Wretched of The Earth
Vinay Chand Associates are fortunate to be globally focussed. We have first hand direct experience in over 50 countries and a profound understanding of the processes that are shaping the world. This specialisation combines a wide geographic exposure with an interest and experience in a wide range of commodities. For an in depth understanding of commodities and comodity markets as well as the countries that depend on them, it is important to have a deep understanding of the transformation taking place.
It is too easy to focus on the world of products and overlook the world of commodities but the latter still represents a majority of the world's population and in particular the wrteched of the earth. Those who started off far behind and are getting left even further behind but without changing their circumstances, growth remains fragile, vulnerable and a bubble.
We are also concerned with the sustainability of global growth, its impact on the environment, climate change, dwindling resources and bio degrdadtion. Our interest has grown to encompass resource management in terms of water, desertification and energy.
DRIVERS FOR GLOBAL DEVELOPMENT
All over the world, the values, needs and wants are necessitating economic development. Even remote and isolated societies find that they need to earn more in order to finance things that they cannot produce but that are both, increasingly expensive and increasingly considered a necessity. Materialism completely dominates the world and those who do not subscribe to its values are considered at best to be eccentric. A better life is being defined as one which allows the acquisition of these new necessities.
To some degree this has been true for centuries now but the process of globalisation has greatly accelerated it. Those who produce goods increasingly produce them not just for the local market, but for a broader regional or global one. This process still has some way to go, there are still many whose market perspective is limited. However, the search for markets extends everywhere. The remotest island, most primitive rural society and the poorest in the world are increasingly relying on their mobile phones and either have or want broad band internet access. There are: pick up vehicles, cable television, ice mobile phones, and ipods. These goods have to be paid for. The revolution in global communication means everyone is watching the same programmes, singing the same song so to speak, acquiring the same values. The fastest growing markets at present are China and India. Emerging markets are the flavour of the day. It is interesting that globalisation of markets must inevitably promote globalisation of cultures and values.
Although actual purchases are more related to purchasing power than to populations, the most populated developing countries already offer attractive markets. In the way of illustration, India may have a population of over a billion but affective ability to purchase that is comparable to that of the middle classes in USA and Europe would probably not be far in excess of 50 million families in India or 200 million in China.
The relative costs of imported products from developed countries have held up better in value terms than the commodities traditionally used to pay for them. China and India have diversified into industrial products and run surpluses on their balance of payments. However, there is a growing gap between havesin these countries who export industrial products and services and have nots who produce commodities. The latter still constitute the majority in the two countries.
To cater to the globalised market place, there is intense competition and that requires production should be a global paltform. China produces a large range of products for the world. In the way of illustration, most kitchen white goods being consumed in USA and Europe are being produced in China. You can chose your brand for many things in Europe or USA but it will have been produced by one of a handful of plants in China. Production is increasingly globalised. Entire industries like Garments, sometimes shift across the globe looking to exploit temporary advantages in low labour rates.
Entrepreneurs are constantly seeking to devise production solutions that can be global that will give them a cost advantage in penetrating markets. This may lead to production of an item at a foreign location or even to components being produced in various countries and assembled at central locations close to markets. Countries vie with one another to attract this investment, offering tax breaks, subsidies and other incentives. This is part of a division of labour process that is inevitable.
In order to produce more and more for a growing global market, the need for resources leads entrepreneurs to scour the world looking for materials. China has been buying oil and mineral companies in Africa as well as in Australia and both, India and China have been wooing countries that can supply them with the oil and gas that they need. The use of satelites and analytical tools allows investors to learn of sources. Africa is often seen as the largest untapped resource base and is attracting investment.
Foreign Direct Investment (FDI) is nearly unanimously seen as a good thing with performance lists being issued in what is a global competition. Strong FDI flows can make an immense difference to growth and development. After the 2008 crisis maybe things have gone a bit too far in terms of speculation with sovereign investment in land to be used to grow and supply agricultural produce but few such schemes has been implemented so far.
The above is not to suggest that FDI is of necessity a bad thing. To the contrary, a massive influx of FDI can enable growth rates hitherto unimaginable. Globalisation has accelerated growth and brought a transformation in standards of living and expectations that are common in receiving countries. China has been transformed into a production powerhouse and India into a services one.
In Agriculture, FDI has become a mantra. Most countries strongly encourage it. Even supposedly Communist countries, like Vietnam are eager to entice and service it. However, simple logic would suggest that FDI enables production at low rates to cater to high value markets. Profits stay with the investors. What the receiving country makes from it is to be questioned. This is clearly illustrated in the case of garments, where a large number of people are employed but the value added in producing countries is a fraction of the value of the trade.
Encouraging FDI may end up banning Unions, crushing dissent and keeping workers at the edge of existence to accomplish what exactly? An increase in GDP is an official statistical gain.
Capital and wealth too is being globalised. Global wealth is becoming part of one pool instead of being separated in many compartments. Of course, there is increased vulnerability because of centralisation of all wealth which is creating huge reserves to be managed and invested by fewer and fewer intermediaries. The movement of such reserves is capable of destroying national and even the global economy. They are the true weapons of mass destruction.
Money can increasingly be raised in any of a large range of countries for use all over the world. This may have always been true in theory but is increasingly true today. Unfortunately, the regulatory regime has fallen behind these developments and attention is now focussed on rectifying the situation.
In the globalisation process, we are concerned with maximising benefits for the poorest which in our case is farmers and landless farm workers as well as gender implications for the two. Development itself is a neutral process, it does not discriminate between the rich or the poor. If anything, it tends to have a pro rich bias. There is, at least, as much wealth inequality in developing countries as in developed ones. In may cases, income disparity is far more marked in developing countries.
In terms of international assistance, it is far easier to help the rich than the poor. For financing agencies, the rich are far more credit worthy, borrow large more manageable sums and are far more likely to repay. There are even thresholds in terms of investment below which the cost of administration is too high to justify the loan. Investment below say $5 million is best handled through lending to a large agency which on lends smaller sums.
Even within develping countries, as is the case in India where there are laws requiring deposits for use in Agriculture, the National Agricultural Development Bank is able to raise billions of dollars, even perhaps tens of billions but is unable to disburse to small farmers and India has an excellent network of rural banks. At the end of the day, bankers find it difficult to justify loans to the poor. The need for micro finance is only very partially met by institutions such as Grameen Shakti in Bangladesh. Even Grameen can do it only my limiting the size of loans and very high interest rates.
Yet the objective of development assistance is ostensibly to be pro-poor. Of course, it is possible to be pro poor in terms of development impact with a trickle down process to the poorest sections of the community or to be more directly pro poor oriented. The trickle down process is a useful way of covering up a lack of focus and has fallen into disrepute today. Donors are pledged to try to ensure a more direct benefit. We focus our work on ensuring projects are pro poor in design but more important are pro poor in impact. It is very important to monitor that process and we are pleased when donors pay increasing attention to this.
The task then is to reach the really poor and we have experience of a number of ways that have been and are being tried. One logical way is to target those who service the poor like distributors or input suppliers. By making the service sector more effective, it is argued that the poor are being helped. Supply of seeds, fertilisers, machinery, buyers, banks, providers of information are among those who can provide a conduit to the poor. Our speciality is for our work to be based on rigorous value chain analysis.
Another approach is to organise the poor into groups, they can be cooperatives, associations, companies, organised as groups allows assistance to be absorbed, to be sustainable and viable. Cooperatives have been the traditional means of doing so but have gone through a period of being treated with suspicion mainly due to the fact that in developing countries they are easier to capture control of and misuse than in developed countries. The fact that there are many bad examples does not, in our opinion, change the fcat that farmers need to be organised to take advantage of development opportunities. Our current efforts include working with a Farmers Association in North Malaita in the solomon Islands to maximise spread of benefits from a coconut sector development.
Another approach, now very popular, is fair trade. It consists of obtaining that better than normal returns are being given to farmers and early processors and certifying that fact under a brand logo. The approach is very popular with NGOs and donors and many in developing countries are eager to obtain the requisite certification. There are also retail chains in consuming countries that support the trend strongly.
However, the niche market for fair trade, and that is all it is at present, is under attack from some such as Nestle and Starbucks among others who believe that farmers have not really benefitted much from fair trade and are more interested in developing supply security by working with farmers through local intermediaries to improve returns and quality. Ultimately, improvements also depend upon in education and health and good livelihood for farmers or they will simply not produce enough in the long run.
There is much to commend early desire for fairer trade through the fair trade brand but equally, there is much sense in whatNestle are saying. Farmer livelihood and quality of life are important and fair trade in itself will not deliver that. so we are developing a new concept that we call equitable trade where all stakeholders in the supply chain have discussions on margins and full transparency. Everything depends on farmers receiving an equitable return on good terms and fair trade is simply not fair enough!