europeaid/138-539/dh/ser/lk technical assistance to the

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 Value Chain Analysis Study On Floriculture In Sri Lanka March 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.



Technical Report: TAMAP Value Chain Analysis Study on Floriculture 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: 29 March 2020

VCD Studies Assignment period:

15 October to 1 November 2019

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 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 Floriculture Value Chain Study March 2020 (Final) Page i

TAMAP Value Chain Analysis Study on Floriculture in Sri Lanka

1 EXECUTIVE SUMMARY............................................................................. 9

2 INTRODUCTION AND CONTEXT ............................................................ 16

2.1 Introduction to the project .......................................................................... 16

2.2 Challenges of the agriculture sector in Sri Lanka and its reorientation ....... 16

2.3 Value chain and VCA4D methodology....................................................... 17 2.3.1 What are value chains? ............................................................................. 17 2.3.2 VCA4D methodology ................................................................................. 18

2.4 Data collection........................................................................................... 19 2.4.1 Secondary data ......................................................................................... 19 2.4.2 Primary data .............................................................................................. 19 2.4.3 Why Floriculture was selected for the study .............................................. 19

2.5 Sector Overview in Sri Lanka .................................................................... 20 2.5.1 Live Plants and foliage .............................................................................. 20 2.5.2 Cut flower production ................................................................................ 22 2.5.3 Major species in Sri Lankan floriculture production .................................... 22 2.5.4 Exports and imports of floriculture products from and to Sri Lanka ............ 25 2.5.5 Production & exports of foliage and live plants and cut flowers ................. 26

2.6 Governance and Institutional framework ................................................... 28 2.6.1 Floriculture policies and strategies ............................................................ 28 2.6.2 Institutions responsible for and supporting the sector ................................ 29 2.6.3 Legal framework and acts ......................................................................... 30 2.6.4 Export and market requirements and licenses ........................................... 31

2.7 Problems encountered in the floriculture sector ......................................... 32 2.7.1 Live Plants and Foliage ............................................................................. 32 2.7.2 Cut flowers ................................................................................................ 34 2.7.3 Copying strategies of floriculture producers ............................................... 35

2.8 Demand related aspects on floriculture in Sri Lanka .................................. 36 2.8.1 Size of local and export market ................................................................. 36 2.8.2 Sri Lanka’s import and export of floriculture products ................................ 38 2.8.3 Cost of production of major competitors compared to Sri Lanka ................ 41 2.8.4 Growth of the floriculture sector in Sri Lanka ............................................. 43

3 FUNCTIONS ............................................................................................. 45

3.1 Function description .................................................................................. 45 3.1.1 Introduction ............................................................................................... 45 3.1.2 Organisational functions along the chain ................................................... 48 3.1.3 Marketing networks and distribution channels ........................................... 49 3.1.4 Stakeholder Strategies .............................................................................. 50 3.1.5 Horizontal and vertical coordination ........................................................... 51

3.2 Flows of Product ....................................................................................... 55 3.2.1 Value Chain network map ......................................................................... 56

3.3 Location of activities .................................................................................. 58

3.4 Quantification ............................................................................................ 59


TAMAP Floriculture Value Chain Study March 2020 (Final) Page ii

3.5 Contribution Analysis (distribution of margins along the value chain) ........ 59

3.6 Gross Margin Analysis .............................................................................. 66

3.7 Contribution of VC to public sector finance and balance of trade ............... 72

3.8 Viability of the VC in international economy ............................................... 72 3.8.1 Live plants and foliage ............................................................................... 72 3.8.2 Cut flowers ................................................................................................ 72

3.9 Competitiveness analysis .......................................................................... 73 3.9.1 Live plants and foliage ............................................................................... 73 3.9.2 Cut flowers ................................................................................................ 75

4 SOCIAL ANALYSIS.................................................................................. 77

4.1 Working Conditions in the VC acceptable .................................................. 77

4.2 Land and water rights in VC acceptable .................................................... 77

4.3 Gender equality in VC ............................................................................... 77

4.4 Social infrastructure and services acceptable ............................................ 78

5 ENVIRONMENTAL ANALYSIS ................................................................ 79

5.1 Impact of floriculture production on the environment ................................. 79

5.2 Impact of climate change on floriculture production ................................... 79

6 OPPORTUNITIES, OUTLOOK AND RECOMMENDATIONS ................... 81

6.1 Opportunities ............................................................................................. 81 6.1.1 Untapped potential in floriculture ............................................................... 81 6.1.2 Opportunities to develop the local market .................................................. 81 6.1.3 Opportunities to develop the out-grower schemes ..................................... 81 6.1.4 Potential to develop new products ............................................................. 81 6.1.5 Potential to develop semi-mechanisation .................................................. 81 6.1.6 Opportunity to develop foreign investment for exports ............................... 82

6.2 Outlook...................................................................................................... 82

6.3 Recommendations .................................................................................... 82 6.3.1 Improve the import regime for planting materials and agro inputs .............. 82 6.3.2 Improve export promotion to access new markets and products ............... 83 6.3.3 Establish recognised training ..................................................................... 83 6.3.4 Promote use of more efficient technologies and best management practices

.................................................................................................................. 83 6.3.5 Provide suitable public land for floriculture ................................................ 83 6.3.6 Promote the horizontal and vertical integration .......................................... 84


TAMAP Floriculture Value Chain Study March 2020 (Final) Page iii

List of Tables

Table 1 Utilisation of Sri Lankan floriculture sector products .................................. 25

Table 2 Major export markets for live plants from Sri Lanka in 2017 ...................... 39

Table 3 Major export markets for cut flowers from Sri Lanka in 2017 ..................... 39

Table 4 Major export markets for foliage from Sri Lanka in 2017 ............................ 40

Table 5 Distribution Channel Farmer > Collector > Florist – Gerbera flowers ......... 60

Table 6 Distribution Channel Farmer > Collector > Florist – Chrysanthemum flowers .................................................................................................................. 61

Table 7 Distribution Channel Farmer > Collector > Florist – Rose flowers .............. 62

Table 8 Distribution Channel Farmer > Collector > Florist – Lily flowers ................. 63

Table 9 Distribution Channel Farmer > Collector > Exporter – Queen palm (type of live plant) ................................................................................................... 64

Table 10 Distribution Channel Farmer > Collector > Exporter – Sandriyana stems (type of foliage) ......................................................................................... 65

Table 11 Gross margin analysis for Gerbera flowers ................................................ 66

Table 12 Gross margin analysis for Chrysanthemum flowers ................................... 67

Table 13 Gross margin analysis for Rose flowers .................................................... 68

Table 14 Gross margin analysis for Lily flowers ....................................................... 69

Table 15 Gross margin analysis for Queen Palm ..................................................... 70

Table 16 Gross margin analysis for Sandruyana stems ........................................... 71

Table 17 Difference between FOB export and CIF import in 2017 ........................... 76


TAMAP Floriculture Value Chain Study March 2020 (Final) Page iv

List of Figures

Figure 1 Comparison of exports of live plants and foliage ....................................... 21

Figure 2 Dynamics in Sri Lanka export prices of live plants and foliage ................... 21

Figure 3 Sri Lanka export of cut flowers .................................................................. 22

Figure 4 Imports and exports of floriculture products to and from Sri Lanka in 1000 US $ and metric tons ................................................................................. 25

Figure 5 Export value of floriculture products from Sri Lanka in US$ thousands ...... 26

Figure 6 Export from Sri Lanka and estimated production in metric tons ................. 27

Figure 7 Trend in imports of floriculture products in Sri Lanka ................................. 38

Figure 8 Prices for live plants and foliage in 2017 ................................................... 40

Figure 9 Unit import value of Sri Lanka and main competitor in live plants in 2017 .. 41

Figure 10 Unit import value of Sri Lanka and main competitor in foliage in 2017 ...... 42

Figure 11 Export value of live plants and foliage from Sri Lanka ............................... 43

Figure 12 Trend in exports of live plants and foliage from Sri Lanka.......................... 44

Figure 13 Floriculture sector value chain function map .............................................. 53

Figure 14 Floriculture sector value chain stakeholder map ........................................ 54

Figure 15 Value Chain map ....................................................................................... 57

Figure 16 Import share of Sri Lanka and main competitor in live plants in 2017 ........ 74

Figure 17 Import share of Sri Lanka and main competitor in foliage in 2017 .............. 75


TAMAP Floriculture Value Chain Study March 2020 (Final) Page v

List of Photos

Photo 1 Tropical floriculture products ..................................................................... 47

Photo 2 Tissue culture products ............................................................................. 48

Photo 3 Temperate zone floriculture products ........................................................ 55

Photo 4 Women working on flower farm ................................................................. 78

Units and measurements

Old system of measurements Modern, commonly understood measurements

1 acre 0.4048 ha = 4,048 m2

1 mile 1.6093 km

1 foot or feet 30.48 cm

1 acre feet (volume) 1,233.5 m3

1 cusec (1 cubic foot per second) 0.2832 m3

1 bushel of paddy rice 22.5 kg paddy rice

1 square mile 2.59 km2

1 US$ 181 LKR


TAMAP Floriculture Value Chain Study March 2020 (Final) Page vi

ACRONYMS

€ Euro

AEO Agricultural Extension Officers

ASC Agricultural Service Centre

BOI Board of Investment

CARP Council for Agricultural Research Policy

CBC Ceylon Business Council

CBO Community Based Organisation

CFA Core functional analysis

CIF Cost Insurance Freight

CRIDF Climate Resilience

CSA Climate Smart Agriculture

CSEF Civil Society Environmental Fund

CSO Civil Society Organisation

DEA Department of Export Agriculture

DoA Department of Agriculture

EC European Commission

EDB Export Development Board

EDF/BUDGET European Development Fund

EEP Economic Empowerment of Poorest

EU European Union

EUD European Delegation

FAO Food and Agriculture Organisation

FDI Foreign Direct Investment

FIRST Food and Nutrition Security Impact, Resilience, Sustainability and Transformation

FOB Free on Board

GAMP Good Agricultural Manufacturing Practices

GAP Good Agricultural Practices

GDP Gross Domestic Product

GMPs Good Manufacturing Practices

GoSL Government of Sri Lanka

GSP General System of Prefernces

Ha Hectare (100,000 m2)

HRARTI Hector Kobbekaduwa Agrarian Research and Training Institute


TAMAP Floriculture Value Chain Study March 2020 (Final) Page vii

HRM Human Resource Management

ICRISAT International Crops for Research in Semi Arid Tropics

ICT Information Communication Technology

IFPRI International Food Policy Research Institute

ILRAD International Livestock Research Institute

IPARD Institute for Participatory Agricultural Research Inst

ITMIS Information Technology Management Information System

JICA Japanese International Cooperation Agency

JPAs Job Performance Aids

KE Key Expert

KPI Key Performance Indicator

M&E Monitoring & Evaluation

MEDA Microenterprise Development Association

MEDC More Economically Developed Countries

MOA Ministry of Agriculture

MOF Ministry of Finance and Mass Media

MONPEA Ministry of National Policies and Economic Affairs

MoPI Ministry of Primary Industries

MTEF Medium Term Expenditure Framework

NAO National Authorising Officer

NAP National Agriculture Policy

NAP New Agriculture Policy

NCFRU National Committee on Floriculture Research & Development

NGO Non-Government Organisation

NKE Non Key Expert

NLDB National Livestock Development Board

NPF National Program for Floriculture Sector

NRM Natural Resource Management

NSS National Statistics Service

OECD Overseas Economic Council for Development

OFCs Other field crops

PAF Performance Assessment Framework

PEP Performance Enhancement Programme

PET Public Expenditure Tracking

PFM Public Finance Management

PIP Public Investment Programme


TAMAP Floriculture Value Chain Study March 2020 (Final) Page viii

PMU Project Management Units

PPP Public Private Partnerships

PSC Project Steering Committee

R&D Research & Development

RDD Rubber Research Department

RMS Resource Management System

RWASH Rural Water Sanitation and Hygiene

SACCOs Savings And Credit Cooperative Organisations

SRC Sector Reform Contract

SDDP Support to District Development Programme

SL Sri Lanka

SLBDC Sri Lanka Business Development Centre

SLCARP Sri Lanka Council for Agricultural Research Policy

SMART Specific, Measurable, Accurate, Realistic, Timebound

SWOT Strengths, Weaknesses, Opportunities, Threats

T&V Training and Visit

TAT Technical Assistance Team

TACIS Technical Assistance to the Commonwealth of Independent States

TAIEX Technical Assistance and Information Exchange of the EU

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

TNA Training Needs Analysis

ToRs Terms of Reference

TOT Training of Trainers

TRI Tea Research Institute

VCA4D Value Chain Analysis for Development

WB World Bank

WTO World Trade Organisation


TAMAP Floriculture Value Chain Study March 2020 (Final) Page 9

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

Introduction and context

This value chain study on floriculture in Sri Lanka is part of a series of value chain studies carried out by the Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka (TAMAP) team in order to assist the GoSL and the EUD SL in developing an overarching agriculture policy and implementation strategy aiming on increasing the productivity and efficiency of the agriculture sector among others by programming specific interventions.

Though the importance of the agriculture sector has decreased over the last years in Sri Lanka, there are still opportunities for diversified and commercially oriented farming. To fully understand the development potential of the floriculture sector TAMAP commissioned a value chain analysis study. The methodology applied in this study follows to a large extent the EU facilitated value chain analysis for development (VCA4D), apart from conducting a detailed economic effects analysis.

For this study, information of secondary sources as well as interviews with stakeholders was used. Interviews were conducted with stakeholders (exporters, traders and farmers) in Western and North Western Province and Central Province.

Floriculture sector in Sri Lanka

Sri Lanka’s floriculture sector is a small niche sector with estimated 4,450 metric tons exports, about 500 to 550 metric tons local production and 249 metric tons import in 2017. The focus is on flowering and non-flowering live plants, foliage and cut flowers from tropical and temperate zone flora. Sri Lanka is only a small participant in the floriculture world market. TAMAP estimates the production value of the Sri Lankan commercial floriculture sector in 2017 at 18 to 20 million US $ or LKR 2,800 to 3,100 million. The contribution of the commercial

floriculture sector to the country’s Agriculture GDP was about 0.5%1. The main period of growth of the Sri Lanka floriculture production was before 2010. Since 2010, the total production is rather stable with only recently some growth. The 2012 decline in floriculture sector production was mainly caused by a sharp drop in production of foliage due to decreasing export prices in 2011.

About 46% of the local production volume is flowering and non-flowering live plants, 48% is foliage and the remainder cut flowers. 80 to 90 percent of the Sri Lankan production of live plants and 99 percent of the production of foliage is for export purpose. The annual production of 4,690 metric tons on 472 hectares is 8 to 9 metric tons per hectare or nearly 1 kg per sqm. The productivity is quite high compared to international average. The production of foliage and live plants is dominated by large scale commercial growers some with foreign partners.

The production of cut flowers for exports has totally collapsed over the past decade and currently the export is about 130 to 140 tons. The production of cut flowers for the local market has increased to 150 to 200 metric tons annually presently on 350 to 450 hectares. The productivity per hectare has declined considerably and is now about 0.8 metric tons per hectare. This is about 80,000 cut flower stems per hectare which is extremely low compared to international averages.

1 Agriculture GDP according to Central Bank of Sri Lanka



Governance and entities supporting the sector

The National Policy Framework 2010 aimed at establishing 1,500 floriculture villages and 30,000 floriculture jobs in sub-urban and rural areas. The Department of National Botanic Gardens and the Ministry of Primary Industries received funds for implementing the strategy. The National Committee on Floriculture Research and Development (NCFRD) identified priorities for the floriculture sector for the period 2017 to 2021.

The Department of Agriculture is collaborating with the private sector to establish a floriculture park to increase exports of floriculture products. The regulations under the Plant Protection Act No 35 of 1999, are implemented by the Department with among others the National Plant Quarantine Service providing extension services for pest & disease control.

The Department of National Botanical Gardens in Peradeniya has been the main promoter for the development of the floriculture sector in Sri Lanka. The Department manages 16 gardens and 4 war graves as well as 2 education and training centers. The Department organized women groups for floriculture production in many districts of the country. The Ministry of Sustainable Development and Wildlife also administers the Fauna and Flora Protection Ordinance No2 of 1937 with most recent amendments in 2009. The Ordinance provides the legal framework for the plant quarantine regulations and the procedures for import and export of plant materials.

Up to the end of 2018, the Ministry of Primary Industries was quite active in promotion of the floriculture sector. The Department of Export Agriculture was the driving force behind these initiatives. The Board of Investment and the Export Development Board provide support to registered exporters. Through the One Window Portal established by the Ministry of Finance, the trading community is provided with access to online systems developed for Regulatory Agencies involved in Import & Exports.

Problems encountered in the floriculture sector and coping mechanisms

Sri Lanka is a high cost producer because of high labour, high taxation and high freight costs. The national carrier Sri Lanka Airlines is more expensive for exporters than the other available airlines. Obtaining all certificates and permits for export is mentioned by all exporters as a major challenge and raising the cost of their business. Different governmental institutions are involved in the processing of an export order and the co-operation between these institutions is problematic.

The non-enactment of the Plant Breeder’s Rights protection and the outdated quarantine regulations for import of planting material are a major constraint for the floriculture sector. The Sri Lankan quarantine and inspection laws are complicated with many restrictions. Even if import is allowed it is costly and time consuming which is destructive for a sector that is highly market oriented and competitive. The Sri Lanka quarantine and inspection service should be more demand driven. Working closely together with established exporters is considered required to develop flexible, efficient and effective quarantine and inspection.

Recently, the EDB has simplified the exporters registration procedures and now trading companies have registered as exporters. These companies don’t have a farm and can easily under-bit established exporters. The established exporters with farms confirmed the loss of business for Sri Lanka while it resulted in harm to the image of Sri Lanka as a reliable supplier. The established exporters also observed that the EDB export promotion activities could be better targeted to the needs of floriculture exporters.

The export-oriented floriculture sector is weakly organised. The Flora Association exists but seems not actively promoting the interests of the sector. At the moment, most exporters are not co-operating and collaborating to advocate for better trade strategies and cost reduction.



Most of the Sri Lankan floriculture tissue labs don’t manage to get enough orders and buyers and fair prices for the materials. Tissue material takes a long time to produce (1.5 years from start to sales is quite normal) and substantial economies of scale can be achieved if larger orders can be obtained.

The level of mechanization is low in most of the Sri Lankan floriculture sector but especially in cut flower production. A majority of farms use old polytunnels as investment in new equipment is very costly. In 2016, the import tax on equipment for the floriculture sector was raised with 25% making import of required equipment even more expensive.

Especially medium-size cut flower producers showed interest to expand their business but face the problem that access to land is restricted. Farmers have requested additional land from government but failed to obtain the land. In addition, leasing additional land from private owners is difficult.

Most cut flower farms lose control over their supply during transport as produce is transported by public train or bus to major local markets. The farmer has to send his product first and expects to be paid later. Many buyers, however, don’t pay in time and many farmers have large outstanding amounts with buyers. Sometimes, buyers go bankrupt before payment is completed and the farmers have to carry major loss.

Established registered cut flower farms face fierce competition from unregistered smallholders. Smallholders purchase cuttings from importers and start multiplication. Smallholders can buy plants, produced with imported material and use those as mother plants for production of cuttings and their commercial plants. They don’t have the costs of imports and the royalties and can produce the plants at a much lower cost.

The TAMAP team observed the following strategies of businesses participating in the floriculture sector to cope with the indicated issues:

• Exporters turn to the local market to compensate for lost export market share. This switch is only possible for exporters who focus on live plants as there is virtually now local market for foliage.

• The most successful Sri Lankan exporters moved away from the Netherlands as their only or dominant buyer and developed markets in the Middle East and Asia. Importers in these countries are more loyal and accept longer delivery periods of the orders which is beneficial for relatively small producers like Sri Lanka.

• Some companies decided to switch new markets segments (which have less traditional limitations from rules and regulations) such as aquatic plants, multiplication for export purposes and tissue culture production.

• Many established exporters and larger local market producers have invested in building the relationship with a number of dedicated out-growers. This strategy also ensures flexibility in terms of costs of production.

• Most established exporters are constantly evaluating the possibilities to mechanise labour-intensive operations such as automatic dosing of the nutrients and chemicals in the drip lines, mechanising production of growing medium, transport of plants over the farm and semi-automation of the preparation of the plants for export.

• Some cut flower farms are attempting to establish reliable license agreements with foreign suppliers of planting materials. To serve the local market with better quality product but (in case scale economies can be achieved) additionally it may also open up export opportunities.



Market for live plants, foliage and cut flowers

Sri Lanka live plants and foliage are produced for the export market while Sri Lanka cut flowers are produced for the local market. The export market for Sri Lankan floriculture produce is estimated at 4,450 metric tons annually and the local Sri Lankan floriculture market at 804 metric tons of which about 30% import. The demand on the local market is generated by special shops (about 30% of the demand) and road side flower and gardening shops (about 70% of the demand). The special shops are in the main cities while the road side flower and gardening shops can be found all over the country.

Sri Lanka is with its floriculture exports of about 16 million US $ in 2017 only a minor player in the world market. Of all the three floriculture market segments relevant for Sri Lanka, globally the segment of live plants is the largest market while foliage is the smallest market. Sri Lanka exports hold a tiny share of all major live plant markets but especially the share on the large Germany is one of the main markets and should provide opportunities for growth. Compared to the Sri Lankan share of the Japanese and Netherlands market, the share of the German market is very small. Sri Lanka holds a virtually neglectable share of the international cut flower market. The Netherlands is Sri Lanka’s single most important foliage export market but as a region, the Middle East countries are more important for Sri Lanka foliage exports than European countries or Japan.

Competition, competitors and outlook

Sri Lanka’s imports of floriculture products are quite stable in volume but sharply increasing in value. The imports are dominantly live plants with increasingly higher unit import values. These are mainly orchids supplied by Thailand. On the local market these imports compete with locally produced orchids but not with cut flowers.

For live plants, China and Kenya are the main competitors. China is the main Sri Lankan competitor on the Japanese market and Kenya on the Netherlands market. Compared to China, Sri Lankan CIF unit import prices for the live plants on the Japanese and Netherland market are very high. Sri Lankan CIF unit import prices are higher than the world average but Kenyan CIF unit import prices for live plants on the Netherlands market are much higher.

For foliage, India, Costa Rica and China are the main competitors for Sri Lanka. China is the main competitor on the Japanese market. Costa Rica is the main competitor on the Netherlands market. India is the main competitor on the Middle East markets of Saudi Arabia and the UAE. Compared to China, Sri Lankan CIF unit import prices for its foliage on the Japanese market are high. Also, on the Netherlands market, Sri Lankan CIF unit import price are higher than the world average and the main competitor Costa Rica. On the S. Arabia and UAE market, Sri Lanka has considerably higher CIF unit import prices than its main competitor India.

For cut flowers, the main international market is The Netherlands. Sri Lanka cut flower exports are higher priced than the Kenyan ones and also more expensive than the overall average imports.

Sri Lankan floriculture products are high priced on the international market and Sri Lanka is a high cost country in the global floriculture sector. A comparison between the average FOB export price and the average CIF import price for major markets showed that the high price of Sri Lankan products is mainly related to the high costs of insurance and freight. Pricewise, Sri Lanka is not competitive in major live plants markets and Sri Lankan products are extremely expensive on the US market. For foliage Sri Lanka is pricewise somewhat competitive on the Saudi Arabian market and the Japanese market but not in Europe and the UAE.



However, it should be noted that prices are only one aspect of the floriculture trade. Kenya has the highest import prices for its live plants but also a relatively high share of The Netherlands imports of live plants. Also, Sri Lanka has high import prices for its foliage but also a high share of the imports in S Arabia and the UAE. The assortment of different products in this business is large and qualities exported vary.

Over the last decennium, the value of Sri Lankan foliage exports seems to gradually increase but the value of Sri Lankan live plants exports is basically stable. The growth trend in Sri Lankan exports for live plants is erratic and for foliage extremely erratic. Sri Lankan foliage exports seem to be a high-risk business. The outlook of exports over the coming 5 years is difficult to predict but we estimate that Sri Lanka will import about 250 metric tons of live plants annually and exports around 1,950 metric tons annually. In the coming years, the value of exports is expected to be between 6,2 and 6.5 million US $ annually. For foliage exports, we estimate exports to figure around 2,500 to 2,700 metric tons annually with a value between 10 and 12 million US $ annually. For cut flowers, the total size of the market is about 280 to 350 metric tons in 2017 of which 150 to 210 metric tons for local market, 130 to 140 metric tons for exports and some small imports. The market is expected to grow with 30 to 50 metric tons per year in the coming period.

Margin and gross margin analysis

Gerbera and Chrysanthemum cut flower production provides for a relatively high contribution margin for farmers of about 27 to 31%. The collector gets a margin of about 7 to 11% and the florist about 22%. Rose and lilies provide a lower contribution margin for farmers of about 19% while the collector gets about 14% for roses and 22% for lilies. Florist gets a relatively high margin on roses of about 60% and 42% on lilies. Cost of production and transport are much higher in live plant and foliage production. For example, in Queen Palm the farmer gets a margin of about 3%, the collector about 4% and the exporter 30% while in foliage the farmer gets a margin of about 5%, the collector not more than 2% and the exporter about 27%. It should be considered that the production of live plants and foliage is less risky for the producer than the production of cut flowers (higher risk of crop failure and higher perishability of the crop) and consequently cut flower farmers require a higher margin to maintain their business than farmers of live plants and foliage.

Gross margin for Gerbera and Chrysanthemum were calculated at about US $ 1,900 to 2,200 per year for a 1,000 ft2 polytunnel. A 1,000 ft2 polytunnel of roses will provide a gross margin of about US $ 4,300 annually and lilies about US $ 5,500. Live plants and foliage have considerably lower gross margins. The gross margin of a 1,000 ft2 area of queen palm was calculated at about US $ 1,700 annually and foliage about US $ 1,400.

Social Analysis

The floriculture sector employs an estimated amount of 20,000 people directly on the farms and a similar amount of people indirectly in logistics and sales. Almost 80 percent of the directly employed workforce in the floriculture sector are women. The workers of larger export companies are on a permanent carder. They are being paid all the employee benefits including overtime pay and holidays. On the farm and in processing areas, workers wear proper working gear. Small and medium scale farmers are using family labour for their operations. They hire labour when needed on a daily rate basis.



Environmental Analysis and impact of climate change

Flowers and plants require abundance of water. The business has to rely on water from rivers or from dug wells. Dug wells are less effective and deep tube wells are needed to get water especially during the dry season. In some areas this decreased the availability of water for nearby houses and villages. This is more prominent in places where small and medium scale growers have set up their farms. Larger farms have enough land to mitigate the impact of deep tube wells on other lands. The floriculture sector consumes large amounts of chemicals for pest and disease control and weeding. The use of chemicals is especially high in the cut flower industry. The incremental utilisation of chemicals in cut flower production increases the likelihood of pollution of water and soil resources. Water pollution in the hill country areas may result in substantial pollution and depletion of resources in the downstream areas.

The impact of climate change is already evident in Sri Lanka floriculture sector. Prolonged droughts have serious consequences for the floriculture industry. Large scale floriculture exporters in the West and North West province rely mainly on rivers. Drought can dry off rivers, dug wells and agro-wells. Heavy rainfalls and changes in night and day temperatures will impact mainly the floriculture sector in the Central province of Sri Lanka. Farmers already experienced lower flower yields during the rainy seasons. Changes in the night and day temperatures in the Central province caused smaller flowers and lesser yields per plant. In addition, heavy and prolonged rainfalls resulted in higher prevalence of pests and diseases.

Opportunities, outlook and recommendations

Sri Lanka has excellent growing conditions for both tropical and temperate zone floriculture products. It has experience in growing floriculture products for local and export markets. Export markets are substantial and growing. Also, local demand for floriculture products in the major towns and cities is growing. In floriculture, the value added per sqm is high compared to other horticulture produce and the area under floriculture is still limited with huge opportunities to expand. The quality of the produce in special shops and garden markets in Sri Lanka has considerably improved over the last decade. With better connection and logistics to markets and more promotion and marketing, the sales on the local market can be further fostered. Out-grower schemes provide a good opportunity for smallholder farmers to participate in wider markets and may increase the flexibility of operations of exporters and larger farmers. The system is operational in the Sri Lanka floriculture sector, but its scale and effectivity could be substantially increased. Various companies have started investment and production of new products and are creating a new export market for Sri Lanka. The rate of return of these products (multiplication, aquatic plants and tissue culture) is high compared to traditional floriculture products provided scale economies can be achieved. The exporting companies are studying methods to mechanise logistics, handling and packaging and production. Due to the extremely low level of mechanisation in virtually the whole sector, the potential gains in efficiency from semi-mechanisation are high. With the appropriate incentives for foreign investors, improvement of the inspection and quarantine laws including the adoption of the Plant Breeder’s Rights Law by Sri Lanka, the country has the potential to be a highly attractive location for direct foreign investment in floriculture. The latter would not only benefit foreign investors but also local businesses. The floriculture sector needs the flexibility to follow trends in markets, fashion and designing. Constant adjustment of the supply in terms of colours and varieties and cultivars of flowers and plants is essential for survival. This is to the extreme applicable for the cut flower and foliage market segment and to a somewhat lesser extend for the live plants. The outlook for the Sri



Lanka floriculture sector depends on innovation in the laws and institutions governing the sector.

The study team proposes the following key recommendations for the development of the floriculture sector:

• Improve the import rules and regulations for planting materials and agro inputs and Enact the Plant Breeders Rights Act;

• Improve export promotion to access new markets and products;

• Establish recognized training;

• Promote use of more efficient technologies and best management practices;

• Make suitable underutilized public land available for floriculture production;

• Promote the further horizontal and vertical integration of the floriculture sector.



2 I N T R O D U C T I O N A N D C O N T E X T

2 . 1 I n t r o d u c t i o n t o t h e p r o j e c t

The Technical Assistance to the Modernisation of Agriculture Programme in Sri Lanka (TAMAP) service contract, implemented by a consortium led by ECORYS, started with the mobilisation of the Technical Assistance Team (TAT) on 8 th January 2018. The project will have an operational phase of 36 months and will end on 7 th January 2021.

The objective of the service contract is to contribute to a more productive, sustainable, diversified, climate-resilient, market-oriented and inclusive agriculture in Sri Lanka. The following four (4) results have to be accomplished within this service contract. They are:

Result 1: An overall (overarching) Agricultural Policy in line with the Government Development Goals is developed.

Result 2: An enabling environment is created and relevant policies for the modernisation and diversification of agricultural production, as well as the promotion of agricultural exports, are implemented.

Result 3: Existing systems and practices used by central and provincial agricultural ministries for planning, budgeting and policy implementation are improved.

Result 4: The statistical and analysis systems to monitor and assess the impact of implementing the overall agricultural policy are improved.

The threads running through these five critical elements are the coordination, facilitation, training, mentoring and mainstreaming of cross-cutting issues such as climate change, gender, youth and smart nutrition.

One of the main activities of the TAMAP is to develop in close consultation with the stakeholders an Overarching Agriculture Policy (OAP) and based on that an Implementation Strategy specifying detailed action plans and costs for all relevant subsectors with the main objective to make the entire agriculture sector more productive, effective and efficient. Several assignments are being carried out to support the development of the overarching policy and its implementation strategy as well as to assist the EUD Sri Lanka in the programming of future interventions. As such 8 value chain studies on commodities with future potential for development and a cold chain pre-feasibility study are and will be carried out to assess and recommend future interventions in the agriculture sector.

2 . 2 C h a l l e n g e s o f t h e a g r i c u l t u r e s e c t o r i n S r i

L a n k a a n d i t s r e o r i e n t a t i o n

Agriculture has been an important driver of poverty reduction through income and employment

generation in Sri Lanka. Although Sri Lanka has a history of exporting agricultural products a

large part of the agricultural population remained highly traditional with archaic relations to

markets and commercial networks. Also, the share of GDP generated by agriculture sector

decreased as other sectors gained more prominence. With the departure of labour force from

the rural areas to urban areas and other economic activities it becomes increasingly urgent to

modernize the farming sector.



Promoting farming as a business has the potential to uplift rural areas further and increase the

contribution of agriculture to the national economy. Improved connectivity to potential demand

and markets, investment in agriculture to increase labour productivity and diversify production,

reduction of wasteful use of resources and adding value to agricultural processes via

processing and improved handling are all components of the modernization process.

Over the last decades it has become increasingly clear that farming for a market cannot be

promoted by stimulating the supply side only. Modern commercial farming is part of a total

system which gets its information from the demand side of the economy and leads this to the

supply side where it sets the rules and regulations for participation of the farmers. This system

operates in a regulatory environment set by policies and strategies of local and international

governments and is supported by financial and non-financial services. Over the last decades

in more and more countries (and also in Sri Lanka) systems are evolving in which all

stakeholders co-operate closely together to generate the highest possible value in the chain.

Such chains are identified as value chains.

This report provides an analysis of the floriculture value chain in Sri Lanka, using to some

extent the evidence-based, largely quantitative, toolkit developed/ compiled by the Directorate-

General for International Cooperation and Development (DG DEVCO) within the project “Value

Chain Analysis for Development” (VCA4D).

This diagnosis of the floriculture value chain is intended to support the European Commission

and the Government of Sri Lanka in structuring their policy dialogue around the strategic issues

related to this sector. This to assist in developing a resilient, competitive, commercially viable

and environmentally sustainable floriculture sector in Sri Lanka. The goal is to increase the

value added in the chain and secure social inclusion of smallholders.

This study was conducted over a period of four weeks, from 1 October to 1 November 2019

by 2 agriculture economists from the TAMAP project.

2 . 3 V a l u e c h a i n a n d V C A 4 D m e t h o d o l o g y

2 . 3 . 1 W h a t a r e v a l u e c h a i n s ?

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 a successful value chain, 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 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 for the middle- and high-income groups (tourist hotels and restaurants, supermarkets

and specialty shops) and export production. These markets are the target for value chain

development approaches.

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.

2 . 3 . 2 V C A 4 D m e t h o d o l o g y

The VCA4D project 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 has four components:

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.

Economic analysis: Firstly, consists 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

The social analysis explores whether the value chain is socially sustainable. It also

contributes to 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 floriculture producers at different scales, farmers, traders,

exporters etc., and other government and non-government stakeholders.

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. Given the limited time available for the floriculture value chain study, an economic effects analysis was not conducted.



The environmental analysis evaluates the environmental sustainability of the value chain.

2 . 4 D a t a c o l l e c t i o n

2 . 4 . 1 S e c o n d a r y d a t a

The study team obtained relatively latest information from projects and GoSL sources (reports

and statistics) and from trade related websites such as IndexMundi or UNcomtrade.

2 . 4 . 2 P r i m a r y d a t a

Primary data was collected through key informant interviews and focus group discussions with farmers (small, medium and large), traders, exporters in the main production areas of Gampaha, Negombo as well as Colombo town and Nuwara Eliya. The study team is aware that the data collected maybe considered sensitive and given the prevailing challenges the sector is facing with limited growth and increasing competition, many of the stakeholders are reluctant to expose information which could generate competitive advantages of potential competitors.

2 . 4 . 3 W h y F l o r i c u l t u r e w a s s e l e c t e d f o r t h e s t u d y

In the course of this report more details on the justification why floriculture was selected for a detailed value chain assessment. However, in order to understand the report, a brief summary is presented on the justification.

Floriculture is the subsector of horticulture concerned with the cultivation of flowering and ornamental plants for gardens and for floristry. The development of new varieties via plant breeding is also a major occupation of floriculturists. As such it is a farming activity as plants are grown for commercial purposes by farming communities

Sri Lanka has excellent growing conditions for tropical plants in the central and western part of the country with plenty of water. Sri Lanka has an enormous botanical diversity and is home of a wide range of floricultural species. Plants and flowers have always played an important role in Sri Lanka culture and have a long tradition as being used for religious purposes.

The Global Floriculture sector is one of the major agribusiness sectors and one of the vast

growing larger markets in the world3. Floriculture provides income and rural employment to small, medium-scale and large farmers and foreign currency earnings to countries participating in the business. Given the large potential Sri Lanka has to further develop the floriculture sector, this sector has been selected for the value chain analysis.

3 Global Floriculture Market Analysis 2019, Syngene Research, January 2019



2 . 5 S e c t o r O v e r v i e w i n S r i L a n k a

Sri Lanka’s floriculture industry can be divided into two subsectors i.e. live plants and foliage and cut flower production. Sri Lanka’s floriculture sector is small with estimated 4,450 metric tons exports. The local market is about 500 to 550 metric tons local production and 249 metric tons import in 2017. The focus is on flowering and non-flowering live plants, foliage and cut flowers from tropical and temperate zone flora.

The larger scale commercial farming and exports in the subsector are of much more recent date. Sri Lanka started only in the ninety seventies with commercial growing and exports of floriculture products. Even presently, Sri Lanka has only a tiny share of the floriculture world market with the total global production value estimated at 55 billion US $ with an export value

of 19 billion US $ in 2017. Sri Lankan exports are valued at 16 million US $4. We estimate the production value of the Sri Lankan commercial floriculture sector in 2017 at 18 to 20 million US $ or LKR 2800 to 3100 million

2 . 5 . 1 L i v e P l a n t s a n d f o l i a g e

This floriculture sub-sector produces stems and cuttings as well as complete plants for indoors and outdoors use and attractive leaves and plant parts to add colour and shape to flower arrangements. Sri Lanka focus is on products such as Queen Palm, Croton, Chinese grass, Scindapsus, Syngonium, Cordyline, Dracaena, Orchids and Anthurium.

Different parts of Sri Lanka can produce specific types of live plants and foliage. In the wet and colder areas temperate zone plants can be farmed such as Cyprus, Begonia, Caladium, Roses, Caladium and Maranta. In the dry and hot areas Hibiscus, Cacti, Palms, Euphorbia, Jatropha, Jasmine, Bougainvillea, Cycads and Ixora can be produced whereas in tropical humid wet areas Dieffenbachia, Calathea, Dracaena, Anthurium, Scindapsus and Philodendron grow extremely well. So, Sri Lanka has the natural growing conditions suitable for the production of a large variety of marketable live plants and foliage.

The Sri Lanka commercial production of live plants is over 80% for exports while foliage is over 95% for the export market. The estimated area under foliage and live plants is 472 hectares

with an annual volume of about 4690 metric tons5. About 20 companies control the production and exports. These companies started as export companies. Some used foreign investment and BOI support to establish and develop the business. All are using shading net greenhouses and drip and sprinkler irrigation systems. Some of these companies produce plants in collaboration with foreign partners to increase access to planting materials, technology and markets. More recently, part of the main exporters started deliveries to local market as well but still we estimate that about 80 to 90 percent of the Sri Lankan exporting companies’ production of live plants and 99 percent of foliage is for export purpose. Consequently, the data on export volume in the two product categories provide a good estimation of the dynamics in the production of these products in Sri Lanka. It can be concluded that the major development in the total production was in the period before 2010. From 2010 the total production is rather stable with only recently improving slightly. The major recent dip in production was in 2012 which was especially caused by dynamics in the foliage sub-sector (see Figure 1).

4 C Ryswick World Floriculture Map 2016

5 Dhanasekera, Cutflower production in Sri Lanka, In Cutflower production in Asia, FAO Bangkok, 1998



Figure 1 Comparison of exports of live plants and foliage

Source: Own calculations based on UNComtrade

The 2012 drop in production of foliage came after a sharp drop in the export prices in 2011. As figure 2 shows, in the year 2011 Sri Lanka got the lowest ever average export price for its foliage. This will have discouraged the production of foliage in the subsequent year which had on its turn a positive impact on the export prices in 2012 due to reduced supply.

Figure 2 Dynamics in Sri Lanka export prices of live plants and foliage




2 . 5 . 2 C u t f l o w e r p r o d u c t i o n

Sri Lankan cut flower production comprises of temperate zone flowers and tropical flowers. Temperate zone flowers include carnation, rose, statice, gypsophyla, alstroemeria, chrysanthemum, lilies and irises. Tropical zone flowers include anthurium, orchids, strelitzia, heliconia, lotus. Most temperate zone flowers are grown in polytunnels and open field and anthurium and orchids are grown under shade nets and mist and drip irrigation systems. More recently gerbera cut flower production has become more popular due to the availability of a wide range of good cultivars.

The export of cut flowers is about 130 to 140 tons. Large producers take care of the exports while medium and small-scale producers are focussing on the local market. All the producers are using poly tunnels or nets but most equipment is old. The small-scale producers use manual water provision, the medium scale producers use drip and sprinklers. Over the last decade, the cut flower production for export has totally collapsed (see figure 3). The FOB unit export prices for Sri Lankan cut flowers have sharply come down to a level that it is largely uneconomically to export.

Figure 3 Sri Lanka export of cut flowers


However, this doesn’t mean that the Sri Lankan production of cut flowers has collapsed. The area that was previously used for export production of carnation and other flowers is now used for production of cut flowers for the local market. The production of cut flowers for the local

market has increased to 150 to 200 metric tons annually presently on 350 to 450 hectares6.

2 . 5 . 3 M a j o r s p e c i e s i n S r i L a n k a n f l o r i c u l t u r e p r o d u c t i o n

In the market segment of live plants and foliage, the main species produced by Sri Lanka are Cane Palm, Fishtail Palm, Queen Palm, Lady Fingers Palm, Croton, Chinese grass, Scindapsus, Syngonium, Cordyline, Dracaena and Anthurium.

6 A Jaees, An Overview of Upcountry Cut flower Industry Sri Lanka, Colombo 2018



Cane Palm (Dypsis lutescens) also known as areca palm, yellow palm or butterfly palm is a flowering plant in the family Arecaceae, native to Philippines, Madagascar and South India but now naturalized in many tropical countries for commercial production

Fishtail Palm (Caryeta) is a flowering plant in the family Arecaceae native to Asia, northern Australia and South Pacific but has become an invasive introduced species in Florida and other subtropical and tropical climates.

Queen Palm (Syagrus romanzoffiana) also known as cocos palm is native to South America and introduced throughout the world as a popular ornamental tree.

Lady Fingers Palm (Rhapis Excelsa) is also family of the Arecaceae and native to Southern China and Taiwan. Its striking appearance is popular and works well in floor standing pots

Croton is a flowering plant in the family of Euphorbiaceae. The plant is since long time naturalized in many countries but is native from Indonesia, Malaysia, Australia and Western Pacific.

Chinese Grass (Miscanthus sinensis) also known as silver grass is a flowering plant in the family of Poaceae and native to Eastern Asia

Scindapsus belongs also to the family of Araceae and is native to South East Asia. New Guinea and Australia and Western Pacific. The plants are primarily root climbing vines

Syngonium belongs also to the family of Araceae and is native of tropical rainforest of Southern Mexico, West Indies, Central and South America. The leaves change shape according to the plant’s stage of growth.

Cordyline comprises of about 15 species in the family of Asparagaceae. The plant is native to Western Pacific, New Zealand and Eastern Australia, South East Asia and Polynesia with one species found in South America

Dracaena comprises of about 120 species of trees and succulent shrubs in the family of Asparagaceae. The majority of the species are native to Africa with a few in South Asia and Northern Australia with two species in tropical Central America. The plant is one of the most popular live plants and foliage plants worldwide.

Anthurium comprises of about 1000 species of flowering plants of the family Araceae and native of Northern Mexico, Northern Agentina and the Caribbean. It is most naturalised tropical plants in the world with a long history of use for religious and ornamental purposes. The plant is very popular both for its flowers as well as its foliage.

In the market segment of cut flowers the main species produced in Sri Lankan are carnation, rose, statice, gypsophyla, alstroemeria, chrysanthemum, lilies and iris, anthurium, orchids, gerbera, strelitzia, heliconia and lotus.

Carnation (Dianthus caryophyllus) is a species of the family of Dianthus, native to the Mediterranean and used for extensive cultivation for the last 2000 years

Rose is a woody perennial flowering plant in the family of Rosacecae. There are over 300 species and thousands of cultivars. Most species are native to Asia with smaller numbers native to Europe, North America and North West Africa.

Statice (Limonium) is a genus of 120 flowering plants species belonging to the family of Plumbaginaceae. The plant is native from the Eastern Mediterranean.

Gypsophyla is a flowering plant in the family of Caryophyllaceae and native to Europe and Asia, Africa, Australia and the Pacific. Turkey has the most species i.e. 35 endemic species.



Alstroemeria also known as Peruvian lily is a flowering plant in the family of Alstroemeriaceae and a native of South America and naturalized in USA, Mexico, Australia, New Zealand and other countries.

Chrysanthemum are flowering plants in the family of Asteraceae. They are native to Asia and North East Europe. Most species originate from East Asia with the center of diversity in China. Countless varieties and cultivars exist

Lilies (lilium) is a genus of flowering plants growing from bulbs. Lilies are native to the temperate northern hemisphere though their range extends into the northern subtropics.

Iris is a genus of up to 300 species of flowering plants with showy flowers

Anthurium (see under live plants and foliage)

Orchids belong to the family of Orchidaceae with flowering plants with blooms that are colourful and fragrant. There are about 28000 currently accepted species. Orchids are native to all tropical rainforest regions in the world. Commercially Phalaenopsis and Cattleya are the most cultivated Orchids both have a huge number of hybrids and cultivars

Gerbera is member of the Asteraceae family and native of the tropical regions of Africa, Asia and Latin America. Thousands of cultivars exist varying in shape, size and colours. It’s commercially the fifth most important cut flower in the world after rose, carnation, chrysanthemum and tulip.

Stelitzia is a genus of five species of perennial plants native to South Africa and belongs to the family of Strelitziaceae.

Heliconia belongs to the family of Heliconiaceae with about 194 known species. The plant is native to tropical Americas. In many tropical countries species are cultivated as ornaments and few species are also naturalized in Asia and Africa.

Lotus (Nelumbo nucifera) is a aquatic plant in the family Nelumbonaceae. The plants are native to Northern India, Northern Indochina and East Asia. The plant is widely naturalised in Southern India, Sri Lanka, South East Asia, New Guinea, Australia. It has a history of cultivation of over 3000 years.

Table 1 provides an overview of dominant types of utilisation of floriculture products from Sri Lanka.



Table 1 Utilisation of Sri Lankan floriculture sector products

Key product category Varieties

Decorative Foliage Draceana sanderiana,Draceana massengeana, Cordyline, Aglaonema, Adiantum, Calathea, Maranta, Codiaeum, Monstera, Pothos, Pandanus, Thaloide, , Philodendron, Miscanthus, Anthuriums, Diffenbachia, Scindapsus, Caryota urens, Chrysalidocarpus, Differnbachia, ,Aspidistra

Rooted/ Un rooted young Plants &

indoor pot plants

Draceana sanderina, Draceana massengeana, Codiaeum, Agloanema,Scindapsus ,Draceana marginata , Cordyline, Pleomele reflexa, Polyscias, Livistonia

Cut Flowers Roses , Carnations , Gerbera, Chrysanthemum,Lilies,

Gypsophila, Limonium, Anthurium,

Landscaping plants Plumeria, Gardenia, Codiaeum, Ixora, Hibiscus, Cassia, Bouhinia, Bougainvella, Allamanda, Jasmine,Acalypha, Neem,

Tissue cultured plants Ananas, Musa sp, Cordyline, Dracaena, Syngonium

Philodendron, Ficus

Aquarium plants Anubious, Cryptocoryne, Ceratophyllum, Echinodorus etc.

Source: http://www.srilankabusiness.com/floriculture/floriculture-products-ebrochures.html

2 . 5 . 4 E x p o r t s a n d i m p o r t s o f f l o r i c u l t u r e p r o d u c t s f r o m a n d t o S r i L a n k a

Figure 4 presents an overview of imports and exports of floriculture products to and from Sri Lanka. It is clear that the Sri Lanka trade balance in floriculture is strongly positive. Exports both in terms of quantity and value are much higher than imports. The imports are growing but very slowly and reach 1 million US $ for the first time in 2017. The exports are more or less stable in value terms over the last decade and also the export unit values remained stable at about US $ 3.2 to 3.6 per kg over the last 5 years with the exception of 2015. In 2017, the export had a value of 15.9 million US $.

Figure 4 Imports and exports of floriculture products to and from Sri Lanka in 1000 US $ and metric tons

Source:UNComtrade

http://www.srilankabusiness.com/floriculture/floriculture-products-ebrochures.html



Figure 5 shows the trend in exports and it is clear that in terms of value the most successful export product is foliage. The value of exports of foliage is gradually increasing with only a major dip in 2012. Exports of live plants are more or less stable in value since 2010 and the exports of cut flowers shows a steadily declining trend. In 2017 the value of cut flowers exports from Sri Lanka was merely US $150,000. The decreasing export value of cut flowers is partly caused by the issues related to the importation of planting material cut flower producers (see par 3.3.2. Also, the good local market for cut flowers played a major role with producers turning away from exports.

Figure 5 Export value of floriculture products from Sri Lanka in US$ thousands

Source: UNComtrade

2 . 5 . 5 P r o d u c t i o n & e x p o r t s o f f o l i a g e a n d l i v e p l a n t s a n d c u t f l o w e r s

2.5.5.1 Foliage and live plants

Foliage and live plants production started as an industry in the 1970s in Western, North Western and Central Provinces. The annual production of 4690 metric tons on 472 hectares is 8 to 9 metric tons per hectare or nearly 1 kg per sqm. The productivity is quite high compared

to international average7. The production of foliage and live plants is dominated by large scale commercial growers some with foreign partners. About 4 to 5 exporters have about 20 or more hectares, the others have 2 to 10 hectares. The largest companies employ 4 to 5 workers per hectare, the smaller ones 6 to 8 workers per hectare. These companies mainly produce flowering and non-flowering live plants both rooted and unrooted, foliage as well as small amounts of bulbs, corms and tubers. The sub-sector also produces aquatic plants for exports and 5 companies operate commercial tissue culture labs.

7 Y.Xia, X Deng, P Zhou a.o.. The World Floriculture Industry. Dynamics of Production and Markets, Harbin 2006



2.5.5.2 Cut flowers

Production of cut flowers in Sri Lanka has a long tradition. Cut flowers are mainly used for religious purposes and for ceremonies (weddings, funerals and celebrations and parties). The establishment of the Department of National Botanical Gardens, combining 26 Sri Lankan botanical gardens, research and training institutes, now under the Ministry of Sustainable Development and Wildlife boosted the private sector initiatives in commercial cut flower growing. At the end of the nineties, the estimated area under commercial cut flower production for export was 10 hectares under carnations, 3 hectares under roses, 2 hectares under

gerberas, 10 hectares under anthuriums and 3 hectares under orchids8. The estimated production of these cut flowers was 400 to 500 metric tons annually. Since then, the production of these cut flowers for export purpose has come down to about 130 to 140 metric tons (see figure 6). The area previously under carnation is replaced by cut flowers which have also good local market. The estimated production of cut flowers for the local and export market is to 280 to 350 metric tons annually presently on 350 to 450 hectares. The productivity per hectare has

declined considerably and now or about 0.8 metric tons per hectare9. This is about 80,000 cut flower stems per hectare which is extremely low compared to international averages. For example, the international yield average for commercial cut flower roses is 750,000 stems per

hectare10. Most of the larger farmers and some of the smallholders produce planting materials for local cut flower farmers.

Figure 6 Export from Sri Lanka and estimated production in metric tons

Source: UNComtrade

8 Dhanasekera, Cutflower production in Sri Lanka, In Cutflower production in Aisa, FAO Bangkok, 1998

9 A Jaees, An Overview of Upcountry Cut flower Industry Sri Lanka, Colombo 2018

10 http://agritech.tnau.ac.in/horticulture/horti_flower%20crops_cut%20rose.html

http://agritech.tnau.ac.in/horticulture/horti_flower%20crops_cut%20rose.html



2 . 6 G o v e r n a n c e a n d I n s t i t u t i o n a l f r a m e w o r k

2 . 6 . 1 F l o r i c u l t u r e p o l i c i e s a n d s t r a t e g i e s

The Sri Lankan government considers the floriculture sector a development priority. The National Policy Framework 2010 aimed at establishing 1,500 floriculture villages and 30,000 jobs in sub-urban and rural areas related to floriculture business. The primary institutions that received funds under the NPF for implementing the strategy were the Department of National Botanic Gardens and the Ministry of Primary Industries. The National Committee on Floriculture Research and Development (NCFRD) identified four priorities for the floriculture

sector for the period 2017 to 202111. The identified priorities for the floriculture sector are:

• Development of Marketable Novel Products;

• Mechanisation of Production Process for better Productivity;

• Marketing and Networking Research to Identify Emerging Markets;

• Smart Plant Nutrient Packages, Growing Media and Plant Protection;

For each of the priorities, NCFRD identified the current challenges, possible solutions, issues to be addressed when implanting the solutions and developed an implementation strategy to adequately introduce the prioritised innovations.

For Development of Marketable Novel Products novel varieties are needed. The advised strategy is to develop clear cut procedures for importing and exporting planting materials and to develop a national market-oriented breeding program.

For Mechanisation of Production Process for better Productivity locally manufactured machines for the floriculture industry are needed. The advised strategy is making people aware of new tools and methods and appropriate irrigation techniques and introduce new equipment and techniques and support research on poly tunnels and crop protection systems.

For Marketing and Networking Research to Identify Emerging Markets much more information is needed on markets and potential buyers. The advised strategy is to improve the product standards, start flower auctions and exhibitions, assure a constant supply, implement research on local markets such as supermarkets, improve the product range, improve agro input availability, develop information systems, promote price standardisation and regional advisory services, identify locations for off season production, improve post-harvest handling, roll out the introduction of production with modern production technology and controlled environment via workshops and trainings and promote flower tourism

For Smart Plant Nutrient Packages, Growing Media and Plant Protection a broader availability of information on fertilizer and other agro chemicals is needed. The advised strategy is to introduce plant specific fertiliser packages, introduce micro nutrient-based recommendations, introduce correct growing media and plant protection packages, introduce biologically friendly protection methods and strengthen traditional knowledge systems.

11 National Committee on Floriculture Research and Development, National Research Priorities in Floriculture 2017-2021, Sri Lanka Council for Agricultural Research Policy (SLCARP) of Ministry of Agriculture, Colombo, 2017



2 . 6 . 2 I n s t i t u t i o n s r e s p o n s i b l e f o r a n d s u p p o r t i n g t h e s e c t o r

The key institutions related to the development and regulation of floriculture are the Department of Agriculture of the Ministry of Agriculture, the Department of National Botanic Gardens of the Ministry of Sustainable Development and Wildlife, the Forest Ministry and the Export Development Board as well as the Board of Investment. The Department of National Botanic Gardens has been the main institution promoting and carrying out research and development activities for the floriculture sector.

2.6.2.1 The Ministry of Agriculture

The Ministry of Agriculture included floriculture in its Mega Zones of Agriculture programme. The Ministry through the Department of Agriculture is also an important stakeholder and collaborator with the private sector to establish a floriculture park aiming to increase exports of floriculture products. The National Plant Quarantine service under the Department of Agriculture provides the extension services for pest & disease control.

2.6.2.2 The Ministry of Sustainable Development and Wildlife

The Department of National Botanical Gardens in Peradeniya under the Ministry of Sustainable Development and Wildlife has been the main promoter for the development of the floriculture sector in Sri Lanka. Its main functions are the protection of the Sri Lankan plant diversity, dissemination of information on biodiversity and plants, research and development of the floriculture sector in Sri Lanka, management of the national botanical gardens and develop plans for new ones, dissemination of information on horticultures in Sri Lanka. The Department manages the operations of 16 gardens and 4 war graves in Sri Lanka. Also, two education and training centers are managed by the Department and the department organized women groups for floriculture production in many districts of the country. The Ministry of Sustainable Development and Wildlife also administers the Fauna and Flora Protection Ordinance No2 of 1937 with most recent amendments in 2009. The Ordinance provides the legal framework for the plant quarantine regulations and the procedures for import and export of plant materials.

2.6.2.3 The Ministry of Primary Industries and Social Empowerment

Up to end of 2018, the Ministry of Primary Industries was quite active in promotion of the floriculture sector. For example, through its Dhana Saviya (National Economic Program) for

home gardening, the Ministry launched an Anthurium plantation project in Ampara12. The Department of Export Agriculture was the driving force behind these initiatives but after the return of the Department to the Ministry of Agriculture at the end of 2018 and the new mandate of Social Empowerment of the Ministry in 2019, the focus of the Ministry seems to have shifted more towards social services provision.

2.6.2.4 Various governmental institutes and initiatives to strengthen floriculture sector

The government is actively promoting floriculture as a sector with good potential for increased exports. The Board of Investment encourages Foreign Direct Investments (FDI) as well as local investments in the sector. Registered exporters receive high levels of support. The Export Development Board has sector extension staff and provides information on the floriculture

12 ITC, Blooming Time for Sri Lanka Floriculture Industry, April 2016



sector in Sri Lanka at its website to facilitate foreign buyers in understanding the capabilities of Sri Lanka. Also, EVD collects and spreads information to Sri Lankan farmers and companies interested in exports of floriculture products and provides assistance for export. Through the One Window Portal established by the Ministry of Finance, the trading community is provided with access to online systems developed for Regulatory Agencies involved in Import & Exports. Three systems are operational at present of which one is of paramount importance for the floriculture trade i.e. the System for National Quarantine Service. The Ministry plans to have more Systems operational by end of 2019.

2 . 6 . 3 L e g a l f r a m e w o r k a n d a c t s

The Fauna & Flora Protection Act No 2 of 1937 with subsequent amendments and the Plant Protection Act No 35 of 1999 regulate management and protection and development of local resources in the floriculture sector in Sri Lanka. The Fauna & Flora Protection Act No 2, under Art 45 prohibits or regulates the exportation from Ceylon of any specified plant, the cultivation of any specified plant, prescribes the conditions to be attached to any permit to be obtained for removing, uprooting, destroying or selling any type of plant and generally, the protection and conservation of wild vegetation, plant life and flora of Ceylon.

The Plant Protection Act No 35 of 1999, confirms the institutional structure of plant protection under the responsibility of the Ministry of Agriculture and core components of the Ordinance No 2, of 1937. Also indicates special license and conditions to the importation of plants, for inspection of plants, at, before or after the time of landing in Sri Lanka. Also, the cleaning, destroy, fumigation and disinfection at the expense of the consignee at, before or after landing without compensation of all plants, or packages and pots which are suspected of pest or disease. The Act specifies quarantine of imported plants in special areas and the feed to be charged therefor as well as identifying and declaring any area to be an infested area and its proper quarantine. The Act describes methods for the destruction and proper disposal as well as the spraying or treatment of any weed or of any plants within Sri Lanka affected with any pest or disease. It also covers regulation for the transfer of plants from one locality to another and the officers who are to carry out regulations under this Act and their powers and duties. Finally, the Act allows for the constitution of committees to advise the Director and officers for the purpose of the Act. The Fauna and Flora Protection Ordinance No 2 of 1937 has been several times amended with the latest amendment in 2009.

Other regulations for the floriculture sector are provided by:

Control of Pesticides Act 1994 provides for the licencing of pesticides, to regulate the import and packaging, labelling, storage and formulation, transport, sales and use thereof, the appointment of a licensing authority for pesticides and for the establishment of a pesticides technical and advisory committee.

The Enactment of New Plant Variety Protection Act is an enactment under the Intellectual Property Act No 36 of 2003 and focus on protection of plant varieties by patents or by an effective sui generis system or some combination of the two.

Seed Act 2003 regulates the quality of seed and planting materials and established the National Seed Council and the registration procedure of seeds.



2 . 6 . 4 E x p o r t a n d m a r k e t r e q u i r e m e n t s a n d l i c e n s e s

Any exporter of floriculture products requires an export license which has to be annually renewed. All exporters in Sri Lanka have to be registered with the Board of Investment and have to pay an annual fee. This is the so-called Return of Economic Service Charges which amount to 1 % of the revenues irrespective whether profits or losses have occurred. The exporter also has to be registered with the Export Development Board and has to pay a once and off fee.

The Flora and Fauna Protection Ordinance and the Plant Protection Act and their subsequent amendments have provisions for licensing, appointment of licensing officers, license application procedures, duration and renewal of licenses, suspension or cancellation of licenses, and appeals and complaints against licensing officers as well as the quarantine rules and regulations for imported planting materials.

Import requirements of EU and other countries related to planting materials are strict to avoid entrance of pest and disease. The products have to comply with regulations of plant health. These imply that certain commodities are not allowed to be imported and other plants need to be accompanied by a plant health certificate. These phytosanitary requirements also apply to the packaging materials of the imported products. The plant health certificate is issued by the authorities in the exporting country, the plants undergo customs and phytosanitary inspection when entering the importing country, the importer needs to be registered and the consignment arrival has to be announced before arrival to the customs office at the point of entry. The EU and other importing countries also have rules related to protection of plant variety rights.

Sri Lanka applies both Tariff and Non-Tariff Measures to regulate import and exports. Sri Lanka is a member of the World Trade Organisation since 1 January 1995 and applies General System of Preferences (GSP) and the Trade Facilitation Agreement. Sri Lanka has special GSP+ conditions in trade with EU and negotiated a number of free trade agreements with countries in Asia. The import duty on floriculture products under WTO arrangement for supply from Sri Lanka in Japan is 0% for live plants and flowers and 3% for foliage while imports in USA are duty free. Exports are, however, confronted with strict regulations related to plant health. Non-tariff import regulations are very strict in Japan, EU and USA and less strict in Maldives. Japan, EU and USA use strict phytosanitary regulation as well as quarantine and destroy measures on the account of the non-complying shipper. The phytosanitary requirements are added to the regular trade documents such as (packing list, bill of lading, insurance, pro-forma invoice and certificate of origin). The export companies in the floriculture sector in Sri Lanka co-operate closely with companies from EU and other importing countries and have obtained experience in compliance with export and import regulations. Their main issue is not so much the capability of compliance with the standards at the level of the producing farm but maintaining quality and competitiveness in the trade channels. The access to planting material is constraint by the fact that Sri Lanka still hasn’t a law respecting Plant Breeders Rights as well as the poor handling and logistic system in Sri Lanka. Also, connection of Sri Lanka to international cargo freight systems is substandard and exporters have to rely on relatively expensive commercial passenger flights. These flights also have rather limited capacity for commercial cargo.



2 . 7 P r o b l e m s e n c o u n t e r e d i n t h e f l o r i c u l t u r e

s e c t o r

2 . 7 . 1 L i v e P l a n t s a n d F o l i a g e

2.7.1.1 High cost of production and transport

Sri Lanka is a high cost producer. On the one hand because of high labour and high taxation costs. Most export farms use mainly permanent labour as the job is quite specialistic and it is difficult and costly to use temporarily employed. Permanent labour is, however, expensive due to the tax and health insurance included in the salaries. On the other hand, freight costs from Sri Lanka are also high due to the high charges for use of the airport and the lack of cargo flights. The national carrier Sri Lanka Airlines is more expensive for exporters than the other available airlines. This is partly caused by the exchange policy of Sri Lanka Airlines. It charges exporters at the selling price of the LKR to foreign currency while exporters obtain their payment at the selling price for LKR to foreign currency. Other airlines charge at the buying price of the LKR to foreign currency. This is a major disadvantage for the exporters as Sri Lanka Airlines offers the highest frequency of flights to major markets. Finally, obtaining all certificates and permits for export is mentioned by all exporters as a major challenge and raising the cost of their business. Different governmental institutions are involved in the processing of an export order and the co-operation between these institutions is problematic. The government has initiated several initiatives in the past to reduce this burden (latest initiative is the Export Market Portal of the Ministry of Finance) but up-to-now these initiatives have not substantially reduced this part of the handling costs.

2.7.1.2 Lack of Plant Breeders Rights Law and outdated regulations for planting material imports

Sri Lanka’ signing up to the TRIPS Agreement under the WTO requires the implementation of plant variety protection and in 2001, the Intellectual Property Office of Sri Lanka introduced the Protection of Plant Varieties (Breeder’s Rights) draft. Yet it remained a Draft. The non-enactment of the Plant Breeder’s Rights protection and the outdated quarantine regulations for import of planting material are a major constraint for the floriculture sector. The Sri Lankan quarantine and inspection laws are complicated with many restrictions. Many products are not allowed because of fear for diseases that origin in the far past of Sri Lanka. Such as for example ban on import of planting materials for palms because of past diseases in coco nut palms and ban on imports of grasses and bamboos because of fears of diseases in paddy cultivation. Also import of planting material from Central America is forbidden because of past disease in coffee growing. Even if import is allowed it is costly and time consuming which is killing for a sector that is highly market oriented and competitive. The export market constantly demands for new products in terms of colours, varieties, stem lengths etc which requires a flexible market-oriented system to obtain the planting materials.

2.7.1.3 Limited floriculture export sector development

Established exporters have invested substantially in the infrastructure of their farms and the training of their staff. Until recently, such investments were somewhat protected by the fact that it was not so easy to get registered as a floriculture exporter in Sri Lanka. However, since the registration procedure at the EDB has been simplified and registration can be done overnight trading companies have registered as exporters. These companies only buy from farmers and sell to importers. Because these companies don’t have a farm with all its costs,



they can easily under-bit established exporters. The established exporters loose business and the under-bitter can do the business maybe once or twice but then also cannot comply with the order and loses the business as well. This results in losing business for Sri Lanka and harms the image of Sri Lanka as a reliable supplier.

The underbidding problem mainly occurs in the business with the Netherlands. The Netherlands is the largest but also most competitive market in the world for floriculture products. The market requires high quality product in large volumes and at a competitive price. And the business should be sustainable with exporting countries all the time capable of meeting the importers orders. However, Sri Lanka doesn’t produce enough to guarantee this. In order, to comply better with the demands of the market, many established exporters have started outgrower schemes but even with these schemes it is difficult to meet the requirements. The outgrowers have the option to sell to the established exporter or to the underbidder and frequently chose to work with the latter.

2.7.1.4 Untargeted export promotion

The export promotion activities of the EDB are not well connected to the needs of many floriculture sector exporters. The selection of participants in trade fairs and promotion activities can be improved as well as the other organisational aspects of such events. The exporters would like to see that EVD focusses on the established exporters and not exporters without a production (farm) facility.

Also, the quarantine and inspection service of Sri Lanka should be more demand driven as all floriculture export markets have different requirements related to their allowed imports. Working closely together with established exporters is needed to develop an efficient and effective flexible regime for the quarantine and inspection service.

2.7.1.5 Weak business association

The export-oriented floriculture sector is weakly organised. The Flora Association exists but is not actively promoting the interests of the sector. At the moment, most exporters are not co-operating and collaborating to advocate for better trade strategies and cost reduction. The TAMAP team observed very little enthusiasm among the exporters to revitalise the association although they acknowledge that for example the Fruit & Vegetables Exporters Association is quite successful in influencing government policies and strategies.

2.7.1.6 Insufficient commercialization of the tissue labs

At the moment, Sri Lanka has 5 floriculture companies engaged in the commercial production and export of tissue planting materials. These 5 companies have regular contact related to the sales of tissue materials and are supported by the Sri Lanka Institute of Technology in Malabe. Technically, the labs don’t face major issues but commercial issues exist. The large majority of the production of these commercial tissue labs is on order basis for Dutch and Japanese importers. The main problem, however, is enough orders and buyers and fair prices for the materials. Tissue material takes a long time to produce (1.5 years from start to sales is quite normal) and substantial economies of scale can be achieved if larger orders can be obtained. Presently, only the largest lab is commercially doing very well, the others are still developing their business model.



2 . 7 . 2 C u t f l o w e r s

2.7.2.1 Production cost related issues

The level of knowledge on floriculture business is generally low. Labour costs are high and it is difficult to attract and keep workers. Most farms have a high turnover in workers. Workers need to be trained by the farms and frequently leave after some training mainly to Colombo. The level of mechanization in floriculture production is low. Most farms use old polytunnels as investment in new equipment is very costly. In 2016, the import tax on equipment for the floriculture sector was raised with 25% making import of required equipment even more expensive.

2.7.2.2 Lack of Plant Breeder’s Rights Law and Import restrictions on planting materials, chemicals and medium.

Innovation in the cut flower sector is heavily constrained by the restrictions on import of new planting materials due to the lack of Plant Breeder’s Rights law. Many varieties are not allowed to import. Similarly, many chemicals for spraying or propagation are difficult to import. Also, the expertise of the quarantine inspectors is limited. For example, coconut peat is not allowed to be imported but many inspectors can’t distinguish between coconut peat and other medium and don’t allow import of any medium. Another related issue is the fact that some materials (like lily bulbs) need to stay in frozen condition. In the case that inspection is delayed the materials warm up too much and are destroyed.

2.7.2.3 Access to land

Many farms want to expand but face the problem that access to land is restricted. Farmers have requested additional land form government but couldn’t obtain it and also leasing additional land from private owners is difficult. This makes scale economies difficult to achieve.

2.7.2.4 Connectivity with market

Most farms sell a large proportion of their supply to florists in Colombo, Kandy and Galle. The major source of transport used is the public train and bus network. The issue here is that the farmer loses control over the supply at the moment it is put on the train or bus. Clients can state that they didn’t receive the ordered flowers or that the amount or type was not the agreed type. Also. the system leads to high defaulting on payment. When a farmer delivers himself to the buyer. he can demand direct payment. The system used in Sri Lanka floriculture sector leads to buying on credit as the farmer has to send his product first and expects to be paid later. Many buyers, however, don’t pay in time and many farmers have large outstanding amounts with buyers. Sometimes, buyers go bankrupt before payment is completed and the farmers have to carry major loss.

2.7.2.5 Price competition

Imports of cut flowers competing directly with the local supply is still limited but growing. Currently, most import is still confined to orchids from Thailand but already importers are bring new types of flowers at attractive prices. In addition, established registered businesses face heavy competition from unregistered smallholders. Smallholders purchase cuttings from importers and start multiplication. Frequently, the used material is from importers who have a license agreement with foreign plant material producers. The licensed farm can import certain material and multiply it to an agreed amount of plants and the licensed farm pays royalties to the foreign producer. However, smallholders can buy these plants and use those as mother



plants for production of cuttings and their plants. They don’t have the costs of imports and the royalties and can produce the plants at a much lower cost. The material will degenerate, however, quickly (mostly already in the second year of use of these mother plants) and lead to low quality of supply of these smallholders. Price competition also plays an important role between larger more established growers of for example roses and smallholders with small production. The latter can frequently undercut the prices of the established farms.

2 . 7 . 3 C o p y i n g s t r a t e g i e s o f f l o r i c u l t u r e p r o d u c e r s

2.7.3.1 Move from exports into local market

Exporters who didn’t set up their floriculture business under a BOI investment agreement (financial or otherwise) can turn to the local market to compensate for lost export market share. This switch is only possible for exporters who focus on live plants as there is virtually now local market for foliage. The switch to the local market requires also redesign of the business model as supplying the local market asks for maintaining a large stock of plants (many different varieties in smaller numbers). Consequently. the switch demands for additional capital investment and accepting a slower turnover of working capital.

2.7.3.2 Diversify away from the dominant Netherland market and venture into new products

Traditionally most Sri Lankan exporters were oriented mainly at the large Netherlands market for their exports. Many Sri Lankan exporters started their business through contacts with Netherlands producers or importers and learnt the business through them. However, the exporters discovered over time that the Netherlands market is the most competitive one and Netherlands importers are highly price conscience and can easily move from one supplier to another or from one supplying country to another. So, the most successful Sri Lankan exporters moved away from the Netherlands as their only or dominant buyer and developed markets in the Middle East and Asia. Importers in these countries are more loyal and accept longer delivery periods of the orders which is beneficial for relatively small producers such as Sri Lanka. These countries are smaller markets and can accept smaller volumes of different products.

Another strategy which successful exporters are following is to develop new products. The Sri Lankan floriculture sector is not very innovative, due the lack of Plant Breeder’s Rights and the inert rules and regulations on imports of planting materials. Some companies decided to switch to completely new markets segments which have less traditional limitations from rules and regulations such as aquatic plants, multiplication for export purposes and tissue culture production. For example nowadays more exporters are investing into aquatic plants and a recent Singaporean investment in Sri Lanka focusses totally on aquatic plants.

2.7.3.3 Out growers schemes and mechanization

Most exporters face the issue that orders are erratic and if they come are too large in volume to be completed with the supply of the own farms. So, they make sure that they have established a good network of independent farmers who they train and use as suppliers whenever they have the large orders. The established exporters have invested substantial resources in building the relationship with a number of dedicated outgrowers. This strategy also ensures flexibility in terms of costs of production. Likewise, most established exporters are constantly evaluating the possibilities to mechanise some labour-intensive parts of their operations at the farms. All export farms have largely mechanised the provision of water and nutrients to the plants via sprinkler and drip irrigation systems. Many are now looking into



further options for mechanising such as automatic dosing of the nutrients and chemicals in the drip lines, mechanising production of growing medium (mainly coconut peat is used and treatment and preparation of the peat is still dominantly manual), transport of plants over the farm and semi-automation of the preparation of the plants for export (final handling and packaging of plants is still completely manual).

2.7.3.4 Tissue culture commercialization

Six exporters have ventured into tissue culture production for the floriculture sector. Technically capable laboratories are operational and tissue culture production is seen as a good new business for Sri Lanka as it generates high value addition. However, still most labs find it difficult to make money on tissue culture production. This business needs economies of scale and orders should be large and sustainable over a longer time to justify the investments. Most labs are still not at the stage that they can guarantee such business.

2.7.3.5 From local market production to export

Few larger temperate zone cut flower producers in Nyara Elya are evaluating possibilities to start exports again. Some previously had exports but lost the market and some are developing new strategies to penetrate the export market. Some farms try to establish reliable license agreements with foreign suppliers of planting materials to enhance the quality of their supply. This first to serve the local market with better quality product but if they would manage to scale up (more land under high quality flowers) than economies of scale may work in their advantage at export markets. It was observed that in order to make exports of temperate zone cut flowers possible, cooling facilities at the airport are required.

2 . 8 D e m a n d r e l a t e d a s p e c t s o n f l o r i c u l t u r e i n S r i

L a n k a

2 . 8 . 1 S i z e o f l o c a l a n d e x p o r t m a r k e t

The demand for floriculture products in Sri Lanka originates from three market segments i.e. local market, regional market and export market. In order to estimate the quantitative size of the demand we attempt to estimate the demand for floriculture products in each of these market segments.

2.8.1.1 Local market

Local markets are essentially the locations near to small road site garden shops (in the periphery of 25 – 30 km accessible by foot cycles and motor cycles), which include villages, sub divisions and nearby towns. In this local market, the floriculture products are mainly used for gardening, religious purposes and for special occasions such as weddings, festivals, funerals. Floriculture products are also used for interior decoration but the commercial demand is very small. The main characteristics of the local market are as follows;

1. Demand is mainly for average and low value product 2. Purchasing power of the consumer is low 3. Number of vendors is limited with most products directly sold by producer to end user 4. A wide variety of per product small quantities are in demand 5. High value product rarely enters the local market 6. The production costs are low



2.8.1.2 Regional market

Regional markets are the bigger markets situated in the state capitals, large cities or metropolitan cities with variegated supply and demand linkages. The number of operators is higher than local markets. These markets normally cater to a larger geographic location and the volume of trade is high. The number of buyers is high as compared to the local market.

The characteristics of the markets are:

1. Serves as a channel to cater to up-country markets and distant markets 2. Serves as a connecting channel with the retailer, end user and the producer 3. More capacity to absorb the bulk in the supply due to high number of demand channels 4. Price fluctuation is high and can happen on a daily basis depending on the demand of

the larger market for the product 5. Purchasing power of the end consumers is higher than that in local markets

The main sales outlets in the regional market for floriculture products are specialised shops in major towns and cities and road site gardening shops. Our informants estimate the share of the specialised shops in the total sales in the regional market at about 30% and the road site gardening shops about 70%.

Specialised shops

Specialised floriculture shops are confined to the main cities and especially Colombo, Kandy and Galle. The shops focus on cut flowers with some sales of plants and foliage. The specialised shops sell annually about 241 metric tons of floriculture products. The specialised shops also cater to upmarket hotels and restaurants mainly in Colombo.

Road site flower and gardening shops

Road site flower and gardening shops mainly selling flowering plants and scrubs are found in towns and cities. Flower shops can be found around major religious places (temples) and graveyards but flowers are also found next to flowering and non-flowering plants in road site gardening shops. These markets sell annually about 563 metric tons of floriculture products. These markets also cater to smaller hotels, villas, guesthouses and restaurants.

2.8.1.3 Export markets

The size of the export market is estimated at 4,450 metric tons annually. The large producers in the export production are directly linked to foreign partners and foreign markets. They are producers and exporters with most having their own farms. These companies use more modern technologies, some have tissue labs and have their own technical staff. Some production is outsourced to other farms, but production is totally controlled by the technical staff of the company. The outsourced farm is held responsible for the quality and volume of the supplies but receives high levels of support to achieve the results. The exporting companies use their own cooling trucks to transport produce.

To summarize, the procurement system of floriculture products largely operates through a system of vertically organised companies and preferred suppliers who are responsible for the quality and volume of production. The estimated total size of the demand for Sri Lanka floriculture products at about 5,000 metric tons annually in 2017.



2 . 8 . 2 S r i L a n k a ’ s i m p o r t a n d e x p o r t o f f l o r i c u l t u r e p r o d u c t s

Sri Lanka’s imports of floriculture products are quite stable in volume but sharply increasing in value (see figure 7). The imports are dominantly live plants with increasingly higher unit import values. These are mainly orchids supplied by Thailand. The main orientation of these imports is final consumer market but a minority of the imports are also used as planting materials by the Sri Lankan florists and farms.

Figure 7 Trend in imports of floriculture products in Sri Lanka

The global floriculture market had a value of 41300 million US $ in

201813. Sri Lanka is with its floriculture exports of about 16 million US $ in 2017 only a tiny player in the world market. Of all the three floriculture market segments relevant for Sri Lanka, live plants is the largest market and foliage the smallest market. The live plants market is highly dominated by Germany and

Source: UNComtrade

The Netherlands (see Table 2). Sri Lanka exports hold a tiny share of all major live plant markets but especially the share on the large German market should provide opportunities for growth. Germany is one of the main markets and Sri Lanka captures a very small share of this market as compared to the position of Sri Lanka on the Japanese and Netherlands market. The German market is mainly served through Netherlands traders and there might be an opportunity to establish more direct sales to German importers.

13 Floriculture Market 2019 Demand, Share, Trend and Forecast to 2025, MarketWatch, March 20, 2019



Table 2 Major export markets for live plants from Sri Lanka in 2017

Sri Lanka Exports Total Import

1000 US $ Metric tons 1000 US $ Metric tons

World 6149.5 1913.2

Japan 1160.6 99.4 108519.9 32216.9

Netherlands 2659.2 1553.7 921656.1 925932.7

Germany 683.7 76.2 1302235.7 527882.1

USA 402.1 5.7 512709.8 131825.2

Source: UNComtrade

The cut flower market is traditionally highly dominated by The Netherlands being the major flower trader in the world. Sri Lanka holds a virtually neglectable share of the international cut flower market (see table 3).

Table 3 Major export markets for cut flowers from Sri Lanka in 2017



World 150.8 132.6

Netherlands 82.1 114.8 994790.3 307123.7

Source: UNComtrade

The foliage market segment is the smallest market segment with a larger number of export markets for Sri Lanka. Internationally, the foliage market is also dominated by The Netherlands and The Netherlands is also Sri Lanka’s main foliage export market. But for foliage, Middle East countries are more important for Sri Lanka than European countries or Japan (see Table 4)



Table 4 Major export markets for foliage from Sri Lanka in 2017



World 9559.1 2403.9

Japan 1469.3 335.4 70264.8 14963.2

Kuwait 572.8 121.5

Qatar 421.0 146.8

Netherlands 2174.7 427.3 323828.6 80775.8

S Arabia 2029.1 759.9 5797.1 2302.7

UAE 1332.1 231.9 3646.6 915.5

UK 724.0 192.3 50789.2 19077.5

Source: UNComtrade

A crucial question is whether Sri Lanka can compete on the international market. The value and quantity of floriculture products exported by Sri Lanka constitutes a marginal share compared to Kenya, Ethiopia, Thailand and other Asian countries.

Figure 8 compares the FOB export prices of Sri Lanka with the CIF import prices of major markets. The insurance and freight costs from Sri Lanka are extremely high (similar or more than the FOB value per kg). So clearly in live plants with its average FOB export price, Sri Lanka is not competitive on major markets. Especially the Sri Lankan products are extremely expensive on the USA market. For foliage Sri Lanka is pricewise somewhat competitive on the S Arabia market and the Japanese market but not in Europe and the UAE.

Figure 8 Prices for live plants and foliage in 2017

Source: UNComtrade

In cut flowers Sri Lanka is price wise somewhat competitive on the large Dutch market. In 2017, the average export price of Sri Lanka cut flowers was US $ 0.7 per kg FOB. The average import price of Sri Lanka cut flowers in The Netherlands US$ 3.8 per kg CIF while the average CIF import price in The Netherlands was US $ 3.2 per kg. In cut flower exports clearly the large difference between the FOB value and the CIF value is a constraint for the development of the Sri Lankan exports to the main markets. If the cost of freight and insurance cannot be brought down, price competitiveness on major markets remains a problem.



2 . 8 . 3 C o s t o f p r o d u c t i o n o f m a j o r c o m p e t i t o r s c o m p a r e d t o S r i L a n k a

Sri Lanka is considered as a high cost country regarding agriculture production. This is mainly attributed to high labour cost due to labour shortages and high investment costs. As it is very difficult to get reliable comparable production costs in the floriculture sector of different countries, we use trade prices (unit import and export prices per kg) for a comparison. Such prices of main competitors of the Sri Lanka supply are generally considered good proxies of the competitive strength of different countries in the global arena. We analysed these prices for live plants and foliage. For live plants (see figure 9) , China and Kenya are the main competitors of Sri Lanka. China is the main competitor on the Japanese market and Kenya on the Netherlands market. Compared to China, Sri Lanka CIF unit import prices on the Japanese market are very high for its live plants and also on the Netherlands market, Sri Lankan CIF unit import prices are higher than the world average but Kenyan CIF unit import prices are very high for live plants on the Netherlands market.

Figure 9 Unit import value of Sri Lanka and main competitor in live plants in 2017

Source: UNComtrade

For foliage, India, Costa Rica and China are the main competitors of Sri Lanka (see Figure 10). China is the main competitor on the Japanese market. Costa Rica is the main competitor for Sri Lanka on the Netherlands market. India is the main competitor on the Middle East markets of Saudi Arabia and the UAE.



Figure 10 Unit import value of Sri Lanka and main competitor in foliage in 2017

Source: UNComtrade

Compared to China, Sri Lankan CIF unit import prices for its foliage on the Japanese market are high. Also, on the Netherlands market, Sri Lankan CIF unit import price are higher than the world average and the main competitor Costa Rica. On the S. Arabia and UAE market Sri Lanka has considerably higher CIF unit import prices than its main competitor India.

For cut flowers, the main international market is The Netherlands. In 2017, Sri Lanka cut flower exports obtained an average CIF unit import price of US $ 3.81 per kg. The main competitor is Kenya. In 2017, the average CIF unit import price of Kenyan cut flowers in The Netherlands was US $ 2.90 per kg and the average CIF unit import price of all cut flower imports in the Netherland was US $ 3.24 per kg.

Sri Lankan floriculture products are high priced on the international market and Sri Lanka is a high cost country in the global floriculture sector. This is related to the high costs for insurance and freight as can be seen from the difference between the FOB export price and the CIF import price. However, it should be noted that prices are only one aspect of the floriculture trade. Kenya has the highest import prices for its live plants but also a relatively high share of The Netherlands live plant imports. Also, Sri Lanka has high import prices for its foliage but also a high share of the imports in S Arabia and the UAE. The assortment of different products in this business is large and qualities exported vary.



2 . 8 . 4 G r o w t h o f t h e f l o r i c u l t u r e s e c t o r i n S r i L a n k a

2.8.4.1 Live plants and foliage

The growth of the market for live plants and foliage is mainly determined by the trend in the export and import market (see figure 11). The exports of foliage seem to gradually increase but the exports of live plants are basically stable from 2010 onwards.

Figure 11 Export value of live plants and foliage from Sri Lanka

Source: UNComtrade

However, if we analyse the trend in exports (see figure 12) it is clear that for both market segments the trend is highly erratic. This is especially the case for foliage. Some years show high growth of foliage exports from Sri Lanka and other years deep dips in exports. Even more so than live plants, foliage seems to be a high-risk business.



Figure 12 Trend in exports of live plants and foliage from Sri Lanka

Source: UNComtrade

We estimate that this trend will continue over the next 5 years unless in-dept changes in the export policies, air transport and infrastructure (such as development of a complete cold chain with good facilities ate the airport) will occur. Live plant imports are expected to figure around 250 metric tons annually and exports around 1,950 metric tons. The value of exports is expected to be the coming years between 6,2 and 6.5 million US $ annually. Foliage exports are more difficult to predict as their trend is more volatile, these exports are expected to be the coming years to be around 2,500 to 2,700 metric tons with a value between 10 and 12 million US $ annually.

2.8.4.2 Cut flowers

Sri Lanka cut flower production is mainly for the regional market but also exports. The growth rate of population in Sri Lanka is about 1% annually and according to Fitch Report, the retail sector is growing in 2017 with 21% of which 4 to 5% is related to inflation so about 16% in real terms. It is expected that the speciality shops and markets for cut flowers in Sri Lanka will show a growth of between 10 and 15% in real terms annually. The total size of the market is about 280 to 350 metric tons in 2017 of which 150 to 210 metric tons for local market, 130 to 140 metric tons for exports and some small imports. The market is expected to grow with 30 to 50 metric tons per year in the coming period.



3 F U N C T I O N S

3 . 1 F u n c t i o n d e s c r i p t i o n

3 . 1 . 1 I n t r o d u c t i o n

Sri Lanka has good growing conditions for tropical and temperate zone floriculture products in different parts of the country. Supply of products can be guaranteed throughout the year. Sri Lanka is also an experienced producer with a good reputation as a quality supplier of floriculture products to the world market. Most of the temperate zone production is in poly tunnels while the tropical zone production is in shade houses. The production is checked and controlled by inspectors of the Department of Agriculture with a plant quarantine policy in place. These officials also provide extension services with advice on pest management and disease control. Many Sri Lankan export companies obtained environmental and quality certificates such as GLOBALGAP, MPS and FAIR TRADE, GAP, GMP label to comply with requirements

in the international market14.

Over the last few decades, the production of floriculture products for the world market has moved from western European countries to developing countries in Latin America, Africa and Asia. These countries provide good growing conditions without extra costs of heating, abundance of low-cost labourers and good connectivity to European and other markets. Countries such as Colombia, Ecuador, Kenya and Ethiopia rapidly developed their floriculture sector and are now major players in the international market. Sri Lanka has similar good growing conditions and hence an immense potential to develop its floriculture sector. Floriculture is a high value and labour-intensive business and has a good potential to promote socio-economic development.

At present, the Sri Lankan floriculture sector is still confined to a small number of stakeholders in the business involving farmer cluster organizations, out growers, foreign direct investors and joint venture collaborations producing for export. The key floriculture product varieties that are exported from Sri Lanka include; decorative foliage, young plants, indoor pot plants, cut

flowers, landscaping plants, tissue cultured plants and aquarium plants15. Despite over three decades of supplying quality floriculture products to the global markets, the floriculture industry in Sri Lanka is still a small and medium category business. The country still didn’t manage to profit from its diverse climatic and geographical regions (varying from tropical and temperate), availability of skilled labour and abundance of coconut peat as growth mediums.

The main production of the floriculture sector in Sri Lanka are tropical non-flowering plants and foliage. These products are grown under warm humid conditions up to 500 metre above sea level. The variety of products is huge and the production is nearly exclusively for export purpose.

Of the temperate cut flowers produced in the highlands of the Central Province of Sri Lanka, carnations as grown mainly for export. Roses are grown for export and local market while the other cut flowers (statice, gypsophyla, alstroemeria, chrysanthemum, lilies and irises) are grown mainly for the local market. Carnations are produced entirely from imported planting materials and are graded according to internationally accepted specifications for export.

14 Padmini SMPC, Kodagoda TD. Present status and future scope of floriculture industry in Sri Lanka and its potential in women empowerment. Sri Lanka Journal of Social Sciences. 2017;40(1):31-40.

15 Visited online on 18th October 2019. http://www.srilankabusiness.com/blog/floriculture-in-sri-lanka.html

http://www.srilankabusiness.com/blog/floriculture-in-sri-lanka.html



American and Mediterranean carnation cultivars are quite famous in the world market. Pink, white, red, yellow and salmon colours are most popular. Novelties such as striped and frosted types are also becoming increasingly popular. American cultivars grown are silvery pink, karina, barbara, red barron, elsy, royalette, bagatalle, bianca and adelfie. Mediterranean cultivars grown are nora barlo, shainah, lena, castellaro, scania, tanga, roma, pallas and charmeur. Carnations are grown in poly tunnels, covering more than 10 hectares, under fully protected environments. Carnation used to be the main cut flower produced but nowadays other products are more important such as Roses. Roses are produced mainly with old planting material and varieties and production is limited to about 40,000 blossoms per annum. Roses unlike many cut flowers are scrubs which allow for long time harvesting as the plant produces new flowers every year. Roses are grown in the open field and in polytunnels. The quality of Roses is highest if grown in controlled environments in poly tunnels. Popular colours are highly variable. They are generally used in flower bouquets were an acceptable mix would consist of red-50%, Pink-30%, yellow-10% and others 10%. Roses are quite popular in the local market.

Most are supplied by small scale growers16.

Anthuriums and Orchids are the most popular tropical flowering plants and cut flowers which are being grown commercially for exports as well as for the local market. Anthuriums can be grown at elevations up to 1500 metres above sea level, with texture and the flossiness remarkably enhanced with increase in elevation. Annual production of anthuriums is around 3 million flowers, the majority of which are sold at the local market. The exports of Anthurium at present is not significant. The Anthurium production is gradually expanding at village level with smallholder farmers assigning small plots to the production. Anthurium prefers a shaded location and all production is under shade nets or under trees. Locally available materials are

also used under certain conditions to provide required shade levels17. The varieties of the Dutch breeder Anthurium Vogels (the so-called Avo lines) are the leading cultivars in the global Anthurium sector but in Sri Lanka also improved local varieties are popular such as Germa, Cuba, Fuego, Favoriet etc. are also popular. The Royal Botanic Gardens, Peradeniya, being the pioneer institution for the development of cut flower industry in Sri Lanka has produced a few promising Anthurium varieties with export potential. Some of these varieties are being closely studied and mass propagation has just started. A few of the selected varieties are: RBG - Green Tip, RBG - Soft Sheen, RBG - kandy queen, RBG - Gardens Pride, RBG - Royal Flag, RBG - Lak Isuru, RBG - Wild Beauty, RBG - Krishnas Red.

Tropical Orchids can be grown under warm humid conditions up to 500 metres above sea level. Growing conditions in the tropical zone of the Western Province are favourable for cultivation of the commercially most interesting orchid varieties such as Dendrobiums, Vandas and Phalaenopsis. These varieties are quite popular in the local and foreign markets. The Anthurium industry is gradually developing to cater to export markets. Almost all cultivations are under shade netting and the majority of growers have developed mist irrigation techniques. ‘Madam Pompadour’ (Pink and White), and ‘Rena Vapahoo’ (Pink and White) hybrids are some of the popular hybrid Dendrobiums in the market. Hybrids of Arachnis, Oncidiums, Phalaenopsis and Dendrobiums are being exported in smaller quantities.

Gerberas are becoming popular among growers due to the availability of a wide range of long lasting cultivars produced by many modern breeding methods and tissue culture. These cultivars can be broadly categorised into three classes, namely Singles (such as ‘Fleur’ and ‘Apple Blossom’), Doubles (such as ‘Marleen’ and ‘Hildegard’), and Black Centres (such as ‘Fabio’ and ‘Rosseta’). Pink, salmon, orange, red and yellow are the popular colours in the

16 Visited online on 18th October 2019. http://www.fao.org/3/ac452e/ac452e08.htm

17 Visited Online on 23rd October 2019. Sirimanna B. Floriculture industry blossoms in Sri Lanka. Sunday Times News Paper; 2018

http://www.fao.org/3/ac452e/ac452e08.htm



market. Trials have already been started under controlled environments by private

entrepreneurs to grow gerberas for the export market 18. Seeds of many flowering plants such as asters, petunias, impatiens, phlox and verbenas are produced for local market and exports.

Photo 1 Tropical floriculture products

18 Visited online on 18th October 2019. http://www.fao.org/3/ac452e/ac452e08.htm

http://www.fao.org/3/ac452e/ac452e08.htm



At present, a few commercial tissue culture units are operational. One of these laboratories specializes in the multiplication of material for cut flower anthurium plants through tissue culture. This venture is of recent origin and multiplies large quantities of planting material for worldwide anthurium production. Four of these laboratories are attached to large commercial, export-oriented nurseries involved mainly in ornamental foliage plants and to a lesser extent cut flowers. The sixth of these laboratories is exclusively for the production of orchids for export. There are a few middle level orchid growers who own mini-laboratories for the production of orchid seedlings and other ornamental plants for village growers.

Photo 2 Tissue culture products

3 . 1 . 2 O r g a n i s a t i o n a l f u n c t i o n s a l o n g t h e c h a i n

The large-scale commercial companies have their cultivations under greenhouse conditions, poly tunnels or netting. The medium and small-scale growers either have their cultivations in the open air, in poly tunnels, under shading nets or use natural shading (under trees). Some use locally available materials such as coir fibre mats, cajans (dried and woven coconut palm leaves) or ropes to provide shade requirements of a particular crop. Sri Lanka's floriculture industry consists of three categories of producers or growers a) large commercial ventures for export; b) middle level growers catering to the local market; and, c) village level producers who may sell their products to either of the two categories mentioned above. The majority of large-scale commercial growers produce plants in collaboration with foreign partners. Technology is shared by these partners and modern methods of production are followed. However, most of these ventures are involved in the production of ornamental live non-flowering plants and foliage plants and very few are involved in the production of cut flowers. Middle level and village level growers usually go in for low cost cultivation with minimum advanced techniques, sticking to conventional methods. The majority of these growers produce flowering plants and cut flowers. Therefore, most of the cut flowers produced are used to satisfy the local needs and only the surplus is exported occasionally in small amounts. Only carnations are traditionally grown mainly for exports. The TAMAP team was informed that slowly the export-oriented cut flower business is trying to increase its business again. Major exporters of floriculture products are focused on live plants (rooted or un-rooted) and ornamental foliage. They have their own nurseries with some large farms up to more than 50 acres. However, many of these farms use out growers next to their own production to meet orders.



Many exporters were used to working with a set of out-growers that would supply to them exclusively. However, variations in the demand for exports have pushed exporters to give up having excusive out-growers and rather work on spot supply basis. Hence out-growers would work with exporters as orders come and they have a several exporters lined up to supply. This has motivated out-growers to become specialized and vigilant in the production process in terms of pest and disease management. As mentioned earlier, export market is driven by BOI registers and non-BOI registered companies. Non-BOI registered companies do supply to local market as well and are more inclined to work with local out-growers. Therefore, in terms of production, major stakeholders in the Sri Lankan floriculture sector are: 1) large scale BOI registered companies, 2) large scale non-BOI registered companies, 3) medium and small scale exporters that do both exports and local supplies, 4) floriculture growers (they could be working on out-grower contracts or could well be focused on the spot market), 5) road site sellers, florists, funeral directors and event planners ( such as bridle dressing professional or bridle bouche makers).

Many government institutes are stakeholders in the floriculture value chain (see also par 3.2) providing advisory service, training programs and plant protection extension and services and some finance to smallholders to procure equipment such as poly tunnels. Exporters have to constantly deal with Department of Forestry, Department of Wildlife Conservation, Department of Commerce and Sri Lanka Customs for compliance both with export and import regulations.

3 . 1 . 3 M a r k e t i n g n e t w o r k s a n d d i s t r i b u t i o n c h a n n e l s

The floriculture sector in Sri Lanka has not been able to create Auction Centres as existing in many other countries. Retail outlets scattered through the production areas are the popular centres where live plants and cut flowers are sold. There are few growers who have created cooperative systems to sell their products. Exporting of cut flowers is done by a few companies which have a selected group of partners and farmers. In many instances the agents are sent to villages to collect flowers from farmers directly. A wide range of tropical plant varieties are exported as rooted cuttings, un-rooted cuttings and canes (semi-finished plant material) to be used as `mother plants' to grow indoor and outdoor plants in overseas nurseries. The

assortment includes both local and imported varieties19.

Tropical foliage is used worldwide for decorative purposes. Exporters are able to supply a rich variety of temperate and tropical types of foliage and are therefore fully geared to meet export orders throughout the year regardless of seasonality. Both native and exotic mother plants are used for the production of foliage and decorative plants. Hardy tropical trees more than 3ft in height, flowering bushes, shrubs, climbers, plants for hedges & ground covers used for landscaping purposes are produced for export. Tropical aquatic plants for aquariums and decorative ponts are cultivated for export under the strict technical supervision. The assortment includes varieties such as Cryptocoryne, Echinodorus, Anubias, Lagenandra, Aponogeton etc. Tissue material of plants and flower varieties are produced. Sri Lanka is equipped with handful of state-of-the-art modern laboratories capable of producing a wide range of tissue cultured

19 Visited online on 21st October 2019. http://www.srilankabusiness.com/floriculture/ornamental-foliage-plants.html

http://www.srilankabusiness.com/floriculture/ornamental-foliage-plants.html

http://www.srilankabusiness.com/floriculture/ornamental-foliage-plants.html



plants for both domestic and overseas markets. Research and development in this industry

continues on innovative techniques and optimization of requirements20.

Most prominent exporters of floriculture products started their businesses several decades back. Therefore, they have a long history and well-established overseas buyer network. They produce on their own farms and supply directly to the customers. These companies have larger stocks of floriculture products at any given time. Some of these companies have moved on to establish partnerships with small and medium scale out-growers in the local area itself. This has been done mainly to manage their demand but it benefits local communities with employment opportunities especially for women. Exporting companies invest in training to make sure small and medium scale growers adopt proper management practices and produce to the required quality. Establishing an export business in the floriculture sector does not require its own plant farm. Exporting company can simply buy from out growers and export. There are few larger exporting companies that have adopted this model. However, there are plenty of situations where exporting companies have started their operation without prior experiences and have failed due to inability to maintain the quality of floriculture products. They have also failed to maintain the quantity of supply in the long run. Hence in terms of exports, small and medium scale exporters without priori experiences and own floriculture product stocks haven’t been successful. In fact, they have sometimes taken over customers of other established exporters with lower prices and subsequently failed to maintain the quality and quantity of supply.

The small and medium growers do not have guaranteed demand and need the services of larger companies to get access to markets. These growers supply cut flowers to larger companies on a regular basis. However, the quantity and price vary based on the demand and market. As the conditions of these larger growers frequently are not so favourable many small and medium growers prefer to supply directly to small and medium scale florists. These give more sustainable regular business. Frequently this is daily supply where flowers will be transported using trains busses and courier services. Live plant customers generally buy larger quantities and come to the farms of small and medium growers using their own transport. These are owners of road side and gardening shops who cater to the demand for live plants.

3 . 1 . 4 S t a k e h o l d e r S t r a t e g i e s

Well established export companies produce on their own farm. They also work with other small and medium scale growers to manage their orders and also to promote entrepreneurship in the localities. However less than 20% of their export supply originates from small and medium out growers. This percentage is slightly higher i.e. 30-40% in case the exporters are also producing for the local market. In this situation, the export orders will be delivered from the exporter’s own floriculture farm while the local market would be supplied with the produce of out growers. The exporters don’t provide the small and medium growers with exclusive orders. Specifications for floriculture products are uniform across buyers, for example the average height of an exportable queen palm tree is 35cm. Therefore, a grower can maintain a stock of plants that can be supplied to several exporters. On average small and medium growers work with 2-3 exporters for a given floriculture product. Larger export companies work with well-established overseas buyers. On average they have been working with their best clients for more than 5 years. These clients hardly take their business elsewhere looking for lower prices

20 Visited online on 21st October 2019. http://www.srilankabusiness.com/floriculture/sri-lankan-floriculture-products.html

http://www.srilankabusiness.com/floriculture/sri-lankan-floriculture-products.html




compromising the quality. However, there are situations where clients have moved away from larger exporting companies due to price competition. Some of these clients have started working with other larger exporters and prevailed. Others who started working with small and medium exporters have mostly failed in the long run due to issues with quality compliance. For some exporters, the main client is their overseas mother company. In this case, the exporter produces on its own farm and the production is highly standardized and closely monitored by the mother company.

The local demand is for cut flowers originates from a large number of florists all over the country. There is an increasing local demand for live plants as well. With the expansion in the landscaping industry a wider range of live plants are in demand. Local floriculture market is dominated by several major growers/florists. For cut flowers these larger florists have their own flower gardens and they have yearly production schedules for their floriculture products. Demand on the local market for foliage is still limited but increasing. Foliage is more and more seen as an essential item for flower decorations and local demand is increasing. Wedding and funerals demand significant quantities of fresh cut flowers and foliage. Demand for live plants is not regular in Sri Lanka. A live plant can be at a household for a longer time period since there are isn’t seasonal variations in the weather. Therefore, customers hardly change live plants in the garden and a consistent demand for live plants does not exist locally. However, some nurseries/florists promote live plants that can be grown on pots. This will allow the customers to move pots around the garden and also to replace. At the same time, there are entrepreneurs that provide floriculture services to private office spaces and high-end residencies where live plants are changed/replaced regularly to suite the preferences of the clients.

Well established exporters tend to specialize on several key products that they can grow competitively. For example, queen palm is one of the varieties that has a significant export demand but is being grown by only few exporters. Therefore, well established exporters have become pioneers in cultivating and exporting a limited number of products. However, the number of floriculture products increases when the share of the local supply increases for the export company. On average an export company that has 40% local supply would grow close to 50-60 varieties. Exporters who have lost their main overseas clients have focused more the local market. Some exporters are hoping to have more local supply in the coming 5 years compared to overseas supply. At the same time, some exporters are exploring new destinations with niche markets such as Australia, Japan and Middle East countries. There is a growing demand for live plants from Middle East to cater for the landscaping industry.

3 . 1 . 5 H o r i z o n t a l a n d v e r t i c a l c o o r d i n a t i o n

The coordination between the exporters and the governmental institutions provide a clear constraint for the business. Exporters mentioned their difficulties and struggle with the plant protection officials and the other governmental institutions involved in shipping their produce or importing inputs. Some difficulties are related to outdated laws and regulations but most are due to slow official processes as a result of lack of technical knowledge and human resource capacity with the institutions. The approval process is tedious and has to be repeated for every export order. Situation is worse when it comes to importing plants and planting materials. The system has forced exporters to work with a limited number of floriculture products and varieties.

Exporters mentioned the degeneration of the collectiveness and the bargaining power of the sector. The floriculture exporters association is no longer active. A strong association would give the bargaining power to lobby for policy changes in the floriculture sector, especially for the export sector. Currently, floriculture exporters are not well organized and work in heavy



competition and individually. Therefore, their ability to advocate the sectors’ interests at the level of the government is very limited. Each and every exporter has to deal with government authorities/stakeholders individually. There is a strong competition among exporters as well especially on the dominant Dutch market. Many exporters focus on this market. Dutch buyers have become highly price sensitive and tend to change their contracts and orders looking for lower prices.

Marketing, cultivation, and crop management information is not shared among the exporters and other stakeholders in the sector. There are out growers that supply to several exporters and those out growers are somehow connected. They all buy planting materials and other essential inputs from the same place and share information and connections. Their product specifications and crop management practices (for example GAP certifications) are similar so the likelihood of some cooperation is higher. The out-growers are less willing to co-operate if they supply to the local market as well. Local consumers are more price sensitive and these out-growers has to compete with small and medium scale growers who only cater to the local market.

The small and medium-scale growers have formed farmer groups and associations in the framework of the National Floriculture Development Program. This program initiated in 2005 intends to organize floriculture farmers into farmer organizations or associations in order to increase their income. Selected districts are for the program are Putalam. Kandy, Gampaha, Matale, Nuwara Eliya, Kaluthara, Kegalle. The Program covers 64 floricultures growers’

associations21. These associations work closely with Department of Agriculture and Department of Botanical Gardens to get access to training, planting materials, poly tunnel materials, and fertilizers. They are also assisted a little in marketing through fairs organised by the Department. However, these farmers are mostly taking care of marketing and selling themselves. Small and medium scale growers supplying cut flowers to the local market work mostly on credit basis. They send their flowers to florists via trains, buses or courier service and get paid after several weeks. Many face difficulties in getting paid but have not been able to move to cash sales as new comers are willing to work on credit basis.

Small and mediums scale growers of cut flowers and foliage work with limited land areas. On average the land area varies from 0.5 acres to 3 acres. The small pieces of land prevent scale economies. Growers indicated their interest to work as an association with direct buying agreements of large-scale florists supplying the local market. However, such florists prefer to do business with few reliable growers. In addition, such florists prefer to work with individuals instead of an association. Within farmer associations information are shared to the fullest extent. This has allowed several growers to rise up as “Champion Growers” within an association. Such Champion Growers act as the intermediary between the members of the group or association and the larger florists. They would collect supply from other small and medium growers and sell while keeping a margin. This is in addition to their own productions. Larger florists would give the order to the “Champion Grower” and it is his/her responsibility to manage the order with supplies from others in the farmer association.

21 Visited Online on 22nd October 2019. http://gic.gov.lk/gic/index.php/en/component/info/?id=1401&task=info

http://gic.gov.lk/gic/index.php/en/component/info/?id=1401&task=info



Figure 13 Floriculture sector value chain function map



Figure 14 Floriculture sector value chain stakeholder map



3 . 2 F l o w s o f P r o d u c t

Floriculture products starts with planting materials. These planting materials are either imported or sourced locally. As Sri Lanka has no Plant Breeder’s Rights Act, importers can only obtain licensed planting material if they agree to limited production of consumer products from the imported material and if they accept payment of royalties on the material. Some local growers, however, buy the consumer products from these importers and use those as mother plants for their consumer market stock and products. This is basically illegal business and degeneration of the material especially in one-year plants is high leading to low quality products.

Cut flowers and foliage need to be transported with in several hours after harvesting as these products are highly perishable. Large producers and florists have cooling rooms allowing for storage of the materials for some time. Live plants are less perishable and can endure longer transport and handling time. Cut flowers and foliage are exported by plane and need cooling facilities at the airport while waiting for loading (cargo needs to be at the airport 6 hours before the flight and cooling facilities at the airport are very limited). Live plants with pots and rooted plants do not require cool storage and are usually exported by sea freight. In the export sector, rooted live plants will have pots which are imported or made locally. In the local market, rooted live plants are sold mainly in polythene bags. But there are growers who supply rooted flowering plants in pots.

Photo 3 Temperate zone floriculture products



3 . 2 . 1 V a l u e C h a i n n e t w o r k m a p

The key trading channels in the floriculture value chain can be divided according to their main market i.e. the export market or the local market.

1. Export company with own nursery ……………. > Export destination

2. Small and medium growers …………. > Export company with own nursery………… >

Export destination

3. Small and medium growers ………. > Export company without own nursery …… >

Export destination

4. Large scale florists with own nursery ……… > Local customers

5. Small and medium growers ………. > Large scale florists with own nurseries

………… > Local customers

6. Small and medium growers ………. > Collectors with own nurseries ……… > Large

scale florists with own nurseries ………… > Local customers

7. Small and medium growers ………. > Collectors without own nurseries ……… >

Large scale florists with own nurseries ………… > Local customers

8. Small and medium growers ……. > small and medium scale florists in urban areas

………. > Local customers

9. Small and medium growers ………… > Collectors with own nurseries ………. > small

and medium scale florists in urban areas ………….> Local consumers

10. Small and medium growers ………… > Collectors without own nurseries ………. >

small and medium scale florists in urban areas ………….> Local consumers

11. Breeders ……. > Planting material importers ……… > Exporters

12. Breeders ………. > Planting material importers ………. > Large scale florists with own

nurseries

13. Breeders ………. > Planting material importers ………. > Small and medium growers

This information is further illustrated in figure 15 showing the value chain network map in detail.



Figure 15 Value Chain map



3 . 3 L o c a t i o n o f a c t i v i t i e s

Tropical live plants (rooted or un-rooted) and foliage are produced mainly in the Western province and North Western province with the highest concentration of farms in the districts of Gampaha, Kurunegala and Colombo. All large exporters are located close to Katunayake Bandaranayake International Airport.

Temperate zone floriculture products are mainly grown in the Central province with the highest concentration of farms in the districts of Nuwara Eliya, Kegalle and Badulla.

Cut flowers and foliage are exported through the Katunayake Bandaranayake International Airport while live plants are partly airfreighted as well but also exported through the Colombo sea harbour.

The main local markets are Colombo, Galle and Kandy.

Map 1 provides a country wide overview of the floriculture production areas in Sri Lanka.

Map 1 Floriculture production districts



3 . 4 Q u a n t i f i c a t i o n

According to EDB, there are 20 exporting companies that are leading the floriculture export business in Sri Lanka. Those are: Omega Green (Pvt) Ltd, Mike Flora International (Pvt) Ltd, The Leaf Company Pvt Ltd, Star Flora (Pvt) Ltd, Tropiflora Ltd, Spado International (Pvt) Ltd, Asian Cuttings Lanka (Pvt) Ltd, Green Goddes (Pvt) Ltd, Ceylon Foliage (Pvt) Ltd, Hayleys Agro Biotech Pvt Ltd, River View Flora, Borneo Exotics Pvt Ltd, T R Exports International Pvt Ltd, Shekulanka Foliage Pvt Ltd, Ramya Horticulture (Pvt) Ltd, Green Farms (Pvt) Ltd, Décor Foliage, Lanka Flora Pvt Ltd, United Flora Pvt Ltd and Sunflower Lanka Pvt Ltd. These export companies have been able to provide more than 5000 direct employment opportunities and

more than 15000 indirect employment opportunities22.

3 . 5 C o n t r i b u t i o n A n a l y s i s ( d i s t r i b u t i o n o f m a r g i n s a l o n g t h e v a l u e c h a i n )

This paragraph explains the distribution of margins are among different actors in the value chain. First, different products and prominent distribution channels were identified. Then margins were calculated for every stakeholder and activity along that particular distribution channel. From the starting point of cost of production to the final sale price, margins distributed are summed up to 100%. Analysis starts from the cost of production. Prices are based on either a single flower, plant in a pot or a live stem. This analysis is focused on 4 cut flower varieties, one pot plant variety and a live stem. Both pot plant and the live stem are export oriented. The product flows are using different distribution channels, some long and some short. The shortest channel is where the producer/grower is selling to the final local consumer or the exporter selling to the overseas consumer. The longest channel is where products flow from the producer/grower to the collector and then to the florist (for local market) or to the exporter (international market). Below tables describe for each product the contributions for the longest trading channel.

22 Visited online on 21st October 2019. http://www.srilankabusiness.com/floriculture/sri-lankan-floriculture-products.html





Table 5 Distribution Channel Farmer > Collector > Florist – Gerbera flowers

Gerbera Production

ITEM Farmer-Retail

LKR US $

Cost of production (per flower) 16.00 0.09

Percentage 35.56

Producer grading and transport 0.25 0.001

Percentage 0.56

Producer margin 13.75 0.08

Percentage 30.56

Producer price 30.00 0.17

Collector transport and handling 0.25 0.001

Percentage 0.56

Collector margin 4.75 0.03

Percentage 10.56

Collector price 35.00 0.19

Florist transport and handling 0.25 0.001

Percentage 0.56

Florist margin 9.75 0.054

Percentage 21.67

Selling price at the florist 45 0.25

In this distribution channel the cost of production price point is LKR 16/flower. The farmer receives a price of LKR 30/flower when selling to the collector. Florist offers a price of Rs 35/flower to the collector. Final retail price at the florist is LKR 45/flower. In trading, the grower receives a margin of 30.56% and the collector keep a margin of 10.56% when delivering to the florist. At the end, florist would keep a margin of 21.67% when selling to the final consumer.



Table 6 Distribution Channel Farmer > Collector > Florist – Chrysanthemum flowers

Chrysanthemum Production

ITEM Farmer-Retail

LKR US $


Percentage 41.54


Percentage 0.38


Percentage 27.31



Percentage 0.38


Percentage 7.31


Florist transport and handling 0.25 0.001

Percentage 0.38

Florist margin 14.75 0.081

Percentage 22.69


The cost of production for Chrysanthemum is LKR 27 per flower. The farmer receives LKR 45 per flower from the collector and the collector receives LKR 50 per flower from the florist. The final retail price is LKR 65 per flower. Grower receives a margin of 27.31% and the collector receives a margin of 7.31%. At the end the florist would contribute to 22.6% of the total value created in the vale chain.



Table 7 Distribution Channel Farmer > Collector > Florist – Rose flowers

Rose Production

ITEM Farmer-Retail

LKR US $


Percentage 5.71


Percentage 0.71


Percentage 18.57



Percentage 0.71


Percentage 13.57


Florist transport and handling 1 0.006

Percentage 0.71

Florist margin 84 0.464

Percentage 60.00


A farmer would incur LKR 8 in producing one rose flower. This flower is sold to the collector at LKR 35 per flower keeping a margin of 18.57%. The collector receives a price of LKR 55 per flower from the florist attributing 13.57% of the total value contribution. Retail price of a rose flower is on average LKR 140. Florist accounts for 60% of the total value contribution in the value chain.



Table 8 Distribution Channel Farmer > Collector > Florist – Lily flowers

Lilly Production

ITEM Farmer-Retail

LKR US $


Percentage 14.29


Percentage 0.57


Percentage 19.43



Percentage 0.57


Percentage 22.29


Florist transport and handling 2 0.011

Percentage 0.57

Florist margin 148 0.818

Percentage 42.29


Lilies are grown from imported bulbs. The imported bulbs are hybrids so the second generation does not yield as well as the first utilisation. Due to the imported planting materials production cost are high. Cost of production of a Lilly flower is on average LKR 50. This flower is sold to the collector at LKR 120 per flower keeping a margin of 19.43%. The collector sells a flower to a florist at LKR 200 and the final retail price is LKR 350 per flower. Collector accounts for a contribution of 22.29% and the florist adds 42.29% to the total value in the chain.



Table 9 Distribution Channel Farmer > Collector > Exporter – Queen palm (type of live plant)

Queen Palm

ITEM Farmer-Retail

LKR US $

Cost of production (per plant) 56.00 0.31

Percentage 10.47


Percentage 0.37


Percentage 3.18



Percentage 0.37


Percentage 4.30


Exporter transport and handling 5 0.028

Percentage 0.93

Storage, handling, freight and insurance 270 1.49

Percentage 50.47

Exporter margin 160 0.88

Percentage 29.91

FOB price for exporter 535

The cost of production of a queen palm plant is on average LKR 56. The product is a 1.5 to 2-year-old plant with height of 30-35Cm. This product is bought by a collector for LKR 75 per plant and the farmer will account for 3.18% of the value contribution. The collector receives LKR 100 per plant from the exporter for a plant of export quality. Collector claims 4.39% of the total value contribution to the chain. Final FOB price for the exporter is LKR 535 per plant which accounts for 29.91% of the value created in the chain. In this chain, the contribution for storage, handling and freight charges including insurances is 50.47%.



Table 10 Distribution Channel Farmer > Collector > Exporter – Sandriyana stems (type of foliage)

Sandriyana

ITEM Farmer-Retail

LKR USD

Cost of production (per stem) 3.00 0.02

Percentage 4.03


Percentage 0.34


Percentage 5.03



Percentage 0.34


Percentage 1.68


Exporter transport and handling 1 0.006

Percentage 1.34

Storage, handling, freight and insurance 45 0.25

Percentage 60.40

Exporter margin 20 0.11

Percentage 26.85

FOB price for exporter 74.5

In this export-oriented value chain, the cost of production is on average LKR 3 per stem. This stem is bought by the collector at LKR 7. The farmer keeps a contribution margin of 5.03% and the collector 1.68%. Collector receives a price of LKR 8.50 per stem from the exporter. Final FOB price for the exporter is LKR 74.5 per stem and the contribution margin is 26.85%. Also in this value chain the highest contribution is for storage, handling, freight and insurance charges which i.e. 60.4%.



3 . 6 G r o s s M a r g i n A n a l y s i s

Gross margin analysis is based on the cost and revenue information provided by the farmers of the selected products. The gross margins were analysed for the same products as in paragraph 4.5. Cut flowers such as Gerbera, Chrysanthemum, Rose and Lily are grown in poly tunnels in the Central province. Queen palm and Sandriyana are grown in net houses in the Western and North Western provinces. Farmers are using both smaller and larger poly tunnels and net houses. For comparison purposes, this analysis uses a standard 1000 ft2 poly tunnel or net house area. Cut flowers such as Gerbera and Rose can be harvested multiple years using the same plant stock. However, Chrysanthemum and Lily plants produce only one time and a replanting is necessary. Queen palm is exported as a pot plant at an age of 1.5 to 2 years and has only one production cycle. However, Sandriyana plants can produce stems for many years. For comparison purposes we consider in this analysis only one production cycle for all the plants.

Table 11 Gross margin analysis for Gerbera flowers

1000 ft2 Poly tunnel house

Details are for one harvest cycle

Average life span is 3 years

Exchange rate 1 USD-181LKR

Fixed costs

Unit cost No of units Total LKR US $

Poly tunnel cost 600000 1 600000 3315

Land preparation (Labour) 1200 7 8400 46

Other materials 25000 1 25000 138

Land rent (Per 1000ft2) 10000 1 10000 55

Planting materials 275 350 96250 532

Planting medium (Cocopit+sand+soil) 110 350 38500 213

Total fixed cost 778150 4299

Variable costs

Fertilizer 125000 1 125000 691

Organic fertilizer 35000 1 35000 193

Pesticide applications 45000 1 45000 249

Labour (Man days) 1200 110 132000 729

Fixed component of variable cost (20%) 67400 372

Total variable cost 404400 2234

Revenue

Total harvest of flowers 25 25000 625000 3453

Total sales of plants 175 1000 175000 967

Total revenue 800000 4420

Gross margin (Per 1000ft2 area) 395600 2186

Breakeven price (Flowers) 16 0.09

Break even quantity 16176



The gross margin for Gerberas in a 1000 ft2 poly tunnel is LKR 395,600, which is US $ 2,186 per year. Break-even price is recorded at LKR 16 (US $ 0.09) per flower and the break-even quantity is 16,176 flowers per year.

Table 12 Gross margin analysis for Chrysanthemum flowers



Average life span is 4 months


Fixed costs

Unit cost No of units

Total LKR US $

Poly tunnel cost 600000 1 600000 3315



Land rent (Per 1000ft2) 10000 1 10000 55




Variable costs

Fertilizer 65000 1 65000 359



Labour (Man days) 1200 45 54000 298



Revenue







On 1,000 ft2 poly tunnel area, Chrysanthemum can yield a gross margin of LKR 349,200 or US $ 1,929 per crop cycle. The farmer has to replant each cycle to get another harvest. Break-even price per flower is LKR 27 or US $ 0.15. Break even quantity is 4,240 flowers per year.



Table 13 Gross margin analysis for Rose flowers





Fixed costs

Unit cost No of units

Total LKR US $

Poly tunnel cost 600000 1 600000 3315



Land rent (Per 1000ft2) 10000 1 10000 55




Variable costs

Fertilizer 45000 1 45000 249



Labour (Man days) 1200 85 102000 564



Revenue







Roses would yield LKR 779,600 or US $ 4,307 per year per 1000 ft2 area. Break-even price for a rose flower is LKR 8 or US $ 0.04 and the break-even quantity 6,240 flowers per year.



Table 14 Gross margin analysis for Lily flowers



Average lifespan is 4 months


Fixed costs


Poly tunnel cost 600000 1 600000 3315



Land rent (Per 1000ft2) 10000 1 10000 55




Variable costs

Fertilizer 40000 1 40000 221



Labour (Man days) 1200 90 108000 597



Revenue






Lily under 1,000 ft2 poly tunnel area would generate LKR 1,000,400 LKR or US $ 5,527 per crop cycle. The plant has one harvest cycle and replanting is necessary after the cycle. The average break-even price is LKR 50 LKR or US $ 0.28 USD and the break-even quantity is 998 flowers per harvest on 1000 Ft2 area.



Table 15 Gross margin analysis for Queen Palm


Details are until the product reaches exportable quality

Average life span is more than 20 years


Fixed costs


Poly tunnel cost 225000 1 225000 1243



Land rent (Per 1000ft2) 2500 1 2500 14

Planting materials 0.3 5000 1500 8

Planting medium (Cocopeat+sand+soil) 150 200 30000 166


Variable costs

Fertilizer 40000 1 40000 221



Labour (Man days) 1200 105 126000 696



Revenue

Total harvest of plants 125 4500 562500 3108





Queen palm plants are exported at a height of 30-35cm. On average it takes about 1.5-2 years to reach this height. Plants are farmed on the ground and later transferred to pots. Plant is exported with the pot. As mentioned by the exporters these pots are provided by the clients hence the cost of pots is not included in the gross margin calculations. On average 5,000 plants are established in 1000 ft2 area and would yield LKR 309,300 or US $ 1,709 per planting cycle. Break-even price is LKR 56 or US $ 0.31 per plant and the break-even amount 2,026 plants on a 1000 ft2 area.



Table 16 Gross margin analysis for Sandruyana stems


Details are for the 1st year



Fixed costs


Poly tunnel cost 225000 1 225000 1243



Land rent (Per 1000ft2) 2500 1 2500 14


Planting medium (Cocopeat+sand+soil) 150 200 30000 166


Variable costs

Fertilizer 25000 1 25000 138



Labour (Man days) 1200 60 72000 398



Revenue

Total harvest of stems 8.5 48000 408000 2254






On a 1000 ft2 area, Sandriyana stem cuttings would yield LKR 257,100 or US $ 1,420 per year. The first cutting can be expected 8 months after planting and the next cutting will be about 4 months later. Average break-even price is at LKR 3 or US $ 0.02 per stem and the average break-even quantity is 18,635 cuttings.



3 . 7 C o n t r i b u t i o n o f V C t o p u b l i c s e c t o r f i n a n c e

a n d b a l a n c e o f t r a d e

As illustrated in Table, value of exports of live plants and foliage is about 16 million US $ with growth in export value limited to the foliage sub-sector. Exports of cut flowers from Sri Lanka has totally collapsed and in 2017 Sri Lanka only exported US $ 150,000 value in cut flowers. . With a Sri Lanka Agriculture GDP in constant (2010) prices of LKR 639.3 billion in 2017, the contribution of the commercial floriculture sector to the country’s Agriculture GDP was about

0.5%23. Consequently, the present contribution of the floriculture sector in Sri Lanka is still meagre but worldwide floriculture is one of the most potential sectors.

3 . 8 V i a b i l i t y o f t h e V C i n i n t e r n a t i o n a l e c o n o m y

3 . 8 . 1 L i v e p l a n t s a n d f o l i a g e

According to UNComtrade, the top five live plants exporters to the international market in 2017 were The Netherlands with 5,499,150 metric tons, Germany with 447,212 metric tons, Italy with 449,671 metric tons, Belgium with 461,424 metric tons and Denmark with 86, 547 metric tons. Denmark is in terms of volume, the number one exporter of foliage in the world with 118,412 metric tons, The Netherlands is number two with 51,664 metric tons and Italy number three with 21,935 metric tons in 2017. The Netherlands is the main importer and exporter of live plants and foliage and globally most trade passes the Netherlands. 2015 was a very bad year for global live plants and foliage exports and exports sharply declined compared to 2014. However, over the 2015 to 2017 period exports increased with 8.1% annually to reach 10.6 billion US $. Consequently, the value chain is well established in the international economy and shows an attractive growth rate.

As discussed before, Sri Lanka’s exports in the value chain are stable for live plants and growing for foliage. Sri Lanka is not in the category of leading exporters globally but as concluded before has quite a strong position on the Middle east market for foliage. The exporters mentioned during the research that the Middle east and Japan are more favorable markets for Sri Lanka as competition on these markets is less than on the Netherlands market and trade relations more durable.

3 . 8 . 2 C u t f l o w e r s

According to UNComtrade, the top five cut flower exporters to the international market in 2017 were The Netherlands with 591,566 metric tons, Colombia with 246,117 metric tons, Ecuador with 159,008 metric tons, Kenya with 149,322 metric tons and Ethiopia with 54,617 metric tons. Also, in live plants and foliage, The Netherlands is the main importer and exporter of cut flowers. And similarly, also for cut flowers exports 2015 was a very bad year with sharply declining exports from 9.3 billion US $ in 2014 to 8.0 billion US $ in 2015. The exports recovered after 2015 but on average only with 4.2% annually over the 2015 to 2017 period to reach 8.6 billion US $. So, the value chain is well established in the international economy, but its growth rate is slower in value terms than the global live plants and foliage exports.

As discussed before, Sri Lanka’s exports in the value chain declined sharply mainly due to increased price competition on The Netherlands market. Exporters have directed their production more to the local market although several exporters during the research mentioned

23 Agriculture GDP according to Central Bank of Sri Lanka



their intention to start export production. For export production it is, however, required to get easier access to planting materials and land to achieve scale economies.

3 . 9 C o m p e t i t i v e n e s s a n a l y s i s

Global floriculture sector reach about US $ 55 billion production value and about US $ 19 billion export value in 2017. The production value in recent years increased 6 percent annually worldwide. Europe and especially The Netherlands is traditionally the major producer and trader. The Netherlands is the largest importer and exporter as well as re-distributor to its

European neighbouring countries 24. The Netherlands maintained over recent years a rather stable production value of about US $ 10 billion and North America US $ 6.5 billion. Also, in Asia the production value has grown rapidly in several countries but not as much as in Africa. Kenya and Ethiopia are African success stories in the floriculture sector. Kenya has a share of 2 percent in global exports. Worldwide, cut flowers account for about 50 percent of exports, live plants and bulbs about 41 percent and cut foliage about 9 percent. The major final consumer markets are Germany, the United States, France, United Kingdom, Netherlands, Italy and Switzerland. The major exporting countries are The Netherlands, Columbia, Italy, Belgium, Denmark, the United States, and Ecuador.

The highest growth rate in global floriculture demand is recorded in emerging markets (such as Eastern Europe, Russia, Latin America, China, India, and East Asia) but also the traditional markets of Western Europe, North America, and Japan are still growing. The latter account for over 90 percent of demand. International trade in floriculture, to a large extent is organized along the regional lines. Asia-Pacific countries are the main suppliers to Japan and Hong Kong. African, Middle Eastern, and other European countries are the principal suppliers to Europe's main markets, Colombia and Ecuador dominate the market in the USA. The largest producers in terms of cultivated area under floriculture are China, India and the United States.

Sri Lanka's share in world floriculture exports is only about 0.1% indicating the high potential

for sector growth25. The exports increased 5 to 6 percent in volume between 2010 and 2017 which is far below the growth of the global floriculture sector. Establishing an export-oriented floriculture farm in Sri Lanka is costly due to limited access to land and innovative planting material and limited availability and high cost of labour. Sri Lanka finds it difficult to compete

with for example China 26. Freight cost of Sri Lankan floriculture product is on average more than 40 per cent of the selling price of the products and the sector gets little support from universities and the government. The floriculture sector in Sri Lanka is mainly surviving in the global markets because of its traditional network and its image as a reliable producer of quality non flowering plants and foliage products. That is why Sri Lankan exports to Japan have increased rapidly. The Japanese market focuses on reliable supply and quality rather than only price but as can be seen from the information hereafter related to competitiveness in live plants and foliage, Sri Lanka is still a small player in the Japanese market.

3 . 9 . 1 L i v e p l a n t s a n d f o l i a g e

For live plants, China is the main Sri Lanka competitor on the Japanese market (see figure 16). China controls over 50% of the volume import of live plants in Japan while Sri Lanka has

24 Visited Online on 25th October 2019. http://www.dailynews.lk/2017/04/07/business/112712/profitability-floriculture

25 Visited Online on 25th October 2019. http://www.island.lk/2004/04/24/busine02.html

26 Visited Online on 25th October 2019. http://www.sundaytimes.lk/050417/ft/11.html

http://www.island.lk/2004/04/24/busine02.html

http://www.sundaytimes.lk/050417/ft/11.html



an import share of only 1%. The Netherlands import of live plants is much larger than the Japanese import and most imports are from other European countries. The major Sri Lanka competitor for live plants on the Netherlands market is Kenya with an import share of about 4% of the US $ imports. Sri Lanka has an import share of less than 0.5% of the Netherlands imports of live plants. Kenya obtains high unit import value for its live plants on The Netherlands market.

Figure 16 Import share of Sri Lanka and main competitor in live plants in 2017

Source: UNComtrade

Sri Lanka CIF unit import prices for live plants on the Japanese and Dutch market are higher than the world average import prices on those markets. Compared to China, Sri Lanka CIF unit import prices on the Japanese market are very high for its live plants and also on the Netherlands market but Kenyan CIF unit import prices in The Netherlands are very high (see also par 3.4.3).

For foliage, India, Costa Rica and China are the main Sri Lanka competitors (see figure 17). China is the main competitor on the Japanese market with a share in imports of over 50% of the Japanese market. Costa Rica is the main competitor for Sri Lanka on the Netherlands market with an import share of about 10%. India is the main competitor on the Middle East markets of Saudi Arabia and the UAE but on these markets, Sri Lankan foliage imports hold a strong position with a share of over 30% of the imports.



Figure 17 Import share of Sri Lanka and main competitor in foliage in 2017

Source: UNComtrade

Sri Lankan CIF unit import prices for foliage are high on the Japanese and Dutch market. Sri Lankan CIF unit import price are considerably higher than the world average CIF import prices for foliage and well above the main competitor Costa Rica. Also, on the S. Arabia and UAE market Sri Lanka CIF unit import prices for foliage are higher than those of its main competitor India.

3 . 9 . 2 C u t f l o w e r s

The Sri Lankan import share in the dominant Dutch market for cut flowers is negligible (some 0.001% in 2017) with an average CIF unit import price of US $ 3.81 per kg. The main competitor is Kenya with an import share of 31.5% in value (US $) terms. Sri Lanka CIF unit import prices for cut flowers are high in The Netherlands as compared to Kenya and the average world CIF unit import prices (see also par 3.4.3)

On average, we can conclude that Sri Lankan floriculture products are high priced on the international market. This is also related to the high costs for insurance and freight as can be seen from the difference between the FOB export price and the CIF import price (see table 17). Main competitors on dominant markets are benefiting from much lower freight and insurance costs mainly due to scale economies and the possibilities to use cargo planes for transport.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Sri Lanka China

Share of imports Japan of foliage in value (USD) and volume (MTs)

Value Volume

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Sri Lanka Costa Rica

Share of imports Netherlands of foliage in value (USD) and volume (MTs)

Value Volume

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Sri Lanka India

Share of imports S Arabia of foliage in value (USD) and volume (MTs)

Value Volume

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Sri Lanka India

Share of imports UAE of foliage in value (USD) and volume (MTs)

Value Volume



Table 17 Difference between FOB export and CIF import in 2017

Japan live plants Japan foliage Netherlands cut flowers

FOB export

$/kg

CIF import

$/kg

FOB export

$/kg

CIF import

$/kg

FOB export

$/kg

CIF import

$/kg

Sri Lanka 11.7 18.1 4.3 5.6 0.7 3.6

China 1.3 1.4 3.5 3.6

Kenya 2.7 2.9

Source: Uncomtrade



4 S O C I A L A N A L Y S I S

4 . 1 W o r k i n g C o n d i t i o n s i n t h e V C a c c e p t a b l e

On average large export companies have more than 50 people working in floriculture operations. The floriculture sector employs an estimated amount of 20,000 people directly on the farms and a similar amount of people indirectly in logistics and sales. Almost 80 percent of the directly employed workforce are women. Employees working for larger export companies are on a permanent carder. They are being paid all the employee benefits including overtime pay and holidays. Several export companies in the Western and North Western province changed their ownership during last two decades and the research leant that permanent employee were either absorbed by the new company or they were compensated if had to leave. Employees wear proper working gear when on the farm or processing places. Most exporters have the branded working gear for their employees. Working conditions for employees are different with small and medium scale farmers. There farmers are either in an export-oriented value chain or a local market-oriented value chain. The majority of these farmers are using family labour for their operations. They hire labour when needed but on a daily rate basis. Women are paid on average LKR 800 a day while men are paid on average LKR 1200 a day. During the flowering/production season the employees work 22-25 days per month. These are seasonal labour and full time or permanent employee benefits are not applicable to them.

4 . 2 L a n d a n d w a t e r r i g h t s i n V C a c c e p t a b l e

Large scale horticulture companies have their own land. Some export companies have several areas of land in different locations. On average a land lot of these export companies at one location would be around 5-10 acres. However, some exporters have land of more than 15 -20 acres at a given location. Some exporters, registered under the Board of Investment (BOI), have managed to secure government land on a long-term lease basis. Many exporters who are based in the Western and North Western province have their lands located close to major rivers and get their water requirements fulfilled by these water sources. Water scarcity is therefore not a major issue for them. There are growers that have smaller lands in these provinces. These are mostly rented lands with dug wells for irrigation purposes. Exporters who are located in the Central province do not have access to larger land areas. Lands larger than 10 acres are owned by few larger companies that focuses on local supply. Most farmers in these areas have smaller rented land areas below 5 acres. Dug wells are used to get necessary water for these lands. These small and medium scale farmers indicated that water scarcity becomes an issue during the dry season.

4 . 3 G e n d e r e q u a l i t y i n V C

As mentioned earlier women comprises the majority of workforce in floriculture value chain. With the large-scale exporters, women are involved in almost all the activities except for driving and heavy lifting. Men usually take the lead in loading/unloading and transportations. Some women are involved in record keeping/invoicing activities as well. At the processing sites, women take the lead in cleaning, grading and packing. Local supply of floriculture products is mainly driven by women. Floriculture associations (small and medium scale) established by the DOA and Department of Botanical Gardens run and headed by women as well. There are few large-scale exporters in Sri Lanka which are founded and headed by women. These organizations have helped to take floriculture products to the international market.



Photo 4 Women working on flower farm

4 . 4 S o c i a l i n f r a s t r u c t u r e a n d s e r v i c e s a c c e p t a b l e

Exporters in the Western and North Western province are very close to Katunayake Bandaranayake International Airport. They are also close to Colombo sea port. Exporters can use the expressway to reach Colombo sea port within less than 30 minutes. Exporters who are register under BOI have their lands in BOI industrial zones and they are provided benefits such as electricity and water supply. However, floriculture companies located in the Central province are still facing issues in terms of transportation. Whether it is for the export market or to a florist based in Colombo, generally a long-time transport is required to reach Colombo or Galle. The flowers from these areas are highly perishable under hot climate conditions and need cooled transport. Such transport is frequently not available and costly making farmers using either train or bus services to transport flowers to Colombo. This transport is cheap but uncooled and less reliable. More farmers started to use courier services which are more reliable but also uncooled and more expensive.



5 E N V I R O N M E N T A L A N A L Y S I S

5 . 1 I m p a c t o f f l o r i c u l t u r e p r o d u c t i o n o n t h e e n v i r o n m e n t

Floriculture industry has some negative environmental impact as the industry requires a lot of water. The business has to rely on water from rivers or from dug wells. Usual dug wells have proven less effective and deep tube wells are needed to get water especially during the dry season. In some areas this has caused less water availability nearby for domestic use. This is more prominent in places where small and medium scale growers have set up their farms. Larger farms have enough lands to mitigate the impact of deep tube wells on other lands. A significant amount of chemicals is used in the floriculture industry. Use of chemicals is especially high in the cut flower industry. Use of chemicals in cut flower industry has gone up over time thus creating more probabilities for water and soil pollution. Water pollution in the hill country areas results in cumulative negative impacts in the downstream areas. High chemical application by farms in the hilly lands pollute the water sources of downstream uses. Finally, expansion of floriculture in open field could create competition with other crops, especially vegetables. In the Western and North Western province, lands used for floriculture production are mainly coconut lands and floriculture operations in a way helps to maximise the land use. However, in the Central province floriculture activities compete with lands for vegetable farming. Up country vegetables farming is done on small plots. Demand for these vegetables is high and most vegetable production is in open fields. Floriculture in these areas is mainly under poly tunnels. However, also a substantial area of floriculture is in open fields mainly to reduce costs. Such open fields were previously used for vegetable production. This situation has become more prominent with the increased demand for cut flowers in the local market. Growing numbers of small and medium scale farmers have started floriculture production in open fields.

5 . 2 I m p a c t o f c l i m a t e c h a n g e o n f l o r i c u l t u r e p r o d u c t i o n

Climate change is expected to bring both opportunities (expansion of new areas, addition of new crop varieties) as well as threats (shrinking of traditional area, extinction or shifting of crop species including cropping pattern) to the floriculture sector. Due to climate change some flowers fail to bloom, others will produce flowers of smaller size or improper colour development with a shorter blooming period. The production of flower crops grown in open fields such as marigold, gladiolus, tuberose, rose, annuals will be affected by climate change. Other plants which need lower temperatures during part of the year for flowering are also adversely influenced. The higher ambient temperature can have direct impact on volatile fragrances that the flowers emit, deterioration of pigments leading to dull shades, shift in insect pest and disease outbreaks, absence of winter chilling will reduce flowering, reduced post-harvest life, poor pollination and seed set etc. Changes in the pattern of day light and day temperatures will greatly alter the flowering pattern in chrysanthemum, poinsettia and carnation. Especially small and medium-scale farmers depending on open field and rain-fed

floriculture will be extremely vulnerable to climate change27.

Impacts of climate change is already evident in Sri Lanka. Prolonged droughts, changes in night and day temperatures and increased rainfalls are few major climate change impacts that

27 Visited Online on 28th October 2019. https://bioinfopublication.org/files/articles/10_11_19_IJAS.pdf

https://bioinfopublication.org/files/articles/10_11_19_IJAS.pdf



are observed in Sri Lanka. Prolonged droughts have a serious impact on the floriculture industry. Large scale floriculture exporters in the West and North West province rely mainly on rivers. Drought can dry off rivers, dug wells and agro-wells. Heavy rainfalls and changes in night and day temperatures will impact mainly the floriculture sector in the Central province of Sri Lanka. Farmers already experienced lower flower yields during the rainy seasons. Nowadays rainy season have shifted and sometimes they are more prolonged that usual. This has affected the sector as farmers are already getting lower flowering yields from plants. Changes in the night and day temperatures have in the Central province resulted in smaller flowers and lesser yields per plant. In addition, heavy and prolonged rainfalls have caused higher prevalence of pests and diseases. This is evident in all floriculture producing areas. For flowering plants in the Central province, spread of pest and diseases have increased over time. Nowadays, farmers on average need to apply 5 to 8 types of chemicals to manage fungus, bacteria and insect attacks. This has both increased the cost of production and has a negative impact on the environment as well.



6 O P P O R T U N I T I E S , O U T L O O K A N D R E C O M M E N D A T I O N S

6 . 1 O p p o r t u n i t i e s

6 . 1 . 1 U n t a p p e d p o t e n t i a l i n f l o r i c u l t u r e

Sri Lanka has excellent growing conditions for both tropical and temperate zone floriculture products. It has experience in growing floriculture products for local and export markets. Export markets are substantial and growing. Also, local demand for floriculture products in the major towns and cities is growing. The value added per sqm is high in this business as compared to other horticulture produce and the area under floriculture is still limited with huge opportunities to expand.

6 . 1 . 2 O p p o r t u n i t i e s t o d e v e l o p t h e l o c a l m a r k e t

The traditional sharp division between production for export market and for local market in floriculture has vanished to some extend in Sri Lanka. Increasingly the more productive and higher quality conscience export companies are focussing on supplying to the local market. The quality of the produce in special shops and garden markets in Sri Lanka has considerably improved over the last decade. With better connection and logistics and more promotion and marketing the value and volume of sales on the local market can be further fostered. Especially marketing campaigns around special days such as valentine day can be highly effective to push up sales of cut flowers, foliage and flowering plants. Valentine day is increasingly popular in Sri Lanka and offers good opportunity to promote the purchase of flower bouquets.

6 . 1 . 3 O p p o r t u n i t i e s t o d e v e l o p t h e o u t - g r o w e r s c h e m e s

Out-grower schemes provide a good opportunity for smallholder farmers to participate in wider markets and can substantially increase the flexibility of exporters and larger farmers. The system is operational in the Sri Lanka floriculture sector, but its scale and effectivity could be substantially increased. The benefit for smallholder farmers is also that out-growing gives them a assured market for at least part of their production reducing the risk of their business.

6 . 1 . 4 P o t e n t i a l t o d e v e l o p n e w p r o d u c t s

The Sri Lanka floriculture has good potential to develop new products such as multiplication of cuttings on order basis for foreign growers, commercial tissue producers and production of aquatic plants. Various companies have started investment and production of such new products and are creating a new export market for Sri Lanka. The rate of return on these initiatives is better than on traditional floriculture products provided scale economies can be achieved.

6 . 1 . 5 P o t e n t i a l t o d e v e l o p s e m i - m e c h a n i s a t i o n

The high production costs are indicated by all stakeholders interviewed during this research and many companies are investigating the possibilities to reduce the cost of labour. The exporting companies are studying all kinds of methods to mechanise parts of the logistics and



production as well as the handling and packaging. Due to the extremely low level of mechanisation in virtually the whole sector, the potential gains in efficiency from semi-mechanisation are high. Full mechanisation of most tasks in the sector is most likely not possible in Sri Lanka but the use of small machines to ease the work and reduce the amount of labour is considered highly feasible.

6 . 1 . 6 O p p o r t u n i t y t o d e v e l o p f o r e i g n i n v e s t m e n t f o r e x p o r t s

The Sri Lanka floriculture export sector was mainly created with foreign investment. Investors from Europe and Asia started floriculture companies in Sri Lanka in the 1980s. And more recently, new foreign investments have entered the sector such as for aquaquatic plants and cuttings multiplication. With the appropriate incentives for foreign investors, improvement of the inspection and quarantine laws including the adoption of the Plant Breeder’s Rights Law by Sri Lanka, the country has the potential to be a highly attractive location for direct foreign investment in floriculture. The latter would not only benefit foreign investors but also local businesses by increasing the access to planting material and connectivity to the global floriculture industry.

6 . 2 O u t l o o k

Floriculture business is trendy business. The sector needs the flexibility to follow trends in markets and fashion and designing. Constant adjustment of the supply in terms of colours and varieties and cultivars of flowers and plants is essential for survival. This is to the extreme applicable for the cut flower and foliage market segment and to a somewhat lesser extend for the live plants. The countries that attracted the sector and foreign investors with attractive incentives and policies such as Kenya and more recently Ethiopia are the success stories in the business. The outlook for the Sri Lanka floriculture sector depends on innovation in the laws and institutions governing the sector. If Sri Lanka adopts the Plant Breeder’s Rights Law and modernises its inspection and quarantine system, the outlook of the floriculture sector can be expected to be quite good.

With regard to aquatic plants and multiplication business (cuttings and tissue culture), Sri Lankan companies are technically highly competent, but many companies still need to find the proper business model. Such activities benefit greatly from scale economies and many companies require a substantial increase in their order portfolio to achieve such benefits. The market for these activities is highly competitive and up to now export volumes are still too low.

6 . 3 R e c o m m e n d a t i o n s

6 . 3 . 1 I m p r o v e t h e i m p o r t r e g i m e f o r p l a n t i n g m a t e r i a l s a n d a g r o i n p u t s

The rules and regulations for the import of inputs (planting materials and chemicals) are outdated and require update. It is also strongly recommended to adopt the Plant Breeder’s Right Act which remained a draft over 10 years. It is also recommended to review the procedures for inspection and quarantine of planting materials. The list of substances and materials allowed for importation should be updated and new procedures should be included such as quarantine on farm of imported materials. Also it is required to update the knowledge of inspectors related to the planting materials and agro



inputs as many inspectors lack sufficient knowledge related to the latest products used by the global floriculture sector. Improve handling, transport and logistics Cool storage at airport for temperate zone products

6 . 3 . 2 I m p r o v e e x p o r t p r o m o t i o n t o a c c e s s n e w m a r k e t s a n d p r o d u c t s

It is recommended that the EDB improves the system of registration of exporters so that only exporters with established farms can be registered as producer exporters. Also, it should be considered to focus export promotion activities such as participation in fairs on registered producer exporters. This would encourage registered producer exporters to invest in their farms and foster the professional image of the Sri Lanka floriculture sector in major markets. It should be considered to focus financial support to the floriculture sector not via grants and loans for equipment but through subsidies on the freight costs and/or reduction of the costs of using the airport. India has successfully introduced such a system in its floriculture sector. This system is encouraging exporters to raise volumes of exports.

6 . 3 . 3 E s t a b l i s h r e c o g n i s e d t r a i n i n g

The floriculture sector lacks certified training of its staff and workers. Farms, florists and gardening shops train their workers themselves. Sri Lanka should consider developing certified vocational training for the floriculture sector which would make it more attractive for the youth to enter this business.

6 . 3 . 4 P r o m o t e u s e o f m o r e e f f i c i e n t t e c h n o l o g i e s a n d b e s t m a n a g e m e n t p r a c t i c e s

A key component of the high costs of production in the floriculture sector are the high labour costs and the high turnover of labour in the sector. Many activities in production, transport and handling on the farms are still manual and can be and can be done by equipment and machines. It is recommended to encourage semi automation of manual work through applied research and reduce the costs of introduction of machinery. The government may decide to reduce the import duties on equipment for the farms as well as the VAT on locally produced equipment. Extension activities for the floriculture sector are very limited. Smallholder farmers would benefit from technical training and advice to improve farm management (especially identify and respond to pests and diseases) as well as commercial training to improve business management.

6 . 3 . 5 P r o v i d e s u i t a b l e p u b l i c l a n d f o r f l o r i c u l t u r e

Allocate suitable public land for floriculture farming on a lease basis. Implement stable long-term policies on land lease, farm improvement & allocating new lands for farming.



6 . 3 . 6 P r o m o t e t h e h o r i z o n t a l a n d v e r t i c a l i n t e g r a t i o n

Out-grower’s schemes are a highly effective way to reduce the risks of smallholder farmers in the floriculture sector. Orders of larger companies to smallholders provide secure form of income for the latter while increasing the flexibility of the larger companies. On order production by smallholders should be further encouraged.

The floriculture sector is badly organised with the Floriculture Exporters Association hardly functioning and low levels of organisation among producers. The only larger association currently existing is the Floriculture Growers Association organised by the Botanical Garden Department which gives its members access to training and fairs. The smallest smallholders are in producer groups, but the remainder of the sector is basically unorganised. It is recommended to revitalise the exporters association and stimulate associations of different scales of growers to raise the countervailing power in business and increase the advocacy and lobby for business interests at governmental level.

europeaid/138-539/dh/ser/lk technical assistance to the

Documents