Growth, Vulnerability and Poverty Nexus: The Case of Sri Lanka and its Crop Sectors Market Development Facility – Sri Lanka
February, 2017 Mohammad Muaz Jalil
Table of Contents Executive Summary ................................................................................................................................. iv Background .............................................................................................................................................. 1 Research Design ....................................................................................................................................... 1 Growth dynamics in Sri Lanka .................................................................................................................. 2 Poverty and vulnerability dynamics ......................................................................................................... 9 Vulnerability and Poverty in Agriculture ................................................................................................ 12 Strategic Implications ............................................................................................................................. 13 Improving farm competitiveness ........................................................................................................... 15 Proposed MDF approach and strategy .................................................................................................. 25 Conclusion .............................................................................................................................................. 30 ANNEX 1 ................................................................................................................................................. 31 ANNEX 2 ................................................................................................................................................. 35 ANNEX 3 ................................................................................................................................................. 39
List of Tables Table 1: Mean HH expenditure & income (HIES – 2012-13).................................................................... 3 Table 2: Comparing indebtedness, 2006-07 & 2012-13 .......................................................................... 3 Table 3: Commercial Banks in Sri Lanka ................................................................................................... 5 Table 4: Poverty headcount by category ............................................................................................... 10 Table 6: Growth Inequality and Vulnerability ........................................................................................ 11 Table 7 : Impact of Cultivating Specific Crops During Maha Season ..................................................... 19 Table 8: Impact of Cultivating Specific Crops During Yala Season ......................................................... 21 Table 9: Cropping Pattern and Poverty Impact...................................................................................... 23 Table 10: Production Cost ...................................................................................................................... 24 Table 11: Maha 2013-14 Paddy ............................................................................................................. 36 Table 12: Yala 2013-14 Paddy ................................................................................................................ 36 Table 13: Maha2013-14 OFC ................................................................................................................. 37 Table 14 : Yala 2013-14 OFC .................................................................................................................. 38 Table 15: Monthly Per Capita Poverty and Vulnerability Cut-off Income ............................................. 40
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List of Figures Figure 1 : Research design........................................................................................................................ 2 Figure 2 : Source of credit ........................................................................................................................ 5 Figure 3: Can GDP growth be sustained? ................................................................................................. 8 Figure 4 : Agricultural poverty trap ........................................................................................................ 12 Figure 5 : Criteria for selecting sectors in market system programme ................................................. 13 Figure 6: Steps in developing crop profitability and impact on poverty ............................................... 18
List of Boxes Box 1 : Financial fragility and excess liquidity? ........................................................................................ 7 Box 2 : Goyigama, social hierarchy and paddy farming ......................................................................... 16 Box 3 : Importance of social capital in risk mitgation ............................................................................ 26
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Abbreviations and Acronyms MDF
Market Development Facility
HIES
Household Income Expenditure Survey
GDP
Gross Domestic Product
FDI
Foreign Direct Investment
PPP
Purchasing Power Parity
ICT
Information and Communication Technology
LCDZ
Low Country Dry Zone
LCIZ
Low Country Intermediate Zone
UCWZ
Up Country Wet Zone
MCWZ
Mid Country Wet Zone
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Executive Summary This research, commissioned by MDF Sri Lanka, tries broadly to understand the poverty dynamics in Sri Lanka and, more specifically, explores the possible link between cropping patterns and agricultural poverty. The study uses a systematic review of the existing literature followed by the evidence synthesis technique, which combines multiple sources of quantitative evidence drawn from studies such as HIES 2013, Labour Force Survey 2012 and Agriculture Census 2002 to estimate farm competitiveness and crop profitability; further, a field study was conducted to validate the findings of the secondary and desk research. At a macro level, the study finds that even though Sri Lanka has a high annual average growth rate, when GDP is decomposed into its constituents, there appear to be some critical, worrying trends. The figure below breaks down GDP (Y) into its constituent elements – i.e. consumption (C), investment (I), government spending (G) and net exports (X – M):
Given the fragility of Sri Lanka’s economic growth, it is important to assess the depth of the country’s poverty, focusing on vulnerability and whether exogenous shocks affect poverty incidence. We note that while the average level of poverty is 6.7% (2012-13), this can be disaggregated as follows: of 9 provinces, 3 provinces (over 30%) have double-digit poverty levels; among 25 districts, 7 districts have poverty incidence over 10%, of which 3 are over 20%. Over 2012-13, 32% of the population lived below the USD 2.5-a-day (2005 PPP) poverty line, while the bottom 40% lived below the USD 2.79-a-day (2005 PPP) mark. Sri Lanka also has substantial inequality, making its growth figure one of the least pro-poor in South Asia. Even with a nearly three-fold increase in per capita income over 2005-13, vulnerable employment and inequality have either remained stable or increased; the case is significantly worse for agriculture, in which 65% is vulnerable (over 1.6 million people), i.e. self-employed or engaged in unpaid family labour, while 85% is employed in the informal sector. Hence, a sizable population in Sri Lanka, especially in agriculture, is vulnerable, hovering just above the extreme poverty line. This is exacerbated by the fact that economic growth is fragile and may not be sustainable (as discussed), and hence a sudden shock (an international event or a financial crisis on the national level) could undo recent progress towards poverty alleviation. People working in agriculture,
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with a high percentage of informal and vulnerable employment, are even more susceptible to exogenous shocks. The schematic diagram below shows how agriculture has been particularly affected by public-debt-driven economic growth: The field investigation yielded anecdotal evidence validating the premise that Sri Lanka’s postconflict boom in construction (roads and buildings) shifted labour from agriculture to construction. As a result, smallholder famers are trapped in a vicious low-level equilibrium in which low productivity, coupled with increasing wages, reduces profitability and income, while rising food prices raise household expenditure. Given the macroeconomic fragility, the study finds that MDF needs a two-pronged strategy: I) Target sectors with growth potential that can bring in export earnings and diversify exports (ICT and tourism); and II) Target sectors with strong pro-poor potential (agriculture). MDF Sri Lanka should, therefore, also focus on domestic agriculture – agricultural productivity and farm competitiveness must increase soon to prevent farmers from falling into a poverty trap. In order to understand farm competitiveness, stylized cropping patterns and their profitability were developed. Cultivating paddy in both the local seasons (Yala and Maha) is one of the least profitable options but is also widely prevalent; cultivating chili and brinjal, or onion and brinjal, in two seasons can significantly enhance profitability, while the addition of gourd/brinjal to an existing paddy cropping pattern, or the cultivation of onion and brinjal along with an existing paddy cultivation can be highly profitable. In addition to improved cropping patterns, MDF can also promote irrigation pumps to help farmers cultivate cash crops during the Yala season. The paper also discusses how homestead gardening of selected cash crops, or even banana, can provide significant additional income to the household. In conclusion, the paper discusses certain cultural and social factors, particularly relating to social status, which could aid in designing and deploying sustainable pro-poor interventions.
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Background1 Market Development Facility (MDF) is Australia’s flagship private sector development programme. It is a multi-country programme currently operating in Fiji, Timor-Leste and Pakistan. Operations in Sri Lanka and Papua New Guinea started in mid-2015. The project stimulates investment, business innovation and regulatory reform to create additional jobs and increase income for poor women and men in rural and urban areas in the Indo-Pacific region2. This research, commissioned by MDF Sri Lanka, tries broadly to understand the poverty dynamics in Sri Lanka and, more specifically, explores the potential link between cropping pattern and agricultural poverty – whether following suitable a cropping pattern/crops can help poor farmers in Sri Lanka progress out of poverty. Through this study, MDF wishes to strengthen its understanding of the poverty dynamics within the agriculture sector via a more in-depth look at trends relating to specific crops. For example, of the crops and cropping patterns selected for analysis, which appear to be yielding higher returns and why? Do some production areas appear to be doing better than others, and what appear to be the reasons for this? Can these lead to recommendations as to which cropping patterns MDF should be helping to facilitate as potential pathways out of poverty? These questions form the focus of the study.
Research Design3 The study uses a systematic review of the existing literature, focusing particularly on poverty- and agriculture-related studies conducted by MDF, the Sri Lankan government, Sri Lankan academia and
The author wishes to thank Mr. Vijayalaya Karunanithy, Business Adviser MDF, who accompanied the author and conducted numerous interviews during the validation field visit. His invaluable comments, insight and participation in discussions were significant to the development of the paper. The author also wishes to thank Mr. Hashim Nazahim, Business Adviser MDF, who assisted the author in collecting some of the key research documents from different government departments and research institutions 1
2 3
Further information can be found on the website: http://marketdevelopmentfacility.org/ The annex provides the list of primary documents and the structure of the research design/method in detail.
multilateral organizations such as the World Bank and FAO. This sets the context and identifies the key issues facing the Sri Lankan economy in general and agriculture in particular. The study then uses the evidence synthesis technique, which combines multiple sources of quantitative evidence drawn from studies such as HIES 2013, Labour Force Survey 2012, Agriculture Census 2002 and Cost of Cultivation 2013-14 (SEPC, Peradeniya University) to formulate its primary conclusions pertaining to farm competitiveness and crop profitability. A field study was conducted to validate the findings of the secondary and desk research. Initially, MDF was to select the crops, regions and cropping patterns it wished to analyse and prepare the relevant data sets available for analysis. While crop-specific profitability and costing data was available, extensive desk research followed by visits to the Ministry of Agriculture and Department of Census and Statistics confirmed that Sri Lanka did not have a cropping pattern database. In view of this, the following research design was developed for the agro competitiveness component, through discussion with the MDF Sri Lanka team (Figure 1): Figure 1 : Research design
The next sections look at Sri Lanka’s overall macroeconomic situation in an attempt to identify crucial constraints in the economy and the general trend in/the dynamics of poverty and vulnerability.
Growth Dynamics in Sri Lanka At the outset, it must be acknowledged that over the years since the end of two decade of civil war in 2009, Sri Lanka has experienced strong economic growth and an equally praise-worthy reduction in
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extreme poverty. GDP per capita has increased nearly four-fold from $875 (2000) to $3,610 (2013) and poverty incidence (headcount) has decreased by over three-fold from 22% (2002) to 6.7% (2013)4. Sustained economic, or GDP, growth is a necessary condition for poverty reduction, and so it seems Sri Lanka is on the right trajectory. However, if GDP is decomposed into its constituents, there seem to be some critical, worrying trends. GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M); the equation below shows GDP in time t. đ?‘Œđ?‘Ą = đ??śđ?‘Ą + đ??źđ?‘Ą + đ??şđ?‘Ą + (đ?‘‹đ?‘Ą − đ?‘€đ?‘Ą ) The first thing to note is that GDP growth has been broadly triggered by extensive government spending, which is to be expected in a post-conflict situation in which rebuilding is a major focus area. The worrying trend is that this expansion has been largely financed by public debt rather than tax revenue or investment6. The public-debt-to-GDP ratio stands at a staggering 75.5% (2014) 7 . Again, in theory this can be sustained provided it is creating a basis for FDI or investment, which can take over once government spending is curtailed (which has to happen sooner than later). However, the
Decile Group 1 2 3 4 5
Mean HH Mean HH Expenditure per Income per month (Rs) month (Rs) 16,287 22,290 24,262 28,225 32,228
6,700 13,790 18,963 23,588 28,292
% -143% -62% -28% -20% -14%
Table 2: Mean HH expenditure & Income (HIES – 2012-13)
Categories Not in Debt Less than 10000 10001-25000 25001-50000 50001-100000 100001-500000 More than 500000
2006-07 HIES 39% 18% 12% 11% 9% 10% 3%
2012-13 HIES5 34.2% 8.7% 7.2% 9.0% 10.8% 22.3% 7.8%
Table 1: Comparing Indebtedness, 2006-07 & 2012-13
World Bank. (2016). World Development Indicators 2016. Washington, DC. Š World Bank For 2013, the estimates are based on the author’s calculation. For the estimate HIES 2012-13, a database was used (Data-SEC_6_B) 6 World Bank (2015). Ending poverty and promoting shared prosperity: A Systematic Country Diagnostic. Washington, DC. Š World Bank 7 Ibid. 4 5
evidence shows that FDI is at 2% of GDP, far lower than comparable middle income countries8. Now, if we look at private consumption, we see that much of it is also sustained by private loans.
According to HIES 2012-13, the percentage of indebted households is 66%; for the bottom 50% of households, mean expenditure exceeds mean income by a double-digit percentage (Table 1), with estimates showing this as 86% for Northern districts9. Worst of all, the expenditure has been mostly on non-productive investments. Table 2 compares private debt dynamics between 2006 and 2013: the average loan per household is Rs 258,000/annum. What is obvious from Table 2 is that private debt has increased between 2006 and 2013. Whereas previously only 13% of the total population held debt above Rs 100,000, this figure is currently nearly 30%. In fact, people who have taken loans above Rs 100,000 form the largest portion (45.74%) of the indebted population. The percentage of households with no debt has also declined by a few percentage points. Figure 2 shows the sources of credit for households.
8
Ibid
9
Romeshun, K., Gunasekara, V., & Munas, M. (2014). Life and Debt: Assessing Indebtedness and Socio-Economic Conditions of Conflict Affected Housing Beneficiaries in Jaffna, Kilinochchi and Mullaitivu Districts. Centre for Poverty Analysis (CEPA). Study Series, (7-2014).
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Figure 2 : Source of credit
As can be seen in Figure 2, banks both private and government, along with pawning shops, form the largest source of credit. Retail outlets also offer sizable credit facilities (24% of the whole). Since individuals usually take multiple loans, the total percentage does not add up to 100. If we consider formal financial institutions or service providers to include banks and leasing companies, nearly 53% of people source credit from these institutions. This is significant penetration by financial services providers. In this context, Table 3 looks at the growth and dynamics of licensed commercial banks in Sri Lanka, taking 2010 as the base year (just after the conclusion of the civil war). Table 3: Commercial Banks in Sri Lanka10
No of Private Banks No of Branches
Bank Market Penetration 2010 2016 Q1 31 32 2,365 2,937 Bank Performance
Based on statistics from Central Bank of Sri Lanka: Retrieved from: http://www.cbsl.gov.lk/htm/english/08_stat/s_6.html 10
Change â–ł% 3.20 24.19
Credit to Deposit Ratio11 in % Return on Equity (ROE) in % Return on Assets (ROA) Before Tax in %
81.92 20.83
93.13 13.58
13.67 -34.79
2.54
1.66
-34.63
Since 2010, banks have seen significant market penetration; over 570 branches came into existence in just over five years, although in terms of new banks, four new ones were established but three were closed down. In bank performance, there is a worrying trend: both return on equity and return on assets have declined by over 34%, whereas the credit-to-deposit ratio12 increased from nearly 82% in 2010 to over 93% in the first quarter of 2016. To lend some context, at the top-5 banks in the US, the credit-to-deposit ratio in 2014 (Q2) was 74.4%. 13 Therefore, not only is private consumption being sustained by increasing private debt, but also it seems the banks are expanding too fast.
The credit-to-deposit ratio is a statistic used to assess a bank's liquidity by dividing the bank's total loans by its total deposits. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements; Read more: Loan-To-Deposit Ratio - LTD http://www.investopedia.com/terms/l/loan-to-depositratio.asp#ixzz4Jm057JFJ 12 Ibid 11
Typically for well-established international banks, 80-90% is still tolerable, but for local commercial banks operating in a post-conflict, fragile economy, more prudence may be warranted. Source: http://www.forbes.com/sites/greatspeculations/2014/09/25/a-look-at-loan-to-deposit-ratios-at-the-countryslargest-banks/#391641ef7bc1 13
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Box 1 : Financial Fragility and Excess Liquidity?
â€œâ€Śin periods of economic euphoria the quantity of debt increases because the lenders and investors become less risk-averse and more willing—or less unwilling—to make loans that had previously deemed too risky.â€? page 73, Manias, Panics, and Crashes: A History of Financial Crises Fifth Edition, Charles P. Kindleberger and Robert Z. Aliber (2005)
An increased number of banks means an increase in the supply of credit, i.e. excess liquidity leads to excess loanable funds, which in turn leads to higher credit supply and, therefore, indebtedness. Unfortunately, sooner or later there is a shift towards more realistic expectations and then there is a bust, or a financial crisis. Because the Sri Lankan economy is growing fast, banks might be taking this growth as a signal to expand and lend funds, maybe over-optimistically.
There is also significant government borrowing from private commercial banks. The result is that both private and public debt are increasing unsustainably. Further evidence suggests that most private investment is in non-productive consumable items or assets that focus on establishing social status rather than generating economic gains14 15. In summary, based on the discussion above, it is clear that the đ??śđ?‘Ą + đ??źđ?‘Ą + đ??şđ?‘Ą component of GDP is inadequate and unsustainable in the long run. Therefore, net exports (đ?‘‹đ?‘Ą − đ?‘€đ?‘Ą ) seem to be the only way out. Unfortunately, the top-four segments contributing 50% to total GDP growth đ?‘Œđ?‘Ą over 2009-14 were all in non-tradable sectors: construction, transport, finance, etc.16 Furthermore, Sri Lanka’s imports (đ?‘€đ?‘Ą ) are much higher than its export (đ?‘‹đ?‘Ą ), and this negative trade balance is sustained, mainly, by inward remittances from migrant Sri Lankan workers. However, the majority of these migrant
Widger, T. (2009). Self-harm and self-inflicted death amongst Sinhalese Buddhists in Sri Lanka: an ethnographic study (Doctoral dissertation, London School of Economics and Political Science (University of London)). 15 Romeshun, K., Gunasekara, V., & Munas, M. (2014). Life and Debt: Assessing Indebtedness and Socio-Economic Conditions of Conflict Affected Housing Beneficiaries in Jaffna, Kilinochchi and Mullaitivu Districts. Centre for Poverty Analysis (CEPA). Study Series, (7-2014). 14
Bank (2015). Ending poverty and promoting shared prosperity: A Systematic Country Diagnostic. Washington, DC. Š World Bank 16World
workers go to the Middle East, which is currently facing growing political instability. The Middle East accounts for more than 94 %17 of Sri Lankan labour migrants and around 55% of total remittances18. Therefore, there has not been a substantial transformation in the economy that can result in a sustained and robust export-oriented growth strategy, given that the remittances which seem to be the ‘lifeblood’ of the current negative trade balance are dependent on the increasingly unstable Middle East. Figure 3 encapsulates the findings, showing the GDP equation with the key issues that have been discussed so far. Figure 3: Can GDP Growth Be Sustained?
Therefore, it is clear that behind Sri Lanka’s impressive growth lies a more troubling picture, with the implication that the economy is vulnerable and its foundations weak. An exogenous shock could bring back extreme poverty and increase vulnerability. This is what we focus on next.
17
Siriwardhane, D., De Silva, I., & Amaratunge, S. (2014). Sri Lanka–Middle East Labour Migration Corridor: Trends, Patterns and Structural Changes. World Academy of Science, Engineering and Technology, International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 8(12), 3831-3834. 18 Central Bank of Sri Lanka (2015). Economic and social statistics of Sri Lanka 2015. Sri Lanka
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Poverty and Vulnerability Dynamics As previously stated, Sri Lanka has made significant progress in reducing extreme poverty, which currently stands at a little over 6% (Q1 2016), much lower than the 22% in early-2000. Therefore, there is no doubt that, on average, poverty has diminished significantly over the past decade. However, given that the country’s economic growth is based on a weak foundation, it is critical to look at the distribution pattern and depth of poverty, focusing on vulnerability. The pertinent question is whether, if things continue as they are and there is an exogenous shock, people would fall back into poverty. Although Sri Lanka’s average poverty headcount is 6.7% (2012-13), this does not take spatial heterogeneity into account. Of 9 provinces, 3 (over 30%) have double-digit poverty incidence; among 25 districts, 7 have poverty incidence of over 10%, of which 3 have an incidence of over 20%19. Therefore, even by governmental national poverty lines there are sizable pockets of extreme poverty. Economic growth is also relatively less pro-poor: a 1% increase in per capita GDP reduced the USD1.25a-day (2005 PPP) poverty rate only by 0.2 percentage points, while a similar increase in other South Asian countries led to a 0.7 percentage point decline20. According to one estimate, 32% of the population lived below the USD2.5-a-day (2005 PPP) poverty line in 2012-13, and for the bottom 40% of the population the consumption threshold is below USD2.79 a day (2005 PPP)21. The World Bank defines the bottom 40% as the “vulnerable population”, i.e. the population that is nearly poor and is vulnerable to adverse shocks. This is obvious as only increasing the poverty line from USD1.25 to USD2.79 a day increases the population under the threshold by six-fold from 6.7% to 40%. Table 4 shows the different categories of the poor in Sri Lanka:
Department of Census and Statistics (2015). Poverty Indicators Household Income and Expenditure Survey - 2012/13. Ministry of Policy Planning Economic Affairs, Child Youth and Cultural Affairs Sri Lanka 20 World Bank (2015). Ending poverty and promoting shared prosperity: A Systematic Country Diagnostic. Washington, DC. © World Bank 21 Ibid 19
Table 4: Poverty headcount by category 22
Category Extreme Poor Poor Vulnerable Not Vulnerable
1 2 3 4
Per Month in Rs /capita Above Below 0 3624 3624 6058 6058 6765 6765
Per day in USD (2005 PPP) Above Below 0 1.5 1.5 2.5 2.5 2.79 2.79
Headcount % 6.7 32 40 60
Another worrying trend is high income inequality. The bottom 40%, the vulnerable group, accounted for only 13.2% of income in 2006-07, and the latest estimates show this at 13.7%23. This implies that the relative position of a different decile group, at least at the bottom, has not shifted. According to the latest Labour Force Survey (2012), 85% of employment in agriculture is informal (61% overall), i.e. over 2.1 million individuals. Similarly, in agriculture 65% of people are vulnerable (over 1.6 million), i.e. they are self-employed or engaged in unpaid family labour; the figure is around 40% for the overall labour force, equating to over 3.2 million people 24. Even with a nearly three-fold per capita income increase (2005-13), vulnerable employment and inequality have either remained stable or increased; the case is significantly worse for agriculture, which still accounts for 30% of the labour force but contributes less than 10% of GDP 25:
Ibid Based on Household Income Expenditure Survey 2006-07 and 2012-13 24 Vulnerable employment is unpaid family workers and own-account workers as a percentage of total employment (World Development Indicator, World Bank). 25 Central Bank of Sri Lanka (2015). Economic and social statistics of Sri Lanka 2015. Sri Lanka 22 23
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Table 5: Growth Inequality and Vulnerability 26
Year
Per Capita GDP (in USD)
Gini
Vulnerable Employment in %
2005
1260
0.47
37.6
2010
2820
0.49
41.9
2013
3610
0.48
43.1
Hence a sizable population in Sri Lanka is vulnerable, hovering just above the extreme poverty line. This in itself would not have been an issue if the economy’s trajectory were upward and stable; unfortunately, economic growth might not be continuously robust or sustainable (as discussed previously). Thus there should be legitimate concerns about whether a sudden shock could undo the recent progress made towards poverty alleviation. Further, we see that in agriculture, the proportion of informal and vulnerable employment is among the highest. Therefore, it is very likely that people engaging in agriculture are likely to be even more vulnerable to exogenous shocks and, hence, should be given priority. This is explored further in the next section.
26
World Bank. (2016). World Development Indicators 2016. Washington, DC. Š World Bank
Vulnerability and Poverty in Agriculture Based on the discussion above, it appears that Sri Lankan economic prosperity is not trickling down to the poor. The discussion also suggests that farmers, especially small-holders, are being left behind. It is known that the effects of fragile economic growth and the skewed structure of the economy permeate both farm and non-farm sectors. Therefore, the focus should be on improving the competitiveness of both farm and non-farm sectors. The schematic diagram in Figure 4 shows how agriculture has been especially affected by public-debt-driven economic growth: Figure 4 : Agricultural Poverty Trap
This simplified schematic diagram shows how government spending helped increased wage income in both the construction and agriculture sectors. The field investigation provided anecdotal evidence validating the premise that the post-conflict boom in construction (roads and buildings) shifted labour from agriculture to construction. Reduced supply of agricultural labour and increased demand in construction led first to higher wages in non-farm and then spilled over to agriculture. This helped reduce poverty but also increased food prices, as the bulk of a wage earner’s income goes towards
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purchasing food. Simultaneously, international food prices rose, also contributing to an increase in local food prices. Therefore, small-holder famers are trapped in a vicious low-level equilibrium in which their low productivity, coupled with increasing wages, reduces their profitability and income, while rising food prices increase their household expenditure.
Strategic Implications Based on this discussion about the dynamics of the Sri Lankan economy, what are the key implications for MDF? In a typical M4P, or market systems development, programme, three important factors are considered: I) Growth potential; II) Feasibility of interventions; and most importantly III) Pro-poor potential. Figure 5 : Criteria for Selecting Sectors in Market System Programme 27
Typically, it is preferred that sectors with all three attributes are chosen, but this might not be possible in the case of MDF Sri Lanka. Given the fragility of Sri Lanka’s economic growth, increasing private and public sector debt, low FDI and narrow export base, it is imperative that a more sustainable and diversified source of exports and foreign earnings is promoted. Otherwise, the overall economy may in the long run stagnate or, worse, decline. As such, focusing only on sectors with high poverty
27
DFID (2013). Katalyst Phase 3 Business Case. DFID UK
incidence (such as agriculture) will not suffice, as then the overall impact may not be sustainable if the economy as a whole starts to contract. In view of this, there needs to be a two-pronged strategy: I.
Target sectors with growth potential that can bring in export earnings and diversify exports
II.
Target sectors with strong pro-poor potential so that the benefits of economic growth percolate to the bottom deciles, to include the vulnerable and the poor
This does not imply that there will be no overlap between the pro-growth and pro-poor sectors (although they may require different interventions) but, importantly, both have to be targeted. Only having pro-poor interventions will not be sustainable; pro-growth interventions are a pre-condition. The current MDF portfolio already includes pro-growth sectors such as ICT and tourism, which can diversify the export base and bring in much-needed foreign earnings. ICT can also act as a cross-cutting service market to promote pro-poor growth by creating much-needed access to information for poor farmers and others. Similarly, tourism can benefit the poor not only by increasing the number of tourists (increasing breadth), but also by making it more pro-poor (increasing depth), such as by linking them to local small entrepreneurs and farmers (for food sources). MDF should also focus on domestic agriculture, in which there is a high persistence of poverty. Agricultural productivity and farm competitiveness must increase soon, as most farmers may otherwise get stuck in a poverty trap as their costs rise and incomes fall; rising food price volatility make both smallholder farmers and poor consumers increasingly vulnerable to poverty 28. Apart from the poverty dimension, there is another reason to transform agriculture into a more productive sector. Long-run global projections already show that international food prices continuing to rise due to everincreasing demand from growing developing economies29. Therefore, Sri Lanka should not be in a position in which, because its domestic agriculture sector is weak, it has to import a significant amount of food at a higher price, worsening its already negative trade balance. Furthermore, if economic
28 29
FAO, I. WFP (2013). The state of food insecurity in the world 2013. The multiple dimensions of food security. Ibid
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growth is sustained and poverty falls, local food demand will also continue to rise. Therefore, unless farm competitiveness is increased soon, increasing demand for food will not only increase food prices (resulting in food and general inflation), but also, as mentioned before, disproportionately affect already vulnerable farmers and poor households. Hence, MDF should focus on improving farmers’ competitiveness and increasing their productivity in domestic agriculture, which is the focus of the next section.
Improving Farm Competitiveness To understand how farm competitiveness can be enhanced, it is important to note that from a propoor growth perspective, there are substantial profitability differences between crops. The profitability of a crop like vegetables, chili and onion is much higher per acre than that of major cereal crops like paddy, which constitute the bulk of agricultural production. In addition to the crop, the type of cultivation, whether irrigation-based or rain-fed, matters. Obviously, climatic and soil conditions are important and so not all crops can be grown everywhere; for instance, potato (although very profitable) requires cooler climates and, therefore, can not be grown in regions like Jaffna or the other Northern districts. Most farmers grow more than one crop, and normally he/she cannot grow the same crop year round – regardless of profitability – due to climate factors, the height of the land (low country vs high country), soil conditions (for instance, chili and maize can be grown in sandy soil, but vegetables usually cannot), the season (Maha vs Yala) and because irrigation is not always available (the wet zone can use rain-fed cultivation but in the dry zone, irrigation is required). This results in cropping patterns which reflect the farmers’ strategy in dealing with these limiting factors while balancing food security strategies with the need to earn money. Cropping patterns, in other words, are critical to understanding rural poverty and pro-poor growth opportunities. Given the difference in climatic and soil conditions, it is expected that the dominant cropping pattern will differ among regions.
Unfortunately, as previously noted, Sri Lanka does not have a cropping pattern database; the last agricultural census was conducted in 2002. Hence there is a significant paucity of agricultural data. Fortunately, a crop-wise profit and loss calculation was possible because of a recent study30 . Given the circumstances, the current research undertakes a scenario analysis to ascertain how the addition of different crops affect farmers’ income and poverty status, i.e. how the inclusion of profitable crops impacts farm income, thereby improving competitiveness. Estimates show that there are roughly 1.8 million farming households in Sri Lanka, of which the majority is engaged in paddy cultivation31; around 60% of farming households have less than 2 acres of land32. But paddy is a relatively less profitable Box 2 : Govigama, Social Hierarchy and Paddy Farming
“…the goyigama (village cultivators) were the highest caste. For some, this position was ascribed to their importance in the precolonial civilizations …. But the image of the paddy farmer has also been a staple of Sinhalese nationalism… this modem rendering has helped the goyigama retain or even gain a sense of superiority over other castes. Goyigama consider themselves to
be uda kuliya (High Caste)” page 109, Tom Widger (2009) Self-harm and self-inflicted death amongst Sinhalese Buddhists in Sri Lanka: An ethnographic study. The London School of Economics and Political Science
Therefore, social status is definitely involved in being a paddy farmers and, as we have seen before in Sri Lankan culture, people are willing to invest significant resources to maintain their social status. This should have implications on how MDF designs its interventions, taking into account such norms and values.
Cost of Cultivation 2013-14 (SEPC, Peradeniya University); the data from the report was validated through field interviews under the current study. 31 Agriculture Census 2002 puts the figure at 1.78 million; according to the Preliminary report on agricultural activities of the Economic Census 2013/2014, the extent of farming area has expanded by 24% between 2002-14. 32 Ibid 30
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crop, with an average net return of Rs 18,000/acre (under rain-fed) and Rs 40,000 (under irrigation) during the Maha season.33 There are sociological34 and economic reason for cultivating paddy. The economic rationale for cultivating paddy is that while the unit cost (Rs/kg) of paddy is between Rs 13 (irrigation) and Rs 18 (rain-fed), the retail price is around Rs 70-90/kg. In the absence of own cultivation, the farmer has no choice but to purchase from retail outlets. Therefore, keeping paddy for own consumption saves around Rs 50/kg; bearing in mind that annual per capita rice consumption is 400kg for a household of 435, cultivating paddy results in an annual saving of Rs 20,000/household. However, even with a lower-bound yield estimate of 1,400 kg/acre productivity, 0.3 acres of paddy land in the Maha season alone should suffice for the per household annual consumption need. Therefore, the persistence of paddy cultivation is backed by a combination of social and economic reason. If other profitable crops can be introduced into the cropping pattern, this should have a significant impact. In estimating the potential livelihood options available to farmers in the Maha and Yala seasons, profitability was estimated for different land sizes, topography (low vs high country) and climatic conditions (wet vs dry). For each major crop, key economic data such yield, cost, unit cost and type of irrigation was collected. Based on cash profit, district-wise household size and land size category, return on crop within a specific size of land was calculated. We also estimated the district poverty lines, including the national poverty line, World Bank poverty line and vulnerable poverty line (also World Bank)36. The key steps of this economic and business analysis are depicted below:
Please refer to the annex for detailed crop-wise, yield and profitability data Romeshun et al (2014) found that the majority of household debt was undertaken to invest in unnecessary expansion of household (nonproductive). But as Widger (2009) explains, it is a norm that after marriage “husband’s primary objective is to buy some land and build a house, or build a house on existing land.� 33 34
35 36
Source: http://www.doa.gov.lk/index.php/en/crop-recommendations/808 Refer to the annex for district-wise poverty lines
Figure 6: Steps in Developing Crop Profitability and Impact on Poverty
Step 1: Collate information on crop yield and cash profit per kg across different regions per season Step 2: For different land size categories, estimate profit per season using info from Step 1
Regions include low country dry zone (LCDZ), upcountry wet zone (UPWZ) etc and irrigation type: Rain fed, irrigated Maha is considered to last 7 months while Yala for 5 months.
Step 3: Use district-level household size to estimate per capita crop income per season 1) below USD1.5/day 2) Between USD1.5 and USD2.5/day 3) Between
Step 4: Collect district-level poverty and vulnerability lines
USD2.5 and USD2.79/day (bottom 40%) 4) Above USD2.79/day
Step 5: Compare return from crops (from Step 3) with poverty lines (from Step 4) to show which crops provide a pathway out of poverty
Based on these steps, Table 6 and Table 7 were developed for different crops for the Maha/Yala season37.
37
Detailed calculations are provided in the annex
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Table 6 : Impact of Cultivating Specific Crops During Maha Season38
The cells coloured in grey are markers to assist in the discussion. Since Maha is the major season, we focus on that first. What we see is that even if one grows 2 acres of paddy under irrigation (which has a higher yield than rain-fed cultivation), income received falls below the extreme national poverty line (USD1.5/day PPP 2005). In rain-fed, due to lower yields even a 2-5-acre land is not sufficient. The median land holding is 2.5 acres for irrigated paddy cultivation and 1 acre for rain-fed; therefore, 50% of households that only cultivate paddy during the Maha season will have income and expenditure well below the national poverty line. Therefore, the famers need to be made more competitive. Further, the social status entailed in being a “govigama� (the farmer caste in the traditional Sinhala caste system) may delay the inevitable shift out of agriculture. Next, we look at the cash crop maize, which, surprisingly, does not appear to be as lucrative as it is in neighbouring countries – maize cultivation is supposed to be a robust pathway out of poverty 39. One reason maize is lucrative is because it is a major ingredient for poultry and fish feed. In growing developing economies like Sri Lanka, India and Bangladesh, poultry and fish (protein) demand
38 39
In estimating income from a crop for a particular land size range, the medium value of the range was used Katalyst (2015). Maize Factsheet. Bangladesh. Source: http://katalyst.com.bd/docs/Maize.pdf
increases rapidly as poverty falls and disposable income used for food consumption increases, especially in the case of the poor. In Bangladesh, 30% of maize demand is met through imports40. In Sri Lanka, maize imports were 2,279 MT in 2013 but 88,138 MT in 201441. As stated by a newspaper article from 201542, “Essentially the harvest yield for maize is 350,000 to 400,000 mt every year. However, we figured out that the yield for this year was only 140,000 to 150,000 mt. That is a remarkably large margin for a shortage…. Poultry farms need an incessant supply of chicken feed which will sustain the chain of supply from the producer to the marketer and ultimately the consumer.” The report states that Sri Lanka's annual maize requirement is 400,000 MT and increasing. Maize is also a very sturdy crop, relatively drought- and saline-tolerant, and able to grow even in sandy and nutrient-low soil. Hence, it is surprising that so few farmers cultivate maize and that those who do see such low income. The key reason for this is extremely low yields. In Sri Lanka, average yield from high-yielding maize varieties is between 1.8 MT/acre and 2.2 MT/acre (4.5 MT/Ha-5.5 MT/Ha), whereas in Bangladesh the yield of the latest high-yielding variety is around 9.5 MT/Ha-12 MT/Ha43 – over 200% more than in Sri Lanka. Further analysis was carried out using a high-yield estimate – i.e. doubling of productivity44 – and we can clearly see the difference. Even with 1-2 acres of land, farmers would receive enough income to emerge from poverty. Therefore, there is a strong need for MDF to investigate the maize sector because otherwise the dependency on imports will continue and cost the Sri Lankan taxpayer millions in imports which can be profitably substituted by poor domestic farmers.
Ibid SEPC (2015). AgStat. Department of Agriculture Peradeniya 42 Riza, S. (June, 2015). Maize mafia hits poultry food producers. Ceylon Today. Source: http://www.ceylontoday.lk/90-96191-news-detail-maize-mafia-hits-poultry-food-producers.html 43 BARI (2011). Maize Improvement in Bangladesh. Presentation in 11th Asian Maize Conference which took place in Beijing, China from November 7 – 11, 2011. Source: http://www.slideshare.net/CIMMYT/s34-maize-improvement-inbangladesh 40 41
Doubling productivity is likely to result in additional post-harvest labour cost, this was estimated also and incorporated in the profit calculations. 44
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Chili, brinjal and onion are all lucrative crops. With a land size of 0.5 to 1 acres (the median size for small farmers), income received from cultivating these crops would be sufficient to move one out of extreme poverty (Category 2), while 1-2 acres would be sufficient to move farmers even out of vulnerability (Category 4). An interesting aspect is that women are heavily involved in chili and brinjal harvesting. In other South Asian countries like Bangladesh as well, women are a part of homestead vegetable gardening and chili harvesting. An anecdotal field case study suggests the rationale for this in Sri Lanka is similar to that of Bangladesh: chili harvesting is considered a delicate activity requiring patience – apparently, women labourers are more adept at the task. Whether this is true or not is of less importance, but what is crucial is that, despite female workforce participation being extremely low in Sri Lanka, women are encouraged to participate in chili and brinjal production. This could be used as a mechanism for enhancing women’s participation in agriculture as well as provide an additional independent source of income for them. The same pattern emerges for the Yala season, only much more profitable and pro-poor. This is to be expected because production is low in Yala due to the lack of irrigation, so those who can produce often fetch a high price. Table 7: Impact of Cultivating Specific Crops During Yala Season
Paddy and low-yielding maize continue to be less profitable. However, chili, onion, and vegetables like gourd and brinjal are highly profitable. Cultivating chili, onion or vegetables in a land area of less than 1 acre during the Yala season can lift farmers out of poverty and vulnerability (Category 4). Potato is another profitable crop (Maha as well as Yala) and one that is heavily imported (over 111,000 MT in 201445). However, potato is also a difficult crop to grow – it requires cool temperature, is susceptible to disease (e.g. Late Blight) and requires substantial fertilizer (high investment). However, with proper farmer-level capacity building, potato could be promoted in the North of Sri Lanka, as it is highly profitable. The focus of the discussion has thus far been on specific crops and how cultivating particular crop(s) in a season can yield sufficient income to provide a pathway out of poverty – through generating a monthly income above the poverty line(s). But, as mentioned before, farmers maintain a cropping pattern, i.e. a full cycle of crops during the year to maximize annual income, rather than focus on an individual crop during a particular season. In the absence of government data on cropping patterns, this study used an internal MDF research document 46, which includes a list of common cropping pattern across various provinces, to assess the annual profitability and poverty impact of existing cropping patterns and a few constructed scenarios.
45 46
SEPC (2015). AgStat. Department of Agriculture, Peradeniya MDF (2016). Inclusive Analysis for Growth, Poverty and Gender in High Value Exports. MDF Sri Lanka Cardno
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Table 8: Cropping Pattern and Poverty Impact
As Table 9 shows, cultivating paddy during both seasons is one of the least profitable options, but it is an unfortunately prevalent practice. However, cultivating chili and brinjal, or onion and brinjal, during both seasons can significantly enhance crop profitability and provide a robust pathway out of poverty. Even the addition of gourd/brinjal to the existing paddy cropping pattern, or the cultivation of onion and brinjal, can be highly profitable. Bear in mind that these are existing cropping patterns and that some farmers already follow them (as proven by our field study). Therefore, profitable cropping patterns need to be promoted. In the hypothetical constructed cropping pattern/scenario, we added chili and brinjal to 25% of an acre (25 decimals) in an existing paddy cultivation in the Maha season. The rationale for this is that although it might be difficult for the majority of farmers to completely shift from paddy due to sociocultural reasons, it might be possible to promote crop intensification through the introduction of brinjal and chili cultivated in a section of the land devoted to paddy in the Maha season. This type of shift might be more palatable and less ‘novel’ for farmers. There is a significant impact on profitably even with so modest an inclusion of these crops to the existing paddy cropping pattern. Furthermore, we see that cultivating brinjal/chili in both seasons can be highly profitable, partly because chili commands a very high price in the Yala season. Promoting homestead or small-scale
cultivation (25 decimals or less) of chili and brinjal would be a good means of boosting supplementary household income. The study has so far focused on profitable crops/cropping patterns and enhancing productivity. Another aspect worth investigating is cost minimization. Labour, seed and fertilizer account for the bulk of the crop production cost structure. Table 10 provides the average percentage per cost head for some key crops47. Table 9: Production Cost
Labour cost is a sizable component, and with the increasing wage rate this is likely to create more pressure. Other than mechanization there is very little that can be done, and in such cases the total cost may remain the same, as the power component increases. Fertilizer is a major component for a few crops, especially chili and maize. Reducing the use of macro fertilizer and promoting the judicious use of balanced fertilizer (especially compost and micronutrients) may reduce material cost and increase yield. Another major cost is seed, which is around 40% of total material cost in paddy, as well as other crops48. Unfortunately, preliminary research suggests the seed market is an oligopolistic sellers’ market, especially for the HYV imported variety. In such a context, limited options are available to MDF; further analysis could be carried out on the seed market system.
The data is for the Maha season from an SEPC report; for Yala, the figures are similar except that material and fertilizer costs are usually higher 48 Cost of Cultivation 2013-14 (SEPC, Peradeniya University) 47
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MDF could work with agro-tool companies, especially those promoting the centrifugal pump and tube well (electric) pump, which have capacity to draw water from depths of 35ft and 120ft, respectively49. Typically, these 3 hp pumps can serve at least 2 acres of land and cost Rs 15,000-75,000. They can be used to easily cultivate the cash crops discussed above during the Yala season, when paddy is not preferred. Banana (fruit) is another sector that might be of interest to MDF. In 2014, over 56,000 Ha of banana were cultivated and nearly 19,000 MT were exported (the largest fruit export in Sri Lanka, worth Rs 2 billion50). Banana cultivation is relatively easy, with newly planted trees bearing fruit as fast as eight months after planting; this is not the case for other fruit crops such as mango and guava. Therefore, banana would be a good addition to a poor household’s income. An analysis shows that less than an acre of banana cultivation can yield sufficient income to move a poor farmer above the vulnerability line (Category 4)51. Hence, not only is banana a high-growth-potential sector, but also a pro-poor one; less-than-one-year cycles make interventions far more feasible for a time-bound project like MDF. The next section looks at how MDF can operationalize a strategy to foster improvement in agricultural productivity and farm income. The focus will be on agriculture and not on non-farm sectors.
Proposed MDF Approach and Strategy At the outset, one must be mindful that market systems are embedded and operate within a broader societal and cultural field; in developing any strategy, one has to be cognizant of these trends and norms. Two socio-cultural attributes that might be of import to MDF are:
49 50
Based on field discussions with farmers and agro-input sellers SEPC (2015). AgStat. Department of Agriculture Peradeniya
It is assumed that an acre of land will have around 650 Banana trees (ambul variety); Based on Hambantota nursery visit and Pallerota farmer. One tree gives one bunch of 25 kg. 51
I.
In Sri Lanka, cultural capital and social network play a key role, and investment in maintaining or enhancing status is considered critical 52. This is in line with Bourdieu’s theory of field53, which states that an individual’s social position is a function of their capital (social, economic, cultural), internalized beliefs about the external world and the rules of the game; people’s access to various capital, their belief system and the overall social norms are crucial elements. Box 3 : Importance of Social Capital in Risk Mitigation
“…at times they will have to make use of networks of kin or friends, for example when financing a new venture, solving cash flow problems, smoothing bureaucratic difficulties, evading legal regulations, escaping police interference, or simply benefiting from forms of social and emotional support they can offer.” & “For this reason they invest a good deal of time and money into making such
individuals feel special…, they nurtured such relationships through the hosting of drinking parties.” Tom Widger (2009) Self-harm and selfinflicted death amongst Sinhalese Buddhists in Sri Lanka
II.
The focus on social capital is likely to have been exacerbated by the prolonged civil war, which fractured trust and put a strain on society, and men in particular – faced with the responsibility of earning for the household, they probably feel that depending solely on economic activities may not be sufficient to mitigate risks.
Within the household, men and women have well-established social roles. In the “gē” (nuclear family unit) men are the primary wage earners, while women are the wage managers; therefore, within the domestic sphere, women dominate. When any money arrives in the
Widger, T. (2009). Self-harm and self-inflicted death amongst Sinhalese Buddhists in Sri Lanka: an ethnographic study (Doctoral dissertation, London School of Economics and Political Science (University of London)). 53 Bourdieu, P (1993). The field of cultural production. Cambridge, UK: Polity Press 52
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household it is assumed that the mother/wife will spend it as she sees fit54. This is both the social norm and the internalized belief of many; therefore, activities that contradict these values may result in social conflict. MDF needs to take advantage of these beliefs and norms when designing interventions. Simply promoting profitable crops/crop patterns such as onion, maize or chili through traditional demo farms or activation activities may not suffice. The following guidelines could be useful to MDF when designing interventions: ➢ Activities that provide opportunities for social recognition or building relationships with those higher up on the social ladder can be promoted. For instance, successful paddy farmers can be invited to farmer meeting events to advocate the introduction of cash crops to traditional cropping patterns. This not only creates source credibility but is also likely to attract smaller farmers, as it will give them an opportunity to interact with a successful farmer and further their social position. It is important to invite a large paddy farmer with an integrated cash crop rather than just a successful commercial farmer with only a cash crop cultivation. A successful paddy farmer with a cash crop is likely to be far more convincing and relatable to predominantly-paddy farmers than a simple commercial farmer who may be perceived as having lost touch with the traditional duty of cultivating paddy and is, therefore, of lower social standing. ➢ Apart from the economic benefits of cultivating cash crops, another message that needs to be emphasised is that additional income generation through cash crop cultivation or the reduction of input costs improves the male farmers’ ability to provide for the economic
Stirrat, R, L. (1989). The Social Organisation of Fishing in a Sinhalese Village; this is one of the reasons why money for organizing drinking parties leads to domestic violence, two social norms clash: men’s need to create social connection and women’s role to ensure effective spending of household income (Widger, 2009) 54
sustenance of the household55. This message is likely to be well received by economically deprived farmers already struggling to maintain social status because of their inability to provide for the family, making them feel that they are almost reneging on the social contract. ➢ Female empowerment is difficult to interpret in Sri Lanka. The traditional economic women empowerment model uses independent income, decision making power and control over finance as key indicators of empowerment 56. In case Sri Lanka, social values are such that women rarely participate in the labour market57 and so do not have an independent source of income. However, as mentioned earlier, they are the wealth managers when it comes to the household and as such have a high degree of control over household finance, as well as decision making power. One has to understand that independent income is considered a means to an end, as it provides women with a bargaining or threat position in the domestic sphere, allowing for higher autonomy 58. In the case of Sri Lanka, the rigid social structure seems to make independent income less significant for empowerment, although in urban areas with changing social values this may not be so. Therefore, targeting poor rural women with a message of independent incomegenerating potential through homestead or small-scale farming for supplementary household income may not be well received, as the marginal autonomy gain through this work may not be sufficient to offset the marginal social cost of being perceived as entering ‘men’s domain’.
Ethnographic research show that one of the major reason for suicide in Sri Lanka is because of dislocation from expected social position i.e. especially when men are unable to provide for family or women (may be widowed or separated and so has to work outside) are unable to look after the family (Widger, 2009) 55
Anderson, S., & Eswaran, M. (2009). What determines female autonomy? Evidence from Bangladesh. Journal of Development Economics, 90(2), 179-191. 56
World Bank (2015). Ending poverty and promoting shared prosperity: A Systematic Country Diagnostic. Washington, DC. © World Bank 57
Anderson, S., & Eswaran, M. (2009). What determines female autonomy? Evidence from Bangladesh. Journal of Development Economics, 90(2), 179-191 58
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It might be more prudent to package the message around showing how homestead cultivation is more an extension of the domestic sphere which can not only increase income, but also allow women to smooth out household income stream, promote nutrition for household members and provide funds for household spending. By focusing on how it helps the household, one may be able to avoid the apparent contradiction of internal beliefs, social norms and business practices. In the long run, this may provide lower transition cost and increase women’s participation in the labour force; just like it may be more efficient “to switch from the guild system to the putting-out system, and then to the modern firm” rather than directly moving from guild to modern firm. 59 The discussion provides some guidelines on how MDF can most effectively package its agriculturerelated interventions. Knowing what to promote, such as profitable cropping patterns or particular cash crops, is one thing, but it is equally important to know how to promote. In order to bring sustainable change, access to information is not sufficient; a proper medium and an appropriate delivery mechanism ensure usage by the target group – poor farmers.
K. Basu, E. Jones, and E. Schlicht (1987), “The Growth and Decay of Custom: The Role of the New Institutional Economics in Economic History, Explorations in Economic History 24(1), 1–21. 59
Conclusion This paper focuses on the key issues facing the Sri Lankan economy. The research undertook a systematic review of the existing literature and showed why the current public-debt-driven economic growth is not sustainable. The paper discusses how diversifying exports and bringing in foreign currency is paramount to sustainable economic growth and continued poverty alleviation. Without these efforts there is a strong likelihood of poverty returning. This precarious nature of growth makes the situation of those just above the poverty line highly vulnerable; therefore, the paper makes a strong case as to why focus should be shifted to the bottom 40%, or the vulnerable group. Thus, MDF needs to focus on pro-growth as well as pro-poor interventions. Unless overall economic growth is made more resilient, the impact of pro-poor projects may not be sustainable. The paper identifies that increasing wages, low productivity and rising food prices worsen the situation of smallholder farmers, as they get stuck in a low-level equilibrium with dwindling income and rising expenditure. The paper then shows how including chili, brinjal, onion and other cash crops in the cropping pattern (even if it is paddy-based) can significantly improve income for smallholder farmers. Promoting irrigation pumps can also help farmers cultivate these crops during the Yala season. There is also an exploration of how homestead gardening of selected cash crops or even banana can provide significant additional income to households. Last, the paper discusses some of the Sri Lanka-specific cultural and social factors, particularly relating to social status, that could be helpful when designing and deploying sustainable pro-poor interventions.
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ANNEX 1 Preliminary Research Design & Key Documents
Background This research, commissioned by MDF Sri Lanka, explores the potential link between cropping pattern and agricultural poverty – whether following suitable a cropping pattern/crops can help poor farmers in Sri Lanka progress out of poverty. Through this study, MDF wishes to strengthen its understanding of the poverty dynamics within the agriculture sector via a more in-depth look at trends relating to specific crops. For example, of the crops and cropping patterns selected for analysis, which appear to be yielding higher returns and why? Do some production areas appear to be doing better than others, and what appear to be the reasons for this? Can these lead to recommendations as to which cropping patterns MDF should be helping to facilitate as potential pathways out of poverty? These questions form the focus of the study.
Research Design The study uses a systematic review of the existing literature, with particular focus on poverty- and agriculture-related studies conducted by MDF, the Sri Lankan government, academia and other multilateral organizations such as the World Bank (Country Diagnostic studies). The study then uses the evidence synthesis technique60, which combines multiple sources of quantitative evidence drawn from studies such as HIES 2013, Labour Force Survey 2012, Agriculture Census 2002 and Cost of Cultivation 2013-14 (SEPC, Peradeniya University) to formulate its primary conclusion. After the secondary study, a field-level validation and triangulation exercise will be carried out.
Research Method Initially, MDF was to select the crops, regions and cropping patterns it wished to analyze and prepare the relevant data sets for analysis by the consultant. While crop-specific profitability and costing data was made available to the consultant, preliminary desk research followed by visits to the Ministry of Agriculture and the Department of Census and Statistics confirmed that Sri Lanka did not have a
60
For more reference: https://www.shef.ac.uk/scharr/sections/heds/modelling/evidencesynthesis
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cropping pattern database. The idea was to look into potential livelihood options available to farmers with different land sizes residing in various parts of the country, with varying soil (low vs high country) and climatic conditions (wet vs dry). The following tables give a list of the data that will be collected for key agricultural crops in different steps of the study: Step 1: Crop Data In this section, for each major crop we will collect key economic data such as yield, cost, unit cost and type of irrigation.
District
Irrigation
Price yield (Kg) Rs/Kg
Net Return Return to Return to Holding Holding Net Return (with own Labour Capital Size Size Cash Labour) (Rs) (Rs) Mean Mode
Gross Return
Total Cost Cash cost Total (with as % of Cash Cost own total Labour)
Unit cost Unit Cost (own (cash)_Rs labour) /kg _Rs/kg
Break even (own) Kg/ac
Break even (cash) Kg/ac
Step 2: Poverty Incidence Monthly per capita income Less than 1/2 - < 1 HH Size 1/2 Acre Acre
1 - <2 Acres
Measures of Poverty
2 - <5 Acres
5 Acres and above
Below National Poverty Line
Below Vulnerable USD Bottom 2.5/day 40% (USD (PPP) 2.79/day)
Based on cash profit, district-wise household size and land size category, we will estimate return for each farmer for cultivating a specific crop in a specific size of land. We also estimate district poverty lines, using the national poverty line, World Bank poverty line and vulnerable poverty line. Step 3: Analysis Poverty Headcount Less than 1/2 - < 1 1/2 Acre Acre
1 - <2 Acres
2 - <5 Acres
5 Acres and above
In this final stage of analysis, we will try to ascertain whether income from a specific crop under various land holding sizes is higher than the different measures of poverty. This will help us identify which crops provide the best chance for farmers to move out of poverty. Step 4: Validation The field-level validation will look into whether crop-specific estimates are accurate and whether the recommendations stemming from the evidence synthesis process and literature reviews are indeed plausible. For instance, among other things, the field-level analysis may look into the paradox of the wage increase in the agriculture sector in relation to diminishing or stagnant agricultural productivity growth. The following tentative field plan is suggested: •
Puttalam and Anuradhapura – 3 Key Informant interviews (KII) and 5-7 farmer discussions focusing on paddy, banana, maize and chili farmers
•
Mahaweli H – 2 interviews with retailers and farmers
•
Vavuniya – 2 KII (research institute) and 3 farmer discussion
•
Trincomalee – 1 KII and 3 farmer interviews including fruit and paddy farmer
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ANNEX 2 Crop Productivity, Yield, Cost and Revenue Per Unit
Table 10: Maha 2013-14 Paddy
District
Irrigation
yield (Kg)
Price Rs/Kg
Net Return Cash
Holding Size Mode
Total Cash Cost
HH Size
Ampara-East Ampara-West Anuradhapur a Hambantota Kurunegala Mannar Polonnaruwa Mahaweli B Mahaweli C Mahaweli H Trincomalee Gampaha Kalutara Kandy Kurunegala
IR IR
2260 1981
30.68 33.70
38385 42223
3.00 2.00
30,952 24,537
4.10 4.10
IR
2110
31.67
41069
1.50
25,755
3.70
IR IR IR IR IR IR IR IR RF RF RF RF
2388 2164 2381 2291 2018 2129 2119 2043 1581 1210 1281 1386
31.00 33.29 33.28 35.00 38.00 35.31 29.48 32.76 32.83 30.00 30.00 31.49
41799 43237 48995 54393 52606 51268 36636 38504 28335 9837 17724 18154
2.00 2.00 5.00 3.00 2.50 2.50 2.50 2.00 1.00 1.00 0.50 1.00
32,229 28,803 30,245 25,792 24,078 23.907 25,832 28,425 23,569 26.463 20,706 25,491
3.90 3.70 4.20 3.80 3.90 3.90 3.90 3.90 3.90 4.00 4.00 3.70
Table 11: Yala 2013-14 Paddy
District Ampara-East Ampara-West Anuradhapura Hambantota Kurunegala Polonnaruwa Mahaweli B Mahaweli C Mahaweli H Trincomalee Gampaha Kalutara Kandy Kurunegala
Irrigation
yield (Kg)
Price Rs/Kg
Net Return Cash
Holding Size Mode
Total Cash Cost
HH Size
IR IR IR IR IR IR IR IR IR IR RF RF RF RF
2452 1959 1980 2470 2167 1982 2191 2216 2006 2227 1251 1293 1245 1271
40 43 38 44 38 38 37 39 35 42 33 30 30 35
69216 60342 47374 80426 54922 50602 56641 60213 39378 61519 13806 11508 13856 26620
3.00 2.00 2.00 2.00 1.00 2.50 2.50 1.20 2.50 4.00 1.00 1.00 1.00 1.00
28128 23895 28044 28254 27684 25546 25039 26211 31053 32015 26851 27282 23494 18373
4.10 4.10 3.70 3.90 3.70 3.80 3.90 3.90 3.90 3.90 3.90 4.00 4.00 3.70
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Table 12: Maha2013-14 OFC
OFC Crops
District
4.1.1 Coarse grain Kurakkan Anuradhapura Maize Anuradhapura Maize Ampara Maize Moneragala Maize Average Maize High Yield 4.1.2 Pulses Black gram Anuradhapura Black gram Vavuniya Cowpea Ampara Green gram Hambantota 4.1.3 Condiments Green chilli Anuradhapura Red onion Jaffna Red onion Puttalam Red onion Trincomalee 4.1.4 Oil Seeds Gingelly Hambantota Ground nut Moneragala 4.1.5 Root & tubers Potato Badulla Potato N’Eliya Potato Average 4.1.6 Low country vegetables Brinjal Anuradhapura Pumpkin Anuradhapura 4.1.7 Up country vegetables Cabbage N’Eliya Capsicum Badulla Carrot N’Eliya Pole bean Badulla Pole bean Matale Tomato Badulla
yield Irrigation (Kg)
Price Rs/Kg
Net Return Cash
Holding Size Mode
Total Cash Cost
HH Size
RF RF RF RF RF
478 1885 1866 1953 1901 5000
81.00 31.70 31.40 31.00 31.00 31.00
25896 30744 32717 21613 28358 112839
1.00 1.00 2.00 2.00 1.67 1.67
12822 29011 25875 38930 31272 29564
3.70 3.70 4.10 3.70 3.83 3.88
RF RF RF RF
349 334 294 326
163.00 135.70 164.00 217.00
37513 23706 23550 38113
2.00 1.00 1.00 2.00
19374 21618 24666 32629
3.70 3.90 4.10 3.90
RF IR IR 1R
2488 5217 3860 5351
102.00 203660 63.75 128708 64.00 72101 77.70 223728
1.00 0.30 1.00 1.00
50166 203876 174939 192045
4.10 4.20 3.70 3.90
RF RF
333 574
254.00 118.00
68102 34983
2.00 1.00
16480 333
3.90 3.70
IR IR IR
5728 7849 6789
64.00 153793 100.00 483405 82.00 318599
0.30 0.50 0.40
212799 3.90 160603 4.20 186701 4.05
IR RF
8308 5400
33.70 19.27
199629 66570
0.50 1.00
80351 37488
3.70 3.70
IR IR IR IR RF IR
8902 5010 5614 4677 2100 8433
37.50 86.00 79.00 58.00 65.10 25.00
237982 339629 322813 180356 76040 121931
0.50 0.30 0.50 0.50 0.30 0.30
95843 91231 120693 91 60670 89
4.20 3.90 4.20 3.90 3.70 3.90
Table 13 : Yala 2013-14 OFC
OFC Crops
District
Irrigation
yield (Kg)
Price Rs/Kg
Net Return Cash
Holding Size Mode
Total Cash Cost
HH Size
IR IR
1838 2264
36.00 27.25
31543 31432
1.00 1.00
34,625 30,262
3.90 3.90
IR RF
492 412
177.00 181.00
60630 50525
1.00 1.00
26,454 24,047
3.90 4.10
IR IR IR IR
8735 7130 3922 6745
69.00 281.00 75.00 103.00
445733 1886620 130254 521375
1.00 0.50 1.00 1.00
156,982 116,910 163.896 173,360
3.70 3.70 3.70 3.90
RF IR
236 1101
188.00 89.00
35821 59501
2.00 0.50
8,547 38,488
3.70 3.90
RF IR IR IR
7268 6370 6655 5450
31.00 75.00 83.00 38.00
190211 300138 258508 136496
0.50 0.30 0.50 1.00
35,097 177,612 293,857 70,604
3.90 3.90 4.20 3.70
IR IR
5400 9028
74.00 36.90
260591 225908
0.50 1.00
139,009 107,225
3.90 3.90
IR IR IR IR IR
11314 5803 4587 8030 5547
39.00 73.00 90.00 74.00 67.60
324787 295096 334299 515102 279395
0.50 0.50 0.30 0.30 0.50
116,459 128,523 78,531 79,118 95,582
4.20 4.20 3.90 3.90 4.00
4.6.1 Coarse grain Maize Badulla Maize Mahaweli H 4.6.2 Pulses Blackgram Mahaweli H Cowpea Ampara 4.6.3 Condiments Bigonion Matale Green chilli Anuradhapura Red onion Puttalam Red onion Trincomalee 4.6.4 Oil seeds crops Gingelly Anuradhapura Soyabean Mahaweli H 4.6.5 Root & tubers Manioc Gampaha Potato Badulla Potato N’Eliya Sweet Potato Matale 4.6.6 Low country vegetable Bitter gourd Hambantota Brinjal Hambantota 4.6.7 Up country vegetable Cabbage N’Eliya Carrot N’Eliya Pole bean Badulla Tomato Badulla Tomato Kandy
38 | Market Development Facility
*
ANNEX 3 District-level Poverty and Vulnerability (2013-14 base)
Table 14: Monthly Per Capita Poverty and Vulnerability Cut-off Income
Districts
Ampara Anuradhapura Hambantota Kurunegala Mannar Polonnaruwa Trincomalee Gampaha Kalutara Kandy Kurunegala Moneragala Vavuniya Ampara Jaffna Puttalam Monaragala Badulla Nâ&#x20AC;&#x2122;Eliya
40 | Market Development Facility
Below National Poverty Line 3805 3656 3652 3667 3624 3734 3924 3883 3872 3756 3667 3633 3850 3805 4010 3760 3633 3693 3809
Below USD 2.5/day (PPP) 6361 6111 6105 6130 6058 6242 6559 6491 6473 6279 6130 6073 6436 6361 6703 6285 6073 6173 6367
Vulnerable Bottom 40% (USD 2.79/day) 7103 6825 6817 6845 6765 6970 7325 7248 7228 7011 6845 6782 7187 7103 7486 7019 6782 6894 7110