Scarcest resource? - Land!

Land - Wars were fought for it, lives were lost for it. It was a scarce resource then, it is a scarce resource today.

By “Land” I don’t mean just any piece of land. Land that can give you a return is a resource and this is the Land I am talking about.

I am talking about agricultural land. Today globalisation has changed the perception of countries to agriculture. It is considered to be a weakness in your bargaining power for manufactured goods and services. And that is the precise reason why countries like India and China are shifting their economic model from being an agricultural economy to service and manufacturing economy. But my feeling is we are headed in the wrong direction.

Agricultural land in these economies is fast reducing for reasons which explicitly apply to these countries.
Let’s first take India. India has been losing agricultural land due to urbanisation. This is natural in any country that is growing. But other than urbanisation the other main reason is rise in the land prices. Land prices in India, agricultural or not, have risen substantially in the last 3 years. What is the problem if land prices go up? Well! The issue is when land prices go up it is much more remunerative for a farmer to sell his land and live a lavish lifestyle rather than working in the scorching sun for hours and in return get non-remunerative prices for his produce. This is what is happening in areas around growing cities like Gurgaon, Noida and Pune. Another major reason for loss of agricultural land is the growing prosperity of the Indian middle class. Today’s rich Indian middle class has started acquiring land in villages. This land is typically kept vacant or is being used for constructing a “Farm house”. Agricultural land is being used for non-agricultural reasons. So it shouldn’t be a surprise that agriculture in India is growing at a mere 2%. To add to the problem state governments like that of West Bengal have been acquiring land from farmers who are unwilling to sell, to set-up industry. Farmers in Bengal are unwilling to sell because land there is cheap. Thus price of land has a big impact on area under agriculture.

China too faces the urbanisation issue. But this problem could aggravate. In communist China, land is owned by the state. But in March 2007 a bill was introduced which (if passed) would give legal protection to individuals for their property (In other words private property). This would have a big impact on area under agriculture. Why? China has been a communist country since the 60’s and for decades not a single person has got any property rights. Therefore there is a huge pent-up demand that would suddenly be freed from constraints. Land prices will shoot up. Chinese middle class will start constructing “Farm houses”. A story similar to India will be repeated.

Then there are other issues like global warming which reduce the productivity of land. But before dealing with global warming which would require global corroboration, it would be advisable to deal with local land issues by introducing land reforms.

Wise men like Jim Rogers have already betted big on Agro-commodities and I concur to their thought process. Agro-commodity prices have risen substantially in the last 3 years and I don’t see any reason why they wouldn’t go up further. Going forward food security is a matter of concern, especially for India and China and dealing with it would be the most prudent thing to do.