The problems in the rural land sector of Sri Lanka are generally attributed to the failures in the regulatory framework, institutional set-up, markets, property rights system and poverty. This study reviews the contemporary issues related to the land sector with special emphasis on identifying the major determinants of commonly observed problems. The first objective is to identify common characteristics and their causes in the rural land sector. The second objective of this study has been set as answering the basic question whether the state land policies and institutional changes have led to efficient land use and the well being of the land users of Sri Lanka. It attempts to explore deeply the micro environment related to rural land sector within a general macro setting. The study involves an extensive literature survey in which characteristics of the sector and the possible causes are identified. Relationships between theses observable phenomena and the possible root causes are tested econometrically for their empirical validity, based on the data gathered in a household level field survey of 700 households in seven districts. Non-viable holdings, low land transactions, low productivity, encroachment of state lands, environmental degradation and distress sales are the commonly observed problems in the rural land sector of Sri Lanka. Poverty was the causal factor of the majority of the observed phenomena and hence, releasing the poverty barriers at the ground level was identified as a key policy issue. However, it is important to note that poverty is not only a cause of land related problems but also an effect of them in many instances. Secure ownership rights to land were not an important determinant of agricultural productivity of land, encroachment, viable size of land holdings or environmental degradation, contrary to popular belief. It was only significant in the case of land sales but was not important in rental transactions. Land operators were more concerned about the user rights and hence conferring secure ownership titles to land is not seen as a key policy priority. Facilitation of rental transactions, especially share tenancy contracts, by removing restrictions on such contracts and enabling easy access to input and other markets appear to be more appropriate policy options. Availability of non-farm employment opportunities at the village level in order to absorb the farm labour moving out of agriculture is critical for effective transfer of lands to efficient producers in the rental markets. Hence, promoting small and medium scale enterprises, particularly agro-based enterprises with the needed infrastructural facilities is a prerequisite. Maintaining the dominance of the state sector in land ownership and distribution without being adjusted and revised adequately over time was identified as the major causal factor of land use inefficiency. Hence, it is urgent to enforce and implement a land policy and a land use policy simultaneously to address the economic, social, cultural and political issues relating to land and to meet the present day requirements as well. Even though market’ may be allowed to supersede the state in the allocation of land, state will have to play the leading role in deciding the use of land for ensuring sustainability.

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