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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 Sri Lanka - 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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