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Sri Lanka needs agriculture policy change to up farmer incomes, productivity

LOW PRODUCTIVITY: Agriculture employs a quarter of Sri Lanka’s workforce and generates 7 percent of gross domestic product.

ECONOMYNEXT – Sri Lanka’s subsidy based agriculture policies are not helping to boost productivity and take farmers out of poverty or deploy land for the most suitable crops or activities, requiring a re-orientation of focus, a researcher has found.

“There’s a lot of government spending on production of rice and other crops, but its competitiveness and the profitability even for the farmers and food security is very questionable,” Manoj Thibbotuwawa from the Institute of Policy Studies, a Colombo-based think tank, who is studying agro-economics said.

The findings are from an ongoing study into the agriculture sector.

The research into paddy farming in the study is completed, and an analysis into field crops and vegetables is ongoing.

Policies of self-sufficiency in some crops may have resulted in people eating less vegetables or proteins.

A quarter of Sri Lanka’s workforce is engaged in agriculture, generating 7 percent of gross dmestic product.

No Profits

Thibbotuwawa said research at state agencies into profits from the agriculture sector ignore the country’s social costs of water, seed and fertilizer subsidies and the costs of irrigation infrastructure.

“So, we estimated the opportunity cost of these factors, and then calculated social profits,” he said.

“Social profits are actually negative, as we are spending a lot on an unprofitable venture. Even the farmers get small profits which are not enough to take them out of poverty.”

If comparable grades of rice are imported tax free, Sri Lankans could enjoy a 30 percent fall in rice prices in the local market, the economist said.

Currently, most rice varieties, excluding specialties such as basmati required for hotels and restaurants are not imported.

“We are not saying to import totally, because we haven’t done a calculation based on different agro-ecological zones. If we disaggregate the local sown extent into the dry, wet and different agro-ecological zones, there may be areas where farming is profitable,” Thibbotuwawa said.

Sri Lanka has 46 different agro-ecological zones with differing profiles based on elevation, precipitation and soil fertility.

“So, the policies to propose would be to evaluate the profitability of different regions and invest only in areas where we have a comparative advantage in producing locally,” he said.

“Land in other areas should be diverted to competitive, high-value, diversified crops.”

Subsidized Errors

Sri Lanka’s rice yield levels are low compared to other Asian countries, Thibbotuwawa said.

Even Bangladesh has higher yields than Sri Lanka, while in China and Japan, yields are twice as much as those locally, he said.

“This is because the main focus in the agriculture sector is on giving subsidies.”

A key learning in economics is that long-term subsidies and protection for mature industries reduces their competitiveness, as locals lose touch with the reality of market forces.

Sri Lanka started the fertilizer subsidy in 1962, with the ‘green revolution’ to increase rice yields with newer rice strains which required fertilizer, compared to the traditional varieties which did not.

“Then, fertilizer use was very low, and the government wanted to improve usage. With higher fertilizer, yield levels went drastically up to 4 metric tonnes per hectare. But now we are using more than the recommended level of fertilizer,” Thibbotuwawa said.

In Sri Lanka, farmers always believe that more fertilizer is better.

Thibbotuwawa said that over-use of fertilizer is reducing soil fertility.

“Most recent yield levels indicate that yield levels have flattened from the earlier growth and is now around 3.5 metric tonnes per hectare.”

“We have also not invested much into research into agriculture technology until recently.”

Smallholder cultivation, with each farm smaller than 1 hectare does not encourage economies of scale, and too many middlemen in the supply chains also hampers the sector’s development through rent seeking, and market signals such as quality requirements not passing through to smallholders, he said.

Even if Sri Lanka generates a bumper harvest, the rice cannot be exported, as other countries consume higher quality long grain rice at lower prices, he said.

Misguided Food Security

Sri Lanka’s early agriculture policies following independence was self-sufficiency in rice as a part of food security, and the policy has now become ingrained, Thibbotuwawa said.

However, the self-sufficiency policy had resulted in Sri Lanka not diversifying its crop mix, said.

“Because there is no diversification, around 40 percent of energy and 30 percent of protein requirements of Sri Lankans are fulfilled by rice.”

“Why do we need to consume that much of rice? Even our food security is also not that high.”
“Food security doesn’t mean we have to get all of our nutrient requirements from rice.”

“That’s a wrong impression most Sri Lankans have, and that’s why we are investing more on growing rice.”

“Although there has been some diversification recently, we are still not consuming high protein foods like meat or enough fruits and vegetables, and nearly 30 percent of fruit and vegetable crops are wasted.”

Sri Lanka is the 66th most food secure country in the world, while Singapore, which imports all food, is ranked first.

Land Trouble

Although the way forward is to grow rice only in highly fertile land which derives profits for farmers, the small farm sizes, and legal difficulties in transferring agriculture land will hold the sector back, Thibbotuwawa said.

“So, people who are inefficient producers can’t sell their land, and good entrepreneurs cannot buy land and increase their land extent for mechanization or diversification.”

“That is what the MCC agreement attempted to address, but the main concern was that if you give the land ownership to smallholders, since they are always in distress, they will sell their land to companies and fall into greater poverty.”

However, if the government takes short-term action to protect the farmers and allows the release of land for profitable, efficient investments, the farmers would benefit circularly through the creation of jobs, Thibbotuwawa said. (Colombo/Dec21/2019)

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