USAID Investment in Value-Added Food Enterprises in Sri Lanka

When it comes to food production, Sri Lanka is a land of plenty. The small island nation off the southern tip of India has a varied tropical climate and topography, offering cultivation opportunities for fruits, vegetables, spices, grains, legumes and seed varieties. However, the country’s agricultural systems are fractured due to limitations in supply chains. This leads to post-harvest losses that are reportedly close to 30 percent.  

Sri Lanka is, however, also a land of entrepreneurs and experienced international traders. Enterprises have been trading globally for centuries due to its placement on the historic Silk Road. A culture of entrepreneurship combined with boundless cultivation opportunities can make for a promising future for value-added foods in Sri Lanka. To get there, food-focused SMEs need business development, support to ensure consistent product quality and to introduce business practices needed to access financing.

Interventions that can address these gaps in the market system

In 2011, the United States Agency for International Development (USAID) Sri Lanka invested in a private sector approach to help SMEs expand their businesses, invest in their supply chains, and nurture market linkages. Implemented by Land O’Lakes International Development, the USAID-funded BIZ+ program supports Sri Lankan enterprises with matching grants, business training and technical assistance to strengthen their capacity to meet market demand and stimulate economic growth. Over seven years the program has generated more than $5 million in capital investments in the food processing sector and created nearly 2,500 jobs and income earning opportunities in the food and agriculture industry.

North Lanka Family Foods: A BIZ+ enterprise acceleration and value-addition case

In 2016, BIZ+ assessed an impressive business plan from MA’s Tropical Foods, a processed food and spice manufacturer. This well-known Sri Lankan company’s business plan was to co-invest $1 million in a new venture, North Lanka Family Foods. The investment enabled North Lanka to open a new value-added food factory in Iyakkachchi, which is at the heart of the most conflict-affected areas in northern Sri Lanka. The factory has three separate business units for edible oils, vegetable products and dairy products. Since the end of the 30-year conflict, the factory is the first large-scale food processing center to be established in the region. This investment makes MA’s Tropical Foods a notable private sector leader in the country’s effort for reconciliation.

North Lanka is connected to 200 farmers through an extension outreach program, creating on- and off-farm employment opportunities in local communities. Produce collected from the region is transported to the factory and converted daily into high quality products for markets in Sri Lanka and around the world. The company has successfully launched New Beginnings, flavored milk in returnable bottles, and introduced peanut butter products that are competing directly with imported international brands.

This investment has built a supply chain, diversified farmers’ crops and secured a dedicated buyer for farmer networks. It’s making positive, systemic impact in rural communities — many of which are the most war-affected.

What can we learn from BIZ+’s enterprise accelerator experience?

• SMEs need a long-term partner to share the risk of investment, especially in post-conflict regions. USAID’s co-investment has helped MA’s Tropical Foods target its resources to fill limitations in the supply chain. This much-needed financing, as well as BIZ+’s technical support, have enabled the company to see this venture to fruition.
• Confirm enterprise potential. A market may exist, but if an enterprise can’t provide consistent products it will not succeed. Always assess an enterprise’s business plan, functional infrastructure and commitment to quality.
• Confirm market potential. There are two tracks here:

1. Innovate to create market demand. Peanut butter is not a prevalent product in Sri Lanka, but a variety of breakfast spreads are available in local supermarkets. By training and coordinating peanut growers, North Lanka identified this as an opportunity to create a nutritious, value-added product to appeal to consumers and to compete against imported products.
2. Identify a niche in the competitive market. In Sri Lanka, Nestlé’s Milo has a large market share of flavored milk drinks. North Lanka capitalized on an opportunity to make a flavored milk product that could reach both rural consumers and a specialty segment for young consumers at athletic events and schools.

• Embedded services are key to linking growers and SMEs to high value-added markets. North Lanka has been able to mobilize a team of field officers to systemically support farmer networks. They share expertise on improved crop management and post-harvest handling, and support farmers in getting access to finance. 
• The enterprise is only as good as the people behind it. We learned this the hard way with another investment in a company that had the potential to bring dried fruit to the market. The demand was there. They had the right assets and tools but lacked managerial capacity and commitment to do what it takes to succeed. Inevitably, this enterprise failed.
• Enterprise acceleration programs need time. So many factors influence an aspiring enterprise's success — especially when it’s a food business. Market forces. Drought. Management. Even for North Lanka, time was their biggest challenge. It takes time to strengthen farmer networks, to find skilled labor, to meet quality standards, to establish contracts with grocers — the list goes on. Rapid timelines in donor-funded projects tend to be incongruent with sound business and market development requirements. Accordingly, it’s important to set expectations early with the donor. USAID Sri Lanka’s grant of extended timeframes might have been as important as the financing offered.

USAID BIZ+’s partnership with North Lanka Family Foods is successful because of all of the above. With private sector investment, a commitment to food quality and safety, and a sustainable business model, this is the kind of value-added food enterprise that can make a big impact in post-conflict regions.