Don’t Hector the Farmers and Don’t Wrap the Veggies

Jeffrey Sachs’ Earth Institute planned to teach people in a single Kenyan village how to farm (we hope they like farming…). Then they planned to really ramp-up: “Eventually there will be 10 such test villages, scattered across the world’s poorest continent.”How does this new Sachs-inspired project work? The New York Times describes how “hope descended onto” a Kenyan cornfield: “No, no, no, no!” cried Herine Okoth, an agricultural extension worker, as she marched over the freshly tilled land. “Stop!” The extension worker’s energetic nos were directed at Patricia Awino Odera “a frail-looking 54-year-old grandmother who had never had a day of schooling in her life [why should this matter? Do people learn proper farmwork in school?], had thrown fertilizer in with her corn seeds and spaced her holes too closely, both of which would reduce the harvest she and her children would get.”

The farming lesson from Herine Okoth continues: “We agreed that you’d put the fertilizer in first, separate from the maize. It’s not so difficult. It’s like this. Fertilizer first. Then cover it with some dirt. Then throw in the seeds. Then cover those. It’s not hard at all.”

Elsewhere in the developing world, Forbes magazine reports on a private-sector effort to improve the quality of goods available to small enterprises. Metro, the fast-growing German firm expanded worldwide in an effort to increase sales and profits. Metro also provides farmers tips on producing higher-quality goods. Let’s see which development project best services people in the developing world. To start with, though, Metro has a track record of success unmatched by foreign-aid funded development projects. Beginning in Poland and Hungary right after the fall of communism, Metro’s for-profit operations expanded to Moldova and other countries in Eastern Europe, and to India, Vietnam and China.

Globalization moves goods and services, capital and people, knowledge and news, around the world. And it brings trust to places where long experience with both communism and corruption limit trust to extended families.

Titled “Don’t Wrap the Veggies,” Forbes reported on this entrepreneurial German corporation, a Costco-like (members-only, warehouse format) supermarket for the developing world. The firm targets the growing class of entrepreneurs in developing countries. Metro started internationally in Poland and Hungary right after communism collapsed.

The first couple paragraphs of the story tell of creating distribution efficiencies as Metro’s Vietnam stores moved to buy directly from farmers. Like McDonalds in the USSR, they had to push knowhow and technology back through the supply chain to get the quality, reliability and prices they wanted. Deeper in the story are great observations on how global corporations like Metro create trust with skeptical buyers.

We laugh at Monty Python’s Dead-Parrot sketch. Who in the UK or US would really try to sell a dead parrot (claiming it was just asleep)? I wonder if consumers in Asia would get the joke.

When Metro launched their store in Shanghai they made various trust-oriented mistakes: “We discovered that in China fresh means ‘alive,'” says Körber. Metro installed tanks for snakes, frogs and snails in its Shanghai store.” Chinese vendors offer live fish because consumers just don’t trust them to promise fish are fresh.

In Metro’s new Vietnam store they started with German-style order in the produce section: stacks of neatly wrapped tomatoes: “People started ripping the packages open. They thought we were hiding rotten fruit underneath the pretty pieces on top.”

Metro spends a lot of time teaching producers in the developing world how to produce cleaner, higher-quality products. And it thereby saves small entrepreneurs lots of time and money.

The cash-and-carry format–no credit and serve yourself–works remarkably well in emerging markets with throngs of small enterprises. In Asia the first move off the farm might be to peddle snacks and cigarettes at a kiosk. Likewise someone who has lost a job at a state-owned enterprise in the former Soviet bloc might open a small shop or restaurant. Buying supplies can mean endless trips to traditional markets–complete with flies, dicey fruit and raw meat sitting in the sun–or buying from unscrupulous or unreliable wholesalers.

Without a functional legal system, small businesspeople have little recourse against shady vendors. “Buyer-beware” means buyer be really wary. Global corporations introduce both knowhow and trust to formerly-communist countries. Trust saves time. Reagan’s quote was “trust but verify.” Good policy for nuclear disarmament, but not for buying fish and veggies. Time spent verifying the quality of each good supplied is time lost to adding value to those goods.

And learning how to provide quality products for international corporations opens the door to international trade: “Farmers gain from the entrée to a wider world that a network like Metro’s can provide (unless protectionist politicians block them). Farm-raised Vietnamese catfish and shrimp are now supplying Metro stores worldwide. In India Metro is working with nonprofits to train 14,000 shepherds and 1,000 fishermen in hygiene and chilling techniques, even as it finances repairs to ocean piers for tsunami-stricken fishermen. For Metro, it’s not charity so much as quality control. ”

Lots of people work full-time telling other people what to do and how to do it. The profit motive creates one set of institutions and incentives for people with wealth and knowledge to give good advice, and for people with less wealth and knowledge to act on that advice. Nonprofit institutions create, unfortunately, a different set of incentives both for giving advice, and for acting on advice.

New York Times reporters and editors seem to prefer nonprofit incentives and development adventures. Forbes reporters and editors seem to prefer for-profit adventures. New York Times readers are encouraged to donate to projects like Jeffrey Sach’s Earth Institute. Forbes readers are encouraged to invest in self-sustaining enterprises like Metro, enterprises that find ways to improve productivity in the developing world and at the same time create wealth for stockholders. Results from these for-profit institutions contrast starkly with nonprofit groups that manage to consume the wealth of donors while while hectoring poor farmers around the world.

——–

The full Forbes article is here.

Greg Rehmke