Daily FT - 18/02/2015
Food processing sector is indispensable for overall development of an economy as it provides a vital linkage and synergy between the agriculture and industry. It helps to diversify and commercialise farming; enhance income of farmers; create markets for export of agro foods as well as generate greater employment opportunities. Through the presence of such industries, a wider range of food products could be sold and distributed to the distant locations.
The term ‘food processing’ is mainly defined as a process of value addition to the agricultural or horticultural produce by various methods like grading, sorting and packaging. In other words, it is a technique of manufacturing and preserving food substances in an effective manner with a view to enhance their shelf life; improve quality as well as make them functionally more useful. It covers spectrum of products from sub-sectors comprising agriculture, horticulture, plantation, animal husbandry and fisheries.
The Food Processing Industry (FPI) in Sri Lanka is one of the emerging and lucrative industries in terms of production, consumption, export and growth prospects. Earlier, food processing was largely confined to the food preservation, packaging and transportation, which mainly involved salting, curdling, drying, pickling, etc.
However, over the years, with emerging new markets and technologies, the sector has widened its scope. It has started producing many new items like ready-to-eat food, beverages, processed and frozen fruit and vegetable products, marine and meat products, etc. It also include establishment of post-harvest infrastructure for processing of various food items like cold storage facilities and packaging centres.
The liberalisation of the Sri Lankan economy as well as rising consumer prosperity has thrown up new opportunities for diversification in the FPI and opened up new avenues for growth. Demand for processed and convenience food is increasing constantly due to urbanisation, changing life-style and food habits of people. Accordingly, Sri Lankan consumers are being offered newer high quality food products made by using the latest state-of-the-art technology.
The Government of Sri Lanka has given a high priority, with a number of fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce, for minimising pre/post-harvest wastage, generating employment and export growth. Sri Lanka’s FPI covers a wide range of products, viz, fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods.
Sri Lankan FPI is widely recognised as a “sunrise industry” having huge potential for uplifting agricultural economy, creation of large scale processed food manufacturing and food chain facilities, and the resultant generation of employment and export earnings. The industry is estimated to be worth around $ 100 million and employing about 1.4 million direct and indirect employees.
The food processing sector is geared to meet the international standards. The Food Safety and Standards Institute has the mandate to develop standards and also to harmonise the same with International Standards consistent with food hygiene and food safety requirements. The Food Advisory Committee coming under the Ministry of Health functions as the governing and advisory body to the industry on food safety and consumer protection.
Agencies such as, Export Development Board (EDB), Ceylon Chamber of Commerce and Ministry of Fisheries involves in promoting exports. Ministry of Fisheries is responsible for overseeing all fish and seafood product exports; EDB on the other hand, holds responsibility for the exports of other processed food products.
Factors contributing to the development of FPI in Sri Lanka
Key growth drivers in FPI
Key opportunities in FPI
Key segments in the FPI
Fruits and vegetable
Fruits and vegetables is one of the most important and fast growing sub-sectors of the FPI. Over the last few years, there has been a positive growth in ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, tomato products, pickles, convenience spice pastes, processed mushrooms and curried vegetables. Reasons being increase in consumption by nuclear families, working women, students and single employees living alone.
There are abundant investments opportunities in expanding the export market. An increasing acceptance of new products with market development efforts has been witnessed lately given the fact that there is a good international demand for certain fruits and vegetable products. Country’s strategic geographic location gives it the unique advantage of connectivity to Europe, Middle East, Japan, Singapore, Thailand, Malaysia and Korea. In 2013, Sri Lanka’s export of fresh fruit and vegetable was estimated at Rs. 8,128 m.
Dairy processing
Sri Lanka is on a path to increase its domestic milk production with an estimated production of 319.8 million litres in 2013. Cow milk accounts for 80.6% of the total milk production in 2013.
The country has a unique pattern of production, processing and marketing/consumption of milk, which is not comparable with any large milk producing country. About 35% of milk produced in Sri Lanka is processed.
Fisheries sector
The export of marine products has steadily grown over the years to Rs. 91 m in 2013. Marine products account for approximately 6.1% of the total exports from Sri Lanka.
Frozen shrimp continued to be the single largest item of export in terms of value during 2013. In terms of quantity, fish accounted for the major share at 40% (shrimp 21%). European Union (EU) was the largest market during the year 2012-13 with a percentage share of 32.6% followed by China 14.8%, Japan 14.6%, USA 11.9%, South East Asia 10%, Middle East 5.5% and Other Countries 10.6% in 2013.
Consumer food industries
Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready-to-eat and ready-to-cook products, biscuits etc. Bread and biscuits constitute the largest segment of consumer foods. Country’s biscuits industry is the largest among all the food industries
The consumer food industry is classified under two sectors: organised and unorganised. Bread and biscuits are the major part of the bakery industry and cover around 80% of the total bakery products. Biscuits stand at a higher value and production level than bread. This belongs to the unorganised sector of the bakery industry and covers over 70% of the total production.
Foreign Direct Investment in FPI
100% FDI is allowed for food processing industry and food infrastructure including food parks, distillation and brewing of alcohol, cold storage chain and warehousing. The total inflow of Foreign Direct Investment in food processing sector during 2009-2013 was Rs.25.7 billion.
Future outlook
Sri Lankan FPI is projected to grow to Rs. 15.5 billion by 2016. Also, food consumption in Sri Lanka is estimated to grow at a CAGR of 5.32 % by 2016. Further, it is expected that processed food output will grow at a strong 7 % CAGR in terms of value in 2016. With the Government initiative to provide a 50% tax concession for the fruit and vegetable industry through the 2015 interim budget, the future prospects seems bright for this industry.
More and more people are consuming value-added and processed food products. The industry possess high export opportunities and its growth seeks to bring immense benefits to the economy by raising agricultural yields, enhancing productivity, creating employment and raising life-standards of a large number of people across the country, especially those in rural areas.
Thus, there exists innumerable business opportunities in the diverse areas of FPI. However, the FPI still remains largely untapped because of high packing costs, cultural preference of the people for fresh food, seasonality of raw materials, lack of adequate infrastructural facilities and quality control mechanism.
As a result, there is a need to diversify the sector by fully harnessing its potential, providing greater incentives as well as creating a conducive environment for more investments and exports.
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| The food processing industry in Sri Lanka is one of the emerging and lucrative industries in terms of production, consumption, export and growth prospects |
Food processing sector is indispensable for overall development of an economy as it provides a vital linkage and synergy between the agriculture and industry. It helps to diversify and commercialise farming; enhance income of farmers; create markets for export of agro foods as well as generate greater employment opportunities. Through the presence of such industries, a wider range of food products could be sold and distributed to the distant locations.
The term ‘food processing’ is mainly defined as a process of value addition to the agricultural or horticultural produce by various methods like grading, sorting and packaging. In other words, it is a technique of manufacturing and preserving food substances in an effective manner with a view to enhance their shelf life; improve quality as well as make them functionally more useful. It covers spectrum of products from sub-sectors comprising agriculture, horticulture, plantation, animal husbandry and fisheries.
The Food Processing Industry (FPI) in Sri Lanka is one of the emerging and lucrative industries in terms of production, consumption, export and growth prospects. Earlier, food processing was largely confined to the food preservation, packaging and transportation, which mainly involved salting, curdling, drying, pickling, etc.
However, over the years, with emerging new markets and technologies, the sector has widened its scope. It has started producing many new items like ready-to-eat food, beverages, processed and frozen fruit and vegetable products, marine and meat products, etc. It also include establishment of post-harvest infrastructure for processing of various food items like cold storage facilities and packaging centres.
The liberalisation of the Sri Lankan economy as well as rising consumer prosperity has thrown up new opportunities for diversification in the FPI and opened up new avenues for growth. Demand for processed and convenience food is increasing constantly due to urbanisation, changing life-style and food habits of people. Accordingly, Sri Lankan consumers are being offered newer high quality food products made by using the latest state-of-the-art technology.
The Government of Sri Lanka has given a high priority, with a number of fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce, for minimising pre/post-harvest wastage, generating employment and export growth. Sri Lanka’s FPI covers a wide range of products, viz, fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods.
Sri Lankan FPI is widely recognised as a “sunrise industry” having huge potential for uplifting agricultural economy, creation of large scale processed food manufacturing and food chain facilities, and the resultant generation of employment and export earnings. The industry is estimated to be worth around $ 100 million and employing about 1.4 million direct and indirect employees.
The food processing sector is geared to meet the international standards. The Food Safety and Standards Institute has the mandate to develop standards and also to harmonise the same with International Standards consistent with food hygiene and food safety requirements. The Food Advisory Committee coming under the Ministry of Health functions as the governing and advisory body to the industry on food safety and consumer protection.
Agencies such as, Export Development Board (EDB), Ceylon Chamber of Commerce and Ministry of Fisheries involves in promoting exports. Ministry of Fisheries is responsible for overseeing all fish and seafood product exports; EDB on the other hand, holds responsibility for the exports of other processed food products.
Factors contributing to the development of FPI in Sri Lanka
- Diverse agro-climatic conditions with a large and diverse raw material base suitable for food processing companies
- Sri Lanka is currently on an aggressive path for investment in infrastructure, packaging and marketing
- Vast scientific and research talent pool
- Infrastructure and distribution network
- Rapid urbanisation, increased literacy, changing life style, increased number of women in workforce, rising per capita income- leading to rapid growth and new opportunities in food and beverages sector
- More than one third of household expenditure by consumers are for food items
- Strategic geographic location (proximity of Sri Lanka to markets in Europe and Far East, South East and West Asia).
Key growth drivers in FPI
- Increasing spending on health and nutritional foods.
- Increasing number of nuclear families and working women
- Changing lifestyle
- Functional foods, fresh or processed foods
- Organised retail and private label penetration
- Changing demographics and rising disposable income levels
Key opportunities in FPI
- Processable varieties of crop
- Contract farming
- Investments in infrastructure through Public Private partnership (PPP)
- Mega Food parks
- Integrated cold chains
- Food Safety Management Systems
Key segments in the FPI
Fruits and vegetable
Fruits and vegetables is one of the most important and fast growing sub-sectors of the FPI. Over the last few years, there has been a positive growth in ready-to-serve beverages, fruit juices and pulps, dehydrated and frozen fruits and vegetable products, tomato products, pickles, convenience spice pastes, processed mushrooms and curried vegetables. Reasons being increase in consumption by nuclear families, working women, students and single employees living alone.
There are abundant investments opportunities in expanding the export market. An increasing acceptance of new products with market development efforts has been witnessed lately given the fact that there is a good international demand for certain fruits and vegetable products. Country’s strategic geographic location gives it the unique advantage of connectivity to Europe, Middle East, Japan, Singapore, Thailand, Malaysia and Korea. In 2013, Sri Lanka’s export of fresh fruit and vegetable was estimated at Rs. 8,128 m.
Dairy processing
Sri Lanka is on a path to increase its domestic milk production with an estimated production of 319.8 million litres in 2013. Cow milk accounts for 80.6% of the total milk production in 2013.
The country has a unique pattern of production, processing and marketing/consumption of milk, which is not comparable with any large milk producing country. About 35% of milk produced in Sri Lanka is processed.
Fisheries sector
The export of marine products has steadily grown over the years to Rs. 91 m in 2013. Marine products account for approximately 6.1% of the total exports from Sri Lanka.
Frozen shrimp continued to be the single largest item of export in terms of value during 2013. In terms of quantity, fish accounted for the major share at 40% (shrimp 21%). European Union (EU) was the largest market during the year 2012-13 with a percentage share of 32.6% followed by China 14.8%, Japan 14.6%, USA 11.9%, South East Asia 10%, Middle East 5.5% and Other Countries 10.6% in 2013.
Consumer food industries
Consumer food industry includes pasta, breads, cakes, pastries, rusks, buns, rolls, noodles, corn flakes, rice flakes, ready-to-eat and ready-to-cook products, biscuits etc. Bread and biscuits constitute the largest segment of consumer foods. Country’s biscuits industry is the largest among all the food industries
The consumer food industry is classified under two sectors: organised and unorganised. Bread and biscuits are the major part of the bakery industry and cover around 80% of the total bakery products. Biscuits stand at a higher value and production level than bread. This belongs to the unorganised sector of the bakery industry and covers over 70% of the total production.
Foreign Direct Investment in FPI
100% FDI is allowed for food processing industry and food infrastructure including food parks, distillation and brewing of alcohol, cold storage chain and warehousing. The total inflow of Foreign Direct Investment in food processing sector during 2009-2013 was Rs.25.7 billion.
Future outlook
Sri Lankan FPI is projected to grow to Rs. 15.5 billion by 2016. Also, food consumption in Sri Lanka is estimated to grow at a CAGR of 5.32 % by 2016. Further, it is expected that processed food output will grow at a strong 7 % CAGR in terms of value in 2016. With the Government initiative to provide a 50% tax concession for the fruit and vegetable industry through the 2015 interim budget, the future prospects seems bright for this industry.
More and more people are consuming value-added and processed food products. The industry possess high export opportunities and its growth seeks to bring immense benefits to the economy by raising agricultural yields, enhancing productivity, creating employment and raising life-standards of a large number of people across the country, especially those in rural areas.
Thus, there exists innumerable business opportunities in the diverse areas of FPI. However, the FPI still remains largely untapped because of high packing costs, cultural preference of the people for fresh food, seasonality of raw materials, lack of adequate infrastructural facilities and quality control mechanism.
As a result, there is a need to diversify the sector by fully harnessing its potential, providing greater incentives as well as creating a conducive environment for more investments and exports.
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