It was tea, not rice!
View(s):After learning about the economic development history of Sri Lanka, there was a question that made me anxious for many years at that time: Why did British planters during colonial times take so much of trouble and risk in introducing some plantation crops that were totally alien to Sri Lanka? The flip side of my question was that “instead of tea or rubber, why did they never think of investing in rice production?” Perhaps, we might be able to figure out some political answers, but my question was an economic one.
A rational question
I also had many reasons to make my question a rational one. Rice was our staple food, but at that time Sri Lanka was short of rice; the country could produce only half the people’s rice requirement. The other half was imported, and the colonial government spent foreign exchange to import rice. This means that there was an absolute need for investment in rice production. That was exactly why the national governments did so after independence.
There was an ancient “high-tech” irrigation system in the country’s dry zone, which was abandoned into jungles as people gradually moved towards the south. A rehabilitation of that irrigation system would have supplied the necessary inputs, the capital, and the infrastructure needed for reviving the country’s ancient rice cultivation.
Rice ration scheme
During the time of the Second World War, as import trade was disrupted there was not enough rice in the country. The colonial government took steps to introduce a “rice ration” scheme. Then the World War ended but the rice ration scheme continued for the next 30 years. Under this scheme, rice was imported and distributed among all Sri Lankans – both rich and poor! During the 30-year period of time some politicians lost power on the rice ration scheme while others came to power using this scheme as an election tool.
Sri Lanka also entered into a historical “rice-rubber pact” with China in 1952 to exchange rice for rubber; China received rubber from Sri Lanka which was used as a raw material for industries in China. In return, Sri Lanka received rice from China, which was distributed among all Sri Lankans; we cooked and ate it.
Rice was such an important staple food in Sri Lanka which could even topple politicians showing that the country was in need of investing in local rice production.
Yet rice production was not an attractive area for agriculture investment for planters who were seeking plantation opportunities in Sri Lanka.
Plantations of alien plants
Tea and rubber were both unknown to the Sri Lankans. The British planters brought tea from China and rubber from Latin America to Asian countries like Sri Lanka; the crops were planted as an experiment in the late 19th Century. Before that they had already experimented with some other crops, while one of the thriving plantation crops was coffee. It was also a foreign crop introduced to Sri Lanka from Latin America. Coffee plantations flourished by the 1870s and then died due to a disease.
There was no reason to argue that British did not want to invest in any indigenous crop. They had already identified some indigenous crops too, including coconut and some spices. They invested in these crops, but did not show any interest in rice!
File picture of different varieties of Ceylon Tea
Even though the planters were not “politically correct” because they were not seeking election victories, they knew the economics of their investment decisions. From a political point of view, their investment decisions were “correct” in the long term, as the Sri Lankan economy flourished for over more than 100 years on the fortune of tea, rubber and coconut.
International market
The prime concern of British investment in plantation crops was the market; the market has to be a “big market” for an industry to grow and thrive. It would never be the local market of Sri Lanka, which is too small to allow an industry to thrive and grow. Even if the countries like China or India with over 1 billion people consider their local markets “too small” for their industries to grow, how can we talk about the capacity of our local market with just 21 million people?
The planters knew that rice would have never been a commercially viable crop as such; in fact, Sri Lanka achieved self-sufficiency in rice production by the 1980s, all due to government support. Even today, rice production in Sri Lanka is sustained by import protection and government support.
This is because, although it is our staple food crop, it does not have the economic competency to grow or, at least to survive in an international market. It is not an export crop exposed to international market environment and, it would not grow to be an export commodity either. Rice in Sri Lanka has to remain as a “domestic crop” as we have named it, until and unless conditions change in the future.
Why exports?
Why do we need to bother about exporting our products to the international market, instead of being content with our local market, just like in the case of rice?
There can be many ways to answer this question. One way is to look at the benefits of the international market to the investor as well as to the nation. To an investor, the international market offers “unlimited opportunities” to expand the industry. If it was the local market like in the case of rice, either tea or rubber or any other industry would not have grown that far; the boundaries of the market will limit the expansion of any economic activity.
Moreover, there is also an economic benefit of a bigger market known as “economies of scale and scope”; an investor can produce at lower cost (economies of scale) and diversify into similar products (economies of scope), when the market is big enough to permit such changes. This is important to remain competitive in a market where there are many rivals. However, that competition is good because it makes the product development a constant process.
Prosperity from plantation crops
When you add up all these changes at individual levels, then we have the national picture. At national level, all these changes will accelerate growth and prosperity and, provide sustainable remedies to many economic problems such as trade deficits, budget deficits and debt burden.
The plantation crops brought Sri Lanka to a prosperous position at the time. They brought about enough foreign exchange to the country so that for many years the country had trade surpluses; in fact, the country was able to import the rice it needed.
Plantation crops generated tax revenue to the government so that the governments could maintain sound budgets. The country’s welfare system including rice ration scheme was maintained with government spending.
The development of the country’s service sector such as banking, transportation, port services and trade were based on and connected to the progress of the plantation crops at the time.
But the problem was that the country started depending too much and too long on the fortune of the plantation crops. Even by the 1970s, the Sri Lankan economy was surviving on the fortune of plantation crops.
Concluding remark
I have a point to consider, although some of us are reluctant to agree with me. Domestic crops including rice will meet our food requirement so that they will make us “survive”. These economic activities cannot take the country beyond the boundaries of survival.
What would allow the economy to thrive is producing for the international market. Export growth is important for all the countries to prosper and, more important for small countries than big ones.
(The writer is a Professor in Economics at the Colombo University.
He can be reached at sirimal@econ.cmb.ac.lk)