Since 2004, Sri Lanka has pursued inwardlooking policies that have encouraged import substitution,especially with respect to agricultural commodities. Thisreport provides empirical evidence to inform the policydialogue over the impact of current trade and price policieson the incentive framework for agriculture in Sri Lanka.This analysis provides a quantitative assessments of: (1)the level of support to farmers producing import-competingproducts; (2) the degree to which final consumers areindirectly taxed by those policies; (3) the extent to whichagricultural exports are taxed; (4) the contribution oftrade policy to government revenue through tariffs onimports and taxes on exports; (5) an evaluation of thecost-effectiveness of the current fertilizer subsidy scheme;and (6) a better understanding of the web of incometransfers between producers, consumers, and governmentaccounts. The report is structured as follows: section onegives introduction. Section two gives overview of thecurrent (2009-11) import and export policy framework and abrief analysis of government revenues and expenditures foragriculture. Section three reviews the data sources andmethods used in calculating the degree of protection, andsummary statistics on the degree of protection for 10agricultural commodities. Section four looks closely at thecost-effectiveness of fertilizer subsidies, which representa large share of the government agriculture budget. Sectionfive focuses on how agricultural trade policies influenceincome distribution, particularly among different groups ofrice producers. The last section recapitulates the mainfindings and highlights their implications, with an emphasison the often implicit and unintended income transfers amongproducers, consumers, and the government.
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