In view of the diminished contribution of agriculture to Gross Domestic Product (GDP) that was discussed last week, is there a significant role for agriculture? Does agriculture have a significant contribution to make to the Sri Lankan economy now that its relative importance in GDP has declined? The answer is indeed, yes. Agriculture has a very significant contribution to make to the country’s development despite the increased contribution of other sectors to GDP. Yet that role is somewhat different to what it was in the earlier stage of development when agriculture was the predominant economic activity.
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Agriculture is no longer the dominant source of generating surpluses for economic growth. Industrial exports, access to international capital, savings of nationals working abroad, foreign aid and grants are other sources of generating investment capital. These sources would no doubt play an increasingly important role in the economic growth of Sri Lanka in the coming years. Yet, it would be a fundamental error if the significance of these sources for investment leads to downplaying the role of agriculture. However, the slow rate of agricultural growth in the last two decades has been responsible for retarding the rate of economic growth. Had agriculture performed better, export earnings would have been higher, import needs less and inflationary pressures could have been more contained through lower food prices.
Export crops
Tea, the country’s main agricultural export fared badly since the mid sixties till the mid 1990s. Tea production that reached 225 million kilograms in 1968 declined since then till 1990 when it barely exceeded the 1963 production of 233 million kilograms. Since then there has been a trend of increasing production. Yet, in 2005 even the production of 317 million kilograms was only 40 per cent more than the production 40 years before. In the intervening period, especially between 1968 and 1990, tea production was sluggish. Fortunately there have been gains in tea production in recent years with smallholder tea cultivation contributing significantly to increased production. Last year tea production reached 329 million kilograms. Yet productivity on tea estates is still low in comparison with smallholdings, comparative yields in other countries and potential yields.
The performance in rubber was particularly disappointing. Rubber production declined since the late 1960s and early 1970s when it was around 273 million kilograms to an all-time low of 86 million kilograms in 2004, which was only 32 per cent of what it was in 1970. Production has increased since then to 104 million kilograms in 2006 that was still only 38 per cent of the production thirty years ago. With booming prices there has been a spurt in production. In 2010 the country produced 153 million kilograms of rubber. Yet this is only 56 per cent of the output in the 1970s. Rubber is now not only an export commodity but a significant input into industry with 70 per cent of rubber production being used in local industry. Therefore the decreased production of natural rubber has reduced export earnings as well as its use in domestic industries for manufactured exports.
Coconut production has not kept pace even with the increase in domestic consumption resulting in a lower exportable surplus on the one hand, and higher imports of other edible oils on the other. The 2010 coconut production of 2317 million nuts was nearly 20 per cent less than what it was in 1997-2000. Production trends in minor export crops are also disappointing. Minor export crop production in 2000 was only 43 per cent of the production in 1963. The increase in other crops has been only about 5 per cent in the last decade.
The exportable surplus of agricultural produce by and large displayed a declining trend owing to production declining over the years. This meant that agricultural export earnings did not continue to contribute significantly to foreign exchange earnings. In 2005, agricultural export earnings contributed only 18.2 per cent of total export earnings. In 2010 they contributed 25 per cent mainly due to increased international prices. However, this figure is deceptive as industrial exports have high import content, unlike agricultural exports. Therefore the relative contribution of agricultural exports is higher than that suggested by this comparison.
The decline in agricultural export earnings implies the country lost possible gains in growth both directly and indirectly. Apart from the direct gains in production and incomes, export earnings would have contributed to increased foreign exchange resources for investment and reduced the foreign exchange constraints to domestic investment. Conversely, increased production and exports of agriculture could contribute significantly to growth. This is especially so as the yields in tea and rubber are below the yields in most producing countries. Increases in yields of tea on estates, that currently have a much lower level than that of Kenya or India and smallholdings, could make a very useful contribution. Similarly, rubber yields are extremely low in comparison with countries like Malaysia and Indonesia.
Food crops
The performance in food crops has also been inadequate especially in the 1990s. Increased rice production contributed significantly to meeting the increased demands of food in the 1950s, 1960s and 1970s, when population growth was high. Between 1950 and 1970 paddy production increased by over three-fold (352 per cent), thereby saving funds for the import of rice. In contrast, between 1981 and 2000, paddy production increased by only about 32 per cent. However since the late 1990s paddy production has increased significantly and domestic demand for rice is more or less met by domestic production thereby saving foreign exchange. In 2010 paddy production increased to 4301 thousand metric tons. This has been especially significant as international food prices have increased substantially in recent years. Wheat imports are related to paddy production, as the two commodities are close substitutes.
Other food crops increased four fold between 1960 and 1980. In contrast, between 1990 and 2000 subsidiary food crop production declined by 60 per cent. Had food crop production continued its earlier increasing trend, the import costs of the country would have been reduced significantly. In 2010, food import costs were 12 per cent of total import expenditure. Rice imports were insignificant, but sugar, wheat, milk and other food imports were high.
Increase food production
It would be prudent for the country to increase food production to save foreign exchange expenditure. This is particularly so as current yields of paddy and other food crops are much lower than their potential yield levels. Productivity increases would e a contribution to the country’s growth scenario. However, the contribution of agriculture is not confined to its role of enhancing economic growth. Agricultural growth contributes significantly to alleviation of rural poverty, increasing incomes, increasing employment opportunities and household food security. Since about one third of households in Sri Lanka are rural and derive incomes directly or indirectly from agricultural activity, the level of agricultural production and the productivity of crops have an important bearing on economic conditions, especially the capacity of a sizeable proportion of households to access adequate food. Increases in agricultural production, especially an increase in agricultural productivity, would enhance incomes and improve the food security of rural and poor households.
Concluding reflections
The country should place a far greater emphasis on agriculture than it does today. Increased agricultural production can boost overall rates of economic growth; it can increase access of the poor to food supplies and increase income and employment opportunities of rural producers. This is important inasmuch as the bulk of the rural population lives in the rural sector. Increased agricultural production means improved food availability to about one-half of population either directly or indirectly. Directly farm households would have more income, especially the subsistence farm households. Indirectly farm households would have greater access to food through increased incomes. Urban households too would benefit because of the likelihood of lower food prices. A strategy to enhance agricultural production is an equity approach to economic development and addresses the problems of poverty.
While overall economic growth and diversification are important factors in reducing poverty and ensuring national food security, agricultural development has a vital role to play in ensuring food availability at household level. Sri Lanka must look to development of industry and services for siphoning off of surplus population from rural areas. Agriculture and rural incomes would benefit by such siphoning off of excess labour from rural areas. It is not a case of either industry or agriculture. What is needed is a balanced and forceful thrust in all sectors of the economy without neglecting agriculture.
The challenge facing the country is to revive and restore agriculture, increase production and reduce the gap between current yields and the realistic potential, transform agrarian systems and cropping patterns and develop an institutional framework to support a more productive and commercialized agriculture. Agriculture has a significant role to play in future growth though its share in GDP would continue to decline. Such a decline should be the result of increases in other sectors of the economy at a faster pace than in agriculture, though agricultural production too should rise.
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