Features
SMALL FARMS AND THE ‘ECONOMICALLY VIABLE HOLDING’: IMPLICATIONS FOR POLICY
by Chandra Arulpragasam
Small Farm-Size and Productivity
The theory that the small farm would have higher yields than a larger farm was put forward for the first time by the author in 1961 in Ceylon. This was despite the fact that all economic theories and text books taught the opposite. In the 1980s and 1990s, a number of studies proved this inverse relationship between farm size and productivity to be correct beyond any doubt.1 i.e. the smaller the farm, the higher the yield would be. Not only does the small farm make a better use of its resources, it has total factor productivity and higher yields than larger farms. The economic (theoretical) reasons for this inverse relationship between farm size and productivity are set out in other writings.
Although no systematic studies have been done on yield by farm size in Sri Lanka, available figures show that the small holdings of tea and rubber have higher yields than the larger holdings and the best managed estates in these crops. There is little doubt that studies on paddy and coconut lands would show the same – as shown in other countries.
Although small holdings make the best use of resources (especially of scarce land), it is obvious that a larger farm would bring the farmer greater total production and income. This article merely records the facts. First, small subdivided farms are the reality and growing in number in Sri Lanka and the developing world. Second, small farm yields and productivity are greater than that of larger farms and estates. Third, the small size of small farms prevents them from meeting all the income and food needs of the farm families. It is necessary, however, to clear certain misconceptions that currently confuse any informed discussion of policy on the subject: namely, the desirability and feasibility of an ‘economically viable holding’.
The Concept of an Economically Viable Holding
The above term was introduced in Sri Lanka by Dr. B.H. Farmer in his work ‘Pioneer Peasant Colonization in Ceylon’ (1957). In this he defined an economically viable holding as one which is capable of producing enough food and income for a farm family. The writer has questioned the logic as well as the economic validity of this definition in the past. Historically, it is seen that this concept was introduced from the west where there was a more favourable land:man ratio than in overcrowded Asia. There was more land per farm in Europe and America than in many developing countries, so that these countries could afford a farm size large enough to provide a decent income to a farm family.
It is now accepted that a farm is both economic and economically viable when it maximizes total factor productivity – which the small farm does best in a land-scarce, labour-surplus situation, as in Sri Lanka. Not only does the small farm make the best use of resources, but in practical terms it provides a higher yield per acre than a larger farm. The problem is not that a micro holding is uneconomic per se, but that it is not large enough to meet the full income and nutritional needs of a farm family.
The latter is a most important criterion, but it is a social criterion and not an economic one. Logically, it has nothing to do with the economics and the productivity of a farm. For what if a family doubles in size, or its members eat more? Does the economics of the farm change to become ‘uneconomic’ because they eat more? The economic viability of a farm is determined by the criterion of economic efficiency and not by a social/nutritional criterion – of whether it is capable of feeding a family. An example from the industrial sector would illustrate this point well. Let us say that in an urban industry today, only part-time employment is available to a particular worker. Would we say that the job in the factory is ‘uneconomic’ because the income that the job generates for this worker is not enough to feed his family? Would we go further to say that the whole industry providing that job is not ‘economically viable’ because the part-time wage it pays is not enough to feed his family? In fact, the firm may be economically viable and profitable only because it provides only part-time employment! Hence the whole concept of larger, ‘economically viable holdings’ in Sri Lanka’s circumstances is based on faulty logic and faulty economics.
Nor is this concept even practicable on a national scale in Sri Lanka. The Agricultural Census of 1982 showed that 25 per cent of households in the small holder sector had farms of less than half acre in extent. The Agricultural Census of 2002 showed that the situation had worsened further, leaving 45 per cent of all farms in the smallholder sector with less than one fpurth of an acre. It is true that the farmers’ try to ‘consolidate’ their operational holdings by renting in an adjoining parcel of land. On the other hand, it is known that farmers tend to scatter their holdings by renting or owning a higher piece of land or chena holding to even out their labour availability throughout the year.
According to the Agrarian Research and Training Institute (now re-named the Hector Kobbekaduwa Institute), two acres is the minimum size of an ‘economically viable holding’ in Sri Lanka. Assuming that the land available to the small farm sector is more or less constant, and assuming that each small farmer with only quarter acre would be given an ‘economically viable holding’ of two acres, this could only be achieved by the dispossession of seven other holders of quarter acre each, relegating them to complete landlessness. On a national scale, this would mean the dispossession of at least 50 per cent of our small farmers, especially in the highly populated Wet Zone, in order to provide a so-called ‘economically viable holding’ to a few. First, the question arises of what would we do with this large number of displaced farmers, given the absence of alternative employment? Secondly, such ‘consolidated’ larger farms would result in lower yields per acre than each of the quarter acre holdings cultivated separately.
Hence, such a policy of providing an ‘economically viable holding’ cannot be justified on either economic or social grounds. The yardstick of ‘economic viability’ is based on an impracticable model imported from western countries blessed with more land and capital than ours, and with opposite (different) factor proportions. It is a yardstick that has no basis in logic or in economics. It has served not only to confuse our concepts, economics and terminology, but also to adversely affect our policy response to the problems of the small farm and subdivided holdings.
In fact, in Japan, Korea and Taiwan in the 1960s-1970s, the family holdings were so small that part of the farm family’s income was obtained from rural non-farm employment. As early as 1988/89, the Household Survey of the Agricultural Sector in Sri Lanka showed that micro-holders of less than quarter acre earned only 38 per cent of their income from farming – which implies that 62 per cent of the farmers’ income came from off the farm. The situation is worse today because 45 per cent of our small holdings are less than quarter acre in extent. On the other hand, the frequency and intensity of non-farm work in the rural areas has multiplied through rural towns and market centres. This needs to be recognized by policy makers. Although we would all like all our farmers to have at least two acres each, this is not feasible in our fractured agrarian structure. This does not mean that we do not care about the small farmer, who is being increasingly impoverished by the grinding mill of subdivision. The problem is that our agricultural population on our limited land is increasing and not decreasing, leading to a mounting pressure on the land – and to a greater subdivision of already small holdings. Possible policy options are considered in the discussion that follows1.
We need to recognize the fact that the absolute number of the agricultural population on our limited farm land has increased between the year 1982 and 2009: and this is despite all the land expansion, land reforms and colonization schemes carried out in the 70 years since our independence. So why should we, after 70 years of trying, now come up with the impractical theory in Sri Lanka that a farm should be large enough to support a farm family? This was certainly not the case in Japan, Taiwan or South Korea, which started with similar land scarcity before their transition to full industrialization. So why do we not follow what the small farmers have already demonstrated in Sri Lanka, namely, of obtaining the highest returns from their micro-holdings, while obtaining more than 60 per cent of their income from rural non-farm work? Why keep barking up the wrong tree of an ‘economically viable holding’ which we cannot have anyway, when we should be doubling our efforts to provide non-farm work in the rural areas that would hasten our path to full industrialization?
(The writer was a member of the former Ceylon Civil Service who worked in the provincial administration and Colombo before joining the FAO in Rome where he lived and worked for many years.)
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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