Economic Missteps Spur Sri Lanka’s Agricultural Crisis: Rice and Coconut Woes

Weekly Economic Review

Sri Lanka, once celebrated for its self-sufficiency in rice and as a leading exporter of coconuts, is now grappling with a severe food crisis marked by shortages of these essential commodities.

Historically, the country’s robust agricultural sector, underpinned by an efficient irrigation system, ensured rice self-sufficiency and significant coconut exports, which contributed substantially to foreign exchange earnings.

In the Monterey sector performance this week, the reserve money decreased this week compared to the previous week mainly due to the decrease in currency in circulation The total outstanding market liquidity was a surplus of Rs. 124.985 bn by 24th January 2025, compared to a surplus of Rs. 111.301 bn by the end of last week, Central Bank announced.

During the year up to 24th January 2025, the Sri Lanka rupee depreciated against the US dollar by 2.1 per cent. Governments revenue and grant stood at Rs. 3.66 trillion from January to November 2024 while the expenditure was Rs 2.77 trillion during the period of January to November 2023

During the year up to 24th January 2025, the Sri Lanka rupee depreciated against the US dollar by 2.1 per cent. Tourist arrivals had been increased to 2 million last year from1.48 million in 2023 earnings from tourism sector has increased to $3-16 billion in 2024 from$2.06 billion in 2023

Foreign remittances of expatriate Sri Lankan workers had risen to US$ 6.5 billion last year compared 5.9 billion in 2023, Central Bank data showed.

In 2023, then-Minister of Agriculture Mahinda Amaraweera announced that Sri Lanka had achieved self-sufficiency in rice, negating the need for imports in 2024.

This milestone reflected years of concerted efforts by farmers and government initiatives to boost domestic production.

However, the situation has taken a dramatic turn under the current government led by Anura Kumara Dissanayake. The nation is now experiencing a severe downturn in agricultural productivity, raising serious concerns about food security and economic stability.

Causes of the Crisis

Policy Failures: The abrupt transition to organic farming in 2021, without adequate preparation, led to significant reductions in yields of both rice and coconuts.

Economic Turmoil: Forex shortages and inflation disrupted the import of essential agricultural inputs like fertilizers and fuel.

Climate Challenges: Unpredictable weather patterns and droughts have further exacerbated the situation.

The government has attributed the crisis to the fiscal and agricultural mismanagement of the previous administration. However, critics argue that the current leadership must take greater accountability for stabilizing food production and supply chains.

The Rice Shortage

Rice, a staple for Sri Lankans, has become increasingly scarce and expensive. Minister Nalinda Jayatissa recently admitted that unreliable data on national rice requirements and cultivation levels had compounded the problem.

This lack of accurate information has led to misguided policy decisions, including price controls that have worsened shortages of red rice. Data suggests that red rice sometimes shifts to Samba due to factors like lower production, higher demand, or tourism-related consumption.

Although Sri Lanka imported 168,000 metric tonnes of rice to address the shortfall, analysts criticize the current tax policies. A special commodity levy of ₩65,000 per tonne, equivalent to 40-50% of the export price of parboiled rice from India, has driven up domestic prices. This has resulted in excessive profits for millers while burdening consumers.

Coconut Industry in Decline

Sri Lanka, once a global leader in coconut exports, is now facing severe shortages. The coconut harvest has steadily declined, dropping from 3.35 billion nuts in 2023 to a projected 2.95 billion in 2024. For 2025, the first half harvest is forecasted at just 1.41 billion nuts, indicating a 300-million-nut shortfall.

The Ceylon Chamber of Coconut Industries has urged the government to permit the import of coconuts, dried chips, or kernels to maintain export orders and moderate domestic prices. Despite concerns about disease, importing coconuts could help Sri Lanka retain its export markets, particularly for high-value products like virgin coconut oil. The island exported $850 million worth of coconut products in 2024, up from $708 million in 2023, but risks losing market share to competitors like Vietnam without immediate intervention.

Fertilizer Crisis and Long-Term Solutions

The decline in coconut production is primarily attributed to a lack of fertilizer application over the past five years. Fertilizer prices have skyrocketed, making it unaffordable for many farmers.

A 50kg bag of coconut fertilizer, which once cost ₩1,500, now costs between ₩8,000 and ₩9,000.

The chamber has called for subsidies to make fertilizer accessible to small farmers, emphasizing that proper fertilization could boost yields from 56 to 86 nuts per tree within a year.

Deputy Minister Chathuranga Abeysinghe has highlighted inefficiencies in domestic coconut usage, noting that traditional extraction methods yield only 30% efficiency compared to 75% in industrial processes.

While he advocates for optimizing coconut use to increase export revenues, his statements have sparked public backlash for appearing to prioritize economic gains over cultural traditions. And house hold practices in coconut scarping as well as wastage in the usage of coconut in cooking

Public Reaction

The Deputy Minister’s call for coconut conservation has been met with widespread criticism. Many Sri Lankans view coconuts as integral to their daily lives, with traditional dishes like pol sambol and kiribath deeply embedded in the national identity.

Critics argue that the government should focus on systemic solutions, such as improving agricultural output and addressing inefficiencies, rather than shifting the burden to households.

Free Trade Agreements and Policy Continuity

Despite pre-election promises to reassess free trade agreements (FTAs), the government has decided to proceed with the FTA with Singapore.

Deputy Finance Minister Harshana Suriyapperuma justified this move as a matter of policy continuity, noting that portions of the agreement had already been implemented.

The FTA involves a phased reduction of import duties and para-tariffs over 5-6 years, aiming to boost trade and economic growth.

While some critics oppose the agreement, others see it as a step toward integrating Sri Lanka into global supply chains. The Monetary Authority of Singapore’s stability-focused policies contrast sharply with Sri Lanka’s volatile economic management, highlighting the need for sound fiscal and monetary strategies.

State-Owned Enterprises: Restructuring vs. Privatization

The restructuring of state-owned enterprises (SOEs) remains a contentious issue. The IMF has emphasized the importance of managing SOEs prudently to prevent fiscal risks.

While the previous government initiated privatization efforts, the current administration has opted for efficiency improvements and corruption reduction as its primary strategies.

Cabinet Spokesman Nalinda Jayatissa stated that privatization would only be considered if efficiency measures fail.

The government’s reluctance to privatize SOEs like SriLankan Airlines and Ceylon Petroleum Corporation has drawn criticism from the IMF, which views SOE restructuring as critical to economic stability.

Broader Economic Implications

Sri Lanka’s food and agricultural crises underscore deeper economic challenges. High production costs, inefficient policies, and climate vulnerabilities have strained the agricultural sector, while import controls and taxes have exacerbated shortages.

The government’s focus on short-term measures, such as import substitutions and conservation campaigns, has not addressed the root causes of the crisis.

The country’s reliance on imports for basic commodities like rice and coconuts highlights the need for comprehensive reforms.

Policymakers must prioritize investments in irrigation, research, and technology to enhance agricultural productivity.

Additionally, fostering transparency and efficiency in SOEs and trade agreements could help stabilize the economy and restore public confidence.

Conclusion

Sri Lanka stands at a critical juncture. Addressing the food crisis requires a multi-pronged approach that includes sound agricultural policies, efficient resource management, and long-term economic planning.

While the challenges are immense, the nation’s rich agricultural heritage and resilient workforce provide a strong foundation for recovery. Effective governance and strategic investments can help Sri Lanka reclaim its position as a self-sufficient and prosperous nation.

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