ParK's 論文后花園

华中科技大学
硕士学位论文
农民公司与农业现代化：斯里兰卡的案例研究
姓名：奥马
申请学位级别：硕士
专业：西方经济学
指导教师：张培刚;彭代彦
20040701
VI
摘 要
农户公司的组建是政府在传统的小规模农业耕作方式向现代化公司企业转变过
程中所运用的一种策略公司主要用于解决农民在经营过程中面临的一些问题主要
包括资金投入问题技术问题产品附加值问题以及营销问题这些公司也可以证
明市场经济下自由贸易的调节作用
农业的现代化 多样化以及农业产业对斯里兰卡的财政收入就业食品安全等
问题都是十分必要的在这个过程中一个有活力的现代化农业不应出现忽视农民的
现象相反那些占全国人口绝大多数的小规模耕作者应该积极主动地参与农业的转
型要从经济自由化中获得最大利益为市场经济创造基本的条件或环境是非常必要
的市场的缺点包括与小农户生产有关的炒作和腐败行为应当被更正剥削决不会
发生在一个十分完善的经济环境中可以说农户公司能够真正解决这些问题如经
济规模的扩大竞争性强的公司的产生小农场中有技术青年的利用等另外农户
公司不易受政治官僚作风和其他压力的影响在总结斯里兰卡SCOR 项目经验基础
上农户组织FOs 能够适应农户公司这种体系
本篇论文的主要目的是研究农户公司的一些运营情况 农户公司应把主要精力放
在以下三个方面增强小农户议价能力提高小农户竞争能力以及实现小规模农业向
现代化农业的转型本文中运用的大量数据和信息主要有三个来源间接来源正式
及非正式采访或讨论以及农户公司和家庭调查资料
通过分析这些数据 我们可以看出农户公司的运营情况以及其在增强小农户议
价能力中的贡献和在农业现代化进程中的影响过去的七年里斯里兰卡经济管理远
远不能满足经济发展的要求相反还削弱了经济基础在这种情况下斯里兰卡经济
低迷并于2001 年出现经济停滞1995 年至2001 年斯里兰卡经济增长缓慢国外
投资流失出口增长缓慢财政赤字增加公共债务上升投资市场萎缩股价下跌
货币贬值物价上涨这些使斯里兰卡经济跌入低谷要想使经济复苏并不容易
根据斯里兰卡这种不稳定的经济情况 上文中已经讨论了农户公司在小规模农业
VII
耕作向现代农业发展中的角色 文中的信息有的来自官方文件有的来自专题研讨会
资料还有一些通过对调查数据的分析通过不同来源的信息不难得出如下结论
过去的七年里 农户公司一直面临着巨大压力动荡的时局政治影响民族纷
争经济波动另外还有天灾人祸因此大多数农户公司都未能达到预期目标我
们也很难断定过去的七年中农户公司是否成功是否令人满意因为大多数公司一直
持续经营且没有大的损失有的公司还赢利不少总的来说农户公司在维护农民
利益方面起着重要作用五十六年来我们采取了很多措施来解决小农户出售产品的
价格问题但问题并没有得到解决组建农户公司这一政策在农村实施之后销售问
题在一定程度上有所缓解这得归功于农户公司因为农户公司能够帮助农民增强他
们的议价能力能够帮助他们以更合理的价格出售他们的产品
尽管农户公司实施了不同的经济活动来确保其成员利益 保证公司的持续运转
还是遇到了许多来自内部和外部的障碍这些农户公司大多由政府组建其公司的管
理者随着政权的更换而改变并由当权者操纵因此这些公司有很大的局限性农
户也无法参与决策这样的公司不能承担商业风险也无法与私营企业抗衡所以
农户公司应该建立在农民需求基础上应该坚持农民利益至上
根据农户公司过去七年的运营情况 我们不能说农户公司是成功还是失败这些
情况的发生主要是因为政府官员和政客们只顾为己牟利不顾农民的群体利益因此
传统的组建农户公司的体制应该进一步完善农户公司应该从农民中产生政府不应
过多干涉而应该起推动作用
总之 就农业这方面而言只有更新思想运用新的方法才能使农业向现代化
方向发展因此引进先进科技在提高产量和解决营销问题中就显得十分必要了从
这个角度来讲政府的调节作用尤为突出所以在我们这样的国家政府必须积极
调节和引导市场这些刚好与发达国家流行的形势相反
关键词 农业公司现代化 多样化 转化 开放
III
Abstract
The study mainly focused on Farmer Companies and Modernization of Agriculture
sector in Sri Lanka. The formation of Farmer Companies (FC) is a strategy adapted by
government to transform traditional small holder farming into modernized business
ventures. These companies are expected to address major problems faced by farmers in
the procurement of inputs, obtaining of technology, value addition to their products, and
marketing. They are also expected to demonstrate capacity to adjust to the forces of free
trade in the market economy with forward contracts generating resources to invest on
farmlands with prudent management practices. Modernization and diversification of
agriculture and agro industries are necessary for Sri Lanka to achieve its goals of income,
employment, and food security. Farmer Company has formed based on the experience of
the SCOR project in Sri Lanka.
The main objective of this study is to examine the performance of farmer companies,
focusing particular attention to its contribution made towards strengthening the
bargaining power of small farmers, enhancing their competitiveness and transforming small
farm agriculture into modernized agriculture. Quantitative data and qualitative information
used for this study are those collected by three sources, namely; Secondary sources, formal/
informal interviews/discussions and Farmer company and household survey.
Analyzing those available data, find out the performance of farmer companies and the
contribution made to strengthening of bargaining power of small farmers and their impact
to modernize the agricultural sector. Economic management of Sri Lanka in the last seven
years; far from laying the foundation for a viable economy, had on the contrary weakened
the fundamentals and steered the economy to mediocre performance first and to a virtual
standstill in 2001. The lackluster performance demonstrated by moderate economic growth,
falling external assets, slowing of export growth, yawning budget deficits, rising public
debt, shrinking public investment, falling share prices, continuous currency depreciation
and rising prices in the seven years 1995-2001 culminated in an economic crisis of
alarming proportions from which there is no easy recovery. According to the uncertain
situation of the Sri Lankan economy, the role of farmer companies in modernizing
smallholder farming sector has discussed.
The available information from various official documents, seminar workshop papers
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as well as survey data analysis and then, come to following conclusions accordingly those
objectives of the research. The chapter one attempt to focus on introduction of FCs,
problem statement, review of related literature, objectives and research methodologies
applied for this study. Chapter two highlights the strategy use for modernization of
agriculture since independence in Sri Lanka and present situation of modernization process.
Especially strategies applied for development of agriculture by various governments. Many
development programs, action plans and policy reforms were discussed in this sector. The
Chapter three expresses the impact of open economic policies on small holder agriculture
sector. Especially, the open market policies implement by governments came into power
since 1970. The tax and tariffs changing behavior and, what the impacts are, in accordingly,
the GDP growth, budget deficits, inflation, unemployment were highlighted. The driving
forces of commercialization, challenges and opportunities also were pointed out. The
Chapter four mainly focuses on the reasons for private sector investing in to the agricultural
sector. Various incentives schemes for promoting private sector and the same time
constraints hindering private sector investment in agricultural sector were highlighted. Then
the opportunities for private sector to enter the agriculture sector discussed. Those
opportunities have direct impact to the establishment of FCs in this sector. Lastly, the origin
and the establishment of the FCs step by step were described.
The Chapter 5 is the main analytical part of this study. It included the role of FCs
related to agriculture marketing and explained major roles and the benefits from those
activities to small farmers. There were ten major roles identified and analyzed how to play
those roles in different FCs in different areas. Many of the FCs play those roles successfully
and run FCs without gaining big profits or big losses which, providing many services to the
member farmers as well as solving their major problems. The Chapter six shows the main
constraints and strengths for implementation of FCs. There are many constraints as well as
several strengths for run the FCs. The Chapter 7 highlighted the overall final conclusion
with whole chapter summery, recommendations, innovative ideas, limitations and the
further research areas based on this study.
The FCs performance in the last seven years were under pressure of uncertainty,
political influences, ethnic unrest, economic fluctuations as well as various natural
phenomena that many of the FCs were not able to reache the overall objectives of
organizing small farmers for commercial agriculture as anticipated by policy makers. Most
of the FCs is running continuously without getting big losses or earning high profits. In
general the FCs played a very important role for the small farmers benefits. Since,
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independence, almost 56 years, various policy programs were implemented to solve the
small farmers major problem of selling their produce to market at reasonable prices but still
the problem not considerably change. As a result of the implementation of FCs in rural
areas where the marketing problem is reduced to some extent due to contribution of FCs.
Therefore the members of FCs could have strengthened their bargaining power to get
higher prices for their products. They have chance to compete and bargain with private
sector.
Even though the FCs implemented different business activities for the benefits of their
member farmers and run the FCs continuously, there are many barriers for those activities
internally as well as externally. The FCs were formed by government organizations, but it is
dominated by the politicians. Some FCs were directly formed by politicians. Therefore
many restrictions as well as low participation of member farmers can be seen. Though the
establishment of FCs should be based on needs and priorities of farmers, but many FCs
were based on priorities of some government officers and implementing agencies as well as
politicians.
According to performance of FCs in the past 7 years, we cannot firmly say that farmer
companies have been successful or not. This has happened mainly due to the fact that
officers and politicians act in their interest rather than on the needs and priorities of the
farming communities. Therefore, we cannot create business ventures unless it comes from
stakeholders of the business. The existing system of establishing of FCs by the government
organizations should be changed. FCs should emerge from farmers and the role of
government should be limited to a facilitating role.
In general, as far as the agriculture sector is concerned innovative thinking and new
approach should apply to modernize this sector. It is required to follow a pricing policy,
which will give a reasonable price to the farmer while keeping the price whiting the
consumers’ reach. Therefore in order to raise productivity and at the same time to solve the
problems of marketing in the agricultural sector, it is necessary to introduce a new
agriculture science and technology programs that will direct traditional agriculture to
modern agriculture. In this regards, a strong intervention of the government is essential.
Key Words: Farmer Companies, Modernization, Diversification, Transformation,
Liberalization
I
Acknowledgment
I was fortunate enough to have the rare opportunity to be admitted to the School of
Economics, Huazhong University of Science and Technology (HUST), for the pursuance of
my Ph D Degree and to work under the supervision of respected advisors Professor
Pei-Kang Chang and Professor Peng Daiyang. During the period of my studies, my
advisors, men of profound knowledge and lofty spirit, being serious in the execution of
their guidance and easy to approach have taught me learning principle s. I will benefit from
their directions for the rest of my life. I have received plentiful advice and full assistance
from them at both the initial stage and the dissertation stage, which involved identifying the
subject, proposal defense, and research and compilation of the dissertation etc. Therefore, I
would like to take this opportunity to express my heartfelt gratitude to my respected
advisors. I would also like to appreciate very much my Professor Chang Sheng Xu,
Professor of Economics and the Dean of the School of Economics for his invaluable help
and encouragement during my study.
Special thanks to Professor M O A de Zoysa and Mr. G D P Seneviratna former and
present directors respectively of Hector Kobbekaduwa Agrarian Research and Training
Institute (HARTI) and Mr. Chandrapala, Ministry of Higher Education for their invaluable
support, suggestions and encouragements.
I am also grateful to Professor Shuai Qirong, Deputy Director; Professor Wang Ling;
Dean; Mr. Tao Honjun; Miss Wu Dang and Miss Sun Lei; Hubei Agriculture Officials
Training Center for their close and friendly moral support for my stay in China.
Many thanks to my Research team Dr. W G Jayasena, Deputy Director Research; Mr.
R L N Jayatissa, and Research Assistants, W N S Nawaratna; T G Somaratna and Sandhya
Senanayake for their support in field survey, data collection and data processing as well as
all of the Farmer Company officials and farmer members for their support in collecting
information.
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There are a few whom I should thank in particular: Mr. Henegedara , Aravindan,
Kim Vesale and my Ph D classmates Mr. King, Mr. Peter, and Mr. Carter for their whole
hearted concern and warm accommodation and listening to all my problems during my
duration of living in China.
Finally, I would like to thank my parents, my wife and my two daughters for their love,
inspiration as well as silent contribution; persistent support and encouragement that I
have had enough confidence and perseverance to the realization of my academic goals. And,
to many other people whom I may have failed to mention but who likewise contributed
something to make this study and program possible.
1
1
1.1 Introduction
The World economies are moving ahead with new strategies, taking consideration of
dynamism in all spheres of production, marketing, distribution, transferring of technologies
and adopting mechanisms in information technologies. The dramatic changes in technology,
particularly telecommunication and transportation, deregulation of global financial markets
and liberalization of trade between nations through regionalization have accelerated the
forces of modernization. The integration of countries through flows of goods and services,
financial assets, technology, transformation of technology, news and cultural interactions
has reached unprecedented levels. The phenomenon of modernization has changed
profoundly both the stance and effectiveness of traditional macroeconomic policy
instruments. Sri Lanka’s agriculture should also take advantages of that modernization
process. Therefore, it is necessary to make structural, policy and institutional reforms in this
sector to transform the agriculture into a commercialized sector. Presently, the
agricultural sector plays an important role in the economy of Sri Lanka by contributing
19.4% to the GDP (Central Bank, 2001) and providing employment for about 32% of the
active population in the labor force and 19% of gross exports in 2001. However the World
Bank categorizes Sri Lanka as middle-income developing country, which the per capita
income is 899 US $ in year 2000. The total population of the country is 18.5 million in year
2001. Nevertheless, agriculture has become the main source of livelihood for the rural
population.
Since independence in 1948 and even before, successive governments of Sri Lanka
have made much of policies and strategies for the modernization of small-scale agriculture.
But the achievement has not reached in proportion to the efforts put into the development of
capitalism in Sri Lanka. Inspite of these development activities and investments, this sector
has come to a critical stage with no visible signs of improvements and has lost its
momentum over the last 10-15 years (NDC 1996). This situation indicated in the key
indicators such as low crop productivity and output, low intensity of use of irrigation lands,
low farm family income and poor employment generation, low adoption of farm
technologies particularly by small farmers. Moreover, the prices of all major inputs, (labor,
2
machinery, fertilizer, chemicals etc) have increased several folds resulting in a sharp
increase in a production cost of farm outputs. The farm-gate prices of agricultural
commodities produced by small farmers have not kept pace with rising costs of production
and this phenomenon has adversely affected the gradual erosion of net profits associated
with farm enterprises (HARTI, 1998). The meager returns or losses incurred by producer in
discouraging small farmers’ investments on agriculture. The frequent price fluctuations of
most domestically produced commodities leads to wide income variations and uncertainties
among producers. Therefore, modern agriculture management does not properly contribute
to the country’s economic growth, protection of natural environments and the
improvements of the standards of living in millions of small farmers. At the same time,
agriculture sector unable to play a greater and leading role for present economic prosperity
and prospects in the context of recent agricultural transformation and at present, agriculture
is becoming ‘leading but lagging’ sector of the economy in Sri Lanka.
The prologue of trade liberalization policies coupled with reduced barriers and free
import of cheap agricultural produce in 1977 was expected to pave the way for
transforming the traditional domestic agriculture into a commercial oriented competitive
agricultural sector. The government of Sri Lanka has initiated the liberalization process in
1977 to maintain the macroeconomic stability in the economy. It was a paradigm shift to
take advantages from the regional and global economics. However, the some rigidities and
structural problems created as stumbling blocks in the development process particularly the
risk factor due to unsettle condition in the country. The Sri Lankan agriculture faced the
same fate to attracting Foreign Direct Investment (FDI) and technologies to integrate the
sector into the global economy. If the economic fundamentals (real rate of economic growth,
budget deficit, current account deficit, investments, domestic savings, inflation and
unemployment rate) are right, we can expect improvement in growth in investment from
various domestic and foreign sources by infusing new technologies. Even to improve the
growth rates in agriculture it is necessary to maintain macroeconomic stability. If Sri
Lankan agriculture is going to gain advantage agriculture trade, it is necessary to maintain
competitive advantage, which creates to maintain the lowest cost compared to trading
partners. The policy environment should be sound and efficient to face the dynamism in the
domestic and international (i.e. global policy environments, which reflect in increased
growth rates in the sector concerned.). However, due to lack of bargaining power, and
3
competitiveness of small farmers, it was difficult for them to face the new challenge of
transforming their agriculture into a commercial one. Hence, policy package introduced
relating to agricultural inputs, extension, research and domestic marketing under the “New
Agricultural Policy” which was implemented by the Ministry of Agriculture in view of
assisting small farmers to strengthening their position in the liberalized market economy.
(Ariyaratne, 2000 P.201).
The 70 percent of the population in Sri Lanka live in rural areas and earn a livelihood
from agriculture and agriculture related other activities. The agricultural sector of Sri
Lanka consists of two sub sectors, the non-plantation or domestic food crop sector and the
plantation sector. The non-plantation sector which mainly consists of paddy, other food
grains, maize, soybean, vegetables and perennial crops accounts for 76 percent of the total
cultivable lands while the plantation sector consists of tea, rubber, coconut accounts for
24% of the total agricultural land. Paddy being the main non-plantation and staple food
crop accounts for 25 percent of total cultivable lands and about 2 million farm families
were engaged in farming as their main occupation. More than 70 percent of paddy
farmers belong to the “small farmer’s category” which owns less than one hectare of
land.(HARTI, 2000)
Even though modern economic history of Sri Lanka begin since independence (1948),
the liberal economic policy regime commence since 1977. Therefore, the study would focus
mainly on post-1977 period, since 1978 up to date. Sri Lanka has made a significant
progress in moving from inward looking policies to outward looking policies during this
period.. The change of policy made during post-1977 period, fall into three policy
regimes such as the first wave of liberal policy reforms (1977-1988), the second wave of
liberal policy reforms (1989-93) and the current policy regime: 1994 to date ( Somaratna,
2000, Henegedara, 2002).
1 . 1 . 1 The First Wave of Policy Reforms (1977-1988)
In this phase, the economy was transformed from an inward looking system to
outward looking system. A wide range of economic reforms was introduced during this
period, aimed at increasing economic growth and improving the balance of payments.
Policy reforms introduced since 1977 could be grouped under five sections: Pricing Policies
(Price Liberalization), Trade Policy, Monetary Policy, Fiscal Policy and Institutional
Reforms (Athukorala, 1986; Kelegama, 1990; Somaratne, 2000, Henegedara, 2002). In this
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process trade, monetary and fiscal policies were important as major structural adjustments.
1 . 1 . 2 The second Wave of Liberalization (1989-1993)
The second wave of liberalization reforms were intended to overcome the macro
economic imbalance due to the mismanagement of the economy and to the accelerated
development programs introduced since 1977. The second wave of liberalization reforms
took the form of structural adjustment programs (SAP) as recommend by the World Bank.
It included low profile adjustments such as reducing maximum nominal tariff on imports,
devaluation of the rupee, high profile projects such as privatization of public corporations
and enterprises and export oriented industrialization. The private sector was recognized as
the engine of growth and government intervention in production activities was limited to
provide economic and social infrastructure facilities. The tariff system was altered from a
six-band structure in 1988 to a three-band structure in 1992 and distortions were corrected
and rigidities relaxed for agricultural and industrial commodities (Presidential Tariff
Commission Tariffs Trade, 1994).
1 . 1 . 3 The Current Policy Regime: 1994 to Date
Policies followed after 1994 to Date were mainly focused on removing hidden
discrimination and distortions of the market. Eliminate restrictions on institutional and
technical barriers such as land ownership, credit and infrastructure (Policy Statement of the
Government of Sri Lanka, 1995). Privatization of government corporations was further
promoted. The government has paid special attention to reviewing the existing laws and
regulations in order to create business friendly environment (Central Bank of Sri Lanka,
2001). Deregulation process includes wide range of policies such as customs, land laws,
labor laws, taxation, energy and tea.
Within the transformation process, to attract FDI and new technologies, there should
be a “one organizational structure” to facilitate the whole process of investments, by
building partnerships, joint ventures with the foreign investors, adopting existing incentive
packages designed by the BOI. It will be able to avoid policy and institutional failures in
attracting FDI and technology. This institute will provide necessary infra-structural
facilities for investors. It will be able to use this organization to analyze the short, medium
and long-term impact of whatever the micro policy implemented and if necessary
reformulate the necessary strategies to achieve the target rate of growth. This institutional
framework should facilitate to get the ISO standards for the future export agricultural
5
products (eg. Green or organic products) and encourage to build contract farming initiatives
to avert the risk of both exporters’ and farmers’ in the process. Further, this institution can
used to formulate policies to gain benefits under the ‘green box’ policies of GATT/Uruguay
Round negotiations. The formulation of micro pectoral complimentary agricultural policies
should encourage land saving technologies such as. Green houses and poly tunnels. It is
also a measure for minimizing agricultural externalities and encourages competition
through a regulatory framework. The policy package recommended establishing a National
Farmer Company as an alternative marketing source with a limited liability structure
enabling farmers’ invo lvement in purchasing and marketing of all agricultural commodities
on a competitive basis. It also expected to protect the farmer against price fluctuations,
enhance farmers bargaining power, and competitiveness enabling them to face the
liberalized market economy and encourage farmers to transform their agriculture into
modernized and profitable ventures (NDC, 1996).
The Ministry of Agriculture and Lands accepted the formation and strengthening of
Farmer Companies in all districts under its “New Agricultural Policy” recognizing the
viability of these companies in the transformation of traditional, small farm agriculture into
modernized profitable economic ventures (Ministry of Agriculture and Lands, 2000,
Jayaratne, 2000). Farmer Companies expected to form strong economic organizations
of the farming community to enter into partnerships with the business community as
too strong groups of the private sector involved in commercial agriculture. These
companies also expected to address the major problem faced by farmers in the procurement
of inputs, obtaining technology, value addition to their product and marketing. They also
expected to demonstrate capacity to adjust to the forces of free trade in a market economy
by selecting appropriate crops to produce for markets on forward contracts generating
resources to invest on fragmented, water-short farmlands by prudent management practices
profitably.
1.2 Problem Statement
The new agricultural policy of the government of Sri Lanka emphasizes the need for
modernization of agriculture transforming subsistence farming to profitable economic
ventures. It has been recognized that in view of the current trends set by the international
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free trade agreements. The production environment that promoted this policy has created
conditions leading to take a further step from farmer organizations to farmer companies.
Within the globalization scenario, various opportunities opened for the Sri Lankan
agriculture. These opportunities used to achieve the objectives of sustainable le vel of sect
oral growth, efficiency in natural resources use, generation of employment opportunities
and improvements in the status of social welfare of all the stake holders involved in the
process.
Though Sri Lanka is able to gain significant achievements by following modernization
in absolute terms, the achievements from economic commercialization is still far below
when it compare to newly develop South East Asian tigers and mainland China. Being a
country, which follows liberal economic policies nearly three decades, it would have gained
high growth rate as mentioned in SOLOW model and new growth theories. Though some
socio political constraints affected the economic stability, it is necessary to review or do a
post mortem what are the main causes contributed for slow economic growth and failure in
some economic policy reforms, Therefore, it is expected to effects modernization as the
main growth strategy followed in the past three decades. This investigation would mainly
focused effects agricultural modernization as the most important sector of the economy.
Anyway, economic performance of Sri Lanka was able to achieve a significant
improvement in GNP per capita income, unemployment and PQLI indicators, especially
over the past 50 years since its independence since 1948. For instance, the overall economic
performance of the country has enhanced in reducing pressure of economic difficulties such
as balance of payments, unemployment and budget deficits. The GNP per capita has
doubled during the 1977-2000 period. The composition of agricultural exports has
reduced from 70 percent in 1977 to 19 percent in 2001. The PQLI has increased from 79.4
(1977) to 87.1 (1999). The rate of unemployment has reduced from 24% (1978) to 9.1%
(2002). However, when it compares with two countries under two different time scenarios
as mentioned below in table 1.1, no one will be happy with pathetic situation in Sri Lanka.
Table1.1: Comparison of per-capita income with two Countries
Year Sri Lanka (US$) Singapore (US$) Japan (US$)
1950 89 30 90
2000 841 30,000 33,000
However, the country was not able to sustain this growth, despite her continuance with
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the liberalization reforms ( Indraratne, 1999). The anticipated benefits of liberal policy
reforms were not reached as expected mainly due to ethnic problem and unstable political
condition. Still the country suffers from some strategic economic crisis such as trade
deficits, devaluation of currency, high inflation, poverty and unemployment with lower
pace or the same pace. It indicates that the gravity of some economic problems was
aggravated as follows:
Still more than 50% of the total number of families in Sri Lanka belongs to extreme
poverty group qualified for the Samurdhi, the main poverty Alleviation program of the
country. (Laksman, 1996, Mithreratne 2000).
By end of 2000, eighty- five (85) farmer companies had established in various districts
of the country (Appendix 1) and they were engaged in various business operations.
Moreover, 32 farmer companies have registered under the Company Act while 93 farmer
groups have also formed in 17 districts to identify viable business operations to form farmer
companies. This information indicates the important role expected to play in future by the
farmer companies.(Senanayake 2001)
The Ministry of Agriculture and Lands as mentioned earlier, initiated many number of
Farmer Companies in various districts of the country to achieve these social and economic
objectives.
More than seven years implemented those FCs in different stages, however there was
no proper study undertaken to assess the realization of expected objectives and its
beneficial effects on the smallholder farming sector. In this contest, undertaking such study
is important for both farming communities and agriculture sector policy makers.
1.3 Review of Related Literature
1.3.1 Definition of Farmer Company
The Farmer Company in Sri Lanka is defined as a commercialized people’s business
firm run by farmers which is organized, managed and funded corporately by farmer share
holders themselves to provide and promote specialized technical and economic services and
act as a legal business entity to do various business activities/services related to those
8
areas for making profits.(Senanayake 2002).
The concept of “Farmer Company” or “Peoples’ Company” is a quite new concept for
the smallholder farming sector of the country. The SCOR Project (Shared Control of
Natural Resources Project) implemented by the International Irrigation Management
Institute (IIMI) in collaboration with the Government of Sri Lanka, under the sponsorship
of the United State Agency for International Development (USAID). The aim was to
initiate for the first time a program to test the Farmer Company formation and operation as
an organizational mode to ens ure the active participation of the small farmers in the market
economy benefiting from it through profitable economic ventures. Figure.1.1 shows the
model developed and tested in the two pilot watersheds of Huruluwewa and Nilwala by the
SCOR (Appendix 2, SCOR project report)
Several important factors can be highlighted from this analysis. First, those who
advocate privatization insist on reducing government undertakings and increasing private
sector involvement in production allowing market forces to work. Where there is no
conductive production environment for market forces to operate allowing healthy
competition both producers and consumers to benefit, the result are market manipulation
and exploitative behavior by few enterprises to the dismay of the sma ll producer. This was
evident in the rejection of the business operations of some private companies in the several
parts of Sri Lanka where farmers were only out growers who realized that they had been
exploited by those companies making profits. Farmer Company mode of operation offers a
solution to this problem since it is a farmer managed business operation.
Second, Farmer Company offers a mode of operation to bring investment to farmlands
by mobilizing technology, organization of production and resources working on market
signals. In this way, farmer organizations become partners of a new emerging private sector
making efforts to benefit from the market economy.
Third, the political slogan of giving a human face to open economy can produce
meaning if more resources are made to be under the management of farmer companies,
which will ensure equity goals by sharing benefits among the shareholder farmers.
Fourth, the farmer company creates dignity of labor by moving farmers from the status
of exploited labors under private business investors whose only goal is profit making, to the
status of shareholders of farmer business ventures with opportunities to use the creative
energies of the farmers for undertaking in agribusiness.
9
Fifth, the farmer company operation, by bringing investment to their fragmented
resource poor, under-utilized, low productive farmlands create efficiencies in resource use
before opening up new lands in ecologically critical areas by private entrepreneurs whose
record has been not satisfactory in this country.
Sixth, the farmer company mode allows for better gender relations favorable to
farmwomen by allowing access to share of the farmer company. It has been pointed out that
the share certificates written in the name of the farmwomen, by their choice. It could allow
transaction at their will and this arrangement is better than just having the title of a
fragmented resource poor piece of land, which has much less value for money transactions
written in the name of the women member of the family.
1.3.2 Prospects for replication
The tested model of Huruluwewa Farmer Company is being used to promote farmer
companies elsewhere in the country. The conditions under which Huruluwewa Farmer
Company operates could be different in other locations. The second farmer company, for
example at Dambulla has yet to discover their strategies to overcome some of the
organizational and business issues, which are of local nature. What prospects exists for an
induced program of expansion of farmer companies?
Three aspects need consideration in the assessment of potentials for the emerging
farmer companies.
1) The socio political and economic is setting, international and local, which
influences negatively or positively the emergence and operations of farmer companies in
the locality.
2) The contributory factors, which could facilitate the emergence of farmer companies.
3) Forces which can be manipulated to create space for the emergence of farmer
companies
The figure 1.2 illustrates the global and local setting within which the new institutional
arrangement for the farmer companies should be understood.
10
Density, Fertility
Mortality, Accessibility to
Resources,
Cultural attributes
Figur 1.2 : Global and Local Environment for Farmer Company operations
The effects of global/regional economic forces influencing the policy making of the
third world countries have become clearer today. The Asian economic crisis illustrates the
nature of such effects on country economics. The domestic policies influence the locale
while the local socio-cultural political and economic environment affects the functioning of
the local institutions, which are meant to alter local power structure and economics. Farmer
companies are expected to be aware of the forces, make predictions and be ready to respond
to the forces that would affect operations in this setting.(Batuwitage G. 1999)
In the Sri Lankan context the most talked about subject of influence at present is the
predicted effect of WTO, SAPTA, and SAFTA free trade arrangements on local production
and marketing. State policy support is expected to promote farmer companies at the initial
stage of formation. In addition, farmer companies as an institutional mechanism are
expected to organize local production by mobilizing farmers to make important investment
11
decisions while being subjected to the internal forces of the locals.
The second important aspect of potential prospects draws attention to conditions
conducted to the operation for farmer companies. The government offered a Rs. 275
millions market to supply Soybean and aflatoxine free maize to farmer companies. In
addition, the government offered large stores of the Paddy Marketing Board to farmer
organizations and farmer companies with bank loans of low interest to purchase paddy and
other produce from farmers. Information on the availability of these concessions in each
districts are overlaid with information on comparative advantage for the production of
specific crops in specific areas, the existence of farmer organizations with their own
financial resources to identify areas of high potential for the growth of farmer
companies.(Btuwitage 1996)
The third aspect of prospects points to the elements of a model that helps assessing
and predicting the forces that can influence and that can be manipulated to create space for
the emergence and the growth of farmer companies. Figure 1.3 presents this model.
The three circles represent the state interests, farmer interests and the interests of the
organized private sector in farmer company operations. To the extent that the three circles
overlay, more space is created for the farmer companies to operate. Segment 1 is the space
where all the three types of interests overlaps and hence provides the best scope for farmer
company operations. Each segment numbered provides insights in to appropriate action. An
example is cited below.
Segment intervention
2. Lack of private sector interest. Provides incentives and motivate
For partnerships
5 State and private sector are interested but not the farmers.
e.g. farmers opposed certain private sector companies trying
to operate with state support. (Baby corn project of Kuda Oya
Catchments. Analyze causes to farmer protest and propose acceptable
Alternatives.
6 Farmers and organized private sector are interested, but not the state.
e.g. state does not allow extraction of certain medicinal herbs from forest
reserves for export by private sector company with people collecting and
supplying them. Clear policy intervention and limitations to the private
12
sector exercising strict supervision to direct proper
Partnerships.
3 Low political priority, Non-responsive bureaucracy, unresolved policy
conflicts in agriculture and trade, External pressure from World Bank
IMF, GATT, policy recommendations.
Figure 1.3: A model for assessing and manipulating forces to create space for
Farmer Companies
4 No motivation, High risk, High opportunity cost perceived poor access
to resources. No forwards contacts, Uncertainty of government policy
lack of information
7 Perceived risk, perceived law return, Manipulated market
The forces that are pulling the circles apart creating less space for farmer companies
can be understood as they appear in any specific location and appropriate measures can be
adopted for making the environment supportive to the growth of the farmer companies. In
Sri Lanka, the problem of lack of political commitment has been overcome with the fullest
support promised and the direction given by the President of the country at the highest level
3
SI
2
FI
4
1
5
7
OPI
6
No motivation
High risk
High opportunity
Cost perceived
Poor access to
Resources
No forward contracts
Scope for business [1]
ventures by farmer companies
Perceived risk
Perceived law return
Manipulated market
Low political priority
Non-responsive
bureaucracy
Unresolved policy conflicts
in Agriculture and Trade
External pressure
From World Bank IMF
GATT policy
recommendations
SI – State Interest
FI - Farmers Interest
OPI - Organized Private Sector
13
for the formation and operation of the farmer companies. The other forces existing have to
be correctly understood in each location for required action to ensure the growth of the
farmer companies that has the capacity to achieve growth and equity objectives.
(Batuwitage G. 1996)
According to the experience gained by SCOR experience indicated that “Farmer
Companies can be tangibly address small farmer related production and marketing issues
while capturing economies of scale, producing competitive economic ventures, and
harnessing the skills of educated youth in the small farm sector, (Wijeratne, 1997). Based
on the SCOR experience the Ministry of Agriculture and Lands initiated Farmer Companies
in various parts of the country but no any study has yet undertaken to examine their
performance. Hence, there is a felt need for undertaking such a study.
The private /public business ventures are not a new idea to Sri Lankan economy.
Before establishment of FC s’ the Farmer Organizations (FO) played an important role for
the farming communities in Sri Lanka. The history of the FOs goes back to 1950s. In the
post independent era Vel Vidane(irrigation head man) system was practiced in irrigated
areas to distribute water. This system changed in 1950s by introducing cultivation
committee system (CCS), which covers irrigation and all other agricultural activities. The
CCS system also changed in 1970s by introducing Agricultural Productivity Committee
(APC) after establishing Agrarian Service Centers (ASC). These committees were formed
to strengthen government agricultural delivery services, but once introduced bottom-up
and participatory development approaches in 1980s, FOs were formed to empower isolated
small farmers with a view to develop rural areas through active farmer participation. At the
end of 2001, about 12,000 FOs were registered and about 7,000 FOs were functioning
countrywide and received farm inputs, credit and marketing services. (Henegedara G M
2002).
Even though FOs were implemented successfully in some irrigation schemes under
certain conditions, it was unable to face new challenges emerged from open economic
policies and international trade agreements such as World Trade Organization(WTO) and
South Asian Preferential Trade Areas(SAPTA). Therefore, thoughts developed in 1990s to
diversify role of FOs towards FCs to adjust with liberal and global economic reforms.
Instead of FOs, the idea of FCs was emphasized due to the following few factors
(Batuwitage, 2000):
14
1) FC will find solutions for market manipulation and exploitative behavior of private
traders.
2) It will bring investment to farm lands by mobilizing technology and productive
resources.
3) To give human face to open economy (this was the main political slogan in 1996
election).
4) Farmers will become shareholders of FCs and creates dignity of labor by moving
towards the dynamic production activities.
5) FC will allow better gender relation for women with equal distribution of shares of
FCs
The state policy objectives of transforming the traditional small farm subsistence
agriculture to more commercialized profitable economic ventures are described indicating
the need for viable economic organization for the farmers to face the challenges of the
market economy is discussed in details at those awareness creation stages. Farmers form
interest groups with a temporary working committee to undertake the initial planning work
leading to the formal establishment of the farmer company.
Farmer companies get their formal status and the license to do business once they
get registered under the Companies Act. The Registrar of companies registers three
types of companies, viz. private companies, public companies and peoples companies.
For a peoples company to be registered the minimum requirement is 50 shareholders.
The price of a share is Rs. 10 and no single shareholder, individually or jointly with the
family members can own more than 10% of he shares, a memorandum of Articles and
Association has to be submitted which clearly outlines the objective of the company and the
by laws for operations. The shareholders elect the Board of directors and the responsibility
of the directors is to make profits for the shareholders. Director’s tenure in office is one
year although he/she can be re-elected for the following year. The company should have a
chartered secretary and should submit to the Registrar of Companies, annual accounts
audited by a charted accountant. These entire requirements to obtain legal status are
described at these meetings.
1.3.3 Chinese Farmer Company (Farmer Technical Associations)
China is a great agricultural country. Agriculture is the base of the Chinese national
15
economy. Of china’s more than 1.2 billion people, 900 million live in rural areas. The issue
of agriculture is very important to the Chinese economy. Among the world’s major
agricultural products, those produced in China occupy approximately one third since 1990’.
China now is the biggest producer of cereals, cotton, fruits, meats, eggs and aquatic
products in the world. According to information collected from various sources indicated
that the china Farmer Technical Associations plays very important role in agriculture sector.
It is estimated that there are about 130, 000 registered farmers' technical associations (FTAs)
in China's rural areas. They have been in initiated by a variety of stakeholders: farmers,
government departments, semi - governmental institutions, private business, or local
communities. Many have changed their services, scope of operation, operational modalities,
and/or stakeholder composition during their existence, i. e. developing from one type to
another. Only a few are completely farmer controlled at this stage. This system is almost
same in Farmer company system in Sri Lanka.
The organizations vary enormously in terms of size, structure and activity. Unlike
farmers' associations in many other developing countries, a large number of these
associations were formed initially for technological reasons to help farmers move into lines
of farming other than traditional, government - controlled grain and cash crops.
These developments followed fundamental reforms of China's agricultural sector at the
end of the 1970s and at the beginning of the 1980s, when, almost overnight, the target
group of traditional technically trained government services to agriculture shifted from a
few million rural co- operative units to more than 230 million farming households.
The reforms presented government services with serious difficulties. Government
funding started dwindling at the same time as the demand for services at farm - level
virtually exploded, causing the many grassroots government services tremendous problems
in coping with the situation. The organizations under scrutiny here developed against this
backdrop- They saw not only the need but also an opportunity to provide farmers with
technical services and help them produce marketable crops. At the bottom line, they
realized that new technology was needed to enable farmers to successfully enter the
emerging free markets for agricultural produce in China.
The relative explosion of farmers' associations in China is generating a good deal of
discussion at government level as well as government intervention. On the positive side,
farmers' associations are provided with the economic means and technical support to form
16
effective associations. On the negative side, the link between members and their
associations, and the power of the associations to chart their own course may be threatened
with excessive government intervention.
Although the Chinese government recognizes FTAs, the y are given little financial
support, and are therefore dependent upon their own resources for development. However,
the fact of their existence points towards a process of more direct involvement of farmers in
crucial processes such as technological innovation, acquisition of input and supplies, and
marketing of agricultural products.
The future for farmers' associations in China is not clear. Appropriate legislation has
yet to be developed to govern their activities and the environment in which they operate is
rapidly changing. In particular, they will need to respond to the increasing relative poverty
in some regions, and the widening gap between rich and poor farmers in some of the more
developed regions. Furthermore, they will also have to deal with the slowing down of the
immediate gains, which were made by farmers during the early years of market
liberalization in the 1980s.
It is clear, however, that a good deal of effort is being devoted to putting farmers'
interests first. In some places, these effo rts fail. In others, they succeed. But mostly, the
organizations under scrutiny here attempt to ride two horses at the same time in their desire
to put both government and farmers' interests first.
China launched its rural reforms in 1978. The reforms greatly emancipated and
developed rural production forces, promoted the fast growth of agriculture, including grain
production, and facilitated a steady optimization of the agricultural structure. It resulted in
the commonly acknowledged achievement of successfully feeding 22 % of the world's
population from only 7 % of the world's cultivated land.
The rural reforms simultaneously promoted reforms of the national economic system.
During this process of historical change, farmers technical associations emerged as a new
type of rural self- help organization and they are gradually becoming a strong vehicle for
rural and agricultural development.
Farmer Household as the Main operator
The role of the farmer household in agricultural production and operation is essent ial,
and the responsibility system was the most important measure for its resumption. The
reform did much to stimulate the initiative of the farmer households. Farmers could now
17
make more decisions themselves and operate individually largely. With the breakdown of
the People's Commune system, the household thus became the basic unit of agricultural
production and operation, and the core of the rural economy. This resulted in fast
development of not only grain and cash crop Production, but also of the livestock, forest
and fishery industries.
In the period 1985 - 1988, there was a low - level structural surplus in agricultural
production, and the state decided to abolish the previous system of unified imposition of
quotas for the purchase of agricultural products. Instead, it introduced a "dual track
system" for the purchasing of grain, oil- bearing crops and a few other agricultural
products through a combination of pre - sale contracts for part of the total output, with
the remainder being bought through the market at market prices. All other agricultural
products were to be sold on the open market.
The rural markets grew rapidly during the 1980s, and an agricultural marketing
structure is gradually emerging. So are the markets for land, labor, capital, technologies
and other farm requisites. Under the Planned economy, farmers used to be purely
producers but they are now becoming relatively independent market operators, although
most on a fairly small scale. They are gradually learning how to organize production and
their marketing operation in order to seize market opportunities and gain maximum
benefits under competitive conditions.
Discounting price increases, incomes and farmers' per capita consumption rose
250% and 130% respectively from 1978 to 1993. The per capita consumption of flour,
rice, edible oil, eggs and meat increased considerably. However, there are still wide
income gaps between rural and urban residents. From 1978 to 1994, the gap narrowed,
but since then it has been widening again. Agriculture is a labor-intensive industry
relative to other industries, and incomes in rural areas are lower than those in the cities
and towns. Most farmers living in low-income rural areas want to acquire Practical
technologies, good varieties and information wit h which to boost their output and
income.
Slow Reforms in Agricultural Support Services
The management capacity of community economic organizations at village level has
been weakened during the period of reform. At present, only 30% of collective economic
organizations throughout China are operating in a reasonably sound way, whereas the
18
remaining 70% have difficulties in managing community affairs. Some have even ceased to
exist. Often farmers are unable to solve the problems they face in agricultural production.
At the same time, they are frequently unable to solve them individually. Only in
economically developed areas with sound collective economic organizations can local
governments provide all the necessary technical services to farmers, for example: irrigation,
agricultural machinery, and plant protection.
Problems also exist in the public agricultural extension system, such as closure of
organizations, mergers or down - grading of extension units, serious lack of funding and a
brain drain. These problems seriously affect the extension of new technologies to farmers.
In addition, much emphasis is put on technical support to grain and cotton production, or on
large comprehensive projects, which do not consider the farmers' different needs.
The government is currently changing the methods of macro - economic control and
regulation in the agricultural sector, gradually reducing mandatory plans for production and
steadily increasing macro - economic intervention, legal instruments and information to
direct, support, protect and control agriculture. However, the objectives and targets of
governmental extension units still focus mainly on fulfilling state plans. Greatest attention
is paid to grain, cotton and edible oil production through large - scale extensio n projects. Of
course, it is also possible for government institutions and departments to provide services to
farmers directly, although it is difficult for them to cover every type of service "needed to
meet the varying demands at farm level. However, developments over the last decade have
shown that part of these services can be provided by institutions organized by farmers
themselves, in which farmers can be more directly involved in development and
management of new technology. In the future, co - existence between agricultural research
and extension institutions owned by the government, collective, economic and technical
service organizations at village level and farmers’ technical associations may provide the
solution to the problems described by relying on mutual aid and co - operation, thus giving
full play to a variety of support services.
Currently, investments in agriculture can be divided into five parts:
. state financial expenditure
. agricultural credits
. agricultural insurance
. collective investments
19
. farmers' individuals investments
The state's total investment in agriculture has increased since 1978, but the relative
proportion in relation to national expenditure has fallen. In addition, much of the funding
allocated to agriculture did, in fact, never reach the sector, which constrained
implementation of agricultural production plans. For instance, by September 1994 50% of
state financial expenditure for agriculture had not yet been Paid out to the appropriate
departments, and since 1994 a number of special loan programs in the agricultural sector,
have to be devoted to research and development.
Although farmers have responded enthusiastically to the new production opportunities,
most are under tremendous pressure from the market and find it difficult to reach
production targets efficiently. Farmers began to realize that the only way to improve their
livelihood was to create their own organizations, rather than depend on the state to design
new organizations to deal with their needs. It is clear that farmers must organize themselves
as they wish in order to play a more important role in agricultural development using new
concepts, advanced technology, and good management practices and methods. It is against
this backdrop that farmers' technical associations have developed. Their potential major
contribution to China's agricultural development should not be ignored.
The economic background for generating and developing farmers' technical
associations in China's rural areas was briefly introduced above. Since 1978, the
People's Communes have been dismantled and transformed into a system of household
contract farmers. While the land remains collectively owned, its use at present rests
with individual rural households mostly for a thirty - year period. Hence, the original
function of communities has been greatly weakened. Over 230 million households have
become independent Production units, a situation which initially made it difficult for
them to match their production with market demand. At the same time, the top - down
system for developing, transferring and disseminating agricultural technology made it
difficult for farmers to access new technology. The Public research, development, and
extension systems in China played and will play an important role in promoting
agricultural technology, but at the same time these face serious funding shortages and
they have half to actively look for new channels and means to transfer technology. The
farmers, on the other hand, have begun to explore new measures to "get rich quick",
20
seeking knowledge and information about new techniques, new Products, and new
technology, and above all, looking for organizations to work with or within. Thus, new
types of market driven farmers' technical associations emerged. These organizations
function as a means of connecting farmers with the market.
Development of the Farmers’ Technical Associations
Many farmers' technical associations (FTAs) in rural areas are a type of non -
governmental organization, which are organized and managed, co - operatively by
producers themselves to provide and promote specialized technical and economic services.
In the early 1980s, such organizations were initially established in Sichuan, Hebei,
Liaoning, Heilongjiang, Jiangsu, Zhejiang, and Shandong Provinces. By 1993, 130, 000
associations had been established nation - wide according to the China National Science
and Technology Association, a national body providing political and technical guidance to
such organizations.
In the four provinces of Sichuan, Heilongjiang, Shandong, and Hebei alone, the
number of associations exceeded 10,000 in each. Even in national minority areas such as
Guangxi, Inner Mongolia, and Xinjiang, there were also over 1,000 in each.
According to the Department of the Co - operative Economy in the Ministry of
Agriculture, another national body providing technical and political guidance to such
organizations, the actual number in 1993 was 94,960. According to the National Supply and
Marketing Co - operatives Organization, there are over 30,000 so - called technical
associations under that organization. In 1993, there were already 1,700 cross - border or
provincial level associations. These are also spontaneous economic co- operative
organizations established by farmers, run by farmers and beneficial to farmers, and are to
some extent similar to western specialized co - operative organizations. In November 1995,
a nationwide organization, The National Association for Specialized Technical Associations
in Rural Areas, was established, with He Kang, Vice - Chairman of the China National
Science and Technology Association, and former Minister of Agriculture, as its Chairman.
Some of the national data' used for this essay were provided by the Chairman of the
Chinese Science and Technology Association, who gave a speech at the" Conference for
Exchanging Experiences on. Rural Technical Associations in China" held on September 25,
1992. In the speech, he said, "the rural technical association first emerged in the early 1980s.
In the past 12 years, under the leadership of the Central Committee of the Communist Party,
21
the State Council and local Governments, and with the support of the national and local
Science and Technology Associations and the agricultural technology extension
departments at various levels, the number of rural technical associations reached 120,000 in
1991 with 4,510, 000 members. These associations covered crops, livestock, township
enterprises, the service industry etc. Of these associations, 10 % have become technical and
economic entities" (Collection of Papers on the" Conference on Exchanging Experiences on
Rural Technical Associations", Oct. , 1992)
According to statistics from the Chinese Science and Technology Association, by 1993
the number of farmers' technical associations had increased to 130,000 with 5 million
members (heads of households), accounting for 2 % of the total number of farm households
countrywide. Generally speaking, the head of a household joins an association and becomes
a member and will then receive technical and economic information and services from the
association. Once the household head joins, all members of the household are also members
of the association.
These emerging associations receive support from the highest political level in China.
In November 1993, the Central Committee of the Chinese Communist Party and the State
Council issued a special document: "Policy and Measures for the Development of the
Agricultural Economy and Current Farming." It stated that: "Various FT As in the rural
areas are an emerging development force of socialized services in rural areas, and
government institutions at different levels should give proper support and guidance to
enable them to gradually transform themselves into technically and economically selfdeveloping
and self- Promoting organizations." The associations also enjoy legal protection
and have the status of a legal person under the" Law on Registrations of Social
Organizations"
Categorization of Associations
Associations can be classified under three categories as shown below:
Type A Basic: Technology exchange
In this type of association, members with specialized skills and expertise, directors of
the board, or visiting experts offer training, either by lecturing or by Providing practical
demonstrations and written materials on specific techniques. Occasionally these types of
associations also provide economic and market information for specific products.
Type B Intermediary: Technical and Economic Services
22
In addition to providing market and technical information, this type of association also
provides input to members, including seeds, seedlings, fertilizers, and
sometimes-agricultural machinery. This kind of organization may be termed secondary or
intermediate and is not normally profit- seeking.
Type C Mature: Enterprise Type
This type of organization, for example a manufacturer, a company, or a cold storage
warehouse, provides members with comprehensive services in production, supply, and
marketing. It is not only a co - operative association, but also a profit - seeking enterprise,
with the ability to be self- sustaining and to develop further.
According to a survey of the 130, 000 associations described above, type A accounted
for 50 %, type B for 40 %, and type C for only 10%. In ,eastern areas of Shandong
Province, of the 184 FTAs surveyed in Laiwu City in 1991, there were 36 type A FTAs,
accounting for 19.6 %, 126 of type B, accounting for 68. 5 %; and 22 of type C, accounts
for 11.9 %.
The FTAs cover as many as 140 different industries. If divided in terms of sub - sector,
associations can be classified in seven categories, namely: (1) grain, (2) economic crops,
(3) livestock, (4) aquaculture, (5) vegetables, (6) forest products and fruits, (7)
Processing industry. Within these seven categories, most associations focus on activities
with a high market demand, less price control, high productivity and high profits. Although
grain farming occupies about 70% of the total arable land, the ratio of associations is
comparatively small. In this area, most services are technical and run by the government,
and the organizational set- up is well established with a strong technological base as
described in previous sections of this report. According to a survey conducted by the
National Science and The Technology Association in 1987, which focused on 4,153 key
associations, ratios in different categories are as follows:
Table 1.2: Categories of FTAs in China in 1987
Industry Grain Cash
crops
Livestock vegetables Fruit &
forestry
Processing Others
Ratio % 8.8 9.3 28.1 24.1 20.2 3.6 5.9
Although no similar surveys have been conducted since 1987, scattered evidence leads
us to assume that there has been no basic change in this structural composition.
Organizational Background
23
Spontaneous Organization
These organizations are usually established by local technicians (or demonstration
households) skilled in certain agricultural activities. They connect several families with
similar expertise to form a specialized technical group which enables the members to gain a
higher return for their work. These connected farming families converge around a village or
a town, and eventually may form a specialized village or specialized town association.
When the scope of production reaches a certain level, the association may change from a
type A, (i. e. basic) to type B (intermediate). When the scope of production expands, even
further the organization may want to become a market partner to directly participate in the
marketing or processing of the members' crops, thus becoming a type C association, i. e. an
enterprise run by its members.
For example, the long - hair rabbit association in Niuquan in Laiwu City, Shandong
Province, was formed after such a process. A rabbit - raising farmer named Lu Zanqing,
who established co - operation with 47 rabbit - raising families in 1984, initiated the
association. By 1992, this FTA had established 15 branches, with 780 local members, and
80 correspondent members. The association possesses fixed assets valued at 2.3 million
yuan and circulating capital of 900,000 yuan RMB. The FT A has enterprises, which in turn
have contributed to form a specialized rabbit - hair market, thus leading to the development
of a new local industry.
. Associations Based on Economic Organizations in the Local Community
The Citrus Association in Cai Ji An village in Dazhu County, Sichuan Province was
initiated by the local community organization with the aim of transforming a local
mountain area into an orange orchard. Local farmers contributed land, labor, skills, and
funds as shares to the association, which was set up as a joint stock co - operative.
Members are mainly orange growers, but there are also a number of agricultural technicians
and heads of the local community (who are themselves farmers). The association produces
oranges and tangerine seedlings, provides guidance and training in cultivation techniques,
pruning, and pest control. The association also helps prepare the orchards in the mountain
area, and provides the necessary input, as well as distributing dividends among its
members.
The Lean Meat Pig Raising Research Association at Miaoshan, Laiwu City, Shandong
Province, was initiated based on an existing Pig - breeding farm run by the local township.
24
It absorbed farmers from six specialized pig-raising villages into the FTA, and now offers
services for pig - raising, input supply, and marketing. At the beginning, farmers needed
fine breeds to improve their stock, while the breeding farms needed an outlet for their fine
breeds and related technical services. The FT A has also expanded into providing disease
prevention services, as well as offering pig feed formulas and marketing assistance. In 1992,
80% of all pigs produced were fine breeds, and the fixed assets of the association reached
3.45 million yuan RMB. The annual turnover was 5 million yuan RMB, and profits 700,000
yuan RMB.
Technical and Economic Co - operation Between FTAs and Local Government
Organizations
There are many economic bodies or enterprises under local government departments in
China, such as specialized trading companies, import/export businesses, supply and
marketing organizations, state - owned processing enterprises and factories, state
experimental farms, and agricultural extension agencies in different fields. Traditionally,
they all combine their technical mandates and strengths with economic activities and
statutory power to support and to absorb farmers in their activities. These economic bodies
generally make it comparatively easy for associations to enter into the market with less risk.
A livestock association in Wu an County, Handan City of Hebei Province, was set up by a
livestock products processing enterprise run by the county government. The government
department responsible encouraged the enterprise to establish a joint stock co - operative
association together with several chicken farmers. In this way, the processing company
could obtain steady supplies of raw material from the members. At the same time, the
association could help members confront market risks as happened when fodder prices rose
dramatically in the summer of 1995. The enterprise paid in subsidies to bring down
members' feed Prices to an acceptable level. In this way, the farmer members can benefit
from their government partners. The processing plant also provides fine breeds, technical
training, veterinary services on a contract basis, guaranteeing output and performance.
Finally, the members can sign contracts for guaranteed purchase.
The Mulberry and Silkworm Rearing Research Association at Zhaili, Laiwu City, Shan
dong Province, was established based on a local Silkworm and Cocoon Station directly
under the Silk Company of the city. It absorbed 524 members from villages in the town.
Members elected 25 members of the board of the association. The board has its meetings on
25
the 8th day of each month to discuss necessary work. Branch Meetings are held on the 18th
day of each month. The 28th day of each month is assigned for member meetings at village
level. The FT A has three levels of responsibility:
1) the association at township level is responsible for key issues relating to silkworm
and cocoon rearing, for technical training in the whole township, and for purchase of the
cocoons produced;
2) specialized technicians in different districts are responsible for providing tools for
production and for technical information, for silkworm disease prevention, and for various
other supplies in each district;
3) village members are active in their own villages, communicating, and
exchanging information about silkworm raising, and demonstrating newly acquired skills.
Through different channels at different levels, methods for the joint raising of
immature silkworms, the separate raising of adult silkworms, and introduction of new
mulberry varieties and techniques for increased output were developed and promoted. In
1993, the town produced 460 tons of cocoons, 280 tons more than in 1984, making it one
of the biggest cocoons - Producing towns in Shan dong Province.
. Associations and Local Government
Responsible Departments
The FTAs have a legal status as social organizations under the" Law on Registration of
Social Organizations". The status is different from that of a legal person of an enterprise or
a legal person of a co - operative, like co - operatives overseas (incidentally China has no
law on co - operatives), the FTAs are registered at local Civil Affairs Departments (under
the Ministry of Civil Affairs). Technically and professionally, the National Science and
Technology Association and its local branches have traditionally been administratively
responsible for the FTAs. However, because the Science and Technology Association is a
non - profit organization, without business functions or responsibilities, it cannot Provide
economic co - ordination and management support from its own resources to meet the
demands of FTAs and their members, who want to move from technical to economic
activities.
Recently the State Council (i. e. the Chinese Government) entrusted the Ministry of
Agriculture with guidance and support to these organizations, but the Ministry still has to
define its role more clearly to become a partner in this respect.
26
. Leaders and Membership
At village level, the leaders of FTAs are farmers (according to statistics of Handan
City, Hebei Province, 100 % of the leaders of farmers' associations at village level are
farmers). Most of the leaders in FTAs at township level are farmers, whereas a few are
government officials (according to statistics from Handan, 80% of the leaders are farmers).
At the county level, most of the leaders are government officials but a sizeable minority
(40%) is farmers. At the level of the prefecture (the highest in local government in the area),
the key leaders of the rural technical associations are government officials. In the Handan
(prefecture) Agricultural Association, 75% of the leaders are from government, and only 25
% are farmers.
The main reasons for this situation are :
(1) the main tasks of grassroots FTAs are to facilitate acquisition and dissemination of
Practical technologies and economic information as well as to provide simple technical
services. The farmer technicians can fulfill these tasks;
(2) the function of the rural technical associations at county and Prefecture level is to
co - ordinate relations among various government departments and to collect macro -
economic information. They also need to be informed about state policies. Therefore, the
local FTAs hope that government leaders join their associations to assist them.
In principle, the go vernments should support the association and not interfere in the life
and affairs of the associations using so - called "administrative means" (i. e. coercion).
Government officials who take up Positions in the associations should represent the
interests of the members of the association and create productive links between farmers and
local government.
. FTAs and Local Enterprises
The Relationship between FTAs and State - Owned Enterprises
The farmers' technical associations at village and township levels mainly provide
production input, such as fertilizer, seeds etc. for the members of the association at the preproduction
stage. They may also provide technical services to members during production.
However, in order to offer assistance in solving post - harvest problems, such as processing,
transportation, storage and marketing, they need to co - operate with enterprises, some of
which are state owned.
An example of successful cooperation between a FTA, its I members and a state -
27
owned enterprise can be observed from the experience of the Jianma Township Fruit
Association in Jianma Town, Laiwu City, Shandong Province. After developing its fruit,
production the association discovered that its key problem was marketing. The association
and, Laiwu Fruit Deve lopment Company, supported by the Department of Agriculture, the
Department of Forestry, and the Department of Finance, jointly established a relationship
between the companies. The FTA and its members in whom the Fruit Development
Company would be responsible for fruit marketing and the FTA would be in charge of
providing technical services to the farmer members. The members would be responsible for
fruit production. By taking such measures, fruit production in Laiwu City developed very
quickly.
FTAs and Specialized Households or Private Enterprises
The main obstacle for FTAs wanting to shift from simply offering technical services to
becoming economic entities or companies is the lack of capital and leaders qualified to
master key technologies and with management experience. In order to expand production,
increase the market share and help farmers boost their incomes and enhance their social
status, entrepreneurs from specialized households or private enterprises are often willing to
organize FTAs and to become their leaders. The development of co - operation between a
private enterprise and an association leads to a rapid increase of the fixed assets and
production turnover of the private enterprise, as the interests of the two parties converge.
The members of the association are able to acquire new technology, economic information
and services from the specialized households or the private entrepreneurs, and they in turn
generate higher profits compared to traditional grain production. Although members of
FTAs would often like to elect such entrepreneurs as leaders, they may not reap maximum
returns from the relationship. Since they have only technical and economic contracts with
specialized households and entrepreneurs, and since the FTA does not have provisions for
participation in the distribution of dividends on the profits accrued to the partner, the
returns are often unbalanced, with the farmer members as the losers. This kind of co -
operation may therefore be described as an imperfect primary co - operative.
Importance Relationship Between FTAs and Local Enterprises
The significant effect of local enterprises on the farmer' technical associations should
be regarded positively. However, more research needs to be devoted to how the farmer'
technical associations can develop from being subsidiaries of local enterprises to becoming
28
fairly standard co - operative enterprises, like, for example, in Europe.
It may be helpful to study in this respect the experience of Cai Jia An Citrus
Association of Dazhu County, Sichuan Province. The Association took farmers land - use
rights and labor as shares on a par with funds provided from outside-to establish a shareholding
company with limited responsibility. From the beginning, the company instituted
principles that made the property rights clear and enabled the company to issue dividends
from its profits according to the size of individual stock holdings. This kind of co -
operative enterprise is still at the experimental stage. 100 more such co- operatives emerged
in Sichuan Province between 1995 and 1996.
1.3.4 Impact of Trade Liberalization on Small Farmers – Sri Lanka's Experience
Sri Lanka has experienced a significant impact to its agriculture sector since being a
signatory to the Agreement on Agriculture (AoA). With the disbanding of a large number
of non-tariff barriers and fixing tariff at 35% on agricultural commodities there was a surge
of imports of "sensitive" agricultural crops to the country. This impacted negatively on
the extent, production and incomes of farmers cultivating, as well as on rural employment –
in areas where these crops are cultivated.
In Sri Lanka agriculture, which is a way of life for a majority of the population, has
seen its relative importance in the economy decrease over time, except in years 2000 and
2001 as reflected in the contribution to GDP and employment in agriculture. (Table 1.3).
Table 1.3: Share of Agriculture in GDP and Employment in Sri Lanka
Year % GDP % Employment
1990 23.20 44.70
1993 20.90 43.70
1994 20.50 34.60
1995 20.00 36.80
1996 17.61 37.42
1997 17.04 36.23
1998 16.56 39.31
1999 16.57 36.29
2000 19.40 36.00
2001 19.40 32.40
Source: Central Bank of Sri Lanka – Annual Reports
Nevertheless, the sector continues to play an important role in the overall economy,
29
with 75 per cent of the country's population classified as rural, and mainly agricultural in
nature, primarily through the economic linkages generated in the rural economy.
The agricultural sector in Sri Lanka is vulnerable both socially and economically due
to factors such as low level of commercialization, low productivity, weak market
orientation, marginal uneconomic operational landholdings due to fragmentation, lack of
infrastructure facilities, heavy dependence on rainfall, susceptibility to natural calamities,
and dependence of a large percentage of the population on agriculture for their livelihood. It
is with this background that Sri Lanka entered the Uruguay Round (UR) with an
under-developed agricultural sector, insufficient and low efficiency of resources use, to
raise productivity and profitability in line with their food needs and production potential.
Sri Lanka’s economy “opened up” gradually in 1977, through liberalized imports of a
large number of non-agricultural commodities. Agriculture however, was “guarded”
through the liberalization phase and was a protected sector with modest levels of imports to
bridge domestic production shortfalls.
The historical thrust in agricultural production in the food crop sector was towards
“self sufficiency,” based on two related objectives. First, increased food production was
important for food security particularly in view of the fragile production environment that
Sri Lanka has. Second, this was necessary to minimize foreign exchange outlays on food
imports, as foreign exchange earnings depended largely on the export of plantation crops,
namely tea, rubber and coconut that faced fragile and unstable world markets.
1.3.5 Experience with Implementing the Agreement on Agriculture in Sri Lanka
-Under the Uruguay Round
The Agreement on Agriculture (AoA) brought national agricultural policies under
multilateral rules and disciplines, with the long-term objective of establishing "a fair and
market-oriented agricultural trading system through substantial progressive reductions in
agricultural support and protection. The AoA includes specific binding commitments to
improve market access and to reduce production and trade-distorting domestic support and
export subsidies. In concrete terms, it aims at restricting the use of agricultural policy
tools that have negative or distorting effects on world trade and includes export subsidies
and border protection mechanisms, as these have a direct impact on trade.
. Sri Lanka's Food Crop Sector
30
Paddy - Sri Lanka’s main food crop is rice, and as the staple food in the diet of the
population, special emphasis was given to it with significant investments on Research and
Development. Despite this, while there is seen a slight increase in area cropped, yields tend
to have stagnated (Figure 1.4). In addition, the cost of production of paddy increased
significantly in recent years affecting the profitability of production and incomes to
farmers.
Trends in annual cultivated extent and annual average yield of
Rice in Sri Lanka
600
700
800
900
1000
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Extent ('000 ha)
3
3.2
3.4
3.6
3.8
4
4.2
Average yield
(MT/ha)
Extent '000ha
Average yield (MT/ha)
Fig. 1
Figure 1.4: The trend lines for extent cultivation and yield
Other field crops - The main Other Field Crops (OFC)s include chilies, onions, maize,
Soya bean, green gram and selected horticultural crops such as potatoes. Some of these
have been the “sensitive” crops, both economically and politically, and often difficult policy
decisions were required to safeguard the interest of local producers. (Table 1.4)
Table 1.4: Extents of Selected Other Field Crops (Ha)
Year Chilies B onion Potato Green gram
1995 7,428
1996 7,925
1997 6,469
1998 2,328
1999 2,171
2000 3,642
2001
30,597
26,098
24,138
21,632
21,760
19,834
20,508
3,687
2,662
2,956
1,413
4,597
2,796
4,227 4,403
18,097
18,261
16,636
17,509
15,336
12,968
14,967
Source: Ministry of Agriculture and Livestock Development, Sri Lanka
Wheat and wheat flour – Although rice is the main staple food crop produced locally,
31
wheat weighs very heavily in the local diet. Wheat is not locally produced but wholly
imported, in large quantities (Table 1.5).
Table 1.5 - Imports of Wheat and Rice (‘000mt)
Year Rice Wheat
1993 209 771
1994 58 865
1995 9 1057
1996 341 913
1997 306 789
1998 168 880
1999 214 859
2000 15 841
Source: Department of Census and Statistics, Sri Lanka
A major side effect of the availability of relatively cheap wheat flour in the country
has been a relative disincentive to rice cultivation. This has been evident on many occasions
in the past, leading to revisions of policies in order to maintain some kind of price parity in
favor of rice.
Agricultural Trade and Changes in the Rural Economy
Market access provisions of the AoA cover several areas: tariff and non-tariff barriers
(NTBs), tariff quotas, and special safeguards. On tariffs, one fundamental requirement is
that non-tariff measures cannot be applied to regulate trade. Further, the protective effect of
the NTBs has to be converted to their tariff equivalents, bind them for some base period,
and then reduce the rates gradually over time.
On the first requirement, namely “tariff-only” border measures, Sri Lanka had already
by 1994 gone through a process of autonomous economic liberalization, which removed
most NTBs to trade. The government had also unilaterally, independent of WTO,
committed itself to progressively reducing and harmonizing tariff towards a single rate over
the medium term.
Agricultural exports fluctuated around US$600 million during 1985-92 and slumped to
below US$400 million in 1994 and again surged up to exceed US$1 000 million in both
1997 and 1998. (Table 1.6)
Agricultural imports. Since food accounts for over 80% of the total agricultural
imports, imports grew positively with slight fluctuations during 1990-94 with an annual
32
average of US$ 498 million. Imports increased from 1995 with an annual average of US$
705 million during the period. As a result, the average annual imports during 1995-2001
period were 42% higher than the average annual imports during 1990-94 period.
Food imports grew positively on an average from roughly US$ 436 in 1990 to more
than US$ 640 by 1998 with an unusual drop in 1994. The foreign exchange expended for
food imports rose sharply in 1995 and continued until 2001 with an annual average of US$
1014 million. As a result, the average value of the food import bill during 1995-2001, at
US$ 1014 million, was 136% higher than in 1990-94 periods.
Table1.6: Food and Agricultural Trade, 1985-2001 (in million US$)
Year Agricultural Exports Food Imports
Exports Imports Net exports Imports Exports Net imports
1990 745 494 251 436 119 317
1991 662 524 138 452 116 336
1992 635 588 47 498 137 361
1993 442 477 -35 408 77 331
1994 376 409 -33 350 75 275
1995 672 659 13 556 133 423
1996 876 768 108 641 148 493
1997 1060 781 279 781 191 590
1998 1088 723 365 1255 118 1137
1999 947 661 286 1242 86 1156
2000 1005 693 312 1388 152 1236
2001 932 654 278 1235 128 1107
Source: Central Bank of Sri Lanka – Annual Report
Sri Lanka is a small food exporter compared to the other exporting countries. Food
exports were more or less stagnant during most of the 1990-2001 periods, with unusual
drops in 1993, 1994 and 1999.
Impact of elimination of NTB's on the Rural Farming Sector in Sri Lanka
The agricultural economy in Sri Lanka is fragile, and from a consumers point of view
dependent on both imported and locally produced food. In this environment, accelerated
or increased imports affect the farming community and result in mixed signals to producers.
In this regard the removal of NTBs and the increased imports of these commodities
impacted negatively on farmers. The elimination of all NTB’s and fixing "applied tariffs"
at 35 percent on all agricultural commodities contributed not only to the surge in imports
33
but also impacted negatively on crop area and production. (Figure 1.5, 1.6 and 1.7) The
sudden increase in imports of potatoes, chillies and onions since 1996 could be partly
attributed to the reduction in cultivated area and production in 1997-1999 for potatoes and
1997 and 1998 for Big Onions and chillies. Partial corrective measures such as
commodity specific import tariffs since 1999 have helped pick up the production in 2000
and 2001
0
20000
40000
60000
80000
100000
120000
140000
Metric Tons
1994 1995 1996 1997 1998 1999 2000 2001
Production
Imports
Figure 1.5: Production and Imports of Potatoes (1994 – 2001)
0
20000
40000
60000
80000
100000
120000
Metric Tons
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
P r o d u c t i o n
6 I m p o r t s
Figure 1.6: Production and Imports of Big Onion (1988 – 2001)
0
10000
20000
30000
40000
50000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Production
Imports
Figure 1.7: Production and Imports of Chillies (1988 – 2001)
While the number of crop seasons for which data is available is too few to establish a
statistically sound relationship between the different variables, the trends are critical for Sri
34
Lankan agriculture and require close monitoring to take important policy decisions.
Future Challenges
The challenges facing the agricultural sector are compounded with stagnating crop
yields and rising cost of production. Moreover, a cumulative effect of lack of new
technologies and inefficient resources management practices further contributed to
stagnating yields, low productivity and decreasing farmer incomes.
Consequences for Food Security
On the whole, though difficult to quantify such effects with a great degree of accuracy,
it can be concluded that increased imports of relatively cheaper food products, following
the tariffication process has had an adverse impact on food production and consequently on
food security in the short term.
The rice sector does not appear to be affected directly though being unclear due to the
enormous amounts of wheat flour imported yearly and the shifting import and pricing
policies to ensure food security of the urban and rural poor, while being vulnerable to lower
prices of wheat flour.
There is clear evidence of negative effects on the extent cultivated and production of
notably big onions, potatoes and chillies. Another negative effect is the risk of high
dependence on imported food items. This became obvious in 1998 when India imposed a
ban on onion exports, which raised local consumer prices of onions by over four times the
normal price. This issue was further compounded with local production falling drastically
as a result of low output price to previous year high imports and the extent cultivated bring
reduced significantly, effecting negatively both the onion farmers and consumers.
The fluctuating protection scenarios experienced since 1996 has led to a certain degree
of uncertainty among the producer-farmer community with attendant impacts on their
incomes and livelihood. Furthermore, the availability of alternate crops to these farmers
are few and uneconomic in the short term and the economic impacts of are these measures
being quite significant.(Ratnayaka 2001)
1.3.6 Impact on Rural Employment
In general, trade specialization is said to generate positive effects on employment.
This may be true in the export sector if market access improves as Sri Lanka specializes on
labor- intensive products. However, this is yet to be observed as no new markets for such
35
crops have opened up in major developed countries.
On the other hand, the "import liberalization" through tarrification has impacted
negative ly on employment, effecting directly over 10,000 farm families involved in the
production and 50,000 workers indirectly associated in marketing and transport of these
crops. This was observed in the two main potato growing districts of Badulla and Nuwara
Eliya (Maharouf 1998). In addition, a number of laborers working in the Chillie and Onion
fields were affected, as well as those involved in the marketing process.
The liberalization of imports to Sri Lanka and the tarrification process impacted negatively
on the food agricultural sector. This is now being reversed through the imposition of
commodity specific taxes, which has helped partially reverse the process. One major lesson
learned is that had lifting of NTB's and the tarrification process been not as abrupt as it was,
the gradual impact of the decision would have been more acceptable.
1.4 Objectives of the Study
1.4.1 The main Objective
The main objective of the study is to examine the performance of Farmer Companies
focusing particular attention to its contribution made towards the strengthening of
bargaining power of small-scale farmers, enhancing their competitiveness and transforming
small farm agriculture into a commercialized agriculture.
1.4.2 The specific objectives of the study are
To examine the contribution made by farmer companies to provide competitive
marketing facilities and higher farm-gate prices for agricultural commodities produced by
small farmers.
To examine the changes in farmer income and living standard of farm households
because of competitive marketing facilities provided by FCs.
Evaluate the contribution made by farmer companies to popularize commercialized
agricultural investments among small-scale farmers and assess their effects on farm
households.
To identify the problems and constraints faced by member farmers and the
management of farmer companies in implementing the development projects and programs
36
in the globalize economy, compared to that of P.R.China.
Make suggestions/ recommendations for further improvements of the farmer
companies to cope with the global trends with special reference to the Chinese experience.
1.5 Research Methodology
The quantitative data and qualitative information required for this research study was
collected from several sources, namely:
1.5.1 Secondary Sources
Since an important aspect of this study is its emphasis on the relevance of official
records of Farmer Companies, part of the information gathered through the relevant
materials from the research institutes, archives, Ministry of Agriculture and universities etc.
Various types of statistics particularly related to the allocation of funds for farmer
companies, purchases of farm products from individual farmers, sales information, profit
and losses incurred by farmer companies etc. currently kept in the files and records
maintained by the individual farmer companies and by the Project Division of the Ministry
of Agriculture.
1.5.2 Formal and Informal Interviews/ Discussions
The research team hold formal discussions with key officials and policy makers in the
Ministry of Agriculture and Lands, and the managers of the farmer companies who are
responsible for implementing the programs, to gather information required for this study. In
addition, detailed discussions were hold with the district and provincial level officers like
Divisional Officers (DOs) attached to Agrarian Services Centers and Commissioners of
Agrarian Services Department, Traders, Business partners etc. Further discussions with
farmer leaders and key members of the farmer organizations also hold and gathered
information relating to their experiences and views regarding the farmer companies.
1.5.3 Farm Household Survey
The Third step was conducted a field study in a sample farmer companies, based on
different agrarian structures in various regions in the country. It has also undertaken a
37
household survey and gathered relevant information from the farmers who have become
members or partners of the Farmer Companies in the respective areas. Information relating
to Socio-economic characteristics of these farmers, benefits they have realized from Farmer
Companies, their views on the performance of these companies, problems and constraints
relating to Farmer Companies as identified by these farmers, their suggestions for future
development etc. has collected through interviews hold with individual farmers. The
information gathered through farmer interviews was recorded systematically using
structured questionnaires.
Table 1.7 Districts wise Farmer Companies in Sri Lanka
Districts No. of
Farmer Companies
Districts No. of
Farmer companies
1. Galle 01 11. Matale 03
2. Polonnaruwa 04 12. Kegalle 07
3. Ratnapura 01 13. Gampaha 04
4. Nuwaraeliya 05 14. Hambantota 03
5. Kalutara 11 15. Ampara 02
6. Anuradhapura 06 16. Matara 03
7. Putlam 03 17. Batticaloa 01
8. Colombo 01 18. Kurunegala 06
9. Monaragala 01 19. Kandy 18
10. Badulla 02 20. National Level 03
Total 85
Source: Ministry of Agriculture & Livestocks.
Table 1.8: Selected Sample districts and Farmer Companies
Districts Total Farmer
Companies
Selected
Farmer Companies
1. Kurunegala 06 02
2. Anuradhapura 06 02
3. Polonnaruwa 04 02
4. Nuwaraeliya 05 01
5. Putlam 03 01
6. Ampara 02 01
Total 26 09
The farmer companies for the field study has selected from different regions in Sri
38
Lanka. This would facilitate comparison. The assumption was that those companies would
have developed different forms of adaptations. The potential administrative districts for the
selection of farmer companies for this study are Kurunegala, Anuradhapura, Polonnaruwa,
Ampara, Nuwaraeliya, and Matale. According to the available information, the number of
farmers who have become members or partners of these Farmer Companies are very large.
Therefore, it has selected representative number of farmers from each Farmer Company for
the household survey by employing a random sampling technique.
By the end of 2000, there were 85 Farmer Companies engaged in various business
operations. It has selected 10% farmer companies out of them for this performance
evaluation study. The members or partners of these selected Farmer Companies were the
respondent farmers of the above-mentioned household survey.
Table 1.9: Selection Structure of Farmer Companies
District Name of
Farmer Companies
Main Crops
Related to Company
Supporting
Institution
1. Kurunegala 1. Ridibendiela
Farmer Co.
2. Hiriyala
Farmer Co.
Paddy/OFC
Live stocks
Paddy
Irrigation
Management
Institute (IMMI)
Ministry of
Agri. & Live.St.
2. Putlam 3. Sri Ketha
Farmer Co.
Paddy/Rice -
3. Anuradhapura 4. Huruluwewa
Farmer Co.
5. National (Chilies)
Farmer Co.
Paddy/ OFC
Chilies
IMMI
Ministry of
Agri. Live st.
4. Polonnaruwa 6. Elahera
Farmer Co.
7. Minneriya
Farmer Co.
Seeds/ Agricultural
Inputs/ Credits
Seeds/ Agricultural
inputs
Mahaweli
Economic Agency
IMMI
5. Ampara 8. Akkareipattu
Farmer Co.
Paddy Agriculture
Development
Authority
6. Nuwaraeliya 9. National
Potatoes
Farmer Co.
Potatoes Ministry of
Agri. & Livest.
The analytical techniques and theoretical framework of the study are mainly based on
economics. Economics today is at a crossroads. New Institutional Economics and Macro
Economics approaches be used for the analysis of the study. In institutional economics:
transaction cost, property rights and economic organization have become the prominent
instruments of the analysis. In addition to that, the various statistics measurements
employed throughout the study. The available data and information analyzed with the use
39
of descriptive statistical tools with other relevant instruments, which are highly applicable
for the subject of economics and management studies.
Figure 1.1
General Organization Chart of
The Farmer Companies
EXRERNAL MEMBERSHIP
AUDITS
CHAIRMAN &
BOARD OF
DIRECTORS
SECRATERY
STATE SECTOR PRIVATE SECTOR
INTERNAL
AUDIT CHIEF
EXCECUTIVE
ACCOUNT &
ADMIN….
INPUT &
SERVICES
MARKETIN
& SERVICES
CLARCK FIELD ASSIST.. FIELD ASSIST..
COMPANY
REGISTRAR
40
Figure 1.2
Farmer Companies distribution in Districts
41
2 Modernizing Small Farm Sector in Sri Lanka, New Strategies for
Development
2.1 Introduction
Agriculture Modernization in Sri Lanka is change the view of subsistence
agriculture system in to sustainable and commercializes agriculture system using modern
agriculture science and technology to increase farmers’ income and living standards. It is
known to everybody that the world agriculture based on the great progress of agriculture
science and technology. It has made great contribution to the global economy in 21st century.
It is provide enough food for world population, Improve the living standards of human
beings, supply quantity as well as quality food for the world and act as a motive force for
agriculture modernization in the coming highly intelligent society.(Shuai Qirong 2004)
Within this context agriculture has become one of the catchwords reflecting important
aspects of these modernizing trends. New technologies and inputs applied to agriculture –
seeds, agrochemicals, machinery and more recently biotechnologies, genetic engineering,
blue revolution like ocean agriculture farm, ocean livestock farm, ocean forestry farm, and
space agriculture- as well as those applied to the processing and distribution of food are
central aspects of these agricultural modernization process.(Teubal M. 1992)
Modernization and diversification of agriculture and agro-industries are necessary for
Sri Lanka to achieve its goals of income, employment, and food security. However, this
process should not lead to a dynamic and commercialized agriculture with stagnating or
marginalized peasants. Instead, the small farmers, who form an overwhelming majority of
the country's population, should actively participate in the proposed agricultural transformation.
To maximize the benefits derived from economic liberalization, creating the basic
conditions/environment required for a market economy is necessary. Market
imperfections-including manipulation and corruption in markets related to small farmer
production should be corrected. Exploitation occurs in an environment where perfect
conditions for economic liberalization do not exist.
Sri Lanka's future prosperity heavily depends on modernization and industrialization
42
of agricultural sector as fast as possible. In 2001, agriculture contributed 19.4 percent to the
nation's Gross Domestic Product, GDP, and recorded a 32 percent share of employment
(CBSL 2001). Nearly 70 percent of people live in rural areas. As these are predominantly
agricultural areas, modernization and commercialization of agriculture and agro-based
industries could substantially contribute to the employment and income goals of the country
and this, in turn, would help maintain rural-urban migration at favorable levels.
During the colonial period, economic developments in general and agricultural
development in particular, were biased toward export-oriented large-scale plantation in the
wet zone. Since independence in 1948, food and employment goals have largely
determined the basic trends and tenets of development policies, which were focused mainly
on the improvements in the domestic sector, especially in the dry zone, through the
acceleration of investments in irrigated agriculture and associated human settlements. These
investments contributed significantly to the dual objectives of food (especially rice)
self-sufficiency and increasing employment. Hundreds and thousands of poor, who would
have been otherwise unemployed, benefited from these investments, especially in the
irrigated agricultural settlements.
However, the performance of most existing irrigated agricultural production systems
in Sri Lanka, despite very high costs of construction, has fallen short of expectations and
these systems are characterized by low intensity of land use, inefficiencies in water
distribution, and rapid deterioration of delivery systems. In both irrigated and rain- fed areas,
competing uses of limited resources have not only resulted in the degradation of the
production base, but have also led to social conflicts and organizational institutional
problems.
In irrigated areas in the dry zone, key determinants of rice production such as yield
level, areas cultivated, and cropping intensity did not show clear rates of growth and the
profitability of major non-rice crops shows a declining trend. Nevertheless, when all crops
were analyzed as import substitutes the results clearly showed that rice as well as other
major crops had a comparative advantage for local production (Wijayaratna . 1996).
It is argued that a great deal of diversification and modernization is necessary, both in
irrigated rain- fed areas of the dry zone and in the small farm sector of the wet zone. Such a
process should not lead to a dynamic and commercialized agriculture with stagnating or
marginalized peasants. This is important because the average of over three fourths of
43
agricult.ura1 holdings in the country is below 0.8 ha. Unlike in the pre- independence era, in
the plantation sector too smallholders constitute an overwhelming majority. Therefore, Sri
Lanka's agriculture sector should make substantial progress. Especially, with active participation
of small farmers, to shift them from a state of poverty and underdevelopment to
one of increasing prosperity. They can and will provide reasonably priced food for the
increasing population while also earning foreign exchange through exports. To take-off for
this transformation, the new agricultural and agro- industrial development policy, in line
with the declared policy of the government to broad base the benefits accruing from an
open economic policy, recommends restructuring the institutional base of production and
related services.
2.2 Historical Perspective of Agricultural Development
The "New Agriculture" envisaged emerging out of this planning process, would being
an economic activity, with diversification, and marketing oriented modernization and
profitable agro- industries established in rural areas. Its essential elements would be rational
land use/tenure strategies, specialization and zoning of crops and agricultural activities and
the promotion of Farmer Companies among enterprising small producers In the meantime
with the FAO's signal of a wide global adverse food situation by the year 2000, and
consequently mass -scale starvation, malnutrition and hunger there after, the above
innovative planning process assumed an acceleration parameter and therefore was
converted to a "Waga Lanka Waga Sangramaya" meaning cultivation effort on a war
footing. .
"Waga Lanka” is the symbolic designation assigned to the Agricultural Development
Program of the Ministry of Agriculture, designed through a continuous experiential
learning planning process undertaken by it ove r a period of approximately one and half
years. In this planning process, attempts made in the past including those instituted during
the ancient period of this country, were used as guideline experiences in designing the new
program. Unlike most previous plans and programs, the present program is supported by an
implementation strategy designed under "AMA", offering an "integrated approach" to
planning and plan implementation in the rural agricultural sector. Under this Strategy, food
production and overall agricultural production are treated as synonymous activities needing
44
consciously planned and efficiently implemented continuous strategies in terms of urgency,
flexibility and expediency required in waging a war.
Ancient Kings Family believed and were strongly inspired by the words of Lord
Buddha "all beings depend on food" (Sabbe Saththa Aharakkitha). Accordingly, they built
an extensive and efficient irrigation infrastructure over a period of nearly ten centuries
beginning from the 2nd century A.D. and lasting up to the 12th century A.D. (Brohier
1987). Even the colonial rulers, particularly during times of war realized the need of
increasing food production and therefore, attempted to restore this ancient agricultural
irrigation infrastructure in order to facilitate food production. Since independence, all
Governments, which came to power periodically, have invested substantial amounts of
resources on the agricultural irrigation infrastructure as well as to facilitate agricultural
production and particularly food production associated with the rural agricultural economy.
In the Sri Lanka's rural agricultural economy the use of poor seed, adherence to age old
cultural practices, insufficient use of fertilizer, agro - chemicals etc., and lack of production
- credits., all of which added up to a low rate of productivity; characterized the small-holder
and his subsistence - level farming. The lack of sources of fair-priced production inputs, as
well as the insufficiency and the inadequacy of well-organized producer-oriented marketing
facilities, aggravated the problem. The question of finding an escape from this situation
assumed urgency for the country because agriculture still accounts for the major share of
the immediate employment potential in the country and the imbalance in the foreign
exchange situation. Any increase of agricultural production would contribute significantly
both to increasing the employment potential and to raising the income levels in the rura1
areas. At the same time, with rice and other subsidiary food stuffs accounting for a major
slice of the import bill, any reduction thereof could not only help in redressing the foreign
exchange imbalance, but, could also release foreign exchange resources for import of
capital goods for much needed development projects. Therefore, the question of increasing
production in the domestic agricultural sector has been a major problem for the
decision-makers of the country since independence.
With self-sufficiency as the goal, a series of attempts were made to tackle this problem
through programs aimed both at increasing the "production - acreage" and the "produc tivity
of the acreage". These attempts can be enumerated as follows:
1) Restoration of ancient Agriculture/Irrigation Systems and Construction of New
45
Ones, 1935-1956;
2) Agriculture Plan of 1958;
3) Accelerated Food Production Program - 1963;
4) Food Drive 1965 – 1970. Agriculture Development Proposals.
5) Five Year Plan 1971 and Land Reforms Program
6) Mahaweli Development Program 1971 and Accelerated Mahaweli Development
Program 1978;
7) Irrigation Program Review and Program for Integrated Management of Agricultural
Settlements: 1984 (INMAS and MANIS);
8) Integrated Watershed Management - Shared Control of Natural Resources Project
1994 (SCOR);
Mr. D.S. Senanayake, the first Prime Minister of independent Sri Lanka continued
with his colonization policy, which he began through the Executive Committee System of
the State Council period. After becoming Prime Minister, he did not attempt to change the
British Administrative System, but proceeded to utilize it to rehabilitating the traditional
rural agrarian economy. Firstly, by rehabilitating the ancient irrigation schemes and later by
establishing new ones, he expected to expand the area under agriculture and also to
facilitate the creation of a prosperous, self-sufficient and self-respecting village peasantry
and also a class of rural gentry that assumed leadership in all village affairs as during
ancient times (Senanayake 1935). These objectives are clearly stated in a report submitted
by the Executive Committee on Agriculture and Lands of which, Mr. D.S. Senanayake was
the Chairman. This policy up to about 1958 emphasized the development of rural
-infrastructure such as irrigation works, roads and highways, schools, hospitals, etc.,
consisting of the physical apparatus required for the development of the rural economy. In
addition there was also a very successful attempt to build a network of agricultural
institutional infrastructure including research and training facilities through state managed
agricultural farms and schools. This infrastructure building effort was highly significant and
it functions efficiently even today with periodical repair and rehabilitation. It appears that
building a proper development strategy to achieve a qualitative structural advancement in
agriculture on the physical foundation built by Mr. D.S. Senanayake was left to the leaders
to follow.
Late Mr. S.W.R.D. Bandaranaike who became Prime Minister after the 1956 socio46
political revolution, who realized the need to build such a strategy for the development of
the domestic agricultural sector, along with upgrading of the human resources therein
appointed Mr. Philip Gunawardena who was capable and ready to attempt such structural
reforms as the Minister of Agriculture in the 1956 Cabinet. As was expected of him, Mr.
Philip Gunawardena wasted no time in drafting new laws and designing new strategies
required for this purpose and pushed them through the legislative process in double quick
time.
Agriculture Plan of 1958 prepared under the direction of Mr. Philip Gunawardena has
to be regarded as the earliest significant attempt in scientific agricultural development
planning in Sri Lanka’s agriculture. This plan is highly significant as the first of its kind to
attempt agricultural development on an integrated and planned basis, taking into consideration
both the tangible aspects and the human resources, and sociological aspects of rural
agricultural development. It can be described in a word as optimum exploitation of already
available cultivable land. The cornerstone of the Plan was the Paddy Lands Act, which
sought to break the shackles, until now imposed on land-cultivation by the feudal
relationships between ande-cultivator and the property owner. The incentives of permanent
and heritable land tenure and limitation of property owners' rent envisaged in the Act were
expected not only to stimulate production but also to raise the human stature of the
cultivator. The Cultivation Committees under the Act were expected to promote collective
effort in cultivation, inculcate self-government and act as the relationship between the
cultivator and the administrator.(Brohier, 1987)
The third program was not so much a plan but an attempt to effect certain
organizational changes within the existing administrative machinery to bring about coordination
and enhance the efficiency of the different government agencies responsible for
food production.
The continuing imbalance in the foreign exchange situation, coupled with the increase
in the, world market price for rice, generated a crisis situation in 1965 which highlighted
the urgency of making a more determined effort at achieving self sufficiency in rice and
other principal subsidiary food crops. The new Government set about the task correctly
from the beginning and directed its attention straightaway towards formulation of a
program to promote agricultural production especially in the rural sector. The strengthening
of the coordinating machinery at the District Level and the Center and creating
47
Coordinating mechanism at Divisional as well as village levels received careful
consideration. An attempt was made for the first time, to decide production targets and plan
goals on a regional basis and this resulted in more weight been given to the implementation
aspects of the programs. Therefore, the emphasis in the Agricultural Development
Proposals 1966-70 was mainly on the importance of weaving together the different factors
of agricultural production to facilitate the successful implementation of the program.
Accordingly, after a survey of the current situation a Five Year Program for increase of
productivity with a break-up of production targets by Districts, Divisions and Villages was
prepared covering the period 1966-1970.
The target in the Five Year Program (1966-1970) was 70% self-sufficiency by the end
of the period. The increase in production for the period up to the end of the second year of
the program exceeded the target and generated a feeling that there would be no problem in
achieving the planned goals. But this was not so much due to the efficiency of the
administrative changes effected, but due to the support received from several external
factors of which three were quite significant
(i) The increase in the guaranteed price for paddy;
(ii) The reduction in the quantum of the subsidized rice rations which led to an
increase in the free-market price;
(iii) The sense of national urgency, which was highlighted in the propaganda drive led
by the Prime Minister and the Minister of Agriculture.
Actually, it is the changes in the price-structure that made the major contribution to
productivity. In the short run, it provided an extra-ordinary strong motivation for the
peasant farmer, which helped him to ignore any impeding forces in the administrative and
institutional organization. It would, therefore, be unrealistic to accept the current
administrative organization as one, which could provide a firm base for a development
program. Accordingly, the importance of pricing and marketing has been fully recognized
under the "Waga Lanka" program. It has also incorporated proposals for re-alignment of the
administrative organization.
The next attempt in planning agricultural development in Sri Lanka particularly with
emphasis on the upgrading of the small scale, rural economy is reflected in the strategy
proposed in the Five Year Plan of 1971 (MPE 1971). The importance of assigning high
priority to agriculture, particularly small scale sector, in the national economic development
48
agenda as well as of designing an appropriate integrated planning and implementation
strategy with the participation of organized small producers was clearly emphasized by the
Five Year Plan. It was to be a joint-effort by people and government in all respects. An
implementation Strategy with a package of certain organizational arrangements,
institutional mechanisms and policy reforms was also instituted to back-up and facilitate the
operationalisation of the planned proposals.
The implementation of this Five Year Plan started with a great deal of enthusiasm by
the Permanent Secretary, Prof. H.A. de S. Gunasekera of the Ministry of Planning and
Employment at that time. The implementation was earnestly continued but was disturbed
by the after-effects of the insurgency of April 1971. Later, in the face of this insurgency a
system of District Political Authority was introduced to expedite plan implementation and
to bring about co-ordination of the efforts of different government agencies at district level.
Along with the Five Year Plan the People's Front government initiated the program of
Land Reforms under which the privately owned estate land was nationalized. Part of this
nationalized land came to be administered direct by the state and part of it was alienated to
private individuals to form small settlements, with small-scale farming. During the same
period the Mahaweli Development Program was commenced and a feasibility-study was
completed with programs aimed towards diversifying agriculture under new farming and
settlement patterns. .
The colonization schemes started during the thirties, forties and followed in the early
fifties no doubt developed as "growth poles" in the rural areas and resulted in the
emergence of some kind of "systematic farming". However, subsequent evaluations of these
schemes have found that this "systematic farming" did not differ very much from the
"Mono-Crop subsistence farming" that prevailed in the Purana Villages of the Dry Zone
under village irrigation works and in rain fed areas.
Mahaweli Development Program of 1971 as well as the Accelerated Program of 1978
attempted to change this farming system with new cropping patterns and agro enterprises
and rural industries based on new settlement patterns and organizational and institutional
arrangements with a view to making agriculture profitable and sustainable in the long run.
Beginning with late sixties during the "Food Drive" action was initiated to review
the performance of these colonization schemes - Major Irrigation Schemes under a program
commonly known as the "Irrigation Program Review". Under this Review a FAO Team
49
(paperbzak Mission) studied these schemes and highlighted the need for greater output and
also pointed out that the high costs incurred in the setting up and management have been
out of proportion to economic returns. The income realized has been low in relation to the
costs resulting in an overall capital output ratio of 12: 1. Consequently several programs
were launched in 'the major irrigation schemes allover the country on an experimental basis
to remedy the weaknesses and improve the performance of these schemes. More important
among these experiments were "Special Projects" System 1965-70, Water Management
Program 1982, and Gal Oya Left Bank Rehabilitation Program 1982 (Ariyaratne D M
2000)
Apart from these specific experimentations, several projects for rehabilitation and
improvements to water management practices were negotiated and implemented. In
addition several attempts were made to grow-high value crops such as cotton, potatoes and
sugar in different areas of the country and also to divert to other field crop cultivation for
economical use of irrigation water. A program to enlist beneficiary participation through
Farmer Organizations also was commenced.
Results and achievements both positive and negative of the above experimentations
are recorded as significant landmarks in the recent history of irrigation and agricultural
development in Sri Lanka. The lessons learned from their implementation inspired the
Ministry of Lands and Land Development to design a program for "the integrated
management of agricultural settlements" (INMAS) in 1984. The program was to be
applicable only in the schemes known as major irrigation sche mes and thirty-four of such
schemes were taken up for a start. Later in 1990, three more schemes were added. In 1988/
89 a system of ''participatory management" of major irrigation schemes was introduced
under this program in order to hand over the respons ibility of operation and maintenance of
distributors systems of these schemes to the beneficiaries through their Farmer Organizations.
Under a separate arrangement this program is being implemented on a limited scale
in the Medium type Irrigation Schemes by the Irrigation Department through their own
technical staff (Management of Irrigation systems - MANIS). During 1992/93, this program
was introduced to the Mahaweli Settlement Schemes as well.
Shared Control of Natural Resources (SCOR), is a participatory watershed management
project aimed at development and testing a holistic interdisciplinary approach to
integrate conservation concerns with production goals. SCOR hypothesizes that a package
50
of measures such as type of vegetation on/livestock/aquaculture, appropriate land and water
conservation practices, and user rights connected to economic benefits, is more effective in
conserving natural resources. The package, formulated jointly by professionals and resources
users, focuses on incentives such as an appropriate cash flow and profits as well as
non - monetary benefits in return for action on conservation ( Wijeratne, IIMI 1997).
Among the many important programs of the SCOR Project, the most innovative and
highly relevant one is that which is testing the farmer company formation and operation as
an organizational mode to ensure the active participation of the small farmers in the market
economy benefiting from it through profitable economic ventures.
The concept of farmer companies evolved from the fe lt need for creating space for the
small farmers to undertake farming for markets and profit from the production and market
opportunities in an open economy. In the event of accepting market economy as the
appropriate mode for economic development for the country by all the mainstream political
processes, the question of how small farmers coexist in an open economy had to be
addressed. It is assumed that the small farmer sector which consists of a large number of
small farmers farming small plots of lands with low investment resulting in sub-optimal
input use leading to low productivity can have a major breakthrough only if the small
farmers can be provided with technology, economic organization and resources with
required policy changes to form their own companies and undertake farming to markets.
This model was developed and is being tested in the two pilot watersheds of Huruluwewa
and Nilwala by the Shared Control of Natural Resources (SCOR) project, which is a
collaborative effort of the Government of Sri Lanka, The United States Agency for
International Development (USAID) and, the International Irrigation Management Institute
(IIMI) .
While these experimentations were being implemented in the irrigation/agricultural
sectors certain organizational and political reforms were affected in the Provincial, District
and Divisional Levels of the Public Administration hierarchy.
2.3 The New Effort
Immediately after the formation of the new Ministry of Agriculture, Lands and
Forestry in August 1994 amalgamating the three sectors of agriculture, lands and forestry
51
which were hitherto administered under three separate Ministries, an Advisory Committee
was formed to prepare a development plan for the new Ministry. Within a short period of
time this Advisory Committee came out with a National Policy Framework for the three
sectors which was approved for implementation by H.E. the President in Feb 1995. (MALF
1995a).
The recommendations contained in the National Policy Framework mentioned above,
taken as a package attempt to achieve the following objectives.
1) Provision of high quality seeds and planting materials;
2) Streamlining of the agriculture extension services including the provision of
Supportive services and inputs (integrated extension);
3) Integrated production planning to include
a). Production, harvesting, collection, storage, processing, marketing, value addition
and export, (functional integration in agriculture)
b). 'Crop-production, livestock development, inland fisheries, agro forestry etc.
(integrated farming system);
4) Institutional building including organizing of farmers and restructuring of Agrarian
Services Centers as Production Centers catering to the needs and the supply of all requisites
for farming; building of Govi Sevana (building structure for gathering/meeting);
(institutional integration);
5) Integrated approach by the State, Private and Non-Governmental Organizations
(Organizational integration).
Based on the policy fundamentals several action plans were prepared by the Ministry
during 1995/96 and instituted certain action research programs to implement some of the
policy recommendations. Four Task Forces were appointed with competent staff drawn
from various agencies of the Ministry as well as Provincial Councils to implement these
programs in each of the sectors of rice, other field crops, vegetables and fruits. However,
due to the drought situation during Maha 1995/96 and Yala 1996 these programs could not
be fully operationalized resulting only in limited success. In addition, the Department of
Agriculture was able to introduce some new high- yielding varieties of seeds through the
different research stations of the Department
It would be seen that in these programs there is an attempt to deviate from the normal
traditional systems and practices of agriculture and initiate some new and innovative
52
activities in order to bring about a qualitative and structural transformation and make
agriculture yield profits and thus become a profitable venture that can be professed on cost
benefit considerations even by educated youth. Despite the adverse climatic and weather
conditions and the consequent limited success achieved in Maha 1995/96, and Yala 1996,
the Ministry continued these programs during Maha 1996/97 and Yala 1997 as well.
Concerning the need for an integrated effort by all agencies concerned, a deliberate
attempt was made to reorganize the field organization of the Ministry towards the objective
of effectively implementing these programs. This attempt included the establishment or the
reorganization of the Farmer Organizations, the establishment of Govi Sevana Centers, the
development of Agrarian Services Centers as Govijana Kendrayas, formation of the District
Farmer Organization Federations and the grouping of the District level and Divisional level
extension officials into Agriculture Development Teams at those respective levels. It also
included a proposal to strengthen the District and Divisional Agricultural Committees for
effective co-ordination of the development programs in the agricultural sector. Training
Workshops were held in seventeen Districts and this exercise was completed by April, 1995.
Under this arrangement the District and Divisional Agricultural Development Teams along
with the Farmer Organizations and Govisevana Niyamakas (officer- incharge of Govisevana)
and Agrarian Service Committees were geared to undertake a process of preparing an
Integrated Agricultural Development and Extension Program for Maha 1996/97 and Yala
1997 and this process was completed by the end of September 1996. The program thus
prepared became the "Action Plan One" under "Waga Lanka" Seasonal Planning. This
process is being continued to prepare a similar program for Maha 1997/ 98 and Yala 98 as
well (MALF, 1996).
This process based on the strategy of Integrated Agricultural Development Planning is
known as "AMA". It has been designed and put in place at District and Divisional levels
with the objective of revitalizing the Agricultural Extension Services which came to be
disrupted during the last ten, or twelve years. Later with the appointment and training of
"Govi Sevane Niyamakes" as Farmer Extension officers at village level, Agriculture
Development Teams are being formed at the Village Farmer Organization level as well
(MALF 1997).
This planning process includes a program for the development of Agrarian Services
Centers as Govi Jana Kendrayas (MALF 1995). Approximately 153 Agrarian Services
53
Centers have been selected for this development. The task of supervising this activity bas
been entrusted to the members of the "AMA" District Agricultural Development Teams and
each of the staff officers at district level bas been assigned one Agrarian Services Center for
this supervision. There will be an Agrarian Development Council or "Govi Jana
Sanwardana Sabha" at this Center, consisting of representatives of all the Farmer Organization
Areas falling within the authority of these Centers and officials of the Divisional
Agricultural Development Teams. The Agrarian Services Act will be amended to
accommodate this arrangement. This program would be collectively approved by the
Agrarian Development Council and submitted to the Divisional Agricultural Committee.
The Divisional Secretary being the Chairman of the Divisional Agricultural Committee
would discuss the programs received from each of the Agrarian Services Centers and
incorporate them into a composite program for the division and approve this in consultation
with the Divisional Agricultural Development Team and pass this on to the District
Secretary. The District Secretary would discuss these Divisional Level Programs with the
District Agricultural Development Teams at the District Agricultural Committee meeting
and is expected to submit such approved District Programs to the Ministry to be
implemented during the two seasons of the year. The establishment of District Farmer
Organizations Federations has also commenced and the District Secretaries have been
requested to appoint representatives of these Federations to their District Agricultural
Committees. This process has been endorsed by the Special Presidential Task Force on
Food Production. District Agricultural Committee meetings in major food producing
Districts were held with the participation of the Special Task Force Chairman and members.
Action bas been initiated to rearranged the Agrarian Services Center Areas particularly
in major irrigation schemes to fall in line with this arrangement and also to establish
Agrarian Services Centers in the Mahaweli Settlement areas (MALF 1997a).
It would be seen that this Program would be a common program prepared on a
participatory basis by state officials and farmer representatives. The Program consists of
five major components as institutional development, resource development and conservation,
provisio n of infrastructure, integrated production planning, and agro-enterprise
development and marketing.
Programs on crop production, animal husbandry, inland fisheries, agro- forestry and
other agro-based economic activities would be integrated into a composite program based
54
on the Farmer Organization areas, Govi Jana Kendraya areas of authority and Districts. It
has also been proposed that all investment resources provided by the different agencies of
Government and NGOs should be pooled in terms of these areas of operations in order to
avoid duplication, over-lapping and waste. Ministry has also proposed that the District and
Divisional Agricultural Committees be strengthened in order to facilitate and intensify this
coordination, which is necessary for the increasing of investment efficiencies particularly in
the rural agricultural sector. The Ministries of Plan Implementation and Public
Administration and Home Affairs to revitalize the DAC to become an effective forum for
formulating and implementing this program (MALF 1996a) have initiated joint action.
2.4 Institutional, Scientific and Technological Realities of Sri Lanka’s
Agriculture
Through the above planning process the Ministry of Agriculture, Lands and Forestry
created an opportunity to look at Sri La nka’s Agriculture in a global context based on
scientific, technological and institutional realities. Several field studies conducted by the
Ministry revealed that the internal structure of Sri Lanka’s agriculture was weak and would
not stand the strains and stresses imposed on it by a free market economy (HARTI 1997). In
fact, even in the context of the local region of South Asia, Sri Lanka’s agriculture was
found to be the lowest yielding occupation with the production and productivity levels
remaining static or decreasing.
Demographers and other professionals in the field of population studies have pointed
out that the world population is increasing rapidly and would be around 7.1 billions by the
year 2010 AD. At the same time, physical scientists the world over have warned of a
rapidly deteriorating and narrowing agriculture resource-base particularly land, soil and
water. Due to the adverse effects of "green house" phenomena, the temperature of the
Earth's atmosphere will rapidly increase causing unpredictable fluctuations in climatic and
weather conditions and rainfall patterns resulting in crop failure and agricultural disorders.
In view of this situation, it is generally agreed that it would just not be possible to produce
adequate food supplies to the population of 7.1 billions by the year 2010 AD. Large
numbers of human beings therefore would have to suffer from hunger and malnutrition. In
the meantime certain international arrangements agreed upon recently would aggravate the
55
situation by compelling the major food production countries in North America and Europe
to do away with their subsidies in the agricultural sector. These countries will either
produce just enough for their own consumption or their cost of production will be so high
that the deve loping countries would not be able to afford. The effects of this drama would
be hard felt by the poorer countries of Latin America, Africa and South Asia.
The majority of the people in the South Asian countries are involved in agriculture and
allied vocations. The majority of them live in the rural agricultural areas and employment
opportunities of the majority of these people are provided by agriculture. Similarly, these
countries are not developed in non-agricultural sectors so as to compete with the developed
countries. As a result, in times of food-scarcity, famine or any other disaster the people of
these countries become immediate victims to many catastrophes and hardships. The truth is
that these countries and the people do not have the capacity or the strength to cope with
situations such as natural disasters or man made emergencies. Even at present, with the
impending unsatisfactory weather and climatic conditions and low or no rain, the situation
will be very much worse.(Abyeratna, 2000)
In this regard FAO's Agriculture Production Index in 1996 shows the kind of challenge
that Sri Lanka has to face and over come in order to increase food production to a
reasonably satisfactory level.
The agriculture sector, the cornerstone for socio-economic development of Sri Lanka
is unfortunately saddled with declining productivity and according to latest statistics is the
lowest in the SAARC region.
According to the Food and Agriculture Organization (FAO) Sri Lanka's agriculture
productivity had slumped from 108.3 in 1985 to 96.3 in 1993. Sri Lanka's standing in 1993
is poor as reflected in the FAO's Agricultural Production Index (API).
Malaysia (225.2), Pakistan (176.6), India (158.5), Nepal (157.8), Bangladesh (132.1)
and Sri Lanka (96.3) (FAO 1996a).
Sri Lanka's population is nineteen million, 70 percent of whom live in rural areas
(Central Bank 2001). Forty five percent of them are farmers who are directly and partially
involved in agriculture. The total land area of the country, leaving out the streams, channe ls,
rivers and tanks etc. is 6.23 million hectares, while the extent covered by forest is 2.05
million hectares. Houses and homesteads cover an extent of 0.80 million hectares.
Wastelands and other lands account for an extent of 1.30 million hectares. The total extent
56
under tea, rubber and coconut is 0.80 million hectares. The area under asweddumized
paddy cultivation in both Yala and Maha seasons is about 0.73 million hectares whereas
other food- crops and vegetables are cultivated in an extent of 0.37 million hectares (DCS
2000). In other words subsistence agriculture, excluding the forestry sector, accounts for
30.6 percent of the total land area of the country.
In the above context of land use in Sri Lanka, several issues need consideration. Can
Sri Lanka expand its agricultural resource base particularly in the non-plantation crop
Sector? What about the position, with regard to the provision of irrigation facilities and
rainfall pattern? The trends are such that Sri Lanka would have to face severe adverse
conditions in the next two or three seasons. Alternate systems of irrigation such as
rainwater harvesting, drip irrigation, conjunctive use of ground and gravity irrigation would
have to be thought of and designed. It is also important to think of new fa rming systems
and cropping patterns to stand the stress in case of water-short situations. These new
farming systems and cropping pattern should be conducive to more efficient use of land,
water and soil with appropriate techniques of conservation farming. The SCOR Project
mentioned above offers certain valuable strategies in this regard.
Sri Lanka's total annual average paddy production is 2.56 million metric tons. When
allowance is made for seed paddy and harvest waste, the total amount of paddy available
for consumption is 2.32 million metric tons, which is equivalent to 1.58 million tons of rice.
For Sri Lanka as a whole, the rice consumption requirement is about 1.88 million metric
tons (MALF 1997). Therefore, the deficit has to be taken care of by imports. The quantity
of rice imported fluctuates according to such conditions as natural disasters and unexpected
calamities including climatic and weather fluctuations. Agriculture in Sri Lanka and
particularly paddy and all subsidiary crop cultivation is highly susceptible to these
conditions. Consequent to less rain, and unsatisfactory weather and climatic changes the
expected 1996 production of rice fell short by 27 percent (that is 748, 000 M.T.) (DCS
1996).
Due to the inadequacy of local production of most food commodities, Sri Lanka has to
spend around Rs.32 billions annually to import wheat, milk products, Canned fish, Sugar,
Dhal etc. (Customs Department 1997). The total value of Sri Lanka's annual paddy
production is only Rs. 20 billions. It is obvious that this situation has to be remedied soon if
Sri Lanka is to get onto a right development track.
57
There is another important aspect to the problem of food-self-sufficiency and security
and that is connected with the need to maintain an adequate nutritio nal level for the entire
population. In this regard, Sri Lanka's situation cannot be considered as satisfactory. It is
reported that one out of four children born in Sri Lanka registers under-weight and under -
height at birth and also a very low rate of brain-development during the first two years after
birth. It is therefore extremely important that Sri Lanka should plan for a year-round
cropping pattern that would ensure adequate food supplies to the entire population through~
out the year.
But is this sufficient by itself? What about the employment opportunities for the
growing numbers in the labor force particularly the educated youth? These have to be found
either in the agriculture sector itself or in the industrial and other sectors. The development
of the industrial sector too needs heavy investment and can Sri Lanka purely depend on
foreign aid and loans for this? Agriculture therefore should be made to produce a surplus to
meet at least a part of this investment requirement As an example if it is possible to
increase the present paddy production average of 3.5 metric tons per hectare to 4.5 by the
year 2005 AD Sri Lanka would be able to become self sufficient in the rice requirement for
a projected population of 20 million by that time. The Ministry of Agriculture has already
started to work several paddy tracks to achieve this growth of 4.5 Mt per hectare
Farmers in Sri Lanka today as a community belong to the lowest stratum of the socioeconomic
order and consequently a large majority of them are direct beneficiaries of
various Poverty Alleviation Programs such as Janasaviya and Samurdhi. An agricultural
land extent of about two acres with irrigation facilities would yield a monthly income of
about Rs.2000/- only. In non- irrigated rain fed areas and even lands under village irrigation
works it would be even below this. This would result in a monthly income of Rs.400/ per
individual in a five-member farm family.
Today in Sri Lanka, the common complaint is that agriculture, particularly paddy and
most other crop cultivation is a losing job and is not remunerative in comparison to costs of
production. While the cost of production constantly keeps on increasing, the yields remain
static or decrease rendering it uneconomical and very unprofitable. Majority of farmers
remain below the official poverty line. Even in the colonization schemes the situation does
not seem to be different except that a few enterprising farmers, perhaps those who had easy
access to government officials, politicians and other resources and also who could therefore
58
exploit the large majority of poor farmers emerged as well to do businessmen and traders in
these areas. This class appears to be representing a sort of middle-class or a semi-middle
class status in the socio-economic stratification in these areas (Ariyaratne 1972). However
the general conclusion is that a large majority of farmers in Sri Lanka still remain on or
below the poverty line and therefore as a community remain in the periphery of the national
socioeconomic system.(Ariyabandu 1999)
It has been found that paddy cultivation would be profitable if the average yield per
acre could be raised above 80 bushels. However it is not only this quantitative increase that
matters when one thinks of attracting the educated youth to agriculture. The quality of
agriculture along with how it is being done in the same old traditional way that makes it a
drudgery and nuisance in the perception of the educated youth should change by
transforming it to a more mechanized, modernized and profitable venture based on
scientific as well as cost-benefit considerations. A Survey on Youth Preference conducted
by the Hector Kobbekaduwa Agrarian Research and Training Institute has revealed that
only 1.9% of the G.C.E.(O.L.) qualified youth prefer to take to agriculture as a vocation
(HARTI 1997).
In view of these realities, relating to Sri Lanka's agricultural situation a major issue
surfaces as to what have been the impact of the earlier plans and programs discussed in the
beginning. Taken together they do not seem to have contributed much towards a qualitative
and structural transformation of Sri Lanka’s agriculture. . Of course, one must remember
that the second and the fifth efforts could not be fully operationalised due to many reasons,
some of them being inherent defects in their implementation strategies and others being the
political changes, which adversely affected their implementation (Ariyaratne 1972).
It should be noted that the Mahaweli Development Program of 1971 as well as the
Accelerated Program of 1978 attempted to change the traditional system of subsistence
mono-crop farming into a profitable economic venture that could ensure an adequate
income to the individual farmer and also a surplus for the nation. New farming systems,
new cropping patterns with related agro-based enterprises and rural industries based on
innovative organizational and institutional arrangements were proposed and some of them
were operationalized in the settlement areas. In fact the 1978 effort only accelerated the
infrastructure building process, but continued with the same strategies of socio-economic
development followed from 1971. A project named Management of Agricultural and Rural
59
Development (MARD) funded by USAID attempted to commercialize Mahaweli
agriculture in system 'B.' Yet after nearly twenty five years of operation and acceleration is
'Mahaweli Agriculture" capable of withstanding the pressures and challenges of an open
market economy and be sustainable in a global context.
Despite this optimism, certain positive lessons learned in some efforts mentioned
earlier have been encouraging and they have shed some light on the pathway that Sri
Lanka’s agriculture should follow in the present global context. They have both
demonstrated that integrated and collaborative approaches are very vital for success
particularly in small-scale farming. The next one-SCOR has influenced and inspired the
proposals regarding the rational resource use/tenure patterns under conservation farming,
land use mapping and zoning as well as the need for value addition and production for
markets in the small farmer sector. In this regard SCOR's strategy of Farmer Company
formation as an important buffer that would enable the small farmer to achieve a
competitive position of bargaining power in the open-market-economy is highly relevant
and important to the implementation of" Modernization of Agriculture" envisaged in this
study.
It is the above realities, issues and experiences, both negative and positive related to
the Sri Lanka’s agricultural situation that prompted the Ministry to embark on a
comprehensive planning-process as outlined in the earlier sections. However, yet another
immediate cause led to the incorporation of an acceleration parameter to the planning
process.
The Food and Agriculture Organization of the United Nations brought together the
Heads of States and Governments and other World leaders at its Rome Head Quarters from
13 - 17th November 1996 to renew high level commitment to the eradication of hunger and
malnutrition and to the achievement, of lasting food security for all people. It has been
estimated that as the year 2005 approaches hundreds of millions of people will live in
chronic hunger and malnutrition. "For 1997, preliminary indications are that world trade in
rice would decline. World rice stocks at the end of the marketing seasons in 1997 are likely
to reach their lowest levels in eight years" (FAO 1996b).
The FAO had surveyed the food situation in the whole world. It declares that in the
developing countries alone, more than 800 million people today face chronic undernourishment,
and 200 million children under the age of five suffer from chronic calorie and protein
60
deficiencies. Unless determined action is taken, the number of chronically undernourished
people might still be about 700 million in year 2010 (FAO 1996c).
At this very particular moment as many as 82 nations fall into the category of low
income food-deficit countries, 41 in Sub-Saharan Africa, 19 in Asia and the Pacific, 9 in
Europe/Commonwealth of Independent States, 7 in Latin America and the Caribbean, and 6
in the Near East/ North Africa. Rising prices in the international grains market have serious
consequences for these countries, which have to import cereals to meet their domestic food
needs (FAO 1996c).
It was against this background that the FAO initiated a World Food Summit to adopt a
Declaration and Plan of Action for achieving food security. The FAO has assured that "The
World Food Summit" is not intended to be a pledging conference, nor is it aimed at creating
new financial mechanisms, institutions or bureaucracy. After the Summit, each participating
nation will consider independently how it can achieve the objectives set out in the Plan of
Action adopted by the Summit Internatio nal organizations, NGOs and others will also be
invited to be part of an international effort to eliminate chronic hunger" (F AO 1996d).
2.5 Sri Lanka, the First Country to Respond
Sri Lanka is a signatory to the FAO Declaration and has pledged to adopt the Plan of
Action. The new effort of the Ministry of Agriculture, Lands and Forestry as outlined in the
latter part of this chapter was converted into "Waga Lanka Waga Sangramaya "partly to
honor this pledge given at the World Food Summit and more importantly to boost the weak
Sri Lanka’s agriculture and enable it to deliver the goods. In fact, Sri Lanka has got the
credit of being the first country to respond to the FAO’s call. Sri Lanka was fortunate as
outlined above to have had a prepared runaway to take off when the FAO warning was first
signaled. Accordingly the Ministry's planning-process was streamlined and proposals
containing Strategies for an Accelerated Food Production Program was submitted to the
President during the latter part of 1996 (MALF 1996a). This document incorporated both
short-term and long-term programs and activities to be implemented to firstly increase the
production of major food crops and secondly to promote and develop a ''New Agriculture"
for Sri Lanka capable of withstanding the stresses and pressures of a free-market economy
and be sustainable in a global context The short-term strategies were approved for
61
implementation with 1996/97 Maha and a Presidential Task Force on Food Production was
established to monitor this program (Presidential Secretariat 1997). This was declared
policy at the National Farmer Organization Convention held on 12th December, 1996 in
Colombo.
The long-term programs, activities and strategies incorporated in the above document
however needed further ana lysis, consideration and refinement and therefore on a directive
by H.E. the President, were referred to a Working Group on Agricultural Policy set up
through the National Development Council. Accordingly the Ministry of Agriculture,
Lands & Forestry commenced a process of developing concept/working papers on the
different aspects and activity areas of agriculture incorporated in a very broad
comprehensive manner to include even Agro- forestry, Floriculture, Agro-Industries, Farmer
Organizations/ Companies etc. which in the past have not been thought of as integral
components of agriculture. The above Working Group along with the relevant officials of
the Ministry of Agriculture, Lands & Forestry (MALF 1996), is now studying these
proposals entitled “New Agriculture”. Main components of this "New Agriculture" are
given below:
1) Research and Development
(i) National Agricultural Research Program
(ii). Bio- Technology
2) Mechanization
3) Agriculture Extension
4) Farming Systems ( i). Study of the Paddy Sector
(ii). Diversification in Wet Zone Paddy Lands
5) Forestry (Agro-Forestry and Fuel Wood Planting)
6) Coconut Based Inter Cropping
7) Fruits and Vegetables.
8) Aquaculture
9) Non-Traditional Export Crops
10) Seed and Planting Materials
11) Agro-Processing and Agro-Industries
12) Marketing and Crop Forecasting (i). Paddy Sector
(ii). Other Crops
62
13) Agricultural Credit
14) Subsidies and Incentives
15) Institutional/Organizational Development (Farmer Organizations and Farmer
Companies) .
It would thus be seen that this whole exercise has been evolved through a "continuous
experiential learning-planning process" as mentioned at the very beginning of this chapter.
This planning process attempts to achieve the following policy-goals as a package towards
developing the agricultural sector in the widely accepted global context of a free market
economy (MALF 1996).
1) Qualitative and quantitative increase in total agricultural production to attain food
security and self sufficiency where comparative advantage exists such as for rice and major
field crops, increased income and employment while conserving the natural resources base,
especially land and water;
2) Broad-basing the benefits accruing from an open economic policy through
empowering of the producers/small farmers;
3) Augmenting the benefits to the economy and ensuring greater equity through more
effective collaborative and complementary arrangements between organized producers
and the organized private sector, and through more appropriate and proper delineation of
the respective roles, and avoiding conflicts ;
4) Providing higher yields in crop-production increase in employment opportunities
increase in incomes and increase in the bargaining-power, investment capacity and social
dignity of the farming community.
5) Creation of a self-supporting and self-reliant prosperous rural community, with
adequate bargaining-power to bean effective partner in the overall process of national
development through a "New Agriculture" based on commercialization and modernization
and making it attractive and dignified as a profession particularly for the educated youth.
There is no doubt that if these policy-goals could be achieved, Sri Lanka would get
onto the correct track to march towards the status of a prosperous nation even in the global
context with a sustainable agriculture contributing to the national development process by
creating a surplus as well as providing a ready market for the goods and services produced
in the manufacturing and other sectors. Nevertheless, the history of the developed countries
as well as those developing countries which have recently started modernizing their
63
agriculture affords abundant experience and information that these goals cannot be
achieved just by "Drives, Accelerated Programs or Crash Programs" alone but by a
mutually compatible and harmonious combination of all short-term, medium-term and
long-term strategies carefully planned, effectively implemented and continuously
monitored for their performance and results. This has essentially to be a joint/combined
effort by people and government particularly in developing countries. In view of this need
for a joint-effort by people and Government there are two basic facts connected with Sri
Lanka’s agriculture, which should draw the attention of the agricultural planners of Sri
Lanka.
The first of these basic facts is related to the manner in which Sri Lankan agriculture is
used as a tool of economic development and social welfare. For the next few decades, a
large majority of people in Sri Lanka will continue to live and earn their living in a rural
economy and allied pursuits. The major factors of progress in this rural economy are the
human labor and the human talent of a multitude of "p rimary producers". Purely physical
conditions such as those of soil, water and ecology are, of course, of considerable
importance. But they merely provide the base to which the small ''primary producer"
applies whatever skills he has, in so far as he feels the need of, or is willing to put in the
hard work required. Any attempt to drastically reorganize or revolutionize this sector on the
basis of an alien ideology or an unfamiliar economic system imposed from outside is bound
to end up in chaos and confusion and more seriously in a betrayal of rural masses. This is
vividly reflected in the crisis being faced by the small-scale farmers in selling their products
in the open-market economy at present
The second basic fact is connected with the very nature of agriculture and its physical
attributes. Agriculture as a science and agricultural development as a tool of human welfare
has to be synthesized in terms of many natural physical attributes such as soil, water,
climate, weather, terrain and topography of land which are subject to constant fluctuations
and change affecting agricultural practices as well as production and therefore the incomes
and standards of living of those engaged in agriculture. More over, these physical attributes
can be made to produce only through the intervention of that "doing" agriculture and this is
highly dependent on how the "doers" are organized through appropriate organizational and
institutional arrangements. It is therefore of paramount importance that reforms and
changes in this sector should be carefully phased out so that the structural transformation
64
should pass through a gradual process allowing those engaged in agriculture as the chief
occupation to adjust themselves to the new requirements through their own perception,
understanding and experience. "Waga Lanka's" transition to a modern agricultural economy
has therefore being phased out into three stages to be implemented under two major Action
Plans.
2.6 Three Phases in the Transition to Commercial Agriculture
Though the transition has been phased out into three stages, it is rather difficult to
determine precise periods for each of these phases and the different programs and activities
should be made adjustable and flexible to depend on the impending climatic and weather
conditions and policy-expediencies arising out of internal as well as external factors during
a particular phase. However, it should be emphasized that the various projects, programs
and activities should be structured and organized on a mutually
supplementary/complementary/supportive basis to ensure their continuous implementation
as integral components of a single integrated package. With this requirement in view the
projects/ programs /activities have been grouped under two major Action Plans as follows:
A. Action Plan One. Accelerated Program
Seasonal Planning - (Short Term)
*. Takeoff
Maha l996/97 and Yala 1997
Maha l997/98 and Yala 1998
B. Action Plan. Two. Program for ''New Agriculture"
*. Experimental-with Action Research (Medium Term) I998-2000 AD
*. Transition Planning-(Long-Term) 2000AD - 2005AD
It should be noted that the objectives of the short-term Seasonal plan are limited. It is
an urgent action plan to increase the production of major food crops and thereby ensure
food security for the nation and increase of incomes to individual farmers so that they could
generate some savings for investment in the next two phases. It also attempts to
immediately increase the quantities of seed and planting materials to be utilized in the next
two phases and also to take care of the nutritional status of the nation. More importantly it
65
attempts to revitalize and strengthen the weakened and disrupted organizational/extension
structure in the rural agricultural sector.
The two phases of Experimental Planning and Transition Planning are taken under a
single Action Plan Two. Objectives as well as the strategies identified are inter-linked.
Models/Pilot projects developed and implemented during the second phase are expected to
lead the farming community towards a "New Agriculture" that will emerge during the Third
Phase. In any case, most of these projects would yield results only on a long-term basis.
They are aimed towards the development and adoption of new farming systems, new
cropping patterns, new agricultural practices and even new modes of management with
mechanization and scientific consideration of the natural physical attributes related to
agriculture and based on rational decision making by farmers on cost benefit
considerations.
Through the transition process, the traditional subsistence agricultural sector which,
now remains on the periphery of the national development process. It would get stimulated
and awakened with the development of a semi- modern sector (rural industries) within its
fold itself as a stepping stone to a fully modernized commercial agriculture through
the ,consolidation of this semi-modem sector on a partnership basis with the developing
urban industrial sector. This sort of transition has been the landmark in the development,
history of all developed and developing countries, which claim to enjoy modem economies
today.
Historically speaking the industrialization process of most of the advanced countries in
the world today were made possible only with the emergence of prosperous rural
communities. In all the literature dealing with this process the rural community has been
treated as synonymous with the agricultural sector as against the industrial sector. Thus in
England, a revolution in agriculture preceded the industrial revolution, supplied the
necessary surplus for investment in new industrial ventures, and released an adequate
amount of labor for these industries. In Soviet Russia the collectivization of agriculture and
the policy of "primitive accumulation" enforced by Stalin compelled the agricultural sector
to release its surpluses of food output to feed the urban population as well as to enhance
capital investment for industrial development. During the initial stage of modem
development in Japan, the agricultural sector was able to earn adequate foreign exchange
66
through the export of tea, silk and other agricultural products, which helped to import
capital goods required by heavy industry. Taiwan offers a classic example (of a developing
economy) of how the surplus income accrued by agriculturists was statutorily passed over
for investment in agro industrial ventures in the rural areas themselves. Many such
examples of agriculture's contribution to or role in the overall process of national
development can be found even today. Notable among them are Israel, Cuba, Malaysia,
Thailand and of course P R China which follows a strategy that can be easily and
comfortably adopted by developing countries saddled with an agricultural structure
dominated by small-scale farming and other allied pursuits.
Japan and P R China both, although different in approach emphasize that the
reformation of the traditional rural sector is a necessary and vital pre-requisite as a
foundation for the launching of the overall development process of the national economy.
The rural sector has to assume and play an "intermediary role" during the initial phase of
socio-economic development particularly in situations of poverty and underdevelopment.
Sri Lanka's agricultural development story has yet to mark such a stage in its history. Five
Year Plan implementation strategy and, proposed policy reforms, emphatically attempted to
gear the Sri Lankan small-scale rural sector to play this "intermediary-role".
In Sri Lanka, the rural sector, in order to play this "intermediary role" must lend itself
to a planned transformation or modernization process, which can release the development
energies within that sector. It calls for an upgrading of the vast reservoir of human
resources available to it and the development of skills and techniques applicable within it.
With the diversification of economic activities at the village level and the intensive micro
planning that should go into such an effort, it has to extract the maximum incremental gains
from the ' rural economy with minimum capital inputs. Inherent in this strategy is a planned
transition to a modem economy, but not a "drive" at full speed towards it. The "transition
economy" would then not be the sum-total of unsettled socio-economic conditions arising
out of a dualistic process and the consequent mal-distribution of income. It will not
accentuate the rural- urban imbalance and promote the hopeless drift of the rural population
to the city. Its role becomes a consciously chosen and planned rate of change, which
integrates the entire rural community-into the overall process of national development.
67
2.7 The Content and Quality of Agriculture Envisaged Evolving During
2000 - 2005
It would be an economic activity with diversification, market oriented modernization
and profitable agro- industries established in rural areas. Its essential elements would be
rational land use/tenure strategies, specialization and zoning of crops and agricultural
activities and the promotion of Farmer Companies among enterprising small producers. Its
major themes would be production for markets, modernization to capture economies of
scale and new partnerships/relationships between farmers and the state on the one hand and
between farmers and the organized private sector on the other. A new organized private
sector will emerge among the rural agricultural communities through the establishment of
strong and effective Farmer Organizations and Farmer Companies organized on a business
mode. This would yield a reduction of government, direct involvement in production and
marketing and would be confirmed only to acting as a facilitator through the provision of
extension, beneficiary credit facilities, policy reforms and the necessary legal framework to
support this "New Agriculture".
2.8 Organizational Arrangements, Institutional Mechanisms and Policy
Reforms
It is obvious that the above programs and strategies are rather too ambitious and will
not be very much intelligible in the present context of Sri Lankan agricultural planning and
administration. It has also to be accepted that implementation of these programs and
strategies are not going to be easy and simple as one can think of. In the past, many of the
programs became total or partial failures, not so much because of any inherent defects in
the programs themselves but rather due to various problems, shortcomings and
retrogression in their implementation. Implementation of the new programs and strategies
therefore cannot be taken for granted but has to be carefully and deliberately planned as a
part of the planning process itself (MALF).
As mentioned earlier Ministry of Agriculture, Lands and Forestry during 1995
initiated an integrated participatory process for plan preparation and implementation in the
68
agricultural sector. This implementation strategy was introduced to all officers, Farmer
Organization Representatives and others concerned through a series of Consultative Workshops
and District Level Meetings commencing in Anuradhapura and Matale in February
1995; hence the name "AMA "combining the initials of the two district names which
connotes in Sinhala language a sustainable, non-stopping, non-dying process. This process
is now being widely followed by seventeen districts as an incremental development effort
and as an experiential learning planning process. Under this implementation strategy
special attention bas been focused on certain organizational arrangements, institutional
mechanisms and policy reforms needed to steer the above programs and activities in an
effectively co-originated fashion.
In addition, it is of paramount importance that state policy should be reformulated and
new policies instituted to encourage, induce and foster the implementation of the new
agriculture programs and activities as they could lead to a radical structural transformation
of Sri Lankan agriculture. This would include the necessary legal and statutory back-up
which has to come from the State Authority. Policy reforms and changes where applicable
will have to be instituted to help the establishment of the new organizational arrangements
and institutional mechanisms mentioned here and also to implement the new policies.
In this connection, attention is drawn to the part of this essay dealing with the different
components of the "New Agriculture." Several sectoral areas in relation to the
operationalization of these components have been identified as needing new policies or the
reformation and change of the existing legal procedures. Through a process of consultative
discussions of the Agricultural Policy Group, The National Development Council and the
Presidential Task Force chaired by H.E. the President, ten such areas studied and final
policy recommendations and Action Plans approved. ( Maha 1997/98) When certain Pilot
Projects commenced to test out and validate the relevant policy recommendations.
(Ariyaratne 2001)
69
3 Impact of Open Economic Policies on Small Holder
Agriculture Sector in Sri Lanka
3.1 Introduction
Agriculture continues to be the backbone of Sri Lanka’s economy. In addition, the
agro-processing industry also makes a significant impact on the national economy and its
development via its contribution to GDP, government revenue, net foreign exchange
earnings, employment generation as well as its forward and backward linkages. Sri Lanka’s
agriculture sector grew at a sluggish 2.5% per annum in the 1990s and minus growth in
2001. The government is planning to at least double, the rate of agricultural growth for this
decade. Since very little scope for growth in the paddy sector is evident, almost the entire
growth should derive front the higher value commercial agricultural commodities. Agro
industries need to expand capacities to create a demand- pull and thereby stimulate
agricultural commercialization.
The global environment for the agricultural sector is changing rapidly. It will both
open up new opportunities and pose new threats to Sri Lanka’s agricultural sector. Sri
Lanka appears poised to enjoy wider market access in markets hitherto subject to
significant trade protection. At the same time, greater reliance on global markets will
expose Sri Lanka’s agricultural sector to increased competition. The agro-industrial sector
has significant scope for capacity expansion and domestic employment creation. However,
the private investment required to finance such growth is also very high indeed. The
government should therefore create an enabling environment for private sector to earn a
reasonable return on its investment in the agricultural sector. Investment promotion is an
important strategy in achieving the objectives of increasing agricultural production of both
primary and value added products while creating maximum employment opportunities.
Foreign Direct Investment (FDI) expected to supplement the domestic private
investment in enhancing production capacities, which would also result in transfer of
technology, improvements in managerial skills and gaining access to international markets.
There are also opportunities for investments in technology, infrastructure such as packaging,
70
storage, transportation and certification. Agriculture is a complex and multi-dimensional
enterprise. Its development depends on various factors like agro-climatic conditions,
technology, access to inputs, system of land tenure and socio-economic conditions of the
farmers. In the past, the government has implemented multiple policy packages to boost
the smallholder farming sector development. The packages included opening up new lands
for irrigated agriculture, introduction of productivity improving technologies, popularizing
the use of modern agricultural implements and farm machinery, assistance for crop
diversification and increasing cropping intensity, improved pest management systems and
improving marketing of agricultural produce.
However, the existing experience suggests that the profitability in the smallholderfarming
sector is low and poverty, unemployment and underemployment have become the
critical problems in the rural cum agrarian sector. This poses problems for sustainability of
this farming system, especially under free trade policies that encourage the importation of
cheap food products. On the other hand, smallholder –farming sector has not been able to
reap the opportunities provided in the globalization process. It appears that existing agrarian
structure and land tenure regimes explains to a significant extent the existing impasses in
the smallholding sector to a reasonable extent. Yet, the agricultural policies in the country
seem to focus mainly on import protection and provision of subsidies to the sector.
Pervasive impact of on-going commercialization process on smallholder agriculture
production and marketing necessitate having a closer look of the existing agrarian structure
and look for opportunities for improvements. For instance, the 1982 Census of Agriculture
being the most recent census of agriculture, it has estimated that over 64% of the land
operators cultivated less than 0.8 hectares of land. Though a great majority of them is
operating land as owner farmers, there is a significant incidence of tenant farming and
various forms of share cropping arrangements. This chapter attempts to state the impact of
open economic policies and their contribution to the smallholder agriculture sector in Sri
Lanka.
3.2 Open Economic Policies and Small Holder Agricultural Sector
Since 1970, there have been two distinct regimes of economic policy in Sri Lanka. The
first policy regime, during 1970-1977, was characterized by a heavy emphasis on
71
import-substitution industrialization (ISI) under a protectionist framework and profound
government intervention in both domestic and external economic affairs. The second policy
regime from 1978 to date has seen the implementation of a far-reaching program of
economic reforms under an open economy framework. The reform ‘package’ included the
reduction of protection provided to import competing sectors, exchange rate adjustments,
fiscal and monetary reforms, liberalization of domestic factor and product markets, and
privatization of some government business enterprises. There has been a growing body of
literature. That focuses on the impact of different economic policy regimes in, Sri Lanka
since 1970.
During the protectionist regime (1970-77) experienced, the Sri Lankan economy faced
with external shocks of world oil crisis, and world food and fertilizer shortages during the
period 1970-77. These shocks and foreign exchange limitations forced the coalition
government to impose restrictions on imports of food and agricultural inputs such as
fertilizer, tractors and agrochemicals. The government adopts a policy of food
self-sufficiency under increased government intervention in domestic factor and product
markets. Many private business enterprises were taken into government control and
management, while private lands under plantations and paddy were nationalized under an
ambitious land reform program. Several new (state owned industrial co-operations (ex.
Steel, Tire etc.) and marketing boards (ex Paddy Marketing Board(PMB),
Salusala,(Government owned Textile outlet)etc.) were established under the government
increased its share in export-import trade. Further a dual exchange rate regime, which was
introduced in 1968, was also continued.
The introduction of the ‘Open Economic Policy’ in 1977 has also led to the
elimination of most of the controls, which operated in domestic factor and product markets
under the previous government. Major fiscal policy reforms included the replacement of
generic (non-targeted) food subsidies with a targeted Food Stamp Scheme in 1978, and the
reduction of fertilizer subsidies.
Reforms including financial regulation, which allowed the operation of the private
sector in banking and finance and deregulation of agricultural markets, resulted in increased
private sector participation. The role of the PMB has been resulted to “the buyer of last
resort”, supporting the floor prices when market prices fall below the floor prices,
particularly during harvests (Gunawardhane and Quilkey, 1993).
72
The second wave of liberalization in 1989, involved two types of policy reforms and
initiatives. The first were ‘technically important, but un-dramatic, low profile adjustments’
(Dunham and Kelagama, 1994). These included the maximum nominal tariff on imports
being reduced to 45 percent by 1993. The tariff system was altered from a six-band
structure in 1988 to a three-band structure in 1992 to further relax the rigidity and
distortions in the non-plantation agriculture and manufacturing sectors (Presidential Tariff
Commission on Tariff and Trade, 1994). The rupee was devalued in order to exports. The
second type of initiatives consisted of three high profile projects (Danham and Kelagama,
1994): (i) privatization of a further number of public enterprises: (ii) a new emphasis placed
on export oriented industrialization under a more liberalized trade regime and further
incentives to foreign investors in Export Processing Zones; and (iii) a major program for
the alleviation of poverty (ie. Janasaviya programme.)
The current policy regime (2001 to date) was initiated by the UNP government in
2001 and continued with the liberalized economic policies implemented by the previous
regimes during 1978-1993 and 1994-2000. However, the government has emphasized a
balanced approach to economic growth and poverty alleviation, through the drive of
‘liberalization with a human face’. The major changes in agricultural policy reforms
include: tariff reduction on the imports rice, subsidiary food and agricultural inputs: and
reducing turnover tax on agricultural inputs. Further consumer subsidies on wheat flour and
bread have also been partially removed to avoid the heavy burden on government
expenditure.
Economic policy liberalization under structural adjustment policies, along with
GATT/Uruguay Round Agreement on Agriculture (GURAA), have opened new horizons
and policy directions even for Sri Lanka. Agricultural input and output markets and policies
are to be liberalized further, allowing the private sector to play a greater role as an ‘engine
of an economic growth’. In compliance with GURAA, Sri Lanka has bound all tariffs on
imports if agricultural products’ at a uniform rate of 50 percent (World Trade
Organization,1995). In fact, Sri Lanka’s gazette tariff rates on all agricultural products are
below the bound rate (Presidential Commission on Tariffs and Trade, 1994). Under the
South Asian Preferential Trading Agreement (SAPTA), there is a possibility for Sri Lanka
to take advantage of non-plantation crops imports from these two countries (Somaratne,
1998-1999).
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3.3 Trade Policy Measures and Sri Lankan Agriculture sector.
Since 1977, trade policy measures particularly import tariff protection provided to Sri
Lankan agricultural sector has been gradually reduced in line with the liberalized trade and
other agricultural reform policies. The main objective of tariff reforms was improving the
international competitiveness for the Sri Lankan agricultural products to maintain
efficiency in the process. Once the trade barriers relating to agriculture became an
internationally prominent issue, Sri Lanka’s tariff and related protectionist policies were the
subject of critical analysis. In this context, quantitative restrictions ( QR s), import tariffs,
export tax, export subsidies and exchange controls were reduced or dismantled and other
institutional reforms were undertaken which were conductive to economic growth in Sri
Lanka. In 1977, most QRs in international trade of manufacturing and agricultural product
sectors were replaced by a six –banned tariff regime, ranging from 0-500 percent. These
rates were imposed even on non-plantation agriculture, considering various commodity
specific tariff rates. The Sri Lankan tariff structure has been periodically reviewed since
1980. and successive changes toward a lowered tariff structure have been implemented
( Ratnayake, 1993; Report of Presidential Commission on Tariff and Trade, 1994) . It is
expected to liberalized tariff regime further and imposes a two-band tariff regime for all
products including products in the smallholder agriculture in Sri Lanka by the year 2005 in
line with the agreement of World Trade Organization (WTO).
During the period 1994-2001, the tariff rates imposed on food crops (ie. paddy/rice,
chillies, onions, potatoes, green gram, black gram) and other varieties of food imports,
which are not grown in Sri Lanka, were ranged from10 to 35 percent ( Table 3.1 ). The 35
percent import tariff rate on the CIF price was imposed on rice, sugar, potatoes, red onions,
B’onions, green gram, black gram, maize and split lentils. The 20 percent tariff rate was
applied for wheat and the 10 percent tariff rate was claimed for condiments like coriander,
cumin seed, and fennel seed. However, the United National Front (UNF) government came
to power in end of 2001, have proposed to increase existing tariff rates in non-plantation
agriculture on imports of rice, B’onions, chillies and potatoes. This sort of tariff protection
may safeguard the farmers’ interest in the short run but other macroeconomic distortions
and issues in inflation and externalities may hamper the agricultural development process
and lead to macroeconomic instability in the economy. However, the tariff structures assist
to distort resource allocation in between plantation and non-plantation agriculture and
between agriculture and other manufacturing and service sectors. Furthermore, tariff
74
protection appears to have increased the environmental cost, including cost of land
degradation-induced on-site and off-site environmental damages. For example, a highe r rate
of import tariff protection was given to highland and midland non-plantation crops ( ie.
potatoes, onions, chilies, maize sub sectors), despite these non-plantation crops being the
most soil erosive crops in the Sri Lankan agriculture ( Somarathne, 1998).
Table 3.1: Rates of Import Tariff Imposed on Selected Commodities in Sri Lanka (1986-2001)
Product Tariff Rate (%)
1986/88 1994 1996 1998-2001
Potatoes 100 35% or Rs. 12.00 per kg. 35 35
Red Onions 5 35% or Rs. 09.00 per Kg. 35 35
Big Onions 5 35% or Rs. 09.00 per Kg. 35 35
Greengram (Moong) 5 35% or Rs. 10.00 per Kg. 35 35
Blackgram 5 35% or Rs. 09.00 per Kg. 35 35
Split Lentiles 5 45% or Rs. 12.00 per Kg. 35 35
Other 5 35% or Rs. 12.00 per Kg. 35 35
Dried Chillies 5 35% or Rs. 20.00 per Kg. 35 35
Other - 35% or Rs. 10.00 per Kg. 35 35
Maize 5 45% 35 35
Rice 25 35% or Rs. 07.00 per Kg. 35 35
Cane Suger 35% or Rs. 06.50 per Kg. 35 35
Beet suger 35% or Rs. 06.50 per Kg.
Wheat 25 N/A 20 20
Ginger 60 N / A 35 35
Turmeric 60 N/A 35 35
Cunmin Seed 5 N/A 10 10
Coriander 5 N/A 10 10
Source: Department of Customs, Sri Lanka(for 1986/88;1996;1998)
Report of Presidential Commission on Tariff and Trade-1994
N/A: Not Available
3.4 Impact of Open Economic Policies on Sri Lankan Agricultural
Sector
The combined impact of policy changes during the ‘first and second waves of
liberalization’ and the boost in aid-financed construction activities generated an
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acceleration of the economic growth during the period 1978-1998. In 1994, the government
continued the liberalization process in trade and exchange rate regimes further and
introduced more conducive and competitive incentive packages for foreign direct
investment. In line with these incentive packages, even agricultural sectors were also
encouraged for diffusion of improved technology and horizontal and vertical diversification.
These measures helped to encourage more FDI in the export- oriented product sectors. The
private sector investment in manufacturing, services and agriculture sectors has been
increased. As illustrated in Table 3.2 below, after economic liberalization, most
macroeconomic indicators in Sri Lanka were healthy and positive and shown the right
economic fundamentals. It has further shown that a high rate of economic growth was
achieved.
Table 3.2 : Macro-Economic Indicators in Sri Lanka (1978-1998)
MainComponent 1978 1983 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Rate of GDP growth (%) # 8.2a 5.0 2.7 2.3 6.2 4.6 4.3 6.9 5.6 5.5 3.8 6.3 4.7
Budget deficit * 16.8 17.8 15.6 11.2 9.9 11.2 7.3 8.4 10.0 9.6 9.4 7.9 9.2
Inflation (%) 12.1 21.4 17.0 11.6 21.5 12.2 11.4 11.7 8.4 7.7 15.9 9.6 9.4
Current account deficit * 2.4 9.1 5.6 4.4 3.2 5.4 4.5 3.8 6.5 4.9 4.9 2.6 1.8
Investment * 20.0 29.6 22.5 21.5 21.9 22.9 24.3 25.6 27.0 25.7 24.2 24.4 25.4
Domestic savings * 14.7 14.5 12.0 12.2 14.3 12.8 15.0 16.0 15.2 15.3 15.3 17.3 18.9
Exports * 34.8 22.4 21.1 22.3 24.7 22.6 25.4 27.6 27.4 29.5 29.5 30.1 33.6
Per capita GNP(US$) 183 300 375 369 417 518 556 588 652 710 748 804 823
Per capita GNP (PPP) ##
(US$)
n.a. n.a. 2050p n.a. n.a. n.a. n.a. n.a. 3160 3545 n.a. n.a. n.a.
Unemployment Rate (%) 14.8 11.7 20.0 n.a. 16.3 13.8 13.3 13.8 12.1 12.7 11.1 10.3 9.1
* As a percentage share of GDP
# Constant prices-1982
a Constant prices
## PPP=Purchasing power parity
p 1987 per capita
n.a. Not available
Source : Annual Report, Central Bank of Sri Lanka (various issues )
76
3.5 Political Economy of Agricultural Policy
Sri Lanka, from the independence in 1948, and even before, successive governments
are operated in the various agricultural policies, strategies and programs for the self
sufficiency of food. All the governments were given high priority for the production of food
in their economic and political objectives. Creating of large-scale land settlement schemes
in 1940s and 1950s, and even in colonials administration, were the prime objective and
operational programs for the production of food. In addition to that, in 1956, tenancy
reform act, 1972 land reforms act, is one of the major institutional development packages
for the encouragement of food production. Green Revolution is the other major technology
innovations for the increase of food production in 1960s. Most of these programs from
1948-1977 periods made immense result to the increase of food production. At the same
time, the government followed the inward- looking, closed and controlled economic policies
as in micro and macro level. Within these frameworks, self-sufficiency of food was the
major policy goal of the government as a nation. It is obvious to note that, the inward
looking, closed and control economic set of policies were providing the better environment
for the goal of self-sufficiency of food in country. In other words, the agricultural policies
followed by the government at the time, are mutually reinforced to the production of food.
The government of Sri Lanka introduces a new set of open economic policies to the
economy in 1977. Based on economic liberalization, a number of policy changes and
reforms have been commencing. The most significant changes was a shift from inward
looking, closed and control economy, to an outward looking economy with heavy market
orientation. Removal of price controls removal of import restrictions, exchange rate reform
and are few characteristic open economic policies. However, these policies originally came
from the “economic liberalization” and “structural adjustment policies” which were
introduced by the International Monitory Fund (IMF) and World Bank, as external
economic forces in Sri Lanka. Under this policy regime, “self sufficiency of food” is no
more prime objective or policy goals in development agenda. New regime, encourage the
foreign investment, export trade and policies given high priority for the strategies and
programs of industrial development, rather than agricultural development in the context of
food production.
Production of New policy regime makes massive crises in local agricultural sector,
rather than progress of food. The self-sufficiency of food as a goal of the policies no
77
more valid, and imports of food becoming big and vast policy crises in Sri Lanka. Imports
of food badly effect to the local farmers. Peasant agriculture faced severe problem of food
production and marketing. One hand the government encourages the local food production
in peasant agricultural sector, providing subsidies, infrastructure facilities, land, water,
marketing and others. At the same time government imposed free economic policies, and
encourages the import and export trade. In March 1994, Sri Lanka accepted Article viii
status of the IMF accordingly; Sri Lanka agreed not to impose any restrictions on import
and export of goods and services. Therefore, self-sufficiency of food production in Sri
Lanka is prime goal of the policy. There is ample scope of the low price of food imports in
Sri Lanka, from other countries. However, the major problem is no enough foreign
exchange to import of sufficient food. On the other hand, imports of food create many
problems on the production and marketing of local foods. Owing to the imports of foods,
reduce the price of local production and it is leading to the “decrease of farmer’s income”
as a central problem of domestic agriculture in Sri Lanka. While it reduces the quantity of
production of many crops, land extent and specially, food security of the household level as
well as national level. Further this dilemma of food imports contribute to the increasing of
mal-nutrition and there were growing incidence of poverty in small farming sector in Sri
Lanka, and the process of agricultural food production in peasant farming sector is not in
right direction. Meanwhile, the government of Sri Lanka attempts to fulfill two objectives
simultaneously. At the one time government struggles to encourage the increase of local
food production, through the increase of farmers’ income, and at the same time
government seek to reduce the price of food commodities through the completion of the
liberalization of food imports by means of reducing political pressure with economic and
social unrest of the country. Thus, the proper political commitment of the government, to
relate food surplus economy, rather tha n food deficit economy in Sri Lanka, with free from
hunger and malnutrition is questionable. Under these circumstances, the major question is
“Sri Lanka as a small country, can survival’ without a self-sufficiency in food’” as a policy
goal of agriculture, within the framework of economic liberalization, and how small
countries like Sri Lanka, solve the problem of food, in protecting and improving rural
farmers, at the time of globalization. In this sense, there are prominent features of “food
crisis” in Sri Lanka.
3.6 Macro Economic Effects
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The projections of the macro-economic effects of tariff liberalization under two
scenarios mentioned are presented in table 3.3. The results show that tariff liberalization is
likely to increase to a higher real GDP. When the rate of tariff reduction in the food based
agriculture increases, it increases the growth rate of real GDP by stimulating output in the
tradable (ie.exportable) agricultural and industrial sectors. Moreover, while fostering
economic growth, the induced changes in land use in agriculture lead to a higher economic
growth in the economy. However, greater growth benefits can be secured with acrossthe-
board tariff reduction in all import competing sectors, rather than sectors specific tariff
reduction.
Table 3.3: Projections of the Effects of Tariff Reduction in
Agriculture on Macro Variables in Sri Lanka.
Percentage Change
Variable Description
Policy 1* Policy 2#
A. Government Budget Position (Rs: Million ) 110 5033
B. Household consumption and Disposable Income
1. Aggregate nominal household consumption
2. Aggregate real household consumption
3. Nominal household disposable income
-0.43
0.04
-0.44
-2.9
1.2
-4.1
C. Price Indices
1. GDP deflator
2.Consumer price index
-0.46
-0.48
-5.1
-4.1
D. Aggregate Employment 0.11 2.15
E. Gross Domestic Product
1. Nominal GDP
2. Real GDP
-0.44
0.03
-4.14
0.98
F. Aggregate Land Degradation -0.25 -1.13
·  50% tariff reduction in non-plantation agriculture.
# 50% across-the- board tariff reduction.
Source: Somaratna W G, (2000)
Further, both partial and across-the- board, tariff reductions increase the level of
aggregate employment in the economy and reduced the aggregate price level, and thereby
improve the aggregate real household consumption. Tariff liberalization further stimulates
trade, leading to higher imports and exports and thereby improves the balance of trade. At
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the same time, it also leads to an improvement in the government budget along with partial
and total tariff liberalization in agriculture, through fiscal expansion particularly in the
export oriented product sector. (Table 3.3). In summary tariff, liberalization fosters
economic growth and improves most macroeconomic variables by showing a pathway in
the right direction for sustainable development. (Table 3.3).
3.7 Globalization, Trade and Growth
Globalization means many things to many people. Globalization is a multi-faceted
concept as far as it describes both economic phenomena and their social, political and
distributional consequences. The term globalization defines as “boundryless trade and
information” or “integration of the world economy through trade, investment and the global
movement of capital” (WTO, 1998). The term globalization refers to an ongoing processof
increasing integration into the world economy. Globalization further defines as’
economic hegemony of Multinational Companies’ (Govinnage, 2001). The economic
aspect of globalization can be measured through the flow of goods, services and capital and
migration around the world. Statistics show that expanding trade and capital flows, in an
appropriate regulatory environment, have generally coincided with strong growth and
political stability, especially for those economies, which have welcomed liberalization and
technological change (WTO, 1998). The last 50 years have seen the expansion of world
trade faster than world output by a significant margin, increasing the degree to which
national economies rely on international trade and foreign direct investment (FDI)* in
overall economic activities. Further, the short term and long-term capital flows have also
grown. The average daily turnover in foreign exchange markets has increased from about
US$ 200 billion in the mid 1980s to well over US$ 1.2 trillion in end of 1990s
(WTO,1998).
The improved international transport systems (ships, container carriers, oil tankers,
cargo planes, refrigerated trucks etc.) with information technology directly influence the
growth trends in most countries. The countries heavily rely on trade today than at any time
in history. The openness measured by the ratio of trade to GDP has been increased in many
developing countries. Faster growth in developing countries indicates their share in world
trade, which has increased from less than one quarter to almost 30 percent between
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1985-1998 periods (de Melo and Grether, 1998). The global figures make some regional
differences in trade shares of the world trade. Asia’s shares of world trade increased from
15 percent in 1948 to 27 percent in 1997. Further, the composition of world trade shifted
from agriculture to manufacturing and trade in services. In Asia, most developing countries
managed to achieve the average growth rates between 5 percent to 7 percent per year since
the beginning of 1960s. As a result, poverty in Asia has been reduced dramatically (WTO,
1998). The recent financial crisis in part of the region may reverse the gains to a certain
extent. The countries with low trade orientation show relatively poor growth rates.
3.8 The Driving Forces of Commercialization
There are various forces behind the globalization process to improve the sustainable
and equitable development. Among them, three key elements can be identified as the
driving forces of globalization, namely technological change, liberalization policiesopening
markets and removing regulatory mechanisms in trade and investment, and
internationalization of business activities. These three driving forces have made nations
around the globe more competitive, economically independent, creating unprecedented
opportunities as well as new economic, political and social challenges.
3.8.1 Technological Change
Technological innovations have led to increase productivity in all spheres of
production processes and slashed transportation costs greatly. The technological inventions
such as electricity, telephone, automobile, container ships and pipelines resulted in
increasing production, communication and transportation. Further, the recent developments
in information and communication technology, and computers have led the way for
reducing time for communication and expanding geographical coverage for communication
to interact and transact individuals and enterprises around the world. New waves of
technological innovations in biotechnology will continue to increase incomes and improve
social welfare of people. Technological improvements have cut transportation and
communication costs dramatically. The computer usage increased both in developed and
developing countries and world annual sale of personal computers have the 50 million mark
and now exceed the sales of cars. One billion telephone and mobile phone connections now
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exist worldwide and then it is estimated that 300 hundred million people or 5 percent of
world population will be connected to the internet (ITU, 1997). The technological
development has extended the pathway for what can be produced and advances in
transportation technology have continued to bring people and enterprises closer together,
the boundary of tradable goods and services has been greatly extended. More recently,
telecommunication improvements have led the way for more trade in services to be traded
worldwide from tourism to financial services. In the global economy, when more people are
connected to the internet, electronic commerce will be the main mode of trade in future. It
is estimated that e-commerce itself will create the value of trade more than US$ 300 billion
per year (Bachetta et al, 1998).
3.8.2 Commercialization of Trade and Investment
The commercialization of trade and investment has expanded the boundaries of factor
and product mobility. Commercialization has allowed any country in the globe to get
whatever the amount of capital and improved technologies. Many countries have moved
greatly to gain benefits through international trade between nations. Further, liberalization
has mainly focused on trade and investment regimes and a range of regulatory issues. In
this process, GATT/WTO system has played a vital role in the reduction or elimination of
border barriers to trade through eight rounds of multilateral trade negotiations. In
industrialized countries, tariff rates have been reduced from high double digits level to less
than 19 percent in the late 1960s less than 4 percent once the Uruguay Round is fully
implemented. In addition, most non-tariff measures (NTMs) on trade except those imposed
for health, safety or other public policy reasons have been removed. Following the
GATT/Uruguay round negotiations, textiles, clothing, and agriculture are being brought
within the multilateral framework and subject to progressive liberalization. Further,
GATT/Uruguay round introduced new disciplines, on Trade Related Investment Measures,
(TRIMs). The Post-Uruguay round commitments to eliminate tariffs on a broad range of
information technology products have assisted in preparing national economies for the 21st
century. Through globalization, liberalization of current and capital account transactions
and development of international financial markets is also promoted. Over 140 countries
have subscribed to the IMF’s Article VIII, which encourages free current account
transactions. Most member countries have liberalized capital accounts and exchange
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transactions, so that exchange rates and interest rates have become increasingly market
driven and new financial instruments have emerged. This would facilitate international
trade in most member countries and enable them to implement a right policy mix, which
lead to gain efficiency in the country.
3.8.3 Internationalization of business activity:
With the Commercialization scenario, it is encouraged to remove trade barriers in
economics. The lower trade barriers and liberalization generally invite more and more
companies and investors to globalize production structures through foreign direct
investment (FDI) abroad. It would stimulate and expand international trade between nations.
The increased information flows and the greater tradability of goods and trade in services
have influenced the decision on location of the business. Modern businesses are
increasingly able to locate different components of their production process in various
regions and countries and still maintain a single corporate identity. In general, firms
sub-contract part of their production processes to their sub-contractors or other enterprises
abroad. In this context, jobs, technologies, capital and skills necessary for the entire
processes of production, marketing and distribution are transferred around the globe. The
classic case is the US car industry. Thirty percent of the car’s value goes to Korea for
assembly, 17.5 percent to Japan for components and advanced technology, 7.5 percent to
Germany for design, 4 percent to Taiwan and Singapore for minor parts, 2.5percent to the
United Kingdom for advertising and marketing services, and 1.5 percent to Ireland and
Barbados for data processing. Accordingly, only 37 percent of the production value of this
‘American’ car is generated in the United States. This example clearly explains why a
well-functioning world economy depends so strongly on open trade and investments
regimes. In future, the greater specialization on trade in components and parts can be
observed in production processes in manufacturing and trade in services sectors. In
agriculture, foreign and domestic contributions to the entire production process may be
changed in line with globalization. Moreover, trade in components and parts is growing
significantly faster than trade in finished products, showing the increasing trend of
interdependence of countries through production, marketing and distribution. In developing
countries, this new trend will be expanded at a rapid rate in future attracting trade and
investment for importing components and parts and then re-exporting them in finished form
83
to the original country by adding some value for the final product. In this globalization
process, the advantages can be gained for developing countries by generating employment
opportunities.
3.8.4 Emerging Issues in Global Agricultural Development
Agricultural development in the 21st century is vital to assure the food security for the
global population in the coming decades. However, recent years have witnessed important
changes in the financing, management, and institutional structures in the process of
agricultural development in many parts of the world. After the green revolution, growth in
agriculture has slowed down in most countries and in some countries, annual spending on
mechanisms of agricultural development has declined. Particularly, expenditure on research
and development (R&D) is reduced in developing countries. The private sector is now
contributing more on agricultural R&D while governments are reducing their expenditure
on agricultural R&D (Alston et al., 2001). Particularly, in the developing world, poverty
reduction, maintaining food security and sound natural resource management are becoming
as triple challenges (Serageldin, 2001). In this context, changes in agricultural development
paradigm from traditional development models to new models and other mechanisms for
development are surfacing an array of multiple important issues.
3.8.5 Food Security and Food Safety
The world’s population is expected to exceed 8 billion people by 2025 and India will
have the world largest population. Urbanization in the world aggravates the problems of
food shortages. The income growth and food needs in developing countries are expected to
more than double and global food demand could nearly double (Serageldin, 2001). The
challenge to world agriculture to feed the world population is enormous. In future, land and
water resources (irrigation) are becoming increasingly scarce. Future food needs will be
fulfilled by production of biological food or genetically modified (GM) food rather than
naturally produced food by area expansion, and more irrigated facilities. The lands used for
cultivation of food are fragile in most countries. Urbanization and land degradation caused
problems in area expansion for cultivation of food crops. Fur ther expansion of water for
irrigation purposes cannot be expanded effectively. The future demand for food can be met
by biological food or GM food. In this context, in future food safety will be a major issue
84
rather than the food security.
3.8.6 Poverty Alleviation and Hunger
The Green Revolution-induced technological change has proved the Malthusian
arguments on food supply and population growth are wrong. Concurrent increases in
agricultural productivity also resulted in a sustained decline in the real prices of food.
Despite these achievements, rising population and unequal participation in growth have left
1.3 billion people in the world struggling to survive on less than a dollar per day. About 800
million of them are hungry, undernourished or malno urished. More than 500 million
children under the age of five are not receiving the nutrition they need to develop mentally
and physically (Sergeldin, 2001). However, recent report, completed by Stern et.al (2001),
based on experiences in 24 developing countries, has shown that early globalizes managed
to reduce poverty levels by increasing the GDP per capita growth rates and real wage rates.
Addressing above problems of world hunger and its related issues requires integrated
policies, mechanisms and efforts in agricultural and rural development and poverty
alleviation throughout the world, paying special consideration for food deficit and slow
growing countries.
3.9 Challenges and Opportunities
The major structural change in the economy in recent decades has been a reduction in
the share of agriculture and an expansion of the share of manufacturing and trade in
services. However, agriculture, together with agro-processing activities and allied services,
remains a major sector of the economy. From a dominant position at the time of
Independence, the direct contribution of agriculture to GDP had fallen to 19.7 percent of
GDP by 2000. While the share of agriculture is now only about a fifth of GDP, its
contribution to employment is much larger, accounting for over 36.3 percent of total
employment in 1999.
3.9.1 Challenges
Commercialization opens the door for free movements of factor and products between
the nations through the liberalized economic development process. While moving along
85
with the globalize growth path, Sri Lanka has to face some emerging challenges in the
world economy. The WTO has designed the rules of the game for liberalization of world
trade. Considering the future likely challenges in the globalization process, the following
some emerging challenges in relation to the Sri Lankan agriculture are identified.
Integration to the World Economy
Integration into the world economy will be a major challenge for the agricultural
sector in Sri Lanka with the existing structural and institutional mechanisms, product
coverage, R&D investment, role of the sate and integration mechanisms followed within
agriculture in Sri Lanka. The main thrust area of agricultural development process has been
identified as to maintain food security. However, the commercialization encouraged to
produce mainly tradable to earn more foreign exchange within the agriculture and
agro-based products environment. Particularly formulating and implementing strategies to
integrate into niche, larger and global markets. Commercialization may create domestic
demand for niche products, which can be channeled through the existing supermarket
chains, hoteling industry and airline catering services in the country. In addition,
commercialization encourages regional trading blocks to integrate within the specified
region through harmonizing trade with the trade creation strategy. In future, Sri Lanka
should make initiatives to join with Asia Pacific Economic Cooperation (APEC) and
ASEAN, rather than confining to SARRC and South Asian countries only. However, it will
be a challenge with existing barriers in structures and the facilitating process of export
promotion in agriculture. Integration to the world economy should be based on competitive
advantage. The competitive advantage of the product is based on low cost combination of
product in agriculture and value-added products based on world consumerism, catering to
the changing consumer preferences in the world economy.
Improving the Climate for Agro Enterprises through Market Integration
Commercialization creates opportunities to integrate distance markets to open up
investment opportunities for domestic investors. The conventional supply driven R&D and
extension should be reformed and identified the role of the state as a facilitator to assist to
create demand driven R&D mechanisms in agriculture. Demand driven R&D should based
on the needs of the target group. Initiating demand driven product development, getting and
development of new technologies, and improving post- harvest techno logies are the major
areas to be concerned. Commercialization opens the door for new technologies to develop
86
agro-based products. Existing R&D system is biased towards farmers and no serious
initiatives have been taken to popularized agro based products. The state should take the
lead as a facilitator to invest in human resource development on agro based product
development, marketing, business management etc. identifying products, which can gain
competitive advantage. Further, it is necessary to disseminate information on product
development and demand to world economy to create world demand, transferring
agricultural technology to the client, get the services to private sector through state- private
partnership to integrate domestic agro based products to the world economy. This would be
a major challenge for the Sri Lankan agriculture to integrate into the world economy. For
this purpose, we may need to reform the institutional mechanism to encourage to build
partnership with world food giants through joint ventures, partnerships and management
partnerships. It will be a paradigm shift in a right direction to attract foreign capital and
technology to gain globalization benefits for Sri Lanka.
Investment in People and Technology
Consumerism will be the major thrust area in demand driven R&D to cater to the
target needs. However, existing investment scenario in people and technology is
diminishing over the years. (Somaratne, 2002). This should be carefully reviewed by the
state sector to formulate policies for future human resource development in agriculture. It is
necessary to invest identifying the clear target. Otherwise, generic type of human resource
development (HRD) will be a challenge for economic development. Unemployment is
severe in the country, and hence HRD can play a role directing to train people to cater not
only to local needs but also to the international needs. The technology generated and used
in agriculture is supply driven, which is a clear challenge for the Sri Lankan economy to
shift to demand driven system. For this purposes institutional reform process should be
initiated to cater to the need of demand orientation of HRD in the Sri Lankan agriculture.
Maintaining Macroeconomic Stability and Competitive Advantage
Sri Lanka has initiated the liberalization process in 1977 to maintain the
macroeconomic stability in the economy. It was a paradigm shift to take advantages from
the regional and global economies. However, the some rigidity and some structural
problems created as stumbling blocks in the development process particularly the risk
factor due to unsettled condition in the country. In the Sri Lankan agriculture faced the
same fate to attracting FDI and technologies to integrate the sector into the global economy.
87
If the economic fundamentals (real rate of economic growth, budget deficit, current account
deficit, investment, domestic savings, inflation, and unemployment rate) are right, we can
expect improvement in growth in investment from various domestic and foreign sources by
infusing new technologies. Even to improve the growth rates in agriculture it is necessary
to maintain macroeconomic stability. If Sri Lankan agriculture is going to gain advantage in
trade in agriculture, it is necessary to maintain the lowest cost compared to trading partners.
The policy environment should be sound and efficient to face the dynamism in the domestic
and international (ie. global) policy environments, which will reflect in increased growth
rates in the sector, concerned.
3.9.2 Opportunities
Within the commercialization scenario, various opportunities are opened for the Sri
Lankan agriculture. These opportunities are used to achieve the objectives of sustainable
level of sectoral growth, efficiency in natural resource use, generation of employment
opportunities and improvement in the status of social welfare of the all stakeholders
involved in the process. Some of the opportunities in the Sri Lankan agriculture within the
commercialization scenario are as follows.
Technological Advancement
The initiatives should be taken to introduce green house and poly-tunnel technology
among youths and agriculture graduates to grow some products for identified niche markets
eg. Vegetable for super market chain and the air line catering service and cut flowers for the
export market. The demand for these products is showing an upward trend in the world
market. Further, the technological advancement should be encouraged to tea, rubber and
coconut sectors to increase the level of integration to generate new range of products
through private sector. For the domestic market, demand driven distribution of
technologies in the horticultural sector should be organized for product integration. The
necessary technologies have been already developed in other tropical countries.
Regional Specialization
The regional specialization mechanisms should be organized by pooling regional
resources to gain higher productivity, increased farmer income and generating employment
opportunities directly and indirectly. The planning and executing market oriented regional
integration strategies can be formulated to contract farming mechanisms in collaboration
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with the private sector. The earlier experience on regional specialization mechanisms
namely: Export Promotion Villages (EPV); Agricultural Productivity Villages (APV); and
yaya program in the paddy sector programs can be revitalized in order to the today’s
demand through participation of both state and private sector.
Market Integration
It is possible to attract FDI and new technologies into the sector through market
integration. It may be either horizontal integration (eg. Market oriented crop diversification)
or vertical integration (eg. Seed and seedlings production, agro-based products — vegetables,
fruit, tea, rubber, spic es,etc). The world demand is moving to nature-based products,
herbal products and natural products. In the agriculture, it is possible to introduce new
green products or organic products (eg. Organic spices, pesticide free rice).
Supply driven Vs demand driven R&D and Extension in Agriculture
The opportunities are open to change the ineffective supply driven research and
development and extension in agriculture within the globalize environment. The demand
driven R&D will generate higher rate of return fo r the investment of research. The R&D
can be conducted for adoptive or applied research rather than basic research for tradable
products and development of new products considering the consumer preferences. It will be
assist to manage scare resources efficiently. In the sri Lankan agriculture, the priority
should be given to the green house products, horticultural products, forestry based products
and fish based products. The private sector should be encouraged through incentive
packages for targeted extension in the exportable product sectors, while the government
should look after the extension in the subsistence- farming sector.
Trade Creation Through Regional Trading Blocks
Sri Lanka has signed a Free Trade Agreement (FTA) with India to harmonize trade
between India and Sri Lanka based on preferential trading agreements. It is possible to gain
befits through trade creation and mobilizing other factors and products through the
regionalized environment. Further, Sri Lanka can import Indian product at the
concessionary terms, re-export them to other destinations, and generate additional income
for investors. It also encourages investors to invest in either country through building joint
ventures and partnerships.
Modernization is a process which comprises three stages namely liberalization,
regionalization and globalization. The major driving forces of modernization are
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technological change, liberalization of trade and investment and internationalization of
business activities. The emerging issues in modernize/global agriculture development are:
agro-environmental damages and sustainable development; food security and food safety;
genetic diversity trade and market power, mechanism for transferring technology; poverty
alleviation and hunger; sanitary and pyto-sanitory measures. Within the modernization
scenario, the challenges for the Sri Lankan agriculture have been identified as integration
into niche, larger and global markets; improving the climate for agro-enterprises through
market integration; investment in people and technology; maintenance of macroeconomic
stability and gaining competitive advantage. If the Sri Lankan economy follows the
strategies of modernizing the Sri Lankan agriculture, there are pre requisites to fulfill to
facilitate the entire process namely, development of national agricultural policy,
formulating of an institutional mechanism including identification of a dynamic role of the
state and complimentary micro-sectoral policy mechanism.(Somaratne W G )
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4 Private Sector Investment in Agriculture and the
Establishment of the Farmer Companies in Sri Lanka
“It is argued that farmer companies can tangibly address the issues while capturing economies of
scale, producing competitive economic ventures, and harnessing the skills of educated youth in the
small farm sector. Unlike in the Sri Lankan cooperative sector or in farmer organizations (FOs), in
farmer companies, the shares are marketable and there exists a direct association between equity
participation and voting power. Moreover, farmer companies are less susceptible to political,
bureaucratic, and other pressures. Based on the experience of the Shared Control of Natural
Resources (SCOR) Project in Sri Lanka, it is argued that FOs can justify their existence within the
farmer company framework”.( Wijeratna C M 2001)
4.1 The Reasons for Private sector Investing in Agriculture Sector
The main attractions for private investment in the agricultural sector include; the
pro-business environment, diverse agro-climatic zones, abundance of raw materials, wide
scope for value addition, decades of industry experience, readily available labor force,
country's geographical proximity to major markets, superior port facilities and a wide range
of incentives and facilities granted to the agricultural sector.
Pro-Business Environment
Sri Lanka is regarded as one of the most attractive investment destinations in the
region. Over the last two decades, successive governments' have pursued a policy towards
economic liberalization with the main emphasis on private sector investment. Today, Sri
Lanka is ranked as the most liberalized economy in South Asia, which highlights the
prevailing conducive environment for private sector investment. Sri Lanka has been ranked
151 in the SAARC (South Asian Association for Regional Co-operation) region with
respect to competitiveness in "Economic Predominance", "Policy Environment", "Human
Resource Competitiveness" and "Investment competitiveness" (LMD, 1999).
Sri Lanka's pro-business policy environment includes;
1) Total foreign ownership, across almost all areas of the economy.
2) A constitutional guarantee on the safety of foreign investment.
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. 3) Investment laws which are transparent and automatic.
4) A sophisticated legal and regulatory framework covering areas such as intellectual
property, settlement of disputes, etc.
5) An open economic system permitting free transfer of fees, profits, capital earnings and
foreign exchange transactions on current account payments.
6) Double Taxation Relief Agreements with 29 countries and Investment Protection
Agreements with 26 countries.
7) Foreign investors are allowed to either purchase or lease land to set up business
enterprises including agriculture.
8) Generous fiscal incentives and concessions.
Access to Raw Materials
The country is blessed with diverse agro-climatic zones enabling growers to produce a
wide range of crops. Similarly, Sri Lanka has the exclusive rights of nearly 500,000 square
kilometers of sea. The agriculture, livestock and fisheries industry provides the
agro-processing industry with abundant raw materials. Sri Lanka has established a
reputation as a reliable exporter of certain primary products and processed agricultural
products such as tea, rubber, coconut, cut flowers, spices, confectioneries and herbal
products. There is, in addition ample scope to add value to agricultural commodities, which
are exported or consumed locally in raw or semi-processed form.
Access to World Markets
Sri Lanka is fast emerging as a service hub in the region. The country's geographical
proximity to South Asia and the Middle East in particular provides access to large markets
that are growing and rapidly upgrading dietary habits. The Colombo port is ranked as
number one in South Asia and 26th in the world.
The regional trade agreements such as SAPTA (South Asian Preferential Trade
Arrangement) and the bilateral free trade agreement with India provides Sri Lanka with
tariff preferences in one of the world's largest markets for processed agricultural products.
Proximity to the vast Indian market is a significant geographical consideration, with Sri
Lanka positioning itself as a neutral player in the region. Under the Indo-Lanka Free trade
Agreement (FT A), India has given either 90% (from 1st March, 2002) or 100% duty
concessions for over 700 agricultural products. Since many of India's agro-industries are
protected with high tariff rates, this is potentially a very significant trade preference.
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The WTO (World Trade Organization) members have made commitments to scale
back agricultural price support measures and export subsides. Accordingly, Sri Lanka will
enjoy greater market access for its agro-industrial products in the developed market
economies. The regional and bilateral trade agreements, combined with WTO reforms
should increase both trade flows and competition.
Incentives and Concessions
To foster agriculture and agro-based industries in particular a number of attractive
investment incentive schemes have been granted to both local and foreign investors both
under the "normal laws' and Section 17 of the "BOI Law" (See Table 4.1).
The Board of Investment (BOI) is structured to function as a central facilitation point
for investors while granting very attractive incentives and various other facilities such as
tax holidays or preferential tax rates, exemptions from customs duty and foreign exchange
controls.
Table 4.1: Incentive Scheme Applicable for Agriculture & Agro – industry1.
Project Activity Type of Incentives
Agriculture
Food Processing
Industrial &Machine Tool Manufacture
(eg.Agricultural tools)
Other Designated Enterprises
(eg. Rubber products)
Investments in excess of Rs. 500 mn.
In specified agricultural services
Tax rates
- 1-3 years :0%
- 4-5 years : 10%
- 6th year onwards
Agriculture & food
processing : 15%
Others : 20%
2. Duty free imports of capital goods
3. Duty free imports of raw materials
(for export quantities)
4. State land on 30-50 years lease
Pioneering Investments in designated
Areas including infrastructure
Projects
Tax rates
- 5 – 10 years : 0 %
(From the date of commencement
of commercial operation)
After tax holiday : 15 %
Duty free imports of capital goods
Duty free imports of raw materials
( for export quantities )
1. Selection criteria gazette based on the budget 2002
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4.2 Major Constraints Hindering Private Sector Investment in
Agriculture
The poor performance of Sri Lanka's agricultural sector is largely attributed to various
constraints and bottlenecks faced by the farmers and agro-industrialists. The major
constraints faced by the private investors include, (a) inadequate supply of quality inputs
such as planting material and packaging material, (b) limited access to productive land, (c)
lack of basic infrastructure such as industrial sites, well managed market places, cold rooms
and warehouses, (d) ineffective marketing system, (e) lack of supporting services such as
packaging, testing and certification, (t) lack of a demand driven research and extension
service, and (g) high transaction cost. These constraints will create investment opportunities
in improving productivity, value addition, strengthening the marketing system, developing
the physical infrastructure and provision of support services.
4.2.1 Inadequate Supply of Quality Planting Material
Agro- industries require a continuous supply of high quality agricultural raw materials.
Sri Lanka's small producer’s ability to meet this demand depends on their access to
appropriate seeds and planting materials. However, the lack of appropriate seeds and
planting materials to produce high quality fruits, vegetables, oil seeds, tubers, grains,
perennial crops and floricultural products is a major constraint to the development of
domestic agro-industries.
The government's seed improvement efforts have been concentrated on rice. In the
case of other commodities, there is a dearth of improved seeds and planting material.
Meanwhile the restrictive quarantine laws and inspection practices have effectively made it
impossible to import any improved plant genetic material of the highest quality.
4.2.2 Lack of Suitable Technology
The development of both agriculture and agro- industry is constrained due to the lack
of suitable technology. For instance nearly 40% of the agricultural produce goes waste
owing to lack of new and modern post harvest technology.
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4.2.3 Uneconomic Land Size
Limited access to productive land is a serious impediment to commercial agriculture
development. With the exception of the traditional plantations, the majorities of the other
agricultural lands are quite small in size and scattered throughout the country limiting
operations for scale economies. Agro-industrialists desirous of setting up their own raw
material base experience difficulties in obtaining access to large extents of suitable land
owned by the state sector.
4.2.4 Lack of Readily Available Industrial Sites & Other Basic Infrastructure
Suitable industrial sites are lacking especially in the rural areas to set up value-added
industries. Although the government has established few industrial estates and industrial
parks, the agro industries have been unable to take full advantage of these sites due to lack
of specialized warehouses, cold storage and waste disposal facilities. Many of these sites
lack access to other supporting infrastructure such as water, electricity, roads and
telecommunication facilities.
The lack of properly designed and well-managed market places has an adverse effect
on the overall investment in the agricultural sector. The major wholesale markets are highly
congested.
The public domestic markets are inappropriately located, badly designed and poorly
managed. Hence, distribution and marketing costs are very high in domestic agricultural
trade.
4.2.5 Ineffective Marketing System
The high cost of marketing of agricultural goods raises the prices of raw materials to
the agro industries and raises the costs of finished products to both domestic and foreign
consumers. Losses in the marketing system, for the perishable products are estimated to
range between 20-40percent. The irregular supply of raw materials due the poor marketing
network is a key constraint for most agro- industries. The lack of cold storage facilitates too
discourage farmers from producing high quality perishable products in particular.
Unlike the export-oriented agro-industries, which compete for a small share of the
large world market, the domestic oriented agro-industries have to compete within the
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narrow confines of the domestic market. The lack of large scale leading enterprises together
with the dispersed nature of the domestic market oriented agro- industries and limit
opportunities for vertical integration, intra-industry co-ordination and co-operation. .
4.2.6 Lack of Demand Driven Research & Extension Service
Neither the public research nor extension service is adequately responsive to the needs
of the more commercial oriented agro-enterprise sector. The majority of farmers grow crops
based on their convenience and experience irrespective of the market demand. The
agricultural research and extension effort is drawn more by the Government's notion of
what should be produced rather than by the needs of the agro-industrial sector.
The bulk of agricultural research activity in Sri Lanka is in the public
sector-specifically, under the network of research institutes. Product developments with the
direct participation of agro industries (public-private partnerships) are relatively rare. In
contrast, the private sector plays a considerably larger role in other countries, notably in
developed countries in the areas of technologies 'embedded' in fertilizers and pesticides,
farm machinery and equipment, seeds and other inputs. They are also involved in
preservation and food processing.
The government funded agricultural extension service has weak village links and often
concentrates more on subsidy administration rather than transfer of technology. There is no
proper marketing extension system to advise the farmers on crop selection, time of planting,
harvesting, identification of trading opportunities and obtaining the maximum possible
price.
4.2.7 Lack of Packaging Materials
Packaging is an important element in pricing a product in both local and foreign
markets. The limited capacity in the domestic market to produce high quality packaging
material raises costs (due to high import tariffs) and hinders development of products suited
to the different segments of the global market.
4.2.8 Lack of Testing/Certification Services
As traditional trade barriers fall, many countries are tightening health and quality standards
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on the import of agro-industrial products. For instance, the European Union (EU) has
significantly tightened phytosanitary requirements on imports of fish and livestock produc ts.
Sri Lanka's agro-industries will need to adjust to increasingly stringent global market
quality controls. Many small and medium agro-enterprises are unable to afford health
inspection costs. Accordingly, they cannot fully comply with strict food health certification
standards. This has weakened the industrial ability to capture export markets that are
tightening quality requirements.
According to the latest report of the Food & Agriculture Organization (FAO),
developed nations are now emerging as major exporters of food and fruits to developing
and Least Developed Countries (LDCs). In addition, with globalization and trade
liberalization, most of these developed nations have already conformed to standards and
regulations imposed by the WTO which most developing countries and LDCs are unaware
of, or currently lagging behind.
4.2.9 High Transaction Costs
High transaction costs resulting from various regulatory impediments impact
negatively on enterprise development in the agricultural sector. These regulatory
impediments increase the cost of doing business in Sri Lanka and thereby discourage
investments in agriculture. eg.: Procedural delays.
Procedural delays hinder timely availability of imported seeds/planting materials.
Land is often a major constraint to attract investments into the agricultural sector.
Prospective investors face innumerable difficulties in acquiring suitable state land for
setting up projects in the agricultural sector. Long procedural delays have also been
witnessed in the transfer of state owned land. .
4.2.10 Tax Regulations
Protective agricultural trade policy raises cost of appropriate agro-inputs and add to
the lack of competitiveness in the market. For instance, high duties on packaging materials
and limited domestic capacity to produce high quality packaging materials raise costs and
hinder development of products suited to international markets.
4.2.11 Customs Regulations
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Import licensing for commodities such as natural rubber, corn and wheat functions as a
non-tariff barrier. The Sri Lankan Industrial sector could serve nearly one-third (1/3) of the
estimated profit by removing various legal and regulatory impediments unhealthy for
enterprise development and competition.(EDB 1997).
4.3 Investment Opportunities
Investment opportunities exist for private entrepreneurs in the following major sectors:
ie. Supply of inputs (e.g. seeds, bio-fertilizer) transfer of technology (eg. controlled
agriculture, value addition), development of physical infrastructure (eg. market centers,
industrial sites) and providing support services (eg. testing, certification) (see Figure4.1).
 Production of High Quality Seeds/Planting Materials
The demand for improved seed varieties has been increasing rapidly. Policy initiatives
are in place to encourage the private sector to participate in commercial seed production (eg.
hybrid seeds) and propagation of high quality planting material using techniques such as
tissue culture and grafting.
Advances in biological sciences have opened up new vistas for genetic engineering not
only to create varieties with a higher yield potential, but also varieties which meet quality
(color, taste, shape etc.) specifications and resistance to specific pests and diseases. These
techniques have created a growing market for good quality improved seed varieties.
Privatization of Government Farms
Management of two loss-making seed farms at Pelwehera and Hingurakkoda was
handed over to CIC Fertilizers Ltd
Packaging Materials
If Sri Lanka is to become a world class player in the food processing industry, it is
essential to develop the packaging industry to attract consumers, to ensure safety standards
and to prevent counterfeiting. The type of packaging material that would be in great
demand may include bottles and cartons of different colors, shapes and sizes which are
made of different materials such as glass, paper and plastic.
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Figure 4.1 - A schematic representation of opportunities for private investment in Agriculture and
Agro-industry.
4.4 Small Farmer and Market Economy
As mentioned in the introduction, in a developing country where agriculture dominates,
the performance of the economy would largely depend on the ability of agriculture to move
ahead. This "in turn is determined by the pace at which the rural people respond and adjust
to growing integration of village economies with the larger national economy. It is
necessary to keep in mind this human dimension of agriculture as liberalization would
make it even a more critical determinant of agricultural and rural development" (Rao 1996
p.A-52).
In India, despite the fact that agriculture has diversified and commercialized in the
recent past, the number of marginal and small farmers has increased and there is a tendency
for new entrants - "gentlemen farmers" and the corporate sector - to displace traditional
farmers. Commercialization tends to expose marginal farmers to enhanced market risks and
Supply of inputs
1.Seeds and planting material
2.Bio-fertilizers
3. Packaging materials
4. Tools/machinery
Development of physical Infrastructure.
1. Market centers
2. Cold storage/warehouses
3.Storing, grading, packing centers
3. Industrial sites
Investment Opportunities
Transfer of Technology
1.Controlled agriculture
2.High demand/high valued crops/
Livestock products
3.Off season production techniques
4.Processing & value addition
5.Integrated production systems
Support Services
1. Research and extension
2. Testing and certification
3. Refrigarated transportation
4. Storage/warehouse facilities
5. Crop Insurance
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it is recommended that these risks be monitored and appropriate institutional and
infrastructure. Supports extended (Nadkarni and Vedini 1996).
Liberalization not only leaves economic activities open to the market forces but results
in a substantial withdrawal of the government interventions.
In a free market economy, every scale resource expected to command a price, which is
determined by demand and supply forces. The profit motive will guide the operation of this
market system. Unjustifiable profits will be eliminated (through perfectly competitive
markets) and the resources will be allocated rationally to produce a particular good at its
lowest cost. If a producer fails to do so, he/she will find his/her earnings decline, even to a
point where competitors will force him/her out of business.
To maximize the benefits derived from economic liberalization, the country will have
to create the basic conditions necessary for a market economy. These include perfectly
competitive producers, full knowledge of prices and other relevant facts (which are
associated with an efficient and transparent information system), adequate knowledge of
relevant technologies and most efficient allocation of resources. A large number of firms
not only in production proper, but also in input and output markets, unrestricted entry and
exit, homogeneous products, easy mobility of factors, etc. The applicability of this basic
economic theory to the Sri Lankan agricultural situation is yet to be tested and established.
On the proposals for reducing farm price support levels in the United States (Claudius
1960) argues that perfect competition is neither an adequate model nor an appropriate norm
for agriculture, as its assump tions can lead to a conviction that getting the government out
of agriculture is an end to be sought as perfection itself. These assumptions insinuate (a)
market conduct and performance characteristics are such that market prices are equal to
cost including normal profit and (b) the production adjustments within and among
agricultural production, units through unrestricted entry and exit are such that supply and
demand become equal at satisfactory prices. Implicit in this is that any displacement from
equilibrium brings about automatic, swift, and precise restoration of equilibrium again at
prices covering the costs including normal profits in the agriculture sector. Eventual
equilibriums are presumed to be consistent with an optimum allocation of natural resources,
most efficient produc tion, and payments to factors in accordance "with what they are
worth" (Bandusena 1997).
The macro economic perspective related to this issue involves even higher risks. On a
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review of the liberalization, experiences in Argentina, Chile, Brazil, and New Zealand,
(Valdes 1995), concludes that, the highest risk for agriculture comes from the fact that
getting inflation under control in most countries takes many years. Because (i) stabilization
programs often lead to very high real interest rates. That adversely affect agriculture, (ii)
the exchange rate is often used as a tool of stabilization and the real exchange rate
appreciates sharply, thus reducing the competitiveness of agriculture, and (iii) in cutting
spending to reduce the government deficit, since government often cut spending on
infrastructure and other public goods required for agricultural growth. Sri Lankan
agriculture has little room to avoid this risk.
Moreover, it is not easy for hundreds and thousands of small farmers to exit from
agriculture. An adequate ''pull force" is required to provide realistic alternatives and to
absorb the displaced. In addition, vast information asymmetries exist concerning
agricultural input/output markets in the country. Manipulations and corruption in markets
and difficulties in creating a perfectly competitive environment, etc., are notorious.
4.5 Agrarian Value System
The discussion in the previous section leads to the conclusion that the environment
necessary for market forces to yield benefits (desired by the market economy) should be
considered in designing a path to economic liberalization. A related important issue of
concern is the agrarian value system prevailing in rural Sri Lanka. A detailed discussion of
this subject is beyond the scope of this report. The value system consists of several features,
which are relevant to those who design/facilitate competitive markets in the agrarian sector.
First, a large number of small farmers consider farming as a way of life and as a family
enterprise. They would prefer to minimize "shocks" and risks. Given that farming is the
predominant form of employment in rural Sri Lanka, it is quite natural that farmers are
reluctant to take risks. However, commercialization and modernization are associated with
input and output profiles that are widely different from existing patterns and are associated
with risks.
Similarly, concerns related to equity and resources conservation can be quoted as
important characteristics of rural agrarian value systems.
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4.6 Credit for Economic Ventures
An analysis of the credit market of the Indian peasantry revealed "borrowers' tangible
assets and income act as entitlement or vehicle to credit markets." Then the only sustainable
means to increase poor farmers' access to the institutional loan market would be to enhance
the size of their "entitlement set" Given the status of the poor/small farmers, this would
only be possible provided they form groups (Basu 1997, p.276). Such group action would
also eliminate the problem of economies of scale and reduce transaction costs as well as the
risk of credit agencies.
The problem in the current practice of the provision of credit directly to the individual
users through state-sponsored programs has several dimensions.
First, the current practice has proved to be unsustainable since it breeds defaulters with
the result of writing off loans by political processes. Second, it does not lead to recognizing
the importance of improving user's creditworthiness that could lead to action improving
credit rating of the individual user. Third, it does not recognize the important transactions
with user organizations dealing with viable economic ventures in which the individual users
are a part. Fourth, it demands certain types of collateral that small-scale users find difficult
to produce. Fifth, it involves time consuming and complex processes through "red tapes" of
bureaucracy. Sixth, it incurs heavy administration costs. Because of such costs and high rate
of default, the interest rates, if not subsidized, are exorbitantly high. This is true for some
existing banking systems as well. The subsidized credit programs of the government take
the form of a relief or rescue operation to small farmers but they would be a burden on the
government budget.
These deficiencies do not facilitate the emergence of a production environment that
would motivate users to engage in profitable economic ventures in an open market setting.
The concept and strategy of the Shared Control of Natural Resources (SCOR) Project for
integrating conservation and production recognized that credit to natural resources users
should finance/supplement an economic venture. This recognition hypothesizes that a
demand would be created for:
1) Organization, such as a farmer company, where small- scale users could collectively
plan their individual economic ventures, and use community action on discipline for credit
repayment
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2) Information on technologies related to crops of comparative advantage, processing
Value-added, markets, transport, legal contracts, banking, etc.
3) Mechanisms among lending institutions to lower transaction costs, and offer better
packages of support with relaxed procedures in supply of credit
It is hypothesized that such a demand could activate processes of supplying such
support which itself will generate much complementary activity that would enrich production
planning and scheduling, forward contracts, exploration of new markets, and other
diversified economic activities. Based on such productive activity, the state could provide
support where necessary to user organizations or companies to receive loans (or grants at
the take-off stage of the company/organization, which will eventually be rotated among
organizations or companies which are at "infant" stages) that would be used as collateral to
raise bigger packages of credit from lending sources. SCOR provided such grants to be
used as collateral utilizing the project's sub-grant component.
In SCOR, for each selected sub-watershed, a participatory resources management
"mini project" was formulated. The mini project aims to change the present land and water
use pattern to a more profitable and diversified resource use, combining production and
conservation using appropriate technologies/ techniques, novel shared control arrangements,
and methods of resource augmentation (e.g., conjunctive use of rain water, tank water and
groundwater, and conservation farming, water harvesting, etc.). New commercial
enterprises and conservation practices in a typical sub-watershed in the SCOR experiment
in the Huruluwewa watershed include integrated wet and dry season water management in
command areas. (e.g., water-saving techniques to improve cropping intensity, and
introducing short-duration commercial crops in the dry season, cultivation of medicinal
plants, fruits and vegetables in chena, processing industry for medicinal plants, stabilized
cropping patterns for chena and highlands, contour bunds to cover the entire area, water
harvesting techniques, etc.). This means tha t the villages in such pilot sub-watersheds have
"action plans" that guide them along a path to the planned future from the status of
resources use. The banks have agreed to provide a loan four times larger than the SCOR
grant for the user organization using the grant deposit as collateral. In many cases,
production enterprises and production scheduling are linked with firm plans of output
disposal. For example, in some cases, Colombo-based private companies as well as State
agencies offered forward contracts to the farmer companies to purchase most of the
expected produce under "mini-projects." .
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For a viable "mini project," SCOR provides one-third or one- fourth of the total
external funding requirement. The farmer organization/company negotiates (with the
assistance of SCOR staff) with the bank and gets the balance (2/3 or 3/4) as a loan. The
farmer organization/farmer company deposits the SCOR grant in the bank and this (money
"freeze" in the bank) is accepted as the collateral for which the farmer
organization/company earns interest. Hence, the effective interest rate is less than the
market rate. This is useful for the farmer organization/company at the initial "take-off'
stage.
4.7 Cooperatives, Farmer Organizations, and Farmer Companies
The history of farmer organizations in Sri Lanka goes back to ancient times. In the
early post- independence era, the institution of Vel Vidane (irrigation headman), established
during the British colonial period, was continued. The Vel Vidane was appointed by the
government and was given power to execute decisions for the operation and maintenance of
minor irrigation systems. In the late fifties, the institution of Vel- Vidane gave way to an
elected committee of farmers known as the Cultivation Committee. This institution dealt
with non- irrigation (yet agricultural) functions as well. In the early seventies, Agricultural
Productivity Committees (APC) was established to oversee the work of the Cultivation
Committee. Later on, these were abolished and a new institution known as the Agrarian
Service Center was established. These centers are being re-organized at present and
Agrarian Development Councils are being established at this level. At the lower level, there
are over 10,000 farmer organizations, countrywide.
Certain farmer organizations emerged as forceful pressure groups and they manage to
organize water distribution, input supply, and, in a limited way, sale of production. The fact
remains, however, that a major breakthrough was not seen to ensure small farmer's
economic and social well-being through profitable economic ventures. The farmer
continued to be the victim of the vagaries of weather, as an individual. The absence of a
combined set of interventions to promote year-round cropping, crop scheduling,
value-added production and other agro- industries, market links in the form of forward
contracts of sufficient scale as profitable business for farmer organizations. The absence of
procedures for decision making in the implementation of trade policy sensitive to farmers
promoting partnerships between farmer organizations and the organized private sector as
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well as between state and farmer organizations - all these remained obstacles. On the other
hand, farmer companies have better legal power and recognition and are readily accepted
by the organized private sector. This is important for business ventures. For example,
farmer companies could establish legal contracts with organized private sector companies
for forward sale of agricultural products. Moreover, farmer companies are independent
business organizations, which could avoid political and other problems. Investments
through farmer companies can produce competitive economic ventures for which a
necessary condition will be the partnerships with the organized private sector and the State.
Further, one of the biggest national riddles, for which any government has not found a
sustainable solution with continued donor assistance, is the inadequacy of income earning
opportunities for the landless rural youth. Farmer companies can tangibly address this issue
and also harness the skills of the educated youth in making most of them important actors
in profitable business.
Cooperatives, on the other hand, are "associations of persons with common needs,
who join hands for self-protection, promote social cohesion, encourage individual initiative
through collective actions. Cooperatives have an ideological base, economic objects, and a
social approach. They are based on social parity and equality" (Dwivedi 1996, p.714).
The concept of cooperatives was born in England in 1844, in the environment of a free
economy to protect consumers' against exploitation by the traders. It can be argued that
exploitation occurs in an environment where perfect conditions for economic liberalization
do not exist
"Even today in the highly market-oriented countries like the USA, Scandinavian
countries, Japan, etc., cooperatives play a significant role in influencing markets. In the
USA, for example, cooperatives annually account for nearly 70 percent of fluid milk, 80
percent of fresh fruit, 35 percent of agricultural credit of all types, 30 percent of grains,
oilseeds and a major share in the rural electrification production, transmission, and
distribution; the bulk of fertilizers and petroleum handled by the cooperatives. Similarly
in Japan, cooperatives are fairly strong in the field of agriculture, consumers, fisheries and
forestry". (Dwivedi 1996, p.723).
In companies, shares are marketable. Therefore, shareholders are interested in
speculating potential gains from buying or selling stocks. This in turn could provide an
incentive for them to monitor the performance of their firm. In cooperatives or farmer
organizations, shares, in general, are non-tradable. Moreover, unlike in companies there is
no direct association between equity participation and voting power. Usually, as in the case
105
of Sri Lanka, cooperatives and farmer organizations are comparatively more susceptible to
political, bureaucratic, and other pressures.
Farmer organizations and farmer companies expected to perform different roles at
different levels and it maintained that the farmer organizations could justify their existence
within the farmer company framework. The major attributes of farmer organizations and
farmer companies, as experienced in the Shared Control of Natural Resources (SCOR)
Project are:
i) Farmer organizations, Useful as an initial/preparatory step for collective functioning
with conservation oriented production activities; one vote for each member; device for
collective operation rather than an economic organization; and largely dependent for
success on the maximum participation of a great majority of (if not all) members
ii) People's companies (aimed at small farmer development for active participation in
production and resources conservation) can take the natural resource endowments and
technology into consideration in an economically and socially optimal manner. It can go for
relatively larger investment scales; have vote for x number of shares; can afford to invest in
indivisible capital intensive service functions, yet opening equitable opportunities for a
given member to benefit; operational device and an .economic organization; and can afford
to bargain at the market. In people's companies, farmers can rely on selective participation
and individual farmers have:
1) ownership advantages (right of farmer to. do business with the company)
2) internalization advantages (avoidance of search and negotiation costs, etc).
3) competitive advantages in generative businesses and shared businesses
over farmer organizations, where the latter have to rely on
coincidental businesses (Bandusena 1977).
4.8 Process of Establishing Farmer Companies -- Experience of Shared
Control of Natural Resources (SCOR) Project
Shared Control of Natural Resources (SCOR) Project is a collaborative effort of the
Government of Sri Lanka, United States Agency for International Development (USAID)
and the International Irrigation Management Institute (11M!). SCOR, in collaboration with
106
the Ministries of Irrigation, Power and Energy; Agriculture, Lands and Forest Resources;
Fisheries; Plantations and several government and non-government agencies and the organized
private sector, has been testing methodologies to increase sustainable productivity of
land and water resources in Huruluwewa and Nilwala watersheds in Sri Lanka. SCOR
hypothesizes that, the small farmers/resources users, if organized - as groups of organizations
or companies - with an appropriate package of technology (crops, cropping patterns,
conservation measures, value-addition, etc.), policy (for example adequate usufructuary
rights), and resources linked with markets, will increase and sustain productivity of land
and water resources (in a watershed context) while making profits. Such gains will motivate
the users’ for market-oriented conservation. In short, SCOR assumes that "organized user
efforts can produce viable economic ventures in conservation-based production." In this
approach and with the assistance of SCOR professional staff and the Government of Sri
Lanka, the beneficiaries address the question of bow they (the small farmers) can coexist in
a market economy, by combining technology, organization, resources, and policy in
managing resources for productive and profitable ventures by farmer companies.
In facilitating endeavors responsive to the government policy, SCOR Project assists
farmers of Huruluwewa and Nilwala watersheds to "produce for identified markets" using
the methods mentioned above. Forming farmer companies as an organizational arrangement
is promoted by SCOR to test the possibility of the small farmers to pool resources through
profitable business ventures.
Based on SCOR experience, five major stages can be identified in the process of
establishing small farmer companies in Sri Lanka:
1) Venture seeking stage
2) Company formalizing stage
3) Market links building/expanding stage
4) (Strategic) planning for long-term sustainability .
5) Sustainable business operations (high degree of autonomy and self-reliance)
At the initial stages of this process, SCOR staff performed the functions of a change
agent/catalyst as well as a market facilitator. The role of a catalyst/market facilitator is
outlined below:'
1) Identify and estimate market potential for selected agricultural enterprises (crops,
livestock), fisheries, etc. for scheduling production in a given farmer company. The initial
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role of the market facilitator would be to inform the farmer company and, othe r technical
officers (such as the Agricultural Instructor, relevant officers of the Departments of
Agrarian Services, irrigation Department etc.) of the availability of markets for enterprises
that would match with the agro-climatologically and socio ' economic conditions of the
area.
SCOR Project employs a professional team comprising consultants and specialists in
agricultural production, conservation, marketing, and institutional building, living in the
field and working with the farmers and their organizations. At present, the project has at
least one of its production and conservation practices in about 12,000 hectares of lands
involving 14,000 farm families, 40 farmer organizations, 4 service organizations, and 3
farmer companies in 30 sub-watersheds in 2 watersheds. This was required at the "take-off'
stage. At a later stage, farmer companies will employ their own staff for such purposes.
2) Estimate the production of these selected enterprises jointly with the farmers and
then arrange for forward cont racts with identified markets/buyers. In this way, the
facilitator will link the producer groups/companies/organizations with potential
markets/private sector firms. This process will include market surveys and discussions with
buyers and farmers, providing market information to the farming community, training
farmers on the required quality, quantity, and grading, and other aspects expected by the
buyers, etc.
3) Monitor the feasibility of meeting the contractual agreements by the farmer organizations/
companies. For this, he/she will join the local staff of government agencies such as
agriculture, plantation, and agrarian services in checking, on a monthly basis, whether there
are any constraints faced by the farmers in the production process, which may affect the
quantities, and quality standards included in the forward contracts or other agreements. If
the organization or company is unable to produce the required amount this will be known in
advance (based on monitoring information) and the market facilitator will assist the
company, purchasing the balance amount from other areas of the country to meet the
contractual obligations. The monitoring process will be a joint exercise involving farmer
organizations/companies.
4) Arrange for expert advice as well as other needs of the organization/company.
These will include all aspects of marketing such as storage, cropping, packing, transport etc.
The objective is to evolve the required business mode of operation within the
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organization/company.
5) be accountable to the producer's organization/company. During the pilot phase, the
market facilitator will be paid by the project. However, the farmers and the government or
the respective facilitating agency will evaluate the performance of the facilitator jointly
from time to time. After 2 years, the facilitators expected to be absorbed by the organization,
or the company will select and employ someone else.
Major activities undertaken (or planned) under each one of the stages of the process of
company formation is briefly discussed below with special reference to the Huruluwewa
Farmer Company (HFC) facilitated by SCOR.
4.8.1 Venture-Seeking Stage
SCOR experience suggests that it would be difficult to establish a farmer company just
by persuading farmers to contribute share capital. A great majority of members of the
farming community operates at subsistence level and therefore, at the outset the market
facilitator, other technical staff, and farmers may select a few enterprises, which have a
good market potential.
For example, the Huruluwewa Federated Farmer Organization (HFFO), with
assistance from the Irrigation Management Division, Irrigation Department, staff of other
line agencies such as the Department of Agriculture, launched a water management
program in the wet season of 1994/95 and saved water for the next dry season. SCOR
facilitated this process.
Next, SCOR provided information on the market potential, enabling the farmers to
select a cash crop (soybean) for the dry season and arranged, in consultation with HFFO, a
market link between HFFO and a private company (Thriposha Ltd.) that provides soybean
to the Ministry of Health to be used in a countrywide nutrition program. The underlying
assumption is that forward contracting systems can help small producers to minimize
fluctuations of income due to undesirable changes in price which could be caused by
factors such as seasonal changes in weather (which could lead to surplus production that
would lower the price), and corruption and malpractices in the output market, etc.
HFFO, line agencies, and SCOR staff conducted production scheduling and other
arrangements for cultivation, harvesting, collection, storage, transport, and other
post-harvest operations as well as monitoring jointly. With SCOR, assistance HFFO
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obtained two loans, each amounting to Rs. 4 million, from a state bank (people's Bank) and
from the Ministry of Agriculture, Lands and Forestry Resources.
Farmers received Rs 20/kg, a price that is about 50 percent higher than the normal
farm- gate price (offered by intermediaries). In general, activities during this initial stage
could be identified as follows:
1) Review current income/profit generating activities and identify new activities with
high market potential.
2) Arrange (sign), forward contracts.
3) Arrange for production planning input supply, credit, and other production related
activities, and monitoring and evaluation.
4) Monitor production and arrange for post-harvest requirements as per contract.
5) Motivate farmers/farmer organization to build up initial share capital
(or pool part of profit earned from business).
4.8.2 Organization Formalizing Stage
The HFFO initiated dialogue on the formation of a farmer company. SCOR facilitated
this process and provided technical inputs. The total accumulated capital was Rs 1.4 million
(each farmer allocated Rs 2 per each kilogram of soybean sold, to purchase company
shares). The Registrar of Companies, under the Company Act on July 03, 1996, registered
the Huruluwewa Farmer Company. By this time, the company had a constitution or
memorandum of articles, a board of 7 directors, etc. Subsequently, the company recruited a
manager. The general steps in this stage included:
1) determine geographical area/membership partners/shareholders
2) build up share capital .
3) establish constitution or memorandum of article to elect the board of directors
4) register the company (legalize the company)
5) appoint a manager
4.8.3 Building Stage of Market Links
Subsequently HFC initiated several business ventures includ ing a sales center for
agricultural inputs and produce. The steps/activities at this stage would include:
1) negotiate for forward contracts
110
2) negotiate for partnerships for business
3) negotiate for sales agencies status for marketing products demanded by farmers as
for farming inputs
4) negotiate agency status from banks for supply of farm inputs on bank credit and
credit recoveries from farmers
4.8.4 Detailed strategic planning stage
1) combine investment decisions with production targets
2) set short-medium-and long-term targets for business
3) finalize cash flow for operations
4) finalize details of strategy for operations
5) finalize mobilizing of funds for capital generation and credit for operations
4.8.5 Business operations stage
1) determine staff requirements/recruitments
2) recruit management staff
3) procure office/storage space
4) operationalize production and marketing links
The last two stages (strategic planning and operating sustainable business) are done in
well. The HFC has conducted workshops on strategic planning and has launched several
medium-term and long-term businesses. For example, the company has recruited additional
staff, and strengthened links with farmer organizations. Jointly with "Dambulu Janatha
Govi Samagama, " another farmer company established in the SCOR project area the HFC
is about to sign a forward contract to supply 2,200 tons of soybean and 3800 tons of maize,
annually. In addition, they have entered into marketing of rice, chili, and several other
products as well as agricultural inputs.
4.9 Farmer Companies in the changing economy
Agrarian reforms promise desirable change to agrarian communities as development.
Such reforms address issues obstructing development and attempt creating new conditions
to farming community to operate. Farmer Companies came to prominence in Sri Lanka in
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1996 with the initial successful operations of Huruluwewa Farmer Company in the North
Central Province and the Nilwala Farmer Company in the Southern Province as two pilot
projects under a watershed resources management project as an attempt to introduce a new
mode of economic organization for farmer communities.
Having attracted by the information of potential, the political leadership of the
Ministry of Agriculture directed the expansion of the promotion of farmer companies to all
the districts. This part describes the concept, its translation to action, its expansion and the
outcome of that promotional work as against the expectations of the stakeholders during the
past seven years addressing the question whether Farmer Companies can stand up to
expectations of stakeholders as useful mode of operation in the changing economy.
4.9.1 Stakeholder Expectations
Several different groups of parties showed interest to promote farmer companies with
the potentials talked about and initial results. These interests or expectations are as follows.
Stakeholders Interests/Expectations
1.Initial promoters
of watershed
Resources
Management
Project who
Tested the farmer
Company mode
For 2 years
To test the company made as an organizational mode of operation to
ensure the survival of small farmers, the highest majority of 1.8
million farm families in Sri Lanka, in the open economy since a farm
family of small farmers is not considered a viable economic unit.
To demonstrate that it is profit to farmer investment and not water,
which is the unifying phenomenon in resources management in
irrigation settlement.
To demonstrate the possibility of consolidation of efforts with
investment by poor farmers together with progressive farmers in
fragmented water support paddy lands and uplands by forming their
own companies and mobilizing investments to such lands producing
to identify markets until land consolidation efforts could be made
successful.
2. Farmers To increase farmer economic and political status to emerge as a
strong pressure group to promote their interests
To earn an attractive return to their production soon after harvest by
selling through the company
To obtain inputs (good quality seeds, fertilize, implements and credit)
easily and on easy terms as investment.
To be able to increase and improve production with stability to return
To be able to communicate, as shareholders of their own company,
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the needs stronger as a pressure group influencing policy changes by
government where necessary
3. Farmer
representatives
directorate and
company staff
Involvement in mutual benefits
Leadership to practice capabilities for benefits, prominence and
satisfaction
Compensation adequate to work and opportunities for future
prospects
4. Local level
government
officials
interacting with
farmers
Involvement for mutual benefits
Job satisfaction
Compensation adequate to work and opportunities for future
prospects
5. Government
officers
promoting
farmer
companies from
national level
To ensure the number of performing farmer companies to increase for
obligation of performance of duties and for job satisfaction
To gain experience for future prospects
To respond to demand for services
To enjoy the sharing of satisfaction of success of farmer ventures
To win acceptance of effective performance
6. Local Political
leaders
To win support of farmers by supporting their ventures
To get involved for mutual benefits
7. Political leaders
at higher level
To gain prominence by giving leadership to processes that can grow
nation wide
To increase the number of farmer benefiting from the concept and
working arrangement
To help pressure groups and communities for service obligations by
being political leaders elected by people
8. Organized
private sector
Business
operations
To establish trade links to ensure stable supply of production/raw
materials of required quantities and quality for cheaper price
To ensure greater profits to investments
Source: Ministry of Agriculture
A careful analysis of these different expectations and interests would show the
following:
1) The stakeholders have different and some times competing personal interests while
looking for gains from the common interest.
2) the stakeholders would remain working together to the extent such work would
ensure mutual interests.
113
3) title stakeholders may withdraw when they see no desirable benefits or when they
see the cost of involvement would exceed the benefits
4) such inter-relationships clearly show the presence of strong nexus of relationships
among the stakeholders as shown in figure 3.3
5) this means if stakeholders withdraw from obligations it is most likely that the
business which would provide mutual benefits could collapse.
6) such a nexus of relationship then reflects a model of inter-dependencies rather than
a model of independent organization as farmers independent business venture.
There were 85 farmer interest groups engaged in the process of operating business as
registered companies or still in the process of either obtaining legal status or searching for
business activity as at end of March 2001. There are 32 companies registered. The total
numbers of shareholders are 20,002 with Rs. 14,021,090 as shares. There are three national
level farmer companies with 500 shareholders and shares amounting to Rs. 4,400,000.
The latest development is to form national level farmer companies for the production
organization and marketing of major food crops. Three companies for Potatoes, Chilies and
Onions have been formed and the tendency continues to form national level farmer
companies for Maize, lime and pulses as well.
Thirteen farmer companies have obtained Rs; 36,277,119 as credit from the Govi Jana
Bank, which is a farmer, credit scheme implemented by the Ministry of Agriculture through
the Department of Agrarian Services. Rs. 13.2 million has been paid back and other loans
are in various stages of recovery. Some farmer companies have received credit from other
sources as well. Hiriyala Farmer Company has applied for a loan of Rs. 55 million for its
rice-processing centre from a leading state Bank. Regional Banks support farmer company
investments. A leading private bank introduced a credit card system recently to farmers
through Elahera and Ruhuna Farmer Companies. This arrangement has been given wide
newspaper publicity.
Figure 4.2 presents the types of products and distribution of farmer company
operations in the country. New products are introduced time to time and the map is updated
accordingly.
4.9.2 The Distribution of Farmer Companies
The status of the Farmer Companies with regard to their assets and liabilities, business
114
operations, annual turnover, investment plans and benefits to shareholders provides a range
of information of companies performing at a very low key, while several farmer companies
have been engaged in business ventures.
Figure 4.2 Distribution of Operating Farmer Companies
with promising returns. Huruluwewa Farmer Company, which was the first pilot project
entered into business agreements worth Rs. 111 million, with the Ministry of Health to
supply soybean and Aflatoxin free maize for a production of supplementary, food item
distributed free of charge among mal-nourished mothers and children. The company
managed to produce Aflatoxine free maize for the first time in the country of a large stock
of 395 MT. The Farmer Company raised capital from a local State Bank to the amount of
Rs.29.6 million for the business plan. In addition, the company met the farmers’
expectations by making available a good market, ready cash for their produce at harvest,
and hope for stable income earning opportunity. Today the farmer company is grappling
with a problem of recovery. Due to a complex problem of mal-treatment by the purchasing
company of their products, a slack on the companies part in maintaining the quality
115
allowing the purchasing company to downgrade them, withdrawal of collaboration by
certain key local bureaucrats acting on their own interest and the challenges from the
market economy where trade related tactics are difficult to be avoided. Akkaraipattu
Farmer Company made a big success by obtaining a loan of Rs.5 million for the purchase
of Paddy from the farmers and completed the transaction with a profit after settling the
credit. The following season, the Company managed to secure a loan of 7.5 million and
now engaged in gainful business. The Company has distributed part of the profit among the
farmer shareholders.
A problem analysis was undertaken with the farmer leaders of the registered farmer
companies recently with the Minister of Agriculture observing the process to recognize
the felt needs of the companies. The major problems are related to the challenges they
face from competition. As Amartya Sen once stated, competition is the key but not every
can play. The farmer companies request state support until they stand on their feet with
strong business ventures.
The agrarian community in the locale demands reforms for change. Its internal
forces marked with the process of competition for accumulation and survival and the
external forces coming from the national government policy form key determinants of the
stimulation of change. The high agricultural productivity cannot be achieved independent
of the agrarian communities whose main livelihood depends on the agricultural pursuits
until the other sectors of the economy are developed to be able to absorb the excess
population from agriculture.
Looking back at the stakeholder expectations, the strong inter-relationships and
interdependencies, which form the current reality, the need for a collaborative approach is
recognized to better understand the stakeholder positions and interests for joint decision
making and sharing responsibility of implementing such decisions affecting the fanner
company mode of operation. Since people and places they occupy have inherited uneven
development, the promises of level playing field for fair competition would take a while
until truly appear with fair access to technology and resources for productivity
enhancement. With the challenges for domestic production environment by the global
framework affecting local reforms, the question of whether Fanner Companies can stand
the expectations in the changing economy wo uld remain yet to be answered while efforts
of the stakeholders continue to resolve issues within the broad context of the forces of the
116
market economy. The emerging farmer companies at a larger scale with political leaders’
interests in giving leadership for producing worthwhile outcomes will have to be assessed
giving adequate time to operate. The new direction, however, indicates recognition of the
potential of farmer companies to address issues demanding agrarian reforms and
agricultural productivity.
117
5 Role of Farmer Companies in Relating to Agricultural
Marketing
5.1 Introduction
All agricultural or rural markets are in no way free from special institutional restraints,
nor from geographical and physical hindrances. In other words, prices and the mobility of
resources are far from being unrestricted. Furthermore, the farm or rural family as an
economic unit does not possess complete knowledge, and is, in most cases, much less
favorably informed of the market news than the economic units in an urban area. The
market from that we really have in a rural community is usually either a ‘monopsony’ or an
‘oligopsony’. As to the production structure, it is nothing new to say that response of
farmers or farms to changes in prices is very slow and in some cases even nil (Pei-Kang
Chang 1949). One of the major reasons for poor performance of food production sector is
ignorance of importance of marketing in development. In the context of open economy,
marketing plays a key role in economic development and hence it is considered as an
engine of the growth in the economic development today. Many do not understand that
marketing is an input that stimulates production like irrigated water. As a result of
neglecting marketing sub sector in the development agenda in connection to the food
production sector marketing problems have been acute right now and they have become one
of the major issues addressed in the political campaigns during the election periods.
Different market participants have different marketing problems. For example, farmers
complain about low prices while consumers complain about high prices at the same time.
Further traders and processors complain about low quality of produce. In this section, major
marketing problems cited by various market participants will be reviewed. Identification of
a problem is a key to solve the problem. Today, many decisions are taken to solve problems
without understanding of the problem. Many solutions link with results of the problem but
not the roots of the problem. Setting up cold storage and processing factories to solve the
over production is an example. The root of the problem is absence of production planning.
The result of the problem is over production. If the problem were not addressed properly,
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some other problems would arise from the solution. In relation to the above example,
problems are difficulties in selling of products either processed or stored in cold rooms and
underutilization of factories due to lack of raw materials when the glut is over. The end
result is closing down such factories / stores. Examples are vegetable cold stores set up
under the MARD project at Piburattawa in Pollonnaruwa, the food-processing factory at
Embilipitiya and the tomato-processing factory at Yodakandiya in Tissa.
Low market price for farm products is the problem always cited by the farmers. This
problem has two aspects. One is that price received by the farmer does not cover the cost of
production. This happened for chilies, onions and potatoes after liberalization of imports.
Producer price potato dropped to Rs. 20/ kg at the time when cost was Rs.28/ kg; producer
price of dried chilies came down to Rs. 45/kg when the cost was Rs-60/kg; and producer
price of big onion was down to Rs.8/kg whereas cost was Rs.10/kg. Other aspect of the low
price is in relation to the input prices and non-farm commodity prices. When producer
prices are analyzed relative price of food commodities have declined which means that both
input and other commodity prices have increased at a higher rate than farm prices. Results
of the analysis of relative price of paddy are given in Table 5.1. As shown in the table, the
cost of labor per day was equivalent to a value of 11.19 kg of paddy in 1990 whereas the
figure for 2000 went up to 28.18 kg meaning that cost of labor has increased at a higher rate
than that of paddy. Similarly, price of one liter of kerosene oil was equivalent to a value of
1.07 kg of paddy in 1990 and it went up to 1.96 kg in 2000. This analysis reveals that farmers
are paying more than what they are gaining. Finally, farmers' well being is deteriorating
over time causing a social unrest among the farming community. This has been a severe
problem today because farmers' needs have increased within the context of open economy
on the one hand and farmers' net return has declined on the other hand.
Table 5.1. Relative Price of Paddy
Items 1990 1995 2000
Fertilizer (u) kg
Labor (man-day)
Sugar (kg)
Sunlight (piece)
Kerosene Oil (Lt.)
1.33
11.19
4.13
0.68
1.07
1.55
17.88
4.50
1.38
1.55
1.95
28.18
3.83
1.35
1.95
Relative Price= Price of commodity concerned/ Price of Paddy
Source:HARTI (2002)
119
A variety of reasons attributes to low farm price. The major reason is over supply
where buyers are not competing each other in pricing and offering low prices. Farmers do
not attempt to control the market supply through holding stocks, staggering harvesting and
controlling cultivation by changing the crops. Similarly, government does not attempt to
develop such areas by investing to educate farmers and to set up stores at farm level. In
addition, competitiveness in the farm markets has been curtailed due to number of factors
such as prevalence of few traders and absence of alternative marketing channels. There are
some villagers where only few traders are involved in purchasing farm products because
new traders do not visit due to absence of access roads or poor road conditions. Farmers in
the Hambantota areas do not have alternative market outlets except selling in the fairs
(polas). Even their, farmers cannot sell directly to traders because of brokers who take
money from traders visiting fair in the morning and purchase produce from farmers at a low
price and sell to traders at a higher price in the fair itself. It was observed that a broker
purchased green chilies from a farmer at Rs. 18/kg at the Pannegamuwa fair and sold to a
trader at Rs.35/kg on the same day at the same place. In case of input market, farmers have
to pay higher prices for inputs such as seeds, fertilizer and agrochemicals due to
ologopolistic market structure where supply is in the hand of few companies and they
determine the price. In these circumstances, farmers are price takers in both input and
output markets.
A sharp price fluctuation in food prices has been observed; prices drop drastically
during the harvesting season and increase rapidly during the off- season. This can be
analyzed using a seasonal price index, which is often calculated getting average of five-year
monthly prices. The annual price is calculated adding monthly averages and divided by
12 .The value for each month is worked out taking the annual price equal to hundred. Table
5.2 presents seasonal price indexes for selected commodities. Index values could be
interpreted in two ways. One-way is examining deviation of monthly values from hundred
which shows percentage change compared to the annual price. For example price of Nadu
becomes lowest in April and June with the lowest index value of 92, which means a 8
percent below the annual price while the highest price reported in December with the
highest index value of 115, which means a 15 percent increase against the annual price.
Other way is comparison of the lowest price with the highest price in percentage form. In
the same exa mple, the figure is 25 percent in December compared to the lowest price
120
reported in April and June. The high price fluctuation was observed for potato and vegetable.
Price of brinjal is over 100 percent increase compared to the lowest price.
Table 5.2: Seasonal Price Index for selected Major Food Items
Month Rice Vegetables
Nadu
Dried
Chilies
Potato Green
Gram Beans Brinjal
January
February
March
April
May
June
July
August
September
October
November
December
% increase
to the lowest
109
102
93
92
93
92
94
98
97
102
112
115
25
102
99
90
90
85
97
104
107
105
103
111
108
30
98
82
77
93
98
110
121
105
88
87
115
125
62
89
84
93
103
96
103
99
105
109
101
109
109
30
116
97
85
88
114
121
109
106
94
89
91
90
42
96
77
60
85
110
130
108
98
108
121
98
109
116
Source: MFPD, HARTI
Market supply pattern could be identified through analyzing index values. If the values
are below hundred this implies supply exceeds demand and vise-versa. Accordingly index
value of price of Nadu remains below hundred during the period March to September in the
year. March and April is the main harvesting period of Maha paddy crop and hence index
values become the low. Since Maha season is the major season with 65 percent of the total
production, its produc tion is adequate to meet the demand until the Yala crop is harvested in
August and September. Index values therefore do not go above hundred until October. After
completion of Yala harvest prices commence increasing because millers purchase and hold
bulk of the Yala paddy crop in stores in order to release in November — January period
where prices often go up. Due to this, index values are increasing after September in the
year. In case of vegetables index values are above hundred during the period of May to July
or August with the highest value in July. A sharp price increase was observed in May compared
to April. There is a scarcity of vegetable supply in May and June in the year.
Vegetable prices are low February to March due to Dambulla vegetable season. Vegetable
prices commence in declining after June due to supply coming from Hagurnakethe areas
121
this trend often continue till October due to arrival of vegetables from Welimada and
Bandarawela areas from August. Chilli prices remain low from March to June due to
market arrivals from Maha season harvests. In the past, prices were low in September and
October due to supply from Mahaweli H area, which accounted for 30 percent of the total
supply but chili cultivation dropped drastically due to importation of chillies at a low price.
High price spread between producer and consumer level is a problem cited by many
including media personnel. This is called marketing cost or distribution cost, which is often
higher than producer price. It was estimated that farmers' share of the consumer price is less
than 50 percent for vegetables. This means that farmer get less than 50 cents from every
rupee paid by the consumer. Many believe that wastage is the contributing factor for this
situation due to the nature of perishability. However, an analysis of marketing margins
shows that major reason for high price spread for vegetables is retailers' margin, which
remains above one-fourth of the consumer price(HARTI,2002). This is due to small-scale
business. There are a large number of vegetable retailers in markets and they have
specialized few vegetables as well. It was observed that the number of vegetable retailers is
further increasing due high unemployment among the youth. Over 50 percent of the
vegetable retailers are below 30 years old in many market places.
Entering into vegetable retailing is simple due to low working capital and easy access
to marketplace. When the number of traders increases, daily turnover curtails. Hence,
retailers have to maintain high mark up, always over 50 percent of the buying price to cover
daily expenditure of the family.
In addition to many retailers, there are different types of intermediaries involved in
distribution of agricultural commodities that also affects the wide price gap for agricultural
commodities. Unlike in industrial commodities, collectors are existence at farm level to
collect produce from small-scale producers and sell to traders. In some instances, brokers
exist to link produc ers with traders. Since either farmers or collectors do not distribute
produce to retailers, wholesalers exist to undertake this activity. Another problem is lack of
backward linkages among the market participants to inform the requirements in advance.
Consequently, price risk is high. Similarly, there is no market orientation among market
participants. All these contributed wide price gap between producer and consumer levels.
High post-harvest losses are another marketing problem. Losses are two fold;
quantitative and qualitative. Quantitative losses were estimated 30 — 40 percent for
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fruit/vegetables, 15 percent for rice, 17 percent for pulses and 35 percent for onions.
Figures are not available for qualitative losses referred to value losses due to quality
deterioration. Traders reported that value losses are high due to supply of produces without
cleaning and sorting by the farmers. Food losses occur mainly due to ignorance of postproduction
activities. As such, handling, packing, storage and transporting remain at
rudimentary level causing losses in distribution of foods to the end users. Absence of
production planning in line with market demand is also attributed to post harvest losses.
When there is oversupply in the market, losses are high due to difficulties in selling and
careless handling. Post harvest losses reduce the farm price and increase the consumer
price.(Rupasena )
Marketing infrastructure and marketing support services have not developed yet to
establish an efficient food marketing system. Marketing infrastructure mainly consists of
market places, farm roads and storage facilities while support services include mainly credit,
information and trans port. Agricultural markets, especially fairs lack basic facilities such as
water, toilets, fence, electricity, parking and access roads. Similarly, many agricultural
markets are poorly designed, with two — three stories building along with huge structure
and, wrongly located without a proper pre-assessment. Hence, many markets have been
"white—elephants".
Access roads are lacking in farming areas and maintenance of existing farm roads is
poor. Hence, transport cost is considerably high at farm level compared to wholesale and
retail level. Further, traders are reluctant to visit areas where roads are bad, so that competition
in the farm market is limited lowering farm price. Storage is essential for low
perishable commodities such as grain and pulses to control market supply. Due to lack of
storage facilities, either at farm level or traders' level supply exceeds demand considerably
at harvest time, which results in dropping market prices even below the cost of production
and increasing prices during the off-seasons.
As regard to support services, there is no efficient and effective market information
system to gain access to information to the stakeholders in the food marketing system.
Farmers need price and production information to decide what to grow, when to plant,
where to sell and what price. Traders need information for pricing, pur chasing and stock
piling. Consumers need information to decide what to buy, from whom buy and what price.
Government requires information for formulating food marketing and trading policies. In
123
case of credit, although accessibility of credit to the farmers has increased considerably
during the past two decades, many farmers still depends on traders in borrowing money
mainly because many lending institutions do not provide credit to those who have become
defaulters once. Today, many farmers become defaulters due to the reasons beyond their
controls such as ad hoc imports, drought and damage made by wild animals. Traders often
provide credit to defaulters and allow to pay due loans when the next crop is harvested
without any interest. Traders provide interest free loans as well. As regard food transport,
much of the vegetable is damaged in improper transportation. There is no special truck to
transport perishable products such as vegetables. Over loaded in trucks is common. Transporters
are not organized. No air and sea transportation is used for food trans portation.
Land transportation is limited to trucks. Hence, distribution time is long and quantity and
quality losses are high due to keeping vegetables in long hours in trucks.
It is always criticized about lack of consistence government policy on agriculture in
general and marketing in particular. During last two decades, government adopted reactive
approach rather than proactive approach. When the food prices are high, government
decides to import foods at cheaper price by reducing or removing import duty. In most
cases, imports reach the market at the time of harvest. It is also true that government
decides to import certain food items such as rice and dried chillies despite the adequate
supply in the country due to absent of commercial stock assessment system. Government
trade policy appears to be biased towards the consumers and hence price of imported rice,
potatoes, big onion and dried chillies has reduced even below the cost of production. The
present government once again is going to introduce high tariff for rice chillies, onion and
potatoes since June as indicated in the budget proposals for 2002.
In these section limitations, affecting in establishing an efficient and effective food
marketing system is discussed. An understanding of the limitations/ constrains is essential
for selecting appropriate solution/s to the identified problem. In most cases, solutions are
suggested and implemented without proper understanding of constraints. For example, use
of plastic craters to reduce the post harvest losses could be presented. This solution does not
workable due to handling of products several times in marketing chain; product move from
farmers to collector, from collector to main whole saler, from main wholesaler to sub
wholesaler and sub wholesaler to retailer. Another reason to fail usage of plastic craters is
involvement of a number of intermediaries who have different interest. Transporters want
124
to load maximum amount possible in a truck to increase revenue and market laborers take
two bags on head in loading and unloading when charges are made on bag basis, which is
common in Sri Lanka. Hence, trans porters and market laborers do not like to use craters.
Even wholesalers in public markets do not like them due to limited space in market stalls.
This is only an example and there are lots where failures occur due to lack of understanding
of the constraints prevailing in the system. One must understand that theoretical explanation
and practical situation are too different things.(Rupasena)
It would be economic activity with diversification, market oriented modernization
and profitable agro enterprises establish in rural areas. Its essential elements would be
rational land use/tenure strategies, specialization and zoning of crops and agricultural
activities and promotion of Farmer Companies among enterprising small producers. Its
major themes would be production for markets, modernization to capture economics of
scale and new partnerships/relationships between farmers and the state on the one hand and
between farmers and the organized private sector on the other. A new organized private
sector will emerge among the rural agricultural communities through the establishments of
strong and effective farmer organizations and Farmer Companies organized on a business
mode. This would yield a reduction of government, direct involvement in production and
marketing and would be confined only to acting as a facilitator through the provision of
extension, beneficiary credit facilities, policy reforms and the necessary legal framework to
support this New Agriculture. Through the establishment of farmer companies, the small
farmers can get many benefits to develop their small farming sector as well as their living
standards. These all aspects are depending on the role of farmer companies for the farming
community.
5.2 Identified Role of Farmer Companies
Although the role and functions of farmer companies were not clearly documented, all
farmer companies have deliberately attempted to achieve one coherent objective of
organizing small farmers for commercial agriculture and facilitating them by providing
inputs, technology and services so as to complete with local and international markets.
However it is noted that role of farmer companies are depends mainly on the needs and
priority of farmer in particular areas where companies established. According to experience
125
of pilot projects and performance of on going farmer companies, the role of farmer
companies could summaries as follows.
1) Produce to market
2) Supply on Forward contracts
3) Partnership with the organized private sector
4) Mobilize investment
5) Maintain credit worthiness
6) Honor Business obligations
7) Provide Support to Shareholder farmers to invest for increased production
8) Provide technology
9) Diversify operations
10)Strengthen Management and collaboration
Taking in to consideration above role of Farmer Companies the field survey was
conducted to find out the implementation of those roles in properly and the benefits for the
farmer members. As mentioned in the research methodology the selected sample for the
survey as follows;
Table 5.3: Selected Sample of Districts, Farmer Companies and Farmer members
Districts Farmer Companies Sample FC members
1. Puttlam 1. Ridibendiella
2. Maningala
20
20
2. Anuradhapura 3. Huruluwewa
4. Chilli (National)
20
20
3. Kurunegala 5. Hiriyala 20
4. Polonnaruwa 6. Elahera
7. Minneriya
20
20
5. Ampara 8. Akkareipattu 20
6. Nuwaraeliya 9. Potato (National) 20
Total 06 09 180
Source: Survey data
This sample is randomly selected by using the list of FC members (shareholders).
(Table 5.3) The field investigators occupied by Hector Kobbekaduwa Agrarian Research
and Training Institute use for data collection. Using pre-tested questionnaire the field
investigators collected the basic data from sample.
Demographic Situation of Farmer Company Members
126
The selected scattered sample farmers involving in the farming activities are different
age groups, Sex groups, Educational groups and the occupational levels. According to the
information collected from 180 farmer members, that the demographic situation is analyze
as follows.
The age of the small scale farmer members were grouped in to four categories, namely
young adult s (age,21-25), adults (Age, 26-40), Middle age (Age, 40-55) and retired (Age,
55 and over). The age distribution of the 180 small farmers is shown in Table 5.4.
Table 5.4: Age Distribution of the Farmer Company members
Age Numbers of Respondent Percentage (%)
1. Young adult
21 - 25 6 3
2. Adult
26 – 30
31 – 35
36 - 40
9
12
24
5
8
12 25
3. Middle Age
41 - 45
46 – 50
51 - 55
45
42
27
25
23
15 63
4. Retired
56 and over 15 09
Source: Survey data
Table 5.4 information shows that, the majority (63%) of the farmer members were in
the middle age between 41 – 55 years old. About 25% were in the adult bracket, only 3%
and 9% were in young adults and retired age respectively. This figure says the critical
situation of small scale farming sector in Sri Lanka, because the young generation is
involved in about 3% of the sample. This is general trend in the country agriculture sector,
because small- scale agriculture sector is gradually unprofitable and therefore the younger
generation move from agriculture to other industrial and service sector.
Sex group Distribution of Farmer Member Respondents
Among the 180 farmer members 20% were female and 80 % were male (Table 5.5).
This implies that Sri Lankan farming sector is more associated with male farmers that,
farming activities with difficult work involvement are biased against female members.
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Table 5.5: The sex distribution of Farmer members Respondents
Sex Number of Respondent Percentage
Male 144 80
Female 36 20
Total 180 100
Source: Survey data
Educational Attainments
The table 5.6 summarized the educational attainment of the respondents, most or 76%
of the farming respondents have either finished high school or elementary level of
education. Twenty two percent have reached or finished college level while only 2% have
graduate level of education. On the average, the respondents have attained high school
education.
Table 5.6: The Educational Attainment of Farmer Respondents
Level of Education Number of Respondent Percentage
Elementary 51 28
High School 87 48
College 39 22
Graduate 03 02
Total 180 100
Source: Survey data
Occupation of the Farmer Company Members
The occupations of the Farmer Company members are indicated in the table 5.7. Of
the total respondents, 40% were either employee of government or private organizations.
The remaining 60% were self-employed having their own farm enterprise or else.
Table 5.7: Occupations of the Respondents
Occupation Number of Respondent Percentage
Self employed 108 60
Employed
Government service
Private sector
72
22
50
40
12
28
Total
180 100
Source: Survey data
Identified role of farmer companies which, implemented by farmer companies are
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analyzed as follows. The identified ten farmer company roles that how implements by
selected nine farmer companies, are indicated in table 5.8. The Ridibendiella,
Huruluwewa, Maningala and Elahera Fcs are implemented 100% of all activities for the ir
member farmers. Other all Fcs implemented 70-80% of activities.
Table 5.8: Role of Farmer Company in Sri Lanka
Selected Role**
Farmer Company
1 2 3 4 5 6 7 8 9 10
%
1.Ridibendiella X X X X X X X X X X 100
2.Huruluwewa X X X X X X X X X X 100
3.Hiriyala X - X - X X X X - X 70
4.Minneriya X - X X - X X X X X 80
5.Elahera X X X X X X X X X X 100
6.Akkaraipattu X - X X X X X X - X 80
7.Maningala X X X X X X X X X X 100
8.Potato (National) X X X X X X X X - - 80
9.Chilies(National) X X X X - X X X - 70
**1.Produce to market 6.Honor business obligations
2. Supply on Forward contracts 7. Provide support to Shareholder farmers to invest
for increased production
3.Partnerships with organized private sector 8. Provide technology
4. Mobilise investment 9. Diversify operations
5. Maintain credit worthiness 10. Strengthen Management and collaboration
5.2.1 Produce to Market
In the process of growth of the Sri Lankan agriculture sector, certain geographic areas
have become specialized in the production of specific crops and adoption of cropping
patterns. Therefore, some regional specialization in domestic agricultural production can be
seen. Soil, water and the climatic conditions are among the main factors determining the
major producing areas. Total cultivated extent is mostly determined by the national demand
and the incentive structure available to the farmers. Based on the land type and the water
availability, seasonal variation in quantity produced and production across districts could be
seen. Domestic agriculture sector is mostly concentrated in the Dry and Intermediate Zones
129
of Sri Lanka. Dry Zone is extensively cultivated with paddy and other subsidiary food
crops. How ever, paddy is cultivated wherever water availability is assured. Therefore,
water logged Low Humid Grey (LHG) soils in the Dry Zone and Wet zone as well as the
Radish Brown Earth(RBE) in the Dry zone under irrigation are cultivated extensively with
paddy. Among the Dry zone areas North Western, North Central and the North Eastern
provinces are extensively cultivated with paddy. Kurunegala, Polonnaruwa, Ampara,
Anuradhapura, Hambantota, Batticaloa and Trincomalee districts are the major producing
areas with a higher land area under cultivation. In the Wet zone areas, large extent of paddy
cultivated lands are observed.
Table5.9: Cultivated extent and harvested extent of Paddy
Paddy Land
Extent cultivated (ha.)
Gross Extent
Harvested (ha.)
Districts
2000/2001(Ma)2001 (Yala) 2000/2001(M) 2001 (Yala)
Dry Zone
Anuradhapura 41978 17150 41138 16944
Polonnaruwa 43382 39893 43372 39870
Ampara 51878 44920 51785 44920
Kurunegala 71683 37928 69533 35619
Putlam 13665 3981 13392 3246
Matale 14959 4263 14884 4232
Sri Lanka 545689 288574 538060 281298
Source:Dept. of Census and Statistics
Major producing districts of maize are Anuradhapura, Ampara Badulla and
Monaragala. Maize is cultivated during Maha Season in Monaragala district. In
Anuradhapura district, Balck gram and maize are commonly cultivated during the yala
season. Pulses are grown in the Dry zone and Intermediate zone. Cultivation of cowpea and
green gram is common in Kurunegala district (Table5.10). Highlands are usually cultivated
during the Maha season while the low lands are used during the Yala season.
130
Table 5.10: Major Producing areas of Maize, Cowpea, Green gram, Black gram
Soybean and Chili in Sri Lanka
Crops Major Producing
areas
Average 1995 - 2000
Extent Ha Production (MT)
Maize Anuradhapura
Ampara
Badulla
Monaragala
6974
5291
5370
4987
8140
6705
5485
5517
Cowpea Kurunegala
Puttlam
Monaragala
Anuradhapura
8324
3845
2641
2762
6182
1939
2463
2811
Green gram Putlam
Kurunegala
Monaragala
Hambantota
2685
9897
4465
2690
1078
6133
4160
2877
Black gram Anuradhapura
Vavniya
3325
2343
3137
1703
Soybean Anuradhapura 1817 1447
Chili Kurunegala
Matale
Anuradhapura
Polonnaruwa
2631
2131
5857
1170
7992
8537
12561
6047
Source: Dept. of Census and Statistics
Land is classified in to three categories, low land, high land and chena in Sri Lanka. In
Maha season paddy is cultivated mainly on low lands while other field crops are grown on
chena lands and highlands. Yala rainfall is inadequate to support production of other field
crops in areas where they are grown primarily as rain fed crop during Maha season.
Therefore, Yala cultivation of other field crops requires supplementary irrigation, a
situation that limits their production to areas where irrigation is available. This results in a
seasonal shift in production areas. From the total paddy lands, about 75-80% are cultivated
during Maha season (Nov. -Mar.) which shows a decreasing trend the past years and 35 – 50
% cultivated during yala season (May – Sept.). The Maha season output accounts for about
65% of the total output. There is a tendency for farms with a high proportion of low land
to produce cash crops such as chili, Soybean, Big onion and Black gram which are
131
cultivated mainly on irrigated lowlands during yala.
Majority of the paddy farmers are small-scale producers and owner cultivators. More
than 70% of paddy holdings are less than one hectare in size and just over 5% of holdings
are 2 hectare and above. Nearly 65% of the paddy holdings are cultivated by
owners.( Agricultural census 2001).
The largest wholesale market for rice is located a Pettah in the city of Colombo and
trading take place on a n agents is approximately 67 of whom 14 commission agents are
large-scale merchants with a turnover of 34mt. per day(Table 5.11). The principle buyers
are grocery traders and itinerant traders. In addition to pettah there are other wholesale
market in the principle towns such as Kandy and Kurunegala. Some millers operate mobile
trading to cater to the groceries located in the small towns and rural areas, and this practice
is becoming popular.
Table 5.11 : Number of Wholesalers (Commission Agents) In the Pettah
Market by commodity
Street Rice Chili B.onion Potato G.reen gram Ground nut
4th cross street 29 39 35 33 17 10
Old Moor street 29 02 - - 04 -
Dam street 08 01 - - - 01
Keyser street 01 09 03 02 01 01
Total 67 51 38 35 22 12
Source: HARTI
Maize and soybean is mainly a rain fed crop grown by the Dry zone farmers especially
by the chena farmers (Shifting cultivation). Maize is mainly grown by in Anuradhapura,
Badulla , Ampara and Monaragala districts. The farmers prefer to this crop due to low cost
of production, drought tolerance and comparative ease of management. Farmers sell maize
and soybean to the collectors who in turn sell to the regional wholesalers located in the
towns. In general, feed manufacturers purchase from the regional wholesalers.
Next to the rice market, vegetable market appears to be the largest because of year
round production and being an essential food items in the daily diet. Unlike rice, structure
of the market is quite complex due to variation of production by areas. The development of
marketing infrastructure is carried out by various government organizations. Development
and maintenance of market places is the responsibility of the respective local government
authority. Dissemination of market information and conducting market research is carried
132
out by the HARTI of the Ministry of Agriculture. The standards bureau is the responsible
agency for setting up standards for agricultural commodities. The department of internal
trade and fair trading commission implements market regulations.
Since agricultural markets are not properly organized, physical facilities are lacking.
As mentioned earlier the Pettah market is the largest market catering to most agricultural
commodities, but physical facilities are unsatisfactory. Sanitary arrangements are also very
poor. Problems highlighted above are not specific to Pettah. Since there is a large number of
intermediaries involved in the marketing system and the high post harvest losses, marketing
cost is high. For instance, marketing cost for vegetable exceed 50% of the consumer price
without any value addition between the producer and consumer. The ultimate result of these
processes, the final consumer has to pay very high price for their commodities and the same
time the producers or small farmer can get very low farm gate price for their agricultural
productions. Therefore, the small farmers have to face many problems to maintain their
farms and households.
As most appropriate solution for this problem the farmers, themselves formed Farmer
Companies. The main role of Farmer Company is the produce to market. Whatever the
farmer produces they can be sell through their fa rmer company. According to the survey,
almost all the farmer companies directly or indirectly involved to improve the agricultural
production in that areas as well as marketing activities. This is the main problem of small
farmers in rural areas. The entire farmer companies that surveyed are performed these
activity using different alternatives which most suitable to the area (Table 5.8). Some FCs
directly involved production and marketing activities using their work force. They supply
input to the farmers, transfer the technology extension services to the farmers, supply
credits and finally they perches farmers products.
The FCs provides materials and equipments before production, and provide technical
services during the production process, such as technical guidance and supervision,
technical training etc. Specially, Ridibendiella, Huruluwewa, National Chili FC, provided
those services properly. The FCs focus on raising yield to increase production by providing
the necessary inputs and technical services and on decreasing the market risk by providing
marketing channels, thus making sure that members can continuously develop their
business efficiently. The National potatoes FC in Nuwaraelliya provide the cold store
facilities belongs to department of Agriculture and provide technical training to key
members of the company. As a result, in 2000, potato production increased significantly by
19%, owing to the very heavy protection provided to the potato farmers by way of specific
duty imposed on imports. The increased in the output is a result of an improvement in the
extent as well as an improvement in the yield levels. Potato yield increased for the fourth
consecutive year approximately by 2 percent to 13.5 metric tons per hectare, but still well
133
below yield in other countries (Central Bank 2002). The FCs of Akkaraipattu, Minneriya,
Elahera, Ridibendiella,and Huruluwewa directly involved to purchased the member farmers
produce in higher farm gate price. Therefore the average farm gate price is not come
down in harvesting seasons in particular areas because other private companies also
compete with this price and try to increase their prices to purchase their needs. For example
before FCs operated in those areas the prices of maize and Soybean in harvesting seasons is
Rs. 8-12/kg for maize and soybean Rs. 10-12/kg . After started the purchase of FCs the
price increased Rs.18-25/kg in maize and soybean Rs. 18-30/kg. This price level is spread
all over the region. The paddy price also increased considerably. Before FCs purchase
paddy in main producing areas in the harvesting season the farm gate price of paddy
normally decreased up to Rs. 7-9/kg in every season. Due to operation of FCs in those areas,
the paddy price is stable around Rs. 13-14/kg. Most of the other agricultural commodities
prices also followed the same way. The final impact of those activities is comparatively
farmers can get higher farm gate price for their produces and increase their income. The
main objective of this study also examine the contribution of FCs to the member farmers
towards the strengthening of bargaining power of small farmers, enhancing their
competitiveness and transforming small farm agriculture in to commercial agriculture.
Most of the Fcs which, studied found that they are performing well for commercializing
small farm sector. According to the farmers response about their product to the market in
different farmer company areas which selected for sample survey shows that the farmer
companies have done considerable contribution to this matter.(Table 5.12)
Table 5.12: The market structure of farm products with
Farmer Company Involvement
District Farmer Company Farmer
company
Purchased
Private Sector
Purchased
Govt. Sector
Purchased
1.Puttlam 1. Ridibendiela
2. Maningala
30
45
62
50
8
5
2. Anuradhapura 3. Huruluwewa
4. Chili (national)
51
42
42
47
07
11
3. Kurunegala 5. Hiriyala 20 65 25
4. Polonnaruwa 6. Elahera
7. Minneriya
18
24
70
62
12
14
5.Ampara 8. Akkarapattu 20 70 10
6. Nuwaraeliya 9.
Potato(national)
60 35 5
Source: Survey data
134
The FCs of Huruluwewa, Chilli (National) FC, Potato (National) and Minneriya FCs
are play an important role for produce to market of their member farmers. Other all FCs
purchased considerable amount of the farmers production. The private sector and the
Government sector also competitively involved the purchasing activities. According to the
table 5.12 the private sector is the one play major role for agricultural production
purchasing. Because of the FCs the private sector can’t explo it the small farmers as before.
The government sector involvement for purchasing is minimal. The farm productions are
difference in difference areas, and according to that the marketing activities also changing.
The Puttlam district, the major productions are Paddy, Maize, Vegetable, Fruits and Poultry.
The private sector is dominated for purchasing all products except Poultry. Ridibendiela
FC purchased 75% of the poultry production from their member farmers. (Table 5.13)
Table 5.13: Agricultural product market in Puttlam District
Farmer
Company
product Farmer
Company
Purchase (%)
Private Sector
Purchase (%)
Govt. Sector
Purchase (%)
Ridibendiela Paddy
Maize
Vegetable
Fruits
Poultry
24
15
20
18
74
64
77
80
82
26
12
25
-
-
-
Maningala Paddy/Rice
Milk
Maize
70
50
15
30
45
75
-
05
10
Source: Survey data
The paddy and rice production and Milk production of the Maningala FC areas are
mainly purchased by the FC. However, 75% of the Maize production purchased by private
sector. Ridibendiela and Maningala FCs have a number of forwards contact supply systems
with different companies and Government organizations. Paddy rice poultry vegetable and
fruits directly supply to the forwards contractors. Government intervention for agricultural
product purchasing is negligible. The district of Anuradhapura major agricultural products
are paddy, maize, Soybean and Chili. Those are non-perishable and the purchasing systems
as follows. (Table 5.14)
135
Table 5.14: The Agricultural Product Market in Anuradhapura District
Farmer Company Products Farmer
Company
Purchase (%)
Private Sector
Purchase (%)
Govt. Sector
Purchase (%)
Huruluwewa Paddy
Maize
Soybean
Chili
20
80
85
18
60
15
15
76
20
05
-
06
Chili (National) Chili 42 47 11
Source: Survey data
Soybean and maize production in the Huruluwewa area directly purchase by FC, under
the forward contract supply system. According to the table 6.14, 80% of the maize and 85%
of the soybean purchase by FC. The Chili (National) FC only purchase 42% of the total
chili production in that area., The Government sector also competitively purchase the chili
production from the farmers. Polonnaruwa district is one of a major paddy producing
districts in Sri Lanka, meanwhile Maize and Chili also cultivated as major commercial
commodities. Under the major irrigation system two seasons cultivated a year. As shown in
table 5.15, the private sector is the main buyer for all crops in this district.more than 70% of
the maize production and more than 50% of the paddy production purchase by private
sector companies. The FCs purchase only 35% of the paddy in Minneriya Fc and 22% of
paddy in Elahera FC. Maize production 20% in Minneriya and 14% in Elahera FCs.
Table 5.15: Agricultural Products Market in Polonnaruwa District
Farmer
Company
Product FC purchase Private Sector Govt. Sector
Minneriya Paddy
Maize
Chili
35
20
18
53
72
62
12
08
20
Elahera Paddy
Maize
22
14
64
76
14
10
Source: Survey data
The government sector involvement for the purchasing activities is minimal. The
quantity is purchased is less than FCs. Nevertheless, because of the involvement
government sector and FCs for purchasing activity, the private sector also have to compete
with them. Therefore, the farmers can get maximum benefit from those activities.
Kurunegala district is one of the major rains fed paddy-producing district in Sri Lanka. The
136
main crops are paddy and Maize. Other all- vegetable and other field crops also cultivate but
not in large scale. The table 5.16 shows the operation of marketing activities for those two
crops.
Table 5.16: Agricultural Produce Markets in Kurunegala District
Farmer
Company
Product FC Purchase Private Sector Govt. Sector
Hiriyala Paddy
Maize
28
12
47
88
25
-
Source: Survey data
About 53% of the total paddy production purchase by FC and government sector,
therefore the farmers can get higher price for their paddy production. The 88% of maize
production purchase by private sector and government sector is not involved in maize
purchasing activity. As consider whole, the farmer companies role for produce to market
of small scale farmers produce is very important and because of this activity the farmers
can get maximum benefits from their involvement in agriculture sector. The same time the
private sector exploitation of small farmers has reduced in considerable level after
implementation of FCs.
5.2.2 Supply on Forward contracts
The seasonal and perishable nature of many agricultural produce cause severe
fluctuations in farm gate prices hurting the producer income and affecting the investment in
the sector. To face this FCs in Sri Lanka introduced a forwards sales contact system
covering several major products such as Maize, Soybean, and Paddy etc in several districts.
Sri Lanka’s paddy production has reached near self-suffiency. Farmers have faced serious
difficulties because of substantial decreases in farm gate prices at the time of harvest due to
insufficient due to insufficient development of the marketing infrastructure. Ad-hoc
government policies in the past, on tariffs have had adverse repercussions on the
development of the market due to uncertainties. In a situation of excess production and
supply, development of storage facilities and hedging mechanisms such as forwards sales
contracts should be developed and expanded further rather than changing tariff levels to
stabilize prices in the domestic market.
The main problem of the small farmers in Sri Lanka is that, they cannot get reasonable
price for their production in harvesting season. Sometimes, the price that, they get is less
than the cost of production. Whatever the policies implemented, what projects and
137
programs implemented, still they cannot change this situation and give reasonable price to
the most of farmers. Therefore, every harvesting seasons in every year this is critical the
problem in Sri Lanka. As sawn in above table No. 5.2, the major harvesting seasons in
March/April and Aug/Sept. the prices of almost all the agricultural products are decreased
in drastically. As a solution for this problem which, it is recently introduced above
mentioned forward contract supply system. This system is very useful for the farmers
because they can control their cropping and production activities under the forward contract
system. Finally, they can obtain pre-determined price for their product without considering
the market price in that time. Most of the FCs implements this system for their member
formers to get comparatively higher price for their produces. The farmers can reduce their
risk using this system because they know the price, which, they can obtain for their
products before harvest. Accordingly, the farmers can control the cost of production and
extra expenses. Using this system many FCs implement various agricultural projects for
their member farmers. Eg. Ridibendiela FC, Poultry farming project with Prima Company,
Vegetable seed with Crown seed company, Maize with prima company, Fresh fruit with
Kelaniweli export Company, Girkin with sanfrost company,etc. Tha maize and soybean
production in Anuradhapura district also have forward supply contract system with
Thriposa Company. The Huruluwewa FC arranges to supply maize and soybean to that
company. Therefore, the farmers who, grown maize and soybean have confident to get
higher price for their products. The seed paddy, potatoes, chilies also have forwards
contract supply system with the government organizations as well as private companies.
The table 5.17 shows that the forward Contract supply systems implement in the FC in Sri
Lanka.
Table 5.17: Forward Contract Supply System of the Farmer Companies In Sri Lanka
District Farmer Agriculture productions
Company Paddy Maize Soy Seeds Vegetable Fruits Poultry Others
Puttlam 1.Ridibendiela
2.Maningala
1
1
1
1
-
-
3
-
2
-
1
-
2
-
2
-
Anuradhapura 3.Huruluwewa
4.Chili(nation.)
1
-
1
-
1
-
1
1
-
-
-
-
-
-
-
-
Kurunegala 5.Hiriyala 2 1 - 1 - - - -
Polonnaruwa 6. Elahera
7. Minneriya
1
1
1
-
-
-
1
-
-
-
-
-
-
-
-
-
Ampara 8. Akkarapattu 1 - - 1 - - - -
Nu/eliya 9. Potato (Nat.) 1 - - - 1 - - -
Source: Survey data
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The Ridibendiela FC in putlam district has 12 forward contacts with different
Government, private and International organizations. Huruluwewa, Hiriyala and Elahera
FCs also have several forward contacts with different organizations. Other all FCs have at
least one forward contacts. (Table 5.17) This situation implies that the forward contact
system is important and popular among FCs. But there are two sides of this kinds of
contracts, one is if peak season the price is decrease considerably due to bulk harvest, the
pre determined price accept by the farmers and they try to sell their products to forward
contact. The other side is sometimes due different reasons the peak season the farm gate
price not come down and the open market price higher than the contract price the farmers
do not like to sell under forward contact and the try to sell in open market at the higher
price. This is the small farmers’ behavior. At that time the FCs has to face big problem to
supply under the contact. The table 5.18 shows that the farmers’ responses for the forward
contact supply system.
Table 5.18: The Farmer Members Response to the Forward contact supply system
District Farmer Percentage of Responses
Company Paddy Maize Soy Seeds Veget. Fruits Poultry Other
Putlam 1.Ridibendiela
2.Maningala
80
90
25
20
40
-
85
-
60
-
15
-
90
-
10
-
Anuradhapura 3.Huruluwewa
4.Chili(Nat.)
60
-
85
-
18
40
90
-
-
-
-
-
-
-
-
-
Kurunegala 5.Hiriyala 40 - - 90 - - - -
Polonnaruwa 6.Elahera
7.Minneriya
80
65
40
-
30
-
60
-
-
-
-
-
-
-
-
-
Ampara 8.Akkareipattu 40 - - 54 - - - -
Nuwaraeliya 9.Potato(Nat.) 30 - - - - - - -
Source: Survey data
The farmer members’ response or the formers supply to the forward contract price to
their product shown in above table 5.18 and it says that any of FCs couldn’t fulfill the
100% of the forwards contract supply due to various reasons. The higher open market price
decrease of harvest due to natural reasons, competition among other companies. At these
moments FCs try to collect the production from other districts also. However, the farmers in
other districts do not know the conditions contracts and quality condition. Therefore after
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purchased by FCs from out side farmers, the FCs faced various problems and finally if
failed to supply FCs got loss as well as the contract also terminated.
The System of Forwards Sales Contract for agricultural commodities introduced by
the Central Bank also in 1999 to ensure stable prices for farmers was vigorously promoted
by the bank with the assistance of lending banks as facilitators, the Ministry of Agriculture,
Department of Agriculture, co-operative sector and government sector agencies,
non-governmental organizations (NGO) and private sector entrepreneurs. The forward sales
contact system (FSCS), which was initially introduced in a few districts in 1999, was
expanded to other districts in 2001. The system is becoming increasingly popular among
farmers as well as the buyers of agricultural products in Hambantota, Polonnaruwa, Matale
and Badulla districts where major crops like paddy, Maize, Soya, Sesame and big onion are
grown. Forward prices that are determined by mutual agreement between the farmer and
the buyer proved to be realistic and were treated as a base price by many farmers and
buyers in the areas where forward sales contract were popular. This mechanism has
therefore, prevented sharp fluctuations of price of crops in major producing areas.
5.2.3 Partnerships with the Organized Private Sector
In order to achieve the FCs progress, Sri Lankan agriculture would have to be an
economic activity with diversification, market oriented modernization and profitable
agro- industries establish in rural areas. Its essential elements would be rational land/tenure
strategies, specialization and zoning of crops and agricultural activities and the promotion
of FCs among enterprising small producers. Its major items would be production for
markets, modernization to capture economic of scale and new partnerships/relationships
between FCs and the organized private sector on the other. The organized private sector
will emerge among the rural agricultural commodities through the establishment of strong
and effective FCs organized on a business mode. This would yield a reduction of
government direct involvement in production and marketing and would be confined only to
acting as a facilitator through the provision of extension, beneficiary credit facilities, policy
reforms and the necessary legal framework to support this new agriculture and its
organizational structure.
The private sector would be fully involved with investment in small and medium scale
enterprises in rural areas. Modern industries in the city would be dependent on the
140
semi- modern sector in the rural areas both as a supplier of semi-processed raw materials
and also as a market for their finished goods. There will emerge a semi-modern sector
employing rural people particularly the educated youth in managerial and executive
positions. An outward looking rural community will emerge with an enhanced
civic-consciousness, broader outlook and general knowledge of national and international
affairs. And ready to take off to new modes of production and more scientific and
commercial farming along with ability and skills to manage industrial and business
enterprises particularly those establish to collect, store, package, process, market and export
their own agricultural products.
Since agricultural production is seasonal, small scale, perishables and rural based
marketing functions are broads and hence a large number of private sector intermediaries
are involved in performing varied activities. The role of the private sector is important
because they provide food produced by farmers to the nations through various activities
such as assembling, transporting, storing, grading, packing and processing. Since many
activities undertaken by traders are not visible like production, the role of private sector has
not been given adequate importance. The exchange function, namely buying and selling
has undergone substantial changes after introducing open market economic policies. The
private sector now plays a bigger role in buying and selling at all three levels; producer
wholesale and retail. The involvement of government sector organizations is minimal.
Producers prefer private sector to the government sector due to easy transactions.
According to this situation, the private sector cannot neglect from this process and the FCs
should cooperatively operate with this organized sector.
The productivity of labor in the agricultural sector is far from satisfactory. Farm wages
have increased much faster than labor productivity. At present, labor productivity of
agriculture lags far behind the productivity in the industry and service sector. To improve
productivity in the agriculture sector, more capital-intensive investments should be
encouraged by promoting private sector participation. Investments in protected agriculture
under controlled environments and cultivating high value crops using modern equipments
such as drip irrigation units will improve the productivity of the sector (Central Bank 2002)
All of the FCs implemented in the different districts and different activities directly or
indirectly involved with sector.(Table 5.8) Unlike industrial products, marketing channels
for agricultural products are complex due to well-known inherent characteristic explained
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elsewhere. Both private and government channels operate but private sector plays a bigger
role, representing more than 90% of the market share. In most cases, government sector
operates only during harvest time. Even during this period farmers prefer private sector due
to malpractices of government agencies. Since there is a large number of intermediaries
involved in the marketing system and the high post harvest losses, marketing cost is high.
For instance, marketing cost for vegetable exceeds 50% of the consumer price without any
value addition between the producer and consumer. However, marketing cost for less
perishable produce is relatively low. For instance, the average marketing cost for paddy/rice
is around 35 %.(HARTI,2000)
Farmer Company is consisting with farmers but legally it is independent business
entity. In the business sector the private sector play an important role at presently, therefore
whoever enter the business activity they should have cooperatively work with them.
Especially in agricultural sector, the private sector is more important than state sector in Sri
Lanka, because 90% of the input supply to the agriculture sector is done by private sector.
( Eg. agro-chemicals, fe rtilizer, seed and agricultural machinery ) Therefore, all of the
farmer companies directly work with the organized private sector. (Table 5.8) Not only
that, the private sector business firms also very interest to work with directly farmers and
farmer companies. Compare to that of state sector banks the private sector banks has
provide many financial assistant to the FCs. According to Table 5.17 some FCs have a large
number of contacts with organized private sector. Example Ridibendiela FC has 12
forwards contracts with private sector. Other all FCs have at least one contract with private
sector. The purchasing of inputs for the FCs, more than 90% purchase from private sector
companies. Therefore without private sector Corporation, the FCs alone can’t do the
business.
5.2.4 Mobilize investments
Investment of the small- scale agricultural sector is one of the major problems in Sri
Lanka. Small-scale agricultural sector in the country has neglected to invest because this
sector is not a profitable business sector, especially in the rural areas. The small farmers,
which involved in agriculture also not enough capital to invest their agriculture activities to
get maximum benefits. Therefore, they are unable to use modern technology, hybrid seed
varieties and other inputs as well as post harvest technology for increase their production.
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As a result, the productivity of their small lands is very low. As a solution for this
problem, the FC concept has introduced various kinds of investment programs for small
farmer members of related companies. Most of the investment programs introduced to
small farmers directly contributes to increase their production as well as productivity of
their small lands. Ridibendiella Huruluwewa, Hiriyala and Minneriya FCs have
introduced, extension service programs, input supply and post harvest technology for
their member farmers to develop their farming activities. Especially supply of inputs in
time, farmers encourage applying proper inputs for their farms in time. Introduction of new
technology, easy credit programs are very popular in some areas. Therefore, 90% (table 5.8)
of the FCs implement mobilize investment program for their member farmers to increase
their investment for farming activities. The FCs obtained loan from commercial banks and
use those money to mobilize the small farmers investment to get maximum benefits.
5.2.5 Provide Support to Smallholder farmers to invest for increased Production
One of the main problem faces by the small farmers in rural areas is obtained
agricultural inputs in time and reasonable price. Because small farmers started their
agricultural activities with very little funds. They do not have large amount of money to
stock their inputs at once. Therefore, they buy inputs time to time when they need. However,
the problem is when they need the inputs sometimes it is difficult to find or some times the
price is very high. Therefore, most of the farmers continuously face this problem. Sri
Lankan rural agricultural economy taken as a whole, the use of poor seed, adherence to age
old cultural practices, insufficient use of fertilizer, agro-chemicals etc., and lack of
production credits, all of which added up to a low rate of productivity, characterized the
small holder and his subsistence-level farming. The lack of sources of producer oriented
marketing facilities, aggravated the problem.
The question of finding and escape from the above situation assumed urgency for the
country because agriculture still accounted to be the major share of the intermediate
employment potential in the country and the imbalance in the foreign exchange situation.
Any increase of agricultural production would contribute significantly both to increasing
the employment potential and to raising the income levels in the rural areas. Therefore, the
question of increasing production in the domestic agricultural sector became a major
problem for the decision – makers of the country. Economists and national planners
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realized the significance and the correctness of giving priority to agriculture only after
many decades of famine and rural stagnation. Dominant economic doctrines, well up to the
end of the 80’s assumed that economic development started in the modernized and high
growth sectors consisting of industrial and urban zones, and that the benefits of this
economic growth would ‘trickle down’ automatically to the backyards, and less productive
rural hinterland. Many variation of this model was introduce as two-sector growth models,
take-off strategies, import substitution, industrialization models ect., but failed to ensure
sufficient increase in production and income levels, where such increases were most needed.
(Ariyaratna 2001)
There is an important aspect that should be mentioned here. During this period, certain
initial steps seems to have been taken to convert Sri Lankan agriculture in to a commercial
venture. With the intervention of a few non-governmental organizations, such as CARE,
AGENT, Sarvodaya an attempt was made to promote and develop an appropriate post
harvest technology and processing of agricultural products on a commercial basis
particularly in the Dry zone areas. The department of agriculture contributed in a great way
towards the development of post harvest technologies in the marketing of vegetables and
fruits in mid 1998, the Ministry of Agriculture initiated the drawing up of strategy to
persuade FCs and private sector towards the commercialization of small-scale agriculture.
The people’s company (FCs) project inaugurated in 1996 with the cooperation of SCOR
project was designed to help the poor farmers to organize themselves in to collective action.
The program was initially confined to district to Anuradhapura and Matara and later in mid
1998 was introduced into other districts. The main objective of introducing FCs was
enhancing of bargaining power of the small farmers through mutual co-operative and
collective efforts undertaken with their consensus. An attempt was also made through
project (FCs) to commercialize agriculture with processing and marketing of agricultural
products grown in those different localities. Even today, Sri Lankan agriculture particularly
in the food production sector is an activity of producing a few primary products and
introducing them in to the market in their original form. The Sri Lankan farmers have still
not developed strategies of market based production, storage, processing, value addition
and marketing in terms of price fluctuations in the market. Integrated farming systems
incorporating crop production, most Sri Lankan farmers do not know livestock
development, inland fisheries, floriculture, agro-forestry and other related economic
144
activities to be undertaken simultaneously in the same farm.
Public and private sector enterprises produced average 11,300 metric tons of certified
seed paddy, which represented about 13 percents of the national requirement. The farmers
themselves met the balance, seed paddy requirement by keeping their own seed from the
previous season. The Department of Agriculture continued to issue basic vege table seeds to
the private sector for the production of certified vegetable seeds. Seeds of low country
vegetables are locally produced and most of the seeds of exotic vegetables are imported.
Vegetable seed imports increased by 19 percent, to 233 thousand metric tons in 2001. The
Department of Agriculture also continued the issue of certified seed potato in 2001. In order
to meet the high demand for seed potato, seed potato imports increased more than two fold
to approximately 7,000 metritons in 2001.(Central Bank 2002)
Table 5.19: Input Supply capacity of Farmer Companies for their Member Farmers
Farmer
Company
Fertilizer
%
Agro-chemicals
% Seeds
%
Credit
%
Operators
%
Extension
%
Others
%
1.Ridibendiela 66 74 36 68 43 15 20
2. Maningala 24 15 30 12 2 4 -
3.Huruluwewa 48 67 23 30 28 15 24
4. Chili (Nat.) 32 14 68 35 26 60 21
5. Hiriyala 36 24 78 38 27 40 -
6. Elahera 45 53 42 65 34 - -
7. Minneriya 52 40 40 25 20 30 -
8.Akkaraipattu 25 36 49 35 30 20 -
9. Potato (Nat) 34 45 65 24 16 43 -
Source: Survey data
There is no doubt that agricultural productivity can be increased by the enhancement
of the production unit in the agricultural sector. Use of hybrid seeds, technology and
practices developed after scientific research could be utilized to achieve economies of scale
through large scale collective production units, Similarly, purchasing and transporting
agricultural inputs seeds, fertilizer, chemicals and marketing, transport, storing processing
etc., can be made profitable through economies of scale when undertaken on a collective
basis. Using this FCs system the scattered small farmers here and there is able to yield such
economies of scale. It is therefore, the FC system is very important to Sri Lankan small
145
agricultural sector. Most of the FCs supply inputs for their member farmers in reasonable
prices and in time. The Table 5.19 shows that the farmer companies capacity to supply
inputs for their members requirements. Even though the FCs couldn’t supply 100% of the
requirement of their members, they have done an important role in market controlling.
The FCs estimated that, the requirement of their member farmers the FCs have a
capacity to supply major inputs for their members. The table 5.19 says that most of the FCs
has considerable capacity to supply the members’ requirements. Mostly, fertilizer, seeds
credit and agro-chemicals supply to the farmers by FCs. Even though the FCs can supply
such a amount of inputs to the farmers, still farmers have various kind of links and
agreements with private sector traders and companies for get inputs from them. Some credit
lines, lease or mortgage system and so on. Therefore, the farmers still purchase large
amounts of inputs from private sector. The Government sector, Department of Agrarian
Service, Agrarian service centers also provide inputs to the farmers in reasonable prices.
The table 5.20 shows that the farmers purchasing system of inputs.
Table:5.20 Input purchasing Channels of Farmers
FC Area Farmer Company % ASC % Private Sector %
1. Ridibendiela 15 12 73
2. Maningala 08 20 72
3. Huruluwewa 22 12 66
4. Chili (National) 18 25 67
5. Hiriyala 16 18 64
6. Elahera 28 23 49
7. Minneriya 32 16 52
8. Akkareipattu 35 27 38
9. Potato (National) 39 24 37
Source: Survey data
According to the table 5.20, the farmers inputs purchasing system directly buyers with
the private sector. More than 60 percent of the farmers required inputs purchased from
private sectors. They purchased from FCs and Agrarian Service Centers (ASC) less than 40
percents of their requirements. However, the FCs and ASCs could control the input markets
in respective farmer company areas. Generally, the farmers use only about 30 – 50% of the
capacity of supplying inputs from their farmer companies. Therefore, the private sector also
146
competitively uses their strategies to get their market share to them. Finally, the prices and
quality of the inputs average level in the whole market.
5.2.6 Credit Supply and maintain credit worthiness
Almost all the economic activities of most of the FCs are based on credits. The farmer
companies obtained more loans from banks involved a large number of business activities.
The company, which runs by shareholders capital without any loan, implements only a few
activities. There a large amount of capital needs to run the company. This capital obtained
from the shareholders. Most of the Fcs the share holders capital is about Rs 50000 to
500,000. Generally, this amount is very small and it can do only a few economic activities,
therefore the FCs should obtain loans from banks. There are a large number of FCs
successfully implemented by using bank loans. Example Akkareipattu FC is obtained a
large number of banks loans every season and do the business without any problem. The
FCs of Huruluwewa, Ridibendiella National Potato also obtained a big amount of loans
from banks. Some FCs obtained Rs.100 million to 400 million loans from banks and
implements a large number of business activities. Still some FCs does not like to get bank
loans. The obtaining credit for small farming activities in rural farmers are serious problem
in Sri Lanka. Even though, various kinds of credit schemes implement the rural areas that,
the small farmers mostly get loan from private sector sources. Therefore, the Ministry of
Agriculture forms a special bank for farmers called “Farmer Bank”. This bank pilot project
was launched by Ministry of Agriculture with the objective of improving the living
standards of small farmers by timely supply of credit, farm requirements and services.
Including the saving habit among farmers was another objective. At the end of 2001, 452
farmers banks (FBs) had been established at Agrarian Service Centers (ASC) with 219,254
farmers as shareholders. A member farmer is required to by at least 1 share of Rs.100 of the
FBs. The share capital of the FBs stood at Rs. 22 million at the end of 2001. Individual
savings of farmers stood at Rs. 38 million. Loans to the value of Rs. 80 million each had
been disbursed to farmers for paddy and cash crops during 2001. The recovery rate is 78
percent. The FBs expanded the credit facilities for farmers to purchase two-wheel and four
–wheel tractors and introduced a loan scheme to enable the farmers to keep their harvest
until the market price goes up. The same time FBs collaboratively work with the FCs and
provides different kind of credit facilities to implements various projects. The interest rate
of the FBs is reasonable as well as affordable to farmers. Using this FBs credit facilities the
FCs implements, credit scheme to small farmers, farmers product purchasing programs,
147
Input supply program, agricultural equipments providing program, small scale self
employment project to member farmers so on. Meanwhile, the FBs directly provide loans
to the farmers as well as accept the farmers’ deposits also. Therefore the specific areas
where FCs implements that, the farmers have easy credit schemes for their farming
activities. The farmer companies not only provide easy credits to farmer members but also
there monitoring programs also implements to look after the credit is invest directly in
farming activities of else.
5.2.7 Provide Technology
Small-scale agriculture sector in Sri Lanka is heavily depends on traditional farming
system. Use of family labor, animal power, as well as their own seeds and traditional
farming practices are main characteristics of that farming system. More than 50 years after
independence, still many rural areas look like same pattern farming systems, because, the
lack of new technology transfer to those areas. Even though the new technology introduced
to some rural areas, the farmers did not to accept because they think due to new technology
application the farming areas and rural areas and farming community could be pollute.( Ex.
Pesticide, herbicide, Tractor use etc.) After 1977, introduction of open market policy, the
situation has slightly changed. Then the mid of 1990th, most of the farmers start to think
openly because of international trade development and the low cost agricultural products
come in to the market in cheaper price. On this situation, the small farmers could not
depend on traditional thinking and they started to use new technology for increase their
production using limited land resources. Therefore, they were looking for highbred high
yield seeds, chemical fertilizer, new farming technology, use of different farming
instruments as well as pesticides.
Those days the prices of such inputs were higher and farmers have many problems to
access those inputs for their farms to increase production. Same time the FCs came in to
operation and introduced various kind of new technology application for small farm sector.
As a result, the farmers could affords those inputs in time and reasonable prices. Before
FCs implemented that, those inputs supply 90% by private sector and less than 10% by
state sector. However, after 1998, most of the FC implementing areas the inputs supply
handled by FCs. The state sector also joined with FCs and, provides better service to the
farmers. The FCs and state sector competitively involved in this sector the private sector
also strategically operate marketing activities to achieve their market share. They also use
low price, good quality, and transport to farm areas as well as reliable credit basis.
Finally, the last result of these activities, the small farmers could easily use new
148
technology for their farmlands. Not only those activities but also the tractor use,
agricultural transportation, farm roads etc. developed considerable level. The new
technology supply to the farmers by FCs, private sector and state sector are shoes in the
table 5.21.
Table:5.21 : New Technology and Input market share distribution after Farmer
Company implements
Item Farmer Company Private Sector State Sector
Post-harvest technology 40% 50% 10%
High yield seeds 22% 60% 18%
Machinery 40% 20% 20%
Extension services 30% 10% 60%
Others 32% 52% 16%
Source: Survey information
The post harvest technology introduced to the small farmers firstly done by private
sector. Packaging, safe transportation, grading and quality control, semi- processing and
processing, storage and safe handling introduced to the farmers trial basis. However, most
of them are failure due to farmers’ attitudes, they did not have experience how to use, and
what are the benefits from them. Same time some foreign funded non-governmental
organizations also try to introduce those systems. Anyway, finally farmers get the idea and
about the benefits of these technology and they themselves organize as FCs to get those
facilities. Table 6.21 shows that the 40% of the post harvest technology supply by FCs.
50% supplied by the private sector and only about 10% supplied by state sector. Still
private sector plays higher role for post- harvest technology supply. The high yielding seed
varieties, such as vegetable, potato, onion, chilies are imported by private sector. The FCs
and the state sector share of seed is 40% and 60% of seed supply by the private sector. The
FCs and state sector provide seed paddy, maize, and selected items of vegetables, potato,
onions, chilies and other seeds. The agricultural machinery supply for hired basis, mainly
done by state sector. Example, tractor, rotary machine, weeder, combined harvester,
sprayers, and so on. But due to various malpractices it coulden’t implements continually.
However, now FCs and state sector jointly implements this activities in successfully.
The 80% of the machinery supply in hired basis done by FCs and state sector. Only 20 %
supply by private sector.
According to the information collected by the different sources, the areas where
operate the FCs shows that those areas FCs have almost enough capacity to provide those
technology, machinery and instruments to their member farmers. The Table 5.22 shows the
149
FCs own technology, machinery and instrument capacity.
Table 5.22: The Farmer Companies’ capacity of
provides technology to their member farmers.
Technology Category Farmer Companies’ Capacity %
High yielding Seeds 60%
Post Harvest Technology 65%
Tractors 55%
Other Equipments 40%
Extension 30%
Source : Survey Information
According to the table 5.22, the FCs capacity to providing the new technology
machinery and equipments are higher than the private and state sector. Still farmers do not
use full capacity of those resources own by FCs. Some farmers still get their technical
services from the private sector agents, due to some pre agreements. Anyway, the available
information from FCs and state sector sources said that, after implementation of FCs the
use of high tech machinery and equipments has rapidly increased. Most of the FCs has their
own Agricultural machinery and equipments to hire to their member farmers. The table
5.23 shows that, the surveyed farmer companies own agricultural machinery and equipment.
Some machinery and equipments provide by implementing agency as well as Ministry of
Agriculture for give better service to farmers in reasonable charges.
Table 5.23: The machinery and Equipments belong to surveyed Farmer Companies
Farmer Company Lorry Tractors
&Rotary
Sprayers Weeders Combine
Harvesters
Others
1. Ridibendiela 1 2 5 4 2 3
2. Maningala - 1 2 1 - -
3. Huruluwewa 1 2 4 2 1 5
4. Chilies - 1 4 3 - 2
5. Hiriyala 1 2 2 3 1 2
6. Elahera - 1 3 1 1 2
7. Minneriya 1 2 4 2 1 2
8. Akkareipattu - 2 4 1 1 2
9. Potato - - 4 - - 3
Source: Survey Information
5.2.8 Product Diversification
The strategy should seek to modernize and diversify the sector through increased
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investment in agriculture. The traditional food commodities offer limited scope for
increasing returns to intensified investments. Therefore, the sector needs to explore the
opportunities to increase returns through prioritization and diversification. This will attract
commercially oriented private sector investments (Central Bank of Sri Lanka 2002). The
producers should be upgraded to produce high quality products, which could even cater to
international markets. In this respect, attention will have to be focused on a few priority
crops such as paddy, a few field crops, and selected fruits, vegetables and floricultural crops
that have a competitive advantage. Until recent the rural farmers in Sri Lanka practiced
traditional cultivation methods that, what can they grow their lands, not what they want to
grow or what marketable products. What can grow their land concept is low cost, minimum
risk and enough for their requirement. For example, Maize grows in high land and paddy in
low lands. Everybody cultivates those two crops and at the end when harvesting, it is
bumper harvest of maize and paddy. There fore the demand is low and the price is
decreased in minimum level. In other hand due to some natural reasons, drought or some
disease one crop destroyed the farmers cannot bear it easily. This is the risk in macro level.
Most of the seasons the major producing areas, some specific productions has faced these
two problems, especially, potato, chilies and onion, as well as paddy face this problem. The
poor farmers did not have idea to escape from this situation. The most recently, the state
sector and the FCs collaboratively introduced this product diversification system for
farmers. Still implements only few areas. The product diversification has introduced
different ways. Some lands for different crops and sometimes the cultivation time changed
little bits. Sometimes, alternative crops in different lands. Eg. Banana for paddy lands,
Papaya for maize lands. Some areas where paddy cultivation is unprofitable the FCs
encourages cultivate alternative crops in marginal lands eg. Sweet potato, cassava grows in
those unprofitable lands. The Ridibendiela Fc introduced poultry farming to the farmers. It
is quite success. Some fruits and vegetables introduced instead of unprofitable paddy
cultivation. At the beginning, it was profitable, the most farmers follow these methods, and
they diversified their product and get maximum benefits from their farming.
Not only farmers but also FCs implemented the product diversification projects for
continually run the Farmer Company. Anyhow, one or two projects of the company were
failures that, those can cover from other alternative projects. Therefore, at presently most of
the FCs follows the product and project diversification techniques for reduced their
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business risk and company survival. The table 5.24 shows that, the product diversification
techniques implements by FCs as well as small farmers in those FCs areas (Table 5.24).
Table 5.24: Use of Product Diversification Techniques
Farmer Product and project diversification
Company Paddy Chilies Soy Maize Fruits Lemon Vegetable Livestock Other
1.Ridibendiela x x x x x - x x X
2.Maningala x - - x x - x x x
3.Huruluwewa x x x x - - x - X
4.Chilies x x - - - - - - x
5.Hiriyala x x x x - - - - -
6.Elahera x x x x - x x x X
7.Minneriya x x x x - - - x -
8.Akkaraipattu x - - x - - - x -
Source: survey data
The table 5.24 shows that the product diversification patterns of the FCs as well as the
member farmers. Ridibendiela, Maningala and Minneria FCs as well as their members
successfully implement their diversification activities. Because of these kinds of
diversification activities, most of the FCs and the small-scale farmer members could get
reasonable income continually. Due to some reason, one or two crops failure or serious
price fluctuations does not affected directly to those farmers and FCs because the loss
recover by other products and projects. This system provides direction to the farmers to
change from the traditional cultivation system to market oriented cropping system. Under
this system the farmers can apply high tech methods like drip irrigation, sprinkle irrigation,
polytonal system, organic farming etc. to their farms. Because the farmers know, there is
no such a big risk to invest and they can get reasonable price to their products in the
market.
5.2.9 Honor Business Obligation
Honor business obligation is one of an important business character in modern
business world. If there is no honor in business, there is no trust and the business most
probably not in sustainable. This is very rare character among small farmers in Sri Lanka.
Because most of the small farmers aim is when the time come that, get the maximum
benefits. They do not have an idea about sustainability of their business. Therefore, the
small farmers many times use dishonor strategies for their instant benefits. As individual
farmer, he can do what ever he like but after organized as a farmer company they realize the
reality and start to improve honor business activities. If not they cannot run a company
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continually.
Not only the small farmers but also the FCs should have honor business obligations.
The company should fulfill various agreements in time; the bank loans, rent, and other
payments should do in time, fulfill farmers’ requirements in time, and earn profit for
members of the company so on. According to the Table 5.8, eight out of nine FCs have
fulfilled this character. This situation implies that the FC realized the value of honor
business and they make good relationship with suppliers as well as customers using honor
business activities. This is FCs side information, but the small farmers view is as follows.
(Table 5.25)
Table:5.25: The farmers response for the question of Honor business
of Farmer Companies
Farmers Response Number of Farmers Percentage
1. Yes (FCs have this character) 131 72
2. No 22 12
3. Do not know 27 16
Total 180 100
Source: Survey data
The table 5.25 shows that the farmers’ responses about FCs honor business activities.
The total sample of 180 farmers answers the question and according to that, 131 farmers or
72% percent of the sample says that the FCs and their business activities are satisfactory
and honored. Another 12%of the farmers’ ideas were there are no honor business activities
in FCs, and 27 farmers informed that they do not know about because they do not have an
idea about honor business activities of the FCs. Anyway, according to that information that,
it seems to be satisfactory progress in activities of FCs. In other hand FCs belong to small
farmers that, they have developed this situation through farmer companies.
5.2.10 Strengthen Management and Collaboration
Farmer Company is farmers own legal business venture. The capital invests by them
and manages by them for their own benefits. Therefore, most of the farmer companies at
the beginning stage directly run by farmers. The board of directors as well as management
staff also consists of farmer members or their relations. Generally, the small farmers in Sri
Lanka as well as all Asian countries can only manage their own farm as well as their family.
Most of them do not have ability or capacity to manage business ventures or company
under the open market economy. According to the table 5.6, more than 75% of the
farmers belong to elementary and higher school education level, college and above
education qualification have only about 24% of the sample farmers. Graduate qualification
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has only 2% of the sample farmers. Therefore, most of the farmers do not have
higher-level education background for manage the company. Anyway, the beginning of the
FCs the farmers have run the FCs. Not only run the company but also involve the large
business activities values about 4-5 million Sri Lanka rupees. Ultimately, they also do not
know what happen to the business activities. They loss a lot of money and some companies
also temporarily disappears.(It is not suitable to show example) As a result of this
situation the implementing agencies of the FCs, policy makers, Researchers involves to
examine the problem. Then they realized the real problem was lack of manage ment skills
for farmers. Then they decide to appoint qualified general management staff from outside.
At present most of the FCs have educated and experienced general managers as well as
management staff. They can work collaboratively with director a board, which consists of
well experience farmers. The same time they can make various kinds of link programs with
outside private sector as well as state sector organizations. Meanwhile, the FCs hired
reputable account and audit firms for accounting and auditing activities. So generally, the
FCs has strengthened management and collaboration. According to the survey data, the
table 5.26 shows that, the farmers’ opinion about the management of their farmer
companies. Generally, 95 farmers out of 180 sample farmers(53%) says that the FCs have
strengthen management and collaboration, 21% of the farmers says that, there is no such a
good management practices in FCs, 11% of the farmers answered that , they do not know
about. In the same time, 15% of the farmers do not like to answer this question. It was
implies that still there is some problems in management side but they do not like to say
about. (Table 5.26)
Table 5.26: The Farmers response for the question
of Strengthen Management and collaboration.
Farmers opinion Number of respondent Percentage
1. Say Yes (FCs have Good Management) 95 53
2. No 38 21
3. Do not know 20 11
4. Do not like to answer 27 15
Total 180 100
Source: Survey data
5.3 Experience of Chinas’ Farmer Technical Associations (FTAs)
5.3.1 Connecting Farmers with the Market
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The Chinese FTAs have implemented various kinds of services as well as business for
their member farmers. In 1992, total sales of agricultural products through the market
already accounted for 80 % of total productio n. During the process of transformation from a
planned to a socialist market economy, individual farmers lacking necessary information
and marketing channels were facing markets with higher trade costs and higher risks.
They are in desperate need of a type of organization, which can represent their interests in
the market to obtain the most favorable prices. The farmers' technical association can
function as such an intermediary organization connecting farmers with the market.
The associations of the primary or secondary type mentioned previously are able to
provide farmers with market information and sign purchase and sales contracts on behalf of
their members. Better functioning, self- supporting associations can provide members with
manufacturing services or storage and transportation services.
For example, the husbandry association in Wu' An County, Handan City, Hebei
Province, provided low - Priced fodder as a kind of subsidy to the farmers. They used the
profits from their slaughterhouse for this purpose, when farmers began slaughtering their
chicken because production of broiler chickens had become non - viable when the market
Price of feed went up in the summer of 1995. In return,
When the market Price of eggs and broilers went up in those autumn, memb ers could
continuously and steadily, provide raw materials for the slaughterhouse, thus proving itself
as a mutually beneficial body.
The Long- hair Rabbit Association in Niuquan Town, Laiwu City, Shandong Province,
built a Purchase and sales station and a rabbit- hair-processing mill. When the market
demand changes and rabbit hair becomes less marketable, the association will Purchase
members' products according to a contract price agreed in advance, in case the state - run
export companies stop purchasing rabbit hair, thus greatly alleviating the negative market
influence and lessening the risks to the members.
5.3.2 Market Oriented Non - Government Extension
Organizations
The use of agricultural chemicals in China is high and prices have risen steeply.
Traditional strategic crops, such as grains, therefore, often show negative marginal returns,
and while the market price of crops is also high, at times even higher than the international
155
level, it is difficult to promote farmers' desire for higher Yields through the policy of raising
prices, since they cannot make up for the increased production costs. At the same time, the
government is wary of the dwindling competitiveness of China's agriculture. The key
measure for raising agricultural output and farmers' income will therefore depend on
science and technology that can lower production costs. Alongside the active role played by
the national agricultural extension system in major field crops and cotton cultivation,
farmers also created their own specialized technical associations, which experts from the
World Bank have called an "extension mechanism reflecting market demand".
These associations have become important in transferring agricultural technologies,
especially in relation to those activities, with which technicians from the national
agricultural extension system are not familiar, but which generally Produce higher value
products and have better profit potential. Several types of associations initially expanded
broadly with a focus on fresh and live produce, such as fruit, vegetables, mushrooms,
animals, fish etc.
The association usually begins with a breakthrough in a specialized technique, and
then expands using the economic power generated through its activities. Xiwang Fodder
Company in Xinjing County, Chengdu City, Sichuan Province, held total assets valued at
over 1.4 billion yuan RMB in 1994. It emerged from Xijing Quail Association, which
initially mastered and promoted techniques for raising quails, and from a feed mill later
established to match demand for special feed for quail rising. Through technology
development driven by the farmers, a system of "specialized technical farmers, specialized
technical villages, specialized technical associations, and specialized Product markets" has
developed in Chengdu City of Sichuan Province. In this system, the technical services
provided by associations toward specialized production are the key link. Farmers join
associations of their own free accord. They are interested in products and related
techniques that have the best market Potential. Therefore, there is a unique relationship
between the association and the farmer in so far as the technology carrier and the user is
the same person. This is not the case with the national agricultural extension system, since
extension technicians providing technical training, i. e. the technology carriers, are
different from those who use the knowledge. Since agricultural extension, technicians can
charge farmers only a small service fee. On the other hand, have to provide services free
of charge and since whatever gains the farmer may have the activity based, on the new
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technology bears no relation to the technician's income, there is not as close an economic
link between them as is the case with the associations and the farmers.
5.3.3 A New Type of Co - Operative Organization for the future
The agricultural system in China's rural areas has experienced many changes since
1949: individual farming following land reforms in which land distributed to farming
families; co-operatives; People’s Communes; household contract system for fixed farm
output quotas; and contract responsibility system with remuneration linked to output. There
are many paschal difficulties In small- scale farming, both economically and technically,
which make farmers gradually change to co - operative farming. However, farmers would
be reluctant to go back to the original type of collective system, such as the People's
Communes. Consequently, organizations like the farmers' technical associations, which
established by farmers, run by farmers, and of benefit to farmers, will most likely, become
the new type of co - operation most popular among farmers.
Professor Mark Selden from New York State University, USA, considers that
China's agricultural reforms will depend largely on co - operative organizations through
which farmers can be self- supportive, self- strengthening, and self- developing and selfexpanding.
The farmers' technical associations are the kind of organization by which
farmers can co - operatively access the necessary technology and related technical
services (" Household, Co - operative and Collective: An Institutional Perspective on the
Future of China's Countryside", in: "Rural Area Issues by China and Foreign Scholars",
Hua Xia Press, 1995). Another expert from the Ebert Foundation of Germany indicated
that so - called co - operative organizations run by rural communities in China are not
real co - operative institutions, because they are in fact community organizations where
members cannot join or withdraw from the organization freely. He stated that the nature
of the farmers' technical associations in China's rural areas is similar to western style co -
operative organizations. Surveys in Dazhu County, Sichuan Province, and other areas
revealed that some associations are changing toward a formal joint stock co - operation
system. Luo Yuanxin, General Secretary of the Rural Specialized Technical Association
of Sichuan Province, states that the development of this kind of association will lead to
nation - wide co - operation based entirely on farmers' voluntary participation.
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5.4 FTAs and Their External Relations
5.4.1 Complementary Roles of FTAs, State and Community
Organizations
The state - run research and agricultural extension systems normally focus on long
term agricultural projects with larger and wider social benefits. They also work on those
agricultural Products that the government usually buys at low prices, such as grain, cotton,
and oil- bearing crops. The system well managed from the central government, province,
district, county, down to the township. Nevertheless, at the grass roots level, such as in the
villages, there are only a few technicians, often part - time, whom do extension work, such
as introducing certain new farming techniques. It is therefore difficult to disseminate the
necessary technologies to over 230 million farming families nationwide, quite apart from
the fact that they are often unfamiliar with those agricultural and aquaculture techniques for
Producing products which are in high demand on the market.
Villagers' Committees are community or collective organizations mainly responsible
for offering and managing land contracts, services and facilities for social relief and welfare,
as well as for planning and controlling production of grain, cotton and oil- bearing crops.
The officials of the committees, themselves farmers, mostly lack both time and technical
potential, and these organizations can provide hardly any technical services to help farmers
develop other economic activities.
As a kind of non - government organization , although often not a completely private
organization, the FTA can guide and directly organize members, mainly specialized
technical farmers, in production, and in turn encourage not only members but also non -
members to exchange and to transfer the necessary techniques and information through
multiple services provided by the associations. Thus, the FT A can function where state -
run organizations and collective - run organizations cannot. Organizations run by the state
or the collective have the same interests as the FTAs. Often they complement each other,
but sometimes they also find themselves in competition.
5.4.2 Competitions among State, Collectives and FTAs
In the comparatively small market for technical services to agricultural producers,
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competition is intensifying among state - run, collective, and farmers' self-managed
organizations.
Reforms in the state - run research and extension institutions have lead to a decrease in
government funding, and they will have to assume sole responsibility for their profits and
losses. Therefore, state - run organizations, such as the agricultural research and extension
organizations, have to change their orientation. They often move into the business of selling
inputs and equipment combined with technical services. In order to gain more profits, the
organization may also focus their research and development projects on economically
interesting agricultural crops and activities rather than on grain, cotton, and oil- bearing
crops. Hence there will be both co-operation and competition between FTA and
government agencies.
At the same time, collective organizations are also seeking higher incomes by actively
changing their technical and economic services. They are looking for a better match
between their business and market demand. Sometimes, such organizations also buy shares
in economic bodies under local FTAs.
The associations have to earn their living from provision of services, just like some
government agencies and other non - government organizations, since they do not receive
funding from the authorities. However, to members, associations generally Provide low -
profit or non - Profit services.
Competition is thus emerging in the technical services market. In some villages, many
plant protection shops, and crop - care centers, consulting services, compete with each other,
each representing different parts of the national agricultural extension system, the national
production- equipment supply system (Sales and Marketing Cooperatives), the collective
organizations, or farmers' technical associations. It is advantageous for the farmers to have
more choices. Nevertheless, it is difficult for associations to compete when facing
organizations with a powerful economic base and heavy political support.
Therefore, many associations change into' farmer run, government support' types, or
'official and farmer joint run' types. According to a recent survey, a joint stock co -
operation system in Sichuan and Hebei Provinces has emerged, which enables those
organizations with clearly defined property rights to join the system by buying shares. In
these way contradictions, arising from competition can be alleviated and economic interests
harmonized
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5.4.3 FTAs, Agricultural Research, and Agricultural Extension
In the early stage of development of the farmers' technical associations, i. e. when they
mainly provided technical services, agricultural research and extension departments overall
provided technical information free of charge. The information mainly came from
specialized research institutes and township agricultural technology extension Stations. The
economic information mainly came from personnel working in the Supply and Marketing
Co- operative, a state - run commercial organization, and from commercial and foreign
trade departments
The case studies in this report provide many such examples of information provided
by County and Township Agricultural Extension Stations. e. g. provision of information on
fine breeds and new crop varieties to the Cixian Pig Breeding Association in Handan City,
Hebei Province, which was set up after getting information on export possibilities for fine -
bred pigs from the Foreign Trade Department of Cixian County. The Sheep Association of
Peng' an County, and the Cai Jia AI) Citrus Association in Dazhu County have had similar
experiences.
5.4.4 The Role of Research and Extension
Consulting
When offering technical and economic information services, most of the farmers'
technical associations invite experts from government agricultural research organizations or
agricultural extension departments as consultants or members of the boards of the
associations. The main responsibility of the consultants is to provide technical advice and
information, and to address farmers' production
Problems.
In one of the case studies, Chen Yuxin and his brothers from Xinjin County, Sichuan
Province, established the above mentioned quail association in the early 1980s. At a later
stage, they set up the "Xiwang" Feed Processing Group Corporation. Today the corporation
has fixed assets valued at 650 million Yuan. The "Xiwang Group" has 46 sub- companies.
During the development of the association, Chen Yuxin invited feed and livestock experts
from Beijing and Chengdu to provide technical advice and information on market
opportunities, after which the sales volume of the "Xiwang" brand feed soared to take first
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position in Sichuan, Yunnan and Guizhou provinces, overtaking the powerful Chatai Feed
Cooperation in the market in these three provinces.
Leadership
In associations that are in need more sophisticated technologies, agronomists and
livestock specialists from government agricultural research or extension departments may
often be elected directly as members of the board, and may become vice presidents or
Presidents of the associations. They use their technical knowledge and technical
information within their specialization to serve the members of the association and help
them generate profits, thus increasing the income of both specialists and farmers.
Governments support this kind of linkage between technology and the economy.
The Chicken Raising Association of Wen County, Sichuan Province invited a livestock
specialist from Chengdu Livestock Research Institute as a consultant. Later she set up a
chicken research institute and a chicken farm, which provided chicks and eggs to farmers to
raise as broilers. By taking this measure, the farmers increased their income and the
livestock specialist benefited financially. She was later elected President of the Chengdu
Chicken Raising Association.
Contracted Services
The extension departments may sign contracts for specific services with farmers'
technical associations. By using this method, the associations may reduce the cost of
technical services.
One case study from the Livestock Association of Wu' an County in Hebei Province
shows that the Wu' an Animal Husbandry and Veterinary Station provided technical and
veterinary services to farmer members of the association. The farmers paid a fee to the
technicians according to the contracts signed.
Co - operation in Experimentation
The farmers' technical associations may provide farmland and labor to state- owned
agricultural research organizations, and obtain new technical information in return.
Lumen Township Vegetable Production Association, Wushan County, Gansu Province
and the Gansu Academy of Agricultural Science (GAAS) jointly conducted an experiment
on the effect of different colored plastic mulching film on the output and quality of
vegetables. The association provided farmland and labor and GAAS provided vegetable
seeds and technical guidance and supervision. The Primary findings were that yellow
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Plastic was suitable for wile cabbage; green plastic was suitable for cayenne pepper, purple
plastic for fragrant - flowered garlic, and red plastic for tomatoes. This information was
highly valuable for farmers to increase the Yield and quality of their vegetable, and their
income.
5.4.5 Mergers or Partnerships
It is still too premature to determine whether larger specialized associations, such as
the Handan Agricultural Association, will be able to take over state- owned agricultural
research organizations and extension stations in the future, and, if so, whether researchers
and technicians will remain government employees.
As stated in above, the agricultural research and extension organizations supported by
the state lack financial resources and look for other ways to supplement their funding.
Therefore, they have to generate income, and some of this may arise from co - operation
with farmers' technical associations However, they have heavy overheads in terms of
salaries, housing, and medical and social insurance, not only of present staff but also of
those on pensions etc. If the farmers' technical associations took over agricultural research
and extension organizations, they would also have to take over all these economic and
social burdens from the government. At present, the FTAs have neither the organizational
nor the financial capacity to do that. However, staff from agricultural research and
government extension often joins associations as consultants.
5.4.6 Relationship between FTAs and Other Government
Organizations
The Supply and Marketing Co - operatives were originally a kind of farmer run co -
operative, but lost this character during the period (1958 - 1979) under the People's
Communes. Eventually, they transformed into a top - down government set - up. However,
in the townships and at village level, the system still plays an important role in supplying
and selling agricultural equipment and in buying farm products. The co - operatives also
possess exclusive rights conferred by the government. They mandated to sell fertilizer and
farm chemicals to farmers as well as to purchase cotton from farmers. The FTAs do not
possess such rights. If associations get involved in fertilizer sales or in cotton procurement,
it will be considered illegal. Such policies limit the potential operational scope of the
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associations.
Currently, associations may be commissioned as agents of the supply and marketing co
- operatives that will partially resolve the contradiction. But at the same time, the profit of
the associations would diminish and their autonomy weakens.
Rural Credit Co - operatives also used to be farmers' co - operatives. During the
People's Commune period, the co - operatives gradually transformed into financial
institutions directly under national banks. In this way, part of farmers’ earnings was
temporarily transferred to cities through the rural credit co - operatives and the national
banking system. In the 1980s a new type of rural co - operative fund emerged sanctioned by
the government. This is in Principle organized by farmers themselves, and functions as
savings co - operatives that can absorb farmers’ cash savings. However, they can only be
used as a financial resource among members according to strict government regulations,
and do not undertake normal banking business. This type of fund cannot offer savings
accounts, commercial credit or private loans to non - members. Because of these constraints,
financing farmers' technical associations remains a problem. China's FTAs do not have their
own financial body to support them like Japanese farmers co - operatives do through the
Central Rural Fund, and like German farmers do through Refasten Co - operative Banks.
Government departments in agriculture normally implement a dual price system to
control market shortages of production input, which greatly influence the development of
FTAs. For- example, the market price of diesel oil used in agriculture doubled before July,
1994. The government agricultural machinery departments could, however, obtain low -
Priced diesel oil at 553 yuan RMB per ton, while farmers had to Purchase diesel oil in the
market at prices as high as 2, 600 yuan RMB per ton. Although the double price system has
been abolished, demand still greatly exceeds supply and oil companies are still franchised
to sell diesel oil exclusively. Thus farmers can still only obtain diesel oil at comparatively
higher prices, which in turn makes those associations requiring diesel oil as a basic
production requisite suffer from higher costs. The Agricultural Association in Handan City,
Hebei Province is an exception to this rule, since it is allowed to sell diesel oil. The
Association in Hejian, Hebei Province can purchase cotton of special varieties, which is
also an exception. Both of these are operating with the approval of the local government.
However, in some areas, indeed some associations have mutually beneficial economic
ties with, local supply. In addition, marketing co - operatives and related government
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departments. For example, the survey of the Agricultural Association in Handan showed
that the association covered agricultural government departments, farmers' technical
associations, and farmers. However, since economic reform needs to be further developed,
it will take time and be quite difficult to overcome the contradictions between associations
and government sections.
5.4.7 FTA and the Rural Community
The major function of the rural community that emerged after the devolution of the
original People's Commune structure has been to provide services such as social security,
welfare, public construction, land and irrigation improvement, and the management of
arable land leased to farmers. By comparison, the FTAs pay attention to the provision of
technical and economic services to pre - production, production and post- harvest activities.
Both kinds of services are mutually beneficial. Some associations, classified as Type A
(Basic) above do not have any profits and do not pay anything to the local community,
whereas Type B associations (Intermediate) and Type C (Mature) may contribute to their
communities in the form of land rent or dividend from land shares. They may also provide
technical assistance to poor farmers. For instance, the quail association, located in Xinjin
county of Sichuan province, asked each member to provide improved quail eggs free of
charge to five poor farmer households to enable them to raise their living conditions.
In accordance with national regulations, individuals can only apply for permanent residence
and ID cards in the area where they are born. Therefore, villagers have no freedom to
decide if they will join the village community or leave it. The FTAs, on the other hand, are
a kind of technical and economic co- operative organization engaged in specialized
production in the village or may even have a larger geographical scope, and any farmer,
who is qualified can freely choose to join or leave the association.
5.5 Role of Farmer Companies in Sri Lanka and Farmer Technical
Associations in China
Role of Farmer Companies in Sri Lanka and role of Farmer Technical Associations in
China are almost same but the implementing procedure and the capacity is different. FCs
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in Sri Lanka or FTAs in china, which use different names for their ventures, but the
business and the services provided to the farmers are, seems to be the same. In Sri Lankan
FCs the role has categorized to 10 components. Those includes, marketing facilities, input
supply, credit programs, technical services, product diversification, and honored business
activities, whatever the name use the Chinese FTAs also implements the same services and
business to the member farmers. The FCs in Sri Lanka implements a small level capacity
which depends on the areas agricultural production capacity. The farmers attitudes also
affects to the operation of FCs. However in the China FTAs capacity is quite large
compared to Sri Lanka as well as the farmers attitudes also completely different because in
Chinese farmers have the communist ideas so they try to think about the community but Sri
Lanks is vast different. The china FTAs are almost established and the farmers have an idea
about the operation as well as benefits from those FTAs to them. But Sari Lanka FCs are
new to the country and the farmers sill don’t know the real operation as well as the real
benefits for them. The basic similarities and, differentials are as follows. Table 5.27
Table 5.27: Comparison of FCs in Sri Lanka and FTAs in China
Characters FCs in Sri Lanka FTAs in China
Membership Resident farmers in those areas Certain residents in local
communities
Voluntary participation and
withdrawal
Yes Yes
Leaders Selected by member farmers,
mostly they are well experience
farmers
In most cases chair person of the
board is specialized farmer with
special skill
Areas covered Only in certain towns and
villages
Only in certain towns and
villages
Number of business ventures Small only 85 Small 130,000
Coverage of total number of
farmers
About 2% 2%
Service Type Directly and indirectly FCs
provide marketing facilities,
technical services, farm
requisites, and financial supports
Indirectly FTAs provide
technical services, farm
requisites, and marketing
channels
Main Service Scope Provide technical and economic
services to members in their line
of business, be it primary
production, manufacturing, or
marketing
Provide technical and economic
services to members in their line
of business, be it primary
production, manufacturing, or
marketing
Capital Shareholders capital and bank
loans
Shareholders capital
According to comparison table 5.27, almost basic characteristics of FCs and FTAs are
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look like no any considerable differences in Sri Lanka and China. Membership, voluntary
participation, leaders, areas covers, service type and main service scope are almost same.
However, the grassroots level organizations and operatio ns are completely different from
Sri Lanka because of team-based commune organizations operate in China. The
organizational structure in China's rural areas has been transformed from team - based
community organizations with three levels of ownership consisting of the People's
Commune, production brigade and production team, to community - type town
governments or union co - operatives, under which are villagers' committees (or village
economic co - operatives) and village teams. In 1994, there were 2, 072, 400 grassroots
economic co - operatives, of which 26,700 were at town level, 665, 700 at village or local
community level, and 1,380,000 at team level. According to "The Organization Law of
Villagers' Committees in the People's Republic of China" and, "The Land Administration
Law”, the functions of villagers' committees are:
a) To conduct public and welfare affairs in villages, to mediate issues, and to help
maintain public security;
b) To support and organize villagers to improve their economic, co - operation in
production, purchasing and sales, credit and other financial matters, consumption, etc., and
to undertake Production services and necessary co - ordination in villages.
c) To administer land and other property collectively owned by farmers in the villages.
Collectively owned land, according to legal regulations, belongs to villagers collectively,
and will be administrate by agricultural economic organizations such as farming co -
operative or villagers' committees.
The functions, organizational structure, and leaders of rural production co - operatives
are in parallel with or the same as those of villagers' committees. In this way, the
organizational cost can be reduced and efficiency can be raised. The so - called villagers'
committees, or farming co-operatives, or farming-manufacturing trading companies, are in
fact overall identical with the local community. Therefore, they do not per se qualify as co -
operatives or farmers' technical associations, since they undertake statutory tasks entrusted
by the government.
In some places such as Handan, Hebei Province, the FTA at village level is actually
the same as the villagers' committee mentioned above, with the same members and staff. It
simply has two names. However, in most cases, the FTAs at town and village level,
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especially those with a regional scope, such as those crossing village, county or provincial
boundaries, are independent of villagers' committees and town governments. Their role is to
provide technical and economic services to members in relation to marketing and
manufacturing. They are special associations, which can provide production and marketing
services that local community-run organizations cannot usually provide. They do however
often gain the necessary support from local community with regards to land allocation,
credit guarantees, contacts with the government, safeguards for members’ proper rights and
interest, etc. When associations make a profit, they are expected to repay a certain
percentage as management charges and as support for Public affairs ( e. g. road construction,
education, poverty reduction, etc.) . Therefore, the FTA and local community can
complement and benefit; from each other. The case study in Dazhu County, Sichuan
Province indicates that the formation of a joint stock co - operative system that converts cooperative
land into shares unified the interests of the two parties, at least briefly. The
different functions and organizational structure of FTAs and Farmer Companies ( China and
Sri Lanka) respectively at village level are shown in Table 5.27.
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6 Constraints and Strengths of Implementing Farmer
Companies
6.1 Introduction
Agriculture has traditionally been the base of the Sri Lankan economy, yielding a
major part of the national income and providing the chief means of livelihood and
subsistence for its largely rural population. With its natural agricultural resource
endowments there is no reason why by now Sri Lanka should not have had a developed
commercial agricultural sector, but this rich potential has continued to be in a state of
comparative neglect for a variety of reasons. The main export agricultural commodities
have continued for nearly 100 years to be exported in primary form and much of their
available surpluses have been channeled into the country's social services and for
developing the non-export agricultural sector. Little of these surpluses, however, have been
diverted to the industrial sector nor have construc tive and organized measures been adopted
to move away from the stage of primary agricultural production to that of agro-processing.
A broad over-view of why this has not happened indicates that the various factors required
for planning and implementation of such a program have not been harmonized at different
levels. For instance, agricultural credit, marketing .and supplies, together with irrigation
and scientific methods of cultivation have to be closely inter-linked to provide agricultural
produce in sufficient quantities and quality to make commercializing feasible. But this has
failed to materialize.
The potential for establishing agro- industries have been explored for several decades.
The CISIR in its annual reports in the mid 1960's records its investigations into a wide
range of vegetable and fruit processing, sugarcane products, wood products and cocoa
products and spices. The experiments conducted by Sri Lankan scientists and specialists in
the leading research institutes dealing with agricultural produce have uncovered many
promising products, but unfortunately most of these have not moved from the laboratory
stages to that of commercial production.
Many of the country's development plans have also focused on the potential in the
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commercialization of small agricultural sector. A typical example is The Five Year Plan
1972 - 76, which states "One of the main drawbacks of earlier industrial programs was their
negligible impact on the rural sector, with regard to both employment and the utilization of
raw materials originating in that sector”. The regeneration of the rural sector through a
program of agro-based and other small- scale industries cons titutes a major element in the
Plan strategy.
There is no doubt that the wide variation of climate and rainfall in Sri Lanka is
conducive to the cultivation of a large range of tropical, sub-tropical and temperate fruits,
vegetables and other crops. Although the development of these resources has been planned
for over three decades up to now a major constraint has been both the lack of supply for
buyers and an excess of supply for producers. The problem over the years has been
connected with helping the cultivator with the disposal of his produce at a reasonable price,
while making this produce available to the consumer also at a reasonable price. It has been
widely accepted that no marketing scheme, however, could be complete unless it is
closely connected with the production program; namely of: (1) collecting produce at the
growers end, (2) grading, packing and trans porting of produce, (3) providing wholesale and
retail facilities for distribution, (4) offsetting seasonal fluctuations through processing or
preserving and also through planned production. The lack of linkages between production,
processing and marketing has therefore been identified as a primary cause for the
constraints in the development of the small scale agricultural sector in Sri Lanka. These
constraints have had strong disincentive effects on the farmer since he is never assured of a
reasonable return when producing for the agro- industry sector. Connected with this lack of
incentive has been high cost of inputs or lack of it altogether particularly seed material,
fertilizer and extension services.
In many respects the technology and practices in Sri Lanka's agro processing
industries are still in a basic stage and have not been adapted to more recent and advanced
techniques available internationally in this sector of industry. Generally, production in this
sector has aimed at the domestic market and with few exceptions can hardly compete in the
export market or substitute for imported products.
In recent years the opportunities for further development of this sector have come Sri
Lanka's way more frequently particularly with promising markets opening up in the Middle
East and in the developed market economies. The new emphasis on export markets has
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encouraged farmers, processors and exporters to concentrate on quality, variety and
attractive packaging in order to compete in the international market.
The need to establish farmer companies with a view to rationalize production,
providing their members with low priced inputs, and improving current distribution and
marketing systems are vital areas to be studied. The need and possibilities for the company
movement to be restructured into larger organizatio ns which could in turn contribute
significantly to the establishment of their own independent industrial enterprises and
distribution network using state sector and private sector organizations. This stepwise
integration can of course, be planned as a single operation in areas where the FCs system is
more desirable than any other organization of an integrated agriculture. Planning an
agro- industry on a company basis, as a possible alternative to ownership of the land by the
industry in company with private farmers has specific features and advantages which are
worthy of analysis in a specific case' and for a specific area.
6.2 Constraints
Many planning documents, seminar and workshop reports have identified a number
of constraints to the commercialization and development of the small scale farming sector
as well as implementing farmer companies in Sri Lanka. However, of primary importance
is the lack of a clear consistent, long-tern government policy for approaching sectoral
problems and constraints. This along with the fact that various activities associated with
small scale farming sector development are fractionated between several different
ministries and agencies of the government, decisions on sector activities have been ad-hoc
and made by institutions operating independently from one another and often without
consultation, leading to unplanned development process. However, according to the survey
data and other information the following major constraints has identified to implementing
FCs and commercializing small scale farming sector in Sri Lanka.
Small-scale Agricultural production System – To implement a farmer company that
it need surplus production system in that area as well as the member farming community.
The companies do a business which, supply inputs, purchases the farm products as well as
other services. Agricultural production takes place on a small scale with many plots less
than one acre. Farm size is further declining due to land fragmentation. Small farm size
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creates a number of problems in developing commercial farming system: high cost of
production due to lack of economic of scale, low prices due to price takers in the market,
inability to develop vertical and horizontal integration and difficulties in application of
modern post-harvest techniques such as plastic craters. In addition, social unrest has been
created due to inadequate of income to meet the family requirements, which is increasing
over time in the open economy. A large majority of poor people in the country live in
rural areas. The depth and severity of poverty are also highest amongst rural households.
Individuals living in rural communities experience a variety of economic and social
constraints, including shortfalls in access to productive assets like land and water, gaps in
physical infrastruc ture like power, transport and communications, imperfectly functioning
product and input markets, incomplete flows, inadequate technology and weak institutional
arrangements.
Rural poor receiving a major share of income from agricultural activities encounter
numerous economic problems. These problems are compounded and aggravated by their
low human capital development, and have limited access to other forms of capital. The
rural non-plantation agriculture has turned into a livelihood of many of them who failed to
attract employment in the other sectors of the economy.
Production oriented farming system – Under the commercialization process the
market oriented production system should be implemented. What market need, the farmers
should produce if not the FCs cannot run successfully. Though, economic transformations
taken place towards market economy after 1977, agricultural sector has not undergone
structural changes towards agricultural commercialization. Sri Lanka has not been able to
transfer agriculture into agribusiness yet. Farmers cultivate convenience crops, look for
market after harvest and depend on government for marketing. In these circumstances farmers
are risk aversion. Also agricultural markets are spot markets where gluts and scarcity
are common due to absence of backward linkages from traders to farmers instead of
forward link ages from farmers to traders. In the spot market farmers are often losers and
traders are often gainers. Low return to factors of production in the rural non-plantation
agricultural sector appears to be a recent phenomenon. The gradual dismantling of the
inward-looking tariff policy and the reduction of State protection to domestic nonplantation
crop production, particularly to rice, which is still a major source of rural
employment, accounting more than half of the rural employment, affected the livelihood
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and welfare of a large segment of farmers in rural areas.
Trade liberalization though improved the consumer welfare and, resource use which
decreases the profitability of many of the import competing crops. The reduction of
profitability led to the reduction in production of certain agricultural crops and the farm
incomes of certain group of farmers. This has serious implications to poverty amongst
farmers who cultivate certain import competing crops in the rural sector.
To illustrate the nature of crop profitability in import competing non-plantation
agricultural products, the World Bank study (1995) have use two alternative definitions: (1)
return land and (2) return to family labor. Return to land is computed by taking out all costs
(traded and non-traded and family labor) except land from gross return (yield multiplied by
price). Return to land per hectare is Rs. 7,231 from rice and Rs. 14,365 from chilly which
shows that chilly production provides twice as much return per hectare as paddy production.
The return per person day hectare shows that paddy provides higher return than chilly (Rs.
236 against Rs. 231).The two alternative measures of returns give two opposing views as to
the efficiency of resource use in paddy and chili production. However, it is important to
note that investment on paddy and chili production includes not just land and family labor
but also other inputs purchased and used by the farmers. Therefore, the total cost of
production is the investment during a season and net return is what farmers earn on that
investment. The net profit as a percentage of total costs shows that chili earns about 3 percent
return on investment whereas return from paddy is slightly negative (0.8%) . On an
average chili earns a margin of 4% over paddy.
Involvement of a large number of intermediaries — There are a large number of
traders who are involved in agriculture marketing. Collectors purchase farm products from
farmers at village level and sell them to traders who come and purchase. These traders are
town wholesalers who sell to the retailers in the town. In some locations, there are brokers
who link farmers with outside traders. In addition to traders there are people who carry out
support services such as transporting, loading and unloading. In case of industrial products
manufactures themselves or through agents distribute to the retail points. Due to
involvement of large number of people, marketing cost is high which results in low farm
price and high consumer price. Wastage is also high due to long distribution chain.
Similarly, almost all intermediaries are sales oriented instead of market oriented. As such
long term investments are lacking, meaning that no market innovations take place. Due to
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these long process with a large number of intermediaries the FCs have to do a competitive
business activity to get there market share.
Production Oriented Extension System - The present extension system aims at
improving land productivity, which is called land based extension system. In this system
farmers educate to get maximum possible yield from a given land No attention paid to
maximize the return through reduction of cost or obtaining maximum price possible. This is
applicable when demand exceeds supply as in the period 1970 — 1977. In this situation
producer is the key person in the marketing system .After 1977 the situation has been
changed with the import liberalization. Agricultural products supply has been increased
through imports and domestic production has to be competed with imports. Consumers play
a major role instead of producers. As such market determines what to produce, how much
to produce and what price.
Lack of information –Information flows between villages and external communities
are limited so that rural producers have scant knowledge of market opportunities outside
their neighborhood. Small enterprises also often lack marketing awareness and skills.
Mobility between villages and towns is time-consuming and inconvenient because vertical
linkages of the road network are weak. This hampers rural enterprises from accessing
prosperous urban markets to sell their products and to obtain inputs, especially tools,
equipment and finance.
Department of Census and Statistics is the main responsible agency for collection and
compilation of agricultural data. However, it still collects data on extent under cultivation
and production on seasonal basis not monthly. Hence, data is available for public after
production. Hector Kobbekaduwa Agrarian Research and Training Institute (HARTI) is the
government agency involved in collection and dissemination of market information. The
Market Information System (MIS) was set up in HARTI in 1979 with the technical
assistance from USAID. MIS further strengthened with the assistance from UNDP/FAO
from 1994 - 1997. Nevertheless, data collection is limited to prices. There is no system for
commercial stock assessment or crop monitoring. Therefore government has to take ad hoc
policy decisions on food imports when prices are high. In most cases, imports reach the
market at the time of harvesting crops.
Weak technology adoption and utilization.
Rural industrial activities typically contain low technology. Machinery and tools are
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mainly operated and the level of automation is low. Many cottage industries operate with
only hand crafted tools.
There are several reasons for the low levels of techno logy. Many producers operate in
non- competitive markets, and lack motivation to adopt better technologies. Enterprises
located in rural areas do not have convenient access to technology. Sometimes technology
adoption involves costly financial outlays which are beyond the capacity of rural
enterprises. Rural areas also lack skilled staff to use technology-intensive equipment and
tools.
Inadequacy of the private sector participation - It was observed that private sector
involvement in agriculture is mainly limited to the low risk areas with quick returns such as
food imports, wholesaling and retailing. As regard to retailing, there are too many retailers
wherein return is inadequate to invest for further improvement of the system. Investments
in agro-processing, storage, transportation, packing are hardly seen. The major reason for
low private sector participation is high risk due to uncertainty of the government policy.
The best example is collapsing of the paddy milling industry due to ad hoc imports. For
example government announced at the harvest time in February 1999 that rice imports
would be banded that year. Consequently, millers purchased and stocked paddy. Prices went
up due to high competition among millers. However government reduced the duty and
made imports at cheaper price at the latter part of the year despite the hugh stocks with
millers due to bumper harvests.
Another reason for the slow growth in commercialize agriculture development in Sri
Lanka was the lack of adequate incentives to attract private sector investors- Tourism,
urban development, import-export trade and gemming became more lucrative than
agriculture industries under the liberalized trade and economic policies. No special banking
credit packages were available. There was also the problem of finding land for cultivation.
The incentives suggested that for a period, development of agro- industries include
concessional credit, tax, exemptions, facilities for import of necessary machinery and
materials, land leases on a long term basis, minimum official control and interference,
provision of infra structure facilities particularly roads, housing, and transport. To
accelerate the process, the government could consider a package of incentives by extending
facilities for infrastruc ture, concessional credit and exemption from tax expenditure on R &
D and imports of necessary machinery and material
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Low government investment -After 1977 with the introduction of open economic
policy, the government policy was export led indus trial growth. This is evident in 1990s.
Hence agriculture was neglected, Government investment in agriculture declined from 18
percent of total investment in 1989 to 10 percent in 1999. Further investment in domestic
food production sector dropped to Rs.4,479 ml in 1999 from Rs.5,719 ml in 1989 recording
a 22 percent decline within a decade. Due to low government investment, infrastruc ture and
support services in agriculture were weak that affects the development of food marketing
sub sector.
Labor Market – There are several regulations in the labor market in Sri Lanka. These
regulations, which apply only to formal working relations, contribute to increase
substantially the cost of labor to the private sector. Production of fruits and vegetables is a
labor intensive activity and the high returns associated with cultivation of these crops
should substantially lower when the real private cost of labor is taken into account. Due to
the high marginal requirements of activities such as production of fruits, vegetables and
flowers, it is unlikely that the sector could develop without referring to formal labor
contracts. Another consideration with respect to the labor market is the apparent scarcity of
labor for the agricultural sector. In indication of this is given by the increases in the real
wages observed in the economy. Real wages in the paddy cultivation increased at an
average rate of 1.1 percent per year(deflated by the Colombo consumer price index) during
the period 1979 to 1993 (an overall increase of 16.3percent). During the same period,
increases in real wage were 1.4 percent per year for the construction sector unskilled
workers. (Sri Lanka poverty assessment)
Credit Market – An inadequate supply of credit to rural non-plantation crop sector is
considered as an important constraint in agricultural development. Lack of credit, market
rigidities and resultant high transaction costs put rural small holder farmers beyond the
reach of credit. In rural areas there are three types of credit institutions, viz. (1) formal (2)
informal and (3) a hybrid of informal and formal. The formal sector occupies mainly the
two state banks. The provision of credit through state banks to domestic non-plantation
crop sector in constrained due to large non-performance of small loans. Over the year “loan
forgivers” policy of government, made the formal financial market credit operations
additionally difficult. Several money lenders largely occupy the informal credit market in
rural areas. The volume of credit, however, is not well established. The high risk of
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operations and restricted supply pushed the interest rates of credit considerably high. The
hybrid system is new and upcoming, occupies a small share of the rural credit market
operating through the co-operatives such as Thrift and Credit Societies.
Imperfection in credit markets also constrains production. Poor farmers encounter
difficulties in obtaining credit for investment from formal financial institutions due to lack
of collateral. This constraint has been partially eased by the availability of credit from
government poverty alleviation programmers, rural development projects,
non-governmental organizations and special lending schemes of banks. However, a
considerable proportion of credit needs of the poor(about 50%) are met from local money
lenders. Interest rates charges by money lenders are very high, often exceeding 100% per
year, so that poor families borrowing from such sources are likely to the further
impoverished in the process.
Loosing the share of Agriculture exports – The process of globalization poses
several constraints for the products and services exported from Sri Lanka. Since the
globalization process is also partly based on the theory of survival of the fittest it will be an
arduous task for developing countries like Sri Lanka to prepare for the challenges. Sri
Lanka gradually loosing its market shares of most agricultural exports to India, Vietnam or
China. Vietnam is the latest challenge now Sri Lanka faces. Vietnam also grows almost all
the agricultural products we grow in Sri Lanka but at a very low cost. Although Sri Lanka
is unable to supply large quantities Vietnam is in a position to meet any supply schedule.
Vietnam by its massive rice production has now reached the market of the second largest
producer of the world. Therefore Sri Lanka will have to change her agricultural policy in
order to face new challenges.
6.3 Strengths
Proper problem identification is needed to make suggestions to solve the problem.
Above sections has devo ted to identify constrains for run FCs in the small scale agriculture
sector. In this section, strengths to the small scale agriculture sector will be dis cussed. In
preparation of implementation programs to act solutions, it is required to consult the
stakeholders such as FCs, farmers, traders, processors, transporters, and market laborers
who are well aware of operation of small farming system. Involvement in project
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beneficiaries at the time of project design is hardly seen in this country.
Development of Market driven production System – There could not be a good marketing
system without a good production system Market research is required to identify
commodities that can be marketed domestically and internationally and the quantity required
to meet the market demand. Farmers should be allocated resources after selection of
crops. Suitable locations for each crop should be identified and assistance such as quality
seeds and technical know-how should be provided to targeted farmers.
Establishment of strong market structure -Reduction of middlemen through Farmer
Company is required. Also vertical integration such as produc tion, storage, transporting and
selling and horizontal integration such as processing is essential. Further education of
market participants on marketing orientation is prerequisite for strong market structure.
Accordingly, application of modern business techniques such as increase profit through cost
minimization, market expansion through customer satisfaction, establishment of backward
linkages with market participants and production of quality product at a low price is
feasible in food marketing sector. Product differentiation is also needed to establish strong
market structure. It can be done by the origin of the product (location) such as Hiriyala FC
seed paddy, Huruluwewa FC Maize and Soybean, size such as small, medium and large and
color such as green beans. Making heterogeneous of the Product has an advantage in
obtaining higher price through catering specific customers.
Development of Agricultural markets infrastructure and Support services - Rather than
spending money on direct purchasing it is worthwhile to invest money in this area. Indian
government has identified the need to develop farm roads to enhance market competition at
farm level by bringing more and more traders to the villages. In construc tion of markets it
is required to consult market users at the designing stage. Strengthening of farm level
storage for non-perishable products such as grains and pulses is needed to control the price
decline. It is obvious that farmers sell their produce soon after the harvest due to meet
immediate cash requirements. Hence introduction of storage, credit system is useful. It is
low risk compared to cultivation loans because production is visibly available. In some
African countries, private personnel have stores to store farm produce. After storing, farmers
are given receipts that can be used to obtain credit from the bank. Banks often provide
credit up to the half of the value of the product at current market price.
As regard to support services, there should be a strong data- base to take policy
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decisions. In this regard, crop monitoring surveys and commercial stock assessments
surveys require to be undertaken, as do many other countries such as India, Philippines and
Malaysia. As regard to stock assessment the stockholders are bound to provide accurate
information to the Ministry of Agriculture every fortnight in some countries. If the
information is incorrect, business license is cancelled. In connection with extension,
marketing extension system needs to be set up and added it to the present extension system
to advise farmers on what to grow, when to plant, how to sell, when to sell, where to sell
and what price. Similarly, information should be made available to traders to take decisions
on purchasing, pricing and stock filing. To speed up data dissemination modern
communication techniques such as E-mail and web-site should be used. In addition to
information system, marketing intelligence service is needed to set up to advice to
stakeholders.
Use of market driven treatments for post harvest loss prevention - Most post-harvest loss
prevention methods are not market driven. They are very expensive and consumers cannot
afford them. Similarly, country like Sri Lanka, where a meal consists of rice and curries, do
not need high quality products. In preparations of curries, vegetables are cut into small
pieces and applied condiments such as chillie powder, and turmeric and cooked. In this
process, the original colure and the size disappear. Also in developing post-harvest
techniques, consumer taste is important. For example recently introduced a new variety of
snake gourd, which is short in length enabling easy handling and with hard surface skin in
order to keep longer shelf-life but it cannot be marketed due to different consumer
preference compared to the long length varieties. Training on post harvest management is
needed because one of the major reasons for post harvest losses is improper harvesting and
poor handling/packing.
Increase market demand for local foods -Demand for fresh products and healthy foods
are increasing in the world market. There should be a program for the development of a
positive image for farm products lo cally produced. Nutritional values of the farm products
should be highlighted. Expansion of demand for food items is required in a country like Sri
Lanka where market is small and export potential is limited.
Preparation of agricultural development policy document/action plan- Application of
the system approach, which includes input supply, production and marketing, lacks in
preparation of agricultural development programs. Though these items are interrelated
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programs are prepared and implemented separately. Marketing is often ignored. In fact it
should be the starting point in planning process because anything does not last unless it is
market driven. Role of Government in agriculture should be focused on investment,
information, institutions, innovations and incentives. Continuous monitoring of each and
every activity in the action plan is required and the plan should be flexible to accommodate
the necessary changes.
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7 Conclusion Recommendations and Innovations
7.1 Conclusion
Economic management of Sri Lanka in the last seven years, far from laying the foundation
for a viable economy, had on the contrary weakened the fundamentals and steered
the economy to mediocre performance first and to a virtual standstill in 2001. The
lackluster performance demonstrated by moderate economic growth, falling external assets,
slowing of export growth, yawning budget deficits, rising public debt, shrinking public investment,
falling share prices, continuous currency depreciation and rising prices in the
seven years 1995-2001 culminated in an economic crisis of alarming proportions from
which there is no easy recovery.
The Chapter seven present the main conclusion of all chapters of the stud y and the
most suitable recommendations for develop Farmer Companies and modernize the small
farming sector in Sri Lanka. The chapter one attempt to focus on introduction of FCs,
problem statement, review of related literature, objectives and research methodologies
applied for this study.
The Chapter two highlights the strategy use for modernization of agriculture since
independence in Sri Lanka and present situation of modernization process. Especially
strategies applied for development of agriculture by various governments. Many
development programs, action plans and policy reforms were discussed in this sector.
The Chapter three expresses the impact of open economic policies on small holder
agriculture sector. Especially, the open market policies implement by governments came in
to power since 1970. The tax and tariffs changing behavior and, what the impacts are, in
accordingly, the G D P growth, budget deficits, inflation, unemployment were highlighted.
The driving forces of commercialization, challenges and opportunities also were pointed
out.
The Chapter four mainly focuses on the reasons for private sector investing to
agriculture sector. Various incentives schemes for promoting private sector and same time
constraints hindering private sector investment in agricultural sector were highlighted. Then
the opportunities for private sector to enter the agriculture sector discussed. Those
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opportunities are directly impact to the establishment of FCs in this sector. Lastly, the origin
and the establishment of the FCs step by step were described.
The Chapter 5 is the main analytical part of this study. It included the role of FCs
related to agriculture marketing and explained major roles and the benefits from those
activities to small farmers. There were ten major roles identified and analyzed how to play
those roles in different FCs in different areas. Many of the FCs play those roles successfully
and run FCs without gaining big profits or big losses which, providing many services to the
member farmers as well as solving their major problems.
The Chapter six shows the main constraints and strengths for implementation of FCs.
There are many constraints as well as several strengths for run the FCs.
The Chapter 7 highlighted the overall final conclusion with who le chapter summery
and recommendations, innovative ideas from the study, limitations and the further research
areas based on this study.
The available information from various official documents, seminar workshop
papers, as well as survey data analysis and then, come to following conclusions
accordingly those objectives of the research.
The FCs are performance last seven years under pressure of uncertainty, political
influences, ethnic unrest, economic fluctuations as well as various natural phenomena that
many of the FCs were not reached the overall objectives of organizing small farmers for
commercial agriculture as anticipated by policy makers. However, during the period of less
than seven years, it is difficult to categorize the FCs weather successful or not, progress is
satisfactory or not. Most of the FCs is running continuously with out getting big losses or
earning high profits.
In generally the FCs are play a very important role for the small farmers benefits.
Since, independence, almost 56 years various policies programs implemented to solve the
small farmers major problem of selling their produce to market in reasonable prices but
still the problem not considerably change. As a result of the implementation of FCs in rural
areas where, the marketing problem is reduced some extent due to contribution of FCs.
Therefore the members of FCs could have strengthened their bargaining power to get
higher prices for their products. They have chance to compete and bargain with private
sector.
The forward contract supply system of the FCs have facilitate to their member
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farmers to get maximum benefits from their agricultural production. Before harvest the
farmers have an idea about their price as well as their income from farming activity. Most
of the member farmers of the FCs have proper market for their produce which is the main
contribution of FCs for commercialize their small farming sector. However, still some
farmers couldn’t adapt the system because they are still not change from traditional
practices. Therefore, the FCs have a big responsibility to make necessary arrangement to
change these farmers attitudes.
As a result of providing competitive marketing facilities by FCs, the farmers’ income
and expenditure pattern has change considerably. They spend more money for their
farming activity to increase production, especially they try to use improved seed varieties
even though expensive, fertilizer and agro chemical and machinery for their farms. This is
new trend that this implies the farmers income has increase some extent. Many farmers
recently have bought bicycles; water pumps sprayers as well as many capital items also.
The general trend is what ever the farmers earn from selling their agricultural products,
they spent almost that income as soon, then again they are looking for various kinds of
loans or mortgage their capital items or else for future activities.
The product diversification direct to the small scale farmers for commercialize their
farming activities. Traditionally small scale farmers cultivate what they can grow in their
lands, but now they changed their attitudes and they started to grow what FCs needs to
forward contract supply, what the market need, what crop can get higher income.
Therefore the farmers’ investments gradually increase for commercialized farming
activities. They don’t have such a big risk for their one or two crops failure, because they
know they can cover the failure from other crops or other projects. More than 60 percent of
the farmers implement the product diversification activities.
Even though the FCs implemented different business activities for the benefits of
their member farmers and run the FCs continuously, there are many barriers for those
activities from internally as well as externally. The FCs formed by government
organizations, but it is dominated by the politicians. Some FCs was directly formed by
politicians. Therefore many restrictions as well as low participation of member farmers can
be seen. Sometimes the management of the company was formed by the politicians. The
management of the some FCs consists of political appointments and they were not trained
to bear the risk of business in order to compete with organized private sector. Though the
182
establishment of FCs should be based on needs and priorities of farmers, but many FCs
were based on priorities of some government officers and implementing agencies as well
as politicians.
7.2 Recommendations
The Farmer Company concept is still in immature stage in Sri Lankan economy.
Therefore there are many shortcomings to correct the situation. The most of small farmers
are also still thinking in subsistence and welfare mentality. Hence it need more time to
change those attitudes. Some FCs still acts as traditional farmer organizations with limited
funds of shareholders. This was happened mainly due to the fact that many FCs were
formed by officers and politicians for their interests rather than needs and priorities of
farming communities. Therefore the existing system of establishment of FCs by the
government organizations should be changed. FCs should emerge from farmers and the
role of government should limited to direct FCs in proper channels.
The present government organizational structure use for implementing the FCs should
be change completely. The present implementing organizations are Department of
Agrarian Service, Department of Agriculture and Department of Irrigation is completely
different; they are not profit earning organizations. They are doing some kinds of
subsistence services to the fa rming community. However, FCs are legal business ventures.
Therefore there should be professional, business oriented government or private
organizations appointed for the implementation for FCs.
The leadership/ Board of directors of the FCs should consist of skilled farmers as well
as they should have an education background to understand the market behavior of the
open market economy as well as globalization trends. More women participation should
also be adopted.
The board of directors as well as the ma nagement staff of the FCs should be given to
training program about Farmer Company concept, Business management, Financial
management, Human recourse management, Company law, agricultural production and
marketing management and give them to complete knowledge to implement the FCs.
The board of directors of the company should be change their welfare and subsistence
mentality and make them to the environment to face agro business competition,
183
independency, and profit oriented activities.
The FCs main problem for the business activities is lack of financial resources, hence
they have approach to commercial banks to get loans for investments but it is costly. The
FCs are yet mature enough to obtain commercial loans and run the business, Therefore,
until some extent the government should provide financial assistance with reasonable
interest rates. Because, the FCs activities, also directly impact to the farmers welfare and
benefits. Therefore, the company tax policy also should adjust to favor of the FCs.
The new technology transferring activities that the government implements through
various organizations should direct through the FCs. Some experiments, providing new
instruments and other services should give more priority to the FCs.
When taking some important agricultural policy decisions which directly impact to
the FCs, It should be get some feedback from relevant FCs. Example, the policy decision
for import chilli in low price which, directly impact to the National chilli company.
The FCs are independent farmers business ventures, therefore there should free from
political influences as well as political appointments for FCs and political authority should
provide support to run the farmer company. Meanwhile, the establishment of FCs should
be based on the needs and priorities of farmers, not the based on priorities of officers of
implementing agencies or politicians.
Continuous monitoring and evaluation program for FCs should be implementing to
examine the progress, and time to time alarm their shortcomings to relevant FCs. For this
matter it should be appoint a government or private professional organization.
In general, as far as the agriculture sector is concerned innovative thinking and new
approach should apply to modernize this sector. It is required to follow a pricing policy,
which will give a reasonable price to the farmer while keeping the price whiting the
consumers’ reach. There are several issues peculiar to the agricultural sector. The major
issue among them as I see is the productivity of the land. Approximately 40% of our labor
force concentrated in the agricultural sector. However the contribution of the agricultural
sector to the GNP still remains around 18%. Since an adequate level of production
commensurate to the units of labor is not realized a problem of productivity exists in this
sector. Therefore in order to raise productivity and at the same time to solve the problems of
marketing in the agric ultural sector, it is necessary to introduce a new agriculture science
and technology programs that will direct traditional agriculture to modern agriculture.
184
In this regards, a strong intervention of the government is essential. Therefore, contrary to
the situation prevailing in the developed countries, in countries like ours, the government
must actively intervene in order to maintain a compulsory social security net to direct the
market.
7.3 Innovations from the Study
This study mainly focuses on the role of Farmer Companies in modernization of
agriculture sector in Sri Lanka. According to the finding of the study the following are the
main innovations:
1) Farmer Companies and modernization of Agriculture in Sri Lanka attempt to find
the empirical facts for the modernization of agriculture using modern agriculture science
and technology through Farmer Companies
2) Agriculture modernization is the major development strategy for gain rapid
economic growth and absorbs surplus labor in agriculture sector
3) Farmer Companies can play very important role for modernization of small
agriculture in Sri Lanka and gain the capital for industrialization in near future
4) The behavior of the small scale farmers in Sri Lanka is not easy to change for short
term benefits and it takes time for realization
5) Small farmers in Sri Lanka still not mature enough to run the business ventures
without getting proper expertise guidance
6) The government intervention for small farming sector development is necessary,
especially infrastructure, introducing new agricultural support and protecting them from the
various international agreements relating to agriculture and international trade.
7.4 Limitation of the Study
This study attempted to view the role of FCs on modernizing small holder farming
sector in Sri Lanka. But it has to be done through limited resources of time, budget and
manpower. There are 85 Farmer Companies spread over nineteen districts in Sri Lanka. The
study covers only randomly selected nine FCs over six districts. The FCs in Sri Lanka has
started in 1996 and all FCs have less than seven years of implementation. Nevertheless, the
185
FCs is new to Sri Lankan farmers. Therefore they didn’t have such an experience about
accounting, record keeping etc. As a result the information collected were very limited and
they cannot use for series of analysis. Only can cover the macro picture in the operation of
FCs. The secondary data as well as the references also very limited and this is the first
in-depth study in this sector
The time resource is very limited for this study because, within two years of time it
has been completed and the principal researcher has not enough time and chance to directly
involve the field study. Under the guidance of the principal researcher, his research
assistants have done the basic data collection and the field survey.
The result of this study provide the macro picture of the FCs role for modernization of
small farming sector in Sri Lanka and this study could also serve as a base for further
studies in this sector.
7.5 Further Research areas based on the Study
Modernization of agriculture is the main development strategy in Sri Lanka as well as
other developing countries. Especially, modern agriculture science and technology
application could obtain high productivity in small scale agricultural sector. The Farmer
Company also can play an important role for this modernization approach. Therefore, on
the base of the finding of this study the following research areas can recommends for
further studies:
1) Impact on the Application Modern Agriculture Science and Technology in
Modernization of Agriculture in Sri Lanka
2) The role of Private and International Companies Relating to Small Scale
Agriculture in Sri Lanka
3) Study on Appropriate High Technology for Agriculture Sectpr in Sri Lanka
4) Study on Comparative Advantage for Food Crop Sector in Sri Lanka
5) An Analysis of Socio Economic Changes as a results of Farmer Companies
6) An Economic analysis of Uncertainty in Small Farming Sector in Sri Lanka
7) Study in the Price Behavior on Agricultural Commodities
8) Cost Benefit analysis on Implementing Farmer Companies
186
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192
Appendix 1
Farmer Companies in Sri Lanka by Districts
No. Name, Address and Tp.
No. of the Farmer
Company (FC)
Electorate Name, Address and Tp. No.
of the Chairman of (FC)
Galle District
1 Baddegama
Farmer Company
Baddegama Mr. Premachandra Rillagoda,
Chairman (FC), Jayasekara
Mawatha, Idurupathwila,
Baddegama.
Polonnaruwa District
2 Giritale (Janatha) Farmer
Company, Main
Office-Jayanthipura.
Tel:027/46490
Minneriya Mr. P.D. Rajapaksha,
Chairman (FC), Chandra
Stores, 24 Milepost, Giritale.
Tel:027/23367
3 Minneriya Farmer
Company,
Hingurakdamana Rd,
Hingurakgoda.
Tel:027/46248
Minneriya Mr. Wijesuriya Perera,
Chairman (FC), No.150,
Pansalgodalla, Galamuna.
Tel:027/43333
4 Elahara (Janatha)
Mahaweli Farmer
Company, Opposite of
the Sathipola -
Bakamuna.
Tel:066/56805
Minneriya Mr. B.G. Wimalaratne,
Chairman (FC), Yaya 14,
No.2, Kottapitiya.
5 Parakrama Samudra
(Janatha) Farmer
Company, Residential
Project Manager's Office,
Nawanagaraya,
Polonnaruwa
Polonnaruwa Mr. A.J.M. Abeysinghe
Banda, Chairman (FC),
No.15/67, Othagama,
Polonnaruwa.
Ratnapura District
193
6 Janatha Balangoda Famer
Company, No.269,
Balagahadala,
Balangoda.
Rakwana/
Balangoda
Mr. Tilak Imbulegama,
Chairman (FC), Mamelgaha,
Imbulpe.
Tel:045-86061
Nuwara-Eliya District
7 Janatha Livestock and
Agriculture Production
Farmer Company.
Nuwara-Eliya Mr. H.M. Wimalasena,
Chairman (FC),Sinhala
Viduhala, Dayagama.
8 Walapane Integrated
Janatha Famer Company
Walapane Mr. T.B. Weerakoon,
Chairman, Alakolaalla,
Udamadura.
9 Haguranketha Janatha
Farmer Company
Hanguranketha Mr. S.M. Senaviratne,
Chairman (FC), Ampitigoda,
Maturata.
10 Kotmale Janatha Famer
Company
Kotmale Mr. N.P. Malwana, Labukale,
Kudaoya
11 Ambagamuwa Integrated
Famer Company
Nuwara-Eliya Mr. M. Wijeratne, Chairman
(FC), Madilla, Ginigathena.
Kalutara District
12 Bandaragama Farmer
Company
Bandaragama Mr. A. Dhanapala, Chairman
(FC)
Tel:034/91660
13 Janatha Beruwala Farmer
Company, St. Wisenthi
Home, Maggona.
Beruwala Rev. Farther Kamilas,
Chairman (FC), St. Wisenthi
Home, Maggona.
Tel:034/22757
14 Horana Farmer
Company, Divisional
Secretary's Office ,
Horana.
Horana Mr. Namasena Bamunuge,
Chairman (FC),
Ratmalgoda (Tel:034-64799)
Poruwadanda.
194
Tel:034/61238 Poruwadanda.
Tel:074-285913
15 Kalutara Farmer
Company, Divisional
Secretary's Office,
Kalutara.
Tel:034/22569
Kalutara Mr. Sirisena Nilwala,
Chairman (FC), Lintan Estate,
Palatota, Kaluthara.
Tel:034/25191
16 Walallawita Agalawatta Mr. A.P. Amaradasa,
Iththapana Agrarian Centre,
Agalawaththa.
17 Bulathsinhala Bulathsinhala Mr. P.P. Piris, Chairman (FC),
Agrarian Centre,
Bulathsinhala.
18 Mathugama Mathugama Mr. Sirisena Karawita,
Chairman (FC), Sirikatha
Bopitiya, Mathugama.
19 Agalawaththa Agalawaththa Mr. M. Karunaratne, Chairman
(FC), Ratmale Polgampala.
20 Millaniya Bandaragama Mr. Premaratne Gunatilake,
Batagoda, Galpatha.
21 Palindanuwara
(Baduraliya)
Agalawaththa Mr. Edman Punabugoda,
Lakpadura Baduraliya.
22 Dodangoda Mathugama Mr. Sumana Athukorala,
Chairman (FC),
Himali Sapugahawaththa
Dodangoda.
Anuradhapura District
23 Nachchaduwa Janatha
Farmer Company
Anuradhapura/ East Mr. M.P. de Seram, Chairman
(FC), Uturukavivila,
Hidogama.
24 Huruluwewa Janatha
Farmer Company
Horowpatana Mr. W.M. Mudiyanse,
Chairman (FC), Gomarankalla,
Galenbudunuwewa.
25 Rajanganaya Janatha
Farmer Company
Kalawewa/
Galgamuwa
Mr. Lalith Karunaratne,
Chairman (FC), Yaya 16,
195
Youth Farm, Pahala
Maragaswewa, Rajanganaya.
26 Rajarata Farmer
Company
Anuradhapura/ East Mr. D.G.J.C. Silva, Chairman
(FC), Agrarian Centre,
Nuwaragampalatha- East,
Anuradhapura.
Anuradhapura District
27 Kalawewa (Janatha)
Farmer Company
Anuradhapura Mr. A.M. Samaratunge,
Agrarian Centre, Ipalogama.
28 Kekirawa (Janatha)
Farmer Company.
Anuradhapura Mr. D.M. Dharmasena,
Kanjanakkulam, Vijithapura.
Puttalam District
29 Haldaduwana Integrated
Farmer Company,
Agrarian Centre,
Haldaduwana,
Dankotuwa
Wennappuwa Mr. Anura Wickramasinghe,
Chairman (FC), Haldaduwana,
Dankotuwa.
30 Janatha Anamaduwa
Saruketha FC, Agrarian
Centre, Anamaduwa.
Tel:032/63359
Anamaduwa Mr. L Siriwardhana, Chairman
(FC), Vimukthiya,
Kottukachchiya.
31 Janatha Naththandiya
Farmer Company
Naththandiya Mr. W. Sarath Kamachandra,
Chairman (FC),
Ambagahawadiya,
Naththandiya.
Colombo District
32 Hanwella Janatha Farmer
Company
Awissawella Chairman, Hanwella Janatha
Farmer Company, Agrarian
Centre, Hanwella.
Monaragala District
33 Buttala Farmer Company
(Organization) Agrarian
Centre, Buttala
Vellawaya Mr. J. Pathirana,
19 Milepost, Rajamawatha,
Gonagalaara
Tel:055/73607
Badulla
196
34 Mahiyanganaya Janatha
Farmer Company,
Mahiyanganaya
Mahiyanganaya Mr. M. Attanayake,
48,2/1 Milepost, Arawaththa,
Mahiyanganaya.
35 Uva Paranagama Janatha
Farmer Company, Uva
paranagama
Uvaparanagama Mr. D. Devid,
Dangamuwa, Ambagasdowa.
Matale District
36 Dambulu Farmer
Company, Special
Economic Centre, Matale
Rd, Dambulla
Tel:066/85085
Dambulla Mr. P Herath Banda,
Kashyapa Farmer Company,
Polaththawa, Sigiriya.
37 Naula Farmer Company Laggala Mr. G. Wickramasinghe,
Chairman (FC), Alugol Naula.
38 Pallepola Janatha Farmer
Company
Dambulla N.B.K.K
Koswaththa, Yatawara
Niwasa, Koswaththa.
Kegall District
39 Kegall Farmer Company Kegall Mr. B. Handagama,
"Prithilal", Ranwila, Kegale.
Tel:035/31083
40 Rambukkana Janatha
Farmer Production Sales
Company, Agrarian
Centre, Panwila,
Rambukkana.
Rambukkana Mr. A. Bandara,
Warallapana, Rambukkana.
41 Yatalatissa Farmer
Company, Agrarian
Centre, Galigamuwa.
Galigamuwa Mr. Piyadasa Jayasinghe,
Chairman (FC), Devalegama.
42 Suhada Farmer
Company,
Mawanalla Mr. M. Epiyawaththa,
Chairman (FC), Uduwewela,
197
Aranayake Agrarian
Centre, Mawanalla.
Galathara.
43 Deraniyagala Farmer
Company,
Agrarian Centre,
Daraniyagala.
Daraniyagala Mr. Nimal Wimalasiri,
Udapolo, Daraniyagala.
44 Ranweli Farmer
Company
Agrarian Centre,
Ambepussa
Ruwanwella Mr. Nimal Wimalawiri,
Agrarian Center, Ruwanwella.
45 Warakapola Farmer
Company
Agrarian Centre,
Ambepussa
Dadigama Mr. Jayatissa Weerasinghe,
Algama
Gampaha District
46 Minuwangoda Farmer
Company
Katana, Divulapitiya
Minuwangoda Agrarian
Center, Minuwangoda.
Minuwangoda Mr. Paul Perera, Chairman
(FC), Science College,
Negambo.
47 Attanagalla Farmer
Company
Attanagalla Mr. R.A.D. Rupasinghe,
Chairman (FC), Kamburagalla,
Ruggahalawila.
48 Gampaha Janatha Flower
and Agrobased Produce
Farmer Comapany.
Gampaha Mr. R.A. Karunatilake, No.6,
Kurundu Waththa,
Kalagedihena.
49 Dompe Siyane Farmer
Company,
Agrarian Centre,
Dekatana
Tel:01-455546
Dompe Mr. R.P. Ariyaratne, No.228/2,
Indolamulla, Dompe.
Hambantota District
198
50 Rohana Farmer
Company,
Agrarian Centre,
Netolpitiya.
Thangalla Mr. E.A. Jayasooriya,
Agrarian Centre, Netolpitiya.
51 Hambantota Farmer
Company
Hambantota Mr. R.D. Siripala,
Kaliyawalana, Bandegiriya,
Weligatta
52 Ruhunu Farmer
Company,
Project Management
Office, Ambalantota.
Tillsmaharamaya Mr. Amaradasa Liyanage,
project Management Office,
Ambalantota.
Ampara District
53 Galoya Right Bank FC,
Ampara,
Akkareipattuwa.
Tel:067/77067
Potuwil Mr. M. Abubakar,
Akkareipattuwa FC,
Ampara Road,
Akkareipattuwa.
54 Galoya Left Bank FC,
Project Management
Office, Ampara
Tel:063/23321
Digamadulla Mr. T.A.K. Tevarapperuma,
Galoya Left bank FC,
Residential Project Manager's
Office, Ampara.
Matara District
55 Kamburupitiya Kamburupitiya Mr. W.A. Kodikara,
"Mihira", Seewelgama,
Kamburupitiya.
56 Weligama Weligama Chairman, Weligama (Janatha)
Farmer Company, Agrarian
Centre, Denipitiya.
199
57 Mulatiyana Deiyandara Mr. H. Sumatipala,
Parapamulla, Deiyandara.
Batticaloa District
58 Batticaloa Farmer
Company
Batticaloa Mr. S. Sinnatambi,
Kalliyankuda, Batticaloa.
Kandy District
59 Tumpane Farmer
Company,
Agrarian Centre,
Galagedara
Tel:461327
Galagedara Mr. Gunaratne Banda,
Chairman (FC), Piyadala,
Minigamuwa, Galagedera.
60 Minipe Farmer Company Ududumara Mr. Nawaratne Bandara,
Chairman (FC), Residential
Project Manager's Office,
Morayaya, Minipe.
61 Yatinuwara Farmer
Company
Yatinuwara Mr. Ranasinghe Bandara,
Chairman (FC), Mihiri,
Pilapitiya, Kiribath Kumbura.
62 Kundasale Farmer
Company
Kundasale Mr. P. Karunaratne,
Chairman (FC), Wawinna,
Waththegama.
63 Patahewahata Farmer
Company
Hewahata Mr. T.B. Wijesinghe,
181, Nugaliyadda,
Pahalagama, Talatuoya.
64 Gampala Farmer
Company
Gampala Mr. V. Jayasena,
Chairman (FC), Ratmal
Kaduwa, Gampola.
Tel:08-351959
200
65 Nawalapitiya Farmer
Company
Nawalapitiya Mr. T.B. Ratnayake,
Chairman (FC), 50,
Rambukpitiya.
66 Ganga Ihala Farmer
Company
Nawalapitiya Mr. G. Subasena,
Chairman (FC), 1034, Atgala,
Sinhapura, Gampola.
67 Udunuwara Udunuwara Mr. B. Kotuwegadara,
Chairman (FC), 154,
Hendeniya, Peradeniya.
68 Ududumbara Farmer
Company
Ududumbara Mr. Richerd Piyawala,
Chairman (FC), Piyawala,
Waduwahinna.
Kandy District
69 Madadumbara Farmer
Company
Theldeniya Mr. Nawaratne Kapukotuwa,
Chairman (FC), 47,
Weladarawa, Udispattuwa.
(Agrarian Centre, Teldeniya)
70 Patadumbara Farmer
Company
Patadumbara Mr. K.B. Ratnayake,
Chairman (FC), Rangiriya,
Napana, Manikhinna.
71 Panwila Farmer
Company
Patadumbara Mr. H. Sugatapala, Chairman
(FC), Udugoda, Panwila.
72 Alawatugoda Farmer
Company
Harispattuwa Mr. G. Jayasena,
Chairman (FC), 413,
Dikpitiya, Alawatugoda
73 Pujapitiya Farmer
Company
Harispattuwa Mr. M. Mutubanda,
Chairman (FC), Sri Sunanda,
Kiralagama, Pujapitiya.
74 Harispattuwa Farmer
Company
Harispattuwa Mr. K. Jayasinghe,
201
Chairman (FC), 7, Pahala
Duwala, Haloluwa.
75 Gangawata Farmer
Company
Kandy Mr. D.B. Arawwawala,
Chairman (FC), 51/2, First
Lane, Owilmada, Kandy
76 Dumbara Jayabima
Farmer Company
Kandy Mr. S. Vimalsurendra,
Agrarian Centre.
Kurunegala District
77 Hiriyala Farmer
Company
Hiriyala Mr. W.M. Herath Banda,
Korakahawatta, Makulwewa
Tel:037/64463
78 Nikaweratiya Farmer
Company,
Agrarian Centre,
Nikaweratiya.
Nikaweratiya Mr. M. Kusalhami,
Walpolagama, Duvullagoda,
Nikaweratiya.
79 Polgahawela FC Polgahawela Mr. H. Alahakoon,
Polgahawela
Tel:037/33800
80 Ridibandiala FC,
Kurunegala Road,
Millagoda,
Nikaweratiya.
Tel:037-60475
Nidaweratiya Mr. H.M. Herath Banda
Ela Laga Niwasa, Heelogama,
Nikaweratiya
Tel:037/60077
81 Katugampala FC Katugampola Mr. Noor Muhammod,
Maharagama, Giriulla
82 Kuliyapitiya Janatha FC Kuliyapitiya Chairman, Kuliyapitiya FC,
Kuliyapitiya
202
No. National Level People
Company
Electorate Action Committee
83 Lanka Chille Producers'
& Sellers' Farmer Co.
Ltd.
Kalawewa
Tissamaharamaya
Monaragala
Gampala
Anuradhapura
(East)
Kalawewa
Kalawewa
Panduwasnuwara
Galgamuwa
Mr. Sirisena Dissanayake
Mr. Kusumsiri
Harihaswewa, Eppawala
Mr. J.R. Dissanayake Siripala
Kaliyawelana, Bandagiriya,
Hambantota
Mr. Ruwan Edirisinghe,
Govindupura, Kandauda
Pangura, Monaragala.
Mr. G.W.S. Premaratne,
"Sisira", Naranwita, Gampala
Mr. J.C. Denagama
Sisinikulama, Shrawastipura.
Mr. L.S.K. Mahanda Paladata
Moragoda, Talawa.
Mr. A.M. Amarasinghe
Ipalogama, Kakirawa Via
Mr. R. Dharmadasa
Polpitiya, Katupota.
Mr. B.M.U. Basnayake,
Kidapola, Kuda Galgamuwa
203
84 Lanka Onion Producers'
& Sellers' (Janatha)
Farmer Co. Ltd. Dambulla
Kalawewa
Bibila
Dambulla
Dambulla
Monaragala
Mr. K.P. Dassanayake
Arawwala Junction, Dambulla
Mr. Miltan Jayaweera
Galwaduwagama, Eppawala
Diyakombala, Bibila
Mr. S.A. Ranapala
Pattiwewa, Galewela
Mr. H.R.G. Karunaratne
Agrarian Centre, Galewela
Mr. P. Patirana
"Sumudu", Tanwatta,
Nakkala.
85 Lanka Potato Producers'
& Salers' (Janatha)
Farmer Co. Ltd.
Hanguranketa
Nuwara-Eliya
Nuwara-Eliya
Hanguranketa
Mr. L.B. Ratnayake
Galkudamulla, Elamulla
Mr. Jinadasa Ratnayake
Vijayabapura, Kandapola
Mr. H.G. Ayupala
107/2, Agarapatana Road,
Lindula
Mr. H. Dharmadasa,
204
Hanguranketa
Bandarawela
Badulla
Badulla
Uva Paranagama
Hewaheta
204/1, Gudwurd,
Mandaramnuwara
Mr. W.M. Seneviratne
334, Malsarapura,
Mandaramnuwara
Mr. Bandarabadanage
Atampitiya Road,
Bandarawela
Mr. D.K.M. Siriwardhana
Damunugaharawa,
Thewanakumbura
Mr. Karunatatne Basnayake
"Pragati", Kandepuhilpola
Mr. W.J. Weerasinghe
Godawela, Uvaparanagama
Mr. W.M. Samarakoon,
Mindegama, Deltota, Kandy
205
Appendix 2
206
Appendix 3
The Author’s Publications during the PhD Studies
1. Animal Husbandry Production and Management in Sri Lanka, Country paper present to
the International training program on Animal Husbandry Production and Management, The
Training Center of Hubei Agricultural Officials, Wuhan, P R China,
2. 斯里兰卡经济改革 农业公司在农业经济转型中的作用. 江汉论坛. 中国武汉,
2004
3. Small Holder Agriculture and Open Economic Policy, Economic Review, Peoples’ Bank,
Colombo, Sri Lanka, Volume 29, Nov/Dec 2003, Page 20-25.
4. Fruits and Vegetables, HARTI Agricultural Commodity Review,(Team member), HARTI,
Colombo, Sri Lanka, Series No.3, 2002, Page 47-73.
5. What is Ailing Farmer Companies of Sri Lanka in their Transformation into Successful
Business Entities? Overview of Policy Issues, A Paper Accepted to the Third International
Conference of the Japan Economic Policy Association, Meiji University, Tokyo, Japan, Nov.
2004.
207
Appendix 4
The Author Involvements of Research Projects and International Seminar/Training
during the PhD Studies
Research: Role of Farmer Companies on Commercialization of Small Holder Farming
Sector in Sri Lanka, Funded by HARTI in Sri Lanka.
Seminar/ Training
1. 2003 International Training Program on Animal Husbandry Production and Management
conducted for Agricultural Officials by the Training Center of Hubei Agricultural Officials,
Wuhan, P R China, Sep-Oct 2003.
2. 2004 International Training Program on Modern Agricultural Management conducted for
Agricultural Officials by the Training Center of Hubei Agricultural Officials, Wuhan, P R
China, June-July 2004.