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Technical Assistance to the Modernisation of

Agriculture Programme in Sri Lanka

EuropeAid/138-539/DH/SER/LK Technical Assistance to the Modernisation of Agricultural Programme in Sri Lanka (TAMAP)

TAMAP Final Report Value Chain Studies

in Sri Lanka June 2020

Submitted to: Delegation of the European Union to Sri Lanka and the Maldives 389, Bauddhaloka Mawatha, Colombo 7, Sri Lanka Ministry of National Policies & Economic Affairs Department of National Planning, The Secretariat, 1st floor Colombo 01, Sri Lanka This project is implemented by a Consortium led by Ecorys Nederland , B.V



Technical Report: TAMAP Final Report Value Chain Studies in Sri Lanka

Project title: Technical Assistance to the Modernisation of Agriculture Programme in

Sri Lanka

Project number: ACA/2017/389-911

Country: Sri Lanka

Address: Ecorys Nederland B.V Watermanweg 44 3067 GG Rotterdam The Netherlands

Tel. number: T: +31 10 453 86 76

Fax number: F : +31 10 453 87 55

Contact person: Nick Smart [email protected]

Date of report: June 2020

Disclaimer. The content of this report does not reflect the official opinion of the European Union. Responsibility for the information and views expressed lies entirely with the author(s) and the consortium led by Ecorys Nederland BV for the implementation of TAMAP



PROJECT SYNOPSIS

Project Title: Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka

Project Details: Project Ref. No:

EuropeAid/138-539/DH/SER/LK Programme Manager

Dr Olaf Heidelbach

Date of project start:

8 January 2018 Contracting Authority

Delegation of the European Union to Sri Lanka and the Maldives 389 Bauddhaloka Mawatha, Colombo 7, Sri Lanka

Contract Duration:

36 months Name of contact person (Contractor):

Project Manager: Bart Probost Project Director: Nick Smart

Contract No:

ACA/2017/389-911

Contractor’s name, address, telephone numbers and e-mail address:

Ecorys Nederland B.V Watermanweg 44 3067 GG Rotterdam The Netherlands T +31 (0)10 453 88 00

[email protected] [email protected]

Total contracted amount:

EUR 4, 167, 000 Team Leader

Dr. Christof Batzlen Postal Address: Ministry of National Policies and Economic Affairs, Treasury Building, Lotus Road, Colombo 01, Sri Lanka.

[email protected]

mailto:[email protected]

Final Report Value Chain Studies Page i

FINAL REPORT - VALUE CHAIN STUDIES

1 EXECUTIVE SUMMARY ............................................................................ 3

2 INTRODUCTION ......................................................................................... 5

2.1 The concept of value chain analysis ............................................................ 5

2.2 Value Chain Analysis as market orientation ................................................ 5

2.3 Value Chain Analysis as an economic development tool ............................. 5

2.4 Value Chain Analysis as a social and environmental development tool ....... 6

2.5 Value Chain Analysis as a tool for effective agriculture policies and strategies .................................................................................................... 6

2.6 EU methodology of Value Chain Analysis ................................................... 6

3 TAMAP VALUE CHAIN STUDIES .............................................................. 7

3.1 Introduction ................................................................................................. 7

3.2 Objectives ................................................................................................... 7

3.3 Selection of value chains for study .............................................................. 8

3.4 TAMAP value chain study’s methodology .................................................... 8 3.4.1 Functional analysis ...................................................................................... 9 3.4.2 Economic analysis .................................................................................... 10 3.4.3 Social analysis .......................................................................................... 10 3.4.4 Environmental analysis ............................................................................. 10

3.5 Information gathering ................................................................................ 10 3.5.1 Selection of the value chains for the study ................................................ 10 3.5.2 Data collection........................................................................................... 10 3.5.3 Limitations of the TAMAP value chain studies ........................................... 11

4 MAJOR FINDINGS OF VALUE CHAIN STUDIES .................................... 12

4.1 Introduction ............................................................................................... 12

4.2 Issues faced by all stakeholders in the value chains ................................. 13 4.2.1 Challenges in the business environment ................................................... 13 4.2.2 Challenges in the business structure ......................................................... 14

4.3 Specific challenges for value chains with exports ...................................... 14

4.4 Specific challenges for value chains without exports ................................. 15

4.5 Major findings of the Social and Environmental Analysis ........................... 16

4.6 Recommendations for value chains with exports ....................................... 18

4.7 Recommendations for value chains without exports .................................. 19

5 TRAINING WORKSHOPS IN KANDY AND COLOMBO .......................... 21

5.1 Introduction ............................................................................................... 21

5.2 Recommendations for the improvement of value chains ........................... 21

5.3 Recommendations for increasing the farmers’ share in chain value .......... 22

5.4 Recommendations related to the role of the government in value chain development ............................................................................................. 22

Final Report Value Chain Studies Page ii

List of Annexes

Annex 1 Overview of recent Value Chain Studies conducted in Sri Lanka .............. 24

List of Tables

Table 1 Gross margins for farmers and margin distribution over value chain ......... 12

Table 2 Involvement of women in the value chains ................................................ 16

Table 3 Hazards on the environment and from climate change .............................. 17

List of Figures

Figure 1 Methodology - TAMAP value chain studies ................................................. 8

Figure 2 Typical value chain map .............................................................................. 9

Final Report Value Chain Studies Page 3

1 E X E C U T I V E S U M M A R Y

This is the final report of the TAMAP assignment on value chain analysis in Sri Lanka. The assignment started in November 2018. A harmonisation workshop was organised by TAMAP in December 2018 to streamline methodologies used in Sri Lanka for value chain analysis. Subsequently in 2019, value chain studies were conducted for fruits, vegetables, aquaculture, apiculture, dairy, floriculture, palmyra and essential oils. These studies were presented and discussed at two training workshops in Kandy and Colombo in February 2020.

The value chain studies used the Agrinatura VCA4D methodology1 with added information on export and local markets and supply structures as well as technological assessment. A large variety of tools were used to collect information related to the basic pillars of the VCA4D methodology comprising of Functional Analysis, Economic Analysis, Social Analysis and Environmental Analysis. When conducting the studies, the TAMAP team discovered that it had to follow a more concise approach due to time limitations. TAMAP worked with representative samples and had to pay much attention to data validation. TAMAP made sure that assumptions were clearly defined in the report. A major limitation proved to be data availability, and frequently specific data was unavailable for specialised analysis tools such as Import-Export Parity Price Analysis. This type of more advanced analysis of the competitive position of value chains was only possible for the horticulture value chains, and to some extent for the aquaculture study.

For a comprehensive understanding of the studied value chains, we refer to the full reports and brochures which can be downloaded from the TAMAP website (www.eusl-ruraldevelopment.org). In this report we focus on the main findings which are organised according to market orientation i.e. export or domestic market. It was found that some issues were prevalent for both export and domestic market-oriented production. Issues with laws and regulations governing the sectors, the quality management system, investment and organisation of the value chain were common for both types of production.

Specific issues for export-oriented value chains relate to the costly and time-consuming regulations related to exports. The recently established “one window” for exports of the Ministry of Finance is expected to reduce the transaction costs of each export consignment but the

window is still only partly operational.2 Other specific issues for export-oriented value chains relate to the business structure i.e. the high cost of capital and labour, the low level of development of processing, transport and logistics and the increasingly stricter regulations of export markets related to allowed chemical and pesticide residues.

Specific issues for the domestic market-oriented value chains relate to the small-scale of most farms and their low productivity. The profit per ha/acre and per animal is extremely low in Sri Lankan smallholder farming. Most smallholder farmers lack the resources and business and technical skills to run their farms profitably. In the dairy sector, many smallholder farmers were dragged into the business through government and donor/NGO programmes with little attention to business realities (for example farmers were selected on poverty levels, not on skill levels and access to land for fodder production). Public enterprise dairy farms were oriented at quantity of production not on cost per litre of such production, leading to low profitability or

1 https://europa.eu/capacity4dev/value-chain-analysis-for-development-vca4d-/wiki/1-vca4d-methodology

2 As a member of WTO, Sri Lanka is bound to have the “National Single Window” with Sri Lanka customs as the lead agency. The window is established with the participation of all government agencies involved and the Department of IT Management of the Ministry of Finance and Mass Media have developed the webservice. The website will become the single point of contact for all traders and agencies and enable traders to submit a single dataset for the clearance of goods.

http://www.eusl-ruraldevelopment.org/

http://www.eusl-ruraldevelopment.org/


loss. In other value chains, such as flowers and honey, production is more profit oriented but for many, the profit levels in absolute terms are too limited to capitalise the business. The whole profit is used to cover the cost of living of the household and virtually nothing is left to capitalise the business. Without increased transparency in pricing, risk mitigation through insurance and collective action to increase the share of value added in the chain, farmers remain in low productive farming activities. Small-scale credit programmes can only contribute to the improvement of the situation once the basics of profitable business and capital accumulation are in place. Credits and loans, even at reduced or favourable terms, will endanger the position of smallholder farmers if the basics are not satisfactory, as can be seen from the debt situation of many smallholder dairy farmers at present.

To develop the export-oriented value chains, TAMAP recommends to:

1. Simplify and modernize the import regulation of seeds and planting materials; 2. Simplify and modernize export regulation and export promotion; 3. Establish training in disease management, good practices and business; 4. Promote new technologies; 5. Provide access to public land to farmers willing to invest in the land 6. Promote further integration and formalisation of value chains;

Promote investment in agriculture and agribusiness by reaching out to young people and to make investment in agriculture less costly i.e. reduce import tariffs on capital goods for agriculture and agribusiness production, provide attractive loans and credits and reduce risk by good insurance program and guaranteed access to markets. To develop the domestic market-oriented value chains, TAMAP recommends to:

1. Promote further integration of value chains; 2. Control pests and diseases and encourage environmentally friendly farming; 3. Promote low-cost new technologies and stimulate investment; 4. Open new products and markets; 5. Establish quality management system; 6. Restructure the dairy sector which requires a detailed analysis of the sector and its

viability. A comprehensives study of the feasibility of dairy farming and dairy business in the sector is needed to make a good plan and strategy;

7. Increase access to unproductive public land; and 8. Improve transport and logistics for highly perishable products.

Approximately 90 participants from the public and private sectors attended the training workshops in Kandy and Colombo. They were introduced to concepts and tools and practiced some tools in economic value chain analysis. In addition, the participants provided recommendations for improvement of value chains, such as increasing the farmers share in the total value created in the chain and related to the role of the government in value chain development. Their recommendations are summarised in this report.


2 I N T R O D U C T I O N

2 . 1 T h e c o n c e p t o f v a l u e c h a i n a n a l y s i s

The concept of Value Chain Development was introduced by Michael Porter in his book Competitive Advantage in 1985. Since then a large amount of knowledge and methodologies have been developed related to value chain development. In 1999, Fearne & Hughes synthesised all this knowledge and developed the definition of value chains as interactive systems with products, money and information flowing through them, all reliant on relationships.

The development of value chains depends on the effective flow and use of information along the entire chain from the market, via traders and retailers and processors, to farmers and agro-input suppliers. The flow depends on trust and commitment between trading partners. The success of the chain depends on understanding market opportunities and the whole chain rather than looking at its own part of the chain in isolation. In a successful value chain, each stakeholder knows the whole chain and understands benefits from chain-wide interdependence in the flow of products and money. Every stakeholder in the chain cooperates and works together to supply the same market opportunity and avoids competing only on price. The value created in the chain increases through gains in efficiency and quality. Relations between stakeholders in a chain are stable and strong. Conducting such a collaborative action to avoid price competition and to focus on efficiency gains and quality produce only makes commercial sense in case market information shows, that reference products in local and export markets generate considerable higher value than the standard products of the supply chain of a sub-sector. This is exclusively the case for demand markets catering to the middle and high-income groups (tourist hotels and restaurants, supermarkets and specialty shops and export production. These markets are the target for value chain development approaches.

Since its introduction by Porter, value chains and their development potential has been considered by researchers, practitioners, donor organisations and governments as a strong tool to enforce agricultural sector modernisation. The tool is market and quality driven, but also allows for better understanding of the distribution of wealth among participants in the chain.

2 . 2 V a l u e C h a i n A n a l y s i s a s m a r k e t o r i e n t a t i o n

Value Chain Analysis starts from the demand side of the economy. It shows how product markets work and uses information available with those in direct contact with consumers to improve the products available to these consumers. By transferring such information between stakeholders in the chain (traders, processors, farmers and input suppliers) strengths and weaknesses in the chain become clear to the stakeholders. This refers to strengths and weaknesses in all markets i.e. for land, for capital, for labour and for products. By addressing these strengths and weaknesses as a complete chain of stakeholders, the whole value chain benefits from improved efficiency and effectiveness of supply to the consumers.

2 . 3 V a l u e C h a i n A n a l y s i s a s a n e c o n o m i c d e v e l o p m e n t t o o l

Because Value Chain Analysis is a demand driven approach, it focuses on quality apart from quantity of supply. The stakeholders in direct contact with the consumers transfer information


related to product and process innovation to the other linked stakeholders. This information is used by the other linked stakeholders to improve their supply, which subsequently leads to better availability and better prices of products most wanted by consumers. As value chains operate in a competitive environment, product and process innovation is a constant requirement to sustain market presence. Domestic market-oriented value chains are constantly challenged by imports, and export-oriented value chains are constantly challenged by supply from other exporting countries.

2 . 4 V a l u e C h a i n A n a l y s i s a s a s o c i a l a n d e n v i r o n m e n t a l d e v e l o p m e n t t o o l

Value Chain Analysis was originally mainly promoted to increase value in the chains, but lately interest has grown into the social and environmental strengths of the tool. Value Chain Analysis is nowadays also used to study the distribution of value over the various linked stakeholders in the chain, as well as the possibilities for stakeholders in the chain to reduce environmental costs of production and opportunities to deal with climate change. Value Chain Analysis shows the distribution of margins in the chain, including the share of farmers in the value added in the chain. It provides hints to opportunities for farmers to increase their share of the value added.

2 . 5 V a l u e C h a i n A n a l y s i s a s a t o o l f o r e f f e c t i v e a g r i c u l t u r e p o l i c i e s a n d s t r a t e g i e s

Value chains operate in a macro-economic environment which can be more or less conducive for business. This macro-economic environment comprises financial and non-financial business service providers, and the laws and regulations set by the government to govern the economy. Value Chain Analysis provides evidence-based knowledge on the amount of value addition in chains, and the distribution of value over the linked stakeholders in the chain. It also provides information on weaknesses in the chain. All this information is valuable for improved targeting of policies and strategies, and enforcing the macro-economic environment for agribusiness development.

2 . 6 E U m e t h o d o l o g y o f V a l u e C h a i n A n a l y s i s

The EU, with the assistance of Agrinatura, has developed a Value Chain Analysis methodology

(Value Chain Analysis For Development) which is recommended for all studies on Value Chain

Development. VCA4D project is part of Agrinatura and the European Union’s “Inclusive and

Sustainable Value Chains and Food Fortification” Programme.

The VCA4D methodology aims to provide evidence, supported by a list of indicators measured

quantitatively or based on expert assessments, that together provide an answer to four framing

questions:

1. What is the contribution of the VC to economic growth?

2. Is this economic growth inclusive?

3. Is the VC socially sustainable?

4. Is the VC environmentally sustainable?


3 T A M A P V A L U E C H A I N S T U D I E S

3 . 1 I n t r o d u c t i o n

TAMAP has implemented 8 value chain studies over the timespan of about one year

(November 2018 to November 2019). The 8 value chain studies were conducted by a team

consisting of two economists and one food technologist. The 8 value chain studies are 1)

vegetables; 2) fruits; 3) aquaculture; 4) apiculture; 5) dairy; 6) palmyra; 7) floriculture and 8)

essential oils. The studies are available on the TAMAP website (https://www.eusl-

ruraldevelopment.org/reports-documents/). An overview of recent value chain studies in

agriculture in Sri Lanka is given in Annex 1.

3 . 2 O b j e c t i v e s

One of the main activities of TAMAP was to develop an Overarching Agriculture Policy (OAP) in close consultation with the stakeholders and based on that, an Implementation Strategy specifying detailed action plans and costs for all relevant subsectors, with the main objective being to make the entire agriculture sector more productive, effective and efficient. Several assignments are being carried out to support the development of the overarching policy and its implementation strategy, as well as to assist the EUD Sri Lanka in the programming of future interventions. As such, 8 value chain studies on commodities with future potential for development and a cold chain pre-feasibility study were carried out, to assess and recommend future interventions in the agriculture sector.

Moreover, the value chain studies are expected to strengthen value chain development

research and analytical capacities in market driven approaches, and use it to promote new

technologies. In addition, the studies were conducted to improve quality management systems

such as good agriculture practices (GAP) and good manufacturing practices (GMP).

Specific objectives of the value chain studies were:

• Promote market led commodity research

• Harmonise methodology of Value Chain Analysis for import substitution and export

products

• Conduct research into components of the value chain and the value addition generated

by each component. An observed weakness of current value chain studies is the failure

to provide financial indications of the value added by each main actor in the chain. Such

a quantification would make it more feasible to identify important nodes and assess the

fairness of the distribution of the value added over the chain actors.

• Promote new technologies and diversification

• Develop training in Value Chain Analysis for all relevant ministries dealing with

agriculture

• Review options and value chains for complying with international standards such as

GAP and GMP

It should be mentioned that the original specific objectives also mentioned improvement of

the organic certification and quality control mechanisms, but it was later decided to make

this into a special TAMAP assignment.

https://www.eusl-ruraldevelopment.org/reports-documents/



3 . 3 S e l e c t i o n o f v a l u e c h a i n s f o r s t u d y

The value chains studied by TAMAP were selected on the basis of innovativeness (new non-

traditional value chains), potential for growth on the local and/or on the export market and the

importance of the sector for the development of novel modern agribusiness in Sri Lanka. In

addition, especially for the domestic market, we included value chains that could provide more

employment and income for small-scale farmers or could lead to substantial savings in foreign

currency through substitution of imports.

3 . 4 T A M A P v a l u e c h a i n s t u d y ’ s m e t h o d o l o g y

The TAMAP value chain studies were conducted following the VDA4D methodology, but with

an added focus on demand and supply analysis, and technical assessments of food sectors

showing potential for technological innovation in processing techniques.3 Figure 1 visualises

the basic analysis model of the TAMAP value chain studies.

Figure 1 Methodology - TAMAP value chain studies

Source: TAMAP

3 The economic analysis in the VCA4D methodology applies to a large extent the economic effects analysis, which is a tool often used in financial and economic analysis. It addresses inclusiveness of growth by examining income distribution (business income, wages), and employment creation and distribution. In the economic effects analysis, the key is to strike the right balance between providing sufficient, robust, and reliable quantitative information for decision making, and keeping data collection efforts to a manageable limit. It has to be noted that given the limited time available for the value chain studies, an economic effects analysis was not conducted, since this would have required the availability of social accounting matrices and economic input and output tables and at least 3 additional months.

Demand and Supply Analysis : Sector over

view in terms of domestic and international

markets

Functional Analysis

Economic Analysis

Social AnalysisEnvironmental

Analysis

Technology Assessment


3 . 4 . 1 F u n c t i o n a l a n a l y s i s

The functional analysis maps the value chain system by identifying the series of steps from the initial (agricultural) production to the final consumption (or export) and the stakeholders involved at each stage. The activities/operations of these stakeholders are geographically localised. They generate products, financial and information flows between stakeholders and areas. Understanding how the whole system works, lays the groundwork for undertaking the economic, social and environmental analyses. Tools that TAMAP used for functional analysis comprised of Functional Distribution Schedule, Stakeholder Map, Actors and Activity Map, Value Chain Location Map and Value Chain Network Map. Figure 2 shows a typical value chain map as developed by the TAMAP team.

Figure 2 Typical value chain map

Source: TAMAP Floriculture Value Chain Study


3 . 4 . 2 E c o n o m i c a n a l y s i s

The economic analysis consists of a financial analysis of stakeholders in the value chain, as

well as an assessment of the consolidated value created in the chain. Tools that TAMAP used

to conduct the economic analysis comprised of Gross Margin Calculation, Contribution

Analysis and Import-Export Parity Price Analysis for value chains for which good enough data

could be obtained (fruit and vegetables).

3 . 4 . 3 S o c i a l a n a l y s i s

The social analysis explores whether the value chain is socially sustainable. It also contributes

to the discussion on whether potential economic growth in the value chain can be socially

inclusive. Tools that TAMAP used to conduct the social analysis comprised Review of Working

Conditions in the value chain, Land and Water Rights, Gender Equality in the chain, Food and

Nutrition Conditions, Distribution of Social Capital and Status of the Social Infrastructure and

Services.

3 . 4 . 4 E n v i r o n m e n t a l a n a l y s i s

The environmental analysis evaluates the environmental sustainability of the value chain and the impact of climate change on the value chain. The analysis describes ways in which the value chain deals with the use of natural resources, and copes with challenges resulting from changes in the weather conditions. Tools that TAMAP used to conduct the environmental analysis comprised Review of Climate Change Impact on the value chain and Analysis of Environment Externalities.

3 . 5 I n f o r m a t i o n g a t h e r i n g

3 . 5 . 1 S e l e c t i o n o f t h e v a l u e c h a i n s f o r t h e s t u d y

The 8 value chains studied by TAMAP were selected on the basis of their potential for process and product innovation, potential for growth and increased share in local and international markets, and the potential for integration of smallholder farmers in the value chains.

3 . 5 . 2 D a t a c o l l e c t i o n

TAMAP used information provided in Sri Lanka by the government, business associations and research institutions. Furthermore, information available on the internet on websites such as FAOSTAT, IndexMundi and UNcomtrade, was widely used both to analyse trade trends as well as to collect sector information and information on new technologies.

Primary data was collected through key informant interviews, structured questionnaires and

focus group discussions with farmers (small, medium and large), traders, exporters and

processors. Primary data collection was done in the core production areas and main domestic

markets. The core production areas differ according to the various studies. The primary data

collection of two value chain studies (aquaculture and apiculture) was severely affected by the

bomb blasts on Easter Sunday 2019; and in the aftermath of high security, respondents were

more suspicious of information gathering related to research. Also, the team is aware that


some data can be considered highly sensitive. Many entrepreneurs are afraid to give

information that could give a competitive advantage to others, and respondents sometimes did

not see the additional value for their operations from the TAMAP research.

3 . 5 . 3 L i m i t a t i o n s o f t h e T A M A P v a l u e c h a i n s t u d i e s

Value chain studies are time consuming and usually 3 to 4 months are used for a study.

However, TAMAP had only about 1 month available for each study and was therefore forced

to use a more concise approach. In addition, TAMAP had to develop representative samples

of the stakeholders in the value chain and put effort into presenting the situation of average

farmers and other stakeholders. Validity of the data was another constant concern for the

TAMAP team. Also, economic calculations had to be based on assumptions which had to be

clearly defined in the report. Finally, the TAMAP team faced a situation where no specific data

was available for many value chains for specialised analysis tools such as Import-Export Parity

Price Analysis. This type of more advanced analysis of the competitive position of value chains

was only possible for the horticulture value chains.


4 M A J O R F I N D I N G S O F V A L U E C H A I N S T U D I E S


The value chain studies analysed the annual gross margins for farmers in the various value chains and the distribution of the value added (margin distribution) over the chain (see Table 1). The Table shows a large variation of annual gross margins for farmers, while the highest contribution margins (share in the value added in the chain) of farmers are frequently obtained in the domestic market.

Table 1 Gross margins for farmers and margin distribution over value chain

Source: TAMAP

The value chain studies also observed that opportunities are positive for the business in all the chains.

The export and local market for the products produced by the value chains is substantial and growing. The demand of higher and middle-income groups and tourists in Sri Lanka is increasing. The demand at export markets is also growing, sometimes well above the growth of overall trade in agricultural produce.

Sri Lanka has good growing conditions for all kinds of produce as the country has great variety of agro ecological zones. The Center, South and West of the country have good rainfall and plenty of water available during the year. Sri Lanka has growing conditions both for tropical and temperate zone agricultural produce in different parts of the country. The North and East are drier but have the advantage of more abundant availability of land for agriculture. Climate

Gross Margin Type of product

(LKR per year) Farmer Trader Processor Retail Exporter

Vegetables

Bell Pepper per 1000 ft export 816,000 27% 48% 25% fresh

Big Onion per acre local market 254,000 57% 19% 24% fresh

Fruits

Mango per hectare export 681,000 29% 14% 47% fresh

Pineapple per hectare local market 401,000 27% 36% 37% fresh

Aquaculture

Shrimps per hectare local market 648,000 34% 33% 33% frozen

Apiculture

60 hives local market 166,000 11% 26% 62% honey

Dairy

Cattle per 9 cows local market 1,900,000 9% 54% 37% yoghurt

Buffalo per 5 animals local market 275,000 43% 37% 20% curd

Essential Oils

Farmer with boiler per acre export 1,756,000 21% 15% 64% cinnamon oil

Farmer with boiler per acre export 3,285,000 25% 12% 63% citronella oil

Floriculture

Live plants per 1000ft export 309,000 9% 11% 79% queen palm

Cutflower per 1000ft local market 349,000 50% 11% 39% chrysanthemum

Palmyra

Tapper 10 trees local market 45,000 12% 88% sweet toddy

Distribution of the value added in the chain


change is having an impact on the growing conditions, with more reduced rainfall in North and East and increasing rainfall in the wet zone. Sri Lanka needs to develop more smart agriculture solutions to deal with climate change.

Opportunities are available but as the value chain studies showed, up to now Sri Lanka has not managed to use these opportunities to rapidly develop its production and productivity in the studied value chains. This chapter evaluates reasons behind the slow utilisation of opportunities and recommends the main efforts needed to speed up utilisation.

4 . 2 I s s u e s f a c e d b y a l l s t a k e h o l d e r s i n t h e v a l u e c h a i n s

Issues faced by both export and domestic market-oriented enterprises in the studied value chains originate from:

1. Challenges in the business environment which focus on the laws and regulations governing the sector and the quality management system;

2. Challenges in the business structure which focus on investments in agriculture and agribusiness and organisation of the value chains.

4 . 2 . 1 C h a l l e n g e s i n t h e b u s i n e s s e n v i r o n m e n t

The first major challenge in the business environment mentioned by all stakeholders refers to the regulatory system for the agriculture and agribusiness sector. Stakeholders in the value chains indicated that the laws, by-laws and regulations governing production and trade in the sector are outdated. Both export and domestic market-oriented businesses face challenges, especially resulting from the laws and regulations governing the import of agro inputs (availability and price of quality seeds and planting material as well as chemicals) and animal feed.

Sri Lanka has still not enacted the Plant Breeders Rights Act, although drafts of the Act have been circling around for almost 10 years. In the current situation, Sri Lankan businesses find it very difficult to get the novel seeds and planting material for both export and local market production. The quarantine and inspection laws are complicated with many restrictions. Also, numerous examples were given by stakeholders of the outdated laws and regulations under the Plant Protection Act and the Seed and Planting Materials Act. For example, no imports are allowed from Central America because of coffee rust; the ban on the import of planting materials for palms because of past diseases in coconut palms, the ban on imports of grasses and bamboos because of fears of diseases in paddy cultivation. Also, the Acts governing fertiliser and chemicals are not aligned with the incremental use of organic components and new developments in agro chemicals. Similarly, the Animal Feed Act needs review and update as the Act severely restricts the import and manufacturing of animal feeds in Sri Lanka. The various Acts and regulations need a total review and update, incorporating new scientific information as well as the knowledge and experience of stakeholders in the value chains. In addition, stakeholders frequently mentioned the quarantine service as a major obstacle for the access to agro inputs. The service is considered bureaucratic, with extended procedures and long delays between importing the materials and their release.

The second major challenge in the business environment mentioned by all stakeholders refers to the compliance system with quality standards and certification. The Sri Lanka Standard Institute developed standards for all kinds of agriculture and agribusiness products and the Ministry of Agriculture is issuing Good Agriculture Practice certificates. However, for the


domestic market, there is no mechanism to ensure compliance of stakeholders with the standards, including a penalty in the case of non-compliance. For the export sector, compliance is enforced by the importing countries but a mechanism to push stakeholders to a higher quality of production is lacking in Sri Lanka. Consequently, Sri Lankan exporters in the value chains are not stimulated to go the extra mile and innovate to get access to higher value markets such as the EU and Japan.

4 . 2 . 2 C h a l l e n g e s i n t h e b u s i n e s s s t r u c t u r e

The first major challenge in the business structure mentioned by all stakeholders is the low level of investment in new technologies. Only large-scale companies and multinationals updated their technologies whereas farmers and food processing SMEs have to use outdated technologies to a large extent. Some farmers explained that innovation is costly due to non-tariff and tariff import restrictions on materials such as those needed for the construction of greenhouses. However, a major reason for low investment is also the low profitability of farming and SMEs. The scale of operation of a majority of smallholders and medium-scale farmers is too limited to generate sufficient capital accumulation for substantial investment in innovation. This is especially because investment in maintenance of installations and equipment was postponed for decades a long time and obtaining credit for investment is difficult. The current GoSL introduced a favourable scheme for SMEs to obtain credit, but still commercial banks operating the scheme are reluctant to do business with agriculture and agribusiness related companies.

The second major challenge in the business structure mentioned by stakeholders is the low level of governance of the value chains. Stakeholders in value chains are much better connected than stakeholders outside these value chains. Farmers operating in horticulture value chains for example are connected directly with supermarkets via a network of collection centres of these supermarkets and hence avoid middlemen. Also, farmers in the dairy sector supply their milk directly to collection centres operated by dairy processing factories. This has substantially increased the access to markets for farmers, but did not do much to increase their share of the value generated in the value chains. In most of the value chains studied, the share of farmers in the value generated in the chain is low, when compared to other value chain stakeholders. Still the scale of outgrowing and contract farming operations in the value chains studied is low. Such formalisation of the vertical integration in value chains would contribute to the farmers having a better grip on prices and delivery conditions. In addition, it was also observed that horizontal integration in the value chains is extremely low. Farmer organisation for collective business negotiation and information sharing is virtually non-existent. Collective action of farmers in the value chain could improve their bargaining power and lead to a higher share in the value added generated in the value chains.

4 . 3 S p e c i f i c c h a l l e n g e s f o r v a l u e c h a i n s w i t h e x p o r t s

Specific challenges in the business environment faced by stakeholders involved in the export of agricultural produce relate to costly and time-consuming regulations related to exports. Any exporter of agricultural products is required to obtain an export license which must be annually renewed. All exporters in Sri Lanka must be registered with the Board of Investment and must pay an annual fee. This is the so-called Return of Economic Service Charges which amounts to 1 % of the revenues irrespective of whether there has been a profit or a loss. The exporter must also be registered with the Export Development Board by paying a one-off fee. For each export consignment of fresh produce, a phytosanitary document must be added to the regular


trade documents such as packing list, bill of lading, insurance, pro-forma invoice and certificate of origin. Various government offices are involved in issuing the documentation and co-ordination between these offices is low or non-existent. The recently established “one window” (see footnote 1) for exports of the Ministry of Finance is expected to reduce the transaction costs of each export assignment, but the window is still only partly operational.

The first major challenge in the business structure faced by stakeholders involved in the export of agriculture produce relates to the high cost of capital and labour. Most stakeholders find it difficult to find unskilled and skilled workers. Also, the productivity of labour is low when compared to competitors from other countries. This is linked to the low level of investment and mechanisation, with virtually all farm activities and a large part of the processing activities in SMEs still being conducted manually. Access to capital for financing exports is also observed by stakeholders as a major hurdle, with cumbersome and costly procedures to obtain commercial credit for their operations.

The second major challenge in the business structure faced by stakeholders involved in the export of agriculture produce relates to processing, transport and logistics. The processing sector is the weakest link in the chain for fresh and processed produce. Fresh produce can only be exported after a processing exercise comprising of selection, cleaning, grading, preparation and packaging. Facilities to conduct these operations in a controlled hygienic environment are very few in Sri Lanka. The standards of produce processed in food processing SMEs are generally too low for exports, while the processing capacity in large companies and multinationals is also still in its infancy, focusing on simple products such as cans and glass jars, with no higher value added products such as concentrates and purees. In addition, the transport and logistics sector for the export of fresh produce is hardly developed with limited capacity of cooled transport and storage, especially at the airport and seaport. The low availability of air cargo space as well as the policy of Sri Lankan Airlines is also frequently mentioned. The national carrier - Sri Lankan Airlines is more expensive for exporters than the other available airlines. This is partly caused by the exchange rate policy of Sri Lankan Airlines. It charges exporters at the selling price of the LKR to foreign currency, while exporters obtain their payment at the buying price for LKR to foreign currency. Other airlines charge at the buying price of the LKR to foreign currency. This is a major disadvantage for the exporters as Sri Lankan Airlines offers the highest frequency of flights to major export markets.

The third major challenge in the business structure faced by stakeholders involved in the export of agriculture produce relates to disease and pest control. The export sector faces even stricter regulations of importing countries related to allowed chemical and pesticide residues in agriculture produce. To meet the requirements, the sector requires an overhaul of the way pests and diseases are controlled in Sri Lankan agriculture. At the moment, most horticulture exports of Sri Lanka go to Maldives because it is still not strict in quality standards. However, the Maldives market is limited in scale and it may be expected that it will also become stricter in the foreseeable future. So, for the sustainable growth of the export-oriented sector, there is an urgent need to develop novel agriculture practices to deal with pests and diseases. Such novel practices have the additional advantage of being more environmentally friendly and sustainable.

4 . 4 S p e c i f i c c h a l l e n g e s f o r v a l u e c h a i n s w i t h o u t e x p o r t s

The specific challenges for value chains without exports are related to the business structure. The major issue is the small-scale and low productivity of most of the farms. The majority of farmers in these value chains produce only a few litres of milk or only a few bundles of


flowers or only a few kilograms of honey per day. It is not so much the small size of the piece of land but the low profitability of that land. For example, in Holland too the average flower farm is less than 1 hectare, but the floriculture sector is one of the most profitable business sectors in the country. It is the profit per sqm and per animal that makes the difference. This is extremely low in Sri Lankan smallholder farming. Most smallholder farmers do not have the resources and business and technical skills to operate the farm profitably. In the dairy sector, many smallholder farmers were dragged into the business through government and donor/NGO programmes with little attention to business realities (for example farmers were selected on poverty levels not on skill levels and access to land for fodder production). Public enterprise dairy farms were oriented towards the quantity of production and not on cost per litre, leading to low profitability or loss. Other value chains such as flowers and honey production are more profit oriented, but for many the profit levels in absolute terms are too limited to capitalise the business. The whole profit is used to cover the cost of living of the household and virtually nothing is left to capitalise the business. Without further formalisation of the value chains with increased transparency in pricing, risk mitigation through insurance and collative action to increase the share of value added in the chain, farmers remain in low productive farming activities. Small-scale credit programmes can only contribute to the improvement of the situation once the basics of profitable business and capital accumulation are in place. Credit and loans even at reduced or favourable terms will endanger the position of smallholder farmers if the basics are not satisfactory, as can be seen from the debt situation of many smallholder dairy farmers at present.

4 . 5 M a j o r f i n d i n g s o f t h e S o c i a l a n d E n v i r o n m e n t a l A n a l y s i s

Value chains such as fruits, vegetables and aquaculture are dominated by seasonal workforce without guaranteed income over the year. Workers’ safety is only taken care of at processing, retailing and export in value chains such as aquaculture, dairy, floriculture and essential oils, with generally unsafe situations at the farm level. Hygienic conditions are sub-optimal in most of the cottage level SMEs for food processing, in value chains such as fruits and vegetables, dairy and apiculture. Women participate in many value chains and some chains such as floriculture and spices before oil extraction, are even dominated by women (see Table 2).

Payment of women and men in all value chains is not equal for workers at the same level. For all value chains studied, family labour remains a significant component of the labour provided. Child labour was not encountered in any of the value chains, but some value chains such as apiculture, essential oils and dairy relied almost entirely on family labour.

Table 2 Involvement of women in the value chains

Farming Processing, Marketing

Vegetables

High

Depending on crop for example low in big onion but high in bell pepper

Fruits Low

High in cleaning, grading and packaging

Aquaculture Low

High in cleaning, cooking, grading, packaging


Farming Processing, Marketing

Apiculture High

High in extraction, packaging, storage

Dairy High

High in collection, curd production, marketing

Essential Oils Harvesting only High in making quills

Floriculture High

High in processing, marketing

Palmyra Low

High in processing, marketing

Source: TAMAP

TAMAP observed a significant impact on the environment from some value chains (see Table 3). In addition, it appeared that the impact of climate change on production is visible in all value chains.

Table 3 Hazards on the environment and from climate change

On the environment From changes in day and night temperature and droughts and floods

Vegetables chemical resource pollution lower production, diseases

Fruits lower production

Aquaculture chemical resource pollution lower production, damaged ponds, diseases, salination of water and soil

Apiculture

lower production, changes in bee development cycle, diseases

Dairy animal and chemical pollution from waste and free roaming

lower fodder and milk production, heat stress of animals

Essential Oils

lower production and quality of the products

Floriculture chemical resource pollution especially fie crops have lower production and quality, diseases

Palmyra

drier conditions lead to less production

Source: TAMAP

Especially changes in rainfall patterns influenced virtually all the value chains except aquaculture. It was also observed that some value chains such as aquaculture and parts of the dairy value chains (buffalo open grazing) have a highly negative impact on the


environment, resulting in high environmental costs. However, the team also discovered the large positive externalities from the apiculture value chain, which contributed towards better pollination of produce in other value chains (fruits and vegetables) at reduced costs.

4 . 6 R e c o m m e n d a t i o n s f o r v a l u e c h a i n s w i t h e x p o r t s

The TAMAP study team has the following recommendations for the development strategy of value chains with exports:

1. Improve the import regulation for seeds and planting materials

Enact the Plant Breeders Rights Act and review and update agro input Acts (Seed and Planting Material Act, Fertilizer Act and Plant Protection Act and regulations including quarantine and breeding).

2. Improve export regulation and export promotion

Ensure compliance with international standards and certification and further roll out the implementation of the “one window” for export documentation in the Ministry of Finance rapidly. Also, EDB should be encouraged to improve the selection of participants at trade fairs, and promotion activities can be improved. The stakeholders would like to see that EBD focuses on the established exporters and not exporters without a production (farm) facility. Also, the other organisational aspects of trade events should be improved.

3. Establish training in disease management, good practices and business

The lack of technical and business knowhow is a serious constraint for the development of small and medium-scale farmers and the SMEs. Farmers must be trained in GAP, Integrated Pest Management and management of their farms as a business. SMEs should be trained in GMP and management of their business.

4. Promote new technologies

Train farmers and SMEs in cost effective new technologies with the assistance of regional centres and technology demo centres; Conduct training in all parts of the country.

5. Provide access to public land

Various stakeholders lamented that the access to land was hampering the expansion of their businesses, while underutilised public land is available, especially in the North and East. It is recommended to prepare a register of underutilised land and develop a procedure to simplify the access of farmers to such lands; Also start a programme for the rehabilitation of underutilised lands for farming and ponds for aquaculture.

6. Promote further integration and formalisation of value chains

Increase contract farming and outgrowing arrangements based on a transparent pricing mechanism and risk mitigation via crop insurance; Train farmers in collective action and train farmer organisations, SMEs and cooperatives in the establishment of business orientation.

7. Promote investment in agriculture and agribusiness

Establish a “one window” for farmers and companies to access finance, insurance and business advisory services; Stimulate investment in mechanisation of agriculture, “smart” agriculture (agriculture saving on natural resource utilisation) and higher value processing (concentrates, IQF, dehydrated products).


4 . 7 R e c o m m e n d a t i o n s f o r v a l u e c h a i n s w i t h o u t e x p o r t s

The TAMAP study team has the following recommendations for the development strategy of value chains without exports:

1. Promote further integration in value chains

Vertical integration in the value chains creates better access to markets and capital for farmers, as well as access to extension services and inputs. Formalisation of business relations within the vertical chains improves the sustainability of the farming business as well as the mitigation of risks. Contractual relations provide a basis on which loans can be provided as well as participation in crop insurance. Horizontal integration increases the countervailing power of farmers within value chains and can lead to farmers obtaining a better share of the value generated in the chains.

2. Control pests and disease and encourage environmentally friendly farming

A pest and disease control programme is needed to improve the quality and the quantity of production. Safe chemicals should be locally available and farmers should be given knowledge regarding proper application. It is advised that assistance is provided to farmers to reduce the use of chemicals and use more environmentally friendly ingredients and methods, without harming the quality and quantity of production.

3. Promote low-cost new technologies and stimulate investment

The utilisation of new technologies in farming and post-harvest food processing is extremely low, while low-cost improved technologies are available for many value chains. The value chain studies presented various such technologies for fruit and vegetables, dairy sector, floriculture, essential oils and apiculture; Review the regulations and costs related to the import of equipment for farming and post-harvest food processing to reduce costs of investment and make small loan schemes more attractive for smallholder agriculture investment.

4. Open new products and markets

Product diversification based on proper market research is in its infancy in Sri Lanka. Assessments of new markets and new market opportunities with smallholder comparative advantage analysis can contribute substantially to more value creation in the chain.

5. Establish quality management system

Sri Lanka has quality standards for many agricultural and food products but compliance with these standards is not enforced. Laboratories and inspections services are available to check the products, but compliance is basically voluntarily. To increase trust of consumers in the quality of the products, it is recommended to start a system of enforcement of the standards. So, if the packaging of the product says it is an organic product or that it has been produced following GAP or GMP with HACCP, it should be controlled in order to ensure that it is true and traceable for the buyers.

6. Restructure the dairy sector

TAMAP identified numerous inefficiencies in the dairy value chain and in the basic structure of the chain which cannot guarantee sustainability of the business. The market for dairy products


in Sri Lanka is growing strongly and it is highly recommended to restructure the business. Private sector value added products (cheese, yoghurt, ice cream and long life and flavoured milk) seem to be promising products, while milk powder production seems inefficient for local market use (using a lot of energy in its production since nowadays a good alternative long-life product exists). The role of smallholder and large dairy farms should be appraised in a study. A technical and financial economic plan for an efficient and sustainable dairy sector should be developed, as it appeared during the value chain study that many both large and smallholder dairy farms are stuck in inefficient unsustainable production structures. The study should also look into improved breeding services for high yielding cows, as well as opportunities to remove unproductive animals out of the dairy farms. This refers to male calves as well as older low productive milking cows.

7. Increase the access to unproductive public land

Many stakeholders in different value chains such as dairy and floriculture lamented the limited access to unproductive or lowly productive public land. Many public land plots meant for agriculture utilisation are either not used or are hardly used. Farmers and businesses in value chains would like to get access to additional pieces of land via a lease structure of such public land plots.

8. Improve transport and logistics for highly perishable products

Several of the value chains studied by TAMAP are dealing with high value and high perishable products. Stakeholders in the horticulture, dairy and aquaculture value chains have started to establish controlled cool environments at all levels of their production. However, major gaps still exist in terms of cool handling and transport between the farmer and the final consumer. This is especially the case in horticulture and floriculture as well as in planting materials for agriculture use (seed onion and potatoes). Supermarkets have started to establish cold handling and transport between collection centres in rural areas and their shops, and some such as Keells and Cargills have come a long way. Similarly, exporters such as Nidro have established similar cool handling and transport for fruits and vegetables. However, major gaps in the systems still exist such as for example, between the farm and the collection centres and between the exporters’ warehouse and the airplane carrying the cargo to the export destination (international airport has very little cooling facility; most cargo needs to wait in hot temperatures until loaded on to the plane). In addition, in a value chain like floriculture, the large majority of cut flower production is traded without any cooled handling and transport. TAMAP has conducted a pre-feasibility study for a complete cold chain. It is recommended that this initiative is carried further into a full feasibility study and implementation of a complete chain at least for horticulture, seed potatoes and onions and cut flowers.


5 T R A I N I N G W O R K S H O P S I N K A N D Y A N D C O L O M B O


In December 2018, TAMAP organised a workshop to harmonise the methodologies used in Sri Lanka for value chain analysis. Various stakeholders presented their work in value chain research and development. It appeared that functional analysis of the value chain is being done in Sri Lanka with studies by IPS, HARTI, Unido and Oxfam but that economic, social and environmental analysis has not yet been taken up. At the harmonisation workshop, TAMAP presented the EU VCA4D framework and confirmed its intention to attempt to fill the gaps in the existing value chain studies in Sri Lanka by including economic, social and environmental analysis in the work.

In February 2020, TAMAP organised two workshops in Kandy and Colombo to present the findings of the value chain studies conducted over 2019 and to train participants in the VCA4D methodology used in those studies. Approximately 80 participants from the public and private sector stakeholders attended these workshops. They were introduced to concepts and tools and practiced some exercises in economic value chain analysis. In addition, the participants were asked to reflect on three main issues related to Sri Lankan value chain development i.e. 1) Provide some recommendations for improvement of value chains; 2) provide some recommendations for increasing the farmers’ share in the total value created in the chain and 3) provide some recommendations related to the role of the government in value chain development. In the next paragraph, the main recommendations are summarised.

5 . 2 R e c o m m e n d a t i o n s f o r t h e i m p r o v e m e n t o f v a l u e c h a i n s

The Kandy workshop participants advocated:

• To improve the dissemination of business and technical knowhow to stakeholders;

• Develop stronger linkages between university research and farmers and processors in value chains;

• Establish Public-Private Partnerships for development and adoption of new technologies;

• Implement a nation-wide cool storage network for perishable crops;

• Focus strongly on improvement of post-harvest technologies;

• Encourage vertical and horizontal integration in value chains with contract farming, crop insurance, cluster models for value chains and wider group formation of farmers and SMEs for business purposes;

• Ensure ready availability of high yielding seeds by accelerating variety approval processes and fast track access to agro chemicals;

• Promote value added product development and GAP, GMP, HACCP, organic produce and their certification procedures;

The Colombo workshop participants advocated:

• Encourage EDB to provide wider awareness related to export regulations and requirements for exports in different countries;

• Follow cluster model in value chain development to reduce storage, transport, labour and certification costs;


• Foster more private sector involvement in the development of policies and strategies for agriculture development;

• Introduce new technologies such as drones, mobile apps etc.;

• Establish Public-Private Partnerships with more private sector involvement at farm level;

• Improve the alert system for food and feed availability in the country.

5 . 3 R e c o m m e n d a t i o n s f o r i n c r e a s i n g t h e f a r m e r s ’ s h a r e i n c h a i n v a l u e


• Bypass middlemen and increase direct sales to consumers;

• Increase the capacity of farmer groups for value addition or semi value addition;

• Establish stable farm gate prices with some fluctuation based on demand/supply trends;

• Increase the knowledge of farmers related to technology and business management;

• Apply GAP to raise produce quality and get higher prices;

• Improve agro tourism;

• Simplify the existing barriers for exports;

• Improve product presentations in markets;

• Produce with market and export orientation;

• Conduct comparative advantage analysis of products by comparing Sri Lanka with other regional suppliers and competitors;

• Ensure availability of fertiliser recommendations for high yielding seeds.


• Establish more farmer companies and associations to increase bargaining power

• Shorten the value chains with less stakeholders in the chain

• Upgrade processing and product qualities

• Reduce the cost of production through technology and quality inputs

• Support certification (GAP, HACCP, GMP, ISO 22000, organic, Fairtrade)

• Achieve more forward agreements for inputs and outputs

• Promote product diversification

• Stimulate crop diversification and better crop planning to have harvests throughout the whole year (flowering reduction, other cropping patterns etc.)

• Establish more direct links between farmers and exporters

• Get access to finance through formal banks

5 . 4 R e c o m m e n d a t i o n s r e l a t e d t o t h e r o l e o f t h e g o v e r n m e n t i n v a l u e c h a i n d e v e l o p m e n t


• Restructure the trade policy to streamline exports in surplus period and imports in the lean period

• Improve rural infrastructure to strengthen access to farm gate


• Provide low interest credit facilities

• Ensure tax free equipment and machinery import for value added production

• Support further skill development of stakeholders

• Review and reduce rules and regulations for formation of business-oriented cooperatives

• Develop strong policies to reduce post-harvest loss

• Promote diversification in food habits away from rice

• Establish an internationally recognised certification system for value chains

• Establish “one window” for the basic requirements of exports

• Provide tax concessions and credit facilities to value chain stakeholders based on foreign exchange earned

• Foster the development of strong linkages between producers-processors-exporters

• Strengthen the role of the EDB and encourage the EDB to disseminate knowledge to value chain stakeholders related to the opportunities and challenges of international trade agreements

• Expose entrepreneurs of SMEs to trade fairs, business visits etc.


• Development of accurate statistics and information systems with regular updating

• Releasing government lands for agriculture

• Promote the use of good quality seeds and planting materials and support breeding programmes

• Strengthen the legal framework towards food quality and safety and input supply

• Improve testing facilities at affordable prices

• Revenue of cess on imported fruit and vegetables should go to the EDB. Funds should be available for farmers and exporters to improve production

• Government should make GAP mandatory

• Provide access to finance at lower interest (soft loans)

• Improve rail transport to bring produce to wholesale markets

• Provide an incentive scheme for farmers and exporters


Annex 1 Overview of recent Value Chain Studies conducted in Sri Lanka

Title Author Value Chain Year Method Key findings Source

Analysis of cinnamon, pepper and cardamom value chains in Sri Lanka

IPS, Jica Cinnamon, pepper, cardamom

3/1/2017 VCA method of USAID

Lack of skilled labour, high cost of labour and planting materials, pest & diseases, low productivity, no access to more land, unstable market prices, high cost of transport, high cost of maintaining quality standards, market concentration, more emphasis on quality needed.

TAMAP_VC

Analysis of the fisheries sector in Sri Lanka -Guided Case Studies for Value Chain Development in Conflict Affected Environments

Arunatilake a.o, USAID

Fish 3/1/2008 VCA method of USAID

Fisheries need niche markets and product categories, new technology and support services, need to revise trade and export policies and develop infrastructure, private sector needs more access to credit and must be encouraged to do more inter-firm cooperation.

Pepper Market Survey Desjardins Pepper 6/1/2018 Survey Sri Lankan buyers not quality conscious, no brand awareness.

Traditional Rice Value Chain Analysis

Desjardins Rice 6/1/2018 Survey and secondary sources

Gender analysis info provided, only two financial institutions provide access to finance, financial products need improvement, more training of rice service providers and market study is needed.

Strengthening value chains in Sri Lanka's Agribusiness

Stamm a.o, DIE All crops 3/1/2006 VC Approach

Outgrower schemes most important for relational chains but investment is high and high risk, social inclusiveness in vertical linked networks is low mainly due to lack of information transfer to farmers but better in the relational chains, outgrowers schemes have the highest potential for growth.

https://drive.google.com/drive/folders/16xQ6wsVqeGZ6lnybyUkHZW3F45cpqk1D?usp=sharing_eil&ts=5e91c1ce

https://drive.google.com/drive/folders/16xQ6wsVqeGZ6lnybyUkHZW3F45cpqk1D?usp=sharing_eil&ts=5e91c1ce



Value Chain of High Value High Perishable Vegetables

Hathurusinghe, HARTI

Vegetables 4/1/2015 Survey and secondary sources following VCA approach

High growth of production of high value vegetables, cost of production less than 15% of retail price, short value chains, new generation of farmers into this business because of high profit margins, innovation through new varieties, significant impact on poverty reduction, increasing urban demand.

Value Chain Analysis of key F&V products in Sri Lanka

PWC, ADB Pineapple, mango

7/1/2017 secondary information and some interviews

Lack of good planting material, low technical knowhow, high post-harvest losses and low quality of produce, low wages, less involvement of women.

Value Chain Analysis in Dairy Sector Kilinochchi District Sri Lanka

Achchutan A.O. Dairy 6/1/2012 qualitative study using value chain analysis

Financial and educational problems of people in district obstructing investment in dairy. Cooperative societies do not have enough technological capabilities to preserve milk and no value addition strategy.

Value Chain Exercise Kurunegala - Anthurium production for exports

Smeets. ILO Flowers 11/1/2007 EG VCD methodology

Coordination between organisations should improve, EDB should be involved, project selection should be improved, address the local and global governance of the export anthurium value chain, more focus on the local market needed and build business associations, remove unnecessary intermediaries.

Value Chain of Pineapple and Banana

Hathurusinghe, HARTI

Pineapple, banana

3/1/2012 Survey and secondary sources following VCA approach

Badly ripening technology and handling in trade, processing companies have insufficient raw materials, limited access to credit, high costs, public-private dialogue needed.



Green Chillie Value Chain Anuradhapura District

ISB, ASMP Chillie 8/1/2019 VCD methodology

Big local demand, farmer investment in chillies quite high, pest and disease problem, extension and research weak, volatile prices on markets.

Green Cucumber Value Chain Batticaloa

ISB, ASMP Cucumber 8/1/2019 VCD methodology

Production for only one buyer under contract farming, highly GAP efficient but year-round production not possible due to climate, productivity increase is necessary.

Groundnut Value Chain Mullaitivu

ISB, ASMP Groundnut 8/1/2019 VCD methodology

High unmet demand on local market, quality and availability of seed is a problem, poor farm management, no sorting and grading by farmers, knowledge gap, no collective action of farmers.

Guava Value Chain Anuradhapura

ISB, ASMP Guava 8/1/2019 VCD methodology

Poor farm management, low quality seeds, pest and disease problems, low quality products, handling and processing underdeveloped, limited market possibilities.

Passion Fruit Value Chain Moneragala

ISB, ASMP Passion fruit 8/1/2019 VCD methodology

Low quality of seedlings, volatile prices on markets but profitable business, high initial investment, no formal collection system, prices offered by processors are too low due to low quality of the produce (little juice in the fruits).

Vegetable Value Chain Study

TAMAP Vegetables - special attention to bell pepper and big onion

4/1/2019 VCA4D methodology

Middle East most promising export market for Sri Lanka, Sri Lanka is a high cost producer, low compliance with quality standards, cooling facilities are limited, lack of availability of hybrid seeds, import and export regulations are complicated and bureaucratic and change regularly, collectors have the highest margin in value chain.

https://www.eusl-

ruraldevelopment.org/rep

orts-documents/









Fruits Value Chain Study TAMAP Fruits - special attention to pineapple and mango


Middle East most promising export market, limited supply of produce with export quality, Sri Lanka is a high cost producer, cooling facilities are limited, access to agro inputs is difficult, complicated export regulations, processing industries struggle to get enough raw material, production costs are high, margin for mango farmers highest in export and wholesale to retail channel, and for pineapple farmers in wholesale to retail channel.

Aquaculture Value Chain Study

TAMAP Inland fisheries with special attention to shrimps and ornamental fish


Shrimps have disease problems, local market main market for shrimps, farmers gross margins in shrimps and ornamental fish are high, pollution is a problem and business is looking for pristine locations in the East of Sri Lanka, sector needs best practice certification system; in the wholesale to retail channel, shrimp farmers obtain a 16% share of the value created in the chain.

Apiculture Value Chain Study

TAMAP Honey 8/1/2019 VCA4D methodology

Low productivity in apiculture side activity of farmers, Chinese honey on local market low priced due to adulteration, disease problems have occurred recently, processing technology of low quality, vertical and horizontal linkage in the value chain is now gaining ground, opening up new local markets, gross margin calculation for larger beekeepers shows that honey production is contributing about 25% to the household income, farmers obtain a 7% share of the value created in the company to retail chain.



Dairy Value Chain Study TAMAP Dairy 7/1/2019 VCA4D methodology

Low productivity per farm and per cow, high cost of fodder and limited land for fodder production, no payment according to the quality of milk, low quality of extension services, no ear tagging, low success in AI, limited links between research and extension, erratic import policy on milk powder and government pricing system, over ambitious development programme has put smallholders in debt, no livestock markets for old cows and male animals. In the fresh product chain, farmers obtain a 17% share of the value created in the chain while in the milk powder product chain, farmers obtain an 8% share of the value created in the chain.

Palmyra Value Chain Study

TAMAP Palmyra 8/1/2019 VCA4D methodology

Palmyrah Development Board is mainly an administrator only and not a marketing and production supporter. Under the current set up the sector does not manage to capitalise; Lack of tappers and strict regulation of use of trees reduces productivity, value addition in the sector is low and tappers get about 10% of the value created in the toddy products chain, only jaggery gives a high share for farmers in the value created in the chain.



Floriculture Value Chain Study

TAMAP floriculture with particular focus on cut flowers and live plants

3/1/2020 VCD4D methodology

Sri Lanka is a high cost producer, no plant breeders rights act and outdated quarantine laws constrain access to high quality inputs and equipment, weakly organised business, tissue labs do not manage to get enough business, low mechanisation of the sector, restricted access to land, local market suppliers lose control over products during transport, registered companies face fierce competition from unregistered companies; In the export-oriented floriculture, farmers get about 17% of the value created in the live plants business and 7% in the foliage business, in the local market-oriented floriculture, farmers get about 18% for dominant products (Gerbera and Chrysanthemum) and 26% for rose and 68% for Lillies.

Essential Oils Value Chain Study

TAMAP Cinnamon oil and citronella

3/1/2020 VCD4D methodology

Cost of labour for extraction, most operators have outdated equipment, only 10 modern companies, pest and disease problems, quality problems due to blending practices, very little government support for the sector, Sri Lanka is an international market leader in cinnamon oil supplying about 25% to 30% of the global market. For the dominant product on the international market (cinnamon leaf oil), farmers get about 16% of the value created in the chain. The share of farmers in the value of citronella oil is higher both on the local and export market.

tamap final report value chain studies in sri lanka€¦ · assignment started in november 2018. a...

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