Lessons for Sri Lanka’s agricultural development

By the Economist

The World Development Report 2008 (WDR) that was launched in Colombo on January 29th had valuable lessons for Sri Lanka’s economy and the development of agriculture. This is especially so as there is a lack of understanding on the role of agriculture in the current Sri Lankan stage of development. There are some who depreciate the role of agriculture, while others stress its importance to an unrealistic extent. The significance of the World Development Report 2008 is that it reasserts the importance of agriculture in economic growth and redefines its role in relation to the stage of economic development of countries. It is a balanced and sober reassertion of the importance of agriculture that policy makers should take into consideration.

The role it assigns agriculture for developing South Asian countries, including Sri Lanka, that are placed in the category of “transforming economies”, is that of contributing to economic growth, poverty reduction and improvement in food security. Of these three objectives it places a particular emphasis on poverty reduction that is closely related to food security. The World Bank Report makes a case for greater investment in agriculture and advocates agriculture being placed at the centre of the development agenda. It argues that the goals of halving extreme poverty and hunger by 2015 can only be achieved if there is higher investment in agriculture.

The World Bank Report points out that the agricultural and rural sectors of developing countries have been neglected despite 75 percent of the world’s poor living in rural areas. Only 4 percent of official development assistance is for agriculture in these countries. This is particularly so in Sub-Saharan Africa and South Asia. Public investment for agricultural development and rural uplift is also low. The World Bank is therefore advocating an agriculture for development agenda. Such a strategy it points out would be more effective than growth in other sectors.

It estimates that GDP growth originating in agriculture is about four times more effective in reducing poverty than GDP growth originating outside the sector. Therefore, it argues, the poorest people would benefit. According to the report agriculture can offer pathways out of poverty, if efforts are made to increase productivity in the staple foods sector; connect smallholders to rapidly expanding high-value horticulture, poultry, aquaculture, as well as dairy markets; and generate jobs in the rural non-farm economy.

The report also warns that global food supplies are under pressure from expanding demand for food, feed, and bio-fuels; the rising price of energy; and increasing land and water scarcity; as well as the effects of climate change. This in turn is contributing to uncertainty about future food prices. Agriculture consumes 85 percent of the world’s utilized water and the sector contributes to deforestation, land degradation, and pollution. The report recommends measures to achieve more sustainable production systems and outlines incentives to protect the environment.

The role of agriculture differs depending on the character of the economic transformation in each country. In transforming economies like Sri Lanka where agriculture contributes only 17 percent of GDP and below 10 percent to GDP growth, there are opportunities to improve productivity in many crops and thereby contribute to economic growth and even more to the reduction of poverty and improvement of household food security. It points out that agricultural growth has been highly successful in reducing rural poverty in East Asia over the past 15 years.

The WDR points out that growth in agriculture is on average at least twice as effective in reducing poverty as growth outside agriculture and that agricultural growth reduces poverty directly, by raising farm incomes, and indirectly, through generating employment and reducing food prices. It contends that the objective of poverty reduction is served best if agricultural growth is centered on smallholder farmers, who are made more competitive and sustainable through institutional and technological innovations and empowered through producer organizations. These interventions must be complemented by massive investments in rural education to promote the transition into more skill-intensive employment and successful migration.

Despite all the rhetoric about agriculture, the fact is that agriculture’s growth has lagged behind those of other sectors. According to the WDR agriculture sector growth in Sri Lanka has been only 1.1 percent in the fifteen year period from 1990-2005, when other sectors grew at much higher rates. Although the reduction in agriculture’s contribution to GDP is to be expected and is a part of the process of growth, it has been achieved in Sri Lanka owing to both negative and positive reasons. The negative factor is that the production of several crops declined over a period of time and even when there was growth these have been at a modest rate. The yield levels attained in almost all crops is much less than the potential. This applies as much to plantation crops as to small holder agriculture.

The positive side is that both industry and services have grown. Manufacturing now accounts for 27 percent of GDP and services around 56 percent of GDP. The World Bank Report recognizes that this process should continue as industrial development and growth in services would themselves have a benefit on agriculture and agricultural development. Agricultural growth could contribute to economic growth in many ways: by earning or saving foreign exchange, enhancing employment, reduction of poverty and the improvement in food security. It is the emphasis on the reduction of poverty and resolving household food security that is of special significance.

Both poverty and food insecurity are largely problems in the rural and estate areas in Sri Lanka. While industrial development and opportunities in services could siphon off a certain number of people from the rural sector to its benefit, this would be a slow process.

Meanwhile the problem has to be handled in rural areas by developing agriculture, agriculture based industry and other economic opportunities.The development of Sri Lanka’s agriculture requires many thrusts. There has to be much more investment in research and rural infrastructure development. The agricultural extension services that are hardly serving its purpose should be reformed and reconstituted.

The problems of marketing of agricultural produce have to be resolved by developing storage and milling capacity, promoting competition and improving transport facilities. There should be more constructive private sector-public sector collaboration. Land policies require to be reformed in the context of current situations to permit land use on the basis of economic returns.

If agriculture is to contribute more handsomely to economic growth, reduce poverty and improve household food security, steps have to be taken to increase productivity through policy reforms, improved research, infrastructure development, better extension and marketing facilities. All these imply heavy investments in agriculture that have been lacking. Will the prescriptions of the World Development Report influence agricultural policies or, as is often the case, will it fall on deaf ears?