Sri Lanka's Organic Farming Bet

Recent protests have engulfed Sri Lanka with the president fleeing as the country has hit financial straits. Unable to pay its foreign creditors, the country may fall into bankruptcy. Now with global oil prices at historic highs and struggling to get foreign currency to pay for it, they have a fuel shortage that has led to blackouts, school closures, and other nationwide shutdowns.

Blame for the financial situation has been placed on heavy borrowing from abroad, particularly China, a collapse in tourism following a terrorist attack in 2019 and the pandemic, and rising prices amid inflation.

On top of all that, the country placed a temporary ban on inorganic fertilizers in May of 2021, leading to a 40 to 45 percent decline in agricultural yields based on certain estimates. This led to large imports of rice and tea—two of the country’s main exports—between 2021 and 2022.

But there is some debate a to how much the organic fertilizer requirement plays into the current financial crisis. While rice yield was down as a percentage of planted acreage, in total the country still produced a substantial crop, 2.92 million tons, just on larger land mass. This was above the average annual yield—2.86 million tons.

And petroleum-based fertilizers may not have been financially viable. Based on average import values, Sri Lanka was sometimes paying more to import petroleum than it was to import rice. In 2015, import value of imported petroleum for Sri Lanka was around ¢50/kilogram, and for rice it was about ¢48/kilogram. For petroleum-based fertilizers in rice cultivation, it was effectively paying more to import the ingredients than the final product.

Petroleum got substantially more expensive for the country around 2006 when sanctions were levied on Iran—Sri Lanka’s main source of imported petroleum. Within a few years, prices tripled. And this was all before global petroleum and gas prices skyrocketed following the Russia-Ukraine conflict escalation in 2020.

As global petroleum prices affect other commodity prices, the growing cost of imported petroleum has led to higher import prices for fertilizer, rice, and tea.

According to the World Bank, fertilizer prices grew 80 percent in 2021 and another 30 percent so far in 2022 from “surging input costs, supply disruptions caused by sanctions (Belarus and Russia), and export restrictions (China).”

Not just petroleum, but natural gas prices have affected the price of ammonia, which is used in nitrogen-based fertilizers. Other fertilizer elements like urea and potash have also seen large spikes in price.

While recent data on this is not immediately available, such high fertilizer prices would certainly add to Sri Lanka’s financial pain and reasons to institute fuel limits.

The high price of petroleum fertilizers and imports is not just relevant for Sri Lanka’s organic farming experiment but during periods of drought as well. In 2014 and 2017 Sri Lanka’s rice harvest was incredibly low and the country was forced to import substantially more, about four times more, than during the 2021-2022 organic farming test.

Imports and Trade Balance

Sri Lanka’s growing dependence on imports has severely deepened the country’s trade deficit and its balance of payments—the net budget of payments versus income for all sources of international transactions: imports, exports, debt payments, etc.

From 2009 to 2017, the net trade on goods fell from a $4 billion deficit to over $10 billion deficit. The balance of payments fell from -$2 billion to -$4 billion around the same time, but has since recovered.

The vast majority of that deficit came from growing imports of food and petroleum, by quantity and by value.