Sri Lanka's crisis has some key learnings for India

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Sri Lanka currency-ImResizer

Sri Lanka's crisis has some key learnings for India

The headlines strike you like a bullet to the chest: Seemingly, various news reports cite how the currency of your country has plummeted overnight by more than 50 percent. Everything, from your savings to your income feels like a moot point. There’s shock, trauma, and you are not the only one as you find your entire nation in the throes of chaos overnight. The screaming newspaper headlines only offer merely a snippet as words cannot quite begin to describe the ineffable. It’s difficult to process what went wrong.  You find yourself at the point of despair and are looking for someone to blame? Was it poor policy decisions, geo-political tensions, or just a consequence of the pandemic? There is perhaps no one singular reason.

Source:Refinitiv Datastream

This is the situation that Sri Lanka finds itself thrust into today. There is The New York Times that reads “Sri Lanka’s plunge into organic farming brings disaster”.  Prior to the pandemic, the newly-installed Gotabaya Rajapaksa government’s populist tax policy measures (such as reducing the VAT rate) caused a drop in revenue at a time when the government’s finances were already precarious. Then, in April 2021, President Rajapaksa said that chemical fertiliser imports will be totally phased out shortly, despite the fact that the economy was still reeling from the devastation caused by the pandemic. Whether the goal was to encourage organic farming or to prevent money from leaving the nation via imports, it exacerbated an already dire situation. Since then, the cost of food and other necessities has risen dramatically. It’s a huge setback for a country with 22 million people that was classed as an upper middle-income country by the World Bank only three years ago. In March, the Sri Lankan currency sank dramatically, as food inflation soared to over 30%. Foreign exchange reserves have dwindled to less than $2 billion, even as the country’s foreign debt adds up to about $50 billion.

A failed experiment

Faced with a worsening economic and humanitarian crisis, Sri Lanka postponed an ill-fated nationwide experiment in organic agriculture this winter. In his 2019 election campaign, Sri Lankan President Gotabaya Rajapaksa vowed to convert the country’s farmers to organic agriculture over a ten-year period. Rajapaksa’s administration followed through on that pledge in April, placing a statewide ban on the importation and use of synthetic fertilisers and pesticides, as well as requiring the country’s 2 million farmers to switch to organic farming.

Sri Lanka’s economy is structured in such a way that it depends heavily on imports for many essential commodities. Tea and coffee were some of the country’s primary exports. With organic farming, the end outcome was harsh and quick. Domestic rice output plummeted 20% in the first six months, despite assertions that organic methods can deliver equivalent yields to conventional cultivation. Sri Lanka, which had previously been self-sufficient in rice production, has been compelled to import $450 million worth of rice, despite domestic rice prices rising by roughly 50%. The embargo also harmed the country’s tea harvest, which is its main export and source of foreign currency.

By the time the government acted, it was too late and the damage had already been done. In November 21, with a steep fall in tea production, the fertilizer ban on major export crops such as tea, rubber, and coconut was partially lifted. In a quagmire, Sri Lanka’s government faced facing angry protests, unprecedented inflation, and the fall of its currency; it led to a policy suspension for several key crops signalling the death knell for Sri Lanka’s organic farming policy.

Organic farming can work

In stark contrast to Sri Lanka’s supposedly organic farming failure is Sikkim, India’s first state to go fully organic on 18th January.  The journey to being fully organic for Sikkim took an entire decade. During this period, Sikkim used organic approaches to transform 75,000 hectares of farmland into certified organic farms. The state presently produces 800,000 tonnes of organic food, about 65 percent of the total 1.24 million tonnes produced in India. Sikkim has quietly demonstrated that turning organic does not imply a drop-in yield. The government’s decision to fund the initiative, paying Rs 8,400 per acre for the first three years to get the land certified organic, was critical to Sikkim’s transition.

Six of the two-dozen licenced bodies that certified the property followed the requirements given forth in the National Program for Organic Production, which has been in operation since 2001. 14 service providers, including government agencies and commercial businesses, are assisting the farmers with the necessary knowledge and documentation. Under a state law, anybody found using or storing chemical fertilisers or pesticides can be penalised Rs 1 lakh and/or imprisoned for up to three months. A parcel of farmland must be certified organic for three years, according to the regulations, with the certifying organisation inspecting the property once a year during that time. Other states in India that succeeded with organic farming adopted a zero budget natural farming approach.

Did organic farming really fail in Sri Lanka?

Sri Lanka’s economic failure can be attributed to multiple reasons such as white elephant infrastructure projects and populist tax policy changes. The country did not get sufficient time to make a transition to organic farming. The announcement by the government to go organic was also not well thought off to make an impact.

The overall cost of fertiliser imports and subsidies was estimated to be close to $500 million per year by 2020. With fertiliser prices on the rise, the bill was expected to rise much more in 2021. Banning synthetic fertilizers seemingly allowed the government to kill two birds with one stone: improving the nation’s foreign exchange situation while also cutting a massive expenditure on subsidies from the pandemic-hit public budget. However, the country’s farmers were not prepared for the transition and this greatly affected farmer sentiment. The supply chain was not for agriculture was also not equipped as organic farming needs access to bio-pesticides.  Conversely, Indian farmers were trained to be self-reliant by developing local seed treatments such as bijamrita, preparation of a microbial inoculum (jiwamrita) and techniques such as cover crops with mulching (achhadana) to enhance soil fertility and to fight pests.

 

 

 

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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