Posts Tagged ‘cattle’

Sharing insights on the ROI of cow ownership with The Economist et al

Dung cakes provide free fuel for the rural housewife (photo credit: Goverdhan Meena)

While the internal rate of return (IRR) of a cow may certainly be in the high negative numbers, per the recent Economist note on research, there are other elements of the cost/benefit analysis that also need to be taken into account when considering the real value of owning livestock. There are differences based on region and locale naturally though the patterns of economic activity might resemble each other due to similar challenges. Here, I will mostly look at the rural Indian context.

1. Fuel

Rural households without access to the electric grid use firewood and cow dung cakes for cooking and heating in India. Cow dung as fuel is not used to the same degree of prevalence in rural Africa as it is in India. Above is a photograph of a typical village home in Rajasthan, western India. You can see the source of fuel, the black buffalo, tied up next to the work area. During the dry winter, dung is collected, mixed with bits of twig or straw and shaped into patty cakes by hand and then left to dry. After they have sufficiently hardened, they are stored for future use in their own shed.

Dung is slow burning and retains heat longer, while wood catches fire quicker so a combination might be used based on the day’s menu or if wood is not available. While labour cost has been calculated for the upkeep of a cow, it does not take into account the labour cost of foraging for firewood whereas the dung is both free of cost, plentiful and easily available right there at home. This pattern of juggling more expensive fuel with cheaper fuel (here, expensive and cheaper can also be said to be easily available or convenient and less accessible or time consuming to obtain) is prevalent in rural households observed in The Phillipines, in India, in Malawi, in Kenya and in South Africa.

2. Fertilizer

Organic, free, sustainable fertilizer. Enough said.

3. Milk

Even if the women in the household may not be able to afford a cow or it may be considered a man’s possession, she usually has a nanny goat or two for milk in the morning. When there is no access to the electric grid, nor home appliances to preserve it for longer than a day, then the best way to access fresh milk for the morning cuppa is directly from the udder. With larger livestock such as a buffalo or cow, the quantity maybe sufficient for cash sale to the ubiquitious chaiwallah if noone else. Milk and milk products such as yoghurt and cottage cheese (paneer) are a part of the Indian vegetarian diet. Sales provide an avenue for cash money, necessary to the most self sufficient farm, such as for mobile airtime or salt, oil and tea leaves.

4. Investment

An assumption that these recent discussions on the ROI of a cow or buffalo seem to be making is that the cost is that of a fully grown animal. Few lower income households could afford mature livestock and the majority would tend to purchase a young calf. Whether its subsequently fattened for food, such as in The Philippines or for milk and young, such as in India and Kenya, the comparative affordability of a calf is such that the value of the mature animal is considered a worthwhile return on investment. In an emergency, livestock is a walking fixed deposit, to be sold for ready cash. In parts of rural Kenya, livestock prices are known to be depressed at the beginning of the school year as parents prepare for fees, books and uniforms.

5. Status

When it does not make sense for you either purchase or park that shiny Mercedes in front of your humble home, how do you communicate wealth and status?

The walls are plastered with a mixture of cow dung and mud before the womenfolk decorate with traditional designs. Dung is considered a purifier and has myriads of uses. This household clearly sends a signal of its status in the village and its ownership of a producer of fuel, food and fertilizer.

As Singh notes, the respect and regard paid to cows in India is well known, but the importance to rural Indians of the dung and urine of this sacred animal is often ignored. “Cow dung is used as a cooking fuel, sanitizing cleanser, construction material, for insulating and waterproofing walls and floors in rural houses, as a cultural symbol in religious worship and the raw material for producing organic compost and generating electricity.

Discussion

Further discussion on the findings published in The Economist was by economists Daren Acemoglu and James Robinson, in a post titled “Cows, Capitalism and Social Embeddedness” where they say:

 What to conclude from this? Perhaps one explanation is to embrace the idea, once popular among some social scientists and recently gaining some further traction in more sophisticated forms among development economists, that poor people are irrational and cannot make decisions in their own best interests.

An alternative, however, is provided by the anthropologist James Ferguson in his book The Anti-Politics Machine that is a study of development problems in Lesotho in Southern Africa. There are many points to this book but one of them is to show that economic analyses that failed to take into account the social ‘embeddedness’ of economic behavior often come up with spurious interpretations of what is going on — and as a result, give irrelevant policy advice.

The consistent behaviour, call it socially embedded or irrational foolishness, that has been overlooked in these highly learned discussions is that of emphasizing self sufficiency and independence from the formal or cash based economy

Cattle are but one of the many means rural households utilize to ensure that they need the absolute minimum cash money outlay in their daily household expenses. Labour cost is rarely that of the head of the household, most cows will be looked after by youth or womenfolk on the homestead. What is a daily challenge for those who live on the land and off of it is the availability of actual coins and paper notes for conducting transactions. The seasonality of the harvest, yet another element that tends to be overlooked by urban educated professionals receiving salaries in digital money directly deposited to their bank accounts, implies that any significant amount of actual tangible cash money is also linked to that period of buying and selling on the market.

For the rest of the natural year, there are very few sources of cash money available to even the most self sufficient household, and this is a behaviour that is emphasized. Most everyone interviewed will proudly proclaim just how little they need for external purchases, pointing proudly to their sources of “free” fuel, firewood, daily milk or dairy, and of course non perishable staples like wheat or rice.

This pride in the rural resident’s self sufficiency and independence from what they see as the burden of ties to cash money requirements is not something that any amount of data collection, metrics or economic rationality can ever quantify nor replace, as The Economist suggests, with mobile money as an alternate savings mechanism.

Part 1: Why are we publishing our original research on rural economic behaviour in 5 parts online?

A recent article in The Economist on the economic value of owning cattle in rural India made me to realize just how little is understood about the rural economy.  Here’s a snippet:

That is because most people find spending easier than saving. Immediate pleasures are easier to grasp than future joys—and so people make spending decisions that they later regret. Economists refer to this as “myopia”. Cows force people not to be myopic. Compared with money held in savings accounts, cattle are illiquid assets. Taking cash from a cow is harder than taking money from an account. As a result, temptation spending is trickier.

The paper has implications for poverty-alleviation strategies and for financial services in developing countries. Aid programmes that try to reduce poverty by distributing livestock may be ineffective at raising incomes, if the returns from owning them are so poor. If cows are used as a means of saving, the spread of mobile banking in places like India will provide another, better option. Even then the problem of temptation spending arises.

This discussion makes quite clear that the underlying assumptions being made by the learned authors of this study are not only implicitly wrong but based on their own perspective of life in the concrete jungle with access to easy credit enabling impulse purchases and conspicuous consumption. Milk, for their morning cereal, tends to come from a tetrapak in the extra large refrigerator and electricity provides the means to warm it.

Since the Prepaid Economy project has been immersed in rural household economic behaviour for some 5 years now, perhaps its time to share the basis for better understanding the why behind the what that is being so fervently discussed. The final report as submitted to the funders of the original fieldwork will be shared in 3 parts:

1. The Abstract – scroll down after the cow for this extract.
2. The Observations
3. The Synthesis and Insights
4. The visual documentary of the above with annotations.
and finally
5. My thoughts on the role of the cow in the rural economy, supported by references to research previously linked to on this blog as well as additional fieldwork in Kenya.

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan Meena)

Buffalo, Village Rewal, Rajasthan, January 2009 (Photo: Goverdhan* Meena)

The challenge faced by BoP ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.

In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).

Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.

This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.

*It just struck me that even the name of my local guide in Rajasthan was Goverdhan, which means “to increase the wealth (value creation) of a cow”.