Tuesday, June 05, 2007

Securing Kerala

In recent weeks, Kerala Chief Minister Achuthanthan has caught the state by surprise by sending earthmovers and bulldozers to Munnar to remove illegal encroachments, including properties owned by politicians of all hues. In the process, his actions have won the hearts of some of his staunchest critics among the public. Around the same time that Achuthanthan decided to move against what has come to be known as the "land mafia", he also announced plans to reverse paddy reclamation projects throughout the state. As rice has fallen out of favour with Kerala farmers, paddy fields have given way to other crops and commercial enterprises. Expressing concern for the state's food security, Achuthanthan has proposed actions against real estate firms who buy paddy fields and convert them for alternative purposes. Unfortunately, these latest developments show that he, among other politicians, have a poor understanding of Kerala's needs.

Illegal encroachments are consequences of an economy with increasing disposable income but comparatively few investment opportunties. And whether we're talking about non-resident Keralites sending home more and more remittances every year or real estate firms reacting to economic opportunities in Kerala, the reality is that Kerala has to proactively react to the demands of an increasingly wealthy population. And this is where it is falling behind today.

First, let us give Achuthanthan credit where he is due. Forest lands are government property for the very reason that free markets are imperfect. Forest lands have enormous positive externalities, because they are an important link in the biological cycle. Some of the Munnar forests contain the most pristine vegetation in Kerala. They are habitats to wild animals that form an important part of the food chain. They potentially harbor plants whose medicinal value are inadequately documented. Forests also act as carbon dioxide reservoirs, playing increasingly significant roles as the world searches for solutions to air pollution. They hold more benefits to society than can be accounted for, and thus do not compensate private holders as they should. In private hands, they would not be conserved as they mean more to society as a whole than to private individuals. Their viability are best left to a public authority appointed by society. However, forest departments and land revenue departments can be lax when there are not enough incentives in place to maintain healthy forests. Let us not forget that it is the political class which is responsible for many instances of illegal encroachments, so change should begin at the top. So, let us hope that our Chief Minister also turns his attention to the systemic flaws that lead to the misuse of public lands.

In contrast, the Chief Minister's plans for paddy fields, have very little to do with the reality of a growing Kerala and owes more to his fixation on food security. This unhealthy obssession is partly rooted in Kerala’s history. In particular, the political class in Kerala still suffers a hangover from the food crisis in 1964, when the existing Communist government was booted out and the state was placed under Central rule. The four states of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala were then consolidated into a single food trading zone. Instead of letting food prices prevail at market rates and intervening for the most marginalized consumers, the Central government placed price ceilings on the stocks it purchased in the name of rationing. So while wealthier consumers in Kerala were able to pay the rates that Andhra suppliers demanded, ration ships ran out of stock as the State government refused to budge on prices. Kerala tided over the crisis temporarily with imports from countries including the U.S. and Pakistan and over time developed a more efficient distribution system. So, Achuthanthan's concern for rice’s dwindling prospects in Kerala almost seem justified. Almost.

It is difficult to justify a labor-intensive crop like rice in a state that has near 100% literacy and is better off by putting its human resources in more productive industries. Kerala's achievements in educating its people are precisely why paddy fields are dwindling from their peak in the 1970s. The mass spread of education, pre- and post-Independence, opened up alternative sources of employment for millions of Keralites within the short span of two or three generations. Workers from communities that historically depended on agriculture suddenly found more lucrative opportunities in retail, education, civil service, construction, tourism etc. It's the classic textbook case of economic diversification within an increasingly skilled workforce. Meanwhile, rice's viability as a crop has diminished significantly with rising labor costs.

But despite the diminishing contribution of rice to the local economy, Achuthanthan believes that Kerala should spend valuable taxpayers' money on increasing the cultivation of rice in the name of food security. If we define food security as a state where people are capable of feeding themselves, Kerala is not facing a food crisis by any measure. If anything, most Keralites are employed in those jobs where they are most productive and can earn enough to feed themselves. The only need for an intervention would be for those marginalized consumers, or "non-consumers", for whom the price of rice puts it effectively out of their reach. It is conceivable that these non-consumers have grown in number in recent times as food prices have risen. Yet, is forcing farmers and industrialists to switch to paddy the most effective way to feed these marginalized people?

If Achuthananthan's true goal is food security, he has two options: 1) procure food at market rates and subsidize them for the marginalized consumers or 2) grow food locally and provide it to the needy. The latter is far more disruptive because it ignores the merits of a competitive market and creates a deadweight loss to the state. With option 1, he can obtain rice at the cheapest rates possible from other sources. With option 2, he forces farmers to grow rice in the place of more valuable and less-labor intensive crops and thus reduces their incomes. But, even if he were to subsidize those farmers and prevent any loss of income to them, Kerala would be paying for a relatively expensive crop, creating an even greater bill for taxpayers. So, one has to assume that Achuthanthan believes that there is some intangible benefit the balances the cost of encouraging paddy growth. Therein lies the unspoken, irrational fears that "food security" have come to represent.

Food security as an argument belies many of the irrational fears that politicians hold about free trade and farming constituencies. Achuthanthan’s paddy project is inherently about his staunch belief that Kerala should produce its own food and his insecurity with free markets. According to our leaders, we should support rice farmers even if we have to pay more for their rice and create fields when there is no need for more. This irrational argument ignores the very basic fact that Kerala consumers are not restricted to Kerala’s products and should be able to choose from the larger Indian and world markets. The hype around "food security" also ignores Kerala’s ability to focus on more productive sectors of the economy so that it can create more wealth and its people can eat more than a daily plate of gruel. In a nutshell, paddy reclamation is a wasteful exercise for a state with better things to do.

Yet, there is no dearth for meaningful reforms if Achuthanthan seriously wishes to pursue greater food security for Kerala. For example, he can begin by reforming one of the most antiquated laws in Kerala agriculture, the Kerala Land Utilisation Order of 1967. The 1967 legislation was passed with the express intention to lock up agricultural land in Kerala, including paddy fields, within agriculture. Passed in the hindsight of the ’64 crisis, the Order introduced tremendous restrictions in converting fallow paddy fields to commercial usage. However, as rice prices have fallen and labor costs risen since the Act was passed, huge swathes of paddy fields have been converted surreptiously or left barren in the absence of government permission. In the process, environmental activists have lost considerably in their fight to reforest paddy fields and restore pre-agriculture ecosystems as needed. Owners of smaller landholdings have been unable to take advantage of much needed capital investment and consolidation. And illegal encroachments have proliferated as scrupulous dealers have turned their eyes to less well protected public lands in the absence of commercially zoned real estate. The ’67 Order is increasingly endangering the delicate relationship between public and private lands. Ironically, it has even failed to play any substantial role in increasing food security. Because in a market like India, where people are free to trade across state borders, food security has little to do with local crops and more to do with economic security.

Kerala's food crisis in 1964 was only superficially the result of inadequate agricultural output. The 1964 crisis was in part driven by Kerala’s impoverishment and lack of economic diversification. A community’s dependence on agriculture leaves it exposed to a considerable amount of risk, for e.g. the risk that a bad drought will bring a poor harvest. Kerala's lack of value-added products and a largely unskilled workforce in the 1970s left a large section of society exposed to the highly variable price of a commoditized product. So in the past, local food insecurity has always fed economic insecurity and vice versa – i.e. a fall in food production often led to a loss in income for a large portion of Keralites, thus reducing the ability to buy food and so on. Today, the situation is very different with Kerala having diversified significantly into the services sector and a large proportion of skilled and unskilled workforce having migrated overseas. The debilitating link between food production and economic insecurity has weakened considerably. Most Keralites no longer rely on the comparatively cheaper and inferior rice from public distribution system as they are generally wealthier than their predecessors and can afford to buy better quality rice at prevailing rates. Ultimately, Achuthanthan's paddy reclamation initiative is not only a solution to a non-existant problem; it also does little to improve Kerala's economic security, which as history shown, is the best driver of food insecurity.

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