Marisol Smith

Food price policy in Sri Lanka

Abstract This paper examines selected aspects of stable food markets in Sri Lanka in order to draw conclusions about the role of the state in promoting price stability and equity for producers and consumers. The paper describes the food security system in Sri Lanka, and carries out a time-series analysis of price seasonality and margins in rice marketing 1980–1995. Interactions between rice and wheat markets in the context of national food availability are also examined. Private rice marketing channels are found to be competitive and efficient, but in recent years conflicting signals have been created by policy decisions taken separately in the rice and wheat markets. It is concluded that a large proportion of state organizational involvement in staple food markets is redundant, because trade policy instruments are capable on their own of achieving government food security objectives, without recourse to so much state involvement in marketing channels.

Reforming the Role of Government in Agricultural Markets

For most of the twentieth century, particularly after the 1930s depression, governments worldwide intervened substantially in both input and output markets for agriculture, in some countries excluding private firms altogether. Seed, feed, fertiliser, pesticides, finance and advice were provided by state organisations or with state subsidies. Fixed asset investment (e.g. land purchase and development — dams, roads, fences) was often similarly assisted. Crop purchase was often carried out by widely distributed state depots offering standard prices across a whole country (pan-territorial pricing). Grain stocks were accumulated by the state in order to set and stabilise consumer prices. Large bureaucracies were set up to administer public agricultural services, imposing much budgetary cost — particularly for price stabilisation, mostly grains. The main purpose was to achieve self-sufficiency in food staples or to promote exports of agricultural commodities.

How can Quality be Assured

Traditionally the public role in quality assurance for agricultural produce has been considered high compared to other goods because: external effects of agricultural produce and food processing can be great: the public is especially concerned about diseases (e.g. salmonella, e-coli, BSE) and cancer-related substances (carcinogens) carried in food and feed. These require standards, enforced by inspection and sometimes by licensing in the case of premises (food processing, restaurants). Public regulation against infectious diseases (e.g. in water, animals, plants, seeds, feeds, food) is present in most countries, with enforcement by government agencies, central or local, and varying greatly in effectiveness. reputation effects are limited for agricultural produce: agricultural produce is in many cases a commodity produced by numerous farms, rather than a unique product of a recognised firm. Reputation effects are stronger where the product is clearly identified with the seller (branded goods, goods immediately consumed, e.g. restaurant food) and where quality attributes are visible (‘transparency’). Neither has applied strongly to unprocessed agricultural produce.

Government and Markets: Theory and Concepts

The middle decades of the twentieth century saw a rise in the role of the state worldwide. State expenditure as a proportion of GDP rose dramatically, influenced in part by the replacement of the market with the state in the Soviet Union and China to stem perceived evils of capitalism, and by the popular clamour post-World War Two for better health, education and infrastructure. But with market economies outperforming centrally planned economies, and much state enterprise accumulating losses, the tide of ideology and state reform in the 1980s and 1990s turned towards expanding the private sector. The main targets for privatisation were state manufacturing and state farming enterprises. But state services were brought into the privatisation focus too.

Can Food Supplies be Entrusted to the Market

The central question for governments in liberalising the grain trade is whether food supplies can be entrusted to the market. Previous chapters suggest the increased orientation by countries worldwide to making markets the basis of their staple food systems. The key practical issues are, first, how the process of deregulating the grain trade internally and externally can be managed politically, without disrupting food supplies or markets for farmers; and second, how the staple food trade can be enabled to work efficiently, cover the whole country and be accessed by the whole population.

Developing Agricultural Trade: New Roles for Government

State trading and restriction of private agricultural trade became virtually the norm in many countries from the mid-twentieth century, particularly in the grain trade, owing to distrust of private trade, and policies of national self-sufficiency in grain and protection of domestic agriculture from foreign competition. High costs of state trading and public stocking of grain, plus the perceived benefits of market development, have swung policy preferences towards reducing trade restrictions and developing the private trade. Better trade information, quality assurance through branding and traceability, and the emergence of futures and options markets for the trading of risk are features of market development in agricultural trade. Market failure in the sector is thereby reduced. This provides the opportunity for government to shift its role in agricultural trade from buyer and seller to provider of infrastructure, facilitator of trade development1 and regulator of trade in the public interest (providing a legal framework, ensuring competition, consumer safety and protecting natural resources).

What public role is there in market information

Recent market development efforts in developing and transition economies place much emphasis on the state’s role in improving the environment for business. Provision of market information is often viewed as a priority, because adequate information about buyers, sellers and prices is usually lacking in poorly developed markets. In some countries there are long-standing market information services (MISs) run by government. Others have been set up recently with help from donors. In the light of theory and current developments, this chapter reviews briefly market information systems run by government departments in Ghana, India and Sri Lanka, plus one initiative by a farmers’ representative organisation in Zimbabwe.

Can Public Services to Marketing be Contracted Out

Public services to agriculture are in a state of change. The force for change is the ongoing effort, reflected in the ‘new public management’, to bring market relations into public services provision as much as possible. Contracting between buyers and sellers of services is one of the key components of this approach. This chapter first overviews contracting in relation to the new public management and the circumstances under which contracting succeeds or fails. Case studies of contracting out public services to agricultural marketing in developing countries are then presented and discussed: food security rice stocks in Sri Lanka; wheat milling in Sri Lanka; public grain storage in India; exporting maize from Kenya; and rural feeder road construction and maintenance in Ghana. Lessons from the case studies are brought together in the conclusion. The main observation is that managing reform of public organisations, rather than managing contracting out, is the underlying constraint on making NPM-style public management innovations work.

Can public marketing agencies be reformed

Can public marketing agencies be reformed and play a productive role in developing agricultural markets, either by becoming competitive private firms or by providing public services beneficial to trade? Or is dissolution the only option when policy is to encourage market development? This chapter focuses on reform of public marketing agencies in liberalisation of agricultural marketing, principally in Zimbabwe, Sri Lanka, Ghana, India and Kenya, in the light of theory regarding commercialisation of public agencies.