In economics, production is categorized into three major categories as agriculture, industry, and services. While the majority of the production takes place in industry and service sectors, the importance of agriculture sector cannot be ignored.
In 2016, as per the Central Bank data, agriculture production is amounted to 7.1% of the GDP and it had declined from 7.8% recorded in 2015. In contrast, industrial sector production amounted to 26.8% of GDP while service sector production amounts to 56.5% of the GDP.

According to the CBSL Annual Report, the value added of Agriculture activities contracted by 4.2 per cent in 2016 as opposed to 4.8 per cent growth recorded in 2015. It was noted that the adverse weather conditions that prevailed throughout the year, particularly the floods due to heavy rainfall in the second quarter and the prolonged drought conditions negatively affected Agriculture performance. Accordingly, the value addition of rice, tea, rubber and fruits contracted mainly dampening the growth in Agriculture activities while cereals, vegetables, oleaginous fruits, and plant propagation and support activities to agriculture also contracted in value added terms during the year. However, animal production, forestry and logging, fishing, sugar cane and other beverage crops contributed positively to the growth, offsetting the overall contraction in Agriculture activities to a certain extent.

Paddy production

“The moderation in the agricultural activities was also witnessed in the sub-indices of the Agriculture segment of the Business Outlook Survey (BOS) conducted by the Central Bank on quarterly basis. Accordingly, Business Condition, Demand, Production and Sales sub-indices on average remained below the neutral level. Agriculture Production Index (API), which measures the movement of agriculture and fisheries sector output, recorded an overall decline of 2.4 per cent in 2016 in comparison to an overall growth of 4.4 in 2015.

Within API, the sub-indices of paddy, tea, rubber, coconut and other crops (fruits and other field crops sub sectors) decreased, while the vegetables sub sector in the other crop sub index increased in comparison to the previous year. Although, the livestock activities increased considerably during the year, the growth decelerated from 2015 as reflected by the API.

The growth in fisheries activities remained marginal during 2016, as in the previous year. Paddy production for the year 2016 declined by 8.3 per cent to 4.4 million metric tons following the record bumper harvest in 2015. The net extent of land harvested during the year decreased by 7.1 per cent to 1,010,989 hectares, while the paddy yield decreased to 4,372 kilogrammes per hectare in 2016 from 4,428 kilogrammes per hectare in 2015.
This is a combined outcome of the increase in 2015/16 Maha production and the decline in 2016 Yala production. Paddy production in the 2015/16 Maha season at 2.9 million metric tons was 0.9 per cent higher than the production in the previous Maha season. The marginal increase in the Maha production can be attributed to the favourable rainfall experienced during the latter part of 2015 along with the increased extent harvested in major producing areas,” report stated

Incentive changes

Sri Lanka’s Agriculture sector has severe concern about productivity. While the agricultural production is low as 7.1% from GDP, the labour force engaged in agriculture is around 28%. This, in fact, is identified as an issue faced by many developing nations. Michal Todaro, who is a development economist, notes that an agriculture – and employment-based strategy of economic development requires three basic complementary elements.

As per him, first is accelerated output growth through technological, institutional, and price incentive changes designed to raise the productivity of small farmers, second is  rising domestic demand for agricultural output derived from an employment-oriented urban development strategy; and third is diversified, nonagricultural, labour-intensive rural development activities that directly and indirectly support and are supported by the farming community.

To a large extent, therefore, agricultural, and rural development have come to be regarded by many economists as the sine qua non of national development. Without such integrated rural development, in most cases, industrial growth either would be stultified or, if it succeeded, would create severe internal imbalances in the economy
Todaro identifies market failures and absence of consistent government policy as major concern. He notes, a major reason for the relatively poor performance of agriculture in low income regions has been the neglect of this sector in the development priorities of their governments, which the initiatives just described are intended to overcome.

Government intervention

“Neglect of agriculture and the accompanying bias towards investment in the urban industrial economy can, in turn, be traced historically to the misplaced emphasis on rapid industrialization via import substitution and exchange rate overvaluation that permeated development thinking and strategy during the postwar decades. If agricultural development is to receive a renewed emphasis, what is the proper role for government?
“In fact, one of the most important challenges for agriculture in development is to get the role of government. A major theme of development agencies in the 1980s was to reduce government intervention in agriculture. Indeed, many of the early interventions did more harm than good; an extreme example is government requirements for farmers to sell at a low price to state marketing boards, an attempt to keep urban food prices low.

Production subsidies

“Production subsidies, now spreading like a contagion from high-income to middle-income countries, are costly and inefficient. Agriculture is generally thought of as a perfectly competitive activity, but this does not mean that there are no market failures and no role for government. In fact, market failures in the sector are quite common and include environmental externalities, the public good character of agricultural research and development and extension services, economies of scale in marketing, information asymmetries in product quality, and monopoly power in input supply, in addition to the more general government role of providing institutions and infrastructure. Despite many failures, sometimes the government has been relatively effective in these roles, as in Asia during its green revolution,” todaro added further.

In that context, Sri Lankan government should positively involve in developing agriculture sector. Then only the productivity could rise and the cost of agriculture production would go down.