Poverty lines and poor minds

A measure to assess progress in reduction of poverty is being used to deprive the poor of much-needed succour

A controversy has been triggered by the recent affidavit of the Planning Commission (PC) in the Supreme Court on the poverty line used to estimate the number of poor persons in the country. The affidavit, which only reproduces the S.D. Tendulkar committee report, albeit selectively and sometimes out of context, has become a rallying point for criticism against poverty lines recommended in the report. Unfortunately, emotionally charged critics have missed the larger issue that was raised by the court. But even those who understood the larger point have not been careful in their interpretation of the Tendulkar committee report.


Photo: Ramesh Pathania/Mint

Photo: Ramesh Pathania/Mint


The Planning Commission is responsible for boxing itself into a corner. It filed an affidavit that is not only insensitive but does not even directly respond to the issues raised by the apex court. The court wanted to know whether the commission applies “caps” (limits) on the number of below poverty line (BPL) households and the rationale for any such caps. The Commission, instead, responded on how poverty ratios are estimated in the country. By doing so it tried to justify its arbitrary and unjust use of caps in allocation of resources to state governments for targeted social assistance schemes. The Commission has been putting a cap on the number of BPL households in each state, based on poverty estimates; this is not an appropriate use of such estimates. Neither the Tendulkar committee nor the previous expert group on poverty estimation headed by D.T. Lakdawala recommended using poverty lines in this manner. In fact, most members of expert groups have voiced reservations against using the poverty estimates to limit the number of BPL households.


The question then is, if they are not used for targeting social assistance, what is the purpose of these poverty lines? In the context of estimation of poverty, their primary purpose is not to determine how many persons should be provided social benefits but to arrive at a comparable benchmark to measure progress over time. This was the reason why poverty estimates were generated and it is not the first time that a committee has come out with the notion of a poverty line. This has been in existence since the 1960s with successive committees using different yardsticks to suggest a poverty line.

The Tendulkar committee was asked to arrive at a poverty line that corrected the limitations of existing poverty lines and make it comparable over time. To do this, the committee accepted the existing urban poverty line based on the Lakdawala committee in 2004-05 to anchor a new set of poverty lines across states. It only used new spatial price indices to update poverty lines across states and sectors (rural/urban). By this exercise, the urban all-India poverty line remained the same but the all-India rural poverty line was raised by 30%. And if these are starvation lines even after raising the poverty line by 30%, then surely, the old poverty lines were suicidal lines.

To say if poverty lines are low or high, however, one needs a normative reference line. Frankly, there is no such reference norm available that is acceptable to everybody. This was accepted by the Tendulkar committee when it repeatedly said that the lines are arbitrary and are only meant to serve as a yardstick.

Having said this, let’s also compare it with other poverty lines. The weighted average of Tendulkar committee rural and urban poverty lines for 2004-05 turns out to be Rs. 16.25. This is only marginally lower than the Rs. 20 used by the Arjun Sengupta committee that claimed that 77% of Indians live under below this poverty line. But can one really say that Rs. 16.25 is low but Rs. 20 is adequate as a poverty line? The World Bank uses a poverty line of $1.25 per day in Purchasing Power Parity (PPP) terms. The current poverty line, as claimed by the Planning commission in its affidavit, is Rs. 26 for rural areas andRs. 32 for urban areas. The weighted average turns out to be Rs. 28 in 2009-10 prices. Using the current PPP exchange rate of Rs. 19 to a dollar, the Indian poverty line is higher than the World Bank poverty lines.

What about other countries and their poverty lines? Most developed countries don’t use an absolute poverty line but use a relative poverty line pegged at 60% of median income/expenditure. The current Indian poverty line mentioned by the Planning Commission is 97% of the median in rural areas and 69% of the median expenditure in urban areas. That is, the Indian poverty line is considerably higher than poverty lines used either in international comparisons or comparable poverty lines in other countries.

But does it then justify using these poverty lines to restrict benefits to the BPL households, particularly for basic rights such as food and health? The answer is an emphatic no. This column has consistently argued for universal provisioning of these basic rights without recourse to any targeting.

The debate should not focus on what the poverty line is but on who is eligible for social benefits. On this issue there is wide ranging acceptance that this must be completely delinked from estimates of poverty based on expenditure norms. Poverty lines are benchmarks for policymakers and economists to understand how the country is progressing and cannot be used for inclusion and exclusion from government programmes.

Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humanities, New Delhi

Comments are welcome at theirview@livemint.com

Food, Hunger and Ethics

Author: Srijit Mishra

Management of hunger has to look into issues of availability, accessibility and adequacy. Posing it from an ethical perspective the paper argues out in favour of right to food. But, for this to happen, the state has to come up with an appropriate and effective bill on food and nutrition security, address the issue of inadequate provisioning of storage space by state agencies leading to rotting of food grains – a criminal waste when people are dying of hunger, and rely on a bottom-up approach involving the community that complements the top-down administrative structure to identify poor and reduce both exclusion and inclusion errors in targeting.

Key words: Bottom-up, cash transfers, exclusion and inclusion errors, foodgrains, Mahatma Gandhi, nutrition adequacy, poverty, Rawls, right to food, targeting, top-down, unique identification.

JEL Code(s):D63, D78. I38

Weblink: http://www.igidr.ac.in/pdf/publication/WP-2011-023.pdf 

Food hunger and ethics download from Agrarian crisis





How little can a person live on?

UTSA PATNAIK, The Hindu, Opinion – Lead, September 30, 2011

The Planning Commission’s laughable estimates of the ‘poverty line’ follow from a mistake in method that it made 30 years ago and has clung to ever since.

The affidavit that the Planning Commission recently submitted before the Supreme Court stating that a person is to be considered ‘poor’ only if his or her monthly spending is below Rs.781 (Rs.26 a day) in the rural areas and Rs.965 (Rs.32 a day) in the urban areas, has exposed how unrealistic ‘poverty lines’ are. Some television channels assumed that the figures covered food costs alone and showed how they could not meet minimal nutrition needs at today’s prices. These paltry sums, however, are supposed to cover not only food but all non-food essentials, including clothing and footwear, cooking fuel, lighting, transport, education, medical costs and house rent. The total is divided into Rs.18 and Rs.14 for food and non-food items in towns, and into Rs.16 and Rs.10 in the rural areas, and includes the value of food that farmers produce and consume themselves.

Even a child knows that working health cannot be maintained, nor necessities obtained, by spending so little. Amazingly, however, 450 million Indians subsist below these levels. One cannot say that they ‘live’ in any true sense: their energy and protein intake is far below normal, they are underweight, stunted, subject to a high sickness load but without the means to obtain adequate food or medical treatment. The majority belong to the Scheduled Castes and the Scheduled Tribes. The official poverty lines do not measure poverty any more; they measure destitution.

The outcry against calling these destitution lines ‘poverty lines,’ is justified; for true poverty lines are much higher than these, and show 75 per cent of all persons in India to be poor. Per head energy and protein intake has been falling for the last two decades as the majority of the population is unable to afford enough food. With 60 million tonnes of public food stocks, far in excess of the buffer norms, remaining piled up by mid-2011, the sensible policy is to do away with targeting and revert to a universal distribution system, combining it with an urban employment guarantee scheme. Unfortunately, the neo-liberal policymakers today ask the wrong question: “How can we reduce the food subsidy?” and not the right question: “How can we lift the masses of India from the current level of the lowest food consumption in the world, even lower than the least developed countries?”

Members of the Planning Commission and the Tendulkar Committee are experts, so how have such laughable figures of minimum cost of living emerged from their statistical labours? The fact is that over 30 years ago the Planning Commission made a mistake of method, and the present Commission stubbornly clings to that mistake despite the fact having been repeatedly pointed out by many people including this author (The Republic of Hunger, 2004). The mistake was to change the definition of the poverty line and delink it from nutrition standards.

The original definition of ‘poverty line’ was a sensible one, based on an expert committee recommendation in 1979: using National Sample Survey (NSS) data on consumption spending, that in particular observed that the level of total monthly spending per person is to be called the ‘poverty line.’ The food spending part of the figure allowed a person to obtain 2,400 kilocalories of energy a day in the rural areas and 2,100 kilocalories a day in the urban areas. Later the rural figure was scaled down to 2,200 calories. The Commission accepted the expert committee’s nutrition-based definition but applied it only once, to the 1973-74 data, to obtain the correct monthly rural and urban poverty lines of Rs.49 or Rs.56 at which 2,200 or 2,100 calories were accessible, and found that 56 per cent of the rural population and 49 per cent of the urban population spent less than this, and so were poor.

Then the Commission, for reasons unknown, changed the definition in practice, and never again directly looked at the total monthly spending which permitted nutrition ‘norms’ to be maintained. This despite the fact that every five years the required information on this for every spending level was available — the physical quantities of food intake, and the corresponding daily average energy, protein and fat. The definition that the Commission actually adopted was that the 1973-74 poverty lines were to be adjusted for inflation using a price-index, regardless of whether the lines so obtained still allowed nutritional standards to be met. Price index adjustment is being followed for the last 30 years, producing the present absurdity of Rs.26 or Rs.32 as the rural or urban daily poverty lines.

Why these economists should have such faith in the ability of price indices to capture the rise in the cost of living is not clear. Price indices are needed for short period adjustment and are used for dearness allowance calculation, but they do not capture the actual rise in the cost of living over longer periods of time. In 1973, the starting gross monthly salary of an Associate Professor in a Central University was about Rs.1,000. It was adequate, since ration cards could be used; on this income one could even use a car. Applying the Consumer Price Index for Urban Non-Manual Employees, which has risen 17-fold by 2011, the equivalent monthly salary for an Associate Professor joining now should be Rs.17,000, by the Planning Commission’s logic. But this would not support the most modest middle-class lifestyle of four decades earlier. A newly appointed Associate Professor’s actual salary today is three times that figure, thanks to successive Pay Commission recommendations.

Yet, denying all experience and evidence, these economists assert that mere price-index adjustment is enough to obtain current poverty lines from those of 40 years ago. No wonder they have created a mess with their unrealistic estimates. An expressive, bucolic Bengali phrase is lyaje-gobare, or a ‘cow’s tail smeared with dung’ — this is a good description for official estimates. As time passed, the actual spending at which minimal nutrition could be accessed, the original definition accepted by the Commission, cumulatively diverged from the Commission’s calculations based on its changed definition. By 2005, a rural person needed Rs.19 a day to access 2,200 calories, while at the official figure of Rs.12, she could obtain only 1,800 calories. (The Tendulkar Committee merely tinkered with the problem, raising the figure of Rs.12 to Rs.13.) An urban consumer needed Rs.33 a day in 2005 to meet 2,100 calories, whereas the official figure of Rs.18 permitted less than 1,800 calories. Today at the current official poverty lines of Rs.26 and Rs.32 for the rural and urban areas respectively, the minimal cost of living is even more seriously understated: the consumer can access even less food. State poverty lines vary, and in a number of States the energy intake the official poverty line can command is below 1,500 calories a day.

The claim that poverty has declined is not true because the method of indexation that is actually used has not kept constant the nutritional standard against which poverty is measured, but has lowered it continuously. China’s official poverty lines are equally absurd, for the same reason. A nutrition norm was applied in 1984 to obtain a 200-yuan annual rural poverty line, which thereafter was merely indexed, giving 1,067 yuan by 2007, or below three yuan a day. This is supposed to cover all living costs but would not have bought even a kilogram of the cheapest variety of rice, selling then at four yuan, according to information provided by China’s residents. The actual extent of poverty in China is far higher than is claimed.

One wonders if we will ever see honest estimates from official sources anywhere, since, by now, hundreds of economists are closely imprecated within a vast global poverty-estimating structure with the World Bank at its apex, producing increasingly misleading estimates every year in glossy reports. The World Bank’s global poverty line is an equally large underestimate, for it is derived using “purchasing power parity conversion” from local currencies to the U.S. dollar, of these very same absurdly low local-currency official rural poverty lines of developing countries.

What are the realistic poverty lines today based on officially accepted nutritional norms? The current poverty lines allowing nutrition norms of 2,200 or 2,100 calories in the rural or urban areas to be met, are at least Rs.1,085 a month (Rs.36 a day) and Rs.1,800 a month (Rs.60 a day) respectively. Since each full-time worker needs to support nearly two dependants, these correspond to a minimum daily wage of Rs.108 and Rs.180 respectively. But this is inadequate: no margin exists for medical emergencies, life cycle ceremonies, or old age. From the 2009-10 NSS data at least 75 per cent of the total population is in poverty on this basis. This high level of deprivation is the rationale for going back to a non-targeted, universal food distribution system, but that will not be enough. The purchasing power of the poor has to be raised at the same time through employment generation schemes. Ironically, there has been a rise in unemployment rates according to the latest surveys.

(Utsa Patnaik has been a Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.)

The world needs to let farmers recycle seeds

Shalini Bhutani

The linkage between agriculture and environment is well understood. But not everything that is sold as good for agriculture is good for the environment! As more new untested agricultural technologies hit the market, risks for the environment rise too.

New varieties of crops, high-yielding only if grown with  agricultural chemicals and abundant water, clearly have environmental implications. Similarly, potentially hazardous genetically engineered (GE) seeds may trigger irretrievable genetic change in agro ecological systems. Yet an environmental principle could well show the way forward for agriculture – that of recycling.

Recycle means to cause to repeat a cycle. In industry it is the process by which used materials are processed into new products to prevent waste of potentially useful materials, reduce consumption of fresh raw materials, cut down energy usage, minimise air and water pollution and lower green house gas emissions. Environmentalists have long been rallying for a more organised way to do this. Likewise, small farmers too are asking for their space to recycle. In small farm agriculture, the saving of seeds and re-using them in the next season is a time-honoured tradition. This recycling of seeds is what is under threat today.

Recycling seeds is direct competition for seed companies. ‘Reduce, resuse, recycle’ seeds clearly comes in the way of their business. Sure the seed, food and fuel industry is looking at agricultural waste and byproducts from farming. But that is purely to develop its carbon portfolios for profits.

Agro fuels so produced are yet to tip the energy balance in their favour. Meanwhile, large populations of farmers in agrarian societies like India and other parts of the world are the untapped market the seed industry is yet to totally conquer.

However, no better than in the (informal) seed sector would recycling the biological material produce a fresh supply of the same planting material. This is not guaranteed by company seeds. To assure themselves of a market, what the seed companies sell in the market are either increasingly hybrid or GE products. Hybrid seeds are the obvious choice of industry since the farmers need to buy the seeds every season. Likewise, GE seeds containing technologies that make the seed sterile, make it impossible for farmers to recycle their seeds. The practice of seed-saving is thus rendered redundant by such seed technologies.

Gap in policy

The country’s seed policies are precisely encouraging such technologies, rather than facilitating farmers to save their own seed. The ministry of agriculture (MoA) has a plan to increase the Seed Replacement Rate (SRR). As explained by MoA, seed replacement rate is the percentage of area sown out of total area of crop planted in the season by using certified/quality seeds other than the farm-saved seed. In the official view the farmers’ reliance on farm saved seeds is seen as something that needs to be corrected. There is an obvious gap in law and policy for the promotion of farmers’ seeds.

The proposed Seed Bill is about putting in place marketing rules for certified seeds of ‘quality.’ Even in the India’s National Seeds Policy 2002 the enhancement of SRR is one of the thrust areas. The intent is to replace the use of farm-saved seeds. The country’s National Seed Plan expressly aims at ensuring the SRR at 25 per cent for self-pollinated crops, 35 per cent for cross-pollinating crops and 100 per cent for hybrids. To be able to meet the demand of seed as per projections of this plan, several quintals of seeds have to be produced and the distributed to farmers across the rural landscape.

The key players envisaged in seed production are the seed industry. The government is also fostering public-private partnerships with state agricultural universities and the State Farms Corporation of India (SFCI). Seed production is the main activity at SFCI farms. Yet the reality is that the National Seed Corporation and the State Seed Corporations are not able to supply the quality and quantity of seeds that farmers need.
Interestingly, both the public and private seed sector actively prospect for farmers’ varieties as a base to build new seed products on. That explains the official emphasis on ex situ conservation and the storing away of traditional varieties in centralised collections. And there seems to a one-way traffic in terms of seed and planting materials being collected by state agencies, be it agricultural universities, research institutes, gene banks or the plant authority. The seeds that come out of these institutions are not re-usable by farmers. But the dichotomy of the situation is that farmers’ seed is considered inferior as against ‘quality’ seed mass manufactured by industry.

There is worldwide concern about the environmental impacts of achieving global food production targets. Yet growing more with less is what small farm agriculture allows. It provides a ready-made low-carbon solution for mitigating global climate change. At the centre of the many small diverse adaptive decentralised food production models are local seeds. Recycling these will also help to keep farmers as the original producers of seeds. So yes the world needs to recycle, but most of all it needs to let farmers’ recycle their own seeds.

(The writer specialises in agriculture and biodiversity issues)


Move for a hunger-free India

By M S Swaminathan, September 28 2011
The National Food Security Bill 2011, which is now on the website http://fcamin.nic.in/dfpd_html/Draft_National_Food_Security_Bill.pdf / of the Uni­on ministry of food and consumer affairs for public comments, aims to make the right to food a legal right. When finally enacted, the Food Security Bill will be the brightest jewel in the crown of Indian democracy. Therefore, public scrutiny of the draft bill is important. The draft bill mentions that its aim is “to provide for food and nutritional security in human life-cycle approach by ensuring access to adequate quantity of quality food at affordable prices, for people to live a life with dignity”. Unfortunately, the bill in its present form will not be able to fulfill this inspiring objective.

The legal commitment contained in the bill implies that every child, woman and man should have physical and economic access to a balanced diet on the basis of a life-cycle approach, that is, from conception to cremation. Nutrition security involves access not only to the required calories and protein, but also to micro-nutrients like iron, iodine, zinc, vitamin A, and vitamin B12. In addition, clean drinking water, sanitation and primary healthcare are essential for ensuring that food is properly assimilated in the body. Food and nutrition security will, thus, need concurrent attention to both food and non-food factors. Obviously, every requirement cannot become a legal right overnight. Therefore, the government has confined the legal right only to economic access with reference to certain quantities of grain, like rice, wheat, and nutri-cereals such as ragi, bajra, jowar and maize, among others. The bill provides for common and differentiated rights. The common rights are designed to ensure that every citizen in the country has access to food. The differentiated rights relate to quantity and cost of the food to be provided to the general category of citizens who are not in need of the same kind of social support as those listed under the priority category.

The bill, to achieve its purpose of nutrition security for all, coupled with respect for human dignity, will need a structure.

Legal entitlements: This will begin with pregnant mothers in order to avoid maternal and foetal malnutrition. The present, Integrated Child Development Services (ICDS) could be divided into two segments from the point of view of the age of the child. The first 1,000 days starting from conception are exceedingly important for brain development in the child and for avoiding low birth weight at the time of delivery. This is the neglected part of the present ICDS and this is why, we have nearly every fourth child born in the country with a birth weight below 2.5 kg. Such low birth weight children have many handicaps in later life, including impaired cognitive abilities. The older children can be provided nutritious noon meals and also other forms of nutrition support like milk, and nutri-biscuits. As far as adults are concerned, the bill provides for the provision of 7 kg of food grains per person per month in the case of priority households. The price will not exceed Rs 3, 2 or 1 per kg for rice, wheat and nutri-cereals. The draft bill also makes provision for providing support to special groups such as destitutes and the homeless.

Enabling provisions: Food security has three dimensions, namely availability of food, which is a function of production, access to food, which is a function of purchasing power, and absorption of food in the body, which is a function of the availability of clean drinking water, sanitation and primary healthcare. Therefore, the act, to achieve the goal of food and nutrition security, should emphasise the need for effective implementation and close monitoring of the following schemes:
  • Ensuring adequate availability of food by implementing the provisions of the National Policy for Farmers placed in parliament in November 2007, as well as of the sche­mes designed to stimulate hi­gher production such as the Rashtriya Krishi Vikas Yojana, National Food Security Mission, National Horticulture Mission and Mahila Kisan Sa­sakthikaran Pariyojana.
  • Effective implementation of the Rajiv Gandhi National Dr­inking Water Mission, Total Sanitation Programme and Rural Health Mission. We ha­ve to mainstream nutrition in the horticulture mission in order to provide horticultural remedies to nutritional maladies, such as deficiency of iron, iodine or vitamin A. For example, a combination of moringa (drumstick) and ragi or bajra can provide all the needed macro and micro-nutrients.
  • The delivery of these provisions must be made in a “deliver-as- one mode” in order to ensure synergy among the different components of food security.
Reform of public distribution system: Several successful models are already available, for instance, in Chhattisgarh, Ta­mil Nadu and Kerala. Modern technology like smart cards could be used to prevent leakages in delivery. In the ultimate analysis, a corruption-free India will be an essential prerequisite for a hunger-free India.

Building the necessary infrastructure: A food security bill can be implemented only with the help of home-grown food. In other words, the well being of farmers will be essential for ensuring food security. Enhancing small farm productivity is the most effective method of ending endemic hunger in rural India. Hence, we should start building proper storage structures.

The present draft is a good beginning to seriously address issues relating to poverty-induced chronic hunger. We should, however, make a bold and imaginative attempt to rid the country of chronic hunger and malnutrition. 

(The writer is an agricultural scientist who led India’s green revolution).

The Degree Of Noncompliance Hurts Us. Regulation Doesn’t-Cargill


“The Degree Of Noncompliance Hurts Us. Regulation Doesn’t”
Siraj A Chaudhury, Chairman of Cargill India, speaks with Dr Amit Kapoor, Honorary Chairman, Institute for Competitiveness, about the food supply chain industry and its dynamics. Excerpts:
Give us an idea of your industry. 

Cargill is a privately held business, headquartered in Minneapolis, with over 130,000 employees in 63 countries and consolidated revenue of $119.5 billion in FY2011. We have 75 businesses organised around four major segments—agriculture, food, finance and industries. In India, we have 11 of those businesses, the biggest being Cargill Foods, which is largely about edible oils. We have a grain and oilseed business that is engaged in sourcing and managing the supply chain for food. We also have a flavours and an animal nutrition business where we create animal feed for poultry, dairy and fish. Apart from this, we also trade sugar, cotton and some industrial commodities such as iron ore, steel and coal.

Which is the business that gives you your profitability?

Our biggest business in India is the foods business. Edible oils gives us 60% of our Indian revenues.

What are the challenges that you face in other businesses?

Our size in other businesses is a matter of choice. We felt the biggest opportunity was in this space [foods] and made greater inroads here. The food business has had more Cargill asset creation, investment and capital infusion, while some other businesses are more about managing the trade flows and the supply chain.

Does the government closely monitor this industry?

It’s a very closely watched industry. We are always under the scanner but I don’t think anyone is holding us back. It has to be closely watched because we’re dealing with agriculture and food in a country that has a huge population with low income levels. Given that 60% of the population here lives off agriculture, there’s a need to protect the interests of this population that consists of small farmers.

Could that be the rationale for minimum support price in the country?

Minimum support price has many roles to play. It is used more as a tool for producing certain crops. So if we want more wheat, the minimum support price for wheat rises. The government, though aware of the diversity of the country in terms of the soil and climatic conditions and also the ability to produce many crops, has started to give precedence to the theory of competitive advantage. So, if we’re good at producing wheat then we should concentrate on this food crop and if we’re less efficient at producing pulses and edible oils then importing them is better. Minimum support price helps to maintain that balance. And that is why it is needed and should be encouraged. The government should do more.

How severe is the lack of infrastructure?

It is one thing to produce and quite another to deliver. The problem is not the means but the schemes to market the products. India this year has produced its highest quantity of crops. The supply of commodities is managed but it is the distribution of these commodities that calls for better management.

There are about 5,000 towns and cities and over 650,000 villages in the country. How challenging is this complexity?


“We are trying to be different by spanning all three stages of evolution—value conscious, customer intimacy and innovation.”

It is a big challenge. Consumer food products reach a million retail stores across geographies through varied infrastructure conditions. It is comparatively more difficult in India where you don’t have well spread large format or organised retail. And it is the producer’s responsibility to reach the goods to consumers. 

In a more developed environment, or where you have a more evolved retail network, it is still about selling to the big five or six retailers who then carry the product to the stores and the regions that they operate in, through their distribution centres. So there is an inherent inefficiency because every company that distributes something has its own distribution network.

When each company is going to or is creating its own distribution channel do you think that could be an emerging model?

Yes, there are companies that have taken up the role of the distributors. So, when you have chains of food restaurants coming up they’re building the supply chain to support their venture.

It’s about moving certain products from one place to other places. I think that is the rationale for encouraging organised retail because it will help bring a lot of individual distribution centres to a more collective model.

A large part of the population is poor and this leads us to the bottom of the pyramid scenario. How do you look at this section of the population?

Obviously a large part of the population is poor. But over the last few years, I think the income of the people at the bottom of the pyramid has also been gradually increasing. So the whole group is moving up.

The other thing is that the higher price for crops has increased the earnings for farmers. There’s been an increase in rural income that is creating a need for more and better goods and increasing the challenge of distribution for some of the large food companies. So, though the cost of distribution goes up when going to these rural areas, it’s a segment that cannot be ignored.

Cargill has 75 business units globally. In India you have 11 businesses. How do you look at competition?

The top two to three major players in the edible oil space should be our competition. I however, have a slightly different view on this. I don’t look at it from a single country or market perspective but rather from the position of different regions. So we have different competitors in different regions.

There is variation and also the local factor at play. For instance, if something is produced locally it will get consumed there because there’s a historical connect. I also believe that when you’re in a growing market and are building a new concept there’s enough space for everyone to grow. Right now we are concentrating on differentiating ourselves from other companies in this space.

There is a level of noncompliance of regulatory practice ideas in the country. Is that a problem for you?

The degree of noncompliance hurts us. Regulation doesn’t. Today edible oil imports are duty-free. It makes no difference to me if there was a 50% duty either because everyone would be paying 50%. The consumer would suffer. In the ten years that we’ve been building up this business, noncompliance has significantly reduced. In certain markets we have a disadvantage relative to some of our competition, but that does not deter us from doing anything we want to do.

How do you carve a niche for yourself?

There’s a lot of strategy in our segment that is focused on operational excellence. We are in a geography where the customer is very value-conscious so the industry and its segments have focused on bringing maximum value to the customer. But as the economy is evolving, the customer is becoming choosy. So the next stage of evolution is in customer intimacy that comes with understanding customer needs.

A lot of companies in the personal care industry and even the IT sector have moved to the customer intimacy phase. As an economy, the innovation stage is next where you start planning for the future rather than just what the consumer needs today. So I think where we’re trying to be different is in trying to span all the three segments.

How do you think Cargill is going to grow in the future?

Cargill is established in India. Food is going to be available but the price of food is going to have a huge impact on the profitability of products that are created. Cargill’s ability to manage the backend of the supply chain, the risk on price movement and to process and convert basic food into food products is very well placed in India because we do that in the rest of the world. If I look at the whole chain from origination to the table, I think we’re equipped to take advantage of the growth in India.

Cargill was in the packaged food business earlier but exited. What compelled you to do that?

We were in the packaged atta [wheat flour] business in the early part of the last decade. But at that time industry profitability and readiness wasn’t really there. The business was a little ahead of its time. It was certainly not erroneous. And I would not rule out getting into that business again.

What are the unique activities that you’ve picked up?

Flour and edible oils are basic products that need a certain amount of differentiation because in reality the consumer thinks that there is no such differentiation. Nevertheless, we do have the power to pass on a lot of goodness that we have. We’re one of the first in the industry to fortify our oils because we recognised that oil is almost a 99% household penetration item, which means everyone in the country consumes oil.

Have you made a choice of not entering certain sectors?

Firstly, we screened our markets by differentiating a local market from a national one and by identifying the markets where we have an edge. This aids us in determining not just our potential market but also in allocating resources efficiently. Secondly, we believe that reach is measured not by capacity but by access.

Building access involves getting someone else to buy your idea. If you look at most of our industries they have over-capacity because it’s easy to build an asset. Market access, on the other hand, is intangible and not something that you can build once and believe that it is there. So it’s something that keeps you on the edge everyday.

You said the industry suffers from over-capacity. Does that have a repercussion on the performance within industry?

I think a lot of it has to do with the state tax incentives. A large part of the industry, particularly refined oils, was created in clusters. You can look at four or five ports that have most of the capacity because most of the oil consumed in the country is imported. That is why more ports in the country should have refineries.

Secondly, if you look at India today, a large part of investment bets on the future. Everyone knows that we are a bustling population with escalating consumption needs. So if you can build an asset and look at it from a real estate dimension, it’s not bad business at all!

How would you define strategy?

Strategy for us is about operational excellence, which, in turn, is about having the right set of people and skill sets along with efficiency.

And what about leadership?

For me, leadership is about people. It’s about finding the right people and letting them do their job. The other thing is about emotional intelligence—understanding other people’s perspective and motivational forces and then getting them to do things that drive them.

4Cs Model


  • 10-12 business units in India. Biggest business is Cargill Foods, focusing on edible oil.
  • Industry under the watch of the government.
  • Lack of distribution infrastructure.


  • Domestic. Largely urban but the growing income of the rural population has brought this segment within the company’s ambit.
  • Value-conscious customer.
  • Customers more expressive of preferences.


  • Focused on bringing value to the customer. Operationally efficient organisation.
  • Calculated selection of market sectors. Has chosen those segments where it can be a leading player.
  • Concentration on differentiated product for the consumer.


  • National and regional.
  • Both segmented and unsegmented competition.
  • As the packaged food product is a relatively new concept, there is enough space for all competitors to grow.

Looking Ahead


  • Value creation through differentiation.
  • Customer intimacy and logistics.


  • Brand building.
  • Operational excellence.


  • Regions where there is competitive advantage.


  • Nature of regulations.

Source: Interviewer’s analysis

Nourish South Asia: grow a better for regional food justice

Forty percent of the world’s hungry people lived in South Asia even before the food price crisis of 2008. Hunger stalks the entire region, from the mountain slopes of Nepal to the arid plains of southern Afghanistan. Although large-scale famines have largely been kept at bay, millions of poor people are unable to afford two square meals a day.

This report was written by Swati Narayan, independent food and education policy specialist. It was coordinated by Amit Vatsyayan and Fe Loreli Cajegas.

Publication Date: 26.09.2011