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Wednesday, 21 October 2015 00:00 - - {{hitsCtrl.values.hits}}
By Lasantha Wickremesooriya
The agriculture sector remains the bedrock of Sri Lanka’s economy with around 77% of the population living in rural areas, depending on agriculture for their livelihoods. Currently the agriculture sector contributes 10.8 % of the Gross Domestic Product (GDP) and 30% of the employment.
A speedily and diminishing labour force in the agriculture sector, inconsistent weather patterns, fragmented land usage, cost of credit finance coupled with laggard farming practices is driving the productivity at low levels and simultaneously increasing costs. Whilst paddy production in the last decade has been increased, nearing self sufficiency, yet there are several other agricultural crops that Sri Lanka is unable to meet its demand and therefore imported, resulting in an outflow of foreign exchange.
Farmers blame the Government in their inability to obtain sound market prices for their produce. At the same time, the diminishing labour and its associated costs are driving farmers, particularly the 2nd generation, to move away from farming. Indeed a dangerous situation, considering the food security needs of the country going forward.
Mechanisation
In Sri Lanka, mechanisation has pervaded the industry, albeit slowly. Though mechanisation was pioneered as far back as 1952 with the introduction of the Massey Ferguson tractor, ‘Grey Fergie’ as it was then called; the usage was limited to a few large scale plantations and individual farmers until very recently. We now see a growth in this category from around 2000 or so, with more and more farmers adopting the usage of tractors for their farming activities. One major influence for this trend was the introduction of tractors from neighbouring India at lower costs compared to their European counterparts.
However, mechanisation does not start and stop with a Tractor! Mechanisation goes beyond a simple tractor. There are diverse machineries that are used in farming, commencing from land preparation, planting/seeding, crop maintenance, harvesting and post harvest handling. The benefits of mechanisation are immense. It helps farmers to increase productivity and reduce costs by (to name a few):
What ails the Sri Lankan industry?
With such obvious benefits, why then is it that the mechanisation of agriculture has been a laggard in Sri Lanka? One of the fundamental reasons has been associated costs. 99% of the purchase of machineries for agriculture by farmers is made via financing/leasing institutions. The contribution of banks, both state and private is insignificant. This is because of its long-drawn bureaucratic procedures that discourage the farmer from accessing these funds. In contrast, the private finance/leasing institutions do provide speedy solutions but at very high costs.
In most instances, the effective interest costs are around 18 to 24%. On top of this, in 2013, the then Government introduced VAT on tractors and implements for the first time in the history of this industry. This has added a severe burden to the farmer, with the added cost being transferred to the selling price. There was no rationale for the introduction of VAT for agricultural machinery and implements, other than for a politically motivated reason.
Take a look at India and China for example. In both of these countries, agri machinery is subsidised at the hand of the farmer. This is the case in most of Asian neighbours, such as Vietnam, Philippines etc. The subsidies range from 10% to 30%, and is done so to encourage farming as well as to improve the productivity and the profitability of the farmer. In Sri Lanka, we seem to be doing just the opposite. Discourage the farmer, discourage agriculture and then opt for importing (the easy way out) and then struggle to find the valuable foreign exchange needed to support the import.
I am not advocating the doling out of subsidies for mechanisation. Sri Lanka could ill afford to do so considering the size of its economy. However the Government can well afford to facilitate reduce costs of inputs by removing the added costs on agri machineries and implements.
The first and foremost would be to remove all taxes that are levied on the machineries and implements. The next step would be to introduce agricultural financing, at least through the state banks, in a manner that farmers can access them faster and with less red-tape. Combined, this could bring down existing costs by around18% to 20%, which is substantial for a farmer.
The future
Sri Lanka as a developing country will require labour saving and productivity improving technologies. With rural migration beginning to take place and with younger generation turning away from agriculture to more urban based employment opportunities, we are bound to face shortage of labour at critical times in the cropping calendar. Farming must be seen as an entrepreneurial activity. The farmer is an entrepreneur. He takes risks. Risks with natural phenomenon, risks with markets, risks with crop failures etc., and this is the nature of agriculture.
This is the very reason that the intervention of the state is required at critical times. State intervention in agriculture is prevalent in the most advanced economies too, such as USA, France, Japan, etc. Hence, Sri Lanka is no exception.
We must have a policy of supporting this ‘entrepreneurial farmer’, through which the country’s agriculture production and food security program will improve by leaps and bounds. The Department of Agriculture has taken an initiative to increase the usage of mechanisation through research, education and extension practices via its ‘Yaya 2’ program, which is commendable.
However, this alone is not sufficient, if the other impediments such as unfavourable taxes, high costs of financing are not addressed. By boosting agriculture productivity and production, the country will not only benefit from saving valuable foreign exchange, but will also contribute to reduced costs/increased consumption and socially contribute to healthy living. Establishing a vibrant and productive agriculture production base can also support the export sector, an opportunity that Sri Lanka can ill afford to ignore.
(The writer is a Chartered Marketer. He has been engaged in the Agri machinery industry for nearly 20 years, was the former Director-Agriculture at Browns group of companies and presently CEO of Agro Consolidated Ltd. He is a past Chairman of the Fruit and Vegetable Exporters Association, Past Chairman of SAPPTA and currently serves on the committee of AgMMA, the association representing the agricultural machinery manufacturers and importers in Sri Lanka.)
