Enhancing the contribution of the farming sector
Agriculture in Sri Lanka consists of the Small Farm Sector and the Plantation Sector. The intention of this paper is to discuss the former that provides mainly the food needs of the country. The great potential of this sector has not been realised as politicians have used it as a vote generating base only by extending small concessions or ‘bribes’ since the farmers are so poor but their numbers are large.
Furthermore most of the land in the country is owned by the state and is governed by the Land Development Ordinance (LDO) of 1935 and amendments to it in 1983,1995 and 1996 as well as regulations under it in 2010 and 2012; these laws and regulations enable officials to lease or grant a small holding of a lowland area and a highland area to a farmer. Such leases do not enable the farmers to apply for a loan from any bank for any working capital or for any investment purposes. So the farmers are more or less like poor ‘peasants’ who have to produce the food required by the ‘Lords in a feudal society’.
Farmers in drought-affected land.
Background
According to the Agricultural census of 2002 there were 3,256,096 of such lots and 45 per cent of them were less than ¼ acre in size. Fragmentation of the land among family members may have now increased the number of such lots. In addition most such farmers who live in areas where poverty is rampant are also in fact poor. So the actual objective of the government should be to reduce the poverty levels of these farmers and not as a vote generating base during elections which we have seen since independence. In addition there is another aspect of the problem and that is the productivity of the farming sector is extremely low since the country has to employ about 26 per cent of the people of the country to raise its food needs while Israel employs only 1 per cent of the people of the country to deliver its food needs. Productivity cannot be raised by improving only the techniques of production; increasing economies of scale is the answer; that is when the size of the production unit increases the unit costs come down.
Methodologies
So there has to be a rearrangement of objectives since an overall objective of government is poverty alleviation. The objective of development of the farming sector therefore has to be raising the level of incomes of the farmers. So the farms must be made to be able to make a profit from their operations. One of the ways of doing this is increasing the size of the farming lot depending on the natural conditions of an area and the crops to be adopted. In other words the objective must be to transform farmers to entrepreneurs who also help to enlarge the nation’s GDP.
Alternatives
There are two alternatives to do this. One is to allow market forces to do it. Sri Lanka seems to have decided to opt for this; once ownership of land is given, those in the uneconomic smaller units might opt to sell off their lots to the owners of the larger economic units. This is the desired end to the process. But often the owner of a smaller unit will sell his land to a highest bidding outsider who may not be a farmer at all. Then there might be all sorts of undesirable situations that may occur. Indeed some of the land may have been taken over already in this manner although such sales are illegal. Another particular problem that has to be faced is unemployment for instance for those who lose their land if a parallel industrial development process is not set up to absorb them.
The alternative process is for the government to buy up all lots of land from the farmers and block them into units that could yield a profitable income depending on the climate of the area and other conditions such as markets for such produce and sell them back to the farmers. This process is referred to as Land Reform. Parallel to this the government has to start an industrial development process to absorb the farmers of the displaced smaller units. In other words the objective of the government is to create an entrepreneur class which may not look for any assistance from the government except for the usual infrastructure facilities like roads, canals and urban centres where further processing facilities of the produce of the farmers of the surrounding areas could be located (such urban facilities could be set up for the farmers in the earlier market based example as well).
The latter is the land use process undertaken successfully by countries such as Japan, South Korea, China and Taiwan. This model of land distribution is considered to be superior to the market based model adopted by countries such as the Philippines and India (except West Bengal and Kerala) as the outcome of the market-based latter model cannot be predicted.
Joint Stock Companies
Two institutional models mainly to heighten the earning capacity and management of these models began to appear. An innovation common to both processes is the Joint Stock Companies (JSCs) with farmers as members. In Sri Lanka too there were such JSCs in Jaffna and Kurunegala. In the JSCs the management of the business affairs was by a committee of officials as in a limited liability company or a co-operative society.
Out-grower Model
Another innovation is the Out-grower Model. There are two versions of this model. One is like Ceylon Tobacco Company (CTC) which not only purchases the produce of farmers but also undertakes cultivation of tobacco for processing in its factories. The other version is the retail chains like Keells and Cargills supermarket chains which purchase farmer produce and do not provide inputs to farmers like the CTC. Both such innovations could develop connections even with foreign companies for worldwide marketing of outputs. The advantage of such a model is the economies of scale that may help to improve productivity. Another advantage of this model is the possibility of small farmers staying in production without giving up their land. The fisheries sector could also form such models although the individual members are small scale producers. With the development of ICT, electronically networked out-grower models are also a possibility.
Conclusion
The large farming sector in the country could help to achieve the nation’s objective of alleviating poverty and of increasing the GDP, provided a thorough prefeasibility study of the value addition possibilities like those mentioned above of the sector could be undertaken by professionals belonging to all the factors of production such as land, labour, capital and technologies.
(The writer is a Development Economist)
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