TAMAP Organic Farming and Sustainable Agriculture in Sri Lanka · 2020. 12. 7. · Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka EuropeAid/138-539/DH/SER/LK

Technical Assistance to the Modernisation of

Agriculture Programme in Sri Lanka

EuropeAid/138-539/DH/SER/LK Technical Assistance to the Modernisation of Agricultural Programme in Sri Lanka (TAMAP)

TAMAP Organic Farming and Sustainable

July 2020

Submitted to: Delegation of the European Union to Sri Lanka and the Maldives 389, Bauddhaloka Mawatha, Colombo 7, Sri Lanka Ministry of National Policies & Economic Affairs Department of National Planning, The Secretariat, 1st floor Colombo 01, Sri Lanka This project is implemented by a Consortium led by Ecorys Nederland, B.V

Agriculture in Sri Lanka



Technical Report: TAMAP Organic Farming and Sustainable Agriculture in Sri Lanka

Project title: Technical Assistance to the Modernisation of Agriculture Programme in

Sri Lanka

Project number: ACA/2017/389-911

Country: Sri Lanka

Address: Ecorys Nederland B.V Watermanweg 44 3067 GG Rotterdam The Netherlands

Tel. number: T: +31 10 453 86 76

Fax number: F : +31 10 453 87 55

Contact person: Nick Smart [email protected]

Date of report: 6 July 2020

Disclaimer. The content of this report does not reflect the official opinion of the European Union. Responsibility for the information and views expressed lies entirely with the author(s) and the consortium led by Ecorys Nederland BV for the implementation of TAMAP



PROJECT SYNOPSIS

Project Title: Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka

Project Details: Project Ref. No:

EuropeAid/138-539/DH/SER/LK Programme Manager

Dr Olaf Heidelbach

Date of project start:

8 January 2018 Contracting Authority

Delegation of the European Union to Sri Lanka and the Maldives 389 Bauddhaloka Mawatha, Colombo 7, Sri Lanka

Contract Duration:

36 months Name of contact person (Contractor):

Project Manager: Bart Probost Project Director: Nick Smart

Contract No:

ACA/2017/389-911

Contractor’s name, address, telephone numbers and e-mail address:

Ecorys Nederland B.V Watermanweg 44 3067 GG Rotterdam The Netherlands T +31 (0)10 453 88 00 [email protected]

Total contracted amount:

EUR 4, 167, 000 Team Leader

Dr. Christof Batzlen Postal Address: Ministry of National Policies and Economic Affairs, Treasury Building, Lotus Road, Colombo 01, Sri Lanka.

[email protected]

Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka

TAMAP Organic Agriculture Farming Report July 2020 Page i

TAMAP Study: Support to Organic Farming and Sustainable

Agriculture

1 EXECUTIVE SUMMARY ............................................................................ 7

2 INTRODUCTION ....................................................................................... 13

Methodology ............................................................................................. 13

Justification ............................................................................................... 14

3 GLOBAL ORGANIC FARMING ................................................................ 16

History ....................................................................................................... 16

Organic farming in Asia ............................................................................. 17

Principles and methods of organic farming ................................................ 17

Productivity of organic farming .................................................................. 19

Standards and certification ........................................................................ 20

The international market for organic products ........................................... 22

4 ORGANIC FARMING IN SRI LANKA ....................................................... 26

History ....................................................................................................... 26

Legislation on organic farming in Sri Lanka ............................................... 29

Organic certification in Sri Lanka ............................................................... 31 International market .................................................................................. 31 Domestic market ....................................................................................... 32

Laboratories for organic farming ................................................................ 34

Extension, education and research ........................................................... 35

Availability of organic inputs ...................................................................... 36

5 SUCCESSFUL BUSINESS MODELS ....................................................... 37

Export markets .......................................................................................... 37 Examples of successful export models ...................................................... 39

Domestic market ....................................................................................... 42 Examples of successful domestic market models ...................................... 42

6 ORGANIC FARMING OF VEGETABLES, FRUITS AND SPICES ............ 46

Introduction ............................................................................................... 46

Cases studies ........................................................................................... 46 Organic vegetable value chain .................................................................. 46 Organic fruit value chain ............................................................................ 58 Organic spice value chain ......................................................................... 67

Social analysis - organic value chains ....................................................... 74

Environmental analysis - organic value chains .......................................... 75

7 PUBLIC SUPPORT FOR ORGANIC FARMING ....................................... 77


TAMAP Organic Agriculture Farming Report July 2020 Page ii

8 SWOT ANALYSIS .................................................................................... 83

9 GAP ANALYIS FOR ORGANIC AGRICULTURE ..................................... 85

10 RECOMMENDATIONS ............................................................................. 87


TAMAP Organic Agriculture Farming Report July 2020 Page iii

List of Annexes

Annexe 1: History of organic farming ........................................................................ 89

List of Tables

Table 1 Volume of EU organic agri-food imports .................................................... 24

Table 2 Tropical fruits, fresh or dried, nuts and spices per country of origin ........... 24

Table 3 Certified organic products in Sri Lanka, 1998 ............................................ 26

Table 4 Land under organic production in Sri Lanka (ha) ....................................... 27

Table 5 Gross margin analysis for an organic vegetable farm ................................ 56

Table 6 Gross margin analysis for an organic fruit farm ......................................... 65

Table 7 Gross margin calculations for an organic spice farm ................................. 72

Table 8: SWOT of the Sri Lankan organic farming sector ........................................ 83

List of Figures

Figure 1 Global organic spice market ...................................................................... 25

Figure 2 The ten Asian countries with the largest organic area ............................... 28

Figure 3 Asian countries with the highest share of organic land in 2017 .................. 28

Figure 4 Value Chain Network Map for organic vegetables ..................................... 53

Figure 5 Value Chain Network Map for organic fruits .............................................. 62

Figure 6 Value Chain Network Map for organic spices ........................................... 70

Figure 7 Development of a National Standard ......................................................... 80


TAMAP Organic Agriculture Farming Report July 2020 Page iv

List of Photos

Photo 1 SLSI organic certificate ............................................................................. 34

Photo 2 Mihimandala .............................................................................................. 43

Photo 3 Organic vegetable production .................................................................... 43

Photo 4 Good Market retail shop, Colombo ............................................................ 45

Photo 5 Good Market: Saturday market ................................................................. 45

Photo 6 Organic farms in Sri Lanka ........................................................................ 48

Photo 7 Vegetable storage, packaging and land fallowing on organic vegetable farms ......................................................................................................... 51

Photo 8 Organic fruits from a Kandyan Home Garden System ............................... 60

Photo 9 Organic fruit production on large-scale farms ............................................ 61

Photo 10 Organic spice farming ............................................................................... 68

Photo 11 Male and female workers of organic farms ................................................ 75

List of Maps

Map 1 Location of organic vegetable farms .......................................................... 54

Map 2 Location of organic fruit farms ................................................................... 63

Map 3 Location of organic spice farms ................................................................. 71


TAMAP Organic Agriculture Farming Report July 2020 Page v

ACRONYMS

€ Euro

ALOGA Asian Local Governments for Organic Agriculture

CAGR Compound Annual Growth Rate

CAP EU Common Agricultural Policy

CBI Centre for Promotion of Imports from Developing Countries, The Netherlands

CSA Community Supported Agriculture

DEA Department of Export Agriculture

DoA Department of Agriculture

EC European Commission

EDB Export Development Board

EU European Union

EGS Ecological Goods and Services

FAO Food and Agriculture Organisation

FLO Fair-trade Labelling Organisation

FO Farmer Organisation

GAP Good Agricultural Practices

GIZ Gesellschaft für Internationale Zusammenarbeit

GTZ Gesellschaft für Technische Zusammenarbeit

ha Hectare (10,000 m2)

HKARTI Hector Kobbekaduwa Agrarian Research and Training Institute

HARTI Hectir Kobbekaduwa Agrarian Research and Training Institute

IFOAM International Federation of Organic Agriculture Movement

IQF Individual Quick Freezing

ICS Internal Control Systerm

IPD Import Promotion Desk

JAS Japanese Agriculture Standard (Japanese organic standard)

KII Key Information Desk

LOAM Lanka Organic Agriculture Movement

MOA Ministry of Agriculture

MOPA Marginalised Organic Producers’ Association

NGO Non-Government Organisation

NPD National Planning Department

NOP National Organic Programme (USA Organic standard)

NASAA National Association for Sustainable Agriculture Australia


TAMAP Organic Agriculture Farming Report July 2020 Page vi

NOCU National Organic Control Union

PGIA Post Graduate Institute of Agriculture

PGS Participatory Guarantee System

R&D Research & Development

SIPPO Swiss Import Promotion Programme

SL Sri Lanka

SLAB Sri Lanka Accreditation Board

SLSI Sri Lankan Standards Institute

SWOT

SOFA

Strengths, Weaknesses, Opportunities, Threats

Small Organic Farmers’ Association

TAMAP Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka

WHO World Health Organisation

USDA US Department of Agriculture

FiBL Research Institute of Organic Agriculture Switzerland


Organic Farming and Sustainable Agriculture July 2020 Page 7

1 E X E C U T I V E S U M M A R Y

Because TAMAP value chain studies indicated that organic farming may provide additional benefits to farmers and the environment, the TAMAP team decided to commission a special study on organic farming. This study was carried out by an international expert in organic production and certification, together with a national expert in agricultural value chains. The TAMAP team studied organic vegetable, fruit and spice value chains in Sri Lanka.

Background

In 2017 an estimated 69.8 million hectares were under organic management in 181 countries. Between 2016 and 2017, the global area under organic agriculture increased by 20% and currently 1.4% of total agricultural land is under organic cultivation. 14 countries have more than 10% of their agricultural land under organic management. The average share of organic agricultural area in total agricultural land in the EU is 7.0%. Currently, an estimated number of 2.9 million farmers worldwide are involved in organic agriculture of which 80% are located in Africa, Asia and Latin America. Most of them are smallholder farmers.

Principles of organic farming

The main methods of organic farming are: 1) increase and maintenance of soil fertility, 2) crop protection by preventive measures and 3) diversification of vegetation in the field. Organic farming is low in external inputs but demanding in know-how. It is not merely a replacement of chemical inputs with organic inputs, but a change of the whole farming system. Long-term studies in tropical agriculture revealed that organic farming generates yields comparable to conventional farming and generates higher revenues for farmers.

Standards and certification

In 2018, 93 countries had organic legislation, but not all countries had implemented it. Some countries have no legislation but a national or regional standard. Sri Lanka is in the process of drafting a legislation. Many countries allocate substantial resources to check farmers and certification bodies but assign very little resources to control the market places.

Products need to be certified according to the standard of the country of importation. On the 1st of January 2021, a new EU regulation will come into operation. All products will have to comply fully with it. Whether Sri Lanka has a national regulation and standard or not will have no impact on export marketing. Certification can only be carried out by EU approved certification bodies. Furthermore, for export to the US or Japan, certification bodies must be approved by the competent authority.

International markets

The largest market for organic products is the US followed by Europe. In Europe, Germany has the highest market share in organic products. The expected global Compound Annual Growth Rate (CAGR) of demand figures between 16% and 18%. The global organic food market is expected to reach a value of Euro 236 billion by 2022 and further accelerated growth is expected after 2022. The relative share of North America and Europe in global sales is declining while high growth rates are especially anticipated in the Asia-Pacific region.



In 2018, the organic spice market had a value of about Euro 246 million and is expected to reach Euro 366 million in 2026. Turmeric is the main product followed by pepper. India and Indonesia are the major producers of organic spices.

Organic farming in Sri Lanka

The agricultural land area under organic farming has increased substantially in Sri Lanka from 4,128 ha in 1998 to 165,553 ha in 2017. The number of organic farmers doubled over the same time period. Currently, Sri Lanka has about 8,700 organic farmers, 224 organic processors, 311 organic exporters and 230 National Organic Program (NOP) of US certified exporters. Organic tea and coconut are mainly produced on large-scale farms while organic vegetables and spices are mainly produced by smallholders. Organic fruits are produced by large farms as well as by smallholders.

Sri Lanka is among the Asian countries with the largest organic farming lands and the highest share of organic land in total agricultural land. The volume of organic exports from Sri Lanka increased from 4,216 MT in 2007 to 44,300 MT in 2018 and the value of organic exports reached Euro 259 million in 2015.

Legislation on organic farming in Sri Lanka

The “Export Development of Organic Products Regulation” under the Export Development Act No. 40 of 1979 was approved in 2014. The Export Development Board (EDB) has been appointed as the competent authority housing the National Organic Control Unit (NOCU). Moreover, a draft Sri Lankan standard “Requirements for Organic Agriculture Production and Processing” was produced. The Sri Lankan Regulation is currently under revision and has not yet been implemented. Products that are sold in the international market as ‘organic’ must comply with the organic regulation in the respective export market. Products for the domestic market will have to comply with the national standard or any recognised international standard, and will have to be certified by a certification body, which is registered under the NOCU. All certification bodies must be accredited by the Sri Lanka Accreditation Board (SLAB) or any international accreditation body. International certification bodies are required to have an office and a representative in Sri Lanka.

Organic certification in Sri Lanka

For the international market, the main standards and certificates are EU Regulations, NOP of the US and JAS of Japan. These are based on Third Party Certification. Eight international certifiers operate in Sri Lanka. But Control Union certifies about 95% of all organic operations. The German control bodies, Lacon and the Guatemalan Mayacert started just recently. Some operators are also certified according to private standards, such as Demeter and Naturland of Germany, BioSuisse of Switzerland and Organic Farmers & Growers of the UK. In addition, a few operators are certified according to the Korean, Indian and/or Chinese Organic Standards.

The domestic market is not yet regulated as the national regulation has not been implemented. The national regulation indicates that all organic produce should be certified by an accredited certification body registered by the NOCU. Certification for the domestic market is currently done by international certification bodies, SriCert, Biocert, Sri Lanka Standard Institute or Participatory Guarantee System (PGS) certified bodies. PGS is based on group certification and is not mentioned in the regulations. Group certification is practiced by smallholders in organic spice farming. Such systems can be of paramount importance for other organic smallholders as well. The fact that PGS is not included in the national regulations is a major



disadvantage for smallholder farmers who are supplying consumers in short and transparent supply chains.

Support to organic farming

Companies with contract production systems provide extension services to organic farmers via their farmer groups. The public sector is hardly involved in organic extension services. But all agricultural universities such as Peradeniya, Wayamba, Uva Wellassa, Ruhuna, Jaffna and Rajarata University of Sri Lanka teach organic farming. No specific organic vocational training programme exists in Sri Lanka. One-day (short) trainings for organic farmers are conducted by the Department of Agriculture, Centre for Excellence for Organic Agriculture. The micro finance bank organisation SANASA manages six-month practical organic training courses through their centres such as EFAT – Ecological Farm & Agricultural Training.

The Department of Agriculture, Centre for Excellence for Organic Agriculture in Makandura, Gonawila conducts research activities in organic farming focusing on organic fertilisation. Furthermore, the Hector Kobbekaduwa Agrarian Research and Training Institute (HARTI) conducts some organic farming research.

Availability of organic inputs

Large organic companies cooperating with smallholder groups produce compost on a large scale. The compost is sold to their contract farmers. No other high-quality organic fertiliser is available. Currently, the compost production cannot meet the demand and the quality of the compost needs improvement.

All farmers and company representatives mentioned to the TAMAP team that there is no need for organic pesticide production as farmers can produce allowed organic farming pesticides themselves. Organic pesticide production may eventually be needed for vegetable farming for the domestic market.

Successful business models

For export of organic produce, successful Sri Lankan business models are generally short with a maximum of three members, i.e.

• Exporter / processor – farmer groups

• Exporter / processor – own production – farmer groups

• Exporter – processor – farmer groups

• Exporter / processor – integrator (medium sized farmer) – farmer groups

Export companies manage the entire supply chain. They set up an own advisory/extension service and an Internal Control System (ICS) for group certification, pay for inspection and certification and are the certificate holder.

In the domestic market three main models for successful organic production and marketing exist. They are:

• Farm gate sales and home deliveries of organic fresh produce

• Supply to supermarket chains and other retail shops



• Supply to Good Market1

Case studies in organic farming

Organic smallholder producers mainly work in three value chain types: vegetables, fruits and spices. Tea and coconut are mainly grown on large farms. Coconut is frequently intercropped with fruits and spices. Vegetables are mainly grown for fresh consumption, while fruits are mainly for processing where a considerable amount is being exported as value added products. Spices are mainly for exports while some products are available in the local market as well.

Organic vegetable value chains are mainly oriented at the local market with limited exports. Producers targeting the local market obtained their certifications from Sri Cert and Sri Lankan Standard Institute (SLSI). Organic vegetables are farmed in a mixed cropping system, not as a monocrop system. Currently about 10 to 15 vegetable varieties are produced in Sri Lanka. Organic vegetable value chains are short in terms of the number of stakeholders involved. The average organic vegetable farmer operates around 5 acres of land or approximately 2 ha. Dependence on the public transport system to take produce to the market is the major constraint. Public transport does not provide cooled transport and handling of delicate crops like organic vegetables leads to further losses. In addition, the supplier still needs to arrange transport from the central bus or train station.

Major supermarket chains have their own organic stalls and buy regularly through their collecting centres. Supermarkets work closely with the organic vegetable producers to make sure that certifications are in place and products are not mixed with non-organic produce. Supermarket collection centres are equipped with a cold transportation system and produce is transported to their outlets within several hours. Producers bring their organic vegetables uncooled to the nearby collecting centres. Several hotels, especially in Nuwara Eliya, Badulla and Kandy districts, have established organic farm fields to supply organic produce to their consumers.

On average a plot size for a crop is not more than 0.25 acres and is divided into many smaller plots according to planting dates, to guarantee year around harvests. This prevents the use of large and heavy machinery. Watering, organic fertiliser and pesticide application, weeding and harvesting are mostly done manually. The organic vegetable farmer has a slightly higher financial return on investment than the conventional farmer, but the external (environmental) costs of conventional farming are much higher than those of organic farming, especially in vegetable farming.

Organic fruits are mainly grown for processing with only a very limited amount of organic fruits being sold fresh. Organic fruits are produced in an intercropping farming system (multi-crop system). Approximately 10% of the organic fruits are produced in highly diverse complex cropping systems such as the “Kandyan Home Garden Systems.” Fruits that are grown organically in Sri Lanka are pineapple, mango, papaya, banana, passion fruit, soursop and watermelon. All these fruits are perennials. They can be harvested at least once a year while some fruits such as mango, passion fruit and papaya have multiple harvests. Producers in export-oriented organic fruit value chains have organic certifications such as EU and NOP. Local market-oriented value chains work with Sri Cert and SLSI certificates. Some producers operate under group certification but most organic fruit growers are certified as individual

1 Good Market is a social business organisation started in Colombo in 2013. Suppliers can request to offer their products at the weekly markets or to be sold in the shop. Currently, the number of vendors selling their goods in the markets and shop is 160.



farms. The processed organic fruit products are juices, fruit pulps, dried fruits (assorted products with spices and honey), pickles and chutneys. These processed fruit products are mainly exported. Organic fruit value chains are shorter than organic vegetable value chains with only a few stakeholders involved. The large scale extensive organic fruit producers use drip irrigation with solar pumps as well as machinery, to prepare land and to apply organic fertilisers and organic pesticides, and imported protective bags against fruit fly attacks. These large producers generally use organic fertilisers and organic pesticides. The smallholders of the Kandyan Home Gardens generally do not use so much organic fertiliser. Large-scale organic pineapple production is concentrated in Gampaha and Kurunegala districts. Organic banana, papaya and passion fruit production is located in Anuradhapura, Vavuniya and Kilinochchi districts. The smallholder farmers’ Kandyan Home Garden Systems operate in Kandy and Matara districts. The organic fruit farmer has a higher return on investment than the conventional farmer, excluding the external (environmental) costs of conventional farming.

Organic spices are mainly grown for the export market. Organic spice exports from Sri Lanka mainly include turmeric, pepper, cardamom, cloves, nutmeg, cinnamon, ginger and vanilla. Organic spices are produced in mixed cropping systems intercropped with coconut and tea. The organic spice sector uses “Spice Gardens” as a major marketing strategy. Organic spice farms under the Kandyan Home Garden system are certified through group certification. Two types of smallholder farmer organisations are eligible for group certification categories: (1) An association or cooperative of farmers holds the organic certificate and organises the ICS (ICS is the operator), (2) A trader or processor contracting smallholder farmers holds the certificate and organises the ICS (ICS is the operator). Sometimes the ICS operator does not own the certificate and certification is paid by a trading partner in Europe. Trading channels in the organic spice value chain are short. Organic pepper is mainly grown in Matara and Kandy districts and organic cinnamon, mainly in Galle, Matara and Kalutara. Spices such as lemon grass and moringa leaves are grown in Matara and Hambantota districts. The organic spice farmer has a higher return on investment than the conventional farmer, even excluding the external (environmental) costs of conventional farming.

Small-scale organic spice farms use family labour while the large-scale organic farms use hired labour on a seasonal basis. Hired seasonal labour is paid a daily wage. However, workers at the processing facilities (such as drying facilities, extraction facilities and pack houses) are permanently employed and receive monthly salaries. Cooperation among producers is higher in the organic spice value chain than in fruits and vegetables. Organic spice farmers either operate as a farmer organisation or as a supplier to a processor under a contract agreement.

Government and organic agriculture

The Ministry of Agriculture has so far not shown a keen interest in developing this sector. Standards and legislation were developed without private sector consultation. The national standards seem to be not in line with the needs of the Sri Lankan organic farming sector supplying to the local market. Organic farming supply lines for the local market remain underdeveloped with low levels of investment in research, training and extension.

IFOAM recommends that the government should be primarily an enabler, and only secondarily a controller. In addition, policy design and implementation should be done in a public-private partnership following a multi-stakeholder approach. IFOAM has developed a guideline for governmental support to organic farming and a tool kit for standard development. 16 Asian countries have united and founded ALOGA (Asian Local Governments for Organic Agriculture), to encourage dialogue and cooperation among Asian local governments for the development of organic agriculture and its related industries.



Recommendations

Organic farming of vegetables, fruits and spices increased rapidly in Sri Lanka. Such farming is financially viable for farmers, with similar financial returns as conventional farming at much lower external (environment) costs.

The TAMAP team recommends that Sri Lanka develops a comprehensive strategy with an action plan for the development of its organic farming sector. Private sector stakeholders (producers, processors, traders, exporters etc.) should be consulted and involved in the strategy and the action plan, as most of the organic farming expertise is in the private sector. The action plan needs to be clear on the scope of regulations (standards and their intended use) whether the regulations are for the domestic market, the export market or both.

The TAMAP team further recommends that:

• Standards and regulations are reviewed and adapted to the local conditions and local market requirements. The current standards and regulations were developed for the export market. The initial standard should focus on local market development. It should be relatively easy and straightforward for producers and certified bodies to apply to these standards and regulations;

• Sri Lanka should become a member of ALOGA (Asian Local Governments for Organic Agriculture).



2 I N T R O D U C T I O N

The organic agriculture sector in Sri Lanka is still at its early stage of development. The sector supplies about 6% of the total agricultural production and producers are working with a limited number of local and international certification bodies. For example, producers focusing on the local market work with certifying authorities such as Sri Cert and SLSI, while exporters mainly deal with the Control Union. In addition, the government is making an attempt to regulate the organic sector through the NOCU which is established within the EDB.

In 2019, TAMAP conducted a series of value chain studies covering conventional agricultural production. Value chains are interactive systems with products, money and information flowing through them, all reliant on relationships. The success of a value chain depends on effective flow and use of information along the entire chain from the market via traders and retailers and processors, to farmers and agro-input suppliers. The flow depends on trust and commitment between trading partners. The success of the chain depends on understanding market opportunities and the whole chain rather than looking at its own part of the chain in isolation. In successful value chains, each stakeholder knows the whole chain and understands benefits from chain-wide interdependence in the flow of products and money. Every stakeholder in the chain cooperates and works together to supply the same market opportunity and avoid competing only on price. The value created in the chain increases through gains in efficiency and quality. Relations between stakeholders in a chain are stable and strong. Conducting such a collaborative action to avoid price competition and focus on efficiency gains and produce quality products only makes commercial sense, in case market information shows that reference products in local and export markets generate considerable higher value, than the standard products of the supply chain of a sub-sector. This is exclusively the case for demand markets catering to the middle and high-income groups (tourist hotels, restaurants, supermarkets, specialty shops and export production). These markets are the target for value chain development approaches.

M e t h o d o l o g y

A large amount of knowledge and methodologies have been developed related to value chain development since Michael Porter introduced the concept in his book Competitive Advantage in 1985. The EU intended to harmonise the various approaches through the introduction of the VCA4D project that is part of the European Union’s “Inclusive and Sustainable Value Chains and Food Fortification” Programme. The VCA4D methodology aims to provide evidence, supported by a list of indicators measured quantitatively or based on expert assessments that together provide an answer to four framing questions:

1) What is the contribution of the VC to economic growth? 2) Is this economic growth inclusive? 3) Is the VC socially sustainable? 4) Is the VC environmentally sustainable?

The analytical process uses four integrated components: The Functional Analysis provides a general mapping and description of the main actors, activities and operations in the chain, an overview of the products and product flows, the major production systems, a description of the main governance mechanisms in the chain, and a short description of (known) constraints. The functional analysis forms the basis for the



analyses in the other three components. The analysis is mainly based on secondary data and key informant interviews, with both value chain actors and key experts.

The Economic Analysis consists firstly of a financial analysis of each actor type (financial accounts, return on investment), as well as an assessment of the consolidated value chain (total value of production, global operating accounts). Secondly, it assesses the economic performance (contribution to economic growth in terms of direct and indirect value added generated) and the sustainability/viability for the national economy (domestic cost ratio, policy analysis matrix). Data is derived from secondary data, key informant interviews and structured

questionnaires.2 Organic production is not a monoculture like most conventional agriculture but a mixed farming system. In addition, organic production systems provide a multitude of Ecological Goods and Services (EGSs). Organic agriculture specifically requires a system approach due to its complexity. Conventional and organic farms represent different systems. Thus, the usual simplified approach of comparison, on the basis of a few variables looking at a few cash crops, may not be sufficient. Even if the negative external (environment) costs of conventional systems are not considered, the profitability of the system should not be assessed along one particular crop/commodity. Evaluating the profitability of a single crop may not be appropriate in an integrated farming system, since it would disregard the interactions between the various farm elements. Hence, the financial and economic analysis needs to look at organic production with a system approach, identifying its direct and indirect costs and benefits3 which involves opportunity costs and indirect valuations. However, the scope of this study is limited to acquiring a basic understanding of the economics involved in organic farming. A simple gross margin analysis was conducted, looking at a mix of crops under each farming system, evaluating only direct costs and benefits.

The Social Analysis explores whether the organic value chain is socially sustainable. It also contributes to the discussion on whether potential economic growth in the value chain can be socially inclusive. The social analysis draws on multiple information sources including secondary data and field data from organic producers at different scales, hatchery owners, processors, input suppliers, traders, exporters etc., and other government and non- government stakeholders.

The Environmental Analysis evaluates the environmental sustainability of the value chain.

J u s t i f i c a t i o n

Interestingly, a lot of information from scientific sources (articles in international journals) and statistics from international organisations related to Sri Lanka is quite limited. Most studies have only looked at descriptive analyses without proper economic information. However, the TAMAP team obtained information from private sector companies involved in organic

2 The economic analysis in the VCA4D methodology applies to a large extent, the economic effects analysis which is a tool often used in financial and economic analysis. It addresses inclusiveness of growth by examining income distribution (business income, wages), and employment creation and distribution. In the economic effects analysis, the key is to strike the right balance between providing sufficient, robust, and reliable quantitative information for decision making, and keeping data collection efforts to a manageable limit. It has to be noted that given the limited time available for this value chain study, an economic effects analysis was not conducted since this would have required the availability of social accounting matrices and economic input and output tables and at least 3 additional months. 3 The concept of a farm as an independent system of which components are operating together for a common purpose, has been recognized for long (Lampkin and Padel, 1994).



processing and large-scale producers. Primary data collection was done with Key Informant Interviews (KIIs) with producers, processors and exporters in the organic sector. In addition, certification bodies and government institutions such as the Export Development Board (EDB) and the National Organic Control Unit (NOCU) were interviewed. Economic information with respect to gross margin calculations was obtained through interviews with producers in Nuwara Eliya, Badulla, Bandarawela, Matale and Galle.

Organic smallholder producers mainly work in three value chain types: vegetables, fruits and spices. Tea and coconut are mainly grown on large farms. Coconut is frequently intercropped with fruits and spices. Vegetables are mainly grown for fresh consumption, while fruits are mainly for processing where a considerable amount is being exported as value added products. Spices are mainly for exports while some products are available in the local market as well. The TAMAP team studied the organic vegetable, fruit and spice value chains to understand their production and marketing systems, their development challenges, the costs and benefits for farmers of organic production, as well as the opportunities for further growth of the organic farming sector in Sri Lanka.



3 G L O B A L O R G A N I C F A R M I N G

H i s t o r y

Industrialised agriculture and the organic farming movement started more or less at the same time. Concerned by the increased use of chemicals in industrialised farming, the pioneers of the organic movement started looking for alternative ways to avoid soil depletion, chemical residues in food and loss of crop varieties. It was soon realised that the focus should be on improving the soil’s health and fertility.

Annexe 1 provides an overview of the history of the global organic movement. Initially, this movement had no intention of developing a premium market for their products. The goals were to protect the environment, to sustain farming and food production and to provide a more socially equal farming community. Next to these core goals, the objective of getting a better price for organic products became paramount only in the 1980s. The premium price of organic products became the main driver behind the high growth of the business internationally. As imports started from countries outside Europe and the USA, supply chains became more and more complex and less transparent. Consumers got more and more concerned about the integrity of organic product supply lines.

In 2017, about 69.8 million hectares were under organic agricultural management globally in 181 countries. The share of organic farming land in total global farming land is 1.4%. Organic farming is highly concentrated in a few locations as ten countries constitute three-quarters of

the world’s organic agricultural land.4 The region with the most organic agricultural land is Oceania, with 35.9 million hectares, followed by Europe with 14.6 million ha, Latin America (8 million ha), Asia (6.1 million ha), North America (3.2 million ha), and Africa (2.1 million ha). Australia and Argentina currently have the most extensive organic agricultural land size, but these are basically all extensive cattle grazing areas.

Although the share of organic farming land in total global farming land is still meagre, the organic sector is growing rapidly. Certified organic agriculture has grown at 13.2% per annum for the past five years.5 Over the past 22 years, the growth of organic farm land in Europe was exponential from less than 0.1 million ha in 1985 to 14.6 million ha in 2017. In some European countries the share of organic farming land in total farming land is still low while others have a much higher share. The share of organic farm land in total farm land ranges

from 0.4% in Malta and Iceland to 23.4 % in Austria.6

4 Willer - Lernoud, World of Organic, 2019

5 Compared to GMO agriculture, which has grown at 2.2% per annum over the past five years and GMO produce attracts a price penalty, ISDRS newsletter, 2019 Issue 3 6 Ec.europa.eu/eurostat



O r g a n i c f a r m i n g i n A s i a

In 2017, over 2.9 million organic producers were certified worldwide (Willer - Lernoud: World of Organic Report 2019). Over 80 percent of the producers are in Asia, Africa and Latin America. The country with the most organic producers is India, followed by Uganda and Mexico. Between 2016 and 2019, the number of producers increased with almost 130,000 or 4.7%. Correct data prove to be hard to obtain and the actual number can possibly even be substantially higher. In 2017, the area of organic agricultural land increased in all regions. The highest absolute growth was in Oceania (+31.3 %, +8.5 million ha), followed by Asia (+24.9 %, over +1.2 million ha). In Asia, most organic production is managed by smallholder farmers.8 Figure 2 shows that Timor-Leste, Sri Lanka, India, South Korea, Philippines, United Arabic Emirates and Bhutan have the highest share of organic land in Asia. In 2017, Sri Lanka had 6% of its farm land as organic certified land. This is the highest share in Asia after Timor-Leste. In all of Asia 6,116,834 ha land had been certified as organic comprising of 0.4 % of the farming land.

P r i n c i p l e s a n d m e t h o d s o f o r g a n i c f a r m i n g

Organic farming is oriented at producing healthy products with as little damage to the natural ecosystem as possible. Over the years it has been scientifically proven that organic farming systems are much more environmentally friendly and sustainable than conventional farming systems. Organic farming systems preserve eco-systems, enhance biodiversity, improve natural soil fertility and water quality, and reduce the impact of agriculture on the atmosphere. Most of us define organic agriculture as farming without synthetic pesticides and chemical fertilisers. However, there is more to organic farming than just replacing chemical inputs.

Organic farming is a holistic cultivation system. The farm is viewed as an organism. For example, the method of planting has little in common with conventional agriculture. Planting in organic farming is based on scientific knowledge regarding how nature can be utilised to get satisfying yields in the long-term, without causing damage to the ecosystem. Organic farming

8 Very large organic farms can especially be found in Russia, Kazakhstan, Ukraine etc. The average organic farm size in Ukraine is above 4,000 ha and in Russia and Kazakhstan farms above 50,000 ha had been certified organic.



is an agricultural production system (crops and animals) that focuses on the internal cycle of nutrients. Crop protection is based on preventive measures. The organic farmer will develop his/her farm into a system, which is more or less self-sustaining similar to a wild forest, using very little or no external inputs.

Biodiversity

The organic farmer takes a natural forest as the example for his farm system. A natural forest consists of many different species of trees, shrubs, herbal plants etc. Inputs from outside are not required, neither fertilisers nor pesticides. The biodiversity creates habitats for insects and birds, which creates the eco balance. A good eco balance guarantees a very low risk of pest and disease infestation. Dead plant material becomes the organic matter. This feeds the soil and builds nutrient cycles thereby maintaining soil fertility.

The Food and Agriculture Association (FAO) of the United Nations define organic agriculture as “a holistic production management system, which promotes and enhances agro-ecosystem health, including biodiversity, biological cycles, and soil biological activity.” It emphasises the use of management practices in preference to the use of off-farm inputs, considering that regional conditions require locally adapted systems. This is accomplished by using, where possible, cultural, biological and mechanical methods, as opposed to using synthetic materials,

to fulfil any specific function within the system.10 The Codex Alimentarius of WHO and FAO with guidelines for governments to develop standards, defines organic agriculture as a system that increases the biological diversity of the total system and the biological activity of the soil.11 In addition, organic agriculture should maintain the long-term soil fertility, use plant and animal waste to substitute nutrients from the soil and minimise external inputs, while using renewable resources in locally organised agriculture systems. Finally, the Codex advises that organic agriculture supports the sustainable use of soil, water and air and reduces as much as possible, any kind of pollution of resources from crop production or animal husbandry.

The three pillars of organic farming are: 1) increase and maintain soil fertility; 2) use preventive measures for crop protection and 3) diversify. These pillars are highly inter-related. Diversity is important for soil fertility and preventive measures for crop protection. The first two pillars are the core of the organic farming approach and therefore require more elaboration.

1) Increase and maintain soil fertility

The organic farmer feeds the soil and its organisms by providing organic matter to the soil as much as possible. Soil life will turn organic matter into nutrients available for plants. The most important activity for the improvement and maintenance of soil fertility is a continuous supply of organic matter. This can be achieved through:

• Crop rotation with alternation of deep and shallow rooting crops as well as of heavy and light feeding crops. - The organic farmer will rotate crops of different groups (legumes, brassicas, roots, cereals etc.) in his field so that the gap between two similar crops is anything from three years upwards. The organic farmer uses rotation to achieve a balance of nutrients in the soil. A fertility-building phase, to allow the soil and its life to recuperate and build up reserves, is also essential. A much-used practice is

10 Simon de Schaetzing, Organic Agriculture and the Sustainable Development Goals, Organic is Part of the Solution

11 Joint FAO/WHO Food Standards Programme Codex Alimentarius Commission – Organically Produced Foods



called “improved fallow,” which means planting a green manure crop, a mixture of a deep rooting species and a legume. The plants are mulch-cut several times a season and worked into the soil. In perennial cropping systems (orchards and plantations), the organic farmer will use diversity to develop the eco balance and will include legumes.

• Return of plant residues to the fields (mulch or compost and application of animal and/or green manure). - Green manure are crops grown to feed the soil. These crops are not harvested but mulched and/or ploughed into the soil. Especially deep rooting species are used to loosen the soil and take organic matter to deeper parts of the soil. Mulching is also used to reduce weeds.

• Utilisation of legumes (such as beans, peas and soya) as part of the rotation system; and as cover crops in the case of perennial crops. - These legumes are a source of nitrogen as they are capable of absorbing nitrogen from the atmosphere and fixing it in the soil through symbiosis with bacteria. Legumes have the ability to fix more than 400 kg N/ha/year (depending on the species cultivated). The gain in the soils may be around 100 kg/ha/year or even more.

2) Use preventive measures for crop protection

• Healthy plants are less vulnerable to pests and diseases. The health of the plant is jeopardised in monoculture farms. Organic farms should provide balanced interaction between different plants, pests and predators. The health of the plants depends on the fertility of the soil, a well-balanced pH of the soil, climatic conditions and sufficient availability of water. If one or more of these conditions is inadequate, the farm system puts the crop under stress. This will weaken its natural defence mechanisms and make it an easier target for pests and diseases.

Pests and diseases are often the result of a mistake in the organic system, and not merely a symptom of an immediately obvious problem. A specific problem has to be addressed without harming the rest of the system. An organic farmer will investigate what the problem reveals about the rest of the system. Why does the problem occur and what needs to be done to prevent it from happening again? The organic farmer will consider natural conditions, use of appropriate cultivation methods and use of natural predators to create optimum conditions for crop growth. The objective is to make curative pest and disease management hardly necessary. Consequently, the focus in pest and disease management of organic farmers is on prevention. The organic farmer will use a wide range of instruments to prevent pests and diseases such as creating a wide diversity on the farm, crop rotation to break the life cycle of pests and disease, planting of trees and hedges as habitats for predators, selection of healthy varieties and suitable crops for the site, supporting soil fertility and strengthening the plants with preparations made of plant extracts (such as neem). A good organic farmer hardly ever comes into the situation where he would have to use corrective measures (sprays). Sometimes however, sprays need to be applied. In such case, the good organic farmer will know which sprays are approved by certification bodies.

P r o d u c t i v i t y o f o r g a n i c f a r m i n g

An organic farmer strives for satisfactory yields in the long-run and not for maximum yields in

the short term. The idea is to develop a sustainable system delivering good yields. This is

different from the conventional farmer who aims at receiving maximum yields in the short term

while accepting higher input costs and lower yields in the future.

FiBL (the Swiss Research Institute of Organic Agriculture) studies in Kenya show that organic agriculture is generating yields comparable to conventional agriculture, while generating more



income for farmers than conventional methods.13 Studies in India on cotton and in Bolivia on cocoa production, show similar positive results for the organic approach. The long-term Farming Systems Comparison in the Tropics (SysCom) programme, aimed at providing scientific evidence on the benefits and drawbacks of organic versus conventional farming systems, shows clearly that the organic approach is a viable strategy in the tropics. However, it also shows that knowledge dissemination and training in organic farming are crucial challenges.

A main cost for the organic farmer is to accept low or no production from his field during the conversion from conventional to organic farming. In addition, the farmer will have to incur expenses for certification during the conversion period while his production is still considered conventional and has to be marketed as such. However, cash expenses are low during this conversion period due to the fact that organic farming is a low external input system. An organic farmer does not need to invest in artificial fertilisers and pesticides and other conventional inputs. He uses animal manure and plant residues to get a fertile soil. A farmer intending to convert to organic farming has to develop a conversion plan.14 All the components of an organic farming system should be covered in the conversion plan. For example:

• Selection of cash crops and crops to support soil fertility (legumes, green

manure etc.);

• A sustainable rotation plan (for annual crops: crop rotation at least for four

years, for perennial crops: diversification of trees in the orchard/estate);

• Fertilisation plan (source of sufficient compost, manure and organic matter);

• Diversification plan (integration of hedges, trees around the plots etc.);

• Selection of potential plant treatments to strengthen the health of the crops;

• Identification of a potential source of allowed plant protection products that can

be used as curative measures in case of heavy pests and diseases.

Organic farming demands high knowledge and skills of the farmer to understand his fields, crops and methods to cope with pests and diseases. Organic farming can be called a high know-how input system.

S t a n d a r d s a n d c e r t i f i c a t i o n

With the growth of imports from countries outside Europe and the USA, consumers and markets raised concerns over the integrity of organic product supply lines. The call for standards, certification and control of organic farming increased over time, with the increased complexity of trade in organic products, and fraud and misuse of organic claims by non-organic producers to obtain the premium price for organic products. The genuine organic farmer requires protection and the consumer needs to be sure that products marked as organic on the package are truly organic. As the history overview in para 3.1. shows, the organic sector has much experience in protecting itself.

FAO, WHO and IFOAM are harmonising the organic production and certification systems. The UN organisations developed the Codex Alimentarius, which guides governments in the development of legislation on organic farming. According to the FiBL, in 2018 a total of 93

13 FiBL, Organic equals conventional agriculture in the tropics, 2016

14 B. Boor, IPD Fact Sheets on Organic Farming, 2018



countries had organic legislation. Most countries use the so called “Third Party Certification.” Third Party Certification means that an independent organisation has reviewed the process of production of a product and has determined that the final product complies with standards of safety, quality or performance. Some countries also accept Participatory Guarantee Systems (PGS). PGSs are locally focused quality assurance systems based on the active participation of stakeholders and built on a foundation of trust, social networks and knowledge exchange. Additional to the 93 countries with organic legislation, 16 countries are in the process of drafting legislation. However, not all of the countries with legislation are enforcing it. Some are still in the process of finalising the implementation and some do not have the resources to enforce the legislation.

Some countries have no organic legislation but have national or regional production standards. Such public standards provide a national or regional definition of organic products and are a reference point for certification activities. The East African Organic Product Standard is an example of this. These standards do not necessarily lead to the adoption of a national inspection and certification system supervised by the government. A total of 29 countries in

Africa, Asia, and Oceania,15 have adopted national or regional standards for organic agriculture. Out of these, 16 are in Asia and Oceania. Most organic regulations are not clear about the responsibility for market surveillance. In most countries, the main resources are allocated to check the organic farmers and the certifiers, with very little resources to check the marketplace.

The EU, the US and Japan strictly follow the Third Party Certification and allow imports as organic if the certifying agency has been approved by the respective competent authority. The approved certification bodies need to comply or be equivalent to the standards of the importing countries. This can be achieved through bilateral agreements with bilateral recognition. This means that another country’s standards and control system are in line with the domestic requirements, and that the products certified in the other country can be sold in domestic markets. For example, the EU recognises 13 countries as being equivalent to its own system (the so called “Third Country List”). The most recent country added to the EU Third Country

List is Chile, in the framework of the EU-Chile trade agreement in 2017.16 Currently, the EU “Third Country List” comprises of the US, Canada, Japan, South Korea, India, Argentina, Australia, New Zealand, Costa Rica, Chile, Israel, Switzerland and Tunisia. The EU Regulation on Organic Farming and Labelling is under revision and a new regulation will come into force on the 1st of January 2021. This new EU organic regulation removes the possibility for third countries to apply for unilateral technical equivalence recognition, and instead moves towards

full compliance.17,18 Countries with a bilateral equivalence agreement and are on the “Third Country List” are automatically recognised. The US has bilateral agreements with the EU, Canada, Japan, South Korea and Switzerland. Canada has equivalency agreements with the US, the EU, Costa Rica, Japan and Switzerland.

The main issue in attempts to achieve bilateral recognition is not the development of equivalent national standards, but the development of a suitable control system. The exporting country has to establish a competent authority, which approves and monitors certification bodies and conducts market surveillance, to make sure that no fake products enter the market as organic.

15 The following countries are part of Oceania: Australia, Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.

16 Regulation (EC) No. 1235 / 2008, 2019

17 REGULATION (EU) 2018/848 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, of 30 May 2018 on organic production and labelling of organic products and repealing Council Regulation (EC) No 834/2007

18 Council of the EU, Organic Farming: new EU rules adopted, 2018



It is highly unlikely that Sri Lanka will qualify for EU bilateral equivalence in the foreseeable future.19

The US, the EU, and Japan may recognise certification bodies operating outside of their countries.20 The technical requirements for recognition are difficult to meet, and the associated fees are high. Maintaining recognition and/or the necessary accreditation requires substantial financial capacity and personnel from the certification agency. In the US system, only certificates issued by certification bodies accredited by the United States Department of Agriculture (USDA) are accepted. The global major organic product markets demand that the entire supply chain of a product entering their territory as an organic product must be certified according to their regulations, by a certification body approved or accredited by its authorities.

If a Sri Lankan company wants to export to the EU, its products and production system must be certified according to EU regulations. In case they also want to export to the USA and Japan, they need to be certified according to the US and Japanese standards as well. This makes certification expensive. Whether or not Sri Lanka enforces its own national legislation will have no impact on the export of organic products. The national standard is only relevant for the Sri Lankan market, not for export to countries of the EU, the US or Japan.

T h e i n t e r n a t i o n a l m a r k e t f o r o r g a n i c p r o d u c t s

In 2017, the total world market for organic products reached a value of Euro 92.1 billion. The US is the largest market with a value of Euro 40 billion, followed by Europe with a value of Euro 37 billion. With 27% of the total European market, Germany is the market leader in Europe. The growth level of the global organic products market is extremely high. In 1999, the size of the market was estimated at Euro 11 billion; so in value terms the global market has

increased over 800% in 18 years.21 Market growth was noted in all countries for which 2017 data were available, and frequently growth was in double digits. France registered the highest growth with its market increasing by 18% annually. In Spain, the market increased by 16%, and in Liechtenstein and Denmark, by over 15% each.

The US is the most important market in value terms in many respects.22 The US is the largest market, has the highest per capita consumption and the largest market for organic food and drinks. Denmark leads in terms of market share where almost 14% of retail food sales are from organic products. In terms of average consumption per capita of organic foods, consumption in Europe is less than in the US. But Europe houses some countries with consumption levels well beyond those of the US such as Switzerland, Denmark, Sweden and Austria.

Available studies expect a high Compound Annual Growth Rate (CAGR) of world trade in organic products. The CAGR is estimated to be between 16% and 18% over the coming years

19 GIZ, Bootcamp Report, Organic Policy and Regulation boot camp for Sri Lankan Policy makers, 2019

20 The European Union has published a market brief on “Organic imports in the EU.” Since October 2017, the Certificate of Inspection, CoI, that must accompany every consignment entering the EU, has become electronic. Exporters in “Third Countries” (non-EU member-states) have to apply for a CoI at their certification body before each export to the EU. The new electronic certification system called TRACES (Trade Control & Export System), is compulsory. The system aims at improving the monitoring of organic products imported into the EU from third countries. Data on imports to the EU is now more readily available for analysis.

21 Mathieu Robert Euractiv, 2019

22 Willer - Lernoud, Organic World, 2019



and is estimated to reach a value of Euro 236 billion by 2022.23 Some analysts (such as Indian Absolute Market Insights in 2019 and Allied Market Research, US) expect the trade in global organic food and beverages to reach a value of Euro 612 billion by 2027.24,25 Rising consumer awareness of organic products and widening availability are two major drivers of global growth. Availability of organic foods is increasing in specialised shops, supermarkets, discounters, drugstores, pharmacies and the catering and foodservice sector. Organic ingredients are increasingly used by European and North American food services and food processing companies. Large chain outlets are also focusing on organic product sourcing. Olive oil represents the most important product category with 21% of total EU imports being organic. Organic "Flours and other products of the milling industry" have a share of 15% of total EU imports; organic "Beet and cane sugar" constitutes 11% and organic "Rice" 11%. Organic "Tropical fruits, fresh or dried, nuts and spices" is the most important organic product category in absolute terms, but organic imports only cover 9% of total EU imports in this category. Hence there seems to be considerable scope for further growth of the organic farming imports in the EU.

Although North America and Europe are still absorbing the bulk of global sales of organic products, their share in the global market is declining.26 Emerging markets are expected to absorb higher amounts of organic products. From hardly participating in the global demand 10 years ago, emerging markets showed a high growth in demand for organic products. An increased growth is especially anticipated in Asia-Pacific. The global market is driven by a growing awareness of the health benefits of organic food consumption, increased per capita spending on organic food products and increasing health concerns due to a growing number of chemical poisoning cases. In addition, product innovation and aggressive marketing strategies by major players and online retailers will push the demand up.

In 2018, the EU imported a total of 3.3 million MT of organic agri-food produce of which 57%

were commodities and 35% were other primary products.27 Tropical fruits, nuts and spices are the leading import category by volume. The leading supplier of organic agri-food products is China; US is seventh.28

Table 1 shows that imports of "Tropical fruits, fresh or dried, nuts and spices" represent the single most important item representing 24% of the total volume of imports.

23 Rishabh Chokhani, June 2019

24 Absolute Markets Insights, 2019

25 Alliedmarketresearch.com

26 TechSci Research, Global Organic Food Market Size, by Region, by Value 2012-2022F

27 Traces

28 European Commission: EU Agricultural Markets Briefs – Organic Imports in the EU 2018



Table 1 Volume of EU organic agri-food imports

Rank Products Tons %

1 Tropical fruit, fresh or dried, nuts and spices 793.597 24,4

2 Oilcakes 352.043 10,8

3 Cereals, other than wheat and rice 255.764 7,8

4 Wheat 243.797 7,5

5 Rice 216.017 6,6

6 Oilseeds, other than soyabeans 192.927 5,9

7 Beet and cane sugar 166.328 5,1

8 Vegetables, fresh, chilled and dried 148.108 4,5

9 Fruit, fresh or dried, excl. citrus & tropical fruit 147.114 4,5

10 Other 742.837 22,8

Total 3.258.532 100

Source: European Commission: EU Agricultural Markets Briefs – Organic Imports in the EU 2018

Table 2 illustrates that Latin America (with Ecuador and the Dominican Republic as leading exporters) is the main supplier to the EU for most organic tropical fruits, dried or fresh. Cote D’Ivoire and Ghana are the major suppliers from Africa. The EU imports bananas mainly from Latin America, and mangoes mainly from West African countries.

Table 2 Tropical fruits, fresh or dried, nuts and spices per country of origin

Rank Country Tons %

1 Ecuador 252.015 31,8

2 Dominican Republic 246.341 31,0

3 Peru 137.235 17,3

4 Colombia 18.952 2,4

5 Mexico 12.835 1,6

6 Cote D'lvoire 12.686 1,6

7 Ghana 11.527 1,5

8 Turkey 11.494 1,4

9 Chaina 11.371 1,4

10 Other 79.141 10,0

Total 793.597 100

Source: European Commission: EU Agricultural Markets Briefs – Organic Imports in the EU 2018

In 2018, the global organic spice trade was valued at Euro 246 million and is expected to reach Euro 365 million by 2026. The CAGR is estimated lower than the overall CAGR for the global organic produce trade (CAGR of 5.1% from 2019 to 2026).

Frequent modifications in the trade regulations of importing countries are expected to hamper the growth of the global organic spice market. In addition, increased production and logistic costs result in higher growth in price levels of organic spices as compared to



conventional spices. However, trade in organic spices will grow because of the growth of organic food consumption and disposable incomes, specifically in North America and Europe.29

Turmeric is the most important organic spice product traded followed by pepper. Cinnamon plays a minor role in the volume of the organic spice trade. Like in other organic produce, the US is the main market for organic spices. India and Indonesia are the main organic spice producers. Europe imports more cassia cinnamon than Ceylon cinnamon, but the demand for Ceylon cinnamon is increasing. India’s exports of organic spices reached about

1,900 MT (2015-16) with USA, Germany and Netherlands being the major markets.30

Figure 1 Global organic spice market

Source: Allied Market Research.

29 Allied Market Research, 2019

30 Spice Board, India



4 O R G A N I C F A R M I N G I N S R I L A N K A

H i s t o r y

The organic movement in Sri Lanka started in the eighties through contacts of Sri Lankan NGOs with the Philippine organic agriculture movement. In 1982, a group of NGO representatives, growers, scientists and environmentalists drafted a memorandum of association to establish the Lanka Organic Agriculture Movement (LOAM). LOAM was established to promote organic agriculture, develop standards for organic agriculture, and to create awareness on organic products in Sri Lanka. In 1987, the first organic tea estate worldwide was certified organic in Sri Lanka.31 LOAM achieved registration as an official legal body in 2001 but at the time of writing this report LOAM is inactive.

In the mid-nineties, the GTZ under its trade promotion programme “Protrade” started export promotion activities for Sri Lankan organic products. Protrade cooperated with the EDB and 15 Sri Lankan companies entered European markets with organic products. Two German companies (Morgenland and Rapunzel) collaborated with organic Sri Lankan companies and invested in Sri Lankan organic agriculture. In 1999, the Swiss trade promotion programme

SIPPO and the Dutch CBI supported the trade of organic products from Sri Lanka.32

In 1998 about 4,100 ha were used for the production of certified organic crops in Sri Lanka (see Table 3). The production comprised of more than 20 different crops. About 15 companies managed the organic supply chains and exported to Europe, the USA and Japan. Exported organic products were tea, desiccated coconut, cashew, spices (cinnamon, nutmeg, pepper, clove and ginger), fruits and essential oils (citronella and lemongrass).33 The fruits were not fresh fruits but processed products such as dried, juice, concentrate, frozen or canned.

Table 3 Certified organic products in Sri Lanka, 1998

Product No. of Farmers No. of Estates Hectares

Black tea 522 6 1,140

Green tea 414 2 490

Cashew nuts ˃ 140 0 57

Desiccated coconut ˃ 14 0 307

Spices Ca. 1,000 6 300

Herbs (essential oils) Ca. 1,000 4 30

Fruits Ca. 1,000 4 1,814

TOTAL 4,090 22 4,138 Source: Williges & Sauerborn, 2000

From 1998 onwards, the organic farming sector in Sri Lanka developed rapidly and in 2017 about 165,600 ha were used for organic products. This is about 6% of the total agricultural

31 Williges, 2004

32 BIOHERB reports on behalf of GTZ, protrade, 1994 - 1999

33 Williges & Sauerborn, 2000



land. As Table 4 shows, the use of land for organic farming increased gradually over the 2006 to 2017 period, with an exceptionally strong increase in one year (2016 to 2017). Table 4 Land under organic production in Sri Lanka (ha)

1998 2006 2008 2010 2014 2015 2016 2017

4,138 15,379 19,190 31,585 62,560 96,318 96,318 165,553

Source: B. Boor based on Willer- Lernoud, 2019 and EDB

Parallel to the increase in hectares under organic farming, the number of certified organic operators increased. In 2017, Sri Lanka had 8,703 certified organic producers, 224 certified organic processors and 311 certified organic exporters.34 230 of the certified organic exporters are certified according to USDA / NOP Final Rules, the USA standard.35 When comparing the data on the growth of hectares under organic production and the increase in the number of smallholder farmers involved in organic production, it may be concluded that a substantial scaling up occurred in the sector. While the land under controlled organic management increased 40 times between 1998 and 2017, the number of smallholders involved only doubled. The two largest organic farmers’ associations in Sri Lanka claim that they have more than 13,600 member farmers. SOFA (Small Organic Farmers’ Association) has 3,576 member farmers and MOPA (Marginalised Organic Producers’ Association) has 10,050 member farmers. However, many of these members may be dormant members. Moreover, information of the major certification body, Control Union, seems to confirm the scaling up of organic

farming in Sri Lanka.36 Thus, either organic farms have grown in size in Sri Lanka with more hectares being operated by each farmer, or a few very large farms have developed, leaving the smallholders basically at the same level of development. Of course, it should also be mentioned that the two dominant organic products in Sri Lanka, tea and coconut, are mostly grown on estate size farms. Many tea estates have organic certification, but export only very little quantities as organic. The organic tea certificates are demanded by major importers, although these importers purchase only a little organic tea. Managers of Sri Lankan tea estates fear losing important clients, in case they are not certified.37 China and India have by far the largest number of hectares under certified organic production (see Figure 2). The two countries together have about 4.8 million hectares under certified organic production. However, these are very large countries with extended agricultural lands. Relatively, in terms of the size of the country, Sri Lanka is more advanced in organic farming than most Asian countries. Although Sri Lanka is a relatively small island, it ranks 6th.in position among Asian countries with the largest organic area. In terms of the share of organic land in the total agricultural land, Sri Lanka ranks second with 6% after Timor-Leste which has 8% (see Figure 3). India has only 1% of its agricultural land as organic farming land. China, which is an important supplier to the international markets, is not even ranked among the top ten

34 Willer - Lernoud, 2019

35 USDA Organic Integrity Data Base: https://organic.ams.usda.gov/Integrity/Search.aspx

36 Control Union stated that the number of farmers certified by them is about 7,000 to 8,000. This accords with the figures given by Willer and Lernoud. 37 Oral information by Mr. Murugiah Rajasingham and Control Union, 2020

https://organic.ams.usda.gov/Integrity/Search.aspx



countries in terms of the share of organic land in total agricultural land. On average only 0.4% of Asia’s agricultural land has been used for certified organic production in 2017.

Figure 2 The ten Asian countries with the largest organic area

Source: Willer- Lernoud, 2019 based on FiBL, 201938

Figure 3 Asian countries with the highest share of organic land in 2017

Source: Willer- Lernoud, 2019, based on FiBL, 2019

38 A good source of statistical information on organic farming is the FiBL Statistics: https://statistics.fibl.org/.

https://statistics.fibl.org/



In 2017, the area under certified organic fruit production in Sri Lanka was about 1,260 ha. The farming system is based on intercropping not monocrop production; so the area contains not only fruits but also other crops which are important for the organic farmer.

In 2015, the export value of Sri Lankan organic produce was Euro 259 million. Between 2007 and 2018, the export volume of Sri Lankan organic produce increased from about 4,200 MT to

about 44,300 MT.39 Sri Lanka holds the 26th position among countries supplying organic products to the EU.

L e g i s l a t i o n o n o r g a n i c f a r m i n g i n S r i L a n k a

Sri Lanka developed national regulations on organic agriculture under the provisions of the Export Development Act No. 40 of 1979. In 2014, the “Export Development of Organic Products Regulation 2014” was published in the Government Gazette and the approval of the Parliament has been granted for the same.

By proving to the EU that Sri Lanka has an equivalent standard and control system, the purpose of the Export Development of Organic Products Regulation 2014 was to obtain the Third Country Registration in the EU market. Sri Lanka expected that with “Third Country Recognition,” the costs for certification could be reduced and tariff barriers to enter into the EU market could be avoided. The EDB was appointed as the competent authority. Within the EDB, a National Organic Control Unit (NOCU) was established as an independent national body, to control the export/import of all organic agricultural products. A draft Sri Lanka Standard - “Requirements for Organic Agriculture Production and Processing” has been produced and is currently being reviewed through a technical committee, after a public review consultation. A revision of the regulation governing the domestic organic market is also currently in process.40 However, new regulations will come into effect from the 1st of January 2021. These new regulations demand that all countries exporting to the EU will have to comply with the EU standards. Therefore, the former objective of obtaining EU third country equivalence recognition is no longer a relevant objective.41 GIZ and IFOAM organised a workshop for key Sri Lankans involved in the organic certification in Bonn, Germany in February 2019.42 The workshop observed that the policy and regulation framework is not appropriate to the Sri Lankan situation and is therefore not implemented and enforced. In addition, it was stated that a well-functioning platform for organic agriculture stakeholders in Sri Lanka was not existing.

The workshop agreed to propose the following objectives for a new organic regulation:

39 Estimation of 2018 Sri Lanka export volume using information in FIBC & IFOAM The World of Organic Agriculture, Statistics and Emerging Trends, 2020

40 Malani Baddegamage, EDB Oral information, 2020

41 GIZ, Impact of revised EU regulations on National Organic Control Unit and organic agriculture export industry

42 The following Sri Lankans participated: a) Duwage Vinoka Manomi Perera, Assistant Director-Quality Control at NOCU (EDB), the competent authority for organic agriculture in Sri Lanka; b) Achala Samaradivakara, Managing Director and Co- Founders of Lanka Good Market, operating a PGS in Sri Lanka; c) Kahaduwa Arachchige Anil, Senior Deputy Director, Sri Lanka Standards Institution (SLSI) and Hettiarachichige Dona Chandrika Nirmalie Thilakaratne, Director CEO of the Sri Lanka Accreditation Board for Conformity Assessment (SLAB).



1. Protect domestic consumers against misleading and fraudulent organic claims.

2. Enhance the credibility of organic products in Sri Lanka and their easy recognition by domestic consumers.

3. Provide a fair playing field (fair competition) for Sri Lankan organic producers.

4. Provide a legal definition of what is considered organic agriculture in Sri Lanka, which could serve as a basis for the eligibility of operators for public support.

5. Contribute to the credibility of organic exports from Sri Lanka.

It was also agreed that all organic operators should be EDB registered, including exporters. Farmers organised in farmer groups and not possessing their own certificate would not need to be individually registered. In addition, all organic operators should be certified by an EDB registered conformity assessment body (certification body). No additional accreditation would be imposed for certification bodies that already have recognised international organic accreditation(s).

The workshop also observed that the whole legislation regarding organic farming was highly focused on the export market, with little attention to domestic market requirements. Therefore for the domestic market, the new regulation should state that products have to comply with either the SLSI organic standard, or any approved IFOAM standards. In addition, organic farming products for the local market should be certified by an EDB registered conformity assessment body. For Participatory Guarantee Systems (PGS) new registration criteria and procedures should be developed and adopted by the EDB. SLSI could produce such guidelines on the basis of existing IFOAM-OI templates. Finally, for third party certification bodies, the registration procedure should be simple and fast. It should request certifiers to demonstrate that they have SLAB, IFOAM or other internationally recognised organic

accreditation.43

The Sri Lankan “Export Development of Organic Products Regulation 2014” is currently under revision but has not yet been finalised nor implemented. Moreover, the private sector was not consulted or involved in the development. The new version describes in more detail the implementation and governance of the regulation. The focus is more on the domestic market but PGS is not mentioned.

Products that are sold in the international market as ‘organic’ must comply with the organic regulation of the respective export market. There is no need for certification according to the national standard. However, it will be mandatory for all certification bodies operating in Sri Lanka to have a domestic operating office with a responsible officer.44

This requirement will support the current monopoly status of the Control Union, who currently certifies ca. 95% of all organic operations. It will not be economically viable for other certification bodies with only a few clients at the moment, to open an office and to employ an officer. The normal procedure is that certification bodies operate with regional inspectors in case the number of clients in a country is limited. As soon as the number increases, a national inspector will be identified and trained. When the number of clients is above a certain threshold, the certification body will establish an office in the country. If Sri Lanka encourages other EU

43 Bootcamp Report, IFOAM, 2019

44 EXPORT DEVELOPMENT ACT, No. 40 OF 1979



recognised certification bodies to operate in the country, it may be expected that certification costs will decline due to competition between the bodies. Also, it is important to have more certification bodies operating in the country, as there is always the risk of a particular body being suspended by the EU. For example in 2016, SGS Austrian and a Turkish certifier were suspended from operating in “Third Countries.” In 2019, EkoAgros, Latvia was suspended from operating in Ukraine, the Control Union from five countries of Eastern Europe and CIS in Turkey. In the same year, the USDA closed the Control Union office in Turkey. After a certification body is suspended, the organic operator has only a very short time to get “under the control” of another recognised certification body.

Registration with the NOCU will be mandatory for all producers, processers, manufacturers and exporters/importers of organic agricultural products under the new regulation. Also, the certification bodies need to be registered with the NOCU. This process has just started. International certification bodies carrying out inspection and certification according to international standards, and who are recognised by international authorities do not need SLAB accreditation.

The TAMAP team considers the Sri Lankan draft standard on production and processing to be too strict for local market development, as it was originally meant for the equivalence agreement with the EU. Therefore it may not fit the local conditions. An easier standard may be better to support and nurture the still small organic market. The requirements for SLAB accreditation for local certification bodies should not be too demanding and certification costs should be kept low.

O r g a n i c c e r t i f i c a t i o n i n S r i L a n k a

I n t e r n a t i o n a l m a r k e t

Organic production is mainly certified according to three regulations / public standards:

• For the EU market: Regulation (EC) 834/2007 and its implementation Regulation (EC) 889/2008 on organic farming and labelling and Regulation (EC) 1235 / 2008 handling imports from “Third Countries”

• For the USA market: USDA / National Organic Program (NOP) Final Rules

• For the Japanese market: Japanese Agricultural Standards (JAS) legislation for organic agriculture

Inspection and certification are done by international certification bodies. Presently, there are

eight international certification agencies operating in the country.45

• Control Union, Sri Lanka (The Netherlands)

• Institute for Market Ecology – IMO, India

• NASAA Certified Organic (NCO), Australia

• Ecocert, France

• Lacon, Germany

45 EDB and USDA Organic Integrity Data Base



• QAI, Quality Assurance International, USA

• OneCert, USA

• MayaCert, Guatemala

Next to inspections according to the international standards, some of the organic operators are also inspected according to private standards, such as:

• National Association for Sustainable Agriculture Australia (NASAA)

• Demeter, Germany

• Naturland, Germany

• BioSuisse, Switzerland

• Organic Farmers and Growers, United Kingdom

The inspectors of the same certification bodies who conduct audits according to the three major public standards, also carry out private standard inspections and forward the inspection reports to private farmers’ associations for certification.

In 1998, IMO and Skal set up local offices in Sri Lanka to decrease inspection costs. Today, the successor of Skal, the Control Union, is the only certification body having a local office in Sri Lanka. The Control Union is almost having a monopoly in Sri Lanka carrying out 95% of all organic certification. Lacon and Mayacert recently entered Sri Lanka. The two US certification bodies, QAI and OneCert carry out mainly a few certifications for the USA market.

In addition to this, there may be a few operators being certified according to the Korean, Indian and/or Chinese Organic Standards (“National Standard of the People’s Republic of China: Organic Products” (GB/T19630-2005)). So far, only inspectors approved by the Chinese authorities may carry out inspections. No foreign inspectors are approved until today. The Control Union is also accredited according to the Indian NPOP.

The revised Sri Lankan regulation will allow the current procedure of certification for organic products meant for export to continue.

D o m e s t i c m a r k e t

The regulation ‘‘Export Development of Organic Products Regulations 2014’’ is not yet implemented. Therefore, the domestic market is not yet regulated. According to the regulation, products that are sold in the domestic market as “organic” shall comply with the following:

o The product was produced in compliance with the SLSI:1324 national organic standard or in compliance with a recognised International Organic Standard.

o The operator has been certified by an accredited conformity assessment body

registered by the NOCU.

All certification bodies and laboratories engaged in organic products must be accredited by the Sri Lanka Accreditation Board (SLAB) and will need to be registered with the NOCU. An international certification or inspection body or a laboratory operating in Sri Lanka, which has been granted international accreditation for Conformity Assessment, can apply to the Board for registration.46

46 Draft revised Export Development of Organic Products Regulation 2014



Operators who are certified by international CBs and whose main market is export, can also sell their organic products to the national market, without being certified according to the national standard. International standards are recognised as well as the international accreditation of CBs. This is important for domestic market development as this system does not unnecessarily increase certification costs, by demanding a second certification by a second CB.

The requirement of laboratories to be accredited for conformity assessment is remarkable. Laboratories do not operate as certification bodies. Their services of residue analysis may be used by CBs to assess a suspected case of application of non-allowed inputs. Organic certification is a “process certification” and not a “product certification.” The absence of residues does not guarantee organic certification.

The Participatory Guarantee System (PGS) is not mentioned in the regulation, which is a great disadvantage for smallholder farmers, who supply consumers in a short and transparent supply chain (see also Chapter 7: Guidelines for public support). The PGS should be adequately recognised under the organic regulation. Their registration criteria should be different from that of third party certification bodies. The EDB and the NOCU are aware of this and have stated that the PGS will be considered, but it has not been included in the regulation so far.47

Certification bodies as well as all organic operators will have to be registered with the NOCU. This registration will have to be done every year and applicants will have to pay a registration fee. This process has just started. Annual registration is a bureaucratic burden. It will complicate the certification system as it allows the organic operator to sell his/her products as organic only after registration. Experiences in other countries have shown that operators often forget to register in time. The TAMAP team advises that the certification body registers the operator with the competent authority or control authority, and inform on deregistration.

The logo for the NOCU, which shall be used on the label of organic products, has been registered with the National Intellectual Property Office (NIPO), Sri Lanka. Suppliers to supermarkets or other outlets offering organic products such as Keells, Cargills or Good Market, are currently certified by bodies such as:

• International certification bodies according to international standards

• SriCert, according to own private standard

• Biocert, according to regional organic standard

• SLSI, Sri Lanka Standard Institute according to the national standard

• Or they are not certified by a “third party,” but in a PGS (Participatory Guarantee System)

SriCert is the local member of the Certification Alliance, which is promoting small organic farmer group certification across Asia, establishing traceability. Presently, SriCert is providing certification services to small organic farmer groups engaged in the production of fruits and vegetables, and marketing to the leading supermarket chains and other retail institutions.

Biocert is ISO 17065 (conformity assessment – requirement for bodies certifying products, processes and services) accredited. Biocert provides regional inspection and certification services for organic farming, sustainable agricultural practices, good agricultural practices and livestock management.

47 Gayani Indunila Wijayathilake, NOCU, oral information



SLSI has also started to inspect and certify organic operators in Sri Lanka (see Photo 1). The number of clients so far is about 10.

The PGS is a system which has been developed to guarantee the organic integrity in transparent, short supply chains such as farmers’ markets, gate sales or home deliveries. The PGS is recognised in many countries where the organic market is still in its initial development, as well as in the USA, Japan and other developed countries.

Photo 1 SLSI organic certificate

There is a large grey market for organic products in Sri Lanka. The demand for organic products is increasing in larger cities and among the middle-class population. By labelling a product as organic, a higher price can be fetched easily. The trust in the integrity of organic products in the domestic market in Sri Lanka is fading among consumers and national control is urgently demanded. The TAMAP team observed that none of the local certification bodies is conducting product flow calculations. As organic products are more expensive than conventional ones, there is always the risk of someone in the supply chain adding conventional products and selling higher quantities as organic, as has originally been produced. A supermarket chain or trader may purchase 3 MT of organic vegetables, but supply 6 MT to its outlets; a farmer may produce 2 MT of potatoes, but sell 3 MT etc.

L a b o r a t o r i e s f o r o r g a n i c f a r m i n g

Organic farming is a process certification and not a product certification. In none of the worldwide standards do limits exist of tolerated residues. The organic certification of a product is granted because of its environmental and sustainable production. Samples for residue analysis are only taken in case of suspicion or in the framework of a risk assessment.

All international certification bodies operating in Sri Lanka send their samples to Europe (e.g. to Eurofins, Galab, Primoris) or the USA for analysis. There are no laboratories in Sri Lanka which meet the demanded standards. However this is not exceptional. The same procedure is done in most “Third Countries” worldwide. No accepted accredited laboratory exists even in Russia. Representatives of the Control Union do not require an ISO accredited laboratory in Sri Lanka. Laboratories need to be accredited according to EN-ISO 017025. Residue analysis often cover several hundred compounds.

It is more effective to have well experienced inspectors, who assess the production system and can identify risks and evidence of applied non-allowed inputs.



E x t e n s i o n , e d u c a t i o n a n d r e s e a r c h

Organic farming is a knowledge intensive farming system. In organic farming, extension to growers is done by companies having established a contract production system with farmer groups. These companies have set up their own extension service and manage the entire supply chain. The public sector is hardly involved in organic extension services.

Academic training opportunities on organic agriculture exist in Sri Lanka. All agricultural universities in Sri Lanka teach organic agriculture including Peradeniya, Wayamba, Uva, Wellassa, Ruhuna, Jaffna and Rajarata University of Sri Lanka. However, no specific organic vocational training programme exists. In 2000, the Post Graduate Institute of Agriculture (PGIA), University of Peradeniya developed a course on organic agriculture, which was included in the curriculum.

The Department of Agriculture, Centre for Excellence for Organic Agriculture is the only governmental institution supporting organic farming. The centre trains farmers in organic farm management practices. Training usually lasts 1 day, but sometimes a few farmers stay for an additional 2 to 3 days to work in the research centre. The head of the centre, Mrs. Priyanga Dissanayake, holds a master’s degree in organic farming from Korea. She has five assistants and 3 to 5 students per year join the staff for study reasons or as interns. Mrs. Priyanga Dissanayake supports organic village concepts. She explained that at rural vegetable markets organic produce is usually sold out after a short time. The demand for organic products exists around the country.

The micro finance bank organisation SANASA also manages organic training centres such as EFAT – Ecological Farm & Agricultural Training. Students from different levels (vocational, technical and university) come here for a six-month practical training.

Research in organic farming is limited to the Department of Agriculture, Centre for Excellence for Organic Agriculture in Makandura, Gonawila. The Centre carries out various research activities:

• Quality enhancement of organic fertilisers – collaborative studies o Nutrient enrichment of compost pellets with compost tea, biochar, cow urine

and green manure o Acceleration of the broiler litter composting process using microbial consortium

(University of Peradeniya)

• Development of suitable nutrient management packages for organic farming o Fruits: pineapple, guava o Leafy vegetables o Vegetables: brinjal, okra, capsicum o Effect of different mulching materials on organic vegetable production for brinjal,

okra and capsicum (soil improvement, crop growth)

• Comparison of different nutrient management systems (long-term assessment) o Chemical – IPNS – Organic

• Development of potting mixtures using vermi compost, HBPH, coir dust, goat manure etc.

• Effect of Trichoderma spp

• Development of potting media for selected vegetables

• Development of bio-fertilisers (N&K) for organic rice production

The Hector Kobbekaduwa Agrarian Research and Training Institute (HARTI) has conducted some activities regarding organic farming in Sri Lanka.



A v a i l a b i l i t y o f o r g a n i c i n p u t s

Major organic companies with contract production by producer groups produce organic fertilisers (compost). For example, Bio Foods and EOAS have large compost projects. Other companies have similar operations. The companies sell the compost to their contract farmers. While conventional farmers have the advantage of receiving subsidised or even free mineral fertilisers, organic farmers have to pay for fertilisers. This is a biased situation and demands political adjustment.

Trials in compost production from organic community waste showed poor results in Sri Lanka. The C / N ratio is usually a problem and composts are contaminated with heavy metals due to the poor quality of the original material. Proper selection of waste (separation of organic material from all other materials) is the problem. Compost production needs to be done by

competent experienced entities.48

Pests and diseases are no major problem in organic farming systems in Sri Lanka. Farmers can prepare their own preparations based on neem or other herbal materials or use ash, mineral oils and other products allowed in organic farming. None of the farmers or company representatives interviewed by the TAMAP team mentioned a need for more organic pesticides in Sri Lanka.

48 Oral information of Dr. M.T. Kumudini Gunasekare, 2019



5 S U C C E S S F U L B U S I N E S S M O D E L S

E x p o r t m a r k e t s

Business models of export-oriented organic farming are similar in most tropical countries. Raw material production is done by smallholder farmers organised in producer groups by processing and exporting companies. The entire supply chain management is organised by the exporting company, including the required ICS and financing of certification. Unlike in conventional production, supply chains in organic farming are usually short.

The management of the entire supply chain is very important for export to Europe or the USA. Importers are intent on establishing long-term business relationships with exporting companies. Next to high product quality and competitive prices, reliability is the most important aspect in decision making for importers. Reliability stands for good communication, reliability in supply, agreed quality, no problems with residues and certification. This can only be guaranteed by good supply chain management. The German Import Promotion Desk programme (IPD) selects only companies who have their own closed supply chain established. Only these companies will have a chance of successfully entering and staying in the European market.

There are four different business models for organic farming in Sri Lanka:

1. Exporter / processor – farmer groups

2. Exporter / processor – own production – farmer groups

3. Exporter – processor – farmer groups

4. Exporter / processor – integrator (medium size farmer) – farmer groups

Under model 1, the exporter is also the processor. Exporter contracts farmers and organises them into one or more producer groups. This may be cooperatives. The exporter establishes an extension service to train and advise farmers in organic farming methods. The company also establishes an Internal Control System (ICS) to enable cost efficient group certification. The exporter finances inspection and certification and is the certificate holder.

Model 1 = 2-member supply chain:

Under model 2, the exporting company has one or more own farms/estates and contracts additional farmer groups. The exporter is also the processing company. The company establishes an extension service and ICS. The exporter finances inspection and certification and is the certificate holder.

Producer groups:raw material production

Exporter:processing and marketing




Under model 3, the exporter contracts farmers and organises producer groups. He establishes an extension service and ICS. In addition, he contracts one or more processing companies to process organic raw materials from the organic farmers. The certification is paid by the exporter who is the certificate holder.

Model 3 = 3-member supply chain

Under model 4, a medium sized farmer organises producer groups and collects the harvest. He establishes an extension service and ICS, and finances certification. He holds a certificate for agricultural production and sells to one or more exporters, who are doing further preparation or processing and marketing. The exporters are separately certified.


Farmer groups:

production of raw materials

Processing company:

processing

Exporter:

marketing

Farmer groups:

Production of raw materials

Farms of export company

Production of raw materials

Exporter

Processing and marketing

Producer groups:

Raw material production

Integrator:

Own production + buying from

producer groups

Exporter:

Processing + marketing

Exporter:

Processing + marketing



E x a m p l e s o f s u c c e s s f u l e x p o r t m o d e l s

EOAS Organics is a limited liability company. EOAS is a producer of spice oils since 1994. In 1999, the company ventured into production of organic spices and spice oleoresins, and founded a sub-unit called EOAS Organics. Modern distillation and solvent plants were commissioned in the same year. A CO2 extraction unit was added later on. Today, the company produces organic and conventional spices, essential oils and oleoresins. It is the largest pepper exporter, and is among the largest essential oil and oleoresin exporters of Sri Lanka.

The EOAS organic operation is organised as described below:

Raw material production is done on seven own estates of a total size of 110 ha. Furthermore, 15 producer groups with a total of about 500 farmers and 509 ha, supply organic raw material. Four own processing companies process the delivered spices, herbs, tea and essential oil-bearing crops. Citronella is distilled at a sub-contracted company. Marketing and administration are done at the head office in Ratmalana. The management organogram of EOAS looks like the following:

The complete supply chain is under the management of EOAS Organics. Even the four collectors for pepper are certified under EOAS. It is the exclusive certificate holder. The raw material is produced in the southern part of Sri Lanka.

Raw Material

• 15 farmer groups(˃ 500 farmers)

• 7 company owned estates

Processing

• 4 company owned processing units

• 1 sub-contracted unit

Marketing and Administration

• 1 unit

1 Co-ordinator

1 ICS Manager

6 Field officers 3 Internal inspectors

4 Collectors for pepper



All farmers are contracted and must comply with organic production methods. The company has a system for recruiting and approving new farmers, as well as a sanction procedure in case of non-conformity with the standards. All new farmers receive intensive company training or are trained by external consultants from Sri Lanka. Farmers receive a premium above the price they would obtain in conventional agriculture. Certified fair-trade farmers receive additional support such as health care, scholarships etc.

The field officers regularly visit the farmers and provide advice on production, inform the company on expected yields and problems, and organise the transport of the harvest to the processing units. This guarantees a smooth supply chain of quality products.

The internal inspectors visit each individual farmer at least once a year and carry out an internal inspection on their compliance. They fill in an inspection report for each farmer visited. In case of identified non-conformity, the ICS manager is informed and sanctions are imposed. The ICS System allows group certification.

EOAS has a control contract with the Control Union. The Control Union is approved by the EU and is accredited by the USA authority, USDA. Thus, the Control Union is authorised to carry out inspections and do certification according to the US and EU organic standards. In addition, the Control Union can carry out inspections for a number of private standards. If these standards are demanded by the clients, the Control Union conducts the inspection and sends the inspection report to the respective organic farmers’ association for certification.

EOAS Organics demands certification according to the EU, the USA and BioSuisse standards. In addition, two units are also certified according to Fair Trade and the German private organic standard, Naturland. The Control Union verifies the ICS and carries out inspection of a few farmers per producer group. In case the findings are in accordance with those of the ICS, the complete group will be certified. In addition, the Control Union inspects all processing units and exports.

Most crops are cultivated in mixed cropping systems. Only cinnamon is often a monocrop. The company has established two large compost factories and sells compost to their contract farmers. Pests and diseases are no major problem. There is no need to buy any organic pesticides.

Bio Foods (Pvt) Ltd.

Bio Foods was established in 1993. The company is devoted to a sustainable, organic and fair-trade way of life. Starting out as a family owned business based in Kandy, this company has grown to be one of the world leaders in biodynamic, organic and fair-trade agriculture. The company is exclusively trading in organic production. The company produces green and black tea, spices, various coconut products and IQF (individual quick frozen) fruit and vegetable products.

Bio Foods supported the development of SOFA (Small Organic Framers’ Association), founded in 1997. Training in organic methods, ICS and certification have been organised and financed by Bio Foods. As SOFA is certified according to fair-trade standards, Bio Foods handed over more power to the association in 2009, allowing it to manage the ICS and be the certificate holder of the agricultural production. However, this ended in disaster for Bio Foods. Problems were manifold (no guaranteed access to raw material, poor quality, residues etc.) and the company lost many clients.

Then Bio Foods separated part of the producer groups and founded MOPA (Marginalised Organic Producers Association). The management of the entire supply chain is again under Bio Foods. The company has organised the many farmers into farmer groups, and processes the harvest in its processing units, scattered all over Sri Lanka. The ICS is managed by the



company and it is the certificate holder of the complete supply chain. The company considers it essential to manage the supply chain in order to fulfil the requirements of the international market. As a long-time processor and exporter of high-quality organic products Bio Foods takes all the necessary steps to assure the sustainability of all stakeholders in the supply chain. The company provides a guaranteed minimum price at the farm gate, transparent documentation to guarantee traceability, and rigorously maintains local and international environmental regulations.

Today, Bio Foods still buys some products from SOFA and has three own organic farms. Production is certified according to many international organic standards (public and private) and fair-trade. This enables export to all major organic markets worldwide. Like EOAS, Bio Foods operates with an ICS manager, extension workers and internal inspectors, all employed and paid by Bio Foods.

Organisation structure of the supply chain of Bio Foods:

Under own certificates:

External organic management

Raw Material Production

• MOPA

• 3 Own Farms

Processing

• Own factories

• Tea

• Coconut

• IQF

• Spice

Marketing Administration

• Export

• Administration

• ICS Management

Raw Material ___________________

SOFA with own organic certificate



D o m e s t i c m a r k e t

Three main models exist for successful domestic organic produce marketing in Sri Lanka. i.e.:

1. Farm gate sales and home deliveries of organic fresh produce

2. Supply to supermarket chains

3. Supply to Good Market


The supply chain is very short and transparent. The consumer knows the farmer and can visit him and check production.


The supply chain is larger and transparency is less straightforward as the consumers do not know the producers/farmers.


The farmers are organised in producer groups and consumers are also organised in a group. The consumer group knows the producer group, and representatives regularly visit the producer group for evaluation purposes.

E x a m p l e s o f s u c c e s s f u l d o m e s t i c m a r k e t m o d e l s

Green House Organic Garden has developed a 50 acre organic vegetable farm. The operation was started 10 years ago and is now run by father and son. Their products are vegetables, potatoes, mushrooms, sunflower, herbs and herbal teas. Green House Organic Garden delivers to supermarkets and private consumers. Consumers can place orders daily and delivery is made by train to Colombo. Consumers must pick up the deliveries at the station. The demand is increasing. Production is certified by the Control Union according to the EU organic standard, and by SLSI according to the domestic standard.

Producer Consumer

Producer Supermarket Consumer

Producer group Consumer group



Mihimandala Organic Farm & Niwahana sells to supermarkets, and delivers direct to consumers with its own little truck (see Photo 2). Production is certified organic by SLSI.

Photo 2 Mihimandala

Green House Organic Garden and Mihimandala produce a wide variety of products (see Photo 3). No external inputs are required. Crop rotation and high diversity build the eco balance; pests and diseases are hardly existent. Fertilisation is done by means of integration of green manure and legumes, as well as the use of compost.

Photo 3 Organic vegetable production

Keells and Cargills trade a range of organic products. Supply of fresh produce is organised via contract farming. Keells currently has 9 to 10 organic vegetable producers contracted. Prices are negotiated every week. All organic producers take their products to the nearest Keells collection centre, where products are handled and labelled separately from conventional products. Keells aims at having organic produce in all outlets all over the country. A few retail shops in very rural areas may currently still exist, where no organic products are offered. The



premium is 15% to 20% above conventional agriculture produce price. Actually, all producers should be certified according to EU regulations. This proves a challenge and some are only certified by SriCert or by SLSI. As there is currently no competent authority in Sri Lanka to control the market and certification, Keells regularly sends samples for residue analysis. So far, no residue problems have been identified. Keells wants local certification bodies to approve according to uniform standards and considers market surveillance an important government responsibility. The annual volume of organic fresh produce handled by Keells is about 180 MT. Retailed, packed and unperishable products have to be certified according to EU standards.

Good Market is a social business organisation. In 2013, Dr. Amanda Kiessel, an American, established a small weekly market in Colombo providing a platform for selling regional organic products and sustainable goods. A second market and a shop followed soon. All three outlets are thriving with the number of vendors and customers gradually increasing. Good Market operates as a marketing platform. Organic farmers and manufacturers of sustainable, environmentally friendly, fair-trade products and natural cosmetics etc. can make their products available to consumers. Suppliers can request to offer their products at the weekly markets (held on Thursday and Saturday) or to be sold in the shop. Suppliers have to fulfil the Good Market criteria to join the organisation. Since the first market was launched in 2013, the number of vendors selling their goods in the markets and shop has risen from around 30 to 160.49

Smallholder farmers are required to be organised in producer groups and consumers in consumer groups. The farmers’ organisations provide assurance that the product is organic. This is called “second-party” certification. The consumer group regularly verifies the internal control of the producer group. This system is based on the internationally recognised

Participatory Guarantee System (PGS).50 Good Market uses the PGS of IFOAM. The Good Market PGS is registered with the EDB. Today, more than 1,000 farmers and more than 500 consumers are involved (see Photo 5 and 6).

For small-scale organic farmers, that only supply local markets, it can be difficult to manage the costs and paperwork requirements of third-party certification. Because of this, many countries have started to develop alternative verification systems for local markets, where producers and consumers have the opportunity to meet directly. In a PGS, producers and consumers volunteer their time to maintain standards and systems, inspect farms, and ensure that products are organic. The goal is to keep costs down and make organic food more accessible and affordable. All other producers, processors and packers using the Good Market platform need to be certified by an approved certification body.

49 Organic-market info, 13.05.2015, https://organic-market.info/news-in-brief-and-reports-article/sri-lanka-good-market-organic-sustainable-and-local.html

50 Good Market web-site

https://organic-market.info/news-in-brief-and-reports-article/sri-lanka-good-market-organic-sustainable-and-local.html

https://organic-market.info/news-in-brief-and-reports-article/sri-lanka-good-market-organic-sustainable-and-local.html



Photo 4 Good Market retail shop, Colombo

Photo 5 Good Market: Saturday market



6 O R G A N I C F A R M I N G O F V E G E T A B L E S , F R U I T S A N D S P I C E S

I n t r o d u c t i o n

The organic agriculture sector in Sri Lanka is in its early stages of development showing a rapid growth of production and land under organic farming. In 2019 the TAMAP team conducted a series of value chain studies covering conventional agricultural production. The TAMAP team decided to also use a similar methodology for the analysis of organic farming value chains. Following the VCA4D approach of the EU, the TAMAP team conducted case studies of organic vegetable, fruit and spice value chains in Sri Lanka. The team prepared a functional analysis, an economic analysis, a social analysis and an environmental analysis of the three organic value chains. As indicated earlier in section 2.1 (methodology), organic production is not a monoculture like most conventional agriculture but a mixed farming system. In addition, organic production systems provide a multitude of Ecological Goods and Services (EGSs). Hence the financial and economic analysis needs to look at organic production with a system approach, identifying its direct and indirect costs and benefits which involves opportunity costs and indirect valuations. However, the scope of this study is limited to acquiring a basic understanding of the economics involved in organic farming. A simple gross margin analysis was conducted looking at a mix of crops under each farming system, while only evaluating direct costs and benefits.

C a s e s s t u d i e s

O r g a n i c v e g e t a b l e v a l u e c h a i n

6.2.1.1 Functional analysis

Organic vegetable value chains are mainly oriented at the local market with limited exports using EU, USDA and NOP certifications for broccoli, lettuce, green cucumber, red cabbage and herbs. Producers operating in the local market-oriented organic vegetable value chains obtained their certifications from Sri Cert and SLSI. Organic vegetables are farmed in a mixed cropping system, not as a monocrop system. Currently about 10 to 15 varieties of vegetables are produced using organic vegetable farming systems. These vegetables are: carrots, beets, broccoli, cabbage, Chinese cabbage, tomato, capsicum, red cabbage, leeks, knol khol, potato, radish and green chillies. All these are short-duration crops which have the potential of giving multiple harvests annually. Usually crops are grown three times a year accounting for the Maha season, Yala season and the intermission season.51 These vegetables have a life span of 74 to 90 days. These vegetables are cultivated throughout the year according to the crop calendar. Hence at any given time, supply is available in the field and harvests can be

conducted at least 2-3 times per week.52

51 https://www.doa.gov.lk/HORDI/index.php/en/crop-en

52 The Crop Calendar/Crop Wagon wheel allows farmers to plan cultivation to ensure a year around harvest. For example, a particular crop is cultivated at multiple plots at least 10 days apart. Once a particular plot is harvested, it will either be replanted with the same crop or with another one, or it will be used as fallow land for several months to establish crop rotation. Organic vegetable farmers never use a plot for the same crop consecutively. Rather the plot will be for another vegetable from a different family or will be kept as fallow land with leguminous crops (this is for fixing nitrogen in the soil).

https://www.doa.gov.lk/HORDI/index.php/en/crop-en



Certification authorities work closely with the producers during the conversion periods and thereafter. In addition, the Department of Agriculture (DoA) also provides assistance to producers concerning organic cultivation practices and production of organic fertiliser and organic pesticides. The Export Development Board (EDB) supports the organic vegetables exporters and growers. Producers have established close relationships with the certification bodies. There are producers who have obtained group certifications organising the produce of several producers. With group certification, the certification holder is responsible for arranging the Internal Control System and maintains a close relationship between producers. Group certification is beneficial for smallholder farmers, but still most producers prefer to have their own lands and their own certification for that land.

Organic vegetable value chains are short in terms of the number of stakeholders involved in the value chain. The average organic vegetable farmer operates around 5 acres of land or approximately 2 ha. Most cultivation is far away from the market (see Photo 7). For example, organic vegetable producers in Nuwara Eliya supply their produce mainly to Colombo. This separation between the consumer base and the production base have pushed producers to adopt innovative marketing strategies. Such marketing strategies are: 1) Producers supplying their organic produce directly to consumers’ households in Colombo and other cities, (2) producers supplying directly to consumers via their own retail stores in Colombo and other cities, (3) producers supplying directly to hotels and restaurants using their own refrigerated trucks, (4) producers supplying directly to consumers via major supermarket chains and (5) producers supplying directly to consumers in the hospitability/tourism sector where the produce is grown on farms owned and operated by tourism entities.



Photo 6 Organic farms in Sri Lanka

Source: TAMAP

Producers who directly supply to customers’ households work on the basis of pre-defined orders. For example, they have a dedicated set of consumers who place a weekly or bi-weekly order. Therefore, their production is highly demand driven. Most of these producers use public transport to take fresh produce from growing areas such as Nuwara Eliya to Colombo and other urban areas. Their consumers are mostly professionals such as doctors, engineers, lawyers and private sector companies. They assure a continuous order at a regular interval, for example 100 kg twice a week. This allows the producer to exactly plan production according to demand and in addition to evaluate the expansion of the demand. However, dependence on public transport to take produce to the market is the major constraint. This dependence



causes high post-harvest losses. Public transport does not have a cold transportation system and handling of delicate crops like organic vegetables leads to further losses. In addition, the supplier still needs to arrange transport from the central bus or train station to the consumers’ households, leading to extra costs and losses. Some consumers collect the items from the central station but most require delivery at their house.

The farming systems of these organic farmers are highly diverse. They produce their own organic fertilisers, vermi compost and organic pesticides. They also have cattle sheds providing necessary ingredients such as cow dung and cattle urine. They also buy poultry manure from a local certified supplier or the DoA.

Some producers have their retail outlets close to their fields and in the urban areas. Retail stores close to their fields supply to local consumers and visiting tourists. They transport their produce to city outlets with cold trucks. Some producers have their own cold trucks while others rent trucks. On average they transport produce to their retail outlets every other day. They have a regular set of customers and try to attract new ones. They usually produce 40% more than their regular demand to be able to supply to additional consumers (or irregular consumers). During festival seasons, this percentage might increase up to 60%. These producers also practice crop rotation and they grow almost all the ingredients for the preparation of organic fertilisers and organic pesticides.

Some producers supply exclusively to high-end hotels and restaurants. Their production is highly demand driven and they use intensive cultivation methods. Produce is grown in a protected environment either in poly tunnels or in green houses. Irrigation is done using sprinkler and drip irrigation. They prefer hybrid seeds over traditional seed varieties. They supply to hotels and restaurants with their own cooling trucks.

Supermarket chains are a recent trading channel for producers. Major supermarket chains have their own organic stalls and buy regularly through their collecting centres. Supermarkets work closely with organic vegetable producers to make sure certifications are in place and products are not mixed with non-organic produce. Hence close collaboration is evident between the supermarket collecting centres and organic vegetable producers. However, supermarkets have not gone into establishing forward contracts with the producers, and still work on spot prices and daily demand. Managers of supermarket collecting centres keep close communications with producers to share information on the prices and required quantities. Supermarket collecting centres are equipped with a cold transportation system and produce is transported to their outlets within several hours. Producers bring their organic vegetables uncooled to the nearby collecting centres. Several hotels, especially in Nuwara Eliya, Badulla and Kandy districts have established organic farm fields to supply organic produce to their guests. These farm fields are located in the vicinity of the hotels and sometimes they are even part of the hotel infrastructure. In such a situation, customers of the hotel can visit the farm fields. They can see how organic farming operations are being done, participate and harvest what they wish to eat. This experience of organic vegetable production is part of recreational packages. A price premium on the room rates accounts for this experience. Customers also have the chance to buy organic vegetables at check out. Some smaller scale hotels have taken this even a bit further by showing customers how to prepare what they pick from the organic vegetables fields. This arrangement does not require cold transport and storage.

Most organic vegetable producers use locally available hybrid seeds. Therefore, they need to invest in seeds every season. Some producers use local seed varieties/wild varieties only but the majority of producers use hybrid seeds.53 Hybrids give a higher production and a wider

53https://www.quora.com/Is-it-possible-to-cultivate-high-yielding-varieties-or-hybrid-seeds-under-organic-farming-condition

https://www.quora.com/Is-it-possible-to-cultivate-high-yielding-varieties-or-hybrid-seeds-under-organic-farming-condition

https://www.quora.com/Is-it-possible-to-cultivate-high-yielding-varieties-or-hybrid-seeds-under-organic-farming-condition



consumer coverage. However, producers supplying to the hospitality sector are keener to use local seed varieties to promote local/indigenous vegetables among its consumers. Organic fertiliser is an essential element of organic vegetable production. Short duration crops with multiple harvests per year require the soil to be fertile. Producers use organic fertilisers such as liquid fertiliser, solid fertiliser and vermi compost. Some producers are preparing organic fertiliser since they have most of the inputs at their disposal. Organic vegetable famers use their leftover harvests as a major ingredient for organic fertiliser together with other leafy materials. Organic farmers may have small daily operations with 3 or 4 cows and use cow dung and cattle urine to make fertiliser (and even biogas sometimes). Farmers who do not produce fertilisers themselves buy from suppliers of organic fertilisers. These suppliers have certified their organic fertiliser (under organic certifications and registered with the fertiliser secretariat) and can supply at the farmers’ fields. Organic pesticides are also an important element in organic agriculture. The use of organic pesticides is higher in organic vegetable production than in organic fruit and spice production. This is mainly because organic vegetable growers use short-duration crops from hybrid seeds. Homogeneity of crop life cycle is common in organic vegetable production. Farmers have adapted their own methods and ingredients to prepare organic pesticides. Certified organic pesticides such as products from neem plant extracts are available in the market. However the majority of farmers work with their own organic pesticides. The use of organic pesticides is lower for crops grown under poly tunnels or in green houses.

Machines are hardly used in organic vegetable cultivation. Male and female manual labour conduct farm operations, including hired labour. Since farm lands are managed under mixed cropping systems, having many plots with different vegetable types in a crop rotation, the average plot size is small. On average, a plot size for a crop is not more than 0.25 acres and is divided into many smaller plots according to planting dates to guarantee regular harvest. This prevents the use of large and heavy machinery. Watering, organic fertiliser and pesticide application, weeding and harvesting are mostly done manually. Most organic vegetables lands are located in isolated areas or established with a proper buffer zone (see Photo 6). This has minimised the probability of contamination from other farm lands. They operate with their own water resources, mainly from large agro wells. Most organic vegetable farms have their own pack houses and use agricultural crates for collection, storage and transport. Produce that is not supplied to the collection centres of the supermarkets, is usually packed and labelled under the particular farm name.



Photo 7 Vegetable storage, packaging and land fallowing on organic vegetable farms

Source: TAMAP

The organic vegetable value chain comprises of several major trading channels. These trading channels are generally shorter than conventional vegetable value chains. For example, organic vegetables are not traded through regional economic centres or wholesale markets. Organic vegetables attract a premium price which may depend on the producer. Since a wholesale



market does not exists, prices are determined by the consumers’ willingness to pay. According to purchasing power, different consumers may pay different price premiums to producers. Below are the major trading channels for the Sri Lankan organic vegetable value chain:

a. Producer……....> Selected local consumers buy from on farm retail shop b. Producer ….......> Selected local consumers are supplied at their houses c. Producer……….> Selected urban consumers are supplied at their houses d. Producer ………> Selected urban consumers are supplied to bus or train station where

consumers come and collect e. Producer ………> Supply to own urban retail store where consumers buy f. Producer ………> Supply to own urban retail store which arranges home delivery g. Producer..……..>Supply to supermarket collection centres > supermarket retail

consumer h. Producer ………> Supply to other retail companies (Collectors) > local retail consumer i. Producer ………> Supply to other retail companies (Collectors) > Consumers of hotels

and restaurants j. Producer ………> Supply to other retail companies (Collectors) > Export companies k. Producer ……...> Hotels and restaurants……...> Consumers of hotels and restaurants l. Producer ……. > Export companies………> Export destination m. Producers …… > Own export companies…….> Export destination n. Producer ……. > Own recreational facility ………> Recreational consumer

These major trading channels are further illustrated in a Value Chain Network Map (Figure 4).



Figure 4 Value Chain Network Map for organic vegetables

• Pls check the foll. In the above:

• Produced ready for the export market – Produce

• Organic vegetable producer - producers

• Retail outlets system – retail outlet system

Source: TAMAP

Organic vegetable cultivation is concentrated in several main districts of Sri Lanka. Two types of vegetables are grown as organic: up country vegetables and low country vegetables. Up country organic vegetables are grown in Kandy, Nuwara Eliya, Badulla and Bandarawela



districts. Low country organic vegetables are grown in Matale, Anuradhapura, Polonnaruwa, Vavuniya and Kilinochchi districts (see Map 1).

Map 1 Location of organic vegetable farms

Source: TAMAP

6.2.1.2 Economic analysis

Economic analysis of organic vegetable production was done by collecting cost and revenue information from organic vegetable producers. Information was collected from several producers and verified with the secondary information in literature. Calculations were done for the farming system with multiple crops. Only direct costs and revenues were evaluated. Opportunity costs and indirect valuations were not considered. Below is the description of the organic vegetable farm that was evaluated:

a. Total land area of the vegetable farm under consideration is 3 acres. The land area is selected based on the farmer’s ability to provide cost and revenue information. The gross margins are calculated on the basis of a hectare;

b. The number of different vegetables available on the farm is 10;



c. The producer uses purchased, imported hybrid seeds;

d. The average land size of a vegetable farm is 0.25 acres and crop rotation is used;

e. Organic fertiliser is made by the farmer but also bought from a certified supplier; f. Organic pesticide is made by the farmer but also bought from a certified supplier; g. Producer makes his own vermi compost;

h. Producer uses both family and hired labour; i. Producer has three milking cows. Milk is not sold outside but is consumed by them.

Manure and urine are obtained to make organic fertilisers and organic pesticides.

j. Producer uses open field cultivation; poly tunnels or green houses are not used;

k. Farm has a pick-up truck for transport;

l. Farm has a pack house, a house for the workers and a cattle shed;

m. Water is obtained from an agro-well using a water pump;

n. Farm has electricity supply;

o. Marketing of produce is done through own outlets in Colombo and Kandy;

p. Frequency of harvest for a crop is twice a year ( "Maha and Yala" seasons);

q. Farmer obtained a private organic certification not a group certification; r. For the crops under consideration, only direct costs and direct revenues are

accounted for; s. Dollar exchange rate is 1 USD = LKR 180

Table 5 calculates the gross margin per hectare per year of the organic farm at about LKR 4.9 million (about US $ 27,500). Using conventional farming, a farmer gets 22.5 MT of carrots per hectare per season. With Maha and Yala seasons, the yield on average is 45 MT. His cost of production is about LKR 30 per kg and his selling price is around LKR 130 per kg. The gross margin per hectare of conventional carrot farming is about LKR 4,500,000 (USD 25,000) per year. Consequently, the organic farmer has a slightly higher return on investment than the conventional farmer. But the external (environmental) costs of conventional farming are much higher than those of organic farming, especially in vegetable farming.



Table 5 Gross margin analysis for an organic vegetable farm

Item Unit cost No. of units

LKR USD

Fixed costs

Land purchase 1,200,000 3 3,600,000 20,000

Pack house 1.000,000 1 1,000,000 5,556

Labour quarters 400,000 1 400,000 2,222

Cattle shed 550,000 1 550,000 3,056

Cattle 60,000 3 180,000 1,000

Pick-up truck 2,500,000 1 2,500,000 13,889

Water pump 65,000 1 65,000 361

Other materials (i. e.: farming equipment and water pipes)

30,000 1 30,000 167

Total 8,325,000 46,250

Variable costs

Seeds 88,000 3 264,000 1,467

Organic fertiliser from outside (one bag 20 kg. Total of 10,000 kg)

150 500 75,000 417

Organic pesticides from outside 550 150 82,500 458

Packing materials (Boxes, crates and bags)

50,000 1 50,000 278

Cattle feed (Mixture of organic components)

25 500 12,500 69

Organic certification cost 150,000 1 150,000 833

Labour: Farm activities (land preparation, planting, weeding, watering, harvesting, packaging)

1,500 1,500 2,250,000 12,500

Labour: making organic fertiliser 1,500 150 225,000 1,250

Labour: making organic pesticides 1,500 120 180,000 1,000

Labour: making vermi compost 1,500 150 225,000 1,250

Labour: cattle management 1,500 36 54,000 300

Electricity 5,000 12 60,000 333

Fuel cost for the vehicle 25,000 12 300,000 1,667



Item Unit cost No. of units

LKR USD

Fixed component @ 20% of variable cost

785,600 4,364

Total 471,3600 26,187

Revenues

Revenues from crop 1: Carrots (harvested two times per year and 70% of the chemical-based harvest)

300 3,150 945,000 5,250

Revenues from crop 2: Beets 200 4,200 840,000 4,667

Revenues from crop 3: Broccoli 350 5,600 1,960,000 10,889

Revenues from crop 4: Cabbage 220 5,600 1,232,000 6,844

Revenues from crop 5: Red cabbage 220 5,600 1,232,000 6,844

Revenues from crop 6: Chinese cabbage

200 5,600 1,120,000 6,222

Revenues from crop 7: Tomato 180 2,800 504,000 2,800

Revenues from crop 8: Beans 200 4,200 840,000 4,667

Revenues from crop 9: Raddish 200 5,600 1,120,000 6,222

Revenues from crop 10: Leeks 275 3,360 924,000 5,133

Total 10,717,000 59,539

Gross margins for 3 acres/year 6,003,400 33,352

Gross margins for 1 acre/year 2,001,133 11,117

Gross margins for 1 ha/year 4,944,800 27,471

Total quantity 45,710

Average price 234.5 1.30

Break-even price 103 0.57

Break-even quantity 20,101

Source: TAMAP team



O r g a n i c f r u i t v a l u e c h a i n


Organic fruits are mainly grown for processing with only a very limited amount of organic fruits being sold fresh. Organic fruits are produced in an intercropping farming system (multi-crop system). Some intercropping systems are less diversified, having only a few crops in the farming system. In such systems, fruit crops are cultivated with low country vegetables and/or coconut. Approximately 10% of organic fruits are produced in highly diverse complex cropping

systems such as the Kandyan Home Garden System.54 Fruits that are grown organically in Sri Lanka are pineapple, mango, papaya, banana, passion fruit, soursop and watermelon. All these fruits are perennials. They produce harvests at least once a year. However, some fruits such as mango, passion fruit and papaya have multiple harvests correlating with “Yala” and “Maha” rainy seasons. Organic fruits are produced under different certification systems depending on market orientation (local market and export market), or whether the produce is processed or not. Producers in export-oriented organic fruit value chains have organic certifications (such as EU, NOP). Local market-oriented value chains work with Sri Cert and SLSI certificates. Some producers operate under group certifications but most organic fruit growers are certified as individual farms. Most producers under group certification grow spices as their main economic crop. Most of them follow the Kandyan Home Garden System.55 This system is very complex with annual, biennial and perennial crops including livestock production. These home gardens differ from place to place, based on ecological, socio- economic and cultural factors. Generally home gardening is practiced on small pieces of land close to the family residence. The gardens mostly produce partly for own family consumption and partly for sales in markets. Home gardens are mixed cropping systems of vegetables, fruits, plantation crops, herbs, spices, ornamental plants and medicinal plants, parallel to livestock production.

Government institutions such as the Department of Agriculture (DoA), Export Development Board (EDB) and the Department of Export Agriculture supports organic fruit producers to increase production and improve linkage to buyers. Supermarkets and outlets operated by the major producers of organic fruits also play a significant role in taking organic vegetables to the general consumer. However, the organic fruit industry is mainly driven by the processing sector that exports value added products. Several Sri Lankan companies have pioneered in exporting value added products from organic fruits, focusing on pineapple and mango. The value added products include fruit juices, fruit pulps, dried fruits (assorted products with spices and honey), pickles and chutneys. These processed fruit products are mainly exported, but also sold on the local market via supermarket chains or own company outlets. Organic fruit value chains are shorter than organic vegetable value chains, with only a few stakeholders involved. For example, exporters with their own processing facilities have their own plantations. Some producers (especially the smallholders under the Kandyan Home Garden systems) market via collectors who supply to a processor.

54 The Kandyan Home Garden is defined, based on the historical Kandyan Kingdom, to include HGs in Kandy and adjacent districts such as Badulla, Kegalle, Kurunegala, Matale, Nuwara Eliya and Rathnapura. This area largely falls into the wet zone of Sri Lanka but partly also into the intermediate zone, where the climate and edaphic environment support luxurious growth of perennial trees. The area consists of deep soil (i.e. reddish-brown latosol, immature brown loam and red yellow podzolic soils). The rainfall is year-round, with a distinct dry spell of one to two weeks that triggers the flowering of perennial species.

55 http://www.worldagroforestry.org/publication/kandyan-home-gardens-time-tested-good-practice-sri-lanka-conserving-tropical-fruit-tree

http://www.worldagroforestry.org/publication/kandyan-home-gardens-time-tested-good-practice-sri-lanka-conserving-tropical-fruit-tree

http://www.worldagroforestry.org/publication/kandyan-home-gardens-time-tested-good-practice-sri-lanka-conserving-tropical-fruit-tree



The large-scale extensive organic fruit producers use advanced technology such as drip irrigation with solar pumps, machinery to prepare land and to apply fertilisers and pesticides, and imported protective bags against fruits fly attacks. These large producers generally use organic fertilisers and pesticides. They apply proper pruning and train workers. On the other hand, the smallholders of the Kandyan Home Gardens generally do not use so much organic fertiliser. Fallen leaves and pruned branches of upper canopies are used as organic matter. Also, organic pesticides are less required as the system has sufficient natural predators due to high biodiversity and crop-diversity. However, harvests of the smallholders are significantly lower than those of the large-scale intensive organic fruit farms. Photo 8 shows organic fruits grown in the Kandyan Home Garden system. Several fruit crops are grown next to each other with many other crops. The system also uses a much lower plant density on the land than large-scale intensive organic fruit farms.



Photo 8 Organic fruits from a Kandyan Home Garden System

Source: TAMAP

Farming of organic fruits on a large scale is distinctly different from smallholder farms, as can be seen from Photo 9.



Photo 9 Organic fruit production on large-scale farms

Source: TAMAP

Compared to organic vegetable cultivation, organic fruit cultivation is less dependent on organic fertilisers and organic pesticides. Producers use both indigenous varieties as well as hybrid varieties. Most large-scale organic fruit cultivations depend on hybrid varieties while smallholders of the Kandyan Home Garden systems mainly use indigenous varieties. Most large-scale organic fruit cultivations use procured organic fertilisers. On average, large-scale organic fruit cultivations cover 5 to 10 acres of land. With the level of fertiliser requirements (on average 3,000 kg per acre), it is not feasible for these farms to make enough organic fertiliser by themselves.

Organic fruit producers use innovative marketing strategies to promote their produce locally and internationally such as (1) organic fruit outlets with fresh as well as value added products, (2) organic fruit farms selling organically raised plants and (3) through linking larger organic fruit farms with agro-tourism. Large-scale organic farms have established their own processing facilities and outlets at the factory location and in urban areas. These companies are focused on exports but sell in the local market as well. The best fruits are exported, and the rest is processed. These processed products such as dried and assorted fruits, pulps, juices, chutneys and pickles are exported and also sold locally.56 This way producers are promoting organic fruits and export grade value added products among the general consumers. Producers of organic fruits with larger plantations are also selling planting materials. These planting materials are nursed from their own mother plants to guarantee the yield and quality of produce.57 Just like in the organic vegetable sector, tourism and the hospitality sector have become important outlets for the organic fruit farmers especially for larger organic fruit farms. Tourists and hotel guests are given a unique experience to walk around an organic fruit farm, plucking fruits, consuming and buying on the site.

56 Visited Online on 24th March 2020. http://savsiri.com/

57 Visited Online on 24TH march 2020. http://www.tjcmango.com/

http://savsiri.com/

http://www.tjcmango.com/



Major trading channels in the organic fruit value chain are:

a. Producer ……… > Own processing ……> Export b. Producer ……….> Own processing ……> Local consumer c. Producer ……….> Supermarkets ………> Local consumer d. Producer ……….> Hotels and restaurants e. Producer ……….> Collector ………> Processor/Exporter ……….>Export f. Producer ……….> Collector ……... > Processor/Exporter ……….> Local consumer g. Producer ……….> Collector ………> Hotels and restaurants h. Producer ……….> Collector ……... > Supermarkets…………> Local consumer i. Producer ……….> Own recreational facility ……...> Recreational consumer

This is further illustrated in the value chain network map for organic fruits (Figure 5).

Figure 5 Value Chain Network Map for organic fruits

Source: TAMAP



Organic fruit production is concentrated in a few major areas. Organic pineapples are grown predominantly in Gampaha and Kurunegala districts. Other organic fruits such as banana, papaya and passion fruit are grown in Anuradhapura, Vavuniya and Kilinochchi districts. These are the locations were the large-scale plantations operate. The smallholder farmers’ Kandyan Home Garden systems operate in Kandy and Matale districts (see Map 2).

Map 2 Location of organic fruit farms

Source: TAMAP




The economic analysis of organic fruit production was done by collecting cost and revenue information from organic fruit producers. Information was collected from several producers and verified with the secondary information in literature. Calculations were done for a farming system with multiple crops. Only direct costs and revenues have been included. Opportunity costs and indirect valuations have not been considered. Given below is the description of the evaluated organic fruit farm.

a. Total land area under cultivation is 1 acre. b. Farm has four fruit types intercropped with coconut. c. Plating materials are bought from plant nurseries. d. Producer makes organic fertiliser on the farm and buys from a certified supplier. e. Producer makes organic pesticides on the farm and buys form a certified supplier. f. Producer makes his own vermi compost. g. Producer uses family labour and hired labour. h. Producer has five milking cows. Milk is not sold and manure and urine are collected to

make organic fertiliser and pesticides. i. Cultivation is done in the open field. j. The farm has a pickup truck. k. The farm has a pack house, housing for workers and a cattle shed. l. Water is pumped from an agro-well. m. Electricity supply is available. n. Marketing is done through own outlets in Colombo, Kurunegala and Kandy. o. Mango is harvested two times per year; others once a year and coconut six times per

year. p. The farm has 30 mango trees, 1,200 pineapple plants, 15 banana trees, 20 coconut

trees,15 papaya trees, 50 passion fruit plants and ten soursop trees. q. Calculations are done for one year. r. The farmer has the organic certificate; no group certification. s. For the crops under consideration, only direct costs and revenues are accounted. t. Dollar exchange rate is 1US$ = LKR 180.

Table 6 calculates the gross margin per hectare per year of the organic farm at about LKR 1.8 million (about US $ 10,000). Using conventional farming, a farmer gets 19.8 MT of pineapple per year. His cost of production is about LKR 22 per kg and his selling price is around LKR 68 per kg. The gross margin per hectare of conventional pineapple farming is about LKR 1,350,000 (USD 7,500) per year. Consequently, the organic farmer has a higher return on investment than the conventional farmer excluding the external (environmental) costs of conventional farming.



Table 6 Gross margin analysis for an organic fruit farm

Item Unit cost No. of units LKR USD

Fixed costs

Land purchase 1,800,000 1 1,800,000 10,000

Pack house 750,000 1 750,000 4,167

Labour quarters 350,000 1 350,000 1,944

Cattle shed 100,000 1 100,000 556

Cattle 90,000 5 450,000 2,500

Pickup truck 3,000,000 1 3,000,000 16,667

Water pump 65,000 1 65,000 361

Other materials (i.e.: farming equipment and water pipes) 50,000 1 50,000 278

Total 6,565,000 36,472

Variable costs

Planting materials: Mango (TEJC) 350 30 10,500 58

Planting materials: Pineapples 17 500 8,500 47

Planting materials: Papaya 30 15 450 3

Planting materials: Banana 65 15 975 5

Planting materials: Soursop 50 10 500 3

Planting materials: Passionfruit 25 50 1,250 7

Planting materials: Coconut 200 20 4,000 22

Organic fertiliser from outside (one bag 20 kg) 150 500 75,000 417


Packing materials (Boxes, crates and bags) 35,000 1 35,000 194

Cattle feed (Mixture of organic components) 25 750 18,750 104


Labour: Farm activities (land preparation, planting, weeding, watering, harvesting, packaging) 1,500 600 900,000 5,000

Labour: making organic fertiliser 1,500 30 45,000 250

Labour: making organic pesticides 1,500 30 45,000 250




Labour: making vermi compost 1,500 35 52,500 292


Electricity 2,000 12 24,000 133


Fixed component @ 20% of variable cost 340,985 1,894

Total 2,045,910 11,366

Revenues

Revenues from crop 1: Mango (Harvested two times per year, 70% of the chemical-based harvest) 250 6,000 1,500,000 8,333

Revenues from crop 2: Pineapple (Harvested once a year, 70% of the chemical-based harvest) 200 400 80,000 444

Revenues from crop 3: Papaya (Harvested two times per year, 70% of the chemical-based harvest) 110 300 33,000 183

Revenues from crop 4: Passionfruit (Harvested once a year, 70% of the chemical-based harvest) 200 750 150,000 833

Revenues from crop 5: Soursop (Harvested once a year, 70% of the chemical-based harvest) 150 350 52,500 292

Revenues from crop 5: Banana (Harvested once a year, 70% of the chemical-based harvest) 130 500 65,000 361

Revenues from crop 6: Coconut (Harvested 6 times per year, 70% of the chemical-based harvest) 150 6000 900,000 5,000

Total 2,780,500 15,447

Gross margins for 1 acre/year 734,590 4,081






Average price 170 0.94

Break-even price 143 0.79


Source: TAMAP team

O r g a n i c s p i c e v a l u e c h a i n


Sri Lankan organic spice farmers have received prestigious international certifications of Bio Suisse, USDA Organic (USA), JAS (Japan) Organic Farmers & Growers (UK), NASAA (Australia), SKAL (The Netherlands) and EU Organic Label. These provide international recognition that the products are entirely of organic sources and can be merchandised as organic products across the globe. Sri Lankan coconut farmers are also adopting organic coconut cultivation methods to ensure quality produce. Sri Lankan coconut farmers hardly use chemicals and want to get their products and coconut estates certified as chemical-free. This is to target premium prices in the global market. Tea farmers are also targeting organic farming and most of them have incorporated spices such as ginger, turmeric, cardamom and vanilla

into their organically certified tea land and home gardens.58 Over 70% of the land used for spices belongs to smallholders and home gardens. The spice sector is a priority sector in the Sri Lankan National Export Strategy. The National Export Strategy for the spice sector was developed through consultations between private and public sector stakeholders in the industry. The National Export Strategy intends to position Sri Lanka as a trade hub in the region, driven by investment and innovation. The sector strategy for spices focuses at

establishing Sri Lanka as the key spice exporter in the region.59

58 https://www.srilankabusiness.com/blog/organic-farming-in-sri-lanka.html

59 https://www.srilankabusiness.com/pdf/nes/sri-lanka-spices-and-concentrates-4-2-web.pdf

https://www.srilankabusiness.com/blog/organic-farming-in-sri-lanka.html

https://www.srilankabusiness.com/pdf/nes/sri-lanka-spices-and-concentrates-4-2-web.pdf



Photo 10 Organic spice farming

Source: TAMAP

Organic spices are mostly grown for the export market. The organic spice exports from Sri Lanka mainly include pepper, cardamom, cloves, nutmeg, cinnamon, ginger, and vanilla. Organic spices are primarily used for flavouring. Organic spices are a niche market with a premium price. Even at relatively small export volumes, a premium price essentially means higher export revenue.60 Organic spices are produced in mixed cropping systems, where a combination of several spices is grown with short term as well as long-term spice crops. Short-term spices are varieties such as ginger and turmeric. Long-term spices are varieties such as pepper, cinnamon, vanilla and cardamom. Sometimes these long term and short-term spices are intercropped with coconut and tea. Organic spice farms have a higher crop diversification than organic vegetable or organic fruit farms. The organic spice farms contain more large trees and resemble Kandyan Home Garden systems. Photo 10 shows spices grown in home gardens, spice gardens and Kandyan Spice Garden systems in Sri Lanka.

The organic spice sector uses “Spices Gardens” as a major marketing strategy. Spice farmers are connected to the tourism sector and their “Spices Gardens” are a major tourist attraction. These home gardens contain a wider range of spices than usual. Organic spice gardens have been even more successful than conventional spice gardens in attracting tourists.

Organic spice farms under the Kandyan Home Garden system are certified through group certification. Different strategies have been developed over time for quality assurance of smallholder groups. Smallholder group certification requirements and the role and

responsibility of the Internal Control System (ICS)61 vary between different organic certifiers.

60 https://www.srilankabusiness.com/blog/expansion-of-organic-spice-exports-from-sri-lanka.html

61 An Internal Control System (ICS) is a documented quality assurance system that allows an external certification body to delegate the annual inspection of individual group members to an identified body/unit within the certified

https://www.srilankabusiness.com/blog/expansion-of-organic-spice-exports-from-sri-lanka.html



Two types of smallholder farmer organisations are eligible for group certification categories.62: (1) An association or cooperative of farmers holds the organic certificate and organises the ICS (is the ICS operator), (2) A trader or processor contracting smallholder farmers holds the certificate and organises the ICS (is the ICS operator). Sometimes the ICS operator does not own the certificate and certification is paid by a trading partner in Europe.

Trading channels in the organic spice value chain are short. Major trading channels are as follows:

a. Producer………...> direct sales to local and foreign visitors (Spice garden systems linked to the tourism and hospitality sector)

b. Producer ………> processor (primary processing such as drying and powdering) ……….> Exporter (further processing such as tea infusions)……….> export destination

c. Producer ……....> processor (primary processing such as drying and powdering) …….> local market63

d. Producer ……...> processor (primary processing such as drying and powdering) …….> own export operation ……...> export destination

e. Producer ……..> processor (primary processing such as drying and powdering) ……> Supermarkets………> retail consumer

f. Producer ……..> processor (primary processing such as drying and powdering) ……...> hotels and restaurants

Major trading channels are shown in the Value Chain Network Map (see Figure 6).

operator. In practice this means that a growers’ group basically controls all farmers to comply with organic production rules according to defined procedures. The organic certification body then mainly evaluates whether the

Internal Control System is working well and efficiently. The evaluation is done by checking the ICS documentation system, staff qualifications and re-inspecting some farmers.

62 https://www.ifoam.bio/sites/default/files/ics_guide_producers_en.pdf

63 Visited Online on 26th March 2020. http://pasanka.com/our-products/spices/

https://www.ifoam.bio/sites/default/files/ics_guide_producers_en.pdf

http://pasanka.com/our-products/spices/



Figure 6 Value Chain Network Map for organic spices

Source: TAMAP



Organic spices are grown in Kandy, Matale, Galle, Matara, Hambantota and Kalutara districts. Spices such as organic pepper is mainly grown in Matale and Kandy districts and organic cinnamon mainly in Galle, Matara and Kalutara. Spices such as lemon grass and moringa leaves are grown in Matale and Hambantota districts (see Map 3).

Map 3 Location of organic spice farms

Source: TAMAP




Economic analysis of organic spice production was done by collecting cost and revenue information from organic spice producers. Information was collected from several producers and was verified with the secondary information in literature. Calculations were done for a farming system with multiple crops. Only direct costs and revenues were included. Opportunity costs and indirect valuations were not considered. Given below is the description of the organic spice farm that was evaluated.

a. Total land area is 1 acre. b. Farm has four types of spices intercropped with coconut. c. Planting materials are bought from the market. d. Average land area allocated for a crop is 0.2 acres. e. Producer makes organic fertiliser on the farm and buys from a certified supplier. f. Producer makes organic pesticides and buys from a certified supplier. g. Producer makes vermi compost. h. Producer uses family labour and hired labour. i. Farm has three milking cows. Milk is not sold. Manure and urine are obtained to make

organic fertiliser and organic pesticides. j. Farm uses open field cultivation. k. Farm has a pickup truck. l. Farm has a pack house, housing for workers and a cattle shed. m. Water is pumped from an agro-well. n. Electricity supply is available at the farm. o. Marketing is done through own outlets in Kandy and Colombo. p. Frequency of harvest for spices is once a year and six times for coconut. q. The calculation is for one year. r. The farmer has the organic certificate; no group certification. s. For the crops under consideration, only direct costs and direct revenues are

accounted for. t. Dollar exchange rate is I USD = LKR 180.

Table 7 calculates the gross margin per hectare per year of the organic spice farm at about LKR 2.1 million (about US $ 12,000). Using conventional farming, a farmer gets 1.4 MT of cinnamon per year. His cost of production is about LKR 550 per kg and his selling price around LKR 1,800 per kg. The gross margin per hectare in conventional cinnamon farming is about LKR 1,750,000 (USD 9,700) per year. Consequently, the organic farmer has a higher return on investment than the conventional farmer, even excluding the external (environmental) costs of conventional farming.

Table 7 Gross margin calculations for an organic spice farm


Fixed costs

Land purchase 1,800,000 1 1,800,000 10,000

Pack house 500,000 1 500,000 2,778

Labour quarters 300,000 1 300,000 1,667




Cattle shed 500,000 1 500,000 2,778

Cattle 75,000 5 375,000 2,083

Pick-up truck 2,500,000 1 2,500,000 13,889

Water pump 65,000 1 65,000 361

Other materials (i.e.: farming equipment and water pipes) 25,000 1 25,000 139

Total 6,065,000 33,694

Variable costs

Planting materials: cinnamon 20 720 14,400 80

Planting materials: pepper 25 500 12,500 69

Planting materials: ginger 200 120 24,000 133

Planting materials: turmeric 165 250 41,250 229

Planting materials: coconut 200 20 4,000 22

Organic fertiliser from outside (one bag 20 kg) 180 400 72,000 400


Packing materials (Boxes, crates and bags) 20,000 1 20,000 111

Cattle feed (Mixture of organic components) 25 500 12,500 69


Labour: Farm activities (land preparation, planting, weeding, watering, harvesting, packaging) 1,500 300 450,000 2,500

Labour: making organic fertiliser 1,500 75 112,500 625

Labour: making organic pesticides 1,500 45 67,500 375

Labour: making vermi compost 1,500 50 75,000 417


Electricity 3,000 12 36,000 200


Fixed component @ 20% of variable cost 275,030 1,528

Total 1,650,180 9,168




Revenues

Revenues from crop 1: Ginger (70% of the chemical-based cultivation) 350 1,500 525,000 2,917

Revenues from crop 2: Turmeric 250 1,500 375,000 2,083

Revenues from crop 3: Pepper 1,000 400 400,000 2,222

Revenues from crop 4: Cinnamon 2,500 120 300,000 1,667

Revenues from crop 6: Coconut (Harvested 6 times per year) 150 6,000 900,000 5,000

Total 2,500,000 13,889

Gross margins for 1 acre/year 849,820 4,721



Average price 850

Break-even price 173


Source: TAMAP

S o c i a l a n a l y s i s - o r g a n i c v a l u e c h a i n s

Organic value chains are short in terms of the number of stakeholders involved. In addition, organic farming relies strongly on manual labour, predominantly family labour, and less on hired labour. Organic spice farms under the Kandyan Home Gardening System also use family labour. Large-scale organic farms use hired labour from surrounding areas seasonally. The workers generally do not use protective clothes and gloves at the farm as no harmful chemicals are used. Hired seasonal labour is paid a daily wage. However, workers at the processing facilities (such as drying facilities, extraction facilities and pack houses) are permanently employed and receive monthly salaries.

Organic vegetable producers in Kandy, Nuwara Eliya and Badulla regions do not exchange much information, even if they work with the same certification body. Farmers are vertically connected in the value chain and do not need to collaborate to find buyers. However, cooperation among producers is higher in the organic spice value chain. These are smallholders resembling the characteristics of the Kandyan Home Garden System. Organic spices farmers either operate as a farmer organisation or as a supplier to a processor under a contract agreement. They operate under group certification systems. Farmer organisations and processing companies have established Internal Control Systems (ICS) where extension officers work closely with farmers. Regular meetings and workshops are conducted to share



knowledge on how to improve organic farming practices. Some workshops are oriented at training farmers in making organic fertiliser, organic pesticide and vermi compost. Especially in the southern province, the Department of Agriculture is actively supporting organic farmers. The best organic farmers receive financial awards. These farmers assist the Department of Agriculture in conducting training workshops. The organic spice farmers under the group certification systems are clearly more interested in collaboration among themselves and with the Department of Agriculture. Supermarkets have also established direct relations with organic producers. When a farmer wants to supply a supermarket with his production, the certification needs to be thoroughly studied before engagement. While some supermarkets sell organic produce under their own brand, some allow farmers to use their brand name. Organic fresh fruits and vegetables are mainly sold under the supermarket brand, while processed fruits and spices are mainly sold under the producer/processor brand.

Organic farms use more female labour than conventional farms. Organic spice farms are mainly operated by women as they have a better knowledge regarding the management of the organic spice farming system. However, some spices such as cardamom which grows in forest areas are managed fully by men. Organic vegetable farms are predominantly managed by men but most workers are women. Land preparation and other activities are done mostly by men whereas planting, harvesting and packing is mainly done by women. Photo 11 shows women and men engaged in farming activities in organic value chains.

Photo 11 Male and female workers of organic farms

E n v i r o n m e n t a l a n a l y s i s - o r g a n i c v a l u e c h a i n s

Organic farming is widely considered to be more sustainable than conventional agriculture, both for supplying to markets and for food production. Organic farming results in better soil quality and reduced pollution from fertiliser or pesticide run-off. Farmers use all kinds of non-chemical methods to fertilise the soil and protect the crops. Green manure and animal manure are used to fertilise the soil. Organic plant extracts and natural predators are used to fight pests



and diseases. Conventional farming has been heavily criticised for causing biodiversity loss, soil erosion, and increased water pollution.64

Organic farming builds a healthy soil and helps fight erosion. Organic fields have a thicker topsoil than the chemically treated fields and have much lower erosion loss. Organic farming also helps to conserve waterways and sources. The healthy mulched organic lands help to conserve water. Organic farming encourages birds and other natural predators to live happily on farmland, assisting natural pest control. Animals on organic farms enjoy clean, chemical-free grazing, which keeps them naturally healthy and resistant to illness. As a perk for organic farmers, happy and healthy organic animals are more productive. In general, the higher the level of farm biodiversity, the higher the stability of the farm. Organic farming encourages healthy biodiversity, which plays a critical role in resilience to floods, droughts, disease and

pests.65

64 https://blogs.ei.columbia.edu/2019/10/22/organic-food-better-environment/

65 https://www.thebalancesmb.com/environmental-benefits-of-organic-farming-2538317

https://blogs.ei.columbia.edu/2011/04/30/what-you-can-do-to-protect-biodiversity/

https://www.thebalancesmb.com/considerations-for-a-beginning-organic-farmer-2538405

https://www.thebalancesmb.com/start-pest-control-business-4045989

https://blogs.ei.columbia.edu/2019/10/22/organic-food-better-environment/

https://www.thebalancesmb.com/environmental-benefits-of-organic-farming-2538317



7 P U B L I C S U P P O R T F O R O R G A N I C F A R M I N G

Buying organic products offers the chance to protect the climate without relinquishment. It ensures clean ground water and the preservation of biodiversity. Organic consumption contributes to improve the situation of the world. In view of the climate crisis, the current growth rates of organic farming need a boost as the share of organic products in total consumption is still too low. Only a few countries have more than 10% of their total agricultural land under organic farming and only a few (such as Denmark) want to convert to 100% organic.66

Many governments have initiated public policies and programmes to support the organic sector in order to obtain new export markets, improve the quality of products on the local market or to address environmental degradation. Numerous reports and scientific studies highlight the need for a major change in agriculture to provide sufficient food for a growing population, while

minimising its environmental impact.67

Initiated by IFOAM, 16 Asian countries have established ALOGA (Asian Local Governments for Organic Agriculture) to stimulate dialogue and cooperation among Asian local governments for the development of organic agriculture and its related industries.

The EU has been the front-runner in terms of support to organic agriculture. In 1992, the introduction of agri‐environment programmes provided a unified framework for supporting organic production across the EU, as part of the EU Common Agricultural Policy (CAP). Recent research has shown, that governmental support for organic farming (such as providing extension, markets, conversion and maintenance area payments etc. had significant impact on the development of the number of farms and the organic area. The provision of organic extension and marketing support correlates positively with the number of organic farms and the area under organic management. The effect of public policies to encourage conversion from conventional to organic is particularly visible when one compares the US and the EU. The US government hardly supported the organic farming sector. In 2017, the US had only ca. 0.6% of its total land converted to organic while the EU has achieved an average of 7.2%, even though the US has the largest market for organic products in the world.

In the new EU CAP for 2014-2020, the role of organic farming is recognised as a way of farming that responds to consumer demand for more environmentally friendly farming practices. In line with the motto “Public money for public goods,” the new CAP 2014-2020 makes organic farming more visible and confirms its role as a measure for providing public goods. 68 .

66 Bio-markt.info, 28.01.2020

67 Simon de Schaetzen, Organic Agriculture and the Sustainable Development Goals - Organic is Part of the Solution

68 IFOAM – Global Policy Toolkit on Public Support to Organic Framing 2017



IFOAM has developed guidelines for public support to organic agriculture. These guidelines have been prepared by IFOAM Organics International as part of the Global Policy Toolkit on Public Support to Organic Agriculture. IFOAM recommends that the government should primarily be an enabler and only secondarily, a controller. In addition, policy design and implementation should always be a public-private partnership and following a multi-stakeholder

approach.69 IFOAM: “In other words, setting up a government organic regulation without supporting measures to promote organic development is like putting the cart before the horse.”

Most of the organic expertise and know-how is with the private sector (producers, companies and NGOs working in organic agriculture on a daily basis). Government support will have a higher impact if the existing structures and expertise of the private sector are used. Evidence shows that the following issues are the keys for success in developing the organic sector:

• Seek a broad and active stakeholder participation in the development of standards. It will support common understanding of the challenges, higher knowledge regarding organic farming, encourage sharing of responsibilities among actors, and stringent communication of organic values. It will give the sector a voice in the overall development process.

• Farmer involvement is particularly important at the early stage, and good cooperation between the private sector and governmental institutions is essential.

• Alternative certification, with participatory mechanisms for development of the domestic organic farming market, which has been successful in many countries.

• Stakeholder involvement is crucial for the development of a good national law.70

Public-private partnerships will experience many challenges in developing the organic farming sector:

• The absence of standards and certification organisations hampered organic market development, with the existence of several sets of standards causing consumer confusion;

• Government agencies emphasising control measures with too little attention for extension, conversion supports, and consumer education;

• Regulations drawn up for the main international standards are frequently not adapted to the local situation, causing hardship for operators attempting to comply;

• Many governments copied the EU organic farming regulation to obtain EU acceptance, but the strategy has mostly failed;

• Support to GMOs poses a threat to the support of organic farming development;

• Subsidised chemical fertilisers, pesticides and hybrid seeds strongly influence farmers’ options and choices;

• Official extension, credit, and research are oriented at conventional agriculture, exerting a strong pressure on farmers to avoid organic farming.

Standard development has to be done in connection with market realities. It is essential to be clear about the scope of the standard and its intended use. Is it for the domestic market, the

69 IFOAM - Guideline to Public Support for Organic Agriculture, 2017

70 I. Källander and G. Rundgren, Building Sustainable Organic Sectors, 2008



export market or both? How will the standard apply to imported products? For export markets, the simplest solution is to follow the standards of those markets. But standards in export markets may be too demanding for the domestic situation, while equivalent recognition may not be realistic in the near future.

The Brazilian organic movement was concerned that the organic regulation was not adapted to the country’s geographic, climatic, social, political and economic environment. It feared that it would create internal barriers, if international standards established for high-income countries are made compulsory for the Brazilian situation. Moreover, Brazilian organic produce exports had to follow the importing country’s regulations. Consequently, the organic movement observed that the Brazilian regulation is not necessary for exports. Instead its purpose would

be to develop a strong domestic organic market.71

In Sri Lanka too, regulation is often seen as a tool to assist organic producers to access export markets through equivalence agreements. However national regulation is just another layer of complication for producers. The chance to obtain equivalence recognition of the main importing countries is extremely slim. In addition, if the objective is to support the export sector, other support measures are more effective.

Studies show that exports of organic products originate from countries without regulations. In countries with regulations, access to export markets is not achieved through regulation. So far only five developing countries (Argentina, Chile, Costa Rica, India and Tunisia) have been recognised for imports to the EU, and no country has been recognised by the USA. From the 1st of January 2021, the EU abolishes the Third Country Equivalence Recognition. Certification bodies accredited by ISO 17065 get direct EU recognition irrespective of the regulations in the country of operation. The key to export market access is competent and qualified certification organisations with efforts to strengthen those organisations demanding priority. These organisations seek direct approval in the EU, the USA and Japan. Some believe that consumers will not trust organic products unless the government has established standards and a mandatory certification system. However, there is little empirical evidence for this assumption. Some marketing experts explain that a too early regulation will even constrain market development, especially when national standards are too demanding and certification costs are high. Nevertheless, it seems plausible that in a situation with real market confusion and widespread fraud, a domestic market regulation might be of advantage. However, there are countries with regulations for ten years but with high consumer scepticism regarding the reliability of organic products and fraud. Market surveillance is the main activity that governments should implement. Strong organic farmers’ associations that have developed private standards with a guarantee system and PGS may be better for initial market development. But raising awareness among consumers remains of paramount importance.

When governments and the organic sector embark on regulatory initiatives, they should carefully assess the situation to see what added value a regulation can bring. Common objectives should be agreed upon, followed by a joint problem analysis including to what extent these problems can be addressed by regulations or require other means. Most often sector development is not achieved just by making a regulation.

Consumers often feel that there are a lot of fake organic products in the market. However, frequently this perception is the result of a lack of cooperation and transparency in the sector. It is an illusion that fraud will disappear just because there is a regulation in place. It is important that the impact of the regulation on all organic stakeholders is assessed, and that all stakeholders participate in the consultations.

71 Fonseca, Fernanda (2006), Meandering consensus building in Brazil, The Organic Standard, Issue 58, February 2006



Figure 7 Development of a National Standard

Source: IFOAM – Organic Regulation Toolkit72

Whether, when and how the Sri Lankan government should control the organic sector should therefore be discussed with regular stakeholder meetings. This should include companies, farmers, consumers, NGOs and government institutions. The focus should not mainly be on export but rather on domestic market development. The implementation of the existing standards and regulations should be on hold until newly assessed and adapted to the local conditions. The initial standard should be developed considering local market development. It should be a mechanism that producers can apply relatively easily and which can be verified by certification bodies or by other mechanisms. IFOAM developed a toolkit for the establishment of a national standard.).

Recognition by the EU and the USA will demand a stepwise development of the sector. If a country cannot provide evidence of a complete implementation of a regulation and strong and professional control by a competent authority, any attempt to apply for bilateral EU or US recognition is meaningless. The stepwise development should start with domestic market development. Regulations may be developed to support organic exports only as a second step.

Steps to be taken:

1. Develop an internal market

a. develop voluntary production standards together with all stakeholders

b. develop a logo

c. promote organic products with the general public

2. Control the national market – development of a regulation

a. establish a competent authority, preferably in the Ministry of Agriculture

72 IFOAM – Organic Regulation Toolkit, 2017



b. develop compulsory production standards

c. develop national conformity assessment rules

d. develop procedures for approval of certification bodies

e. develop penalties for violation of the regulation

f. develop requirements for the approval of Participatory Guarantee Systems

g. develop approval procedure for Participatory Guarantee Systems by the competent authority

As long as steps 1 to 2 are not completely implemented, any application for bilateral recognition with countries of major markets for organic products is likely to fail. The core of the IFOAM guidelines consists of facts, arguments, best practices and tips for policy measures to support organic agriculture. They have been categorised into “Push measures,” “Pull measures” and “Enabling measures.”

Push measures are measures to encourage the supply of organic products (such as research and extension, organic input development and use, organic certification, vocational training and academic programmes, conversion and maintenance assistance, support to organic practices, tax breaks for organic operators, investment support for organic farmers and organic processing, supply chain development programmes, organic management of public lands and prohibition of chemical use in environmentally sensitive areas).

Pull measures are measures to encourage demand for organic products (such as consumer education and promotion campaigns, public procurement, domestic trade and retail uptake, common logo for organic products, school organic gardening lessons, export support and organic trade agreements and equivalence).

Enabling measures are measures that have an overarching effect on supply and demand (such as national data on production and their dissemination, institutional development of organic associations, building organic farming expertise in the public sector, development of Participatory Guarantee Systems and urban and collective gardening).

In addition to these measures, the policies that have a negative impact on organic farming sector development should be taken into account. Policies such as: subsidies for chemical fertilisers or synthetic pesticides, approval of pesticide imports and use, support for energy crops (biogas and biofuel plants), competing environmental schemes, unfavourable agro-input regulations and agricultural risk management programmes, allowance of GMO crops, food safety and health requirements and laws related to farm land access.

An action plan is a powerful tool in policy and strategy design. It normally includes an assessment of the current situation, the needs and constraints for organic development, and

suggested measures for support.73 The action plan should be designed, implemented and monitored with broad stakeholder involvement throughout the process. In many countries a national council of stakeholders is facilitating the process.

73 Lampkin, at al, Overview about national Action plans for Organic Food and Farming, January 2004



National strategies or action plans are most effective when they relate to goals or targets for organic development and when they consist of a combination of specific measures, including direct income support through agro-environment/rural development programmes, marketing and processing support, support to the development of supply chains, certification support, producer information initiatives (research, training and advice), consumer education, and infrastructure support.

Participatory Guarantee Systems provide an opportunity for small scale, resource-poor farmers to participate in the organic farming sector. Sri Lanka has group certification for example in the organic spice sector (see case study on the organic spice value chain). Governments should not inhibit the development of these systems, as formal certification may not be what is demanded in the domestic market.

In ‘distant’ markets with several middlemen between the producer and the consumer, third-party certification is the most common, and for organic trade in international markets, it is required. But there are also situations where third-party systems are disputed and alternative ways of ensuring the integrity of the production have been proposed. There might be little or no need to have formal certification for systems like Community Supported Agriculture (CSA) or Teikei, where consumers have direct contact with the producer and the production. Similarly, organic farmers who do not market their products labelled as ‘organic’ may not need certification at all. Participatory Guarantee Systems (PGS) are created by the farmers and the consumers it serves. It encourages or even requires the direct participation of consumers. PGSs are often designed for small producers selling in local markets to reduce administration and certification costs. The standards used are often the same as for the third-party certified production. PGSs emphasise the sharing of knowledge and experiences by supporting and encouraging producer groups to work together. Open information and transparent, systematised decision-making processes are other characteristics. No international norms for Participatory Guarantee Systems exist, and there is great variation in how they operate. Brazil and Bolivia accept so called ‘participatory certification’ within their regulatory system, and it is under consideration in Chile, Costa Rica and Peru. Alternative guarantee systems have also been reported from the Philippines and Thailand. A PGS model recently developed in India, builds on existing PGS programmes in Brazil, New Zealand, and the USA. If Sri Lanka would enter Asian Local Government for Organic Agriculture (ALGOA) as a member it would benefit a lot from the experience of other Asian countries. PGSs and other non-third-party quality assurance systems address not only the quality assurance of the product, but are linked to alternative marketing approaches (internet market platforms, home deliveries, community supported agriculture groups, farmers’ markets, popular fairs etc.). PGSs help to educate consumers about products grown or processed with organic methods. Those promoting and developing PGSs should ensure credibility and transparency. IFOAM has developed guidelines for the development of PGSs and the TAMAP team recommends using these guidelines for the Sri Lanka policy and strategy development for the organic farming sector.



8 S W O T A N A L Y S I S

A Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of the organic farming sector in Sri Lanka was planned with multiple stakeholders. The analysis, however, could not be carried out due to the limitations on public gatherings imposed in the framework of the Corona virus crisis. The TAMAP team, therefore, prepared a SWOT on the basis of its current understanding of the sector (see Table 8). It is foreseen that this SWOT will be open to debate with the stakeholders once the Corona virus restrictions are lifted.

Table 8: SWOT of the Sri Lankan organic farming sector

Strengths Weaknesses

Broad expertise and know-how available in the private sector.

Lack of knowledge and experience within the public sector; e.g.: EDB and NOCU.

More than 300 companies are involved in the organic farming sector.

Ministry of Agriculture has limited interest in organic farming.

Supply chains for the export market are short and well managed.

The standards and legislation was developed without broad stakeholder involvement and may not fit the local conditions.

Many processing companies are HACCP and ISO 22,000 certified; quality standards are often high.

The national standard was developed for EU equivalence recognition and may be too demanding for domestic market development.

Good climatic conditions to grow a wide range of crops organically.

Sri Lanka is not a member of ALGOA and does not exchange experience with other Asian Governments regarding organic farming.

The public sector recognises the importance of organic farming.

Supply chains in the domestic markets are underdeveloped with public transport used for deliveries.

6% of total agricultural land is already certified organic.

No action plan for the development of organic farming.

No favourable competition of international certification bodies which increases costs.

Limited research in organic farming.



Opportunities Threats

High growth in international demand and markets for organic products.

The national standard will be too demanding for domestic market development.

Demand for organic products is increasing in the domestic and regional market.

No support programme for organic farming and subsides for chemical fertilisers continue.

The new government puts more emphasis on organic farming development.

Official extension, credit, and research are still biased towards conventional agriculture.

Organic farming in protected natural areas.

Source: TAMAP team



9 G A P A N A L Y I S F O R O R G A N I C A G R I C U L T U R E

Sri Lankan policies and strategies for the agriculture sector focus on Good Agriculture Practice. However the acceptance of organic farming as such a practice with additional advantages for the economy and the environment is still not widely accepted. Extension, education/training and research for organic farming hardly exist in the public sector. In addition, the limited strategy for organic sector support of Sri Lanka focuses on exports, while the local market is more in need of a proper strategy than the export market (importing countries set the rules of the game and exporting countries can only comply). The demand for organic products is growing in cities and among the middle-class population. Organic vegetable producers in Nuwara Eliya send their produce by train to Colombo and clients have to pick up orders at the station. Another producer uses his own small truck for home deliveries to Colombo. The small payload of the truck makes it inefficient in relation to the long distance.

The “Export Development of Organic Products Regulation 2014” came into operation on 10th July 2014 but has not been implemented as yet. EDB has been appointed as the competent authority and the NOCU was created within the EDB to control the regulation. However, the staff has no background in organic farming and related regulations. They lack knowledge and experience in the requirements of a competent authority to control the market of organic products in Sri Lanka. Too little resources are dedicated to building organic expertise within government institutions. The NOCU staff is not encouraged to connect to international expertise and international organic training opportunities. The domestic market is growing, but not controlled; there is a high risk of fake products entering the market.

The competent authority on organic farming is established in the Ministry of Agriculture in most countries. This ministry also carries out research programmes, extension services and training of farmers. In Sri Lanka however, the Ministry of Agriculture has little activities in organic farming. There is a risk of a conflict of interest with the competent authority being based within the EDB.

A well-functioning platform for organic agriculture stakeholders does not exist in Sri Lanka. For the first version of the Regulation, only exporters represented the private sector. Stakeholders, representing the domestic market were not sufficiently involved in the development of the regulation. A well-functioning platform for organic agriculture stakeholders in Sri Lanka should include organic farmers, consumers, traders, vendors, buyers, CBs and regulators. Due to the lack of connectivity with organic farmers, only “Third Party Certification” is foreseen in the revised regulation. PGS is not considered.

On the 1st of January 2021 a new (EC) Regulation 2018/848 on organic farming and labelling will come into force, abolishing Third Country Equivalence Recognition. EU organic imports must fully comply with the new EU regulation. A national standard will have no impact on Sri Lankan exports of organic products to the EU. The national standard should focus on supporting domestic market development, with adaptation to the local conditions and reduced requirements. The role of the government in the organic sector should primarily be that of an enabler, and only secondarily, that of a controller. Policies and strategies should have achievable goals with support measures to develop the sector. IFOAM has formulated such a procedure.

Mineral fertilisers are highly subsided, while organic farming does not receive any support. This is an obstacle to the development of the organic sector. Organic fertilisers should be subsidised equally.

16 Asian countries have founded ALOGA in order to regularly exchange information and experience in the development of organic farming and its related industry. Sri Lanka is not a member of this alliance.



The need for international certification bodies to have an office and representation in Sri Lanka supports the monopoly position of one single certification body. For CBs who have only a few clients, it will not be economically viable to open an office in Sri Lanka.



1 0 R E C O M M E N D A T I O N S

Organic farming can contribute to policy goals such as minimising the negative environmental impacts of agriculture, the provision of safe high-quality food, strengthening the competitiveness of Sri Lankan agriculture, enhancing rural development and reducing expenditures on agriculture in the long term. Thus, organic food and farming may play a strategic role in obtaining sustainable production and consumption.

It is also an infant economic sector with strong consumer demand, and domestic and international market potential. Recognising this, governments in all parts of the world have initiated public policies and programmes to support the organic sector. Designing organic support policies adapted to the local situation of each country is a complex undertaking.

Reorienting and redesigning agriculture in a more sustainable and organic direction requires different functions, actions and strategies that complement and reinforce each other. It especially demands the involvement of the private sector. Policy design and implementation should be done in a public-private partnership with a multi-stakeholder approach. Most of the organic expertise is in the private sector and is composed of producers, companies and vendors working on organic agriculture on a daily basis. Deep and broad cooperation and dialogue among the stakeholders in the whole food sector, from consumers to decision makers, from farmers to scientists, is essential. Their participation in strategic decisions is fundamental for success. Government support will have more leverage and effectiveness in the implementation, if it relies on the existing structures and expertise of the private sector.

The TAMAP team recommends the following steps for a proper policy and strategy:

1. Constitute a well-functioning and broad relevant stakeholder forum A key element of many action plans is the active involvement of all relevant stakeholders in a partnership for policy development, implementation and evaluation. Stakeholders in the organic sector – whether organic farmers, processing or marketing businesses, certification bodies or organisations – will review the Organic Action Plan. They will analyse and advise if the plan provides the ‘right’ relevant type of support. Methods for stakeholder involvement include: electronic consultations, creation of committees and expert groups, workshops, surveys etc.

2. Establish an Action Plan to develop the organic agriculture sector Organic action plans aim to define a range of policy measures in support of the development of the organic sector, to meet the needs of the sector and of policymakers. The action plans therefore seek to solve a wide range of problems and to address the priorities for development, in ways appropriate to the particular situation and stage of organic sector development.

✓ Carry out a status quo analysis of the current situation of the organic sector, its development needs and potential solutions.

✓ Identify appropriate policy measures based on sound reasoning on how the policy measures might influence the issues. Policy measures should be selected on the basis of the needs, as defined by the weaknesses and threats of a SWOT analysis.

✓ Prioritise the actions by taking into account the needs, opportunities for action and the available resources.

✓ Include stakeholders in the process.



Developing a comprehensive national organic action plan takes time (several months to a couple of years) and some resources. However, it is a worthwhile exercise. Because among others it:

• encourages an analytical starting point, looking at the current situation of the domestic organic sector, and therefore addressing the local situation rather than trying to replicate policy blueprints of other countries, which may not be appropriate.

• encourages policy makers and other actors of the sector to adopt a more comprehensive and strategic, and therefore more effective approach to organic support, than leaving single policy measures to be discussed and adopted in isolation.

• provides the framework for a constructive public-private cooperation and organised stakeholder involvement in policy formulation.

• it constitutes a clear government-supported statement of the major societal benefits of organic farming and contributes to the expression and visibility of medium and long-term government commitment to organic support, which is a crucial signal for the private sector to invest.

It is important that there is solid political support for this process. If the process is externally funded, it increases the risk of the plan being shelved. Many manuals on how to develop an Action Plan for the development of the organic agriculture sector exist, with examples of action plans and of stakeholder involvements and public-private collaboration on organic policy. They can be used for the development of a national action plan. The TAMAP team recommends the following manuals:

• IFOAM Organics, Guidelines for public support to organic agriculture, 2017

• FiBL, Organic Action Plans – development, implementation and evaluation, 200874

• UNFSS Discussion paper, 201575

74 FiBL, Organic Action Plans, development, implementation and evaluation, 2008

75 UNFSS Discussion Papers, 2015.



Annexe 1: History of organic farming

The organic movement started in the early part of the twentieth century, primarily in Europe and later in the United States. The Austrian philosopher, Rudolf Steiner published the book “Spiritual Foundations for Renewal of Agriculture” in 1924. He was convinced that man depends on nature and therefore has to preserve nature, instead of dominating and destroying it. This book explains the method that may be the first comprehensive organic farming system. The same year, he gave eight talks on the spiritual foundation of agriculture, later called biodynamic agriculture.

In 1928, "Demeter" was founded. Demeter is now the largest certification organisation for biodynamic farming, a private standard. The same year the Demeter Symbol was introduced, and the first standards for quality control were set.

In the mid-1930-ties, the Swiss Dr. Hans Mueller realised that farmers are becoming more and more dependent on the agro-chemical industry. He was of the opinion, that farming systems have to be more or less self-sufficient as far as possible, without external inputs. The Swiss private standard “BioSuisse” and the German “Bioland” are based on his farming concepts.

In 1935, Okichi Okada established an agricultural system originally called, "no fertiliser farming" or "Nature Farming" in Japan.

1939 - Lord Northbourne first used the term "organic farming" in his book “Look to the Land” (1940).

Lady Eve Balfour launched the Haughley Experiment (the first scientific, side-by-side comparison of organic and conventional farming).

1942 - J.I. Rodale started publishing Organic Farming and Gardening magazine (founded Rodale Inc. in 1930). Today the magazine is known as Organic Gardening.

1947 - Sir Albert Howard published "The Soil and Health, A Study of Organic Agriculture." This is the first book to include “organic” agriculture/farming in the title.

In the sixties and early seventies more and more organic farmers’ associations developed their own standards as the market was still not developed.

In 1972, IFOAM (the International Federation of Organic Agriculture Movements) was founded in Versailles, France. One of the first activities had been to develop the IFOAM Basic Standards to enhance a common understanding of the concept of organic agriculture. All member organisations may have their own standards, but must at least fulfil the IFOAM criteria. In 1980 IFOAM issued the Basic Standards regulating the certification of organic agriculture.

1973 - Research Institute of Organic Agriculture (FiBL) was founded In Switzerland; today it is the leading research institute for organic farming.

1982 - The first chair for organic farming was established at the University of Kassel, Germany, today the faculty of agriculture of the University teaches exclusively organic farming and is one of the leading research institutes. 1983 - Austria became the first country to establish organic farming guidelines.

1990 - Law on Organic Agriculture was adopted in the United States

1990 - Established the first fair of organic products (BIOFACH) in Germany; In 2020

3.792 exhibitors from 110 countries exhibited on a surface of 57.609 m2 with more than 47,000



visitors from 136 countries.76

1991 - The European Union enforced the first regulation worldwide on organic agriculture and labelling (No. 2092/91, revised in 1999, 834/2007 and 889/2008). The reason has been consumer protection. 1997 - The first National Organic Program (NOP) established by the USDA.

1999 - Codex Alimentarius, a commission run by the UN's World Health Organisation and the Food and Agriculture Organisation, sanctioned international guidelines to cultivate, process, market, and label organic foods. These guidelines shall serve governments as a basis for the development of own national standards. 2000 - The JAS Standards for organic plants and organic processed foods of plant origin established in Japan. 2002 - The United States of America adopts the National Organic Program (NOP), providing a development framework for organic agriculture. 2004 - The European Commission adopted the first Action Plan for Organic Food and Farming.

More and more countries are in the process of developing their own standard.77 Today ca. 92 countries have a legislation or at least a national or regional standard.

76 https://www.biofach.de/de/news/presseinformationen/2020-abschlussmeldung-aemvb340ob_pireport

77 https://www.ifoam.bio/en/about-us/history

https://www.biofach.de/de/news/presseinformationen/2020-abschlussmeldung-aemvb340ob_pireport

https://www.ifoam.bio/en/about-us/history

Documents

TAMAP Organic Farming and Sustainable Agriculture in Sri Lanka · 2020. 12. 7. · Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka EuropeAid/138-539/DH/SER/LK