Practical analysis for investment professionals
16 June 2017

Weekend Reads from India: Agriculture, “Sin Stocks,” and Elon Musk

Posted In: Weekend Reads

Farming is not an easy life.

Around the world, agriculture as a business has a poor economic record. Globally, suicide rates among farmers were the highest of all occupations in 2014.

India is no different, though the country’s agrarian issues may run deeper. India’s farmers are having a hard time again this year. Protests in five states are a reminder that the long-standing agricultural crisis is not resolved. The core problem is that many farmers are unable to sell their produce at a profit. Poorer farmers continually struggle to repay their loans. There are no easy answers, and perhaps there never were.

Fourteen percent of India’s national income comes from agriculture. It employs about 50% of the population. Government subsidies account for about 2% of the gross domestic product (GDP). Recent loan waivers arguably contribute to the overall fiscal deficit. Apart from creating a “moral hazard,” market watchers expect that an uncontrolled loan waiver culture could add up to 2% to India’s deficit burden. Worse, loan waivers may be difficult to reverse.

What is there to learn from countries that have made the transition away from an agricultural economy? On a conceptual level, perhaps nothing. It is interesting that less than 2% of the developed world’s GDP (and total employment) is from agriculture. Yet agricultural subsidies are alive and well in the industrial countries — between 0.38% to 1% of GDP. In absolute terms, these are significant amounts distributed among fewer people.

In India though, Everybody Loves a Good Drought. Agriculture is directly dependent on the vagaries of nature. Forcing a commercial model where the production is largely left to nature while the distribution is driven by a market economy has simply not worked. John Stuart Mill’s observation remains relevant: “In any given state of agricultural skill and knowledge, by increasing the labor, the (agricultural) produce is not increased in an equal degree.”

A stand-out article is this one on the appalling state of our oceans. Sample this: About 90% of the ocean’s fish stock is at or beyond sustainable fishing limits. By 2050, the world’s oceans could have more plastic by weight than fish. Eight million tons of plastic go into the oceans every year. Anyone nervous about munching plastic instead of tuna? (The Economist, The Guardian)

Oceans and nature may not resonate with many investment professionals. Nevertheless, the environment we live in cannot be ignored. The expected return on “sin stocks” is higher for a reason. Notably, cigarette stocks have held their ground, but on the other hand, disruption in the auto sector has been a shock for those caught driving in the wrong direction. Public frustration with environmental issues will continue and may rapidly alter the policy of relying on established business models. (ValueWalk, Business Insider, The Conversation)

Market mechanisms are not always a dependable jury — how can they be when a majority of investors buy or sell at inopportune times? Hopefully, some investors will stand up and reshape the market thinking around environmental issues so that they become more trendy in the investment management industry. There are a few, like Elon Musk, CEO and chairman of Tesla Motors, for example, who are making money promoting environmental issues. Doing nothing is simply continuing to kick the can down the road. Edmund Burke’s partnership between those who are living, those who are dead, and those who are yet to be born, is indeed on shaky ground. (Forbes, Livemint)

Here are some additional articles you may find interesting. Enjoy your weekend.

Macro Economics

Investing

Startups/Fintech

Miscellaneous Fun Stuff

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/RBB

About the Author(s)
Shreenivas Kunte, CFA

Shreenivas Kunte, CFA, is director of content at CFA Institute, where he contributes financial market insights about India and the developed world. Previously, he taught at and managed SP Jain’s Trade and Applied Research lab, which he helped found. Kunte also served as a country trading strategist at Citigroup’s Tokyo office. He actively contributes to the development sector in India and is an external research scholar at the Indian Institute of Technology Bombay.

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