MPI concept3

Our journey to the
international markets -
strategies and tasks for the
Ministry of Primary Industries
A Concept Paper on Preparation of a National Primary Industries
policy Framework
Ministry of
Primary Industries,
Sri Lanka

2
Ministry of
Primary Industries,
Sri Lanka
“To build, to protect and grow mother Lanka by
creating a welfare centric knowledge based econo-
my centered on the competitive social market eco-
nomic model to guarantee fair benefits to the peo-
ple”
The most common definition of the term primary
industries has two parts – in the first, a primary in-
dustry is defined as an industry involved in the ex-
traction or collection of natural resources, be they in
agriculture, aquaculture, minerals or as being widely
adopted today, in human resources. The second part
of the definition involves any individual, company,
corporation, or government body that turns a natu-
rally obtained resource in to a product that has the
potential of either being consumed as is or being
processed further upstream.
The government of President Maithripala Sirisena
and Prime Minister Ranil Wickremesinghe, elected
for a five year term on August 2015, has the task
of implementing the policies enumerated by both
President Sirisena in his policy statements on his
election as President in January 2015 and policies
set out by Prime Minister Ranil Wickremesinghe in
the run-up to the elections in August 2015.
A priority area identified by both these sets of
policies is the creation of new employment avenues
and to make Sri Lanka a highly competitive, globally
aligned and rapidly developing economy that needs
to take its rightful place, lost due to a debilitating
civil war for 30 years and mismatched, mismanaged
economic policies of the previous government. The
broad policy objectives of this export-led program
will be to:
• To double the exports by 2020
• Expand export growth from 7% to 14% year-to-year
• Create 1,000,000 jobs by 2020
A major part of that task involves the creation of
new economic zones and clustering over 2,000 vil-
lages around those zones, to create a coherent and
well-managed value chain that will encompass pri-
mary industries, upstream processing of natural re-
sources harvested from the primary industries, lo-
gistics and distribution for the local market and, as
a priority, opening up new export avenues for such
products.
• Integrating farmers, small-scale industrialists, sup-
pliers, and entrepreneurs into the global economy
through innovative pooling of resources such as
clustering, co-competitive marketing and other such
organized collectives.
• Accelerated increase in urbanization through the
megapolis programs
• Rapid urbanization will increase domestic consump-
tion
• Consumption demand to be met by Primary Indus-
tries and allied services
• Opportunities in agriculture, SME industries, fisher-
ies, and services along with increased demand for
allied services such as logistics, storage and distribu-
tion
A new ministry has been created and tasked with a
five-fold objective;
Who we are...

3
• Implementation of National Policies in regard to Pri-
mary Industries and Formulation of appropriate pro-
grams and schemes
• Formulate strategies to integrate farmers, fishermen
and small scale agro Businessmen into the global
economy with emphasis on;
»» Increased value addition
»» Maximized export opportunities for such primary
industries
»» Improve sector productivity and competitiveness
»» Ensure safety of primary industry products
• Implement National Policies to promote bio-security
and sustainable resource use including value added
products
• Implement National Policies to promote farmer’s
agro business enterprises
• Matters related to Agricultural Development Areas,
Agro-clinics and Fisheries Exports Development Ar-
eas
This concept paper examines the scope of this en-
deavor and will attempt to layout a foundation on
which a more detailed policy paper can be prepared.
Ministry of
Primary Industries,
Sri Lanka
The unique value addition

4
Ministry of
Primary Industries,
Sri Lanka
The largest single buyer of Sri Lankan exports, for
most of our export products, is the United States
with nearly one forth of our exports reaching the
USA while the European Union, taken as a block, im-
ports more than 40% of all goods produced by Sri
Lanka. Neighbouring India is the next largest buyer
with Russia and Japan following closely behind.
Post war, exports surged, starting from the low and
depressed base, registering a growths of over 21
percent in 2010 and 2011, adjusting in 2012 with
a dip of five percent and showing a steady growth
of over six percent in 2013 and 2014. However, ex-
ports as a percentage of our gross national products
is showing a worrying decrease, from a high of 18.79
percent in 2011 to 16.25 percent in 2014.
In 2014, we exported US$11,878 million worth of
goods and services with our finished goods, mainly
apparel, surging from US$5,772 million in 2010 to
US$8,067 million in 2014.
Neither the agro sector or the fisheries sector took
part in the this surge wth fisheries only increasing
less than US$63 million in that five year period.
Agro products increased from US$2,216 million to
US$2,699 million in the same five years. This in-
crease came mainly from value added tea products.
Where we are...

5
Ministry of
Primary Industries,
Sri Lanka
External trade

6
Ministry of
Primary Industries,
Sri Lanka
Export break down
The table above illustrates the composition of
exports at desegregated level last year in 2014. It
reveals that nearly 58% of total export earnings of
Sri Lanka were derived from two products, namely
garments [44%] and tea [14%]. Nearly 80% of the
total export turnover came only from seven products
reflecting the lack of diversification of Sri Lanka’s
export basket.
In Rubber, our third largest export, we only have
0.50% of the global market share while being ranked
the 31st out of 215 exporting countries. While we
show an encouraging 35.7% of market share in
Cinnamon while being ranked 1st, its worth bearing
in mind that this excludes cassia, produces mainly
in China and is being used as a cinnamon substitute
dwarfing true cinnamon.
While textiles remain our biggest export earner,
from a global perspective, we have less than 2%
of the global market in textiles, while being ranked
within the top twenty exporting countries out
of 218, indicating the possibility of growth, both
vertically and possibly horizontally by integrating
other elements of the textiles value chain, including
cotton and yarn, into our product space for textiles.
Both these comes under the scope of the Primary
Industries Ministry.
Infisheries,ourseventhlargestexport,wehaveless
than 0.20% of the global market while anecdotal
evidence suggests that our maritime economic zone
may have enough supply to meet at least 3 percent
of the global market.
Our market share in Electric and Electronic
products, our fifth largest export earner, is listed as
negligible while contributing nearly three percent of
our export earnings. Sri Lanka is one of the lowest
ranking countries for high-tech exports as a share of
manufactured exports.
Comparatively, Vietnam shows the highest growth
for share in high-tech exports, having only five
percent in 2008 and increasing to 28% in 2013.
(See tables in the next page.)

7
Ministry of
Primary Industries,
Sri Lanka
How others compare with US in high tech exports

8
Ministry of
Primary Industries,
Sri Lanka
Our raw materials..
Sri Lanka has the potential to increase high tech
exports substantially. As the table above shows, we
export large amounts of our minerals in their raw
form without any value addition. Most of these min-
erals are used as components in the manufacturer
of high –tech circuit boards and electronic elements
like transistors and capacitors.
Earlier attempts at establishing manufacturing
plants for circuit boards (Motorola - 1997) failed due
to structural inefficiencies in policy and their imple-
mentation.
A recent innovation (2012) Graphene, a material
that uses only high-end graphite thats mostly found
in Sri Lanka holds the most potential for the future
of our mineral industry. While industrial production
of graphene is yet to start, graphene is already be-
ing tested in laboratories globally for its strength,
its ability to conduct electricity and other proper-
ties and is said to be the strongest material known
to man today.

9
Ministry of
Primary Industries,
Sri Lanka
Breakdown of our exports

10
Ministry of
Primary Industries,
Sri Lanka
How we compare.. Then and now
Our markets over the years

11
Ministry of
Primary Industries,
Sri Lanka
Our objectives and tasks
In short, the task for the primary industries min-
istry is to maximize export opportunities for the
primary industries; improving sector productivity;
increasing sustainable resource use; and protect-
ing Sri Lanka from biological risk. It needs to deliver
high-quality services and support to the whole of
the primary sector.
While currently Sri Lanka´s primary industries
serve both the local and the export market (for ex-
ample, Sri Lanka is yet to export rice or paddy and
fisheries exports are less than ten percent of the to-
tal production), the task before the new Ministry will
be to focus on export markets and to maintain and
grow access to those markets. It will need to work
with other shareholder ministries to help reduce,
and preferably eliminate, tariffs and other barriers
to trade for goods.
It needs to build trust with Sri Lanka´s trading part-
ners and ensure that goods meet their requirements
and are produced according to and or exceeding
international norms, ensuring there are systems in
place to provide importing countries with safe prod-
ucts that meet their requirements.
The end goal of the task will be to double exports
arising out of the primary industries in five years
time. This means achieving an average growth of
14% every year – a doubling of the current export
growth of approximately seven percent per annum.
To achieve this milestone, the Ministry will need to
• Develop clear and measurable market access strate-
gies
• Ensure primary sector exporters can access overseas
markets
• Be involved in negotiating free trade agreements
(FTAs)
• Contribute to the development of international
standards
• Participate in Ministry-led trade missions
• Monitor exports quality and safety through robust
auditing systems.
Barriers and Challenges:
There are a number of barriers to trade in food and
forestry products, more so in agriculture, but less in
seafood and forestry while export markets are dy-
namic, characterized by rapid changes in compara-
tive advantages, consumer preferences, product
ranges and associated services. The declining rate
of employment in the primary industries sector is of
special concern and needs to be addressed first.
Of the main challenges that face primary indus-
tries, increasing globalization alongside sharper in-
ternational competition, changes in consumer pref-
erences alongside pressure to step up economic
efficiency and environmental concerns take priority.
Of these, globalization provides
promising opportunities as well
as greater challenges as much as
opportunities presented through
change of consumer preferences
– for example the growing natu-
ral health foods sector in the
European and North American
present some of the main oppor-
tunities as well as challenges for
non-traditional agriculture ex-
ports.
It is difficult to distinguish pri-
mary products from what is mar-
keted by other countries, hard to
create and maintain a competi-
tive advantage. Low production
costs, and low margin strategies
are the most important means
of achieving a competitive edge
alongside marketing aimed at

12
Ministry of
Primary Industries,
Sri Lanka
Solutions and pathways...
achieving changes in the consumer mindset, such as
using Ceylon cinnamon against the bark of the Casia
tree, an inferior product that poses certain health
risks. Achieving economies of scale and volumes of
larger producers is another avenue of seeking bet-
ter rent.
A major challenge facing the Ministry will be to co-
ordinate with the other line ministries that also have
responsibilities to the industries concerned and cost
of policy implementation in terms of budgetary con-
straints.
One of the major challenges the nation as a whole
faces is to build trust with our trading partners after
the debilitating civil war and policy decisions that re-
sulted in our main trading partners distancing them-
selves with Sri Lanka during the past regime. Trust,
like credibility, once lost, is hard to regain. However,
strenuous efforts taken by the current leadership is
showing encouraging signs with major trading part-
ners like the European Union and the United States
softening stances.
In the product space, Sri Lankan manufactures will
have to adhere to the client requirements in an envi-
ronment where global corporations are increasingly
imposing strict conditions of corporate responsibil-
ity, certification and quality, producing according to
and or exceeding the international norms. Meeting
and exceeding such norms will
help reduce international mar-
ket entry barriers.
Solutions and pathways:
A primary industry council of
ministers..
It is proposed that a Primary
industry Council of Ministers
is created, similar to that of
the Export Promotion council
of Ministers created under the
EDB act in 1980. Each ministry
then becomes a shareholder
(not just a stakeholder) and
will reap the benefits accrued.
The Ministry of Primary Indus-
tries (MPI) will be coordinating
authority and will be respon-
sible for policy and monitoring in addition to direct
interventions where necessary.
Of the main challenges, building trust, meeting cli-
ent requirements and meeting or exceeding interna-
tional norms in production, are all process related.
Process improvements, necessary accreditations
and certifications like GMP, ISO, Organic, Fair Trade
and other such linkages will help surmount the pro-
cess related challenges.
It is proposed that the Ministry of Primary Indus-
tries take a monitoring shareholding of an amount
not less than five percent and not more than ten per-
cent in any enterprise be it state, public-private or
majority private, created through policy implemen-
tation of the Ministry. This serves two purposes –
one, and foremost, a continuing involvement of the
state to ensure the policy framework is adhered to
by the enterprise and second to ensure a self-gener-
ating cash flow to the Ministry.
Building trust
The Ministry will need to work with exporters to
reduce, and preferably eliminate, tariffs and other
barriers to trade for goods. This includes the provi-
sion of trusted assurances that Sri Lanka´s products
meet the requirements of importing countries. The
Ministry, along with other partner Ministries and
stakeholders will need to ensure there are systems
in place to provide importing countries with safe
products that meet their requirements.
And a brand..
Today, Ceylon Tea and Ceylon
Cinnamon are both accepted as of
the highest quality and safe food
products globally. The Ministry´s
task will be to ensure this brand
awareness is extended to our
other export products and to safe-
guard and grow the brand aggres-
sively.
Our scope, therefore, must in-
clude the creation of international
market access teams for each of
the products we export, staffed by
highly competent marketers with
in-depth knowledge of the prod-
uct, its global market characteris-
tics and preferably, a knowledge
of the languages spoken in the
countries the product is sold.
These teams will be tasked to develop clear and

13
Ministry of
Primary Industries,
Sri Lanka
The issue of employment
measurable market access strategies and to maxi-
mize export opportunities by also reducing barriers
to trade by influencing international trade frame-
works and international standards. They will also
be responsible for documenting overseas market
access requirements and guidance documents pro-
vided for information. They will be regular contact
with key overseas counterparts to handle market ac-
cess issues and trade responses.
Market access staff will help to establish and build
robust primary production, food safety, and bios-
ecurity systems for our assurances to trading part-
ners that our products are safe and suitable.
Creating Employment:
Sri Lankan primary agriculture sector can be di-
vided into three major categories. i.e. farming, fish-
ing and aquaculture. As of 2008, 32.7% of the labor
force was employed in the sector. There is evidence
that this has declined marginally in the following
years.
Agriculture, which has strong linkage from ancient
time to rural livelihood and food security, is a cor-
nerstone in Sri Lanka’s economic development and
social wellbeing strategy. More than 70% of the
population living in rural areas depends on agricul-
ture for their livelihoods.
Decelerating growth in the sector...
This decelerated growth of agriculture sector is at
least partly contributive for relatively higher level
of poverty and malnutrition in rural areas where the
large majority of population depend on agriculture
for their livelihood. Agriculture sector is not geared
to release the labor for other sectors and to increase
the productivity of the sector. In this context ensur-
ing continuous stable higher growth of agriculture
sector for the food security as well as well being of
rural people has become central to the agriculture
policy of Sri Lanka.
A stated priority of the new government is to
achieve full and productive employment and decent
work for all, including women and young people, a
goal embedded in the ILO Declaration 2008 on So-
cial Justice for a Fair Globalization. In this context,
analyzing the employment implications of sectorial
transformation and growth needs to be prioritized.
Sri Lanka is in transition from factor driven to effi-
ciency driven stage and the key determinants of ef-
ficiency include higher education and training, labor
market efficiency, technological readiness, market
size, goods market efficiency, and financial market
sophistication. The first three efficiency enhancers
are closely linked with employment policy. While
the Sri Lankan unemployment rate has shown a de-
cline in recent years, a more objective breakdown
shows that the decline has
come from a substantial
increase of employment in
the informal sector, rather
than through structural ef-
ficiencies in the formal em-
ployment sector.
High unemployment
amongst the youth
In spite of a declining
trend of unemployment,
the rate of unemployment
stood at 24.7 and 17.8 per
cent respectively among
age groups of 15-24 and
15-29 in 2010. It was 6.9
and 11.6 per cent among in-
dividuals with GCE O/L and
GCE A/L and above qualifi-
cations. Besides educated
youth unemployment, the

14
Ministry of
Primary Industries,
Sri Lanka
Improving vocational training
employment challenges of Sri Lanka includes declin-
ing trend of labor force, under-employment, 61 per
cent employed in the informal sector, 23 per cent of
the employed engaged in elementary occupations,
24 per cent of the employed working abroad and
about 50 per cent of migrant workers employed as
unskilled workers, and earnings of a large section of
the employed population falling below the poverty
line.
A recent study on profitability and productivity of
tea and rubber sectors also confirmed the low la-
bor productivity and yield levels in the plantation
sector (Gunatilaka 2011). It also confirmed the rela-
tively high magnitude of labor costs in the overall
cost structure based on stationary tests covering a
period of ten years (i.e. 2000-2009). In overall terms,
productivity enhancement in agriculture is affected
by fragmented land use, insufficient availability of
water, lack of credit facilities, seed, technical know-
how, technology, marketing, storage and transporta-
tion and poor farming practices.
An example from Korea
Academics and agriculture specialists use Korea
to illustrate structural changes in the sector over
several decades. In the 1980’s agricultural produc-
tivity in Korea was relatively low, and arable land
was crowded with agricultural workers. As Korea in-
creased the use of machinery and the application of
fertilizers, agrochemicals and special seed varieties,
productivity per worker increased. But this occurred
as farmers realized they could produce similar or
higher yields with less labor. As the rural population
declines, plot sizes increased
enabling the remaining farmers
to work on more land per worker.
In sum, the expansion of agri-
cultural production and produc-
tivity in Korea, as in many other
countries, released labor to the
non-agricultural sector.
Overall, while it is certainly true
that there is great potential to
improve output and productiv-
ity in agriculture in Sri Lanka,
this will lower the demand for
labor, not raise it. Moreover, this
will occur in an environment of
rapid population growth, further
emphasizing the need for non-
agricultural employment. The
challenge for us is therefore to
create productive jobs in other sectors to absorb the
labor released from agriculture and that generated
by marginal population growth.
Enlarging the vocational training scope
The current scope of vocational training remains
limited to traditional courses like carpentry, civil
work masons, and electrical foremen. If the econo-
my is to diversify into new and more complex prod-
ucts, specialized new skills will be required. To ad-
dress a skills shortage, vocational training can be
improved and targeted for diversifying industries.
However, such training is unlikely to solve a skills
shortage on its own. However, it is difficult ex ante to
identify all of the skills a new industry will need. The
development of the primary industries is important
in promoting both direct and indirect employment.
The latter is mainly through its linkages with other
sub-sectors of primary and secondary sectors. For
example, the forward linkages of paddy, coconut,
fruit and vegetables and minor export crops sub-
sectors with industry and services sectors have the
potential to create employment opportunities for
skilled and unskilled labor.
The continuity of high growth performance over
the next 10 years would depend on development
strategies aimed at high productivity, labor-inten-
sive employment and creation of green jobs. In
this context, the preparation of a comprehensive
employment policy with a focus on productive ef-
ficiency and labor intensity of growth are of vital
importance.

15
Ministry of
Primary Industries,
Sri Lanka
The glass ceiling of exports..
Sri Lanka´s exports are concentrated at the hands
of a relatively small number of less than 300 export-
ers who collectively account for more than 90% of
the country´s exports. This disparity of less than
10% of the total number of exporters accounting
for more than 90% of the exports needs to be ag-
gressively addressed as it points to strong structural
inefficiencies that is preventing SME´s from compet-
ing in the export markets.
Relatively a small number of exporters are also be-
ing created every year and hardly any new products
are being exported, pointing to a serious lack of in-
novation and entrepreneurship.
Anecdotal evidence clearly suggests a glass floor
around the Rs 500 million exports level, which is the
threshold between a medium to large scale enter-
prise. It is proposed that the ministry aggressively
address the issues of the exporters who are current-
ly exporting between 60 to 500 million as they will
find it easier to break through the glass ceiling.

16
Ministry of
Primary Industries,
Sri Lanka
We gratefully acknowledge EDB, BOI and Customs department in providing material for the prepara-
tion of this concept paper.
Meeting Demand with supply
If the bubbles fall into the “Winners in growing sectors”,
it means that the world demand for the product denoted
by the bubble is increasing and also Sri Lanka’s share of
that product in world exports is also increasing. Only our
export product, Rubber and articles thereof fall into this
category. Trade promotion efforts for this product should
aim to broaden the supply capacity to cater to the mar-
kets with increasing demand.
If the bubbles fall into the “Losers in growing sectors”,
by the bubble is increasing but Sri Lanka’s share of that
product in world exports is declining. Our export prod-
ucts such as Coffee, tea, mate and spices; Pearls, pre-
cious stones, metals, coins, etc.; vehicles other than rail-
way, tramway fall into this category. As these products
face supply side bottlenecks, it is important to identify
and remove the constraints in order to regain the market
share.
If the bubbles fall into the “Losers in declining sectors”,
by the bubble is falling and Sri Lanka’s share of that prod-
uct in world exports is also falling. Our export products
such as Plastics and articles thereof; Other made textile
articles, sets, worn clothing, etc; Electrical, electronic
equipment; Fish, crustaceans, molluscs, aquatic inverte-
brates nes; Vegetable textile fibres nes, paper yarn, wo-
ven fabric; fall into this category. Trade promotion efforts
for these products in this group should adopt an inte-
grated approach to remove both the demand and supply
side constraints.
Ifthebubblesfallintothe“Winnersindecliningsectors”,
by the bubble is falling but Sri Lanka’s share of that prod-
uct in world exports is increasing. Our export products
such as Articles of apparel, accessories, knit or crochet;
Articles of apparel, accessories, not knit or crochet; Ships,
boats and other floating structures; Wood & articles of
wood, wood charcoal; Toys, games, sports requisites; To-
bacco and manufactured tobacco substitutes; Machinery,
boilers, etc., Miscellaneous chemical products; Edible
fruits, nuts, peal of citrus fruit, melons; Vegetable, fruit,
nut, etc. food preparations; fall into this category. From a
trade promotion perspective, niche marketing strategies
are required to be adopted for these products.
The behaviour of exports of Sri Lanka as indicated above
shows the importance of adopting product specific trade
promotion strategies and measures to remove the specif-
ic demand or supply related constraints, which impede a
more dynamic expansion of exports of the country. Such
strategies would enable Sri Lanka to maximize on the op-
portunities generated in the global market and reap the
maximum benefits from trade opportunities available for
our export products.

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