Lanka can become a F&B transitional hub

Rohantha ATHUKORALA

Last week Sri Lanka saw the launch of 'Pro Foods-Pro Pack 2011 International Exhibition' organized by the Sri Lanka Food Processors Association in partnership with the Industries Ministry.

As I was invited to give some thoughts at the launch conference it made me spend some time to get insights into the food and beverage sector that has attracted almost every company in Sri Lanka to operate in this attractive market domestically or internationally.

A bottling plant

Even though I had previous exposure of managing global food brands like Colmans for Sri Lanka during my brand marketing days, what I unearthed was that the world trends has evolved so much that it is virtually a new business model that the food and beverage sector now operates in.

To add value to the event, I thought of integrating the budget proposals of 2011 to the overall business strategy of this sector and then link the event to the national template of the country. The findings were very interesting and the event ideally fitted the national agenda.

From the data that I gathered my initial thoughts was that Sri Lanka is poised to become a transitional hub for food and beverage in Sri Lanka and this event ideally fitted the front end of the value chain.

Global opportunity

The market size on food and beverage is around 1,640 billon dollars as at last year. One can just imagine the future of this business as the latest forecast estimate that the global population will be nine billion by 2050.

If forty percent of one's monthly income is taken up by food and beverage, this market can be a multi-billion dollar business in the years to come which I guess justifies why many blue chips of Sri Lanka are venturing into this sector.

The global thrust is also very strong. Pepsico announced they will be investing a colossal 3.5 billion dollars on a fruit juice company in Russia making it the second largest investment that Russia has seen in recent history.

Sri Lanka's throughput of the food and other beverages is around 170 million dollars which to my mind is very low given that in each province across the country in this sector dominates the economic agenda.

Even if we take the conflict affected Jaffna peninsula, the acclaimed product Nelli Crush is often highlighted as a classic product that survived in war and in peace times and how it united Sri Lanka by way of consumer need satisfaction.

In my view the food and other beverage business can be a billion dollar export industry for Sri Lanka in the next couple of years especially given the focus of budget 2011 targeted to value addition and SME development.

The logic

This opportunity also brings into the table the possibility of Sri Lanka becoming a transitional hub for Food and Beverage given that Sri Lanka's development is poised to become a maritime hub.

To be specific, the Colombo south harbour with its five kilometre break water can attract larger and more modern vessels into the country and there by increase the throughput from a 10,000 TEU's to almost 14,000 TEU's that gives us an idea of the economies of scale that can become a reality in Sri Lanka by mid 2012.

This makes the country take centre stage for food and beverage in the South Asian region and may be a transitional hub.

The Magampura port being on the ancient silk route of between East and the West and the development of the Mattala Airport can further make thrusts to Sri Lanka becoming a logistical hub not only for food and beverage but also in many other sectors.

The challenge is for the private sector to believe in this developmental agenda and fashion one's business to exploit opportunities that will come into play in Sri Lanka in the near future.

The sad story is that if the private sector does not adjust to this emerging opportunities, international organizations will set up business and take these opportunities. But then again just like in Vietnam post the war this is the reality of free enterprise but I hope this will not happen in Sri Lanka.

Budget 2011

If one closely examines budget 2011, the income tax set at 10 percent for SME's and the waiver of unpaid tax liabilities at March 2009 indicates the government policy on the developmental agenda of Sri Lanka.

More than 70 percent of Sri Lanka's GDP is generated by the SME sector.

The knowledge city that will be set up in each province will help a typical SME on the business development services that has been the cry of an SME for the last decade. Be it R&D, quality certification, management services like a standard P&L be developed for raising a commercial loan to name a few.

The setting up of the Atchchuveli Industrial Zone in Jaffna and the proposed industrial zone in Mannar will further add to the SME developmental agenda to my mind.

However, it must be said that unless the 'Ease of Doing Business' parameters are corrected with structural reforms the budget 2011 can bleed the country's revenue mechanism.

Demand generation

Given that the working document from a policy perspective is the 'Budget Proposals of 2011' which is essentially supply chain driven next year on the theme of productivity, the demand generation agenda will have to be a hot bottom priority in the years to come.

However, projects like "Pro Foods-Pro Packs Exhibition" will fit into the template of being a demand generation event that is fuelled by the private sector.

Especially since it will attract regional buyers and global retail store owners to the event provided that supply chain capabilities are verified there can be many partnerships that can become serious business ventures in the future just like Gherkins produced in Sri Lanka that cater to the McDonalds, Heinz and Unilever's of the world.

Global trend

Whilst we balance the supply chain development to the demand generation mechanisms it is also very important that we are sensitized to the global trends in the Food and Beverage industry. Let me share a few of them.

n Growth of private lables

As against the ethos of where consumers prefer global brands, in the last one year we see that with the pressure of the purse people are moving to purchasing lower priced private label brands that are offering unique selling propositions in the supermarkets.

I guess the challenge is how a supplier from Kilinochchi or Mullaitivu can be developed to cater to a private sector label by August 2011.

This can be realistically done as we saw in the last edition of the Sri Lanka Design Festival. A typical global designer called Gabrielli linked up with a top local supplier to launch of a new label to a South American market.

This will be announced officially in the near future but best practices can be replicated in the F&B sector in August 2011 in my view.

n Simple food

This was also influenced by the economic downturn in the last few years where average wage rates are declining and unemployment rate going up which could be the reason that households are reverting to simpler food and beverage which are essentially from farm to the table.

Unique selling propositions like naming a farmer that the food originated from or citing an ingredient are becoming fashionable. May be the Sri Lanka food Processors Association can play catalyst to linking these trends with farmers from rural Sri Lanka through the Chambers can be an operational model that can be pursued.

n Craze for glutter free

Another trend seen globally is that based on the health conscious platform we see people are moving towards purchasing products that are 'Easy to digest' and 'Weight loss' which enhances one's healthy lifestyles.

I guess once again Sri Lanka's supply chain can be linked to such a demand patterns which are essentially niche markets that ideally fits our small production basses.

* Immunity based

Given the rampant diseases that are ravaging the face of the earth a new trend seen globally is where housewives are selecting food and beverage products that provide immunity to kids.

Hence, products with claims such as probiotics and antioxidants are now creating a wave of demand that may be Sri Lanka latch onto. The issue is validating such claims which I guess is a responsibility of the marketing company at that end.

Next steps

* Associations like the Sri Lanka Food Processors Association (SLFPA) must work closely with the Sri Lankan Government in the implementation of the budget proposals that are essentially SME based. If not, the year will go by and Sri Lanka will as usual lose out with many of the incentives not being utilized.

* The Chambers must be linked to such demand generating mechanisms like Pro Foods - Pro Packs exhibitions so that global consumer habits can be linked to the supply chain mechanisms in play. This can make events like Pro Foods/Pro Packs that happens in August 2011, show case Food and Beverage products and link them to an international buyer.

* May be the company's that perform can be linked to the government machinery where they will have access to international mega exhibitions like Anuga that happens annually where more serious global buyers can be reached.

* Together with the Industries Ministry an industry positioning must be encapsulated. Propositions like Ethically Processed, Rain Forest Alliances or may be Ozone Friendly status just like Ceylon Tea must be perused so that we cut our self different from the other South Asian countries that are plagued by poverty and internal conflicts.

* One-to-one business meetings must be facilitated at these exhibitions that happens in Sri Lanka together with facility visits so that credibility of the supply chain can be given to prospective buying missions.

* Social media like U tube, Twitter, Four Squares, Facebook, Blogs, Websites and e-mail must be used together with traditional media so that it creates the buzz to be included to the global Food and Beverage Exhibition template in the future.

The global food and beverage market is growing by 16 percent and accounts for almost half the monthly household expenditure.

(The author has served top global multinationals in the South Asian region from Brand Management to Country Management and also served the country in key positions of business and trade.

Currently he serves the international public sector in Sri Lanka and Maldives serving many private sector and Government Management Boards.)