Most products have the cost of failure built into the price of the product. For example, a film. When a film gets made, there are so many things at stake, that the all these risks are covered by the premium on the ticket. If a film ticket was prices simply by dividing the cost + profit by the number of people watching, it would be pretty cheap. Or consider for example, the price of a car. The insurance premium that the manufacturer pays is built into the cost of the car. Or say a doctor, who conducts very risky operations get paid highly...and now you ask what's the point??
The point is, this doesn't happen with a farmer.A farmer faces all the vagries of nature or monsoon. Alll his risks are unmeasurable and unpredictable. But does he get to decide his pricing? Why does market not behave perfectly when it comes to agriculture? Why doesn't the theory of high risk - high return apply to agriculture? How does a farmer hedge his risks then is the main question!
The answer as I found today lies in Community Supported Agriculture. This is a fantastic system wherein buyers share the risk with a farmer. They are participants in the farming process economically and hence emotionally. If the monsoon isn't good in a year, and the farmer isnt able to grow enough tomatoes, the buyers will have to forgo the amount but may be compesated by a good winter and receive abundent peanuts. But since the risk is spread, it becomes insignificant to every individual. Morover, the farmer can concentrate on growing quality stuff rather than having to worry about selling it. There are various flexible models around the worls for CSA. Just google it up and its an interesting read. Looks like my next career move ;-)
The point is, this doesn't happen with a farmer.A farmer faces all the vagries of nature or monsoon. Alll his risks are unmeasurable and unpredictable. But does he get to decide his pricing? Why does market not behave perfectly when it comes to agriculture? Why doesn't the theory of high risk - high return apply to agriculture? How does a farmer hedge his risks then is the main question!
The answer as I found today lies in Community Supported Agriculture. This is a fantastic system wherein buyers share the risk with a farmer. They are participants in the farming process economically and hence emotionally. If the monsoon isn't good in a year, and the farmer isnt able to grow enough tomatoes, the buyers will have to forgo the amount but may be compesated by a good winter and receive abundent peanuts. But since the risk is spread, it becomes insignificant to every individual. Morover, the farmer can concentrate on growing quality stuff rather than having to worry about selling it. There are various flexible models around the worls for CSA. Just google it up and its an interesting read. Looks like my next career move ;-)
Comments
If possible watch marathi films Gabhricha Paus and Gosht Choti Dongraevdhi.....these films portray this issue in very in-depth manner
Where the buyer (factory owner) takes the risk along with the farmer.
Where the buyer (factory owner) takes the risk along with the farmer.
I plan to see these movies! I hope swine flu and time permit me to. :-). Fantastic Marathi films have been made on these topics.
@Kalpesh
The cashew factory owners are not consumers. Besides, they don't share the risk by paying before the crop. They pay the farmer only when the product comes to them. That is not what is sharing the risk is. If they were to share the risk, factory owners would have paid a cetain amount (say Rs. 1 lac) to a farmer every year, promising to buy a fixed quantity (say 1000 Kg) from them else be ready to forgo the money. Being redy to forgo the money is the important part Kalpesh. No one is ready to do that for a farmer.