The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

The "sluggish rural economy" boomerangs on World Bank
The launch of the World Bank's Sri Lanka Development Policy Review provided an opportunity for dialogue and debate on a number of economic issues in the country. The content of the review dealt with the Fiscal Problem Administrative Erosion, the Quality of Education, Infrastructure Backlog and Increase in Regional Disparities, besides agriculture.

The discussion was also enriched by the Review presenters who often covered more ground than the report itself. The most controversial section of the report turned out to be the section on agriculture called the "Sluggish Rural Economy". This section of the report boomeranged on the Bank with its content being described as full of half truths and ill-conceived strategies. World Bank Country Director Peter Harold, however, interpreted the criticism as being in consonance with what the Review has said.

The report focused on the unsatisfactory reduction in poverty in the rural sector. While urban poverty had been reduced from 14 percent to nearly 8 percent, rural poverty had been reduced from about 31 percent to only 24.7 percent between 1995-96 and 2002. This gave a strong justification for a theme of the Review "Reviving Agriculture for Poverty Reduction".

The contention of the Review that revival of small farm agriculture is the key to poverty reduction provided one of the areas of consensus. While there was some agreement that a flexibility in land policies that enabled a more rational and productive utilisation of land was needed, several speakers painted out that World Bank's continued focusing on the removal of restrictions on land ownership rights under the Land Development Ordinance was not a correct emphasis. Commentators pointed out that lands had in fact been devolved not withstanding the legal barriers. The Review position was based on little understanding of the factual ground situation -- an unnecessary magnification of a problem based on the de jure situation rather than the de facto conditions. Besides this several discussants pointed out that the same problems existed for small farmers in the wet zone where land had no such restrictions.

The most forthright criticism on agriculture was that the Review contained misconceptions and half truths and that it had not used a single research document on Sri Lankan agriculture. It merely repeated the misconceptions of earlier World Bank Reports. It was pointed out that it was misleading to say that "Sri Lanka has achieved near self-sufficiency in Rice Production" when as the report itself pointed out people are eating less rice and malnutrition in the country was high.

Further a single year's achievement of production to the level of local demand did not constitute self-sufficiency. Paddy production would need to be sufficient to meet the requirements year-in-year out and the necessary nutritional requirements of the population. The Review had gone on to say "the return of paddy lands to production in the North East is likely (to) result in surplus production in the near future". This observation ignores the earlier factors limiting the demands for rice and the fact that 400,000 persons were entering the "eating force" each year. In the next two decades there would be an additional 4 million mouths to feed. Is the country expected to abandon paddy cultivation "for other more productive non-paddy purposes"? What are these "more productive lucrative non-paddy purposes" to which a good proportion of a million or more farmers could shift?

It was pointed out that what was needed was not less government interventions but more effective government intervention in extension, credit and marketing. The average paddy yields could be raised from the present yield of 3.9 metric tons per hectare to about 5 metric tons, still less than half the potential 10.5 - 11 metric tons per hectare.

The discussion pointed out that many of the pertinent issues for poverty reduction through agricultural development was not discussed in it. The issues of labour shortages and part-time farming in agriculture, the regional differences in paddy production and the need for agro-based rural industries were among them. Certainly the development of rural infrastructure would boost the rural economy. Yet that alone would not suffice.

The serious implication of this discussion was the need for the government to develop a comprehensive agricultural policy for the next five years. In the absence of such a well-thought-out policy framework, observation based on fanciful theories ignoring the ground realities and national aspirations and objectives may dominate policy formulation. Fortunately the World Bank Country Review's section on the rural economy has boomeranged. May be a more carefully thought out policy framework would result as a consequence.

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