Changing terms of trade of small farming sector in Sri Lanka: with special reference to paddy, vegetable and fruit cultivation

Abstract

Decline of relative farm prices in relation to prices of farm inputs and consumer food items has become a core factor of losing farm income of small farmers in Sri Lanka, particularly in the paddy, vegetable and fruit cultivation. Though the losing farm income is a common problem in many agricultural countries, its impact is very crucial for a small country like Sri Lanka where nearly 30 percent of labour force is occupying directly or indirectly in agricultural activities. Despite the GDP contribution of the agriculture sector has declined around 10 percent today, any impact in small farming sector would also influence to the majority of consumers in the non-agricultural sector. According to Statistical reports of the Department of Census and Statistics, farmers have to pay nearly 2 kilo of paddy for purchasing a one pound of bread in 2012 instead one kilo in 1984. Required paddy amount for receiving one kilo of sugar has fluctuated between 3.53 in 1999 and 3.57 in 2012. Similarly required paddy for receiving one packet of milk powder (450gram) has increased from 7.03 in 1984 to 10.2 in 2012. Since many of these items were imports, there is no income redistribution to non-farm sectors at least to offset the situation Sri Lanka as a country that follow economy wide policies, links to the world economy through exports and imports and influenced by the global economic and market forces frequently due to changes of global market. Therefore, losing farm income is not simply a matter related to domestic production factors; it also linked with international market by importing agricultural inputs i.e. fertilizer, chemicals and seeds and exporting farm outputs as agricultural and finished products. According to past records, values of TOT and BOP have deteriorated continually in Sri Lanka indicating more imports than the exports done by the country. Thus the main objective of the paper is to review factors influenced in changing TOT of small farming sector and assessing its impact on the economy. The methodology was based on deductive method and the paper would be based on both primary and secondary sources of information.