January 13, 2012

A Horrible Sort of Logic

I came across this:
With the rise of capital-intensive cotton farming in Telangana [India] over the last thirty years, two strange contradictions have arisen.  First, the primary cash crop, cotton, continues to decline in value; yet, farmers continue to plant more of it.  Why do the farmers not shift to other crops?  Second, while the regional's overall growth in agricultural output has been robust–more than 4 percent per annum for many years–the incomes and consumption of most farmers have declined precipitously, and this manifests as farmers' suicides and support for the Naxals.  The question now becomes: Why do farmers go into debt so as to plant a crop (cotton) for which the price is falling? 
A brilliant young economic historian, Vamsi Vakulabharanam, has identified and explained the politics of this contradictory, seemingly nonsensical set of facts.  The answer, he writes, lies in the credit system.  The moneylenders demand that cotton be planted with their capital because cotton is inedible, so during times of crisis, producers cannot "steal," that is eat, it.  Moneylenders essentially give advances on crops, then receive the harvest.  If a farm family is dying of hunger and their crop is grain, chances are they will eat the collateral crop to stay alive, rather than give it to the moneylender.  Cotton avoids this problem.  Thus, even when food crops, like grains, command higher prices, they carry greater risks for the moneylenders.  Cotton is the moneylenders' biological insurance; they steer farmers away from food crops, even if the potential for profits is higher, because only cotton is guaranteed collateral.  Using this insight, Vakulabharanam shows that since 1980, farmers in Telangana have moved away from planting coarse grains, like jowar, barley, and millet, toward growing cotton, even as the price signal should have them doing the opposite. 
–Christian Perenti, Tropic of Chaos (New York: Nation Books, 2011), p 146.  

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