Securing Food Security

Originally appeared on The Morning

By Dhananath Fernando

World Food Day falls on 16 October. In Sri Lanka, food security has been a topic of discussion for a considerable period of time, especially gaining prominence during the Covid-19 pandemic. 

During that period, there was confusion between food security and self-sufficiency. Instead of focusing on ensuring food security, the emphasis was placed on self-sufficiency, with the belief that all food consumed in Sri Lanka should be produced within the country. There were even discussions among Sri Lankans about shifting from using lentils (dhal) to locally-grown maize.

After approximately two years, when we assess the Global Food Security Index report, Sri Lanka is ranked 79th out of 113 countries. Food security isn’t solely about achieving self-sufficiency by producing all the food within the country; it encompasses the affordability, availability, quality and safety, as well as a nation’s exposure and resilience to natural resource risks.

Prior to the inclusion of the natural resources and resilience component, Singapore led the Global Food Security Index. However, after adding this component in 2022, Singapore dropped to the 28th position, with Finland now topping the Index. India is in the 68th position, Nepal in the 74th position, and Bangladesh in the 80th position, just one spot below Sri Lanka.

Due to the economic crisis, characterised by high inflation rates, particularly in food prices, the number of people who were food insecure exceeded six million. This number has now decreased to less than four million, emphasising the significant role economic stability plays in ensuring people’s food security.

Sri Lanka’s food security has always been a challenge due to economic policies that have been against market dynamics. Monetary instability resulting from the unfettered levels of money printing led to food inflation, affecting the affordability of food. 

The Government’s imposition of price controls led to shortages of protein sources such as eggs and chicken, further impacting the availability of food. Additionally, the Government imposed a Special Commodity Levy (SCL) on selected food items as a protectionist measure, maize being a prime example, driving up prices. 

Maize is a key raw material for the aquaculture and poultry industries. Price volatility in maize also affects the prices of poultry products and other locally consumed protein sources, sometimes impacting the competitiveness of our agricultural exports. 

The Government’s approach, whether through higher tariffs or import bans, is equally detrimental. Our food security structure is simply unsustainable, with weak and unpredictable supply chains and inconsistent policies.

Ensuring food security involves addressing both macro and micro issues. A holistic approach, taking into account land rights, is essential. The documentary recently released by the Advocata Institute titled ‘Land, Freedom and Life’ highlights the challenges faced by farmers due to the absence of land rights, hindering their access to capital or technology to enhance productivity.

In addition to land rights, water management is another critical aspect that needs serious consideration. Currently, our water usage in paddy cultivation is unsustainable. We consume approximately 1,400 litres of water to produce 1 kg of rice. Even if we price a litre of water at 50 cents, the cost of the rice we consume would significantly surpass current prices. 

With the challenges posed by climate change, future water availability cannot be guaranteed. Despite the number of people experiencing food insecurity declining, our approach in food production is not sustainable. Another local or global shock could easily set us back.

The Government has attempted various approaches such as providing subsidies for farmers, free meals for school children, and free nutritional packages for women during maternity. However, in order to truly  address Sri Lanka’s food security crisis, a multifaceted approach is required. 

This should begin with macroeconomic stabilisation, providing land titles for farmers and agro-companies to enhance agricultural productivity, reducing labour costs in agriculture, recognising the interconnectedness of markets, and allowing market forces to operate.

Until these issues are resolved, World Food Day will remain a day for discussing problems without implementing solutions.

Contemporary Issues in Agri-Food Supply Chain in Sri Lanka

Originally appeared on the Morning

By Thilini Bandara and Niumi Amarasekara

Introduction

In the current context of food insecurity, building a resilient agri-food supply chain is crucial for Sri Lanka. The agri-food supply chains are a set of activities involved in a “farm to fork'' sequence including farming, processing, testing, packaging, warehousing, transportation, distribution, and marketing. So far, the supply chains have been providing mass quantities of food for the country’s growing population. However, the supply chains are plagued by a number of issues stemming from within and outside the supply chain. Hence this article sheds light on various inefficiencies prevalent in the agri-food supply chain and  the way forward to establish a more resilient supply chain.

Overview of agri-food supply chain in Sri Lanka

Agri-food sector plays a major role in the Sri Lankan economy. It is a key source of food supplies which comprises a complex system of supply chains involving farmers, distributors, processing firms, wholesalers, retailers, and consumers.

Figure 01: Flow of agri-food supply chain

Issues in the agri-food supply chain sector

The country has been experiencing inefficiencies within its agriculture sector due to various issues stemming from within the supply chain.  For instance, Sri Lanka  annually loses 270,000 metric tons of fruits and vegetables along the supply chain, which are estimated to cost around Rs. 20 billion. This accounts for 30-40% of the total agri-food production in the country.One of the key causes of this is the lack of integration between supply and demand . For instance, farmers cultivate their lands without having a scientific understanding of future needs and in the absence of a national-level cultivation strategy to fulfill local demand. This leads to an overproduction of certain crops, which ultimately results in considerable losses for farmers.

Nevertheless, high food miles set along the supply chain also causes a high degree of inefficiency. For instance, when commodities from different parts of the country reach the main economic centers , only to be redistributed, it can cause high cost and further damage to the produce. Also maladaptation of post harvest handling practices at various stages of the supply chain further lead to high wastage and inefficiencies.

Apart from that, a number of additional factors (eg: information asymmetry, limited supply of inputs, lack of infrastructure and support facilities, poor agricultural policies, import restrictions, and price controls, etc.) also hinder the smooth operation of supply chains. Finally, these can lead to significant pricing disparities of the commodities across the island.

Source: Weekly prices, Hector Kobbekaduwa Research & Training Institute

In order to analyze the pricing disparities of Raw Rice (white) across the island, the average of weekly prices were obtained from the Hector Kobbekaduwa Agrarian Research and Training Institute for four weeks from 6th of January 2023 to 2nd of February 2023 of 10 districts across Sri Lanka. Colombo was taken as the base district and the percentage changes were calculated to identify whether there is a significant difference in the prices of each district against Colombo.

Due to lower average retail pricing than Colombo's average retail price, it can be seen from the calculations that in certain paddy production areas like Ampara, Hambantota, and Matara have greater percentage changes of 13.2%, 10.2%, and 9.97% against Colombo respectively. In comparison to Colombo; Anuradhapura, Polonnaruwa, and Kurunegala also have relatively lower average retail prices. The common reason behind this is that food supply to Colombo varies between types of commodities and does not depend on the closest production areas. The variations in distance and transport costs are reflected in the price disparities in Colombo. Apart from that, some other reasons for the price disparities across the island could be possibly due to complex interactions between supply and demand, income variation, uneven population distribution, price controls and the price of close substitutes.

Way forward

In light of the aforementioned issues, continuous development and tailor made policies should be introduced to establish a more resilient agri-food supply chain. Hence below are a few recommendations that can be introduced to the system.

• Establish post harvest handling hubs across main cities of the island to improve the efficiency of the sector

• Farmers/ supply chain actors to be more vigilant on proper post harvest handling techniques to minimize losses

• Utilize railway system as a cost effective source of transportation

• Promote the use of digital marketing platforms to connect different actors across the supply chain

• Integrate these platforms with financial services such as online payments, credit-based transactions, and loan facilities through banks 

• Enhance collaboration among different actors across the supply chain to reduce cost and increase efficiency (eg: promote forward and backward integration via business partnerships)

• Encourage private sector participants to invest in modern technologies along the supply chain to reduce losses

• Encourage innovations/processes that can improve the efficiency and reduce losses along the supply chain
  

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Fertiliser ban is flawed

Originally appeared on The Daily FT

By Prof. Rohan Samarajiva

The Cabinet Paper banning fertiliser, pesticide, and weedicide imports with immediate effect that was rubber-stamped last week without discussion constitutes a sea change in Sri Lanka’s agriculture policy. Its implications for consumers, for the livelihoods of farmers, and for those who have invested in agriculture and related sectors are vast. 

Despite the 20th Amendment, it is wrong to marginalise Parliament and to ignore State agencies with expertise. Because agriculture is a devolved subject, officials in the Provincial Councils should be consulted even in the absence of elected Council members. Given the expropriatory effects on the private property of those whose investments are affected, the authority of the Courts as the guardians of fundamental rights and as the upholders of equity is likely to be invoked.

No mandate for change

The Cabinet Paper is rather unusual. The entire justification for the proposed actions is anchored on the President’s election manifesto. No references are provided to studies, committee reports, etc.

It is foolhardy to build national policy on the weak foundation of manifesto promises. Each manifesto contains a multiplicity of promises. Was the vote a considered approval for each of those promises? 

The primary purpose of a manifesto is to convince citizens to vote for the candidate or political party presenting it. The secondary purpose is to gain legitimacy for specific actions. Manifesto making is political not scientific or systematic. 

Those who have been involved in manifesto making will testify to the opacity of the process, wherein what is accepted one day can disappear the next and new clauses and conditions can mysteriously appear even after “finalisation”.

Contributions can be sought, and consultations conducted, but in the end, decisions are made by a few in proverbial “smoke-filled rooms.” A manifesto is, at most, broadly indicative of orientation and priority-setting. Given the partisan and opaque procedure used to develop a manifesto, errors and impossible promises are unavoidable.

But because the Cabinet Paper lacks any other justification, one must look. Rather than rely solely on the quoted excerpts, I went to the source. The proposed actions are inconsistent with the language of the manifesto.

In order to guarantee the people’s right to such safe food, the entire Sri Lankan agriculture will be promoted to use organic fertilisers during the next 10 years. For this, production of organic fertiliser will be accelerated.

• To resuscitate the farming community, we need to replace the existing fertiliser subsidy scheme with an alternative system. In the new system, the inorganic and organic fertiliser both will be provided free of charge to farmers. They will be promoted to shift gradually into a complete system using entirely carbonic fertiliser.

• A system of assistance will be introduced to convert traditional farming villages into users of only organic fertiliser.

The language is anchored on food safety. But the ban affects fertilisers and chemicals used for all crops, not just what is consumed by citizens. There is a commitment to provide inorganic fertiliser free. The transition is to take place over a decade. These actions are to be taken in the context of “a new national agricultural policy would be introduced after an in-depth review of the present policies.” This promise is prefaced by a condemnation of “policy that changes from one season to another”.

No national policy based on review of existing policies and experience; no assessment of the experience of other countries; a policy that changes things in one week not a season. And most importantly, the telescoping of a 10-year process into a few months. Sudden, not gradual. Instead of free inorganic fertiliser, a ban. Not limited to traditional villages but across the board. The proposed bans lack a mandate.

Procedurally flawed

A change in a policy with broad impact requires care and caution. 

The change may do much good, as the Cabinet Paper claims. Because of the repeated claims that our food is contaminated with “vasa visa,” most consumers would support a change away from chemical fertiliser and pesticides. But they are unlikely to accept higher prices and unavailability. Hotels are unlikely to accept “ugly fruit”. Growers are unlikely to accept drastically reduced yields and/or inability to market their produce at prices that are above costs of production. The net benefit must be demonstrated, not simply asserted.

Growers large and small will be unhappy about being unable to recover the investments they have made in preparations for growing or in crops in the ground by this sudden reversal in policy. This response will also be shared by other participants in the sector who had entered perfectly legal contracts but are now unable to clear their shipments from the port. It is common sense for the government to give adequate notice of a change in policy or the law so that affected parties can make the necessary adjustments to their business practices minimising losses.

Policy changes that can do good, can also do harm. It is customary in policy formulation and implementation to look at relevant cases in other countries or in this country. Risk assessment, identification of collateral effects, and careful structuring of rules to avoid negative outcomes can be done by government officials or by external consultants with the required expertise. When the government liberalised the market for international telephony in 2003, we studied prior experiences in countries including Hong Kong (the most liberalised market in Asia) and India (to learn what missteps to avoid). 

The President claims that Sri Lanka will be the first to go all-organic. A cursory internet search will show that a fellow SAARC country, Bhutan, announced the intention to go all-organic in 2008; and that its experience has been assessed by independent scholars and published in the peer-reviewed and open scientific publication PLOS ONE in 2018 (DOI =10.1371/journal.pone.0199025). The abstract states: 

Organic agriculture (OA) is considered a strategy to make agriculture more sustainable. Bhutan has embraced the ambitious goal of becoming the world’s first 100% organic nation. By analysing recent on-farm data in Bhutan, we found organic crop yields on average to be 24% lower than conventional yields. Based on these yield gaps, we assess the effects of the 100% organic conversion policy by employing an economy-wide computable general equilibrium (CGE) model with detailed representation of Bhutan’s agricultural sector incorporating agroecological zones, crop nutrients, and field operations. Despite a low dependency on agrochemicals from the onset of this initiative, we find a considerable reduction in Bhutan’s GDP, substantial welfare losses, particularly for non-agricultural households, and adverse impacts on food security.

Does this mean that no other country should go all-organic? No. Is this the only study? No. The purpose of looking at the experience of others is to learn from them. It is irresponsible not make the effort to mitigate the negative impacts will fall upon consumers, growers and others in the sector and to design the policy most suited for local conditions.

Even within the country, prior knowledge existed because the fiasco of the previous Government’s effort to promote organic farming at the behest of Ven. Athuraliye Rathana, MP. That ended with much waste of public funds and the shutting down of the implementing agency, SEMA. It would not have been all wasted if the present Government made the effort to learn from it. 

The Government appears to have learned little from the palm oil ban that had to be walked back and modified. It is normal procedure to circulate a Cabinet Paper to all relevant Ministries for their input to and to win concurrence. Walking back and modifying is what happens when this procedure is not followed.

This blanket ban does not affect only food items consumed within Sri Lanka. It affects subjects under multiple Ministries. It can devastate non-food segments such as foliage exports. It is likely to strangle the fast-growing fruit and vegetable export industry which was subject to rigorous enforcement of standards such as Euro GAP that my organisation worked on with the Department of Agriculture and the exporters association. The Legislature can choose to take actions that result in such collateral effects. But it should at least have considered them. This Cabinet Paper does not.

What should be done

The Government should suspend the implementation of the Cabinet Paper and appoint an inter-Ministry committee of experts with the power to co-opt external experts to report back on a practical method of achieving the objectives of ensuring food safety and environmental conservation. Given the complexity of the changes and the collateral effects, it is best that a pilot be conducted. The larger program design should be based on those learnings. 

If the Government does not act responsibly, the Opposition should demand a select committee, or at least a debate in Parliament. Stakeholders should move the courts. Our food and our livelihoods are too important to be cavalierly toyed with by those learning on the job.

Rohan Samarajiva is founding Chair of LIRNEasia, an ICT policy and regulation think tank active across emerging Asia and the Pacific. He was CEO from 2004 to 2012. He is also an advisor to the Advocata Institute.

Our depressing debt diagnosis

Originally appeared on The Morning

By Dhananath Fernando

Sri Lanka must understand how it got here before getting out of here

Last week, the Central Bank announced all export proceeds should be brought into the country within 180 days of shipment. Additionally, they stated that all exporters should convert 25% of their foreign currency earnings to LKR from the invoice value upon entry into the country. This was brought in just a few weeks after they restricted forward purchasing for importers. With these two moves, Sri Lanka’s debt sustainability has come under the spotlight once again. Recent reports from Standard Chartered Bank and Barclays Bank have also contributed to the discussion.

It is clear that the Government and the Central Bank are looking at the problem differently to how investors, financial markets, and other stakeholders perceive the problem. Indeed both sides share their opinion with good intentions of overcoming the current turbulent time. 

As per recent media reports and a press release by the Central Bank, their objective is to build non-borrowed foreign reserves in order to meet our debt commitments. The Government is looking at the problem as a cash inflow-outflow problem. Accordingly, the Government expects about $ 32-35 billion inflows, about $ 15 billion from exports, about another $ 7 billion from remittances, and about $ 1.5 billion from tourism, with foreign direct investments (FDIs) and other transfers, etc. filling the balance.

On the outflow side, the Government expects about $ 19 billion for imports and sovereign bond payments are about $ 2 billion every year, so the debt can easily be served without any problem according to the reports. It further states that total sovereign bonds are about $ 15 billion which is about 17% of total debt, and none of the other creditors have made any concern over our debt sustainability. Recently, the Governor made remarks that the Central Bank buys about $ 10 million per day to build up reserves so we can cover all debt commitments. According to his view, the outlook on exports, FDIs, tourism, and remittances looks positive with the vaccination drive. 

On the other hand, investors and other agencies are of the view that reprofiling debt with International Monetary Fund (IMF) support is the best solution at hand as our foreign reserves are eroding faster than expected. They see the problem as a solvency problem rather than a cash flow problem; that we need to buy time to bounce back with a lesser impact on the entire economy. It’s not that all reserves are liquid as some reserves are in gold and some IMF commitments and swap commitments are already included in the available reserves of about $ 5 billion. The question from the investors is: “If the cash flow is smooth, why does it continue to erode the reserves which are now at a historic low?” In this context we have to evaluate what we should do and what is possible to do.

Let’s get into the basics. In the debt discussion, we have all been debating on how we can settle the debt and how we can keep our noses above the water. But we should not forget the reasons that brought us to where we are today. We borrowed beyond our capacity at high interest rates and invested in projects which generate returns far less than our payment capacity. In other words, we borrowed at market rate and invested in non-tradable goods which did not generate any tradable return necessary to repay a part of the debt. Since we have failed to avoid the causes of the problem, now we have to pick the best possible escape route from the problem.

Secondly, in my view, we have to estimate the extent to which we can build up reserves by buying USD from the market given the current policy stance. The Government has committed to a policy to keep the interest rates unchanged and keep the exchange rate to USD in the Rs. 185 range. We need to understand that the USD inflow estimate of about $ 15 billion is not owned by the Government but by the exporters, and so are our remittances. The same applies for the imports where importers have to have money from the market to import the basics such as fuel, pharmaceuticals, etc. In this context, to build up the reserves, the Government has to buy USD from the market and that is how the Government can capture the USD available in the market from exporters. To do that, the incentive structures have to be there for exporters to sell more USD rather than save USD. Currently, the interest rates for USD are higher than interest rates for LKR accounts, so expecting a currency depreciation, the market perception is more skewed towards keeping their money in USD form. To overcome that incentive discrepancy, when the Government imposes a regulation to procure the USD earnings by exporters within 180 days and to convert 25% upon shipment, it is likely that the exporters under invoice consider options to park their money in offshore accounts, which will further erode our inflows. 

At the same time the regulation will impact some exporters who run on thin margins who have a portion of imports in their exports. On the other hand, the companies who have USD commitments and agreements with other companies now have to face extra pressure and loss on conversions due to this regulation. 

In my view, the sovereign debt problem has a broader dimension beyond just calculating cash flow. Because the Government owns the debt and because the USD cash flow is owned by private businesses and individuals, the Government requires a mechanism to capture it either by taxation or mopping up the liquidy from the market by tightening the systems by allowing the interest rates to move upwards. That will slow down the economy. The Government’s current strategy of buying their own Treasury bills and bonds, in other words printing money, will add constant and excessive pressure on imports through channels where the imports are open, though we have a import control policy. At the same time, it is highly likely that the excess liquidity will convert to credit with the economic recovery from Covid-19 and add pressure on inflation and cost of living. We have to keep in mind that while we build reserves by buying USD from the market, we might have to sell some of it again to keep the exchange rate stable. Changes in the exchange rate will affect our debt-to-GDP ratio.

It is true the sovereign nations have the legitimate power to print money, but ultimately what consecutive governments consumed by taking debt has to be paid in real terms by earning it real value, and there is no shortcut for it. Very importantly, while the debate is on as to what route we need to take, we should not forget the reason that brought us here.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Why is the President being ‘landed’ with this request?

Originally appeared on The Morning

By Dhananath Fernando

A digital land registry could help our rural masses 

The “Gama Samaga Pilisadarak” is the President’s most recent engagement programme. Positives and negatives of the programme have both been openly discussed on mainstream and social media. As per media reports, the programme is structured in such a way that officials of key ministries, such as Land, Education, and Road Development, visit villages with the President. 

People are then requested to put forward their problems before this entourage of officials. They try to solve the problems at the location itself, directing the state officials to act faster. The President mentioned that following such a course of action has helped build local infrastructure and helps him understand people’s problems better. 

On the contrary, on social media, views have been expressed on forest destruction concerning areas where the President has been visiting, and describing this as an attempt to prioritise development at the expense of our green cover. 

The objective of today’s column is not to provide a commentary on “Gama Samaga Pilisadarak”, but an effort to put things into perspective regarding the most common concerns people have been putting before Sri Lanka’s First Citizen. Secondly, we aim to explore why the very same issues are being repeated in most of the villages. In my understanding, the problems presented to the President are just symptoms of a bigger problem, and it looks like the solutions instantly provided by the officials are just temporary solutions without understanding the problem at its root. 

Most frequent requests made to the President, as have been telecast in the news, are requests for land to conduct agricultural activities. The fundamental question is why solving issues surrounding land has become a common-priority request, as we saw on television, with people screaming and pleading the President to get their land matters solved.

As indicated multiple times in this column, about 80% of Sri Lanka’s land is owned by the Government. Out of that, about 30% is our forest cover. As a tiny island, land is obviously a limited resource in economic terms. Therefore, if we fail to optimise the utilisation of land, all the natural beauty and biodiversity we brag about is most likely to fade away from us. 

Creating land, like what we did with the Port City, is extremely expensive and environmentally costly. The problem lies in the fact that most of the land our farmers cutivate is only under a licence, and they do not have a title. As a result, the farmer has to visit the Divisional Secretariat to obtain a license, renew the license, or even to obtain approval to change the crop they cultivate. 

Smaller and smaller portions

Most of these lands our farmers cultivate are provided under different land and agricultural projects. Over generations when the original land is divided among family members, the land plot becomes smaller and smaller.

For example, look at what happens when the original land of five acres is provided to a farmer, which in turn is divided among his four children. This will get subdivided after the next generation. Now, instead of five acres, only about 25 perches of land will now be available, and this has limited scope for agriculture. As a result of these smaller land plots over generations, industrialisation or commercialisation of cultivating lands is unfeasible.

Employing technology and machinery to increase productivity on a 25-perch land plot is not feasible. As a result, people ask for more lands from the Government, or encroach on forest cover to do their farming.

On the other hand, these lands do not have titles. So farmers are unable to optimise the maximum usage of the land using technology, because they have no source for capital. They don’t have other assets to use as collateral to access finance, nor are the banks willing to provide them loans without any valid collateral.

As a result, the land problem has become a vicious cycle. These circumstances have led to a scenario where a combination of factors continue to make our farmers poorer and our agriculture unproductive, while trapping our farmers in informal loans and creating severe social concerns such as suicide. There is the additional issue of contributing to the loss of our forest cover and destroying our biodiversity. 

If we look at countries that are in deep poverty, one of the common denominators is that the people of those countries do not have their land and property rights. There is no magical formula for an economy to take off without establishing property rights for their citizens. 

The President expressed his displeasure at rumours circulating on social media on the destruction of forest cover, but until we provide a permanent solution to this problem, we will lose out on every front. The President will have to hear the same complaint at every location he visits.

On top of that, the Government has decided to stop all agricultural imports for the next four years, as per reports by The Morning. This will most likely worsen the situation. Food prices will go up, and more farmers will attempt to do agriculture by practicing their unproductive farming methods. 

The rising prices will punish all our poor consumers already suffering from the high cost of living. At the same time, our tourism will suffer, as it needs some imported agricultural products to prepare the cuisine. However, it is understandable that balancing such a dilemma when foreign reserves are depleting is going to be a serious challenge.  

What is the solution?

The President has a greater opportunity to capitalise on this matter economically as well as politically. We have to have a digital system and a digital land registry. As soon as the “digital land registry” is spelled out, many associate it to the three-letter “MCC” agreement. That is now gone, and there is very little value in debating it now. 

But over the next four years, the President can prioritise the digital land registry, which will mark forest cover on the cadastral survey system with GPS coordinates. It will increase Government efficiency drastically, release the dead capital of land among farmers, and investments will start kicking off. Most of the back-end work has been done, and cases for the need for a digital land registry have been developed. 

The question is: how are we going to find money to implement the survey and purchase the technology? We have to seek out multilateral donor agencies, or a potential bilateral loan, to secure the funding, as this will create massive economic potential. Setting up a digital land registry will be significantly impactful, rather than just developing a road or incurring another massive capital expenditure. 

This is an action which will move us upwards in the Ease of Doing Business Index, and build investor confidence. At the same time this will fall perfectly in line with the President’s manifesto of “Vistas of Prosperity and Splendor” under a digitised economy. 

The ripple effect will trickle down to smaller cases at courthouses, as well as to micro and small business enterprises when the project unfolds. 

Since there have already been many land deed programmes such as “Jayabhoomi” and “Swarnabhoomi”, this will not be a simple and easy project. Having the simple digital infrastructure ready is the first step to address these issues, both at present and in the long term. 

The main opposition comes from lawyers, as they are the main beneficiaries of delayed court proceedings. If the President focuses on this single reform, it will not only be the best-ever environmental conservation reform to protect our green cover, but also a historic economic reform to unlock our dead capital, and reactivate capital markets and agriculture. Most importantly, it will be a big relief for our farmers and fellow Sri Lankans.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Rice crisis: Just give our farmers their lands

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

Rice, the main source of carbohydrates for the majority of Sri Lankans, is a sensitive political topic. I am sure we have all been experiencing this in the recent past. Most often, it is a political football where everyone passes the blame to one another without unpacking the economics behind the rice problem.

Increasing the harvest

If you ask any Sri Lankan the question “what is the problem with the rice market?”, there will be a few common answers. “A rice mafia/monopoly or oligopoly by rice millers” is the most popular. The second most common answer is the fact that the intermediaries are earning more, resulting in farmers being at the losing end.

The third most frequent response is the lack of modern technology in paddy fields which decreases our yield. Many economists and politicians support this argument with a popular statistic which states that agriculture contributes only to 8% of our GDP in comparison to 25% of our labour force involved in farming. In my opinion, the aforementioned concerns are just the tip of the iceberg.

Sri Lankans consume approximately 108 kg of rice per annum per person while the global rice consumption average is 54 kg. The conundrum is that in a country where consumption is twice the global average, farmers continue to be relatively poor.

The main question with rice is: Should farmers increase the harvest or if the harvest drops due to external weather conditions, will they earn the same amount? At times when rice harvest is high, the prices plummet due to ample supply. During this period, we can frequently observe farmers protesting as they urge the government to purchase their seed rice for a guaranteed price or for the government to impose a minimum selling price for farmers as well as a minimum buying price for rice millers. Rice millers have two main solutions to this issue: Either they stop buying seed rice as they cannot sell it at a competitive price because their cost is higher, or they still buy it which results in rice prices in the market skyrocketing to Rs. 110-120.

The high price is not only difficult for consumers to afford but is also a price that political parties pay, which dilutes their political capital. As a result, the Government intervened in the market with limited and poor storage capacity and in some cases, rice was stored in airports. After a few weeks and months, the Government sold these rice seeds to large-scale millers for a lower rate than what they initially paid the farmers, incurring a massive loss of taxpayers’ money. Some of the harvest is wasted due to the lack of storage facilities and logistics failure. As a result, farmers lose out on their income and taxpayers’ money is lost.

The second scenario is the reduction in harvests due to harsh weather conditions which decrease supply and subsequently increase prices of seed rice. Since the total quantity of the harvest is low, the money earned by farmers too continues to be low. Regardless of whether there is a large or smaller harvest, the farmer’s earnings remain consistently low. Hence, farmers are not given an incentive to increase their harvest and overall yield. Playing to their advantage, rice millers have created an oligopoly and so decide on prices in line with their modern and expensive storage capacity.

Land issues

Then comes the question of why technology is out of reach for most farms. The preliminary reason is that most paddy lands are fragmented for small lands, so it is not possible to run a commercial-level operation with superior technology. The more significant reason is that 82% of Sri Lankan land is owned by the government (out of which approximately 30% is covered by forests) and the remaining 18% is available for people’s private usage.

A small proportion of government-owned land has been given to people for cultivation, but their ability to take loans from banks to invest in technologies such as greenhouses is far beyond their reach. Construction on paddy land is illegal, which means there is a lack of space for any transaction or technological investments.

Land issues are a sensitive political issue, but many believe that if farmers are given full ownership of the land, they will sell it to foreigners, which in turn challenges our sovereignty. However, the government ownership of farmlands for nearly a century does not change the destination or quality of life of our farmers. Making things worse, the regulation is such that the paddy lands cannot cultivate anything other than paddy and even if the farmer wants to move for a better high-yield crop, a license needs to be obtained via a cumbersome procedure at government offices.

Given these challenges, how likely is it that anyone would enter paddy farming even if they have a disruptive agricultural idea?

Loopholes in costing structure

Many Sri Lankans believe that we can easily upscale our farming for rice exports. I sincerely wish we could do that too, but unfortunately, this is far from the reality. Sri Lanka cultivates mainly short grain rice in comparison to long grain rice where the world’s demand mainly lies. Even following a good season and excess rice production after domestic consumption, it is not exportable and will further drive the prices down due to excess supply. Furthermore, water is becoming a scarcity due to environmental challenges and currently, we do not calculate costs for water consumed in farming.

Recent research has found that 1 kg of rice requires 2,500 (1) litres of water and more than half of that is consumed by the plant itself. If we consider the cost of water to be Rs. 0.20 per litre, the water consumed by the paddy plant itself adds up to about Rs. 280 which is almost three times the current-controlled price of 1 kg of rice. The cost of utilising land hasn’t been factored. Fertilisers have been provided with a subsidy and that cost needs to be added to our final cost if we are to create a comparable and competitive costing structure.

Solutions

The decade-long series of solutions are well known by most of us. For example, rice millers impose price controls on the selling price following raids by the Consumer Affairs Authority (CAA) at the retail level, and the list goes on. That has been the same response by most governments and it is pointless to further elaborate on what has happened. As a solution, we need to have an easier regulatory system and allow the farmers to own their land. The draconian regulations have trapped farmers in a never-ending cycle of poverty for decades.

From the supply and demand end, the only buyers are rice millers. When there is a single buyer in the industry, they inevitably get higher bargaining power. It is important to diversify our buyer category and the only way to do it is to make rice an industrial product. Today, rice is not only used as a source of carbohydrates; alcohol products, rice bran, rice perfumes, rice-based milk, and rice antioxidants are produced at a commercial level, which offer far higher prices to farmers at the buying stage. This is the solution to increase revenue for farmers and help them escape the vicious cycle of poverty.

The day our farmers have access to their own land will be the day the market is open for many categories of buyers, which will be revolutionary for farmers. Until then, we as the consumers need to patiently experience the price controls, higher prices for rice, and the political blame game.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.