constraints to agribusiness development in sri lanka
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Constraints to Agribusiness Development in Sri Lanka. 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

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  • 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.

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






No of Enterprises















Less than





500 &



No of Employees



Distribution of Enterprises by Number of Employees in the Food, Beverage and Tobacco Industries, 1995 and 2007
  • To identify the constraints faced by the agribusiness sector in Sri Lanka.
  • Review of existing literature
  • Validation through discussions with relevant stakeholders

Constraints to Raising Agricultural Productivity and Farm

Incomes in Sri Lanka

Increased dependence on non-farm sector


Increased demand for off-farm labour


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


Firm Strategy, Structure and Rivalry


Factor Conditions

Demand Conditions


Related and Supporting Industries

  • 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
  • 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
experiences cic
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
  • High cost of labour
  • Low labour productivity
  • Low availability at competitive rates


    • Labour contributes significantly to the total cost of production
what needs to be done
What needs to be done?
  • Commercial agribusinesses must focus on
    • Industry specific training
    • Attitude development
    • Employee motivation programs
    • Incentive schemes linked with productivity
seeds and planting material
Seeds and planting material
  • Poor quality
  • Unavailability of commercial varieties
  • Low productivity
  • High postharvest losses


  • High unit cost of production
what needs to be done1
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
research and development
Research and development
  • Very poor budgetary allocation
  • Limited investments on research
    • Basic and industrial


    • Production of inappropriate varieties
    • Low productivity
    • Poor quality output
    • High postharvest losses
what needs to be done2
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
what do we need
What do we need?
  • A sophisticated home demand
    • Creates a good environment for an industry to
      • Innovate,
      • Grow, and
      • Achieve a competitive edge.
experiences domestic markets
Experiences – Domestic markets

Major Indicators of the Sri Lanka’s Food Consumption Patterns

foreign markets
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
what needs to be done3
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


  • Create opportunities for growth and innovation
what do we need1
What do we need?
  • Well developed and efficient related and supporting industry and services
infrastructure and services
Infrastructure and services
  • Inadequate and inefficient
  • National problem


    • High transactions cost
    • Creates a disparity across provinces
infrastructure and services1
Infrastructure and services
  • Electricity
    • Significantly high tariff rates
    • Unpredictable supply
  • Land Transportation
    • Inadequate maintenance
    • Inadequate expansion
    • Poor transport facilities
infrastructure and services2
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
what needs to be done4
What needs to be done?


  • 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
what needs to be done5
What needs to be done?
  • Private sector
    • Involve in third part logistics and other service provision
    • Carryout services in an efficient and professional manner
financial services
Financial services
  • Limited access to credit
  • High cost of credit
  • Poor knowledge and skills in accounting and basic management


    • Low investments and reinvestments
    • High transactions cost
    • Weak financial management
    • High default rates
what needs to be done6
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
agricultural extension services
Agricultural extension services
  • Public extension service
    • Relatively weak
    • Inefficient
    • Insufficient


    • Untimely delivery of technical knowhow
what needs to be done7
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
what needs to be done8
What needs to be done?
  • Private sector
    • Development of own extension services to their input suppliers
    • More collaboration with the public sector research institutes
business development services
Business development services
  • Lack of adequate and reliable market information on timely manner


    • Isolate them from the supply chains
what needs to be done9
What needs to be done?
  • Provision of BDS through private sector and chambers of commerce
    • Long-term perspective
    • Demand driven
    • Fee-based
what needs to be done10
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
standards and certification
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
what needs to be done11
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
  • 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


    • High quantity and quality loss
    • Difficulties in exploiting market opportunities
what needs to be done12
What needs to be done?
  • Private sector
    • Better supply chain collaborations with small-scale farmers
    • Development of nucleus farms
  • 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.
  • 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
  • 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
what needs to be done13
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
institutions private sector
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

what needs to be done14
What needs to be done?
  • NAC is the most important private sector institution that deals with agribusiness sector of Sri Lanka
    • Strengthen by incorporating a diverse set of associations which are active and has a good representation
policy environment
Policy environment
  • Trade policy
    • Subjected to unpredictable and frequent changes


    • Create an uncertain environment
    • Business planning become difficult
policy environment1
Policy environment
  • Imports
    • Unpredictable and high tariff structure
    • Customs duty, surcharge, cess, Ports and Airport development Levy (PAL), excise (Special Provision Levy), Social Responsibility Levy (SRL), VAT and Nation Building Tax (NBT),…


    • Create an uncertain environment
    • High cost of inputs
    • Difficult to compete based on price
policy environment2
Policy environment
  • Exchange rate policy
      • Appreciation of the Rupee


    • Create an unfavorable environment for export-oriented agribusinesses
    • Difficult to compete based on price
government what needs to be done
Government – What needs to be done?
  • Ensure consistent government policies on agriculture, land, trade and investment in agriculture
  • Provide improved access to infrastructure facilities like roads, power, communication, and water
  • Improve the access to credit at a reasonable cost
  • Develop a related and supporting industry that could cater to the agribusiness sector
  • Produce and supply of high quality seeds and planting materials of commercial varieties
government what needs to be done1
Government – What needs to be done?
  • Invest on demand driven R&D and effective extension services
  • Provide more information, assistance and training for extension workers, farmers and private sector
  • Promote more agribusinesses based on nucleus farm production concept
  • Simplify the regulations in initiating more public-private partnerships
  • Facilitate to obtain improved technologies on production, processing and packaging
private sector what needs to be done
Private sector – What needs to be done?
  • Invest more on agribusinesses based on nucleus farm production and processing
  • Play an active role in strengthening public-private partnerships
  • Develop more innovative postharvest technologies and agribusiness products
  • More focus on the development of supply chain collaborations
private sector what needs to be done1
Private sector – What needs to be done?
  • Link with small farmer enterprises and help them to develop their commercial orientation
  • Provision of demand-driven business development services
  • Focus on developing the skills of labour
  • More investment in developing the Sri Lankan image