Globalisation, WTO policies and Lanka's agriculture
 

BY DR. G.M. HENEGEDARA, Research Fellow, Harti, Colombo

LIBERALISATION of world food and agriculture now has been institutionalised in the WTO, with a broader objective of achieving expected results from free trade among nations.

Thus it was expected that it would result in benefiting all nations on lowest possible costs of goods and services. But actual benefits gained from agricultural globalisation in relation to economic development in Developing Countries (DCs) are far below expectations.

The empirical evidence on effects of globalisation on agricultural development in developing countries indicates diminutive and static results.

Similar to many other developing countries, the implications of agricultural globalisation in Sri Lanka also highlight the gap between theoretical policy prescription of liberal reforms and actual gains achieved from global agricultural liberalisation. Basically reflects two scenarios.

(1) Potential benefits of agricultural globalisation despite its limitations in achieving sustainable development, especially in terms of ecologically balanced, economically viable, socially responsible and equally distributed development.

(2) The influence of WTO and other international economic agencies to follow WTO policy prescriptions and thereby the Government of Sri Lanka was committed to follow world trade policies despite some imperfect market conditions.

The empirical evidence on agricultural liberalisation in Sri Lanka proved that the tariff liberalisation fosters economic growth and improves most macro economic indicators (Somaratna, 2002 Athukorale and Kelegama, 1996; and Weerahewa etal, 2002).

According to Somaratna's estimates on three policy scenarios, namely partial tariff reduction 50% of tariff reduction), total removal of tariff in non plantation crops and 50% across the board tariff reduction in all import competing sectors make direct impact on import competing industries than export oriented products.

Accordingly, partial and across the board liberalisation increases the level of aggregate employment in the economy; reduces the aggregate price level and thereby increases the aggregate household consumption.

Statistical analysis of the study also shows some promising trends in globalisation as a green policy device.

According to an assessment study on effects of globalisation on domestic agriculture in Sri Lanka done by the author, it was found that though main indicators such as trade openness, FDI, labour mobility and flow of foreign capital were positively caused to increase GDP and GNP per capita income, its contribution is not so effective to reduce poverty, food security and increase domestic agriculture and agro based industries, which create a tremendous effect on increasing disparities and inequalities (Henegedara, 2004).

Constraints relating to negative impacts on policy reforms and programmes were linked mainly with the technology.

According to author's analysis on contribution of Solow's technological convergence or total factor productivity to increase GDP growth rates in Sri Lanka, it shows that total factor productivity has positively caused to increase GDP growth rates in Sri Lanka in the past.

But effects of total factor productivity in increasing technical efficiency in agricultural production is marginal and consequently it has affected as the core factor of lowering production efficiency in non-plantation agricultural sector and reduce welfare of both producers and consumers.

Like in many other developing countries, the convergence of technology depend on various factors such as social capability, level of education, technological adoptability and socio institutional factors (Abramovitz, 1986).

Thus, it indicates that the implications of agricultural globalisation are mainly linked with the technology and related factors. But it is intended to highlight all the crucial factors that badly affected production efficiency of rice cultivation in Sri Lanka.

As shown by empirical studies, technological indices related to globalisation have not positively contributed to increase production efficiency as occurred in Green Revolution experienced over the world in 1960s and 1970s (Henegedara, 2004).

Thus, technological gaps in non-plantation agricultural sector are still important as one of the key constraints in increasing production efficiency.

According to recent analysis on production efficiency of paddy cultivation in Sri Lanka, which was based on Cobb-Douglas production function and Stochastic Frontier analysis of production efficiency, it was found that production efficiency is less than 1 in many areas except well-maintained major irrigation areas (HARTI/NSF study on paddy cultivation, 2002).

Accordingly it was revealed that technical efficiency in paddy cultivation is determined on efficient combination of production and individual talents of farmers.

Thus, technical efficiency was changed according to water availability in major and minor irrigations and rainfed areas, and cultivation seasons.

Since technical efficiency is most frequently associated with management practices of cultivation process. It was assumed that variations in efficiency is attributable to experience and entrepreneurial talents of the farmers.

The gap between the lowest and the highest efficiency levels derived mainly due to efficient combination of production inputs, individual talents of farmers and technical adoptability.

The analysis further revealed that the high cost of production or economic inefficiency of farmers is not only the cause of increasing prices of inputs it also strongly relates with efficient use of production inputs.

Thus the technical and economic efficiency gaps in paddy cultivation indicate the need for improving technical efficiency among farmers indifferent cultivation areas and different seasons.

It also revealed that technical efficiency, efficient resource utilisation, individual talents and agro-climatic factors are equally important for any remedial action on reducing cost of production of paddy, which would be the main factor of increasing production efficiency of paddy on the other hand.

As common to many other developing countries, rising comparative disadvantage in non-planation crops becomes another main factor of deviating non-plantation agriculture from international markets. Compared to Pakistan, Burma and Thailand, though Sri Lanka has no comparative advantage in producing rice, it has a tremendous absolute advantage to produce paddy being a labour endowment country.

However, recent statistics on paddy cultivation reflects that Sri Lanka is losing her absolute advantages in producing paddy due to increasing production cost in the recent past.

The average yield per hectare in Sri Lanka is 3.7 MT and it varies from 3.7-4.5 MT and 2.5-3.1 MT respectively irrigated and rainfed areas. This yield is almost half of the potential yield of 10 MT per hectare that could receive under well-managed conditions (Sandaratna, 2001).

Though the average yield per hectare in Sri Lanka is somewhat higher than some South Asian countries, still it is not a good yield to receive profitable income or attractive net return. Thus it is very clear that paddy farmers in Sri Lanka are currently struggling in rising comparative disadvantage of paddy farming.

Though all the successive governments followed some incentive measures to protect paddy farmers through tariff and subsidy policies, the impact of tariff rates on local producers and the consumers is negligible when compared to Nominal Protection Coefficient (NPC), which refers the ratio of given commodity to its boarder price and the Effective Protection Coefficient (EPC), that refers as the ratio between the value added in domestic market prices to the value added in world prices for a particular production process.

One of the firm arguments of the opponents of agri-globalisation is that developing countries will loose their food security when they implement WTO regulations (Vandana Shiva, 2002).

Sri Lanka is also fully committed to follow WTO regulations and follow free and flexible policies for importing main food items. Thus it fulfils only 84 per cent of its main food requirement of rice while more than 90 per cent of sugar and wheat requirements and fulfilled through imports.

Though value of imports of rice slightly fluctuates, the value imports of wheat and sugar have increased every year indicating gradual increase in dependencecy on foreign markets.

Multi National Corporations

The role of Multi National Corporations in global development is so important that they play a key role in controlling all globalisation processes in terms of transferring technology, capital investment input supply and access to world market (Maddele, 2000).

Since liberal economic policy reforms fully encouraged FDI through the Multi National Corporations (MNCs), their effect and impact on Sri Lankan agriculture are very important in accessing foreign capital, technology and determining market and trade related property rights etc.

According to the experience of many countries, involvement of MNCs in agriculture was initiated as early as 19th centaury when plantation companies evolved as joint ventures and out growers' schemes (Rao and Storm, 2002).

The present global market systems for agricultural inputs seem to be having some characteristics of oligopolistic competition.

For instance, eleven MNCS account for 81 percent worldwide agro-chemical sales and 24 corporations control half of the commercial seed market while six corporations handle about 85 percent of world traded in grain.

Eight MNCs account for 55-60 percent of world coffee trade and seven accounts for 90 percent of tea trade in OECD countries. Three account for 83 percent world trade in cocoa and three accounts for 80 percent of banana trade (Madele, 2000).

MNCs increasingly use identical distribution channels for seeds and agro-chemicals, opening up the possibility of linking chemical and seed development and marketing. Many agri-business companies use patents as are the lifeblood of controlling agro-chemical industry.

MNCs have spread their patenting into the developing world and 80 percent of patents for technology and products in developing countries are now held by MNCs. Patent rights were justified according to WTO rules on Intellectual Property Rights (IPR).

Though limited empirical evidence is available on the economic impact of IPR and TRIPs (Trade Related Intellectual Property Rights) in DEs, it suggests that IPR regimes have not had a positive development impact; instead it has transferred only royalty payments from DEs (Rao and Storm, 2002).

Evidence of case studies done by NGOs indicates likely negative implications of TRIPs for agriculture and food security in DEs (Madele, 2000).

Like many other countries, still there is no detailed evidence available in investigating the effects of MNCs on non-plantation agriculture in Sri Lanka.

Nevertheless, agro-chemical industry and marketing is controlled by local agencies of MNCs and new agreements were signed with BOI for new projects in provision of seeds and inputs. Thus, possible implications would emerge in dominating provision of seeds and agro-chemicals.