The following is a guest post from my good friend and former research colleague Paul Artiuch. Paul and I previously conducted a research study focused on market-oriented approaches to reducing agricultural food waste in India. Paul has since conducted some comparative research in the US, which he describes below. Our original research, including our report and the associated blog posts, can be found here as well as on the MIT Public Service Center website.
Over a year ago, my colleague Sam and I researched and documented breakdowns in Indian agricultural supply chains in order to provide insight into a problem which costs India around 40% of its annual output. Since then, we’ve been in contact with entrepreneurs, researchers and the media who are looking for ways to tackle this problem. We have also continued to study this issue globally, albeit in our spare time, and wanted to provide a brief update contrasting the Indian and U.S. systems.
The issue of food waste isn’t unique to India, or even to developing countries, but rather a global problem which needs urgent solutions. Even in America, nearly half of all purchased food is thrown out, wasting roughly $165 billion per year. But the nature of the problem in America is different than that of many developing nations – Indian waste occurs upstream of retail markets while in the U.S. most of the food is thrown out by consumers. In fact, the upstream food supply chains in developed nations such as the U.S. are remarkably efficient.
I had a chance to see this first hand, as part of my work with the Commodities and Energy team at Thomson Reuters, during a visit to a large U.S. agricultural Coop. The operation provided a contrast to what Sam and I saw during out trip through the agricultural belt in Northern India.
Last week I spent a few hours driving around Elburn Coop’s facilities with my host Mike who manages one of the Coop’s locations. Elburn serves, and is owned by, a few thousand mostly corn, soybean and wheat farmers in northern Illinois. Each year Elburn handles roughly 40 million bushels, which is about 1 million metric tons of grain. (In 2012, U.S. production was 479 million tons while India harvested 231 million.) The Coop does much more than buy and store grain for farmers. It also sells seed, fertilizer and fuel, provides credit as well as transportation and has a fleet of high tech agricultural machinery. It’s basically a one stop shop for farmers.
Mike told me about the Coop’s operations and gave me a tour of the facilities and surrounding countryside. Thinking back to our research in India, a number of differences were apparent:
-The size of the operation, both the storage facilities as well as the farms. Mike’s site can securely store 6 million bushels of grain and the average size of a farm in the area ranges from 1000 to 1500 acres. Even the largest storage depots we saw in India were one tenth that size and an average farmer works only a few acres.
-The enormous investment in capital equipment. A grain storage silo which can hold 750,000 bushels costs $1.3 million. Mike had several of these at his site. The machinery – planters, fertilizer spreaders, sprayers – typically cost a few hundred thousand dollars each. Outside of a few exceptions closer to the major cities we saw very little advanced machinery or large scale storage in India.
-The public infrastructure, including roads, ports and railways. The U.S. has the most roadways, railways and airports out of any nation in the world. It also has well developed waterway and port infrastructure. This helps get goods to market, or export, quickly and efficiently. While India has a surprisingly well developed road network (#2 in the world) the quality is often poor. Similarly, the rail network is fairly extensive but highly overcrowded, making overland transportation time consuming, unpredictable and expensive.
-Commonly available financial tools to manage risk. Mike mentioned that by law, his Coop had to hedge 100% of their grain in order to eliminate the risk from price fluctuations. Similarly, the Coop’s farmers have access to derivative products such as options and futures through a network of brokers. Mike mentioned that most farmers would take advantage of these tools in some way. While in India, crop insurance is commonly available, we did not come across the use of any derivatives that help smooth out incomes, especially at the farmer level.
-Availability and reliability of information. The Coop office had a direct feed of the latest commodity prices from the financial exchanges on a wall mounted flat screen. Everyone in the office had access to at least basic price quotes, government production figures, weather forecasts and agricultural news at their fingertips. Same goes for farmers who use a range of mobile and desktop devices to access data that helps them make critical decisions on where and when to sell their crops. This perhaps is the most stark difference from India where many farmers have no way to assess prices outside of visiting the local mandi (market) and there is little reliable news or fundamental data.
Some of these gaps will be narrowed as India develops its infrastructure as well as financial markets and continues to expand rural access to information through mobile networks. However, a few key differences will persist and will need to be incorporated into the modernizing Indian food supply system. These include:
-The necessity of the agricultural system to not only provide food but also employment for hundreds of millions of people. The U.S. system employs a fraction of the labor of the Indian one. Mike, for instance, has 23 full time employees at his site who look after the storage infrastructure and machinery for the 6 million bushel facility. Some employment for rural Indians will be created through investment in infrastructure or with the expansion of the rural financial system. However, many will still need to find jobs in the millions of small farms that dot the Indian countryside.
-The necessity for food prices to remain low enough to be affordable to the ~68% of the Indian population living on less than $2 a day. This results in the involvement of the government in everything from farm subsidies to price controls and food distribution programs. These programs will likely need to continue. However, with prices of staples costing 2/3 less in India than in the U.S. , the economic viability of capital investments, whether for yield improvement or waste prevention, is hard to achieve.
There are a few elements of the U.S. system that, with time, will likely emerge in India – access to information and public infrastructure are two of these. However, ultimately the country will have to create its own model for a food supply system that limits waste, provides employment and keeps food prices low. We will continue to study this issue.