What is the Cost of a Bowl of Rice? : The Impact of Sri Lanka's Current Trade and Price Policies on the Incentive Framework for Agriculture

Since 2004, Sri Lanka has pursued inward
looking policies that have encouraged import substitution,
especially with respect to agricultural commodities. This
report provides empirical evidence to inform the policy
dialogue over the impact of current trade and price policies
on the incentive framework for agriculture in Sri Lanka.
This analysis provides a quantitative assessments of: (1)
the level of support to farmers producing import-competing
products; (2) the degree to which final consumers are
indirectly taxed by those policies; (3) the extent to which
agricultural exports are taxed; (4) the contribution of
trade policy to government revenue through tariffs on
imports and taxes on exports; (5) an evaluation of the
cost-effectiveness of the current fertilizer subsidy scheme;
and (6) a better understanding of the web of income
transfers between producers, consumers, and government
accounts. The report is structured as follows: section one
gives introduction. Section two gives overview of the
current (2009-11) import and export policy framework and a
brief analysis of government revenues and expenditures for
agriculture. Section three reviews the data sources and
methods used in calculating the degree of protection, and
summary statistics on the degree of protection for 10
agricultural commodities. Section four looks closely at the
cost-effectiveness of fertilizer subsidies, which represent
a large share of the government agriculture budget. Section
five focuses on how agricultural trade policies influence
income distribution, particularly among different groups of
rice producers. The last section recapitulates the main
findings and highlights their implications, with an emphasis
on the often implicit and unintended income transfers among
producers, consumers, and the government.