The Central Bank has said that agriculture subsidies are not beneficial instead the Government should explore policy initiatives aimed at increasing farmer income.
The Central Bank’s thinking as well as advise is contained in its Annual Report for 2006.
“Policy initiatives aimed at increasing farmer income would be more beneficial than providing subsidies,” the Bank had said.
It pointed out that the continuation of providing subsidies to products with relatively low value additions at market prices such as paddy would not ensure the long-term increase in farmers’ income since such crops have limited capacity to do so. Further such policies may also hinder crop diversification, which is a need of the time.
“Optimal benefits from the limited resources such as land and water could also be better harnessed by encouraging farmers to undertake more profitable high value added crops and animal husbandry rather than by providing them subsidies for crops where the value addition is rather low,” the Central Bank has said.
Though the Annual Report listed subsidies as one of the stimulants for improved agriculture growth in 2006, analysts said that the Bank had raised valid points hence the Government should take serious note.
Central Bank also said a sustainable growth in agriculture requires productivity enhancement, facilitating marketing and related infrastructure facilities, adopting consistent trade policies, providing rural financing and integration of crops and livestock.
A relatively robust performance by the agriculture sector helped the economy to grow to the highest level in three decades last year.
The agriculture sector grew by 4.7% compared with 1.9% in 2005 and its contribution to change in GDP was 11.1% as against 5.8% in 2005. The overall GDP grew by 7.4% in 2006 in comparison to 6% in 2005. However agriculture sector’s share of GDP amounted to only 16.8% as against 17.2% in the previous year.
The Central Bank said that agriculture sector in 2006 continued its recovery benefiting from strengthening partnership between public and private sectors together with favourable weather.
The efforts of increased agriculture productivity adopting new technologies such as usage of rain guards, drip irrigation and poly tunnels etc., switching to optimal usage of land and water resources making available inputs such as seed and fertilizer at subsidized prices, provision of credit facilities for agricultural activities, provision of tax concessions for importation of modern machinery and equipment required for agriculture related activities contributed to this recovery.
Further the livestock sector performed well with increased private sector activities and various incentives and assistance provided by the government including the Dairy Farmer Empowerment Project.
The production of other field crops (OFC) such as maize, big onions and soya beans reported sharp increases in 2006 benefiting from increasing domestic production. Providing post harvest handling links and equipment such as plastic crates and technical advise to farmers and enhancing marketing facilities too supported the increase in agriculture production.
Paddy output in 2006 recorded a new high level of 3.3 million metric tons benefiting from favourable weather and subsidized fertilizer. However farmers continued to face marketing problems as the government led paddy purchasing scheme faced several constraints.
Rubber production registered the highest level after 1996 supported by attractive prices and productivity improvements.
Fish production continued to recover following the set back experienced due to the tsunami. However, a few instances of labour unrest led to the decline of tea production marginally during the year.
Commenting on productivity enhancements, the Bank said it could be strengthened through further development of agricultural research and extension services. A close collaboration between researchers, extension service providers, formal corporate sector and farmers is necessary for the optimal benefit of new innovations.
The need for an aggressive strategy for the dissemination of technical, economic and environmental information was also stressed by the Bank, to better educate farmers.
Minimising post harvest losses, would benefit farmers, intermediaries and consumers. Promoting and providing incentives for value addition would help employment generation in agro processing industries.
