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By Channa Kasturisinghe

The Food and Food processing sector is an important contributor to the national economy -18.8% of the GDP. When compared to other countries in the region Sri Lanka has the potential to become the hub for this industry with its strategic location and the year round tropical climate. In addition, Sri Lanka is within close proximity to a regional consumer base of 1.4 billion and one of the world's largest and diverse agri-supply bases.

Human resource is another aspect which our country could make use of in linking the rural producer base to the national and international market places. We have a reasonably developed infrastructure including the road network which is another essential factor as far as this industry is concerned.

Product diversity is another important advantage with sub sectors including food ingredients, fruits and vegetables, processed meat and fish, dairy, biscuit and confectionery, bakery and flour-based products and non-alcoholic beverages.

However, statistics show that Sri Lanka has not made use of these advantages to develop its food and food processing industry to its full potential.

According to Mario de Alwis, the Chairman of the Sectoral Task Force for this industry set up by Enterprise Development, there is a decline in investment in the local food sector since 1999.

"This can be attributed to high import tariffs on raw materials, packing material, insufficient research and development and lack of market information", Alwis said. He said the Task Force has formulated the five-year plan for the development of this sector focusing on creating a conducive policy environment, developing the workforce, research and development, market information and working on augmenting branding and marketing.

"Setting up a governing body with public and private sector participation, working towards reformulating policies and strategies for improvement at national level, a vocational school for training technical management personal are also included in the plan", de Alwis said.

Sri Lanka's food and food processing industry has its own weaknesses. Lack of coordination, the comparatively large informal sector, revenue policies which are not conducive to the sector, small and inconsistent supply base, lack of storage and transport facilities and insufficient funds have been cited as among these weaknesses.

"The food and food processing industry in Sri Lanka at present is fragmented and unorganised. Due to the diversity of the industry the information about the current situation is inaccurate or sometimes unavailable. The state policy is not consistent as far as growth is concerned. The regulatory and facilitator institutions are highly politicised and not proactive. The stakeholders are reluctant to be transparent. However, the individual industries have stood up to the free market and are able to compete on brand value.

There are several opportunities available for the future development of the industry, which should be made use of. Being a member of SAARC and BIMST-EC Sri Lanka has an ideal opportunity to be promoted as the hub for food in the region.

It is important to strengthen bilateral links with the region's processed food and beverages industry. There is a demand trend for ethnic and natural foods within and outside the region. In addition, there is a large Asian expatriate community in a developed country, which is a potential market", de Alwis said. While making use of these advantages our food industry should be mindful of the threat from emerging economies such as China and Vietnam and the dominance of Asia's food supply hubs including Hong-Kong and Singapore. The food processing industry promises a host of tangible and non-tangible benefits to those involved in it.

Overall value conception, brand value, better investment environment, stability and the assurance of better quality of life are among the non-tangible benefits, he said.

In order to promote this industry the sectoral task force has recommended formulating a structure to manage the development process and facilitate a competitive environment by ensuring the maintenance of an appropriate and reliable Market Information System and a Data Bank.

The Sri Lanka Food Processors' Association recommended the formalising of a governing body, spearheading all activity in the sector with public and private sector participation which was subsequently submitted for Cabinet approval.

At the Fourth Expert Group Sessions held in Colombo recently, Sri Lanka proposed to form a Federation of Processed Food and Beverage Associations and Chambers which would act as an apex organisation networking the region. The Chairman said that reliable market information and other appropriate data are the basis for attracting investment to an industry and the processed food sector due to its diversity and large informal sector lacks such information.

The Task Force in its report highlighted the policy and revenue reforms which, are needed to increase consumption, reduce cost-of-living and increase revenue to the state. The Task Force has recommended providing an incentive to regularise the industry by reducing VAT to five percent and to introduce VAT at retail points. It has also called upon the authorities to reduce import duties on material imports for the processed food industry and to exempt the industry from further direct taxation. It has been proposed to introduce a system to generate funding for ongoing industry initiatives.

The Task Force has also recommended in its report measures to improve standards, to promote marketing and human resource development in the local food industry.

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