Reviving the ‘Granary of the East’

The dominant sector of the Sri Lankan rural economy historically has been paddy (Orayza sativa) cultivation. Our ancestors made the country the ‘Granary of the East’; the Sri Lankan economy has traditionally grown around paddy cultivation as the majority of rural households are engaged in paddy production as their main or supplementary source of livelihood.

The relationship between Sri Lankan life and paddy cultivation is closely knit and permeates all aspects of Sri Lankan culture and history. It is weaved into the fabric of culture, civilization and livelihood of the rural masses in one way or the other. Its significance has not diminished; as of today the paddy sector provides livelihood to nearly 0.9 million farmer families islandwide.

State intervention

Government policy intervention in paddy marketing in Sri Lanka mainly focuses on the procurement of paddy, fixing and maintaining a Guaranteed Price (GP), stock management, grain distribution and disposal of paddy to stabilise the rice market. Paddy purchasing through the government parastatal - the Paddy Marketing Board (PMB) - at Guaranteed Price Scheme (GPS) was one of the main instruments of government intervention.

The Household Income and Expenditure Survey of the Census and Statistics Department revealed that the expenditure on rice as a percentage of total food expenditure in 2006/07, 2009/10, 2012/13 and 2016 was 13.9, 17.3, 13.6 and 12.5 percent respectively, demonstrating stability.

Assurance of a remunerative and stable price environment for farmers is vital for increasing agricultural production and productivity. A GP for paddy is an integral component of Agricultural Price Policy of Sri Lanka which is designed to fetch an enhanced price for the produce of nearly 0.9 million paddy farmers. Price incentives in the form of Guaranteed Prices helped paddy production surge. The marketable surplus of paddy is available in major producing districts in the dry zone and nearly three-quarter of the marketable surplus of paddy is from the markets of the Eastern and North Central Provinces (Figure 1).

Guaranteed price in Sri Lanka and India

GP is viewed as a safety net to ensure price security for a long-term investment decision of farmers. In this perspective, GP helps farmers by setting the floor price if the PMB purchases the product at GP when the open market price falls below the floor price. After 1977, fixing GP was mainly based on the cost of production (COP) by principle and the GP became the floor price. Cost of production is an important factor acting as an input in the determination of GP, but it is certainly not the only factor that determines GP. During the liberalised period, the guaranteed price remained unchanged for long periods as in 1993 – 1999, 2008 – 2012 and 2015 – 2019 (Figure 2).

In the case of India, the second largest rice producer in the world, Minimum Support Prices are fixed each year and those prices are announced prior to the commencement of the planting season by the Council of Agricultural Cost and Prices. During this process many aspects such as demand and supply, cost of production, price trends in the market - both domestic and international, inter-crop price parity, terms of trade between agriculture and non-agriculture, and likely implications of GP on consumers of that product are analysed. Differences of GP in India and Sri Lanka are presented in Figure 2.

In India, the GP differs according to the quality of paddy. Standards related to the Common Paddy and Grade A paddy are defined by the Commission of Agricultural Costs and Prices of India. According to the standards, the Food Corporation of India (FCI) procures paddy from farmers and millers. The grading system encourages farmers to produce quality paddy. Figure 2 reveals the changes in GP of common paddy in Sri Lanka and India. Significant increases were recorded in 2008 (60 percent), 2015 (19 percent) and 2020 January (32 percent). According to the GP declared in January 2020 in Sri Lanka, it was 11 percent greater than that of India.

Cost of production

As per the available data, the GP has not changed after the 2014/15 Maha season. After a lapse of four years, a key determinant of GP, the Cost of Production of paddy has changed. It has increased by nearly 30 percent (Table 1) in the 2017/18 Maha season compared to the 2014/15 Maha season, which was the last GP fixed season. The increase was mainly due to the increase in labour and machinery costs over time in major producing areas such as Ampara, Anuradhapura and Polonnaruwa. The Colombo Consumer Price Index (CCPI) which is a broad measure of inflation has also increased during the period.

Moves and strategies

Recent research conducted by the Hector Kobbekaduwa Agrarian Research and Training Institute (HARTI) in major paddy producing districts revealed that short-term Guaranteed Price for paddy should be increased to Rs. 50.00 per kilogramme or more to improve the income and well-being of paddy farmers.

In the long-term, creating agricultural as well as non-agricultural opportunities in main paddy farming-oriented rural Divisional Secretariat (DS) divisions, especially in the Ampara and Batticaloa districts, would prove beneficial. For example, the proposed export-oriented Sweden-based agro-pharmaceutical product manufacturer (Starch Industries (Pvt) Ltd) using organic manioc in the Welikanda area in the Polonnaruwa District will create more cash income and other agricultural avenues for a large number of farmers. In addition, the establishment of non-agricultural industries in those areas would be another suggestion to boost the economy of paddy farming households.

Similarly, government intervention would be vital to set up modern private sector mills in major paddy surplus producing rural areas, especially in Ampara, Batticaloa and Anuradhapura. Another viable solution is to re-assess the role of the present private sector-led and public sector intervening paddy-marketing system, which would lead to reform both the public and the private sector involvements. The newly introduced warehouse marketing receipt system shows promising results and can therefore be promoted.

A major problem highlighted by the farmers is the inefficiency of the purchasing process of the PMB. Application of Information Communication Technology (ICT) should be promoted as a remedial measure. Further, creating a website and uploading farmers’ information to that website is also another worthy move. Timely intervention in the government procurement process is important to widen the accessibility of resource poor, vulnerable farmers to the government purchasing programme. Using ICT in all storage transactions will mitigate the leakages and diversion of funds and enhance efficiency. Lessons can be learnt from the paddy procurement programme of state of Chhattisgarh, India.

Information sharing

Information sharing is of paramount importance for the proper functioning of this Warehouse Receipt System (WHRM). Warehouses should offer the price, supply and demand information to market users to develop selling and purchasing strategies. Therefore, the establishment of a robust system for sharing of information is necessary for presently operated warehouses in Anuradhapura and Mannar to enhance the efficiency of the system. Due to the threat of wild elephants, the farmers in these areas tend to sell their paddy soon after harvesting without keeping it stored. This situation can be avoided by promoting the WHRM system through which the farmers are provided safe storage away from their houses.

A monitoring mechanism of producer prices of paddy at DS level, especially during the peak harvesting season, needs to be established. Installing drying yard facilities in procurement centres would help procure paddy soon after harvesting. The duration of the procurement period should be increased. In addition, a mechanism should be given to provide quality-drying yards, prioritising the deserving areas. For this purpose, the private sector can also be encouraged. Therefore, steps should be taken to implement these programmes through both public and private sectors.

At the same time, more market-based strategies such as the WHRM, Deficiency Price Payment System and Public-Private Partnerships to reduce the financial burden to the government could be implemented.

The present government’s suggestion of bringing GP to Rs 50.00 per kilogramme and the dual pricing policy for newly-harvested wet paddy and well-dried (14 percent moisture) paddy from 2019/20 Maha season may help to avoid price distortions created by buyers during peak harvesting seasons and this will enhance the income of paddy farmers.

The new grading system encourages the farmers to produce quality paddy. Introducing this type of system, the PMB attempts to minimise market distortions. Also the suggested monitoring mechanism for paddy purchasing increases the efficiency of the programme while minimising leakages. This was evident by the farm gate prices of long grain white paddy in major producing areas in the first week of February 2020 which showed a one-third increase when compared to the same period last year. Finally, the reforms of the paddy-purchasing programme implemented by the new government in 2019/20 Mahaseason and with the above suggestions in place could bring a new lease of life to the rural economy of the country.

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