The commodity is dead. Long live the commodity!
It’s not funny any longer. Every commodity that ekes out an existence from the Indian soil is in trouble. More so the cash crops. Even more so the cash crops that have an adverse ratio of domestic consumption; crops that depend largely on their franchise in markets overseas. And even more so plantation outputs like coffee, tea, pepper, rubber, areca, coconut and related cousin-crops of every kind. The higher you go up the mountain terrain, more the trouble, it seems!
The scenario is bleak. Getting bleaker by the moment. Coconut is selling at Rs1, pepper has dropped from its majestic highs of Rs300 per kg to Rs130 per kg! Coffee has moved many, many pegs lower. Tea is at the crossroads, very close to its cost of production. Areca is down, and rubber has few takers at its new nadir!
Sugar is down. Paddy is down. Wheat is down. What isn’t down? And the World Trade Organization (WTO) regime hasn’t happened as yet — as yet, in all its true fire and fury of free markets, governed by open covenants arrived at openly.
What then is the diagnosis of the grim situation we face today on the commodity front of every kind? Why have we come to such a pass? Why this misery?
Many reasons. Many angles. But let me look at one. And then very quickly get to look at those solutions that need to be looked at. Better late than never.
The big accusation then: The plans have been faulty!
Many a commodity group has no plan whatsoever. The independent and individual enterprise of the farmer has been too vast an enterprise to regulate and plan for. There are just too many croppers in the market. Just too many farms and too many plantations. And too many of them are far too small. The output is at best felt only when the crops hit the market. The numbers are grey. The varietals are old. The input cost is getting uncompetitive as well.
The Indian commodity is today a truly free commodity produced under the independent enterprise of the farmer. The planning is at best at a distant macro-level with no close relationship to the ground reality in terms of input, output, quality and variety.
The commodity enterprise is a true democracy that operateswithout a plan. A plan that looks at the future and prepares for it. Look at coffee for instance. It is a true blue democracy. As many as 1,42, 079 small planters at the last count. All micro-enterprises. Each wedded to the age old output, wedded to types that grow robustly, types that give the better yield, all wedded to what is possible under the prevailing circumstances of cultivation possibilities.
The commodity is grown, much like any farm or plantation enterprise in our agri-scape. Grow it well. Grow more of it. Get a better yield from the plant. And then find the market. The market indeed, has always come last.
Such free enterprise sure does settle down. There is a way. A cruel way. And that is the way of the tumult that the pricing mechanism will cause in the market. Low prices will mean low realisations. And low realisations will mean low levels of interest in the category. Such low levels of interest that the planter of the basic commodity may want to look elsewhere for his sustenance. Look at moving out altogether from the commodity or crop that he has grown over all these years.
And in such a tumultuous economy, it will always be the small fish that will get swept aside by the tide of low realisations first, low enough not to perpetuate the pattern of cropping that has been a pattern for the last several generations in our agri-scape.
What then is the solution? Let us remember, no temporary one will do. The solution that we come up with now needs to be a hardy one. One that will weather further storms of the future. Storms that promise to sweep the agri- landscape of India, what with the WTO regime somewhere out there on the welcome front-mat of India!
While temporary solutions will be craved for by industry bodies of every hue representing the small farmer of crop and commodity alike, the suggestions of artificial retention schemes, minimum release prices, the raising of tariff barriers and the like, are at best temporary measures that hold no real long-term economic answer.
The real answer will lie in the enterprise that bodies representing the various commodity and crop groupings will show in the future. A keen desire to raise quality, differentiate the product vigorously from all the "me-toos" that will run in the international markets, look at the macro platform of the India brand, look at the future of consumption and plan for it. Plan for it with relevant investments that will front-end the drive and desire for the stated consumption of the future.
And in the meantime, as all this is happening let every industry body try hard to buy time with all the artificial barriers one can clasp onto today. Buy time. And in the time that is bought, invest wisely to insulate a solid foundation for the Indian commodity and crop.
Aggressively lower cost; evangelistically improve quality, cut production to levels that speak of demand-led solutions in the short term, and brand ferociously, all at the same time.
The Chinese goods are already flooding in. A visit to any of the cluster-markets in Delhi has everything from a refrigerator to a safety pin, all made in China. All made in a cloistered economy that has input costs pegged at levels quite unimaginable in a free-enterprise economy. The output looks terrific and costs a third of what one would have to pay for a product made in India.
Is it far and far fetched then, to visualise a near point in the future, where the chapatti on your table is made out of wheat made in China? Coffee, made in Vietnam? And sugar made in the land of the Samba and Pele?
* Harish Bijoor is vice-president, marketing, at Tata Coffee, Bangalore.