Much attention has been paid in the recent past to the issue of continued erosion of profitability of paddy farming over the past several years. Increased cost of paddy production is considered the cause; however, it is not the only cause. Failure of the farm-gate price of paddy to keep up with the rising cost of production has also contributed to the problem of declining profitability of paddy production. It is essential to have a consistent tariff policy in order to secure a sustainable long-term growth in the sector. Ad-hoc changes in tariff rates, which were characteristic in the recent past, are not conducive to long-term growth. Such changes create great uncertainty in the market and scare away producers, traders, and potential investors. The forward sales contract scheme recently introduced by the Central Bank of Sri Lanka seems to be the only market-based alternative to state intervention in agricultural commodity marketing.
The objectives of this study were six fold. First, it provided a comprehensive review of agricultural policies and the regulatory environment in the non-plantation agricultural sector during the 1995-2000 period. Secondly, it discusses the problem and the role of state agencies in agricultural marketing. Thirdly, the study documents import tariff policies with regard to the non plantation agricultural sector during the 1995 – 2000 period. Fourth, it reviews various subsides granted to the sector in detail. Fifth, the study highlights incentives provided by the government and constraints to private sector investment in the non-plantation agricultural sector. Finally, it suggests some measures for improving the policy and regulatory environment with the aim of achieving a higher growth rate in the domestic agricultural sector.