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Tuesday, May 17, 2022

Sri Lanka: fall in rice output and the economy

Production is down 14% in 2021-22, but the crisis Sri Lanka faces has more to do with the macro-economy than the organic-only policy, now revoked.

Written by Harish Damodaran | New Delhi |
Updated: April 12, 2022 7:55:51 am
Labourers load food items into a delivery lorry near a main market in Colombo, Sri Lanka. (Reuters Photo: Dinuka Liyanawatte, File)

Sri Lanka’s rice production has fallen 13.9% in 2021-22 (April-March) and average yield per hectare by 14.4%, even as imports have soared to a five-year-high.

To what extent is this crisis an outcome of the Gotabaya Rajapaksa government’s banning import of inorganic fertilisers and agro-chemicals on May 6, 2021, before its revocation over six months later on November 24?

Table 1 shows that Sri Lanka’s rice output dropped significantly to 2.92 million tonnes (mt) in 2021-22, from the previous year’s 3.39 mt. The US Department of Agriculture further estimated the island nation’s imports at 0.65 mt as a result of lower domestic production.

What’s interesting, though, is that the estimated production for 2021-22 is still higher than the 2-2.5 levels of 2016-17 and 2017-18, which were drought years. Sri Lanka’s rice imports in 2016-17, at 0.75 mt, were even higher than that estimated for the just ended year.

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Source: US Department of Agriculture

Manmade vs natural

So, have the effects of the recent “manmade disaster” — a forced overnight complete switching to organic farming and blanket ban on imports of chemical agricultural inputs — been not all that serious? Or, at least not as much as the natural disasters of 2016-17 and 2017-18, which also led to a massive shrinkage of the area planted under rice?

But it isn’t just rice, Sri Lanka’s largest cultivated crop. A similar conclusion may be drawn in respect of its No. 1 agricultural export item: Tea production in 2021 (at 299.34 million kg) was actually higher than in 2020 (278.49 million kg). Exports, too, grew 7.7% (see table 2). Even in value terms, the country’s tea exports in 2021, at $1,324.37 million, were more than the previous year’s $1,240.9 million.

Source: Tea Exporters Association Sri Lanka

In short, it might seem that the Rajapaksa government’s organic- only policy through executive fiat hasn’t produced an agriculture disaster of the sort projected by commentators. Sri Lanka’s crisis today has more to do with the macro-economy than the farm sector per see.

How the ban worked

R Ramakumar, professor of economics at the Tata Institute of Social Sciences in Mumbai, does not agree with this analysis. Sri Lanka, he points out, has two rice crops in a year. The first one – the ‘Yala’, equivalent to India’s kharif crop – is planted in May-June and harvested in November-December. The second – ‘Maha’ or rabi season paddy – is planted in November-December and harvested in March-April.

According to Ramakumar, the ban on import of synthetic fertilisers and crop protection chemicals, including insecticides and herbicides, took effect when plantings of the ‘Yala’ paddy had just started. Much of the imports of these chemical inputs for the season would already have taken place by then.

“The May 6, 2021 directive wouldn’t really have impacted the Yala paddy. The lack of chemical inputs has mainly hit the Maha season crop, whose yields have registered a 40-45% decline. The rescinding of the ban happened towards end-November, which was too late for Maha plantings,” he says. Roughly 60% of Sri Lanka’s annual rice production comes from the ‘Maha’ crop.

The same goes for tea, where the almost 21 million kg increase in production compared to 2020 took place largely during the first five months of 2021. “The last three months (October-December 2021 over October-December 2020), in fact, recorded 12 million kg lower production, due to which the country couldn’t achieve its target for 320 million kg for the year,” adds Ramakumar. The trend of lower production as well as exports has continued even in the first two months of the new calendar year.

Sri Lankans demanding president Gotabaya Rajapaksa resign over the debt-ridden country’s worst economic crisis protest outside the president’s office in Colombo, Sri Lanka. (AP Photo)

The pre-ban setting

That being said, it is also a fact that Sri Lanka’s current economic crisis predates the “manmade” agriculture disaster unleashed by the May 6, 2021 edict.

The country’s foreign currency reserves (including gold and money held with the International Monetary Fund) touched a high of $8,864.98 million on June 30, 2019. Even as of February 28, 2020 – before Covid-19 struck – the reserves were at $7,941.52 million.

But as earnings from tourism (from $3,606.9 million in 2019 to $506.9 million in 2021) and workers’ remittances ($6,717.2 million to $5,491.5 million) plummeted, the reserves, too, started depleting. They fell to $4,055.16 million in end-March 2021, $2,704.19 million in end-September and $1,588.37 million by end-November 2021. The latest end-February 2022 data from the Central Bank of Sri Lanka’s website shows the total official forex reserves at $2,311.25 million, which suffices for just over 1.3 months of imports.

It’s quite possible that the decision to ban imports of chemical agricultural inputs may have been as much a response to depleting reserves as the ruling regime’s commitment to organic agriculture. Fertiliser imports alone were valued at $258.94 million in 2020. Given the rising international prices, the import bill in the normal course would have gone up to $300-400 million in 2021. Banning/restricting imports may have been viewed as a means for conserving scarce foreign exchange.

It is another thing that the same knee-jerk policy has ended up hurting Sri Lanka’s tea exports and its having to import rice at a greater cost than fertilisers and crop protection chemicals.

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