Two main objectives of government intervention in agricultural marketing are to stabilize food prices and to ensure that farmers receive remunerative prices for their produce. Since early 1970s, successive governments in Sri Lanka have intervened in agricultural marketing by offering guaranteed prices to farmers for selected food crops. Although the guaranteed price scheme has been in operation for over three decades, it has failed to produce expected results for various reasons. As a market-based alternative to government intervention in agricultural marketing, the Central Bank of Sri Lanka introduced forward contracts under the Govi Sahanaya scheme in 1999. This paper examines the forward contract scheme and reviews its performance. Although it is still in its infancy, the Govi Sahanaya scheme has generated encouraging results. The paper recommends that this program be taken seriously by policy makers and be given state patronage to increase farmer participation.

by Ananda Weliwita and Roshen Epaarachchi