• The impact of agri production decline 

Government statistics reveal that Sri Lanka’s domestic production of key crops such as paddy, tea, coconut, and rubber, along with fish, has declined over the first two months of the year, marking a troubling chapter for a nation that is on a journey of economic recovery. 

According to the Central Bank of Sri Lanka’s (CBSL) Agriculture Sector Data Bulletin for March, paddy production for the 2024/2025 Maha season, based on the sown extent as of end January this year, is forecast at 2.61 million MT, a 4.2% decline from the previous Maha season.

Paddy production for the 2024 Yala season is 1.98 million MT (an 8.8% increase from the previous Yala season), where total paddy production for 2024 was recorded as 4.7 million MT (a 4.1% increase from the previous year).

Fish production decreased by 15.1% Year-on-Year (YOY) during January this year and marginally increased by 1.0% (YOY) in February, largely driven by declines in inland fishing activities. Fish production increased marginally by 1.0% (YOY) in February, with the increase in marine fishing activities being the sole contributor, while inland fishing activities recorded a decline.

While domestic tea production decreased by 22% (YOY) in February, global tea prices continued to decline. Domestic tea production decreased by 22% (YOY) during February, mainly attributed to dry weather conditions.  

Coconut production experienced a significant YOY decline of 31.6% in February as well. Domestic coconut production decreased by 31.6% (YOY) during February.

Domestic rubber production saw a YOY decline in February, according to provisional data from the Rubber Development Department.

Stakeholder concerns 

Speaking to The Sunday Morning, Tea Exporters’ Association Sri Lanka (TEA) member Jayantha Karunaratne termed the decline in tea production as an “alarming situation,” noting: “The quantity of tea has dropped and we are all concerned. It is definitely affecting our sales. This has been happening over a period of time. It’s not a positive sign and we can see a real decline in tea production in Sri Lanka.”

He pointed out that this decline in production was a trend that had been observed for the past few years. 

He further noted that he did not see any major measure undertaken to course correct: “These are long-term things. In addition to weather, fertiliser and replanting are also important. 

“I’m not sure if the fertilising is being carried out properly. Even with replanting, Regional Plantation Companies (RPCs) are doing it to some extent, but about 70% of plantations are smallholders and I don’t see them undertaking replanting. This is not a good sign for the tea industry. All these have to be addressed.”

“Financially, there has been no major impact up to now; we are almost stagnant in export value, because it is a very marginal decline. But to some extent, when quantities are low, prices increase due to demand,” he added. 

According to Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) Director General Sisira Ranatunga, the most pressing issue at present for industrialists, manufacturers, and exporters in the sector is the US tariffs.

“We are not seeing any clear plans for rubber cultivation from the Government. In traditional rubber-growing areas such as the Kalutara District and others, there is a climate impact. In addition, there is still no formal solution to the leaf fall disease, while productivity has also declined. 

“We have requested the Government to support the Small and Medium-sized Enterprise (SME) sector, since more than 70% of rubber comes from smallholders. We need some concrete solutions, with productivity improvements in the short term and proper cultivation over the long term.”

He posited that rubber production would continue its downward trend this year as well, making it challenging to source quality rubber and latex from the local market, compelling manufacturers to import. He pointed out that there was a loss of motivation among cultivators due to various issues, including the fertiliser issue of the previous years. 

All Ceylon Fisherfolk Trade Union Chairman Aruna Roshantha similarly noted that there had been a decline in the fish harvest due to a majority of boats refraining from going out to sea due to issues with fuel, ice, and the lack of a stable price for fish. He also noted that smaller fishermen were affected by the X-Press Pearl incident, which had resulted in significantly lower fish harvests. 

“While the domestic market has not collapsed due to imports, there are issues with quality,” he noted. 

Given the contribution made by fishers to the country’s economy, the drop in fish production means that the economy of fishermen will also collapse. 

He stressed that they were yet to see the expected changes being made by the new Government to address the issues afflicting the fisheries sector, which he termed as a serious concern, noting that there needed to be proper policy instead of simply imposing conditions of the International Monetary Fund (IMF) on people.

A cyclical impact 

According to University of Peradeniya (UOP) Department of Economics and Statistics Professor Ananda Jayawickreme, production decline can lead to a cyclical impact on the economy, with both macroeconomic collapse and the creation of social issues such as increased poverty among citizens. 

Using the context of paddy production, he explained: “The breakdown of rice production, especially during the Maha season, can lead to year-round rice shortages islandwide. Currently, the fields are still being harvested, but in other years, at this stage, there were significant stocks of paddy available. 

“This year, there are already shortages of certain rice varieties, such as samba. Therefore, it should be no surprise if the price of a kilogramme of rice increases to Rs. 300-350 along with the shortage.”

According to him, the decline in paddy production will lead to higher prices since there will be a shortage of the necessary stocks of rice. “With the decline of the Maha season harvest, should there be a shortage created in future, firstly, the local rice prices will rise steeply, perhaps by about 50-60%. Next, the Government will have to import rice, for which we will have to spend massive amounts of foreign exchange, which will in turn impact other imports,” he added.

He further pointed out that this would be problematic in a context where there was likely to be a decline in the expected foreign revenue, for instance the lower-than-anticipated tourist arrivals and a lack of significant improvement in foreign worker remittances, alongside export issues such as US tariffs, which have created great uncertainty for the manufacturing sector and investors. 

“Accordingly, a loss of this production can lead to increased food inflation in the country. An increase in food prices will cause the rate of inflation to increase. In a context where incomes are not increasing in a notable way, should these individuals face rising inflation, their living conditions will deteriorate, driving more into poverty.  This ultimately means the Government will have to spend more on welfare, reducing the country’s reserves.

“As such, a decline in production can create serious macroeconomic imbalances in future. This is a cyclical ripple effect, which can ultimately trap the country in a cycle of inflation.”

Potential Govt. measures

Accordingly, the CBSL or the Government needs to have a proper estimate of the decline in production and take appropriate policy measures to import the necessary goods methodically. Managing this situation requires balance and proper data, since while importing can lead to macroeconomic imbalances, not importing can cause social issues.

Similarly, a decline in tea, coconut, rubber, and fish production also leads to lower foreign exchange earnings as well as an increase in prices domestically. As such, a decline in production of any of these items will lead to an increase in food prices in the local market, which directly impacts consumers by absorbing a larger component of their income, likely leading to inflationary conditions. 

“When production drops, there is an impact on prices. Since production cannot be controlled immediately, the Government, in order to control prices, should take decisions such as reducing tax revenue, since the repercussions of inflation can be greater than the relief from tax collection,” Prof. Jayawickreme explained. 

He pointed out that any failure to manage this situation through economic policy would ultimately impact ordinary Sri Lankans. 

“Therefore, the Government should decide which is more important in macroeconomic management – this is the issue in following the IMF agreement to the letter, since the Government’s ability to align its policies is restricted based on renegotiating with the IMF. As a result, the Government will have no ability to either reduce Value-Added Tax or fuel prices to control inflation. 

“It is the consumer who will have to face the repercussions of a decline in productivity, having to cut their consumption drastically in a context where their incomes don’t increase, while on the other hand the country will have to import significantly, leading to a balance of payments crisis once again. This means that our reserves will decline drastically and the rupee will further depreciate,” he said.

In order to address this, as a policy decision, the Government must protect price stability by following inflation targeting monetary policy, in addition to embarking on agricultural development programmes by identifying the causes of lower production as well as diversifying Sri Lanka’s agricultural crops.

When contacted, Ministry of Trade, Commerce, Food Security, and Cooperative Development Secretary K.A. Vimalenthirarajah noted that the Food Policy Committee would make a call on the matter.