Kerala’s wage laws, along with other factors, have brought its cashew processing industry to its knees.
The Kerala cashew industry’s plight is a text-book example of the disaster artificial (not linked to the market) wage-hikes can cause. The state, ten years ago, accounted for 85% of the country’s cashew production. Today, more than 700 of its 865 cashew processing factories are closed and nearly 2.5 lakh cashew-workers, of a total of 300,000, are jobless. Most of the factories are headed the way of becoming non-performing assets for the banks that have lent to them—60 already have, as per the Hindu Business Line. While there are various factors that have led to this—for instance, India’s cashew processing industry is heavily dependent on African exports of raw cashew, but African countries encouraging domestic processing has led to import costs rising for India—the rise in cost of production that has made Kerala’s cashew production unviable is chiefly the result of the state government’s decision, in 2014, to hike wages by as much as 35%. This has pushed up cost of production in the state to `3,200-3,500 per bag of 80 kg, compared with the Rs 1,800-2,000 in other cashew-processing states. Worse, Indian cashew processing is nowhere as competitive as Vietnam’s, whose cost of production is just Rs 700 per bag.
Cashew-processing in other states has gained at the cost of Kerala because these states have readily adopted mechanisation and automation, pushing up productivity significantly. To be sure, there could have been some jobs lost because of such automation, but at least it hasn’t meant the industry being pushed to a moribund state. But imagine pitching automation to Kerala’s trade unions! The industry is now seeking a revival package from the Centre and the state government. But, even if sanctioned, it may not help much unless drastic measures on labour and automation are not taken. One estimate, reported by Business Standard, found that production costs have to be brought down to `1,300 per bag at a breakeven level to ensure effective loan management in the medium- to long-term. Kerala simply must understand that flexible labour laws are what eventually turn out to be labour-friendly.