Sri Lanka:Development & Pitfalls: Agricultural Marketing
Posted on November 5th, 2019

Garvin Karunaratne,Ph.D. Michigan State University, former Government Agent, Matara. 

I am prompted to write about what was achieved in Sri Lanka since we gained independence in order to educate some of our presidential aspirants who have said that we have not achieved anything.

I can emphatically state that Sri Lanka had done wonders in the field of agricultural marketing within the short period of three decades  1948 to 1977.  By 1977 Sri Lanka stood far ahead of what all .other countries have ever achieved. However, it is sad to note that after 1977 the development infrastructure that had been built up with great care was privatized and abolished under the advice of the International Monetary Fund(IMF) by the Government of President JR Jayawardena.

The main programmes of agricultural marketing were:

The Guaranteed Price Scheme for Paddy & Cereals

Rice Milling

The Vegetable & Fruit Marketing Scheme

The Cannery

The Bakery

The Fair Price Shops

Agricultural Loan  Scheme

I entered the Public Service of Sri Lanka in 1955 as an Assistant Commissioner in the Department for Development of Agricultural Marketing, covering its activities in Districts and was  in charge of the Vegetable & Fruit Purchasing Scheme in 1957. In 1958 a special Department, the Department of Agrarian Services was created for furthering agricultural marketing and also agricultural production where I was an  Assistant Commissioner. In 1961 I was in charge of the Agricultural Loan Scheme.  I was an Assistant Commissioner of Agrarian Services from 1958, but covered all activities of the Marketing Department till 1960.

The Guaranteed Price Scheme for Paddy and Cereals was meant  to purchase paddy and cereals from genuine producers at a premium price well above the prices offered by traders. The price was also  above the World Market price. This was done as an incentive for producers., as otherwise the producers will be at the mercy of traders who tried to buy their produce at the lowest possible price.  The Department had established stores all over producing areas and had rice mills to mill the paddy.   One of the key features was that purchases were to be made only from genuine producers.  . The agricultural overseer of the area had to produce a list of cultivators and owners who cultivated in each season, giving the extent cultivated in the particular season  and based on the average yield, the cooperative society was authorized  to purchase only on this list. Thus in the Sri Lankan system the premium price reached the genuine cultivator. Other countries that had similar programmes purchased produce from anyone and then the premium price offered went to the persons who handed over the produce, mostly to traders who had collected the paddy. 

This system was continued by the Department of Agrarian Services when it took over the guaranteed price scheme. Later the Paddy Marketing Board took over the paddy purchasing scheme and continued it.  This was a great success and I am certain that this purchasing scheme was greatly instrumental in making Sri Lanka self sufficient in paddy production by 1970. It is important to note that Sri Lanka became self sufficient while implementing a rice ration scheme offering rice at a low rate. If not for the rice ration scheme the poor would not have been able to buy rice at the market rate.

Rice Milling

Rice Milling came to the fore when Sri Lanka had to mill large quantities of paddy that were produced by the success of the green revolution. The Marketing Department(MD)  imported a few large rice mills and installed them in the producer areas- at Ambalantota, at Anuradhapura and Amparai. These were the best available then.  I supervised the working of the rice mill at Ambalantota for two years. The MD also called for applicants from the private sector to invest in rice milling.  MD produced  specifications of rice milling machinery that can be imported and also drafted plans to construct rice mills- with storage, drying floors etc. The Private Sector responded, applicants were selected and allocations of foreign exchange were  authorized for the import of machinery as at that time foreign exchange was controlled. The millers had to construct the buildings under the supervision of the Assistant Commissioners. I served as Assistant Commissioner in the Southern Province and I supervised the rice mills being constructed and getting into rice milling.  The response was quick and very successful. Many rice millers later became business magnates like Harischandras.

This method of using our private entrepreneurs was the opposite of what President JR Jayawardena did when  he had to import flour. Instead of depending on local entrepreneurs to mill the wheat to flour, he invited a multinational from Singapore-. Prima, to come over and establish flour mills, import wheat, mill and handover the flour to us. Then the profits went tax free to Singapore while in the case of rice milling the profits stayed in the country, benefiting our private sector. The Government also benefited because the rice millers paid taxes.

It has to be noted that rice milling was a great success, a feather in the cap of   Sri Lankan  investors.  It tells anyone that the  Sri Lankan private sector can  be successful if only the Government will give them some direction. Proper direction is required because otherwise many investors could undertake the same activity and further the Government has to actively control imports.

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The Vegetable & Fruit Marketing Scheme & Cannery

In order to ensure that Sri Lanka could produce all its vegetable and fruit, it was necessary to offer attractive prices to producers.  Generally traders tried to purchase at the lowest possible rates. The aim of a trader is to boost their profit.

The MD developed an islandwide marketing programme for vegetables and fruits. The MD appointed Assistant Commissioners to the Districts which produced large quantities of vegetables. These officers were expected to visit the producer fairs. All producers brought their wares for sale to the producer fair in the area. The fairs were held every week. The Assistant Commissioners in the areas informed the availability of vegetables and the prices at which the traders purchased to The Tripoli Headquarters in Colombo. Similarly the MD Unit at the wholesale market in Colombo reported the  prices at which the goods were being sold to retailers.  (Tripoli was a very large hangar at the Colombo Railway Goods Shed and this was the headquarters of the Vegetable and Fruit Marketing Scheme of the MD)

The Assistant Commissioner at Tripoli Market studied the prices at which the goods were being sold at Colombo wholesale market and the prices at which the goods were being bought by traders at the producer fairs. He would then fix a buying price for the main varieties well above the prices at which the traders purchased and he would keep a margin of around fifteen percent and fix the prices at which the goods would be sold at the MD Fair Price Shops. The buying prices were intimated to the District Offices by telegram and over the telephone.  The MD had Purchasing Depots and a fleet of lorries in the producer areas and a Marketing Officer will proceed to every important fair and put up a board giving the prices at which they would buy from producers.  The MD would buy from producers and dispatch the goods immediately to Tripoli Market in Colombo by lorry or by railway wagons. . 

The MD had, a main retail shop at Tripoli Market and around fifty small Fair Price shops in Colombo and a few in many cities.

Local producers would call over at Tripoli  with any produce they have and the MD purchased all produce..

Triploi Market opened at six in the morning and around ten or more wagons were always at the rail siding to be unloaded. In addition there were always around ten to twenty lorries. The goods were unloaded, allocated to the different sections- the Upcountry Unit, the Low country vegetable Unit or the Fruit Unit, where the goods were weighed, cleaned up and immediately dispatched to the retail units in the morning itself. By nine in the morning the goods received would be offered for sale at the retail units.

In case there was an excess that could not be disposed of Tripoli  Market would decide to have Van Sales where a van load of produce will be taken around selling to anyone. The Van Sales on many days will go on till late in the night till the full quantity was sold.

In case of goods that could be kept for the next day, there were a few cold rooms at Tripoli but the idea was to sell the produce more than storing.

The MD purchased around ten percent of the produce but the presence of the MD buying from producers at a high purchasing price meant that traders who bought from producers too had to buy at the price offered by the MD because otherwise they would not be in business.

Many cannot figure out the business acumen that we followed in MD.  In my words, The motto of the MD was to pay the highest possible price to the producer and sell at the lowest possible price to the consumer a creation of Ceylon administrators basset and BLW. Fernando. We as Assistant Commissioners  tried hard to work on this tight rope. At the end of each month a profit and loss account was made and I have had to bear the brunt of censure if either I incurred a loss or achieved a profit of over 10%”(From: How the IMF Ruined Sri Lanka)

The installation of a Cannery in the early Fifties proved to be a boon to producers. The entire quantity of Red Pumpkin, Ash Pumpkin, Melon and Oranges were purchased. These were made into Golden Melon Jam, Silver Melon Jam and Orange Juice. Pineapple was turned into  Juice and  Jam.  Tomatoes were made into  Juice and Sauce.  With the opening of the Cannery chena producers made fantastic incomes.

By the mid Fifties within a few years from the  installation of the Cannery the MD had in addition to making our country self sufficient in Jam, Juice and Sauces, even built up a foreign trade exporting pineapple pieces and rings. Assistant Commissioner Oswald Tilekeratne in charge of the Cannery often took wings to foreign lands.

The Vegetable and Fruit Marketing Scheme had two aims:  To provide good prices to producers and also to offer goods at reasonable prices to city consumers.  When a Fair Price Shop is selling goods , no one will go to a private shop, unless the private shop too sold at a similar price. The MD  unofficially controlled prices. The Scheme controlled inflation, by not allowing traders to keep a fat margin.

 Fair Price Shops

Through Fair Price Shops  established in every City- there were around fifty in Colombo alone,  the Department, ensured that the prices of all essential commodities were indirectly controlled and the traders were compelled to sell at fair prices to consumers.”

In addition to the vegetables and fruits, the Shops had for sale all essential items like rice, sugar, flour, lentils,  and MD Cannery products. The aim in having essential items like lentils, sugar and flour always in stock was to avoid traders creating a shortage and thereby increasing the prices. When stocks are available in the MD Shops people would not buy at the private shops unless they offer at a reasonable rate, equal or priced a few cents above the MD shop price.

Bakery

The MD had a first class bakery that made quality bread, and  pastries and these items were sold at many outlets..  Expertise at the Bakery were used to run large Restaurants at festivals like at Kataragama. Food preparations were sold at rock bottom prices and this actually controlled the prices at Hotels in Kataragama. during the Festival period.  I supervised this Restaurant for the two years I served in the Southern Province.

The Agricultural Loan Scheme

The Department of Agrarian Services provided loans to agricultural cooperative societies. In 1961 I worked in charge of this loan scheme. Cooperative Societies had to provide cultivators with funds to buy agricultural requisites like fertilizer. Every Cooperative Society would collect details of the loans that are required, make a total, check whether the applicants were genuine producers and submit papers to get a loan from the Department of Agrarian Services.

The Cooperatives would be given the funds to be distributed to the producers. It was also my duty to visit the cooperative societies at random and inspect their books to ensure that the loans had been disbursed and also that recovery had been done.

The Cooperative Wholesale Establishment(CWE) While the Marketing Department handled the marketing of local produce, there was a need for imported  goods to be made available at reasonable rates. The CWE was established with this aim in view. Goods that were being imported by traders were sold keeping a high margin of profit and the CWE imported the same items and sold them at rock bottom prices , keeping a small margin of profit. The CWE ran a number of shops in Colombo and the outstations.  The Salu Sala  was like the CWE dealing with textiles. These trading institutions played a major role in enabling the people to buy imported essential items at reasonable rates. 

This entire agricultural marketing infrastructure to help the producer as well as to bring an increase in production was totally intact till the United National Party won the 1977 general election. The newly elected Government of President Jayawardena requested financial aid from the International Monetary Fund(IMF). Then the IMF insisted that if financial assistance was required Sri Lanka had to follow the Structural Adjustment Programme(SAP). This SAP had a number of provisions that were damaging to Third World countries but President Jayawardena agreed to follow the SAP conditions. While Sri Lanka submitted India and Bangladesh did not follow the SAP. They dodged and rejected the SAP. The main condition that ruined the agricultural marketing infrastructure that Sri Lanka had built up was the provision that the Government could not do any commercial undertakings and that all commerce should be left to the private sector. In fact in the SAP, the Private Sector was adopted as the engine of growth. The other provision was that Sri Lanka had to follow a high interest rate. The interest rate was increased and entrepreneurs had to obtain loans at the interest rate of 24%, which was forbidding.  This caused the death knell of the agricultural marketing infrastructure we had built up with great care. I am concerned because I was a part of it and have been fine tuning the system, wherever I worked for eighteen long years.

In detail, The Guaranteed Price for Paddy was abolished and in its place during  the harvest season  the Government fixed a price to purchase paddy. Paddy was purchased from anyone who brought it to the Government store. The arrangement to buy from genuine producers was dropped. Today, our Government makes a glorious utterance that they have purchased a great deal of paddy, but the fact that the system had only helped the traders and not the actual producer is forgotten. In fact today there is not even an agricultural overseer at the village level who can tell who cultivated what extent.  Paddy farming is done at the whims and fancies of the farmers who have no one to get any help or instruction. Earlier there was an Agricultural Overseer and in the days of the Agrarian Services there were Cultivation Committees with a qualified Field Assistant at the village level. The Paddy Lands Act was abolished and with this the Cultivation Committees ceased to function. Even today there is a vacuum at the village level. It is sad that the Ministry of Agriculture does not realize this fact.

In the case of Rice Milling, the State of the Art Rice Mills of the MD which ultimately belonged to the Paddy Marketing Board were abandoned. The most valuable rice milling machinery was in some cases sold for scrap. Once I gazed for ten minutes at the Ambalantota Rice Mill, my home for two years. I could hardly believe my eyes. It was on a plot of around five acres that had been apportioned to various departments. Many valuable parts of the machinery which we doted on with great care were strewn all over. That was a mill that milled 4000 bushels of paddy a day and when we started the mill at eight in the morning on a Monday it worked non stop day and night till it was stopped  on Saturday night. Sunday was for cleaning and re surfacing the rollers. That was done with great care. Now everything was in a scrap heap. I can make a statement that new rice mills even if bought cannot be easily installed. To start with it is not easy to find suitable  land. That itself will take years if at all it can be found. It is a colossal irrepairable damage. 

The Vegetable and Fruit Marketing Scheme was abolished and now the traders have a hay day making fat margins. In fact I visited a friend in Pangiriwatta recently and I saw a four story house that had sprung up overnight. I inquired from my friend and down came the reply that it belonged to a vegetable wholesaler in Colombo who buys a new limousine every year. In the days of the MD the profits they could keep were low and that was how the Government could offer vegetables and fruit at reasonable rates to consumers and also keep inflation at bay.

The Cannery was privatized and it is no longer run to help producers. The MD Cannery enabled producers to sell all their Red Pumpkin, Ash Pumpkin, Tomatoes etc and producers had good incomes. Simultaneously Sri Lanka was self sufficient in Jam, and Fruit Juice, Tomatoe Sauce. Last year the only Tomato sauce available in a Supermarket in Colombo was from Colorado in the USA. All Jam and Fruit Juice comes from Australia and the USA. The foreign  trade we had built up in exporting pineapple rings and pieces was lost.

The CWE was partly abolished by President Jayawardena and what remained was further abolished during the UNP reign of 2001 to 2003 by Prime Minister Ranil Wickremasinghe and Minister Ravi Karunanayake. The CWE was reestablished by President Rajapaksa but it could not function efficiently as it did earlier. 

When in 1977 Sri Lanka was handed over to the UNP Government of President Jayawardena the foreign debt of |Sri Lanka was only $ 750 million. Chandra Maliyadda one of our then Permanent Secretaries had quoted that in 1970 we were not having a foreign debt and he queried as to how Sri Lanka had built up a massive debt today of around 56 to 60 billion dollars.  Today there is no production and it is a question of importing everything.

The Agricultural Marketing Infrastructure that we had built up is unique to Sri Lanka. There is no other country that had any similar infrastructure. The closest in paddy is BULOG of Indonesia but that too did not function as efficiently as our Guaranteed Price System. Bulog too was abolished at the instance of the IMF.

This was the legacy left by the United National Party of President Jayawardena. It is a  very sad story that I have narrated in great detail in my book:  How the IMF Ruined Sri Lanka and Alternative Programmes of Success, (Godages) 2006.

Garvin Karunaratne,Ph.D. Michigan State University, former Government Agent, Matara. 

Author of How the IMF Sabotaged Third World Development(Kindle/Godages:2017)

 05/11/2019

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