Focus: Holy Cow Makes Bad Returns! What’s Your ROI?

Cows in rural India are delivering negative returns on investment to their owners. At the same time, they are improving the savings of rural people, according to a new study by some eminent economists.

In Indian culture, cows are considered sacred. In many developing countries, including India, these ‘sacred’ animals are an integral part of daily life. And people in India’s rural belts are very sensitive about this animal as they look upon the cow as their “gaumatha” (mother). At a time when the Indian economy is undergoing a turbulent phase of growth, the economics of cows throws up some alarming facts. 

There are about 280 million cows in India which produce useful commodities like milk and dung cakes and promise capacity addition by birthing more calves. But of late, maintaining a cow has become a little bit expensive, according to a new study paper prepared by the National Bureau of Economic Research (NBER). Cows seem to be an abysmal investment option, but it can be a good savings vehicle, according to the study paper.

The study, conducted by economists Santosh Anagol of University of Pennsylvania, Alvin Etang of Economic Growth Center, Yale University, and Dean Karlan of Department of Economics, Yale University, states that as an investment instrument, cow is a bad option, though it can boost the savings of people in rural India. According to the study, the average financial return is -64 per cent from cows and -39 per cent from buffaloes. 

Then, there comes another interesting question – why do people continue to have a cow if the financial returns are in the negative. Forget economics, Indians believe that cow is a crucial part of their spiritual life, and cow ownership gives them some kind of spiritual ecstasy. According to Vedic scriptures, the cows are to be treated with the same respect as one’s mother because of the milk they provide us with. The Mahabharata says,“The cow is my mother.” 

The Indian God, Lord Krishna, was brought up in a family of cowherders, and hence the name Govinda (protector of the cows). Another mythological character, Lord Shiva, is said to ride on the back of a bull named Nandi. In ancient rural India, every household had a few cows which ensured constant supply of milk. “But the economics behind cows has great significance in the present socio-economic realm of rural heartlands,” the economists feel.

After studying cow and buffalo ownership in rural areas of northern India, the economists found that despite yielding negative results, investment in cows boosts the savings of rural Indians. That’s because most financial services have not yet reached the Indian villages in a full-fledged manner. Only seven per cent of Indian villages have a bank branch, and the people in isolated villages do not have many options for savings. And they think investing in a cow may be a better option. “We are motivated to study dairy animals in India because of their importance as an asset among India’s rural poor. 

India holds more than a sixth of the world’s population and over one quarter of the world’s estimated cattle population. The Rural Economic and Demographic Survey (REDS), a nationally representative survey of rural India, found that 45 per cent of rural Indian households owned at least one cow or buffalo in 1999, and on average, those who have a cow or buffalo have an adult female,” the economists said in their research paper.

The research provides information on all the major inputs in the milk production function, including the value of the animal, fodder costs, veterinary costs and lactation periods, and detailed data on animal outputs, including milk, calves, and dung.

“We estimate annual returns to owning a dairy animal based on estimates of accounting profits (excluding the opportunity cost of labour) and economic profits (including the opportunity cost of labour, but not including the opportunity cost of capital),” the economists said.“Our main finding is that, on average, households earn negative returns on their investments in cows and buffaloes if labour is valued at market wages: we estimate average returns of negative 64 per cent and negative 39 per cent for cows and buffaloes respectively. 

If we value the household’s own labour at zero, estimated average returns increase, to negative 6 per cent for cows and positive 13 per cent for buffaloes. We conduct a variety of robustness checks to consider measurement error in the value of inputs and outputs as an explanation for our estimated low returns. For example, we replace self-reported values of fodder with estimated costs from a fodder production company in India and find that estimated returns still appear to be low. We also conduct sensitivity analyses by adjusting the data for outliers, but still find low estimated returns,” the three economists stated in their paper.

The study also finds that it is unlikely that livestock investments offer better returns than formal savings. According to a study, about 70 per cent of milk sold in India do not meet basic health standards. When the quality of home-produced milk is higher than purchased milk, households are willing to receive low financial returns on diary investments in exchange for the guarantee of having high quality milk for household consumption.

“If the value of self-produced milk was 20 per cent higher than the market price, the average accounting return to cows would rise from negative 6 per cent to a positive 10 per cent,” the paper stated. The study also points out the relevance of cows as liquid assets.