0014-A2

Market Imperfections in Phyto-Medicinal Trade in India - The Need for Institutional Interventions

S. K. Datta^[1]

Abstract

The phyto-medicinal market in India is plagued with imperfections. This article deals with the ways and means of removing such imperfections. Institutional intervention is essential to improve the economic conditions of the forest dwellers who are engaged in the collection of medicinal plants.

Introduction

Ancient Indian system of medicine is known as Ayurveda in which the medicines are prepared mostly from wild plants. The roots, tubers, bulbs, leaves, fruits, flowers and barks of wild vegetation, depending on their active principle contents, are used for the preparation of medicines for different ailments. Indian rich biological diversity supported the system of medicine from times immemorial. The diverse agro-climatic conditions, variation in regional topography, occurrence of variety of floral and faunal types, different human practices have not only contributed to the richness of Indian biological diversity, but also have maintained the same to a great extent. Tribal people in India, mostly forest devellers, played very significant role in the identification, conservation and collection of medicinal plants form the very ancient times.

Depending on the availability of principal medicinal plants, the country has been divided into eight phyto-geographic regions. The principal medicinal and aromatic plants those are found in the respective regions and the respective tribal population who are the custodians of the treasure, are given in Table-1.

“Table: 1 Phyto-geographic Regions with species diversity and Respective Tribal Population.

Source: Gupta et al., 1997 (modified)

In olden period the forest - dwellers used to collect a variety of leaves, fruits, seeds, nuts, roots, barks, tubers and rhizomes having medicinal value and used to exchange such products with their Aryan counterparts through a barter system. Surprisingly enough, the system still continues without much change or modification.

Collection of medicinal plants and other non-timber forest produce provides income for the forest dwellers for their subsistence. Studies indicate that agricultural production from tribal land is inadequate to maintain a household at subsistence level. The forest dwellers hence, depend on collection of medicinal plants and other non-timber forest produce for their livelihood (N.C. Saxena, 1996).Realizing the importance of collection of wild medicinal plants and other non-timber forest products (NTFPs) in the tribal economy, the Indian Forest Policy, 1988 provided for safeguarding the customary rights and interests of tribal people. The provision asks for protection, regeneration and optimum collection of minor forest produce along with institutional arrangements for the marketing of such produce.

Market Imperfections in Medicinal Herbs Trade

Trade in medicinal herbs, like any other natural product, suffers from market imperfections. Such imperfections are apparent on supply side, on the demand side and also on the difficulties in marginal-pricing system for such products. Factors contributing to such market imperfections are: (i) absence of a system of defining property right, (ii) problems in arriving at a convincing patenting policy, (iii) unique characters of medicinal plants and uncertainty of their availability, (iv) knowledge about medicinal plants being restricted to a limited people, (v) absence of organized market, (vi) interplay of middlemen in the trade and (vii) problems in marginal cost pricing of the medicinal herb i.e. absence of a mechanism for determining the share of the primary collectors in the final revenue obtained from the finished products.

(a) Imperfections on the supply side

There has been steady reduction in the area of natural forests producing the wild medicinal plants. The conversion of forest cover into non-forest uses between 1951 and 1980 has been given in Table 2.

Table: 2 FOREST COVER CONVERTED INTO NON-FOREST USES BETWEEN 1951 AND 1980.

Source: The Citizens’ Fifth Report (1999)

Since the enforcement of the Forest Conservation Act, 1980 although there has been considerable decrease in such conversion of forests for non-forest uses, the process has not altogether stopped. The shrinkage of forests has considerably affected the supply of wild medicinal plants. The depletion of medicinal plant resources are also due to:(a) Irregular and unscientific collection, (b) unscientific mining and quarrying, (c) uncontrolled forest grazing, (e) forest fires, (f) shifting cultivation, (g) biotic pressure, beyond carrying capacity of the land. Inadequate knowledge about the medicinal value of many of the plants occurring locally is also responsible for short supply of medicinal herbs. The situation has aggravated due to the absence of property rights, institutional arrangements and an authority system. The tribal people are far from fully informed about what they can legally collect and what is prohibited. Such uncertain situation benefit the traders and petty contractors.

The wild medicinal herbs are sold without any significant processing or value addition. The producers’/collectors’ access to consumers is limited to the sales made locally or in the weekly village markets. A major portion of their product is sold to intermediaries like contractors and commission agents who operate in such areas. Although the medicinal plant materials reach a much larger market, as far as, the producers or collectors are concerned the market is geographically very limited. The limitation in access to real market is more pronounced in the case of perishable items or items containing active principles, which change or deteriorate rapidly with time. The situation is worst when a tribal woman is a collector of medicinal herb. Traditionally burdened with her other household jobs, an woman generally look for local market having limited access.

Sporadic spatial distribution of the plants, having medicinal value, makes their bulk collection impossible. Small collections force the tribal population into a vicious small market circle, low production and (leading to) small surplus continuously erode their bargaining capacity as their need for conversion of small production into cash becomes more acute.

Wide variation in active principle contents of the wild varieties of medicinal herb constitutes yet another supply side imperfection. Such variations complicate the process of manufacturing herbal medicines that determine the efficacy rate and their subsequent quality control. Scientific cultivation of medicinal plants through bioengineering and modern farming techniques could overcome the problem. But that would generate an imperfect competition, having the tribal subsistence economy on the one hand, and the capitalistic return maximization through scientific farming on the other.

Knowledge base of phyto-medicine is eroding steadily. Migration of forest dwellers in search of employments, their displacement from the developmental project areas, low returns from collection of medicinal plants and invasion of market economy alien to the forest dwellers have systematically contributed to the erosion of the local knowledge. Knowledge about the local botany, the habitat of medicinal plants, their fruiting or flowering seasons, the time when the plants have the highest concentration of active principle contents, are becoming gradually rare. The policy approach for augmentation of supply position and sustainable use of medicinal plants should include a combination of institutional, economic, administrative and legal agenda.

(b) Imperfections on the demand side

The present bad shape of the market for medicinal plants is due to the interplay of the middlemen or the petty contractors. The market is very disorganized. The forest dwellers collecting the medicinal plants do not know about the phyto-medicinal market, nor do they know about the prices of the products at which those are sold to the consumers. The middlemen act as impervious screens, blocking the vital communications between the primary collectors of the medicinal plants and their consuming centers. The contractors, generally, purchase the collected medicinal herbs at a low price, or even exchange those for trivial consumer goods. In the absence of any control or restriction, the firms engaged in manufacturing herbal medicines are involved in profiteering. They purchase the raw material at negligible prices and sale the final products at much higher rates. The poor collectors have no share in the high profit earning business.

Traditionally, knowledge about phyto-medicines in Indian society is handed over from generation to generation in the same family. Scope for analyzing, researching, modifications and refinements in such family-based occupation are limited. Such secrecy restricted the growth of Indian traditional medicine system. Family secrecy, absence of sustained research & development and gradual erosion of knowledge about medicinal plants have contributed to the decline of Ayurveda system leading to demand side imperfections in medicinal plant trade.

Low growth in demand for phyto-medicine is also due to the absence of a system of standardization of different formulations extracted from plants. Medicines in indigenous systems require multi-ingredients and multi-processing. It is impossible to monitor various formulations, each formulation having a number of ingredients. There are cases, where the traditional medical practitioners themselves prepare their formulations. Strict secrecy is observed about such medicines. In absence of standard practice, and in the atmosphere of secrecy the market for phyto-medicine could not flourish.

Further, when the efficacy of plant-based medicine is compared with the Allopathic system of medicines, there are some treatments in Ayurveda for which there is no substitute in the alternative medicine system (A. Ravishankar et al., 1999). This constitutes a typical market imperfection, since the opportunity cost of treatment through traditional medicine is so huge that it is difficult to be valued.

Another potential threat on the demand side of the market is from the piracy of indigenous knowledge and of biological resources by both national and international companies and corporations engaged in the trade of phyto-medicines. However, various Non-Governmental Organizations (NGOs) and the Governments from the developing countries are increasingly raising their voices against such piracy. There has been a general demand for the rights of the originators and of the communities involved in conservation of the natural resources. Such rights of the communities need to be protected both through national as well as international laws. Recent expression of such concern is contained in the Convention of Biological Diversity. The recommendations of the Convention commit that every country will respect and maintain local knowledge, try to promote its application and encourage equitable sharing of benefits arising from the same.

The General Agreement on Tariffs and Trade (GATT) allows signatory countries to implement intellectual property rights over plant varieties. Such concession needs that India should either adopt an existing international convention on protection of plant varieties or develop its sui generis alternatives. As India has vast biological diversity of economically important plants, it is expected that the tribal population of the country will benefit from such arrangements.

(c) Imperfection in the marginal- pricing system

Imperfections are also introduced due to faulty marginal cost pricing system that is generally followed. Price of the medicinal plants collected by the tribal population has no relation with the unique character of the materials and their rare availability. The biological diversity of medicinal plants is increasingly on the decline due to various factors as discussed earlier. Under such conditions, it is necessary to evolve a system of pricing the medicinal plants in such a way that it includes the ecological costs of irreversibility, uncertainty of their collection and their unique properties. In this process, the problem arises from the fact that determining ecological costs of irreversibility is not an easy job. The problem still vexes the economists in general.

OVERCOMING MARKET IMPERFECTIONS

(a) Supply side corrections

The supply side imbalances could be overcome by ensuring extraction of medicinal herb without depleting the resource base. To achieve this, it is needed to have: (i) well laid out inventory of medicinal herb occurring in the wild, (ii) statistics of their incremental aspects for ensuring that only the periodic increments are removed scientifically, (iii) rejuvenation of the degraded forests with the regeneration of medicinal plants, (iv) cultivation of endangered and extinct species in forest nurseries and on degraded common properties (CPs). The provision of the Indian Forest Conservation Act, 1988 prohibits the plantation of medicinal plants on forestlands without the prior permission from the Government of India. Such provisions need revision under the present context.

The silvicultural system presently followed for encouraging monoculture is very much responsible for gradual depletion of various varieties of medicinal herb. Most of the medicinal plants occur in the ground or middle canopy of the forests. These are periodically burnt under controlled burning or are eliminated through cultural operations for encouraging the economically important tree species producing commercial timbers. The present practice of having a single canopy of valuable species needs replacement through a management of multi-canopy forestry system such multi canopy forest system would thus provide encouragements to biological diversity.

Though the rights and concessions enjoyed by the forest dwellers have been protected by the Indian Forest Policy, 1988, there has been no bar against others collecting wild-medicinal plants and plant-materials. The exclusive rights of the forest dwellers regarding collection of minor forest produce need to be recognized. Tribal knowledge about phyto-medicine needs wider acceptance and their integration with the present systems of medicine. NGOs can play vital role in such integration process. NGO interventions are also necessary in the fields of: (i) study of pharmacopoeia of tribal medicine system and the standardization of different formulations, (ii) identification and codification of locally occurring medicinal plants, (iii) standardizing the collection methodology, (iii) designing of effective processing and efficient storing of collected plant materials.

NGO and Governmental interventions at the supply point will eliminate the middleman. There are some encouraging examples of augmentation of supply of medicinal herbs through benefit-sharing mechanisms between the tribal people and the Government agencies. One such example is about the benefit sharing mechanism that has been adopted by the Kani tribal population of the Agstyar hills and the Tropical Botanical Gardens and Research Institute, Palode of Kerala regarding the anti-tress and anti-fatigue herb Trichopus zeylanicus. The scientists from the Institute have developed a formulation, having brand name Jeevani from the herb. They also made marketing arrangements with a pharmacy. The Kani people gets 4% of the revenue obtained from the sale of the product. Such vertical integrations with research laboratories, pharmacies or NGOs will improve the supply side economics.

Conservation and sustained yield of wild- medicinal plants are directly related to the survival of the forests and other common property resources (CPRs). So there is an urgent need for protecting such areas from further degradation. Protection of forestlands and the CPRs can be achieved only through the active participation of the tribal population living in those areas. The modalities for achieving such participation may vary from place to place, depending upon the aspirations of the local tribal population.

(b) Demand side corrections

Demand side corrections need more transparencies in the market deals. Such situations are possible when the middlemen and the petty contractors are removed from market operations. Presently, the middlemen by and large, control demand of the phyto-medicine market. There is need for intervention of some benevolent institution, cooperative or organization for taking up the function of marketing of medicinal plants. Multi-stage approaches are needed. The strategy should include making finances available to the tribal people during the lean seasons, making value additions of the collected materials, taking the products to the niche market and getting appropriate returns from the sale of the Phyto-medicinal herb.

FIG. 1 MARKET TRIANGLE IN PHYTO-MEDICINAL TRADE

(c) Institutional interventions

There have been some successful institutional interventions in this aspect in different states of the country. One such example of intervention is that of the Kerala State Federation of schedule caste/schedule tribal (SC/ST) Development Co-operative. The Government of Kerala has granted exclusive rights of collection of some of the notified items of non-timber forest products (NTFPs) to the Tribal Co-operative Societies (TCS). There is a state level committee, called NTFP Committee, which determines the prices for different NTFPs for different stages, namely “collection charges”, “procurement charges” and “sale prices”. The “collection charges” are the minimum prices by which the TCS collect NTFPs from the tribal people; the “procurement charges” are the minimum prices by which the SC/ST Federation procures the produce from TCS and the “sale prices” are the sales of the produce. The SC/ST Federation, under its marketing strategy, sales some of the produce to the Pharmaceutical Corporation (I.M) Kerala Ltd. and the remaining part of the produce is sold through auctions. Studies have shown that the procurement of NTFPs through TCS has liberated the tribal people in Kerala from the clutches of the private traders (Philip Thomas and et al, 1993).

Another example of institutional intervention is that of the Gujarat State Forest Development Corporation (GSFDC) Ltd. GSFDC appoints collection agents who collect the NTFPs from the tribal people at a price fixed by a state level committee. The state level NTFP price fixation committee has representatives from the tribal people, business community as well as GSFDC. The procured NTFPs are sold by GSFDC through open auctions. Studies show that the poor sections of the society have been gainfully employed during the non-agricultural season through such intervention (A.P. Misra, 1996). GSFDC has also started processing units for manufacturing herbal medicines which will ensure reasonable returns to the tribal people engaged in the collection of medicinal herbs.

In Madhya Pradesh, three level cooperative societies have been formed for looking after the total business of NTFPs. The primary society is at the level of the NTFP collectors; the secondary societies are formed at the district level and at the final level the Madhya Pradesh State Co operative operates. The collection, storage and marketing of NTFPs, are taken care of by the three tier cooperative societies.

Uttar Pradesh, Forest Corporation has recently entered into the marketing of the medicinal herbs collected by the tribal people of Lalitpur district. This was essential for stopping the exploitation of the local Sahariya, Gond and Ravut tribal communities. These tribal communities previously used to sell their collected materials to the middlemen. Now they sale their products to the Uttar Pradesh Forest Corporation (Annual Report, U.P. Forest Corportation, 2000). The major NTFPs, like leaves of Diospyrus melanoxylon (not a medicinal plant) and resin from Pinus roxburghii (presently forests having P. roreburghii trees have gone to Uttaranchal, a newly creates state) are traded directly by the Forest Corporation and the Forest Department respectively.

Similarly, in West Bengal the buyers of medicinal plants and plant materials can purchase the materials directly from the villagers under the supervision of the Forest Protection Committee (FPCs) of the respective villages. The purchase price of the medicinal raw material is fixed periodically by the Conservator of Forests of the concerning area. Such price fixation is done in relation to prevailing market price of such materials.

In many states trade of major NTFPs have been nationalized. Trade in such products can be done by the concerning State Government only.

CONCLUSION

So from the above, different options for demand management emerge, which can be summarized as follows:

(i) Marketing of medicinal plants directly done by the NGOs, Corporations and Cooperatives. In such arrangements a mechanism can be developed for sharing excess proceeds collected from the sales of medicinal plants with the forest dwellers involved in the job.

(ii) Nationalization of medicinal-plant trade is another option. Past experiences of nationalization are not encouraging. Bureaucratic hurdles may jeopardize the whole system.

(iii) Concerning State Government may fix the collection charges of medicinal plants. The traders who want to purchase the materials cannot pay a price lower than the price fixed. This system requires strong supervisory authority to oversee such payments. The system also does not benefit the tribal people from the price escalation of plant-based drugs.

(iv) Alternatively, the State Government can determine a support price for different varieties of medicinal plants. The forest dwellers are at their liberty to sell their collections to anyone at or above the support price. If they get lower than the rates fixed, they can sale their products to the government procurement depots set-up for the same purpose. Such arrangements need large scale bureaucratic interventions which may ultimately fail.

(v) Direct benefit sharing arrangements between the tribal people and the plant based drugs manufacturer. This is, by far, the best of all the alternatives. But at the start, there will be a need for strong network of NGOs for bringing out such marriages.

The disorganized phyto-medicine market could get boosted provided the existing supply situation is improved by scientific conservation and management of the biological diversity through active participation of the local people, and simultaneously by effective interventions of institutions in matters related to the demand management of medicinal herb. It is being said that with the present trend pointing towards an inexorable commercialization of the medicinal plant economy, there could be an emerging scenario where the rich alone would be able to afford herbal products (Swaminathan, 1997). In the changing market scenario, let the poor forest dwellers have their due shares.

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