Developing the agricultural marketing sector | Print Edition

By Dr. L.P. Rupasena



The government has given the highest priority to develop the agricultural sector in Sri Lanka in the Vistas of Prosperity and Splendour election manifesto of the government. To make it a reality, there should be an efficient agricultural marketing system because marketing is considered the engine of agricultural development. The following recommendations have been developed towards this end based on the review of the marketing situation in Sri Lanka and other countries.

Agricultural policy formulation

Sri Lanka has several policy documents mostly duplicated one into another due to formulation of a new policy without reviewing the existing policy. There were cases where new policy documents were prepared when the Minister changed even in the same government. The mistake has been identified by the present government and planning to prepare a stable policy document after an indepth analysis of the existing policies (Vistas of Prosperity and Splendour, 2019). It is also very rare to prepare a functional plan to implement the strategies given in the policy documents. There were few functional plans but no monitoring. It is a fact that no plan and no monitoring means no progress. Regional experience shows countries have well planning and monitoring systems. India is now implementing the 13th economic development plan while Malaysia is operating the 12th economic plan after independence. In other countries, the planning process starts well in advance and all the stakeholders are involved in planning. Moreover, annual monitoring takes place and progress reports are submitted to the parliament annually. A new plan is prepared every five years. The National Planning Department (NPD) is responsible for preparing and monitoring of economic plans that includes agriculture. There should be a functional plan explaining activities, responsible agencies and time frame to realise the plan. Similarly, there should be a sound monitoring system. Either the NPD or the proposed Planning and Implementation Commission should directly come under the President as envisaged in the Vistas of Prosperity and Splendour. It can be a responsible agency for planning, implementing and monitoring of agricultural marketing policies.

Market-led production planning

Although the need of commercialisation of agriculture was proposed in several policy documents, the achievements are unsatisfactory. In this regard, agriculture should be transferred to agribusiness and farmers into agro-entrepreneurs to suit with the competitive economic environment. Similarly, the production oriented extension system should be transferred to the market oriented extension system. Extension service should be able to guide what to grow, when to grow, how to grow, when to sell, how to sell and at what price.

The marketing-pull approach is innovative as against marketing-push approach that implies producing a product and then pushing it to the consumer. For the marketing-pull approach, there should be a market-led production plan monitored by Agrarian Service centres (ASCs). ASCs should be upgraded as business development centres. Agricultural graduates should be absorbed to the extension service and responsibility should be given to them to develop agriculture in the designated area. Monthly requirement of production of each commodity can be estimated by taking data on per capita consumption and population from the Department of Census and Statistics. Monthly extent required to produce the quantity can be computed with average yield of each crop. Having identified the required extent it can be allocated for each ASC considering agronomic factors such as soil and climate. ASCs should monitor the production plan and report to the divisional agricultural committee chaired by the Divisional Secretory who is responsible to report to the District Secretary. From there, information should be passed to either the NPD or proposed commission at national level. Under this process it does not need to wait to take actions until the media raises the marketing problems.

Agricultural value chain upgrading

The current agricultural value chain is long and fragmented and has no transparency. Traders hide their margins. Every player in the chain must know others transactions. A well-functioning value chain requires business trust and collaboration of each player in the chain. The proposed mechanism to rectify this situation is a public-private partnership (PPP). Although it has been popular now and implemented in Sri Lanka recently the German Development Institute (GDI) suggested the PPP approach for effective agribusiness in Sri Lanka in 2006. Although the PPP approach is being implemented in Sri Lanka its success is doubtful mainly due to the absence of a transparent information flow. Hence it is proposed to implement a transparent information flow on quantity, quality and price to establish business trust among players especially farmers. There should be an effective and efficient agro value chains to reduce cost, to produce value added products, convenient products and exportable products.

Sustainable farmer collective action (formal)

Although farmer organisations have being implemented since the 1980s in different forms such as farmer organisations, producer groups, farmer cooperatives and farmer companies mainly through donor assistance and involved in different agencies such as Department of Agriculture, Deparment of Irrigation, Department of Agrarian Development, Department of Cooperatives and Mahaweli Development Authority their sustainability is questionable. Collective farmer actions either formal or informal are needed to solve marketing problems faced by farmers and increase their livelihoods. Success stories especially in Central America and Mexico show the need for government support continually because there is a long time lag (seven years in some cases) to self-sustain farmer organisations. Also the experience in Japan and Korea pointed to the need of vertical integration for effective farmer organisations. Success stories of producer companies established since 2002 by amending the Companies Act 1956 in India reveal that commitment of both members and staff is the major success factor followed by participation, communication and managerial skills. Small Farmers’ Agribusiness Consortium (SFAC) established in 1994 by the Ministry of Agriculture acts as facilitating agency for formulating producer companies and farmer producer groups in India. Considering all these aspects, it is proposed to provide full authority to the Department of Agrarian Development to create, develop and sustain farmer organisations because it has a network required for this task and legal authority. It is necessary to establish a farmer-driven value chain that is capable to compete with existing buyer driven value chains. Poor leadership, lack of entrepreneurship skills and political influence have been identified as the poor performance of farmer organisations in Sri Lanka and corrective actions have been already made to train farmer organisations on entrepreneurship. Evidence shows that training is inadequate and continuous government support is required to sustain farmer organisations.

Sustainable farmer collective action (informal)

In addition to formal collective actions, informal collective actions should be promoted because they are more successful in Sri Lanka and Central America. The lead farmer- business model implemented by supermarkets in Central America is successful due to low cost to the supermarket. In this model, supermarkets have links with the lead farmer who is responsible to provide required quantity with assured quality. The lead farmer has a network with other farmers. In Sri Lanka, the Cargills’ business model has registered farmers without written agreement and it is functioning well mainly due to strong business trust established by Cargills by paying higher prices, providing technology and credit facilities. Sri Lankan supermarkets can apply the lead farmer-business model.

Government procurement system

Although open economic policies are dominant today all the countries in the region have state organisations such as National Food Authority (NFA) in the Philippines, BULOCK in Indonesia, FAMA in Malaysia and NAFED in India involved in agricultural marketing. In Sri Lanka, Paddy Marketing Board (PMB) exists for purchasing of farm products. All these organisations were established during the closed economic period and continue upto now even at a loss. It has been proven that the private sector is not operating agricultural marketing systems effectively mainly due to lack of interest and high cost. It is also argued that existence of government organisations have a big impact on agricultural marketing because it gives a signal of “government readiness” to the private businessmen. Nevertheless, the sustainable procurement system (SPS) is being practiced in many countries in order to minimise their adverse impact on the Treasury on one hand and to improve food security, employment and livelihoods on the other hand. Denmark and Sweden introduced the green procurement system (GPS) to promote green products. African countries such as Malawi and Ethiopia provide school feeding programmes through government procurement. Public distribution system in India links with public procurement. Thailand has a system of providing requirements to government institutes such as hospitals and security forces through government procurement. Similarly, the government procurement system is now operating in collaboration with small and medium enterprises (SMEs). Based on these success stories the government procurement system in Sri Lanka should be revised to maintain SPS. Farmer organisations can operate as collecting centres of the PMB and medium and small mills can process paddy into rice. PMB can distribute rice to the government agencies at a price on par with the open market. It is also necessary to revise the PMB regulations to enable it to procure other products especially organic products. PMB can be renamed as Food Marketing Authority (FMA).

Agro-product labelling

Since Sri Lanka has reached the high- middle income country status consumers prefer to purchase safe, nutritious, convenience agro-products. In this backdrop, product labelling can be promoted as innovative marketing strategy to increase demand for agro-products. It is an innovative as well as competitive marketing strategy used to differentiate the product from competitors. Innovative agro-entrepreneurs in the country such as some rice millers, food processors and dairy producers applied labelling and they are highly successful due to growing brand-loyal customers. In Sri Lanka, labelling is not popular in global agro-food value chain except tea because the country mainly exports unfinished products. It may be worth applying in cinnamon exports because Sri Lanka is the number one producer contributing around 70 percent of the world production. It is also possible to adopt labelling Sri Lankan spices due to historical popularity in the global market. Quality is a prerequisite for labelling because quality- conscious consumers create demand for packed/labelled products. Promotion of labelling for export is proposed in the Vistas Prosperity and Splendour policy document.

Promotion of agro-entrepreneurship

Since Sri Lanka is short of agricultural entrepreneurs, value addition and competiveness have been major issues for decades. The impact of this is severe in terms of meeting domestic demand and promotion of exports. Global value added index and competitive index ranks Sri Lanka below India, Malaysia, Philippines and Thailand and just above the Bangladesh. Many countries such as India and Indonesia established business incubation centres to promote agricultural entrepreneurship. Some agricultural faculties such as Rajarata University have technological incubation centres. These centres need to be focused on production of agro-entrepreneurs as well.

Direct marketing

Traditional commodity marketing channels do not provide adequate returns for farmers to maintain viable likelihoods. Direct marketing to consumers allows farmers to obtain a higher share of consumer price. However, this opportunity is not yet tapped by many farmers despite being potential consumers within the community. Under the community supported agriculture (CSA) system practiced in many countries, farmers directly sell products to the community. Farmers’ markets, agro-tourism and virtual markets are widely using direct marketing tools today in the world.

Digitalisation of economic centres

Most of the agricultural products are distributed through economic centres. Operational efficiency of economic centres which is the key in the modern marketing can be improved by introducing an electronic marketing system similar to India. In India, farmer’s products are weighted electronically, auction is held online and products are transported by the organised transporters. All regulated agricultural markets in India have online wholesale business.

Transportation of agro-products through railway

The value chain analysis shows high transport cost in agricultural product distribution. This can be reduced through rail transport which is in operation successfully in India. Transport cost was able to reduce by one-third with rail transport in India. In Sri Lanka flower and vegetable transportation takes place on an individual basis on a small scale using railway. Transportation of agricultural commodity through railway is one of the proposals given in the Vistas of Prosperity and Splendour policy document as well. As a pilot, this can be implemented from Jaffna to Colombo.

Formula for guaranteed price

Decline in agricultural commodity prices during the harvest time is a critical issue in both developed and developing countries. Introduction of a guaranteed price is one mechanism applied in many countries including Sri Lanka. However, setting a guaranteed price is on an ad hoc basis in Sri Lanka. There is no price formula and no specific time period for announcing it. It is proposed to adopt a formula that is cash cost plus added input cost to the family labour and 50 percent profit which is similar to India.

(The writer is a Senior Lecturer, Department of Agricultural Systems, Faculty of Agriculture, Rajarata University of Sri Lanka. He can be reached at [email protected])


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