger, their sway on the market increases, and the companies go on to crush competitors, and customers, alike. The company seems unstoppable. Success-begets-success and pretty soon, executives at the company start believing their own hype- “we must be good, if we control so much of the market”. Eventually this confidence gives way to hubris, placing the execs in ivory tower offices. Far away from the employees and the clients, these execs make decisions based on excel sheet and Powerpoint generalizations. People become pawns.

This is the moment when a juggernaut becomes juggernautistic. Not listening to the employees and clients, some of whom might initially be a silent-but-suffering minority, these companies continue to derive short-term success from their decisions. Soon, the tide turns, when the silent-minority explodes into a vocal-minority first, and a very angry-majority soon after. Critical mass, indeed. Then, when disaster strikes, critics point to years of missed signals and silent whistleblowers. Examples of this are Toyota, with their crazy quality lapses in recent months. Previous examples include NASA (where the two shuttle disasters could have been prevented if the management was listening). BP would be another example, with their recent oil spill in the Gulf of Mexico. Poor listening skills, combined with proven business success. Juggernautistic!

IT companies are especially vulnerable to this disease. As Spiderman’s uncle said, “With great power, comes great responsibility”! The IT companies have grown from startup to behemoth in a space of 10-15 years. They haven’t had time to build a listening and trust based culture. If you see what happened at HP, SAP and Microsoft, you’ll see the same story repeating across. Managements become bureaucratic and slow. Decisions are taken with “speed” in mind, and not much thought being given to the impact these decisions might have on the employees and customers.

Time for desi Juggernautistics now.The inevitable has happened. Big Indian IT services companies have become larger with time. Their unstoppable success has proved to their management that they must be good and, conversely, paralyzing them with a fear of failure. The need for continued juggernaut-like growth meant that these companies, too, have had to make quick decisions in the face of changing market conditions. These have backfired. Spectacularly! What would have been considered acceptable decisions only 8 years ago, seem ham-fisted, crude and ill-timed this time around. Distant. Distracted. Emotionally withdrawn. Employees (well, a small vocal minority of them at this time) have taken to online forums to shame these companies. Examples of these comment-flames can be found here, here and here.

No company has been spared. As Bob Dylan said, in a completely different context, “Everybody must get stoned”.

Dealing with an online lynch-mob is difficult. Anonymous postings on news websites can cause a lot of damage. A lot of truthful commentary and anger are thrown into an explosive admixture of half-truths, personal attacks and conspiracies. This would have been fine if the conspiracy theorists and tea-partiers were convening secretly. Unfortunately, in an online medium everyone gets to see what is being said, and most people believe what they read online. Internally, the majority of employees who are actually quite happy start questioning themselves. Externally, clients, prospective employees and, eventually, investors start wondering if this ship is about to sink. So how does a  company respond to an angry anonymous online lynch-mob?

Start with listening first…

College benefits the poor the most

Fascinating new study on the economic relevance of higher education – cited on Freakonomics.

A new study finds that the students who are least likely to go to college (based on family background, abilities, and friend group) are the ones with the most to gain from a degree. Jennie E. Brand and Yu Xie find that the unlikeliest male college graduates earned 30% more over their lifetimes than comparable men who earned only a high school degree. In contrast, male college graduates most likely to go to college earned only 10% more than their non-college-educated counterparts.  Brand and Xie observed a similar trend for women.  The authors believe that the tough labor market faced by non-college-educated, disadvantaged students partly explains the results, but they point to an additional factor: economic motivation. “For students from disadvantaged groups, college is a novelty that demands economic justification,” Brand said. “By contrast, for students from advantaged backgrounds, college is a culturally expected norm. Economic gain is less of a motivation.”

Very intuitive – and probably quite applicable in the Indian social structure too.   You’ll find that across villages in India, mothers know that education will help their children move to a better life.  They save up money, often hiding it from their husbands, to try and create a better future for their children.

We owe it to them to increase our educational infrastructure – any way that we can.