Price Instability and Change of Terms of Trade In Small Farming Sector In Sri Lanka (With Special Reference To Cultivation Of Paddy And Vegetables)

Decline farm product prices and the subsequent effect of diminishing farm income become a core factor of sustaining peasant agriculture in developing countries. The small holding agriculture concentrated on paddy and vegetables farming in Sri Lanka also suffered from the issue causing many threats to sustain the industry. Nearly 30 percent of the labour force in Sri Lanka occupied in agriculture and thus deteriorating farm income has become core issue in national development. The paper aimed to review the factors influenced in declining terms of trade of paddy and vegetable farming and assessing its implications on the Sri Lankan economy. The analysis based on the deductive method showed parity ratio between paddy and non-farm items has declined continuously in the recent past with a greater variation. However the effect on the vegetable cultivation was not so significant since frequent price fluctuations offset the farm income. Though the governments of Sri Lanka implemented fixed output price scheme for purchasing paddy and fertilizer subsidy to mitigate the issue, still farmers suffered from the issue badly. The impact was worsen by outward looking policies associated with global economy. Thus, it is a comprehensive issue to be addressed by a broad policy framework