Old wine in new bottles
View(s):Last Sunday evening, Siri Ranasinghe – Chief Editor of Lankadeepa, the Sinhala newspaper, called me over the phone. He asked me straight away: “Why don’t you write now about how to get there?”
“How to get where?” It took a few seconds for me to understand what he meant.
It was after reading last Sunday’s Down-to-earth Economics column on “Impossible possibilities”. The column was about changing the mindset for the nation to become rich in one generation, which is not an impossibility. It all depends on the super-fast speed of economic growth in order to create wealth. However, there are countries in Asia which have maintained that speed and become “high-income” countries.
I thought of shedding light on this question for a couple of weeks. And I also believe that it would be important particularly during the election times.
After listening to a couple of election talks, Saman – one of my university batchmates who works in the Agriculture Ministry -, raised an interesting point with me: “Many are still talking about how to make the villages “self-sufficient”. Isn’t that what we have tried for so long?”
I said: “Of course, old wine in new bottles”
I came to know that some “opinion makers” are also grouping in order to influence the future leaders and their governments to prioritise the idea of “making self-sufficient villages.”
So let’s begin with rural agriculture, to understand whether “opinions” lead the country to where we want it to go. Later in the weeks to come we will move onto other areas as well.
Agriculture contribution
Coincidently, a few days ago a student wanted to interview me on the issue of raising the living standards of rural farmers. I guided him to find answers to a set of simple questions. I gave him the background information as follows:
“There are 8 million people in our labour force, according to the Labour Force Surveys. Out of this, 2 million people are occupied in the agriculture sector. Their contribution to our country’s total output (GDP) is US$7 billion a year. Now let me know, how much would the average contribution by one farmer be.”
He did the calculation, by dividing $7 billion by the 2 million number of farmers, and said: “$3,500”. “Well, that’s for a year; how much would it be for a month?” I asked. He did the calculation again, and said: “About $292 per month.” “In Sri Lankan rupees?” I asked him again. “Rs. 52,560, if we take the exchange rate as Rs.180 per US dollar.”
Then, I explained that number: “Statistically, this is roughly the average monthly income of a farmer. If that farmer has a family with 4 – 5 members to feed, this would be the farmer’s monthly net income for his entire family.”
I explained why that number is an over-estimate: “We derived this number for the entire agriculture sector in Sri Lanka, which includes the estate sector of tea, rubber, and coconut as well. These three crops alone account for more than 20 per cent of agriculture value addition. This means the actual net income of a farmer family from rural agriculture must be much lower than our estimated number.”
File picture of a villager returning to her village.
Rural poor
As he agreed, I continued with my reasoning: “More than 90 per cent of our poor people live in the rural sector, according to the available poverty data. There are 2 million people in Sri Lanka earning less than $3.20 a day, according to the World Bank estimates. How much is it in Sri Lankan rupees?”
He did the calculation again, and said “Rs. 576”. I asked: “Then, how much is it for a month?” He did the calculation, and answered: “If he works for all 30 days, it would come to Rs. 17,280.”
I said: “If a poor rural family has to earn about Rs. 50,000 a month, three persons of the family – farther, mother and, a child – should work for all 30 days of a month; right?”
He agreed, and I explained further: “Now look at what we discussed: There are 2 million people in the agriculture sector, and there are 2 million poor people, who are barely managing to survive. And agriculture is largely in the rural areas of the country, while the poor people are also largely in the rural areas.”
What’s the point: “The point is then, the country’s poor people must be mostly in the rural agriculture sector. Let me ask you my question now: What is the best strategy you propose to get these people out of poverty?”
Imaginary self-sufficiency
He paused for a while, and gave a couple of loose answers such as providing subsidies and giving assistance. I started to guide him again along the lines of his answers.
We in Sri Lanka have a long history of subsidies and government assistance, while we are still doing that; the government provides fertilizer subsidies, free water, guaranteed prices, protection from imports, Samurdhi grants, and so on. Of course, there is no doubt that all these subsidies and assistance programmes have helped them to “survive”, but none of these helped them to “thrive”. And they are still there “trapped” in their imaginary self-sufficient rural village for generations.”
“Self-sufficiency” means that you have enough of your own so that you don’t need to depend on external sources. The above practice leads the rural poor exactly in the opposite direction so that they continued to depend on external resources even for survival.
This means that the government support does not address the problem at its source: We need to address the problem at its source, if you are looking for a sustainable answer.
Source of the problem
Let me bring out another case study of the agriculture sector in a different country: The Netherlands. It is a smaller country with 17 million population compared to Sri Lanka with 21 million.
There are only 200,000 farmers in the country, which is just a 2 per cent of the labour force. They contribute $15 billion a year to the country’s economy (GDP).
I asked the same question again: “So what is the average contribution by a farmer for a month?” He did the calculation and answered: “It’s $75,000 a year, so that it would come to $6,250 a month.”
He moved further and converted it to Sri Lankan rupees. ”It’s more than 1 million a month – oh… my goodness, I can’t even think of that income for a rural family in Sri Lanka!”
I said: “That’s exactly my question to you; can you propose your best strategy for our rural family to get there from 50,000 to 1 million rupees a month?”
The issue at source is there are too many people in agriculture and in the rural sector in Sri Lanka. And the problem has got worse with population growth.
Population growth
At the time of Independence, our population was only 7 million, which has increased three times now to 21 million. Consequently, our rural sector is now over-populated so that “too many people contribute too little to the economy, resulting in a too, small family income which is just enough for survival.”
I guess we know the answer now; we need to allow a significant number of people in the rural agriculture sector to leave. It would expand the average farm-holdings to an economical size. An average farm plot for a farmer family in Sri Lanka should be at least 10 acres in order to make it an economically viable farmland. I believe that our rural agriculture requires only 500,000 farmers, not 2 million farmers.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk).