Friday, November 17, 2006

The price of potatoes, November 19, 2006

I sometimes wonder why I pay Rs 10 per kilo for potatoes when the farmer receives only Rs 3. My potatoes travel some distance, I realise, from the farm to the mandi to my bania, and each person in the chain must get his cut. Still, the gap of Rs 7 seems excessive, especially when the American farmer receives Rs 4 to 5. This gap varies, of course, depending on the commodity and the season, but studies by agricultural economists show that farmers in the developed countries do get a bigger share of the consumer price because their distribution chain is shorter.

Reliance opened seven supermarkets in Hyderabad last month and my friend bought potatoes there for Rs 10 per kilo compared to Rs 18 at his bania’s shop. Another friend who works with an NGO in rural Andhra reported that farmers, who had supplied potatoes to Reliance, reported receiving higher than the mandi price. How could Reliance pay a higher price to farmers and charge a lower price to consumers? Simple--it had eliminated middlemen in the chain. Thus, we should welcome the entry of large retailers. They will bring logistics efficiencies and competition between them will lower consumer prices and raise farmers’ incomes. We shouldn’t wait too long to open this sector to foreign retailers like Walmart and Tesco lest Reliance become a monopoly.

A typical farmer harvests his crop, loads it on his bullock cart, travels30 km to the mandi, where he is forced to sell often at distress prices. Once at the mandi, he cannot return without disposing his produce. He needs the money and the trader knows it. Had he known the price before he left, he might have waited a few days. Where E chaupals have arrived farmers are happy because they get to know mandi prices via the Internet. The national commodities exchange (NCDEX) is setting up electronic tickers announcing spot and future prices in local languages at mandis and bus stands in some states. Eventually, the mobile phone will be the farmer’s best source of information. All these developments make traders unhappy.

Since his crop is perishable, the farmer needs a warehouse to enhance his staying power. NCDEX is putting up a thousand cold storages with world class grading facilities, but large retailers will also bring air-conditioned warehouses and trucks, and this will save India’s huge post harvest losses, as high as 40% for some crops. Banks ought to lend money to farmers against warehouse receipts, but the Reserve Bank refuses to allow them to hedge against future prices. This is a pity for bank loans would mitigate the farmer’s risk and improve his holding power. In fact, banks should also sell crop insurance. It is amazing that RBI should view futures trading as speculation. If the farmer knows the price of potatoes, he might plant onions instead.

Old habits of the mind die slowly. When you have been a stagnant, peasant agriculture for hundreds of years, it is difficult to grasp how Reliance, commodity exchanges, futures trading, and contract farming will quietly bring a second green revolution and liberate farmers from the clutches of the old mandi system, which is at the heart of rural political patronage. Activists oppose the entry of global retailers like Walmart on ideological grounds. Talk of farmer suicides is cheap. Politician-traders on Agricultural Marketing Committees play on these insecurities. No wonder it takes so long to reform in a democracy.

Things that matter, November 5, 2006

Lant Pritchett wakes up each morning and worries about the state of India’s government schools. Formerly an economist at Harvard and now with the World Bank, Pritchett is happy that 93 % of India’s children are now in school as the SRI survey shows. However, digging deeper into the SRI data, Pritchett finds that 53 % of all children in urban India are in private schools. In some states the ratio is much higher, but urban India overall has amongst the highest levels of private primary education in the world.

Chile privatised education in 1981, and after 25 years its private sector has achieved only 46.5 % share of enrolment. Even Holland, which has always believed in giving choice between private and public schools to its children as a matter of state policy, has only got a private school share of 68 %. This Dutch level has already been exceeded in six states of India. Whereas in Chile and Holland the government pays parents to send their children to private schools, it has happened accidentally in India because government schools have failed, and even the poor are exiting from them.

The de facto privatisation of schooling in urban India is confirmed by the government’s own District Information System for Education website, which shows that 66.9% of children in urban Maharashtra are in private schools, 66.3% in Tamilnadu, and 65.1% in U.P. to name only three of India’s largest states. This is supported by Samuel Paul’s studies on people’s satisfaction with public services. The states with the highest level of privatisation give the lowest rating to government schools. For example, only 1% of the parents in Punjab are satisfied with teachers’ behaviour in state schools.
There is nothing wrong with giving parents a choice as Holland and Chile have done. If our government were to give the money that it spends on running schools to children in the form of scholarships, competition for the scholarship money would improve many government schools. Today, the government—the centre and states together--spends on the average Rs 4000 per child per year on primary education. Headmasters confirm that a child can get a decent education for Rs 4000. Thus, money is not the problem, and we ought to test this people friendly scholarship scheme in a few cities. However, we cannot give up on a million government schools. State schools do work in other countries.
The Kremer-Murlidharan study shows that one out of four teachers is absent from our state primary schools and of those present one out of two is not teaching. Thus, the heart of the problem is teacher accountability. And this failure is even more heartbreaking given the exalted status of the teacher in our civilization for whom inspiring young minds was his dharma. Many NGOs are making heroic efforts to improve the existing system, but given powerful teachers’ unions, it is an impossible task. Hence, Lance Pritchett suggests that new teachers ought to be hired into a new professional cadre which is district based and offers incentives and promotions for good performance. It would be a Panchayati Raj institution and teachers would be accountable locally to parents instead of to bureaucrats at the state capital. The answer, thus, is not private schools alone, but to liberate government schools from the ‘anti-teacher’ grip of unions and babus. These are the things that matter in the end; thus will the poor benefit from our rising economy.