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Sri Lanka

Government Policies

Government support for farmers takes several forms, including the provision of credit for producers, the setting of minimum prices for agricultural produce, the building of irrigation works, and the encouragement of internal migration to newly irrigated areas. Since the late colonial period, the government has played a growing role in the provision of credit to smallholders on favorable terms. Until 1986 the main instrument of this policy was the subvention of cooperative societies. Agricultural credit took three forms: short-term loans to farmers for the purchase of seeds and fertilizers; medium-term loans, intended for the purchase of machinery; and long-term loans for capital expenditure on storage, transport, and rice-milling apparatus. The long-term loans were not available for individual farmers, but were used by the cooperative societies to acquire infrastructural facilities.

The actual performance of credit provision through cooperatives generally fell short of expectations. Institutional credit did not displace the older sources of credit, such as the village moneylender, friends, and relatives. The inability to repay loans, procedural difficulties, and the existence of unpaid loans already taken from the cooperatives were some reasons given by farmers for preferring noninstitutional credit sources. Another problem with the credit furnished by cooperatives was the high rate of default. This rate may have been attributable partly to real difficulties in repayment, but it also was the result of a widely held impression that government loans were a form of social welfare and that it was not necessary to repay them.

The New Comprehensive Rural Credit Scheme implemented in 1986 sought to increase the flow of credit to smallholders. The Central Bank guaranteed up to 50 percent of each loan in the event of losses incurred by banks lending under the program, and eligible farmers received a line of credit for three years. Loans were automatically rescheduled at concessional rates when crops were damaged by events beyond the farmer's control. In 1986 cultivation loans under this program amounted to nearly Rs257 million, about 74 percent for paddy and the rest for other food crops.

Another important policy was the Guaranteed Price Scheme, which came into effect in 1942. Under this program the government agreed to purchase rice and some other produce at set prices. The intention was to support the farmer's standard of living. For a period in the early 1970s, when the island was threatened by food shortages, the government ordered peasants to market all of their rice through this scheme and at times set the price at a level lower than that of the free market. This policy had the effect of reducing the incentive to grow rice. The program lost some of its impetus in the 1980s. In 1986 the government set the price below the free-market rate for most of the year. As a result of the policy, purchases under the program accounted for only about 6 percent of the rice crop, mostly from districts where private traders were unwilling to operate because of the poor security situation.

Since the 1930s, governments have promoted irrigation works and colonization projects in the dry zone in an attempt to increase rice production and reduce land pressure and unemployment in the more densely settled wet zone. The lack of infrastructure and the prevalence of malaria hampered these programs in the early years. After the near eradication of malaria, increased government investment in infrastructure and enhanced financial support for migrants made the new lands more desirable. Between 1946 and 1971, the proportion of the population living in the dry zone increased from 12 to 19 percent (see Population , ch. 2).

At the end of 1968, about 352,000 hectares were under irrigation for rice cultivation; some 178,000 hectares under major storage reservoirs and barrages, and approximately 174,000 hectares in minor irrigation projects. In the 1970s and 1980s, governments pursued major irrigation programs, most notably the Mahaweli Ganga Program, which was lent added impetus and became the Accelerated Mahaweli Program in 1978. The increasing size of the Mahaweli project dwarfed its earlier endeavors. According to the plan, approximately 593,000 hectares of previously arid land would be brought under irrigation by 1992. In 1986 some 76,000 hectares of new land were under cultivation as a result of this project.

Other long-standing government policies designed to help farmers included subsidies for fertilizer, seed paddy, and other inputs. Government efforts also partly contributed to the adoption of improved cultivation practices and high-yielding seed varieties in paddy farming in the 1960s.

Data as of October 1988

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