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Generational Dynamics Web Log for 22-Apr-07
As population increases in India, agriculture becomes a crisis.

Web Log - April, 2007

As population increases in India, agriculture becomes a crisis.

Deaths on mobbed railway trains become a daily occurrence, according to a story in Thursday's Wall Street Journal:

About 13 people are accidentally killed every day Mumbai (Bombay), thanks to overcrowding on the railways. <font size=-2>(Source: WSJ)</font>

About 13 people are accidentally killed every day Mumbai (Bombay), thanks to overcrowding on the railways. (Source: WSJ)

"About 13 people per weekday were killed in 2006 scrambling across the tracks, tumbling off packed trains, or, occasionally, jumping onto an oncoming train. Last year, a total of 3,404 people were killed on Mumbai's railways. By comparison, 127 people were killed on New York State's railways in the last five years."

Although India is not the most densely populated country in the world, it's still ten times as densely populated as the United States, as shown by this table that I originally derived from the CIA Fact Book (2005):

   Country         Pop/sq km
   -------------   ----------
   Russia             8.46
   World             12.36
   United States     30.15
   Mexico            53.18
   China            134.10
   Haiti            271.27
   Israel           294.49
   India            319.29
   Japan            336.69
   West Bank        381.77
   Bangladesh       961.45
   Gaza Strip      3541.30
   Singapore       6653.09
   Hong Kong       6771.22

The population of India increases about 1.6% each year (compared to 0.9% for the United States). The Indian government claims that food production has been increasing at the rate of 2.3%, which should be enough, since it means that food production is growing faster than the population.

But this government claim hardly seems credible, since India's food prices have been rising dramatically in recent years, as I wrote about recently. Prices of food are increasing around the world, but India's double-digit price increases make it almost a world leader. Furthermore, India used to be a grain exporter, but has been a net grain importer for the last two years.

In fact, agriculture in India seems to be increasingly in a crisis, especially since the early 1990s when the results of the "Green Revolution" began to peter out. This crisis takes many forms, the saddest of which is the dramatic increase in farmer suicides.

Agriculture is crucial to India for the obvious reason -- that it produces the food that people eat. But, there's another reason: Farming is the the source of livelihood for 115 million families in India, and 70 percent of the country’s population.

At the end of World War II, world leaders were extremely morose and pessimistic about the possibilities for peace. The world had just fought two extremely bloody world wars, and it appeared that a third world war, to be fought by the West against Communism, was on the horizon. Leaders were frenzied and desperate, as they looked for ways to solve the problems that had given rise to the two world wars.

Worldwide hunger was identified as a major problem, and it was felt that if a way could be found to guarantee that every family in the world had sufficient food, then a world war could be avoided. So countries of the world, led by the Rockefeller Foundation, launched a "green revolution" which brought modern agricultural techniques and technology to countries around the world. These technologies included new hybrid and genetically modified seed varieties and the use of pesticides.

In India, the results were dramatic. Throughout the 1960s and 1970s, food production increased greatly. For the first time, India was able to feed itself and was actually exporting food to other countries.

On this web site, I often focus on certain theme: Following a crisis war (like WW II), the survivors of the war set up austere rules and procedures in order to guarantee that their children and grandchildren will never have to go through anything so horrible. But as the decades go by, and the generations of war survivors are replaced by young generations of kids with no patience for austerity, the rules begin to unravel and procedures become abused. This is certainly true of investors' use of credit today, as I've written many times.

Well, it's also true of the Green Revolution and farmers in India. Here are some of the things that have happened:

If a little pesticide and fertilizer is good, then more pesticides and fertilizers are even better, and huge amounts are best of all. This is how the "Law of Diminishing Returns" kicks in, as increasing amounts of pesticides and fertilizers produce no additional gains, and may even backfire by damaging the land and the environment.

If high-tech grain seeds have improved yields, then even higher-tech grain seeds will improve yields even more. However, this isn't necessarily the case, as newer technologies are experimental, and don't always work as promised or hoped. Furthermore, new seeds are subject to fraud, because unscrupulous middlemen can mix old and new seeds together and sell them all as new.

If high-tech grain seeds are good, then high-tech cotton seeds are even better, because farmers can make money by exporting cotton. This shift from grain to cotton is one of the reasons contributing to India's high food prices.

If a little credit is good, then more credit is even better, especially since money can be made from higher yields. Just as Americans have created a credit crisis through mortgage loans that can't be repaid, India's farmers have created a credit crisis through agricultural loans that can't be repaid. Abuse of credit is common in unraveling periods, as we've shown with today's investors pursuing a scenario of total mania, similar to the mania that investors showed just prior to the the crash of the Tulipomania bubble and the the Panic of 1857. Incidentally, like most of the world, India is also experiencing a real estate bubble.

As increasingly desperate farmers turn to cotton in the hope of making enough money to repay their debts, they discover that cotton seeds are more expensive than grain seeds, cotton crops require more pesticides and fertilizers than grain crops, and cotton crops require more water than grain crops. Thus, farmers go even farther into debt to pay all these expenses, in the hope of repaying the debts with a bumper crop. If there's a crop failure because of not enough raise, or because of an infestation of insects, then the farmer cannot repay his debt.

Because of population growth and urban sprawl, the amount of available farmland is decreasing. (Urban sprawl is also adding to the problems of overcrowding on the commuter railroads, as we described previously.)

Because of population growth, and because farmers are requiring more water for irrigation of cotton and other high-tech crops, India's water table has been falling.
In his the annual budget speech by India’s Minister of Finance Palaniappan Chidambaram, given on February 28, it was described this way:

"Depletion of ground water has assumed grave proportions. The Central Ground Water Board has identified 1,065 assessment blocks in the country as 'over-exploited' or 'critical'. Over 80 per cent of these blocks are in 100 districts in seven States. The strategy for ground water recharge is to divert rain water into 'dug wells'. Each structure will cost about Rs.4,000. The requirement is seven million structures, including about two million structures on land belonging to small and marginal farmers. I propose to provide 100 per cent subsidy to small and marginal farmers and 50 per cent subsidy to other farmers. Ministry of Water Resources will finalise the scheme shortly. In anticipation, I intend to transfer a sum of Rs.1,800 crore to NABARD. The amount will be held in escrow and will be disbursed through the lead bank of the district concerned to the beneficiaries."

The depletion of ground water is feeding into all the other problems. Less ground water means that farmers have to pay more to irrigate their farms, which means more credit and more crop failures. And the desperate use of more water for irrigation causes the ground water to fall even further.

Desperate farmers, in debt and often plagued by poor or failed crops, are are committing suicide in increasing numbers. This is not a widely discussed phenomenon, for obvious reasons, and usually only secondary news sources report on it, but there was a lengthy video segment on PBS Frontline in 2005 that you can view.

From the point of view of Generational Dynamics, what's significant is how similar India's unraveling is to America's unraveling. The details are different, of course, but the desperate use of credit in the hope of enough money to get out of debt is the common factor in all of these unraveling situations, including India today, America today, the 1929 crash, the Tulipomania bubble in the 1630s, the South Sea bubble of the 1710s-20s, the bankruptcy of the French monarchy in the 1780s, and the the Panic of 1857.

When a worldwide financial crisis occurs, everyone becomes extremely risk-averse, and turns against credit. As younger generations replace the risk-averse generations that lived through the last crisis, the population as a whole becomes more risk-seeking and more abusive of credit and more willing to engage in desperate and often criminal schemes to make money.

From the point of view of Generational Dynamics, we're now overdue for the next major worldwide financial crisis. It might be triggered next week, next month, or next year, but it's coming with 100% certainty, and probably sooner rather than later. (22-Apr-07) Permanent Link
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Generational Dynamics Web Log for 22-Apr-07 As population increases in India, agriculture becomes a crisis.

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Generational Dynamics Web Log for 22-Apr-07
As population increases in India, agriculture becomes a crisis.