Environment

Human activities — and the greenhouse gases (GHGs) they emit — have caused 1.1°C of surface temperature warming over pre-1900 levels. Of the 2400 gigatons of CO₂ emitted since 1850, 42% was emitted between 1990 and 2019. Atmospheric concentrations of CO₂, methane, and nitrous oxides have increased every year and are currently at their highest-ever levels. While the rate of emissions growth has slowed to 1.3% in the past decade, emissions levels continue to rise [1].

Global warming has already impacted planetary health.

• Sea Levels — since 1901, global sea levels have risen by 0.2m. The rate of sea level rise has jumped from 1.3 mm/yr in 1901-1971 to 3.7 mm/yr in 2006-2018. 40% of the world’s population lives in areas at risk of sea level rise [2].

• Extreme Events — the frequency of extreme events like heatwaves, heavy precipitation, drought, and tropical cyclones has increased. Additionally, compound extreme events — like concurrent heatwaves and droughts — have become more likely [1].

• Water and Food — Half of the world’s population experiences severe water scarcity for some part of the year. While agricultural productivity has increased in the last 50 years, growth is slowing and will soon become negative. Food production from fisheries has also dropped as a result of ocean warming and acidification [1].

• Human Health — increased heat stress has a direct effect on human health. However, human mortality and morbidity are also indirectly affected by a greater incidence of food-, water-, and vector-borne diseases. Mental health issues have also worsened as a result of trauma, culture loss, and displacement [1].

• Settlements and Infrastructure — transportation, water, and energy systems have been compromised, both by extreme events and slow-onset events like land degradation and changing rainfall patterns. Damages are particularly severe in urban areas and climate-exposed sectors like agriculture and energy. Consequently, individuals have been affected through the destruction of homes and infrastructure and the loss of property and income [1].

• Displacement — in the last decade, weather-related disasters have displaced 220 million people [3]. 32.6 million were displaced in 2022 alone [4]. Displacement has severe impacts on people and their livelihoods, often breeding more conflict in the areas that people move to.

In the coming years, decades, and centuries, each of these trends will intensify. Sea level rise will accelerate, extreme events will intensify, water and food insecurity will worsen, and impacts on human health, livelihoods, and settlements will be amplified. Outside of its direct effects, climate change is also a threat multiplier — it will exacerbate existing socioeconomic and geopolitical issues.

How do we deal with it? There are two broad categories of responses — mitigation and adaptation. Mitigation involves reducing the flow of GHGs into the atmosphere by reducing emissions and building carbon sinks. However, GHGs don’t disappear once they enter the atmosphere. CO₂, for example, stays in the atmosphere for 300 to 1000 years [5]. Even if we stopped all emissions today, we would still be dealing with the effects of climate change for centuries because of the stock of GHGs in the atmosphere. Therefore, we also need adaptation measures — actions that reduce vulnerability to the current and expected impacts of climate change.

India

Climate change is an unequal issue, both in terms of its causes and effects. OECD countries account for 17% of the world’s population [6], but have contributed 50% of total GHG emissions to date [7]. While India accounts for a similar proportion (18%) of global population, it has contributed just 4.6% of total emissions. Despite India’s rapid economic growth, India only contributes 7% of annual global emissions, compared to 30% from OECD countries [7].

Despite relatively low emissions, India has and will continue to deal with the worst effects of climate change. India was ranked the 6th worst-affected country by climate change in 1993-2022. This is due to the 80,000 fatalities and $180 billion in economic losses caused by the 400 extreme weather events that occurred during this period, including floods, heat waves, cyclones, and drought [8]. Currently, 75% of Indian districts are extreme event hotspots, including 95% of coastal districts [9]. As climate change worsens, the frequency and intensity of these extreme events will continue to increase.

The catastrophic but sporadic effects of extreme events are complemented by gradual, broadly distributed risks from slow-onset warming and environmental degradation. 33% of India’s land is degraded or desertified [10]. Rising temperatures will contribute to lost outdoor working hours, putting 2.5-4.5% of GDP at risk [11]. Sea level rise will endanger the crores of Indians that live along the coast. Changing rainfall patterns and local climates will cause large declines in crop yields from rain-fed agriculture [12]. India also has major problems to contend with in terms of air and water pollution, waste management, food and water scarcity, urban planning and biodiversity loss.

A just solution to climate change would involve large amounts of funds flowing from the high-income countries that caused climate change to the low-income countries that are impacted by it. American climate policy and the consistently disappointing results from COP each year have shattered any illusions that this is realistic possibility. Therefore, we must take matters into our own hands. India cannot compromise on growth — economic growth has raised 250 million people out of poverty since 2005-06 and greatly improved standards of living nationally [13]. However, growth must be climate resilient. By developing and deploying adaptation measures while mitigating our emissions, India will be well-positioned to deal with the present and future impacts of climate change.

While the climate risks India faces are daunting, they also present opportunities. Just as the negative effects of climate change exacerbate each other, environmental solutions produce economy-wide multiplier effects. As a developing economy with both capital and technological capabilities, India can produce cost-effective climate solutions at scale. The government’s willingness to engage with climate issues and India’s growing geopolitical prominence have already made India a climate leader globally [14]. We can leverage these opportunities and influence to show the developing world how to deal with climate change without compromising on economic growth.

Business

Climate change poses immense risks, but it is also a massive business opportunity. Global climate finance reached USD 1.46 trillion in 2022, and this is just a fraction of the USD 7.4 trillion required annually between now and 2030 [15]. 90% of this financing was for mitigation. Developed countries are ignoring mitigation investments because the near-term impacts of climate change are not as severe for them. While these investments are important, investing in adaptation measures is crucial for the 3.3 billion people that live in regions that are highly vulnerable to climate change [1]. However, adaptation investment only accounts for 5% of global climate finance. Within India, all climate finance goes toward mitigation — clean energy, clean transportation, and energy efficiency [16].

Adaptation investment is also needed to help individuals and producers in vulnerable sectors build climate resilience. Consumers need ways to deal with air pollution, plastic pollution, rising temperatures, and resource constraints. The agriculture sector is particularly critical — it employs 46% of India’s workforce, is responsible for the entire country’s food security, and is arguably the most vulnerable sector to climate change [17]. Global investments in these areas have been lacking because developed countries don’t face the same risks. Large emerging economies like India and China need to fill this gap — we have the ability, funds, and motivation to do so.

Unlike mitigation, where investment focuses solely on emissions reduction, India’s adaptation issues are complex and interconnected. Water scarcity affects agricultural output, which impacts food security and livelihoods. Rising temperatures increase energy demand for cooling, straining power grids and exacerbating air pollution from fossil fuel generation. Consequently, the benefits of adaptation investment in one area are often realized elsewhere. Therefore, businesses that develop integrated solutions are better-positioned to capture value.

For India to effectively adapt to climate change, businesses must move beyond viewing environmental challenges as compliance issues and instead recognize them as core business opportunities. The companies that will succeed are those that develop scalable solutions tailored to India’s specific environmental challenges. As economies of scale make these solutions affordable, Indian businesses can tap into demand from the billions of people across the developing world that have similar adaptation needs.

India has two options to deal with climate change. We can rely on the countries that caused climate change to provide the funding, technology, and solutions needed to solve it. Alternatively, we can turn it into an opportunity by developing and distributing environmental solutions to the entire developing world. Sustainable Bharat attempts to establish how to capitalize on this opportunity by understanding India’s environmental challenges, building management acumen, and studying companies in the environmental space.

Works Cited

[1] IPCC, “AR6 Synthesis Report: Climate Change 2023,” Geneva, Switzerland, Summary for Policymakers, 2023. Accessed: Feb. 13, 2025. [Online]. Available: https://www.ipcc.ch/report/sixth-assessment-report-cycle/

[2] United Nations, “The Climate Crisis – A Race We Can Win.” Accessed: Feb. 13, 2025. [Online]. Available: https://www.un.org/en/un75/climate-crisis-race-we-can-win

[3] USA for UNHCR, “How climate change impacts refugees and displaced communities.” Accessed: Feb. 14, 2025. [Online]. Available: https://www.unrefugees.org/news/how-climate-change-impacts-refugees-and-displaced-communities/

[4] J. Apap and S. J. Harju, “The Concept of ’Climate Refugee’: Towards a Possible Definition,” European Parliamentary Research Service, Oct. 2023. Available: https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/698753/EPRS_BRI(2021)698753_EN.pdf

[5] NASA Science Editorial Team, “The Atmosphere: Getting a Handle on Carbon Dioxide.” Accessed: Feb. 17, 2025. [Online]. Available: https://science.nasa.gov/earth/climate-change/greenhouse-gases/the-atmosphere-getting-a-handle-on-carbon-dioxide/

[6] OECD, “Population.” Accessed: Feb. 17, 2025. [Online]. Available: https://www.oecd.org/en/data/indicators/population.html

[7] Climate Watch, “Historical GHG Emissions.” Accessed: Feb. 17, 2025. [Online]. Available: https://www.climatewatchdata.org/ghg-emissions?breakBy=regions&calculation=CUMULATIVE&end_year=2022&gases=co2&regions=ANNEXI%2CNONANNEXI&source=PIK&start_year=1850

[8] L. Adil, D. Eckstein, V. Künzel, and L. Schäfer, “Climate Risk Index 2025,” Germanwatch, Feb. 2025. Available: https://www.germanwatch.org/sites/default/files/2025-02/Climate%20Risk%20Index%202025.pdf

[9] A. Mohanty and S. Wadhawan, “Mapping India’s Climate Vulnerability – A District Level Assessment,” Council on Energy, Environment and Water, New Delhi, Oct. 2021. Available: https://www.ceew.in/sites/default/files/ceew-study-on-climate-change-vulnerability-index-and-district-level-risk-assessment.pdf

[10] Indian Space Research Organization, “Desertification and Land Degradation Atlas of India,” Space Applications Centre, Jun. 2021. Available: https://vedas.sac.gov.in/static/atlas/dsm/DLD_Atlas_SAC_2021.pdf

[11] J. Woetzel et al., “Will India get too hot to work?” McKinsey Global Institute, Nov. 2020. Available: https://www.mckinsey.com/~/media/mckinsey/business%20functions/sustainability/our%20insights/will%20india%20get%20too%20hot%20to%20work/will-india-get%20too-hot-to-work-vf.pdf

[12] S. N. S. Tomar, “Impact of Climate Change on Agriculture.” Accessed: Dec. 17, 2024. [Online]. Available: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1909206

[13] R. Chand and Y. Suri, “Multidimensional Poverty in India since 2005-06,” NITI Aayog, New Delhi, Jan. 2024. Available: https://www.niti.gov.in/sites/default/files/2024-01/MPI-22_NITI-Aayog20254.pdf

[14] “CCPI 2025: Ranking and Results.” Accessed: Mar. 04, 2025. [Online]. Available: https://ccpi.org/

[15] B. Naran, B. Buchner, M. Price, S. Stout, M. Taylor, and D. Zabeida, “Global Landscape of Climate Finance 2024: Insights for COP29,” Climate Policy Initiative, Oct. 2024. Accessed: Feb. 24, 2025. [Online]. Available: https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2024/

[16] M. Chakravarty, U. Pal, J. Kaur, A. K. Samal, A. Sikka, and V. Sen, “Landscape of Green Finance in India,” Climate Policy Initiative, Dec. 2024. Available: https://www.climatepolicyinitiative.org/wp-content/uploads/2024/12/Landscape-of-Green-Finance-in-India.pdf

[17] Ministry of Statistics and Programme Implementation, “Periodic Labour Force Survey Annual Report,” Sep. 2024. Accessed: Dec. 11, 2024. [Online]. Available: https://dge.gov.in/dge/sites/default/files/2024-10/Annual_Report_Periodic_Labour_Force_Survey_23_24.pdf

By definition, positive deviation will exist in any meaningful statistical distribution. However, if many positive deviants share characteristics, studying those characteristics can yield useful insights. As Warren Buffett puts it, “if you found any really extraordinary concentrations of success, you might want to see if you could identify concentrations of unusual characteristics that might be causal factors” [2].

The logic of this approach is compelling. However, it is rarely applied to business for two reasons. First, the managers that are typically studied are “celebrity” founders and CEOs with groundbreaking, transformative ideas — Jensen Huangs and Elon Musks. While studying these managers is important, it’s hard to learn from or replicate their success. Second, there isn’t a consensus measure of business success. In “The Outsiders”, William Thorndike Jr. attempts to fill this gap.

He argues that growth in per share value is the true measure of managerial success. Consequently, only three pieces of information are required to gauge a manager’s performance — the growth of per share value for the company, its peers, and the market during the manager’s tenure. Thorndike therefore defines a positive deviant as a manager at a firm where the increase in per share value during their tenure exceeded both peer companies and the S&P 500 by at least three times. Only eight CEOs in American history pass the test — Thorndike’s “Outsiders”. On average, these CEOs outperformed the S&P 500 by over twenty times and their peers by over seven times.

The Outsiders is the product of studying these eight CEOs, their companies, and their uncannily similar approaches to management. These eight case studies comprise the bulk of the book. Instead of attempting to summarize the case studies, this article will outline what Thorndike calls the Outsider worldview — a shared set of principles that guided their management.

Capital allocation is a CEO’s most important job.

A CEO has to do two things well to be successful — run operations efficiently and deploy the cash generated by those operations. However, most CEOs, and the books and institutions they learn from, focus primarily on operating. Conversely, Outsider CEOs focused on capital allocation — deploying capital generated by debt, equity, or internal cash flow to invest in existing operations, acquire other businesses, issue dividends, pay down debt, or repurchase stock.

In some cases — like with Capital Cities CEO Tom Murphy and his COO Dan Burke — Outsiders delegated all management of operations. “Burke, was responsible for the daily management of operations, and Murphy for acquisitions, capital allocation, and occasional interaction with Wall Street.” As Burke puts it, his “job was to create the free cash flow and Murphy’s was to spend it.”

What counts in the long-run is the increase in per share value, not overall growth or size.

Maximizing shareholder value follows naturally from the Outsiders’ investor-like focus on capital allocation. While this objective may seem obvious, managers often seek organizational size and growth, a sometimes conflicting goal. It is rare for a firm to shrink itself, even if it’s the right decision for shareholders. However, most Outsider CEOs shrank both their share bases and operations by repurchasing stock, selling assets, spinning-off companies, and eliminating underperforming divisions. None of these tools were new. However, the Outsiders used them to deliver value to shareholders and further strategic objectives, often ignoring the market imperative to grow larger.

In divesting noncore businesses, Bill Anders sold the majority of General Dynamics’ businesses within two years of taking over as CEO. At Ralston Purina, Bill Stiritz used spin-offs — separating a division or subsidiary into a new, independent company — aggressively to provide transparency to shareholders and keep the original company focused on core businesses. In 2000, he spun-off Energizer Holdings, which accounted for 15% of the company’s total value at the time.

Cash flow, not reported earnings, is what determines long-term value.

Outsider CEOs tended to reject the complexity of business and the noise generated by peers and analysts. Their focus on value and simplicity led them to reject Wall Street’s preferred metric — reported earnings — in favor of a single-minded pursuit of free cash flow. This was an iconoclastic objective at a time when most managers looked to maximize quarterly reported earnings to keep Wall Street happy.

The most extreme example of this is John Malone at TCI, who actually attempted to minimize reported earnings because it meant higher taxes. Instead, he funded internal growth and acquisitions with pretax cash flow. To fully measure the firm’s ability to generate cash, Malone introduced the term EBITDA. While EBITDA is the most enduring metric, other Outsider CEOs, including Henry Singleton at Teledyne, also created their own cash flow metrics to better guide their businesses.

Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down.

As Thorndike puts it, “There is a fundamental humility to decentralization, an admission that headquarters does not have all the answers and that much of the real value is created by local managers in the field.” In addition to devolving control to the people that actually interact with customers, decentralization reduces overhead and releases entrepreneurial energy.

Capital Cities was a highly decentralized organization — publishers and station managers commanded internal prestige and were responsible for all important decision-making. The few staff at headquarters primarily supported the managers of operating units. Combined with consistent investments in news talent and technology, this decentralization made almost every Capital Cities station a leader in its local market. Berkshire Hathaway provides another stark example of decentralization — there were 23 employees at headquarters in a company that employed 270,000. Warren Buffett puts it best — “hire well, manage little”.

Independent thinking is essential to long-term success, and interactions with outside advisers can be distracting and time-consuming.

Regular communication with Wall Street and the business press were seen as important CEO roles. Once again, the Outsiders rejected common practice, minimizing their outward-facing responsibilities. At Teledyne, Henry Singleton was nicknamed “The Sphinx” due to his reluctance to speak with analysts or journalists. Warren Buffett estimated that the average CEO spent 20% of their time communicating with Wall Street. Buffett spent no time with analysts, never attended investor conferences, and didn’t provide quarterly earnings guidance.

Additionally, Outsiders avoided relying on external advisers like consultants and analysts, typically making important decisions autonomously or with the help of a small group of trusted internal advisers. Despite delegating everything else, Buffett never delegated capital allocation decisions, doing all analytical work and investment negotiation on his own. Since he only bought companies in industries he knew well, he moved quickly, often making large investment and acquisition decisions in a few minutes. Similarly, John Malone at TCI handled the sale of his company to AT&T alone, often dealing with dozens of lawyers, bankers, and accountants on the other side.

Sometimes the best investment opportunity is your own stock.

While buybacks and stock-based compensation are now increasingly common, the Outsiders were pioneers in the frequency and size of their stock repurchases. Henry Singleton bought back 90% of shares outstanding at Teledyne, Bill Stiritz bought 60% at Ralston Purina, Katherine Graham bought 40% at Washington Post, and Bill Anders repurchased 30% of General Dynamics’ outstanding shares in a single transaction.

These buybacks were not indiscriminate — Outsiders repurchased when stock was trading at single-digit multiples and often used it to finance major investments when prices were high. This reflects the Outsiders’ investor mindset — if the firm’s stock is the highest-yield investment opportunity, repurchase. Effectively, buyback returns became a benchmark for other capital allocation decisions. For Bill Stiritz at Ralston Purina, “The hurdle we always used for investment decisions was the share repurchase return. If an acquisition, with some certainty, could beat that return, it was worth doing.”

With acquisitions, patience is a virtue, as is occasional boldness.

Some Outsiders were extremely acquisitive — John Malone averaged one acquisition each week between 1973 and 1989. However, their acquisition strategies were highly disciplined, often based on comparing acquisition returns to buyback returns or other investment opportunities. When asking prices were slightly higher than the Outsiders’ value estimates, they walked away. This discipline manifested in long waiting periods between acquisitions. Despite making frequent acquisitions for the rest of his career, Dick Smith at General Cinemas didn’t make any major acquisitions for a decade because he felt firms were overpriced.

Despite this discipline, the Outsiders were boldly opportunistic. When they liked a potential acquisition, they weren’t afraid to make massive bets. Dick Smith’s largest acquisition equalled 62% of General Cinemas value. For John Malone, the average annual value of acquisitions was 17% of TCI. Tom Murphy made multiple acquisitions that each exceeded 25% of Capital Cities’ enterprise value.

In “The Outsiders”, Thorndike highlights eight CEOs that were investors first and operators second. By delegating management of operations, they focused on their most essential responsibilities — minimizing the cost of capital and maximizing returns. This simplicity led them to make similar, unconventional choices that yielded immense results for their firms and shareholders. Critically, their success across a range of very different industries reflects the generalizable, fundamentally sound logic of the Outsider worldview.

Bibliography

[1] “What is Positive Deviance?” Accessed: Jan. 11, 2025. [Online]. Available: positivedeviance.org

[2] W. E. Buffett, “The Superinvestors of Graham-and-Doddsville,” Hermes, the Columbia Business School Magazine, vol. Fall 1984, May 17, 1984. Available: csinvesting.org

Background

Farmer collectivization is a natural solution to the fractionalization of agricultural landholdings and the issues discussed in Part 1. The logic is simple — by coming together in large groups, farmers can benefit from increased efficiencies and economies of scale. Kanitkar [1] succinctly groups these benefits into four categories. First, input — cost of cultivation falls due to aggregated demand. Second, output — aggregating produce yields negotiating power and opportunities for value addition and market linkage. Third, throughput — by sharing knowledge and information about agricultural practices collectively, individual (and overall) farmer productivity will increase. Finally, reduced risk — farmers are better equipped to absorb individual shocks when supported by a collective.

The earliest farmer collectives in India were the credit cooperatives formed by the 1904 Credit Societies Act. The cooperative effort continued with the establishment of producer cooperatives — non-credit societies (1912) and multi-state cooperative societies (1942) — that have been periodically reformed. Today, 26,767 Agricultural and Allied Cooperatives and 1.03 lakh Primary Agriculture Credit Societies (PACS) include 98.4 lakh and 14 crore members respectively [2]. Despite their immense coverage, cooperatives have struggled to become effective, self-sustaining entities. After the globalization and liberalization of the 1990s, cooperatives continued to operate with substantial government funding, personnel, and influence [3]. This government control led to corruption, bureaucracy, and a lack of market orientation — cooperatives failed to remain competitive and integrate efficiently into markets [4]. For example, PACS would appear to cover India’s entire farmer population, but they accounted for just 18% of total agricultural credit in 2009, down from 56% in 1985-86 [5].

In response to these issues with cooperatives, Farmer Producer Companies (FPCs) were proposed in 2000 — a new, business-focused agricultural collective that would be independently managed by farmers without government ownership and influence [3]. Farmer Producer Organization (FPO) is a generic term used by the government to refer to both cooperatives and producer companies. Although the title mentions FPOs to stay consistent with government schemes and other research, FPCs are the focus of this article.

The Companies Act was amended in 2005 to legalize the establishment of FPCs. Despite initially negligible FPC registration, Figure 1 displays a huge acceleration in the last decade. Today, 33711 FPCs [6] are estimated to include 10-20% of India’s farmers as members [7].

Policy Framework

The explosion of FPO registration in the last decade was catalyzed by NABARD’s PRODUCE fund, announced in 2014-15 [8]. However, the vast majority of FPOs have been formed since PM Modi’s announcement of the 10,000 FPO Scheme in 2020 [9].

Under the scheme, the Department of Agriculture, Cooperation, and Farmers’ Welfare designates Implementing Agencies (IAs), like NABARD (National Bank for Agriculture and Rural Development) and SFAC (Small Farmers’ Agri-Business Consortium). State agencies can also apply to be recognized as IAs. These IAs are responsible for engaging Cluster-Based Business Organizations (CBBOs). CBBOs are entities that form and promote multiple FPOs at a state or cluster level, working with them for a 5-year “handholding period”. These CBBOs must have expertise in five areas — crop husbandry, agricultural marketing and value addition, social mobilization, law and accounts, and IT [10]. With funding from IAs, CBBOs are expected to mobilize farmers, train farmers and FPO staff, prepare business plans, ensure compliance, help FPOs apply for government schemes, establish market linkages, and possibly supply agricultural inputs and perform value addition. Each FPO has a Board of Directors (BoD) elected from amongst the FPO’s members. While the BoD determines the FPO’s overall direction and activities, the FPO is managed by a hired CEO and Accountant [10].

The 10,000 FPO Scheme establishes two instruments — the Equity Grant and Credit Guarantee Facility (CGF) — to address the capital constraints that characterize rural agriculture. The Equity Grant doubles an FPO’s total equity funding through a 1:1 match of equity up to Rs. 2,000 per farmer. A single FPO can get a maximum of Rs. 15 lakhs in funding and must have 300 members to be eligible. The Grant is paid out in tranches, so an FPO with 300 members (with Rs. 2,000 of equity each) could receive a Rs. 6 lakh grant in Year 1 and a Rs. 9 lakh grant in Year 3 once membership increases. The CGF reduces lending risk for financial institutions lending to FPOs. Under the CGF, NABARD guarantees 85% of the loan amount for loans below Rs. 1 crore and 75% for loans between Rs. 1 and 2 crores [10]. Outside of these two mechanisms, the scheme also provides funding for the formation, incubation, and management of FPOs. However, most of this funding goes to CBBOs and the professionals hired to manage the FPO.

Coupled with the activities of CBBOs, these capital delivery mechanisms have the potential to address many small farmer challenges. However, it is important to note that the majority of FPOs remain outside of this policy framework — only 23% of the FPOs registered by 2023 were promoted through IAs [11]. Most remaining FPOs were formed independently by groups of farmers. Relying heavily on a centralized policy structure risks ignoring this population.

A wide range of other agriculture schemes involving marketing infrastructure, the cultivation of specific crops, organic farming, and export-ready production have also been extended to apply to FPOs [12]. Additionally, the 2018-19 Budget announced that FPCs would be exempt from paying Income Tax [13]. However, FPCs still have to pay a 15% Minimum Alternate Tax on profits [14]. While many important policy components are in place, the policy landscape is hard to navigate for FPCs that lack technical and policy expertise.

Amul: The Gold Standard

Amul comprises 18 member unions that cover 18,600 villages and 36 lakh farmers [15]. Recognized in August as the strongest food brand in the world [16], it is arguably also the most successful agricultural collective. Several key factors contribute to Amul’s success. Among agricultural products, milk is unique. There are standardized processes for production and processing, accurate and low-cost checks for quality testing, and continuous daily production throughout the year. These characteristics have let Amul (and several other large dairy cooperatives) grow immensely without compromising on quality. The evenness and high frequency of production let farmers quickly understand the ease and benefits of working with Amul. Farmers’ consistent, frequent, and positive interactions with Amul contribute to a strong sense of ownership and buy-in.

Another crucial element of success is the separation of production and marketing. Village Dairy Cooperative Societies and District Milk Unions handle procurement, aggregation, quality testing, and value addition. The State Milk Federation is exclusively responsible for branding, marketing, and distribution. Thus, the Gujarat Co-operative Milk Marketing Federation (GCMMF) — Gujarat’s State Milk Federation — is the marketing organization for the dairy cooperatives of Gujarat. GCMMF is India’s largest food marketing entity and generates $7.3 billion of annual turnover [15]. Most importantly, 85% of sales revenue goes directly to farmers [17].

FPC Performance

While Amul is based on a cooperative structure, its goal is the same as an FPC — creating a collectively-managed organization that increases farmer income and wellbeing at scale. How do FPCs stack up?

There is a dearth of good, publicly available data about FPCs at a national level. However, two metrics — strike-offs and paid-up capital — can help us understand performance. An FPC can be struck-off for three reasons — failure to commence operations within a year of registration, failure of members to pay the capital they committed, and not carrying out any operations for a period of two financial years. In 2021, 45% of FPCs that were 7 years or older had been struck-off [18]. In Maharashtra, the state with the most FPCs, only 16% of FPCs were found to be active [19].

Paid-up Capital (PUC) refers to the amount of equity capital that the FPC has raised from its members. For FPCs, membership fees (and the equity grant) are the only sources of paid-up capital. While the average PUC for all active (not struck-off) FPCs was Rs. 8 lakhs, the median PUC was Rs. 1 lakh. For 57% of FPCs, PUC was Rs. 1 lakh or less [18]. This reflects a highly skewed PUC distribution — the top 20 FPCs accounted for 44% of total PUC. Intriguingly, 13 of these 20 FPCs were milk producer companies [18]. Low PUC suggests that FPCs struggle to get farmers to join and pay a membership fee. It also means that most FPCs have inadequate funds to commence operations or provide meaningful value-addition.

Although FPCs were designed to address the capital access and member engagement issues that plagued cooperatives, the same problems persist. Consequently, most FPCs struggle to get off the ground. Without capital, FPCs can’t perform their intended functions — buying inputs in bulk, aggregating produce, and linking producers to the market.

Discussion

Like with many national-level schemes and policies, FPO policy has understandably focused on broadening coverage. However, creating FPCs that include lakhs of farmers is a waste of funding and resources if they fail to meaningfully improve farmer wellbeing. What are the primary challenges?

FPC registration is driven by a CBBO or group of farmers deciding to start an FPC in an area. Here, independent FPCs struggle to complete complex registration procedures, pay various fees, and create realistic business plans [20]. Since CBBOs tend to be NGOs, even they struggle with the business side of FPC incubation. Contrast this with Amul, where dairy farmers just complete a straightforward registration process for a village-level cooperative. Those cooperatives are then linked to a national-level marketing company through a clear structure.

Next is farmer mobilization — convincing hundreds of farmers to join an FPC and pay a membership fee. Although central recommendations suggest that FPCs should have at least 500 members, average membership is 222 [7]. Without a critical mass of members, FPCs struggle to gather both funds and scale. Once an FPC has members, convincing them to sell to the FPC is also challenging unless clear price increases are provided. Conversely, the early Amul cooperatives were formed with strong buy-in from farmers in response to exploitation by middlemen [21]. The price increases from eliminating middlemen started a virtuous cycle, with membership increasing as a result of increased compensation, further increasing economies of scale.

FPCs that successfully mobilize members and capital are typically able to perform input provision and output aggregation services, marginally increasing profits by reducing cost of cultivation and increasing the farm gate price. However, equity capital is usually insufficient to make the investments required to significantly increase income through value-addition and market linkage. This requires debt financing and government support, both of which have significant access and logistical issues. In Amul’s case, Operation Flood (“The White Revolution”) provided targeted infrastructure and capital that addressed every stage of the production process — inputs (cattle feed), production, procurement, processing, and marketing [22].

The extensive coverage of FPOs is promising. However, without initial capital and membership being nurtured by strong execution and management, FPOs will fare no better than cooperatives.

Bibliography

[1] A. Kanitkar, “The Logic of Farmer Enterprises,” Institute of Rural Management, Anand, Occasional Publication 17, Jan. 2016. Available: https://irma.ac.in/uploads/randp/pdf/1518_28072.pdf

[2] Ministry of Cooperation, “National Cooperative Database 2023: A Report,” Government of India, New Delhi, 2023. Accessed: Dec. 27, 2024. [Online]. Available: https://cooperatives.gov.in/Final_National_Cooperative_Database_023.pdf

[3] Y. K. Alagh, “Report of High Powered Committee for Formation and Conversion of Cooporative Business into Companies,” New Delhi, Mar. 2000. Accessed: Dec. 27, 2024. [Online]. Available: https://www.thehinducentre.com/publications/policy-watch/article32257842.ece/binary/26-Alagh%20committee%20report%20of%20high%20powered%20committee%20for%20formation%20and%20covering%20of%20corporative%20business%20into%20Companies,%202000.pdf

[4] T. N. Shah, “Farmer Producer Companies: Fermenting New Wine for New Bottles,” Economic and Political Weekly, vol. 51, no. 8, pp. 15–20, Feb. 2016. Accessed: Dec. 27, 2024. [Online]. Available: https://www.researchgate.net/publication/298714452_Farmer_producer_companies_Fermenting_new_wine_for_new_bottles

[5] S. G. Patil, “Report of the High Powered Committee on Cooperatives,” Ministry of Agriculture, New Delhi, May 2009. Accessed: Dec. 27, 2024. [Online]. Available: http://www.indiaenvironmentportal.org.in/files/hpcc2009new.pdf

[6] Tata-Cornell Institute, “FPO Platform for India.” Accessed: Dec. 30, 2024. [Online]. Available: https://fpo.tci.cornell.edu/

[7] S. R. Thakur, “8875 FPOs have been registered across the country.” Accessed: Dec. 20, 2024. [Online]. Available: https://pib.gov.in/pib.gov.in/Pressreleaseshare.aspx?PRID=2040845

[8] NABARD, “Farmer Producers’ Organizations (FPOs): Status, Issues & Suggested Policy Reforms,” 2020. Available: https://www.nabard.org/auth/writereaddata/careernotices/2708183505Paper%20on%20FPOs%20-%20Status%20&%20%20Issues.pdf

[9] Prime Minister’s Office, “Prime Minister launches 10,000 Farmer Producer Organisations (FPOs) all over the country.” Accessed: Jan. 03, 2025. [Online]. Available: https://pib.gov.in/pib.gov.in/Pressreleaseshare.aspx?PRID=1604743

[10] Department of Agriculture, Co-operation & Farmers’ Welfare, “Formation and Promotion of 10,000 Farmer Producer Organizations (FPOs): Operational Guidelines,” Ministry of Agriculture and Farmers Welfare, New Delhi, Jul. 2020. Available: https://dmi.gov.in/Documents/FPO_Scheme_Guidelines_FINAL_English.pdf

[11] Department of Agriculture & Farmers’ Welfare, “Annual Report 2023-24,” Government of India, New Delhi, 2024. Available: https://agriwelfare.gov.in/Documents/AR_English_2023_24.pdf

[12] Department of Agriculture & Farmers’ Welfare, “Draft of National Policy on Farmer Producer Organisations,” Ministry of Agriculture and Farmers’ Welfare, New Delhi, Jun. 2024. Available: https://agriwelfare.gov.in/Documents/HomeWhatsNew/National_policy_onFPOs_18Jun2024.pdf

[13] NABARD, “Handbook on Maintenance of Accounts and Preparation of Financial Statements for Farmer Producer Organisations,” Uttarakhand Regional Office, Dehradun, Mar. 2018. Available: https://www.nabard.org/auth/writereaddata/tender/0702203643FPO%20ENG.pdf

[14] S. N. S. Tomar, “Lok Sabha Unstarred Question No. 400,” Ministry of Agriculture and Farmers Welfare, Dec. 2023. Available: https://sansad.in/getFile/loksabhaquestions/annex/1714/AU400.pdf?source=pqals#:~:text=Under%20Companies%20Act%3A%20Under%20section,section%20115JB%20(MAT%20provision).

[15] Amul, “Organisation.” Accessed: Jan. 04, 2025. [Online]. Available: https://amul.com/m/organisation

[16] Economic Times, “Amul Emerges as World’s Strongest Food and Dairy Brand.” Accessed: Jan. 04, 2025. [Online]. Available: https://economictimes.indiatimes.com/industry/cons-products/food/amul-emerges-as-worlds-strongest-food-and-dairy-brand-topping-global-rankings-in-brand-finance-food-drink-2024-report/articleshow/112676121.cms?from=mdr

[17] ET नाऊ, “Amul vision is to be the biggest dairy in the world; already exporting to almost 50 countries: MD,” The Economic Times, Mar. 12, 2024. Accessed: Jan. 04, 2025. [Online]. Available: https://economictimes.indiatimes.com/markets/expert-view/amul-vision-is-to-be-the-biggest-dairy-in-the-world-already-exporting-to-almost-50-countries-md/articleshow/108426991.cms?from=mdr

[18] R. Govil and A. Neti, “Farmer Producer Companies: Report II, Inclusion, Capitalisation and Incubation,” Azim Premji University, Bangalore, 2022. Available: https://cdn.azimpremjiuniversity.edu.in/media/publications/downloads/report/Farmer_Producer_Companies_Past_Present_and_Future.f1597749327.pdf

[19] P. Biswas, “Only 16% of registered Farmers Producers Companies active in Maharashtra, reveals survey,” The Indian Express, Dec. 06, 2022. Accessed: Jan. 07, 2025. [Online]. Available: https://indianexpress.com/article/cities/pune/only-16-of-registered-farmers-producers-companies-active-in-state-reveals-survey-8307830/

[20] V. Nikam, H. Veesam, P. Chand, and K. T M, “Farmer Producer Organizations in India: Challenges and Prospects,” Indian Council of Agricultural Research, New Delhi, Oct. 2023. Available: https://niap.icar.gov.in/pdf/pp40.pdf

[21] Amul, “History - AMUL Dairy.” Accessed: Jan. 07, 2025. [Online]. Available: https://www.amuldairy.com/history.php

[22] Amul, “A Note on the Achievements of the Dairy Cooperatives.” Accessed: Jan. 07, 2025. [Online]. Available: https://amul.com/m/a-note-on-the-achievements-of-the-dairy-cooperatives

[23] Photo Credit — Isha Outreach.

Between 90 and 150 million Indians are farmers [1]. Agriculture and allied sectors employ 46.1% of India’s workforce [2], yield 18.3% of GDP [3], contribute 14% of total emissions [4], and account for 85% of India’s water usage [5]. Finding an economically and environmentally sustainable solution for agriculture at a national level is necessary for Sustainable Bharat.

The average agricultural land holding has dropped steadily from 2.28 hectares in 1970-71 to 1.08 hectares in 2015-16 [6]. Consequently, the share of small (1-2 ha) and marginal (<1 ha) farmers has grown from 70% to 86% in the same period [7]. The challenges discussed in this article are relevant to all Indian farmers. That said, small and marginal farmers (SMFs) are particularly vulnerable due to small farm sizes, lack of savings, poor access to capital, and relatively high costs of cultivation.

Indian agriculture is an immense topic. This article does not provide an exhaustive list of the challenges it faces. Instead, I attempt to illustrate some of the most important issues that Indian farmers, particularly SMFs, deal with on a day-to-day basis.

Economic Issues

Despite employing close to half of India’s workforce, the contribution of agriculture and allied sectors to GDP has steadily dropped from 47.6% in 1960-61 to 14.4% in 2010-11 [8]. Farmers receive only a small fraction of this share — middlemen and traders exploit market inefficiencies to capture the majority. This section examines several issues that contribute to or result from this economic situation.

Rising Labor Costs

Average agricultural labor use has declined since the 2000s. However, labor now accounts for 46% of cost of cultivation (up from 38.4%) due to a large increase in real agricultural labor wages [9]. Labor alone contributed to 53% of the increase in cost of cultivation between 2007-08 and 2014-15 [10]. Consequently, SMFs struggle to find low-cost, temporary labor during planting and harvesting periods.

They have a few options to overcome labor issues. First, they could mechanize operations, which requires capital that SMFs typically don’t have and struggle to borrow. Second, they could switch to less labor-intensive crops. Finally, they could use family labor more intensively — the favored option for a majority of SMFs [11]. The last alternative is to outsource labor-intensive processes to traders, who buy produce in advance and handle the labor requirements of harvesting. Although this sounds convenient, advance rates in these arrangements tend to be significantly lower than market prices.

Input Cost and Quality

Farmers also struggle to find reasonably-priced, high-quality inputs. Asymmetric information and monopoly power allow traders in input markets to exploit farmers by charging prices above MRP or selling diluted or adulterated inputs. Since SMFs lack information about input quality and input markets aren’t competitive, they have no choice but to buy the expensive, low-quality inputs offered by traders.

Market Price

SMFs face similar issues on the sell side — they are forced to take the price quoted by large traders in the area. These farmers lack the ability to transport their produce to larger, more competitive markets. Additionally, produce tends to be perishable and SMFs lack storage facilities, so there is no choice but to sell at the prevailing market price.

As a result, market price fluctuations have a huge impact on farmers. Price crashes decimate revenues and lead to spikes in farmer suicides nationally. However, farmers often don’t benefit from price rises because the government implements price controls to curb inflation.

Cash Flow

Farmers typically reap revenue twice a year — once with each harvest (rabi and kharif). However, their costs — seeds, fertilizers, pesticides, labor, and personal costs — are distributed throughout the year. The solution? Loans. This wouldn’t be an issue if SMFs had access to reasonably-priced debt from formal institutions, but only 41% of SMFs are covered by formal credit [12]. As a result, 50.7% of SMFs use informal credit, primarily from professional and agricultural moneylenders that charge extortionate interest rates [13]. Access isn’t the only issue. Many farmers borrow from both formal and informal sources, indicative of the formal sector’s inability to adequately service farmers, particularly in times of emergency.

Environmental Issues

The effects of climate change — water shortages, temperature rise, and changing rainfall patterns — are poised to cripple Indian crop yields. For example, rice yields from rain-fed cropland are expected to drop 20% by 2050 and 47% by 2080 without adaptation measures. Conversely, yields only decline by 3.5% and 5% respectively for irrigated cropland [14]. However, despite consistent increases in irrigation coverage, only 52% of the gross cropped area in India is irrigated [15].

Additionally, several environmental issues (not necessarily caused by climate change) pose major threats to Indian agriculture today.

Soil Health

In the past 70 years, India’s soil organic carbon — a key indicator of soil health — has fallen from 1% to 0.3% [16]. 29.77% of India’s total geographical area is estimated to be affected by land degradation and desertification [17]. 40% of this degradation is a result of inappropriate agricultural practices, including fertilizer overuse and misuse, overgrazing, and pesticide overuse [18]. Thus, a vicious cycle emerges as farmers increase fertilizer use to offset declines in crop yield due to soil degradation caused by fertilizer overuse.

Switching to organic or precision farming techniques can break this cycle, but SMFs often lack the knowledge and access to inputs to implement this switch. And while organic farming increases overall yields in the long-term, there is a short-term decline in yields as the soil adjusts to the absence of fertilizer [19].

Pest and Weed Resistance

Pesticide use in India has been relatively stable since 1990. India also uses significantly less pesticides than other major agricultural countries [20]. However, unsafe pesticide application and exposure contribute to a range of health issues, including increased risk of Alzheimer’s, Parkinson’s [21], musculoskeletal disorders, allergies, and asthma [22]. Climate warming and changing rainfall patterns will expand the geographic range of pests, increase their survival rates, and heighten the risk of invasive pest species [23]. Volatilization — the gaseous dispersion of pesticides after spraying — will also increase with higher temperatures, reducing pesticide efficacy [24]. Without alternatives, these factors will drive a large increase in pesticide use that will have dangerous implications for farmer health, consumer health, and long-term sustainability.

In addition, spurious and illegal pesticides constitute 30% of the pesticides sold in India by volume [25]. SMFs often have no mechanism to test or verify the quality of the inputs they buy. The high incidence of spurious pesticides imposes costs on farmers while leaving them vulnerable to pest-induced crop destruction.

Water Shortages

Intensive groundwater use catalyzed India’s Green Revolution. Today, groundwater supplies 62% of the water used for irrigation and 85% of rural water supply [26]. However, excessive groundwater use has led to the depletion of groundwater resources nationally. These resources are over-exploited, critical, or semi-critical in 35% of the districts in India [27]. Groundwater depletion promises severe consequences for farmer incomes, crop yields, and rural health. It is expected to reduce cropping intensity by 20% nationally and by 68% in groundwater-depleted regions [28]. Higher drought incidence, changing rainfall patterns, and increased irrigation requirements [29] will further exacerbate India’s already critical water situation.

In the next article, I’ll explain what the FPO model is, discuss the policy framework around it, and evaluate the performance of FPOs nationally in addressing these challenges.

Bibliography

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[3] S. N. S. Tomar, “Contribution of Agricultural Sector in GDP.” Accessed: Dec. 11, 2024. [Online]. Available: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1909213

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[6] S. N. S. Tomar, “Decrease in Agricultural Holdings.” Accessed: Dec. 19, 2024. [Online]. Available: https://pib.gov.in/newsite/PrintRelease.aspx?relid=199780

[7] Ministry of Agriculture and Farmers Welfare, “Agriculture Census 2015-16,” Aug. 2019. Available: https://www.fao.org/fileadmin/templates/ess/ess_test_folder/World_Census_Agriculture/WCA_2020/WCA_2020_new_doc/IND_REP_ENG_2015_2016.pdf

[8] S. H. Rawat, “Share of Agriculture Sector in GDP.” Accessed: Dec. 19, 2024. [Online]. Available: https://pib.gov.in/newsite/PrintRelease.aspx?relid=78369

[9] S. Srivastava, J. Singh, N. Kumar, N. Singh, and N. Ahmad, “Changing Agricultural Labour Market and its Effects on Farm Economy in India,” Indian Journal of Agricultural Economics, vol. 75, pp. 469–480, Dec. 2020.

[10] S. K. Srivastava, R. Chand, and J. Singh, “Changing Crop Production Cost in India: Input Prices, Substitution and Technological Effects,” Agri. Econ. Rese. Revi., vol. 30, p. 171, 2017, doi: 10.5958/0974-0279.2017.00032.5.

[11] M. Satishkumar and K. B. Umesh, “Farmers Strategies to Cope Labour Shortage in Northern and Southern Dry Zones of Karnataka, India,” Current Agriculture Research Journal, vol. 6, no. 2, pp. 206–212, Aug. 2018, doi: 10.12944/CARJ.6.2.10.

[12] Reserve Bank of India, “Report of the Internal Working Group to Review Agricultural Credit,” Sep. 2019. Available: https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/WGREPORT101A17FBDC144237BD114BF2D01FF9C9.PDF

[13] R. Basumatary, S. Kalita, and H. Bharadwaj, “Informal Credits in India’s Agriculture Sector: Debt Incidence, Size and Distribution across Major Farm-size Groups,” International Journal of Rural Management, vol. 20, no. 3, pp. 392–412, Dec. 2024, doi: 10.1177/09730052241262599.

[14] S. N. S. Tomar, “Impact of Climate Change on Agriculture.” Accessed: Dec. 17, 2024. [Online]. Available: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1909206

[15] N. Patel, B. Dorin, and R. Nagaich, “A New Paradigm for Indian Agriculture: From Agroindustry to Agroecology,” NITI Aayog, 2022. Available: https://www.niti.gov.in/sites/default/files/2023-03/A-New-Paradigm-for-Indian-Agriculture-from-Agroindustry-to-Agroecology.pdf

[16] Business Standard, “Soil organic carbon content fell from 1% to 0.3% in 70 years in India: NRAA.” Accessed: Dec. 17, 2024. [Online]. Available: https://www.business-standard.com/article/current-affairs/soil-organic-carbon-content-fell-from-1-to-0-3-in-70-years-in-india-nraa-122032600305_1.html

[17] Indian Space Research Organization, “Desertification and Land Degradation Atlas of India,” Space Applications Centre, Jun. 2021. Available: https://vedas.sac.gov.in/static/atlas/dsm/DLD_Atlas_SAC_2021.pdf

[18] R. Bhattacharyya et al., “Soil degradation and mitigation in agricultural lands in the Indian Anthropocene,” European Journal of Soil Science, vol. 74, no. 4, p. e13388, 2023, doi: 10.1111/ejss.13388.

[19] Indian Council of Agricultural Research, “Base Paper on Organic Farming,” Mar. 2015. Available: https://icar.org.in/sites/default/files/inline-files/Base-Paper-Organic-Farming-%20Base-16-03-2015.pdf

[20] A. A. Reddy, M. Reddy, and V. Mathur, “Pesticide Use, Regulation, and Policies in Indian Agriculture,” Sustainability, vol. 16, no. 17, 17, p. 7839, Jan. 2024, doi: 10.3390/su16177839.

[21] D. Kumar, S. N. Sinha, S. Rajendra, and K. Sharma, “Assessing farmer’s exposure to pesticides and the risk for non-communicable diseases: A biomonitoring study,” Science of The Total Environment, vol. 891, p. 164429, Sep. 2023, doi: 10.1016/j.scitotenv.2023.164429.

[22] D. Venugopal et al., “Evaluation of work place pesticide concentration and health complaints among women workers in tea plantation, Southern India,” Journal of Exposure Science & Environmental Epidemiology, vol. 31, no. 3, pp. 560–570, May 2021, doi: 10.1038/s41370-020-00284-3.

[23] S. Skendžić, M. Zovko, I. P. Živković, V. Lešić, and D. Lemić, “The Impact of Climate Change on Agricultural Insect Pests,” Insects, vol. 12, no. 5, p. 440, May 2021, doi: 10.3390/insects12050440.

[24] T. Boonupara, P. Udomkun, E. Khan, and P. Kajitvichyanukul, “Airborne Pesticides from Agricultural Practices: A Critical Review of Pathways, Influencing Factors, and Human Health Implications,” Toxics, vol. 11, no. 10, 10, p. 858, Oct. 2023, doi: 10.3390/toxics11100858.

[25] Federation of Indian Chambers of Commerce and Industry (FICCI), “Study on Sub-Standard, Spurious / Counterfeit Pesticides in India,” New Delhi, 2015, Available: https://croplife.org/wp-content/uploads/2015/10/Study-on-sub-standard-spurious-counterfeit-pesticides-in-India.pdf

[26] A. Kapoor and M. Anand, “Addressing Groundwater Depletion Crisis in India: Institutionalizing Rights and Technological Innovations,” Economic Advisory Council to the PM, Mar. 2024. Available: https://eacpm.gov.in/wp-content/uploads/2024/05/Addressing_Groundwater_Depletion_in_India.pdf

[27] Central Ground Water Board, “Annual Report 2020-21,” Ministry of Jal Shakti, 2021. Available: https://www.cgwb.gov.in/old_website/Annual-Reports/AGR%202020-21%20Final%2027%20Jan%202021%20RS%20Final%20Ranjan.pdf

[28] M. Jain et al., “Groundwater depletion will reduce cropping intensity in India,” Science Advances, vol. 7, no. 9, p. eabd2849, Feb. 2021, doi: 10.1126/sciadv.abd2849.

[29] H. Pathak, P. Pramanik, M. Khanna, and A. Kumar, “Climate change and water availability in Indian agriculture: Impacts and adaptation,” The Indian Journal of Agricultural Sciences, vol. 84, no. 6, 6, pp. 671–9, Jun. 2014, doi: 10.56093/ijas.v84i6.41421.

[30] Photo Credit — Isha Outreach.

Literature

Truly understanding climate change requires us to imagine alternate realities. Instead of thinking of climate change as an abstract, futuristic possibility, we must understand that climate change is here and is already affecting lives across the planet. The arts in general, and literature in particular, are the most suited to helping us envision these alternative realities. Why, then, is there so little literature about climate change?

Novels — the gold standard for literary fiction — possess a couple defining characteristics. First, they tend to focus on the prosaic and everyday, not fantastical or improbable events. The extreme effects of climate change — city-destroying storms or droughts that cripple entire countries — are so improbable and “uncanny”, as Ghosh puts it, that they seem almost ridiculous when written about in novel form. Consequently, novels that address climate change are relegated to the genres of fantasy or sci-fi — they’re not considered “serious” literary fiction. Second, to make a novel “narratable”, authors must establish a discontinuity of time and space. Doing so allows for an individual and their surroundings to become a microcosm of a broader context. Climate change, however, is not an issue that can be understood through an individual frame. The full scope of its creation and effects can only be fathomed at the level of the collective.

Ghosh argues that these shortcomings of literary fiction emerge from the Western conception of modernity. First, the need to splice life into rational, individual-based forms of narrative stems from economic systems that are both predicated on isolation and designed to produce it. Second, the exclusion of the improbable is a result of the bourgeois belief in regularity. Ghosh illustrates this through the link between the waterfront and colonialism. Historically, cities were never built near the coast. Even the great port cities of Asia and Europe — Surat, Guangzhou, London, Rotterdam — are protected from the open ocean. Only during the colonial period were large cities consistently situated on exposed coastline. Examples abound — New York, Mumbai, Singapore, Boston, Hong Kong, and my hometown, Chennai. This reckless ignorance of ecological risk in pursuit of human growth is based on the belief that humanity could control nature. The costs of that recklessness will only grow with the impact and severity of those ecological risks.

History

The history of modern climate change starts with the Industrial Revolution, with emissions and capitalism spreading synchronously across the world. Ghosh argues that this view is dangerously limited. Instead, he argues that imperialism was an equally if not more important determinant of climate change. The Industrial Revolution in the West was fueled by raw materials extracted from colonies. Maintaining this arrangement required the suppression of indigenous capitalism — if colonies started to industrialize, they would use the raw materials themselves. As Ghosh puts it, “the emerging fossil-fuel economies of the West required that people elsewhere be prevented from developing coal-based energy systems of their own, by compulsion if necessary”. There is no better example than the British Raj, where British rule was founded on the suppression and destruction of the Indian economy.

Integrating imperialism into our historical understanding of climate change yields the fascinating insight that colonial powers may have actually slowed the onset of climate change by stunting the growth of the carbon economy in Asia. This fact strongly supports the case for climate reparations. In Ghosh’s words, “Inasmuch as the fruits of the carbon economy constitute wealth, and inasmuch as the poor of the global south have historically been deprived of this wealth, it is certainly true, by every canon of distributive justice, that they are entitled to a greater share of the rewards of that economy”.

Politics

The idea of individual freedom is the most important value of the modern era — not just in politics but also in the humanities and arts. Freedom is primarily understood as an escape from injustice caused by other humans or human-made systems. By introducing a non-human threat to freedom, climate change fundamentally challenges this conception.

In this section, Ghosh posits that the ability of the public sphere to influence politics has rapidly dwindled. In supporting this point, he highlights key differences between coal- and petroleum-based economies.

He also describes climate change as a “threat multiplier” that will deepen existing geopolitical divisions and intensify a range of conflicts. He suggests that for many Western countries, business as usual is the plan for climate change. Since these countries will escape the worst impacts of the climate crisis despite being the biggest contributors to it, they may just be waiting for a Malthusian “correction” in terms of population and resource-use. He expects high-income countries to follow a “Politics of the Armed Lifeboat”, which involves “preparations for open-ended counter-insurgency, militarized borders, and aggressive anti-immigrant policing”. As horrific and outlandish as this sounds, “such a Darwinian approach would not be in conflict with free market ideology”.

Ghosh concludes his book with a comparative analysis of The Paris Agreement and Laudato Si’, Pope Francis’ encyclical about climate change. Contrary to one might expect, Laudato Si’ is far more pragmatic and direct about the challenges presented by climate change than the Paris Agreement. Their approach to climate justice is perhaps the most stark point of difference. Laudato Si’ emphasizes “how inseparable the bond is between concern for nature, justice for the poor, commitment to society, and interior peace”, echoing the principles of true sustainable development. Conversely, The Paris Agreement sole mention of climate justice merely acknowledges “the importance for some of the concept of ‘climate justice’ when taking action to address climate change” further clarifying that “the Agreement does not involve or provide a basis for any liability or compensation”. Taken together, these two clauses essentially amount to a complete rejection of the idea of climate justice.

Like many books on climate change, Ghosh closes with a call to action, encouraging activist movements and highlighting the dwindling amount of time we have to take action to avoid the worst effects of climate change. He notes that there are some reasons for optimism about the climate movement, including growing public urgency, emerging green technology, and widening activism. The possibility of religious groups’ entry into the politics of climate change is, he says, the single most promising development — these large, already-existing communities could add a great deal of impetus to the climate movement. Importantly, religious language and communication is not subject to the same limitations as literature, history, and politics regarding climate change.

The Great Derangement was a great, engaging read. It provides an expanded framework to better understand climate change through a variety of lenses. While I don’t agree with everything Ghosh writes about, the depth of his research, breadth of his understanding, and his ability to synthesize information across disparate disciplines made it more than worth reading.

Here’s the link to the original report. It’s 109 pages (+ 15-page appendix) and took about 5 hours to read.

Context

The Kyoto Protocol established three market-based tools for emissions trading.

1. Emissions Trading - countries with an emissions deficit (emissions > limit) can purchase allowances from countries with an emissions surplus (emissions < limit).

2. Joint Implementation - countries can invest in emissions reduction projects in other countries subject to emissions reductions targets.

3. Clean Development Mechanism - developed countries can invest in emissions reduction projects in developing countries. Developed countries can count the associated emissions reductions toward their own emissions reduction targets.

From an economics perspective, the principle behind emissions trading is simple. Assuming that all abatement (emissions reduction) is created equal, creating a market for abatement helps entities abate at the lowest cost. If the cost of abatement is high in a high-income country, a company or government in that country can abate more cheaply by investing in projects in low- or middle-income countries. Instead of each transaction occurring at a project level, emissions reductions are split into carbon credits. In theory, each carbon credit represents a reduction of 1 Ton of Carbon Dioxide Equivalent (tCO2e), a measure of Global Warming Potential. There are two types of markets for this kind of trading.

1. Compliance Carbon Market (CCM) - participants in CCMs agree to adhere to an overall cap on emissions in a specific period. At the start of the period, participants are allocated emissions permits. The sum of the allocated permits matches the overall cap. During the period, participants with excess allowances can sell them to participants with excess emissions. These markets are often called cap-and-trade systems.

2. Voluntary Carbon Market (VCM) - buyers looking to voluntary reduce their emissions buy credits generated by emissions reductions projects.

How do VCMs work?

Buyers in VCMs comprise companies, institutions, and individuals looking to offset their emissions. They do this buy purchasing credits that, in theory, represent a reduction or removal of greenhouse gases (GHGs). These markets work on the baseline-and-crediting mechanism. An emissions reductions project establishes a baseline (emissions levels without the project) and then generates credits based on marginal reductions from that baseline. VCMs are only effective if the principle of additionality — that emissions reductions wouldn’t have happened without the project — holds.

There are a few primary groups of participants in these markets.

1. Project Developers design, implement, and manage emissions reduction projects with the goal of receiving carbon credits. They could be private (NGOs, companies, etc.) or public (governments).

2. Standards Bodies establish procedures for quantifying, verifying, and reporting emissions reductions. These bodies act as registries for the listing, verification, and retirement of carbon credits.

3. Validation and Verification Bodies (VVBs) are third-parties hired by developers to validate projects and verify their offset claims. VVBs are accredited by Standards Bodies, and their approval is necessary for offset registration.

4. Buyers drive demand in VCMs. They are typically companies, governments, or individuals looking to demonstrate their sustainability or achieve carbon neutrality.

5. Brokers link developers with buyers. They are well-informed about the projects they buy credits from, often using this information to design offset portfolios for buyers.

6. Marketplaces are platforms where credits can be listed and traded. While marketplaces have lower commission fees than brokers, buyers have less information about the projects underlying the credits.

India and VCMs

Credits linked to VCMs are significant. The sum of credits issued till date equals 10% of India’s 2020 GHG emissions. Credits linked to Indian projects comprise ~20% of all issued credits on Verra and Gold Standard, the two largest standards bodies. Most of these credits break down into two types. Renewable Energy projects comprise 90% of credits. However, these are older credits — registries no longer accept these projects since renewables became cost-competitive with fossil fuels. The lion’s share of the remainder is comprised by clean cookstove projects, a category that is growing rapidly. These projects provide efficient cookstoves to households that otherwise burn firewood in a mud chulha. Emissions are reduced by lower firewood use (less deforestation and wood-burning).

Issues with VCMs

The CSE Report then delves into five case studies — a clean cookstove project, a tree plantation, a project implementing a more sustainable technique for paddy cultivation, a biogas project, and a renewables project (Pages 52 to 84). Since they’re hard to summarize, I’d recommend reading them — they were the most illuminating part of the report. I’ll spend the rest of the article discussing issues with VCMs, drawing on examples from the case studies.

Before talking through VCM-specific issues, there are a few issues that are ubiquitous to all carbon markets.

1. Additionality - carbon markets only work if emissions reductions wouldn’t have happened without the project and associated offset revenue.

2. Baseline Estimation - baselines are, by definition, imagined. They are estimated and then compared to actual emissions to calculate reductions. In the clean cookstove case study, estimations were based on the assumption that a) households exclusively used wood stoves (many households had LPG connections) and b) households use the clean cookstoves on a daily basis (many households solely used them to boil water).

3. Permanence - emissions reductions may later be reversed. In the tree plantation case study, a forest fire eliminated a large proportion of claimed reductions.

4. Leakage - emissions reductions from the project may lead to increased emissions elsewhere.

In addition, the diffuse, opaque, and private setup of VCMs yields a completely new set of issues.

1. Intermediaries - since intermediaries each take a fee or commission, beneficiaries only receive a small fraction of offset revenue. A single clean cookstove can generate $70-280 in credits despite costing as little as $2. Often, beneficiaries still pay part of the cookstove cost.

2. Information Asymmetry - buyers, particularly in marketplaces, have very little information about projects. As a result, it is hard to compare credits.

3. Conflicts of Interest - the most glaring example of this is the relationship between developers and VVBs. Project developers hire VVBs. They can work with the same VVB repeatedly. Consequently, VVBs have a strong incentive to be negligent — their negligence will ensure the developer continues to use their services. In fact, “honest” VVBs are systematically eliminated from the market.

4. Regulation - unlike compliance carbon markets, there are no legal structures to regulate VCMs. None of the participants have to disclose information, making it prohibitively difficult for buyers (or third-parties) to verify whether their emissions were actually offset.

5. Price and Cost - often, the price of offsets doesn’t match the cost of the projects. In the biogas case study, beneficiaries got a subsidy and paid the remaining cost for the biogas plant. Although beneficiaries had to pay for the plant, buyers were able to claim the generated reductions. The offset price was lower than the cost and not shared with beneficiaries.

Going Forward

There are a few promising developments on the VCM front. Governments globally are starting to tighten regulations on VCMs. In India, both the Union Power Ministry and the Union Environment Ministry have published plans for carbon market governance. These efforts will be driven by the National Steering Committee for Indian Carbon Market.

Independent ratings agencies have also emerged. These agencies publicly assess the quality of projects and the credits they generate. They have started to garner both funding and influence.

Another interesting change is that large buyers are starting to work directly with project developers to control quality and impact. While this could be a step in the right direction, it may actually make projects more opaque.

Given the range and seriousness of issues associated with VCMs, several changes are required.

1. Transparency - without more transparency from each participant, the veracity of credits will always be questionable.

2. Revenue Sharing - project beneficiaries receive a negligible proportion of credit revenue. For projects to be impactful and sustainable, this must change.

3. Price and Cost - to enable proper revenue sharing, credit revenue must approximately match project costs. Otherwise, the revenue from carbon credits is either distributed amongst intermediaries (revenue > cost) or beneficiaries have to pay for reductions that are claimed elsewhere (revenue < cost).

4. Estimation - baseline-and-crediting estimates vary greatly, even across similar projects. Establishing more rigorous standards for estimation that are maintained through public oversight could eliminate this variation.

5. Accounting - currently, VCMs threaten to undermine India’s emissions reduction goals (if reductions are claimed by institutions in other countries) or lead to double-counting of reductions (if India and external institutions both claim reductions).

VCMs work great in theory. However, without transparency, revenue sharing, and oversight, their setup lends itself more to profiteering than abatement.