An unsatisfactory agricultural performance
Once again the Central Bank Annual Report has highlighted the inadequate growth in agriculture. The poor performance of agriculture in the last decade impeded economic growth and accounted for the fruits of growth not reaching the rural poor adequately. Agriculture's performance has fluctuated more in line with weather conditions than due to structural reforms. The exception was tea.

The agricultural sector grew by only 1.5 percent last year in spite of a record paddy harvest. This contrasts with a growth of 7 per cent in the services sector and a 5 per cent growth in industry. Agriculture grew by only 2.5 per cent during the 1990-99 period. In the four years 2000 to 2003, the average annual growth in the agricultural sector was a mere 1 per cent.

The only significant exception to this poor performance in agriculture has been tea. Tea production increased by about 30 per cent in the last decade with a big spurt in tea production after 1995. By 2000 it reached 306 million kilograms. It reached a record 310 million kilograms in 2002 and dropped to 303 million kilograms last year, mainly due to bad weather conditions.

The improved management on the estates after their privatisation resulted in significant gains in tea production. Even more significant, was that smallholder tea production increased by leaps and bounds and now accounts for 62 per cent of total tea production. Improved prices for low grown teas, together with improvements in infrastructure for smallholdings, contributed significantly to the increase in smallholder production.

In contrast, rubber production declined till recently. Rubber production in 2001 was the lowest production ever of 81.8 million kilograms and only about half of that 40 years ago. In 2002 it recovered slightly to reach 82.8 million kilograms and increased to 92 million kilograms in 2003. The declining prices for rubber, especially the shock of the Asian crisis in 1996, dealt a severe blow to the industry. The area under rubber cultivation declined from about 200,000 hectares in 1990 to 158,000 hectares in 2000, as rubber lands are being converted to more profitable urban and industrial uses. The improvement in prices in the last two years has given a fresh zip to the industry.

Paddy production last year reached a record level of 3.01 million metric tons. Nevertheless, paddy production increases in recent years have not been very pronounced. The record paddy crop in 2003 was only about 3 per cent higher than in 1995. Paddy production is expected to fall once again this year.

Paddy cultivation dominates agriculture with around 1.2 million farmers cultivating about 550,000 hectares of land. About 20 per cent of the population are estimated to be directly or indirectly dependent on paddy farming. Paddy farmers face a "Cost -Price Squeeze". Costs of paddy cultivation have increased over two-fold in the last decade, while the price of paddy has not risen to compensate for the increases in costs. Foremost among the high costs of cultivation are the high labour costs. Paradoxically, in a country that has a high rate of unemployment, there is in fact a shortage of labour for paddy cultivation. In some areas the shortage of labour is so acute that farmers have even given up paddy cultivation. The price of chemicals and fertiliser are also high.

"The continuation of a low growth rate (in agriculture)" the Central Bank Annual Report for 2003 contends " clearly reflects the existing structural weaknesses in the agricultural sector and reiterates the necessity for strong reforms to raise productivity and improve its resilience, rather than continuing to rely on unsustainable and distortionary input subsidies, ad hoc tariff protection and inefficient intervention in agricultural marketing activities by the government." Are we doing anything of significance to reform agriculture?

One of the most important areas for action is the improvement of the institutional support for paddy farming. The extension service is hardly operative and definitely ineffective. What is needed is not the old style type of extension worker but a strong link of the farmer to research. Many research studies have demonstrated that the cultivation practices of farmers are defective. This is particularly so with respect to soil preparation and use of chemicals. Credit for agriculture is another unsuccessful institutional support. Most farmers resort to informal sources of credit.

Efforts to increase the efficiency of institutional credit have not met with success. Marketing of agricultural produce leaves much to be desired. These are the areas for action that the new JVP Minister of Agriculture must focus on.

The objective of agricultural policies with respect to paddy is clear. What requires to be attained is an increase in yields and lower costs of production. Strengthening of institutional support is the critical prerequisite.

Average national yields at around 3.8 metric tons per hectare are only a third of the potential yields of about 10.5 metric tons per hectare. This yield gap has to be bridged especially in irrigated areas to around 6 metric tons per hectare in a few years. This must indeed be the focus of the agricultural strategy.

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