Personal Musings

This blog is intended to be just a jumble of thoughts that hit me and need not necessarily mean anything.

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Location: Kerala, India

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Monday, March 17, 2014

Information Deficit

Human revolution had always hinged on gathering and working on information. In the good old days, people used their keen observation to understand what was happening around them. Wars were won or lost based on information or their lack. Census had been used to devise policy initiatives for along time. We are blessed that we live in what is termed as the "Information Age". But the real question is: are we really gathering enough information? I will just touch upon a few areas where the answer is no.

Without food, there can never be life. Agricultural output has the unique attribute of being highly unpredictable. The production  and productivity of food depends on lots of factors: weather, soil quality, demand, just to name a few.

Of course, we have a working Met Department as was demonstrated during the Phailin cyclone. We have our own weather satellites to assist us. We have a vast network of weather monitoring stations. So, where is the information deficit here?

Predicting weather depends a lot on sampling and the models. Models are nothing but a reflection of the past weather events. So, it boils down to modelling. Now, this is the place where the information deficit creeps in. We don't have enough local weather stations. The impact can be understood by our behavior during my school days. The popular belief said:  If there was a weather forecast for rain, then we did'nt need umbrellas. If there was a forecast for clear skies, then we definitely needed the umbrella. Now-a-days, the forecast has improved a lot. But we are still unable to predict events well in advance. In terms of agriculture, the difference between profit and loss could boil down to whether the seed was sown today or tomorrow. The farmers need to know the climate conditions during the sowing phase, the growing phase as well as the harvesting phase of each crop. Each crop have different life cycles. A weather prediction for a crop that matures in 7 weeks and another which matures in 15 weeks are totally different. There are some crops which can be harvested a bit prematurely, though they might fetch less profit. The difference between selling an unripe fruit and no fruit might literally be a matter of life and death. The difference ultimately boils down to accuracy of the climate models, or the number of accurate data samples that get collected to give real-time climate predictions.

The information revolution can be witnessed by observing the fishermen in Kerala. In the olden days, the fishermen used to bring to their native fish markets. Their bulk customers needed to go to different local markets to fetch the catch. Since there was no information exchange, when a fisherman with a bumper catch reaches shore, he might find that other fishermen who had come to that market also had a good catch. Due to the extra supply, they ended up getting lesser profit. At the same time, there would be other markets where no fish reached. A fishermen taking his fish to such a market might end up getting  larger profit. This uncertainty vanished with the advent of mobile phones. Now-a-days, the fishermen complete the entire transaction while at sea itself. They get the best price based on the market which has the highest demand, and sell at the best profit on that day. The change happened because, with the improvement in the communication, they could gather relevant price information across multiple markets, and choose for themselves about the best place to take your catch. In fact, now most of the catches are taken directly to their customers premises on their way back from sea. The entire system developed despite any government support. Government has come to support after this micro-revolution had started.

I took the example of the fisherman of Kerala to demonstrate how information can improve profits of the farmers too. Right now, we don't know exactly how much quantity of each crop is being sown by individual farmer. We have no idea about the output of their harvest. Fishermen going to sea also don't know whether they will catch anything or not. But, unlike fishermen, the farmers have to carry their produce to markets. Just to give an example of the impact: a few years ago, farmers in Punjab had bumper potato harvest. The supply had spiked so much that potato price fell to 1 Re/kg. Some farmers had even dumped their crop in the roadside so that any passers-by could take it for free. At the same time, price of potato in other parts of the country was still hovering around Rs.16/kg. This was an instance where a bumper harvest did not actually translate to equally commensurate rise in earnings. The saddest part of this bumper crop is not that they lost so much money. With a little bit of coordination, they could have made a huge profit. The rotting excess potato could have been easily converted to ethanol. Ethanol could have been exported to USA where they were using corn for their bio-ethanol requirements. Even within India, ethanol would still have resulted in a higher income. Also, unlike potato which spoils fast, ethanol could have been stored and sold at a later date with a higher margin.  Technically speaking, we have all the tools needed for giving that extra bit of margin to the farmer. What we lack is the kind of communication network that the fishermen have.

Unlike fishing, farmers have an advantage. Fish, once out of the sea, will start to rot. To stop from rotting, fishermen have to use ice or preservatives. But, say, a brinjal that stood in the plant one day late is not going to start rotting. The farmer can delay harvest by a day, if he can get a better price on the next date. In fact, fresh produce is more healthy and can fetch a better return. But, our farmers don't have an idea on which part of India will give them a better return. Since farming is usually far away from urban regions, the farmer who might get 10 Rs extra in city might still end up selling at a much lower rate due to lack of sufficient logistics. Even if he has enough produce to hire a goods auto and transport it to a town's market, his profit is not guaranteed. Now, this is where availability of information assists the stake holders.

The markets always knows which vegetable is in higher demand in which day. A little bit of data mining on the sales data of the wholesale/retail markets can give this information. Common sense says buyers will buy more of cheap vegetables and less of the costlier ones. A simple cost-benefit analysis can easily predict the future prices of each farm produce during each week with a fair probability. For the retailers and wholesalers, a higher sales imply a higher profit margin. For the middleman who is going to carry produce from farm to market, the demand information can give a better sense of where he can earn higher margins. He can always route produce to a market that has a higher demand from a market with a lower demand to get a better margin. It should be noted that excess vegetables in a market with a lower demand will rot. All this wasted produce counts as loss for him. But, if he knew in advance that there is a market with a higher demand, he could earn a lower profit on a loss-making produce. The farmer, with sufficient advance information, can choose the best agricultural produce to invest on. He can have guarantee that eventually, his produce will get a market and he would get a reasonable price.

Now let us look at data gathered in farms towards market. Every farmer can always estimate how much produce will get harvested. With this information, he can start bartering with the middlemen for an appropriate price. Once the price and delivery is fixed, he can start harvesting with a guaranteed income. (This happens, or something akin to this happens, in lots of farms even now.) If the farmer is only talking to a limited number of middlemen, then he may not get a higher return. But, if he is given the option to talk to a larger set of dealers, then he could strike a better deal. There is one category of farmers who need special mention: the small or household farmer. There are a lot of small farmers who grow vegetables in a small strip of land in their backyard. These farmers don't produce enough to fill a truck or even a goods auto. How much coconuts will a household with five coconut trees produce?These farmers hardly make a few kg of produce. They usually sell at a much lower rate to the local vendor. If they couldn't find anyone to give the excess produce, it may end up wasted. Please note that this is not a far-fetched idea. There are hundreds of families in Kerala who have jack fruits rotting in the backyards because they can't find any takers. There are some who keep the excess jack fruits in roadside, hoping that some lorry driver going to Tamil Nadu will take it and sell it there. But, to pluck high-hanging fruits needs labor. In many places, labor is in short supply. Even if it is available, giving away fruits does not add value to the household. Quite often, the fruits are left to rot. (Yes, in a country where many go hungry, food is left to rots!) We have absolutely no idea of how much produce is wasted every year in this way. If the agricultural information of these small households can be collected, and integrated with information from larger farms, this small micro-revolution is sufficient to increase purchasing power of a lot of farmers/households.

The middlemen can benefit the most with improved agricultural information. He can tap into both market and farm data, and make his own judgement on maximizing his margin. Of course, he needs suitable logistics and infrastructure. Unlike what consumers would like us to believe, middlemen are not devils with four horns. They are also common folks like us, who want to make enough money to meet their expenses. If they are making reasonable profit, they are not going to shy away from giving a higher rate to farmers. Right now, we don't know how much infrastructure needs to be maintained for each crop. Without knowing how much crops are going to be produced, how can anyone invest in infrastructure. This also one of the reasons why grain is kept in the open, instead of space efficient vertical silos in India. Farm information could have enabled the middlemen to construct and maintain crucial storage infrastructure. Another major cost is the transportation cost. (Diesel subsidy) With better infrastructure and demand information from the markets, transportation can be optimized.

To conclude about Information deficit with respect to Agricultural sector, we don't need a right to food bill or an FDI policy to guarantee food in every plate. The agriculture and allied sector is plagued with information vacuum. I have only vaguely talked about agriculture. There is horticulture, Apiculture(honeybees), aquaculture, and a host of other sub domains which also suffer from the same problem. There is no data store to help the various stake holders to optimize their income margins. If this information gap can be filled, then India's agricultural productivity will automatically start improving.

(This is a draft. I have only covered Agriculture. TODO: add figures, and tables. Add other topics like Education, Transport, natural resources, Employment, etc.)