Impact of COVID19 on food supply chains in Sri Lanka

Sri Lanka’s agriculture sector has so far been relatively little affected by the COVID19 outbreak, as the sector is only loosely integrated with global supply chains. From the outset of COVID19 pandemic, the government adopted timely measures to minimize the impact on agriculture. However, many farmers still suffered severe losses due to control measures, and temporary import restrictions hamper trade. Dairy farmers are among the least affected. In preparation for future potential food shocks, field level warehousing and cold storage facilities could be established. Other than COVID19, the sector may also be affected by the changing climate and the economic crisis.  Yet, the sector is predicted to achieve a positive growth of 1% in year 2020 and could still be an interesting market for input providers.

The economy at a glance

Sri Lanka’s economy was already facing a tough time when it was hit by the COVID19 outbreak in March 2020.  A constitutional crisis in 2018 and Easter Sunday attacks in 2019 significantly affected the economy, leading to a historically low growth rate in 2019. Given the current circumstances, IMF has predicted a negative growth of 0.5% for Sri Lanka in 2020. The government now faces the challenges of reducing the fiscal deficit while domestic and foreign debt payments are also due. Enhancing exports and foreign investment to ease the pressure on depreciating currency and increasing the government’s revenue to meet the ever rising public expenses are also top priorities.

Currently, most of the economic sectors have been affected by COVID19 with adverse consequences on the trade balance and the balance of payments. The government has taken many measures to revive the economy. They have introduced re-financing and working capital facilities for COVID19 hit businesses, injected LKR 240 billion new money into the banking system and suspended imports of non-essentials till at least mid-July 2020. The lockdown has been partly lifted as from 11 May but implications for the economy remain to be seen in the coming months.

Further, 2020 is an election year in Sri Lanka, including the parliamentary election scheduled for the near future. This may lead to adoption of popular policies amidst the crisis.   

Agricultural sector : labour shortages and price collapse despite exemption

Around 30% of the population in Sri Lanka engage in agriculture, though the sector’s contribution to GDP is as low as 10% (2015 data). Rice is the main food crop (40%) grown in Sri Lanka followed by the plantation crop sector (38%), comprised mainly of tea, rubber and coconut. The sector has been affected by low productivity, water and land use inefficiency and high post-harvest losses for a long time. Being the 2nd in the Global Climate Risk Index, the Sri Lankan agricultural sector has also been experiencing the effects of changing climate and natural disasters. This has, however, given an incentive for the farmers to shift towards climate smart agriculture. In line with this emerging trend, government adopted many measures to modernize the agricultural sector with support from the World Bank and other donor agencies. 

Compared to the industry and service sectors, Sri Lanka’s agriculture has so far been least affected by the COVID19 outbreak, as the sector is only loosely integrated with global supply chains. However, the effect of the pandemic on the agricultural sector is still comparable to that in other countries in the region. An estimated 2.1 million agricultural households are at a risk of losing their livelihoods despite various measures taken by the government to safeguard agricultural supply chains. Broader measures are needed to keep the food supply chains alive and mitigate the impacts across the food systems. Though the lockdown exempted farming operations and food supply chains from the beginning, implementation problems caused severe labour shortages and price collapse in wholesale markets. Given the circumstances, the Government initiated a program to procure fruits and vegetables directly from the farmers to ease the problem of limited wholesale markets.

Food security concerns : home gardening amidst disrupted supply chains

Despite the lockdown, food supply was adequate in the local market throughout the pandemic. However, logistical movement of food became a challenge causing disruptions in the food supply chains. Less production of high value commodities is likely, however not yet noticeable because of the lockdowns and disruption in the value chains. Amid rising food security concerns, the government started a campaign to motivate people to start their own home garden. As a part of the campaign, packets of seeds were distributed free of charge in some areas.

The response strategy of the government to increase food self-sufficiency faces some important challenges. The efficiency and productivity of the sector needs to be increased in order to be able to fulfill the demand. Being a trade-dependent country, effects of disruptions in the global food supply chains are also inevitable.

The latest Climate and Food Security Monitoring bulleting of WFP raises concerns of food security among vulnerable parts in Sri Lanka as a result of the impact and control response of the COVID19 outbreak coupled with weather related disasters predicted for May 2020. The report further elaborated that such weather related shocks combined with poor hygienic and sanitation conditions could result in an increase of acute malnutrition.

Impact on livestock

The impact of the outbreak on the livestock sector is huge. Reduced access to animal feed,  diminished capacity of processing companies due to logistical constraints, labour shortages, closure of markets and diminishing demand due to reduced disposable income are the main problems faced by the sector so far.

As per the President of All Island Poultry Association in Sri Lanka, around 5,000 broiler farmers and 3,000 layer farmers in the country have been significantly affected by the pandemic. At the outset, 12,000 MT of poultry meat was stuck in cold storages while another 8,000 MT were remaining to be harvested. The price of chicken eggs fell drastically just before the lockdown, causing heavy losses for layer farmers.

Dairy farmers are among the least affected category as they were still able to sell most of their milk during the lockdown. Dutch service providers could therefore look forward to continue with their existing cooperation without much disruption.

Further, the Department of Animal Production and Health imposed restrictions on import of live animals, animal products and animal by products from March 2020 onwards. This decision was taken as a precaution to COVID19 infection. The department later confirmed that the import is still possible subject to clearance from OIE and the assessment will be on a case by case basis before granting import permission. This will provide the room for Dutch exporters to continue with their operations as before. 

Food losses

Increased levels of food loss and wastage due to market closure, blockages to transport routes and declined demand were visible during the pandemic. Some of the regional wholesale vegetables markets were closed to control the spread of the virus, resulting in heavy losses to the farmers. However, the government’s approval of transport of vegetables during curfew hours was helpful to minimize such losses during the latter part of the lockdown. Recent policy assessment has also identified the establishment of field level warehousing and cold storage facilities as a top priority in dealing with potential food security problems in future. 

Import restrictions

Amidst a foreign exchange crisis in April, the government imposed import restrictions on 156 categories of products including essential food items such as rice, grains, pasta, bakery products and liquor until July 2020. Items such as milk powder, palm oil, red lentils, sugar and sunflower oil were allowed to be imported on a three months credit basis.

In November 2019, the government had imposed a special commodity levy on imported fruits and edible nuts. Later in April 2020, the levy was further increased when the Sri Lankan rupee slid to a record low against the US dollar. Imports of apples, oranges, grapes, pears, cherries, plums, lemon, grapefruit, peaches and some dried fruits were affected due to this special commodity levy.

Issues in input supply

The government restrictions on imports could trigger a shortage of veterinary medicines and other inputs. The government has, however, agreed to permit to import essential inputs on credit basis. Farmers in some regions already started complaining about a shortage of chemical fertilizers in the market for the price declared by the government. Quality of seeds has also become a problem in some regions where farmers complain about low germination percentage.

Financial assistance so far

The EU has announced an assistance of EUR 16.5 million for the benefit of pandemic hit agricultural supply chains in Sri Lanka. This funding will be used to mobilise private capital in rural areas by assisting small businesses. This money is part of an earlier program meant for agriculture and later reallocated for COVID19 response.

Conclusion

Sri Lanka and the Netherlands have a long history of collaboration. The Netherlands Embassy has been facilitating cooperation between our countries in the dairy, horticulture and poultry sectors. Sri Lanka is currently trying to cope with the impacts of COVID19 and other economic issues while preparing for a general election, which may bring along some nationalist rhetoric. Close monitoring is advisable. However, it is expected that the agricultural sector will continue to develop. Moreover, the increasing interest in more sustainable and efficient agricultural production systems is expected to pose opportunities for Dutch knowledge, expertise and machinery that improve efficiency, productivity and sustainability.

For questions or comments, please contact our agricultural department via col@minbuza.nl