and Program Revipw...1 pint = 0.57 liters 1 measure = 2 lb 1 acre = 0.45 hectare AREA 2 POPULATION Total: 65,610 km 13.2 million (1973) 16.2 million acres Rate of growth: 1.9% (1971-73)

Report No. 579a-CEort N7El

Kepublic of Sri LankaAgricultural Policyand Program RevipwFebruary 19, 1975

General Agriculture DivisionSouth Asia Projects Department

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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BASIC DATA

CURRENCY EQUIVALENTS AS OF NOVEMBER 1, 1974

Parity Rate FEEC Rate

US$1 = Rs 6.47 US$ 1 Rs 10.68Rs~ 1- US$70.155 Rs - UJ $0.094.

Rs 1 million US$155,000 Rs 1 million = US$94,000

WEIGHTS AND MIEASURES(B ri:-ish Syst-emt

1 long to-r. - 2,240 lb 1.0!6 metric tors1 hundred weight (cwt) = 112 lb = 50.8 kg¶ bushel (%-. 45 1 lh (nf n v AAAu

1 pint = 0.57 liters1 measure = 2 lb1 acre = 0.45 hectare

AREA 2 POPULATIONTotal: 65,610 km 13.2 million (1973)

16.2 million acres Rate of growth: 1.9% (1971-73)Cultivated land: 5 million acres

DENSITY 2 POPULATION CHARACTERISTICS (i972)200 per km" 2 Crude birth rate (per 1,000) 303,030 per km arable land Crude death rate (per 1,000) 8

Infant mortality (per 1,000)live births) 50

HEALTH (1970) NUTRITION (1973, per capita per day)Population per physician 3,690 Calorie supply, % of requirements

v about 100Population per hospital bed 330 Protein supply (gram/day) 45

EDUCATION (1970) NU-MER OF HOLDINGS (1972)Adult literacy rate, % 85 Tea 118,000Primary school enrollment, %. 89 Rubber 158,000

Coconuts 295,000Paddy & other .944,000

Total 1,515,000

EMPLOYMENT (1970)q....A 1..~ t _ fA_gA~ _I . t n* VL _ J * U VU L J V L * .\ V V V/ S

% in agriculture 52% unemployed 11

FISCArT YEAR -NP per capitaJanuary 1 - December 31 US$110 (1972)

ABBREVIATIONS AND GLOSSARY

Major Covernm.ent Aoencies Coneprnepd wjit-h A.ririiltiirp

MAL - Ministry of Agriculture and Lands

ARTI - Agrarian Research and Training InstituteDA - Depart.. ofSALSiCLltu. e

DLC - Department of Land Commissioner,I %~~~' %'..Y LULL EC L L± L L. L ZAZ. '.UJLj F.LaL.Ls.JLL

LRC - Land Reform CommissionLNU) - National Malk.N P1oard

PMB - Paddy Marketing BoardxRIP, - RXULAural Ins.-titutLons andLU PLrUodI -LicLti Lv i ty Laws vis [ion

SD - Survey Departmente .O n 0. _ . 1._.. _…- a _____ '1., -a- DL 1 LdIIKd 'ugaI LUL o rUL dLoUnI

EI - Ministry of Finance

BC - Bank of CeylonC',C - Central Bank of CeylonPB - People's Bank

rrFIT - Ministry of Foreign and Internal Trade

CWE - Cooperative Wholesale EstablishmentDFC - Department of Food CommissionMD - Marketing DepartmentSLSTC - Sri Lanka State Tractor Corporation

MIPH - Ministry of Irripgation, Power and Hlighways

ID - Irrigation DepartmentLDD - Land Development DepartmentDTB - Mahaweli Development Board

RVDB - River Valleys Deveopment BoardTCEO - Territorial Civil Engineering Organization

MISA - Ministry of Industries and Scientific Affairs

COFC - Ceylon Oils and Fats CorporationCSFC - Ceylon State Fertilizer Manufacturing CorporationCS.IC - Ceylon State Hlardware CorporationCTC - Ceylon Tobacco Corporation

-2-

MPEA - Ministry of Planning and Economic Affairs

DCS - Department of Census and StatisticsERD = E~~xterr.zl Resources Di-vilsior.

NPD - National Planning DivisionL,RUv - Reo.La Deveo JULLLIL. Division

WRB - Water Resources Board

MPI - Ministry of Plantation Industries

ADP - Agriculture Diversification Projectt- CC B 11- Coconut Cultivation BlDoardUCDA - Coconut Development AuthorityCMB - Coconut Marketing BoardCPB - Coconut Processing BoardCRB - Coconut Research BoardCRI - Coconut Research InstituteRCD - Rubber Control DepartmentRRI - Rubber Research InstituteSPC - State Plantations CorporationSRMC - State Rubber Manufacturing CorporationSTCSL - State Tea Corporation of Sri Lanka

Other Abbreviations

ALL - Agricultural Lands Law of 1973APL - Agricultural Productivity Law of 1972APC - Agricultural Productivity CenterFEEC - Foreign Exchange Entitlement CertificateGPS - Guaranteed Price SchemeLRL - Land Reform Law of 1972

Glossary

Asweddumiz'ed land - Irrigated and rainfed paddyChena land - Cultivated periodically (slash and burn)Upland - Cultivated continuously but not asweddumizedHYV - High-Yielding VarietyMaha - Fall monsoonYala - Spring monsoon

This report prepared by R. P. Christensen and K. R. Ellingeris based on findings of a mission which visited Sri Lanka from June 23to July 20, 1974 and a second mission visiting Sri Lanka from October 20to November 1, 1974. The missions comprised:

R. P. Christensen ('Mission Leader)11. T. Chang (Agriculturalist - Food Crops)K. R. Ellinger (Agricultural Economist - Tree Crops)J. K. Lee (Agricultural Economist - Irrigation)S. Agarwal (General Economist) - June/July mission onlyW. Brookson (Tree Crop Agronomist, FAO) - June/July mission only

The report was finalised by D. Parsons and K.R. Ellinger after discussion withGovernment in February 197S.

REPUBLIC OF SRI LANKA

AGRICULTURAL POLICY AND PROGPRJM4 REVTEW

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ......................... i-vii

I. INTRODUCTION ....... . ............................. 1

II. BACKGROUND: THE AGRICULTURAL SECTOR .... ......... 2

AgriLcuLture's IRnoe in tne Economy ....... 2B. Foreign Agricultural Trade ... ........... 5C. Food Consumption and Rationing Policies 9D. Types of Farms and Income Levels ........ 12E. Land Use and Tenure .......... .. ......... 16

III. RECENT POLICY AND PROGRAM ACTIONS .... ............ 17

A. Development Objectives and Strategy 17B. Land Reform Law of 1972 .... ............. 20C. Agricultural Productivity Law of 1972 ... 23D. rne Tea Control (Amnendment) Bill ........ 25E. Agricultural Lands Law of 1973 .......... 25F. Land Betterment Taxes and Water Charges 26C. Fertilizer Prices ........... 26H. Producer Prices for Food Crops .... ...... 28I. Research and Extension .... .............. 28J. Tree Crop Development Programs .......... 29K. General Assessment of Action Taken ...... 30

Ill. FOOD CROPS: PERFORMANCE, POLICIES, POTENTIALS ANDRECOMMENnATIONS ...... ....................... 3

A. Paddy .................................... 30B. Subsidiary Crops ........................ 35C. Sugarcane ............................... 37D. Recommendations ......................... 37

V. TREE CROPS: PERFORPMANCE, POLICIES, POTENTIALSAND RFCOMMENDATIONS ...... ................... 39

A. Tea .......... ........................... 39B. Rubber .42C. Coconuts ................................ 46D. Minor Export Crops ...................... 49E. Recommendations ......................... 50

VIo PROJECTS ATD PREINVESTMENTS DE'QATTIREINTS D 51

APPENDIX TABLES

ANNEX: Government Organizations in Agriculture

MAPS: IBRD 3839IBRD 3841


AGRICULTURAL POLICY AND PROGRAM RFEVIEW

SvUMMRY AND CONCTiUSIONS

i. The purpose of this report is to (a) review recent performanceofr the agricultural sector 4r Sri Lan and the stens Government is tanking

to overcome obstacles to accelerating growth of agricultural production,

(ub) review recent policy actior.s and plans affecting agricultural develonment

and make recommendations for further actions to accelerate agricultural

growth, and (c) identify areas for external financing in support of

agricultural development.

Background

ii. Agriculture plays a major role in Sri Lanka's economv accounting

for 33a ofGCDP, 50% of total employ-meent, 80t to 90% of export earnings, and a

large share of public revenue. Rural people account for 80% of Sri Lanka's

population. Over 16% of the labor force in rural areas and over 25% in

urban arean are unemployed. In addition, there is much underemployment.Economic growth of the country depends mainly upon perform,tance of the agri=-

cultural sector. Food crop production increased at an annual rate of 3.2%

during the 1960s, but it has been stagnant since 1970. Tree crop production

increased one percent annually in the 1960s due to growth in rubber produc-

tion, but total output of tree crop products has also been stagnant since 1970.

iii. Failure of agricultural output to increase has contributed to Sri

Lanka's balance-of-payment problem. The country depends upon export earnings

from tree crop products to finance imports, including half of its foodgrain

requirements. In the early 1960s, Sri Lanka had a favorable balance of

agricultural trade amounting to over UTS$-00 million annually but it declinedto only US$6n million in 1974 as a result of stagnating exports and worsening

terms of trade.

iv. Major objectives of Sri Lanka's agricultural policies include:

(a) increased self-sufficiency in food production; (b) diversification of

crop production to reduce dependence upon tea and rubber for foreign exchangeearnings; (c) expansion of employment opportunities in agriculture; and

(d) improvement of rural living conditions and social services.

v. Sri Lanka has considerable potential for expanded production of

tree crop products through increased replanting with high-yielding materials,

greater use of fertilizer and improved cultural practices. There is also

scope for substantial growth in production of paddy and subsidiary food

crops through widespread use of high-yielding varieties and improved watermanagement.

vi. Replanting of tea, rubber and coconuts has been disappointing.

Performance in 1973 continued to decline reaching the lowest levels in the last

- ii -

decade for rubber and the lowest in years for the other two crops. This hasbeen due to low financial returns to producers caused by low market prices,high taxation and continued uncertainty about land tenure; in addition re-planting costs have increased. In the food crop subsector, in spite of wideuse of HYVs. lack of farm power to get field work performed in a timely man-ner and lack of effective use of water resources have limited output growth.

vii. Sri Lanka is desperately short of the capital and current inputsnredpd tn mnintMin aQrictiltural nroduction. The tree croD sector lackstransport facilities and spare parts to keep machinery and processing plantsin operntiAnn Nn four-wheel trantorn and few trucks have been imnorted inthe last two years. Petroleum consumption has been cut back. Fertilizerimnprtc have not yet been redu,red; but Sri Lanka may find it difficult tomaintain imports in 1975 and 1976.

viii. The constraints on production that can be attributed to the policyand institutional framework include:

…a) Me tax structure on exports that has been in forcefor many years. This taxation in a period of lowco-wmnodity prices has resulted iin holding produrer

prices for traditional export crops (tea, rubber,and coconut products) r.d -rti4 recent-ly foir r4ce

at levels not high enough to encourage outputexpansion. (para xiv and .05);

(b) insufffciCen.t forei.gn exchange allocations for the

necessary inputs (paras 3.03, 5.09 and 5.21);

(c) no priority granted to the build-up of effectiveextension, markUeting and cLrUdiL serV>ce \dipra J3.0V

3.28, 4.03, 5.08, 5.30 and 5.35);

(d) Government's control and subsidy policy that has notfunctioned effectively in increasing production offood and export crops (Chapter III);

(e) the climate for private investment in the tree cropindustry which has been poor (paras 3.19, 5.05 and5.14); and

(f) the large number of governmental institutions respon-sible for agricultural development which makes for a scatteredapproach to agricultural development (paras 3.03, 4.20,5.26 and Annex I).

Recent Policy Actions

ix. The Government has recently taken several promising steps toimprove the situation. However, these are mainly in support of food crops.Further policy improvements as well as the design and implementation of

specific programs in the food crop and tree crop sectors are needed tocreate the conditions for balanced and sustained agriculture growth.

x. Paddy prices have been increased, under price support programs, toworld market levels at the official exchange rate (although not at the FEECrate). 1/ Import bans have been put on chillies, onions, potatoes and somepulses to reduce foreign exchange spending resulting in increased domesticprices and production. Under the Food Drive Program initiated in the summerof 1973. Government supplied farmers with additional credit for food cropproduction, put priority on making fertilizer available for food crops, andmade grants under the decentralized canital budget scheme for restorationand improvements of small tanks, irrigation, and drainage facilities.

xi. On the institutional front, Agricultural Productivity Centers havebeen established with far reaching powers to imnrnve extension, credit, inputsupply and marketing services. Provided political interference in technicaldecisions can be kent to a min imum these Centers would he!- improve coordi-nation of development actions at local level. The Government has plans forgreativ strengthening agr,iul-ture research, extension, and training. Theseplans deserve support. Finally, land betterment taxes and water charges nowconsidered for enactment in 1975 would l ea, d to -re effective use of laandand water resources.

xii. In 1973, Government enacted an Agricultural Lands Law to replacethe Paddy TLan.ds Act of1958. It p rovlles 'or security of tenants and controof rents for highland as well as paddy land. Subsidies on paddy fertilizerwere temporarily removedU but thLen rieLIstated resulting in a tnree-tier pricesystem for fertilizer which is difficult to administer and unlikely to bringabout e''ective use of fertilizer. A program to be introduced in early 1975provides for a subsidy of Rs 500/ac. for selected swamp lands to be broughtunder rice cultivation.

Xiii. In 1972, Government enacted a Land Reform Law which required thatindividual private ownership of land be reduced to 25 acres for paddy and50 acres for all other agricultural land. The objective of the Law was toincrease productivity and employment opportunities. Company estates werenot affected. Approximately 1 million acres, about one-fifth of the cropland area, were affected by the land reform. Take over of land was com-pleted rapidly and at the end of August 1974, about 560,000 acres had beentaken over by Government. However, Government has not yet paid compensa-tion for land expropriated and no consistent plan for the future use and

1/ Producer prices of paddy in 1974 were equivalent to about US$400 nerton at the official exchange rate but to only US$250 per ton at theFECr vare.

- iv -

management of land taken over has yet been designed. 1/ The prolonged dis-

ruption of management on this land is bound to have a serious negative impact

on tree crop production.

xiv. Government policies in the tree crop sub-sector, which account for

over 50%. of the total value of agricultural outnut at world market prices,

have not had the effect of increasing production. Major tree crop products

are exported at the off.4cal exchange rate thile moSt other exports earn

Foreign Exchange Entitlement Certificates (FEECs) and thereby earn rupees

at rates 65% higher than the of f4cial exchange rate, In addi tion, manor

tree crop exports have been traditionally subject to heavy export taxes,

duties, and cesses. Fertilizer use for tea, rubber, and coconuts has de-

clined in recent years due to a poor investment climate, low financial

returns, lack or inputs and inadequate transport. On the other hand, G-ov-

ernment introduced a number of support and subsidy programs to assist the

industry notably the package prograrm for tea.

xv. In October 1974, a Tea Control (Amendment) Act gave the Tea Con-

troller power to enforce minimum production standards on all holdings and

factories. A similar Act affecting rubber is before Parliament. Under

both Acts, Government reserves the right to expropriate land of owners who

do not comply with official standards.

Further Action Needed

xvi. Additional measures need to be taken to accelerate agricultural

development. In the food crop sub-sector these include:

(a) phased reduction of the subsidy on fertilizer forpaddy, tea, coconuts and minor export crops. Until

complete abolition of the subsidy is achieved, a

reduced standard level of subsidy should be applied

across the board to all fertilizer distributed in

Sri Lanka 2/ (para 3.24);

(b) implementation of production-oriented extensionprograms linked to packages of practices devel-

oped for the various agro-climatic regions of

1/ Since preparation of this report Government has evolved plans for the

managemitent o Lanlu taken over under land reform.

2/ However, given the heavy burden of taxes, levies and cesses carried

by the tree crop industry, see paragraph xvii (a) below, any reduction

of fertilizer subsidies should be accompanied by a parallel reduction

in this tax burden.

v

S,rl T nL- Lanka fi , plans - - -tly designed

by the Department of Agriculture for reorganizationof: -4riulturall rese-archf-, ext,ens4ion andA tra4ningSA 5 - -LL~A OJ .~~ L%fU ~ lLUOU~* a,. LA CLA.L L~LL5

should be put into practice and the necessaryI... ... ja I…b1udgetary support sloull le provided (paras 3.07, 4 .03u U aLay~jj~L LL ULU U~ jL J.UU V.I, 4U

and 4.12);

(c) assessment by the Ministry of Agriculture of mediumandu short-term LfarI U'raf't power need's and prepara-

tion of a long-term Government program for solvingfarm power problems including plans for increasingmechanical power and availability of draft animalsand hand implements, specilically mamoties, thelocally used hoes. Imports of 4-wheel tractorsand provision of improved mamoties should be con-sidered in order to arrest the deterioration inthe supply of farm power (paras 4.05 and 4.12);

Cd) formulation of a program for improving the use ofexisting irrigated land by carrying out minorpnysical improvements and continued maintenanceof irrigation and drainage systems. This wouldimply reequipping the Territorial Civil EngineeringOrganization (TCEO) of the Ministry of Irrigation,Power and Highways. Funds collected through watercharges, to be introduced in early 1975, should besufficient to cover operation and maintenance ofirrigation networks with any surpluses beingemployed for rehabilitation of existing irriga-tion schemes (paras 3.21, 4.03 and 4.04); and

(e) improvement of farm credit programs to achievebetter collection performance. Any further can-celling of debts incurred by farmers should notbe considered and this decision should be widelypublicized. Increased emphasis should be placedon production and development lending through theBank of Ceylon and the People's Bank (para 4.09).

xvii. Action needed in the tree crop subsector would include:

(a) a detailed evaluation of the taxation, levies andsubsidy systems affecting tree crops with the aimof encouraging replanting and general investmentin the industry but bearing in mind Sri Lanka'sbudgetary requirements (Chapter III and paras 5.03and 5.14);

(b) reorganization and strengthening of extensionservices in the tree crop sub-sector particu-larly those for coconut smallholdings. This

- vi -

should be combined with support to the crop

research institutes (paras 5.08, 5.30 and 5.35);

(c) very urgent preparation of a production, investmentand management (including possible diversification)plan for all land affected by land reform includingland both in private and public hands.!/ This plan

would need to combine social objectives with pro-ductivity considerations. Plan design and executionwould require joint efforts by the Ministry ofAgriculture and Lands and the Ministry of PlantationIndustries and may call for outside technical assis-

tance (paras 3.12, 3.13, 5.06, 5.16 and 5.29);

(d) general improvement of the investment climate througha clear statement by Government as to the future of

the estate sector and as to the timing and mode of

compensation for land taken over under the LandReform Law of 1972 (paras 3.11, 5.06 and 5.16); and

(e) provision of more foreign exchange to enable reequip-

ment of the processing and transport facilities (paras

5.02 and 5.21).

Need for External Financial Assistance

xviii. Because of acute shortages of foreign exchange, Sri Lanka needs

external assistance to finance imports of capital and current inputs required

to maintain agricultural output at recent levels. However, external support

will be effective only if the policy framework improves substantially, along

the lines indicated above. The needs of the sector are so urgent that some

of the external assistance should be in the form of quick disbursing loans or

credits to procure critical equipment and machinery requirements, e.g.: four

and two wheel tractors, tovether with spare parts and implements; hand tools,

specifically mamoties; vehicles and motorcycles for extension and research

staff; machinery and equipment for maintenance of irrigation and drainage

systems; machinery and equipment for seed multiplication; spare parts and

equipment for the processing industry; vehicles for on-estate transport;

farm chemicals; laboratory equipment and chemicals.for agricultural research

institutions.

1/ Since preparation of this report Government has evolved plans for the

management of land taken over under ldnd reform.

xix. Sri Lanka also needs project assistance in support of agriculturedevelopment (Chapter VI). In particular, projects should be prepared:

(a) to return to optimum levels of production all landaffected by the land reform;

(b) to rehabilitate and provide better operation andmaintenance of small and medium irrigation schemes,to extend and improve utilization of ground waterresources and to support Mahaweli Stage II;

(c) to diversify and expand crop production in themid country on neglected tea and rubber land;

(d) to rehabilitate, reequip and relocate the agricul-tural processing industry;

(e) to rehabilitate the smallholder coconut sectorthrough integrated agricultural developmentprograms

(f) to mantifArtuirp agrrcultura1 imnplments and tools;:

(g) to strengthen research, extension and training; and

(. , -n ouexp.nA e..n nenn pc...AA a.. rc ng.


AGRICUTTURrTAL POLICY ANTD PROGR.PM REVIEW

I. INTRODUCTION

1.01 This report presents fiOndin-s of a mission Cwhic T Sri l.anka

during June/July 1974 to review agricultural conditions and discuss withGoAvernment steps necessza; for overco.ing obstacles to improved output andIlproductivity in the agricultural sector. A first preliminary draft of thisreport Vwas discussed with G'overru,ent iLL Octob.er 1 97 an' comments receLvedhave been incorporated in this text. Factual corrections received have beenincorporat ed. lie present version of the report ar,,plifies the earlier draft.LLLLIL FLat LU. IL ~L.L VL ±UI IA LIIL~U L dI.L."L~ LiL d1LLUd

and provides more precise suggestions for future action.

1.02 The mission had the following specific objectives:

(a) review recent performance in the agricultural sector;

(b) identify major constraints to expanding agricultural outputand improving rural incomes;

(c) discuss with Government plans, policies and programs forincreasing agricultural production;

(d) determine kinds and quantities of inputs required to overcomebottlenecks currently retarding growth of agricultural produc-tion, particularly inputs that might be financed under a BankGroup agricultural sector credit; and

(e) identify development possibilities in areas where externalfinancial assistance could assist Sri Lanka to improve theperformance of the agricultural sector.

1.03 The mission was not concerned with the preparation of a comprehensiveagricultural sector review and did not look into the problems and prospectsof the fisheries and forestry subsectors. The livestock subsector, accountingfor only 7% of the gross value of agricultural production, was investigatedless fully than the foodcrop and tree crop subsectors. This was due to thevery recent Bank Group assistance provided for this subsector 1/.

1.04 Failure of agricultural production to increase has been a majorreason for Sri Lanka's balance-of-payment problem. Deteriorating terms of

1/ DaIr Development Project, CrAdIt No * A _1CE Augs 9, 197 4

- 2 -

trade have also contributed. Sri Lanka can do little about rising pricesfor import commodities or declinpe in nrire for exvport eo-nmnAitio, hilt

expansion of agricultural output would help overcome balance-of-payment prob-le.m. c

1.05 Sri L.-nka has acute shortages of many input items required tomaintain agricultural production at recent levels. No four-wheel tractorsand few trucks have been imported in the last two --ears. Spare parts areurgentlv needed to make repairs and keep machinery and processing plants inoperation. Petroleum co-nsumpti-on has been cut back. '.,11-ile Ifertilizer i,mports

have not yet been reduced Sri Lanka will find it difficult to procure sufficientimports in the next few years with.-out external support. *Mo1Kre L enerallySri Lanka will need external financial assistance to supply capital inputsunder quick disbursing loans as well as lending tLU asdsb agLtCUrLULal uevelop-ment. 1/ To make such assistance fully effective Government would have tointroduce a number of policy chagIes and muake a number of improvements inthe institutional support provided to the food crop and tree crop sectors.rroposedu ch'ianges and improver,,erIts are outLined in Chapters iv and v.

II. BACKGROUND: TiE AGRICULTURAL SECTOR

A. Agriculture's Role in the Economy

2.0)1 Agriculture plays a major role in Sri Lanka's economy through itslarge contributions to GDP, foreign exchange earnings and government revenue.In 1973, 80% of Sri Lanka's 13.5 million people were classified as rural, and50U7 of total employment was in farming (Table 2.1). 2/ Most people classifiedas rural nonfarm (30% of total population) depend upon employment and incomefrom service and manufacturing industries closely associated with agriculture.Official statistics show that agriculture accounted for only 33, of GDP in19,73, but the share would be almost 40' if export crops were valued at worldmarket prices.

1/ For a detailed analysis of Sri Lanka's agricultural development problems,see "Agricultural Sector Survey, Rep.ublic of Sri Lanka," Report No.PA-134, February 8, 1973.

2/ All people in Municipal, Urban and Town Council areas are regarded asfalling in the urban sector and all other areas including estate areascomprise the rural sector.

Table 2.1: AGRICULTURE'S STIARE OF THE ECONOMY

Shares of Country Totals (v)1963 1970 1971 1972 1973

Rural Population 82 81 80 so 80Farm Employment 53 n.a. 51 50 n.a.GD,P from Agriculture 38 33 32 33 33Agricultural Exports /a 94 90 86 85 78

tIa Percent shares of total exports for three agricultural exports (tea,rubber and major coconut products) of total commodity export value.

Source: Department of Census and Statistics.

2.02 There has been little structural change in the economy in the pastdecade. Rural nonulation as a share of total population declined on!,, from -82% in 1963 to 80% in 1973. Rural population increased 2.4% a year, aboutthe same as total population. Labor force in the agricultural sector increasedfrom 1.7 million in 1963 to 2.0 million in 1972, about 1.8% a year. Unemplov-ment and underemplo,_ent have increased in rural as well as urban areas.Estimates from the 1972 census indicate that 16% of the labor force in ruralareas and 25Z in urban a0reas were unemployed. Since thien, the situation has,if anything, deteriorated.

2.03 Because agriculture accounts for such a large share of Sri Lanka'seconomv, the nation's econom.ic growth duepenlus mainly upon perfLori,LLance ofi theagricultural sector. Total agricultural output increased at an annual rateof 3.2% during the 1960s. However, most of the growth was in paddy and otherfield crops. Total output in the export tree crop subsector rose only 1% ayear (Table 2.2), Fih production declined about 15/.

-4-

Table 2.2: CHANGES IN AGRICULTURAL PRODUCTION

Indices of % of Total in 1973Value at 1963 Prices 1963 1973 lb

Products 1963 1970 1971 1972 1973 /a Prices Prices/

Tea 100 97 99 94 95 25 17Rubber 100 149 133 132 143 10 9Coconuts 100 110 118 126 107 8 8Minor Tree Crops 100 125 129 147 227 4 3

Sub-total 100 109 108 107 113 47 37

Paddy 100 162 142 133 128 19 24nther Food Crops 100 148 157 165 161 21 25Livestock 100 107 109 112 125 6 6Fish 100 86 70 81 81 3 4Forestry 100 152 147 157 167 4 4

Sub-total 100 142 136 138 136 53 63

Total 100 125 122 122 124 100 100

/a Provisional.

/b Values in 1973 prices.


2.04 These measures of growth are based on products valued at 1963 prices.But grower prices of tree crop products have dec14inedI relati4ve to those ofLUL ~4LW~ JJ. L LL L I..~~LJU L iiV U LtL JU L~~L V U~ LLL~J~

paddy and other farm products since 1963. As production of tree crop productsincreased o slgightly, total agricul_ural output easure' in 1973 price rose

only about 2% annually during the 1960s. Tree crop products accounted for'4! of' thLe totaLL val.ue of agriLcuLturaL production when valueUd at 193priLces

but for only 37%O when valued at 1973 prices (Table 2.2). Export crops wouldaccount for a larger share of the total value of agriculture production ifthev received the FEEC exchange rate.

2.05 There has been no overall growth in agricultural output since 1970.Declines in tea and coconut production have been particuiarly marked. Paddyproduction reached a record high in 1970 but has declined since then. Fish-erv production has decreased slightly since 1970. tlowever, subsidiary toodcrops and livestock products have increased so output of the domestic foodsubsector declined only slightly from 1970 to 197/3. The generally disappoint-ing performance of the agricultural sector must be viewed against the veryconsiderable agricultural potential of the country which, properly exploited,should make Sri Lanka self-sufficient in nearly all food requirements plusmaintaining a high production of traditional and new export crops.

B. Foreign Agricultural Trade

2.06 Agricultural products completely dominate Sri Lanka's export earnings.Three commodity groups - tea, rubber, and major coconut products - accountedfor 90% of export earnings in 1970 and 75% in 1974. 1/ Failure of tree cropproduction to expand and depressed world market prices for tea and rubbercaused export earnings to decline during the 1960s and early 1970s (Table 2.3)..The general increase in agricultural commodity prices starting in mid 1973,which included tea, rubber and coconut products, led export earnings to riseagain and it is projected that their value in 1975 will be about US$50 millionabove the 1960 level.

Table 2.3: COMPOSITION OF EXPORTS(US$ Million)

(current prices)

Est. Proj.1960 1963 1970 1971 1972 1973 1974 1975

Tea 230 240 188 192 188 198 218 228Rubber 79 54 74 52 43 93 115 96Coconut Products 39 42 40 46 43 23 71 _77

Sub-total 348 336 302 290 274 314 404 401

Others /a 25 23 33 49 49 88 129 135

Total 373 359 335 339 323 402 533 536

/a Minor cornnut products, other export crops, gems, clothIng, etc.

Source: External Resour es Division, MPEA, October 1974.

2.07 Sri Lanka has for many years relied upon tree crop exports tofinance imports of a large part of its food supply (Table 2.4). Rice, wheat,wheat fl our, -sugar, dairy products, and fish are the major food import com-modities. Growth in domestic food production during the 1960s was notsuffirient to moot the need o a y growi.ng pop-lation so e volumeof food imports had to be increased. The share of foreign exchange earningsfrom onmmnodity exports used to finance food Imports rose from 39% in 1960 to45% in 1970 and 1973 but is expected to be as high as 65% in 1974. Riceimnorts deolineA 4 n 1071 after a record padd, crop in 1970. I,ports of sub-sidiary food crops - chillies, onions, pulses, potatoes and sugar - havebeen cutback in the las -tw- years in orAer -o save fore'gn exchange

(Appendix Tables 1 and 2). Higher prices accompanying import bans on these

1/ The remaining exports include minor coconut products, other minor exportcrops, gms c. l..thng_ etc.^

-6-

subsidiary food crops caused their production to rise although not sufficiently

to maintain per capita supplies in 1973 at their former levels. Despite

reduction in the volume of food imports, higher prices caused the total value

of food imports to almost triple from 1972 to 1974.

Table 2.4: COMPOSITION OF IMPORTS(US$ Miillion)

(current prices)

Est. Proj.

Products 1960 1963 1970 1971 1972 1973 1974 1975

Rice 51 50 57 28 14 34 117 129

Flour 14 19 43 35 37 60 164 135

Sugar 17 30 29 36 31 49 33 36

Dairy products 15 16 10 8 9 12 15 15

Fish 10 10 15 10 9 6 8 8

Other food 38 35 27 21 19 18 9 7

Sub-total 145 160 181 138 119 179 346 330

Others 267 224 273 224 211 201 471 498

Total 412 384 454 362 330 380 817 828

Food as % of total imports 35 42 40 38 36 47 42 40

Food as % of export earnings 39 44 54 41 37 44 65 62

Source: External Resources Division, IPEA, October, 1974.

2.08 Sri Lanka has had a favorable balance of trade on agricultural

products but the balance declined during the late 1960s and early 1970s due

to the failure of agricultural production to expand sufficiently to over-

come declining terms of trade. Due to rapidly increasing prices for imported

food the balance is expected to fall drastically in 1974/75. This decline

has been and will remain to be the major factor limiting imports of capital

goods, raw materials, and spare parts required for economic growth in

agriculture as well as in other sectors. Nonfood imports have been severely

reduced in the last two years. However, fertilizer imports have been

increaspd in efforts to expand food production. The volume of fertilizer

imports increased from 278,000 tons in 1971 to 395,000 tons in 1974. The

total value of fertilizer imports increased from Rs 90.4 million (US$15

million) to Rs 514 million (US$73) in 1974. 1/

1/ Based on data supplied by the Ceylon Fertilizer Corporation, July 1974.

7-

Table 2 .5: BALANCE OF TRADE ON AGRICULTURAL AND OTHER PRODUCTS(USS million)

Est. Proj.1960 1963 1970 1971 1972 1973 1974 1975

Agricultural

Major tree crop exports /a 348 335 302 290 274 314 404 401Food imports 145 160 181 138 139 185 346 330

Balance 203 175 121 152 135 129 58 71

Other productsExports 25 23 33 49 49 88 129 135Imports 267 224 202 224 211 2201 471 498

Balance -242 -201 -169 -175 -162 -113 -342 -363

All Products

Exports 373 359 335 339 323 402 533 536Imports 412 384 383 362 35 386 817 828

Balance -39 -25 -48 -23 -27 +16 -284 -292

/a Tea, rubber, and major coconut products.

Source: External Resources Division, MPEA, October 1974.

2.09 Export prices for tea, rubber and coconut products improved latein 1973 and continued high for most of 1974. However, import prices of foodgrains, sugar, pulses, and fertilizer increased four to five times from 1972to 1974 while prices of export crops tripled only in the case of rubber 1/,desiccated coconut and coconut oil (Table 2.6). Due mainly to less favorableterms of trade, imports of food and fertilizer accounted for 757. of thetotal value of major tree crop exports in 1973 and 1974 compared with lessthan 50% in the early 1960s. Only 25% of the export earnings from treecrops has been available for financing imports other than food and fertilizerin the early 1970s compared with over 50% in the 1960s.

1/ In September - October 1974 rubber prices dropped sharply, but morerecently strengthened again.

-8-

Table 2.6: EXPORT UYD IM1PORT PRICES

1971 1972 1973 1974 /a

Exports (fob)Tea, Rs/lb 2.50 2.77 2.78 3.17

Rubber, Rs/lb 1.08 .93 1.68 2.97

Copra, Rs/candy 347.72 296.40 324.25 243.05/b

Coconut oil, Rs/ton 2,142 1,549 1,489 5,274

Desiccated coconut, Rs/lb .88 .72 1.34 2.48

Imports (c.i.f., Rs/ton)Rice 562 544 953 2,807

Wheat 440 432 646 -

Wheat flour 629 667 1,165 2,373

Sugar 844 1,165 1,752 4,786

Pulses 921 1,076 n.a. n.a.

Urea 470 501 630 728-922

Ammonia sulphate 225 266 362 1,580-2,458

/a Export prices in weighted average for first half of year and estimated

prices for imports made by Food Commissioner's Department.

/b Price April 1974.

Source: Export prices from Central Bank of Ceylon Bulletin, May 1974 and

import prices from Food Commissioner's Department and State Fertili-

zer Corporation.

2.10 Achieving self-sufficiency in rice production has been a major policy

goal in Sri Lanka. The ratio of production to consumption for rice rose from

a little over 50% in the early 1960s to around 75% in the early 1970s as

rice production increased (Table 2.7). While rice imports were reduced,

wheat and flour imports remained high to meet growing food grain needs of a

rapidly increasing population. Consequently, the self-sufficiency ratio for

all food grains increased only slightly and Sri Lanka has been dependent upon

imports for 40% to 45% of its food grain requirements since 1970.

- .- , - -~- - ~ T1Arnnn"'t T~'A T OTTDDT V A\1n Cr'T r-

Table I.7: PRODrUuCIOLuN £iir'fxL.J, TOJL8UL-SI

SUFFICIENCY IN FOOD GRAINS('00 tons)

4^96 4 *,t ,97 1 I 7197 19 73 - 74 /

A. Rice Production 602 1,084 956 89 897 900

B. Imports, total 677 895 569 586 703 730

1. Rice 532 526 339 262 338 1330

2. Wheat (Flour) 145 369 230 324 365 400

C. Total Supply (A+B) 1,279 1,979 1,525 1,485 1,600 1,630

D. Self-sufficiency (%)

Rice (A/(A+B.1)) 53 67 74 77 73 73

Rice and Wheat (A/C) 47 55 63 60 56 55

/a Estimates.

Source: Based on Table 2.10, Vol. I of Report No. PA-134a, Agricultural

Sector Survey of the Republic of Sri Lanka for 1960 and 1970

and on table, page 13 of Report No. 407-CF, Recent EconomicDevelopment and Current Prospects for Sri Lanka.

C. Food Consumption and Rationing Policies

2.11 Sri Lanka made supplies of basic foods available to consumers freeor at low prices beginning in the late 1940s. Rice, flour and sugar were

the major foods rationed (Table 2.8). By October 1974 quantities supplied

had been greatly reduced and prices at which rations are distributed have

been greatly increased since 1971. Imported fish and pulses also were

supplied under rationing program, but the quantities of these also were reduced.

Further reductions in food subsidies will help redress Sri Lanka's budgetary

problems.

Table 2.8: FOOD RATIONING PROGRA:MS(llbs per person)

Prior to :L971 July 1971 October 1974

Ric(We ekly La

Colombo and specified areas 3 lbs 3 lbsUrban areas in deficit districts h L lbs 2 lbs 3 lbsEs tates J 2 lbs 2' lbszRest of the island 2 lbs 2 lbs

F rice 2 lbs free of which 1 lb free of which 1 lb free2 lbs @Rs 0.375/lb rest, @Rs 1.25/lb rest @Rs l.l1)/lb

Flour (Weekly)

Colombo and speci:fied are.as l 1 lbUrban areas in deficit districts Unlimited " ½ lb tRs 0.70/lb ½ lb | @Rs l.l10/lbEstates |-)Rs 0.33/lb . 1½- lbsRest of the island ½ lb

Sugar (Monthly)

A.Ll island 3 lbs tJRs 0.72/lb 1 lb tRs 0.72/lb 3/4 lb (Ms 0.72/lbUnlimited @Rs 1.5/lb Unlimited ( Rs 5/lb

/a Since April 12, 1972, income ta-c payers receive no free ration.

Source: Food Commnissioner 's iLpartment, Mi.nistry of Internial and Exterrnal Trade and Central Bank of Ceylo.nBu:lletins, August 197h and September 1974h.

2.12 Food balance sheets show that Sri Lanka had for long been successful

in maintaining consumption of most foods at the levels attained in the 1960s

and early 1970s. Reductions in per capita supplies of cereals and sugar

from 1970 to 1973 were offset by increased consumption of roots and tubers

(Table 2.9). Large reductions occurred in pulses and oils and fats, but

they have been partially offset by increased consumption of coconut products.

Consumption of such high-protein foods as meat and eggs remained at low levels

but that of fish declined slightly.

Table 2.9: FOOD CONSUMPTION PER CAPITA(Kgs per person per year)

1961 1970 1971 1972 1973

Cereals 123.7 141.5 128.5 121.4 131.3

Roots, tubers, etc. 37.0 25.7 26.0 21.8 38.6

Sugar, refined 18.1 22.9 21.8 17.9 16.7Pulses 7.1 5.9 2.7 3.7 1.4

Coconut (shelled) 22.4 30.9 30.9 45.5 30.9

Vegetables 42.0 47.5 37.6 35.1 35.2

Fruits 8.4 10.8 10.6 10.7 10.1

Meat 1.8 1.7 1.8 1.7 1.7

Eggs 1.2 1.9 2.1 2.5 2.4Fiqh 6.5 8.3 7.2 8.2 6.9

Milk 11.1 12.1 13.0 15.9 15.3

Oils and fats 3.7 4.2 4.1 4.1 2.9

Source: Food Balance Sheets, Department of Census and Statistics.

2.13 The 1969/70 socio-economic survey indicated that most people in

households wit-h monthly incomes less than Rs 200 (L3% of all households) suf-fer from protein, mineral and vitamin deficiencies. 1/ Dietary deficienciesare greatest among the urban poor and estate laborers. Data from food balance

sheets show that per capita availabilities of calories and protein compare

favorably wi1. such cosntries as India, Malaysia and the Philippines. Calorieand protein supplies decreased from 1970 to 1973 (Table 2.10) and probably de-

creased further in 1074. Ad t-o reductions in quotas and genera1 availability.

particularly of sugar. However, average supplies are still higher than inIndia.

1/ "The Effect of Income on Food Habits in Sri Lanka," Nutrition Newsletter,Vol. II, No. 3, July-September 1973, Food and Agriculture Organization,

Rome.

- 12 -

Table 2.10: PER CAPA DAILY NUTRI MUT AVAILABILITIES

19i 707 172i 197J-

Calories per day 2,370 2,230 2,282 2,213

Protein, grams per day 50 47 46 45

Source: Food Balance Sheets, Department of Census and Statistics.

2.14 Food costs of consumers have increased greatly with reduction

of free rations but also because of higher retail prices in controlled

and open markets. For example, open market prices for rice increased

from Rs 1.20 in 1970 to Rs 2.70 in 1973 per measure of two pounds

(Appendix Table 3). Red onions increased from Rs .43 to Rs 1.45 per pound.

Chillies in controlled markets increased from Rs 1.60 to Rs 9.63 per pound.

The Colombo Consumer Price Index for food increased from 136.6 in 1970

to 186.7 in July 1974 (1952 = 100). Minimum wage rates for hired workers

have been increased in the last two years but not enough to offset the

effects of higher retail prices and reduced food rations (Appendix Table 4).

Real incomes of consumers have declined.

D. Types of Farms and Income Levels

2.15 Problems relating to agricultural development in Sri Lanka need to

be considered in two broad subsectors:

(a) The export tree crop subsector (tea, rubber, coconuts, and

minor export crops) which accounts for 44% of total agricultural

employment, 50% of the gross cultivated acreage, and 47% of

the total value of agricultural output (based on 1963 prices),

and

(b) The domestic sector (annual crops, livestock, fishing,and forestry) which accounts for 56% of agricultural employment,

50% of the gross cultivated area, and 53% of the total value of

agricultural production (Tables 2.2 and 2.11).

- 1 3-

Table 2.11: EMPLOYMVENT GROSS CULTIVATED ACREAGE AND PRODUCTTONVALUE BY AGRICULTURAL PRODUCTS

1973 1973 1973 Production1971 Gross Production Value

Products Employment Acreage Value Per AcrehIA'0 00 (7oo7) (M41 Rs) (P

Tree CropsTea 551 599 926 1,546

Rubber 136 565 475 840

Coconut 40 1,152 464 403

Minor export crops - ___ 1_____ 872_

Sub-total 727 2,534 2,055 811

Food Crops and OthersPaddy 786 1,792 1,332 743Other crops 74 696 1.285 1,846Livestock - - )Forestrv 2 - ) 771

Fishing 56 - )Misce11aneous - - 96

Sub-total 918 2,488 3,484

Total 1,645 5,022 5,339

Source: Department of Census and Statistics. Employment data from

"Census of Population, Preliminary Report, 1971."

Note: Total employment in agriculture reported here is much less than the

2 million reported in para 2.02; the data cited here do not includeworkers in agricultural processing industries (tea and rubber factories,

rice mills, etc.) closely associated with estates.

2.16 These two subsectors overlap in several respects. A large share

of coconut production is for domestic food consumption. Many small coco-

nut and tea holdings also produce food crop and livestock products.

2.17 Government is greatly concerned with expanding employment oppor-

tunities and raising the value of output per worker in agriculture. Gross

value of production per cultivated acre averaged much higher for tea than forpaddy and about as high per worker for tea as for paddy at 1973 prices for

products (Table 2.11). Much of the land in tea and rubber is not suitablefor growing other crops and would have much less value in other uses. Chi]lies,onions, potatoes, and pulses have very high values of output and require

large labor inputs per acre. Rubber and coconuts have very high values ofoutput per worker, but coconuts is an extensive crop which does not provide

much employment except where underplanting or interplanting with other cropsis possible.

- 14 -

2.18 According to preliminary data from the 1972 census, 38% of all

holdings were tree crop farms or plantations and 62% were paddy and othertypes of food crop and livestock farms (Table 2.12). Export crops areproduced mainly on estates or holdings over 10 acres in size. In 1972these holdings accounted for 82% of the land in tea, 69% of that in rub-ber, and 50% of that in coconuts. Paddy and other annual crops areproduced mainly on very small holdings with about 48% of all paddy andother food crop farms less than one acre and 88% under 5 acres in size.

Table 2.12: NUMBER OF HOLDINGS CLASSIFIED BY TYPE('000)

Size Class All Paddy &(Acres) Holdings Other Coconuts Tea Rubber

Less than 1 718 458 130)1 to 5 618 382 123 ) 115 ) 150

5 to 10 132 88 22 ) )10 and over 67 37 20 3 7

Total 1j35__ 965 295 118 157

Source: Based on preliminary data from 1972 census of Department ofCensus and Statistics and from data on tree croD holdingsfrom Ministry of Plantation Industries.

2.19 The total number of land holdings increased 29% from 1962 to

1972, about as rapidly as totalr pop.ul1-ation. Data are not vet available

from the 1972 census on the total cropland, but it is about 5 millionacres. Lle average size of paddy and other fiel-d crop holdings was about

2.5 acres in 1972.

2.20 A large share of Sri Lanka's farms are not large enough to

provide adequate incomes for a family. Based on data from the 1962 census

and other sources, Jogaratnam and Schickele estimated that 36% of allland holdings were not large enough to be viable economic ur.its at cur-

rent yield levels. 1/ The share undoubtedly has increased since 1962.Uneconomic sized farm units include rany small tea, rubber, and coconut

holdings.

2.21 Hired workers make up a larger share of the labor force onfarms and plantations in Sri Lanka than in m-ost countries. Most of the

727,000 workers reported for the tree crop sector in 1971 and almost

1i/ Unpublished report by T. Jogaratnam and Rainer Schickele, "PracticalGuidelines to Agricultural Policies in Ceylon," Agricultural EconomicsResearch Unit, University of Ceylon, Paradeniya, September 1970.

- 15 -

half of the 918,000 reported for the food crop sector (Table 2.11) ob-

tained most of their income from hired farm work. Altogether, hiredworkers probably account for over 70% of total farm employment.

2.22 A socio-economic survey for 1969/70 shows that there were 2.1 mil-

lion households distributed as follows: urban 16%, rural 72%, and estates12%. In this survey estates included all those with over 20 acres in extentand 10 or more workers. Incomes are quite equally distributed. In 1969/70only 3% of all households had incomes over Rs 800 per month (US$114) (Table2.13). But many farm families still have very low incomes. 1/ Over 60% of

the households in the estate sector and 44% of those in the rural sector hadmonthly incomes under Rs 200 (US$30). Sri Lanka provides excellent educationand medical services for rural people but there is need to improve housingconditions.

Table 2.13: PERCENT DISTRIBUTION OF HOUSEHOLDS BY INCOME CLASSES,1969/70

(Percent)

Income Class All Urban Rural EstateMonthly Income (Rs) Island Sector Sector Sector /a

Under 200 43 21 44 61200 - 400 38 40 38 34

400 - 600 12 18 12 4600 - Ann 4 8 4 1

800 and over 3 13 2

Total 100 100 100 100

Estate sector includes all estates with more than 20 acres in

extent and having ten or more workers; the balance is includedin the rural sectonr.

Source: Socio-Economi-c Survey by Department of Census and Statistics,

Sri Lanka, October 1971.

2.23 National statistics indicate that per capita annual incomeaverages about tTe1An. PD^p,lnation groups that make un the lowest 40%

a vca.~cc auAL P-y-.'. Ar ar--- 0 , I r-

income category include many workers on tree crop estates, the rural andurban unemployed, and some self-em.ploye families on smsll holdings.

1/ Income estimates include value of production for home use.

- 16 -

E. Land Use and Tenure

2.24 Agriculture in Sri Lanka is located in two broad regions: thewet zone covering 30% of the island located in the southwest where landelevation rises gradually to over 7,000 feet and rainfall averages 75 to 200inches annually, distributed quite evenly throughout the year; and the dryzone covering the northern and eastern part of the country, a peneplainreceiving 35 to 75 inches of rain annually, falling mainly from Septemberthrough January. The wet zone accounts for 70% of total cropland area, allthe land in tea and rubber, most of that in coconuts and almost half of allpaddy and other cropland (Table 2.14). The wet zone is densely populatedaccounting for about 75% of the rural population while the dry zone is sparselysettled.

Table 2.14: LAND USE IN DRY AND WET ZONES, 1970('000 acres)

Wet Zone Dry Zone Total

CroplandTea 635 - 635Rubber 561 - 561

Coconuts 516 115 631Rice 631 744 1,375Mixed farming /a 1,005 380 1,185Other /b - 360 360

Sub-total 3,348 1,599 4,947

Non-agricultural /c 980 5,680 6,660Potential for development 254 4,367 4,621

Total Area 4,582 11,646 16,228

/a Includes most or smalh noiLaer coconut.

/b Land extensively used with occasional cropping.

/c Includes reserved forest land, catchment, water bodies,rivers, urban areas, and waste land.

Source: Division of Land Use, Ministry of Irrigation Highways

and Power, 1971.

2.25 Sri Lanka has two crop seasons for paddy: Maha extending from

October through February/March and Yala extending from March/April through

August. Much paddy in the wet zone is double-cropped but cropping intensityis low in the dry zone. For the country as a whole, the cropning intensity

for paddy is about 150% taking Maha cultivated gross acreage as 100%.

- 1 7 -

2.26 About two-thirds of the paddy land is operated by owners and one-third by tenants or owners employing hired workers (Table 2.16). The areaof paddy per cultivator is small, averaging only 1.2 acres. However, mostpaddy farmers also have some land in highland areas where they grow uplandcrops. Paddy holdings average only .78 acres in the wet zone and 1.48 acresin the dry zone. Almost half of the paddy land in the wet zone is operatedby tenants compared with only 22% in the dry zone (Appendix Table 5).

Table 2.16: REGISTERRD PADDY LAND BY TENURE CLASSES. 1971('000)

Number of Number of Acres perTvne of Teniurp C-utiv tCrs Ares Gultivato,r

Owner rultitvators 705 817 1.16Tenant cultivators 319 309 0.97Tenants - Thf-t-am,,r, landsa /a 41 73 1.78Owners employing laborers 7 15 2.14Owners also working as tenants 38 30 0.79

Total 1,110 1,)AA 1.12

/a Lands where rights to cultivation rotate among owners from year to year.

Source: Department of Agrarian Services, MAL.

TTT RECEN TfT'V APOTIC D fPlRlOA AMCTINIC

A. Development Objectives and Strategy

3.1 Gvr-ar. ugtr uprtt giutr ar.d irrigation,upIJ %Y%UVULLUiCL1L, UUU6CLd&L7 ZiUPULL LU dCL6LA.UU±LUL 41U 4&.LrCL±.L1JLL,

including the tree crop sub-sector, has been largely constant in relativeterms. C%lurrent expenditure between 1964/65 and 1973/74 nearly doubled inmoney terms but remained at around 2.5% of total expenditure (Table 3.1).wovernmentus capitai expenditure for agricuiture and irrigation between1964/65 and 1971/72 also more than doubled in monetary terms but remainedat not quite 15% of total expenditure. However, budget figures for 1973/i4showed a considerable jump. Basically Government uses its budget forachieving sociai as weii as economic objectives and no iess than nair ofcurrent expenditures are concerned with distributive objectives of which alarge share has been accounted ror by food subsidies (Tabie 3.1) and provisionof health and education services. It must be remembered that "current"and "capital" expenditures do not necessarily correspond to consumptionand investment with some current expenditures possibly more directlyrelated to economic development than certain capital items.

Table 3.1: GOVERNMENT PAYMENTS RELA.TED TO AGRECULTURE(Rs Mil and Percent)

1964/65 1905/66 1966/67 1967/68 1968/69 1969/70 1970/71 1971/72 1973 1973/74

Rs % Rs % Rs '% Rs _ Rs % R', % Rs Yo Rs 7% Rs %

Current Payments

Total 1,895.8 100.0 1,996.8 100.0 2,096.7 100.0 2,392.4 100.0 2,617.1 100.0 2,824.5 100.0 3,096.7 100.0 4,084.8 100.0 n.a. 3,890.3 100.()

Of which food

subsidies 446.6 23.5 487.4 24.4 465.5 22.2 578.7 24.2 625.2 23.9 573.8 20.3 614.1 19.8 718.8 17.6 n.a. 584.0 15.0 >

Of which toagricultureand irrigaition 53.9 2.8 46.4 2.3 5,1.3 2.4 51.8 2.'2 57.0 2.2 66.5 2.4 75.0 2.4 88. 2 2.2 n.a. 100.7 2.6

Capital Paymuants

Total 535.4 100.0 589.7 100.0 695.4 100.0 789.2 100.0 909.8 100.0 883.1 100.0 799.6 100.0 1,140.2 100.0 n.a. 1,465.5 100.0

Of which toagricultureand irrigation 79.3 14.8 95.6 16.2 110.7 15.9 140.0 17.7 168.1 18.5 172.8 19.6 131.5 16.4 166.0 14.6 n.a. 330.7 22.6

Source: Central Balk of' Ceylon, Annal Report 1973.

- 19 -

3.02 T,he major thrust of agricultural policies and programs during the1960s was towards:

(a) increased self-sufficiency in food production;

(b) crop diversification to reduce dependence upon the three majorexport crops for foreign exchange earnings;

(c) expansion of employment opportunities in agriculture; and

(d) improvement of rural living conditions and social services.

Actual performance has been mixed, suggesting that social objectives havebeen given relatively more emphasis than production objectives. In particular,it appears that relatively little was accomplished as far as objectives(a) and (b) are concerned (Tables 2.7 and 2.2).

3.03 A complex network of government institutions and organizations atnational, district and local levels has been concerned with agriculturaldevelopment. They are described in Annex 1. Equally complex is the systemof taxation and supports. The effect of all Government action is interalia limited by lack of foreign exchange required for the importation of meansof production, vehicles, processing equipment, spare parts, packagingmaterial, etc.

3.04 Lack of employment opportunities for rural youths has been a majorsocial and political problem. Consequently, the Government has given highpriority to increasing employment opportunities and improving social servicesin rural areas by carrying out local projects financed by the DecentralizedCapital Budget Scheme and administered by District Government Agents (DGAs)and their local staff members. Projects are planned by local officials andsubmitted to Colombo for approval by the Ministry of Planning and EconomicAffairs (MPEA). A special scheme is the settlement of youths on landtaken over under land reform (see B below). The socio-economic implicationsof this scheme remain open; it would appear that settlers will be under-employed and underpaid and may not receive adequate management guidance.

3.05 Price policies have favored food crop production for the localmarket over tree crop production for export. Under the Guaranteed PriceScheme (GPS) government procurement prices for paddy were raised repeatedly. 1/In the early 1970s imports of certain pulses and vegetables were banned inorder to save foreign exchange. Consequent supply shortages led to Driceincreases on the domestic market and hence encouraged production. On the

1/ Twenty-one coumodities are included in GPS. The purpose of the Schemeis to assure farmers a minimum price covering production costs andproviding sufficient incentive for production. Responsibility for thescheme rests with the Food Commissioner. GPS prices for paddy wereraised in July 1974 to Rs 33/bu (US$404/ton) compared with Rs 14jbuin 1972 (Appendix Table 6).

- 20 -

other hand, tea, rubber, and major coconut products faced, until mid 1973,

depressed world market prices and exports were and still are heavily taxed.

In addit…on, export reurns for these com-odities are calculated usincg

official exchange rates rather than those under Foreign Exchange Entitlement

Certificates (FEECs) whi'ch are 6,5%o' above official levels.

3.06 Faced with increased foreign exch.ange requirements to finance

food imports at escalating import unit prices Government has recently given

more emphasis to food crop production. In addition to price policy measures,

the Government in summer 1973 initiated a Food Drive Program which included

the following:

(a) the Ceylon Fertilizer Corporation (CFC) of the Ministry of

Agriculture and Lands (MAL) gave priority to fertilizer for

paddy and other food crops;

(b) the Government made an additional Rs 90 mfillion available tothe People's Banks for cultivation loans to farmers,

including farmers who previously were not eligible for new

loans because they were delinquent in repaying old loans;

(c) Rs 175 million from the Decentralized Capital Budget Scheme,

for 1974, was allocated for restoration and improvement of

small tanks, irrigation and drainage facilities;

(d) a program was initiated in 1974 under which individuals or

groups were promised payments of Rs 500 per acre for clearing

and bringing abandoned and new land or jungle land into culti-

vation for producing food crops; and

(e) publicity and input subsidy programs were introduced to

generally expand food production, including intercropping and

undercropping of coconut lands.

3.07 CFC's fertilizer policy has had negative effects on tree crops

particularly on tea production (para 5.07). The reintroduction of gen-

erally available producer credit without regard to tarmers' repayment

records and without a parallel improvement in the collection of overdues

is bound to have negative effects on future credit schemes. The success

of the overall program, particularly the promotion of undercropping, will

be dependent upon the development of necessary supporting services such as

extension and marketing; these are not adequate.

B. Land Reform Law of 1972

3.08 The Land Reform Law, passed by Parliament on August 26, 1972, has

far reaching implications. Introduced "... so as to increase productivity

and employment..." 1/ the law established land ceilings for all privatelyheld agricultural land. These are: Paddy land, 25 acres; all other cropland, 50 acres. The basis for these land ceilings appears to be arbitraryrather than economic. Land owned by limited liability public companies,cooperatives and religious organizations was not affected.

3.09 Implementation of the Law and consequent take-over of nationalizedland is entrusted to a Land Reform Commission in the MAL and supported by22 District Land Reform Authorities (DLRA). Land owners were required todeclare all land in their possession indicating size, cropping patterns,land value, etc. and to state their preference as to the part of the estatethey wished to retain under the new land ceiling. Actual take-over of landcommenced only towards the second quarter of 1974, i.e., about 20 monthsafter the Law had been passed and was completed by end August 1974. In theinterim period former owners were to continue operating all their land with=out any indication as to the location of the land parcel eventually to beleft to them.

3.10 In all a total of about 6,000 holdings with 1 million acres, ormore than 20% of the total crop land was affected. Over 60% of the affectedcultivated land is under tree crops. The 559,377 acre taken over by theLand Commission were used as shown in Table 3.2.

Table 3.2: LAND REFORM - LAND ACQUIRED BY LAND REFORM COMMISSION

Percent of total Percent of acreage ofAcres acreage acquired individual crops

Tea 135,760 24.3 22.6Coconut 115,350 20.6 10.0Rubber 82,944 14.8 14.7Cardamon 7,699 1.4 77.0 /aCinnamon & Cocoa 1,022 0.2 1.6

Total tree crops 342,775 61.3 _Paddy 16,270 2.9 0.9Chena 1,861 0.3 n.a..Mi4-A 14,513 2.6 n.a.Jungle 182,257 32.6 n.a.Abandoned land 1,701 0.3 n.a.

Total 559,377 100.0

/a Estimate

Source: Land Reform Commission.

1/ Land Reform Law of 1972, preamble.

3.11 Former owners of expropriated land were to be compensated on thebasis of past tax returns or official land valuation. Payment was to be madein cash and Land Reform Bonds of 25-year duration at 7% interest annually.These Bonds have not yet been issued and no compensation has as yet been

paid. This delay in compensation is particularly serious for the previousowners as repayment of any mortgage or other indebtedness of the estateremains their responsibility. The delay is also adversely affecting the

general investment climate in the plantation sector.

3.12 While any land reform entails disruptions, the reform in SriLanka may turn out to be unusually detrimental to productivity unlessvigorous action is taken to assure proper management of land affected by

the land reform. Most of the land taken over is under tree crops. This

land used to be managed in large units linked to processing facilities,under central manngement. The Land Reform disrupted this system and led

to the formation of smaller production units, both in public and privatehands, oftern too small to support effective management and frequently cut

off from their previous processing units.

3.13 At the time of the introduction of the Law no clear plan had been

formulated for reallocation of land taken over, nor had one evolved at the

time of writing this report. 1/ Final decision on land allocation rests with

the Minister of Agriculture and Lands. Orfginally, the 22 DLRA's were to

recommend land allocation. In September 1974 the Minister established 9District Estate Management Boards (DEMRL) resnonsible for maintaining produc-

tion and advising on land allocation. Both the DLRAs and the DEMBs are now

being Aiscontinued and a Planning a2nd Develonment Committee has been establishedwhich is to prepare an integrated plan on future land use; a first draft is

to be submitted to the Minister by end Jlanuarv 1975. In the meantime Electoral

Committees have been formed, generally under the guidance of local MPs, who

recommend to the Mi-nister use of nationalized land available in their

constituencies. It is not expected that final allocation of all land takenover will material4ze before the end of 1975. As management in situ prior

to take over has been dismissed, this delay in establishing clear operation

responsU.LLlities mus8; have unnecessarily prolor.ged r.egative effects or

productivity. Present tentative allocation of land is shown in Table 3.3.

1/ Subseauent discussions indicate that Government has since evolved plans

for the management of lands taken over under land reform.

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Table 3.3: LAND REFORM: ALLOCATION OF LAND ACQUIRED BY THELAND REFORM COMMISSION, STAND OCTOBER 1974

Organization Total Acreage Percent of Total Acreage

District Land Reform Authorities(i.e., pending allocation) 177,719 31.8Land Commissioner(i.e., pending allocation) 111,375 19.9Upcountry Cooperative EstateDevelopment Board (Usawasama) 87,235 15.6Multi-purpose Coop Societies 48,143 8.6Youth Settlement Coops 38,704 6.9State Plantation Corporation 31,791 5.7Special Coop Organizations 19,750 3.5Village Development 13,833 2.5Veterinary Services 6,450 1.2Livestock Develonment Board 4,891 0.9Tree Crop Research Institutes 2,184 0.4.nronnut rultivation Board 1.235 0.2

Reforestation 785 0.1Dist-ri_t Dlevelnpment Proniets 754 0.1Others 14,528 2.6

Total 559,377 100.0

Source: Tande Rfeform rnirmim_ion-

Management capability of these variniiq nrgani7ations varies greatlv. it is

best in the State Plantation Corporation. It appears that little or nothought has been given to the future of the 'remnant petates;q the rotighlv400,000 acres of land under tree crops left in 50 acre parcels to previousowners. It is of great urgency that Gnvernment take a rlear and finaldecision on the future management of land now in its possession. In takingthis decision social aim will have to be balan.Ded against rfnRiderationsof productivity and managerial competence. Investment requirements tobring all lanrd affected by the land reform to opt1mm nrnouct-inn are likely

to be substantial. They need to be assessed and, if necessary, financialand technical assistance to meet them should be sought.

C. Agricultural Productivity Law of 1972

j. I ' LIIM tLLJ.LturLal L roJluc.L.VJLJe. *3.1 ,.le A gri culturl. "ouctivity Law provides-for the establishm.en

of some 478 Agricultural Productivity Committees (APCs) in 22 districts.^-s . f. 1. ….t.. .,=, 1 4e4 ^f -ho MA.L

ArL's LIave L'ar reach4L±ing powers under .,e general ^f# L- MA_.._ .

to take actions required to maximize use of land, water, and other resources.Each APuC has not more than 10. meLu uers appointed by the M.inister of

Agriculture and Lands (MAL) at the recommendation of the local MP. APCs

- 24 -

have responsibility to promote, coordinate and develop agriculture in thedivisions they cover and to assist the MAL in formulating and carrvine outimplementation programs concerned with achieving annual targets for crop andlivestock production and effective use of land. fertilizer. nesticides andother resources. The Minister appoints local Cultivation Committees (CCs)of farmers (about 10 to 20 in each area rovered hy an APC) to formulate plansand implement programs at the local level.

3.15 The Law imposes obligations on owners to utilize land in an optimalmanner with regard to surh things as kinds and strains of crons grown,crop husbandry methods, and water management practices. APCs have authoritythrough the MATL to iAsnnssess farmers of lnd whirh in thipir oninion is notused efficiently and assign it to individual farmers or groups who are expectedto uso the Iand mnre productively. Former nwners or nopratnro of tho land areto be compensated. APCs also are to maintain a register of all land withinthe a-r-e-a of its authority, .ollect larnd taxes (PQ A or ac-re) anrd undertake

J % _ d- - - -

new projects. Programs and operations of each APC will be supported by anA-ricultural Serv4ce Center (A() -4w1hi.h 1 wilrvi,de of fice and other spacefor agricultural extension workers, branches of the Bank of Ceylon, salesrooms,meeting room- and other. facilitie-s for farm... sup potir.ng servi.es - About 200ASCs had been established by October 1974.

3.16 While APCs might in some instances abuse their power, the neworganizat iLJona- arag1A could --- be.o a- -ffe.t-ive st f4-o pala -----and implementing improved land and water use programs at the local level.Prev-iously CCSs were elected. LHowever, thLey were loosely oLrg6 aanizeU aLLU qutLLe

inactive. The actual work of setting targets, priorities and formulatingand implementing plans was done b-y line officers at di-vision leviels underanu L ±mkL..&i jLL.Oa UJLL Uy 1 LLi U. IL A. O .JL LLLV±JA1L

the guidance of District Government Agents (DGAs) and District Revenuereces _ Thfl0. --. 4._ _1_ _ 1J __ _ J.._ __ 3 L__ .- nhU LL.LLt:a \UL'DJ . j^eci LULL LiLJLLidl.N±Ll PUW U1 D U L uL-L&LtLa ULLJLb LtUULCU UUL uuX |b-

trict Agricultural Extension Officers (DAEOs) and their staff will have op-porturiLtLes to wor'cK closeLy with APCu's andu CCIs L [n pro-viding extension auivicdVeand technical assistance. If APCs can get farmers to economize the use ofirrigation. waLer, maiLnLtaiLn irriLgatLLon systewi, pay land better-uent taxes, aLlurepay rural credit, the new system would be a success. On the other hand,thre new organizational structure could lend L itself to local politicalinterference. Care will therefore have to be taken to assure APC's technicalcompetence in decision making. Furtnermare as expiained iater (paras 3.27and 3.28), agricultural research and extension services supplied throughline officers will need to be strengthened.

3.17 It is not clear how functions of Multi-Purpose Cooperatives (MTCs)supervised by the Ministry of Foreign and Internal Trade (MHIT) and those ofthe APCs will be coordinated. neCs purchase paddy and other crops tor thePaddy Marketing Board (PMB) of the MAL, implement the Guaranteed Price Scheme(GPS), and deliver rice and other food commodities to the Food Commissioner'sDepartment of MFIT. MPCs also sell farm inputs, carry out food rationingprograms for the Food Commissionerts Department, and supply farm creditthrough Rural Banks of the People's Banks closely associated with MPCs.There are about 450 MPCs with local branches in villages scattered overthe country. For the time being APCs are not to take up work carried out

- 25 -

by cooperatives where the latter perform efficiently, but it is too earlyto assess how far APCs might in future duplicate functions of MPCs.

D. The Tea Control (Amendment) Bill

3.18 The tea Control (Amendment) Bill became effective on October 18,1974; it amends the Tea Control Act No. 51 of 1957. Under the Bill the TeaController has s,eeping powers to set standards of production and managementfor all smallholdings, estates and tea factories. These standards includeinter alia -uantit- ar.d quality of tea produced, fertilize: appl4catjon,

replanting performance, and quality of labor quarters. Standards set bythe Controller have to be complied with within a reasonable period afterreceipt of the directive. The smallholder, estate or factory owner has theright of appeall Ito the Minister of P1lantation IAndustries, whose dUec'sionwill be final. If the Minister is of the opinion that tea growers orprocessors hlave not comp±lied satisfactorily wit'tborders received Lfrom t'heTea Controller, he may order the small-holding, estate or factory to benat-i-or,alized.

3.19 The Bill (ar.d an ident'cal bill for rubber now before Parliament)aims at increasing productivity. However, the powers given to the Tea Con-

trollL. Land t 1o teMnister of rLantatLoi nduustries are such thaL the Billadds to the prevailing sense of uncertainty in the estate sector and islikely to Lurthier impyede investment in the industry. The delegation ofdecision making from estate and factory management to a central governmentorganization will not per se improve efficiency.

E. Agricultural Lands Law of 1973

3.20 The Agricultural Lands Law replaces the Paddy Lands Act of 1958.It covers highland rice as well as paddy land and provides for security oftenure of tenant cultivators and determines rents payable to landlords. Thelaw also provides for establishment of Agricultural Tribunals to adjudicatelegal disputes relating to the use of all cropland. The Law is administeredby MAL and provides for reorganization of Cultivation Committees (CCs)established by the 1958 Act and gives CCs authority over the administrationof highland rice as well as paddy land. CCs are to function as agents ofAPCs in all matters in which APCs have been vested with powers andresponsibilities. There will be about 5,644 CCs; 2,893 CCs had beenappointed in July 1974, Each CC has 10 or more members.

- 26 =

F. Land Betterment Taxes and Water Charges

3.21 Government budgets of the Territorial Civil Engineering Organiza-

tion of the MIPH for operation and mainLntenance of irrigation, drainage

and flood control structures has not been sufficient to maintain the water

facilities. Yet charges made to farmers for operation and maintenance of

irrigation and drainage structures have been small and no charges at all

were made for land and water resource improvements. Wasteful use of

irrigation water has resulted. One recent and promising policy development

is that Government plans to put into effect by January 1975 a land betterment

charges law which would:

(a) recoup from owner of land other than irrigated land over a

20-year period one-half the increase in market value of all

land improvements made under land development projects; and

(b) levy annual water charges on all irrigation schemes to cover

cost of operation and maintenance and to contribute towards

construction costs. This law would be administered by

government agents with local assistance of APCs and CCs.

Arrangements will have to be made to assure that funds collected througn

these water charges be used only for operation and maintenance of irrigation

systems and any surpluses for the rehabilitation of existing irrigation

schemes. In order to discourage excess water use, water charges per unit

might be staggered. Finally the Ministry of irrigation, Power and Highways

should determine 'irrigation seasons' for each irrigation tank and assure

that water for irrigation be discharged only during periods thus specified.

3.22 Government also plans to enact in 1975 a law to amend the Irrigation

Ordinance (as amended in 1968) to incorporate changes brought about by the

Agricultural Productivity Law of 1972 and the Agricultural Lands Law of 1973

and thereby divide responsibility between the Government and farmers for

maintaining irrigation facilities. Farmers would be held responsible by

APCs for maintaining irrigation networks which are less than one-half mile

in length or serve 50 acres or less. This new law would be administered

by the MIPH.

G. Fertilizer Prices

3.23 Total fertilizer consumption measured in plant nutrients increased

from 83,000 tons in 1965 to 118,000 tons in 1973. While fertilizer

application on tree crops showed a distinct downward trend, sale of paddy

fertilizer increased very sharply (see Appendix Table 7). This development

reflects government policy to promote food crop production as well as the

economic and administrative problems facing the tea and rubber industries.

3.24 The sole importer of fertilizer is the Ceylon Fertilizer Corpora-tion which purcLses Aer. ilzer Llrom aluroau at tLLe official exchliange rate.

To promote fertilizer use Government is subsidizing most fertilizer yetat the saUIe tLiue p'laces a 12..J5% adu vadloren. L-Uport tax on LertlzerUntil July 1974 subsidies of 50% were provided for fertilizer used forpaddy, tea, coconut, and most minor export crops. Tne cost to Governmentfor this subsidy was about US$10 million in 1973. In July the sensibledecision was taken to abolish subsidaies for paddy fertllizer (an attemptto remove subsidies on fertilizer for tree crops failed due to resistanceby the Ministry of Plantation Industries). Gviven tne increases in woridmarket prices for fertilizer the lifting of subsidies resulted in an increasein prices to the paddy producer of 2uu/0 to 3ou,0. Demand declined snarply anastocks in Colombo increased posing a storage problem. 1/ Political pressureand the fear of a short rice crop led to the reintroduction of a subsidy forfertilizer effective October 21, 1974 and amounting to 30% to 40% of un-subsidized prices. As a result Sri Lanka now operates a three-tierfertilizer price system:

(a) unsubsidized for food crops (except paddy) as well as forrubber and some minor export crops,

(b) paddy fertilizer with a subsidy of 30% to 40% of actualmarket price, and

(c) tea, coconut and most minor export crops with a subsidyof 50% of actual market price.

This system will lead to a less efficient use of fertilizer. Even beforeJuly 1974 substantial quantities of fertilizer distributed for paddy wereused to grow such other crops as chillies, onions, potatoes and pulses.With the three-tier system additional transfer from tea to paddy can beexpected. The economic justification for a subsidy on paddy fertilizermust be doubted. With current prices the ratio fertilizer to paddy isvery favorable and even with minimum management should give sufficienteconomic incentives (Table 3.4). For economic, technical and administrativereasons, all fertilizer subsidies should be progressively reduced. While inforce the subsidy should be at a standard rate for all crops.

/ LI.LO WaS- partiLalJly- ca-us0ed by. cosdeal -mot - o..n int -Sri-

I / ±II-~ ~ ~L L.La±y L~U~U y UVL0A.JLU=LC&U±~.LC L1jUJ.LF L.-0~ 5.LL'~

Lanka during the fertilizer "off season", i.e., after the Yalaseason and prior tO ,'hna.

')0

Table 3.4: RATIO BETWEEN PADDY AND FERTILIZER PRICES

Fertilizer Fertilizer-Paddy

Producer Price Price ex store price

Time period Paddy Colombo /b Ratio /d

(Rs/bushel) /a (Rs/lcwt) Ic (kg basis)

April 74- July 74 30 61.67 .84

July 74 - Oct. 74 33 123.35 1.54

Oct. 74 - present 33 84.0 1.04

/a 1 bushel = 20.865 kg

/b Generally recommended variety./c 1 cwt = 50.8 kg

/d Expresses amount of paddy in kg required to buy 1 kg fertilizer.

H. Producer Prices for Food Crops

3.25 Government continued to operate the Guaranteed Price Scheme

(GPS). Under this scheme Government offers to purchase at stipulated

prices all quantities of a wide range of crops offered by producers.

Buying agents are the Co-operative Wholesale Establishment and the Agrarian

Services Department. Prices for paddy were increased from Rs 14/bu

in 1972 to Rs 18/bu and later to Rs 25/bu in 1973 and to Rs 30 and later

to Rs 33/bu in 1974. The 1974 price increases have been too recent to

have had any impact upon production. However a price of Rs 33/bu should be

financially attractive, particularly as cost of production in Maha 1973/74

was estimated at Rs 22.50/bu. As shown in Table 3.4 the fertilizer/paddy

price ratio is remarkably favorable.

3.26 Prices for most of the other crops handled under GPS have also

been increased (see Annex Table 6); the aim being increased self-sufficiency.

Partially as a result of these measures but probably more due to supply

shortages of certain food crops following import bans, and consequent

free-market price increases, production of vegetables, grain other than

rire; and pulses has increased very rapidly during recent years.

I. Research and Extension

3.27 The Department of Agriculture of the MAL has a plan before the

Cabinet for complete reorganization of research, extension and training

by establishing 6 to 8 regional research, extension, and training centers

distributed according to agro-climatic zones. The main objective of the

future reeaerch will be to nlan crop production on the basis of effective

use of natural rainfall plus available irrigation and of cropping systems

adapted to local soil characteristics. Field extension staff at all levels

- 29 -

will have to be significantly increased, considerable new recruitment has

already taken place. Training programs will be expanded. Each regional

center will build up a multi-disciplinary team of extension specialists for

bridging the gap between research and extension and will provide back stoppingfor field extension workers. Seed multiplication by existing department

farms is to be strengthened and adjusted to regional needs. Seed certification

will be handled by regional centers.

3.28 Plans for expansion and reorganization of research and extension

activities are well conceived and urgently needed to help overcome constraints

to expansion of rice production (paras 4.03 - 4.05) and exploit potentials

for further expansion in production of upland subsidiary crops (para 4.15).

Special extension campaigns for effecting immediate increases in food crop

production are to be carried out. Moreover, there is a need to provideadequate technical support to APCs and CCs and to improve farmers' traditional

practices in using land and water resources. The three tree-crop research

institutes of the Ministry of Plantation Industries (NPI) would not be

affected by this reorganization.

J. Tree Crop Development Program

3.29 Tea as well as rubber and to a lesser extent coconuts are heavily

taxed and provide a major source of revenue to Government. To partially

counterbalance the depressive effect of taxation Government has introduced

a number of support programs. For tea Government continued with its

reDlanting subsidy, largely financed through a replanting cess as well as

with the Factory Development Subsidy Program financed partially through

an ADB credit. General support to the industry was increased in Novemberof 1973 through a "package program" under which Rs 125 million are to be

annu-aly allocated to the tea industry. Part of this fund was used to

increase replanting subsidy rate from Rs 3,750/acre to Rs 4,750/acre;other assistance included a subsidv on tea chest panels and the extension

of the fertilizer subsidy to estates above 100 acres. Sharp increases inwage levels and in prices for fertilizers and tea chests cancelled much ofthe hoped for benefits to the industry; however the package program certainlyrushioned the effects of increased nroduetion costs.

3430 Under con.sideration in the Ministry of Plantation Industries is a

scheme to assist in improving mobility of estate labor and the establishmentof a Tea Smallholder Development Authority. Finally Government has earmarked

a sum of Rs 5 million in foreign exchange for the importation of transportand tranrsport spares for the estate sector.

3.31 Government Increased rubber renlanting sLibsidy payments fromRs 1,400/acre for holdings above 100 acres and Rs 1,500/acre for holdingsof less than 100 acres to a uniform Rs 2,000 acres or about 75Z of averaae

replanting costs. This subsidy is entirely provided from Government funds

as thle .dLnUustr;y dUoes nlot have replartig cess arrangements. The Governmenthas appointed a committee to examine existing taxation and export levies aswell as the possibility of introducirng a replanting cess. Al-so under con-sideration is the introduction of a scheme under which cost of machineryand equipment for manufacturing crepe rubber would receive a 1/3 subsidy.

- 30 -

3.32 Po'1owirng the considerable price increase for rubber between mid

1973 and mid 1974 Government increased the minimum price for sheet rubber

Nos. I and II from Rs 0.80/lb and Rs 0.73/lb to Rs 0.95 and Rs 0.85

respectively.

3.33 In May 1974 Government introduced a Coconut Rehabilitation

Subsidy Scheme for smallhold4ngs. Under this Scheme Gvernment will

provide financial support to producers having less than 20 acres of coconut

land for construction of drains, filling of vacancies and removal of excess

palms.

3.34 To diversify exports Government introduced in 1972 a Minor Export

Crop Assistance Scheme and in 1971 a Crop Diversification Scheme on Tea and

Rubber Lands. The former scheme provides for cash subsidies, low interest

loans and subsidized inpu.ts required to establish such crops as cocoa,

cinnamon, pepper, citronella and cashew. The latter scheme provides for

subsidies for uprooting, replanting with minor export crops or rubber and for

necessary inputs. The results of the two schemes were rather disappointing.

K. General Assessment of Action Taken

3.35 Tne majority of these la-ws 's of too recent an origin to have had

any impact upon agricultural production. Broadly the measures relating to

the introduction of land betterment taxes, water charges, improved food

crop research and extension, the Agricultural Lands Law and the Agricultural

Productivity Law should, if properly imuplemented, have positive effects

upon food crop production. At least they should prevent production declines

other than those caused by adverse weather. Successful introduction and

operations of the laws might require outside assistance.

3.36 The Tea Control (Amendment) Bill contains a considerable danger

of adversely affecting production through increasing insecurity; Lhe

various subsidy schemes for tree crops are insufficient to compensate for

this or for the heavy taxation. The adverse effects of land nationalization

under the Land Reform Law have been discussed in paras 3.11 and 3.12.

The outlook for production increases in the tree crop sector remains poor.

IV. FOOD CROPS: PERFORMANCE, POLICIES, POTENTIALS

AND RECOMM.NDATIONS

A. Paddy

Recent Performance

4.01 Paddy production increased from 40 million bushels in 1960 to

a record high of 77.5 million bushels in 1970 but averaged only 65 million

bushels annually during 1971-73, about the same as in 1968 and 1969 (Table

- 31 -

4.1). The record production reported for 1970 probably was due largely tounusually favorable distribution of rainfall throughout the year. Weatherconditions were below average in 1972 and 1973 but about average in 1971when production was 66.9 million bushels. The 55% increase from 1960 to1971 resulted from a 23% increase in net acreage harvested and a 26% increasein yield per acre harvested. Cropping intensity has decreased from 1622% in1960 to 150% in 1974. 1/

4.02 Paddy production increased during the 1960s by bringing additionalland under cultivation. mainly in the dry zone, and by raising yields inboth the wet and dry zones. The increase of 500,000 acres Ln the grossextent grown was made nossible mainly by irrigation and settlement pro4ects.The total area of asweddumized (wet) land was increased from 1.16 millionacres In 19h0 to 1.42 million i.n 1970n New improved varieties extendedsince 1971 increased to 44% in 1973/74 and old improved varieties declinedto 36% 80 t-he share nf total acreage pr.'ted with improved varieties in1973/74 was 80%. In spite of late rains in fall 1973 around 1.32 millionacres were sown. for the 1973/74, Ma-ha crop producing record 52) , Million

bushels of paddy. The late sowing, however, is expected to affect the 1974Yala crop acreage.

1/ Cropping intensity is total harvested acreage divided by Mahaharvested acreage and therefore differs from cronDing intensityreferred to in para 2.25 on the basis of gross extents sown.

- 32 -

Table 4.1: PADDY: ACREAGE, YIELDS AND PRODUCTION

1959/60 1968/69 1969/70 1970/71 1971/72 1972/73 1973/74

Acreage ('000)

Gross extent sown 1,468 1,709 1,878 1,794 1,794 1,792 2,009

Gross extentharvested 1,398 1,539 1,776 1,711 1,579 1,660 1,910 /a

Damaged area 70 169 99 79 208 161 99

Area under improvedvarieties

MJaha n.a. 809 907 832 872 891 1,078

Yala n.a. 300 418 372 380 282 507

Total n.a. 1,109 1,325 1,204 1,252 1,173 1,585

Fertilizer use('000 tons) n.a. 84.7 88.1 89.4 80.6 96.8 124.4

Yields per acre (bu)

Maha 36.1 51.2 52.2 44.9 48.1 45.5 47.7

Yala 36.8 48.0 49.8 47.7 44.5 42.8 40.6 /a

Average 36.3 50.3 51.3 45.9 46.9 44.6 45.5 /a

Production (mil bu)

MaIha 26.3 47.0 49.5 41.6 42.3 42.0 52.6

Yala 16.7 18.9 28.0 25.3 20.6 20.9 24.0 /a

Total 43.0 65.9 77e5 66.9 62.9 62.9 76.6 /a

Cropping intensity(%) /b 162 150 159 157 152 153 150

/a Estimates.

/b Total harvested acreage of paddy divided by Maha harvested acreage.

Source: Ministry of Agriculture and Lands.

Constraints

4.03 Failure of paddy production to increase between 1968/69 and

1972/73 has been due to several acor. wproucer prices reduced

farmers' interest in paddy cultivation and led to a large decrease in

area transplanted in favor of broadcasting. Government desires to increase

paddy production, as reflected in Government targets, which were not

achieved, led to unsuitable land being sown to paddy. This is one of the

reasons for the relatively high rate of crop failure, averaging 8% of gross

sown area. Furthermore, the deterioration of irrigation systems led to losses-in cultivation an' a.ltbough lt will be U"'Lcult to reduce crop failure inthe wet zone due to frequent flooding, crop failures could be reduced in theury zUIIe LULoughI 'VettLe stLorage and istLiuUL.Lon SLrucLures ior irrigationwater. Finally, extension services are insufficient in quantity and qualityanrd lack supervision ana mobility to provide meaningful supports to farmers.

4.04 Most farmers in the dry zone give priority to crop productionin upland areas when the rains begin in September and delay planting Mahapaddy until late in the year when irrigation storage tanks are filied.Late planting and wasteful use of water during the Maha season often leaveslittle water for growing a Yala crop and hence a low cropping intensityon irrigated land.

4.05 Lack of sufficient farm power to prepare seedbeds early in theMaha season to more fully utilize the Maha rain, and thereby make possiblea Yala crop has also contributed to the low cropping intensity. Largescale importation of 4-wheel tractors began in 1949/50 but was stopped in1970 because of lack of foreign exchange. Two-wheel tractors were firstimported in 1960 but importation was drastically curtailed as of 1972. Totalnumber of 4-wheel tractors in operating condition reached a peak of 11,000in 1969 but declined to 9,000 in 1974. The number of 2-wheel tractors inworking condition reached a peak of 5,800 in 1972 but declined to 4,000 in1974. At the same time due to large scale slaughter the number of buffalosdeclined from 1.05 million in 1965 to 720,000 in 1973. Only about 160,000(80,000 pairs) actually were used as draft animals in 1973. Because ofthis lack of farm power much land, particularly in the wet zone, is stillcultivated by hand using hoes, locally known as mamoties. Importation ofmamoties has been banned but the local product is of poor quality contributingto delays in cultivation; provision of improved mamoties is necessary.

4.06 Fertilizer use on paddy increased in recent years. The totalquantity of plant nutrients (nitrogen, phosphate and potash) made availablefor paddy rose by about 40,000 tons from 1968 to 1973 (Appendix Table 7).Nitrogen consumption alone rose by more than 15,000 tons to above 32,000tons-enough to increase paddy production by 320,000 tons or 16 millionbushels (assuming a yield response of ten pounds of paddy for each poundof nitrogen). But paddy production actually declined from 64.6 millionbushels in 1968 to 62.9 million bushels in 1973. As pointed out earlier(para 3.24), some fertilizer issued for use on paddy at subsidized lowprices has been diverted for use on other crops. Low prices probably alsocontributed to wasteful use of fertilizer.

Policies and Programs

4.07 In July 1974 paddy prices under the Guaranteed Price Scheme (GPS)were increased to Rs 33/bu, hiRh enouRh to make production financiallyattractive. (Cost of production in Maha 1973/74 was estimated at Rs 22.50/bu). Yet in July 1974 farmers reported selling paddy at prices substantiallyhigher than GPS prices. Consequently the Paddy Marketing Board (PMB) couldpurchase only 37% of the paddy crop in 1973 compared with 60% in 1971 and

50% in 1972. (Sales to PMB from the Maha harvest up to September 1974 were17 million bushels or about 30%.) However, the Food Commissioner's Departmentrequired also less rice than in earlier years because free rations werereduced.

4.08 As of January 1975, a new Government action to increase rice pro-duction will be introduced. Producers will receive Rs 500/ac. for 12ndnewly brought under cultivation in wet zone swamplands classified by theMinistry of Agriculture as suitable for rice nroduction.

4.09 Rural Banks of MPCs had ample amounts of money to make cultivationloans in the 1973/74 crop year because of additional credits made availableby t he Gouver,nment- through the Peopnle's Banksrra 3 .0 n6, b.In 1967/68

a New Agricultural Credit Scheme (NACS) was initiated under which Governmentmade funds amvailable to the People's Bakr. for se ir. making cultivation

loans to farmers but repayment rates were poor and loan funds graduallyde-leted. In the 1967/68 * cultivation season loans amounted Ito 8.2X% of thetotal value of paddy produced but it decreased to 2.2% in the 1972/73 cropyear. Beoinn.ring in the 1973/74 M-ha season the ove..--men.t started a

Comprehensive Rural Credit Scheme (CRCS) through local branches of thePeonpele'sJ a .- A the 'lank of Ceylon. Fa,mers whao were in def ault onrepayment of old loans under the NACS were eligible to receive cultivationloans from Rs 88 million made available by the G-ove,ment for lending byRural Banks of MPCs in 1973/74, but repayment performance on these loanshas been very poor. For the next season Gove,rnment is planning to givecredit only to farmers with a good repayment record. In the meantime,lo-cal branch.es of thae PDeop'le's B anks1 assoclated with "sC andi o' the 'an'~ ~A. a.!,naa~'L ~L, A. ~ Msai~ aIL±a WIA. LI rLr.b 4LU I. L I~ D I

of Ceylon located at APCs have access to funds from the Central Bank ofCeylon on favorable terms for maki.ng loans to creditworthy farmers. Aserious gap in the credit system has been the lack of medium-term credit onsuitable terms to purchase draft animals, machinery and equipment and makeimprovements in land and water resources to build up the production capacityof their farFms. The agricultural credit system needs considerable tighteningup. Supervision of seasonal credit has to be improved to increase repaymentperformances; greater efforts have to be made to collect overdues; the prac-tice of periodically liquidating farm credit indebtedness must be stopped andGovernment should publicize its intentions.

4.10 Paddy storage, processing, transport and rice distribution isnot satisfactory. The quality of rice is poor and losses in handling andmarketing are high. The Paddy Marketing Board (PMB), eablished in 1971,has the monopoly for purchasing paddy from farmers at guaranteed prices.Paddy is procured on behalf of PMB through about 4,000 multipurposecooperative purchasing stations. PMB is responsible for transport, storageand milling of paddy in its own or in private mills. It also has themonopoly for the purchase and supply of mill spares to the private sector,a task which is limited by lack of foreign exchange. Improvements in

- 35 -

marketing facilities and organization are badly needed and Government should

give priority to the implementation of improvement programs in hand by PMB.

A reduction in losses of paddy and rice handled oy Pr shioulU contribute

markedly to Sri Lanka's self-sufficiency drive for rice.

Potentials

4.11 Sri Lanka introduced high-yielding varieties (HYVs) capable of

yielding 90-100 bushels (4,000-4,500 lbs) per acre compared -with 50 bushels

(2,250 lbs) for the old standard varieties recommended by extension services.

In 1973/74 these HYVs were grown on 82% of the Maha acreage. But there is

need for adopting better cultural practices including more timely planting,

weed control, and more effective water management practices to exploit the

benefits of HYVs. Because of management and input constraints there is

a general trend towards returning to the older improved varieties with a

somewhat lower maximum yield potential but also lower demand on management

and inputs than have the latest HYVs.

4.12 There are potentials for expanding the harvested acreage of

paddy du'ing the Yala season in the dry zone. This will require addi-

tional farm power so that Maha paddy can be planted earlier. It also

needs considerable expansion of extension services to demonstrate to

farmers how yields can be increased in both the Maha and Yala seasons and

how water management and cultural practices can be improved to expand the

acreages of paddy and other crops during the Yala season. Finally it

requires investments to improve storage, irrigation, and drainage facilities

and larger expenditures for operation and maintenance to conserve water for

use during the Yala season.

B. Subsidiary Crops

4-13 Other annual food crops and miscellaneous crops such as tobacco,

betel, arecanuts, fruits and vegetables have a total annual value about

equtal to paddv. Expansion in production of chillies, onions, potatoes, and

pulses has been encouraged by import bans which caused their prices to

rise considerably exceeding CPS levels. Imports of Bombay onions and

potatoes were banned beginning in 1972 and there were no imports of these

crops, or chillies, maize. beans and peas in 1973. Imports of vegetables,

other food crops and currystuffs declined from US$27 million in 1970 to

US$9 mllion 1n 1974 (Table 2.4).

4.14 The total acreape of annual subsidiary food crops increased from

466,000 acres in 1970 to 675,000 acres in 1973 (Table 4.2). Some of the

Increased acreage of subsidiarv crops Drobably resulted from shifting

land from paddy to other crops. However, expansion in domestic production

of chillies, onions, -ulses, and potatoes has not been sufficient to offset

reduced imports thereby causing some declines in per capita supplies.

- 36 -

Expansion of subsidiary food crop production is being encouraged as part

of the Food Drive Program.

Table 4. 2: SUSUIDIAY AT1TTT FOOD CDOP ACPEAGES

('000)

1960 1965 1970 1971 1972 1973

Chillies 31 49 49 58 85 112

Red Onions 14 15 17 17 21 21

Maize 47 29 47 44 50 94

Kurakan 88 65 52 52 53 73

Cowpea 8 9 10 10 14 13

Greengram ii 17 9 8 11 18

Groundnuts 2 8 13 11 16 19

Guigelly 35 27 30 28 33 26

Sweet potatoes 31 34 39 37 36 60

Potatoes 1 2 8 8 9 9

Manioc 113 131 147 167 146 178

Sugarcane 12 18 36 n.a. n.a. 28

Others /a 22 25 9 13 18 24

Total 415 429 466 (453) (492). 675

/a Includes sorghum, mennari, turmeric, mustard,

and ginger.


4.15 There are large potentials for expanding output of these crops

and livestock products mainly in the dry zone by four methods:

(a) growing cowpeas, greengram, blackgram, chillies, soybeans,

dwarf sorghum and groundnuts as Yala irrigated crops on

rapidly draining soils with the help of tank irrigationschemes;

(b) extension of rainfed cultivation of chillies and dwarfsorghums through the use of new high-yielding varietiessoon to be released from experimental stations;

(c) stabilization of chena cultivation through the use of

new cultural methods including the use of fertilizer and

better control of weeds and erosion; and

(d) development of dry land to produce forage and pasture to

increase cattle and draft animal numbers.

4.16 There also are notentials for expanding crop production in the

wet zone on marginal tea and rubber land. It is estimated, for example, that

'21- 31 -

there are about 160A000 acres in the mid-country tea and rubber areas ofthe wet zone that could be developed for crops, forage, pasture, and forestproduction -

C. Sugarcane

4-17 Sri Lanka h1-as bLLeen importing 250,000 to 280,000 tons of sugarannually but imports were cut back to only 100,000 tons in 1973. Importsdur4ing Jan.Ua;-.TUy 1974 were only 34,500 tons ascompared to 81,100 tonsduring the same period of 1973. But the cost of imported sugar rose toUS$49 million i.n 1973 comare'U wiLth *uS$31 miliion in 1972 due to higherprices. Because of high sugar prices, farmers are encouraged to growsugarcane for making Jaggery and treacle especially in the intermediaterainfall areas around the wet zone. Two sugarcane plantations operatedb-, the Srl Tanz Sugar Corporation produce about 12,000 tons annually.Both plantations suffer from lack of water and equipment. Kantalai plan-tation will receive water from the Mahaweli Project by late 1975. Bothplantations could substantially increase sugar production if equipmentfor improvement of existing drainage and of irrigation systems and fordeveloping new land would be made available.

D. Recommendations

4.18 Policy measures recommended to improve performance in the foodcrop subsector include:

(a) phased reduction of the subsidy on fertilizerfor paddy, tea, coconuts and minor export crops.If possible, rationalization of fertilizer pricingshould become effective for the Yala season of1975. Until complete abolition of the subsidyis achieved, a reduced standard level of subsidyshould be applied across the board to all fer-tilizer distributed in Sri Lanka 1/ (para 3.24);

1/ However, given the heavy burden of taxes, levies and cesses carriedby the tree crop industry (Chapter V) any reduction of fertilizersubsidies should be accompanied by a parallel reduction in chargesimposed.

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(b) implementation of production oriented extensionprograms linked to packages of practices developedfor the various agro-climatic regions of Sri Lanka.Specifically, plans recently designed by theDepartment of Agriculture for reorganization ofagricultural research, extension and trainingshould be put into practice and the necessarybudgetary support should be provided (paras 3.07,4.03 and 4.12);

(c) assessment by the Ministry of Agriculture ofmedium and short term farm draft power needsand Drenaration of a long term Government pro-gram for solving farm power problems includingplans for increasing mechanical power and avail-ability of draft animals and hand implements,snecifically mamoties. Imports of 4-wheeltractors and provision of improved mamotiesshould be considered in order to arrest thepresent deterioration in the supply of farmpower (paras 4.05 and 4.12);

(d) fo-milnatinn nf a nroQram for imoroving the useof existing irrigated land by carrying out minorphysical imn-rovemen.ts and hpttpr maintenance ofirrigation and drainage systems. This would4mply reequipping then Tezrrjtor4-al r4vil Enginee-r-Mr- --- PP--1

ing Organization (TCEO) of the Ministry of Irri-gation, Power and Highways. Funds rnl1r-ted

through water charges, to be introduced in early71975, shold be suficent to coveroprtn

and maintenance of irrigation networks with anysurp'luses being employed f:or- rehabilitatior of

existing irrigation schemes (paras 3.21, 4.03anu q.U4 anuU

(e) Lmprovement of' Afar-m credit programs to achievebetter collection performance. Any furthercancelling of debts iacurred by farmers shouldnot be considered and this decision should bewidely publicized. Increased emphasis shouldbe placed on production and development lendingthrough the Bank of Ceylon and the People's Bank(para 4.09).

4.19 Transport, storage and milling facilities for paddy, particularly

those managed by the PMB need to be improved so that losses and wastes in

the marketing system are reduced (para 4.10).

- 39 -

4.20 There is need for improving coordination and cooperation amongthe numerous agencies that make up the complex network of governmentinstitutions and organizations concerned with agriculture at the national,district, and local levels.

V. TREE CROPS: PERFORMANCE, POLICIES,POTENTIALS AND RECOMMENDATIONS

A. Tea

Recent Performance

5.01 The gross acreage of tea has remained almost stationary at alittle under 600.000 acres during the last decade (Table 5.1). Yieldsper acre and production have declined slightly. The gross acreage in-cludes about 100,000 acres not well adapted for tea. Due to poor re-turns to tea cultivation and general insecurity of tenure, much tea landhas deteriirated. The 1972-76 development plan called for replanting7,500 acres annually. Planted with available high yielding clonal mate-rial vields of 2,000 lbs per acre at maturity could be expected, morethan double the present national average. But only 6,400 acres werereplanted in 1972 and only 5,900 in 1973, due largely to the generallydepressed situation of the industry. The present plan target for produc-tion in 1976 is 550 million lbs but under given conditions it is veryunlikely that this can be reached.

Table 5.1: TEA: PRODUCTION, ACREAGE, YIELDS, GROWER PRICESAND PRODUCTION VALUE, AND REPLANTING

Est. Target1963 1970 1 _ - IL7 1973 1974 1976

Production, mil. lbs 485 468 480 471 466 453 486Gross acreage, thousand 591 597 597 599 599 599 -Yield per acre, lbs 820 784 804 786 778 756 -Prices, Rs/lb /a 1.89 1.72 1.80 1.98 1.98 3.25 -Current value, mil. Rs 917 805 864 932 923 1.472 -Replanting, thousand ac - 6.9 6.6 6.4 5.9 4.7 7.5 /b

/a Prices derived by dividing current value by production.

/b Annual targets for 1972-76.

Source: Department of Census and Statistics and Ministry of PlantationIndustries. Mission estimates.

5.02 Profits of tea growers have been low in recent years due to lowworld market prices and high taxation. Grower nrices (before export taxes,cesses, etc.) averaged a little under Rs 2.0 per lb during the 1960s andearly 1970s but increased to record levels of Rs 3.25 per lb during the

- 40 -

first half of 1974. However, production costs have also risen greatly inthe last two years due to higher prices for fertilizer, vehicles, fuel,

labor, and other items. Moreover, growers have been faced with acute

shortage of fertilizer, pesticides, and foreign exchange to purchase

tractors, spare parts to maintain vehicles and tea factories, and many

other input items which limit the capacity of the industry to maintain

output at recent levels. There is urgent need for increased capital in-puts requiring considerable foreign exchange allocation, to maintain out-

put and build up capacity for expanding future production.

Policiesad Progrms

5.03 Basic Government policies affecting the tea industry have not

changed significantly since 1971. 1/ They consist of an intricate system

of taxation and subsidies in itself not inducive to development. An

assessment of possibilities to lessen the financial burden of the tea,rubber and coconut industry is needed to encourage reinvestment. Of

basic importance have been the implementation of the Land Reform Lawand the introduction of the Tea Control (Amendment) Bill (Chapter 3,

B and D). 2/

5.04 A rebate scheme on export taxes for tea sold at the Colombo

auction market, but not on tea sold at the London auction market, was

first initiated in 1958 when prices slumped. Rebates, on a slidingscale, are presently paid for teas fetching between Rs 1.60 to .2.19/lband ranging between Rs 0.20 and Rs 0.01/lb. The Scheme can have the

undesirable effect of supporting tea of only medium quality, althoughthere is, as yet, no evidence of this.

5.05 High taxation of company earnings is a further disincentive to

investment and nroduiction in the tea industry. The standard income tax

rate for resident companies is 60% while 33.3% of dividend value is withheldpending income tax settlement, The rate for non-resident companies is 60%

on taxable income plus an additional 6% in lieu of the estate duty. When

non-resident companies make remittanrpe they are subiect to a tax amounting

to one-third of the remittances or one-third of taxable income depending

upon whl-ich- 4is largest. 3/

Problerusand Prospects.U II LL.L _ -JJ

.06.U The te Lira.dutyi haatrzdy th predoinnc of esate…

Prior to the implementation of Land Reform, holdings of 500 acres and more

accounted for 46% of tea land but only 2.67% of the total number of tea

1/ These are described in detail iLn the VoluLme TTT of Agr4cultural Sector

Survey, Republic of Sri Lanka, Report No. PA-134a, February 8, 1973.

2/ Exports of tea, rubber and major coconut products receive the official

exchange rate and are denied FEEC's resulting in lower returns to the

producer than otherwise would be the case.

3/ Dividends exported are in addition subjected to rFEC's charges of 67%o.

- 41 -

holdings (Appendix Table 8). Privately owned estates which accounted

for 27% of tea land (Table 5.2) were subject to Land Reform Law of 1972

(paras 3.08 to 3.13). Between enactment and final implementation of

the Law (August 1972 to August 1974), management faced complete uncertainty

as to the final allocation of land between government and remnant estates,

consequently reducing investment. The more than 135,000 acres of tea land

finally taken over under land reform (about 23% of total tea land) still

suffer from management uncertainties which will result in decreased production.

This does not imply the suggestion for complete tea rehabilitation as some

estates taken over under the Land Reform Law have only marginal potential

for tea and should be subject to crop diversification schemes. The

uncertainty about land tenure as perceived by the company estates also

continues to discourage investment in that sector and to limit output. A

clearcut Government policy statement on the future of estate land is

required to overcome the current stagnation in the tea industry.

Table 5.2: OWNERSHIP OF TEA LAND. 1971

Percent

Sterling company estates 28.8Rupees company estates 25.6Privately owned estates /a 27.2

Government estates .7Smallholdnings (less than 10 acres) 17.7

Total 100.0

la aiinly owned by Cey-lonese and subie t

to Land Reform Law.

Source: Ministry of Plantation Industries.

5.07 Sri Lanka needs to expand tea production sufficiently to

maintain i ts share of the world export market which is -rowino at about

2.2% annually. The production target of 550 million pounds set for 1976

would achieve this but it is un.likely that the target will be meta Tea

production should be concentrated on land most suited for this purpose

and producing tea with a known market potential. In the re-organization

of the tea industry some 100,000 acres, largely in the mid country, could

eventually be phased out and used for food crop, forage or other agricultural

production with greater returns per acre than tea presently grown there.

Such a diversification program will need to be coordinlated with an accelerated

replanting scheme in the highland area and in those parts of the mid and low

country where tea will remain the most suitable crop. However, a large

replanting program might reduce production, export earnings, and export

tax revenue in the short run. Nevertheless, it is essential to expand re-

planting and rehabilitation programs to build the basis for increased and

more efficient production on less land in the future. Meanwhile, steps

should be taken to increase yields by utilizing more fertilizer and apply-

ing other improved practices. Fertilizer consumption oni tea declined from

- 42 -

43,000 tons of plant nutrients in 1965 to 33,000 in 1971 and to only 24,000

in 1973 (Appendix Table 7). Tne recent decline in fertilizer use on tea is

partly due to the generally depressed situation of the industry but also due

to the high priority placed on fertilizer use for food crops. The trans'Ler

of fertilizer from tea to other crops has been at the cost of lower tea pro-

duction and export earnings.

5.08 The tea smallholder sector (holdings of 10 acres or less), account-

ing for around 18% of all tea land, is particularly poorly developed. Yields

of smallholder gardens are very poor and quality often mediocre. Many small-

holders consider their tea bushes as a reserve crop to be plucked in times

of cash need. To improve the situation extension services, practically non-

existent, would have to be built up. Special efforts would also be required

to provide for a closer link between the Tea Research Institute (TRI) and the

extension services. To encourage replanting of smallholder gardens consider-

ation should be given to introducing a credit scheme for replacement of loss

of income during the replanting period in addition to the replanting subsidy.

5.09 Other important factors affecting future growth of the tea indus-

try include actions to assure an adequate labor supply in highland tea

areas, provision of foreign exchange for the purchase of additional spare

parts for operation and maintenance of tea factories, improvement of trans-

port facilities, and strengthening of research and extension generally. Tea

estates in highland areas depend mainly upon Tamil people from India for

workers. Repatriation of a large share of these people is planned for the

next few years. 1/ They will need to be replaced by Ceylonese people who

generally are reluctant to move to highland areas where housing and otherliving conditions often are poor. Government intends to assist in improving

housinR facilities on estates and a special committee is looking into possi-

bilities of increasing labor mobility-.

B. Rubber

Recent Performance

5.10 Rubber production increased considerably during the 1960s as large

areas re-!a.nted or newly nianted during the 1950s reached tapping age

(Table 5.3). However, depressed world market prices during most of the1960s and later the general sense of insecuritv of tenure amongst estates

led new plantings and replantings to decline causing production to leveloff inr the early 1970s. HiHgher prices in 1973 and most of 1974 encouraged

1/ Under an agreement between Sri Lanka and India, 60% of the Indian

iAm.igrant laborers are to be repatriated and about 40% are expected

to opt for Sri Lanka citizenship. About 45,000 people will be re-

patriated annually in the next few years. Estates are required to

pay transport costs and retirement gratuities.

- 43 -

intensife'e an' slaughter tappir.g of old rubber tesbiinl abott±IL "I.L ±U diU L±U LiLL. La.JJ&il AJ. IJL

temporarily higher yields per acre and increased production. The effectoU recent declin of ruuuer prices on proAuction re.m.ins to be see-

p--11nL A(IrA~t' VT VT TNQ r1DAL?TVVTabie 5.3: R uDnnBE RA PROUUCIO.NL, UACRt GE, Y D R

PRICES AND PRODUCTION VALUE AND REPLANTING

Target1963 1970 1971 1972 1973 1 9 7Ih T arge

Production, mil. lbs 231 351 312 309 341 350 376Gross acreage, thous. 676 569 569 567 565 563Yield per acre, lbs lb 440 707 657 658 694 701Prices, Rs/lb /c .98 .96 .82 .93 1.39 2.75Current value, mil. Rs 226 337 256 287 474 1,032 Replanting, thous. ac 15,912 10,239 8,477 8,742 7,276 10,000 13,000 /d

lb Mature area only.

/c Prices derived by dividing current value by production.

/d Annual targets in 1972-76 plan.

Source: Rukbber Control Department

5.11 Al ough a t-oa-l of about, 675,000 acres is reicistered as rubber* I I rL"LUUtIL .L. a t alI. _ a bout 6,5- …

land by the Rubber Controller's Department, the actual area under rubberhas declined from 676,000 acres in 1963 to 565,000 acres in 1973= TheRubber Controller's Department estimates that another 70,000 acres aremargirLal or subm.arginal f.or ruibber so th-at4 on- lyinit- a nnu 50000 ar-e of

the registered rubber acreage is well adapted for rubber.

5.12 The rubber industry is not as strongly dominated by the estatesector as is the tea industry. In 1973 there were more than 1 50MOOOsmallholdings of less than 10 acres accounting for 32.4% of the totalacreage in rubber (Table ,./4). n es- smallho1Aings average orly 1.4 acres

in size. In addition, there were about 6,300 holdings with 10-100 acresaccounting for 24% of the total rubber acreage and averaging 25 acres insize.

Table 5.4: NUMBER AND AREA OF RUBBER HOLDINGS BY SIZE CLASSES, 19730, -- - - ,T..,-- AJ...._ A.-. ~ P Unl1A

4-.,Size Ciass nUlU±iLgs AM rea of --- 8 a

Acres Number Percent Acres Percent

1 - 10 152,343 95.6 214,489 32.7o - 100 6,282 3.9 1 4,.78 23.6

100 - 500 617 .4 136,142 20.8Over 500 171 .1 150,711 22.9

Total 159,413 100.0 655,920 100.0

Source: Rubber Controller's Department.

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Policies and Programs

5.13 Government policies and programs affecting the rubber industry

are similar to those for tea in many respects. Exports are heavily taxed.

In the first quarter of 1974 handling charges and export taxes amounted to

about 50% of f.o.b. export price so growers receive only about 50% of the

export value. 1/ Export duties are on a progressive scale, reaching 80%

of incremental price increases when export prices exceed Rs 2.43/lb. Rubber

estates are subject to the company taxes described earlier for tea (para

5.05). Cesses are collected to finance research and medical services for

estate workers.

5.14 There is no cess for rubber replanting as in the case of tea,

but its introduction is under consideration. In 1953 Government introduced

the Rubber Replanting Subsidy Scheme (RRSS) financed entirely from government

revenue under which subsidy payments of Rs 1,000/acre for smallholders and

Rs 700/acre for estates over 100 acres were made for replantings or new

plantings. When plantings fell behind targets, these subsidies were

increased in 1967 to Rs 1,500/acre for holdings below 100 acres and Rs 1,400/

acre for those over 100 acres and in 1974 to Rs 2,000/acre for all producers.

The area of new plantings and replantings from 1953 through 1974 totals

340,000 acres. However, the acreage of new plantings and replantings

declined from a record high of 27,002 acres in 1957 to only 7,276 acres in

1973. The reasons for the unsatisfactory performance were the poor returns

to rubber production partially due to low world market prices and partially

to high taxation, the general insecurity of tenure and increases in costs,

e.g., replanting costs between 1969 and 1973 rose by 50% from Rs 1,645 to

Rs 2,475 ner acre.

5.15 The noor reDlanting record has caused young high-yielding trees

to account for only 51% of all estate rubber and for 57% of smallholder

rubber in 1973. In order to achieve a replanting cycle of 33 years, a

temporary acceleration of replanting to about 25,000 acres annually would be

required but management considerations and the loss of foreign exchange alone

seem to preclude replanting in excess of 15,000 acres per year.

5.16 Privately owned estates were faced with the same uncertainty as

ea est-t,es after enactment of the Land Reform Law of 1972 until August

1974. As pointed out earlier, 83,000 acres of rubber land or 15% was taken

over under the Tand Reform Law (para 3.08). The delay in delegating final

management responsibility (para 3.13) must affect production adversely.

There is also a need for a precise Government statement as to the future

of company owned rubber estates in order to encourage replanting and

1investment.

1/ See footnote 2, para 5.05. It should be noted that the share growersreceive of the export price varles as export prices change because

export levies are on a sliding scale.

- 45 -

5.17 Government is sponsoring a Group Processing Centers Scheme (GPCS)for processing small holder latex into Ribbed Smoked Sheet (RSS). About100 Group Processing Centers (GPCs) are to be established. They usually arecentered around cooperatives. The Rubber Research Institute of Ceylon (RRIC)provides financial assistance in the form of a grant of Rs 7,500 and a creditof Rs 12,500 through its extension service. At the end of 1973, 26 centerswere in operation each serving 25 to 75 small holders. Sheet rubber fromGPCs is marketed through private dealers licensed by the Rubber Controlleror sold directly to the Commodity Purchasing Department of the MFIT. Thisprogram merits additional support. To further assist small holders creditarrangements to replace income foregone during the replanting period shouldbe considered.

Problems and Prospects

5.18 World consumption of all rubbers is projected to grow at an annualrate of 5.7% from 1972-74 to 1980. During the same period demand for naturalrubber is projected to increase by 5.6% per annum against a projected pro-duction growth of only 5.2%. Consequently prices for rubber until 1980 andeven until 1985 are projected to remain on average favorable and above thedepressed 1972 levels. Recent price movements have been erratic, reflectingdemand uncertainties in North America and Europe. After peak prices inJanuary 1974 prices declined sharply during the third quarter of 1974 butby November had rallied again. 1/

5.19 Government is strongly promoting processing of latex intospecialized rubber such as latex crepes in order to corner a particularmarket for Sri Lanka in spite of the country's limited share of the worldrubber market. In view of the constantly fluctuating price levels fordifferent rubbers this policy should be kept under constant review.

5.20 The 1972-76 development plan called for replanting 15,000 acresannually and a target production of 376 million nounds for 1976. Althoughprofits have increased with higher prices in 1973 and most of 1974, it isdoubtful that the 1976 target can he reached unless nupnlies of ferti1iz.Pr

and other inputs are increased. Fertilizer use declined from 22,000 tonsin 1965 to 16.000 tons in 1970 and to 19-000 tons In 1973. Th. RPRTrecommends that on average 295 lbs of fertilizer be applied annually peracre over a 33-year evce;: thin wotldt retiuire 72 O000 tons of fert414ier-

annually for the 500,000 acres considered suitable for rubber production.

1/ Price movements for Ribbed Smoked Sheet I (RSS I) at the Colombo auction:

Average 1972 Rs 0R8077/bJanuary 1974 Rs 1.41/lbJulY 1974 Rs 1 .23/lbOctober 1974 Rs 1.20/lbNove-- er 41974 we I 7/l

5.21 Due to lack of foreign exchange the rubber industry has been faced

with shortages of transport facilities, spare parts and other inputs required

to expand output. To partly offset this Government is considering the

introduction of a factory rehabilitation scheme and provision of some foreign

exchange to replace transport. The RRIC does not have sufficient laboratory

equipment and the transport facilities to carry out extensioon work for small

holders.

C. Coconuts

Recent Performance

5.22 Coconut production has fluctuated from year to year but dropped

drastically in 1973 due principally to adverse weather (Table 5.5). Domestic

Consumption of coconut products has increased gradually with population growth

and supply shortages of other foods leaving less for export. Exports of

copra and coconut oil were banned in 1973 due to the small crop causing

export earnings from major coconut products to decline from Rs 263 million

in 1972 to Rs 142 million in 1973. However export earnings during the first

seven months of 1974 more than tripled over those of the same period 1973

(Rs 194 million against Rs 63 million).

5.23 Coconut is mainly a small holder crop with holdings under 5 acres

accounting for 35% of the total acreage. Holdings of less than 5 acres

produce mainly for home use. The bulk of commercial domestic and export

supplies comes mainly from about 37,000 holdings averaging about 23 acres

in size and covering 65% of the coconut land.

Table 5.5: COCONUTS: PRODUCrION, YIELDS, GROWER PRICES

AND PRODUCTION VALUE, AND REPLANTING

Est. Target

1963 1970 1971 1972 1973 1974 1976

Production. mil. nuts 2,549 2,447 2,682 2,979 2,000 2,350 3,000

Yield per acre, number 2,213 2,154 2,328 2,585 1,736 2,040 -

Export value, Rs/nut /a .10 .27 .27 .21 .34 .74 -

Current value, mil. Rs 255 661 724 625 680 1,739 -

Replanting, thous. ac 23 24 23 19 14 13 25/b

/a Derived as basis of export values for production.

/b Annual targets in 1972-76 plan.

Source: Department of Census and Statistics and Ministry of Plantation

indus tries.

- 47 -

5.24 The coconut processing industry has many poorly equipped mills.There are 60 oil extraction plants mostiv small orivate units and only 10with capacities exceeding 10,000 tons a year. Two solvent extraction plantsare out of operation due to lack of re-air but also due to problems of ob-taining sufficient raw materials. There are 80 desiccated coconut mills buton.ly 68 are operat4ng. Th--- also are approximate1v 700 -nir mills;, mostly

'.1U&t 'JtPa. a Jj,a,a~.L. . .*~* ~~rr- ---- -_ -- __ __

small private units which also lack spare parts and adequate supplies ofraw materials.

Po'liciLes an.d Programs

J~~I .2-si.tecD ftaadrber, duties are levied on ex.portsIr.j s'Lnthe case of te n- ub- -r ---4a - ..- ut

of copra, coconut oil, and desicated coconuts. Duties are on a slidingscale rising witl tle auctiLon prLce of 1. LL.Lppires copra o the London

market.

5.26 Government took steps to improve the coconut industry by passingthe Coconut Development Act in 1971 which established a Coconut Developmer.t

Authority (CDA) with broad responsibility for formulating policies to developthe industry and utilize coconut land more effectively. Four subsidiaryorganizatirns were set up in 1972: the Coconut Cultivation Board, the Coco-nut Processing Board, the Coconut Research Board, and the Coconut MarketingBoard. A Fertilizer Subsidy Scheme, first introduced in 1956, is carriedout by the Coconut Cultivation Board. The Coconut Researcn Board supervisesthe Coconut Research Institute (CRI) which has responsibility for researchand distribution of seedlings at subsidized prices. The Coconut ProcessingBoard supervises government programs to provide financial assistance toprocessing mills but does not command sufficient foreign exchange to do soefficiently. The Coconut Marketing Board has operated a Price StabilizationScheme for coconut oil since November 1973 under which it purchases oil at apredetermined price.

5.27 The Fertilizer Subsidy Scheme has not been successful in increasingfertilizer use despite a subsidy covering 50% of the cost of fertilizer togrowers. Fertilizer use on coconuts under the scheme declined from 63,000tons in 1968 to 58,000 tons in 1971 and to 46,000 tons in 1973 to some extentdue to drought conditions. The CRI recommends that 576 lbs of fertilizer beapplied per acre per year but average rates amount to only 16% of theserecommendations. Many growers are reluctant to use fertilizer because yieldsdo not increase until two or three years after it is applied, and growers donot have funds to finance fertilizer use.

5.28 The program for distributing improved seedlings by the CRI hasresulted in planting an estimated area of 322,000 acres since 1956, almost30% of the total coconut area. Selected seedlings are sold at Rs .50 perseedling compared with a production cost of Rs 1.00. The CRI also distri-butes some hybrids capable of achieving high yields but supplies of these

seedlings are limited and only 40,000 acres have been planted.

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Problems and Prospects

5.29 The market oriented section of the coconut industry, i.e., planta-tions over 25 acres, was particularly strongly affected by land reform. Atotal of more than 115,000 acres of coconut land were taken over, equivalentto 10% of the total area under coconuts but representing 28% of the areaunder larger (25 acres and more) market oriented crop land. The finaldecision on the future use of this land is still outstanding; it should betaken urgently to avoid unnecessary production declines. It can be expectedthat most of the area taken over is to be used for settlement schemes,cooperative ventures or village upstocking. Even if production per acrewill be maintained it must be expected that output for the processingindustries will decline due to larger 'on farm' consumption. An addedconstraint to production expansion is the increasing tendency to harvestcoconuts prematurely, primarily as a safeguard against theft. The immaturenuts reduce not only yields per acre but also conversion rates whenprocessed.

5.30 Smallholder coconuts, i.e., holdings of less than 10 acres, ac-count for 50% of total coconut land. Most of the small holdings are poorlymaintained with- either too many or too few palms per acre. Palms arefrequentlv senile and cultivation Dractices completelv inadequate. A recentsurvey 1/ shows that only 8% of small holders do any weeding and only 9%rio anv regular planting. This is largely due to lack of effective extensionservices. In the survey referred to above, 72% of the small holders inter-vicwed said they had never been visited by an extension worker. The exten-sion service was recently transferred from the CRI to CCB, but it has onlyahout 75 evtiens1in workers, boiit one per A-no0 sqmAll holders Imnrovements

in its quantity, quality as well as supervision and mobility are needed.

5.31 As in the case of tea and rubber there are considerable potentialsfor increasing coconut production per acre through the use of improveds eed-lings, larger fertilizer applications and improved cultural practices. Sur-veys m.ade by CRI indicatte that 270,000 acres, nearly one-third of the coconut

area, would be suitable for replanting with hybrid varieties capable of.. :1 .4_ 4 w, #-I, A@ -8_ ..F 1 A-e._;y nCgU L 6, U, iuts per aMC- C W1UCLe mnaL.ureC comlpareCd W L .L .a a v ab.

around 2,200 nuts per acre at present. In addition, other improved varietiesare available whichL coulU double yields on m,.ost ofL LthJ..e remainir.g 875C.,000

acres in coconuts. However, supplies of planting materials, fertilizer,aniud othLer inputs wouLdU nieedU to be iLnLcreasedu to achiLeve an anLnuadl replantingtarget of 25,000 acres.

5.32 Rejuvenation of palms on small holdings poses a special problem.Small holders are reluctant to uproot palmsI and because Uf the generally

1/ Smallholdings of the Coconut Triangle Agrarian Research and TrainingInstitute, Colombo. December 1973.

- 49 -

unorganized way in which small holdings are planted, systematic under-planting is frequently not possible. Government support is manyfold andincludes the aforementioned distribution of fertilizer and planting materialat subsidized rates as well as a Coconut Rehabilitation Sih-sidv Scheme forSmall Holders. Under this scheme Government provides for subsidies fordrainage construction. filline of vacancies and removal of excess palms.The success of the scheme is limited by the lack of extension services.In any case, the scheme is not design-ed to promote organized rejuvernation.Credit programs to help growers finance replanting and to assist smallholders in overcomina consequent temnnrar- lack of income should be considered.

533 Sphcial emphasis is being given to expanding food crop productionby intercropping and undercropping of coconut land. Various incentives aregiven includin- distribution of seed. Also, there is a subsidy sc'em-e 'orthe establishment of pasture and forage under coconuts. Annual crops,forage, and asture ca wnbg n dur4ng the first 7 years after patngand also in the years when the palms are fully grown and permit sunlightpenetration. During at least 18 years of a normal planting cycle, thepalms' canopies should be too dense to allow undercropping. Additionalfertilizer application and sufficient m-anLagement skill are required toassure continued economic yields of coconuts as well as yields of under-cropped food crops, forage an,U pasture.

D. Minor Export Crops

5.34 Sri Lan1KA produces nu-merous minor export crops. The most importantare cinnamon, cardamon, citronella, cocoa, pepper, cloves and nutmeg. TheM'nor Export Crop Department of the MPI has been carrying out a Minor ExportCrops Assistance Scheme since September 1972 under which long-term loansare rmsade to growers through the People's Bank, free planting materials andagro-chemicals are also made available, and farmers receive fertilizer atprices subsidized by 50%O for most crops. In spite of the supports offeredactual planting performance was rather poor; during the first two years ofthe Scheme's operation only 4,320 acres were planted to different crops andof these more than 2,300 acres to cashew as part of a government scheme.Considerable emphasis was placed on introducing a domestic silk industrybut against a planting target for 1973 of 1,000 acres of mulberry actualachievements were only 28 acres.

5.35 The most probable reasons for the poor performance have been thelack of efficient marketing services, central and extension staff, experi-ence and equipment for the Minor Export Crop Department and once more thegeneral insecurity of tenure. Expansion of minor export crop cultivationiS largely dependent upon the estate sector. Under the Land Reform Lawnearly 8,000 acres of cardamon were taken over; this represents around 75%of all land under this crop. The quantitative increase in exports of thesecrops between 1970 and 1973 is probably primarily due to maturing of exist-ing stands and the nearly doubling of export earnings to sharp increases inworld market prices.

- 50 -

E. Recommendations

5.36 Recommended government action to improve the performance of thetree crop subsector is:

(a) a detailed evaluation of the taxation, leviesand subsidy systems affecting tree crops withthe aim of encouragine replanting and generalinvestment in the industry but bearing in mindSri Lanka's budgetarv reauirements (Chapter IIIand paras 5.03 and 5.14);

(b) reorganization and strengthening of extensionservices in the tree rrnn suib-sector particu-larly those for coconut smallholdings. Thisshould be combiined with supnnort- tn the ernpresearch institutes (paras 5.08, 5.30 and

(c) very urgent preparation of a production; in-

vestment and management (including possiblediversification.) plan for all land affectedby land reform including land both in privatead public hands. 1/ This plan would need tocombine social objectives with productivityconsiderations. Plan deS4gn anA executiorwould require joint efforts by the MinistryoL' Agriculture ar..d. U La.uds andL th Lte Minstry ofPlantation Industries and may call for outsidetechnical assiLstance h (paras 3.12, 3.13, 5.06,

5.16 and 5.29);

(d) general improvement of the investment climatethrough a clear statement by Government as tothe future of the estate sector and as to thetiming and mode of compensation for land takenover under the Land Reform Law of 1972 (paras3.11, 5.06 and 5.16); and

(e) provision of more foreign exchange to enablereequipment of processing and transport facili-ties (paras 5.02 and 5.21).

5.37 National economic development programs should give higher priorityto expanding output of tree crop products to take advantage of opportunitiesto increase export earnings. There is danger that production capacity of

1/ Since preparation of this report Government has evolved plans for themanagement of land taken over under land reform.

the tree crop subsector will decline in the next few years unless replantingwith high-yielding materials is increased and other steps taken to increaseyields, the long standing mutual mistrust between the plantation sector andGovernment is reduced through formulating a clear land policy, and improve-ments are made in processing and marketing facilities.

VI. PROJECTS AND PREEINVESTMENT .REQUIREMENTS

6.01 Systematic project planning and implementation in the broad fieldof aericulture is stil1 rather weak in Sri Lanka. While the individual subl=ject matter ministries have primary responsibility for project identifica-tion and basic nrepnaration, the Ministry of Planning and Economic Affairsthrough its National Planning Division has final responsibility for formu-lating nroniects. The effectiveness of this procedure is limited by lackof experience and of staff; there are less than 6 agricultural economistsin the whole country.

6.02 ioreign assistance to Sri Lanka has been in the form- of projectassistance, technical assistance and commodity aid. Bilateral support haslargely taken the form of food and commuodity aid with some technical assis-tance. Project aid has been provided primarily from ADB and IDA; surveys,studies and training are provided primarily through UNDP and the ColomboPlan. The most important projects are shown in Table 6.1. The Five Year

lafor 1972197 projected an expenditure of Rs 3 billion on agriculturalprojects.

- 52 -

Table 6.1; AGRIC'ULTURAL PROjECTS FINANCED THROUbd FOREIGN AID

Source Type of Project Total Foreign Assistance(Rs million)

IBRD/IDA Mahaweli Ganga Development Project 172.620

IDA Lift Irrigation Project 11.900

it Drainage and Reclamation Project 14.881

It Dairy Development Project 58.197

ADB Uda-Walawe Development Project 51.131

"1 Gal-Oya Sugar Industry 18.336

of Rehabilitation of Sugar Project 0.291

Tea Factory Modernization Project I 11.900

it is " II" II 20.833

USSR Malwatu Oya Basin Scheme 0.871

Kalaniganga Basin Scheme 0.477

Kantalai Sugar Plantations 3.579

Hambatota Cotton Plantations 1.038

"t Tamankaduwa Cattle Breeding Proiect 0.897

Denmnrk Plant and Machinerv for Milk Project 17.084

Aust-rali an

MethodistChurch Grant fnr Sped Prnduc-tion & Cprtifirntinn Prniert 1=369

FordFoundation Rice Processing and Marketing Project 1.690

oource: Externall Resources Division, Ministry of Planning and Ecor.omicResources.

- 53 -

6.03 Successful project implementation in many fields depends uponchanges in agricultural policy. Government might find it desirable toobtain external assistance in implementing these new policies. Certainlysupport is required in training Sri Lanka staff to take responsibility forproject preparation.

6.04 Agricultural projects, fitting into the overall development pro-gram of the country and requiring external technical and financial assis-tance are described below:

6.05 Rehabilitation of Land Affected by the Land Reform Law of 1972.Around 1 million acres of land, largely under tree crops, have been affectedby the Land Reform Law of 1972. Recommendation (c) paragraph 5.36 urges theformulation of a development program for all land affected by the Law. Theimplementation of such a program might well exceed Sri Lanka's financial andmanagement resources. Land reform has led to fragmentation of land, new man-agement requirements based on settlement schemes and cooperative ventures,and possibly to diversification out of tree crops. This will require sub-stantial financial resources for infrastructure development, processing,marketing, extension and credit inputs. It can be expected that a seriesof land development projects arise out of the Reform (see Chapter III B).

6.06 Rehabilitation of Small and Medium Irrigation Schemes and Supportfor Mahaweli Stage II. Self-sufficiency in rice is one of Government'sdevelopment aims. This can only be achieved through better water manage-ment and the rehabilitation of small and medium irrigation schemes. Thelargest single irrigation development project will be Mahaweli Ganga StageII. Stage I, the construction of the dam and diversion tunnel, will becompleted by late 1975. The following Stage II will provide for irriga-tion to 71,000 acres in the North Western part of the dry zone. Invest-ment requirements, at Rs 9,000 acre, would include canals and distributionsystems, drains, jungle cleaning, farm development, settlement, farm credit,extension and marketing services, etc.

6.07 Diversification Out of Tree Crops. As indicated earlier (nara5.01 and 5.11) there are around 100,000 acres of tea land and 70,000acres of rubber land not well adapted to their nresent use. Most of thisland is in the mid altitude belt, 1,500-2,500 feet. The aim of a projectwould be diversification, based on ontimum land use. An FAO/UNDP nroni-e-tin the Kandy region has provided valuable basic information and backgroundmaterial. Investment requirements woulld be in general infrastructure, set-tlement, and the building up of all necessary services.

6.08 Rehabilitation of Agricultural Processing Industries. Agricul-tural processing industries are generatll small a-nd antiquated units pri-vately or cooperatively owned. They have long been suffering from shortagesof spare parts and repllacement-s dte to scarcity of foreign exchange; process-ing facilities for tree crops have also been affected by land reform. Anoverall nlan for rehabilitsti.ng the agricultural processing industry is re-quired. This would include consideration of amalgamation or relocation of

…rocessing capacity, parti4cularly in rlce; ntrouucti or new processing

- 54 -

techniques, particularly for rubber, and improvements in organization of rawmaterial supply and storage of raw and processed commodities, particularlyrice.

6.09 Rehabilitation of Coconut Smallholdings. Coconuts are growntn a large extent on smallholdines (para 5.23) and with land reform theirnumber will increase. Coconut cultivation on smallholdings is generallyof vrv Inw nqialitv (nara 5.30! smallholders being frenuently roncernedwith production of annual food crops and/or livestock as well. An inte-cgrated smanllhnlder develnnment nrniert nrnuldino innjutq for all eropA

grown as well as extension, marketing and credit services should helpimprove output per acrea Such a project would h-ave to suppor prmoinn

of high yielding planting material and improved processing. It could beenvisaged that a ,,,,mber olnol projects be developed.

6.10 Manufacture of Agricultural Implements and Toola. Because oflack of foreign exchange Sri Lanka has practically stopped importation ofagricultural 4mplem.ents anAt .ools anA pro...ed local n...ufacture. Supplyof these items is now insufficient in quantity, quality and varieties.Support would be required t1o expandA production thi'roughI iLntroduuciLng ne-wtools, such as simple hand weeders, and increase production of others,suclih as mamoties. It WoUld also requjLre a sys-teirL of4 quacl.Lty 'mprLUVeIU,LILand supervision and the development of new devices required by the agri-cult-ural sector, particularly smallholders.U..L&. ~.L~J.. ~ p L. AJ.L UL A. Ly I ..L&A LU~

I X | LL�Le:'LteLLtenL LXearLh aLlU Ext£t.LLLLULL DtUvJAeCb. GovernumenL s plans

to reorganize and strengthen research and extension in the food crop sectorare well cUnceived and merU t support. They should be expanded to the treecrop sector where research institutes are poorly equipped physically andlack staff; there are no agricultural economists in either the TRI or theCRI. Special support would be required for the development of plantingmaterial, particularly coconuts, and the coordination of studies into thelocal manufacture of rubber. Extension services throughout the agriculturalsector need vastly improved training, supervislon, equipment and mobility.

6.12 Sugarcane Production and Processing. Sugar consumption in SriLanka has been high but had to be curbed drastically because of foreignexchange shortages (para 4.17). The production potential for sugar isexploited to only a very limited extent. A substantial increase incommercial sugar production could be achieved in the short run throughassistance in land and irrigation development for the existing two Gov-ernment plantations. In the medium term establishment of new sugar pro-ducing schemes with their own processing plants should be considered.

6.13 Although the mission's terms of reference did not include fish-eries, there are substantial project possibilities in this subsector. Thereis a need to improve fishing harbors and fish marketing. The coastal fish-eries particularly on the east coast, require a substantial number of boatsand outboard motors. Finally deep sea fishing is completely underdevelopedbut has great potential.

- 55 -

6.t4 Prinr4pAl fre-inventment nroerams recuired for high priority in-

vestment needs to be realized include:

(a) preparation of an investment program for agriculturaldevelopmer ir. thwe dr 7zne hbAwed nn drv land farmin8

and irrigation;

(b) preparation of an integrated agricultural developmentprogram in the coconut area;

(c.) easi,bilit-y study ofO expansior. of cau=product40r. andprocessing;

(d) feasibility study of expanded use of Apatite deposits inthel north;

(e) preparation of prograwo Lfor increased lueep sea fshIng; an.

(I) a feasiDility study of new cUUnIceILLLaU sU-aL prLouctoLA

schemes.

APPENDIX TABLES

1. Imports of Selected Subsidiary Food Crops

2. Composition of Imports

3. Retail Market Prires for Seleeted Aericultural Products

4. Minimium Averace fnilv Waae Rates and Index Numbers

5. Registerad Pq land by Tenure Glase, 1971

6. rarinarntedi Pr4ig-q fnr Agricultural Products

7. Fertiliz7er Cr.nsauptint by Crops in Sri Tanka, 196;-19Q7'

8. Tea: Number of Holdi.s by S ize Classes

9. S4s~ Rubber: ~ t~ Nu.e flLSJ.tolfsby Size Classe

Appendix Table 1

IMPORTS OF SELECTED SUBSIDIARY FOOD CROPS

Bo0mbWay neu Deans anUYear Chillies Onions Onions Potatoes Maize Peas

1965 278.1 1,142.5 130.3 1,074.1 26 1,067

1966 358.3 1,020.2 104.9 1,219.6 26 1,699

1967 290.1 1,111.2 38.0 362.1 116 1,389

1968 351.8 928.5 25.0 9.5 49 1,217

1969 245.h 1,242.1 31.0 nil 36 1,550

1970 269.4 1,195.5 96.9 7.4 t/ 5 991

1971 252.1 509.0 45.0 73.2 1/ 69 608

1972 389.1 nil 20.1 116.9 0 7 1,822

1973 nil nil nil nil n.a. nil

1/ Seed potatoes.

Source: Customs Department, August 1974.

COMPOSITION OF IMPORTS-/TUS,$ M:illion)

1966 1967 L968 1969 1970 1971 1972 1973

Rice, 56.5 47.2 52.2 43.2 57.2 28.1 14.', 341.4Flour 28.9 48.0 38.4 40.8 42.9 34.6 37.0 59,7Sugatr 14.7 15.7 13.7 19.3 259.6 36.0 30. 7 49,3Dairy Products 15.4 18.6 14.9 9.2 1l0.0 7.7 9.0 11,.7Fish and Fish Preparations 13.7 13.0 13.0 12.3 1lL.9 9.6 8.8 6.2

Other Food 19.6 14.6 12.6 27.9 26.8 21.3 18.9 18.1Sub-total, food 168.6 172.8 1844.3 152.7 181.4 137.3 118.9 179,.,4

Tobacco and Beverages 2.1 1.8 2.2 1.7 1.3 0.4 0. "7 1.6Textiles 38.4 23.3 2)4.6 34h5 211.8 26.2 8.8 8,,3Med-ical and Pharmaceutical 7.0 4.5 4.7 6.0 4.8 5.6 6.1 6,3Paper aid Cardboard 8.o 5.9 4.7 8.0 6.5 6.1 5.1 7.2Petroleum Products 23.6 27.5 21.3, 28.6 45;.6 32.2 30.'9 43.5Fertilizer 17.7 19.1 18.4 17.6 16.9 14L.7 12.2 20.3Other ClhemicaLs 13.4 14.6 16.6, 20.8 ';.3 6.o 9.( 7.4Cem,ent 6.o 3.3 3.7 3.7 o.8 - 0.', 0.1Iron and Steel 11.1 11.5 10. 9 12.2 16.1 17.5 13.8 8.7Machinery and Equipment 36.6 53.4 43.$5 59.,9 6';.6 61.5 32.l 41L.OTrainsport and Equipment 18.9 23.0 17.7 4h7. 29 .5 18.9 30.2 14.2Othier 61.4 43.5 50-C. 43.1 55-9 3506 61.4 4,2.1

Sab-total, nonfood 2hL.2 231.4 218.3 283.,6 27 3.1 224.7 211. 4 200.7

Total 4l2.8 4Co4.2 L402.6 4436,3 ,451x,.5 362.0 330.3 380.1

j/ On payments basis. Conversion rate: 1971 - SIRs ',,952i4 : US$ 11972 - SIRs 6,3953 : US$ 11973 - SIRs 6,7445 : US$ 1

Source: Central Bank of Ceiylon.

RETidL MARKET PICE8 FOR 3ELECTED AGRICULTURAL PRODUCTS

Rice, raw & parboiled Dried Chillies Red Onions Borbay Onions PotatoesX er measure of 2 Ibs) ____er lb) _rlb) _ p lb) _ _ (er ib)

Open Open Open Open C)enControlled Market Controlled Market Controlled Market Controlled Market Controlled Market

1560 (.77 1.25 1.37 0.27 0.31 0.23 0.25 0.23 0.291561 0.79 l.14 1.25 c.28 037 0.23 0.26 0.27 (.301562 0o81 1,09 1.17 0.27 0.3$5 0.20 0.21 0.28 (.3015963 o.82 1.23 1.27 0.30 0. 16 0.23 0.25' 0.25 0.261964 0.85 :1.23 1.31 0.32 0.52 0.25 0.28 0.25 0.28

15965 .85 :1.26 1.)41 0.30 0.35 0.25 0.28 0.25 (.3219'66 0.82 1.47 1.90 0. 28 0.29 0,26 0.2(9 0.26 (.3219'67 :L.ll :1.63 3.27 0.28 0.34 0.26 0.3-2 0.h47 (.71>I68 1.19 1.60 o .00 0.28 o0.12 0.31 0.41. - 1.011969 L.20 :1.60 3.02 0.28 0.35 0.27 0.31 0.65 o.86

1970 0o75z/ 1L.20 1.60 4.18 C.28 0 J 3 033 0 0 3i7 0.76 (.831971ki 0 7-5/ Lh43 1.60 4.27 0.38 0. 49 0.306/ 0-382/ 0.73 0.831972 1.00•' L.39 7.78 81.4 6J 5/ 0.9811973 / 2.70 9.63 / 1l. 45 .L.18

1/ First measure free and second measure 75 cents.21/ January - October,, 1971.31 Average price from Januar;y to ApriL, 1971.~ / First measure free and second measure Rs 1.00 per measure.i/ Price not quoted as these items were not systematically distributed through the cooperatives.

Item not available or price not collected.7/ FLrst half measure free to non income tax payers and the second measure Rs 2 per measure.

Actual market price not available.

Source: 11inistry of Planning and Employment, Department of Census and St3atistics.

Appendix Table 4

MLNDNUM AVEAGE DAILY -WA GE RATES AND INDEX NUMB3EHS

Workers Workers in tradesin agriculture other than agriculture All wage workers

Wage Rate Index Wage Rate Index Wage Rate Index(Rs) _C) - ( __(-L (RS)

1961 2.17 100 3.75 100 2.29 100

1962 2.19 101 3.78 101 2.32 101

l1y63 2.22 102 3.82 102 2.35 103

i.9614 2.27 105 3.88 103 2.4o 105

1965 2.28 105 3.88 1(3 2.41 105

1966 2.28 105 3.89 104 2.41 105

1967 2.36 109 h.05 108 2.49 109

1968 2.72 125 4.72 126 2.88 126

1969 2.72 125 4.72 126 2.88 126

1770 2.76 127 4.85 129 2.91 127

1971 2.78 128 5.15 137 2.97 130

1972 2.91 134 5.30 141 3.10 135

1973 3.29 152 5.83 155 3.49 152

Source: Department of Labor.

Appendix Table N

REGISTMER PADDY LkAND BY T.-PRE CLASSES, 1971(000)

Owner Tenant Tenants Owners Owners alsoCulti- Culti- Thattamuru Employing Working asvators vators Lands) T Laborers Tennnts Tot 1

Cultivators ('000)We-t Zone 322 192 33 4 20 571Dry Zone 383 127 8 3 18 d38

Total 70w 319 7 1,109

Acres ('000) 2Wet Zone 211 15 58 7 1'l; h17Dry Zone 606 154 15 8 797

Total _57 309 73 30 Zn '7,

Acres perCultivator

Wet Zone 0.66 0.81 1.76 1.75 0.80 0.78Dry Zone 1 1.21 1.88 2.67 0.78 1.h4

Total 0.97 2 0.79 1.12

1J/ Lands where righ to c Jti vation rotate amiorg owners from year to year.2J Mission estimates.

Source: Department of Agrarian Services, MAL.

Appendix Table o

GUARANTEED PRICES FOR AGRICULTURAL PRODUCTS

(R8 per Unit of Product) /

Cormotcly 1971 1972 1973 1974

Paddy 14.00 14.00 February 18.00 April 30.00October 25.00 July 33.00

Kura'kakmG.ade I 15.0 r_I _ _0~jid U U . .L .J. v _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Grade .II 13.00 _ _ 13.00

riai 21 £'4.64-) _ , 40U .

Gingelly 38.00 _ _ _ __ _ 33.00So:Srilvu!,~~~~~~~~~~~~~~~~ 20.16 31. 7 S01--glill-1111 2U. lo~fi 4). *7t

. ~ ~ ~ ~ ~ ~ I.£ __ _ _ _ _ _ _ _ _ _ ___ _

Chi -'llics:

Grctie J., II anJ d iII 392.0U _ _J

Pcpperlre.): 140.00 l__ 1Z4. 00

Grade I 67.20 _ _ 168.00

Grade I1 61.60 O__ _ _ 61.60

\Redl Onions 40.58 _ _ 40.58

CcwpcEca (Aulinotor.) 67.20 _ _ _ _ 112.00

Cow7pea 42.56 _ _ _ 42.56

Taim:--ind 33.60 3_ _ _ _ 33.60Mu s ;;tard )7.20 _ __ 67.20

yr iruHdt:uts 49.28 =__ __ _ _ _ _ 112.00

CoLi ee:Grade} I 224.00 _ 224.00

Grade II 154.00 _ __ _ _ 154.0'JTume111ric 130.00 1J30. (001½oteL" cu-o S" 44.80 _ _ _ _ _ _ _ _ _ __ _ _ 4/4 , 80Bone ½y 0niai> s 44.80 44._80_

Ca.i.c 168.00 168. 00Thv;;,-6. D3aJ 1 (Ulhole) 56.00 _ 78.40 56.!00

Grade I 75.00 95.00 1.6<,00Tntcrgr-ade 60.00 80.00 _ = 150.00

Gracde iL 45.00 65.00 i35. 00

Grede III 30.00 . 50.00 -_ _ 120.00

1/ tUof: of all commodities, except paddy, is cwt. Unit of paddy is bushel.

Indicars no chanea.

Sourzce: tU:inisttry of SAr\ricul-t11tre and LT-n-ds.

Appendix Table 7

FERTILIZER CONSUMPrION BY CROPS IN SRI LANKA, 1965-1973tUoo tons)

Fertilizer NutrientSulphate of I Rock Nouriate ofA ma iorda Urea Phosphate Potash Others Total N PU 5' K2U Total

Tea1965 107.6 .1 22.1 27.3 4.0 161.1 22.2 6.1 15.0 43.31966 102.6 .1 18.7 26.6 1o.6 158.6 21.1 5.1 14.6 40.8 1967 106 1 .6 16.7 20A8 5.2 1149.14 21.9 4.6 ll a 37aI1968 95.0 6.3 15.0 20.5 9.8 146.6 22.5 4.1 11.3 37.91969 71.8 10.2 13.7 18.5 7.5 121.7 19.3 3.8 10.2 33.31970 65.8 19.3 12.8 16.4 4.5 118.8 22.1 3.5 9.0 31.91971 69.0 11.6 17.3 15.6 7.6 121.1 18.9 4.2 10.3 33.11972 61.5 11.1 14.7 15.7 3.4 106.4 17.8 4.o 8.7 30.51973 149.6 9.2 12.1 13.6 3.3 87.8 14.2 3.3 6.8 21.3

xber1963 8.o - 8.o 2.6 3.2 21.8 1.7 2.2 1.4 5.31966 8.4 8.3 2.9 3.1 22.7 1.7 2.3 1.6 5.61967 8.8 - 8.2 3.2 3.1 23.3 1.8 2.3 1.8 5.91968 8.7 - 6.4 3.2 2.8 21.1 1.8 1.8 1.7 5.31QA_ 8.2 - 8.1 3.8 2.7 22.8 1.7 2.2 2.1 6.^1970 7.9 - 8.1 4.0 2.2 22.2 1.6 2.2 2.2 6.:1971 6.5 .3 2.5 5.1 1.9 16.3 1.4 1.3 1.5 4.21972 4.9 .6 3.6 2.1 1.5 12.7 1.3 1.0 1.- 3.)1973 5.L .4 5.0 2.5 1.2 14.5 1.3 1.4 1.2 3.,

Coconut1965- 16.1 - 16.1 16.1 - 48.3 3.3 4.4 8.9 16.6

19 5 i6.1 - 8.9~~~~~~~~~~~~~~~~~~~I i~ 16.61966 17.5 = 17.5 I 1.5 - ).U .8 s.S U8.^

1967 16.5 - 16.5 16.5 - 49.5 3.4 h,5 9.1 17.0196d 29.8 - 16.5 16.6 - 62.9 6.1 4.5 9.1 19.71969 29.9 - 15.0 14.9 - 59.8 6.2 4.1 8,2 1.51970 32.1 - 16.1 16.1 - 64.3 6.6 4.4 8.8 19.81971 29.2 - 11.7 11.6 - 58.5 5.8 3o9 8t7 1 ca,1972 24.3 - 9.7 14.6 - 48.6 5.0 2.7 8.o 15.71973 19.4 - 9.7 9.7 - 38.8 4.0 2.7 4.' 11.6

Pddy1~~,I965 17.5 5.5q 10.8 h.7 .?7 39 9 6.1 3e ° . E2 5 111966 19.2 8.8 10.6 6.1 1.4 46.1 8.o 2.8 3.3 14.11967 26.2 15.7 18.1 12.2 4.8 77.0 12.6 5.0 6.7 214.31963 26.7 25.7 11.3 8.1 15.8 87.6 17.3 3.1 4.5 214.1969 23.3 26.2 7.8 9.5 18.5 85.3 16.9 2.1 5.2 214.21970 22.7 28.9 6.5 8.4 22.2 88.7 18.0 1.8 1.6 21L41971 16.2 44.4 9.9 4.7 28.0 103.2 24.5 9.8 7.9 14.21972 3.1 48.8 2.3 7.5 27.1 88.8 24.9 12.0 11.1 143.'?1973 16.7 56.7 2.2 12.7 37.3 125.6 32.6 17.5 14.7 6L.3

Others196' 11.7 - 7.3 3.7 11.6 34.3 2.4 2.0 2.0 6.11966 13.1 - 10.0 14.9 9.8 37.8 2.7 2.8 2.6 2.11967 16-9 - 9=4 8=o 7=2 41 5 3.5 2.6 4. 14 o51968 17.2 .7 14.8 8.2 11.1 52.0 3.5 4.1 4.5 12.11969 18.7 1.1 18.3 7.4 10.5 56.o 4.3 5.0 4.1 13.141970 15.6 1.8 27.1 8.o 6.3 58.8 14.0 7.5 4.4 15.1971 18.1 1.5 7.4 8.1 6.5 41.6 4.2 2.1 4.14 10.71972 19.6 1.5 8.6 10.1 11.2 51.0 14.7 2.4L 5.6 12.71973 21.8 1.9 10.2 10.1 9.8 53.8 5.4 2.8 5.0 13.2

ToLual1965 160.9 5.6 64.3 54.1 19.5 304.7 35.7 17.7 29.8 83.21966 160.8 8.9 65.1 58.0 24.9 317.7 37.1 17.8 31.7 H6.o1967 174.5 16.3 68.9 60.7 20.3 340.7 43.2 19.0 33.4 '5.61968 177.4 32.7 64.0 56.6 39,5 370.2 51.2 17.6 31.1 -.91i69 151.9 37.5 62.9 514.1 39.2 31 5.6 18.4 17.2 29.8 95.141970 144.1 50.0 70.6 52.9 35.2 352.8 52.6 19.14 29. 0 101.01971 139.0 57.8 51.8 48.1 44.0 340.7 54.8 21.3 32.8 108.91972 113.14 62.0 38.9 50.0 43.2 307.- 53.7 22.1 34.5 110,.31973 112.9 68.2 39.2 L8.6 51.6 320.5 57.5 27.7 32.6 117.8

Source: MrListry of Plantation Industries.

Appendix Table 8

TEA: NUMBER OF HOLDINGS BY SIZE CLASS ES(Number)

Below 50010 10-100 100-500 and above Total

Year Acres Acres Acres Acres Holdings

1960 92,729 2,075 547 341 95,692

1961 95,268 2,173 541 31 98,323

1962 97,497 2,277 517 326 100,617

1963 99,310 2,274 525 330 102,439

1964 106,201 2,297 530 330 109,358

1965 107,393 2,311 530 329 110,563

1966 109,619 2,345 528 330 112,882

1967 110,69L 2,380 530 330 113,93h

1968 111,555 2,374 528 327 114,784

1969 112,231 2,407 530 323 115,b91

1970 112,231 2,407 530 323 1152b91

1971 113,783 2,h48 529 312 117,072

1972 11h,387 2,479 521 313 117,700

1973 115,602 2,h91 520 312 118,925

Source: .TDenprt.Tmpnt. nf TA r.ontro1l Ministrv of Plantation Industries.

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ANNEX 1Page 1


AGRICULTURAL POLICY AND PROGRAM REVIEW

GOVERNMENT ORGANIZATIONS IN AGRICULTURE

1. A complex network of government institutions and organizationsis concerned with agricultural development at the national, district, and

local levels.

A. National ARencies

2. The Ministry of Agriculture and Lands (MAL) has responsibilityfor promoting nrnduction of crops, livestock, and forestry. The Department

of Agriculture is in charge of research and extension, preparation of annual

production implementation nlans in cooperation with local Cultivation Com-

mittees (CCs) and agricultural officials located in 22 districts into

which the countr- is divided. The Rural Institutions and Productivity Laws

Department (formerly the Agrarian Affairs Department) is concerned with pro-

vision of inputs and land use, and land tenure. land development and settle-

ment programs. MAL supervises a number of quasi-public corporations andboards such as the Fertilizer Corporation, the Sugar Cornoration, PaddyMarketing Board, National Milk Board, and Livestock Development Board.

3. The Ministry of Plantation Industries (MPI) has responsibility

or prom..otin.g the production and controls the marketincg of tea, rLbber,coconut, and minor export crops. Replanting, research and extension, and

various other program-s are administered by Tea Control Denartment, the Rubber

Control Department, the Coconut Development Authority, and the Minor Export

Crops Department. MPI a'so superises several boards and corporations such

as the State Plantations Corporation, State Rubber Manufacturing Corporation,Ceylon Tea Propagar.da Board, Sri Lanka Cashew Corporation, nnd the Agricul-

tural Diversification Project.

4. The Ministry of Irrigation, Power, and Highways (MIPH) has overall

responsibility Lor irrigationr.IU water maagement. T.h.e Irriation Depart-

ment carries out new construction works except large scale projects such

as that of the Mahaweli Development Board. The Territorial Civil Engineering

Organization is in charge of operation and maintenance of irrigation schemes.

5. The Ministry of Foreign and Internal Trade (MFIT) includes the

Food Commissioner's Department which carries out food rationing and price

control programs, the Cooperative Services Commission which supervises rural

Multi-Purpose Cooperatives, the Cooperative W'nolesale Establishment whIch

ANNEX 1

imports food products and purchases some farm products (para 28), the StateTractor Corporation which imports and distributes tractors, and other agenciesconcerned with foreign and internal trade. The Paddy Marketing Board (PMB)of MAL purchases paddy at local Multi-Purpose Cooperatives, mills it, andlater sells it to the Food Commissioner's Department.

6. The Ministry of Planning and Economic Affairs (MPEA) has respons-ibility for national economic planning including five-year development plansfor agriculture. It administers the Decentralized Capital Budget Schemewhich provides funds for local development projects to improve rural socialservices and increase agricultural output. The External Resources Divisioncoordinates all foreign economic proRrams.

7. The Ministrv of Finance (MF) includes the Central Bank of Cevlonwhich supervises the People's Bank and the Bank of Ceylon which have branchesthroughout the country to provide credit to farmers.

S. The Ministrv of Public Administration. Local Government and HomeAffairs (MPALGHA) has broad responsibility for improving all governmentprograms at district and local levels. Each of Sri Lanka's 22 districtshas a District Government Agent (DGA) who is in charge of all governmentnroQrams in his district. He is assisted in matters relating to agricultureby a District Agricultural Extension Officer (DAEO) employed by the Departmentof Agrirtiltiire- DAEOs hnve several asqistantq whose chities include sunervision

of local Cultivation Committees (CCs) established to help implement the PaddyTLands Art of 19S8 nnd now have repnonsihi1itv for imnlement2tion of the Agri-

cultural Lands Law of 1973 which covers highlands as well as paddy lands.

9. A cabinet committee on agricultural development chaired by thePrime Minister and including the Ministers of Agriculture and Lands; Planta-tion Industries; Irrigation, Power and Highways; and Economic Planning andEconomic Affairs has been set up to make polic- decisions and coordiAnate

programs of the various ministries concerned with expanding food production.

). Frood Crop Production. 3roJL

10. Farmers make up Cultivation Committees (CCs). Chairmen and mem-bers ,Lor-ler'Ly were electedU but are now appoirntedu Uy thLe Minister of Agri-

culture and Lands upon the recommendation of the central-appointed "PoliticalAuthorities." i/

1/ Cabinet Ministers, Vice Ministers, or senior members of Parliamentfrom districts.

ANNEX 1

Page 3

11. Agricultural Productivity Committees (APCs) are made up of chair-men and members appointed from local rural leaders (farmers or other localleaders) the same way as CCs. This is a new creation inserted between thevillage level and the division level. A division may have three, four ormore APCs, and an APC may have a number of CCs.

12. Division Offices are headed by the Division Revenue Officers (DROs).Fnrmerlv. the Division Agricultural Develonment Committee nresided over byDRO would review the production plans received from the Cultivation Commit-tees. M.emh.r of the cnmmittee inclidicup arntiltuiral inntructors for the

extension service of the Department of Agriculture and officers of Landomnissinnerts Depnartment,- T)panrtrmPnt of Riirn1 Tnstitutions and Productivity

Laws (RIPL), Territorial Civil Engineering Service, Commissioner of Coopera-eive Mtvtemant, People's Bank, etc. NNnw Diviinn Offices receiup rulttivntinnCommittee plans through APCs.

13. District Offices are headed by DGAs. The District AgriculturalDevelopment Co.mm.ittee preslded over by O-As comilarto District Agricultural Development Committee) review the plans receivedfrom divisionrs. District offices now receive wm.,kly r 1b-w.eely -4 4lst from

the "Political Authority" assigned to the district who has broad power toIJ- L in urgn tmatt es U toth attetion of M.-l.ni. s i, De Qpa. rtments., Banks ad

Corporations concerned.

14. The Ministry of Agriculture and Lands receives annual productionplan proposals Urom U.Lstr'Lcts, bUut also prov'Ues "indicative plas" to all

districts before plan formulation begins at field levels, and sends repre-sentatives to districts to discuss them during the plan iUorlrulation prLi.UU.Programs for allocation of farm inputs, credit and special projects conductedby various Ministries and Departments in each aistrict are coUrdin1atd bythis process.

15. A Cabinet Sub-committee on Agricultural Development reviews theannual agricultural implementation plan.

16. A Prime Minister's Special Secretariat for Agricultural DevelopmIentpresided over by the Prime Minister has been established to make high levelpolicy decisions relating to agricultural development and shows the PrimeMinister's concern for expanding food production. It has broad powers forquick decision making (para 9).

17. When the Annual Plan is finalized, it is published as A WorkingDocument - Implementation Program and issued by the Ministry of Agricultureand Lands. It includes area and production targets for various food cropsby districts and by Maha and Yala seasons, requirements of various farminputs and short-term credit, targets for paddy purchase, settlement schemes,and special projects of all kinds. Monthly progress reports are compiledand submitted through the same channel as plan formulation all the way upto Prime Minister's Special Secretariat.

ANNEX 1Page 4

C. Supply of Farm Inputs

18, Imnroved seeds are distributed by Department of Agriculture Farms

to private paddy seed growers and then to Division Agricultural Instructor'snffire (seeds of other food crons are distributed directly from Department

farms), then to Cooperatives or Cultivation Committees and to farmers.

19. Fertilizers are imported by State Fertilizer Corporation andtransport-e-d- to Corporation Stores, Whstript leve1 rornoration stores

Multi-Purpose Cooperatives and to farmers (large farmers mav obtainfertilizers directly from Corporation Stores in. dist-rie~ct)

20. Agro-che.mical- are im.ported by, State Petrolewm Corporationn an.dr-

by private firms (7 firms operating, 3 own formulation facilities). TheCorporation distributes supplies through its disrict level officedepots and Multi-Purpose Cooperatives to farmers. Private firms distri-bute either thL'roughs th1-eir own, salles ch-annrels (opattos rcoea

tives to farmers.

21. Tractors are imported by State Tractor Corporation and distri-'ruteu to uistrict lUeafLe rs wio sel tL.L-Le1... to farm.ers, based on alocation

decided by the Division Revenue Officer's Office.

22. Farm implements are produced by State Hardware Corporation or

Engineering Corporation and distributed by the Cooperative WhLolesale Estab-lishment (CWE) to CWE district level stores and then to cooperatives andfarmers.

D. Supply of Rural Credit

23. The People's Bank has district and division level branches. Branch

offices are located mainly at Multi-Purpose Cooperatives which in most instances

have Rural Bank oftices. This has been the main channel for supplying cuitiva-

tion loans to farmers under government farm credit programs.

24. The Bank of Ceylon is establishing district and division level

branches at APCs. This is a new system. Formerly the People's Bank was the

main institutional rural credit source.

ANN EX IPage 5

E. Marketing of Farm Products

25. Government Procurement of Paddy. Farmers deliver paddy to villagebranches or directly to Multi-Purpose Cooperatives which is then collectedby district stores of the Paddy Marketing Board.

26. Oil seed crops (also maize and sorghum arcoltefom frm-26.~~~~~~~~~~~ are collected from farmers by moving vans provided by the State Oils and Fats Corporation.

27. Cassava, yam, fruits, vegetables and pulses are purchased fromfarmers by the Department of Marketing at district collection points.

28. Chillies and onions are purchased by Cooperative Wholesale Estab-liehment at district collection points.

29. Only paddy is procured in large quantities at present. Governmentprocurement of other food crops is nominal because of high free marketprices.

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>XN '~~~~~~~~~~~ ~ ~ ~ ~ ~ C~ ocor>s

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SRI' LANKA molore

___ __ __ __ ___ __ __ _- - _ 81 2'

Documents

and Program Revipw...1 pint = 0.57 liters 1 measure = 2 lb 1 acre = 0.45 hectare AREA 2 POPULATION Total: 65,610 km 13.2 million (1973) 16.2 million acres Rate of growth: 1.9% (1971-73)