Home / Opinion and Issues/ “Sri Lanka’s agro-exports need radical re-strategising”: MTI

“Sri Lanka’s agro-exports need radical re-strategising”: MTI

Comments / {{hitsCtrl.values.hits}} Views / Monday, 17 June 2019 00:00

MTI Consulting, as an integral part of their Strategy Thought Leadership series, have focused on the four main export crops of Sri Lanka i.e. tea, rubber, coconut and cinnamon.

These are among the four most challenging crops to harvest, with very limited scope for mechanisation/automation – given the terrain, quality implications, and cost effectiveness. In terms of global production, we compete with some of the poorest countries/regions within these countries. Their cost of production (essentially labour costs) is lower than Sri Lanka and that gap is widening. For instance, a tea plucker in Bangladesh gets a daily wage that is almost 50% of what Sri Lanka pays, that is excluding all the benefits provided in Sri Lanka which is not the case with most of these competing producers. 

Unlike Sri Lanka’s apparel industry which has been ‘forced’ to innovate to survive, these agro industries were a nature’s gift (in terms of the soil, climate, natural irrigation, etc.), with very little investment in R&D across the entire value chain. Not surprising, we continue to export low-value added commodities – assuming you are not considering tea bags, crepe rubber and desiccated coconut as high value addition! With such low value-addition, there is a limit to what superficial branding/marketing can do – in a global market that is streets ahead in terms of cutting edge R&D, supply chain innovation, product development.

It is a vicious cycle, that requires radical solutions, at least start by asking the hard questions, such as:

  • Do we continue to grow these crops in the same proposition we do now? 
  • Is it the best use of our land and human resources currently dedicated for this?
  • Even if we are to continue to grow, is the current highly fragmented structure of the industry the most optimal for the country? For instance, tea generates an export income under $ 1.5 billion. Sounds a lot, but consider that this is shared by (approx.) 400,000 smallholders, 25 + RPCs, 700 tea factories, 400 tea exporters, 8 brokers. The other three crops are as fragmented – all of which means low economies of scale, which means low R&D investment, which means low prices.

Effective solutions to these challenges would have to be radical, with results only over the long term. To do so, requires political will, bold industry players (like what MAS, Brandix and Hirdaramani are to apparel) and policy consistency. 

Export policy decisions that Sri Lanka needs to confront

  • Definition of exports: The SLEDB Act defines exports as products/commodities and services. However, neither has SLEDB managed nor accounted for tourism and foreign employment, but continues to promote ICT, medical tourism and educational services. Therefore the export earnings that SLEDB publishes includes all commodities and only some service
  • Measurement of exports: Sri Lanka’s measurement of exports is entirely based on revenue (essentially top-line) and thereby ignores the degree of value addition that would help determine export profitability to the country, as this is what Sri Lanka will eventually benefit from. Focusing on such a measure will help drive the country’s export policy and incentives, and subsequently aid the actions of exporters to the sectors which will optimise Sri Lankan export profitability. Partly related to the above is the fact that the current policy framework does not encourage import substitution of export-related inputs.
  • Definition of export earnings: As currently practiced, what is considered export earnings is the declared value of a good when it leaves a Sri Lankan port, with no consideration or interest in what happens beyond that point. While this encourages maximum value addition within Sri Lanka, it does not encourage Sri Lankan companies to become multinationals – which will require varying degrees of in-country value addition in export markets and even multi-country sourcing – provided that the Sri Lankan exporters earn higher profits and that these profits are repatriated to Sri Lanka.
  • Exportable resource optimisation: The current approach to exports is based on each sector attempting to maximise its export revenue. Given the limited size of the Sri Lankan supply chain (natural and human resources) and the quantum increase in exports that is targeted (while ‘feeding’ the growing local demand), there is bound to be increasing competition for the country’s natural and human resources. Allowing this to be dictated entirely by the ‘invisible hand’ may not be in the long term strategic interest of the country and could also lead to socio-economic challenges. Therefore, a macro resource allocation model and policy is strongly recommended.
  • Multiple institutions in overlapping export promotion roles: Today the role of export promotion in the key sectors of apparel, tea and ICT (constituting approx. 65% of our exports) is also being performed by their industry specific bodies, with access to a much bigger promotional budget than the SLEDB. This leads to overlaps and sub-optimal efforts from a macroeconomic perspective. Given that this involves multiple ministries, it is best addressed via the Export Development Council of Ministers.

MTI Consulting is an internationally-networked, boutique management consultancy enabling clients to ‘Analyze > Strategize > Realize’ profitable business opportunities. Since its inception in 1997, MTI has worked on over 630 assignments in over 42 countries spanning five continents, covering a diverse range of industries, clients and business challenges. MTI has been at the cutting-edge of thought leadership on strategy, having developed several strategic planning models and frameworks and having presented at over 150 conferences around the world.

MTI’s Thought Leadership team comprises Hilmy Cader (CEO), Rajika Sangakkara (Sri Lanka) and Jason Cordier (New Zealand).

Share This Article

Facebook Twitter


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

Autocatalytic descent from plural democracy to supremacist authoritarianism

Wednesday, 29 January 2020

In a few days, Sri Lanka will celebrate its 72nd year of independence from colonialism. But behind the pomp and pageant of that celebration is a sad reality of an autocatalytic process – a small initial event triggering a chain reaction that evolve

Trump destroying brand USA: Implications for Sri Lanka

Wednesday, 29 January 2020

There is an old adage that ‘politics and tourism’ has a positive correlation. Many have tried to disprove this aspect but the relationship is coming out very strongly, the latest case study to the world being in the United States. Trump cost $4.

Freedom! Freedom! Where art thou?

Wednesday, 29 January 2020

Freedom: who could object? Yet this word is now used to justify a thousand forms of exploitation. In the name of freedom – the freedom of the powerful to exploit the weak, the rich to exploit the poor. The definition of freedom is, the condition of

Development project information: Public expectations and their right to know

Wednesday, 29 January 2020

Infrastructure development will be at the centre-stage during the next five years, irrespective of which mainstream political party will be in power. This writer has previously had articles published in the Daily FT on building regulations, infrastr

Columnists More