Constraints to Agribusiness Development in Sri Lanka

1. Constraints to Agribusiness Development in Sri Lanka

2. Agribusiness • A generic term that refers to the various businesses operate along the chain from farm suppliers to consumers. • The agribusiness system includes three sub sectors; • Input supply, • Commercial farm production, and • Processing and distribution.

3. Importance Dynamic private agribusiness sector that links farmers and consumers • A major driving force in the agricultural and rural non-farm sector growth • A promising option of achieving a socially inclusive growth

4. Distribution of Food, Beverage and Tobacco Industries by Province - 2007

5. 3,000 2,661 2,500 1,973 2,000 No of Enterprises 1,444 1,500 1,000 745 580 426 500 352 229 191 111 18 11 0 Less than 10-19 20-39 40-99 100-499 500 & 10 above No of Employees 1995 2007 Distribution of Enterprises by Number of Employees in the Food, Beverage and Tobacco Industries, 1995 and 2007

6. Objective • To identify the constraints faced by the agribusiness sector in Sri Lanka.

7. Method • Review of existing literature • Validation through discussions with relevant stakeholders

8. Constraints to Raising Agricultural Productivity and Farm Incomes in Sri Lanka Increased dependence on non-farm sector LOW AGRICULTURAL HOUSEHOLD INCOMES Increased demand for off-farm labour Macro-policy high fiscal deficits Increasing wage cost Low farm profitability Institutional weaknesses Reduces market/ demand for agric commodities Limits credit and raises interest rates to private sector Low agric productivity Poor water service delivery Lack of water policy Reduces investments in value-addition/ storage/ agro-processing Limited incentive for crop diversification Limited access to and use of improved technologies Limits access to credit Controls on crops grown Restrictive labour regulations Increasing transaction costs in input and agric marketing Limits incentive for investments Lack of tenure security Increased price uncertainty Limited private sector participation in seeds and technology markets Weak extension system (public and private) Restrictive land policy Weak links between public research & extension Collapse of public extension system Poor rural infrastructure Trade policy unpredictable & distorts incentives Absence of clear seed regulations/ IPR Restrictive quarantine regulations Distorts incentives towards some crops Lack of national agric strategy & policy Inadequate legal framework for technology r&d and distribution Agricultural Sector Non-Farm Sector

9. Framework Firm Strategy, Structure and Rivalry Chance Factor Conditions Demand Conditions Government Related and Supporting Industries

10. Factor Conditions

11. Land • Majority of the farmers operate small lands in the extent of ¼ to 2 acres • Maintaining the continuity of supply, quality and determining the sourcing price is virtually impossible • Need to establish commercial agribusinesses with larger extents • Nucleus farms

12. Constraints • More than 60% of the land is owned by the government • Uncertainties to the rights of ownership of private land • Restrictive land policies • Need government facilitation and collaboration in establishing large commercial farms

13. Experiences - CIC • Transfer of the two government owned seed paddy farms, Pelwehera and Hingurakkoda to the CIC Agribusiness through Public Enterprises Reform Commission (PERC) • Joint venture with the Mahaweli Livestock Enterprises (Pvt) Ltd and the CIC for a dairy project in Batocaloa • 2300 Ac of land from the government • Investments in processing equipment, other infrastructure, training of outgrowers etc by the CIC

14. Labour • High cost of labour • Low labour productivity • Low availability at competitive rates Impact • Labour contributes significantly to the total cost of production

15. What needs to be done? • Commercial agribusinesses must focus on • Industry specific training • Attitude development • Employee motivation programs • Incentive schemes linked with productivity

16. Seeds and planting material • Poor quality • Unavailability of commercial varieties • Low productivity • High postharvest losses Impact • High unit cost of production

17. What needs to be done? • Long-term strategy • More investments on demand driven R&D to produce commercially important high quality seeds and planting materials • Short-term strategy • Carry out adaptation trials for identified preferred varieties • Initiation of public-private partnerships

18. Research and development • Very poor budgetary allocation • Limited investments on research • Basic and industrial Impact • Production of inappropriate varieties • Low productivity • Poor quality output • High postharvest losses

19. What needs to be done? • Carry out demand driven research and extension • Development of the capacity of the research institutes (self sustaining) • Government investments in basic research like varietal development • Facilitate and simplify the procedures to initiate public-private partnerships

20. Demand Conditions

21. What do we need? • A sophisticated home demand • Creates a good environment for an industry to • Innovate, • Grow, and • Achieve a competitive edge.

22. Experiences – Domestic markets Major Indicators of the Sri Lanka’s Food Consumption Patterns

23. Foreign markets • Highly sophisticated consumers • Demand for • Value-added products • Non-traditional products That assure • Food safety • Traceability • “Country of origin” labelling • Third party certifications

24. What needs to be done? • Respond more strategically and proactively • Skill development • Efficient and accurate market intelligence • Better quality goods and services at international standards • Build a strong image on Sri Lanka Thereby • Create opportunities for growth and innovation

25. Related and Supporting Industries

26. What do we need? • Well developed and efficient related and supporting industry and services

27. Infrastructure and services • Inadequate and inefficient • National problem Impact • High transactions cost • Creates a disparity across provinces

28. Infrastructure and services • Electricity • Significantly high tariff rates • Unpredictable supply • Land Transportation • Inadequate maintenance • Inadequate expansion • Poor transport facilities

29. Infrastructure and services • Air and sea freight • Inadequate cool chain storage capacity • High cost of freight • Lack of professionalism • Inadequate third party logistics providers • Inefficient administrative procedures

30. What needs to be done? Government • Upgrade the available facilities at the airport like provision of electricity connections • Simplify the administrative procedures • Create a conducive environment for exporters • Attract more foreign direct investments

31. What needs to be done? • Private sector • Involve in third part logistics and other service provision • Carryout services in an efficient and professional manner

32. Financial services • Limited access to credit • High cost of credit • Poor knowledge and skills in accounting and basic management Impact • Low investments and reinvestments • High transactions cost • Weak financial management • High default rates

33. What needs to be done? • Creating an efficient financial system • Stable and attractive interest rates • Rural infrastructure development • Solve the problems associated with the collateral • Training on accounting and basic management

34. Agricultural extension services • Public extension service • Relatively weak • Inefficient • Insufficient Impact • Untimely delivery of technical knowhow

35. What needs to be done? • Government • Restructuring the extension service • Adequate budgetary allocations for extension • More training on new technology, practices and market needs • Development of a properly functioning, fee-based extension service

36. What needs to be done? • Private sector • Development of own extension services to their input suppliers • More collaboration with the public sector research institutes

37. Business development services • Lack of adequate and reliable market information on timely manner Impact • Isolate them from the supply chains

38. What needs to be done? • Provision of BDS through private sector and chambers of commerce • Long-term perspective • Demand driven • Fee-based

39. What needs to be done? • Develop a commercial orientation • Skill development and capacity building • Marketing, managerial and other business related skills • Efficient market intelligence • Access high value markets • Safe food packaging • Introduce new practices like Good Agricultural Practices (GAP), Good Manufacturing Practices (GMP) • HACCP, organic and other third party certifications

40. Standards and certification • High cost of certification and the requirement of multiple certifications • Local standards – unrecognized • International standards – costly • Unavailability of timely information • Poor testing facilities • No uniformity in test results across laboratories

41. What needs to be done? • Government • Low cost credit • Initial support in developing laboratory facilities • Well coordinated quality assurance programs • Private sector • Skill development and capacity building • Well focused training programs • Well developed information services

42. Structure, Strategy and Rivalry

43. Constraints • Uncoordinated, long and fragmented supply chains • Poor integration of small-scale producers into supply chains • Limit the access to new technology, financing options, and wider markets Impact • High quantity and quality loss • Difficulties in exploiting market opportunities

44. What needs to be done? • Private sector • Better supply chain collaborations with small-scale farmers • Development of nucleus farms

45. Government Influence

46. Role • Government actions can be considered as a mega-force in developing countries. • It could play a greater role in strengthening the competitiveness of the agribusiness sector.

47. Institutions • Overall responsibility • Ministry of Agricultural Development and Agrarian Services • Plantation crops • Ministry of Plantation Industries • Ministry of Supplementary Plantation Crops Development • Livestock • Ministry of Fisheries and Aquatic Resources • Ministry of Livestock Development Plantation crops • Floriculture • Ministry of Sports and Public Recreation

48. Institutions • Ministry of Export Development and International Trade • Ministry of Enterprise Development and Investment Promotion • Ministry of Land and Land Development • Ministry of Irrigation and Water Management • Ministry of Industrial Development • Ministry of Finance and Planning

49. What needs to be done? • Simplify the institutional set up • Duplication of work • Resource wastage • Red tape • Inefficiencies • Create an efficient and smooth functioning system

50. Institutions – Private sector • National Agribusiness Council (NAC) • Ceylon Chamber of Commerce • National Chamber of Commerce • Federation of Chambers of Commerce and Industry Playing an important role in developing the agribusiness sector