Farming Challenges Needing Market Solutions

Farming is under pressure to produce more but doesn’t have the freedom to do so

Farming lends easily to pastoral illusions. Roadside lowland rice farms and highland tea gardens are the backdrops to some of Sri Lanka’s most stunning landscapes. For a small country, such scenery is remarkably familiar in Sri Lanka. 

Idyllic landscapes have a calming effect and decisions around farming are sometimes clouded by this. That’s not to argue that challenges facing farming are simple. Because food is fundamentally important to everybody and as so many in Sri Lanka are in farming, agriculture is entangled with the political economy.

Agriculture is vast. It includes rice farms found in all four corners of the country, tea gardens spread across the wet and intermediate zones in the island, highland and traditional vegetables now planted even in arid areas, the coconut and rubber plantations which cover vast swathes of land, fishing both in the seas around the country and inland, and raising farm animals for meat.

In Sri Lanka, 26% of the workforce is engaged in agriculture, self-employed in small farms or employed by an agribusiness company like a regional plantation company which manages large tea and rubber estates. Collectively their annual contribution to gross domestic product is seven percent. A similar number of people work in Sri Lanka’s industrial sector as do those in farms. However, industrial work contributes 27% to GDP; in effect, an industrial worker is four times as productive as someone working in agriculture. Relative productivity of agriculture workers here is a rough calculation. However, the challenge is as stark. Versus agriculture, services sector workers are also around four times more productive. The low productivity of its large workforce is the first of three challenges facing agriculture.

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Ricardo  Hausmann, from the Harvard University’s Centre for International Development (Harvard CID) which was advising a former government with economic strategy, said in terms of output, agriculture was where it would be expected to be at Sri Lanka’s level of income.

However, he said based on a comparison of similar countries Sri Lanka should by now have only 15% of its labour force in agriculture, but almost 30% of the labour force was employed in the sector which was ‘huge’.

“In terms of agricultural employment the country has almost double the agricultural employment you would have expected to have at this level of income,” he told an economic forum in Colombo in 2016. “You may have a future in agriculture, but your future in employment will not be in agriculture since you already have too much agricultural employment,” he said.

Agriculture yields are low, especially in high potential, high-value products such as the segment called horticulture. Horticulture includes crops such as fruits and vegetables. In terms of scale, horticulture falls between domestic gardening and field agriculture.  Yields on popular horticultural crops like onions and tomatoes are a fraction of what they are in Brazil, China and the EU (See Chart 1).

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While the EU subsidises agriculture, China and Brazil don’t on a large scale.

Unlike crops like rice and tea, fruit and vegetable crops also suffer from high post-harvest losses due to poor handling during transport and storage. In some horticultural crops, post-harvest losses are up to a third of the harvest according to the government. Often overlooked is also the productivity in the agro-processing industry. According to the World Bank’s 2018 South Asia Competitiveness Report, which provides survey data on South Asian agro-processing firms, productivity is much lower than those of China and even Vietnam (See Chart 2).

 

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During the last fifty years, agriculture has become large scale, intensive and specialised, in the rich world. Argentina, Brazil and China have led developing countries in creating globally competitive agriculture. However, countries like Sri Lanka can’t match Brazil or China’s gains as it lacks an obvious resource, land. Most of Sri Lanka’s farms are smallholder controlled and less than two hectares (4.9 acres). Lack of market information and logistical difficulties prevent smallholders from accessing markets efficiently. If the product is to be exported, the logistics and financing requirements are beyond their capability.

Lacking large swathes of land, like in the US or Argentina, for industrial-scale agriculture need not be debilitating. In fact, in its borne out by research that large farms have high returns to labour but not necessarily high returns to land. Most horticultural crops like mushrooms, and tomatoes get a high return to land.

Nishan De Mel who heads the private thinktank Verite Research in Colombo points out that hydroponic technology, greenhouses and intensive farming have transformed agriculture in the last couple of decades in East Asia. The East Asain region started with high returns to land and low returns to labour because they had an excess of labour and a scarcity of land. That equation has now been improved with technology adoption and higher returns to labour.  De Mel says with a land area only little larger than Sri Lanka’s two-hectare block sizes, it turns out you can develop an export-related, high labour intensive, and high returns on land agriculture sector. Not all family farms are a drain on resources. Most of Sri Lanka’s poultry production is produced by them. When government stays away from meddling, family farms are proven to return high yields on land and labour.

The UN’s Food and Agriculture Organisation estimates that grain output will have to rise by around half and meat output will have to double in the next three decades to feed the projected nine billion people in the world by then. Although the global population will only rise by 30%, increased food consumption will be driven up faster by increasing incomes and changes in consumption habits due to urbanisation.

Sri Lanka’s dry zone land is like Africa’s; tropical and nutrient-poor. Its farming has been possible due to an extensive system of dams and dykes, most centuries-old, that store and release rainwater for growing rice during the long dry  spells. Modern seeds that are drought and pest resistant have also helped.  Growing agriculture output will be challenged by freshwater availability and the effects of climate change. This is the third challenge facing the sector.

 

Sri Lanka’s intricate system of reservoirs makes it possible to grow rice year-round. Already Sri Lanka’s rice crop is large and has no export demand. Somehow if Sri Lanka were able to increase the yield by 50% to match the level in China, there would be a crisis. Sri Lanka’s dry zone where much of the rice crop is planted can have water resources for other crops that can offer a higher return on land, labour and capital.

Meanwhile, with so much agricultural land taken over by rice and plantations crops like tea, rubber and coconut, there’s fewer resources for potentially higher productivity agriculture like high-value fruits, vegetables and animal husbandry.

Will increasing yields by half of Sri Lanka’s highland tea gardens and rice paddies require a doubling of inputs? Not really. It will undoubtedly require more capital and labour. However, the land, one of the most significant inputs, will not change.

Farmers everywhere gripe all the time, and Sri Lankan ones are no exception. Their biggest complaints are farm gate prices and costs of inputs. Solutions to these problems may lie more in the structural reforms that address the low labour and land productivity and the way the limited water resources are used (risks of climate change also overhang).

Modern agriculture is being shaped by many of the same technologies transforming other industries. This is most apparent at either end of the agribusiness supply chain; seed producers and supermarkets where technology has made a huge difference.

Because it’s subject to unique, political and economic constraints that have resulted in regulations, farmers, smallholders and large companies have not been as successful in Sri Lanka as have food retailers and global seed manufacturers. Government policy seems to suggest that farmers must be insulated from market forces. However, that very policy may be holding back the sector and livelihoods of people. Since food is something everyone needs, the impacts on the country and its people are profound.