Climate Changes Role in the Syrian Uprising

Happy 2016! This is a recent post that Adam put up on ecosciencewire.com

By: Adam Hanbury-Brown

Three years before Syria’s uprising in 2011, the country experienced the worst drought in recorded history. This unprecedented dry weather caused dramatic crop failure and livestock mortality in regions heavily dependent on agriculture. The drought was so severe that one and a half million Syrian farmers were forced to relocate to the outskirts of large cities– constituting a wave of internally displaced people who would later experience further hardships and civil unrest.

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Rebels aim their weapons during a training exercise outside Idlib

A recent study published in the Proceedings of the National Academy of Sciences (PNAS) shows that the Syrian drought was most likely exacerbated by human-caused climate change, and that these extreme weather events will be two to three times more likely in the future. The authors of this paper, Colin P. Kelly of UC Santa Barbara, Shahrzad Mohtadi of Columbia University, and their colleagues, insightfully connect the dots between human-driven climate change, the recent drought, and the Syrian uprising in March, 2011. They tease apart complex climate factors to show that climate change likely had a strong impact on the drought. Most importantly, this study serves as a reminder that climate change doesn’t need to kill directly to cause suffering. It only needs to be the tightening vice around our preexisting vulnerabilities: geopolitical instability, unsustainable agricultural policies, and disparities in wealth.

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Syrian refugee tent city

Vulnerable. That is best way to describe Syrian agriculture as the drought descended in 2006. Unsustainable agricultural policies under Hafez al-Assad (1971-2000) led to the depletion of Syrian groundwater prior to the drought. If managed more sustainably this might have ameliorated the water shortages. On top of that, the country had not yet fully recovered from the drought of the 1990s.

As the drought continued to displace farmers, internal refugees came to constitute twenty percent of Syria’s total urban population. Prices of wheat, rice, and feed doubled and this only served to exacerbate resource constraints in urban areas. Bashar al-Assad ignored the growing issues of overcrowding, poor infrastructure, unemployment, and crime- all factors that contributed to the unrest that led to the civil war.

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Syrian sheep in a parched landscape

In order to understand climate change’s role in the drought, and subsequently the uprising, the authors analyzed long term trends in precipitation and temperature. Essentially, Syria is getting hotter and drier in accordance with the pattern predicted by increasing greenhouse gas. Seven of the eleven years between 1998 and 2009 received less rainfall than the 1901-2008 normal. The authors also point out that “three of the four most severe multi-year droughts have occurred in the last 25 years”– the era of most intense human impact on climate. Climate change is believed to be increasing sea-surface pressure in the eastern Mediterranean which is suppressing westerly winds that typically bring rain to Syria.  More alarming is that the authors cite a study which, “using a high-resolution model able to resolve the complex orography of the region concluded that the FC [Fertile Cresecent], as such, is likely to disappear by the end of the 21st century as a result of anthropogenic climate change.” It is deeply depressing that civilization will likely destroy its own birthplace.

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Anasazi Village

If connecting the dots between the Syrian crisis and climate change still seems like a leap of faith, just return to Jared Diamond’s book, Collapse, (which incidentally was published in 2005– the year before the Syrian drought started). Diamond’s account of the fall of the Anasazi Empire in the southwest of the United States around 1120 AD is an uncannily similar story. The Anasazi were a people accustomed to living in a dry landscape. Their agricultural practices worked for a period of time, but just like the Syrians, they employed techniques that lowered groundwater levels-leaving them vulnerable to drought. Before the Anasazi groundwater issue came to a head, their civilization prospered, and a ruling elite developed in city centers. Goods and food flowed in to the centers from the agrarian periphery. In 1117 AD the Anasazi experienced a severe drought that is believed to have led to severe strain on the agricultural system. Around the same time, walls and other fortifications were erected around the city centers– marking a period of civil unrest and warfare. It is believed that the farmers, forced to abandon their land, no longer tolerated the ruling elite, and the civilization fell into disarray. Archaeologists found scalped skulls and unburied bodies in the grand houses of the ruling elite from this time.

The similarities between the Anasazi and the Syrian crisis are clear. What’s different about the Syrian crisis today is that the weather events are no longer just forces of nature. Humans are exacerbating the climatic pressures that we have seen play a role in civil unrest and warfare. The 2011 drought in Russia caused a spike in food prices- a major cause of the Egyptian uprising. Recent reporting on Russia’s current drought notes that “it’s among the worst ever recorded”– words that feel surprisingly familiar when it comes to weather events these days. Let’s hope history doesn’t repeat itself… but surely it will.
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Citation of the Original Scientific Article:

Kelley, C. P., Mohtadi, S., Cane, M. A., Seager, R., & Kushnir, Y. (2015). Climate change in the Fertile Crescent and implications of the recent Syrian drought. Proceedings of the National Academy of Sciences , 112 (11 ), 3241–3246. http://doi.org/10.1073/pnas.1421533112

Other Citations, Russian drought “worst ever recorded” quote: http://bit.ly/1HJvZOd
Photo Credit
Farmer feeling ground (featured image): Reuters, http://bit.ly/1ldekV7
Syrian Training: flikr, Freedom house
Refugees: flikr,  EC/ECHO
Refugee tents: flikr, Fabio Pena
Sheep: Green Prophet, http://bit.ly/1lzZqb4
Anasazi: pixabay

Grazing the Steaks

The imagery of cattle on 747, flying 2500 miles across the Pacific ocean took me by surprise –and wasn’t an idea I ever thought I would have to entertain until I began exploring the market potential for pongamia seed cake as a cattle protein supplement in Hawaii.

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Very content cattle (replacement heifers) on a intensive rotational grazing system at Ponoholo Ranch on the Big Island, with sweeping views of the coastline and Pacific Ocean

Through this pursuit, I discovered that approximately 75 percent of the cattle raised in Hawaii are shipped, by either plane or boat (via “cowtainers” or “floating feedyards”), for finishing and processing on the mainland. This practice began taking place after a large-scale processing plant closed down in 1990, causing the only large capacity feedlot to follow suit.  In another article, I explain that this practice not only decreases Hawaii’s market share of the industry from 30 percent to less than 10 percent, but also bears down on the islands’ food security and self-sufficiency — a looming issue for Hawaii. Nonetheless, it turns out, shipping cattle live to the mainland for finishing and processing is more economical for ranchers than purchasing feed to finish them here. A big issue is that the cost of feed (protein) is nearly double the price paid by ranchers on the mainland. Thus, with limited local feed options, in addition to veterinary care, branding, processing, and grading services, finishing and marketing the product on the mainland becomes more profitable.

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Cattle production chart depicts each phase of production and relative nutrients. Cow-Calf phase in yellow is what primarily takes place in Hawaii.

The scenario described is exactly why local feed solutions are currently in vogue in Hawaii.  In fact, a variety of industry stakeholders are interested in locally produced livestock feed, especially those derived from biofuel co-products, in effort to bolster Hawaii’s food-security and self-sufficiency, as well as the economic pay-off. With this considered, Pongamia is not only high-performing biofuel but also a potential solution to a eminent food security issue here in Hawaii.

Knowing all this, the seemingly manifest subject-matter of cattle supplementation in Hawaii quickly became a quandary through the market research process. First, Hawaii’s cattle inventory (including calves) is 135,000 head. With only one 950 head capacity feedlot in Maui, most of the weaned calves that are finished in Hawaii (a little over 8,000 head) are almost entirely forage-finished. These cattle are locally marketed as “grass-fed,” which doesn’t necessarily mean that can’t be given supplements but it is indeed a murky market to evaluate. However, most of Hawaii’s beef cattle industry consist of cow-calf operations, which takes place over a year before the finishing (feedlot) phase, as illustrated in the chart below. This is key as supplementation is the most critical during the cow-calf phase, given the mother cow’s high nutritional needs during pregnancy and lactation. With approximately 80,000 mother cows requiring 2-3 lbs of protein a day, this particular market could range from about 2,500 tons of pongamia potential, if only half of the mother cows received the supplement for 365 days, up to 8,000 tons of pongamia potential if all 80,000 mother cows receive the supplement for 365 days.

hawaii climateFor an even more critical look, a majority (about 80 percent) of the cow-calf operations are on the Big Island, where you’ll find one of the most productive (and jaw dropping picturesque) grazing lands in the U.S. Moreover, what you might find surprising, is that the Big Island is home to three of the top 25 largest cow-calf operations namely, Parker (#9) , Ponoholo (#21), and Kahua Ranch (#23). These three ranches (all neighbors – pictured below) make up a quarter of Hawaii’s protein supplement market. Parker ranch alone has approximately 10,000 mother cows over 130,000 acres, in 4-5 climate zones that can be observed from a pu’u (mound) from just up the ranch headquarters. These microclimates, along with the mountainous topography and multifarious winds are certainly factors these ranches take into consideration when choosing to supplement. Parker Ranch, for instance, finds it important to look at the season and time of year, as the nutrients in the forage is dependent on this.parker ranch Ponoholo, on the other hand, over 11,000 acres and three climate zones, prides itself on being a low-cost ranch, that is able to practice intensive rotational grazing which maximizes nutritional opportunities for the cattle, thereby reducing damage to the land through erosion and overgrazing. Given this, Ponoholo would likely forgo protein supplementation even in the event of drought, where they find it best to simply reduce their herd size. Right next to Ponoholo, Kahua Ranch would, however, consider using a protein supplement especially during drought to maintain cow-herd numbers. This illustrates the complexity and case-by-case nature of the cattle protein supplement market Hawaii. Nonetheless, even the ranches that rarely supplement their cattle, are still behind the idea using of pongamia seed cake as a protein supplement — especially in a drought situation, which one rancher explained could be the difference between life or death for a cattle herd.

Nitasha Baker

RISE/EEx- TerViva Business Development Fellow

Too legit to quit

The process of commercializing a new permanent crop such as a tree takes time to ‘prove’ economic viability. It is therefore no surprise that investors have shied away from the space. In fact much of the investment in new crop development over the past hundred years has been on annual crops like corn and soy. Nevertheless, permanent crops have the potential for much higher yields per acre and sustainable cultivation through the use of lower inputs (unless you are clearing forests to plant — I’m looking at you oil palm!).

Yes indeed validating yields of mature tree crops takes many years, so how do we get investors to pony up risk capital to develop novel permanent crops? Let’s leave aside the notion that investors (venture types especially) delude themselves and their LPs in to thinking that exits should require only 3 to 5 years (please look at all of your investments and see how many actually hit that mark).  Most successful businesses in agriculture, biotech and even technology take a decade or more. Even though permanent crops are more challenging they can be very profitable and scalable if done using innovative business models.

The key to large scale adoption of a ‘new’ tree crop isn’t just good yields but can also come from developing valuable uses for the crop.  For example, a Bloomberg article this morning highlighted the recent interest in the cacay tree that is found in Andes Kahai-Nut-OilMountains in Venezuela, Ecuador, Peru and Colombia. This tree probably pre-dates humans and has been in use by people in the Amazon for centuries to treat skin irritations and burns, to make soaps and to feed livestock. A few years ago, a company called Kahai SAS showed that the oil from the tree has anti-aging properties and now folks are selling facial creams for $200 an ounce in beauty shops. Are there large scale plantations of cacay trees? None! I am sure it will take many years to hone in on consistent, high-yielding cultivars of the cacay tree but the highly valuable oil will make broader adoption of cacay plantations economically viable.  And to sweeten the deal, there are also a number of sustainability benefits for planting trees: CO2 capture, soil enhancement and curtailing deforestation (apparently cacay makes great firewood).  Kahai has already built a nursery and a processing plant to scale this crop.

As we discussed in previous posts, TerViva is commercializing a leguminous tree crop called pongamia that is native to India. Our vision is to create the world’s most scalable, cost-effective and environmentally friendly source of oil and protein. That grand vision is married to an innovative business model where we work with growers to convert their underused and distressed agriculture land into productive acreage by planting our proprietary pongamia cultivars. We offer more than just large and consistent yields per acre; we are also developing high valued uses of the oilseeds like anti-microbials, bio-pesticides and animal protein.  Permanent crops that can produce high valued, non-commoditized products make the bet for growers (and investors) more than just about yield.

Our bottom line is that if growers are convinced that a crop can be profitable (due to high yields and/or valuable products), they will grow it. Just look at the table below of 4 more established permanent crops and how many acres are planted every year.

Keep your eye on this space…

Sudhir is the CFO of TerViva, Inc

Cool (coffee) beans

juan valdezMy wife and I spent some time in Colombia recently and the highlight of the trip (there were many) was visiting a coffee plantation in Salento, a town 300km east of Bogota. I grew up seeing the Juan Valdez commercials on TV but never appreciated the rich history of coffee or the differences in varieties and growing regions.

First discovered around the 11th century in Ethiopia, coffee is considered native to the tropics. Legend has it that goats in Ethiopia were seen mounting each other after eating the fruits of the coffee tree. Humans were intrigued and coffee spread quickly throughout the world! Now we drink over 500 billion cups of coffee every year.

While there are hundreds of varieties of coffee, the most popular species are arabica and robusta. Most people prefer arabica for its taste and medium/high acidity and body. However, arabica generally has lower yields and less caffeine than robusta, so robusta has gained in popularity (at least with producers). Robusta coffee is easier to grow, can be grown at lower altitudes and is supposedly less vulnerable to pests and weather conditions. Supermarket and instant coffee is typically robusta while Starbucks and higher end coffee is arabica.

coffee treeSome interesting coffee facts:
  • Coffee is harvested in the rain because seeds ripen during the rainy season.
  • Coffee comes with sugar inside the beans. You have to ferment the sugar away before roasting. Otherwise, the sugar will make the coffee more bitter as it cooks the coffee too quickly.
  • 9 months from flower to cherries. Once picked, no coffee cherries will grow on that branch. 
  • Coffee beans with the parchment layer are planted. Do-You-Make-This-Mistake-When-Brewing-Coffee-ftrOnce you remove the parchment skin, seeds will not germinateinto trees
  • Typically, two beans of same size are found in each red cherry. Sometimes, one seed will be much larger. These larger seeds are ‘pea berries’ which are very expensive.
  • Skin of coffee beans are used as fertilizer.

Brazil is the biggest coffee producing country in the world, growing both arabica and robusta. Vietnam and Indonesia are number two and three, producing almost exclusively robusta. That brings us to Colombia, which, until recently, was number three but has fallen to fourth place (more on this later).

Colombian farmers produce 100% arabica coffee, considered some of the best in the world. Colombian coffee is cultivated along the three different mountain ranges of the Andes as well as in the Sierra Nevada of Santa Martaas. Colombian growers are small producers; the national average is 1.8 hectares per farm and only 5% of producers hold more than 5 hectares in coffee. There are about 500,000 active coffee producers in Colombia.

Colombia has a number of competitive advantages that make growing coffee profitable.

  1. Soil: Has rich volcanic soil with low ph levels.
  2. Rain: Extremely important in coffee cultivation. Colombia has two significant rainy seasons every year in the center of the country: April to May, and October to November. Colombia benefits from the Atlantic and Pacific oceans, the Amazon and the inter-Andean valleys.
  3. Geography: High elevations above 3,000 feet going up to 6,000 feet provide ideal growing conditions for the coffee tree. Cooler mountain temperatures provide a slower growth cycle, which prolongs bean development, creates more complex sugars and better flavor.
  4. Labor and supporting infrastructure: It is important to pick the seeds at the right time to get the best taste; hand picking is ideal. Colombia has developed an ecosystem that develops and protects the farmer. The Colombian Coffee Growers Federation (FNC) provides farmers a minimum price, technical assistance, scientific research and even health care. It was FNC who created the Juan Valdez character in 1959 to market Colombian coffee. There is a terrific post on Knowledge @ Wharton that discusses more the FNC in more depth. As the folks at Wharton point out, the FNC has done much to push R&D in coffee through a 66 person research center that focuses on quality optimization, environmental protection and agricultural disease control.

CMYK básicoDespite these advantages, an interesting fight has been quietly brewing amongst Colombian growers because output has been falling over the years due to heavy rains, coffee rust disease and a stronger Colombian Peso. Large coffee growers favor introducing robusta because of higher yields and lower production costs (more money). Smaller producers are loathe to introduce a lesser quality coffee bean and want to stick with Arabica. At the same time, they struggle to make good margins because of the many middlemen in the system.

One of the problems seems to be that large buyers like Nestle prefer to work with large producers due to simplicity and consistency of product (no variance batch to batch). This means that large producers are usually growing one variety to keep taste consistent over time.  This type of monoculture planting has its own issues, but importantly the small coffee farmers who grow diverse varieties don’t get the benefit because coffee is graded on size only, not taste or other factors. A big debate is happening now in Colombia. Will money win?

From a pricing perspective, there is no distinction between coffee varietes. High quality arabica beans net the same price as lower quality ones. What if this wasn’t the case, and farmers could get a higher price for better varieties? This is the question that small farmers like Don Eduardo of The Plantation House in Salento is asking. His novel solution is to sell directly to buyers by allowing people to purchase specific rows of coffee trees, which are then picked and sent directly to their home cutting out the middle men and garnering a higher price for better arabica varieties. Time will tell if this model can work, but I hope this spirit of innovation is fostered so Colombia remains a high quality place to grow coffee. I know my mornings will appreciate it.

By: Sudhir Rani
CFO of TerViva, Inc.

Is precision agriculture the new low hanging fruit?

In the world of agriculture, ‘precision ag’ is hot. Precision agriculture is a farm and site specific management system to optimize inputs and outputs. Essentially, farmers use GPS, sensors and big data analytics to better understand and adjust for spatial variability in their fields such as yields, moisture levels, soil variability, etc. Rather than treating the farm as a monolith, the idea is to break it down into smaller sites and customize agronomy to each site accordingly.

WSJ graph on precision agMonsanto recently announced big initiatives in the space, including the launch of FieldScripts (software), the $250M purchase of Precision Planting (hardware), the $1BN purchase of Climate Corporation (data analysis) and the acquisition of the soil analysis business line of Solum, Inc.  The company says that precision planting, based on detailed analysis of soil and land conditions, can improve corn yields by 10 bushels per acre. Monsanto isn’t alone in embracing precision ag. John Deere, Syngenta, CNH, Dupont and others have also been pushing the technology. Not surprisingly, the venture guys are following suit with a number of investments in the space.

If you want to understand why, just read last week’s Wall Street Journal article that estimates that 41 million acres of corn seeds were planted in 1 week last year (twice the max rate in 2008). GPS software attached to tractors allows farmers to plant more precisely and to plant at night. Planting faster is important because farmers can identify ideal planting windows and optimize for weather.

precision ag chart

Source: http://lb.landw.uni-halle.de/publikationen/pf/pf_cc98.htm

Over the past 100 years, the agriculture industry has pursued a variety of means to increase yields. These “low-hanging fruit” innovations include new irrigation techniques, mechanically powered tractors, biotech crops, fertilizers and higher density plantings. Precision agriculture is next. Just in time too. According to the US EPA, “some 3,000 acres of productive farmland are lost to development each day in this country.” That’s more than 1 million acres lost every year, an area the size of Delaware.

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Precision ag also holds another promise: countering climate change. For example, it has the potential to curb overuse in fertilizers. A report released last month by California Environmental Associates argues that countries like China use too much fertilizer. Using precision ag technologies, farmers in China could reduce fertilizer use by 30%-60% without harming yields.

Data management tools give farmers more choices to measurably improve nitrogen use efficiency and greenhouse gas emissions. Just last week, Smithfield Foods and Environmental Defense Fund teamed up to help farmers optimize fertilizer application. EDF estimates that this collaboration will reduce excess nitrogen fertilizer on more than 450,000 acres and reduce GHG emissions from agriculture by more than 60,000 tons. Not bad.

Despite these possibilities, precision agriculture needs to overcome a number of challenges in order to reach its full potential. At a recent Agri-Tech Summit hosted by Sidley Austin LLP, Dr. Ted Crosbie (Monsanto’s Integrated Farming Systems Lead) described some of these challenges. For example, on any given field, soil can materially vary every 150 feet! That’s a lot of data that needs to be collected and analyzed. In addition, there are concerns about the privacy of farmer data; namely who owns it and who can use it.

Still, like the innovation that came before it, precision agriculture holds enormous possibilities for how we grow food and further optimize farming inputs and outputs. Hopefully investment in this space will bring the costs down so farmers around the world can reap the benefits.

By: Sudhir Rani
CFO of TerViva, Inc.

[Don’t] Blame it on the Rain

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Everyone is talking about how it hasn’t rained this year in California. And it hasn’t. In fact, over the past decade, California has seen three super-dry years (2003, 2007, 2013) and some say that this year could be the worst drought in 500 years.

In California, water shortages cost nearly $1BN annually in crop losses (source: EPA). This is because California is an agricultural powerhouse with one-third of the Central Valley’s jobs related to farming. The state produces more than half of the nation’s fruits and vegetables. And let’s not forget that droughts have led to major fires, inflicting extreme damage. I’m going to focus on CA in this post, but it’s worth mentioning that, according to National Oceanic and Atmospheric Administration, large swaths of America are also facing drought.

ImageStill, far too much emphasis is being placed on rain and far too little on water consumption. Clearly there is a supply (rain) issue in California, but what we should really be focused on is how to better manage demand.

While California is an agricultural hub, the state is naturally arid. 75% of the region’s freshwater (surface water and groundwater) is used to grow 29+ million acres of crops. Historically, surface water (from lakes, streams, rivers) was used, but as population and demand spiked, groundwater began to be tapped (underground aquifers). The problem is that California uses groundwater faster than it can replenish it. As a result, individual wells located near the saltwater/freshwater boundary can become saline, further reducing supply and creating a vicious cycle that leads to more and more salinization of fresh water.

There is a great deal of waste in agriculture, generated from outdated techniques and infrastructure and costing millions of acre feet of water annually. The majority of farms still employ irrigation methods like spray watering, which cause water to run-off. New methods like drip irrigation and terraced ground can minimize waste. Drip irrigation allows the water to seep directly into the plant roots, while a terraced system pushes any water run-off down to other crops below.

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A great way to reduce our water footprint is to plant crops that thrive in arid areas like California. I love almonds, but growing them in the San Joanquin Valley requires a huge amount of irrigated water. The region only gets ~6-10 inches of rain and almonds require 45+ inches of supplemental irrigation pulled from the ground. The same crop in Butte County requires only 19 inches of irrigation because it rains more (source: http://buttegroundwater.org/)

Being more selective of where we grow water-thirsty crops can have a meaningful impact. Of course, private farms and growers will continue to plant such crops if the economics make sense, even if it means more water usage. That’s why the best way forward is to provide alternative fruit trees or oilseed crops, like pongamia pinnata, that requires less water and are also highly profitable. At TerViva, we see the potential to broadly deploy pongamia, which is adaptable over a wide variety of soils, including saline soils, and tolerates periods of both drought and flooding.  

ImageAnother potential area of opportunity is brackish (saline) water. Many river systems suffer from salt buildup caused by surface runoff, irrigation and evaporation. As the map to the left shows, much of the United States contains extensive brackish ground water resources. In addition, saline water is a common by-product in oil and gas production. Large scale desalination holds promise but needs further investment to work out issues like high cost and waste disposal. Research into crops that can thrive in saline conditions can further expand the arable land base. While we at TerViva don’t genetically modify our crops, there is a legitimate discussion to be had about whether genetic engineering should be used to design drought-resistant crops.

Finally, climate change (the artist formerly known as global warming) is thought to affect the hydrologic cycle. Several global warming studies predict that rising temperatures will reduce the river’s flow by 35% over next few decades. Climate change is also reducing mountain snow pack, a critical source of natural water. We ignore these changes at our own peril.

ImageWater is the lifeblood of food security; yet water shortages are everywhere, from Hawaii to Iran to Qatar to Australia. With world population set to increase 40-50% over the next 50 years, the demand for water will only rise. Short of reversing some of the detrimental effects of climate change, we can’t control rain. So let’s focus on the thing that we can control: how we use the water that we do have.  

Sudhir is the CFO of TerViva, Inc.

Peeling Back the Indian Onion Crisis

If you’ve ever eaten Indian food, you know that onions are an essential part of most dishes, which is why the skyrocketing price of onions in India—an increase of more than 300% in the past 12 months—is making front page news.

For consumers, prices have hit 85 rupees per kilogram and 100 rupees ($1.50-$1.75 per kg) in some retail markets. Local newspapers speculate about the growing number of onion heists (yes, onion heists) and about the potential political fallout in an election year. Everyone is angling to take short term advantage of the situation.

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To attract Indian customers, Groupon is offering deals selling onions at 9 rupees per kilogram and they are selling out in record time. Even the major political parties are getting in on the game, buying onions and selling them at a huge discount to attract voters in the upcoming elections.

By the numbers, India is the second largest producer of onions globally, (China is #1) and the country is usually a net exporter. India produces all three varieties of onion: red, yellow and white. Onions are available in both the winter and rainy seasons and are grown on more than 2.5 million acres (1M HA).

So what has happened in the past few years? Price increases are being driven primarily by shortages, trader manipulation and inefficient infrastructure. A Competitive Commission of India report points to significant market structure issues: “…the minimum role of [onion] farmers in price discovery due to low size of average farm holdings (1.15 to 1.3 acres)” is combined with an oligopoly in the commission driven trading and wholesaler markets. It doesn’t help that the demand for onions is inelastic (e.g. it is a necessary staple with no real substitute).

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The Commission makes some good suggestions, but its core recommendation is to encourage “entry of new commission agents and traders… to help in efficient price formation.” In my view, this simply adds more middlemen, which might create competition in the short-term amongst traders but does nothing to empower the small farmer. It is exactly this lack of power that has led to the market structure issues described above, and these can only be circumvented by reducing transaction costs in the system and allowing farmers to engage directly with grocery suppliers. While market price discovery is important to farmers, giving them collective bargaining power will be much more effective.

Combine these changes with higher productivity and you have a shot at creating a long-term solution. Consider this: India is the second largest producer of onions but it has one of the lowest yields per HA, at 14.21 tons according to a 2012 FAO report. The Republic of Korea has the highest onion productivity of 63.84 tons/HA in the world followed, by the United States (55.26 tons/HA). China produces 50% higher yields. According to the government’s Competitive Commission report, “reasons for low productivity in India include poor irrigation facilities, use of local variety seeds, small land holding and poor economic background of farmers, lack of use of improved method of cultivation, less use of chemical fertilizers and pesticide, higher post-harvest losses and absence of good scientific storage facilities.” Dear government:  addressing some of these challenges might be a better use of money than buying votes.

This past Sunday, many Indians celebrated the festival of Diwali, which marks the end of the harvest season in most of India. Families give thanks for the bounty of the year gone by and pray for a good harvest next year. This year, they are no doubt praying for lower onion prices too.

diwali

Sudhir Rani is the CFO of TerViva, Inc.