Despite growth in the manufacturing sector since liberalization in the late 1970s, the agricultural sector remains an extremely important part of the Sri Lankan economy. Throughout the 1990s, plantation crops---- tea, rubber and coconut---- in terms of local value addition, remained the most important foreign exchange earner and the largest single employer in the country. At the same time, the non-plantation agriculture sector has remained an important source of rural incomes and employment. The primary focus of the Agricultural Economic Policy Unit of IPS is analyeing policy pertaining to the development of these sectors in the economy. In particular, the Unit's research programme focuses on issues of employment generation, export competitiveness, industrial and labour relations, environmental effects, and local skills development.

It has become clear that, in large part, the solution of rural problems lies outside agriculture---- in demand and commodity prices, in crop and subsequent downstream diversification, in life-styles, in non-farm employment (both abroad and in other sectors), and in the more general investment climate. The Agricultural Economic Policy Unit recognizes that a blinkered fixation with agricultural policy is unrealistic as it will be insufficient to increase investment and make significant inroads into rural poverty. There is, therefore, a natural link at the strategic level with other themes presented in the IPS research programme. Nevertheless, the point of entry for the Unit's research agenda is through rural concerns, looking first at peasant sector development and then at the plantation sector.