Sri Lanka, with approximately 1.2 million hectares allocated for paddy cultivation during the Maha and Yala seasons, depends heavily on its agricultural sector for food security. Despite favourable conditions in the 2023 Yala season, which saw around 700,000 hectares cultivated due to fertilizer subsidies and government support, the country’s rice supply chain remains vulnerable. At the heart of this issue is the plight of smallholder farmers and the systemic challenges they face.
The Plight of Smallholder Farmers
Smallholder farmers account for about 75% of the 890,000 hectares used for paddy cultivation, with most working on plots smaller than two hectares. Despite their vital contribution to the national food supply, these farmers face persistent challenges, including:
1. Low Productivity: Limited access to modern farming technologies and practices hinders yield improvements.
2. High Costs: Rising input costs, including seeds, fertilizers, and labour, strain their resources.
3. Financial Constraints: A lack of access to institutional credit forces many farmers to depend on intermediaries for financing.
Dependency on Intermediaries
Smallholder farmers often rely on large-scale rice mill owners or local merchants for financial assistance. These intermediaries provide funds for land preparation, sowing, and harvesting, but this comes at a steep price. Farmers must repay their debts by selling their harvests to these intermediaries, who often dictate terms. Large-scale mill owners, with their superior storage capacity, hold significant market power, buying paddy at low prices and manipulating supply to maximize profits.
Historically, paddy was sold to small-scale mill owners or local buyers at negotiated prices. However, the entry of large-scale mill owners has disrupted this dynamic, enabling them to purchase entire crops at lower prices. This shift has left farmers financially vulnerable while granting mill owners control over the rice market.
Why Maximum Paddy Prices Don’t Work
Imposing a maximum price for paddy might seem like a solution to ensure affordability and stabilize rice supplies. However, it exacerbates existing problems:
• Disadvantage to Farmers: Farmers receive lower returns, further deepening their financial struggles.
• Market Manipulation: Large-scale mill owners hoard paddy to control supply, limiting the effectiveness of price controls.
• Import Price Distortions: Minimum purchase prices for local farmers set a high baseline, making imported rice more expensive despite its lower production cost. This benefits importers while burdening consumers.
A Long-Term Solution: Farmer Cooperatives
The sustainable way forward lies in empowering smallholder farmers through cooperative systems. By organizing into cooperatives, farmers can:
1. Access Institutional Credit: Cooperatives can secure financing from banks, reducing dependency on intermediaries.
2. Mitigate Risks: Group insurance schemes can protect against crop losses.
3. Control the Supply Chain: Setting up storage and processing facilities enables farmers to manage production and sales, reducing exploitation.
Lessons from Tea Shakthi
The Tea Shakthi cooperative, established under the Tea Small Holder Development Authority in 1994, offers a successful model. Initiated by Rohana Ilangaratne, a visionary Sri Lankan civil servant, the program empowered small-scale tea farmers through financial aid, infrastructure development, and capacity building. By establishing processing facilities and supply chains independent of large tea factories, Tea Shakthi transformed the tea smallholder sector. Recognized globally, the initiative received a Gold Medal from the World Bank for its innovative approach.
Conclusion
To resolve the challenges facing Sri Lanka’s paddy sector, a similar cooperative model should be implemented. Empowering farmers to collectively manage resources and production will ensure fair pricing, sustainable practices, and a stable rice supply. Protecting producers from exploitation is not just an economic imperative but a moral one. A united group of producers can amplify their voice and secure a more equitable future for all stakeholders in Sri Lanka’s agricultural landscape.
