Jeevika Weerahewa Professor of Agricultural Economics Department of Agricultural Economics and Business Management Faculty of Agriculture, University of Peradeniya Dynamics of Agricultural Transformation in Sri Lanka: Implications of Agricultural Trade Policy for Food Self- Sufficiency, Diversification and Productivity 3/21/20161

 Justification, purpose and objectives  Agricultural Policy Framework  Production, trade and consumption: Food self sufficiency  Agricultural productivity improvements  Land productivity  Total factor productivity  Agricultural diversification  Agriculture GDP  Crop and livestock diversification  Export diversification  Way Forward Organization 3/21/20162

 Rationale for intervening in agricultural markets  Food security  Food self-sufficiency  Import substitution and export promotion  intended and unintended effects of such interventions  Sri Lanka as a case study: Sri Lanka has always been cited in development literature as a case due to its peculiar characteristics Justification 3/21/20163

 To present the agricultural policy framework adopted by the government of Sri Lanka  To document associated transformation of food production portfolio and food consumption basket of the country.  To present the degree of agricultural diversification and productivity growth Objectives 3/21/20164

1948 to 2016 Agricultural Policy Framework 3/21/20165

 Liberal policy: For 10 years after independence in 1948  Import substitution: Since 1958 to 1977  Tightening controls during  Quantitative restrictions  Heavy government controls on importation and distribution Evolution of agriculture policy 3/21/20166

 Open economic policies in1977  Sri Lanka was one of the first developing countries to embark on liberalization  Elimination of almost all quantitative restrictions, tariff bands, public sector involvement in importation and distribution  WTO commitments in 1995  Binding of all agricultural tariffs at 50% (one of the lowest level among developing countries)  This was possible because trade liberalisation had become bipartition policy by this time (based on favorable results of liberalization)  : Back to protectionism  Revenue considerations  Change in political ideology (backlash against the Washington Consensus) 3/21/20167

Rice, Wheat, Vegetables, Fruits, OFC, Livestock Food Self-Sufficiency 3/21/20168

 Rice is the staple of Sri Lanka  Part and parcel of its culture  Rice self-sufficiency has been the objective of the successive governments  Variety of incentives  At present; self sufficient (with a surplus production) Rice 3/21/20169

 Considers as a success story  Private sector involvement in marketing  High yielding varieties  Border taxes  Large extents of lands under cultivation of maize Maize 3/21/201610

 Almost self sufficient  Emerging export markets Vegetables 3/21/201611

 Almost self sufficient  Growing export markets  Banana  Mango Fruit 3/21/201612

 Highly politically sensitive  Small sub-sectors  Large import taxes, unpredictable and large fluctuations in rates and modes  Grown by small scale farmers OFC 3/21/201613

 The country produces less than 20% of the requirement  Contract grower system; three large sugar factories Sugar 3/21/201614

 The country can produce only 20% of the requirement  Largely imported in powder form from Australia and New Zealand  Self sufficient in fluid milk  Milk villages Milk 3/21/201615

 Wheat  Dhal  Mung bean…. 3/21/201616

Land Productivity and Total Factor Productivity Agricultural Productivity 3/21/201617

 Enhancing and accelerating sustainable agricultural productivity is a central component of a comprehensive strategy to meet the rising demands of a growing world.  Productivity growth — a measure of output per unit of input — allows more to be produced while maximizing the use and impact of scarce resources.  Agricultural productivity is often described in terms of yield, such as output per hectare of crops or gallons of milk per dairy cow. 3/21/201618

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 However, yield alone is an incomplete measure of productivity.  Yield can be boosted by adding such factors as machinery and labor, or by increasing applications of crop protection products and fertilizer and feed.  Need to calculate the productivity growth 3/21/201621

Growth in input usage Growth in output Growth in TFP Total Factor Productivity 3/21/201622

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Average Annual Growth of Inputs 3/21/201624

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TFP growth in South Asia: /21/201627

Crop and Livestock Diversification at the Farm level, Diet Diversification and Export Market and Product Diversification Agriculture Diversification 3/21/201628

 Risk minimizing strategy and positively affect economic growth and development  As economies grow, there is a gradual but definite movement out of subsistence food crop production, generally in a monoculture system, to a diversified market-oriented production system.  Farm level: to increase and stabilize farmers' incomes and rural employment  Consumer level: diet diversification versus nutrition security  National level: Stability in export earnings Diversification as a signal 3/21/201629

Allocation of food expenditure across food items 3/21/201630

Land use pattern: More concentrated? 3/21/201631

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Livestock populations: More and more chickens? 3/21/201633

Livestock populations: Excluding chicken 3/21/201634

 Income diversification: Pluriactivity  No full time farmers  Vertical and horizontal levels  Need data at the household level to precisely comment on the farm level diversification Diversification at the farm level 3/21/201635

What_did_Sri_Lanka_export_in_2014-.pdf What did we export in 2014? 3/21/201636

Agricultural export basket: Tea, tea and tea? 3/21/201637

How did the markets for tea change?  Where_did_Sri_Lanka_export_Tea_to_between_1962_and_ pdf Where_did_Sri_Lanka_export_Tea_to_between_1962_and_ pdf 3/21/201638

Value added versus Primary exports of tea, rubber and coconut 3/21/201639

Conclusions and Way Forward 3/21/201640

 Our policies and institutions have been oriented towards self sufficiency in rice.  Even though there are advances in technology not much crop diversification had been taken place.  We can see a transformation in the diet but the local production could not keep up with this demand so we ended up importing most of our food needs. Concluding remarks 41 3/21/2016

 We can also see a significant increase in demand from the world market for high value agricultural products (processed food, safe food, organically grown food, foods with functional properties etc.) but still a large portion of our exports are primary products.  The export basket and export destinations are not sufficiently diversified.  Though there are incentives for exporters there has not been sufficient investments in the food processing sector to produce what the world market needs. 3/21/201642

 This insufficiency in investments is partly due to erratic policy framework of the country.  WTO monitoring mechanism is questionable  Use of specific duties instead of ad-volarum  Use of para-tariffs to increase protection  Use of tariff formula  Up until land market imperfections are resolved or innovative cooperate farm management systems are evolved, gains through economies of scale cannot be expected.  Climate change and out-migration of labor are two key challenges faced by the agriculture today. 3/21/201643

Thank You 3/21/201644