Tuesday, September 27, 2011

Environmental Black Holes – Part I

Few days back, I was visiting one of these Super stores, which sell almost everything from a toothpick to Refrigerators. On any day, these Mega stores always have super deals for some item or another. That day, the offer was for their ‘Own house brand’, blue Jeans at a rock bottom price of US$ 16(About 750/- Indian Rupees). As I knew that one of the largest weaving mills for blue Denim is located in India, out of curiosity, I asked a friend of mine to check the price of Denim cloth manufactured by this weaver and the price of Blue Jeans, manufactured by him for Indian market. I was astounded to learn that the prices in India, for this cloth and the garments, were much higher than the super deal offered by this Mega store. Even assuming, a large trade commission, it was obvious that the blue Jeans were being offered at very low profit or may be even at a marginal loss.
How can these stores sell these items as such low prices? Was the first question that came to my mind. To increase sales, was an obvious answer. How would it increase sales? Why should anybody buy large number of Jeans just because the prices are very low? The answer lies in a buyer’s mind. People do buy unnecessary things just because these are cheap and stock on them. A pair of Jeans, according to my experience, can easily last 3/ 4 years. I might think of having a couple of extra pairs in reserve. Would I buy any more at regular or even discounted prices? The answer is surely NO. However, what would happen if I could get some extra pairs dirt-cheap? No doubt, I would be tempted to buy. This is the way, our mind works. These Mega-store guys surely know it. If they can offer things dirt-cheap, people would be tempted and their sales volumes would shoot up astronomically.
To sale anything cheap, one needs to buy it cheap. To find out, I did some research on the net. The facts were astonishing and I found that I was very wrong. To give you exact figures, a pair of jeans is offered to a whole seller in a price range of US$ 4.80 to US$ 7.80 (225/- to 350/- Indian rupees).The same pair is retailed to the consumer in a price range of US$ 16.00 to US$ 43.00 (750/- to 2020/- Indian Rupees). This means that no retailer is selling anything at loss or marginal profits. Even at the price of US$ 16.00, they made handsome profits. As a consumer, I am happy. Retailer is happy with his profits and increase in sales turnover.
I felt it was too simple. There has to be a catch somewhere. I decided to look at the cotton prices. I found out that one pair of jeans requires about 0.75 Kg of raw cotton. Which meant, that at the lowest purchase price of US$4.80, retailers purchased processed cotton (i.e. Blue Jeans) at US$ 6.40 (300/- Indian Rupees) per Kilogram and retailed the same for US$ 21.30(1000/- Indian Rupees) per Kilogram. However, average international price of raw cotton, hovers around just US$ 0.32(15/- Indian Rupees) per kilogram. Even after processing, same cotton was sold to spinning mills, for US$ 1.32(65/- Indian Rupees), per kilogram. Somebody was making huge profits here.
Why were prices of cloth and garments much higher in India? The results were even more surprising. India is third largest raw cotton producer in the world and still imported about 170 thousand tons of raw cotton. Domestic demand therefore remains much higher than production and local procurement prices for raw cotton are controlled by the mechanism of minimum procurement price by the Government. This ensures that farmers and processors are not squeezed and yarn or Garments are sold at fair price to the consumer. Even then, picture is not rosy in India. Increasing number of cotton farmers are killing themselves, as they cannot get out of debt.
I took Indian prices for raw cotton, yarn and garments as sort of fair reference prices, and then looked at international trade. I soon realized that the whole cotton garment scenario was an environmental black hole, gobbling up our resources, destroying our environment at an unbelievably fast rate and creating unprecedented miseries for cotton producers, processors, and garment factory workers in the process. In short, the whole thing just stinks.
Let us consider first, the human misery part. United States of America, which is world’s largest producer of cotton, pays an annual subsidy of 3 billion dollars to cotton farmers in US to sell their produce at a loss. This keeps the international cotton prices suppressed at current levels. These prices are hurting the producers in China and Africa to the point of starvation. Even the mighty Chinese Government is not of any help; as they require bulk of the imported American raw cotton for re-export of garments. The cotton processors are almost bankrupt because of low margins. The garments are produced in sweatshops in China, Bangladesh, Turkey and some other South American countries. The workers are paid very poorly here. There is high degree of human exploitation in the garment factories. As a result of all this, a very low priced garment, finally reaches the shores of USA or first world. Now the big retailers make huge profits and the branded shops make unimaginable gains. In effect, the subsidy paid by US Government effectively goes to Mega retailers and brand shops. Consumers like me, are cheated and made to feel elated at a super deal. This cotton scenario is squeezing worldwide, farmers, processors and sweatshop workers by pushing them to poverty and misery.
The environment damage however, is far more serious. Worldwide production of cotton is around 26 million metric tons. Each kilogram of cotton grown requires on an average 150 Gms. of chemical fertilizers. This means, that we are dumping about 4 million metric tons of these hazardous chemicals in our soil every year. Cotton crop requires heavy irrigation. To produce 1 kilogram of raw cotton, we need to put 10 cubic meters of water in the soil. Which means that worldwide requirement of water for cotton crops is 260 million cubic meters of water. In effect, we are ruining our soil and diverting precious water sources to produce cotton, which generates losses or marginal profits for everyone except big retailers in western world.
To consider the environmental damage done by cotton crops, let us just have a look at one example. Uzbekistan in central Asia is the third largest exporter of cotton worldwide. They export about 440,000 tons of cotton every year. Uzbekistan has the world’s largest inland Sea within her borders. Two major rivers, Amu Darya and Syr Darya carry their water flow to this Sea. In the year 1950, Soviets decided to divert the river water for cotton production. As a result, Aral Sea started shrinking. In last 25 years, this sea has shrunk by half and the day is not far off when instead of Aral Sea we may see Aral desert. This has caused immense damage to eco system of the region. Salinization of soil has rendered vast tracts of land utterly useless for any agriculture use. The situation is further aggravated by heavy use of chemical fertilizers. Cotton is the major exchange earner for Uzbekistan and the Government is forced to divert more and more resources for cotton production.
Cotton farming is fast turning into a major disaster for mother earth. It is a real winner takes all, situation. Unfortunately, only winner here is the big retail business of the western world.
10 June 2009

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