The Dynamic Analysis of Inflation Rate and Farmers’

Welfare for Rural Poverty Reduction in kalpitiya

P.H.M.R.Silva
CPM 17528

Research Proposal for the

B.Sc in Business Administration (Business Economics) (Special)
Degree Programme

Department of Business Economics

Faculty of Management Studies and Commerce
University of Sri Jayewardenepura
Sri Lanka
22nd October 2021

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Contents
1. Introduction.......................................................................................................3
2. Research questions............................................................................................4
1. The main question................................................................................4
2. Sub questions........................................................................................4
3. Objectives of study............................................................................................4
4. Literature review...............................................................................................4
5. Research Methodology......................................................................................6
6. Conceptual Framework....................................................................................7
7. Gantt chart.........................................................................................................8
8. Preferences.........................................................................................................8

No table of figures entries found.

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 1. Introduction
Kalpitiya is a coastal town located in western region of puttalam district.
High cropping intensities, high productivity and high returns are characteristics features of
the kalpitiya farming system. However, over use natural resources and high use of
agrochemicals has created some serious environment and social concerns. Both small
farmers and medium scale commercial farmers are operating in kalpitiya. The cropping
patterns of small farmers’ shows that they have a tendency to grow more vegetable as its
cost of cultivation is relatively low. Tobacco, onion, chilies, papaya and guava are mainly
cultivated by the commercial farmers. The profits are high in these crops though the cost of
cultivation is relatively high. Sequential cropping with three to four crops per year is
common at kalpitiya. The application rates of cow dung and other organic material to the
soil is rare and where applied the rates are too low to create a significant impact to the soil
conditions. Farmers in the area hardly practice mulching the soil, establishment of shade,
windbreak or mixed cropping.

The soil is sandy with very low organic matter contents and indicates low level of fertility
moisture is lost from the system rapidly due to both infiltration and evaporation. As such
water and nutrient holding capacities are low causing low water and nutrient use
efficiencies. This requires heavy use of fertilizers and frequent applications of water to
sustain the crops. The ground water is found at low depths and collected by establishing
tube well using water pumps. Due to the high productivity and income farmers have the
capacity to apply heavy doses of fertilizers and other chemicals to avoid any pest and
disease. Incidence of weeds is low in the system

Agriculture is the main stay of the community and nearly 60% of the population in kalpitiya
is engaged in crop production. The most important crops are vegetable, fruit crop and
tobacco which bring significant income to the farming community. Farmers resort to
intensive cultivation practices using large doses of inorganic fertilizer, agro-chemicals and
shallow ground water resources. The water resources which are use for both agriculture and
domestic purposes are being continuously polluted by these inputs. Farmers are somewhat
aware of the fact that the excessive use of the inputs is harmful to environment and human
health.
The overuse of water, fertilizer and other chemicals due to inadequate use of soil and
moisture conservation measures have caused many environment and health problem in the
area. Hence, it is important to control this situation in order to sustain the farming system
and market for the produce. The introduction of the soil improvement methods, integrated

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farming models are use of organic farming methods are the main intervention suggested to
overcome the problem and to sustain the kalpitiya framing system. Resolving land tenure
issues and marketing problems are also important to improve the farming system.
So hope to identify the react in poverty of kalpitiya area farmers to inflation in srilanka
economic. And how deduct the poverty from the farmers’ welfare.

2. Research questions
The involvement of new srilanka monetary policy in agriculture development and the
dynamic relationship between agriculture development and rural poverty reduction have
generated some interesting question. In this study we will focus on the following research
question.

1. The main question

In srilanka kalpitiya area, inflation had a significant impact on rural poverty? If so, was this
effect channeled via farmers’ incomes?

2. Sub questions
How can the relationship between inflation rate and the farmers’ welfare be characterized in
the short and long run?
How does inflation via farmers’ income affect rural poverty?

3. Objectives of study
The objective of the study is to analyse the relationship between the inflation rate and
farmers’ welfare development and its role for rural poverty reduction in kalpitiya.

4. Literature review

Agriculture growth in developing country has recently received greater attention due to its
potential for poverty reduction. The dominant paradigm shift to a structural transformation
approach since the 1980s has seen agriculture as an “engine of growth” in countries that are
in the early stages of development. This view is particularly significant because of
agriculture’s high share of economic activity and strong growth linkages with the rest of the
economy ( Byerlee et al., 2005 ) in this paradigm, growth in agriculture has the greatest

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implication for the welfare of the rural livelihood, because this sector is dominated by
small-scale family farmers ( Byerlee et,. 2005; Valenzuela et al., 2005 )
Agricultural trade liberalization facilitates technological transformation in the
agricultural sector through improved access to imported inputs, machinery and knowledge,
leading to an increase in the productivity of the agriculture. Agricultural productivity
growth may have more immediate multiplier effects that improve the well-being of the
majority of the poor households. This argument is based on the facts that most of the poor
households are located in rural areas, and agriculture comprises the largest component of
the rural economy in developing country.
(The estey centre journal of international law and
trade policy vol. 11 no.2 2010/p.371-383)
National opinion polls reveal “the economy” to be viewed as the number one national
problem and “inflation” to be the most prominent economic problem. With the parity ratio
60% of the 1910-14 average as of April 15, 1980, a poll of farmers undoubtedly would
show the same concern as the public at large over the economy and inflation.
Farmer for decades championed inflationary economy policies such as no central
banks, no gold standard and no redeeming of “greenbacks” for specie (hard money)
payments. Now many farmers call for sound monetary-fiscal policy on control inflation.
But are not farmers supporting such policy in vain hope that prices received would continue
their upward spiral of recent years even as the rise in prices paid by farmers is throttled?
Right views of inflation are not restricted to farmers—many economists define inflation as
a proportional increase in all prices.
(Michael Boehlje-, Luther Tweeten: The impact of
inflation on farmers and agriculture)
This study has been able to establish the effect of inflation on farmers’ income and
agricultural investment over the period 1980-2016. The study reveals that inflation rate has
a positive growth rate impacting negatively both on farmers’ income and investment in the
long run under period of study in the country. This is because inflation discourages
investment therefore restricting investors to invest in the agricultural sector and this in turn
will inhibit economic and financial in the country. The ECM result also show that the
interest rate significantly influenced agricultural investments while increase in farmers’
income and government expenditure will result in increase in agricultural investments. This
implies that inflation has an effect on farmers’ income and agricultural investment in the
short run. Also, it was observed that there is a positive moderate correlation that exists
between inflation, farmers’ income while a strong positive relationship exists between
inflation rate and agricultural investments. It is therefore recommended that the federal
government and the central bank of Nigeria alongside other stake holders in the economy
must formulate viable and practicable monetary policies that would curtail inflation and

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bring them under effective control. These can be achieved by monitoring to curtail it to a
digit inflationary rate for growth to be sustained. This is necessary to ensure that the
agricultural sector continues to play a major role in the Nigerian economy especially
towards driving the economy to achieve the national transformation agenda. Government
should stick to prudent economic policies and avoid excessive money printing in order to
curb inflation thereby achieving via price stabilization and also promote investment climate
in Nigeria. Lastly, there should be fiscal policy in such a manner that government
expenditures on agriculture yields desired results and not just about making too much
money flow without it being channeled to productive purposes. In doing this, effort should
be made by the relevant agencies of the government to fight leakages, embezzlement and
diversion of funds as all these leads to inflation.
(Aniekan J. Akpaeti, Damian I. Agom & Namso N.
Frank Analysis of the effects of inflation on farmers income in Nigeria 1970 to 2017)
In Indonesia, the agriculture sector has a strategic role in the national economy for
improving farmers’ welfare, accelerating economic growth, and reducing poverty rate.
Hence, the objective of revitalizing agriculture and improving farmers’ welfare has become
the main agenda in the strategic program of MDGs 2015 framework and the national
development planning in Indonesia. According to RPJMN 2010-2014 and Renstra 2010-
2014, the role of agriculture sector development program is expected to reduce rural
poverty rate through improvement of farmers’ welfare in Indonesia.
(Jayadi, The dynamic analysis of inflation rate and
farmers’ welfare for rural poverty reduction in Indonesia)

5. Research Methodology
This research paper studies the relationship between inflation and rural poverty reduction in
kalpitiya area. In addition, this research paper examines the impact of farmers’ welfare on
rural poverty reduction. This research will be carried out using quantitative approach.
This study uses two form of data. Those are time serias and panal data. Timeseries data are
used to the dynamic analysis in the VAR model. Which are composed of six variable in the
form of quarterly data.
There are
1) The NTP index
2) Growth of agriculture share in GDP
3) Inflation rate
4) Interest rate
5) Money supply
6) Real exchange rate

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 6. Conceptual Framework

Macroeconomic

Monetary Fiscal
policy policy

Interests Money Exchange

rates supply rate

Inflation rate

Agricultu The The Rural

re share farmers’ farmers’ poverty

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 7. Gantt chart

Activity Month
1 2 3 4 5 6 7 8 9
Review relevant sources to identify research problem
Set research objectives
Review literature
Construct research framework
Select sample size
Perform pilot survey
Data collection
Data analysis
Final report preparation

8. Rreferences

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