Investigating Pathways to Commodities Price Discovery Parable in Smallholder Indian

Agriculture

Prof. J. GeorgeChief Promoter, Strategic Economic Management Initiative in Governance (SEMIG)Chair, Faculty of Economics and Development Planning (FEDP)Haryana Institute of Public Administration 76, Sector 18, Gurgaon-122001

jgfedp@vsnl.netjleocb@yahoo.co.in

NCRI Workshop New Delhi 10 October 2007

Syndrome of Duality in Commodity Price Discovery

•Six Blind men and elephant syndrome

•Iceberg syndrome•Supply Chain perceptions

Once upon a time, there were six blind men from Indostan…

Six Perceptions

• One thought that the elephant looked like a snake

• Another a leaf

• Another a spear

• Another a wall

• Another a rope

• Another a tree trunk

Household

Community

Market

State Rules

People

Resources

Activities

Power

WHAT?

WHY?

WHEN?

WHERE? WHO?

HOW?

Key Leverage but with whom?

So what does that have to do with Price Discovery (PD)?

• We approach PD from different perspectives and with different goals

• Is PD:– A task performed by the top end players?

– An esoteric science?– Sensors for computer security?– Part of spot incident for futures response?

The answer to these questions is

The answer to these questions is

But…

Price Discovery is not an elephant,

it is a process of discovery!

But, we just can’t seem to agree on what the process

is… WHY?

izkjfEHkd vuqekuINITIAL ASSESSMENT

There is more to it than meets theeye…what is the way to know it?

90%

10%ONLY 10% OF ANY ICEBERG IS VISIBLE. THE REMAINING 90% IS BELOW SEA LEVEL

ATTITUDE: Known - Unknown

Since Iceberg phenomena is applicable on human beings … the behavioural model of THE ICEBERG is also relevant for commodity price discoveryleqfnz; lrg & Kku o gquj% lc dks irk] lfZoZfnrSEA LEVEL= KNOWLEDGE & SKILLS: KNOWN TO OTHERS

vfHkizsj.k & vUnj fd ckr] nwljksa dks ugha irkATTITUDE: UNKNOWN TO OTHERS

ConsumerBehaviour

RetailerPerception/

Feeling

MiddlemenAttitudes

StakeholdersBeliefs

Value Derived by Producers

Food Supply ChainCONSUMERS

RETAILERS

PROCESSORS

PRODUCERS

CONTROL

POWER

“There is Very Little Difference in different price discovery models

But that Little Difference makes a Big Difference.

The Little Difference is Attitude to small holder farmer.

The Big Difference is Whether it is Positive or

Negative.”

Behavioural PD Models

Overview: All-India Pattern (%) of Land Ownership

Size Group

(Hectares)

Op. Holding Number

1990-91

Number

1995-96

Op. Area

1990-91

Area

1995-96

Marginal (less than 1.0) 59.4 61.6 15.0 17.2Small (1.0-2-0) 18.8 18.7 17.4 18.8Semi-medium (2.0-4.0) 13.1 12.3 23.2 23.8Medium (4.0-10.0) 7.1 6.1 27.1 25.3Large (10.0 & above) 1.6 1.2 17.3 14.8Total Numbers + Area (million)

115.58

Avg. Size 1.57 hect.

1.41 163.3 hect. hect.

80 %

36 %

49 %

18 %

Overview: Pattern (%) of Land Ownership in Haryana

Size Group

(Hectares)

Number

1985-86

Number 1995-96

Area

1985-86

Area

1995-96

Marginal (less than 1.0) 37.3 47.14 6.2 8.27Small (1.0-2-0) 19.6 19.58 10.3 12.87Semi-medium (2.0-4.0) 20.9 19.0 21.3 24.91Medium (4.0-10.0) 17.7 11.94 37.9 33.25Large (10.0 & above) 4.5 2.32 24.3 17.97Total Numbers + Area (million)

1.727 Avg S. 3.676 2.13 hect.

67 %

21 %

67 %

31 %

The Bargaining Terrain

Bargaining terrain boundaryLow cost or

value

B

A’s Initial position

A’s desired solution

A’s Expected Solution

Acceptance limit for B Final Offer Zone

B’s Expected Solution

Offer limit for A

B’s desired solution

B’s opening position

High Cost or ValueCost or Value

A

Traditional Resource Flow in Farming

Modern Resource Flow in Farming

Contract Farming Monopsony Integrators

Labour

Available Options 1/2

“Little Push Major Gains” 7-step strategy pivoted on Human Resources

1.Become demandeurs of trade related capacity building package from public institutions, GOI

2.Ensure greatest stake of producers in the supply chain of “farm to table”

3.Vigorously address non-tariff barriers, like food safety regulations

Available Options 2/24. Rely on the strengths of area led growth to yield led

growth now shift to value-added led growth without compromising on sustainable development

5.Demand effective decentralisation: Softer IP protections like Utility Model, Section 86 of the Geographical Indications of Goods (Registration and Protection) Act (GIGA), PVPFRA

6.Reengineer state institutions to become market savvy and effective regulatory mechanism

7.Opportunity to overcome limitations of fiscal dependence

Final Analysis

• Bio-Technology and agribusiness models will increase farmer’s cost and firm concentration but will not promote sustainable livelihood options

• Exploration into (With regional specificities):

- Nature: biodiversity vs. exploitation

- Rationale: price vs. income support

- Contents:activities driven by livelihood

- Institutional dynamics of technical change:Public vs. Private I 2 I protocol + IPRs + CBD.

Thank You