A few days ago, I wrote about the possible “Dis-economy of Scale”, when we start to add up the hidden costs in industrial agriculture.

I’ve just found an interesting article from Fortune about Jason Clay, described as a “thinking environmentalist”.

He calls for intensification of agriculture, and “economies of scale”. However, the critical departure from usual proponents of industrial farming, his view is to make agriculture “both more productive and sustainable” (i.e. “generating more output from fewer inputs”).

I wonder if that means using truly fewer inputs through the entire chain. That is really the key, since the current intensive and industrial model of farming actually seems to use more input (fuel and production) calories to produce fewer output (food) calories. Unless that changes, the model of industrial agriculture is unsustainable over time.

(The earlier post is here: The Dis-Economy of Scale)

And while we are on the subject of sustainability, it’s always good to remember that human beings haven’t suddenly become rapacious in the industrial and post-industrial age. We’ve displayed similar behaviour of overdoing things over centuries – a good book to pick up is Jared M. Diamond’s “Collapse: How Societies Choose to Fail or Succeed”. (Here’s his profile on Wikipedia, and book on Amazon).

We touched upon food price inflation last month and – no surprises – it is still hogging the headlines. It is, after all, an emotive topic. We are terribly concerned not just as food and grocery professionals, but also as consumers and general public. After all, food and grocery are typically half of our monthly spend, give or take a few percentage points.

Inflation often brings with it swift (sometimes knee-jerkingly quick) reactions – price controls, export controls, subsidies to farmers and food producers, and various others. Some of these measures work but only in the short term, while others may have no immediate visible impact on the market at all but may be truly insidious because of that.

However, a significant set of questions has not really been touched yet: how the food supply chain is structured, how it is driving consumption, what impact that might have on food prices and several broader cost implications.

Thousands of years ago, when hunter-gatherer human beings stumbled upon agriculture, it was a breakthrough similar to the discovery of controlled fire. Hunter-gatherers were dependent on the natural availability of food, while agriculture created the opportunity to have some control over food supplies and reduce the natural feast-famine cycle. Thereafter, farming, processing and storage techniques kept evolving incrementally to ensure that more food could be produced for each unit of land and effort, and stored for longer – all moving towards ensuring “food security”. This led to the age of empire-building, where monarchs grew their wealth (essentially food territory) with the help of military-imperial complexes, and the greater wealth in turn supported the military-imperial complex.

This remained the trend for a few thousand years, until the age of industrialisation and the age of petroleum. Through the industrialisation and the world wars, the military-imperial complex gave way to a military-industrial complex, which essentially became the military-industrial-petroleum-agricultural complex. Suddenly, there were not just machines to plant, reap, thresh, sort, clean and process, but also petroleum-based substances to dramatically increase output and to keep the produce fresher for longer.

As US farms and then European farms industrialised, the parameters that began to be applied were the same as in any factory – how to produce more while spending less – and every year the target was to grow more for less. Underlying this was the principle of “efficiency from larger scale”. The same philosophy played out further down in the supply chain – from processing to extend the shelf-life of the product as it was (such as chilling, cleaning, sorting) to processing and packing in order to change the nature of the product itself and gain additional value (such as tomatoes to paste or potatoes to chips).

Standardisation became a vital link in industrialisation – if you can standardise produce, you can cut down human handling – while you may lose product variety (including flavour and colour) you gain in terms of driving down the cost of production. By reducing unpredictability you can also concentrate on building the scale of business, because it becomes more repetitive.

The interesting side-effect of this is that, gradually, we are converting ourselves (and people in many industrialised economies already have) into petroleum-burning machines rather than those running on solar energy, because increasingly the agricultural supply chain is dependent on non-renewable petroleum and its products, rather than by the natural energy of the sun being converted into food by the plants.

And the important thing to keep in mind is that, in this switch-over, the energy efficiency is actually going down rather than up – we are using more calories of fuel source to produce each calorie of food energy.

The issue is more acute now than ever before, because now the growth markets of choice for industrial agriculture companies are China and India. If these two countries move through the exactly same path as have the western economies in terms of agriculture and food processing, given the population base itself, clearly the impact will be 5-7 times (or more) on the demand for petroleum as well as the fall-out on the ecosystem.

You may ask, why should retailers worry about this?

Firstly, pure cost considerations – clearly, the costs of petroleum are not coming down, and explosive demand through industrialised agriculture will only serve to push them up. How far can you push the food bill every month, before people start buying less? What impact would that have on large retail supply chains and farmers whose processes are increasingly built around products of industrial agriculture?

Secondly, what consumers are already beginning to express in western markets will possibly happen in India in the next few years as well: concern about where and how the product has been produced, what has been the fall-out on the environment and on the overall health of people involved with that supply chain as well as the health of consumers.

Carbon footprint, food miles & locavores (people who only consume food that is produced within 100 miles of where they live) are terms that retailers are increasingly hearing.

And an alternative set of questions is also being raised. Is it ok to burn non-sustainable fossil fuel if you get “carbon credits” by planting trees somewhere else – have all the carbon costs been accounted for from the start to the finish of the production process? Is it better to reduce the food miles and have food produced locally in a high-cost economy’s industrial agricultural model, or to have naturally grown foods from a more primitive farm in Africa or Asia where the environmental impact is only the “carbon debit” of the air-freight. And, even if the produce is carbon-friendly, what about the nitrogen footprint (from the fixation of nitrogen into fertilisers) and the methane footprint (from large scale animal farming)?

This one page is surely not enough to present any in-depth analysis, but I hope it will serve to kick-start the process of questioning how India (and China) should take the lead in creating an alternative and more sustainable model for food security for large populations. There is a lot of research being done, and much yet to be done, to quantify the true cost of blindly pushing for scale in the food chain. Truly “progressive grocers” need to take an active role in supporting this.

“Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry.”
– Bill Drayton, CEO, chair and founder of Ashoka, a global nonprofit organization devoted to developing the profession of social entrepreneurship

One of the exciting by-products of the increased awareness and practice of corporate social responsibility has been the emergence and growth of social entrepreneurship as a serious social and ‘business’ trend in the last two decades. The potential of successfully marrying the competencies of business generating sources and markets, with solutions to social and environment issues is the main principle that underlies the concept of successful social entrepreneurship.

Today’s social entrepreneur is a dynamic, committed and driven individual who is able to identify sustainable solutions to social problems. He uses earned income strategies to pursue a social objective, and the outcome is directly connected to his commitment to resolve the social or environmental malaise he chooses to address through this enterprise. The profitability of a social entrepreneurship is driven by both financial and social returns, with the financial returns being redeployed into the enterprise to further its growth and sustain the ‘business’.

The future of permanent and lasting social change lies in the ability of these social enterprises becoming independent and self sustaining, moving away from philanthropy and becoming financially independent.

Modern day social entrepreneurship therefore, is actually about sustaining social change and growth through self-sufficiency instead of charitable contributions and government grants and subsidies.

For those who are familiar with Kutchh, and its people, there is no doubt that it is one of the most active hotbeds of entrepreneurship. A lot of the business in India’s financial capital, Mumbai, is in the hands of the ‘kutchhis’ (those from Kutchh). Many of India’s largest companies and financial heavyweights are from this region, while Surat has been a force to reckon with in the global diamond trade. Amidst all this, one of the most interesting group that I have come across are the craftspeople and artisans working with traditional methods of craft – textiles, metal, wood, leather etc.

Beyond the timeless creative wealth that traditional craft creates, a conversation with one such craftsman – a handloom weaver – highlighted to me the value of crafts as a force of entrepreneurship. While talking about the world in general, his choices in life etc., he said that the strongest reason for him to stick to his family’s handloom tradition was the fact that he was an entrepreneur. He was his own boss, not reporting to anyone else, and his fortunes not subject to the whims and fancies of some better-educated higher-up in “a company”. To him, the sense of dignity from creating his own products and running his own trade was far more important than ‘earning more in a safe job’. An important learning to keep in mind during these times of hectic corporatization of Indian business.

The other aspect that is specifically important to the fashion / lifestyle products sector is the diversity of product base and the product development edge it provides the industry. The product development, design and merchandising capability is a backbone for the lifestyle / fashion / soft goods industry in India, that keeps it in the global competitive arena despite wheezing infrastructure, rising costs and other competitive inefficiencies.

We’ve been discussing Corporate Social Responsibility (CSR) and whether its implications (and need) is fully appreciated by businesses.