Overview:
The agriculture sector contributes about 7 percent to the national GDP, out of which the fisheries sector contributes around 1.3 percent, and the livestock sector accounts for 0.9 percent. Over 30 percent of Sri Lankans are employed in the agricultural sector. Although Sri Lanka is a fertile tropical land with the potential for the cultivation and processing of a variety of crops, issues such as productivity and profitability hamper the growth of the sector.
The country’s economic crisis has caused immediate uncertainties regarding if the required food supplies are and will be available, the agri-food sector is able to sustain the livelihoods of those engaged in crop, livestock and poultry farming, fishing, food manufacturing, food distribution and allied activities and the agri-food sector is and will be able to provide food security for those most affected by the current is. A decision by the former President to ban chemical fertilizer significantly affected production with scarcities and steep prices increases in key crops in 2022. Presently, a severe drought has destroyed over 25,000 hectares of paddy and affected an estimated 60,000 farmers. The President has proposed an initiative that involves the establishing of an Agricultural Modernization Task Force, which is set to encompass all crops and sectors within the industry. According to the Central Bank, the country’s dry conditions will not impact the country’s low inflation and any supply gaps can be managed with imports. In Sri Lanka’s heavily controlled economy, rice imports are restricted through outright bans or taxes to give profits to farmers who do not produce rice at a competitive price or of quality to trade globally due to years of protection.
Although cost of food in Sri Lanka decreased 4.80 percent in August of 2023 over the same month in the previous year, prices remain high and with recent price increases in fuel and gas and further anticipated increase in electricity tariffs, food inflation is expected to increase.
The importation of food and beverages accounted for 8.8 percent of total imports in 2022 with total agriculture, food, and beverage imports reaching $1.6 billion. Sri Lanka has relaxed many of the restrictions on imports which were prohibited due to the economic crisis.
Leading Sub-Sectors
- Wheat Grain
- Lentils
- Animal feed
- Dairy Products
- Meat
- Cotton, Yarn, and Fabric
Opportunities
Wheat Grain: Wheat and wheat flour account for the largest share of Sri Lanka’s cereal imports. USDA Colombo forecasts Sri Lanka’s MY 2023/2024 imports at 1.4 MMT, up by 200,000 MT, from 2022/2023 estimated volume of 1.2 MMT. Generally, Sri Lanka’s leading Wheat suppliers include Canada, Russia, Australia, Pakistan, India, and Romania.
Ukraine led its import market with 0.2 million tons of wheat in Jan-Apr 2023, followed by Romania (147,824 tons) and Australia (83,398 tons). Due to the foreign exchange crisis, in MY 2021/2022, nearly the entire stock of wheat was imported from India, facilitated by a $4 billion Indian credit line.
Prima Ceylon Ltd, a Singapore-based wheat miller, is the largest producer of wheat flour in the country. The flour produced by Prima is for domestic consumption, as well as for exports. The company operates one of the largest flour mills in the world in the eastern town of Trincomalee. A second mill, owned by a company from the UAE, operates in Colombo. The main competitors in the wheat-supply business are Canada, India, and Australia.
Lentils: Sri Lanka is one of the major importers of red lentils with annual imports estimated at approximately $116 million in 2022. India is a main exporter of lentils to Sri Lanka. U.S. suppliers have significant opportunities in this market if a competitive pricing structure can be developed with a view to long-term selling in the market. Many local buyers have expressed an interest in working with U.S. suppliers due to the superior quality of U.S. lentils.
Animal feed: Sri Lanka spent approximately $95 million in 2022 to import animal feed. The U.S. accounts for almost 80 percent of imports in the sector. Soy and corn are the main ingredients used in the animal feed industry, which formulates around 230,000 metric tons of soybean meal in 2021. GMO restrictions are not applicable for animal feed. Currently, roughly 150,000 metric tons of corn are imported to the country annually to supplement the local production.
Dairy Products: Sri Lanka is a net importer of dairy products. The country imported $225 million of dairy products in 2022. The United States exported $7.6 million in dairy produce to Sri Lanka during January to June 2023.
Meat: In 2022, imports of meat decreased by 6.9 percent, falling for the third year in a row after two years of growth. The pace of growth was the most pronounced in 2018 when imports increased by 81 percent against the previous year. Although there is a market for U.S. turkey, duck, and other meat types for the food service industry, the current economic downturn has reduced imports of these products.
Cotton, Yarn, and Fabric: Sri Lanka imported approximately $9.3 million of U.S. cotton (raw cotton, yarn, and fabric) during January to December 2023. U.S. cotton suppliers have substantial opportunities to supply to Sri Lanka’s export-orientated apparel sector. China, India, Indonesia, and South Korea are the current major cotton suppliers to Sri Lanka.
Resources
Ministry of Agriculture (MoA)