What one should do in boom times?

There is an old grandmothers’ saying that one should save for a rainy day। Farmers since ancient times felt the need to store grains for a lean season. This applies to manufacturing and agriculture as a business as well. Sometimes this basic wisdom is forgotten by all. In the late 1800’s coffee was the main crop in South India. Even when tea plantations were set up by the British in Assam, planters in South India did not turn to tea despite the efforts of the government at that time as coffee prices were ruling high and they were getting a remunerative price. Later, coffee leaves were hit by a disease and began to fall. The planters were doomed. It was the British who started major tea plantations in India to which later got transferred to Indian hands. In 2000, Madagascar, a violent storm that hit Madagascar destroyed the major crop Vanilla. Cyclone Hudah destroyed as much as 80% of crop in world’s leading vanilla centre, Antalaha Following this, the prices of vanilla shot up to $500 per kg in 2003. This prompted several countries like India, Papua New Guinea, Uganda, Costa Rica and India to start vanilla cultivation. But as the effect of Madagascar cyclones subsided and world production of vanilla rose on account of other countries entering the scene, vanilla prices fell which also affected the Madagascar farmers. In Madagascar, co-operatives were formed to provide a safety net to farmers when prices fell as the crop has a 10-year cycle as does others like Rubber. It helped farmers group themselves to add value and help market their vanilla; and increase self-sufficiency in rice to ensure they were food secure during the lean season. Before the cooperatives were launched, small-scale farmers would often squander their savings on disposable goods. In the late 1990’s natural rubber fetched a good price, Kottayam would boast of having the latest automobiles in the market ahead of any other towns or cities. However, many of the planters who splurged their money in consumer goods or in palatial houses were never prepared for the price fall that was inevitable. There was little or no investment in downstream industries to create demand locally and rubber prices still continue to depend on the demand position of large tyre companies to a large extent.This trend happens across crops. In spices, so long as their was demand and a good price, traders never thought beyond buying and selling. It was the enterprising among those who gradually began to invest in value-added processing and branding. The results are there to see—while small time traders were marginalized by the growth of futures markets, value-added industry scaled up and became a multi-million dollar industry with a few major players. There are several recent examples when industry forgot the grandmothers’ wisdom. Dorab Mistry, renowned editble oils specialist and Managing Director of Godrej International argued why palm oil needs that additional biofuel demand to ensure remunerative prices and to ensure its long term success. “It is a pity that major plantation companies have enriched themselves from high crude palm oil (CPO) prices but have refused to invest in bio diesel or to invest in creating a market for biofuels.” (see Palm Oil may only benefit from biofuels demand, www.commodityonline). Experts have pointed out that the recent global inflation is a result of under-investment in several key sectors including mining of minerals, crude oil, metals, refining and in agriculture. African nations are rising up to the challenge to feed the mal-nourished population with more investment in agriculture sector. Just as in mutual funds and other high growth investments it pays to put some money in re-investment plans than dividend plans, industries across the spectrum need to understand that when prices are high or the market is booming it is not enough to enjoy the dividends but invest for the lean period ahead. NDTV