Ceylon - Current economic position and prospects (Vol. 2 of 2) : Agricultural problems and prospects

IRESTRICTED RELEAS~ 0 FReport No. SA-2a This report was prepar.d-or use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION I TTD D Tm 'TTr T"LTf XT/- OC'TCT1TrN1T % jX1.L1A41N.L L X, .L/1N1.%IV.L. £ L/0-1 .L A.L/.IN AND PROSPECTS OF CEYLON (in two volumes) VOLUME II AGRICULTURAL PROBLEMS AND PROSPECTS February 7, 1969 South Asia Department CURRENCY EQUIVALENTS Currency Unit - Ceylon Runee US$1.00 = 4.76 Rupees 1 Rupee = US$0.21 1 Million Rupees = US$210, 000 After November 21, 1967 US$1.00 = 5.95 Rupees 1 Rupee = US$0.17 1 Million Rupees US$167, 000 This report was prepared by a mission comprising Mr. Bilsel Alisbah (Chier of Mission), Miss H.j. Goris (General Economist), Messrs. Yoshiaki Abe (General Economist), William Humphrey (General Economist; part of the time), William Akhurst (Agriculture; FAO consultant), James O'Hagan Agriculture; FAu), George Naylor (Inoustry; consultant; and James Lowdon (Ports Engineer, consultant). Mr. Manfred Blobel joined the mission during the last week for discussions with Government officials. The mission was in Ceylon from the be- ginning of October 1968 to aboun November 7, 1968.  TABLE OF CONTENTS Pae No. BASIC DATA ......... CHAPTER I - GENERAL .............................................. 1 CHAPTER II EXPORT AGRICULTURE ................................ 3 A. TEA ........................................... 3 Recent trends .................................. 3 Financial position of the industry ............. 3 The replanting scheme .......................... .5 Research ....................................... 6 Governnent Dolicv ............................... 6 The basic problemn facing the tea industry ...... 7 Clonal tea ..................................... 7 Future production targets and the world market . 7 Location of the future tea area ................ 8 Clone selection in relation to market demand reouirements .............................. 9 Modernizatior and relocation of tea factories 9 The formulation of a onlicv for ten ............. 9 Policy on production and replanting ............. 10 Polv- on inepntivps for rpnlantins7 and rqisin of yields ................................... 12 Polirv nn research - -.-1- Present position ............................... 14 The future outloo ..l .. I C (YC.NTTP 1 . Present position ............................... 16 G vy erI.fCl nM, , n UsS a, n ...........................................1 The future outlook ............................. 18 D. MINOR EXPORTS ......................... ........ 20 CHAPTER III - DOMESTIC AGRICULTURE ....................... 23 A. RICE ............. .......... . . ...... . ..... 23 RectuU ULCuu ********* ******** ****** t d . Government policy ..... ............. 25 Factos behind recent producuio 0increases***** L. Physical production inputs ....................... 27 zLgric-U.L-LLUal t.AL0k.LU *...*. ** * .e ..... _Aj Organization .... ........ ............... 31 Future rice requirements ...................... 32 Futurte Prodution and self-suffcinc -I.... (Table of Contents continued) Page No B. SUBSIDIARY FOOD CROPS .-........................ 36 C. TOBACCO .... ......... . 37 D. MILK AND MILK PRODUCTS ............. ........ 38 STATISTICAL APPENDIX - TABLES 1 - 5 ANNEX I -A Study on Tea as a Basis for Policy Decisions Introduction ....*.... .......O646646....... Scope of the Study .......-..........,0. 3 ANNEX II - Alternative Projections of Tea Production ANNEX III - Estimate of Total Future Rubber Production ANNEX IV - Alternative Projection of Paddy Yields and Rice Reouirements ANNEX V - RubRidiarv Food Crons Production Targets in 1968 and Projected Production in 1969 BASIC DATA Area: 25,332 square miles Population: (1968 estimate) 12,000,000 Rate of growth (1967 estimE.te) 2.2% p.a. Population dnity* ([- s. mil1 To total area 474 To arable nd (1O6h) 1 171 (at current market prices) Rate of growth (1967) 7.0% JL LU %J.L rLIVW UIL \.-7UV-.L7UUJJ* Real income growth (1960-1966) 2.1% ntper capiv kv equ-vLeu _L U ULLLLLLI L"Iluju -rc'uc at~ Fac- U- / 67 4uLdeL A ±L1.L d ucus vemene rroiuuc as ra uor WJUk_ 7L)yo( J .(. u IL.LIuII Of wnch ('7: Agriculture >>.0 Manufacturing 11.3 Construction 4.2 Transport and Communication 10.5 Trade L4 .0 Other Services 23.6 % of GDP at Market Prices (Average) Gross investment 17 T Gross savings 10 12 Balance of payments current account deficit 4 2 Investment income payments U.0 U. Government revenue 23 23 Resource gap as a percent of investment 30 17 Sept.u, ly0 Average Annual Change () Rs. mi-llion 1961/62-1967/,8 Total money supply 1,849 6.0 Time and savings deposits 7Mh 11.0 Bank credit to public sector 2,605 10.2 Commercial Bank credit to private sector 999 9.4 -2- Public Sector Operations Rev. Estimates Average Annual 1967/68 Change (%) (Rs. million) 1961/62-1967/68 Government current receipts 2.227 Government current expenditure 2,115 6.3 Surplus/Deficit 112 Trregular Government capital expenditure 782 4.9 Total external assistance to public sector (net) 316 Sharp increase External Public Debt (US $ million) December 1968 December 1967 (est.) Total debt outstandinz (including IMF drawings) 313 225 Rate of debt service ratio to exnort 1P68 (PAt'-) 1oA7 earnings (including IMF repurchases) 7. 3,9% Balance of Payments (US $million) 1968 1967 1966 Total exports 4. Total imports 397 417 424 Current invisihloes (net) --2 Net current account balance -74 -70 -74 Increase~~~~r exhnerUie (est.) Average Tea, rubber, coconut products 92% 93% 93% Exla RRsre U'.O -JA4~J~L7VJU -L7V I y-O (est.) Average Gross foreign exchange reserves 78 76 91 IMV urza-wdng outstauing -L/ -Vf79 29 /T IL.-1LL o 1967 !966-6 7 (est.) Average Total disbursements 82 56 53 Grants 7 9 Loans 2/ 75 51 44 1/ End of year 2/ Correspond to IBRD definition of external public debt. CHAPTER I. GENERAL 1. Until recently Ceylon's agricultural sector provided the most ob- vious illustration of the country's major structural problem - namely a highly organized export sector beset by the problems of falling world prices together with a domestic agricultural sector of relatively low productivity. This low productivity stemmed partly from the fact that Government policy towards domestic agriculture was designed more to provide employment and in- come for the rural population than to raise either butput per man or output per acre. 2. The table below shows the relatively slow growth of both the econ- omy and the agricultural sector during the first half of the 1960's. This was partly due to exceptionally poor harvests in 1965/66. It should also be noted that export crops contribute well over half of the Gross Domestic Prod- uct arising in the agricultural sector. In 1967 agriculture provided 36% of GDP. with extort earnings. overwhelmingly from agriculture, providing 21% of GDP in the same year. The contribution of the main export products for 1L965- 67 were 62% from tea., 18% from rubber and 12% from coconut nroducts. Gross Domestin Product in Splented Years (Rupees billion at 1959 Factor Prices) 1961 1963 1965 1966 1967 1968 Grs Domesti Product -oal 4 Lr or, 7 )Lr 7 Ar 7 OA A h7 Gross Domestic Product 2.1 2.8 2.82 2.8 3.05 3.27 From Agriculture (Per Caput, Rupees) Gross Domestic Product - Total 636 650 664 665 680 707 Gross Domestic Product - 256 266 252 249 259 273 qn . .M f 'L 5 ..A.A vA three years. This has been almost entirely due to a much faster increase in mained static and shows no significant change since 1965. 3. The ,encouraging increase in domestic food production, during the Last three years nas mainly Deen due to increaseU use 01 xgher yieliUg varieties and fertilizers. These have been promoted by an intensive "food production drive" conducted under the personal leadership of the Prime Minister. Present government policy places heavy emphasis on the domestic crops, especially paddy. Production incentives are heavily weighted in support of the domestic food crops through guaranteed price schemes, provi- sion of irrigation facilities, subsidies for fertilizers and planting -2- material, provision of tractor services at low rates, the government-backed credit scheme and absence of taxation on the produce. In addition much of the efforts of policy makers, administrators and general government services are devoted to domestic agricultural production. As a consequence, the relationship between the farmer and the Government is marked by a sense of common purpose and joint pride in the substantial increases in production which have been achieved in the last three years. 4. The contrasting stagnation of export production during this period is due to a number of factors. While these crops are also in a position to benefit from the development of higher yielding varieties and increased use of fertilizers, in practice it takes longer for technical innovations to be translated into increased production in tree crops than in annual crops such as paddy. This is partly because of the short-term sacrifice in output in- volved in replanting. Economic factors however have also contributed sub- stantially to the differential trends in production as between domestic and export crops. Prices received by producers for tea and rubber have fallen in recent years as a result of falling prices on world markets, while those for domestic crops have either been maintained under a guaranteed price scheme or, in the major instance of paddy, have been increased. 5. By comparison with the domestic crops the traditional export crops have been neglected by Government. They receive relatively little policy guidance and limited financial and technical assistance, and in addition they are subject to heavy taxation. This approach to the export sector and parti- cularly to tea was formulated shortly after Ceylon's independence in 1948 and was tailored to fit the then existing circumstances. Since then as circum- stances have changed there have beer. ad hoc attempts made to adjust to these changes through various measures. However, circumstances have been changing at a much faster rate than the general policy framework. Thus, especially in the case of tea, what was once a relatively vigorous sector today faces problems which if ignored could lead to a situation where successful efforts made elsewhere in the economy are largely offset by the continued stagnation of the export sector. There is therefore a distinct need for a policy ad- justment so as to provide a more balanced treatment between domestic and ex- nort aariculture. The Government is becoming increasingly aware of this problem and this is reflected in some recent decisions. The need for appro- nriate policies to be followed in the export sector of agriculture will be particularly acute in the next few years when the tea industry, and also rubber and coconut to some extent. must accomplish a fundamental rpstructur- ing of production. -3- IN, Anm"n TT 'vr nnm A^nst rmir " 1LJ~jf ±.. BAX'Uni AGICIA.URBun A. TEA 0. Recent trends - Ceylon provides around 35o (by volume) and 40' (by value) of world exports of tea. The commodity accounts for some two-thirds of Ceylon's total exports and is likely to remain the dominant export over the foreseeable future. As a result of falling prices, foreign exchange earnings have, however, remained virtually static over the last decade des- pite a rise in volume of exports of about 30%, and the profitability of tea production has been seriously reduced. Tea Production and Expprts 1959 1964 1965 1966 1967 1966 Est. Production mil. lbs. 413 482 503 490 487 490 Exports mil. lbs. 384 456 495 441 478 460 Unit Price US $ per lb. 0.57 0.53 0.51 0.49 0.46 0.42 Export Value US $ mil. 219.5 239.9 254.2 215.8 219.0 193.3 7. There was a marked rise in Ceylon's tea production from approxi- mately 370 million lbs. in the mid-1950's to a peak of 503 million lbs. in 1965, mainly as a result of higher yields following heavier fertilizer appli- cation. No data are available on fertilizer used in earlier years but the amount estimated for 1965 was 161,000 tons (out of total Ceylon consumption of 305,000 tons). The area under tea rose by only 5% in this period. How- ever, production stagnated over the following three years, 1966 to 1968. While this may have reflected the difficult financial position of the industry which has also resulted in a failure to improve the overstrained tea process- ing facilities at a satisfactory rate, adverse factors such as poor weather in some areas and strikes on the tea estates and in the ports have also con- tributed to it. Moreover, there has been little or no increase in fertilizer application during these years. In some areas this was probably due to a lack of response to additional fertilizer application. Further, some estates de- liberately held down the volume of their production in an attempt to offset falling prices by upgrading quality through finer plucking. 8. Financial position of the tea industry - The current financial position of the industry is not strong. There has been a three-wav squeeze on profits. In the first place, market prices fell slowly but almost con- tinuouRly over the decade nrior to devaluation in November 1967. The average -4- f.ob.prcepe 1l. as Es. 278 in 1957 and Es. 2. O 1 047. T+ 4. no4- possible to separate the effects of the November 1967 change in Ceylon's excha ,,ngae a on, Rup-e t-oa pr ies f,nom Otl--r suipp ,r 1demand 4influien- 1"'t }n-;4+ seems likely that the moderate price rise (moderate because the Rupee deval- uan+io agains+ +he TTV +he bigges+ mar-+f- C-I Pln +ea wras only 70/ -re substantially offset by the abolition of the Tea Export Duty Rebate and a shortly be abolished according to an end-October 1968 official statement). Secondly, costs have r 4sen. Ri sing yelds b.llpeA an,irto absorb cost increases but yields have been stationary for the past three years (except .L. U "= :U 1 6 A..L Mlt. LJ WA. tyL Sa0 U i0. n.3 V,15 a r .Ji~ "n .30 6- 1/ an d v .Lt-ion %AL3J 3Le subsequent feec scheme (see Annex I, Volume I) increased production costs by aUnd". 15%/O LI Thethrd element ofp t"he profit squeeze S thatU the Lidustr.Ly is subject to export taxes which over the last decade have accounted for subject to income tax. The estimated 1967-68 financial year revenue from the tea industry is: Rs. Million Export duties (after deduction of rebate) 164 Tea Sales tax 50 Income tax (including tax on non- resident companies) 30 TOTAL 244 9. The estimated f.o.b. value of exports for calendar 1968 is Es. 1,150 million. In addition to duties, sales tax and income tax, the industry fin- ances the replanting subsidy scheme, tea research, advertising and certain estate medical expenditures under various cesses levied at the point of ex- port. According to available information, the industry bears much heavier export taxation than in India and East Africa. Financial data quoted in the Report of the Tea Commission from a sample of 75 companies in 1966 indicate that the share of the "Gross surplus" (total of net dividends paid, taxes paid and,transfers to reserves) paid as taxes was 85.7%. There was no ac- cretion to reserves but a small net withdrawal. In addition, since May 1968, foreign-owned companies are to purchase feecs in repatriating their profits, which represents a 45% reduction in repatriated profits. 10. An April 1968 survey by the Ceylon Estates Employers' Federation covering estates producing 55% of Ceylon tea production showed that on an average selling price in 1967 of Rs. 1.73 per lb., direct production costs accounted for Rs. 1.50 (provisional data). The coverage of costs was all expenses relating to the productionof the actual crop and functioning of the estate, including the cost of transport to Colombo. It did not include caital exenditure. depreciation cr Agency management costs. Share nrices of Rupee tea companies fell by 10% between mid-1966 and endr1967 and by June 168 had fallen by another 10%. -5- 11. While none of these data are conclusive in themselves, they support the general inference that the current financial position of the industry is weak. This implies, in turn, that unless tea prices-should unexpectedly ex- perience a sustained rise, the industry has ihadequate funds for internal financing of a vigorous replanting and yield-raising effort and - in view of the commonly held expectations of low tea prices - little financial in- centive to undertake such an effort. 12. The replanting scheme - A Tea Replanting Subsidy Scheme has oper- ated since 1959, financed by a cess on exports. Originally intended for estates, it was thrown open in 1964 to smallholders also. The current sub- sidy rate of Rs. 3,750 an acre covers a l.rge part but not all direct replanting costs (which according to enquiries made of the industry range from Rs. 4,000 to Rs. 6,000 an acre) and does not contribute to replacing the income foregone during the period of gestation of new bushes. It is paid in instalments over a period ending three years after replanting. Since replanting expenditures are allowable as a deduction from income for tax purposes, the actual incidence of the replanting costs depends on the level of tAxable income of the estate. The original replanting target was 66,000 acres over the ten years 1959-68 but this was lowered to 5,000 acres a year in the 1966-70 agricultural development proposals. The cost of the replanting subsidy for this smaller area was roughly equal to the income from the cess. Although there is provision for replanting of seedling tea., the scheme now operates basically for replanting with vegetatively propa- gated (clonal) material (VP tea). 13. The annual rate of replanting has accelerated gradually from 200 acres in 1959 to 2.300 acres in 1963 and to 5.300 acres in 1967. At the end of October 1968 the replanting target was officially raised to 12,000 acres a year (i.e. 2% of total tea acreage). with the additional subsidy payments being financed by an increase in the export cess and a corresponding reduc- tion in the export duty. 14. The slowness of the replantina rate in face of the areater Drofit- ability of VP tea to the individual estate was due to several influences. Initially. estates were chary of replacing nroven seedling bushes and some years were required before confidence was gained. Secondly, a period of fallina nrices and, on the nart of foreign-owned estates, uncertainty as to their future in Ceylon and uncertainty as to when blocked transfers of profits would be released- was detrimental to confidence. Thirdly there was the problem of the availability of funds for the expenditures which had. to be rnadp in advanop of re-ivinp the subsiv_ Rstates have traditionallv beer self-financing and in practice there are no fully suitable institutional sources in veyin of medium or Inna term investment funds rnuired hv Pqtnt- There was not only the immediate uprooting and replanting costs to meet but a-othe income foregone for up to three years fro the replanted Ara The latter fact alone would, in a period of low tea prices, inhibit rapid replant- was it due to limitations of subsidy funds since reserves accumulated during the Tea Subsidy Fund totalled Rs. 71 million. - 6 - L:>. Research - Research in tea is concentrated in the industry-financed Tea Research Institute (TRI). Production research appears to be adequately covered, except that there appears to be some tendency for research staff to s pendi appreciable periods on what is in effect extension work rather than research. Sesearch into processing has been given less emphasis, although there are understood to be some technically feasible innovations awaiting commercial exploitation. Some experimental work is being undertaken into the identification and objective measurement of the components of quality but tie likely outcome is not yet known. no systematic research has been undertaken by the TRI on economic questions, relating to growing, processing, transportation, marketing and general market analysis. l(. Government policy - With the major exception of taxation policy, government policy in Ceylon regarding tea has been characterized by a large element of laissez-faire. In contrast to crops and livestock products in- tended for domestic consumption, prices of tea (and the other two major ex- ports) are not supported. or controlled; production inputs are not subsidized to any significant extent; assistance to replanting is paid for by a cess on exports; research and extension activities are financed by the industry it- self through export cesses and undertaken by an industry organization, and trade in tea is largely controlled by commercial sectors of the industry. The role of Government is directed more to providing an overall administra- tive framework, mainly through the office of the Controller of Tea, who also administers certain activities financed by export cesses, p3rticularly tha replanting scheme, and to levying export duties. These have been varied on occasion when financial relief was required because of very low prices. Government policy has also included introduction of a Factory Development Subsidy Scheme, the amounts so far involved being small. Government policy has been in favor of cooperation amongst producing countries and recently Ceylon and India have taken preliminary steps towards joint marketing activities. 17. The absence of a strong interventionist approach -- reflected in the absence of any government/industry central organization for,tea - implies ab- sence of pressing problems for which government action was thought to be re- quired or appropriate. The emergence of such problems in recent years led to the realization of the need for a comprehensive review of tea matters. Thus, in May 1967 a Commission of Enquiry was established "for the purpose of inquiring into, and reporting on, the present state and future prospects of the tea industry in Ceylon . . . 18. The Tea Commission, whose report was published in August 1968, made a number of substantive recommendations. These include: (a) A Central Tea Board to be established to sunervise and control the tea industry and overall responsibility for the whole industry to be undertaken by the Minister in charap of Planning and Eronomio Affairs. who is the Prime Minister (h) De- sirability of switching over to a clonal (VP) tea area of 200,000 acres by 198RL byi raoistincr the -rniof -replnn -no 12,00 Innnoacresper nnuim. The1Gov ernment to guide owners of surplus tea lands in the selection of alternative crops. cnne Taxon onkte eaondtry to be lightened. Nit Goew ntr tion channels for packeted Ceylon tea to be established -with Government -7- tute. The Government has alree,dy announced a number of decisions stemming port duty on medium and low grown teas sold at the Colombo auction has now U U kJ 1.L611 LJWL4 UC4% C: we-.. L JJ ttS Ct, LMtX=, 11± 11 .P_LM1iL.LLLt6 1MO been increased to 12,000 acres a year. The replanting cess will be increased Ull expu±o duty on tea correspunuingly reuuceu.- uus wiJ a1 o v- e mue available to help meet replanting expenses and loan repayment terms under the C£%.UUy 1JeCZUpm1U1U ou1siuy Ocneme will be maue easier. In auuk.lon miiore lUnLs will be awarded for tee. propaganda by increasing the Tea Promotion Cess with a corresponding reduction of the export duty. It is also understooU that a central Tea Board will be established. 19. The basic problem facing the tea industry - Ceylon tea industry stands at the threshold of a basic technological change. Over the next one or two decades it will be necessary to change over from the present type of tea bush (seedling tea) to clonal tea (vegetatively propagated) whose yields are several times higher. This will entail a large scale replanting program and. will also, in the long run, render substantial acreage at present under tea surplus to requirements. This raises the related problems of which lands to replant, at what rate to replant them and what incentives are needed to bring about the desired results. There is also the shorter term problem of raising the yields on the existing seedling tea which is bound to continue to provide a substantial part of Ceylon's output in some years to come. 20. Clonal tea - The tea industry of Ceylon faces a major restructuring because new clonal bushes give yields two to three times the yield of the existing seedling tea bushes. According to statements of staff of the Tea Research Institute, the Controller of Tea and several estate managers who were interviewed,'this range of yield increases is now being obtained under normal estate conditions and not simply under experimental conditions. The recent report of the Tea Commission also assumes a long-term average yield of 2,000 lbs. an acre, i.e. two-and-a-half times the current national average level of seedling tea yields. As yet, however, systematic data on average yields of clonat tea at each elevation are not available. The quality of clonal tea is considered by some members of the tea trade as somewhat better than seedling tea grown in the same areas, although the supporting price data are not available, and no technical defects have shown up other than an inability to withstand serious droughts as well as seedling tea. In the Ceylonese con- text this is not considered a serious defect. The higher yields reduce unit production costs appreciably. The Tea Commission report refers to an estimated cost reduction of 40-50 cents per lb., i.e. a reduction of around 25%. 21. Future production targets and the world market - At an early state of the replanting program, Ceylon must form a view of target output levels at various future dates as a basis for its overall tea policy. These will be particularly needed for setting replanting targets and evaluating progress and for assessing the area of land presently under tea which will become available for other uses. Although the major concern for the next few years will be how to raise production from existing seedling tea prior to substan- tial contributions becoming available for clonal tea, the longer term pro- duction issue will be to control outiut so as to maximize exnort earninas. Thus production will need to be closely related to world market conditions. - 8 - 22. World imnorts over 1956-67 grew at only 3% a year in ouantity and the pressure of supplies led to an almost continuous downward drift in prices aver.A ing 1.r a year. Without some nuite unforeseen chance in demand non- ditions, future world import demand may be expected to rise, if prices would nn+i4rui to -nll hv about 1% a year. at no more than 1-2% a year. Total demand can be expected to grow faster in low income countries but there is no cetainty of the full consequential import growth being nermitted- Tn the high-income countries which are Ceylon's major markets, price elasticities of demand are l. The availability of VP tea bushes which nan he brniiht. into production in only 18 months to three years after planting represents a n+4a11xr avnlnnivp wn-ltd -zupnly aituiation in P -onmnnPtitivx jani imnrani. lated market. If Ceylon's present tea area were all under mature clonal tea yielding at the reported rates, Ceylon could by itself sunppv the whole oP the present volume of world exports. Even without VP tea yields, the world m--a+e was alread-r +h-ea+ened wi+h evxce suPnn-lineS S--me roe+4-tinP ofwrwld market supplies will probably be needed if the economic benefits of replant- at ~ - be neg te b., price -Pall kAti-J., --'A market..) ally classified according, to altitude. Of the present 600,000 acres, 75% is 4.. A V4A,4+A , . 4"l- ridAK4+,,A 19 OM -P-fl .-A 1-;_1k -i+;+U,Ae (over 4,000 feet) zones and the remaining quarter is at low altitudes of less than 2,000 feet.* Th1-e quality of Ceylon tea, as measured by pric, i reate to a signi"ficant extent to the altitude at which it is grown. For the decade L9I-l,the average6 groUZ>s P.L-.k;1 PZ. PUUI±u V. t was: nigh-gro-uwvn - ns. 2.1. Mid-grown - Rs. 1.64 JLow-grown - k5. 1L.58) The margin does fluctuate considerably and on several occasions low-grown teas have sold for higher average prices than high-grown teas. There is, however, no clear evidence of any persistent changes in the pattern of relative prices of teas from the three altitudes. 24. A number of factor5 enter the selection of the economically best altitude-location for future clonal tea areas. These include: the most de- sirable composition of exports from the viewpoint of future world demand (e.g. a larger proportion of the usually more expensive high-altitude tea or more of the cheaper low-grown tea of which production costs may be lower and for which demand may be growing faster), the likely profitability arising from eifferent combinations of yield and production qosts per pound at dif- ferent altitudes; the possibility of future changes in price/cost ratios from upgrading of the quality of lowe;-priced teas; and the opportunity costs of tea growing at the different altitudes. WhilE, on the one hand, information is inadequate on most of these points, the,high coat of replanting (Rs. 4-6,000 an acre, not including income foregone for 1-1/2 to 3 years while the area is not bearing) and the long life of the tea bush (50 years plus), pake th.e choice of areas for replanting immediately important. Once chosen, replanted tea areas could not be relocated easily, and even at the present target rate of replanting a large part of the future area will be established in the next decade. -9- 25. One-third of the total tea area and over one-half of the high- altituae tea area is foreign-owned. Estates owned by companies registered in Ceylon and by Ceylonese, individuals account for 50% of the total tea area. Smallholders account for one-sixth of the total tea area but supply approx- imately one-half of that proportion of total output. Because the distribu- tion according to type of ownership is unevenly spread over the different altitude zones, problems of reconciliation of economic and political/social criteria for the determination of future locations of clonal tea plantings are likely to arise. 26. Clone selection in relation to market demand requirements - The replanting of Ceylon's stock of tea bushes with clonal tea will give rise to problems of selection of clones according to demand requirements as distinct from production characteristics. The distinctive property of clonal tea is that all bushes originating from the same clone are genetically identical and providing production conditions are similar the resulting tea outbuts will be identical or nearly so whereas with seedling tea there is much greater diversity of quality or type of product over any given area of tea. Since a limited number of clones are being used as source material in Ceylon, the greater uniformity of future output will likewise reduce the number of alter- native combinations, or blends, for which Ceylon tea can be used. (Conversely, it would also be true that blends of Ceylon teas could be kept more uniform than would be possible at present.) It will therefore be necessary to ensure that the selection of clones accords with the future requirements of blenders and, ultimately, of consumers. This may not be easy because of the inade- quacy of available information on nossible long-term changes in market demand, the absence of an objective system of classification of teas and because the marketing of Ceylon's tea after the noint of sale at auction is undertaken by private firms the details of whose blending operations are not publicly known. 27. Modernization and rplocation of tpa fnatories - Problems of restruc- turing Ceylon's tea sector extend also to the processing factories. It is officially reccnized that many factories are onerating beyond their most effective capacity and are in need of new equipment, and a loan has been extended by the Asian Dfevelopnment BaRn to hP1in ialn with this nroblem. Operators are, however, faced with the question of what type of new machinery to inFd-3,11 - +Aip QnolAAr n-r+hnAnov n-rloo~y Thiq r3ie'-Li-znn urhinh depends largely on what type of tea they should produce, is another facet of arises from the probability that the present location of factories which serve the current 0 000 acre tea area wrill not be fully ap-ro-r4af+ +n a munh smaller area. 28. The formulation of a policy for tea - The various issues discussed - -JJ ~..1ffJ ±V.J JIyortan 1+,4. is +'-4 ve polic,LJ1 0±StL.~fa.L .~m± ~ r''' on both the short and long term development of the tea industry. The early central point in Ceylon for all matters pertaining to tea is desirable. This capacity and in helping to administer certain aspects of policy. It will, - 10 - however, be necessary to ensure that it does not inadvertently serve to per- petuate the isolation of the tea industry from the complex of policies and services relating to domestic agriculture. It is therefore suggested that the newly formed Ministerial Committee on Export Crops takes a close interest in the operation of the future Tea Board, especially in its formative stages. 29. In order to fully develop a national tea policy covering short- and long-term matters, additional information will be required. Policy de- cisions must be made very soon as to where Ceylon's replanted tea area should be located, since location is a major determinant of quality and price. Re- planting is going ahead and achievement of the new official target rate will mean that towards the middle 1970's a quarter of the tea area required for the 1980's will already have been planted. It will therefore not be possible to await the results of long-term studies in depth, desirable though such studies are, before at least interim policy decisions are made. 30. An interim assessment is needed in the course of 1969 of: (i) the extent to which yields of existing seedling tea can be increased by increased use of fertilizer and other inputs: (ii) likely long-term changes in the Datterns of demand in countriea which are or might become sizable buyers of Ceylon tea, par- ticularly so as to indicate whether any chance in the nreent proportions of tea grown at the different altitudes should be made in the course of the replanting nrogram; (iii) economic evaluation of alternative uses of land nrPqPnt1v growing tea; (iv) production potentials of clonal tea at different altitudes ,,nd~ ~AtPconItins s :ndlate byexpezience so fr tir) +,Pthn,-ja1 i~TIi' 9~-44v an~A Aa-r%n^Yw4^ 41 , raising the rate of replanting. Further details of these studies are given in Annex I. In addition the pro- poseA TMMD studyj on crop d iversificat 'on on surplus tea fEn ru Nr ,ad should be given priority so that its results will be known by the time tea lands staUt ecUmtng surplsu. By way U' istration, posuible approaches to three important aspects of policy formulation - namely production and replant- ing targets, incentives for replanting anud raising of yields and research - are set out below. 31. Policy on production and replanting - The desir4b;e rate of in- crease in tea production needs to be determined so as to have a quantitative basis fcr tea policy in general and for replanting measures in particular. Since production is almost entirely (927 in 1968) for export, future output must be viewed in relatlon to world trade in tea and how Ceylon can influence this trade in her pwn 13ng-run interests. - 11 - 32. The essence of the world trade outlook is that supplies are pro- Jected to arow faster than demand. World Bank and FAO projections arrive at different sized Aurpluses but both indicate a surplus. The emerging surplus problem in tea w-ill reauire eooneration cf exPnorting countries in restraining the rate of expansion of export supplies if prices are not to fall further., 33. Ceylon is now the largest exporter, providing about 35% of world exnorts. Tt jntp-rpqf thpwafnrA im in +h on-1u intrAiinn nf a -nmMMftr agreement on tea to control the expansion of supllies placed on export mar- arises, in the context of deciding upon her production and replanting objee- tives, of the choice of strategy available to Ce4lon and most n-- courage a willingness of other countries to enter a commodity agreement at do no more than maintain her share of the world market, i.e. a trend rate of Inreseofabut2%ayear or less.* This would ITLp.ly, in1 1effect, Ut While." endeavouring to persuade other exporting countries of their common, long-term interest in entering into a commodity agreement, Ceylon as the major exporter was choosing to undertake some responsibility for safeguarding world market coUnULous. The danger to Ceylon of adopting This course is that some of he other actual or potential supplying countries may delay entering negotiations until they had further expanded their tea acreage as part of Their export diversification pr ogram and as a means of attempting to secure larger quota allocations in an eventual international commodity agreement of the quota type. 35. Ceylon could equally choose an initial rate of replanting which together with incentives for expanding current production implied attaining at an early stage an upward trend in production higher than around the 2' a year. The rationale of this choice is that it would accelerate the improve- ment of competitive strength by shortening the period of replacement of obso- lete tea bushes. It could equally be expected to bring to the attention or other supplying countries the advantage of reaching agreement before Ceylon's additional production from its lower cost clonal tea affected their own ex-- port prices and competitive position unduly and before Ceylon had increased significantly its share of world exports. 36. Purely for illustrative purposes quantitative implications of the alternative choices are suggested in Annex II which considers the results of different rates of replanting and different trends in yields of seedling tca areas. The results necessarily depend on the assumptions which are given 'In the notes to the table. For example, if'it were possible to increase yields of seedling tea by 2% a year and if 12,000 additional acres of tea land can be located, Ceylon can even afford to step up the annual replanting rate to 20,000 acres while increasing its tea production at a rate somewhat greater than the rate of growth of world tea demand. Under this set of assumptions by about 1972/73 it becomes necessary for Ceylon to start reducing the area under tea. On the other hand, however, if yields of seedling tea cannot be increased and it is not possible to expand tea area during the initial years, - 12 - the acceleration of annual replauing to0 even tne 129OW acres recommended by the Tea Commission looks quite dubious since its impact on production (and therefore on exchange earnings) is not felt until after 1972, and Ceylonis share of world trade is not restored until 1979. 37. The production alternatives discussed above could be suitably modi- fied if a commodity agreement is successfully negotiated. But also if an agreement cannot be achieved, combined action to replant with VP tea and to increase seedling tea yields would put Ceylon in a much stronger position to meet the period of low prices; this would imply that there have to be adequate incentives to producers both to replant and to raise yields on existing seed- ling tea. 38. Policy on incentives.for replanting and raisingoft'yields - Incen- tives to replant would need to be increased if -the replanting rate is to rise from the approximate present level of 5,000 acres a year to 12,000 in 1969 and then to 20,000 acres a year for most of the next decade or until produc- tion limitations are introduced under a commodity agreement. A replanting rate of 20,000 acres a year is equivalent to replacing just over 3% of the tea area each year. The additional annual direct cost (i.e. above the cost of the current 5,000 acres being replanted) would be of the order of Rs. 70 million a year or about 5-6% of the annual value of tea production, or between a third and a quarter of the recent level of taxes paid by the industry. There appears to be no tjhortage of the various physical inputs required for this level of replanting. Although.the feasibility of this target should be care- fully checked, there appears to b, no inherent reason why it should not be possible provided there are adequate financial incentives. 39. In order to meet this kind of target producers must have both access to funds and confidence as to future profitab'lity. These could be met by a combination of direct and indirect measures, such as the following: (i) The Tea Replapting Subsidy Fund could be enlarged with additional funds obtained by increasing the Relantina Cess and reducing the export duty on tea so as to enable it to finance 20.000 acres a year. (ii) The re-lantina subsidv could be raiRed to qav Rq h qnn a year and a higher proportion paid at earlier stages of the reolanting nrocess. 4(4 1) TheM extit+ AlItyv-'on tea oul b-~ne reduced. 40. The resulting increases in income should help to increase the yield from seedling tea, which is extremely important in the short and medium run. Such yield increases should be forthcoming if the recent stagnation in yields has been largely due to the difficult financial position of the industry. If not, the Government would have to consider introducing measures to divert the funds available from the reduction of export duties to production expenditures. 41. To assist longer-run confidence, one of the explicit objectives of an announced tea policy might be to review annually the econbmic situation of tea, with a view to taking suitable steps to maintain economic viability when prices are low. While the'introduction of a floor price is not recommended, it is imortant that at a time of maJor structural change the profitability of the industry is not allowed to be systematically eroded. 42. In view of the considerable araount of tea produced. by foreign-owned estates, a long term nolicv regardina their treatment is desirable on the grounds of the economic efficiency of the industry. It would appear that un- certainty. narticularly about the transfer of nrofits has discouraged lons,- term capital expenditure. It is important that uncertainty about the future treatment of these estates should be reduced to a minimum since there must be large expenditures on replanting and on factories over the next decade. 43. Policy on research - Sufficient resources should be provided for the f uturp Tpa Rnwrl and t.he Tea ReParch Tngtitutp tn cnrrv nut a cnntinuina program of economic research. This is distinct from the studies presented in dptni1 in Ann-v I Tho fwn - heAi#< clhinii ltti 'elyi in thi. fiPel- With the Tea Board giving major attention in its economic studies to domestic and ev+onal ma+r4vetin naerangemen+s ,d poems and the PT +N nani- a'' nnte' of domestic production and processing matters. 44. In view of Ceylon's interest in an International Commodity Agreement fo 4JJ Cea 1 Aigh, pr.iorL. AJOkiU.LUIA U VtbI ey g, iI -,'L1 ~ re T~ iL Qy k,111 i V'_2Vc to the practical problems likely to be encountered in the operation of technic- also be given to the possibilities of more objective identification and meas- U.J ~L5~A L 'J. UL 1;C:.L1L1.L1LA 4,0Li %JJL UJ.0.L Li t L- l ..~ kla concentrated.IA and inegad exmi, at A.tLionUL l' the --o.-, o" replanting procedures, 1J of field maintenance procedures 1/ In particular: (i) the methods of eradicating old tea bushes using mechan- ical equipment and chemical treatments; (ii) the search for cheaper means of chemical soil treatment for the control of eel worm; (iii) chemical weed control in replantings or new plantings; (iv) planting distance studies; (v) what degree of shade to use; (vi) pruning versus pegging or bending; (vii) continued fertilizer experimentation in different tea, growing zones and on major soil types, in order'to define more precisely quantities, timing and method of placement. - 14 - during immaturity. and of methods .of bringina youna tea bushes into bearing - all with particular reference to (l nnal teas h) 4m"rnvemnt of Antnry nratinpg_ B. RUBBER 40 Drsn+ aI 4 4nn P ubber vwrnvj a nht 11m iti ali Avn,m+ earnings. The table below shows marked annual increases in production in recent + years, the -oell 4nrase bet.een 1094 and 1047 bein 07% This has resulted mainly from the replanting program, in which Government subsidies ItV .LL ti"C>- -O* ~- ~ * - JC' . 'J . ~ 4.LCJ..'J L JLIL Ilu tapped area (in 1967, 85% of the cultivated rubber acreage.) has been increas- Ing UtL was stiL- oI.L.y L-7 lbsU0. per :acre . Estte ej a yld,6 lev=el abutu twice that of the smallholdings which occupy only 30% of the total rubber area. oAnes now avazLju. U.ue for muxu --- Caos vIUi muu:3nryi around 1,500 lbs. per acre (or higher) on estates, and 800 to 1,000 lbs. per acre on sm"aL"o_Ld"ing (Est.) Production mil. lb.. 205 246 261 289 316 315 Exports mil. lbs. 206 253 267 298 291 315 Unit Price. US $ per lb. 0.30 0.24 0.24 0.24 0.20 0.17 Export Value US $ mil. 62.6 60.9 63.9 70.8 58.3 54.0 47. Nearly half (250,995 acres) of the total 'cultivated' rubber area has been replanted under the Gwvernment !ieplanting Subsidy Scheme since 1953, but the pace, at first leisurely in the 1940's, then more rapid in the 1950's, has fallen over the last three years by almost 50% to the current rate of about 11,000 acres a year. Falling rubber prices and uncertainty regarding their future levels have been responsible for this fall. 48. Despite these unfavorable trends, Ceylon's rubber growers have been in a reasonably sound position. The -Government has had a more active program of assistance than in the case of tea, 4ith much more generous subsidies for replanting. The growers have responded to these incentives and have also made good use of the technical advances in fertilizer application and higher yield- ing planting material developed by the Rubber Research Institute. 49. Investizations of the problems of production which are carried out by the five main research departments of the, Rubber ReseFch Institute of Cylnn, enver a range of technical subjects which has no serioun gaps. From earlier work, new rubber clones have been developed with higher yield potential and mwatewr -rAes1+t-P~ +n e-wrtskn disekact Whinih t-%Ln1 VUM ?r cay-if%11 1uler - 15 - eyl on s monsoon c11ma t e. manuring programs nave eIn ev0Iveu uSUeKA Spu1- ically to Ceylon soils. As with the other export crops, there: is no provision in the institute's program for economic studies and costing investigations. Lack of suitable rubber areas has restricted yield stimulation trials, which are important in relation to replanting programs. 50. The future outlook - Rubber prices are expected to contInue to de- cline slowly, mainly because of the competition from synthetic rubber, par- ticularly the newer type of cis-polyisoprene. Ceylon can only meet the threat of falling prices and remain an econcmic rubber producer by achieving lower production costs. For this, high yields per acre ar*e a major requirement, and will only result from a sustained repianting effort. An average replanting rate of 3% per annum, which replaces an area in 33 years, would requ'ire ap- proximately 17,000 acres a year to be replanted. The recent replanting rate has fallen appreciably below this requirement. To make up for this a starting target of 20,000 acres A year would be needed. (Annex III). 51. The expansion of rubber production in Ceylon will demand additional rubber factory processing capacity. New factory construction should take into consideration the need for improving the quality of the product. The types of rubber to be processed, and hence the types of processing equipment to be installed, will then have to be determined on the basis of the marketability of the product, and a changing trend in rubber manufacturers' requirements. Up to now, Ceylon's rubber has been marketed almost entirely as smoked sheet and latex crepe, and as there is unlikely to be a marked increase in the local industrial consumption of rubber, now about 2,600 tons a year, most of the output in the future will continue to be available for export. At present a contract with China ensures that all of the smoked sheets, which forms 6O% of the rubber exports, is taken by that country at a substantial premium. 52. None of the new forms of particle or crumb rubber are yet prepared commercially in Cevlon. although a small experimental Dilot plant for sup)lv- ing experimental quantities of Hevea crumb (800 lbs. a day) has been set up on one estate by the Rubber Research Institute. Malayan outputs of Hevea crumb have reached 4,000 tons a month (July 1968), with the prospect of some 50 commer- cial units beina in operation in 1969 and producina double this amount. This mechano-chemical comminuted form of natural rubber offers distinct advantages to both nroducer and consumer. Its preparation is simnle and cheap and has flexibility for modification. For the manufacturer, the product is clean., comnact. easy to handle and of uniform technical snecification. For the small- holder producer, better prices are probably realizable for his crop as Hevea crumb. narticular1v if his outnut normally contains much low nunlitv rubber. 53. NPw standardilzed aind technically aridt-d formst of natural rubber.. as typified by Hevea crumb, are one of the best means that Natural Rubber has of hPAtina off thp -nm-ntitinn frnm qvnthPti- Ruhhpr Thihhr manufanturprA over the world are beginning to look for their natural rubber supplies in these new forms, and could ll demand uch nrfc n sa standard fnrm f nrpqan- tation within a few years. - 16 - Due to the China contracts, Ceylon is at present in a favorable position for selling her rubber produce.l/ However this situation may not continue, and to meet the growing demand for new rubbers the country could well follow Malayan practice and experience. Trained and well-informed tech- nical staff are needed together with a factory in full scale operation for Hevea crumb production. In this way, management experience and the data for costing the process under Ceylon conditions can be developed. The technical staff are also necessary to undertake the routine- quality testing of future commercial productions or the new rubber. Rubber Nesearch institute of Ceylon staff, although well aware of the need to make further studies on Hevea crumb processing methods, are without the special allocation of staff, funds and uquipment to do this work. 55. The first priority for action is the development of'Hevea crumb processing methods. It is also important that funds and staff be provided for RRIC to undertake economic studies of all aspects of rubber production, particularly on smallholdings. There is also a need for the studies on yield stimulation to be expanded. C. COCONUTS 56. Present position - Production of coconuts which at present provide about 15% of Ceylon's export earnings.is officially estimated to have risen by about one-third over the late 1940's to the early 1950's, averaging some 2.4 billion nuts for the period 1951-54. Subsequently, production has risen only very moderately, other than for a record crop in 1964, to an estimated average of 2.5 billion nuts g'or the two years 1966 and 1967. Output in these two years, however, was depressed by- earlier adverse weather and the "normal season" production is about 2.6 to 2.8 billion nuts. The total planted area, now estimated at 115 million acres, which almost equals that of tea and rubber together, has risen only slightly. The limited production increase per acre has been achieved mainly by increased use of subsidized fertilizer which over 1965-67 averaged 52,000 tons a year. 1/ The People's Republic of China buys about 60% of Ceylon's produce at a pri,-. i n he 'n frm f smokedA sheetse in excnhange fo -' - 17 - - - 7st. Coconut Products Production mil. nuts equiv. 2,306 3,000 2,681 2,486 2,421 2,600 Exports mil. nuts equiv. 1,131 1,625 1,274 1,028 951 1,100 Average Export US $ thous./mil. 45.0 35.3 45.4 40.1 36.2 4q.o Value nuts equiv. Zxport Value US $ mil. 51.1 57.4 57.0 41.2 34.4 53.9 of which: Copra Exports thousand cwt. 852 1,162 819 416 316 Unit Price US $ per cwt. 12.7 10.0 12.4 12.6 12.3 Export Value US $ mil. 10.7 11.6 10.1 5.3 3.9 Coconut Oil Exports thousand cwt. 1,389 2,351 1,738 1,457 1,334 Unit Price US $ per cwt. 17.7 13.8 17.5 15.6 13.6 Export Value US $ mil. 24.6 32.4 30.5 22.7 18.1 Desiccated Coconut Exports thousand ct. 1,050 1,080 1,041 930 926 Unit Price US $ per cwt. 15.0 12.4. 16.5 14.2 13.5 Export Value US $ mil. 15.8 13.4 17.2 13.2 12.5 57. The slow growth of Production reflects to a larae extent the absence of appreciable progress on smallholdings (less than 20 acres) which account for 70% of the total area. The larger plantations have fuller stands of Palms per acre, which are better maintained and benefit from a higher application of fertilizer. Fifty per cent of'the total subsidized fertilizers supplied in 1967 went to estates whose estimated yield per acre is about twice that of aallholders. 58. Unlike tea and rubber- noennut nrndiitinn iq not nrdominantly for export. Domestic consumption, which is estimated to have increased by almost a half in the last decade. took about 60% nf nrndunetinn nvpr 1966-67. Consie- quently, despite the excellent prices for coconut products which have one of - 18 - +A hae+ + ustr ranrse amnnat +rnin1 runArnoct and vldch ern + pan prices in 1968, the trend in the volume of exports has remained almost station- axY ArIng +he 1+ 1 .an-- A1+h-inh nn n+ areAn+s ,,n ana AP r0l , ullle -1 - 1 J- . -1-5 products ~ s traditional exports, the country is now a relatively small supplier of copra a start has been made on the production of fatty acids for export. 59. The basic problem of coconuts in Ceylon is insufficient production mediate production problem is to raise the yield of existing palms and the pAvugl-- emUm %J1L, i piu b is to repU.l tne many eAisiAng palms waic are now tou old. to. Government assistance - Government policy is to encourage the ex- paUsion oV prouction uy Supplying ferlUzer at a 50% subuiuy grant to both smallholdings and estates. Prior to October 1968 the subsidy available to estates was one-third of the cost of the fertilizer. The value of the subsidy averaged Rs. 8.8 million for the three years ending 1967. Fertilizer usage before the introduction of the subsidy scheme was about 10-12,000 tons. Whilst the amounts of fertilizer actually drawn under the subsidy scheme have increased by over 50% since it was introduced in 1y5o, usage remained comparatively steady for the three years 1965-67 at a little above 50,000 tons annually. At the application rate recommended by the Coconut Research .nstitute, this quantity would be sufficient for little more than a quarter of the coconut area. 61. As a means of encouraging replanting, an annual grant is also pro- vided by the Government to reduqe the cost of seedlings. These are obtained from mother trees growing in estates which have observed high yields. The quality of their progeny is by no means cer';ain. Planting material of more reliable yield characteristics will eventually become available from the iso- lated clonal seed garden (200 acres), now completely planted, when it comes fully into bearing in about 10 years time, The current supply of improved planting material, which has been issued :'or the last ten years at about 1.1 to 1.2 million seedlings a year, has been'used mainly for supplying vacancies in existing plantings. No assessment of the value of this work has been made. Extension ser,vices provided by the Coconut Research Institute are financed by the Government which has recently approved an increase in the number of ex- tension officers from 25 to 50. 62. Export duties have been levied on a sliding scale since 1963, the scale varying with each product. Expressed as a percentage of export value, the duty on copra is much Peavier than that on oil and desiccated coconut so as to encourage exports in the processed form. For the three financial years 1963/64 to 1965/66, i.e. prior to the period of prices considered to be at temporarily high levels, export duties were equiva4ent to 24% of the value of copra and 15% of coconut oil and desiccated coconut, giving an overall aver-- age of o17%. 63. The future outlook - Ceylon's coconut production has been facing a stronw demand both domestically and on fore-an markets. Althougb th- hizh ex- port prices which began in mid-1967 cannot be expected to continue and have - 19 - a±ready -alien to some extent, export prospects are reasonab'y good anu re- quirements for the domestic market are projected to increase at around 3% a year. It is clear that coconut production should be expanded but it is not entirely clear why progress hau not been better in response to the high product prices and to Government assistance. The outstanding fact is that for various reasons the smallholders have not responded. 64. The short-term problem in coconut is how to get more fertilizer applied to smallholder ereas and tc those estat6s which have not taken advan- tage of the subsidy scheme. Experiments and demonstrations have established quite convincingly the economic case for fertilizer application. Application of the optimum quantities to mature palms whizh had not previously or recently received fertilizer :an be expected after a 2-year lag to give yield increases of 1,000 to 1,500 units per acre per annum valued (at a projected price of 17.5 cents per unit) at Rs. 175-262. The cost of the recommended fertilizer dosage per acre in 1968) taking the subsidy into account, is approximately Rs. 40. The on-farm cost would be somewhat higher because of transport and handling charges. 65. There appears no need to increase the subsidy on fertilizer for coconuts. However, a careful review should be made of the obstacles vhich in practice hinder the smallholder from taking fuller advantage of the very favorable cost/benefit ratio of fertilizer application. Points which should be examined include: knowledge by smallholders of the profitability of fer- tilizer use; adequacy of credit to cover the period before the higher yields are obtained; adequacy of storage capacity both on and off farm; distribution arrangements, including time needed to complete the formalities of ordering subsidized fertilizer, intervals between ordering and receiving fertilizer, reliability and convenience of carriage to the farm, suitability of the size of fertilizer packaging for smallholder use. It would also be desirable that the 25 additional extension workers whose employment has been approved be appointed and commence their duties as early as possible. 66. The long-term production problem is to replace the high proportion of palms which are now too old. Little progress has been made in the small- holder sector with replantings intended to replace these palms. the subsi- dized seedlings being mainly used for filling vacancies. A replanting scheme for coconut. similar in principle to those for tea and rubber. should be con- sidered. 67. The replanting target envisaged in the draft scheme outlined in the Aaricultural DeveonmPnt Pronosals 1Q66-70 wan 20-000 acres a year. This appears feasible and a substantial part of the cost might be financed by an exrnort cnqn Tn hpln ennure thp in_Q nf 'the rpnlantine scheme- the exten- sion staff could be strengthened. Well executed demonstration replantings WAIIIA rn-rm Q irrA e+av rin- hV%a io qiinnl14oc ^f nlantinef matwrijal nmild 'he assured, if necessary by raising the price paid by the CRI to estates for nuts from selected palms. vNtr+urally +h isolated seed gavdAn Lill hp thp best source of material but vigorous replanting cannot await that time. The 5r0,00 acrs,oinc w is psib for conu ting th a of p Ind - anIPBRdi At 50,000 acres, which is suitable for coconut growing, provided that an inves- - 20 - 68. A doublina of. ffrtilizer unae could be steomnliqhd hy 1973A and with this the total output of nuts could reach 3,200 million in 1975. The unlab n? th inernand nr ndutinn unuld amount to R- 87-S nillion an' ths- additional fertilizer subsidy would be about Rs. 18 million, which would be a -rofitable investment* The total rea of coconuts then havine fertili7Pzer application is estimated to be 616,000 acres. 69. If the fertilizer campaign were to be more vigorously and success- full-, c ---- ----- ----- ------,th --iA 1 smallholders, except those with small gardens and plots less than one acre in -4- (..+4--+eA +o amoun+ +r AA to 2,000 a S rodunf4nn anA t io4n ' -+4 e1 further. From a total area of 950,000 acres of coconuts receiving 170,000 tons 0 4- 4tilizer, n+1ou 2 60 --l m1T1 4--.- nu+s obtAai hned.A Iv".~ u".uulJ UIPM QUUCB.L.LL Ae.LC WU~ S~ W .L .1LLW&A'.. . F5~, C&4U.A Da.ULO.L.Yju %oh'~ I ncreas-1.L ing domestic needs, surpluses of coconut products for export would increase representing an increase of 50% over the abnormally low exports of 1967. 71. The processing of any foreseeable increase in coconut output presents no problem since the nominal max%mum paL u L uum vi1 .MiLi MLu uetic- cated coconut mills are considerably in excess of estimated further productions. There are proulems of ineffiCIent extraction anu maItxuveue and replacement repairs to old machinery which may cause problems, if they are not remedied. D. Milln M LAUrTD 72. Minor exports, mostly of agricultural origin apar'9. from gems, have provided from o to 8% of all export earnings in recent years. There has been a slow upward trend both in value and in their share of total exports. As shown in the Iollowing table, there are a variety of products. - 21 - .9(7 Exports of Selected Minor Products (Rs 000) Cinnamon quills 29,811 Cinnamon chips 1,216 Cinnamon oil 887 CoirL~ j. . U. U A. UJ 0L± ~~I Coir fibre, mattress 19,428 doir yarn and other manufactures 496 Cocoa 4,143 Cnoco.ate preparatoos 60 Coconut shell charcoal 4,919 Tobacco 2,791 Leather 2,L15 Hides and Skins 2061 Cardamons 3.278 Fish 1,366 CItronella oil 824 Pepper 439 Paniin 421 Logs and sawn wood 460 Kapok fibre 296 Areconuts (betel nuts) and leaves 291 Vpaptablp ann and ytvatrftret 4O Plants and flowers 147 Cloves 89 Preserved fruits 56 NTutegs 142 AT. 4--- .. rJ4hoJJ - 22 - 1. a4 mewz a sn A.1LtLA_L C61.L.Llt AJ1 % L4%I %, . UAL JvernmentCLL .±uwb Ufl feec rate to apply to their exports, in effect applying the exchange rate of Rs. 8.50 '13, in place of tiie offica.l~J rat of Rs. .. acoi erable incentive and can be expected to lead to larger exports. In view of the heavy weighting of tea in Ceylon's exports sucu uiversification, even though on a relatively small scale, represents a sound development. There will be scope also for expanded production of minor export products in view of the land which will become available'as a result of the reduction of the tea area and of the expansion of irrigated areas. 74. The blanket nature of the exchange rate incentive-needs to be com- plemented with more selective assistance to assist producers and exporters to assess market prospects. This requires, on the one hand, technical and eco- nomic research into production and processing aspects and, on the other, market investigations and promotion. Some work of the former type is being done at the Central Agricultural Research Institute but more attention appears to be needed on the economic aspects. There appear to be extremely limited re- sources available for trade investigation and promotion by Government. 75. While it is appreciated that the economic importance of these minor products is small relative to the three major exports, responsibility for them could well be assigned specifically in the various relevant government departments, such as the Ministry of Planning, the Department of Agricultural Development, the Central Agricultural Research Institute and the Department of Commerce. Some progress in this direction has already been made in that the Ministry of Food and Agriculture has set up a special unit for dealing with minor exports. Appropriate means of coordinating activities among the different bodies is also required and this might be undertaken by the unit in the Ministry of Agriculture. The combined effort should be directed to providing a service to commercial interests who wish to establish or expand exports of products falling into this group. 76. Products to which particular attention should be given initially either because of past trends in exports or because of the external 'market outlook include: cinnamon, cocoa and chocolate preparations, leather and hides and skins, plants and flowers, preserved fruits and table nuts. Coir is already the subject of a tentative development plan and oil palm is also being considered. It has not been possible to review these latter two projects but in -iew of the heavy past investments in oil palm in other countries and the recent price falls, it is suggested that a decision on oil palm be taken only after a careful reappraisal of price prospects. - 23 - CHAPTER III. DOMESTIC AGRICULTURE A. RICE 77. Recent trends - Paddy is Ceylon's second largest crop after tea and in 1967 provided about 22% of the value of agricultural production. In 1962, the area of paddy was 1.25 million acres out of a total cropped area of 4.02 million and by 1968 the paddy area had risen by an estimated 150.000 acres. There are some 1 million holdings on which paddy is grown. Rice currently provides 75% of total cereal consumption and in 1968 the country produced a little under the same proportion of its rice requirements. 78. Paddy production expanded rapidly in the five years through 1962. No further nntinpable inerpases took nlace in the next four vears- vhinh in- cluded the bad harvest of 1965 caused by adverse weather. In 1967 and 1968, hnwpver larvp nroduntion increases took nlane Pin Prnrodu-fion 1Q;7-105R (million bushels) 1057 31 3 -: U j."7.c VU I 197 0oo0 (Provisional; 03.0 79. The Ceylon rice production statistics are based on crop-cuting samples, taken under the auspices of the Department of Census and Statistics according to an established random statistical sampling method. Discrepancies -24 - which sometimes occur between these and independent estimates have indicated the need for more comprehensive and better controlled surveys of the paddy production data. For instance, the assumption that net acreage harvested is a constant percentage of gross acreage, may be a misleading factor in year-to-year comparisons; however, this is unlikely to seriously distort pro- duction trends. 80. Both area and yield increases have contributed to the increase in paddy production in Ceylon. From 1957-58 to 1963-64, the increase in net area harvested was 29% and in yields 14%. In the following four years, the situation was reversed, with area increasing by 6% and yields 13%. Rice Yields 1957 - 68 Harvested Yields Total Yield (000 acres) % (bushels/acre) % (million bushels) increase increase 1957-58 av. 1010 - 33.6 - 33.9 1963-64 av. 1301 29 38.3 14 49.8 1967-68 av. 1382 6 43.0 13 59.4 81. Another comparison is between the contribution of each of the two seasons to total production. The trend has been for the share of total pro- duction produced in the major Maha season to increase much more than produc- tion in the minor Yala season. Maha and Yala Paddy Production Maha Yala Total million bushels 1957-58 av. 20.7 13.2 33.9 1963-64 av. 31.8 18.0 49.8 1967-68 av. 39.3 20.1 59.4 82. Between the first =nd last periods covered in the table, Maha pr dU tI0- -11-cr -e y _1 .j -.' _J ". v. ML&'. 4-. ---*-1--oUJ.LEL accounted for by a much larger increase, proportionately as well as abso- have remrained in step in the two seasons except for 1968 when, according to very preLiminary estimates the Yala yield was expected to fa.l slightly to 41 bushels an acre while the Maha seas;on yield rose to 47 bushels. Funda- mentally, the absence of reliable irr:.gation water in Yala accounts for most of the reluctance to plant paddy and to attend properly to what is planted in that season. A major benefit to be expected when more of the dry zone can be irrigated during Yala will be an expansion of the Yala season paddy area. - 25 - 83. Government noliev - The encouraainz record of increaRed n-foduction has been assisted by the positive and comprehensive rice policies of the rovernment. This nntrasts Rtronxlv with the nonItin in exnnrt nrons. where the Government's role has been small. The rationale of the policy emphasis ic haci pal 1- r ae-nnnymir anti orani fi ral1-tlv volato lce, th hal ane-if t,f 7-rmant-c In the period 1964/66, 13% of Ceylon's export earnings, whose trend has been V i+nll,r e++4 4 +ho -ne -nt aeoa t s - donA +o nw ay r ce -Vor+ High priority was therefore given to reaching self-sufficiency in rice at the ea+liest -ossible date. There is certainly n:1-- +ancon4nn straint which is likely to prevent Ceylon doing this and recent trends suggest tha+ +he goa1 mwn -e evedw in +he mid?A 1 s.Al X"U"r+h1-e.more, rice proAd-+4-r_ is so widely spread amongst the predominantly i4dral Ceylohese population that 'S..L.L .3. AfS V.LI,L -LIL PC6kLyj IJUULA%P LAu IS A 111 PXCLC%d1.C =q I.VE"enui C VA .UL I.J%-.y based rise in incomes of the largest section of the community with consequent muliplereffects in the economy as a whole. * he intensive food production drive is designed to achieve import substitution over a wide range of products but of these rice is by far the most important and a rapid and continuing ex- pansion of paddy production has been the core of the Government's agricul- tural policy. 0 1. e o4. The rice policy is carried out by a number of measures. On the side of production, prices received by farmers are underpinned by a guaranteed price scheme. This stood at Rs. 12 per bushel from 195? to December io when it was raised to Rs. 14. Since this is the price at which the Government purchases paddy to provide part of the supplies needed for distribution under the rationing scheme, the guaranteed price is a market as well as a floor price. The weighted average producer price for 1967 was hs. 13.00 a bushel compared with Rs. 11.61 for the previous year. This reflected the December 1966 change in the rationing scheme by which the rice ration was halved and consumers therefore had to buy a substantial part of their rice requirements at free market prices. The average producer price over the previous decade had been similar to the 1966 figure. For most of the time from the mid-1950's to the mid-1960's the guaranteed price was well above the import price but more recently the rise in international prices and the devaluation of the Rupee by 207 in November 19b has brought the two prices much closer. Guaranteed Price import Unit Value in (Rs. per bushel) terms of Paddy 1964 12 6.94 1965 12 7.17 1966 12 7.32 1967 12 8.72 1968 14 13.6 (Jan.-June) 1/ Rs. 14 as from December. - 26 - 85. A producer price which had remained unchanged over a long neriod would not by itself provide a spur to accelerated production and the guaran- teed price was therefore complemented by measures to reduce the cost of in- puts and to improve their availability and efficiency. Finally the organiza- tional framework of paddy production has been reoraanized in some fundamental respects. 86. The rice seed improvement program has operated for the last 30 to 40 years. Early im-rovements came from the introduction of new foraiun varieties to replace old village varieties. More recently a breeding program niaingr hnth Inre and introduned indica varieties as narents is nrnvidina crosses of which H4, first released in 1958, has been an outstanding success. 87. The Government pays a subsidy of Rs. 2 a bushel and carries the co+ of handling anld stvorintg the e.aa VAVtiit4TAV hoc hoon awailohl + farmers with a subsidy of 50% on cash sales and one-third on credit sales. T A+_how 10i q9 4+ -ac AnniAnA +^ "a4a,= +h" ankea4,4%r n L -ii a les.l Import of fertilizer at the official exchange rate and not at the feec rate, WAIL. '-.a L L.L9.'~ V V,. V J.YO U Q'. W CJA(a .LYJZUWA4U , is CLU,1= element of subsidy to paddy. Another, but comparatively small, subsidized 4n..+ 4- +an+nr nnTa ra faA Ir +ha P--na +mn+ anP A-V--4 n-& +n1tr UU LI U (i -'W rJ.LA&o sr .. . WUA4- A.AJ U ,m A . LnL tAU%.;CU in September 1967 a new agriculturLl credit scheme which provided seasonal credl e4- an. efec iv rat of 0 " ' P_ I ~ -.. - -t- - t, a'_ __ UJ _ The credit limit for paddy was increased from Rs. 175 per acre up to a maxi- mum of 6 acres to Rs. 220 per acr for up to 10 acres. oy. Tue complex of Government unu COVperative SoCIiy ucrvices avalauLe to producers of paddy and other product; for domestic consumption has recently been changed in important respects. The centraL problem of lack of coordina- tion of the various services, was tackled by the establishment of a continu- ing Ministerial committee and by the vesting of responsIl1ITy ror all field aspects of the food production drive in the 22 government agents. Coordinating machinery was also established at other levels. In 196 responsib.e units and officers, from the village level upwards, were brought into the yr4paration of annual target setting and implementation. A large part of the expanding research and extension services devoted itself to the problems of paddy. Re- sources available to ancillary services, such as storage facilities for seed paddy, fertilizers and paddy, were increased. 90. The policy of the qovernnent in the last three years on water for irrigation has been to concentrate on completion of works in process and on the improvement of existing irrigation facilities rather than on starting new schemes. The practice of charging farmers considerably less than the cost of water has continued, which also represents a significant element of subsidy. 91. To meet the requirements of the free rice ration, which makes up 45% of total rice consumption, the Government imports rice to supplement its purchases under the Guaranteed Price Scheme (GPS). Since producers at Tresent sell a substantial part'of their output outside the scheme, a more aggrqssive - 27 - purchasing policy under the scheme would be desirable in order that the GPS could secure a larger part of The crop. This can be achieved withot further incre6se in the guaranteed price. 92. Factors. behind recent production increases - The increases in production of' paddy in 1967 and 1968 represent large gains and raise the ouestion of what factors led to the increase and th6 related nuention of whether these increases can be sustailed. This section discusses the first ouestion and the genond is taken un later. 93-. The nroduction atin resulted from a number of influeneoP anra-.ira simultaneously, not just one. They can be divided into four groups - physical tudes - although to some extent each of these groupings represents different aspects ofthinu. were the most important influences. Data are not available on the quantity sown under the hf,gher-yielding H4 varieties increased substantially. Fertil- izezL usag ha a n ad\y been .LIJ inkneasin ear-L- .i V IALO %o11 i , U II~~~1. from the early 1960's. The very bad harvest conditions of 1965 and the con- ocuueu4.4 saz x au .u uvon ce eAu "nese dce upe"o J- unasyea4o 0,k:UcuvLU .L.L L11 PCUAuy P. iUtAL L.ILUI LIJ A.iU kIL UU VUJLIPU IIt- LLI LAC6,IMA CLA% in 1966, but they were resumed in the following two years. Pad& Production Inputs Area Under Improved Seeds Fertilizer Usage in p of t 000 Acres Harvested Area 000 tons 1957-58 on n.a. - 17 1960-61 on n.a. 25 1962 n.a. 38 1963 88 7 47 1964 104 8 60 1965 607 58 12 1966 672 49 42 1967 943 71 53 1968 1,065 75 89 05. Some of the subsidized fertilizer intended for paddy production may have been diverted to other food crops, especially when their guaranteed prices were raised in 1968, e.g., potatoes, onions, dhal, green grain, but - 28 - any such diversion is unlikely to have changed the above fertilizer trends significantly. 96. In recent years similar increases have also been recorded in the use of other inputs particulariy irrigation facilities, tractors and storage facilities. 97. The expansion of the land area where paddy may be grown has been a major consideration in past and present government plans for extending irrigation facilities to new areas of agricultural development in Ceylon, which embrace major schemes of colonisation, village projects, and rehabili- tation works. 98. In the ten-year period, 1954-64, irrigation facilities in both ma-or and minor schemes increased by over 30% and the total asveddumised area expanded by more than 20%. (i) Irrigation Facilities (in acres) Irrigation Schemes Total Year Ma or Minor Rain Fed Asweddumised Area 1954 269,853 292,669 469,989 1,032,511 1964 365,949 370,411 512,796 1,249,156 Increase 90,096 77,742 42,807 216,645 (ii) Ttal Maha and Yala CultivataA Amanes 195 338) -41 7nn6 ,h Ioo 598 70n 1 Oc-) n Increas 7ff o OlI ~ ~ ni - tn 4_7r%, LIJ.nistry. .S T_- --A.... ~ 2 iJpceeIpment P ~ln, L7VJU IV !7-L.A U I' AJLu % , WILL~ULJ1 rUWt'-I 99. The corresponding iurease in the totual cultivated area, Mana and Yala, was nearly 40%. It is estimated that about half of the paddy produc- tion increase of this period was due to the area expansion. More recently, the expansion of net area harvested has been much reduced and increased pro- ductioU has come through improved yield per acre unich requires less costly inputs than for new are% development. An encouraging recent development in the irrigation field is the Government's decision to use private contractors for completion of a number of irrigation schemes. 100. That the preparation of land for paddy planting can be greatly speeded up through use of tractors is becoming widely recognized by padty - 29 - fartiers. This coupled with a shortage of buffaloes for ploughing and the greater emphasis given by Government extension staff to the need for early planting, has produced an expanding demand for aAricultural tractor services at the beginning of the paddy planting season. Tractor hiring is mainly done by private contractors,. although a small pool of machines and equipment is maintained by the Department of Agriculture, and hired out at much lower rates than those charaed privately. 101. The yearly imoorts of tractors, both 4-wheeled and 2-whAIPH sinei-A 1959 have fluctuated a lot, probably because of the problems of availability of foreign exchange hut therp hnve been lare inornanp rini-p 104 Ypn'r 104 1QC) 196 1067 1968 est. Number 600 47o 1,183 1,4Th 1,780 (including from 1967) 102. No assessment has been possible of the actual contribution made '..L .'.I~J~ ~J I~1~ £II.L ~a ±1 ~.'.u VU%oV.UV. LUUU .Lt, .L0 K=AA.LC..Lj.~ C(6L=U% LLM1U. the demand by paddy farmers for tractor service has exceeded. the supply. 0161u mR1 cquIpmeut-1 nvEa-LtU-Lt: More timt Ly plant;ing MIAdu Ign1er yr-clus v0 paddy would undoubtedly have been possible. 103. The importance of having adequate storage capacity of the right type ior the success of the food expansion drive is,recognized by the provisions for more storage made in the Agricultural Development Program, 1966-70, particularly for seed paddy and fertilizer storage. At present the Guaranteed Price Scheme stores are being used for storing all types of paddy, but in order to maintain its quality seed paddy, particularly if kept from one Maha to the next Maha season, needs conditions of controlled humidity where pest control measures (netting, rumigation, etc.) can readily be appliea. 104. In addition to expanding GPS storage capacity, there is consid- erable financial provision for seed paddy and fertilizer stores, Rs. 0.5 nil- lion and Rs. 5.0 million respectively. Neither program to date has achieved its target of construction, the completed seed paddy storage being only 50%, and district fertilizer storage (usual capacity 1,000 to 2,000 tons) only o% fulfilled. Village fertilizer stores, of a few hundred tons capacity, are almost fully completed. 105. The losses of seed paddy under poor storage conditions could be considerable, up to 50%, and high priority is needed for completing the build- ing program so as to minimize the risk of such losses. The delay in construc- tion of district fertilizer stores is less serious, but unless the backlog is worked off quickly, the expansion in use of fertilizer and its application in the field at the correct time, and hence the increase of paddy output, could, through distribution bottlenecks, be badly disrupted. -30 - 106. Agricultural research in paddy has yielded a large number of valuable results, many of which have already been widely adopted. rur example tne nH4 hybrid seed is now sown in about 80% of the area for which it is best suited. it was first available, although only in small quantities, 10 years ago. it is probably the most important single technical input which has helped to raise paday ytehs urougnout,tne wet zone. More recent introductions, i8 now be- ing tested over some 20,000 acres, and HIO, a 90-day variety, can, if suc- cessfully tested, be expected to do in the dry zone whnat H4 has done in the wet zone. 107. However there is still a considerable gap between optimal practices and those actually used. Under the Freedom From Hunger Campaign, and backed up by Department of Agriculture demonstrations, extensive fertilizer experi- ments using the latter's standard fertilizer recommendations, have been made on typical paddy smallholdings. They have convincingly shown over the last 7 seasons average total yields of over 70 bushels of paddy per acre. These experiments also show that by doubling the standard fertilizer rate, economic yield increases are still possible, up to 90 bushels to 100 bushels per acre. Yet in 1967/68, barely 25% of paddy farmers used fertilizers. 108. Lack of adequate weeding is one of the main factors still holding back paddy yields in Ceylon. Without a satisfactory standard of weed removal, the yield of paddy cannot reach the levels which are to be expected from the use of other inputs. Actual losses from this cause are enormous, and the area not properly weeded is estimated to be as much as 30% of the total cultivated paddy crops for Maha and Yala. Unfortunately, most farmers still rely on the traditional practice of maintaining standing water to bring about adequate weed suppression, but the practice breaks down because weeds are usually es- tablished before the water can be -supplied. 109. Hand or mechanical cultivation methods, although they can be very effective against weeds, are relatively tine consuming. Chemical herbicides, at present little used in Ceylon, offer great advantages, in addition to being simple and effective. They can save up to.60% of the time normally spent on land preparation. Similarly, water channels can be cleared and maintained more easily by weedicide spraying. 110. Agricultural credit - The increased usage of these various inputs was both encouraged and permitted by a liberal amount of institutional credit provided through cooperative societies under the new agricultural credit scheme which came into operation in September 1967. For the 10 years prior to 1961/ 64, Government supplied or backed production credit ran at Rs. 10-20 million a year In IQ63/64 measures desasned to expand the credit flow raised the total to Rs. 34.6 million in that year. For 1967/68, the amount used by cooperatives v."to nd Aiainqt IQ68 vAA RR_ 69 millinn- ARumina that all thiq nrndeilon credit went to paddy product.on, the average credit per acre of net area har- vested was s. 19. There are 'no svstematic and om-rehan.4w. A+ on no+ of paddy production. Costs on Gvernment farms in 1968 were estimated at Rs. recent study notes that a range between Rs. 200 and Rs. 250 is generally ac- cepted but that many put thle figure at Rs. DV30 at Least if all operatior,s are - 31 - carried out by hired labor and machinery. Since farmers are entitled to re- ceive a maximum o'2 Rs. 262 an acre for paddy production while the amounts taken un since the new Pv4edft ncheme Rtarted have been well below target amounts (for the 1967/68 Maha crop oni two-thirds was utiliz'd), it would seem that all the institutional naddy rodunctinn credits whinh farmern could at that time usefully absorb have been provided by the new agricultural credit qnheme The dnhling in 10A7/A of +him -rxvin mavimumn 1 o-v.-l of rapdit'- tended in 1963/64 was a substantial advance in a relatively short period. 111. Organization - While the exten- of organizational changes and their effects on padd,y + can+ be qan+tified, they have played a very im- portant role. For the first time since independence, in 1966 all matters per- taining +o fo prod aAct+an 4i catnac of Ceyln'S "'0 A44+ hs bcme the resp%onsi- bility of one man, the Government Agent. Aided in most districts by an addi- tion.l Governmen Agent, he has bee ab- 1, -UI 4 -A v a -mct aI e --- --- - of his time than before to paddy production uatters. Previously responsibility trading bodies and village-level organizations that in practice no effective, unified= Po.Licuy on 1ood prodQucio wab be=1ig carried-U o)Ut.. FrL eapLej., the Department of Agriculture was responsible for supply of seed, the Department of Agrarian Services for credit and the Cooperatives Department for oupeCOOive societies which were themselves responsible for administering such services as the fertilizer subsidy, the Guaranteed Price Scheme, etc. At the village level there were two independent bodies, cultivation committees and coopera- tive societies, dealing with overlapping aspects of paddy production. 112. It has been the particular organizational achievement over the past two to three years to secure much better coordination amongst those responsible for one or more aspects of paddy production and to ensure that the key figure at the District level, the Government Agent, is intimately associated with policy formulation at all levels. These formulations are then embodied in the annual Implementation Program and Targets which supplies benchmarks as to inputs needed to reach the outputs which villages themselves have set or agreed to. The practical results have been threefold. First, the efficiency of various operations has been improved, e.g. availability of fertlizer at the village when it is needed, the readiness of cooperatives to buy paddy at the Guaranteed Price, and to make the payment without delay; secondly, the amount of conflicting advice and requirements has been reduced and one individual in an area is empowered to resolve any conflicts or deal with any bottlenecks concerned with paddy production; thirdly, a consensus has been developed as to the practicability of and benefits from a dynamic expansion of rice production. 113. Incentives and attitudes - One of the most impressive features in the present situation is the spirit of confidence throughout the country that paddy production could and would be increased substantially. The Government appears to have succeeded, to a remarkable extent, in identifying the success of the food production drive - of which the major part is paddy - with both private and public interest. The farmer has come to appreciate that to expand production is profitable but equally it is impressed on all concerned with paddy production, how this serves the public good by reducing import experdi- tures. The official hero and perhaps also the popular hero of present-day - 32 - Cevion is the naddv nroducer who obtains the highest vield in his district. In brief, it has been possible to increase paddy production in Ceylon because the Pfficiennv and quantities of a number of inputs - some being subsidi7e heavily - was raised at around the same time that a suitable framework of administration and incentives was also provided. The develonment wan thuq broadly based. The production increase was also partly the lagged result of Parlipr develonment and policies. includina research leading to haher vielding seeds. There was a substantial upward trend in production in the late 1950's and enrly 1Q60's- but 1967 and 1968 are the first years in which a qianifican breakthrough was achieved from the levels attained over the years 1962 to 19Ah. However- the broad base of the expansion- the qize of the abanlll increases in output and in yields in 1967 and 1968, the confidence resulting fom thee increass and the knowledge of the nroducers of the impoance and priority given by Government to paddy production, increases the signifi- _anne of the 1067 And 1Q68 develonments. The official view that they on+4< tute a breakthrough in rice is probably not an exaggeration. Ih Fiturie rie rpni rements - The current. nattern n? ^ *oa.,- + in Ceylon is for a little over half of the island's consumption to be met from domestic nady and for the rpmaindep to he diviAd rouhly avan1w be+.- 4. ports of rice and wheat and flour imports. The major change over the 1960's 4. +ha* wa fl+ fa". cananmnn l 4enre- mp ros+eA f r n es. Z.-C __2 144,000 tons in 1960 to 225,000 tons in 1964 and to 420,000 tons in 1968. This latter change Is entIrey atributable to the having of the rice subsidy in December 1966. Rice imports remained fairly steady within the 500-550,000 ton range from 1957 o 17W9. LUy subsequently rose uy 1U-1)UUU tons in the mid-1960's and have been reduced to an estimated 320,000 tons in 1968. The following table gives etima:sae o recut totual and per capita cereal con- sumption. Total cereals is used to denote the sum of rice and wheat and wheat flour. terea± conisumpiulon Per Capita Consumption Total Consumption Rice wneat Flour Total Ce:reals Rice Wheat Flour Total Cereals (lbs.) (000 tons) 1967 211 82 293 1,103 430 1,533 1968 222 78 300 1,186 420 1,606 Average 217 80 297 1,144 425 1,570 Note: These data, derived partly from production data and .hose in the follow- ing propositions, include paddy used as seed. The maximum annual seed requirements are 2 bushels an acre, i.e. on present acreage about 3 pillion bushels. - 33 - L. ±t i's 'JUVIUZ51y IMPoSiU_e Uo give more Lnaan a Uru;su VUrI=I oL- nitude of future rice requirements to meet domestic demand. No recent studies appear to have been made as to price and income elasticities of demand fuor individual cereals or cereals as a group. Since about half of the rice con- sumption is given as a free ration, any change in policy regarding the quantity or price of the rice ration could affect total demand. Another element of uncertainty, also subject to pclicy decisions, is the quantity of wheat and. wheat flour imports. 116. The following projections therefore give a range of possible require- ments. rhe paragraphs following the table give the assumptions employed. Projected Rice Requirements in Ceylon (000 long tons) Rice Wheat Flour Total Cereals 1973 1,300 5460 1,790 Alternative A 1978 1,450 490 1,990 1973 1,370 425 1,790 Alternative B 1978 1,570 425 1,990 1973 1,370 490 1,860 Alternative C 1978 1,580 54o 2,120 1973 1,440 420 1,860 Alternative D 1978 1,700 420 2,120 117. The population assumption in all cases is the "medium" projection of the 1967 Ceylon Technical Working Group on Population Projections. A "low" projection made by the Group, which in view of recent trends may be more realistic than the "medium", would give a total lover by approximately 1% in 1973 and 2% in 1978. The population figures used are 13.54 million in 1973 and 15.06 million in 1978. 118. Alternative A assumes that per capita consumption of both rice and wheat flour remain at the 1967-68 average level. Alternative B assumes that while per capita consumption of total cereals remains at the 1967-68 average level, total wheat flour consumption is held at its 1967-68 average level. Alternative C assumes that per capita consumption of total cereals increases by half of 1% a year above the 1968 level, while the per capita consumption of wheat flour remains unchanged. Alternative D assumes that per capita consump- tion of total cereals rises by half of 1% above the 1968 level a year, while total consumption of wheat flour is held at the 1968 level. - 34 - 119 The main rationale of the anumntion in that eral e-nnumntinn in already comparatively high in Ceylon, implying a low or even slightly negative income elanticity of dpmand. This is cnnsistent with the annumntin of the FAO projections. Secondly; it seems likely that the Government would wish to limit the grnwth of wheat flour nnsumntIon sinie it must he all ImnorteA 120. Futuiravewiieductron sand _aPlf_arff'icinr-v - Then magrnitie and timing of the production expansion needed to reach self-sufficiency in rice can be looked at in terms of ean an e- viold 1 T+ i annumod +hAt not non harva,ted could increase by 30,000 acres a year. This has been the average increase in +he 10Ats (loAn_AA) no well no +hnt nP tho ,,ivv-nt fiyo -no" novalamman+ Din- S*~--- --~ --- - _ -~ ..- -- ---J - . . (1966-70). As a percentage rate of growth, 30,000 acres a year would represent o 1% ea on, 4-, 1040 a-a o 1 7' kv-.o , h 107A 1,41 +I,-w 4n - particular merit in the figure of'30,000 acres a year, apart from being the 04.t+.1 ra+e or moO Of +he presta+ AeA 4+ appears a teA4 UU _+ + a6iLJ rate and a reasonably conservative target. The additional.land would be ob- asveddumized and under cultivation but not fully used, and by some reduction 30,000 acres a year, yields would have to rise to 60 bushels an acre under the Uemand conditions outlnued in nAlteaive A an tou vu busbeuI n oAlternative D. These two alternatives represent the two extremes of the four given in the table above. The comparaule yieluu requir&u .o reach self-sufficiency in iwo would be 61 and 71 bushels respectively. On the basis of a yield of 44.5 bushels in.o1968 "he 1969 target is 10.5) the average annual.increase would have to be between 3 and 4-1/2 bushels if self-sufficiency were to be reached in 1973, and 1-1/2 to 2-1/2 bushels to attain self-sufficiency in 1978. The higher set of increases is close to the actual yield increases over the last three years of over 4 bushels a year. 122. The present momentum in domestic agriculture and the relatively low level of current yields as compared with what is attainable with available technology both suggest that Ceylon, which now imports 25% of its rice re- quireMent can reach self-sufficiency in paddy and certain subsidiary food crops by 19'3-T5 with only a modest expansion of cultivated area (less than 2% a year). The fact that self-sufficiency in paddy can be obtained with small increases of cultivated area does not imply, however, that major invest- ments to bring additional land under cultivation cannot be justified. Ceylon's growing population will require increasing amounts of rice beyond 1973-75 and by then the ec9nomics of obtaining increased production through area expansion may be more advantageous than through yield increases. 123. In addition there is considerable scope for crop diversiftcation including sugar and cotton, large quantities of which are imported at present. It also needs to be recognized that area expansion is one way of dealing with Ceylon's consiWerable unemployment problem. Finally, in view of the problems 1/ See also Annex IV. - 35 - confronting the traditional export crops, it is conceivable that some time in the future it may prove desirable to supplement Ceylon's exchange earnings through ride exports. 124. These considerations notwithstanding, before undertaking maajore investments to increase the area unde- cultivation in the post-1975 period, a systematic evpluation should be madt to determine the extent to which future requirements of agricultural p:.oduction can be met at lower economic cost through more intensive use of existing agricultural lands. This particularly applies to decisions concerning the phasing of investments on the later stages of the Mahaveli Ganga scheme - a gigantic multi-purpose project which when fully implemented will provide irrigation water for more than a million new acres. The Government has already decided to go ahead with the first stage of this project which is desined primarily to enable year-round irrigation of already irrigated areas and involves bringing under cultivation only about 80,000 additional acres. However, the later stages of the project entail considerable expansion of cultivated area. 125. The five-year program of fertilizer demonstration and trials on paddy which has recently been completed ha. had great value in 3howing to farmers what can be achieved with fertilizers on their own holdings. It is important that a continuation of similar demonstrations and trials should be undertaken and that the team of trained and experienced field staff and organizers who have carried out the work should not be allowed to disintegrate. There are still hundreds of thousands of paddy farmers who would benefit from more fer- tilizer demonstrations and financial nrovision for this continuation is re- quired. 126. The use of improved seed for attaining the paddy production increases nhould nrPnnt no mPinr nroh1ems Tht nprtified qeed naddv scheme works satis- factorily and maintains the quality of seed. More seed paddy stores are being constructed in 1o,0 up to naret rmqivement. (e-ntiniiPti effnrts arP needed to make the farmers appreciate the full advantages of using certified seed. 127. Similarly, there is much lee-way to be made up in irrigation train- in- nartinularlv in #nonomy of water unage. Stricter enforcement of Davments by farmers for water used in irrigation is needed. It would especially help the Yala crop if Maha production took less water. i928._4 -^ff prores t+wrds- sef"ufIiec aIl wearatly hel1Pd if' the use of agrochemicals for pest and disease control as well as for weed control4is enc011raed ffs-11-her, by MeWnS of a+ ston extensi on t-aynnvkfn h appropriate products exist, at economic prices, but at present little use is made of them by farme,e larly becasuse of lack of education. At the seame time research investigations should be continued to develop fresh seed varie- tiea, tenw e LL.Lize cvubinmelis aad i d f d t treatments and improved field techniques. - 36 - n rnrDT rTADVy 'r.' anA n fDAD O. 1:DQLV.L2UA1L rVV~LO '..Lv oJ~ 129. There are a number of essential food items which supplement the basic rice diet in Ceylon of which pulses, chillies and onions are the most impor- tant. At present these are imported in considerable quantities. 130. Data on acreages and outputs of the subsidiary food crops comes from two sources, the Department of Statistics and the Department of Agricul- ture. Unfortunately the two sets of figures show such large discrepancies that they can only be regarded as very rough approximations. (For production targets see Annex V.) 131. There is no doubt, however,, that production of most.of these crops has increased significantly in recent years. In some cases, such as potatoes, this has been achieved by banning imports. In others, such as chillies and onions it has been the result of higher guaranteed prices for the farmer and more irrigation being used, particularly on Government colonization schemes, where a number of low lift pumps are now in operation. These production in- creases are now permitting some reduction in the imports of these items. Annex V compares imports in 1964 and 1967. 132. In the case of red onions and potatoes, imports have been drastically cut, for the former from 140,000 cwts. in 1964 to 37,000 cWts. in 1967, and for the latter from 1.5 million cwts. in 1964 to 360,000 cwts. in 1967. Red oaion growing is traditional in Jaffna under irrigjLtion and has spread to other zones. Storage facilities !ave been provided for the critical 3 months when it is not grown. Potato imports, except for seed, have been banned and with the Guaranteed Price increased to Rs. 44.80 per cwt., great stimulus has been given to potato growing in the temperate climate dis?rict where production has risen dramatically. 133. The prospects for better dried chilli production are improved now that the guaranteed price is up to Rs. 252 per cwt. A doubling of production has been indicated for 1968/69, over the output for 1967/68, but this appears optimistic. l3. The growing of Bombay onions, imported in large quantities, is rela- tively new in Ceylon, and the planned production is small, with no big expan- sion foreseen in the future. As a Yala season dry zone crop requiring irri- gation, the Bombay onion production could possibly be expanded considerably, once more ernerience with it has been gained and now that a more attractive price, Rs. 44.80 per cwt. is being offered. 135. The grain legumes which include various grams (green, black, bengal) +n. e-hal tsMan lantil -hew nn an-nrinia1lp rpdiirtirsn in wn1ima rvP im-new-fe in 1967 over 1964, although the value has not altered. A program to increase local proluction ra4ses a ^umbr of nv- hlama wh4h are an+ -41- Lentils, the most important and favored legume food can only be grown in very restricted areas because of +-t+s pecilliar eCo1og4c-3 requirements r,----- and Black gram are moderately popular foods. Bengal gram (chick pea) although widely eaten, has been little gruwn in eyon. iur Caa -I--11 au.; . [ popu- lar and could be very widely grcw, but suffers severe insect pest damage. - -7 - Cow pea, thought to be a good substitute for lentils is grown in a number of varieties. 136. The Development Plan, 1966-70, expects from Government schemes a production in 1969 of less than 50,000 cwts. of Cow pea and Green gram, which is minute in comr)arison with the total imports of pulses, running at 1.0 to 1.5 million cwts. Much of the grain legumes are grown under chena (shifting) cultivation and yields are low because little or no attention is given to past control. Consequently, even with the higher guaranteed prices being paid in 1968. Rs. 56 per cwt. for Tur dhal, Rs 67.20 ner cwt. for Green gram, returns to the farmers who use traditional methods can still remain unattractive. 137. Research investigations have done much to raise yields by selecting varieties which are disease resistant and less liable to insect attack. If any real impression is to be made by local production on the 'Large imports of pulses, the legumes must be grown as part of a permanent cropping system in well-founded rotations, using correctly timed irrigation and pest control measures. Yala season cronnina. with irrization available, will minimize losses due to insects. 138. Assuming a modest average yield of 10 cwt. per acre., the area needed to orovide self-sufficiencv in nulses would amount to (for 1967 imnorts) 140,000 acres. Such a target will be difficult to achieve and will need con- tinued research invet-iations followed iin hv field demonstration and exten- sion propaganda on a large scale. C. TOBACCO 139. Ceylon's consumption of tobacco, both as Virginian cigarette tobacco, tobacco has been imported although, recently, local production has increased. C4ga + ete s- e TcAi4 ^%k h ro ^nna-A -anf4 al I- all +hx% I^e%nl lxr vntrn f_r%hnVr%rn together with imported blending types, are rising roughly 10% yearly. 14o. Cigarette tobacco production is highly organized under the control of +he cigaret+e meanufattung comany. T+ 4 s a small I , mco + -n1 -1V industry, occupying some 5,000 growers and about 1,000 barn owners. The total 18,000 acres by 1972. Technically the grower is very well catered for by a Li.~4i.L, ~ULJ~C .CIL. A~CI MCI VI.CW 0).~1 J I .Lt=.CL%A D C= ".I C LO.LLL6 better seed. About half a million pounds were exported to the United Kingdom in 1yul and this is expeced to rise to one million in 1968. Total Manual production in Ceylon is about 8 million lbs., of tobacco, and provides about Rs. 500 net profit per acre. The good results being obtained by this smaLA industry augur well for its continued expansion, and illustrate the value of an intensive extension service. - 38 - D. MILK AND MiLK ROUUTS 141. In the past, interest in animal husbandry and livestock improvement has been mainly focused on the Government livestock farms, and with the ex- ception of a few larger estates in the coconut area where relatively high quality or pedigree cattle herds have been kept, the dairy side has been mostly neglected. 142. Milk consumption has been small. Even by 1963 a survey gave the average daily per capita consumption as two ounces. After the formation of the National Milk Board about ten years ago, improved and better organized methods of collection and distribution led to an expansion of consumption. Expressed in terms of the amounts purchasea and sold by the-Board (which does not entirely account for overall consumption) there was about a tenfold increase in consumption between 1956 and 1967. Nearly 20 million pints of milk were sold by the Board in 1967, about two pints per head of population. Despite the large consumption increase of local milk, imports of dairy products have remained high, averaging over 1960-64, Rs. 77 million a year, but dropping to Rs. 66 million in 1967. 143. The growth in sales of milk and the popularity of milk products have caused Government to plan production increases for these items, with the justification that this will help to improve health and reduce imports. This expansion of production is planned in three main ways - using untapped reserves of native or meat cattle and buffaloes to provide more milk., raising the stocking level of Ceylon's undeveloped pasture areas and the quality of the stock, and starting the domestic manufacture of most of the dairy products. 144. The Government has been and is likely to remain the dominating factor in Ceylon's dairy produce industry with its two new factories - one for condensed milk at Polonnaruwa now in full production) and one for spray- dried milk powder, about to be erected near Ambawela. Both factories will ultimately use local materials for their full production, which will divert considerable quantities of liquid milk from the consuming public. The re- placement of this diverted milk as well as the supply of the traditional demand to be exDected from the normal Dopulation increase will be the main problem of milk production in the immediate future. STALSTICAL APPENDIX Tables 1. Agriculture: Basic 3tatistics (a) Land Utilization (b) Production Index of Principal Crops 2. Tea: Basic Statistics (a) General Data (b) Acreage by size of Holdings (in 000 acres) (c) Acreage and Production by Altitude (d) Acreage by ownership 3. Rubber: Basic Statistics Production, Average Cultivated and Replanting 4. Coconuts Production and Fertilizer Use Rice: Ba.ic Statistics Production, Net Acreage Harvested and Average Yield  TABLE 1 AGRICULTURE: BASIC STATISTICS .LIa; Jjanu utsLaT,1aron Acres % Total cropped area 4,013,501 100 Of which: Paddy i,131,±oo 28 Tea 570,93h: 14 Ruober >oo O66 6 Coconut 1,152,423 29 Source: 'Deartment of Census and Statistics 19o2 Census of Agriculture 1(b) Production Index of Principal Crops Tea Rubber Coconut Paddy 1959 loc 100 100 100 1960 105 lo6 94 118 1961 110 105 112 118 1962 113 112 122 132 1963 117 113 111 135 1964 117 120 130 139 1965 122 127 116 100 1966 119 ibi 107 126 1967 118 154 105 151 1968 (est.) 119 154 112 176 Source: Ministry of Agriculture and Food; Ministry of Planning and Economic Affairs TABLE 2 TEA: BASIC STATISTICS 2 (a) General Data Production AcreaLe Yield P.Acre Replantini Year (million lbs.) (1,000 res) bsT (1,0WJ acres) 1959 113 580 712 0.2 1960 135 582 747 0.9 1961 455 587 775 1.3 1962 467 591 790 1.8 1963 485 587 826 2.3 196 482 592 814 3.2 1965 503 594 847 3.1 1966 490 596 822 3.6 1967 487 599 813 5.3 1968 (east.) 490 601 815 4.7 26.4 2 (b) Acreage by aise of Holdings (in 000 acres) Year Below 10 acres 10-100 acres 100-500 acres More than 500 acres 1959 77.6 52.3 160.3 289.4 1960 79.5 63.2 149.8 289.3 1961 83.5 65.0 148.2 290.7 1962 86.4 76.7 14.3 284.3 1963 89.8 62.5 145.3 2d9.8 1964 95.7 61.5 146.0 288.7 1965 97.3 62.3 166.4 288.3 1966 99.3 62.9 145.8 288.5 1967 101.2 63.6 146.6 287.4 (in % of total acreage) 1967 16.8 10.6 24.4 48.0 2 (c) Acreage and Production by Altitude High Grown Medium Grown Low Grown (over 14,000 feet) (2-4,000 feet) (loweTa N ,000 ft) Acreage Production - Acreage Production Acreage Production (1,000 (million (1,000 (million (1,000 (million Year acres) lbs.) acres) lbs.) acres) lbs.) 1951? 192 164.4 242 147.1 146 101.6 1960 188 175.5 2110 153.2 154 106.1 1961 189 179.4 241 162.9 157 112.9 1962 190 189.0 212 162.1 160 115.9 1963 188 195.0 236 170.8 163 118.7 1964 201 192.6 228 166.9 162 122.2 19 216 201. 229 173.7 149 128.1 1 216 195.9 231 , 162.2 150 132.1 1967 (180)i/ 186.9 (193)11 171.3 (125): 125.5 1/ Smallholdings not included 2 (d) Acreage by ownership End of 1967 (in 000 acres) Under 100 ares % total Estates 10 acres 10-100 and above Acreage (a) Sterling compan I - 177.7 29.7 (b) Rupee companisa - 1.2 152. 25.7 (c) Cav1nnaan Tndividuals - 60.3 8h.0 2h.1 (d) Non-Ceylonese Indiv- idual. - 1.8 13.2 2.5 (a) C.ynnaa And Ceylonese Individuals (jointly) .1 1.6 0.8 (fl State-nnad - .1 2.2 0.h Total Acreage Estates - 63.6 134.1 83.1 Small Holdings Celns indvidal 1.- - 16.9 Grand Total 101.2 63.6 134.1 100.0 7/ Companies regintered under the Company Law in Ceylon. Table 3 RUBBER: BASIC STATISTICS Prndur.ti nn AnrpAa Cultivated ReDlantinw (million lbs.) (1,000 acres) acres) 1959 205 18.5 1960 218 17.9 1961 215 - 18.7 1962 229 567 18.0 1963 231 568 14.6 1964 246 569 13.6 1965 261 570 12.5 1966 289 571 11.6 1967 316 572 10.1 1968 (est.) 315 - - Source: Administration Report of the Rubber Controller for 1967; Ministry of F.Lanning and Bconomic Affairs. TABLE 4 COCONUTS 1/ Production Fertilizer Use (million nuts) (1.000 tons) 1959 2,306 44.o 1960 2,183 42.2 1961 2,601 38.8 1962 2,811 45.0 1963 2,557 48.8 1964 3,000 47.4 1965 2,681 50.7 1966 2,486 55.9 1967 2,421 52.7 1968 (est.) 2,600 - I ML.. ~- - to - L.4 t%, Ill areca &UP±Ludeir IcoconuUws a~crdig toLL WML70C Agricultural Survey Report is 1,152,417 acres, of which a[),62o acres wer i holdings under 50 acres and 308,782 acres in holdings of 50 acres and over. Source: Department of Coconut and Cocoa Rehabilitation; MInIstry 9f Planning and Economic Affairs TABLE 5 RICE: BASI1C STATISTICS Average Yield ir Not Ricc Production Net Acreage HarvestedLz' Acre arvested (Mllionuwshelp) --1,05-ä-acres)lb. Year Maha Yala Total Maha Yala Total Maha Yals 1959 21.9 14.5 36. 645.1 398.7 1,04,3.8 34.1 36.4 1960 26.3 16.7 43.0 728.5 455.5 1,184.o 36.1 36.8 1961 27.1 16.0 43.1 754.4 144.4 1,195.8 35.9 36.5 1962 30.2 17.8 48.0 795.9 472.6 1,268.5 38.0 37.7 1963 31.6 17.6 49.2 834.5 462.1 1,296.6 37.8 38.0 1964 32.1 18.4 505 832.8 471.7 1,304.5 3ö.6 38.9 1965 23.1 13.2 -36.3 676.3 379.9 1,056.2 34.1 34.7 1966 30.7 15.0 45.7 855.2 4:28.6 1,283.8 35.9 35.0 1967 34.9 20.2 55.1 853.3 477.5 1,330.8 40.9 42.3 1968 43.6 20.0 63.6 923.6 508.8 1,h32.h 47.2 41.o 1/ The net acreage harvested is estimated to be 85% of the gross area harvested. ~ (Statistical Abstract of Ceylon 1965). Sources: Annual Report of the Central Bank of Ceylon; Ministry of Agriculture and Food; Statistical Abstract of Ceylon.  ANNEX I Pag e1 1* nL2ductioD - Vegetatively propagated tea (VP or clonal tea) Jo nuw p.Laneu on approxmaUe1y 6,,U acres in Ceylon out of a uutal o 600,000 acres. Statistics are not available oti the average yields of the prouUCIng areas but the consensus of a wide range of people concerned with tea production is that VP tea typicallj gives yields under normal production conditions of two to three times the average yields of existing seedling tea. This experience is consistent with the resr.lts of numerous trials of clonal tea undertaken by the Tea Research institute, allowing for the more favorable results expected in small-scale prbductionT. Experience has not so far thrown up any technical snags to the use of VP material except that it does not withstand severe droughts as well as seedling tea. 2. The much greater yield of VP tea and the consequent reduction in unit production costs renders obsolete most if not all the existing tea bushes. In view of Ceylon's need to remain competitive in face of low tea export prices, which according to FAO and World Bank projections of world productien and demand seem likely to remain low, it is clear that Ceylon should turn over entirely, or nearly so, to VP tea. Thus official policy, as announced at the end of October 1968, is to aim at replanting 12,000 acres a year. 3. Some important consequences follow from this new policy. Planting or replanting with VP t9?a is expensive - from Rs. 4-6 thousand an acre depending on terrain, accessibility etc., and a foregoing of production from the area concerned for 13} to 3 years. The tea bush is long-lived; much of the seedlina tea area is 60 or 70 years old and there ai-e no known reasons why the VP bush should have a shorter life. Thus the area which is replanted or newly planted with VP tea will represent expensive fixed capital investment with a potentially very long life. It is therefore important that the most suitable areas are chosen for locating Ceylon's tea production of the future. Decisions as to suitability of location reauire information on four asvects: technical production requirements of the plant, especially the influence of soil and climate on the anantitv and oualitv of the troduct: yields and production costs at different altitudes; comparative returns from alternative uses of notential VP tea aress: nossible chances in the pattern of demand for teas of different qualities in markets likely to be imnortant to CAylon. ThA latter noint refers narticularly to the relative strength of future demand for and the prices of Ceylon teas 2rown at hiph or at lover altitudes. h. Cevlon faces a problem because immediately available information is inadequate on these aspects, yet policy decisions as to whArp th tpn PrPnf th A Nutmrp Whmnilel hA lont.d annnot be left in obeyance because replanting with VP tea is going on in the meantime. A ITkTL 1 Page 2 .L. reriarILng~ Umrta p-Lat ti M.LU(UIIU ltaS kU L-tLtJ V.L.LJL%.;.LJ Ua -j I-Uu, approximately half the tea area required for the 1980's will have been "Arn nan uvou ne.p.us ocyun u Uraw up U_ euUay rur Special Fund study of diversification of tea (and rubber) areas. some 3U0-4uv,v0V0u acres of tea land may U mLUFLU burpuU to ine requiremenurs o the tea industry when replanting has been completed. The request envisages thoroug technical anu economic invesuigations of possible surplus areas and its results when available would very greatly assist diversification efforts. However, the results could not be available to be used as a basis for policy decisions before 1974 or 1975. This is an inevitable consequence of the length of the period calculated to be necessary for completing adequate studies. Thus the project is not designed to give an answer to the question or where the VP tea replantings of the next few years should take place, or how to achieve an accelerated rate of replanting. It is also not designed to consider possible future changes in patterns of world tea demand, particularly as to high-grown as against low- or medium-grown teas from Ceylon. 6. The problem facing tea factories is somewhat parallel to that for tea production. A scheme has recently been introduced to assist factory owners to re-equip their plants, which in many cases are in need of replacement or modernization, and to expand capacity which is now over- strained and inadequate for handling the larger tea production of the future. OTners of factories arle, however, reluctant to undertake re- equipment partly because of uncertainty as to what kind or quality of tea will be required by the market in the future and as to where this tea will be gro-n. They understandably prefer, where it is possible, to delay making their choice of machinery and actual expenditure on new plant. 7. Finally, commercial exploitation of two technical innovations developed in Ceylon concerning instant tea and the upgrading of teas grown at low- or medium altitudes appears to be delaved partly because of a lack of any definite and informed view in Ceylon or probable deetlonments on world markets. 8. Tt in thArAforP n1par that som kv AlAments rnunirei fnr the drawing up of tea policy in Ceylon are missing. Sortie of this infor- Mk-Ann nn~r ovf.m-rnn1 ATm-mA?' i'n ' ~i5t in -inr-i_Q Q+.n 14A.q ny- 'in +ha background napers to them, e.g. studies undertaken for the FAO ad hoc of tea propaganda efforts etc. It i also possible that more information so far been assembled and analyzed. On the other hand, it is most ANNEX I Page 3 unlikely that all gaps cai be filled from existing but scattered data. 9. It is proposed that to assist in the formulation of a compre- hensive tea production policy, a study with the following major objectives should be completed by the end of 1969: (a) to identify and quantify possible changes in demand in a number of imorting countries in the decade from 1975 for teas of the qualities corresponding to those produced at the different altitude zones in Ceylon; (b) on the basis of the above information, and of what- ever relevant dnn that ann he ntir-ly nh-w on production asrects of alternative areas in Ceylon to makn an It.4m neaceoman+ no +he a suitable future location of VP tea areas in Ceylon. 10. Scope of the Stud, - The part of the study dealing with external consultant, an economist or a person knowledgeable regarding demand for tea, GOJ Sp--aJ. CLP.JL0J..JIi.LUZ; L.LL Wile mo41L I-WVL.LW-LJ V-"O J116 OLoULLLVO CU5A%A .JA.&SUA mation on demand for tea in important tea import markets. Ha should report Un thIu r maju conci.-usons and identify t4e main gapU whicU cuuu be LLeU only by new market research. He should pay particular attention to the adequacy of informaLion which goes beyond global estimates of market demanud and gives indications of possible changes in demand for different price- grades, or quallties o tea, including tea in non-tradiT1onal lorms. The cost would be of the order of $10,000. 11. The second stage of this part of the study should consist of filing sufficient of the gaps identified in the previous review to enable an estimate to be made of likely changes not only in the quantity of overall demand in imorting countries Out more importantly in the different price-grades or qualities within this overall demand. 12. The two stages of this part of the proposed study are of concern to all tea exporting countries. This suggests that it should be jointly organized and financed. Such a proposal might therefore be circulated by Ceylon for discussion by governments at the forthcoming FAO ad hoc meeting on tea. If acceptable to governments, the study would need to be undertaken by a commercial firm preferably under the aegis, and reporting to a future session, of the ad hoc meeting. The cost of the two stages would be in the range of US 4200-300,000, the bulk of the expenditure being in the currencies of tea importing countries whose future market demand was being assessed. Technical assistance should be given by FAO and the GATT/JICTAD Trade Centre on the planning of the study, (which so far as possible should fit into ongoing studies being undertaken for the ad hoc meetings) in the provision of data, including supply forecasts of different types of tea, and in commenting on drafts. ANNE I Page 4 13. If other exporting countries do not wish to participate, this part of the study could be carried out by Ceylon alone. In view of the great importance of the tea industry to Ceylon and the need for a tea policy to be as firmly based as possible in this period of structural change in industry, the foreign exchange cost of the study would seem to be an anpropriate use of any aid funds which could be made available. The ad l-.. meeting on tea is scheduled to be held before the meeting of the Ce,Ion Aid Group, hence it will be known by the time the Aid Group meets wihether Ceylon will need to undertake this part of the study alone. 14. The other part of the study relates to Ceylon alone and should go on simultaneously with the first part. To quite a large extent its subject - the future location of VP tea areas - covers ground which the proposed Special Fund project on crop diversification will have to cover. If the latter project is commenced in 1969, as is envisaged, it should be possible for the personnel first to concentrate on providing data required for an interim assessment of the suitability of different areas. This would mostly consist of assembling and appraising existing infor- mation relating to the area at present under tea and of data on yields and production costs of clonal tea at different altitudes. 15. It would, hqwever, be desirable for a two-man team, an economist and an agriculturalist, to be appointed for about 3 months to finalize and write-up this part of the study. They could do most of this only after the results of the sti;dy on exte:7nal demand are available. Their task would be to relate the analysis of data on the comparative advantages of different land use patterns in the three zones which had been collected as suggested above, or which could otherwise be assembled quickly, to the results of the analysis of external demand. For instance. if it appeared that a stronger demand for cheaper teas was likely to narrow the margin between the prices of high- and low-grown varieties after taking account of forecast supplies of other countries, it would be possible to make some estimate of the nrofitabilitv of tea Prowing at the different altitude zones and of the com.arative returns obtainable from 41ternative uses of land at the varioms altitude. Thil thi nl be dInpe onyII- roughl,y, it would give a better guide as to where VP replantings should take nlann than the infornn ton now anilable The nnd +.c&Lnocf reliable statistical information on the yield and cost perform nce of policies concerning such matters as replanting rates, land use and crop diversi fic'~ at~- UNEI I ALTERNATIVE PROJEUTI0M OF TA PRODUCTION 1 2 3 4 5 6 | 7 8 1c 11~~ 12 13 16 15 16 17 18 L U9 Area relanted with Total VP Tea Area Production VP Tea Production Seedling Tea(m fllion bs.)^ Total Tea Production T Total TeaProduction Year V? Tea in Production i(millions Ibs.) Alt. A Alt. B CC o a O l.) (ccc b.) annually (OCC acres) (CCC acres) Wl1d Seed2ng Tea Alt. A Alt. B Alt. Å Alt. B3 Alt. Å Alt.B ,onstant +15p.a. +2%p.a. Constant 1p.a. +2p.a. 5 • 7 5 8 5 • 9 6 • 10 6 • 11 6 •1L prod. •2 p. 1?68 5 5 15 15 17 17 b73 b73 671 b73 473 673 4,9c 49c IL9C 490 49C 490v 1969? 12 12 20 20 25 25 >7L 1188 503 V7 1188 5C3 499 513 528 499 513 528 5c 197e 12 2G 25 25 35 35 >69 488 5c8 >6Q 488 508 5ch 523 5a3 504 523 543 51c 1971 12 2C 37 37 52 52 559 682 507 452 475 sCO 511 53 559 504 527 552 52C 1972 412 2C 9 57 69 77 bh,9 h76 506 l 436 1,62 b91 8 i5 95 513 539 568i 53C 1 61 ~ 77 59 05 4 - 528 56 91 2 1971i 12 20 73 97 4138 29 465 501 L02 436 47C 539 575- 61i 540 574 601 552 1975 12 2c 85 L17 134 17> >19 >58 >99 386 >22 459 553 592 633 560 596 633 563 1976 12 2G 97 137 158 21> 49 >452 497 369 >408 448 567 610 655 583 622 662 574 1977 12 2C 109 157 182 254 399 445 --94_3 2 393 b37 . 6n 676 i 606 647 691 1973 12 20 121 177 2 29 3 3~8 ¯ ¯¯¯¯¯336' 595 66U 6987 630 672 7 9 597 1979 12 20 133 197 230 334 379 431 b89 319 363 411 619 661 719 653 697 745 60? 198C 12 2C 1U5 217 25b 37b 369 b24 >85 302 3>47 397 623 67& 739 676 721 771 621 1981 12 20 157 237 278 >14 359 >16 >81 286 331 383 637 69> 759 70C 745 797 633 1982 - 10. 161 27 3,2 å 5b 3h9 509 77 269 315 366 - Q5L 711 779 723 769 82c 6h6 1983 12 20 181 277 32' V¯Ih 33 Lcl 73 252 299 35 665 727 799 746 793 8>-6 659 198 297 534 672 1985 317 57b 685 1986 337 61b 699 1987 357 65% 713 1988 377 694 727 1989 397 i 734 7>1 1990 417 774 756 Notes 1. The calculations are based on a total tea area (VP + seedling tea) of 600,CC acres in 196 through,. 19.68. The area vill be eipandad by 6,0c acres in each of the years 1969 and 1970, and afterwardg remain constnt at 612,c acres. 2. It is assued that fro the beginning of the program until the end of 1968 25,1cc acres have been replanted. 3. VP bushes are assimed to come into production in the third year after planting. The yield per acre in t,he third and fourth years 1,cc lbo., the tifth and sixth years 1,5CC 1b9., and thiereafter 2,ccC Ibs., er annum. b. The alternative y-ields of an acre under seedling tea are assumed (a) constan, at 833 lba., (1965-67 average , (b) increaaing by 1% cumulatively Der annum and (c) increasing by 2% cuiulatively per annum. Seedling tea production is calcuilated for non-replanted areas corresponding to replanting alternatives A and B, respectively. 5. Total tea production, for instance for 1M70, aSSUMing an arLnual replanting rate with VP tea of 2C,0cc acres (alternative B) and an anrual increase in seedling tea yield of 25 cumulatively on the basis of a yield of 833 lbs./acre in 1966 equala: VP Tea: 1c,00: x 1,1: 0ic,0c0 x 1,5W • 5,CC x 2,0CC - 35 nln. lbs., (column 6) Seedling Tea: (612,0c - L;,cc. r 9c9 508 min. lbs., (col-rn 12) Total 563 min. Ibs., (.olumin 1) The production figiures for 1968 are preliminary actual figures which dife- el:gh-,ly from celculated qu3ntities. 6. The trend prejection in column 19 corr,sponds to a developrnmnt in wh,ich reylin vould maint.in its shar, in the world market with world demand growing by 21 per annum.  ANNEX III ESTIMATE OF TOTAL FUTURE RUBBER PRODUCTION (million lbs. ) A. On basis of Ministry of Planning estimated yields per acre 1/ (i) Using 15,0c acres a year replanting rate 1967 1968 1969 1970 1971 1972 1973 197 1975 1 1 1978 Actual 315.91 329.h5 3h0.26 3b7.76 351.29 352.38 352.36 352.40 352.17 352.52 353.4C 354.94 (ii) Using 20,000 acres a year replanting rate 315.91 327.95 337.46 3b3.66 345.39 345.18 343.36 34h.6 346.75 350.65 355.73 362.47 B. On basis of Mission's estimated yelds per acre 2/ (i) Using 15,C00 acres a year replanting rate 315.91 336.73 354.32 (364) (375) (386) 398.5 (403) 409.C2 (415) (420) b25.25 (ii) Using 20,000 acres a year replanting rate 315.91 335.5 352 (360.5) (37C) (380) 39C.5 (394) 40o.5 l07 b19 h27.5 Note: Outpute in brackets have been proportionately assessed. 1/ Ministry of Planning, estimted yields per acre of replantings: Year after planting 7 8 9 10-15 16 17 18 19 2C 21 22 23 24 25 26 27 28 Yield lb. per acre ýUU 735 7-73 ~19E' U97Ó Year after planting 29 3C 31 32 33 34 YieldE.per acre -CG L' 4CC ~ 33C 3C ž2- 2/ Mission's estimated yields per acre of replantlings: Year after planting 7 8 9 10 11 12 13-18 19 20 21 22 23 24 25 26 27 Yield Ib. per acre 3C 73 97C 113 130 13CC 130 ].2 12CC 15 1100 1050 100C YGG C Yer ater planting 28 2 C 31 32 33 34 Yield lb. per acre C 700 6 COC ý 50 ANNEX IV ALTERNATIVE PROJECTIONS OF PADDY YIELDS AND RICE REQUIREMENTS 196 f196 1969197 1971 197M 93 17 .1975 1976 1977 17 Net area harvested 1971 million acres 1.332 1.452..4oJ 1.51j i. 54J 1.>> J ou0 Io33 1.603 1.6O3 1.7 231.73 increase 30,000 acres p.year Average yield per acre bushels paddy bl.5 4.45 48.5 2.0 55.5 59 62.5 66 69.5 73 76.5 Bc 0 3.5 bsh. p.scre p.year increase Production million bushels naddy 55.1 63.6 72 79 86 93 100 108 116 124 132 1L0 Production I nn . M n 7h0 AAC 978 1.f72 1164 1*261 11l 1h6 1-7 1.6r71 1791 1.90R Rice requirements high(000 tons) I1.U40 1.7CC Average yield per acre bushels paddy bl.5 4h.5 h8.5 51.5 5L.5 57.5 60.5 63.5 66.5 6Q.5 72.5 75.5 0 3.0 beh. p.acre p.year increase Production million bushels paddy 55.1 63.6 72 78 84 90 97 ICh 111 118 125 132 Production OO tons rice 749 874 978 I1.060 1.1h 1.231 1.319 1.411 1.5C5 1.6c1 i.70C 1.8c1 IMPLICATIONS OF PRODUCTION PROJE'TIONS FOR SELF-SUFFICIENCY IN PADDY PRODUCTION A. Assuming self-sufficiency is required in 1973 and in 1978, from the harvested area as estimated above, then the mncesr yieldT css be caluae ses followss. Consumption Paddy reSuired Estimated area Necessary yield pro,jeulons i, 0u tons min.bunes million acres bushels/acre 1973 ". 1,30 95.5 1.603 6, nign 1,L40 105b. 1.603 66 1978 low 1,A50 106.6 1.753 61 high 1,700 125.0 1.753 71 B. Assuming yields of 62.5 bushels/acre in 1973, and 80 bushels/acre in 1978 as estimated above, then the net havesed aa necssanrr to prouc +he paddy reqred for* mal- _ @#4'-- olap Consumption Paddy re5uired Estimated yield Necessary area pj.aectiosl VUB la bushe.u/acr. miLoLn acres 1973 95.5 62.5 1.528 hngn 105.8 62.5 1.692 1978 low 106.6 80 1.333 high 125.0 80 1.562 1/ See Volume IT. nararraphs 116 and 121. ANNMX V ,..fl ~ I ---. -lu -, -.~r 4 -l ,- . Production targets in 1968 and projected prouctoLn .L 196 1968 16 cwts. cwts. thousands thousands Dried Chillies Maha 27.9 TU-3 Yala 30.9 58.8 3 2o Red Onions Maha 263 358 Yala 392 655 485 83 Bombay Onions 21.3 22.1 Potatoes 96 702 Cow Pea 24 Green Gram 23.7 Imports 1/ 1/ 1964 -' 1967 - Quantities Value Quantities Value cwts. Rs. cwts. Rs. thousands million thousands million Chillies. dried 425 46.5 290 29.3 Red Onions 140 2.8 37 0.75 Bombay Onions 1,24L1 23.0 1,111 17.8 Potatoes 1,471 25.5 362 6.7 1.750 2.2 1,398 52 1/ Soure:, nrt.nmn Returns