Emerging markets cows India

Emerging Markets: Cow Economics

Oct 12, 2013 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Humor, Labor, Thinking Economically • 520 Views    No Comments

  • Think of dung cakes and milk and calves as output.
  • And feed and veterinary fees and milking time as input.

The result is a new image of a cow.

Compiling data from Northern Indian villages, researchers from Penn and Yale concluded that even though a cow is an informal asset, it is a very real investment. Like a sewing machine that needs labor to run it, fabric to insert, and electricity to power it, cows use inputs of land, labor and capital. Their fodder provides their energy, labor milks them, they need upkeep and they might receive insemination. On the output side, with income potential, a cow’s dung can be used as insecticide, fertilizer and domestic fuel. Because contaminated milk has been a problem in India, having high quality dairy products is meaningful beyond their rupee value. In addition, the cows produce more cows.

Quantifying input and output (below), the study’s authors concluded that cows are money losers. Comparing the cost of inputs to the value of output, they say that a cow will lose its owner 6.45%. However, the negative return on the investment (ROI) increases if you compute a market wage for labor rather than assuming it is free. They say it is logical to assume no labor expense because the women who typically care for cows have a minimal opportunity cost. There is little that is lucrative that they could do outside the home.

They also point out that many of the owners are Hindus for whom cow ownership has religious significance and status. In addition, with few if any local banks in which to deposit savings, cows represent a way to invest extra money. Analysts even say that bovine investments preclude impulse spending and family requests for small loans.

So we could say that cows represent “moolah” or, as the Economist expressed it, “Udder People’s Money.” The Atlantic then asked us to ruminate over the significance of a cow.

From: Anagol, Etang and Karlan, August 2012.

From: Anagol, Etang and Karlan, August 2012.

Sources and resources: Conveying an interesting summary of the role a cow can play in rural areas of emerging markets, The Economist and The Atlantic summarized the Yale/Penn study. But, if you want to read it, here is an un-gated working paper version of the NBER article.

 

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