Nose above water
View(s):One evening, a few weeks ago, I overheard the answers of a student who appeared for a quiz show in a TV channel. She articulated and elaborated her answers so eloquently that I paid more attention to the show. In the conversation with her, the quizmaster asked an interesting question: “If you become the President of Sri Lanka, what is the first thing you want to do?”
At that moment everyone must have been looking at her to find out her response. She had to figure out her best answer in few seconds. She paused for a while and responded: “I am going to ban imports!”
It appears to be a shocking response. Even the quizmaster raised his eyebrows and, asked her again: “So, are you going to ban importing rice for us?” Then she seems to have understood that there is something wrong with her answer. But she managed to justify it by saying “if we can grow rice in this country, we don’t have to import it.”
The quizmaster asked her again: “If it costs Rs. 100 to produce one kilogram of rice here in Sri Lanka and, if we can import it from another country for Rs. 60, then what would you say?” It was simple, but profound! She didn’t have a direct answer to that question.
I thought of elaborating on the same issue because the desire for “import controls” is in the hearts of many Sri Lankans – not just general public, but even among many politicians and intellectuals. Many would feel sincerely that it is the “best strategy” for development. Even the students haven’t got such thinking out of the blues, but from their adults and those who influence their thinking and learning.
Hurting the consumers
Let’s begin with the same conversation: If it costs Rs. 100 per kilogram to produce rice, in the absence of imports consumers will have to pay that price; for every kilogram of rice, consumers pay more. A policy as such is not at all fair for consumers.
We cannot say that all consumers are rich people. There are millions of poor people who do not grow rice. Therefore, it cannot be a “pro-poor” policy either, because it is the poor who are hurt more than the rich. The labourers, daily-wage earners, agriculture workers, factory workers, porters and security guards and, all types of minor employees; they all will have to bear the high cost of rice.
According to the Household Income and Expenditure Survey 2016, conducted by the Census Department, 30 per cent of households in Sri Lanka receive an average monthly income less than Rs. 30,000 only; more than half the households receive less than Rs. 50,000 a month. They may not be “poor” by definition. But I am sure less than Rs. 30,000 a month is not at all a comfortable monthly income for a family.
They all get hurt, just because their “consumer right to buy at cheap price” is denied by a government policy. Even if people are not poor by income, they would become by government policies which force them to consume poorly due to higher prices.
Farmers under the yoke
Many would argue for import controls with a sincere heart to suggest that they are needed to protect the “rice farmers” although at the expense of consumers. This is a popular belief all over the world in both rich and poor countries. But we should not distort our discussion by mixing up rich and poor countries, because the fundamentals are different.
Import controls, together with some other policy measures such as subsidies, help the rice farmers just to “keep the nose above the waters” – not for a season or a year or two, but for their lifetime. This means that these policies enable them to survive, not really to thrive.
File picture of terraced rice fields.
Thriving is based on the transformation of rice production and productivity into modern agri-business. Import controls and subsidies have never transformed rice production and productivity or improved income levels of farmers. If there has been any improvement in income levels and socioeconomic status of farmer families, it is not because of import controls and subsidies, but for some other reasons.
In fact, import controls and subsidies discourage the transformation of rice production and encourage farmers to lock up in the same vicious circle under a yoke. These policies do not allow the farmers to go beyond the boundary lines so that import controls and subsidies keep them poor for generations.
It was through education that some of the children decided to go beyond such boundary lines and improved the socioeconomic status of the farmer households.
High production cost
It is widely argued that farmers need both import controls and subsidies because the cost of production is high. Therefore, if we allow rice to be imported at Rs.60 a kilogram this will wipe out domestic rice production which costs Rs. 100 a kilogram.
If the cost of production is high because of the higher labour cost, we need to be careful with our interpretation. If the labourers also have to buy domestic rice at higher prices due to import controls, obviously they should be paid higher wages; they are after all consumers who got hurt by import controls.
If the wages are high because of the increase in income levels of the country, it is not right to argue against higher incomes and living standards of labourers. Increase in income and improvement in living standards are essential elements of economic development. How can we argue against economic development?
Sharing too little
Wages can be higher, as some may argue because of labour shortages. If Sri Lanka has two million working people in the agriculture sector, which is about 26 per cent of the total employed workforce of the country, it is difficult to conclude that there is really a labour shortage here.
The current agriculture output can be produced by less than one million workforce which is less than half the present level. This means that, actually there are too many people in the agriculture sector, sharing too little from what they produce.
By the way, I must add to our discussion that the agriculture sector further receives some inputs (water) free of charge and, some inputs (fertilizer) at subsidised price, while the sector does not pay taxes either. These benefits are not applicable to the other production sectors such as industries or services.
With all that, still the agriculture sector needs protection from import controls to survive.
Road to prosperity
I have an important question to pose now: Why has domestic agriculture not been transforming itself with improved production and productivity? Why cannot it thrive without government support and protection from imports?
The above discussion today reveals that protection through import controls together with many forms of government support have not led farmers to find their independent path to development. But still we think that these measures are the road to prosperity which has directed more than a quarter of our workforce to lock up in less-rewarding domestic agriculture.
Food security
On many occasions when I spoke of the above facts, many would oppose me on the ground of “food security”. Food security does not mean that we must keep the rural farmers where they are just to supply our meal plate! Food security must be improved together with the transformation of agriculture into a more productive and high-rewarding economic activity.
In fact, food security is greater in countries which are less-dependent on agriculture and, where less people remain in agriculture. In most of the rich countries the share of agriculture output is about 1 per cent of GDP and, the share of agriculture workforce is less than 5 per cent of the total employment.
(The writer is a Professor of Economics at the University of Colombo. He can be reached at sirimal@econ.cmb.ac).