Sunday, August 03, 2014

Staying in the Competition With Losses

In 1980, in Andhra Pradesh, the middlemen used to buy fish for very less price from the fishermen. There were no facilities to store or processing the fish. So, the fishermen could not wait till they get better price. So, they did not have any other option other than selling for whatever price was offered by the middlemen.

Since constructing an ice plant would take significant time and money, the Managing Director of fisheries, Mohan Kanda (who later became Chief Secretary of Andhra Pradesh) proposed to start a small shop to buy the fish from the fishermen for a reasonable price. They have done all the calculations and started the shop and announced a fair price for the fish. Then the middlemen did not make any calculations. They simply offered Re.1 more than the government price per kg fish. Obviously that was a better offer for the fishermen, and they started selling to the middlemen (but, now with higher price). Nobody sold to the government shop, and the shop was idle and it was incurring the cost of running the shop.

The original problem was, giving better price to the fishermen. That problem was solved.

After few months, finance ministry verified all the accounts and checked that, this shop was not getting any profits. It was not doing any sales and not buying anything from fishermen. So, they ordered to close the shop, since there were no profits.

As a result finance ministry saved few thousands of rupees on that shop. The middlemen reduced the prices, since there was no competition. The fishermen's income reduced. Nobody bothered that, running this shop is the least expensive way to improve the life of the fishermen, and welfare schemes are most expensive.

Courtesy: Mohana Makarandam by Mohan Kanda

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