Positive developments for Sri Lanka's agriculture sector despite unfavourable weather


With a land area of more than 65,000 sq km, Sri Lanka’s agriculture sector is characterised by small-scale farming and a tropical climate that is highly variable. Agricultural output comprises rice, fruit, vegetables and livestock primarily for domestic consumption, and export-focused products such as tea, rubber and coconuts. Around 55% of land is used for agriculture.

Traditionally the backbone of the economy, agriculture’s share of GDP has steadily declined over the decades, from 30.4% in 1975 to around 8% in 2015. According to the Ministry of Finance (MoF), agriculture represented 7.1% of Sri Lanka’s GDP in 2016. While Sri Lanka is moving towards an urbanised manufacturing and services economy, the rural agriculture, forestry and fisheries industries are the source of income for more than 2.1m Sri Lankans, the 2016 Labour Force Survey reported.

State of the Sector 

Employment in the sector has gradually decreased in recent years, from 30.2% of the working-age population of 15 years and older in 2013 to 28.7% in 2015 and 24.3% in the third quarter of 2017, according to the Department of Census and Statistics. The services sector, by contrast, employed 46.6% of the population that quarter, while 29.1% of people were working in industry – both up on the same period of 2016. “Sri Lanka is lacking labour in general and this has hit industries across the board,” Shahane Perera, director of Sweepro Manufacturing, told OBG. “The business community knows we are losing people every day in the agriculture sector as stronger emphasis is placed on other sectors, such as ICT.”

In addition to a shrinking labour pool, major droughts and floods during 2017 negatively affected a range of agricultural products, including paddy, coconut, palm oil, vegetables and cereals. Unfavourable weather conditions saw agriculture’s GDP contribution decline by 3.2% in the first quarter of 2017 and by a further 2.9% in the second quarter, even though tea and rubber rebounded, according to the Asian Development Bank. By the end of 2017 agriculture had recorded negative growth for the past seven quarters. According to the Central Bank of Sri Lanka (CBSL), the decline had spillover effects into other areas of the economy, weakening overall growth.


Agricultural productivity in Sri Lanka is lower than in comparable economies, largely due to the shortage of labour, low levels of mechanisation and outdated management practices. The CBSL says that labour productivity in the country is lower in agriculture than in the service and industry sectors because of “traditional methods of cultivation, lack of credit facilities, limited access to technology and small land size.” Moreover, an article written by Rizvi Zaheed, managing director at Hayleys Agriculture, noted that, “Storage and processing is yet another aspect of the agricultural value chain that needs to be developed on an urgent basis.” As the son of a farmer, raising the efficiency of producers is a major priority of the administration of President Maithripala Sirisena, who has vowed to revolutionise the sector.

“The single biggest risk for the sector is the lack of willingness to change and evolve. The entire sector must undergo a large-scale, radical transformation,” Michael Koest, managing director and CEO of Ceylon Tobacco Company, told OBG. “The sector must move from small- to large-scale operations, from manual labour to mechanised, from raw material production to integrated, branded, high-value-added chains. This is the only way for the agriculture sector to truly add value and avoid becoming a marginal area of the economy in the decades to come.”

Productivity is set to receive a boost from recent investments, such as the $125m loan Sri Lanka received from the World Bank in January 2017 for modernisation efforts in the sector. Investment in agricultural technology from the private sector is also increasing. For example, local conglomerate CIC Holdings announced in September 2017 that it was investing LKR2bn ($13.1m) in developing more resilient crops, greenhouses and hydroponics. “Technology is the main enabler for Sri Lanka to achieve its medium-term goal of $20bn in export earnings by 2020,” Samantha Ranatunga, managing director of CIC Holdings, told OBG. “Simply by educating farmers on the use of technologies and implementing automated seeding, watering and harvesting systems, we can deliver better returns for the country.”

In December 2017 Ranil Wickremesinghe, Sri Lanka’s prime minister, said that setbacks in the agriculture sector were a drag on the broader economy and vowed to take action. “I intend to meet the officials of international agencies, agricultural officers, farmers and other stakeholders in the agricultural sector to decide on the steps that have to be taken to safeguard the industry and the economy as a whole,” he said.

Still, the value of sector exports between January and November 2017 rose by 22.6% year-on-year (y-oy), according to the Ceylon Chamber of Commerce. While bad weather was a factor during the year, higher tea prices filled the gap. Sri Lankan tea fetched the highest price in the world in 2017, at $4.06 per kg, compared to $2.80 in 2016. For comparison, tea from a major competitor, Kenya, was valued at $2.99 per kg.

Government Support 

Sri Lanka’s goal of achieving self-sufficiency in rice production has historically driven agriculture and trade policies, such as generous subsidies, micro-credit facilities and protective tariffs. With a strong emphasis on food security, large subsidies are granted to farmers for fertilisers, pesticides, irrigation and other aspects of production. For example, the government subsidises more than 50% of the purchase price of an animal on behalf of livestock producers. If an animal costs LKR450,000 ($2940), the government will provide roughly LKR250,000 ($1630), K D Ariyapala, director of the Livestock Planning and Economics Division at the Department of Animal Production and Health, told OBG. The government also operates micro-credit schemes for those in the agriculture and livestock sector, including through the Tea Development Programme revolving fund. In 2016 the CBSL provided LKR9.7bn ($63.3m) in loans to some 89,730 farmers. After a difficult year for the sector in 2017, Sri Lanka has declared 2018 the National Food Production Year. The government said that one of its major ambitions for the year is to increase the planted volume of paddy and other crops.

Agricultural Exports 

Agricultural exports account for roughly one-quarter of Sri Lanka’s total export earnings. The CBSL reported strong performance in the category’s value during the first eight months of 2017 – particularly regarding tea, seafood and spice exports – with an increase of 19.4% y-o-y to reach $1.8bn. This growth was helped by the removal of a EU ban on seafood imports from Sri Lanka, as well as the reinstatement of the EU Generalised System of Preferences Plus (GSP+).

Tea remains the country’s single-most valuable export commodity, valued at $1.25bn in 2016, according to the UN Comtrade database. The total value of agricultural exports in 2016 was $2.32bn – a 6.3% decline from $2.48bn in 2015. This was due to “relatively low commodity prices in the international market, subdued demand for Sri Lankan exports and disruptions in the domestic supply of export-oriented agricultural products,” the CBSL reported.

Import taxes on staples such as rice, flour, maize and fresh fish were temporarily cut in August 2017 to make up for reduced production and high prices in those segments. The LKR5 ($0.03) tax per kilogram of rice was lowered to LKR0.25 ($0.002), while the fish levy was reduced from LKR50 ($0.33) per kilogram to LKR25 ($0.16), measures slated to last until April 2018.


Sri Lanka’s iconic Ceylon tea has allowed the small nation to grow into one of the largest tea exporters in the world, alongside China, India, Kenya and Indonesia. The country produces over 300m tonnes of tea per year and accounts for about 15% of global tea exports. All tea in Sri Lanka is hand-picked, and with around 400,000 smallholder farms producing the crop, it remains the largest source of employment in the country. Overall, the tea planting industry occupies almost 220,000 ha of land, and directly and indirectly employs more than 1m people.

In 2016 Iran was the largest recipient of Sri Lankan tea, with imports totalling $156.7m, followed by Russia at $143m. Tea accounts for around 80% of Sri Lanka’s total exports to Russia. In early December 2017 Moscow temporarily suspended imports when a Khapra beetle was found in a tea container. This led to calls from industry leaders for greater quarantining and quality control over exports. After a meeting between the Sri Lanka Tea Board and Russian officials, the short-lived ban was lifted on December 30.

Another hurdle tea producers faced was the authorities’ mid-2015 decision to ban the importation and use of glyphosate, a weedicide widely used in Sri Lanka. Major markets like Japan and European countries have accepted the use of glyphosate in agreed-upon amounts, but alternative weedicides that producers had to turn to after the ban are much stronger than crucial export markets will accept. After protest from farmers and trade organisations, the government decided to temporarily lift the ban in February 2018.

Still, tea producers continue to struggle with the cost of labour, which is higher than in key competitor countries like India and Kenya. Upwards of 70% of the production cost of a kilogram of tea is labour. Local producers are also pushing for trade liberalisation, as many seek to import appropriate teas to incorporate into their blends, as Lipton and Twinings have done.

The government says it will support value addition among tea farmers in 2018. There are already some major success stories in this regard: the US cafe chain Coffee Bean & Tea Leaf “almost entirely” sells Nuri Ceylon tea in its outlets, which number over 4000. In Australia and New Zealand 14% of the tea market is held by the Dilmah brand, Rohan Pethiyagoda, chairman of the Sri Lankan Tea Board, told OBG. “Sri Lanka is a huge export market, with only about 4% of production being consumed locally,” he said. While the country exported $1.25bn worth of tea in 2016, adverse weather conditions near the end of the year meant that tea production declined by 11% over 2015.

One unique value-added opportunity for Sri Lanka’s agriculture sector is tea tourism. While agricultural exports declined in 2016, an 18% rise in tourism receipts was a key growth driver for the services sector. Developing tourism options that include estate tours, factory visits and tea tastings would further support the premium appeal of Sri Lankan tea in conjunction with the Ceylon Tea global tea campaign.


The staple food of 21.2m Sri Lankans, rice is the country’s primary food crop. The two cultivation seasons for paddy are known locally as Maha and Yala. Maha lasts from September to March, while Yala is from May until the end of August. Some 680,000 ha were cultivated for rice production during the 2016/17 seasons, according to the US Department of Agriculture, a number the body projects will grow to over 800,000 ha for 2017/18. The World Food Programme estimates that 40% of paddy is used for home consumption, while the remainder enters the market.

National paddy production declined by 8.3% between 2015 and 2016 to 4.4m tonnes, primarily as a result of adverse weather conditions. According to the Department of Census and Statistics, 1.47m tonnes of paddy were produced during the 2016/17 Maha season and 909,321 tonnes in the 2017 Yala season, compared to 2.9m tonnes and 1.5m tonnes, respectively, in the previous seasons. Overall, the Department of Agriculture estimates that 2017 saw the lowest paddy production of the past decade.

As a result of floods and drought affecting rice production during 2017, Sri Lanka announced in December that it would temporarily import 100,000 tonnes of rice per month – around 30% of its required amount. The government said it will end rice imports by April 2018, as the production situation is expected to improve. Natural disasters notwithstanding, Sri Lanka is nearly self-sufficient in rice.


Sri Lanka is an island with nearly 1400 km of coastline, making conditions ideal for aquaculture. According to the most recent annual report by the MoF, the fisheries industry accounted for 1.5% of GDP in 2016, growing by 1.6% against a 2.7% decline in 2015. Total fish production was 530,920 tonnes in 2016, a 2.1% increase over 2015. Inland fish production, in particular, is on the rise, with 73,930 tonnes produced in 2016 – growth of 9.9%.

Along with agro-processing and dairy, the fisheries segment is a target area being promoted by the Board of Investment to better meet high international demand. Local media reported in September 2017 that seafood exports had increased by 40% y-o-y in the first half of 2017, from $83.5m to $117m, after the EU lifted a ban on seafood imports from Sri Lanka.

Since the reintroduction of GSP+ status, fish exports have nearly doubled and are expected to continue to increase through to 2020. However, access to low-cost, high-quality aqua feed remains a challenge for producers, with the input accounting for roughly half of total production costs. Farmers have also historically experienced high levels of income uncertainty, largely due to produce loss because of disease. According to the UN Food and Agriculture Organisation, shrimp farms in Sri Lanka’s north-western province are often abandoned because of repeated outbreaks of white spot disease that kills the shrimp.


As in the tea segment, most rubber producers work small plots of land, meaning extraction is done by hand. Some 130,000 smallholder farmers cultivate rubber, while 125,000 ha across the country are used in rubber plantations. Sri Lanka fluctuates between 11th and 12th place among the top rubber producers in the world, with exporters having an edge by selling natural rather than synthetic rubber, which appeals to consumers in wealthier countries.

In 2017 the government launched its Rubber Industry Master Plan to implement over the next decade, at an estimated cost of $500m. “If you look at the Rubber Industry Master Plan, at least five of the first projects are aimed at increasing the productivity of plantations. Therefore, even when prices are low, people will be able to make a profit and continue to be able to produce rubber,” Lakna Paranawithana, an advisor to the Ministry of Plantation Industries who headed the drafting of the plan, told OBG.

Another initiative in the plan addresses the labour pool and related training initiatives. “Sri Lanka’s rubber industry is experiencing a shortage of skilled labour. It is essential to introduce more educational programmes to rectify this situation,” Prabhash Subasinghe, managing director of Global Rubber Industries, told OBG. “By attracting more people to the industry, we will be on the right track to accomplish the Rubber Industry Master Plan objectives.”

The rubber segment’s contribution to GDP contracted by 10.7% in 2016, due to a decline in global natural rubber prices and lower production. This was aligned with output falling 10.7%, from 88.5m kg in 2015 to 79.1m kg, according to the MoF. Lower production was largely the result of drought and flood, meaning there were less tapping days than usual.


Coconut plantations occupy 395,000 ha across Sri Lanka. Income from coconut and coconut-related products, such as desiccated coconut, fresh nuts and coconut cream, contracted by 0.6% in 2016, according to the MoF. This compares to growth of 5.2% in 2015. Like other plantation crops, coconut production was negatively affected by prolonged periods of drought. Furthermore, the Coconut Growers Association stated in January 2018 that a mite disease had affected some 30% of the crop across the country by that time, yet rejected calls to import fresh coconut to mix with local produce to meet demand.

“There is uniqueness to Sri Lankan coconut, especially with regard to the desiccated coconut – unique in colour, texture and sweetness that the desiccated coconut produced in other countries like Indonesia, Malaysia and the Philippines does not have,” said Jayantha B Samarakoon, the association’s president.

Toxin-free Nation 

In 2016 President Sirisena introduced the Toxin-Free Nation project, under which the government aims to promote organic farming and eliminate the use of highly toxic agrochemicals in farming. The Department of Agriculture’s National Food Production Programme 2016-18 is in line with this aim. Under the project, organic farmers are eligible for subsidies previously only available to farmers using chemical fertilisers and are guaranteed a per kilo price for toxin-free traditional seed varieties. “This is a three-year programme that seeks to address the food security issue, as well as the toxin-based agriculture issues in Sri Lanka,” said Asoka Abeygunawardena, chairman of the Strategic Enterprise Management Agency, at a climate change workshop in May 2016. “The farmers are provided awareness creation and capacity building, as well as resources to change from toxin-based agriculture to organic and healthy agriculture.” In December 2017 the government announced a new drive to promote organic food production and exports, and said it would provide training on organic agriculture to 15,000 farmers.


Without further unfavourable weather, agricultural production and export quantities should bounce back in 2018; the University of Arkansas’ Division of Agriculture predicts that Sri Lanka will produce 903,000 more tonnes of rice in 2018 than it did in 2017. Still, a labour shortage, the lack of modernisation and climate change pose challenges for the sector.

The government has promised to accelerate agricultural output through much-needed technological investment and private sector participation. One example of this is the mobilisation of private-public partnerships under the Rubber Industry Master Plan to increase output of the crop to 300,000 tonnes per annum by 2045. “Investment in technology is the greatest challenge right now,” Perera told OBG. “With many Sri Lankans moving out of the agriculture and manufacturing sectors, many local industries are facing the significant challenge of optimising output.” As citizens increasingly move into service industry work, the best prospect for attracting producers to the sector is high-value agriculture. As most producers remain bulk exporters, value-added offerings represent major opportunities, for example, branding and packaging tea for retail rather than wholesale.

With the country’s tourism industry quickly developing, tea tourism offers another value-added avenue that would complement the push to boost the high-end appeal of its export tea brands. Boutique accommodation such as Ceylon Tea Trails and the Heritance Tea Factory are examples of this offering. Still, closer collaboration between tourism companies and tea producers is required to promote such options – particularly in the scenic Hill Country, home to popular destinations like Kandy and Ella.


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The Report: Sri Lanka 2018

Plantations & Agriculture chapter from The Report: Sri Lanka 2018

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