THE NATIONAL ECONOMIC BACKGROUND

Agricultural Economy

According to a 1964 censes, of Ceylon 16 million acre total land area, 4.6 million acres are arable. About 20 percent arable land is irrigated 15 present is uncultivated. Furthermore, it is estimated that another 3.2 million acres are potentially productive, though at present unused. Forecast covers 8.2 million acres.

The main export crops are tea, rubber and coconuts, and the main domestic crop is paddy. Other crops grown include maize, onions, chilies, peppers, kurakkan, manioc and sweet potatoes.

Tea production was estimated at 435 million pounds in 1960, increasing to 563 million pounds in1965. but falling to 490 million in 1966.

The production of rubber has increased considerably in recent years, owing to higher yields per acre, and Owing to some replanted areas conning tub production. The total output rose from 213 million pounds in 1960 to 289 million pounds in 1966. As a result of the uncertain position of rubber in the world market and the competition of synthetics, the government decided not to open up new rubber acres during the 1966-71 five-year Plan; in fact, subsidies are being given for the replanting of uneconomic rubber lands with tea.

From 1960 to 1966 production of coconut increased from 2.2 million nuts to 2.5 million. The production of paddy is estimated to be about 962,000 tons year (equivalent to 700,000 tons of mulled rice).

2. Foreign Trade

Production for exports amounted in 1959 and 1960 to 24 percent of the Gross National Product, but has dropped continuously and was only 18.5 percent in 1966. This reflects the decline in price of the main export commodities (tea, rubber and coconuts) and, to some degree, the increase in price of imported goods required for the export sector. While production for exports stagnated, production for domestic use increased.

More than 90 percent of total value is accounted lot by tea, rubber and coconut exports. This percentage has remained very steady during the last few years.

Other domestic products, together with re-exports, accounting for 8-9 percent of the total export value, include traditional exports of spices, gems, minerals, and crude materials of animal and vegetable origin, as well as some consumer goods, such as clothing and footwear.

The values of export commodities for the period 1960-1966 are shown in Table Ill-I.

TABLE III -I

Value of Export Commodities, 1960-1966

Commodity 1960 1961 1962 1963 1964 1965 1966

Rs. Million

Tea 1,096 1,115 1,149 1,140 1,142 1210 1027

Rubber 378 260 290 257 290 304 337

Coconut 184 202 227 198 273 275 196

Other domestic 117 104 100 110 137 127 116

Exports

Re-export 57 52 42 26 34 33 24

Total 1,832 1,733 1,808 1,731 1,876 1,949 1,700

Policies aimed at curtailing imports have reduced then volume since 1960. This is reflected in the decline of import value between 1960 and 1965 (with the exception of 1964) in spite of an upward trend import prices.

The structure of imports showed no major changes during the period 1960-66. However, a slight tendency towards reducing imports of consumer goods favor of intermediate and investment goods is noticeable.

The percentage of consumer goads, 61 percent of total imports an 1960, dropped to 52 percent in 1963 and 57 percent in 1966. The most important consumer item imported, and one which has a substantial impact on the balance of trade, is rice. Rice imports on the average accounted for 13.4 percent of total imports between 1960 and 1966.

Table 111-2 shows the value of imports for the period 1960-1966.

TABLE 111-2

Value of Imports, 1960-1966

Description 1960 1961 1962 1963 1964 1965 1965

(Rs. Millions)

Consumer goods 1,195 972 906 781 1,263 779 1,161

Rice 242 217 195 192 326 144 367

Flour 65 69 71 60 137 98 113

Sugar 65 77 56 70 585 71 103

Fruit and vegetables I 138 135 540 542 167 120 153

Dairy products & eggs 76 69 78 77 93 77 77

Intermediate goods 397 383 409 372 397 454 470
Fertilizers 58 57 60 68 78 88 91
Petroleum products. 124 527 526 519 93 109 130

Investment goods 355 339 337 324 305 261 361
Transport equipment 118 100 92 100 58 96 116
Machinery & equipment 119 138 133 138 145 100 162

3. Import Substitution

Over the period 1960-1967 inclusive, imports of rice averaged 466,000 tons per year at an annual average drain of just over 200 million rupees. For imports of fruits and vegetables, including chillies, the annual average cost to foreign exchange amounted to some 139 million rupees over the same period. Considering rice alone, and assuming yields of 56 bushels of paddy per acre crop 2 which can be obtained with an assured supply of water, but which are not dependent on major improvements in agricultural practices, and assuming double cropping, the additional acreage required to replace current levels of rice imports as sonic 290,000 acres. Capitalization of the annual savings of rice imports averaging 200 million rupees at say 10 percent would justify a capital expenditure of about Rs. 7,000 ~ per acre for paddy production.

Import substitution of other agricultural products such as fruit and vegetables, including chilies, as a highly desirable target it view of the large drain on foreign exchange at current import levels moreover, such crops give a higher profit for a given amount of irrigation water. Assuming double cropping on the basis of conservative yield estimates an additional 100,000 acres of these crops.

1. includes dried chillies onions and various legumes.

2. 1 bushel = 20.9 kg. of paddy -- 46 lb. of paddy

100 lb. of paddy is roughly equivalent to 70 lb. of milled rice.

3. This compares well with the present rate of investment of Rs. 3,500 per acre in minor irrigation schemes which yield 1.37 crops with 40 bushels per crop.

Are required to replace the production which is at present imported sugar and flour Capitalization of the annual savings of Current imports would justify a capital expenditure of nearly. Rs. 14,000 per acre.

The development of 290,000 acres of irrigated paddy would be at comparatively rapid and a simple process. On the other hand, the development of 100,000 acres of high value crops must extend over many years due to the lack of experience of large-scale production and the need to develop strong supporting services.

In view of this situation it would appear that the most rapid method of significantly reducing the present dram on foreign reserves would be by early concentration on imports substitution of paddy followed by development of other crops on a relatively long-term basis.

4. Power

Power production in Ceylon has increased considerably during the last decade. Although the generation of electricity in Ceylon began as early as 1895. large-scale expansion of the power supply started only in 1956, when Stage I of the Laxapana Hydropower Station started operation. Since then, several power stations have been constructed. At present, electrical energy is supplied by the following stations

Hydropower stations

Stage I Laxapana 25 MW
Stage IIA Laxapana 25 MW
Stage IIB Wimalasurendra 50 MW
lnginiyagala 10 MW

Steam-driven power stations

Kelanittssa 50 MW
Stanley and Pettah 4 MW (retired and Maui-by only)

Diesel-driven generating stations

Path and Chunnakam 20 MW

Two hydropower stations, Maskelya 1 (Polpatoy,t) with a capacity of 75 MW, and Uda Walawe with a capacity of 6 MW, art under construction arid are due to commence operation in 1960/70.

[lie annual per caput consumption of electricity is 40 kWh. The following Table shows the consumption of energy during selected years.

TABI.E III - 3

Consumption of Electricity in Ceylon, 1954-1967

(null/on kwh)

1954 .. 162
1958 .. 241
1962 .. 347
1964 .. 433
1966 .. 46!
1967 .. 561

Although the Increase in power production since 1954 has been considerable, it is not keeping pace with the growing needs of industry and of the population.