Policies at the National and Regional Level South Asia: Beverages and Spices in Sri Lanka

1
Policies at the National and Regional Level
South Asia Beverages and Spices in Sri Lanka

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• Anura Herath
• Sri Lanka
• IDRC/UNCTAD Workshop on Standards and Trade 16-17
  May 2002, Geneva

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Status Summary Spice beverage Sector
Production Land - 53,000 ha (9 of total) Farms
250,000 Av Size 1/4 ha About 20-50 HH income
National Economy GDP - 0.57 Tot. FE (5600
Rm)1.75 Agric. FE - 8.5
Sector
Environment Biodiversity Land degradation
Socio-Economy/Technology Labour intensive High
women participation All local inputs
3
Traditional Areas of Production
4
Progress of the Sector 1980-2000
Global Scene Imports (mt) 220,000 -
500,000 Growth Rate 3-4 Per capita spice
consumption 2.33 - 3.19
Local Scene Area (ha) 30,240 - 53,600 Foreign
Exchange (US mn) 6.4 - 69.7 Exports
(mt)10,300 - 17,900

• Sector has progressed
• There is a tremendous potential in the world
  market

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Markets for SL Spices Beverages

• Cinnamon USA 10 Mexico 44
• Cardamom Singapore 21 UK - 5, South Africa
  Bangladesh
• Clove India 26 Saudi Arabia 15 UK 7
• Pepper UAS 10 UK 11 India 25
• Coffee UK 5 Italy 9 Austria 12,
  Germany 23
• Cocoa UK Germany Italy

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Tax structure for EAC
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Increase in market access
Cardamom 8 Clove 22 Pepper 18 Coffee
17
8
Export Volume of Spices Beverages
9
Quality Requirements
u
SF 4,5,6,7 1-5 insect or infected pieces
10
Percentage of Product Volume with High Moisture
Level and Mould at the Exporter Level
National level survey of 350 traders
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Main reasons for low quality

• Improper harvesting
• Unfavourable drying systems. Nearly 70 of the
  producers use sun drying on home yard with no
  proper surface for drying. Roadside drying is
  common.
• Experience frequent rain during the harvesting
  period. About 69 of producers claimed the
  problem.
• Only 5 of the producers use a mechanical dryer.
• About 64 reported of poor storage.

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Estimated Proportion of Products with Substandard
Quality and the Reprocessing Cost to meet SPS
Requirements
13
Loss of Exportable Volume the Corresponding
Value(OV opportunity value Ex. Price FG
price)
14
Loss of Employment
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Loss of FE due to non compliance

• Loss of prices Average FOB price is 41 less
  than the average world market price for coffee,
  34 for cocoa, 20 for pepper, 69 for nutmeg and
  30 for cardamom. This difference, according to
  the exporters, is mainly due to non-compliance
• Volume loss at the retail trade level If the
  quality is in line with SPS requirements, this
  volume could have been exported at about US 2.2
  million per year
• Value loss at the exporter level due to lack of
  quality There is a reprocessing cost of about
  0.7 million US per year. This will reduce the
  competitiveness.
• In total the estimated value of foreign exchange
  loss due to non-compliance is US 2.9million /
  year about 5 of the total FE earnings from
  spices beverage crops

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Overall Impact What Policies?

• Overall impact on countrys GNP
• Negative impact on poverty alleviation
• Permanent loss of markets

Policy Interventions
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Basis for Policy Directions (understanding the
sector)

• Small Size of the cultivation
• Heterogeneity
• Low capital and low credit low investment
• Subsistence nature poverty issue
• Information gap basically government sources
  GOSL cannot reach the base for lack of funds

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Holding size of cardamom Sri Lanka
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yHolding size of Cinnamon Sri Lanka
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Holding size of Pepper Sri Lanka
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Holding size of Coffee Sri Lanka
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Basis for Policy Directions (understanding the
sector)

• Small Size of the cultivation ?
• marketed in the domestic market
• Considerable
• hence total production meeting the cost of
  compliance may not be cost effective for the
  small scale producers
• The price gab between Grade 1 2 is inadequate
  for high investment
• Pepper 7-10 Cinnamon 10-15 Coffee 5-8

23
Domestically Traded Volumes share of that out
of exports
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Basis for Policy Directions (understanding the
sector)

• Small Size of the cultivation ?
• marketed in the domestic market ?
• Awareness
• There is a considerable gap in time precise
  information
• producer exporter
• Exporter consumer
• Gap between the national inquiry points
  producers
• Government information sources are less efficient
  due to lack of resources

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Producers Knowledge on processing
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Percentage of Producers having knowledge on
Processing
27
Percentage of Trading Partners at Different
Points of the Trade Channel who have Reported the
Inferior Quality of Spices
Information Gap
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Well planned training programme is needed

• There are about 70,000 traders involved in the
  industry
• The total cost then would be in the range of US
  1.954 million
• The annual budget allocation is US 24,400,
  which is only 3 of the requirement

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Basis for Policy Directions (understanding the
sector)

• Small Size of the cultivation ?
• marketed in the domestic market ?
• Awareness ?
• Cost of Production
• Less competitive thus cost increase is not
  attractive

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Cost of production becomes high - 2002
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Basis for Policy Directions (understanding the
sector)

• Small Size of the cultivation ?
• marketed in the domestic market ?
• Awareness ?
• Cost of Production ?
• Technology
• Not in line with giving high quality

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Summary

• The sector is important for FE earning and
  poverty alleviation
• Improved market access is only marginal if SPS
  requirements are not met, so emphasis on quality
  is essential
• There is a notable cost in complying with
  standards
• Quality is affected by weather, technology and
  knowledge factors
• The policy interventions should take the basic
  features of the sector.

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Policy Direction for Sri Lanka

• Increase awareness in lowering cost of production
  and increasing quality.
• Encourage central processing and out-grower
  systems
• Emphasise on the possibility of exchanging
  improved genetic material and plant varieties
  which help in increasing competitiveness
• Increase facilities for national inquiry points
• Improve the capacity to detect and eliminate
  contaminants, to process spices to acceptable
  standards, and proper packaging etc.
• Encourage capacity building on HRD
• Develop strategies, may be collectively with
  other DC, to take Technical Assistance under SPS
  measures through a close consultative process
  with all the stakeholders
• Provide state assistance to central collection
  and processing points to maintain the homogeneity
  of quality.
• Encourage regional co-operation through
  producers meetings