Day 3 in India (Written Jan. 9)

The Cochin region of India has been the center of the world’s spice trade for millennia. Apparently the soils and climate are perfect and the culture has been defined by the customs and moment and organization it brings.

The port of Cochin is where most of the spices are shipped. Early Wednesday morning our delegation met with port officials and inspected the operation from a boat. It looked like other ports I have seen. They have recently entered into an agreement with Dubai Ports to build a major expansion of the Cochin port. Much of the investment being made to build up India’s infrastructure is coming from private investment referred to as direct foreign investment (DFI). For example they desperately need airports so they have allowed 30 or so private airports to be built. The owners charge leases and landing fees to those using the airports. It generates jobs, and tax revenue but they are not required to use their cash or capital. In the United States we are able to have public construction with bonds.

The balance of the day was devoted to learning about the spice business. I visited Synthite Industrial Chemicals. Many of the businesses are family companies. I’ve found that to be true of many food-related businesses within the United States as well.

It is interesting that they view themselves as a chemical company and not a spice business. The processes they use to produce oils and extracts are similar to those used in large food operations and food processors. For example, they can produce a mustard oil that flavors other materials. French’s Mustard is a composite of materials that spread well, including a plant that is processed to provide the brilliant yellow color and a little dab of their mustard oil. They also create the chemicals used as coloring and fragrances.

They are a huge producer of black pepper. It strikes one when you see the size of their facility and realize it is producing 24 hours a day, just how many people there must be in the world to consume that much black pepper. It takes a lot of shakes and turns of the pepper grinder to use it all. Actually, with pepper they are finding ways to use an oil pepper to produce the same flavor. They just blend it in.

This is an interesting part of the world I knew nothing about. The customers for Synthite and others like them are “flavor houses”-- businesses that engineer the ingredients and processes of making food.

At lunch I met with a group of business owners known as the Spice Board. This is an entity organized by the government to facilitate and promote Indian spices. My sense was, they really get it. They can see the need to get ahead of product safety as a matter of brand protection and market enhancement. They have created a certification process that assures any spice leaving India in a few categories has been certified to a standard. It is a template for how many different industries and countries will handle product safety. If the United States, for example, can become comfortable that the certification of the Spice Board is to be relied upon, then we would treat any product holding their seal in a favorable way in matters related to customs and entry by allowing them easy and fast access into American markets.

The Red Pepper Principle

Our afternoon was occupied by a visit to another spice operation; this one, AVT/McCormick. The factory is surrounded by homes of the most basic form. The winding road into the plant is narrow but paved and so close to many of the homes that it provided an intimate view of the people who lived there. As we drove I was able to see inside yards and homes, even make eye contract with people. I enjoyed the drive.

McCormick has a big market share in the American spice business. They bought into this plant about 10 years ago. The processing is interesting, but I found the relationships between McCormick’s growers and customers the most interesting part of the visit.

Upon arriving I noticed some large burlap bags of red chili peppers. Sewn to each of the bags were yellow cloth tags with messages written on them. I was told the farmers were required to put their names, location the chili peppers came from and the date they were picked on the tag. The McCormick people told me this was a system they had implemented during the previous year as a result of a traceability requirement their customers were making.

The farmers who provide peppers and other crops to McCormick are people with only an acre or two of land. Most are unsophisticated but they are also part of a powerful political constituency in India. Unlike many parts of the world, poor people vote in India and the political officials are extremely sensitive to their desires.

It is highly unlikely that a requirement of traceability would have ever been imposed on the small farmer by the government. However, when customers made it a condition of doing business, the farmers accepted it or started doing business someplace else. Since McCormick is the most reliable partner in the market, almost all adapted. Let’s call it the Red Pepper Principle of Product Safety: Markets, not mandates, will drive improvement in quality.

The small farmer is a unique aspect of India’s economic and social challenge going forward. Like so many emerging economies, significant disparities are developing between urban and rural. While in Vietnam a couple years ago I saw a nation subdivided into plots of less than an acre. Forty-three million farmers worked the land by hand growing their own food and a little extra, which they sold. I asked their Agriculture Minister why more mechanization was not introduced. I understood how the social stability of their nation was linked to the system when he said, “What would those forty three million people do if they didn’t farm.” In India, the government wrestles with the same question except the number is more like 700,000,000.

At Ambassador Mulford’s home my second night in New Delhi, I had dinner with 10 people he had selected for a round-table discussion. Part of the group was a well-respected economist whose clear thinking I immediately admired. In response to a government official’s defense of protectionist policies to preserve the small farmer she said, “What you’re leaving out is they can change.”

Indeed they will change, but likely not because of government policy changes. People will avoid change intuitively and democracies follow. Over time, things will begin to change because of the only democratic force stronger than a self-interested constituency: an efficient market. A global market will require change for survival, and over time some will adapt. The McCormick red pepper farmers are a prime example.

This kind of change takes years. Many small farmers will resist adaptation, living out their lives raising food for themselves and selling the balance for subsistence. Others will be of a nature to accept change and seek greater prosperity. They will begin to join with others so they achieve economies of scale. They will implement new practices that make their crops attractive at higher prices because they are higher quality.

I have an agricultural heritage. My family bought the farm of my grandfather and as his generation died away, we bought their land to achieve the efficiency of scale necessary for survival. Today the collection of land that supported 21 families 50 years ago is farmed by fewer than three full-time workers. However, during the same time other things changed. The next generation of children sought education and earned their living differently than their forefathers. How to navigate such change in a nation with four times the population and one third the land? That is the question facing India in the next half-century.

Comments

I think you are right in making the following comment. Globalization and free market will bring the change than by government actions.

"Over time, things will begin to change because of the only democratic force stronger than a self-interested constituency: an efficient market. A global market will require change for survival, and over time some will adapt".

Posted by: Nidhi | January 14, 2008 at 09:37 PM

"Let’s call it the Red Pepper Principle of Product Safety: Markets, not mandates, will drive improvement in quality."

Absolutely. We see this happen over and over again in the United States: people want products handled a certain way and the market responds more efficiently, effectively, and quickly than any regulation could.

And yet politicians, loving to get their names on the papers, insist that bigger government is the answer.

Unfortunately they often end up standing in the way of the very solutions they're trying to affect.

Posted by: Chris Carlin | January 15, 2008 at 08:05 AM

Respected Secretary,

I really enjoyed reading your blog, this is very encouraging step in making governmental policies transparent to general public.

Yes, India is modernizing but challenges are huge and we need assistance in terms of efficient technologies to succeed in one of the greatest democracy experiment in human history. By efficient technologies, I mean nuclear power generation technology, more technological cooperation between India and US.

Thanks and Regards,
An Indian

Posted by: Robins Tomar | January 17, 2008 at 04:37 AM

The Red Pepper Principle of Product Safety: Markets, not mandates, will drive improvement in quality.... a very thoughtful observation from the Secretary. I also appreciate the tremendous speed at which the observation was made known in the blog enabling people like to me to read his mind.

Posted by: Dr. P.S.S.THAMPI | January 18, 2008 at 04:25 AM