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Strategic
agribusiness policy must for sustainable economic growth -
MTI
MTI’s New Zealand based Jason Cordier (specializing in
Agribusiness Strategy) and MTI Pakistan Country Manager and
Consultant Dhanushka Jayakody share their finding, learning’s
and insights from a recent Agribusiness Study.
Q:
Sri Lanka is facing an unprecedented economic crisis.
What strategies can Sri Lanka and other countries like it
implement to avert an economic meltdown?
MTI: Every country and industry goes through phases
of economic peaks and valleys, just as capital markets go
through bullish and bearish phases.
It is known that every country has a set of controllable and
uncontrollable factors, but sadly for Sri Lanka (and even
much of the world) the current price of fossil fuel greatly
extends beyond the countries influencing ability. It is therefore
important to look towards opportunity, and capturing a profitable
share of the Green Revolution is one exciting place to start.
Companies like Hirdaramani, Brandix and MAS (all in the apparel
industry) have taken some bold steps in this direction and
will certainly have lucrative paybacks in the not so distant
future. Carbon Trading also remains an area of vast opportunity.
Indeed it may be possible for Sri Lanka to take the lead in
experimenting with a Carbon Neutral Village concept; in turn
acting as a case study for the rest of the world.
Q:
It’s not just fuel prices; we are also negatively
impacted by a food crisis that is affecting much of the world.
Why is this happening and what can we in Sri Lanka do about
this?
MTI: There are many reasons for the current global
crisis, among them are: use of agro land for bio-fuel; an
explosion of basic commodities and utilities consumption,
caused by a rapid expansion of a middle class in the developing
countries; a lack of investment in agriculture; unproductive
agro middlemen in developing markets; and arguably the exploitation
of commodities and futures markets.
An idea to toy with; first, public private partnerships (PPP).
Give the private sector the confidence and vehicle to invest.
This will also help channel scarce resources to critical sectors.
Private sector infrastructure investments amount to only 1%
of total agriculture infrastructure investments in the developing
world. Quite simply, a lot of projects are just not bankable
in rural areas due to lower usage rates. PPP must be the primary
framework for continued infrastructure improvement with governments
offering environments that encourage the private sector to
take more of a leading role in these partnerships.
Q:
But what can we do in countries like Sri Lanka to negate
the effects of the food crisis?
MTI: Many governments around the world are working
on short-term measures like subsidies, price controls, profit
controls, and fertilizer subsidies. However the only sustainable
way is to execute a commercially viable, long-term agriculture
policy and strategy.
Q:
What do you mean by commercially viable, long term
agri-business policy?
MTI: First, we need to appreciate the inefficient agriculture
production systems in most developing countries, Sri Lanka
included. Most farmers operate on a very small scale and are
nowhere near the economies of scale needed to compete with
efficient global producers, nor have we invested in agro technology
and competencies. Most farmers suffer from their next generation
not wanting to be in the ‘family business’; with
youth leaving rural areas, in search of more glamorous white
collar jobs in the city. Overall, it is a ‘catch 22’
situation and needs radical action if we are to avoid a massive
and unprecedented food crisis.
Q:
What can governments and businesses do to ensure food
prosperity, avoiding a food crisis?
MTI: First, any agriculture strategy of a country has
to be based on a sound commercial viability. What I mean is
that it must be a profitable and sought after business to
be in. Here are a few measures that can form part of a countries
agricultural strategy.
Provide solid incentives for corporate entities to invest
in large scale agro projects for the local market, after which
exports can follow. Specifically, this should include agro-enabling
access to finance, land, procurement and technology and competency
development. A major drawback in Sri Lanka is that agribusiness
just does not appeal to any of our large corporate and conglomerate
organizations. The government must also play a pivotal role
in food security, instigating food tractability systems that
will allow access to higher value markets such as the US and
EU.
Q:
What happens to the small farmer if large corporates
get into agriculture?
MTI: Certainly, there is no way the small farmer (the
backbone of the agro economy) can be neglected. As I articulated
earlier, it is implied that we need a co-operative model,
in which small farmers still are part-owners, but exists within
a framework of a large scale production model. The New Zealand
Dairy industry is a good example. The entire industry is configured
towards a common dairy brand that has given it the strength
to dominate world markets. In this situation, dairy farmers
are all shareholders that reap the rewards of value addition
long after their primary producer role within the supply chain
is over.
My reference to corporate does not restrict us to the Colombo
based blue-chips, it could well be a cooperative of rural
farmers who are equipped with the skills to set up large-scale
agro projects.
Q:
What else is needed to attract large-scale investments
in Agriculture?
MTI: Make it glamorous! We have awards for top exporters,
top managers, top businesses and most respected entities;
the list goes on. When will we recognize the contribution
of agriculture? Additionally, basic agro commodity production
will not be sufficient. We need to encourage value addition
and continued movement up the value chain.
Agricultural subsidies in the EU and US result in surplus
production of food goods at elevated production costs. While
this may not be good for US and EU consumers who will pay
more, at face value it seems a great deal for the developing
world who receive the surplus in globally food aid. Is this
the reality of the situation for Sri Lanka?
While this seems a good deal, in reality it is not. Simply,
it has pushed local producers out of the market in some areas
and has resulted in a lack of industry growth within some
developing regions. When the logistical costs of food aid
sky rockets (oil), demand then falls on local producers who
have never had the profit margins to progress their industry
despite comparative advantages like cheap labour. Accordingly,
Sri Lanka has a lack of supply chain infrastructure as well
as a low production capability.
Q:
Any parting words?
MTI: Think about how your food gets to your plate.
We may well see the Renaissance of agriculture and an era
in which the farmer is king.
Revolutions are born on an empty stomach.
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