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McKinsey Medium Profitability Policy/Public Sector

Banana Heaven

#Public Sector #Agriculture #Government
ProHub Comment

This case requires candidates to apply business profitability frameworks to public sector policy challenges, specifically recognizing the role of externalities (groundwater depletion) and the need for government intervention through subsidies. The case tests both quantitative analysis (comparing crop profitability) and qualitative thinking about scaling and implementation challenges in a resource-constrained agricultural economy.

Estimated Time 15 minutes
Difficulty Medium
Source ROSS
50 / 100
The government of Banana Heaven (an island in the Indian ocean) is predominantly an agricultural economy. Majority of the population is involved in the farming of paddy (rice). Once grown on the farm, paddy is then bought by the government at a predefined price called as the Minimum Selling Price (MSP). Banana haven is going through a crisis of depleting groundwater (water that is used for agriculture). Since paddy uses a lot of water in its cultivation stage, the water level is reducing by ~ 50 feet every year. This is a major cause of concern on the island and the government is planning to introduce a crop diversification program as a pilot to incentivize farmers to shift from paddy to other crops that use less groundwater. What should be the government’s plan of action to conduct a successful pilot and replicate the program in the whole island nation?

Clarifying Information

  1. The government does not have a specific goal in mind, just want to reduce the general water usage in the country.
  2. Currently, only a small portion of the farmers are growing crops other than paddy in Banana Haven.
  3. The country is not capable of moving into another economic structure.
  4. The farmers will sell the paddy to the government at a fixed price, and the government will sell them both domestically and for export.