Sri Lanka needs a strategic Agribusiness Policy for sustainable economic growth - MTI

MTIs New Zealand based Jason Cordier (specializing in Agribusiness Strategy) and MTI Pakistan Country Manager and Consultant Dhanushka Jayakody share their finding, learnings and insights from a recent Agribusiness Study.

Q: Sri Lanka is facing an unprecedented economic crisis. What strategies can Sri Lanka and other countries like it implement to avert an economic meltdown? MTI: Every country and industry goes through phases of economic peaks and valleys, just as capital markets go through bullish and bearish phases. It is known that every country has a set of controllable and uncontrollable factors, but sadly for Sri Lanka (and even much of the world) the current price of fossil fuel greatly extends beyond the countries influencing ability. It is therefore important to look towards opportunity, and capturing a profitable share of the Green Revolution is one exciting place to start. Companies like Hirdaramani, Brandix and MAS (all in the apparel industry) have taken some bold steps in this direction and will certainly have lucrative paybacks in the not so distant future. Carbon Trading also remains an area of vast opportunity. Indeed it may be possible for Sri Lanka to take the lead in experimenting with a Carbon Neutral Village concept; in turn acting as a case study for the rest of the world. Capturing a share of the Green Revolution experimenting with the concept of a Carbon Neutral Village

Q: Its not just fuel prices; we are also negatively impacted by a food crisis that is affecting much of the world. Why is this happening and what can we in Sri Lanka do about this? MTI: There are many reasons for the current global crisis, among them are: use of agro land for bio-fuel; an explosion of basic commodities and utilities consumption, caused by a rapid expansion of a middle class in the developing countries; a lack of investment in agriculture; unproductive agro middlemen in developing markets; and arguably the exploitation of commodities and futures markets. An idea to toy with; first, public private partnerships (PPP). Give the private sector the confidence and vehicle to invest. This will also help channel scarce resources to critical sectors.

MTI Consulting 1997-2009

Private sector infrastructure investments amount to only 1% of total agriculture infrastructure investments in the developing world. Quite simply, a lot of projects are just not bankable in rural areas due to lower usage rates. PPP must be the primary framework for continued infrastructure improvement with governments offering environments that encourage the private sector to take more of a leading role in these partnerships. Q: But what can we do in countries like Sri Lanka to negate the effects of the food crisis? MTI: Many governments around the world are working on short-term measures like subsidies, price controls, profit controls, and fertilizer subsidies. However the only sustainable way is to execute a commercially viable, long-term agriculture policy and strategy.

Many governments around the world are working on short-term measures; there is a need for a commercially viable agribusiness policy and strategy

Q: What do you mean by commercially viable, long term agri-business policy? MTI: First, we need to appreciate the inefficient agriculture production systems in most developing countries, Sri Lanka included. Most farmers operate on a very small scale and are nowhere near the economies of scale needed to compete with efficient global producers, nor have we invested in agro technology and competencies. Most farmers suffer from their next generation not wanting to be in the family business; with youth leaving rural areas, in search of more glamorous white collar jobs in the city. Overall, it is a catch 22 situation and needs radical action if we are to avoid a massive and unprecedented food crisis. The inefficient agro production system in developing countries: lacks scale and serious investment in technology and competency development

Q: What can governments and businesses do to ensure food prosperity, avoiding a food crisis? MTI: First, any agriculture strategy of a country has to be based on a sound commercial viability. What I mean is that it must be a profitable and sought after business to be in. Here are a few measures that can form part of a countries agricultural strategy. Provide solid incentives for corporate entities to invest in large scale agro projects for the local market, after which exports can follow. Specifically, this should include agro-enabling access to finance, land, procurement and technology and competency development. A major drawback in Sri Lanka is that agribusiness just does not appeal to any of our large corporate and conglomerate organizations. The government must also play a pivotal role in food security, instigating food tractability systems that will allow access to higher value markets such as the US and EU. Q: What happens to the small farmer if large corporates get into agriculture? MTI: Certainly, there is no way the small farmer (the backbone of the agro economy) can be neglected. As I articulated earlier, it is implied that we need a co-operative model, in which small farmers still are part-

MTI Consulting 1997-2009

owners, but exists within a framework of a large scale production model. The New Zealand Dairy industry is a good example. The entire industry is configured towards a common dairy brand that has given it the strength to dominate world markets. In this situation, dairy farmers are all shareholders that reap the rewards of value addition long after their primary producer role within the supply chain is over. My reference to corporate does not restrict us to the Colombo based blue-chips, it could well be a cooperative of rural farmers who are equipped with the skills to set up large-scale agro projects. The New Zealand Dairy Farming model has benefitted the farmer through an efficient cooperative system and common branding

Q: What else is needed to attract large-scale investments in Agriculture? MTI: Make it glamorous! We have awards for top exporters, top managers, top businesses and most respected entities; the list goes on. When will we recognize the contribution of agriculture? Additionally, basic agro commodity production will not be sufficient. We need to encourage value addition and continued movement up the value chain. Agricultural subsidies in the EU and US result in surplus production of food goods at elevated production costs. While this may not be good for US and EU consumers who will pay more, at face value it seems a great deal for the developing world who receive the surplus in globally food aid. Is this the reality of the situation for Sri Lanka? While this seems a good deal, in reality it is not. Simply, it has pushed local producers out of the market in some areas and has resulted in a lack of industry growth within some developing regions. When the logistical costs of food aid sky rockets (oil), demand then falls on local producers who have never had the profit margins to progress their industry despite comparative advantages like cheap labor. Accordingly, Sri Lanka has a lack of supply chain infrastructure as well as a low production capability. Q: Any parting words? MTI: Think about how your food gets to your plate. We may well see the Renaissance of agriculture and an era in which the farmer is king. Revolutions are born on an empty stomach.

MTI Consulting 1997-2009