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Research Agenda

 
Background

Considerable concern has been expressed in the last decade about the limited effectiveness of liberalization in revitalizing the rural economy. The peasant sector has stagnated and there is widespread impoverishment. In the plantation sector, rubber has steadily declined despite significant expansion of domestically processed rubber products in the early 1990s, and the newly re-privatized estates have had less effect on output than had been originally anticipated. Restructuring of the rural economy has, therefore, lagged behind achievements in other sectors, particularly in export manufacture and telecommunications. There has also been much debate about land reform (the switch to freehold peasant ownership), agribusiness-led models of export horticulture, cost recovery in irrigation, marketing policy, seed policy, fertilizer subsidies, import tariffs and many other issues. However, it has been extremely difficult in practice to inject any sustained growth.

Research Programme

The following themes were identified as the key areas for research over the next 2-3 years:

Diversification and Commercialization of Non-Plantation Agriculture in the Context of Rigidities in the Land Market

Rationale

Following the privatization of management in 1996, there has been a noticeable progress in the plantation sector (tea in particular), in terms of output, profitability, and employment. However, the performance of the subsistence agricultural sector over the years has been disappointing. Subsistence farming has become unprofitable and unviable resulting in considerable poverty in rural communities. One of the ways through which farmers could increase their income is by diversifying the crops they cultivate, particularly during the Yala season, from low-intensive, low profitable paddy to high-intensive, more profitable value added crops. Although some efforts have been made with the help of agribusiness firms (big-firm/small-farmer model) to encourage farmers to grow value added crops primarily for the export market and for the limited domestic market, these efforts have failed to produce satisfactory results. Diversification as a strategy failed mainly due to poor marketing and a lack of an impetus for commercialization (Dunham, 1992).

The success of crop diversification and commercialization programmes will depend, to a great extent, on the removal of rigidities in the land market, among many other constraints. Restrictions on land transfers in certain areas have prevented more entrepreneurial farmers from exercising economies of scale. A big farm size is essential for the commercialization of agriculture. Liberalizing land use and removing restrictions on sale and use of lands distributed under various land settlement schemes will establish a land market that functions well. The situation is further aggravated by the fact that the state owns 80 per cent of the country's lands (World Bank, 2001). This seems to be an appropriate time for liberalizing the sale and the use of farm lands in the peasant sector through another wave of land reform. A lesson can be learnt from countries like Indonesia and Thailand that have staged successful land reforms in peasant agriculture, a key element for achieving high growth and successful commercialization of agriculture.

Objective

The objective of this study is to have a closer look at the "big-firm/small-farmer" model of commercialization and diversification and its feasibility for success in the context of rigidities in the land market.

Economic Implications of the Proposed Irrigation Tax for Irrigated Agriculture

Rationale

A systematic water allocation policy in Sri Lanka does not exist to issue water rights to water users. Water can be taken from a surface or ground water source by a designated government agency, which is relegated with the responsibility of providing water for domestic, industrial, and irrigation use, or hydro-power generation. Many water development projects have been implemented by government agencies during the past few decades to meet the demand for water through self allocation mechanisms by following their own mandates (Wickramage, 2001).

The growing population in the urban and suburban areas has limited access to water because the potential water sources have already been used for irrigation and/or domestic water supply. The water allocation issues have always been critical, particularly in irrigation schemes that have often failed to supply the water needs of farmers adequately. As a result, a need has arisen to consider sharing this scarce resource through a more systematic way that will allocate it to all users in a fair and equitable manner. This allocation mechanism must also take into account the environmental and social aspects while trying to meet the increasing demand of the present and future users.

The Government has come under constant pressure from foreign aid donors, particularly the World Bank, that stress the point that "...generous subsidies for irrigation undermine the price incentives for farmers to shift to higher value added crops or to sell lands to more entrepreneurial farmers" (World Bank, 2000) who could expand their acreage in an attempt to enjoy economies of scale. These donor agencies insist the government that a tax be imposed on irrigation water, thus, treating it like another economic good.

As a response to these pressures, the Government is considering formulating a water allocation policy whose objective is "to promote the efficient use of water through secure and orderly allocation, equitable access to water by all users, preservation of water supply for environmental and social/cultural priorities and voluntary transfer to higher valued users" (Wickramage, 2001). Although the proposed water allocation policy in general and the proposed irrigation tax in particular are donor-driven, it shows considerable sensitivity to emerging water related economic, social, cultural, and environmental concerns in Sri Lanka.

Objectives

The proposed water allocation policy will seek to approach the problem within a multi-disciplinary, multi-sectoral framework. This study will assess the potential economic implications of the proposed tax on irrigation water for irrigated farming in Sri Lanka.

Impact of Globalization on Food Security in Sri Lanka

Rationale

An important element of globalization is the lowering of trade barriers among countries in the world. The objective of the Uruguay Round Agreement on Agriculture (URAA) was to liberalize the agricultural trade and secure market access to agricultural products of member countries. The degree of liberalization achieved under the URAA, however, has clearly been insufficient (Athukorale and Kelegama, 1996).

Some have argued that the URAA has failed to deliver much to the developing countries due to its discriminatory nature. They claim that developed countries have deliberately gone around the provisions of the agreement in order to continue their agricultural policies while denying considerable access to their markets for developing countries' agricultural products (Adhikari, 2000).

Developing countries also are concerned that the URAA could worsen their food insecurity problem in the future. This could particularly be true for countries in South Asia and Sub Sahara most of who are net importers of food. In Sri Lanka, there seems to exist an incongruity in the issue of food security between the macro-level and the micro-level. While there is a clear indication that the country is secure in food at the macro-level, there is no assurance that there is food security at the household-level (Kelegama, 2000).

Another area of concern is the Trade Related Intellectual Property Rights (TRIPS) agreement which was introduced into the URAA in 1986. Some have argued that the TRIPS agreement could have negative implications for the developing countries in general and the South Asian countries in particular. They claim that there exist potential conflicts between the TRIPS patenting regime and other agreements such as the Convention on Biological Diversity (CBD) (Sahai, 2000). While some argue that patenting rights on biodiversity must be removed from TRIPS agreement (Sahai, 2000), others argue that the TRIPS agreement is unfavourable for maintaining food security in developing countries (Kelegama, 2000).

Objectives

This study will examine the economic impacts of the trade liberalization on the food security in Sri Lanka in general. It will pay particular attention to the impacts of the TRIPS agreement on maintaining food security in the future.