With the prices of food across the world increasing drastically in many markets in Asia, producing it has become a challenge for governments and Central Banks to manage the terms of trade deficits which is widening monthly. The phenomenon of the local currency depreciating in Sri Lanka is no exception to this problem.

The Director General of the Asian Development Bank (ADB) Rajat Nag recently, pointed out that “Billions of people in Asia are seriously effected by the surging costs of daily staples such as rice and bread which can have a disastrous impact on the 600 million who live below the poverty belt and another 400 million who are on the border line” demonstrates  the issue at hand globally and the challenge that economies will have to face in the near future. Another statement (date) by the World Bank last month estimated that over 33 countries are threatened with political and social unrest as the basket of goods of many households consists of items of food products that keep rising thereby adding to the woes of  countries already grappling with balance the of trade issues.  This, coupled with increasing energy costs has the potential of creating  chaos among communities. Signs of this behaviour are already prevalent in many countries including countries like Singapore, Indonesia, Thailand and the Philippines.

Reasons
Given the macro challenges it is up to  policy makers to understand the reasons behind this phenomenon and the corrective action that needs to be taken to avoid social unrest happening.  Glien Maguire of Society General’s chief economist, stated that ‘ Unless agricultural subsidies in countries like the US, Europe and Japan are taken off production  food products elsewhere will not become profitable or cheaper’, adds to the complexity of the problem at hand.  Perhaps the proposed rice cartel by Thailand, is something that we need to give some serious thought to. Perhaps South Asian countries can work together on this initiative. In this light, the work of the developed countries is very important in order that countries like Sri Lanka can benefit from these safeguards.

Relevance to Sri Lanka – focus on the Eastern Province
The western province which is growing very strongly can be logically contributed to the fact that successful market reforms were implemented in the 1980’s and 1990’s and the western province is now in a position to reap the benefits of these reforms. It is for this reason that we see todays commanding position of the western province with a 50.1% of the GDP contribution to nation growth. The key infrastructure that had been already developed like the port, road network, communication, ICT and the existing manufacturing bases in the western province enabled the private sector to take advantage of the market reforms that came into effect following these reforms.

On the other hand, if we take the rest of the country which is lagging behind according to current growth indicators it can be hypothesized that it is due to the absence of reforms in the agricultural sector that has resulted in the private sector not being able to exploit the opportunities that the global market offered specially in the areas of commercial agriculture and agro business is a result of the reality we see today in these regions that they lag behind with a GDP growth of 4-10% to the country. The best indicator of the lagging regions is poverty in the agricultural sector which is staggering at 40%, whilst the overall poverty count for the country is at a commanding 15.2%. Hence we see a divide between regions where reforms took place and developed, and the sectors that grew exponentially while agriculture got lost in the economic template of the country.

Heart of the problem – learn from the mistakes and drive growth in the Eastern Province
Sri Lanka is known for its protectionist policies such as fertilizer subsidies, land provisioning and protective tariffs which are targeted to achieve self sufficiency of rice. However latest data reveals a different picture with imports of rice increasing from a 12,000 MT in 2006 to a staggering 88,000 MT in 2007, which means that the expenditure incurred on all the subsidies extended have not brought in the desired results. May be its time that we do a detail analysis so that we understand the learning’s and not repeat it in the years to come. For instance even though in the 1990’s the fertilizer applications doubled ,the average yields increased by only 8 percent. Another reason case in point being inconsistent policies on agriculture tariff,  increased the risk to farmers, which in turn effected their decision to invest.

What Sri Lanka requires is not protectionist strategies but a crash investment programme in places like the Eastern Province by removing constraints on land, driving technology to improve yields and increase avenues for private sector investment in order to diversify into value added agricultural products such as fruits, vegetables, livestock and fisheries. We also need to invest on research and development like new clones of high yielding e.g. Tea which was last launched in Sri Lanka as way back 1974.  Perhaps we also need to innovate with modern irrigation methods to drive productivity and yields with R&D support so that Sri Lanka caters to the changing consumer basket of food of a typical Sri Lankan house hold who has become health conscious and focuses on high roughage food products. Sri Lanka also needs to implement the land ownership bill so that farmers can use the land as collateral to raise funds or lease or sell the land so that the average Farmers can take full advantage of reforms implemented in the agriculture sector.

Paddy – Key livelihood opportunity in the East
Overall production has decreased by 6.4% to 3,128,881 MT in 2007 with the Maha and Yala seasons dropping by 7.7% and 4.1% respectively with the imports of rice increasing by over five hundred percent to 88,000 MT in 2007 as per the latest Central Bank report. This is due to a many issues such as the security situation in the Eastern province and changes in weather patterns. Some areas of concern however is that the land cultivation in the Eastern province has dropped by 35% and 18% respectively in the Maha and Yala seasons respectively. This has to be focused on and corrected after the liberation of the Eastern Province. However, despite aforementioned factors the yield has improved from 4137 kg to 4385 kg per hectare in 2007 which is encouraging. We need to understand why this has happened and drive this harder, so that it can off set the adverse weather conditions that  we are experiencing due to climate change globally such as the experience in Sri Lanka last October with floods in areas where paddy cultivation takes place.

The paddy sector highlights published in the Central Bank report of 2007, very clearly reveals that we as a nation has not focused on this sector which is why now it is affecting overall supplies. As Gerard Lyon the chief economist of Standard Chartered said last week ‘The core issue is that the low productivity and the absence of investment in agriculture is what we are experiencing in the form of a food crisis globally and its time the world understands this and correct it before riots begin”. Perhaps the people of Sri Lanka have a very high tolerant threshold but research reveals that when it cracks after a certain point it becomes unmanageable as reflected in other economies. We have to avoid this with a crash-investment on agriculture coupled with strong reforms. We also need to take the advice of the Secretary General of the United Nations –Ban Ki Moon who warned the world that “If not managed properly, it could touch off a cascade of related crises – affecting trade, economic growth, social progress and even political security around the world”. The need of the hour is not lengthy reports but quick action as we owe it at least now to the nation.