As a developing tropical island country with a significant percentage of the population engaged in agriculture, Sri Lanka is vulnerable to the impacts of climate change as well as to compound and cascading risks. Approximately 26.5% of Sri Lanka’s workforce is employed in the agriculture sector, predominantly in rural and estate areas. Paddy crops play a central role in Sri Lanka’s food systems, and a total of more than 1,25 million hectares of paddy was cultivated in 2022 across all districts and both the major (Maha) and minor (Yala) season. (Department of Census and Statistics, 2023)

Sri Lanka’s agriculture sector relies largely on traditional skills and technologies and has only a limited degree of mechanization and modernization. Due to this, agricultural operations face challenges in quickly reacting or adjusting to unexpected weather changes and other shocks, especially in the context of uncertainties related to climate change. Furthermore, many farmers are not well-connected to markets and lack real-time information on market demand, price volatility, and risks.

Farmers are among a range of actors involved in various stages of Sri Lanka’s paddy value chains, which encompass everything from land preparation to sowing, maintenance, harvesting, drying, processing, distribution, and sale. Along these value chain stages, key considerations include those related to agricultural inputs, assets, and labour; weather data and agrometeorological advisory; rural infrastructure (both physical and social); the availability of finance and insurance products; and overall risk management frameworks.

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Understanding risk management on the local level

A recent case study carried out by the non-profit think tank SLYCAN Trust in selected subdivisions of Anuradhapura and Trincomalee district analysed the existing risk management ecosystem in Sri Lanka. Both districts are in the country’s dry zone and have large rural economies that heavily rely on agriculture. Paddy is among the main crops, although many farmers cultivate other crops as well (such as onion, chili, coconut, maize, banana, mango, guava, peanut, finger millet, pumpkin, or ladyfingers), raise small amounts of livestock, or engage in fisheries. Crop cultivation is supported by tank irrigation systems but rain- and groundwater are important supplementary water sources, especially in the Yala season.

Out of the surveyed farmers in the two districts, 92% reported challenges related to high temperatures or heat waves, 88% to changing rainfall patterns, 81% to water scarcity or droughts, and 70% to groundwater scarcity. Other key climate-related impacts reported by respondents include pests and diseases (88%), soil degradation (71%), and heavy winds or storms (61%). Regarding economic aspects, more than half of survey respondents (53%) reported low market prices as one of their main issues, with transport (26%) and storage (16%) as the second and third most mentioned difficulties.

In addition, other reported challenges include supply chain disruptions, unavailability of inputs, lack of reliable market information, rising cost of living, loan-related risks, post-harvest losses, human-wildlife conflict, low financial literacy, predatory moneylenders, and gender-related inequities.

Due to the accelerating impacts of climate change, many of the traditional risk management practices used by paddy farmers are no longer able to adequately protect them. In response and with support from different actors, farmers in both districts are trying to utilize new coping methods, including the planting of improved or resistant rice varieties (36%), obtaining better weather and early warning information (35%), shifting planting or harvest cycles (31%), diversifying income sources (28%), or improving water management (24%) are other techniques employed by a significant percentage of survey respondents.

Sri Lanka’s government has set up risk management instruments and mechanisms, including a crop insurance scheme that has been running in different versions since 1958, when it started with a pilot project that was later expanded into a nationwide scheme. Initially managed by the Crop Insurance Board, these schemes are now implemented by an institutional structure that includes the Agriculture and Agrarian Insurance Board (AAIB) as well as the National Insurance Trust Fund (NITF).

The compulsory crop insurance scheme operated by AAIB covers the cultivation of all registered farmers for six basic crops, with the possibility of expansion to other crops, livestock, equipment, storage facilities, or health through separate premium payments. It is part of an ecosystem of risk management mechanisms that also includes other public and private insurance schemes, disaster relief funds, social protection systems, and market-based instruments that can transfer, share, or pool climate-related risks.

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Strengthening the ecosystem

Summarizing the research findings, food systems and paddy supply chains in Sri Lanka are facing three key categories of risks: production risks, climate and disaster risks, and market risks. To manage these risks, smallholder farmers and other food system actors are utilizing traditional risk management practices as well as new methods but remain vulnerable due to a limited amount of household resilience and financial coping capacities.

The existing policy environment and risk management landscape aim to address these vulnerabilities and strengthen food system resilience, particularly through risk reduction, risk transfer, and risk retention mechanisms. Based on the field surveys and an extensive stakeholder consultation process on the local and national level, the research has identified four main areas of recommendations to enhance this existing ecosystem and close current gaps:

• Innovation: There is a need to create an enabling environment that incentivizes innovation and supports different actors in introducing new technologies and mechanisms, effectively bridging the existing modernization gap. This includes strengthening access to information across the value chain and tightening linkages between producers and markets, as well as enhancing access to rural credit and loan facilities.
• Mindset shift: To overcome the challenges of low literacy and trust in formal risk transfer and finance solutions, this recommendation area focuses on mainstreaming climate risk into Sri Lanka’s education and training system as well as fostering key literacies related to climate risk, finance, and insurance. Furthermore, greater acknowledgement of food system livelihoods and the formal recognition of environmental benefits and social capital could go a long way towards attracting talent and skilled human resources to the sector, be it as farmers or entrepreneurs.
• Multi-actor partnerships: Partnerships between different stakeholders, groups, and levels can enhance coordination, coherence, exchange, and integration throughout the risk management ecosystem. By creating forums, platforms, and spaces for different actors to connect and collaborate, this also encourages investment and technology transfer and creates a more fertile ground for private sector engagement.
• Inclusive processes: While there are existing networks and relationships, it is important to build on them to strengthen confidence in risk management mechanisms and include a variety of actors from all stages of the supply chain, giving them ownership and a voice. Furthermore, evidence-based processes could help to identify vulnerable groups, such as youth and women, and address existing inequities and barriers to strengthen their adaptative and coping capacities.

The recommendations above provide building blocks for strengthening Sri Lanka’s ecosystem for climate and disaster risk management and finance, especially for paddy value chains and the agriculture sector. Enhancing and scaling up the risk management ecosystem can support farmers, value chain actors, and their communities, safeguard livelihoods and food security, and build long-term resilience by proactively responding to current and future needs.

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‍This article is based on research conducted by SLYCAN Trust in Sri Lanka between 2020-2023 and presents a selection of findings. More comprehensive information is available in the report “Strengthening Sri Lanka’s Ecosystem for Climate and Disaster Risk Management and Finance,” which can be accessed here: https://www.slycantrust.org/knowledge-resources/research-report-strengthening-sri-lankas-ecosystem-for-climate-and-disaster-risk-management-and-finance