The Economics Behind Cows in India

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NEW DELHI, India — Cows play a substantial role in developing countries across the globe, with their large population and important economic role. Cattle produces essential products like milk, dung for fertilizer and agriculture, meat and calves. They may also be an important part of a community’s culture.

They are an important economic vehicle – and yet, recent research and examinations show that cows are expensive.

The average cow in India consumes about $160 (10,000 rupees) of food per year. Veterinary costs also contribute to expenses.

India is home to over one sixth of the global population with over 1.237 billion people, and approximately 280 million cows. According to a 2013 study by Yale faculty on cow and buffalo owners in rural northern India, cows in India are mostly negative in terms of economics and can be a poor investment.

The study revealed that the average monetary return on a cow is -64%, given the costs of labor.

Low returns aside, there are other non-economic factors that explain why cow ownership is desirable. The cow is a sacred animal for Hindus, and some cattle owners simply prefer to produce their own milk, even if costs are higher.

The economic infrastructure in many developing countries also limits investment in cows. ICRIER, a think tank, states that only seven percent of Indian villages have a bank system, meaning that people do not have a formal savings location.

While there are other innovative ways to save, owning a cow may be simpler for owners in the long run. The 2013 Yale study noted that the poor are willing to earn low or negative returns in exchange for reliable saving mechanisms.

Households in developing countries may prefer to invest their savings in stable assets, such as livestock, to avoid being tempted into spending. Removing money from an account is much easier than taking value from a cow. This makes spending without careful thought much trickier.

At the same time, poor cow owners are not changing the opportunity cost due to high expenses. If the job market is flawed or without movement, then the true opportunity cost is close to zero.

With no jobs available, the opportunity cost of raising an animal is approximately zero. This means that for households in struggling economies, there is more to be gained than lost raising livestock, despite low returns.

Examination of the low returns on livestock assets sheds light on the affects of livestock grants. Beyond the value of the livestock grant, the Yale study suggests that just providing an asset may not be enough to increase income for the poor.

Cows play a central role in developing countries, despite their low returns. In many ways, they provide saving and personal security. However, providing assets in the form of livestock grants may be something to reconsider as development programs move forward.

Julia Thomas

Sources: The Economist, The Wall Street Journal, Yale
Photo: Death and Taxes

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