Sri Lanka’s agricultural sector is confronting structural weaknesses that slow its progress and threaten long-term sustainability. The Institute of Policy Studies, through a recent commentary by Dr Manoj Thibbotuwawa and Dr Lakmini Fernando, pointed to insufficient innovation and underinvestment in export crops and research and development as central problems limiting the sector’s future potential.
Agriculture remains a cornerstone of the Sri Lankan economy, yet its share in gross domestic product has been shrinking. While the agricultural workforce has declined more slowly, the mismatch between labour inputs and economic output has exposed underlying inefficiencies. Traditional practices remain dominant, and technology adoption has been uneven, leaving many producers vulnerable to climatic shocks and market volatility.
Budget allocations reflect the broader misalignment of policy with development goals. The bulk of agricultural expenditure flows into irrigation, which accounts for 41% of public agricultural outlays. Subsidies represent another significant share at 26%. In contrast, critical areas such as domestic agriculture beyond rice, livestock, fisheries, plantation crops, marketing, insurance, climate resilience, and R&D receive less than 5% of spending.
Such skewed allocation patterns limit diversification and impede the sector’s ability to modernize. Rice continues to absorb a disproportionate amount of resources, despite limited growth prospects in productivity or export potential. Meanwhile, high-value crops and value-added activities receive comparatively little attention. Reforms in budgetary priorities could encourage more efficient use of water and fertilizers while stimulating diversification and resilience.
Recurrent expenditure continues to dominate agricultural budgets, crowding out capital investment. Irrigation development often focuses on infrastructure projects without parallel investment in water management systems. Modernizing irrigation through site-specific water consumption strategies, micro-irrigation, and other efficiency-enhancing tools would allow for better utilization of available water resources.
Fertilizer subsidies have long been a fiscal burden with questionable impact on productivity. A more targeted, time-bound approach using data from new farmer registries such as ‘Geo Goviya’ could improve subsidy effectiveness. Redirecting savings into improved fertilizer-use efficiency measures, including advanced fertilizer technologies and precision application methods, may yield better returns.
Neglected areas such as research, climate resilience, and market connectivity merit more robust investment. Introducing performance metrics for National Agriculture Research System Institutions could improve research outcomes. Additionally, integrating farmers into digital platforms that use data from the ‘Geo Goviya’ system may help bridge information gaps and reduce post-harvest losses.
Agricultural development also suffers from institutional fragmentation. Multiple ministries oversee related functions, including the Ministry of Agriculture, Ministry of Plantation Industries, Ministry of Fisheries, Ministry of Lands, and Ministry of Irrigation. Budgetary control and policy implementation are diffused across these bodies, making strategic coordination difficult. The Ministry of Agriculture receives more than half of the total sectoral spending, followed by the Ministry of Environment and the Ministry of Irrigation. However, this distribution does not necessarily reflect coherent policy prioritization.
Despite nominal increases, spending patterns across these ministries have remained flat or declined in real terms. Changes in government often coincide with shifts in institutional structures, leading to volatility in capital and recurrent expenditure ratios. As a result, medium- and long-term planning suffers, and development initiatives are frequently disrupted or reversed.
Despite these inefficiencies, agriculture remains politically salient, particularly in the context of food security and rural employment. However, public expenditure remains concentrated on politically popular interventions such as subsidies and infrastructure projects, often at the expense of less visible but economically vital areas. A review of fiscal priorities may be necessary to align short-term political considerations with long-term development goals.
The decline in agriculture’s GDP contribution has not proportionally reduced the workforce share. This disparity suggests low labour productivity and underemployment. This imbalance will persist without reforms to improve land productivity and better integrate technology into farming systems. Public expenditure should reflect these structural needs rather than short-term interventions.
Between 2014 and 2020, Sri Lanka spent Rs112 billion in real terms on agriculture annually. This amount fell to Rs88 billion in 2021 due to the pandemic, but recovered slightly to an average of Rs97 billion in the subsequent two years. Nevertheless, agriculture’s share of total government expenditure declined from 6.4% in 2014 to 2% by 2023. Its share of GDP dropped from 1.1% to 0.8% in the same period.
These figures illustrate a steady erosion of the sector’s fiscal space, even as agricultural challenges have become more acute. Capital investment decline has coincided with growing recurrent expenditure, emphasizing consumption over sustainable growth. Institutional changes during government transitions in 2015, 2019, and 2020 have exacerbated these trends by disrupting continuity.
Improving the sector’s fiscal trajectory requires both repurposing and expanding agricultural budgets. Policymakers must focus on improving farm productivity and income through strategic capital investment. This involves moving beyond staple crops and investing in value chains that support exports, climate resilience, and technology adoption.
Current expenditure patterns offer limited support for these objectives. Marketing, insurance, and climate adaptation remain underfunded. Institutional development and regulatory reforms are also needed to create an enabling environment for private investment in agriculture. Transparent, data-driven budget planning can support these efforts by identifying underperforming allocations and redirecting funds where they have the highest impact.
Efforts to improve coordination among ministries and ensure policy continuity are also necessary. Establishing dedicated agencies with cross-ministerial mandates could help streamline implementation and insulate development efforts from political shifts. Strengthening monitoring and evaluation mechanisms can enhance accountability and inform future policy design.
Sri Lanka’s experience illustrates the constraints when political incentives shape agricultural fiscal policy. Subsidies and infrastructure are politically attractive but often crowd out higher-return investments. Moving towards a framework that balances political and economic priorities may improve food security, farm income, and rural development outcomes.
The 2025 national budget presents an opportunity to reassess agricultural spending and address long-standing inefficiencies. Redefining priorities, enhancing institutional coordination, and strengthening investment in underfunded areas could lay the groundwork for a more resilient and productive agricultural sector. Without such reforms, Sri Lanka risks repeating past cycles of underperformance and missed opportunities, the IPS economists warn.