Technical Efficiency in Agriculture and Dependency on Forest Resources: An Economic Analysis of Rural Households and the Conservation of Natural Forests in Sri Lanka

EEPSEA was established in May 1993 to support research and training in environmental and resource economics. Its objective is to enhance local capacity to undertake the economic analysis of environmental problems and policies. It uses a networking approach, involving courses, meetings, technical support, access to literature and opportunities for a competitive research. ACKNOWLEDGEMENTS The author gratefully acknowledges the doctoral field research grant provided by EEPSEA and the helpful comments made by Dr. David Glover and Dr. Herminia Francisco (EEPSEA) during proposal stage. He wishes to extend his sincere thanks to Dr. for constructive comments and suggestions made throughout the study. Author also wishes to thank numerous persons who assisted during field research and especially the rural households who took the time to provide with invaluable information. Thanks to Ms. Catherine Ndiaye (Program Assistant, EEPSEA) for her continuous assistance throughout the study period. Any errors contained in the report are the responsibility of the author. Households living in peripheral villages of the natural forests are primarily dependent on agriculture and secondarily dependent on forest gatherings. High rates of forest dependency occur, in part, from the efforts of inefficient farmers securing subsistence. Due to excessive use, the productivity of the remaining forests is at a critical stage. Technical efficiency in agriculture in forest peripheries is one aspect in which agricultural capacity and rural incomes can be enhanced. The study's main objective was to assess the efficiency of farming in forest margins and to determine its effect on dependency on forest resources by rural households. The findings of the study showed that the mean technical efficiency in agricultural farming in forest peripheries ranges between 67 – 73 percent. Factors such as age, education, experience, extension, and the nutrition status of the household head are mainly responsible for determining the level of inefficiency. Further, study findings showed factors such as technical efficiency in agriculture, off-farm income, wealth and the diversification index had negative and significant effects on dependency of rural households on forest resource extraction. It is estimated that on average, an increase in mean technical efficiency in agriculture by 10 percent would increase agricultural revenue by 2,142 – 3,987 rupees/farm. Based on the threshold efficiency levels needed to arrest forest dependency, it is estimated that increasing agricultural income through increasing technical efficiency can be partly compensated for forest resource extraction. Compared to the measured efficiency levels, the efficiency gaps needs to be addressed …