New Land Policy: Ideal alternate development strategy, but accompanying policies needed

The price the subsistence farmer gets from the market for his produce does not compensate him adequately and so most farmers are frequently in debt – Pic by Shehan Gunasekara

It is reported that the Government has prepared a law to grant freehold possession of farm land held under lease from the Government. This may be a revision of the Land Development Ordinance (LDO) of 1935. 

This article proposes to discuss the pros and cons of such a Land Policy and make suitable recommendations to alleviate rural poverty (on the basis of chapter 8 of my book ‘Export Competitiveness and Poverty Alleviation in South Asia,’ published by Godage, 2017). 

Present position

According to the World Bank, about 23.9% of the population of about 21 million people in the country earns less than $ 2 a day per person (2010); these are Sri Lanka’s poor; the same number for Malaysia which gained its independence a couple of years after SL was 2.27%; roughly eight out of 10 persons in rural areas are poor in SL, the rural population being about 16 million. Undernourishment and malnutrition are reported to be rampant among them.

Reason for rural poverty

The main reason for this serious situation could be low productivity in rural agriculture. In fact agricultural value addition per employee in SL was $ 2,636 as against $ 17,815 in Malaysia and $ 19,113 in South Korea, in 2017 (constant 2010), World Bank. 

In addition, the employment provided by agriculture is too high in SL: 25.5% of total employment according to the SLBC 2018, while it is 11% in Malaysia and 5% in South Korea in 2018 (World Bank), as industries and services have been developed to provide the bulk of the employment due to the limited availability of arable land; SL’s need to follow suit is greater for same reason. 

Restrictive tenure conditions

The bulk of land (over 80%) especially in rural areas is owned by the Government which has leased out (later most of it converted to grants) in small lots under the Land Development Ordinance (1935); the tenure conditions are so restrictive that holders find it difficult to improve the productivity of the land while incurring much expenditure especially for bribing officials to get over the red-tape. Since most of the lots are not owned, the farmers find it difficult to access bank loans and to invest. 

Fragmentation

Fragmentation of the land is so heavy that 45% of the lots were less than quarter-acre in extent (out of a total of 3.3 million land parcels, according to the Census of Agriculture, 2002. (It may be worse now; furthermore completely different persons other than the progeny of the original holders may be in possession of these lots due to illegal sale/lease of these lands). 

This is mostly subsistence farming and mixed cropping; this is one of the reasons for low value addition in rural agriculture; the use of machinery on small scattered irregular plots requires long journeys and therefore is costly. 

In addition, as small quantities are being produced, it is not feasible to undertake further processing and provide for exportation. As fragmentation of holdings becomes worse with each generation and incomes decline, the youth especially the educated leave the land in droves due to poor returns/low wages and migrate to the already crowded urban areas, or go abroad legally or illegally to work under harsh conditions, leaving the children and the elderly behind, creating a severe social problem. Thus, consolidation of the lots is essential for increasing output and reducing unit costs (or for improving productivity/value added per person) to improve incomes. 

Undeveloped value chain

The situation is further worsened by the fact that little attention is being paid to strengthening the value chain for agricultural produce that should consist of the supply of quality planting material, well-maintained irrigation works, warehouses, cold rooms for perishables , paved rural roads, marketing and research institutions, etc.; the research programs and extension services being undertaken appear to be ineffective in controlling disease , pest attacks, for increasing yields and for indicating the remunerative crops/products. 

Low and unstable rural incomes

Worse still, the price the subsistence farmer gets from the market for his produce does not compensate him adequately and so most farmers are frequently in debt; consumers too are affected unfavourably as the transporters/traders in particular demand high prices to compensate especially for high wastage (30-40%) in transit; heavy imports have to take place to make up for shortages, leading to a worsening of the trade balance. 

Agricultural prices also fluctuate because of weather conditions and natural disasters; incomes of farmers therefore do not remain stable. 

According to the Household Income and Expenditure Survey 2016, the average monthly income of a household (of about four persons) among the poorest 20% of households was Rs. 14,843 m and that of the richest 20% of households was Rs. 158,072; (also indicating the severe inequality of incomes in the country).

Other problems especially in the rural sector include severe droughts and floods due to climate change , soil erosion, pollution of underground water resources, land grabs plus widespread illicit felling of trees, sand/gravel mining in rain water catchment areas and encroachment of forestland by land hungry farmers, often aided and abetted by politicians, resulting in human animal/elephant conflicts, the land man ratio being high; the abuse of the natural environment has resulted in reducing the primary forest cover of SL to 2.6% of the total extent of land, (FAO 2010).

Current solutions create additional problems

The usual solution resorted to by the authorities has been to set up at central and provincial government level numerous ‘top-down,’ under-funded, poorly coordinated, inefficient and mostly corrupt public institutions to service the sector with underpaid and de-motivated officials; through these institutions Samurdhi payments and guaranteed prices at enormous expense have been thrown in indiscriminately; other subsidies like low priced fertiliser, planting material and disaster relief often get diverted, are of low quality and are not delivered on time. 

While this was happening “there was Government withdrawal from investment on productivity-enhancing activities (which generate non-farm employment), like research and extension services, and development of infrastructure including irrigation,” B.M. Sumanaratne, Public Expenditure Reforms and Rural Poverty in Sri Lanka, 2011.

 (According to him only 1.4 % of GDP was invested in agriculture and irrigation as of 2009; yes, our leaders tend to invest more in large projects generating bribes/ commissions and those such as coal plants that pollute the natural environment, leading to droughts and floods!)

Enhancement of productivity 

It should now be clear that nothing much has happened so far to improve the wellbeing of some 16 million people who depend directly or indirectly on rural agriculture. Why? One of the reasons could be the fact that the wellbeing of the farmer and consumer, was not uppermost in the minds of politicians who sought only short-term political gain.

The way out appears to be to find solutions particularly for improvement of the productivity of land and developing manufacturing, especially further processing of primary agricultural produce to create better paid employment opportunities for those leaving farming and to increase export earnings.  First it may be necessary to study the land reform movements adopted in Japan, Taiwan, Iran and particularly the Saemaul Undong Land Reform Movement adopted in South Korea successfully (report of the Asian Productivity Organization Seminar, 2003). 

One of the methods of improving productivity adopted in these countries has been to increase the size of the farms (as production increases costs are spread over a large area) mainly by consolidation of holdings. In these countries consolidation has been realised mainly by granting ownership of the land so that owners of the un-remunerative subsistence farms would be induced to sell their land mainly to the owners of the larger units enabling them to commercialise and run their businesses without leaning heavily on state assistance. 

Problems and solutions 

However, if freehold ownership of holdings were to be given in SL, the social and economic consequences have to be studied carefully. One of the problems that would be created would be the displacement of large numbers of subsistence farmers when they sell their holdings ; if they sell their lands to owners of larger holdings it would not create much of a problem as it would lead to the improvement of productivity . 

If the small farmers sell their land to outsiders, however, it might even lead to the breakup of the existing rural social fabric. 

The solution therefore may be for the State to purchase these lots and distribute these among the owners of the larger holdings as the objective is land consolidation. 

But this would not solve the problem of unemployment faced by the displaced landless persons; the Government has to come up with providing better paid jobs in manufacturing and service establishments as in the case of countries such as Japan, South Korea and Taiwan which undertook land reform. Is the Government ready with such a plan?

An alternative solution is the prohibition of selling the land and setting up of joint-stock companies of small farmers (or corporatisation), after preparing a Land Utilisation Plan (LUP) to identify the arable and non-arable lands, soils, water resources, weather patterns, problems faced by the farmers etc., in the different rural areas and re-plotting (locating the holdings in contiguous allotments) along with paved roads and other infrastructure to make mechanisation feasible. 

Farm consolidation 

Under such a setup, large scale cultivation of selected crops on the basis of the soils, climatic conditions, etc., that give the best returns for the farmer and are exportable after further processing could be undertaken as a single large unit; in such a case the farmer is in control of the management of production, processing as well as marketing and could recruit the skilled people required like any other commercial enterprise or handover the management to specialised companies. 

Urban/industrial clusters and infrastructure facilities

In addition each large-scale cropping area could accommodate a well located urban cluster/industrial area consisting of manufacturing and service oriented enterprises to absorb the excess employment and the landless in the area. The planning, policies, location and the provision of infrastructure facilities such as roads, water and electricity in the clusters and in the area around them is the responsibility of the state or the provincial authorities; the private sector could be incentivised to undertake the rest of the work such as setting up of the factories and the services required; businesses might readily do so when the primary inputs would be made available by the farmers on a large-scale.

Marketing 

Since marketing is an acute problem faced by farmers, the State has had to set up various support schemes like the Guaranteed Price Schemes all of which have failed to so far. But if the farms are converted to commercial concerns on the lines mentioned above, they may not need much support from the State for marketing. It may be noted that diversification of crops in the larger holdings may also help to ward off losses due to price fluctuations.

Benefits 

Large-scale operations like the consolidated versions of rural farming with urban clusters could contribute to increases in rural productivity. They will also generate additional investment and provide better paid jobs in manufacturing and services, which could discourage people especially women from going abroad for menial employment.Such large operations would also enable an increase in food production at lower prices that could reduce hunger, malnutrition, anaemia and sickness among rural people, while increasing the incomes of rural populations and protecting the precious natural environment; more earnings could be made from exporting the surpluses. Higher rural incomes would increase the demand for various industrial goods and services from the rest of the country and speed up economic growth in the entire economy. 

This then is a dynamic model of development that could complement the slower, less dynamic ‘trickle down’ process often resorted to currently and lead to the greater benefit of the entire country.

Conclusion 

It has been a long disastrous journey with subsistence farming and heavy protection where rural agricultural policies and operations in SL are concerned; therefore the new Land Policy to replace the LDO (1935) is timely. However , other policies and programs mentioned above required to improve agricultural productivity with the primary goal of enhancing the wellbeing of the farmers and the consumers should also be formulated and implemented; this should apply to the tea and rubber plantations as well; then these could be followed up with other human development programs relating to education, health, etc., with clear objectives to usher in higher real (inflation adjusted) incomes , alleviation of poverty and reduction of inequality of incomes. It has to be mentioned with emphasis that such multi-faceted programs need careful planning and frequent evaluation after implementation to ensure realisation of the desired objectives; a single purpose Land Reform Policy, ignoring connected facets, only to give ownership of farm land, might create chaos in rural areas.

(The writer is a Development Economist.)