Sri Lanka needs more protectionist agricultural policies: agri economist

Sri Lanka needs more protectionist agricultural policies: agri economist

lankabusinessonline.com
August 01, 2007 (LBO) – Sri Lanka needs a more protectionist trade policy to ensure vulnerable sections of society are protected from the negative effects of liberalization while enabling its advantages to be exploited, a top agricultural economist said.
"There must be proper timing of liberalization," Anura Herath, senior agricultural economist of the Ministry of Agriculture Development said Tuesday.
"We did it too drastically and too quickly."
Sri Lanka should have done more to protect vulnerable sectors of the economy, especially agriculture which is important, he told an international trade law conference organized by the Sri Lanka Law College.
Protection
He did not specify how protection could be increased.
Critics point out that Sri Lanka's agriculture is already protected. Tea imports are largely banned, there are excise duties against the import of rice, large onions and potatoes.
Both potatoes and onions were encouraged to be cultivated in Sri Lanka after 1977 and consumers are now forced to pay high prices as a result.
In the 1980's jungles were destroyed and new areas were brought under paddy cultivation. Sri Lankan farmers now over produce paddy, but production costs are so high that excess production cannot be exported.
Though wheat was subsidized as an election promise after 1994 severely pushing down the price of rice, and bankrupting millers as well as farmers, the subsidies have since been lifted.
Economists also point out that agriculture protectionism hurts plantation workers who are net food consumers.
Poverty is very high in estate areas and their wages have been severely undermined by high inflation caused by money printing to finance budget deficits.
The government also gives fertilizer subsidies to farmers. In the first five months of the year 6.6 billion rupees have been spent on fertilizer subsidies. The money for fertilizer subsidies themselves have been printed in some years, causing more inflation.
Bargaining Power
Farmers in Europe have much political clout which is reflected in the European Union's negotiating position at world trade talks even though agriculture's share of European economies is much less than in Sri Lanka Herath said.
In Sri Lanka, agriculture accounts for a much bigger share of the economy but its importance is not felt in trade talks, he said.
Agriculture exports are an important feature of the development process and the percentage of trade from agriculture accounts for one-third of trade in Sri Lanka, Herath said.
"It's not small. So we need to sustain, if not improve, it."
Rural areas also have 80 percent of the total population and also 80 percent of the poor. And one-third of the labour force is dependent on agriculture.
"So if we do not have congenial trade policies we'll have problems," Herath said.
"Any poverty alleviation programme should recognize the importance of trade policies, because of the importance of agriculture."
Herath also said there's a need to make liberalization "politically acceptable."
Revenue
The country has different patterns of protection to choose from in trade talks.
"We could go for uneven protection – for special products and for safeguards mechanism in special areas."
Liberalization such as lowering import tariffs also has serious implications on government revenue.
Import tax makes up for 12 percent of total government revenue and any liberalization has a reducing impact on such income, Herath said.
There should be income support for the poor and provision of 'shock absorbers' to protect vulnerable sections from the forces of free trade.
The country also should have adequate resources to implement safeguards that are available under world trade rules.
Not Beneficial?
The opening up of the economy in the late 1970s had not been as beneficial as expected, Herath said.
However others say the disappearance of the restrictions on transportation and consumption of rice in the form of the infamous 'harl poller' as well as the lifting of state mandated consumption of certain yams on certain days after 1977 had helped all citizens of the country.
Now cassava chips have become a popular snack, but before the liberalization of the economy rice consumption had to be banned on certain days to force citizens to consume yams.
The elimination of queues had also allowed improved labour productivity across the economy.
The tariff cuts made since then had made Sri Lanka the most liberal country in terms of tariffs in south Asia.
But expectations that increased openness would bring more imports, leading to a fall in prices, a shift of resources to export crops from food crops and lower cost of living had not happened, Herath said.
Instead, agricultural growth has been marginal.
"We not see a resource shift to export agriculture and food imports grew faster, expectations low CIF costs would be transmitted down to consumers did not take place. Most food prices have been rising and there's been no big improvement of export crops."
These developments had affected a lot of rural poor and poverty in rural areas had gone up.
"This has been the effect of trade liberalization on the rural sector," Herath said.
While developed world economists say protectionism is disadvantageous to the poor and opening up was good, a level playing field was required to achieve these benefits.
"To get the advantages of liberalization we need better access to technology, and opportunities in non-farm sector employment."
In Sri Lanka over 75 percent of investment in the non-farm sector had been in the western province with the balance spread over the rest of the country.
"We expected through liberalization a level playing field but statistics show inequality. There's no evidence of a level playing field. So hope of fair competition is only theoretical."
This was one of the main reasons for the repeated failure of Doha talks, Herath said.