Losses too can be profitable. E-retail shows the way.

This is baffling. The world's online retail business is growing leaps and bounds, and yet it is sinking in losses. But despite the losses, the business continues to grow. Although this strange new business phenomenon has upset the textbook definition of a business enterprise, no one is questioning. Economists are conspicuously quiet, and business leaders are turning the other way around.

That means losses can be profitable !

Well, don't blame me if I am saying something that doesn't exist in Economics 201 textbook. The fact is that the world's biggest e-retail giant Amazon has only last week posted its financial results for the US market. For the third quarter ending September 2014, it posted a 'gigantic' $544 million losses. And Amazon has already announced that the losses will continue for the fourth quarter also. In India, "our own e-commerce outfits are just through with our own holiday season, and they have turned up no surprises. They're not publicly listed so we don't know the numbers, but one can safely say that they would have lost huge sums of money because that's what they intended to do. Each one of them is making large losses and they all routinely go and get fresh rounds of money from venture funds or, as in Amazon's case, from a parent company." (No surprise: The plot thickens in country's e-retail story. Hindustan Times. http://bit.ly/1wD9AHT).

As per the latest balance sheet, Flipkart has accumulated losses of Rs 281-crore.

I tried to look deeper. Amazon, the world's biggest e-retail giant has been in business for some 20 years and has never made money. This means that losses are not only profitable, but are also sustainable. In a 3-part series International Business Times did look at various business practices being adopted by Amazon. I am particularly sharing this chart which tells you that while the revenues have continued to skyrocket, the net profit has remained more or less static thereby bringing in huge losses. How can any business remain business in such a depressing scenario? Well, certainly the plot thickens.

This chart gives you Amazon.com's revenue and profits between 2004-2014. 

Source: International Business Times

http://www.ibtimes.com/amazon-nearly-20-years-business-it-still-doesnt-make-money-investors-dont-seem-care-1513368

I asked economists and economic writers about this strange phenomenon. Everyone I asked told me it is a bubble that will soon burst. Some say that Amazon is surviving because the venture capitalists are funding it. The same holds true for Flipkart and Snapdeal. But this too defies any economic logic. Why should venture capitalists be funding a losing business enterprise? After all, no one has money to throw.

I am not sure about the future of Flipkart or Snapdeal, but the fact remains that if Amazon could survive with losses for nearly 20 years now, I see no reason why its Indian versions would not succeed. And if Flipkart also continues to be in business for even half the period that Amazon has been, and that too with huge losses year after year, it shows that the new business model successfully crafted by Amazon goes beyond what the likes of Adam Smith, John Maynard Keynes and the tribe could have ever imagined.

It's time therefore to rethink the very concept of business. Business is not only about profits, a loss too is an asset. If this is true, it challenges the popular perception of what constitutes a successful business. In other words, if Amazon can demonstrate that losses are profitable and that too for 20 years, why shouldn't the other business follow the trend? Why do traditional businesses go bankrupt while e-retail continues to grow and expand? Have economists been hiding the real truth from us all these years? Whatever be it, the plot only thickens with every passing day. #

Importing food when there is no shortfall in production. It only destroys farm livelihoods.

Potato dumped on the streets in Punjab. Not an unusual sight. -- Tribune photo

There has hardly been a year in memory when farmers have not thrown potato on the streets in protest against low prices. And yet, the government has allowed import of potato for the first time ever. While the official explanation is that the imports are to augment the domestic supplies and curb inflation, the fact remains that production of potato has been almost normal this year with an insignificant shortfall by a mere 2.3 per cent.

While the Ministry of Agriculture has directed Nafed to float tenders to ensure shipments reach by the end of November, potato crop from Punjab is expected to hit the market by the middle of November. The domestic market would be flooded by time the imports come in and I wouldn’t be surprised if farmers are once again forced to dump cartloads of potatoes on the highways. I therefore don’t understand the economic rationale of allowing the import of potato when there is hardly any drop in production. Experts say the Kharif crop has been good, and the winter crop that is expected in mid-November onwards is also expected to be normal. India is the third biggest producer of potato after China and Russia.

But then, under pressure from a strong lobby of economists, food inflation is coming in as a handy excuse to open up the Indian market for import of fruits, vegetables and milk products. This is exactly what European Union is demanding under ongoing negotiations of the bilateral Indo-European Union Free Trade Agreement.

The domestic potato chip, fries and flake industry is now pressing for removal of the 30 per cent import duty on potato to make the imports cheaper. Since Pakistan is not in a position to supply potato this year, and had resorted to duty-free potato imports continuously from India from March onwards with some 3,000 trucks crossing over daily from Wagah border, potato imports into India are expected mainly from Europe and Australia. The Economic Coordination Committee of Pakistan Cabinet has reportedly approved the duty-free imports of potato from India till Nov 15.

Potato is not the only victim of an ad hoc import-export policy. On a visit to a food processing unit in Sonepat district in Haryana, I was shocked when I was told that tomato paste is being imported in large quantities from China at a time when farmers were forced to throw tomatoes onto the streets for want of buyers. When food inflation was at its peak, reports of dumping of tomatoes by farmers had poured in from several parts of the country, including Himachal Pradesh, Punjab, Haryana, Uttar Pradesh, Karnataka and Andhra Pradesh.

With tomato prices crashing to Rs 2 (and at several places to Re 1 per kg) farmers had no choice but to feed it to cattle or to throw it away. Just in one month, between Aug 28, 2014 and Sept 28, 2014, India imported US $ 376,009 worth of dried tomato and tomato products (like paste, pulp and juice concentrate) from China, followed by US $ 94,057 worth of imports from Nepal, and US $ 44,160 from the Netherlands.

Not many know that the popular brands of tomato ketchup, tomato puree and even tomato juices that we consume at home are made from tomatoes imported from China, Nepal, Italy, USA and the Netherlands. In other words, we are inadvertently helping tomato farmers of the countries from where we import while our own farmers are left to die. The food processing industry obviously justifies the imports but what remains unexplained is if the objective of the industry is to source cheaper products from abroad why does the Ministry of Food Processing claim that agro-processing is a boon to Indian farmers?

Take the case of pasta. While huge quantities of wheat rots in godowns, Indian import of pasta from Italy has been growing at a phenomenal rate of 39 per cent per year. Since pasta is made from wheat, I don’t understand why efforts should not be made to produce pasta within the country rather than importing it. India’s import market for pasta has grown in ten years from Rs 3.39 billion in 2003-04 to Rs 17.22 billion in 2013-14. And again, pasta attracts an import duty of 40 per cent, and it is expected the import tariff would be reduced to 20 per cent after the Indo-EU FTA comes into effect.

How irrational food imports destroy domestic production is evident from the way India deliberately encouraged edible oil imports at the cost of its millions of oilseed farmers. These were small holders in the dryland regions of the country for whom oilseeds was a cash crop. Their livelihood has been snatched for the sake of economic benefit to edible oil producers in Indonesia, Malaysia, Brazil and United States.

It is true that edible oil import bill has multiplied over the past three decades. For the year ending 2012 (edible oil year is from Nov 2011 to Oct 2012, for instance), the imports touched 9.01 million tonnes valued at Rs 56,295-crore. Between 2006-07 and 2011-12, edible oil imports have risen by a whopping 380 per cent. Former Agriculture Minister Sharad Pawar often used to stress on the need to increase oilseed production so as to reduce the edible oil imports.

But what was not being told was that India had attained near self-sufficiency in oilseeds production by 1994-95, importing only 3 per cent of its edible oil requirements. After 1994-95, the import tariffs were brought down systematically as a result of which the imports grew. Against a provision of 300 per cent import duties, India allows zero tariffs at resent. Imports are now more than 50 per cent of the domestic requirement. So much so, that after having destroyed its own Yellow Revolution, a strong lobby of economists has been battling for encouraging cultivation of  environmentally-destructive palm oil plantations.

Worldwatch Institute has shown how palm oil monoculture adds to desertification, and also exacerbates global warming by releasing 10 times more carbon dioxide into the atmosphere than tropical forests. Unmindful of the ecological damage, Ministry of Agriculture plans to bring in 1.03 million hectares of forests – mainly by cutting down lush green  forests in Mizoram, Tripura, Assam, Kerala, Andhra Pradesh and Karnataka – and growing palm oil plantation to produce about four to five tonnes of edible oil. The economic rationale is beyond my comprehension. First destroy the oilseed producers, and then cut down forests to produce edible oils. A remarkable model of development indeed ! #

1. Helping imports, hurting farmers. Orissa Post. Oct 22, 2014
http://www.orissapost.com/epaper/221014/p8.htm

2. Sourcing local farm produce rather than imported concentrate.
http://chssachetan.wordpress.com/2014/10/28/sharma-source-local-farm-produce-for-processing-rather-than-imported-concentrate/

3. No rationale behind potato imports. Hindustan Times, Chandigarh. Oct 26, 2014
http://read.ht/kYm

4. आयात का औचित्य Dainik Jagran, Oct 25, 2014
http://www.jagran.com/editorial/apnibaat-justification-of-import-11724002.html

British agriculture is headed for a doom. Time to shed the false pride and learn sustainable farming from India.

British agriculture has to undergo a radical transformation if it has to survive. 

Pic by Telegraph

Some years back I was at a dinner meeting hosted by the then British Secretary of State for International Development, Hilary Benn, in London. Among those present were a select group of leaders of charities and people’s organisations working on sustainable agriculture, biodiversity, environment and worker rights. The discussion was broadly on how Britain could extend help to developing countries in promoting sustainable agriculture and food security.

After the first round of discussions, Hilary Benn turned to me. Being the only outsider at the meeting, he asked me how I perceive Britain’s role in promoting sustainable agriculture in developing countries. In a sense the question related to my expectations from the DFID, the department responsible for promoting development and the reduction of poverty. If I recall correctly, I replied: “I don’t understand how UK can help India in promoting sustainable agriculture. Your own agriculture being ecologically and environmentally devastated, please tell me how is DFID qualified enough to teach us sustainable agriculture?” 

It took some moments for Hilary Benn to understand the implications of what I was trying to say. He quipped: “Well, I get your point. In that case what do you expect British DFID to do?” My answer was simple. I told him that aid should be a two way channel. Instead of imposing the British development agenda, it was time DFID invited some farmers from India and make them go around the country educating farmers and educationists and thereby create awareness about the importance and need for sustainable farming practices. 

As you would have guessed my suggestion never received a second thought. But if Hilary Benn, and also some of the agricultural experts present at the dinner, had actually ignored the national pride tag that they were wearing on their sleeves and launched a serious effort to resurrect British agriculture, the doomsday warning could have been easily averted. A study by the University of Sheffield warns of a serious 'agricultural crisis' unless dramatic action is taken. (Britain has only 100 harvest left .. http://ind.pn/1ySqLt9)

The Sheffield study only establishes what I have been saying for long. British agriculture is one of the most intensively farmed, and of course one of the most devastated. With cultivated soil turning infertile, researchers found that soils in urban parks and kitchen gardens were much healthier. "Allotment soil had 32% more organic carbon, 36% higher carbon to nitrogen ratios, 25% higher nitrogen and was significantly less compacted."  

Britain, like many other countries, is encouraging people to farm in the available urban places. Citizens are allowed to apply for allotment plots -- small patches in urban centres where they can grow food for themselves and their families. Currently there is a waiting list of 90,000 people wanting allotment plots. Interestingly, unlike the corporate farms,  the small scale producers know the importance of maintaining soil health and therefore tend the gardens to maintain an ecological balance. With the rural landscape turning unhealthy, the hope now rests on the urban farming. 

But peri-urban agriculture may not be enough. Britain will sooner or later have to revert back to restoring its soil health. It is therefore high time that Britain sheds its false pride in agricultural superiority, and learns from countries which have shown an agro-ecological pathway. It's time DFID becomes a channel to draw from the expertise of ecological farmers from countries like India. There is nothing to feel ashamed. If only Hilary Benn had seen the merit in my argument, perhaps we could have identified a group of smart farmers from India who could have helped British agriculture to regenerate. It isn't too late even now. 

Further reading: Climate change provides the right opportunity to reorient agriculture..

http://devinder-sharma.blogspot.in/2014/09/climate-change-provides-right.html

No pesticides, No Bt, No Pests

http://indiatogether.org/punukula-op-ed

While Indian farmers are forced to dump tomatoes in the streets, Indian food processing industry merrily imports cheaper tomato paste from China

Not able to get the right price for tomatoes, farmers often resort to throwing away the produce -- The Hindu pic

Some decades back, soon after the Ministry of Food Processing was set up in prime Minister Rajiv Gandhi's tenure, I was speaking at the M S Swaminathan Foundation in Chennai. While most speakers were busy hyping the importance of food processing in reducing food wastage, which I am not in disagreement, I stressed on the need to ensure that the nascent food industry focuses more on sourcing local farm produce in processing rather than importing the food concentrate. Illustrating the point I made, I gave an example of the orange juice being made available in tetra-packs.

At that time, I remember one of the popular orange juice brands had it written on the tetra-pack: "Made from freshly picked up oranges from California."

I am sure you will agree that if the orange concentrate is to be imported from California, all the talk of reducing food wastage becomes meaningless. Soon after my viewpoint was carried prominently by the media, the processing house at least dropped this sentence from their juice cartons.

Yesterday, on a visit to a food processing unit in Sonepat district in Haryana, I was shocked when I was told that tomato paste is being imported in large quantities from China. In fact, most of the big brands of tomato ketchup and tomato puree are using imported paste and pulp from China. This is happening at a time when farmers are repeatedly being forced to throw tomatoes onto the streets for want of buyers. This year too, when food inflation was at its peak, reports of dumping of tomatoes by farmers had poured in from several parts of the country, including Himachal Pradesh, Punjab, Haryana, Uttar Pradesh, Karnataka and Andhra Pradesh.

With tomato prices crashing to Rs 2 (and at several places to Re 1 per kg) farmers had no choice but to feed it to cattle or to throw it away.

This was happening at a time when the tomato processing industry was merrily importing tomato paste and up mainly from China. While politicians, TV commentators, editorial writers stressed on the need to strengthen food processing, not many know that the existing tomato processing industry was relaying heavily on cheaper import of pulp and paste. This is not the first year for such imports, a review of reports on Google showed that such imports are continuing over the years.

Not many know that the popular brands of tomato ketchup, tomato puree and even tomato juices that we consume at home are made from tomatoes imported from China, Nepal, Italy, USA and the Netherlands. In other words, we are inadvertently helping tomato farmers of the countries from where we import while our own farmers are left to die.

Just in one month, between Aug 28, 2014 and Sept 28, 2014, India imported US $ 376,009 worth of dried tomato and tomato products (like paste, pulp and juice concentrate) from China, followed by US $ 94,057 worth of imports from Nepal, and US $ 44,160 from the Netherlands. Some more research, and I find that in 2010 when traders were eyeing the market opportunities in Pakistan arising from devastating floods, the Indian processing industry was busy importing tomato paste from China. A news report in the Economic Times (Oct 20, 2010) quoted Pradeep Chordia, managing director Chordia Food Products Ltd saying: "We can't afford the high local prices so we imported 80 per cent of our requirement of tomato paste from China this year."

Another food processor, Akshay Bector of the Ludhian-based Rs 400-crore Cremica Group said: "There is a cost advantage in buying from China versus India where prices fluctuate." This company supplies to McDonalds, Taj Group, ITC Group, Jet Airways, Indian Airlines, and chains such as Barista, Cafe Coffee Day, Pizza Hut, Domino and Papa John's.

Go back a little more, and you find a lot of Indian companies importing tomato paste way back in 2005, and even before. No wonder, tomato farmers in India have been at a great disadvantage for several years now, if not decades.

I therefore have three suggestions:

1. Ministry of Food Processing should encourage food processors to mention on the label the place from where the raw material is being sourced. Traceability is now an important trade issue.

2. It should be made mandatory for the food processing units to source the raw material that is available in India, from domestic sources. This is the only way to develop the back-end infrastructure that will help reduce farm wastage.

3. A minimum support prices should be announced for tomato which should serve as a floor price for the markets.