Farmers helpless to reap benefits of a bumper harvest for New Year
The festivities of the National New Year are inextricably connected with the harvest. It is the time when the Maha crop is reaped, the paddy sold, creditors paid and the monies spent on new clothes, gifts and the New Year celebrations.

This year's celebrations should have been one of the finest in recent years as the country reaped a record paddy harvest of 2 million metric tonnes on top of good harvests last Maha and Yala.

Unfortunately it was not to be a grand festivity as the unsold paddy or paddy sold at low prices, sometimes below the cost of production, distressed the poor farmers. The expectations from the rich harvest of the golden grain had turned sour. Let us first recollect the facts of the paddy situation.

In 2004, paddy production dropped and rice required to be imported. The situation reversed last year when both the Maha and Yala crops were a success with larger extents being cultivated. Paddy production in 2005 rose to an unprecedented level. Paddy production of 2.01 million metric tonnes in Maha 2005 and 1.23 million metric tonnes in Yala resulted in a domestic supply of 3.25 million metric tonnes.

Although this was adequate to supply the domestic needs, tsunami relief came in the form of gifts of rice as well and there were stocks from the previous year. The stocks of rice therefore were high even before the Maha harvest. The bumper harvest of paddy in Maha this year comes on top of this good stock position.

The government was aware of the looming problem and decided to offer guaranteed prices of between Rs.16.50 to Rs. 17.50 depending on the variety of rice.

This price was expected to stabilise paddy prices at the farm gate level. Even if this programme achieved an average price of around Rs. 15 per kg. it would have been adequate to cover costs of production. However, the results of this government intervention has not achieved the desired result and some paddy farmers are said to have sold their paddy at Rs. 8 per kg.

This could be even below the cost of production for many small farmers.
Many factors are blamed for this situation. The agents of the government purchasing paddy are alleged to be corrupt. They reject paddy brought by farmers on grounds of not meeting the specified quality standards or not having adequate money that day.

Either way farmers are caught in a quandary, as they cannot take back their paddy, have to meet the demands of their creditors, and need money. Private purchasers are there to bid for the paddy at low prices. Caught in this liquidity trap farmers sell their paddy to private dealers.

The alleged corruption has two facets. One is that the agents of the government are tied with the private dealers and millers in this long-practised fraud. While politicians cry foul and want the crooks brought to book, the beneficiaries include powerful politicians in the paddy producing areas. These politicians work through their kith and kin to purchase the paddy at low prices and reap a rich harvest for themselves. Besides this, though Rs. 2.5 billion was allocated for paddy purchase and it is reported that Rs. 2.1 billion has already been utilised, it is reported that several paddy-growing areas have not received funds for paddy purchases.

There are regional differences in the situation. Polonnaruwa appears to be relatively better, with farmers being able to sell paddy at between Rs. 16.50 to Rs. 17.50. The secret is in better farmer organisation and adequate storage capacity. Also Rs. 650 million has been allocated for paddy purchases.

Dambulla appears to be in a bad way with farmers selling their produce at as low as Rs. 6 per kg. Amparai and Batticaloa are not faring too well, mainly due to inadequate storage. Annuradhapura is also relatively good with Rs. 450 million allocated for the district.

The large stock of paddy coming into the market in a very short period of time on top of a good stock position is the basic reason for the problem.
Fundamental factors bearing on the issue require to be recognised as economic laws operate irrespective of the actions of governments. It is crucial that the fundamental problems are resolved rather than find emergency measures to cope with the current crisis. The lack of adequate storage space in many paddy-producing areas is a fundamental problem that requires being resolved.

The government intervention is itself somewhat inadequate to make a dent on the problem. The government is expected to purchase about 15 per cent of paddy production. Perhaps targets of around one quarter of the estimated paddy produced should be set for each and every paddy producing area.

The agencies purchasing paddy should be diversified and increased. The problem is of course compounded by the corruption of officials, supported by influential persons and vested interests of important persons, including politicians. There is also a need to bring in the private sector in a more organised manner to truncate the producer-consumer chain and reduce market margins. Increased transport facilities are also needed.

These fundamental factors have to be addressed not when the problem arises, but as part of the infrastructure development of the country. The government must assume production levels to be around current levels or even project higher amounts and develop silos for storage of paddy.

When such facilities are available these could be in the hands of a diversified number of agents such as banks giving credit to farmers, farmers’ organisations, other community groups and the government agencies themselves. Such facilities within the paddy growing areas would reduce transport requirements as well as another constraint at harvest time that the crop has to be transported long distances. Increasing milling capacity is another requirement.

If milling capacity is augmented sufficiently then it would reduce storage and transport needs as well. Damage has already been done to this year's harvest. What must not happen is waiting till the problem arises again to resolve the problem. It is the ripe time for the government to map out its strategy to develop the required infrastructure and have it ready for the Yala crop this year that is expected to yield around 60 per cent of the Maha crop.

This may not happen, as some farmers may not cultivate their lands owing to the problems they faced in selling their paddy at a remunerative price. Still the government must be effective during Yala to boost confidence for cultivation next Maha.

By the time the Maha 2006 crops come in, the requisite infrastructure should be in place so that market forces themselves will resolve most of the paddy marketing problem.

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